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UNITED STATES
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, 1999
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. 001-12907
KNOLL, INC.
A Delaware Corporation I.R.S. Employer No. 13-3873847
1235 Water Street
East Greenville, PA 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 [ ]
Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
There is no public market for the voting stock of the Registrant.
As of March 30, 2000, there were 23,285,098 shares of the Registrant's
common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
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Item Page
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PART I
1. Business....................................................... 2
2. Properties..................................................... 8
3. Legal Proceedings.............................................. 9
4. Submission of Matters to a Vote of Security Holders............ 10
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 11
6. Selected Financial Data........................................ 12
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 13
7A. Quantitative and Qualitative Disclosures about Market Risk..... 19
8. Financial Statements and Supplementary Data.................... 20
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 20
PART III
10. Directors and Executive Officers of the Registrant............. 21
11. Executive Compensation......................................... 24
12. Security Ownership of Certain Beneficial Owners and
Management................................................... 28
13. Certain Relationships and Related Transactions................. 29
PART IV
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 32
Signatures.......................................................... 35
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PART I
ITEM 1. BUSINESS
General
Knoll, Inc., a Delaware corporation, 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.
Knoll, Inc. is the successor by merger to the business and operations of The
Knoll Group, Inc. and related entities ("The Knoll Group" or the
"Predecessor"), which were acquired on February 29, 1996 from Westinghouse
Electric Corporation, currently known as CBS 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. 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.
On March 23, 1999, the Company received a proposal from Warburg, Pincus
Ventures, L.P. ("Warburg") and certain members of Knoll management regarding a
recapitalization (merger) transaction whereby the Company would acquire all of
the outstanding shares of its common stock not owned by Warburg and certain
members of Knoll management for $25.00 per share. The Board of Directors
appointed a special committee, consisting of independent members of the Board
of Directors, to consider the proposed merger. The special committee retained
legal counsel and an investment banker to assist in evaluating the proposed
merger. The proposed merger consideration was subsequently increased to $28.00
per share. On June 21, 1999, the Board of Directors, at the recommendation of
the special committee, approved the proposed merger at a price of $28.00 per
share. On that same day, Warburg and the Company entered into an agreement
and plan of merger, which was subsequently amended on July 29, 1999. On
October 20, 1999, the merger was approved by the holders of a majority of the
outstanding shares of Knoll common stock at the Company's 1999 annual meeting
of stockholders.
The merger of a newly formed entity, which was organized by Warburg, with and
into Knoll, with Knoll continuing as the surviving corporation, was consummated
on November 4, 1999. As a result of the merger, 17,738,634 shares of common
stock held by the public stockholders of Knoll, other than Warburg and certain
members of Knoll management, immediately prior to the merger were converted
into the right to receive $28.00 per share in cash and were canceled.
Furthermore, the Company's common stock ceased to be listed on the New York
Stock Exchange ("NYSE"), and the registration of the Company's common stock
under the Securities Exchange Act of 1934 (the "Exchange Act") was terminated.
Except as otherwise indicated, the market and Company market share data
contained in this Form 10-K are based on preliminary information received from
The Business and Institutional Furniture Manufacturer's Association ("BIFMA"),
the United States ("U.S.") 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.
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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 1999.
U.S. % of U.S.
Product Category Market Size Market
---------------- ------------- ----------
(In Billions)
Office systems.................... $4.3 34.8%
Seating........................... 3.0 24.7
Storage........................... 1.6 12.7
Desks and casegoods............... 2.1 16.9
Tables............................ 0.8 6.4
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.
Management believes that fundamental shifts in the workplace, including the
continued proliferation of technology in the workplace, changes in corporate
organizational structures and work processes and heightened sensitivity to
concerns about ergonomic standards are influencing revenues in the office
furniture industry. Companies increasingly use workplace design and furniture
purchase decisions as catalysts for organizational and cultural change and to
attract and retain talented employees. Several significant factors that
influence these changes include: new office technology and the resulting
necessity for improved wire and data management; continued corporate
reengineering, restructuring and reorganizing; and corporate relocations.
Management also believes that there are certain macroeconomic conditions,
including white-collar employment levels and corporate cash flow, that
influence industry revenues.
Management is aware of many current and potential initiatives by existing
competitors, as well as new entrants, to sell, distribute, market or service
office furniture and related products via the Internet. These initiatives may
compete with existing office furniture companies, such as Knoll, and may
affect the office furniture industry's existing channels of distribution. The
Company is currently developing initiatives in an effort to take advantage of
opportunities presented by the Internet. There can be no assurance that any
of such initiatives will be successful or materially affect the Company's
results of operations or financial condition. Management is currently unable
to predict the extent to which the current or potential Internet initiatives
may affect the demand for the Company's products or the financial condition of
the office furniture industry, although the Company believes that competitive
pressures may increase as a result of these dynamics.
Products
The Company offers a broad range of office furniture products and accessories
that support the Company's strategy of being a one-stop source for high quality
office furniture. The Company's five basic product categories offered in North
America are as follows: (i) office systems, (ii) seating, (iii) storage
solutions and filing cabinets, (iv) desks and casegoods and (v) tables. The
Company also offers specialty products that are sold under the KNOLLSTUDIO,
KNOLLEXTRA, KNOLLTEXTILES and SPINNEYBECK names. KNOLLSTUDIO features the
Company's signature design classics, including high image side chairs, sofas,
desks and tables for both office and home use, while KNOLLEXTRA, KNOLLTEXTILES
and SPINNEYBECK feature products that complement the Company's office system
and seating product categories.
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The following is a description of the Company's major product categories and
lines:
Office Systems
The Company offers a complete line of office system products, comprised mainly
of the REFF, CURRENTS, MORRISON, EQUITY and DIVIDENDS product lines, in order
to meet the needs of a variety of businesses. Office systems may be used for
teamwork settings, private offices and open floor plans and are comprised of
adjustable partitions, work surfaces, storage cabinets and electrical and
lighting systems that can be moved, re-configured and re-used within the
office. 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
industry's largest product category, typically provides attractive gross
margins and often leads to repeat and add-on sales of additional office
systems, complementary furniture and furniture accessories. Office systems
accounted for approximately 68.9% of the Company's sales in 1999, 68.4% of
sales in 1998 and 67.2% of sales in 1997.
Seating
The Company believes that the office seating market includes three major
segments: the "appearance," "comfort" and "basic" segments. Key customer
criteria in seating include superior ergonomics, aesthetics, comfort and
quality, all of which the Company believes to be consistent with its strengths
and reputation. With its SAPPER, BULLDOG, PARACHUTE and SOHO product lines,
the Company has a complete offering of seating in the appearance and comfort
segments at various price, appearance, comfort and performance levels.
Storage Solutions and Filing Cabinets
The Company offers a variety of storage options, as part of its CALIBRE
collection, 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 office system sales. They also function as freestanding furniture
in private offices or open-plan environments.
Desks and Casegoods
The Company's collections of stand-alone wood 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, ranging from those conducting large office
reconfigurations to small retail purchasers.
Tables
The Company offers two product lines in the tables category: INTERACTION
tables and PROPELLER tables. INTERACTION tables are an innovative line of
adjustable tables that are designed to be integrated into the Company's office
system lines and to provide customers with ergonomically superior work
surfaces. These tables are also often sold as stand-alone products to non-
systems customers. The Company's award winning line of PROPELLER meeting and
conference tables 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 contract furniture market, providing the
architecture 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, which include
a wide variety of high image side chairs, sofas, desks and conference,
training, side and dining tables, were created by many of the twentieth
century's most prominent architects and designers, such as
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Ludwig Mies van der Rohe, Marcel Breuer, Eero Saarinen and Frank Gehry, for
prestigious corporate and residential interiors. In June 1999, the Company
became the exclusive North American distributor of certain design classics of
Fritz Hansen A/S, which are being offered by KNOLLSTUDIO. The KNOLLSTUDIO line
also offers a signature collection of products designed by Maya Lin, the
internationally-known designer of the Vietnam Veterans Memorial in Washington,
D.C. KNOLLSTUDIO includes complete collections by individual designers as well
as distinctive single items.
KNOLLEXTRA
KNOLLEXTRA is a line of desk and office accessories, including letter trays,
sorters, binder bins, file holders, calendars, desk pads, planters,
wastebaskets and bookends. KNOLLEXTRA also offers a number of computer
accessories and ergonomic office products. Not only does this product line
complement the Company's office system products, but it is also sold to
customers for use with other manufacturers' 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 product
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. Not only are KNOLLTEXTILES coverings applied to Knoll furniture, but
they are also sold to customers for use on other manufacturers' products,
thereby allowing the Company to benefit from its competitors' sales.
Leather
Spinneybeck Enterprises, Inc., a wholly-owned subsidiary of the Company,
supplies quality upholstery leather that is used on Knoll furniture and is
sold to customers, including primarily other office furniture manufacturers,
upholsterers, aviation, custom coach and boating manufacturers and the
architecture and design community, for use on their products.
European Products
Much like North America, Knoll Europe has a product offering that 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 and the PL1 SYSTEM, which are targeted to Northern Europe, the
ALESSANDRI SYSTEM, which is targeted to the French market, and the SOHO
DESKING SYSTEM; (ii) KNOLLSTUDIO, which serves the image and design-oriented
segment of the fine furniture market; (iii) seating, including a comprehensive
range of chairs such as SAPPER, BULLDOG, PARACHUTE and SOHO; and (iv) storage
cabinets, which are designed to complement its office system 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 some
of the world's preeminent designers to develop products that delight and
inspire. The Company has won numerous design awards and has more than 30
products in the design collection of the Museum of Modern Art. 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, Frank
Gehry and Maya Lin. 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 that address changing business needs, the Company seeks
to launch new offerings that achieve recognition in the architecture and design
community and generate strong demand among corporate customers.
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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, the Company has been able to
redesign and enhance its products in order to better meet customer preferences.
Sales and Distribution
Knoll's customers are typically Fortune 1000 companies. The Company employs
approximately 350 direct sales representatives, who work closely with its
approximately 220 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 for 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 initiative. 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 which
accounted for less than 5.5% of the Company's North American sales in 1999.
Additionally, no single customer represented more than 2.5% of the Company's
North American sales during 1999. However, a number of U.S. government
agencies purchase the Company's products through multiple contracts with the
General Services Administration ("GSA"). Sales to government entities under
the GSA contracts aggregated approximately 7.7% of consolidated sales in 1999.
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. Knoll
Europe accounted for approximately 5.7% of the Company's sales in 1999. In
the Latin American and Asia-Pacific markets, which accounted for less than
1.0% of the Company's sales in 1999, 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. All of the Company's plants are registered
under ISO 9000, an internationally developed set of quality criteria for
manufacturing companies.
Raw Materials and Suppliers
The Company's purchasing function in North America is centralized in its East
Greenville facility. This centralization, in addition to close working
relationships formed with its main suppliers, has enabled the Company to focus
on achieving purchasing economies and "just-in-time" inventory practices. The
Company uses steel, lumber, paper, paint, plastics, laminates, particleboard,
veneers, glass, fabrics, leathers and upholstery filling material. The Company
currently does not maintain any 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, except for certain
electrical products.
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Competition
The office furniture market is highly competitive. Office furniture companies
compete on the basis of (i) product design, including performance, 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
an estimated 7.5% market share and derived approximately 91.7% of its sales in
1999, five companies (including the Company) represented approximately 61.1% of
the market in 1999.
Some 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, to a lesser extent, 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. Moreover, the products of these competitors have strong
acceptance in the marketplace. 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 is highly fragmented, as the combined sales of the
estimated top 50 manufacturers represent less than approximately 60.0% of the
market. Based on the most recent publicly available trade information, the
Company believes that no single company holds more than a 10.0% share of the
European market.
Patents and Trademarks
The Company has approximately 103 active United States utility patents on
various components used in its products and systems and approximately 128
active United States design patents. The Company also has approximately 210
patents in various foreign countries. Knoll(R), KnollStudio(R), KnollExtra(R),
Good Design Is Good Business(R), Bulldog(R), Calibre(R), Currents(R),
Dividends(R), Equity(R), Parachute(R), Propeller(R) and Reff(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 $203.3 million at December 31,
1999 and $159.2 million at December 31, 1998. The Company manufactures
substantially all of its products to order and expects to fill substantially
all outstanding unfilled orders within the next twelve months. As such,
backlog is not a significant factor used to predict the Company's long-term
business prospects.
Foreign and Domestic Operations
For information regarding foreign and domestic operations, refer to Note 20
(Segment and Geographic Region Information) of the Notes to the Consolidated
Financial Statements on page F-23.
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
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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
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 to the Company as a whole. 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 certain CERCLA liabilities known as of the date of the
acquisition of the Company from Westinghouse.
Employees
As of February 29, 2000, the Company employed a total of 4,378 people,
including 2,961 hourly and 1,417 salaried employees. The Grand Rapids,
Michigan plant is the only unionized plant within the U.S., with the Carpenters
and Joiners of America-Local 1615 having a four-year contract expiring August
26, 2002. Management believes that relations with this union are positive. In
1998, there was an unsuccessful attempt to unionize employees at the Company's
Muskegon, Michigan facility. The Company believes that relations with its
employees in Muskegon and throughout North America are good. Nonetheless, it
is possible that Company employees may attempt to unionize in the future.
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 3,012,000 square feet of facilities, including
manufacturing plants, warehouses and sales offices. Of these facilities, the
Company owns approximately 2,510,000 square feet and leases approximately
502,000 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 545,000 square foot manufacturing facility
in Grand Rapids, Michigan. In Muskegon, Michigan, the Company owns one
approximately 334,000 square foot plant and leases one approximately 105,000
square foot building for manufacturing. The Company's plants in Toronto,
Canada consist of one approximately 408,000 square foot owned building and two
leased properties aggregating approximately 157,000 square feet. The Company's
owned facilities in East Greenville, Grand Rapids and Muskegon are encumbered
by mortgages securing the Company's indebtedness under its $650.0 million
senior credit agreement.
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.
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ITEM 3. LEGAL PROCEEDINGS
The Company is subject to various claims and 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.
GSA Claims
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 1985-1988 and 1987-1990 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.
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.
Certain Stockholder Litigation
In March 1999, eight class action complaints (Stark v. Knoll, Inc., et al.,
No. 17049NC; Guido v. Warburg, Pincus & Co., et al., No. 17052NC; Marotta v.
Knoll, Inc., et al., No. 17053NC; Finkelstein v. Knoll, Inc., et al., No.
17055NC; Rausch v. Knoll, Inc., et al., No 17059NC; Hatfield v. Knoll, Inc.,
et al., No. 17068NC; Shervy v. Knoll, Inc., et al., No. 17073NC; Simms v.
Knoll, Inc., et al., No. 17076NC) were filed in the Court of Chancery for the
State of Delaware, New Castle County, relating to the initial merger proposal
of Warburg and certain members of Knoll management contemplating the
acquisition of all of the outstanding shares of common stock not owned by
them at a price of $25.00 per share, which was previously discussed under
"General" in Item 1, "Business." The Stark complaint was voluntarily
dismissed, and the remaining seven complaints were consolidated into a single
class action. The defendants named in the complaints were Knoll, Burton B.
Staniar, John W. Amerman, Robert J. Dolan, Jeffrey A. Harris, Sidney Lapidus,
Kewsong Lee, John L. Vogelstein, John H. Lynch, Warburg, Pincus & Co., Warburg
and E.M. Warburg, Pincus & Co., LLC. The complaints alleged breach of
fiduciary duty on the part of the individual defendants in connection with the
proposed purchase of such shares of common stock and sought a preliminary
injunction, damages and rescission.
Generally, the lawsuits purported to be brought on behalf of the holders of
common stock and alleged substantially similar claims of breach of fiduciary
duty. In general, the plaintiffs alleged that the proposed merger
consideration was unjust and inadequate in that the intrinsic value of the
shares of common stock was allegedly greater than the proposed merger
consideration, in view of the Company's prospects; the proposed merger
consideration included an inadequate premium; and the proposed merger
consideration was designed to cap the market price of the shares of common
stock before the trading price for the shares of common stock could recover
from an alleged temporary downturn in the market. The lawsuits also generally
sought injunctive relief, an injunction of the proposed merger (or, if
consummated, rescission thereof), compensatory and other damages and an award
of attorney's fees and expenses.
On June 21, 1999, the Company entered into a Memorandum of Understanding with
counsel to the plaintiffs in such stockholder lawsuits. The Memorandum of
Understanding provided for the settlement of such lawsuits based on the payment
of a per share merger consideration of $28.00 and provided that the plaintiffs
petition the court for certification of a class on a "non-opt-out" basis. On
November 3, 1999, the proposed settlement of the litigation, as provided for
in the Memorandum of Understanding, was approved by the Delaware Court of
Chancery.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on October 20, 1999. The
Company's stockholders were asked to take the following actions at the meeting:
(1) Consider and vote upon a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of June 21, 1999 (as amended on July 29, 1999)
and the transactions contemplated thereby ("Proposal 1").
(2) Elect nine directors of the Company to serve until the next annual meeting
of stockholders of Knoll or until their successors are elected and
qualified ("Proposal 2").
(3) Ratify the appointment of the firm Ernst & Young LLP as independent
auditors of the Company for the 1999 fiscal year ("Proposal 3").
With respect to Proposal 2, all nine individuals nominated for director were
elected. The nominees and the votes each received are as follows:
Nominee For Withheld
--------------------------- ------------ ------------
Burton B. Staniar.......... 35,145,549 157,820
John H. Lynch.............. 35,145,679 157,690
Andrew B. Cogan............ 35,145,586 157,783
John W. Amerman............ 35,145,679 157,690
Robert J. Dolan............ 35,145,679 157,690
Jeffrey A. Harris.......... 35,145,679 157,690
Sidney Lapidus............. 35,145,549 157,820
Kewsong Lee................ 35,145,679 157,690
Henry B. Schacht........... 35,145,679 157,690
Proposal 1 and Proposal 3 were also approved by affirmative vote of a majority
of shares of common stock present at the annual meeting. Each of these
proposals received the following votes:
<TABLE>
<CAPTION>
Broker
Proposal For Against Abstain Non-Votes
------------------ ------------ ---------- ---------- -----------
<C> <C> <C> <C> <C>
Proposal 1........ 29,929,743 11,478 5,324 5,356,824
Proposal 3........ 35,272,677 3,440 27,252 --
</TABLE>
10
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Dividend Policy
Since cessation of trading on November 3, 1999, the day before consummation
of the merger, there has been no established trading market for the Company's
common stock, par value $0.01 per share. From May 9, 1997, the date of the
Company's initial public offering, through November 3, 1999, the Company's
common stock was traded on the NYSE. The following table sets forth, for the
periods indicated, high and low closing sales prices for Knoll's common stock
as reported by the NYSE.
High Low
---------- ----------
1998
----
First quarter...................... 42 1/8 29 3/8
Second quarter..................... 40 9/16 27
Third quarter...................... 37 21 7/8
Fourth quarter..................... 30 1/8 19 1/4
1999
----
First quarter...................... 29 15/16 15 1/4
Second quarter..................... 26 3/4 23 3/4
Third quarter...................... 27 1/2 26 3/8
Fourth quarter (through
November 3, 1999)................ 28 27 1/16
As of March 30, 2000, there were 38 holders of record of the Company's common
stock.
The credit agreement governing the Company's credit facilities and the
indenture relating to the Company's 10.875% Senior Subordinated Notes due 2006
(the "Senior Subordinated Notes") contain certain covenants that, among other
things, limit the Company's ability to purchase Knoll stock and pay dividends
to its stockholders. The Company has never paid any dividends on its common
stock, and 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.
Recent Sales of Unregistered Securities
On November 4, 1999, the Company, pursuant to the Knoll, Inc. Retirement
Savings Plan, granted a total of 150,100 shares of Knoll common stock to
substantially all individuals employed by the Company in the U.S. as of such
date. These grants will vest ratably according to years of service, with such
shares being 100% vested at the end of five years of service. The Company
did not receive any consideration for such grants. These grants were exempt
from registration pursuant to Section 4(2) of the Securities Act of 1933 (the
"Securities Act") and Rule 701 promulgated thereunder.
Options to purchase 1,870,500 shares of Knoll common stock were granted to
certain employees of the Company on November 4, 1999 pursuant to the Knoll,
Inc. 1999 Stock Incentive Plan. These options were granted at an exercise
price of $28.00, will vest in installments over four years (30% on November 4,
2000, 20% on each of November 4, 2001 and 2002 and 30% on November 4, 2003) and
may be exercised pursuant to the terms of the related stock option agreements.
The Company did not receive any consideration for such grants. These grants
were exempt from registration under the Securities Act as not involving the
sale of a security.
11
<PAGE>
Options to purchase 10,000 shares of Knoll common stock were granted to certain
employees of the Company on March 6, 2000 pursuant to the Knoll, Inc. 1999
Stock Incentive Plan. These options were granted at an exercise price of
$28.00, will vest in installments over four years (30% on March 6, 2001, 20% on
each of March 6, 2002 and 2003 and 30% on March 6, 2004) and may be exercised
pursuant to the terms of the related stock option agreements. The Company did
not receive any consideration for such grants. These grants were exempt from
registration under the Securities Act as not involving the sale of a security.
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial information of the
Predecessor as of the dates and for the periods indicated and selected
consolidated financial information of the Company as of the dates and for the
periods indicated. The consolidated financial information of the Predecessor
and the Company has been derived from audited financial statements of the
Predecessor and the Company, respectively. 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
-------------------------- | ------------------------------------------------------
Two Months | Ten Months
Year Ended Ended | Ended Years Ended December 31,
December 31, February 29, | December 31, ----------------------------------------
1995 1996 | 1996 1997 1998 1999
------------ ------------ | ------------ ------------ ------------ ------------
(In Thousands) | (In Thousands)
<S> <C> <C> | <C> <C> <C> <C>
Operating Data |
Sales................. $620,892 $ 90,232 | $561,534 $810,857 $948,691 $984,511
Cost of sales ........ 417,632 59,714 | 358,841 489,962 572,756 593,442
-------- -------- | -------- -------- -------- --------
Gross profit.......... 203,260 30,518 | 202,693 320,895 375,935 391,069
Selling, general and |
administrative |
expenses............ 138,527 21,256 | 131,349 183,018 204,392 206,919
Westinghouse long- |
term incentive |
compensation........ -- 47,900 | -- -- -- --
Allocated corporate |
expenses............ 9,528 921 | -- -- -- --
-------- -------- | -------- -------- -------- --------
Operating income |
(loss).............. 55,205 (39,559) | 71,344 137,877 171,543 184,150
Interest expense...... 1,430 340 | 32,952 25,075 16,860 21,611
Recapitalization |
expense............. -- -- | -- -- -- 6,356
Other income |
(expense), net...... (1,597) (296) | 447 1,667 2,732 (670)
-------- -------- | -------- -------- -------- --------
Income (loss) before |
income tax expense |
(benefit) and |
extraordinary item.. 52,178 (40,195) | 38,839 114,469 157,415 155,513
Income tax expense |
(benefit)........... 22,846 (16,107) | 16,844 48,026 64,371 66,351
-------- -------- | -------- -------- -------- --------
Income (loss) before |
extraordinary item.. 29,332 (24,088) | 21,995 66,443 93,044 89,162
Extraordinary loss |
on early |
extinguishment of |
debt, net of taxes.. -- -- | 5,159 5,337 -- 10,801
-------- -------- | -------- -------- -------- --------
Net income (loss)..... $ 29,332 $(24,088) | $ 16,836 $ 61,106 $ 93,044 $ 78,361
======== ======== | ======== ======== ======== ========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
Predecessor | The Company
-------------- | --------------------------------------------------------
| December 31,
December 31, | --------------------------------------------------------
1995 | 1996 1997 1998 1999
-------------- | ------------ ------------ ------------ ------------
(In Thousands) | (In Thousands)
<S> <C> | <C> <C> <C> <C>
Balance Sheet Data |
Working capital.............. $ 82,698 | $ 64,754 $ 65,553 $ 95,040 $104,087
Total assets................. 656,710 | 675,712 680,859 714,027 742,306
Total long-term debt, |
including current portion.. 3,538 | 354,154 207,029 169,255 610,376
Total liabilities............ 176,259 | 497,908 392,570 370,177 836,500
Stockholders' equity |
(deficit).................. 480,451 | 177,804 288,289 343,850 (94,194)
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with Item 8, "Financial
Statements and Supplementary Data."
Background
Knoll completed an initial public offering of its common stock during the
second quarter of 1997. An aggregate of 9,200,000 shares, including 720,000
shares sold by a selling stockholder, were sold during May and June 1997 at
$17.00 per share.
On November 4, 1999, pursuant to an Agreement and Plan of Merger dated as of
June 21, 1999 (as amended on July 29, 1999), between Warburg and Knoll, the
Company completed a recapitalization (merger) transaction whereby a newly
formed entity, which was organized by Warburg, was merged with and into Knoll,
with Knoll continuing as the surviving corporation. As a result of the merger,
17,738,634 shares of common stock held by the public stockholders of Knoll,
other than Warburg and certain members of Knoll management, immediately prior
to the merger were converted into the right to receive $28.00 per share in cash
and were canceled. Furthermore, the Company's common stock ceased to be listed
on the NYSE, and the registration of the Company's common stock under the
Exchange Act was terminated.
The merger and related transactions were accounted for as a leveraged
recapitalization. The historical accounting basis of Knoll's assets and
liabilities were retained subsequent to the transactions. See Note 4 to the
consolidated financial statements for further discussion of the merger.
Results of Operations
Sales
Despite nearly a 1.0% decrease in sales in the office furniture industry in
1999 compared to 1998, the Company's sales grew 3.8%, to $984.5 million in
1999. Such growth resulted from increased volume in North America offset in
part by a reduction of volume in Europe. The Company's 1998 sales of $948.7
million were up 17.0%, or $137.8 million, from $810.9 million in sales for
1997 as a result of increased volume company-wide. The increased volume was
primarily attributable to office systems and storage products in 1999 and
office systems and specialty products in 1998. Management believes that office
systems is the largest and fastest growing product category in the industry.
BIFMA estimates that U.S. sales of office systems were $4.3 billion, or 34.8%
of total industry sales, in 1999. Office systems accounted for 68.9% of the
Company's sales in 1999, 68.4% of sales in 1998 and 67.2% of sales in 1997.
13
<PAGE>
Gross Profit and Operating Income
The Company's gross profit and operating income as a percentage of sales
continue to be very strong. Both have continued to benefit from increasing
volume and a continued focus on cost control. As a percentage of sales, gross
profit was 39.7% for 1999 and 39.6% for 1998 and 1997 and operating income was
18.7% for 1999, 18.1% for 1998 and 17.0% for 1997. The Company's 1999 gross
profit and operating income were impacted negatively by manufacturing
inefficiencies at the Company's Toronto facility that resulted in part from
implementation issues associated with the transition to a new manufacturing
system.
Although selling, general and administrative expenses increased on a relative
dollar basis in 1999 compared to 1998 and in 1998 compared to 1997, such
expenses decreased as a percentage of sales. The increases on a relative
dollar basis were due primarily to increased expenses related to sales and
technology initiatives in 1999 and incremental employee costs related to higher
sales, profit and employment levels in 1998. The Company's selling, general
and administrative expenses as a percentage of sales decreased to 21.0% for
1999 from 21.5% for 1998 and 22.6% for 1997.
Interest Expense
In 1997, the Company redeemed an aggregate principal amount of $57.8 million of
its Senior Subordinated Notes and repaid $89.2 million of bank debt. Thus, the
Company's 1998 interest expense was impacted favorably compared to 1997 as a
result of the overall reduction of debt. The Company continued to reduce its
bank debt during 1999, paying down $47.0 million through November 3, 1999.
Then, on November 4, 1999, in connection with the merger, the Company incurred
$533.0 million of debt under a new senior credit agreement with higher interest
rates. This significant additional debt negatively impacted the Company's
interest expense for 1999. See "Liquidity and Capital Resources" for further
discussion of the events discussed above.
Recapitalization Expense
The Company incurred $6.4 million of expense relating to the recapitalization
of the Company that occurred upon consummation of the merger.
Income Tax Expense
With operations in the U.S., Canada and various countries in Europe, the
Company's effective tax rate is directly affected by the mix of pretax income
and the varying effective tax rates attributable to the countries in which it
operates. This changing mix is primarily responsible for the decrease in the
effective tax rate from 42.0% in 1997 to 40.9% in 1998. The increase in the
effective tax rate to 42.7% in 1999 was related somewhat to the changing mix
but was due primarily to $5.2 million of recapitalization expense that is not
expected to be deductible for income tax purposes.
Extraordinary Items
In connection with the merger, Knoll refinanced $14.0 million owed under its
senior credit agreement that existed immediately prior to the merger and paid
the holders, as of August 13, 1999, of its Senior Subordinated Notes a fee of
$12.9 million for their consent to certain amendments to the indenture
governing the Senior Subordinated Notes. The amendments allowed the Company
to complete the merger without violating the covenants under the indenture.
The Company accounted for the refinancing of the debt under the then-existing
credit agreement and the modification of debt terms under the indenture for the
Senior Subordinated Notes as extinguishments of debt. Such treatment resulted
in an extraordinary loss of $17.9 million on a pretax basis ($10.8 million on
an after-tax basis) in 1999. This loss consisted of the $12.9 million consent
fee paid to the noteholders and $5.0 million of unamortized financing costs
that were written-off, of which $0.9 million related to the refinanced debt
and $4.1 million related to the Senior Subordinated Notes.
14
<PAGE>
In connection with the Company's May 1997 initial public offering, Knoll
executed an early redemption of an aggregate principal amount of $57.8 million
of its Senior Subordinated Notes. As a result of this redemption, the Company
recorded an extraordinary loss of $8.8 million on a pretax basis ($5.3 million
on an after-tax basis) in 1997. Such loss consisted of a $5.7 million premium
paid and $3.1 million of unamortized financing costs that were written-off.
Initial Public Offering
The Company generated net proceeds of $133.4 million from the sale of 8,480,000
shares of Knoll common stock in its 1997 initial public offering. The Company
used those net proceeds together with $11.7 million borrowed under its then-
existing revolving credit facility to redeem 800,000 shares of Series A
Preferred Stock for $80.0 million and, as previously discussed, to redeem an
aggregate principal amount of $57.8 million of the Senior Subordinated Notes
for $65.1 million. If the Company assumes that these events had occurred at
the beginning of 1997, net income, on a pro forma basis, would have been $68.1
million for 1997. Thus, historical net income of $93.0 million for 1998 would
have grown 36.6% from pro forma net income for 1997.
Liquidity and Capital Resources
The following table highlights certain key cash flow and capital information
pertinent to the discussion that follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Cash provided by operating
activities....................... $127,987 $114,563 $ 135,262
Capital expenditures............... 25,095 36,390 33,080
Payment of merger consideration.... 496,682 -- --
Payment of recapitalization costs.. 8,843 -- --
Payment of consent fee............. 12,870 -- --
Purchase of common stock........... 28,703 38,849 --
Net proceeds from issuance of
stock............................ 4,746 4,813 133,559
Redemption of preferred stock...... -- -- (80,000)
Net proceeds from (repayment of)
long-term debt................... 441,250 (37,799) (146,988)
</TABLE>
The Company continued to generate strong cash flow from operating activities
in 1999 primarily as a result of its improved earnings before recapitalization
expense and noncash and extraordinary items offset by cash used for working
capital purposes. The Company's cash flow provided by operations has generally
been used to fund capital expenditures, working capital requirements and debt
service, and in 1998 and 1999, it was also used to repurchase shares of common
stock under a share repurchase program.
The Company's capital expenditures are typically for new manufacturing
equipment and information systems. However, in 1998, the Company also
incurred capital expenditures of $3.9 million for the expansion of three U.S.
manufacturing facilities by an aggregate of approximately 139,000 square feet.
The Company estimates that capital expenditures for 2000 will be approximately
$31.0 million.
In connection with the merger consummated on November 4, 1999, the Company
transferred an aggregate of $496.7 million of merger consideration to its
exchange agent for the 17,738,634 shares of common stock that were converted
into the right to receive $28.00 per share and were canceled. In addition,
the Company incurred recapitalization costs totaling $9.1 million, of which
$8.8 million was paid in 1999, and as previously discussed, paid the holders
of its Senior Subordinated Notes an aggregate consent fee of $12.9 million.
In order to finance these transactions, the Company incurred debt of $533.0
million. See below for further discussion of the debt incurred.
15
<PAGE>
In September 1998, the Board of Directors approved a share repurchase program
that authorized the repurchase of 3.0 million shares of the Company's common
stock. On February 2, 1999, the Board of Directors approved an increase of
2.0 million shares to the program. The Company purchased a total of 2,894,700
shares of its common stock (1,187,000 shares during the first two months of
1999 and 1,707,700 shares during 1998) for $67.5 million under the program.
As previously discussed, in 1997, the Company completed an initial public
offering that generated net proceeds of $133.4 million from its sale of
8,480,000 shares of common stock. The Company used those net proceeds together
with $11.7 million borrowed under its then-existing revolving credit facility
to redeem 800,000 shares of Series A Preferred Stock for $80.0 million and to
redeem an aggregate principal amount of $57.8 million of the Senior
Subordinated Notes for $65.1 million (including a redemption premium of $5.7
million and accrued and unpaid interest thereon of $1.6 million). In addition
to the redemption of a portion of the Senior Subordinated Notes, the Company
repaid $89.2 million of senior bank debt during 1997.
The Company continued to reduce its outstanding senior bank debt up until the
time of the consummation of the merger. The Company repaid $38.0 million of
such debt during 1998 and $47.0 million from January 1, 1999 through
November 3, 1999.
In connection with the consummation of the merger on November 4, 1999, the
Company repaid all of its then-outstanding senior indebtedness, which amounted
to $14.0 million, and incurred debt totaling $533.0 million under a new senior
credit agreement. The new credit agreement provides up to $650.0 million to
(i) fund the merger and related fees and expenses, (ii) refinance all amounts
owing under the Company's senior credit agreement that existed immediately
prior to the merger and (iii) provide for working capital and ongoing general
corporate purposes. The agreement consists of a $325.0 million six-year term
loan facility and a $325.0 million six-year revolving credit facility and
contains restrictive covenants, financial covenants and events of default.
Among other things, the restrictive covenants limit the Company's ability to
incur additional indebtedness, pay dividends, purchase Company stock, make
investments, grant liens and engage in certain other activities.
Borrowings under the new credit agreement bear interest at a floating rate
based, at the Company's option, upon (i) the Eurodollar rate (as defined
therein) plus an applicable percentage that is subject to change based upon the
Company's ratio of funded debt to earnings before income taxes, depreciation,
amortization and other noncash charges ("EBITDA") or (ii) the greater of the
federal funds rate plus 0.5% or the prime rate, plus an applicable percentage
that is subject to change based upon the Company's ratio of funded debt to
EBITDA. The Company is required to make quarterly principal payments under the
term loan facility. Aggregate annual amounts due are as follows: $17.5 million
in 2000, $31.25 million in 2001, $52.5 million in 2002, $63.75 million in 2003,
$81.25 million in 2004 and $75.0 million in 2005. Loans made pursuant to the
revolving credit facility may be borrowed, repaid and reborrowed from time to
time until November 4, 2005. The Company repaid $3.75 million and $27.0
million of borrowings under the term loan facility and revolving credit
facility, respectively, in December 1999. As of December 31, 1999, the Company
had an aggregate of $141.5 million available for borrowing under the revolving
credit facility.
In addition to the credit facilities, the Company had $107.2 million aggregate
principal amount of Senior Subordinated Notes outstanding as of December
31, 1999. The Senior Subordinated Notes are subordinated to all of the
Company's existing and future senior indebtedness, including all indebtedness
under the senior credit agreement. The indenture governing the Senior
Subordinated Notes imposes certain restrictions on the Company and its
subsidiaries, including restrictions on the ability to incur indebtedness, pay
dividends, purchase Company stock, make investments, grant liens and engage in
certain other activities. The Company may be required to purchase the Senior
Subordinated Notes upon a change of control (as defined in the indenture) and
in certain circumstances with the proceeds of asset sales. The Senior
Subordinated Notes are redeemable at the Company's option at any time after
March 15, 2001, initially at 105.438% of their principal amount at maturity,
plus accrued interest, declining to 100.0% of their principal amount at
maturity, plus accrued interest, on or after March 15, 2004.
16
<PAGE>
The Company's foreign subsidiaries maintain local credit facilities to provide
credit for overdraft, working capital and other purposes. As of December 31,
1999, total credit available under such facilities was approximately $10.1
million, and there were no outstanding borrowings under the facilities. The
Company believes that it is currently in compliance with all terms of its
indebtedness.
The Company continues to have significant liquidity requirements. In addition
to working capital needs and the need to fund capital expenditures to support
the Company's growth initiatives, the Company has significant cash requirements
for debt service. The Company believes that existing cash balances and
internally generated cash flows, together with borrowings available under the
revolving credit facility of its credit agreement, will be sufficient to fund
normal working capital needs, capital spending requirements and debt service
requirements 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, 1999.
Backlog
The Company's backlog of unfilled orders was $203.3 million at December 31,
1999 and $159.2 million at December 31, 1998. The Company manufactures
substantially all of its products to order and expects to fill substantially
all outstanding unfilled orders within the next twelve months. As such,
backlog is not a significant factor used to predict the Company's long-term
business prospects.
Impact of Year 2000
In 1997, the Company initiated a strategic project to replace and enhance its
manufacturing and business systems (software and hardware) in North America
with a new fully integrated system intended to enhance its order entry
response time and accuracy, improve manufacturing processes, reduce delivery
times, improve shipping accuracy and reduce fixed costs. In connection with
this project, the Company addressed the issue of year 2000 compliance of its
information systems and embedded chips in equipment, in both North America and
Europe, as well as the year 2000 readiness of its vendors, dealers and other
third parties. In late 1999, the Company completed the installation of the new
system and completed its efforts to remedy problems related to embedded chips
that were determined not to be year 2000 compliant. Through December 31, 1999,
the Company incurred expenditures of approximately $35.0 million ($25.4 million
expense and $9.6 million capital) related to the project.
The Company has not experienced any significant disruptions in mission critical
information technology and non-information technology systems and believes that
its systems have thus far responded successfully to the year 2000 date change.
The Company is not aware of any material problems resulting from year 2000
issues, either with its internal systems or the systems or products of its
vendors, dealers and other third parties. The Company intends to continue to
monitor its mission critical information systems throughout the year 2000 and
address any significant latent year 2000 issues that may arise. If the Company
or its vendors, dealers and other third parties are unable to successfully
address significant latent year 2000 issues that may arise, a material adverse
effect on the Company's operations could result. At this time, the Company is
not aware of any such issues.
Environmental Matters
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.
17
<PAGE>
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 of the Company from Westinghouse.
Statement Regarding Forward-Looking Disclosure
Certain portions of this Form 10-K, including "Management's Discussion and
Analysis of Financial Condition and Results of Operations," contain various
forward-looking statements within the meaning of Section 27A of the Securities
Act and Section 21E of the Exchange Act that represent the Company's
expectations or beliefs concerning future events. Forward-looking statements
relate to future operations, strategies, financial results or other
developments and are not based on historical information. In particular,
statements using verbs such as "anticipates," "believes," "estimates,"
"expects" or words of similar meaning generally involve forward-looking
statements. Although the Company believes the expectations reflected in
these forward-looking statements are based upon reasonable assumptions, no
assurance can be given that Knoll will attain these expectations or that any
deviations will not be material. Readers of this Form 10-K are cautioned not
to unduly rely on any forward-looking statements.
The Company cautions that its forward-looking statements are further qualified
by important factors that could cause actual results to differ materially from
those in the forward-looking statements. Such factors include, without
limitation, the highly competitive nature of the market in which the Company
competes, including the introduction of new products, pricing changes by the
Company's competitors and growth rates of the office systems category; risks
associated with the Company's growth strategy, including the risk that the
Company's introduction of new products will not achieve the same degree of
success achieved historically by the Company's products; the Company's
indebtedness, which requires a significant portion of the Company's cash flow
from operations to be dedicated to debt service, making such cash flow
unavailable for other purposes, and which could limit the Company's flexibility
in reacting to changes in its industry or economic conditions generally;
possible risks relating to latent year 2000 issues that may arise, which could
impair the Company's operations if not resolved successfully or on time; the
Company's dependence on key personnel; the ability of the Company to maintain
its relationships with its dealers; the Company's reliance on its patents and
other intellectual property; environmental laws and regulations, including
those that may be enacted in the future, that affect the ownership and
operation of the Company's manufacturing plants; risks relating to potential
labor disruptions; fluctuations in foreign currency exchange rates; risks
associated with conducting business via the Internet; and fluctuations in
industry revenues driven by a variety of macroeconomic factors, including
white-collar employment levels and corporate cash flows, as well as by a
variety of industry factors such as corporate reengineering and restructuring,
technology demands, ergonomic, health and safety concerns and corporate
relocations. Except as otherwise required by the federal securities laws, the
Company disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained in this Form 10-K to
reflect any change in its expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
18
<PAGE>
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the normal course of business, the Company is routinely subjected to
market risk associated with interest rate movements and foreign currency
exchange rate movements. Interest rate risk arises from the Company's debt
obligations and related interest rate collar agreements. Foreign currency
exchange rate risk arises from the Company's foreign operations and purchases
of inventory from foreign suppliers.
Interest Rate Risk
The Company has both fixed and variable rate debt obligations for other than
trading purposes that are denominated in U.S. dollars. Changes in interest
rates have different impacts on the fixed and variable rate portions of the
debt. A change in interest rates impacts the interest incurred and cash paid
on the variable rate debt but does not impact the interest incurred or cash
paid on the fixed rate debt.
Debt Obligations
At December 31, 1999, the Company had total debt of $610.4 million, of which
$502.3 million was variable rate debt. This is significantly higher than
outstanding debt of $169.3 million, of which $61.0 million was variable rate
debt, at December 31, 1998. The increase resulted from additional debt
incurred under new senior credit facilities in connection with the November 4,
1999 merger. See "Liquidity and Capital Resources" under Item 7, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
further discussion of the debt incurred in connection with the merger.
The following tables summarize the Company's market risks associated with its
debt obligations as of December 31, 1999. The table presents principal cash
flows and average interest rates by year of maturity. Variable interest rates
presented for variable rate debt represent the weighted average interest rates
on the Company's credit facility borrowings as of December 31, 1999.
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total Fair Value
-------- -------- -------- -------- -------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Rate Sensitive Liabilities
Long-term Debt:
Fixed Rate............. -- -- $ 70 $ 87 $ 87 $107,882 $108,126 $107,989
Average Interest
Rate............. 10.80% 10.80% 10.84% 10.84% 10.84% 10.85%
Variable Rate.......... $17,500 $31,250 $52,500 $63,750 $81,250 $256,000 $502,250 $502,250
Average Interest
Rate............. 7.55% 7.55% 7.55% 7.55% 7.55% 7.55%
</TABLE>
Interest Rate Collar Agreements
The Company uses interest rate collar agreements for other than trading
purposes in order to manage its exposure to fluctuations in interest rates on
its variable 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. Fluctuations in
LIBOR impact both the net financial instrument position and the amount of cash
to be paid or received, if any.
The Company did not have any interest rate collar agreements outstanding at
December 31, 1999. The aggregate notional principal amount of the Company's
interest rate collar agreements outstanding at December 31, 1998 was $115.0
million and the related weighted average maximum and minimum rates were 7.97%
and 5.05%, respectively. Such agreements expired in April 1999. During the
years ended December 31, 1999 and 1998, the Company was not required to make
nor was it entitled to receive any payments as a result of these hedging
activities.
In January 2000, the Company entered into three interest rate collar agreements
that have an aggregate notional principal amount of $135.0 million and weighted
average maximum and minimum rates of 10.00% and 5.64%, respectively. These
agreements will expire in February 2003.
19
<PAGE>
The Company will continue to review its exposure to interest rate fluctuations
and evaluate whether it should manage such exposure through hedging
transactions.
Foreign Currency Exchange Rate Risk
The Company manufactures its products in the United States, Canada and Italy
and sells its products in those markets as well as in other European countries.
The Company's foreign sales and certain expenses are transacted in foreign
currencies. The production costs, profit margins and competitive position of
the Company are affected by the strength of the currencies in countries where
it manufactures or purchases goods relative to the strength of the currencies
in countries where its products are sold. Additionally, as the Company's
reporting currency is the U.S. dollar, the financial position of the Company
is affected by the strength of the currencies in countries where the Company
has operations relative to the strength of the U.S. dollar. The principal
foreign currencies in which the Company conducts business are the Canadian
dollar and the Italian lira. Approximately 8.3% of the Company's revenues and
26.5% of the Company's expenses in 1999 and 9.6% of the Company's revenues and
27.3% of the Company's expenses in 1998 were denominated in currencies other
than the U.S. dollar. Foreign currency exchange rate fluctuations did not have
a material impact on the financial results of the Company during 1999 and 1998.
The Company generally does not hedge its foreign currency exposure. However,
from time to time, the Company enters into foreign currency forward exchange
contracts to manage its exposure to foreign exchange rates associated with
purchases of inventory from foreign suppliers. The terms of these contracts
are generally less than a year. Material gains and losses on these contracts
are recognized in income in the period the value of the contract changes. The
contract amounts outstanding at December 31, 1999 and 1998 as well as the
amount of gains and losses recorded during 1999 and 1998 were not material.
Additionally, the Company does not anticipate any material adverse effect on
its results of operations or financial position relating to these foreign
currency forward exchange contracts.
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.
20
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The table below sets forth the names, ages and titles of the persons who were
directors and executive officers of the Company as of March 30, 2000.
<TABLE>
<CAPTION>
Name Age Position
------------------------ ----- --------------------------------------
<C> <C> <C>
Burton B. Staniar....... 58 Chairman of the Board
John H. Lynch........... 46 Chief Executive Officer and Director
Kathleen G. Bradley..... 50 President and Director
Andrew B. Cogan......... 37 Chief Operating Officer and Director
Barbara E. Ellixson..... 46 Senior Vice President--Human Resources
Arthur C. Graves........ 53 Senior Vice President--Sales and
Distribution
Stephen A. Grover....... 47 Senior Vice President--Operations
Carl G. Magnusson....... 60 Senior Vice President--Design
Barry L. McCabe......... 53 Senior Vice President, Treasurer and
Controller
Patrick A. Milberger.... 43 Senior Vice President, General Counsel
and Secretary
Douglas J. Purdom....... 41 Senior Vice President and Chief
Financial Officer
Jeffrey A. Harris....... 44 Director
Sidney Lapidus.......... 62 Director
Kewsong Lee............. 34 Director
Lloyd Metz.............. 31 Director
Henry B. Schacht........ 65 Director
</TABLE>
Burton B. Staniar was appointed Chairman of the Board of the Company in
December 1993. Mr. Staniar served as Chief Executive Officer of the Company
from December 1993 to January 1997. Prior to that time, Mr. Staniar 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.
Mr. Staniar is also a director of Church and Dwight Co., Inc.
John H. Lynch joined the Company as Vice Chairman of the Board in May 1994.
Mr. Lynch was subsequently elected President of the Company and in January 1997
was elected Chief Executive Officer. From 1990 to 1994, prior to joining the
Company, Mr. Lynch was a partner in BGI, a management firm. During that time,
Mr. Lynch led the restructuring of the Westinghouse Broadcasting television and
radio stations. From 1988 to 1990, Mr. Lynch was an associate dean at the
Harvard Business School.
Kathleen G. Bradley has been a director of the Company since November 1999.
She was named President of the Company in December 1999, after serving as
Executive Vice President--Sales, Distribution and Customer Service since August
1998, Senior Vice President since 1996 and Divisional Vice President for
Knoll's southeast division since 1988. Prior to that time, Ms. Bradley was
regional manager for the Company's Atlanta region, 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 was
named Chief Operating Officer in December 1999, after serving as Executive Vice
President--Marketing and Product Development since August 1998 and Senior Vice
President since May 1994. Mr. Cogan has held several positions in the design
and marketing group since joining the Company in 1989.
21
<PAGE>
Barbara E. Ellixson was promoted to her current position as Senior Vice
President--Human Resources in January 2000, after serving as Vice President--
Human Resources since August 1994 and 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 Westinghouse business units.
Arthur C. Graves was appointed Senior Vice President--Sales and Distribution in
October 1999, after serving as Divisional Vice President for Knoll's western
division since 1990. Mr. Graves began his career at Knoll in March 1989 as a
regional sales manager for the Company's San Francisco region.
Stephen A. Grover joined Knoll as Senior Vice President--Operations in May
1999. Prior to such time, Mr. Grover spent 18 years at General Electric
Company, where he held a variety of management positions, the last being
Global Manager of Magnetic Resonance Manufacturing for GE Medical Systems.
Carl G. Magnusson, a Canadian citizen, 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.
Barry L. McCabe was promoted to Senior Vice President, Treasurer and Controller
in January 2000, after serving as Vice President, Treasurer and Controller
since January 1995. Mr. 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 was promoted to Senior Vice President, General Counsel
and Secretary in January 2000, after serving as Vice President, General Counsel
and Secretary. Mr. Milberger joined the Company as Vice President and General
Counsel in April 1994. Prior to joining the Company, Mr. Milberger served as
an Assistant General Counsel and in a number of other positions in the
Westinghouse Law Department, which he joined in 1986. Prior to such time,
Mr. Milberger was in private practice at Buchanan Ingersoll, P.C.
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, an
Arizona-based copper mining company, since 1992, and as Corporate Controller
of that company from 1989 to 1991. Mr. Purdom has advised the Company that
he intends to resign effective August 31, 2000.
Jeffrey A. Harris, a director of the Company since February 1996, has been a
General Partner of Warburg, Pincus & Co. ("Warburg, Pincus") and a Member
and Managing Director of E.M. Warburg, Pincus & Co., LLC ("E.M. Warburg") and
its predecessors since 1988, where he has been employed since 1983. Mr. Harris
is a director of Industri-Matematik International Corp., ECsoft Group plc,
Spinnaker Exploration, Inc. and several privately held companies.
Sidney Lapidus, a director of the Company since February 1996, has been a
General Partner of Warburg, Pincus and a Member and Managing Director of
E.M. Warburg and its predecessors since January 1982, where he has been
employed since 1967. Mr. Lapidus is a director of Lennar Corporation,
Caribiner International, Inc., Grubb & Ellis Company, Information Holdings,
Inc., Four Media Company, Radio Unica Communications Corp. and several
privately held companies.
Kewsong Lee, a director of the Company since February 1996, has been a
General Partner of Warburg, Pincus and a Member and Managing Director of
E.M. Warburg and its predecessors since January 1997, where he has been
employed since 1992. Mr. Lee is a director of RenaissanceRe Holdings Ltd.,
Eagle Family Food Holdings, Inc. and several privately held companies.
Lloyd Metz, a director of the Company since November 1999, has been a Vice
President of Warburg, Pincus Ventures, LLC, an affiliate of Warburg, since
January 2000. Mr. Metz was an associate at Warburg, Pincus Ventures, LLC
from July 1998 to January 2000 and an investment banker at Morgan Stanley
Dean Witter from August 1996 to July 1998. From 1994 to 1996, Mr. Metz
attended Harvard Business School.
22
<PAGE>
Henry B. Schacht, a director of the Company since December 1998, has been
a General Partner of Warburg, Pincus and a Member and Managing Director of
E.M. Warburg since January 2000 and is Chairman designate of the newly
announced spin-off of Lucent Technologies ("Lucent"). Mr. Schacht served as a
Director and Senior Advisor of E.M. Warburg from March 1999 to January 2000.
Prior thereto, Mr. Schacht served as Chairman of the Board of Lucent from
February 1996 to February 1998 and as Chief Executive Officer of Lucent from
February 1996 to October 1997. Prior thereto, Mr. Schacht served as Chairman
of the Board (1995-1997) and Chief Executive Officer (1973-1994) of Cummins
Engine Company, Inc. Mr. Schacht is also a director and senior advisor of
Lucent and a director of The Chase Manhattan Corporation and The Chase
Manhattan Bank, N.A., Aluminum Company of America (Alcoa), Cummins Engine
Company, Inc., Johnson & Johnson Corp. and The New York Times Co.
Except for Mr. Magnusson, all directors and executive officers of Knoll are
citizens of the United States.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the Exchange Act, the Company's directors and executive officers, and
any persons holding more than 10% of the outstanding shares of common stock
are required to report their initial ownership of common stock and any
subsequent changes in that ownership to the Securities and Exchange Commission
(the "Commission"). Specific due dates for these reports have been established
by the Commission, and the Company is required to disclose any failure by such
persons to file these reports in a timely manner during the 1999 fiscal year.
Based solely upon the Company's review of copies of such reports furnished to
it, except as set forth herein, the Company believes that during the 1999
fiscal year its executive officers and directors and the holders of more than
10% of the outstanding shares of common stock complied with all reporting
requirements of Section 16(a) under the Exchange Act. The Statement of Changes
in Beneficial Ownership on Form 4 for September 1999 that was filed on
October 8, 1999 for Mr. Lynch inadvertently omitted several sales transactions
for an aggregate of 30,000 shares that were held by a family trust. The sales
were reported on an amended Form 4 filed on November 10, 1999.
23
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the years ended December 31, 1999, 1998
and 1997, 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 during 1999 (the "Named Executive Officers").
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation Awards
---------------------------------- ------------------------
Other All
Annual Restricted Securities Other
Compen- Stock Underlying Compen-
Name and Principal Position Year Salary Bonus sation (1) Awards (2) Options (3) sation (4)
- --------------------------- ------ ---------- ---------- ---------- ----------- ----------- ----------
<C> <C> <C> <C> <C> <C> <C> <C>
Burton B. Staniar.......... 1999 $400,008 $450,000 $ -- -- 150,000 $7,299
Chairman of the Board 1998 399,996 900,000 -- -- -- 8,019
1997 399,996 750,000 -- -- -- 8,979
John H. Lynch.............. 1999 400,008 450,000 -- -- 300,000 7,299
Chief Executive Officer 1998 399,996 900,000 -- -- -- 8,019
1997 399,996 750,000 -- -- -- 8,979
Kathleen G. Bradley........ 1999 254,174 400,000 64,239 -- 200,000 7,299
President 1998 222,502 400,000 -- -- -- 8,019
1997 199,992 300,000 -- -- 188,365 8,424
Andrew B. Cogan............ 1999 254,174 400,000 -- -- 200,000 99
Chief Operating Officer 1998 222,502 400,000 -- -- -- 99
1997 199,992 300,000 -- -- 35,000 99
Douglas J. Purdom.......... 1999 210,000 160,000 -- -- 40,000 7,299
Senior Vice President 1998 209,167 200,000 -- -- -- 8,019
and Chief Financial 1997 200,004 200,000 -- -- -- 8,979
Officer
</TABLE>
___________________________
(1) With respect to Ms. Bradley, the indicated amount represents expenses
related to her relocation to the Company's headquarters in
East Greenville, Pennsylvania.
(2) On February 29, 1996, Messrs. Staniar, Lynch and Cogan and Ms. Bradley
were granted 941,829, 941,829, 376,731 and 188,365 shares of vested and
unvested restricted stock, respectively. On August 20, 1996, Mr. Purdom
was granted 282,548 shares of unvested restricted stock. Holders of
shares of restricted stock are not entitled to receive dividends until
such shares vest and become unrestricted. As of March 30, 2000, 100% of
the shares granted to each of Messrs. Staniar, Lynch and Cogan had
vested; 80% of the shares granted to Ms. Bradley had vested and an
additional 20% will vest on March 1, 2001; and 60% of the shares granted
to Mr. Purdom had vested and an additional 20% will vest on August 20,
2000. Mr. Purdom has advised the Company that he intends to resign
effective August 31, 2000. At December 31, 1999, Messrs. Staniar,
Lynch, Cogan and Purdom and Ms. Bradley held 94,183, 94,183, 75,347,
113,021 and 75,346 shares of unvested restricted stock, respectively,
having values of $1,198,950, $1,198,950, $959,167, $1,438,757 and
$959,155, respectively. These values were based on an estimated fair
value of $12.73 per share of Knoll common stock. Such fair value was
based on an independent appraisal and reflects a discount for the lack
of marketability of the common stock as a private company and the
controlling interest by Warburg.
(3) Represents the aggregate number of shares of common stock subject to
options granted to the Named Executive Officers.
(4) Amounts in this column represent the Company's matching contributions to
the Knoll, Inc. Retirement Savings Plan and the payment by the Company
of premiums in respect of term life insurance.
24
<PAGE>
Stock Option Grants Table
The following table sets forth information concerning individual grants of
options to purchase common stock made to Named Executive Officers during 1999.
<TABLE>
<CAPTION>
Number of % of Total
Securities Options Per Share
Underlying Granted to Per Share Grant Date
Options Employees Exercise Expiration Present
Name Granted (1) in 1999 Price Date Value (2)
----------------------- ----------- ---------- --------- ---------- ----------
<C> <C> <C> <C> <C> <C>
Burton B. Staniar...... 150,000 6.5% $28.00 11/04/09 $ -0-
John H. Lynch.......... 300,000 13.0 28.00 11/04/09 -0-
Kathleen G. Bradley.... 200,000 8.7 28.00 11/04/09 -0-
Andrew B. Cogan........ 200,000 8.7 28.00 11/04/09 -0-
Douglas J. Purdom...... 40,000 1.7 28.00 11/04/09 -0-
</TABLE>
_______________________
(1) Options were granted to each of the Named Executive Officers on
November 4, 1999. Such options will vest in installments as
follows: 30% on November 4, 2000, 20% on each of November 4, 2001
and 2002 and 30% on November 4, 2003.
(2) The per share grant date present value was estimated using a
minimum value method, which does not consider volatility of the
Company's stock. Such method was deemed appropriate as the
Company's common stock was not publicly traded at the date of
grant. The present value of the options under the minimum value
method was calculated using a grant date fair value of $10.92 per
share of Knoll common stock, which was based upon an independent
appraisal, as well as the following assumptions: risk-free
interest rate of 6.5%, dividend yield of zero and an expected life
of 7 years.
Aggregate Stock Option Exercise Table
The following table sets forth information regarding the exercise of options by
the Named Executive Officers during 1999. The table also shows the number and
value of unexercised options that were held by the Named Executive Officers on
December 31, 1999. As of December 31, 1999, based on an independent appraised
fair value of $12.73 per share of Knoll common stock, none of the options held
by the Named Executive Officers were in the money.
<TABLE>
<CAPTION>
Number of Securities
Number of Underlying Value of Unexercised
Shares Unexercised Options In-the-Money
Acquired on Value Exercisable / Options Exercisable
Name Exercise Realized Unexercisable / Unexercisable
----------------------- ----------- ---------- -------------------- --------------------
<C> <C> <C> <C> <C>
Burton B. Staniar...... N/A N/A -0- / 150,000 $ -0- / -0-
John H. Lynch.......... N/A N/A -0- / 300,000 -0- / -0-
Kathleen G. Bradley.... N/A N/A 75,346 / 313,019 -0- / -0-
Andrew B. Cogan........ N/A N/A 14,000 / 221,000 -0- / -0-
Douglas J. Purdom...... N/A N/A -0- / 40,000 -0- / -0-
</TABLE>
25
<PAGE>
Pension Plans
The Knoll, Inc. Pension Plan (the "Company 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 1.55% of career compensation divided by twelve. Once a participant
accumulates five 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. As of
December 31, 1999, the estimated annual benefits payable upon normal retirement
under the Company Pension Plan for each of the Named Executive Officers was as
follows: Mr. Staniar ($9,378); Mr. Lynch ($9,378); Ms. Bradley ($9,378);
Mr. Cogan ($9,378); and Mr. Purdom ($8,581).
Remuneration covered by the Company Pension Plan primarily includes salary and
bonus, as set forth in the Summary Compensation Table. As of December 31,
1999, each of Messrs. Staniar, Lynch and Cogan and Ms. Bradley had 3.83 years
of credited service and Mr. Purdom had 3.36 years of credited service.
Director Compensation
From May 9, 1997 through November 3, 1999, the period during which the
Company's common stock was publicly registered and traded, the Company had two
directors, John W. Amerman and Robert J. Dolan, who were not employees or
officers of the Company or Warburg. Such directors were paid a fee of $1,000
for each board meeting attended and were reimbursed for certain expenses
incurred in connection with their attendance at board and committee meetings.
Other than with respect to reimbursement of expenses, directors who are
employees or officers of the Company or Warburg do not receive additional
compensation for services as a director.
During 1999, the Company's Board of Directors appointed a Special Committee,
consisting of Messrs. Amerman and Dolan, to determine the advisability and
fairness to the Company's stockholders of the merger proposal. In lieu of the
standard fee paid to directors for serving on a committee of the Board of
Directors, each of the members of the Special Committee was paid a one-time
fee of $75,000 for serving on the Special Committee. In addition, the Company
paid all of the fees and expenses of the Special Committee's financial and
legal advisors and reimbursed the members of the Special Committee for all of
their out-of-pocket travel expenses and other expenses incurred in connection
with each member's service on the Special Committee. The Board of Directors
determined that the Company shall, in consideration of the service of the
members of the Special Committee thereon, indemnify and hold harmless each
member of the Special Committee against any and all liabilities and expenses
(including without limitation reasonable legal fees and expenses) arising in
connection with such service, to the fullest extent permitted by the Company's
certificate of incorporation and bylaws, as currently in effect.
Each of the members of the Special Committee, Messrs. Amerman and Dolan,
became a director of the Company in May 1997, when the Company completed its
initial public offering and listed its stock on the NYSE, which requires listed
companies to have at least two independent directors. On May 10, 1997, each
was granted options to purchase 25,000 shares of Knoll common stock at $17.00
per share (the price to the public in Knoll's initial public offering) under
Knoll's 1997 stock incentive plan. The option agreements provided that 20%
would vest immediately upon grant and an additional 20% would vest on May 10 of
each of the following four years. Under the 1997 stock incentive plan, the
Company's stock option committee has discretionary authority to accelerate the
vesting of options granted under the plan.
Prior to consummation of the merger in 1999, Messrs. Amerman and Dolan informed
the Company that they did not wish to continue to serve as directors of Knoll
following completion of the merger, since Knoll would no longer be a public
company and the principal reason for their election to the Board of Directors
would cease to exist. Messrs. Amerman and Dolan also informed the Company that
they did not believe it would be appropriate for them to participate in any
future increase or decrease in the value of Knoll common stock following the
completion of the merger, and that, to be treated similarly to the public
holders other than Warburg and certain
26
<PAGE>
members of Knoll management, they wished to have their options terminate upon
the completion of the merger and to receive cash in the amount of the excess of
the merger consideration per share over the per share exercise price of the
options. Accordingly, the Company's Stock Option Committee accelerated the
vesting of 10,000 unvested options held by each of Messrs. Amerman and Dolan,
and the Company paid each of them $275,000 immediately upon completion of
the merger.
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 Chief Executive
Officer, and Andrew B. Cogan, the Company's Chief Operating Officer, for terms
which expired on March 1, 1999 and were each renewed pursuant to automatic one-
year extensions. 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 a target 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 was amended as of December 4, 1999 to provide for a
base salary of $300,000. Mr. Cogan's agreement also provides for a target
annual bonus of up to 100% of base salary based on the attainment of goals and
objectives set by the Board of Directors. At the request of Mr. Staniar, his
employment agreement was amended and restated as of January 1, 2000 to reduce
each of his base salary and time commitment by 50%. The employment agreements
of Messrs. Staniar, Lynch and Cogan will continue to renew automatically each
January 1, March 1 and March 1, respectively, unless either party gives 60 days
notice not to renew. 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, non-solicitation (during the term of the agreement and
for one year thereafter) and confidentiality provisions.
In addition, the Company has entered into a Letter Agreement, dated August 13,
1996, with Douglas J. Purdom. This agreement sets forth the initial starting
salary, target bonus and stock grants to Mr. Purdom. Mr. Purdom's agreement
provides that upon a "change of control" of the Company during the term of the
agreement, following which Mr. Purdom is terminated for reasons unrelated to
his performance, Mr. Purdom shall receive one year of base salary as severance
in satisfaction of any claims he may have against the Company. For purposes
of Mr. Purdom's agreement, "change of control" means the sale of all or
substantially all of the stock or assets of the Company to a party unrelated
with Warburg and shall not mean the public offering of the stock of the Company
or any related entity.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 1999, the base compensation of Messrs.
Staniar, Lynch, Cogan and Purdom was determined pursuant to employment
agreements between such officers and the Company. See "Employment
Agreements." Except as otherwise described herein, the 1999 compensation of
each of Messrs. Staniar, Lynch, Cogan, Purdom and Ms. Bradley was determined by
the Compensation Committee of the Board of Directors, which was comprised of
Messrs. Amerman, Harris and Lapidus from January 1, 1999 until November 4, 1999
and was comprised of Messrs. Harris, Lapidus and Lynch on and after November 4,
1999. Mr. Lynch abstained from actions regarding the 1999 incentive
compensation of Messrs. Staniar and Lynch.
The Compensation Committee and the Stock Option Committee of the Board of
Directors were formed on July 22, 1997, shortly after the completion of the
Company's initial public offering in May of 1997. At that time, the Board of
Directors adopted a charter for each committee and named Messrs. Amerman and
Dolan as the Stock Option Committee members. Prior to July 22, 1997, all
grants of common stock and options under the Company's 1996 and 1997 stock
incentive plans were made at the discretion of a Stock Plan Committee of the
Board of Directors comprised of Burton B. Staniar and Jeffrey A. Harris.
On September 9, 1999, the Stock Option Committee was reconstituted in light of
the proposed merger transaction to have Messrs. Staniar, Lynch, Cogan, Harris,
Lapidus, Lee and Schacht as its members. On November 4, 1999, the Board of
Directors reconstituted the Stock Option Committee by appointing Messrs.
Harris, Lapidus and Lynch as its members. On November 4, 1999, the Stock
Option Committee made grants of 1,870,500 options to employees of the
27
<PAGE>
Company, including grants to Messrs. Staniar, Lynch, Cogan and Purdom and Ms.
Bradley. Except for Messrs. Staniar, Lynch and Cogan and Ms. Bradley, no
member of the Board of Directors is or has been an officer or employee of the
Company.
During the year ended December 31, 1999, no executive officer of the Company
served on any board of directors or compensation committee of any entity
(other than the Company) with which any member of the Board of Directors is
affiliated.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's common stock, as of March 30, 2000, by (i) each
person known by the Company to own beneficially more than 5% of the outstanding
common stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers of the Company, and (iv) all directors and executive
officers of the Company, as a group (16 persons). Except as set forth in the
table, the business address of each person is 1235 Water Street, East
Greenville, PA 18041. The information set forth in the table and the notes
thereto is based solely upon information provided to the Company directly by
such stockholders. As described in the notes to the table, voting and/or
dispositive power with respect to certain common stock is shared by the named
individuals or entities. In these cases, such shares are shown as beneficially
owned by each of those sharing voting and/or dispositive power.
<TABLE>
<CAPTION>
Number of Shares of
Beneficial Owner (1) Common Stock (2) Percentage
---------------------------------- ------------------- --------------
<C> <C> <C>
Warburg, Pincus & Co. (3)
466 Lexington Avenue
New York, New York 10017...... 20,981,956 91.8%
Burton B. Staniar................. 665,239 2.9
John H. Lynch .................... 456,444 2.0
Kathleen G. Bradley............... 150,692 *
Andrew B. Cogan................... 209,122 *
Douglas J. Purdom................. 80,491 *
Jeffrey A. Harris (4)............. 20,981,956 91.8
Sidney Lapidus (4)................ 20,981,956 91.8
Kewsong Lee (4)................... 20,981,956 91.8
Lloyd Metz........................ -- --
Henry B. Schacht (4) (5).......... 20,991,956 91.8
All directors and executive
officers as a group
(16 persons).................... 22,678,063 98.5
</TABLE>
__________________________
* Less than 1%.
(1) Percentages are calculated pursuant to Rule 13d-3 under the
Exchange Act. Percentage calculations assume, for each person and
group, that all restricted shares that vest within 60 days
following March 30, 2000 and all shares that may be acquired by
such person or group pursuant to options currently exercisable or
that become exercisable within 60 days following March 30, 2000 are
outstanding for the purpose of computing the percentage of common
stock owned by such person or group. However, those unvested and
unissued shares of common stock described above are not deemed to
be outstanding for calculating the percentage of common stock owned
by any other person. Except as otherwise indicated, the persons in
this table have sole voting and investment power with respect to
all shares of common stock shown as beneficially owned by them,
subject to community
28
<PAGE>
property laws where applicable and subject to the information
contained in the footnotes to this table. The number of shares
outstanding for these purposes as of March 30, 2000 consists of
22,861,247 shares of common stock (excluding 423,851 restricted
shares that have not yet vested).
(2) Excludes 37,673, 113,021 and 221,338 restricted shares of common
stock for Ms. Bradley, Mr. Purdom and all directors and executive
officers as a group, respectively, which will not vest within 60
days of March 30, 2000, as well as options to purchase 150,000,
300,000, 221,000, 40,000, 15,000, 275,346 and 1,355,346 shares of
common stock held by Messrs. Staniar, Lynch, Cogan, Purdom, and
Schacht, Ms. Bradley and all directors and executive officers as
a group, respectively, which will not vest within 60 days of
March 30, 2000.
(3) Warburg directly owns 20,709,922 shares of common stock and Warburg,
Pincus directly owns an additional 272,034 shares. The sole general
partner of Warburg is Warburg, Pincus. E.M. Warburg manages
Warburg. The members of E.M. Warburg are substantially the same as
the partners of Warburg, Pincus. Lionel I. Pincus is the managing
partner of Warburg, Pincus and the managing member of E.M. Warburg
and may be deemed to control both Warburg, Pincus and E.M. Warburg.
Warburg, Pincus has a 15% interest in the profits of Warburg as the
general partner. Jeffrey A. Harris, Sidney Lapidus, Kewsong Lee and
Henry B. Schacht, directors of the Company, are Managing Directors
and members of E.M. Warburg and general partners of Warburg, Pincus.
As such, Messrs. Harris, Lapidus Lee and Schacht may be deemed to
have an indirect pecuniary interest (within the meaning of Rule
16a-1 under the Exchange Act) in an indeterminate portion of the
shares beneficially owned by Warburg. See Note 4 below.
(4) 20,709,922 and 272,034 of the shares indicated as owned by Messrs.
Harris, Lapidus, Lee and Schacht are owned directly by Warburg and
Warburg, Pincus, respectively, and are included because of the
affiliation of such persons with Warburg and Warburg, Pincus.
Messrs. Harris, Lapidus, Lee and Schacht disclaim "beneficial
ownership" of these shares within the meaning of Rule 13d-3 under
the Exchange Act. See Note 3 above.
(5) Includes 10,000 shares of common stock underlying stock options
granted to Mr. Schacht on December 2, 1998 in connection with his
appointment as a director of the Company.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders Agreement
Warburg and 4 senior members of management (each a "Holder" and collectively,
the "Holders") and the Company are parties to an Amended and Restated
Stockholders Agreement (the "Stockholders Agreement"), dated as of November 4,
1999, which governs certain matters related to corporate governance and
registration of shares of common stock ("Registrable Securities") held by such
Holders (other than shares acquired pursuant to the Company's stock incentive
plans).
Pursuant to the Stockholders Agreement, Warburg is entitled to request at any
time that the Company file a registration statement under the Securities Act
covering the sale of at least $25 million of shares of common 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.
29
<PAGE>
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. During 1999, certain members of the
Company's management exercised their right under the Stockholders Agreement to
register 1,384,858 shares of common stock in order to sell prior to the merger
up to such number of shares either pursuant to such registration or under Rule
144 under the Securities Act. These members of the Company's management
exercised such right because they were not entitled to receive the merger
consideration pursuant to the terms of the Amended and Restated Agreement and
Plan of Merger by and between Warburg and Knoll, dated as of July 29, 1999.
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
Holders will be borne by the Company.
The Stockholders Agreement provides that the Board of Directors of the Company
shall initially be comprised of Messrs. Staniar, Lynch, Cogan, Lapidus, Harris,
Lee, Metz and Schacht, and Ms. Bradley. Pursuant to the Stockholders
Agreement, Warburg and the other stockholders who are a party thereto (who hold
in the aggregate a majority of the outstanding shares of common stock) have
agreed to nominate and use their best efforts to have elected (i) that number
of persons designated by Warburg as shall constitute a majority of the Board
(or, at Warburg's irrevocable election, as shall constitute one director less
than a majority of the Board), (ii) four directors nominated by Warburg if
Warburg owns 25% or more of the Company's outstanding shares of common stock,
(iii) three directors if it owns 15% or more and (iv) two directors if it owns
5% or more.
Issuance of Restricted Shares of Common Stock
In connection with the issuance of 4,144,030 restricted shares of common stock
pursuant to the Company's 1996 stock incentive plan, Warburg and the Company
also entered into a separate Stockholders Agreement with all of the Company's
executive officers and other members of the Company's management. This
Stockholders Agreement was amended and restated as of November 4, 1999.
Pursuant to these agreements, persons deemed to be "insiders" within the
meaning of Section 16 of the Exchange Act have 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 an
initial public offering, upon 30 days prior written notice to the Board of
Directors. The restrictions on transfer will terminate when Warburg owns less
than 10% of the outstanding shares of common 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 certain vested
shares of common stock received by management pursuant to the 1996 stock
incentive plan, subject to certain limited exceptions. In addition, 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, Mr. Staniar received 941,829 restricted shares, Mr. Lynch received
941,829 restricted shares, Ms. Bradley received 188,365 restricted shares,
Mr. Cogan received 376,731 restricted shares and Mr. Purdom received 282,548
restricted shares. The agreements for each recipient other than Mr. Purdom
were dated
30
<PAGE>
February 29, 1996, and Mr. Purdom's agreement was dated August 20, 1996. The
agreements were amended and restated as of March 6, 2000, except for the
agreements with Messrs. Staniar and Lynch. The amended and restated agreements
provide that upon the voluntary termination of employment for reasons other
than death, disability or retirement at age 65, or (except in the case of
Messrs. Staniar and Lynch) if the grantee's employment was terminated without
cause, the nonvested restricted shares (except for shares that were vested
prior to the merger) are to be immediately forfeited to the Company. With
respect to Messrs. Staniar, Lynch and Cogan, 100% of the shares granted have
vested. With respect to Ms. Bradley, 80% of the shares granted have vested
and the remaining unvested shares will vest on March 1, 2001. With respect to
Mr. Purdom, 60% of the shares granted have vested and an additional 20% will
vest on August 20, 2000. Mr. Purdom has advised the Company that he intends to
resign effective August 31, 2000.
Other
During the year ended December 31, 1999, the Company paid approximately
$323,000 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.
31
<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
Table of Contents for the 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 on page S-1 of this Form 10-K. All other
schedules for which provision is made in the applicable regulation of
the Commission are not required under the related instructions or are
inapplicable and therefore have been omitted.
(3) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
--------- ---------------------------------------------------------------------------
<C> <C>
2+++ Amended and Restated Agreement and Plan of Merger by and between
Warburg, Pincus Ventures, L.P. and Knoll, Inc., dated as of July 29, 1999.
3.1*** Amended and Restated Certificate of Incorporation of the Company.
3.2*** Amended and Restated By-Laws of the Company.
10.1* Stock Purchase Agreement, dated as of December 20, 1995, by and between
Westinghouse and T.K.G. Acquisition Corp.
10.2++++ Credit Agreement, dated as of October 20, 1999, by and among the
Company, the Guarantors (as defined therein), the Lenders (as defined
therein), Bank of America, N.A., as Administrative Agent, the Chase
Manhattan Bank, as Syndication Agent, and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Documentation Agent.
10.3* 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 & Trust Company, as
trustee, relating to $165,000,000 principal amount of 10.875% Senior
Subordinated Notes due 2006, including form of Initial Global Note.
10.4* 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 10.875% Senior
Subordinated Notes due 2006, including form of Initial Global Note.
10.5** 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 10.875% Senior Subordinated Notes due 2006, including form
of Initial Global Note.
10.6++ Letter Agreement between Oak Hill Securities Fund, L.P. and the
Company, dated August 13, 1999.
10.7+ Supplemental Indenture No. 3, dated as of November 4, 1999, by and
among the Company, the Guarantors (as defined therein), and The Bank
of New York, as trustee, relating to the Company's 10.875% Senior
Subordinated Notes due 2006.
</TABLE>
32
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
--------- ---------------------------------------------------------------------------
<C> <C>
10.8 Amended and Restated Employment Agreement, dated as of January 1, 2000,
between the Company and Burton B. Staniar.
10.9** Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and John H. Lynch.
10.10** Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and Andrew B. Cogan.
10.11*** Amendment to Employment Agreement, dated as of April 30, 1997, between
the Company and Andrew B. Cogan.
10.12**** Amendment #2 to Employment Agreement, dated as of August 1, 1998,
between the Company and Andrew B. Cogan.
10.13 Amendment #3 to Employment Agreement, dated as of December 4, 1999,
between the Company and Andrew B. Cogan.
10.14**** Letter Agreement between the Company and Douglas J. Purdom, dated
August 13, 1996.
10.15 Amended and Restated Stockholders Agreement, dated as of November 4, 1999,
among the Company, Warburg, Pincus Ventures, L.P., and the signatories
thereto.
10.16 Amended and Restated Stockholders Agreement (Common Stock Under Stock
Incentive Plans), dated as of November 4, 1999, among the Company,
Warburg, Pincus Ventures, L.P., and the signatories thereto.
10.17 Amended and Restated Knoll, Inc. 1996 Stock Incentive Plan.
10.18 Amended and Restated Knoll, Inc. 1997 Stock Incentive Plan.
10.19 Knoll, Inc. 1999 Stock Incentive Plan.
10.20 Form of Non-Qualified Stock Option Agreement Under the Knoll, Inc.
1999 Stock Incentive Plan, entered into by the Company and certain
executive officers.
10.21*** Form of Agreement, dated as of April 15, 1997, by and among the Company,
Warburg, Pincus Ventures, L.P., NationsBanc Investment Corp. and the
Investors (as defined therein).
21** Subsidiaries of the Registrant.
27 Financial Data Schedule
</TABLE>
(b) Current Reports on Form 8-K:
On October 22, 1999, the Company filed a report on Form 8-K dated October
20, 1999. In that Form 8-K under Item 5 -- Other Events, the Company
reported that (i) it entered into a credit agreement between the Company,
each of the Company's domestic subsidiaries as guarantors, certain lenders
identified therein (the "Lenders"), Bank of America, N.A., as
Administrative Agent, The Chase Manhattan Bank, as Syndication Agent, and
Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as Documentation Agent and (ii) the stockholders approved the then-pending
merger transaction in which the Company's public stockholders would receive
$28.00 in cash for each share of Knoll common stock owned by them. The
credit agreement dated October 20, 1999 was included as an exhibit to the
Form 8-K.
On November 5, 1999, the Company filed a report on Form 8-K dated
November 4, 1999. In that Form 8-K under Item 5 -- Other Events, the
Company reported the following: (i) its November 4, 1999 press release
that announced the closing of the merger of a newly formed entity with and
into the Company, whereby all of the common stock held by the Company's
public stockholders was converted into the right to receive $28.00 per
share in cash, (ii) its November 3, 1999 press release that announced the
Delaware Chancery Court had approved the settlement of litigation
challenging the merger, (iii) as a result of the merger, the Company's
common stock was being delisted from the NYSE and the Company would
promptly file to deregister its common stock under the Exchange Act and
(iv) it was refiling the credit agreement dated as of October 20,
33
<PAGE>
1999, between the Company, each of the Company's domestic subsidiaries,
certain lenders identified therein (the "Lenders"), Bank of America, N.A.,
as Administrative Agent, The Chase Manhattan Bank, as Syndication Agent,
and Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as Documentation Agent. The aforementioned press releases
and credit agreement were included as exhibits to the Form 8-K.
On December 12, 1999, the Company filed a report on Form 8-K dated
December 2, 1999. In that Form 8-K under Item 5 -- Other Events, the
Company reported its December 2, 1999 press release regarding the promotion
of Andrew B. Cogan to chief operating officer and Kathleen G. Bradley to
president.
- -----------------------------------------
* Incorporated by reference to the Company's Registration Statement on
Form S-4 (File No. 333-2972), which was declared effective by the
Commission on June 12, 1996.
** Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
*** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-23399), which was declared effective by the
Commission on May 9, 1997.
**** Incorporated by reference to the Company's Annual Report on Form 10-K,
and the amendments thereto, for the year ended December 31, 1998.
+ Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.
++ Incorporated by reference to the Company's Amendment No. 1 to Schedule
13E-3, which was filed with the Commission on September 10, 1999.
+++ Incorporated by reference to the Company's Definitive Proxy Statement
on Schedule 14A, which was filed with the Commission on September 30,
1999.
++++ Incorporated by reference to the Company's Form 8-K dated November 4,
1999, which was filed with the Commission on November 5, 1999.
34
<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, on this
30th day of March 2000.
KNOLL, INC.
By: /s/ Burton B. Staniar
-----------------------
Burton B. Staniar
Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report on Form 10-K has been signed by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
/s/ Burton B. Staniar Chairman of the Board March 30, 2000
- ---------------------------
Burton B. Staniar
/s/ John H. Lynch Chief Executive Officer March 30, 2000
- --------------------------- and Director
John H. Lynch (Principal Executive Officer)
/s/ Kathleen G. Bradley President and Director March 30, 2000
- ---------------------------
Kathleen G. Bradley
/s/ Andrew B. Cogan Chief Operating Officer March 30, 2000
- --------------------------- and Director
Andrew B. Cogan
/s/ Douglas J. Purdom Chief Financial Officer March 30, 2000
- --------------------------- (Principal Financial Officer)
Douglas J. Purdom
/s/ Barry L. McCabe Controller March 30, 2000
- --------------------------- (Principal Accounting Officer)
Barry L. McCabe
/s/ Jeffrey A. Harris Director March 30, 2000
- ---------------------------
Jeffrey A. Harris
/s/ Sidney Lapidus Director March 30, 2000
- ---------------------------
Sidney Lapidus
/s/ Kewsong Lee Director March 30, 2000
- ---------------------------
Kewsong Lee
/s/ Lloyd Metz Director March 30, 2000
- ---------------------------
Lloyd Metz
/s/ Henry B. Schacht Director March 30, 2000
- ---------------------------
Henry B. Schacht
35
<PAGE>
KNOLL, INC.
TABLE OF CONTENTS FOR THE FINANCIAL STATEMENTS
Page
------
Report of Independent Auditors........................................ F-2
Consolidated Balance Sheets at December 31, 1999 and 1998............. F-3
Consolidated Statements of Operations for the Years Ended
December 31, 1999, 1998 and 1997................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1999, 1998 and 1997................................... F-5
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Years Ended December 31, 1999, 1998 and 1997..... F-6
Notes to the Consolidated Financial Statements........................ F-7
Financial Statement Schedule II--Valuation and Qualifying Accounts.... S-1
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Knoll, Inc.
We have audited the accompanying consolidated balance sheets of Knoll, Inc.
as of December 31, 1999 and 1998, and the related consolidated statements of
operations, changes in stockholders' equity (deficit), and cash flows for each
of the three years in the period ended December 31, 1999. Our audits also
included the financial statement schedule 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 auditing standards generally
accepted in the United States. 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Knoll, Inc. at
December 31, 1999 and 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December
31, 1999, in conformity with accounting principles generally accepted in the
United States. Also, in our opinion, the related financial statement schedule,
when considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
February 1, 2000
F-2
<PAGE>
KNOLL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......................... $ 10,785 $ 17,465
Restricted cash (Note 4).......................... 7,776 --
Customer receivables, net......................... 167,767 137,956
Inventories....................................... 82,738 77,113
Deferred income taxes............................. 22,440 21,067
Prepaid and other current assets.................. 7,720 9,842
-------- --------
Total current assets.......................... 299,226 263,443
Property, plant and equipment, net................ 184,641 186,167
Intangible assets, net............................ 254,957 260,043
Other noncurrent assets........................... 3,482 4,374
-------- --------
Total Assets.................................. $742,306 $714,027
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current maturities of long-term debt.............. $ 17,500 $ 10,000
Accounts payable.................................. 72,914 59,551
Income taxes payable.............................. 3,483 7,096
Other current liabilities......................... 101,242 91,756
-------- --------
Total current liabilities..................... 195,139 168,403
Long-term debt.................................... 592,876 159,255
Deferred income taxes............................. 18,956 10,678
Postretirement benefits other than pension........ 18,426 18,450
Other noncurrent liabilities...................... 11,103 13,391
-------- --------
Total liabilities............................. 836,500 370,177
-------- --------
Stockholders' equity (deficit):
Common stock, $0.01 par value; authorized
100,000,000 shares; 23,289,898 shares issued
and outstanding (net of 1,000 treasury
shares) in 1999 and 41,799,499 shares issued
and outstanding (net of 1,707,700 treasury
shares) in 1998................................. 233 418
Additional paid-in-capital........................ 4,173 181,792
Unearned stock grant compensation................. (433) (712)
Retained earnings (deficit)....................... (91,328) 170,986
Accumulated other comprehensive income............ (6,839) (8,634)
-------- --------
Total stockholders' equity (deficit).......... (94,194) 343,850
-------- --------
Total Liabilities and Stockholders'
Equity (Deficit)............................ $742,306 $714,027
======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-3
<PAGE>
KNOLL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Sales..................................... $984,511 $948,691 $810,857
Cost of sales............................. 593,442 572,756 489,962
-------- -------- --------
Gross profit.............................. 391,069 375,935 320,895
Selling, general and administrative
expenses................................ 206,919 204,392 183,018
-------- -------- --------
Operating income.......................... 184,150 171,543 137,877
Interest expense.......................... 21,611 16,860 25,075
Recapitalization expense (Note 4)......... 6,356 -- --
Other income (expense), net............... (670) 2,732 1,667
-------- -------- --------
Income before income tax expense and
extraordinary item...................... 155,513 157,415 114,469
Income tax expense........................ 66,351 64,371 48,026
-------- -------- --------
Income before extraordinary item.......... 89,162 93,044 66,443
Extraordinary loss on early
extinguishment of debt, net of
taxes (Note 10)......................... 10,801 -- 5,337
-------- -------- --------
Net income................................ $ 78,361 $ 93,044 $ 61,106
======== ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-4
<PAGE>
KNOLL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(In Thousands)
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income................................ $ 78,361 $ 93,044 $ 61,106
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation........................ 25,135 28,686 25,082
Amortization of intangible assets... 7,873 7,816 8,041
Recapitalization expense............ 6,356 -- --
Extraordinary loss, net of taxes.... 10,801 -- 5,337
Other noncash items................. 7,748 (1,636) 240
Changes in assets and liabilities:
Customer receivables............ (31,134) (15,184) (12,176)
Inventories..................... (6,364) (9,061) (11,381)
Accounts payable................ 13,848 (6,452) 18,052
Current and deferred income
taxes......................... 13,715 591 19,397
Other current assets............ (166) (237) 1,674
Other current liabilities....... 2,038 13,547 12,849
Other noncurrent assets and
liabilities................... (224) 3,449 7,041
--------- -------- --------
Cash provided by operating activities..... 127,987 114,563 135,262
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures...................... (25,095) (36,390) (33,080)
Proceeds from sale of assets.............. 114 152 164
--------- -------- --------
Cash used in investing activities......... (24,981) (36,238) (32,916)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of) revolving
credit facility, net.................... 120,000 (38,000) (79,000)
Proceeds from long-term debt.............. 325,000 201 --
Repayment of long-term debt............... (3,750) -- (67,988)
Payment of debt issuance costs............ (7,864) -- --
Payment of consent fee on Senior
Subordinated Notes...................... (12,870) -- --
Premium paid for early extinguishment
of debt................................. -- -- (5,775)
Net proceeds from issuance of stock....... 4,746 4,813 133,559
Redemption of preferred stock............. -- -- (80,000)
Purchase of common stock.................. (28,703) (38,849) --
Payment of merger consideration........... (496,682) -- --
Payment of recapitalization costs......... (8,843) -- --
--------- -------- --------
Cash used in financing activities......... (108,966) (71,835) (99,204)
--------- -------- --------
Effect of exchange rate changes on cash
and cash equivalents.................... (720) 185 (1,156)
--------- -------- --------
Increase (decrease) in cash and cash
equivalents............................. (6,680) 6,675 1,986
Cash and cash equivalents at beginning
of period............................... 17,465 10,790 8,804
--------- -------- --------
Cash and cash equivalents at end
of period............................... $ 10,785 $ 17,465 $ 10,790
========= ======== ========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-5
<PAGE>
KNOLL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997
(Dollars In Thousands)
<TABLE>
<CAPTION>
Unearned Accumulated Total
Additional Stock Retained Other Stockholders'
Preferred Common Paid-In Grant Earnings Comprehensive Equity
Stock Stock Capital Compensation (Deficit) Income (Deficit)
--------- ------ ---------- ------------ ---------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1996 (shares:
1,602,998 preferred
and 7,291,308 common)... $1,603 $ 73 $ 160,147 $(1,387) $ 16,836 $ 532 $ 177,804
Net income................ -- -- -- -- 61,106 -- 61,106
Foreign currency
translation adjustment.. -- -- -- -- -- (4,574) (4,574)
---------
Comprehensive income...... 56,532
---------
Shares issued for
consideration
(8,502,716 shares)...... -- 85 133,474 -- -- -- 133,559
800,000 preferred shares
redeemed for $80,000
and 11,749,361
common shares........... (800) 117 (79,317) -- -- -- (80,000)
802,998 preferred
shares converted into
15,691,558 common
shares.................. (803) 157 646 -- -- -- --
Earned stock grant
compensation............ -- -- -- 394 -- -- 394
------ ----- --------- ------- --------- ------- ---------
Balance at December 31,
1997.................... -- 432 214,950 (993) 77,942 (4,042) 288,289
---------
Net income................ -- -- -- -- 93,044 -- 93,044
Foreign currency
translation adjustment.. -- -- -- -- -- (4,592) (4,592)
---------
Comprehensive income...... 88,452
---------
Shares issued for
consideration:
Exercise of stock
options, including
tax benefit of $864
(196,647 shares).... -- 2 4,020 -- -- -- 4,022
Other (75,609 shares). -- 1 1,654 -- -- -- 1,655
Purchase of common stock
(1,707,700 shares)...... -- (17) (38,832) -- -- -- (38,849)
Earned stock grant
compensation............ -- -- -- 281 -- -- 281
------ ----- --------- ------- --------- ------- ---------
Balance at December 31,
1998.................... -- 418 181,792 (712) 170,986 (8,634) 343,850
---------
Net income................ -- -- -- -- 78,361 -- 78,361
Foreign currency
translation adjustment.. -- -- -- -- -- 1,795 1,795
---------
Comprehensive income...... 80,156
---------
Shares issued for
consideration:
Exercise of stock
options, including
tax benefit of $674
(244,798 shares).... -- 2 4,572 -- -- -- 4,574
Other (40,972 shares). -- -- 846 -- -- -- 846
Shares contributed to
the 401(k) Plan
(150,100 shares)........ -- 2 4,201 -- -- -- 4,203
Purchase of common stock
(1,188,000 shares)...... -- (12) (28,691) -- -- -- (28,703)
Shares forfeited under
stock incentive plan
(18,837 shares)......... -- -- -- 1 -- -- 1
Merger consideration
for shares canceled
(17,738,634 shares)..... -- (177) (155,830) -- (340,675) -- (496,682)
Recapitalization costs.... -- -- (2,717) -- -- -- (2,717)
Earned stock grant
compensation............ -- -- -- 278 -- -- 278
------ ----- --------- ------- --------- ------- ---------
Balance at December 31,
1999 (23,289,898
shares)................. $ -- $ 233 $ 4,173 $ (433) $ (91,328) $(6,839) $ (94,194)
====== ===== ========= ======= ========= ======= =========
</TABLE>
See accompanying notes to the consolidated financial statements.
F-6
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
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.
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 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.
Cash and Cash Equivalents
Cash and cash equivalents includes cash on hand and investments with
maturities of three months or less at the date of purchase.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out 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, 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 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.
F-7
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
Revenue Recognition
Sales are recognized as products are shipped and services are rendered.
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.
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 exchange rates in effect at the balance
sheet date. The resulting translation adjustments are recorded in, and
are the only component of, accumulated other comprehensive income.
Transaction gains and losses resulting from exchange rate changes on
transactions denominated in currencies other than the functional currency
are included in income in the year in which the change occurs.
Stock-Based Compensation
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), 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"
("APB 25"). The Company accounts for stock-based compensation in
accordance with APB 25. Pro forma results of operations as if SFAS 123
had been used to account for stock-based compensation plans are
presented in Note 18.
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 for 1998 and 1997 in the accompanying consolidated
financial statements have been reclassified to conform to the 1999
presentation.
Accounting Pronouncement Pending Adoption
In June 1998, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133), as
amended, which is required to be adopted in fiscal years beginning after
June 15, 2000. Because of the Company's limited use of derivatives,
management does not anticipate that the adoption of SFAS 133 will have
a significant effect on earnings or the financial position of the Company.
F-8
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
3. INITIAL PUBLIC OFFERING
The Company completed an initial public offering (the "IPO") during the
second quarter of 1997. An aggregate of 9,200,000 shares, including
720,000 shares sold by a selling stockholder, were sold during May and
June 1997 at $17.00 per share. The net proceeds to the Company
amounted to $133,440,000 after deducting related expenses. The net
proceeds, together with borrowings of $11,673,000 under the Company's
then-existing revolving credit facility, were used (i) to redeem 800,000
shares of Series A 12% Participating Convertible Preferred Stock
("Series A Preferred Stock") and (ii) to redeem an aggregate principal
amount of $57,750,000 of the Company's 10.875% Senior Subordinated
Notes due 2006 (the "Senior Subordinated Notes") for a total redemption
price of $65,113,000, including a redemption premium of $5,775,000 and
accrued and unpaid interest thereon of $1,588,000. The 800,000 shares
of Series A Preferred Stock were redeemed for $80,000,000 and 11,749,361
shares of common stock. Additionally, in connection with the IPO, another
802,998 shares of Series A Preferred Stock were converted into 15,691,558
shares of common stock.
4. RECAPITALIZATION (MERGER)
On March 23, 1999, the Company received a proposal from Warburg,
Pincus Ventures, L.P. ("Warburg") and certain members of Knoll management
regarding a recapitalization (merger) transaction whereby the Company
would acquire all of the outstanding shares of its common stock not owned
by Warburg and certain members of Knoll management for $25.00 per share.
The Board of Directors appointed a special committee, consisting of
independent members of the Board of Directors, to consider the proposed
merger. The special committee retained legal counsel and an investment
banker to assist in evaluating the proposed merger. The proposed merger
consideration was subsequently increased to $28.00 per share. On June 21,
1999, the Board of Directors, at the recommendation of the special
committee, approved the proposed merger at a price of $28.00 per share.
On that same day, Warburg and the Company entered into an agreement and
plan of merger, which was subsequently amended on July 29, 1999. On
October 20, 1999, the merger was approved by the holders of a majority of
the outstanding shares of Knoll common stock at the Company's 1999 annual
meeting of stockholders.
On August 13, 1999, the Company entered into an agreement with the holder
of a majority of its Senior Subordinated Notes. Under the agreement, the
majority holder consented to the merger and the related transactions, and
the Company agreed to pay such holder (and other holders of the Senior
Subordinated Notes who also consent), promptly after completion of the
merger, $120 per $1,000 principal amount of the Senior Subordinated Notes
owned by the holder. All other holders also provided their consent. See
Note 10 for further discussion of this transaction.
Eight class action complaints relating to the initial announcement of the
proposed merger were filed in March 1999. One complaint was voluntarily
dismissed and the seven remaining complaints were consolidated into a
single action. On June 21, 1999, the Company entered into a Memorandum
of Understanding with counsel to the plaintiffs in the lawsuits. The
Memorandum of Understanding provided for the settlement of such lawsuits
based on the payment of a per share merger consideration of $28.00. On
November 3, 1999, the proposed settlement of the litigation, as provided
for in the Memorandum of Understanding, was approved by the Delaware Court
of Chancery.
The merger of a newly formed entity, which was organized by Warburg,
with and into Knoll, with Knoll continuing as the surviving corporation,
was consummated on November 4, 1999. As a result of the merger,
17,738,634 shares of common stock held by the public stockholders of
Knoll immediately prior to
F-9
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
the merger were converted into the right to receive $28.00 per share in
cash and were canceled. Furthermore, the Company's common stock ceased
to be listed on the New York Stock Exchange, and the registration of the
Company's common stock under the Securities Exchange Act was terminated.
The Company's consolidated balance sheet as of December 31, 1999 includes
restricted cash and a current liability of $7,776,000 related to merger
consideration held by the Company's exchange agent for canceled shares of
Knoll common stock that were not yet presented to the exchange agent.
The merger and related transactions were accounted for as a leveraged
recapitalization. The historical accounting basis of Knoll's assets and
liabilities were retained subsequent to the transactions. In connection
with the merger and related transactions, the Company incurred
recapitalization costs and financing costs of $9,073,000 and $20,734,000,
respectively. Of the recapitalization costs, $6,356,000 was expensed and
$2,717,000, which represents investor direct acquisition costs, was
recorded as a reduction of additional paid-in-capital. Of the financing
costs, $7,864,000 was capitalized as deferred financing fees and the
remaining $12,870,000, which is the total consent fee related to the
Senior Subordinated Notes, was recorded as a component of the
extraordinary loss on early extinguishment of debt. The Company funded
the merger and related fees and expenses with borrowings under a new
senior credit agreement that was entered into in connection with the
merger. See Note 10 for further discussion of the new credit agreement
and the extraordinary loss noted above.
5. CUSTOMER RECEIVABLES
Customer receivables are presented net of an allowance for doubtful
accounts of $6,783,000 and $5,057,000 at December 31, 1999 and 1998,
respectively. Management performs ongoing credit evaluations of its
customers and generally does not require collateral. As of December 31,
1999 and 1998, the U.S. government represented approximately 8.9% and
11.4%, respectively, of gross customer receivables.
6. INVENTORIES
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Raw materials............................... $49,795 $42,625
Work in process............................. 10,313 11,827
Finished goods.............................. 22,630 22,661
------- -------
Inventories................................. $82,738 $77,113
======= =======
</TABLE>
7. PROPERTY, PLANT AND EQUIPMENT
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Land and buildings.......................... $ 71,002 $ 67,303
Machinery and equipment..................... 193,000 169,261
Construction in progress.................... 15,970 21,406
-------- --------
Property, plant and equipment............... 279,972 257,970
Accumulated depreciation.................... (95,331) (71,803)
-------- --------
Property, plant and equipment, net.......... $184,641 $186,167
======== ========
</TABLE>
F-10
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
8. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Goodwill.................................... $ 53,966 $ 53,943
Trademarks.................................. 219,900 219,900
Deferred financing fees..................... 7,864 8,354
-------- --------
Intangible assets........................... 281,730 282,197
Accumulated amortization.................... (26,773) (22,154)
-------- --------
Intangible assets, net...................... $254,957 $260,043
======== ========
</TABLE>
9. OTHER CURRENT LIABILITIES
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Accrued employee compensation............... $ 45,684 $ 51,593
Accrued product warranty.................... 9,925 10,407
Other....................................... 45,633 29,756
-------- --------
Other current liabilities................... $101,242 $ 91,756
======== ========
</TABLE>
10. INDEBTEDNESS
The Company's long-term debt is summarized as follows:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
10.875% Senior Subordinated Notes due 2006.. $107,250 $107,250
Term loans, variable rate (7.545% at
December 31,1999), due through 2005....... 321,250 --
Revolving loans, variable rate (7.545% at
December 31, 1999), due 2005.............. 181,000 --
Revolving loans, variable rate (5.675% -
5.875% at December 31, 1998), due 2002.... -- 61,000
Other....................................... 876 1,005
-------- --------
610,376 169,255
Less current maturities..................... (17,500) (10,000)
-------- --------
Long-term debt.............................. $592,876 $159,255
======== ========
</TABLE>
Senior Subordinated Notes
The Company assumed the obligations under the Senior Subordinated Notes
on February 29, 1996. At such time, the total principal amount
outstanding was $165,000,000. During June 1997, the Company used proceeds
from its IPO to repurchase an aggregate principal amount of $57,750,000 of
the Senior Subordinated Notes for a total redemption price of $65,113,000,
including a redemption premium of $5,775,000 and accrued and unpaid
interest thereon of $1,588,000. The Company wrote off unamortized
financing costs of $3,063,000 related to the portion of the Senior
Subordinated Notes that was redeemed. The early redemption premium and
write-off of unamortized financing costs resulted in an extraordinary loss
of $8,838,000 on a pretax basis ($5,337,000 on an after-tax basis) during
1997.
F-11
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
As discussed in Note 4, the Company entered into an agreement with the
holder of a majority of its Senior Subordinated Notes on August 13, 1999.
Under the agreement, (i) the holder consented to certain amendments to the
indenture governing the Senior Subordinated Notes, thus allowing the
Company to complete the merger without violating the covenants under the
indenture, and (ii) the Company agreed to pay such holder (and other
holders of the Senior Subordinated Notes who also consent), promptly after
completion of the merger, $120 per $1,000 principal amount of the Senior
Subordinated Notes owned by the holder. The Company subsequently obtained
consents from all other holders as of August 13, 1999 through a consent
solicitation process. Upon completion of the merger, the Company paid the
holders an aggregate consent fee of $12,870,000.
Due to the significance of the consent fee, the Company accounted for the
modification of the debt terms under the indenture as an extinguishment of
debt. Such treatment resulted in an extraordinary loss of $17,001,000 on
a pretax basis ($10,244,000 on an after-tax basis), which consisted of the
write-off of $4,131,000 of unamortized financing fees related to the
Senior Subordinated Notes and the consent fee of $12,870,000 that was paid
to the holders.
The Senior Subordinated 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 Senior Subordinated Notes, it is unlikely
that the guarantors will be able to pay all or any portion of such
unsatisfied obligations.
The Senior Subordinated Notes outstanding at December 31, 1999 may not be
redeemed at the Company's option prior to March 15, 2001. At such date,
the Senior Subordinated Notes are redeemable, in whole or in part, 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.
There are no sinking fund requirements related to the Senior Subordinated
Notes.
The indenture for the Senior Subordinated Notes limits the incurrence of
indebtedness, payment of dividends and purchase of Company stock and
includes certain other restrictions and limitations that are customary
with subordinated indebtedness of this type. The Company believes that it
was in compliance with the terms of the indenture at December 31, 1999.
Term and Revolving Loans
In connection with the merger, the Company entered into a $650,000,000
senior credit agreement, consisting of a $325,000,000 six-year term loan
facility and a $325,000,000 six-year revolving credit facility, to (i)
fund the merger and related fees and expenses (including consent fees
related to the Company's Senior Subordinated Notes), (ii) refinance
$14,000,000 owed under the Company's senior credit agreement that existed
immediately prior to the merger and (iii) provide for working capital and
ongoing general corporate purposes. The refinancing resulted in an
extraordinary loss of $925,000 on a pretax basis ($557,000 on an after-
tax basis), which consisted of the write-off of unamortized financing fees
related to the refinanced debt.
The new senior credit agreement contains a letter of credit subfacility
that allows for the issuance of up to $25,000,000 in letters of credit and
a swing line loan subfacility that allows for the issuance of up to
$10,000,000 in swing line loans. The amount available for borrowing
under the revolving credit facility is reduced by the total outstanding
letters of credit and swing line loans. At December 31, 1999, the
Company had letters of credit totaling $2,517,000, under which there
were no borrowings.
F-12
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
The Company pays a commitment fee ranging from 0.175% to 0.50%, 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
0.625% to 1.625%, depending on the Company's leverage ratio, is required
to be paid on the amount available to be drawn under letters of credit.
As of December 31, 1999, the commitment and letter of credit fees
applicable to the Company were 0.375% and 1.375%, respectively.
Borrowings under the agreement bear interest at a floating rate based, at
the Company's option, upon (i) the Eurodollar rate (as defined therein)
plus an applicable percentage that is subject to change based upon the
Company's ratio of funded debt to earnings before income taxes,
depreciation, amortization and other noncash charges ("EBITDA") or (ii)
the greater of the federal funds rate plus 0.5% or the prime rate, plus
an applicable percentage that is subject to change based upon the
Company's ratio of funded debt to EBITDA. The Company is required to
make quarterly principal payments under the term loan facility through
September 2005. The revolving credit facility allows the Company to
borrow, repay and reborrow funds from time to time until November 4, 2005.
The agreement is secured by substantially all of the Company's present
and future domestic assets, 100% of the capital stock of the Company's
present and future domestic subsidiaries and 65% of the capital stock of
the Company's present and future foreign subsidiaries. Additionally, all
borrowings are jointly and severally, unconditionally guaranteed by the
Company's existing and future 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
purchase Company stock; require the Company to maintain certain financial
ratios with respect to funded debt leverage and interest coverage; and
require the Company to enter into interest rate protection agreements in
a notional amount of at least $135,000,000 within 90 days subsequent to
November 4, 1999 and maintain such agreements for at least three years
from the date they are purchased. The Company believes that it was in
compliance with the credit agreement covenants at December 31, 1999.
The Company also has several revolving credit agreements with various
European financial institutions. These credit agreements are to provide
credit primarily for overdraft and working capital purposes. As of
December 31, 1999, total credit available under such agreements was
approximately $10,127,000 or the European equivalent. There is currently
no expiration date on these agreements. The interest rate on borrowings
is variable and is based on the monetary market rate that is linked to
each country's prime rate. As of December 31, 1999, the Company did not
have any outstanding borrowings under the European credit facilities.
Interest Paid
During 1999, 1998 and 1997, the Company made interest payments totaling
$18,110,000, $15,943,000 and $25,505,000, respectively.
F-13
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
Maturities
Aggregate principal maturities of the Company's indebtedness are as
follows (in thousands):
2000................................ $ 17,500
2001................................ 31,250
2002................................ 52,570
2003................................ 63,837
2004................................ 81,337
Thereafter.......................... 363,882
--------
$610,376
========
11. PREFERRED STOCK
The Company's Certificate of Incorporation authorizes the issuance of
10,000,000 shares of preferred stock with a par value of $1.00 per share.
1,920,000 of these shares are designated as Series A Preferred Stock, of
which 1,602,998 shares have been retired and canceled as a result of the
redemption and conversion discussed in Note 3, and 317,002 shares remain
eligible to be issued. Subject to existing laws, the Board of Directors
is authorized to provide for the issuance of preferred shares in one or
more series, for such consideration and with 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.
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses interest rate collar agreements to manage its exposure
to fluctuations in interest rates on its variable 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 variable rate reference. Thus, the agreements hedge the
LIBOR component of the Eurodollar interest rate on the Company's variable
rate debt. The net amount paid or received on the agreements is
recognized as an adjustment to interest expense.
The Company did not have any interest rate collar agreements outstanding
at December 31, 1999. The aggregate notional principal amount of the
Company's interest rate collar agreements outstanding at December 31, 1998
was $115,000,000, and the related weighted average maximum and minimum
rates were 7.97% and 5.05%, respectively. In January 2000, the Company
entered into three interest rate collar agreements, which will terminate
in February 2003, that have an aggregate notional principal amount of
$135,000,000 and weighted average maximum and minimum rates of 10.00% and
5.64%, respectively. The counterparties to the interest rate collar
agreements are major financial institutions. During 1999, 1998 and 1997,
the Company was not required to make nor was it entitled to receive any
payments as a result of these hedging activities.
From time to time, the Company enters into foreign currency forward
exchange contracts to manage its exposure to foreign exchange rates
associated with purchases of inventory from foreign suppliers. The terms
of these contracts are generally less than a year. Material gains and
losses on these contracts are recognized in income in the period the
value of the contract changes. The contract amounts outstanding at
December 31, 1999 and 1998 as well as the amounts of gains and losses
recorded during 1999, 1998 and 1997 were not material.
F-14
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
13. CONTINGENT LIABILITIES AND COMMITMENTS
The Company is subject to various claims and 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.
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 and Accounts Payable
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, was approximately $610,239,000 at
December 31, 1999 and $181,394,000 at December 31, 1998 while the
carrying amounts were $610,376,000 and $169,255,000, respectively.
Interest Rate Collar Agreements
The fair value of the Company's interest rate collar agreements, as
estimated by dealers, was not material as of December 31, 1998.
Foreign Currency Forward Exchange Contracts
The fair value of the Company's foreign currency forward exchange
contracts, as determined by quoted market prices, was not material as of
December 31, 1999 and 1998.
15. INCOME TAXES
Income before income tax expense and extraordinary item consists of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
U.S. operations................. $151,350 $142,483 $ 82,851
Foreign operations.............. 4,163 14,932 31,618
-------- -------- --------
$155,513 $157,415 $114,469
======== ======== ========
</TABLE>
F-15
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
Income tax expense, excluding extraordinary items, is comprised of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
---------- ---------- ----------
(In Thousands)
<S> <C> <C> <C>
Current:
Federal..................... $46,651 $42,364 $21,585
State....................... 10,198 9,456 5,980
Foreign..................... 2,206 5,414 11,295
------- ------- -------
Total current........... 59,055 57,234 38,860
------- ------- -------
Deferred:
Federal..................... 6,385 4,423 6,258
State....................... 1,256 1,113 708
Foreign..................... (345) 1,601 2,200
------- ------- -------
Total deferred.......... 7,296 7,137 9,166
------- ------- -------
Income tax expense.............. $66,351 $64,371 $48,026
======= ======= =======
</TABLE>
Income taxes paid by the Company during 1999, 1998 and 1997 totaled
$52,285,000, $61,404,000 and $24,026,000, respectively.
The following table sets forth the tax effects of temporary differences
that give rise to the deferred tax assets and liabilities:
<TABLE>
<CAPTION>
1999 1998
---------- ----------
(In Thousands)
<S> <C> <C>
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts.... $ 2,327 $ 1,624
Inventories............................. 3,030 2,640
Net operating loss carryforwards........ 13,432 19,045
Obligation for postretirement benefits
other than pension.................... 7,787 7,591
Accrued liabilities and other items..... 19,541 20,915
-------- --------
Gross deferred tax assets........... 46,117 51,815
Valuation allowance..................... (16,137) (22,528)
-------- --------
Net deferred tax assets............. 29,980 29,287
-------- --------
Deferred tax liabilities:
Intangibles, principally due to
differences in amortization........... 15,249 11,260
Plant and equipment, principally due
to differences in depreciation and
assigned values....................... 11,155 7,411
Other items............................. 92 227
-------- --------
Gross deferred tax liabilities...... 26,496 18,898
-------- --------
Net deferred tax assets..................... $ 3,484 $ 10,389
======== ========
</TABLE>
As of December 31, 1999, the Company had net operating loss carryforwards
totaling approximately $34,448,000 in various foreign tax jurisdictions,
of which $5,215,000 expire in 2000 and $29,233,000 may be carried forward
for an unlimited time.
F-16
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
The Company has recorded a valuation allowance for net deferred tax assets
in foreign tax jurisdictions, primarily related to net operating loss
carryforwards that existed as of February 29, 1996, the date the Company
was formed, due to losses incurred in these tax jurisdictions prior to
such date. At December 31, 1997, the valuation allowance was $25,172,000.
The decrease in the valuation allowance from 1997 to 1998 and from 1998
to 1999 resulted primarily from the expiration and utilization of net
operating loss carryforwards in the foreign tax jurisdictions.
For 1999, 1998 and 1997, tax benefits recognized through reductions of
the valuation allowance for net operating loss carryforwards that existed
as of February 29, 1996 had the effect of reducing goodwill by $430,000,
$1,457,000 and $4,524,000, respectively. If additional tax benefits are
recognized in the future through further reduction of the valuation
allowance, such benefits will generally reduce goodwill.
The following table sets forth a reconciliation of the statutory federal
income tax rate to the effective income tax rate:
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Federal statutory tax rate............ 35.0% 35.0% 35.0%
Increase in the tax rate
resulting from:
State taxes, net of
federal effect................ 4.9 4.4 3.8
Nondeductible recapitalization
expense....................... 1.2 -- --
Higher income tax rates of
other countries............... 1.3 1.2 2.4
Nondeductible goodwill
amortization.................. 0.3 0.2 0.3
Other........................... -- 0.1 0.5
---- ---- ----
Effective tax rate.................... 42.7% 40.9% 42.0%
==== ==== ====
</TABLE>
The Company has not made provisions for U.S. federal and state income
taxes as of December 31, 1999 on $38,017,000 of foreign earnings that
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. federal and state 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.
16. LEASES
The Company has commitments under operating leases for certain
machinery and equipment and facilities used in its operations. Total
rental expense for 1999, 1998 and 1997 was $9,626,000, $9,256,000 and
$8,902,000, respectively. 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):
2000................................ $ 7,339
2001................................ 6,923
2002................................ 6,068
2003................................ 3,905
2004................................ 1,738
Subsequent years.................... 2,530
-------
Total minimum rental payments....... $28,503
=======
F-17
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
17. PENSION AND OTHER POSTRETIREMENT BENEFITS
The Company has two domestic defined benefit pension plans and two plans
providing for other postretirement benefits, including medical and life
insurance coverage. One of the pension plans and one of the other
postretirement benefits plans cover eligible U.S. nonunion employees
while the other pension plan and other postretirement benefits plan cover
eligible U.S. union employees.
The following table sets forth a reconciliation of the benefit obligation,
plan assets and accrued benefit cost related to the pension and other
postretirement benefits provided by the Company:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------- ----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C>
Change in benefit obligation:
Benefit obligation at January 1.... $17,897 $ 8,078 $ 18,778 $ 16,080
Service cost....................... 6,826 5,396 582 595
Interest cost...................... 1,204 615 1,256 1,294
Participant contributions.......... 225 252 -- --
Amendment.......................... -- 451 4 --
Actuarial loss (gain).............. (1,781) 3,214 180 1,302
Benefits paid...................... (121) (109) (1,297) (493)
------- ------- -------- --------
Benefit obligation at December 31.. 24,250 17,897 19,503 18,778
------- ------- -------- --------
Change in plan assets:
Fair value of plan assets at
January 1........................ 8,641 3,721 -- --
Actual return on plan assets....... 336 241 -- --
Employer contributions............. 5,385 4,536 1,297 493
Participant contributions.......... 225 252 -- --
Benefits paid...................... (121) (109) (1,297) (493)
------- ------- -------- --------
Fair value of plan assets at
December 31...................... 14,466 8,641 -- --
------- ------- -------- --------
Funded status...................... (9,784) (9,256) (19,503) (18,778)
Unrecognized net loss (gain)....... 756 2,156 (118) (392)
Unrecognized prior service cost.... 381 416 4 --
------- ------- -------- --------
Accrued benefit cost............... $(8,647) $(6,684) $(19,617) $(19,170)
======= ======= ======== ========
</TABLE>
Significant assumptions as of December 31 that were used in accounting
for the pension and other postretirement benefits plans are as follows:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
------------------ ------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Discount rate...................... 7.25% 6.75% 7.25% 6.75%
Expected return on plan assets..... 8.50 8.50 -- --
Rate of compensation increase...... 4.50 4.50 4.50 4.50
</TABLE>
F-18
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
The following table sets forth the components of the net periodic benefit
cost for the Company's pension and other postretirement benefits plans:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------------------- ----------------------------
1999 1998 1997 1999 1998 1997
-------- -------- -------- -------- -------- --------
(In Thousands) (In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Service cost............ $6,826 $5,396 $4,893 $ 582 $ 595 $ 560
Interest cost........... 1,204 615 207 1,256 1,294 1,224
Expected return on
plan assets........... (744) (321) (55) -- -- --
Amortization of prior
service cost.......... 35 35 -- -- -- --
Recognized actuarial
loss (gain)........... 27 (22) -- (94) -- --
------ ------ ------ ------ ------ ------
Net periodic benefit
cost.................. $7,348 $5,703 $5,045 $1,744 $1,889 $1,784
====== ====== ====== ====== ====== ======
</TABLE>
For purposes of measuring the benefit obligation and the net periodic
benefit cost as of and for the year ended December 31, 1999, respectively,
associated with the Company's other postretirement benefits plans, a 6.5%
annual rate of increase in the per capita cost of covered health care
benefits was assumed for 1999. The rate was then assumed to decrease to
5.5% in 2000 and remain at that level thereafter. Increasing the assumed
health care cost trend rate by 1.0% in each year would increase the
benefit obligation as of December 31, 1999 by $1,704,000 and increase the
aggregate of the service and interest cost components of net periodic
benefit cost for 1999 by $207,000. Decreasing the assumed health care
cost trend rate by 1.0% in each year would decrease the benefit obligation
as of December 31, 1999 by $1,544,000 and decrease the aggregate of the
service and interest cost components of net periodic benefit cost for 1999
by $180,000.
Employees of the Canadian, Belgium and United Kingdom operations
participate in defined contribution pension plans sponsored by the
Company. The Company's expense related to these plans for 1999, 1998
and 1997 was $679,000, $842,000 and $1,121,000, respectively.
The Company also sponsors a retirement savings plan (i.e. 401(k) plan) for
all U.S. employees. Under this plan, participants may defer a portion of
their earnings up to the annual contribution limits established by the
Internal Revenue Service. The Company matches 40.0% of participant
contributions on up to the first 6.0% of compensation for nonunion
employees and matches 50.0% of participant contributions on up to the
first 6.0% of compensation for union employees. For participants who
are nonunion employees, the plan provides for additional employer
matching based on the achievement of certain profitability goals.
Furthermore, effective November 4, 1999, the plan provides that the
Company may also make discretionary contributions of Knoll common stock
to participant accounts on behalf of all actively employed U.S.
participants. However, upon retiring or leaving the Company, participants
must sell vested shares of Knoll common stock back to the Company, and any
shares that are not vested at such time are forfeited by the participant
and held by the plan. Participants generally vest their interest in
Company contributions ratably according to years of service, with such
contributions being 100% vested at the end of five years of service. The
Company's total expense under the 401(k) plan was $9,466,000, $5,472,000
and $5,180,000 for 1999, 1998 and 1997, respectively.
F-19
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
The Company's common stock was offered as an investment option under the
401(k) plan from May 9, 1997 through November 3, 1999, the period during
which Knoll's common stock was publicly traded. The plan purchased shares
of Knoll common stock on the open market. In connection with the merger,
which is discussed in Note 4, all 71,174 shares of Knoll common stock held
in the 401(k) plan immediately prior to the merger were converted into the
right to receive $28.00 per share in cash and were canceled.
18. STOCK PLANS
Stock Incentive Plans
The Company sponsors three stock incentive plans under which awards
denominated or payable in shares or options to purchase shares of Knoll
common stock may be granted to officers, certain other key employees,
directors and consultants of the Company. A combined maximum of 9,264,898
shares or options to purchase shares are authorized for issuance under
the plans. A Stock Plan Committee of the Company's Board of Directors has
sole discretion concerning administration of the plans, 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.
Options that are granted have a maximum contractual life of ten years.
During 1996, the Company granted 4,144,030 restricted common shares, with
a weighted-average fair value of $0.34 per share, to key employees. The
Company recorded the fair value of the shares on the date of grant as
unearned stock grant compensation, which is a separate component of
stockholders' equity (deficit), and is recognizing compensation expense
ratably over the vesting period. As of December 31, 1999, a total of
998,357 restricted shares were not vested. Such shares will vest as
follows: 631,015 shares in 2000 and 367,342 shares in 2001.
The following table summarizes the Company's stock option activity:
<TABLE>
<CAPTION>
1999 1998 1997
----------------------- ----------------------- -----------------------
Weighted Weighted Weighted
Number Average Number Average Number Average
of Exercise of Exercise of Exercise
Options Price Options Price Options Price
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year... 1,965,511 $21.27 2,142,158 $20.73 -- $ --
Granted............... 2,305,500 26.74 50,000 28.21 2,173,552 20.66
Exercised............. (244,798) 15.93 (196,647) 16.06 -- --
Forfeited............. (269,875) 17.28 (30,000) 28.50 (31,394) 15.93
Canceled ............. (50,000) 17.00 -- -- -- --
--------- --------- ---------
Outstanding at end
of year............. 3,706,338 25.37 1,965,511 21.27 2,142,158 20.73
========= ========= =========
Exercisable at end
of year............. 396,427 26.17 240,789 24.33 10,000 17.00
========= ========= =========
Available for
future grants....... 991,922 658,710 678,710
========= ========= =========
</TABLE>
F-20
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
Options that were granted generally vest in installments over either a
four or five-year period, beginning one year from the date of grant.
The following table summarizes information regarding stock options
outstanding and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- -----------------------
Weighted
Average Weighted Weighted
Number Remaining Average Number Average
Range of of Contractual Exercise of Exercise
Exercise Prices Options Life Price Options Price
----------------- ----------- ------------- ---------- ----------- ----------
<C> <C> <C> <C> <C> <C>
$15.93 - $21.25 972,838 7.93 years $17.68 75,427 $15.93
$24.19 - $26.75 95,000 9.31 25.95 11,000 26.58
$28.00 - $33.13 2,638,500 9.27 28.19 310,000 28.65
--------- -------
$15.93 - $33.13 3,706,338 8.92 25.37 396,427 26.17
========= =======
</TABLE>
Employee Stock Purchase Plan
From August 1, 1997 through November 3, 1999, the Company sponsored an
employee stock purchase plan that provided all employees the ability to
purchase common stock of the Company at a price equal to 15.0% below the
lower of the market price at (i) the beginning of each quarterly offering
period or (ii) the end of each quarterly offering period. Purchases under
the plan were limited to 10.0% of an employee's eligible gross pay, up to
$25,000 per year. During 1999, 1998 and 1997, the Company issued
40,972, 75,609 and 22,716 shares, respectively, at a weighted average per
share price of $20.66, $21.89 and $26.71, respectively.
Other Stock-Based Compensation Plans
On November 4, 1999, the Company established The Knoll Stock Ownership
Award Plan, under which it may grant notional stock units to substantially
all individuals employed by the Company in Canada as of the effective date
of the plan. Participants generally vest their interest in notional stock
units ratably according to years of service, with such units being 100%
vested at the end of five years of service. On November 4, 1999, the
Company granted a total of 54,900 notional stock units, with an estimated
fair value of $28.00 per unit, to eligible employees. Compensation
expense is recognized based on the estimated fair value of notional stock
units and vesting provisions. During 1999, the Company incurred $992,000
of compensation expense related to 35,460 vested units.
As discussed in Note 17, the Company may contribute shares of Knoll
common stock into participant 401(k) plan accounts at its discretion.
Subsequent to the merger, the Company contributed 150,100 shares into
the 401(k) plan for substantially all individuals employed by the Company
in the U.S. as of November 4, 1999. In connection with this award, the
Company recognized $4,203,000 of compensation expense, which was based
on a value of $28.00 per share. During December 1999, the Company
repurchased 1,000 of the contributed common shares from the 401(k) plan at
a weighted average price per share of $28.00. Such shares are held in
treasury.
F-21
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
Pro Forma Disclosures
As discussed in Note 2, the Company accounts for its stock-based
compensation plans in accordance with APB 25. Accordingly, no
compensation cost has been recognized for the Company's stock options
or stock purchase rights granted in connection with the employee stock
purchase plan. If the Company had recognized compensation cost based
upon the fair value of the stock options and stock purchase rights at the
date of grant as prescribed by SFAS 123, the Company's pro forma net
income would have been $75,476,000, $89,804,000 and $59,731,000 for 1999,
1998 and 1997, respectively.
For purposes of calculating pro forma net income, the weighted average
per share fair value and exercise price of options whose exercise price
equals the market price of a share of Knoll common stock on the date of
grant were $10.15 and $21.30, respectively, for 1999 grants, $13.68 and
$28.21, respectively, for 1998 grants and $10.13 and $20.66, respectively,
for 1997 grants, and the weighted average per share fair value and
exercise price of options whose exercise price exceeds the estimated fair
value of a share of Knoll common stock on the date of grant were zero and
$28.00, respectively, for 1999 grants. Additionally, the weighted average
fair value of stock purchase rights granted under the employee stock
purchase plan was $3.76, $4.84 and $5.31 per share in 1999, 1998 and 1997,
respectively.
The fair value of the options and stock purchase rights was estimated at
the date of grant using (i) a Black-Scholes option pricing model for
grants made prior to March 24, 1999, the date the merger proposal, which
is discussed in Note 4, was first announced and (ii) a minimum value
method for grants made on or subsequent to March 24, 1999. The
following assumptions were used for the Black-Scholes model: risk-free
interest rate of 6.5% in 1999, 5.75% in 1998 and 6.0% in 1997; dividend
yield of zero in 1999, 1998 and 1997; expected volatility of the market
price of the common stock of 35.0% in 1999, 1998 and 1997; and
weighted average expected lives of 7 years for the options and 3 months
for the stock purchase rights in 1999, 1998 and 1997. Under the minimum
value method, the Company used the same assumptions as those noted above
for the Black-Scholes model for 1999 with the exception that volatility
was not considered under the minimum value method. The estimated fair
value of the options was amortized to expense over the vesting period of
the options for purposes of determining pro forma net income. The effects
of applying SFAS 123 for purposes of providing pro forma disclosures are
not likely to be representative of the effects on reported net income in
future years.
19. STOCK REPURCHASE PROGRAM
In September 1998, the Board of Directors approved a share repurchase
program that authorized the repurchase of up to 3,000,000 shares of the
Company's common stock. The Board of Directors subsequently approved an
increase of 2,000,000 shares to the program on February 2, 1999. During
1999, the Company purchased 1,187,000 shares of its common stock for
$28,675,000, or an average price of $24.16 per share. During 1998, the
Company purchased 1,707,700 shares for $38,849,000, or an average price
of $22.75 per share. Total shares purchased under the program were
2,894,700 for $67,524,000, or an average price of $23.33 per share.
Common shares were purchased in the open market and were then held in
treasury. All shares that were held in treasury immediately prior to the
merger, which is discussed in Note 4, were canceled and retired in
connection with the merger.
F-22
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
20. SEGMENT AND GEOGRAPHIC REGION INFORMATION
The Company operates exclusively in the business of design, manufacture
and sale of office furniture products and accessories. In addition to
its principal manufacturing operations and markets in North America, the
Company has manufacturing operations and markets in Europe.
The Company's sales to customers, operating income and net property,
plant and equipment are summarized by geographic areas below. Sales to
customers are attributed to the geographic areas based on the point of
sale.
<TABLE>
<CAPTION>
United
States Canada Europe Consolidated
---------- ---------- ---------- ------------
(In Thousands)
<S> <C> <C> <C> <C>
1999
Sales to customers.... $902,554 $26,028 $55,929 $984,511
Operating income...... 178,631 4,574 945 184,150
Property, plant and
equipment, net...... 142,326 31,663 10,652 184,641
1998
Sales to customers.... 857,711 29,361 61,619 948,691
Operating income...... 158,880 9,915 2,748 171,543
Property, plant and
equipment, net...... 146,488 27,754 11,925 186,167
1997
Sales to customers.... 717,326 37,674 55,857 810,857
Operating income...... 108,002 24,497 5,378 137,877
Property, plant and
equipment, net...... 145,215 23,829 11,406 180,450
</TABLE>
21. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
The following table sets forth unaudited summary information on a
quarterly basis for the Company for 1999 and 1998.
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
(In Thousands)
<S> <C> <C> <C> <C>
1999
Sales.................... $209,210 $253,726 $247,543 $274,032
Gross profit............. 81,547 102,198 96,585 110,739
Income before
extraordinary item..... 18,394 21,804 25,013 23,951
Net income............... 18,394 21,804 25,013 13,150
1998
Sales.................... 220,775 246,957 235,028 245,931
Gross profit............. 87,323 97,838 93,022 97,752
Net income............... 19,810 25,063 24,937 23,234
</TABLE>
F-23
<PAGE>
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued)
In connection with the merger and related transactions discussed in
Note 4, the Company recorded recapitalization expense totaling $3,000,000,
$541,000 and $2,815,000 in the second, third and fourth quarter,
respectively, of 1999 and an extraordinary loss of $17,926,000 pretax
($10,801,000 after-tax) in the fourth quarter of 1999. The extraordinary
loss consisted of the write-off of unamortized deferred financing fees and
the consent fee paid to the holders of the Senior Subordinated Notes.
22. 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.
These Guarantors will irrevocably and unconditionally, fully, jointly and
severally, guarantee the performance and payment when due, of all
obligations under the Senior Subordinated Notes and senior credit
agreement outstanding as of December 31, 1999, limited to the largest
amount that would not render such Guarantors' obligations under the
guarantees subject to avoidance under any applicable federal or state
fraudulent conveyance or similar law.
The condensed consolidating information that follows presents:
-- Condensed consolidating financial information as of December 31, 1999
and 1998 and for the years ended December 31, 1999, 1998 and 1997 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 subsidiaries accounted for on the equity method.
The condensed consolidating financial information should be read in
connection with the consolidated financial statements of the Company.
Separate financial statements of the Guarantors are not presented because
management has determined that separate financial statements are not
material. The Guarantors are fully, jointly, severally and
unconditionally liable under the guarantees.
F-24
<PAGE>
KNOLL, INC.
BALANCE SHEET
DECEMBER 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 549 $ 662 $ -- $ 9,574 $ -- $ 10,785
Restricted cash............. 7,776 -- -- -- -- 7,776
Customer receivables, net... 140,867 1,952 -- 24,948 -- 167,767
Accounts receivable--
related parties........... 9,545 99 4,360 37,665 (51,669) --
Inventories................. 54,351 9,123 -- 19,264 -- 82,738
Deferred income taxes....... 20,727 -- -- 1,713 -- 22,440
Prepaid and other current
assets.................... 1,887 (10) 5 5,838 -- 7,720
-------- ------- ------- -------- --------- --------
Total current assets.. 235,702 11,826 4,365 99,002 (51,669) 299,226
Property, plant and
equipment, net................ 142,143 183 -- 42,315 -- 184,641
Intangible assets, net.......... 253,584 -- -- 1,373 -- 254,957
Equity investments.............. 111,330 778 16,185 -- (128,293) --
Other noncurrent assets......... 1,705 2 97 1,678 -- 3,482
-------- ------- ------- -------- --------- --------
Total Assets.......... $744,464 $12,789 $20,647 $144,368 $(179,962) $742,306
======== ======= ======= ======== ========= ========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of
long-term debt............ $ 17,500 $ -- $ -- $ -- $ -- $ 17,500
Accounts payable--trade..... 50,203 765 -- 21,946 -- 72,914
Accounts payable--related
parties................... 37,169 496 3,980 10,024 (51,669) --
Income taxes payable........ 1,786 964 37 696 -- 3,483
Other current liabilities... 87,016 1,037 2,092 11,097 -- 101,242
-------- ------- ------- -------- --------- --------
Total current
liabilities......... 193,674 3,262 6,109 43,763 (51,669) 195,139
Long-term debt.................. 592,000 -- -- 876 -- 592,876
Deferred income taxes........... 16,730 -- -- 2,226 -- 18,956
Postretirement benefits
other than pension............ 18,426 -- -- -- -- 18,426
Other noncurrent
liabilities................... 5,045 -- -- 6,058 -- 11,103
-------- ------- ------- -------- --------- --------
Total liabilities..... 825,875 3,262 6,109 52,923 (51,669) 836,500
-------- ------- ------- -------- --------- --------
Stockholders' equity (deficit):
Common stock................ 233 -- -- -- -- 233
Additional paid-in-capital.. 10,117 (3,562) 12,896 60,267 (75,545) 4,173
Unearned stock grant
compensation.............. (433) -- -- -- -- (433)
Retained earnings (deficit). (91,328) 13,089 1,642 38,017 (52,748) (91,328)
Accumulated other
comprehensive income...... -- -- -- (6,839) -- (6,839)
-------- ------- ------- -------- --------- --------
Total stockholders'
equity (deficit).... (81,411) 9,527 14,538 91,445 (128,293) (94,194)
-------- ------- ------- -------- --------- --------
Total Liabilities
and Stockholders'
Equity (Deficit).... $744,464 $12,789 $20,647 $144,368 $(179,962) $742,306
======== ======= ======= ======== ========= ========
</TABLE>
F-25
<PAGE>
KNOLL, INC.
BALANCE SHEET
DECEMBER 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents... $ 3,503 $ 561 $ -- $ 13,401 $ -- $ 17,465
Customer receivables, net... 115,823 1,698 -- 20,435 -- 137,956
Accounts receivable--
related parties........... 13,954 40 3,568 40,061 (57,623) --
Inventories................. 53,146 8,270 -- 15,697 -- 77,113
Deferred income taxes....... 20,169 -- -- 898 -- 21,067
Prepaid and other current
assets.................... 2,132 14 4 7,692 -- 9,842
-------- ------- ------- -------- --------- --------
Total current assets.. 208,727 10,583 3,572 98,184 (57,623) 263,443
Property, plant and
equipment, net................ 146,275 213 -- 39,679 -- 186,167
Intangible assets, net.......... 258,604 -- -- 1,439 -- 260,043
Equity investments.............. 106,709 666 15,932 -- (123,307) --
Other noncurrent assets......... 2,046 9 97 2,222 -- 4,374
-------- ------- ------- -------- --------- --------
Total Assets.......... $722,361 $11,471 $19,601 $141,524 $(180,930) $714,027
======== ======= ======= ======== ========= ========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of
long-term debt............ $ 10,000 $ -- $ -- $ -- $ -- $ 10,000
Accounts payable--trade..... 37,446 415 -- 21,690 -- 59,551
Accounts payable--related
parties................... 39,826 235 2,526 15,036 (57,623) --
Income taxes payable........ 5,872 637 35 552 -- 7,096
Other current liabilities... 81,100 838 1,061 8,757 -- 91,756
-------- ------- ------- -------- --------- --------
Total current
liabilities......... 174,244 2,125 3,622 46,035 (57,623) 168,403
Long-term debt.................. 158,250 -- -- 1,005 -- 159,255
Deferred income taxes........... 8,531 -- -- 2,147 -- 10,678
Postretirement benefits
other than pension............ 18,450 -- -- -- -- 18,450
Other noncurrent
liabilities................... 8,049 -- -- 5,342 -- 13,391
-------- ------- ------- -------- --------- --------
Total liabilities..... 367,524 2,125 3,622 54,529 (57,623) 370,177
-------- ------- ------- -------- --------- --------
Stockholders' equity:
Common stock................ 418 -- -- -- -- 418
Additional paid-in-capital.. 184,145 273 12,812 60,107 (75,545) 181,792
Unearned stock grant
compensation.............. (712) -- -- -- -- (712)
Retained earnings........... 170,986 9,073 3,167 35,522 (47,762) 170,986
Accumulated other
comprehensive income...... -- -- -- (8,634) -- (8,634)
-------- ------- ------- -------- --------- --------
Total stockholders'
equity.............. 354,837 9,346 15,979 86,995 (123,307) 343,850
-------- ------- ------- -------- --------- --------
Total Liabilities
and Stockholders'
Equity.............. $722,361 $11,471 $19,601 $141,524 $(180,930) $714,027
======== ======= ======= ======== ========= ========
</TABLE>
F-26
<PAGE>
KNOLL, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sales to customers.............. $880,677 $21,877 $ -- $ 81,957 $ -- $984,511
Sales to related parties........ 24,558 3,702 1,219 127,651 (157,130) --
-------- ------- ------- -------- --------- --------
Total sales..................... 905,235 25,579 1,219 209,608 (157,130) 984,511
Cost of sales to customers...... 551,894 8,347 803 62,049 (29,651) 593,442
Cost of sales to related
parties....................... 13,883 3,702 -- 109,894 (127,479) --
-------- ------- ------- -------- --------- --------
Gross profit.................... 339,458 13,530 416 37,665 -- 391,069
Selling, general and
administrative expenses....... 165,601 6,844 2,328 32,146 -- 206,919
-------- ------- ------- -------- --------- --------
Operating income (loss)......... 173,857 6,686 (1,912) 5,519 -- 184,150
Interest expense................ 21,519 -- -- 92 -- 21,611
Recapitalization expense........ 6,356 -- -- -- -- 6,356
Other income (expense), net..... 594 -- -- (1,264) -- (670)
Income from equity investments.. 4,621 112 253 -- (4,986) --
-------- ------- ------- -------- --------- --------
Income before income tax
expense (benefit) and
extraordinary item............ 151,197 6,798 (1,659) 4,163 (4,986) 155,513
Income tax expense (benefit).... 62,035 2,782 (134) 1,668 -- 66,351
-------- ------- ------- -------- --------- --------
Income before extraordinary
item.......................... 89,162 4,016 (1,525) 2,495 (4,986) 89,162
Extraordinary loss on early
extinguishment of debt, net
of taxes...................... 10,801 -- -- -- -- 10,801
-------- ------- ------- -------- --------- --------
Net income...................... $ 78,361 $ 4,016 $(1,525) $ 2,495 $ (4,986) $ 78,361
======== ======= ======= ======== ========= ========
</TABLE>
F-27
<PAGE>
KNOLL, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sales to customers.............. $835,209 $22,502 $ -- $ 90,980 $ -- $948,691
Sales to related parties........ 24,652 3,531 1,244 124,816 (154,243) --
-------- ------- ------ -------- --------- --------
Total sales..................... 859,861 26,033 1,244 215,796 (154,243) 948,691
Cost of sales to customers...... 526,437 9,114 813 64,478 (28,086) 572,756
Cost of sales to related
parties....................... 14,578 3,531 -- 108,048 (126,157) --
-------- ------- ------ -------- --------- --------
Gross profit.................... 318,846 13,388 431 43,270 -- 375,935
Selling, general and
administrative expenses....... 165,976 6,938 871 30,607 -- 204,392
-------- ------- ------ -------- --------- --------
Operating income (loss)......... 152,870 6,450 (440) 12,663 -- 171,543
Interest expense................ 16,809 -- -- 51 -- 16,860
Other income, net............... 412 -- -- 2,320 -- 2,732
Income from equity investments.. 11,401 99 985 -- (12,485) --
-------- ------- ------ -------- --------- --------
Income before income tax
expense....................... 147,874 6,549 545 14,932 (12,485) 157,415
Income tax expense (benefit).... 54,830 2,685 (21) 6,877 -- 64,371
-------- ------- ------ -------- --------- --------
Net income...................... $ 93,044 $ 3,864 $ 566 $ 8,055 $ (12,485) $ 93,044
======== ======= ====== ======== ========= ========
</TABLE>
F-28
<PAGE>
KNOLL, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Sales to customers.............. $698,392 $18,934 $ -- $ 93,531 $ -- $810,857
Sales to related parties........ 22,545 3,507 1,192 103,412 (130,656) --
-------- ------- ------- -------- --------- --------
Total sales..................... 720,937 22,441 1,192 196,943 (130,656) 810,857
Cost of sales to customers...... 450,099 7,707 703 67,902 (36,449) 489,962
Cost of sales to related
parties....................... 14,530 3,507 -- 76,170 (94,207) --
-------- ------- ------- -------- --------- --------
Gross profit.................... 256,308 11,227 489 52,871 -- 320,895
Selling, general and
administrative expenses....... 151,907 6,287 1,828 22,996 -- 183,018
-------- ------- ------- -------- --------- --------
Operating income (loss)......... 104,401 4,940 (1,339) 29,875 -- 137,877
Interest expense................ 24,960 -- -- 115 -- 25,075
Other income (expense), net..... (190) -- (1) 1,858 -- 1,667
Income from equity investments.. 19,837 117 2,158 -- (22,112) --
-------- ------- ------- -------- --------- --------
Income before income tax
expense (benefit) and
extraordinary item............ 99,088 5,057 818 31,618 (22,112) 114,469
Income tax expense (benefit).... 32,645 2,051 (15) 13,345 -- 48,026
-------- ------- ------- -------- --------- --------
Income before extraordinary
item.......................... 66,443 3,006 833 18,273 (22,112) 66,443
Extraordinary loss on early
extinguishment of debt, net
of taxes...................... 5,337 -- -- -- -- 5,337
-------- ------- ------- -------- --------- --------
Net income...................... $ 61,106 $ 3,006 $ 833 $ 18,273 $ (22,112) $ 61,106
======== ======= ======= ======== ========= ========
</TABLE>
F-29
<PAGE>
KNOLL, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1999
(In Thousands)
<TABLE>
<CAPTION>
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES $ 124,858 $141 $ -- $ 2,988 $ -- $ 127,987
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures............ (18,906) (40) -- (6,208) 59 (25,095)
Proceeds from sale of assets.... 60 -- -- 113 (59) 114
--------- ---- ---- ------- ---- ---------
Cash used in investing
activities.................... (18,846) (40) -- (6,095) -- (24,981)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from revolving
credit facility, net.......... 120,000 -- -- -- -- 120,000
Proceeds from long-term debt.... 325,000 -- -- -- -- 325,000
Repayment of long-term debt..... (3,750) -- -- -- -- (3,750)
Payment of debt issuance costs.. (7,864) -- -- -- -- (7,864)
Payment of consent fee on
Senior Subordinated Notes..... (12,870) -- -- -- -- (12,870)
Net proceeds from issuance
of stock...................... 4,746 -- -- -- -- 4,746
Purchase of common stock........ (28,703) -- -- -- -- (28,703)
Payment of merger
consideration................. (496,682) -- -- -- -- (496,682)
Payment of recapitalization
costs......................... (8,843) -- -- -- -- (8,843)
--------- ---- ---- ------- ---- ---------
Cash used in financing
activities.................... (108,966) -- -- -- -- (108,966)
Effect of exchange rate changes
on cash and cash equivalents.. -- -- -- (720) -- (720)
--------- ---- ---- ------- ---- ---------
Increase (decrease) in cash
and cash equivalents.......... (2,954) 101 -- (3,827) -- (6,680)
Cash and cash equivalents
at beginning of year.......... 3,503 561 -- 13,401 -- 17,465
--------- ---- ---- ------- ---- ---------
Cash and cash equivalents
at end of year................ $ 549 $662 $ -- $ 9,574 $ -- $ 10,785
========= ==== ==== ======= ==== =========
</TABLE>
F-30
<PAGE>
KNOLL, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1998
(In Thousands)
<TABLE>
<CAPTION>
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES $101,588 $285 $ -- $12,690 $ -- $114,563
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures............ (27,170) (15) -- (9,205) -- (36,390)
Proceeds from sale of assets.... 69 -- -- 83 -- 152
-------- ---- ---- ------- ---- --------
Cash used in investing
activities.................... (27,101) (15) -- (9,122) -- (36,238)
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of revolving
credit facility, net.......... (38,000) -- -- -- -- (38,000)
Proceeds from long-term debt.... -- -- -- 201 -- 201
Net proceeds from issuance
of stock...................... 4,813 -- -- -- -- 4,813
Purchase of common stock........ (38,849) -- -- -- -- (38,849)
-------- ---- ---- ------- ---- --------
Cash provided by (used in)
financing activities.......... (72,036) -- -- 201 -- (71,835)
Effect of exchange rate changes
on cash and cash equivalents.. -- -- -- 185 -- 185
-------- ---- ---- ------- ---- --------
Increase in cash and cash
equivalents................... 2,451 270 -- 3,954 -- 6,675
Cash and cash equivalents
at beginning of year.......... 1,052 291 -- 9,447 -- 10,790
-------- ---- ---- ------- ---- --------
Cash and cash equivalents
at end of year................ $ 3,503 $561 $ -- $13,401 $ -- $ 17,465
======== ==== ==== ======= ==== ========
</TABLE>
F-31
<PAGE>
KNOLL, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
(In Thousands)
<TABLE>
<CAPTION>
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
CASH PROVIDED BY OPERATING
ACTIVITIES $ 124,109 $ 2,546 $ -- $ 8,607 $ -- $135,262
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures............ (26,740) (22) -- (6,347) 29 (33,080)
Proceeds from sale of assets.... 108 -- -- 85 (29) 164
Payments received on
intercompany loans............ 2,500 -- -- -- (2,500) --
--------- ------- ---- ------- ------- --------
Cash used in investing
activities.................... (24,132) (22) -- (6,262) (2,500) (32,916)
CASH FLOWS FROM FINANCING
ACTIVITIES
Repayment of revolving
credit facility, net.......... (79,000) -- -- -- -- (79,000)
Repayment of long-term debt..... (67,750) -- -- (238) -- (67,988)
Repayment of intercompany
loans......................... -- (2,500) -- -- 2,500 --
Premium paid for early
extinguishment of debt........ (5,775) -- -- -- -- (5,775)
Net proceeds from issuance
of stock...................... 133,559 -- -- -- -- 133,559
Redemption of preferred stock... (80,000) -- -- -- -- (80,000)
--------- ------- ---- ------- ------- ---------
Cash used in financing
activities.................... (98,966) (2,500) -- (238) 2,500 (99,204)
Effect of exchange rate changes
on cash and cash equivalents.. -- -- -- (1,156) -- (1,156)
--------- ------- ---- ------- ------- ---------
Increase in cash and cash
equivalents................... 1,011 24 -- 951 -- 1,986
Cash and cash equivalents
at beginning of year.......... 41 267 -- 8,496 -- 8,804
--------- ------- ---- ------- ------- ---------
Cash and cash equivalents
at end of year................ $ 1,052 $ 291 $ -- $ 9,447 $ -- $ 10,790
========= ======= ==== ======= ======= ========
</TABLE>
F-32
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- --------------------------------------- ------------ ------------ -------------- ------------
Additions
Balance at Charged to Balance
Beginning Costs and at End
Description of Period Expenses Deductions (1) of Period
- --------------------------------------- ------------ ------------ -------------- ------------
(In Thousands)
<C> <C> <C> <C> <C>
Valuation Accounts Deducted in the
Consolidated Balance Sheet from the
Assets to which They Apply:
Year Ended December 31, 1999:
Allowance for doubtful accounts.... $5,057 $2,513 $ 787 $6,783
Year Ended December 31, 1998:
Allowance for doubtful accounts.... 5,461 1,313 1,717 5,057
Year Ended December 31, 1997:
Allowance for doubtful accounts.... 5,713 1,943 2,195 5,461
</TABLE>
____________________
(1) Uncollectible accounts written off and foreign currency translation.
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- --------- --------------------------------------------------------------------------- ------
<C> <C> <C>
2+++ Amended and Restated Agreement and Plan of Merger by and between
Warburg, Pincus Ventures, L.P. and Knoll, Inc., dated as of July 29, 1999.
3.1*** Amended and Restated Certificate of Incorporation of the Company.
3.2*** Amended and Restated By-Laws of the Company.
10.1* Stock Purchase Agreement, dated as of December 20, 1995, by and between
Westinghouse and T.K.G. Acquisition Corp.
10.2++++ Credit Agreement, dated as of October 20, 1999, by and among the
Company, the Guarantors (as defined therein), the Lenders (as defined
therein), Bank of America, N.A., as Administrative Agent, the Chase
Manhattan Bank, as Syndication Agent, and Merrill Lynch & Co., Merrill
Lynch, Pierce, Fenner & Smith Incorporated, as Documentation Agent.
10.3* 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 & Trust Company, as
trustee, relating to $165,000,000 principal amount of 10.875% Senior
Subordinated Notes due 2006, including form of Initial Global Note.
10.4* 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 10.875% Senior
Subordinated Notes due 2006, including form of Initial Global Note.
10.5** 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 10.875% Senior Subordinated Notes due 2006, including form
of Initial Global Note.
10.6++ Letter Agreement between Oak Hill Securities Fund, L.P. and the
Company, dated August 13, 1999.
10.7+ Supplemental Indenture No. 3, dated as of November 4, 1999, by and
among the Company, the Guarantors (as defined therein), and The Bank
of New York, as trustee, relating to the Company's 10.875% Senior
Subordinated Notes due 2006.
10.8 Amended and Restated Employment Agreement, dated as of January 1, 2000,
between the Company and Burton B. Staniar.
10.9** Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and John H. Lynch.
10.10** Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and Andrew B. Cogan.
10.11*** Amendment to Employment Agreement, dated as of April 30, 1997, between
the Company and Andrew B. Cogan.
10.12**** Amendment #2 to Employment Agreement, dated as of August 1, 1998,
between the Company and Andrew B. Cogan.
10.13 Amendment #3 to Employment Agreement, dated as of December 4, 1999,
between the Company and Andrew B. Cogan.
10.14**** Letter Agreement between the Company and Douglas J. Purdom, dated
August 13, 1996.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- --------- --------------------------------------------------------------------------- ------
<C> <C> <C>
10.15 Amended and Restated Stockholders Agreement, dated as of November 4, 1999,
among the Company, Warburg, Pincus Ventures, L.P., and the signatories
thereto.
10.16 Amended and Restated Stockholders Agreement (Common Stock Under Stock
Incentive Plans), dated as of November 4, 1999, among the Company,
Warburg, Pincus Ventures, L.P., and the signatories thereto.
10.17 Amended and Restated Knoll, Inc. 1996 Stock Incentive Plan.
10.18 Amended and Restated Knoll, Inc. 1997 Stock Incentive Plan.
10.19 Knoll, Inc. 1999 Stock Incentive Plan.
10.20 Form of Non-Qualified Stock Option Agreement Under the Knoll, Inc.
1999 Stock Incentive Plan, entered into by the Company and certain
executive officers.
10.21*** Form of Agreement, dated as of April 15, 1997, by and among the Company,
Warburg, Pincus Ventures, L.P., NationsBanc Investment Corp. and the
Investors (as defined therein).
21** Subsidiaries of the Registrant.
27 Financial Data Schedule.
</TABLE>
- -----------------------------------------
* Incorporated by reference to the Company's Registration Statement on
Form S-4 (File No. 333-2972), which was declared effective by the
Commission on June 12, 1996.
** Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.
*** Incorporated by reference to the Company's Registration Statement on
Form S-1 (File No. 333-23399), which was declared effective by the
Commission on May 9, 1997.
**** Incorporated by reference to the Company's Annual Report on Form 10-K,
and the amendments thereto, for the year ended December 31, 1998.
+ Incorporated by reference to the Company's Quarterly Report on Form
10-Q for the quarter ended September 30, 1999.
++ Incorporated by reference to the Company's Amendment No. 1 to Schedule
13E-3, which was filed with the Commission on September 10, 1999.
+++ Incorporated by reference to the Company's Definitive Proxy Statement
on Schedule 14A, which was filed with the Commission on September 30,
1999.
++++ Incorporated by reference to the Company's Form 8-K dated November 4,
1999, which was filed with the Commission on November 5, 1999.
<PAGE>
Exhibit 10.8
EMPLOYMENT AGREEMENT
--------------------
This amended and restated Employment Agreement amends and restates
as of January 1, 2000 the Employment Agreement dated as of February 29, 1996,
between Knoll, Inc., 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
----------
of the Company. Executive hereby accepts such employment. Executive agrees to
devote approximately fifty percent (50%) of his 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 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.
ARTICLE II
Term
----
2.01. Term. (a) The term of this Agreement (the "Term") shall
----
commence on January 1, 2000 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
<PAGE>
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 $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 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 reputable insurance company, and maintain, a
directors' and officers' liability insurance policy covering the Executive, in
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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
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 approximately fifty percent
(50%) of his 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.
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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 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
4
<PAGE>
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 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 of 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 5.03 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
5
<PAGE>
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 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 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
6
<PAGE>
to: Knoll, Inc., c/o Warburg, Pincus Ventures, L.P., 466 Lexington Avenue,
New York, NY 10017, Attention: Jeffrey A. Harris, tel. (212) 878-0638; fax:
(212) 878-9352; cc: Office of General Counsel, Knoll, Inc., 1235 Water Street,
East Greenville, PA 18041, tel. (215) 679-1335; fax: (215) 679-1013, 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, 59 W. 12th Street, Apt. 9C, New York, NY 10011; tel.
(212) 286-9170; fax (212) 675-8124, 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.
6.09. Survivorship. The respective rights and obligations or 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 February 29, 1996 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 have the meaning
set forth in clauses (iii) and (iv) only in Section 5.01 of this Agreement.
7
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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.
IN WITNESS WHEREOF, each of the parties hereto has duly executed
this Agreement effective as of the date first above written.
KNOLL, INC.
By: /s/ Barry L. McCabe
------------------------------
Name: Barry L. McCabe
Title: Senior Vice President
/s/ Burton B. Staniar
------------------------------
Burton B. Staniar
8
<PAGE>
Exhibit 10.13
AMENDMENT NO. 3
TO EMPLOYMENT AGREEMENT
WHEREAS, Knoll, Inc. (the "Company") and Andrew B. Cogan (the
"Employee") have entered into an Employment Agreement, dated as of February 29,
1996, as amended on April 30, 1997 and August 1, 1998, (the "Employment
Agreement"); and
WHEREAS, pursuant to resolutions of the Compensation Committee of the
Company's board of directors and the Company's full board of directors, the
Company and the Employee have agreed to amend the Employment Agreement.
NOW, THEREFORE, effective as of the date written below, the Employment
Agreement is amended as follows:
1. Employee is promoted to the position of Chief Operating Officer.
2. Employee's base salary is increased to $300,000 per year.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
this 4th day of December, 1999.
KNOLL, INC.
By: /s/ Douglas J. Purdom
--------------------------
Senior Vice President
/s/ Andrew B. Cogan
--------------------------
Andrew B. Cogan
<PAGE>
Exhibit 10.15
KNOLL, INC.
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
Amended and Restated Stockholders Agreement, dated as of this 4th day
of November 1999 (this "Agreement"), 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," and, together with Warburg, the "Investors"); and Knoll, Inc., 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, the Investors and the Company desire to promote their mutual
interests by agreeing to certain matters relating to the disposition and voting
of the shares of Common Stock, par value $.01 per share, of the Company (the
"Common Stock") owned by the Investors on the date hereof, together with any
other shares of Common Stock acquired by them (other than shares of Common
Stock issued from time to time under the T.K.G. Acquisition Corp. 1996 Stock
Incentive Plan, the Knoll 1997 Stock Incentive Plan or the Knoll 1999 Stock
Incentive Plan (together, as they may be amended from time to time, the
"Stock Plan")) (collectively, the "Shares"), as further set forth herein; and
WHEREAS, the Investors and the Company have previously entered into a
Stockholders Agreement (Common Stock and Preferred Stock), dated as of
February 29, 1996 (the "Old Stockholders Agreement"), in connection with their
ownership of shares of Common Stock and desire to amend and restate the Old
Stockholders Agreement in its entirety as set forth herein;
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 owned or
-------
acquired by the Investors or their permitted transferees will bear the
following legends reflecting the restrictions on the transfer of such
securities under the Securities Act and those contained in this Agreement:
"The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended (the "Act"), and may not be
transferred except pursuant to an effective registration under the Act
or in a transaction which, in the opinion of counsel reasonably
satisfactory to the Company, qualifies as an exempt transaction under
the Act and the rules and regulations promulgated thereunder.
<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, as amended by that certain Amended and
Restated Stockholders Agreement, dated as of November 4, 1999,
and as may be further amended from time to time, by and among the
Company and certain holders of the Common 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"), Andrew B. Cogan ("Cogan"), Kathleen G. Bradley ("Bradley"), Sidney
Lapidus, Jeffrey A. Harris, Kewsong Lee, Henry B. Schacht and Lloyd Metz. 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 nine 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 with the Company in accordance with the terms of
the Staniar Employment Agreement, (C) Lynch, who shall be entitled to be a
member of the Board until termination of his employment with the Company in
accordance with the terms of the Lynch Employment Agreement, (D) Cogan, who
shall be entitled to be a member of the Board until termination of his
employment with the Company in accordance with the terms of the Cogan
Employment Agreement, and (E) Bradley, who shall be entitled to be a member of
the Board until termination of her employment with the Company.
(ii) From and after the date on which the Company completes an
Initial Public Offering, for as long as Warburg owns beneficially (within the
meaning of Rule 13d-3 of the Exchange Act) at least (i) 50% of the outstanding
shares of Common Stock, the Company and each Investor will nominate and use its
best efforts to have 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) elected to the Board, (ii) 25% of the outstanding shares of Common
Stock, the Company and each Investor will nominate and use its best efforts to
have four Warburg Directors elected to the Board, (iii) 15% of the outstanding
shares of Common Stock, the Company and each Investor will nominate and use its
best efforts to have three Warburg Directors elected to the Board and (iv) at
least 5% of the outstanding shares of Common Stock, the Company and each
Investor will nominate and use its best efforts to have two Warburg Directors
elected to the Board.
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(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, employees or consultants (collectively, "Plan Stock") or as part of
an Initial Public Offering 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 Common Stock then held by such Investor (other than
Plan Stock) by (y) the total number of shares of Common Stock then
outstanding (other than Plan Stock).
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 Common Stock held by such Investors (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
3
<PAGE>
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 may become stockholders of the Company after the date hereof and
that each such employee will be required, as a condition to the issuance of
shares of Common 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 shall be deemed to be a Management
Investor 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, a
Management Investor hereunder.
2. TRANSFER OF STOCK
-----------------
(a) Resale of Securities. Without the approval of the Board, no
--------------------
Management Investor shall Transfer any Shares, or any beneficial interest
therein, other than (i) in accordance with the provisions of this Section 2,
(ii) sales pursuant to a Transfer Notice in accordance with Section 3 and
(iii) sales pursuant to a Drag-Along Notice in accordance with Section 4. Any
Transfer or purported Transfer made in violation of this Section 2 shall be
null and void and of no effect.
(b) Securities Act Transfer Restrictions. No Management Investor
------------------------------------
shall Transfer any Shares (including any shares received as a result of
dividends, splits or any other forms of recapitalization in respect of such
Shares), either voluntarily or involuntarily, directly or indirectly, except
pursuant to an effective registration under the Securities Act, or in a
transaction which, in the opinion of counsel reasonably satisfactory to the
Company, qualifies as an exempt transaction under the Securities Act and the
rules and regulations promulgated thereunder.
(c) Rights of First Refusal. No Management Investor shall Transfer
-----------------------
any Shares, or any beneficial interest therein (except (i) (x) to members of
such Management Investor's immediate family or trusts for their benefit, 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
4
<PAGE>
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 Management
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(d) through 2(j), and such offers shall
not have been accepted.
(d) 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 involved in the proposed Transfer and terms of such Transfer.
(e) Acceptance of Offer. (i) Within 10 days after the receipt of the
-------------------
offer described in Section 2(d), 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 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(d) 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.
(f) 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.
(g) 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(e)(i), any of such parties may, by three days'
5
<PAGE>
written notice to the other, initiate appraisal proceedings under Section 2(h)
for determination of the cash equivalent.
(h) 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(g), 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 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.
(i) 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(f) 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.
(j) 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
6
<PAGE>
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(g), 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 shares of Common
Stock which, together with any previous sales of shares of Common Stock by
Warburg from and after the date of this Agreement, represent more than fifteen
percent (15%) of the issued and outstanding shares of Common Stock on a
cumulative basis (other than to an Affiliate of Warburg, to the Company 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 equal to the number of shares
of Common Stock the third party proposes to purchase multiplied by a fraction,
the numerator of which shall be the number of shares of Common Stock (other
than Plan Stock) issued and owned by such Investor and the denominator of which
shall be the aggregate number of shares of Common Stock (other than Plan Stock)
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 Management 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 Management Investors holding a
majority of the shares of Common Stock held by Management Investors shall
request an appraisal, in which case the appraisal procedure set forth in
Section 2(h) shall be followed as closely as practicable, with such Management
Investors holding a majority of such shares held by the 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(h).
7
<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 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
(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 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 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 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
stockholder'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 Management 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 the Management
Investors holding a majority of the shares of Common Stock held by Management
Investors shall request an appraisal, in which case the appraisal procedure set
forth in Section 2(h) shall be followed as closely as practicable, with such
Management Investors holding a majority of such shares held by the Management
Investors), on the one hand, and Warburg, on the other hand, each appointing
an appraiser meeting the qualifications set forth in Section 2(h).
8
<PAGE>
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 (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):
(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:
(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
9
<PAGE>
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, 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.
(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:
10
<PAGE>
(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 owned by the Investors on the date hereof, (B) any additional shares of
Common Stock acquired by the Investors (other than pursuant to the Stock Plan
or any other incentive plan) and (C) 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) or (B)
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
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
11
<PAGE>
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) After the Company has effected two (2) such
registrations pursuant to this Section 6(b) requested by the
Initiating Holder, and 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 Stockholders") request such inclusion, the Holders shall offer to
include the securities of such officers, directors and Other Stockholders in
the underwriting
12
<PAGE>
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 Stockholders 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 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 Stockholders 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 Stockholder 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
13
<PAGE>
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 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 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 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 Stockholders 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,
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 Stockholder 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.
14
<PAGE>
(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 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 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
15
<PAGE>
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 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
16
<PAGE>
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 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 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
17
<PAGE>
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 its own 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, and only to the extent, 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.
(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
18
<PAGE>
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.
(h) 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 in connection
with any registration, qualification or compliance referred to in this Section
6. Warburg shall not 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 after the date of this Agreement 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 the date
of this Agreement the Company 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 after the date of this
Agreement for an offering of its securities to the general public), and of
the Securities Act and the Exchange Act (at any time after the date of this
Agreement the Company 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
19
<PAGE>
in availing itself of any rule or regulation of the Commission allowing
the Holder to sell any such securities without registration.
(j) "Market Stand-off" Agreement. Each of the Holders agrees, if
----------------------------
requested by the Company and an underwriter 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 after the date of this Agreement 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)(ii), 1(c), 5(d) and 6, any election made by Warburg
pursuant to Section 1(b)(i), 1(b)(ii) or 9(d), which shall remain in full force
and effect following the closing of the Initial Public Offering; or
(b) on the date on which (i) Warburg, and (ii) the Management Investors
holding a majority of shares of Common Stock (other than Plan Stock and other
than those shares held by Warburg or its Affiliates) 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
20
<PAGE>
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.
Cogan Employment Agreement: the Employment Agreement, dated as of
--------------------------
February 29, 1996, between Cogan and the Company, as amended as of April 30,
1997, and as further amended as of August 1, 1998.
Exchange Act: the Securities Exchange Act of 1934, as amended.
------------
Initial Public Offering: the completion of an underwritten initial
-----------------------
public offering after the date of this Agreement 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 stockholders 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.
Transfer: any sale, assignment, pledge, hypothecation, or other
--------
disposition or encumbrance, whether or not for consideration.
21
<PAGE>
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 other address as Warburg may
have furnished the Company in writing; and
(C) if to the Company, to Knoll, Inc., 1235 Water Street,
East Greenville, PA 18041, Attention: Chief Executive Officer, or at such
other address as it may
22
<PAGE>
have furnished in writing to each of the Investors, with a copy to Warburg
pursuant to the previous clause (B).
(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
--------------------------------------
constitutes the entire understanding of the parties hereto relating to the
subject matter hereof and supersedes all prior understandings among such
parties (including the Old Stockholders Agreement). 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, and (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. Without limiting the foregoing, at any time, by written notice to
the Company, Warburg may elect, which election shall be irrevocable, (A) to
limit its rights to vote the shares of Common Stock and other capital stock of
the Company held by it to the lesser of (i) 50.0% of the voting rights of the
Common Stock and other capital stock of the Company outstanding and (ii) the
voting rights of the Common Stock and other capital stock of the Company 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.
(e) Severability. In the event that any part or parts of this
------------
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
23
<PAGE>
(f) 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.
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first above written.
KNOLL, INC.
By: /s/ Douglas J. Purdom
---------------------------
Name: Douglas J. Purdom
Title: Senior Vice President and
Chief Financial Officer
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Jeffrey Harris
---------------------------
Name: Jeffrey Harris
Title: Partner
MANAGEMENT INVESTORS:
/s/ Barbara E. Ellixson
---------------------------
Barbara E. Ellixson
/s/ Barry L. McCabe
---------------------------
Barry L. McCabe
/s/ Patrick A. Milberger
---------------------------
Patrick A. Milberger
/s/ Douglas J. Purdom
---------------------------
Douglas J. Purdom
<PAGE>
SCHEDULE I
(Intentionally Omitted)
<PAGE>
Exhibit A
---------
JOINDER AGREEMENT
-----------------
Joinder Agreement, dated as of this __ day of ___________ _____, by
and among Knoll, Inc., a Delaware corporation (the "Company"), and the
undersigned (the "Investor").
Reference is made to that certain Amended and Restated Stockholders
Agreement (the "Stockholders Agreement"), dated as of November __, 1999, by
and among Knoll, Inc., Warburg, Pincus Ventures, L.P. and the other holders of
Common 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 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:
KNOLL, INC.
_____________________________
Name:
Title:
<PAGE>
Exhibit 10.16
KNOLL, INC.
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
(COMMON STOCK UNDER STOCK INCENTIVE PLANS)
Amended and Restated Stockholders Agreement, dated as of this 4th day
of November 1999 (this "Agreement"), 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 Knoll, Inc. (the "Company"), a Delaware corporation and
the successor to T.K.G. Acquisition Corp. 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 Knoll 1997 Stock Incentive Plan and the Knoll 1999 Stock Incentive
Plan (together, as they may be amended from time to time, the "Stock Plan") of
the Company, the Company has or 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, 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, as
further set forth herein; and
WHEREAS, Warburg, the Management Stockholders and the Company have
previously entered into a Stockholders Agreement (Common Stock Under Stock
Incentive Plan), dated as of February 29, 1996 (the "Old Stockholders
Agreement"), in connection with the Management Stockholders' ownership of
Securities and desire to amend and restate the Old Stockholders Agreement in
its entirety as set forth herein.
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 owned or
-------
acquired by the Stockholders pursuant to the Stock Plan or their permitted
transferees will bear the following legends reflecting the restrictions on the
transfer of such securities under the Securities Act and those contained in
this Agreement:
<PAGE>
"The securities evidenced hereby have not been registered under the
Securities Act of 1933, as amended (the "Act"), and may not be
transferred except pursuant to an effective registration under the Act
or in a transaction which, in the opinion of counsel reasonably
satisfactory to the Company, qualifies as an exempt transaction under
the Act and the rules and regulations promulgated thereunder.
"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, as amended by that
certain Amended and Restated Stockholders Agreement (Common Stock
Under Stock Incentive Plans), dated as of November __, 1999, and as
may be further amended from time to time, 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) Additional Stockholders. The parties hereto acknowledge that,
-----------------------
subject to the terms hereof, certain employees and/or consultants of the
Company or its Subsidiaries may become stockholders of the Company after the
date hereof and that such employees and/or consultants 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
and/or consultants 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 Management Stockholders
hereunder.
2. TRANSFER OF SECURITIES
----------------------
Without the approval of the Board of Directors of the Company (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 Stockholder, 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
Stockholder and members of such Management Stockholder's immediate family; a
transfer from a Management Stockholder's trust or other transferee back to
such Management Stockholder; a transfer to the legal guardian of a disabled
Management Stockholder or of a Management Stockholder'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, (iii) after
an Initial Public Offering, upon 30 days prior written notice to the Board or
(iv) sales
2
<PAGE>
pursuant to a Drag-Along Notice in accordance with Section 3; 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. 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 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 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.
3
<PAGE>
(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 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;
4
<PAGE>
(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.
--------------------
(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,
5
<PAGE>
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 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
6
<PAGE>
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 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
7
<PAGE>
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.
(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 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,
8
<PAGE>
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 its own 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, and only to the extent,
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.
(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,
9
<PAGE>
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 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 after the date of this Agreement 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
10
<PAGE>
Securities Act and the Exchange Act at any time after the date of this
Agreement the Company 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 after the date of this
Agreement for an offering of its securities to the general public), and of
the Securities Act and the Exchange Act (at any time after the date of this
Agreement the Company 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 after the date of this Agreement 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 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
11
<PAGE>
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 after the date of this Agreement 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 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.
12
<PAGE>
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.
(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 Knoll, Inc., 1235 Water Street,
East Greenville, PA 18041, Attention: Chief Executive Officer, or at such other
address as it may have furnished in writing to Warburg and the Management
Stockholders, with a copy to Warburg pursuant to the previous clause (B).
13
<PAGE>
(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.
(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, constitutes the entire understanding of the parties hereto
relating to the subject matter hereof and supersede all prior understandings
among such parties (including the Old Stockholders Agreement). 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
of a majority of the Securities.
(e) Severability. In the event that any part or parts of this
------------
Agreement shall be held illegal or unenforceable by any court or administrative
body of competent jurisdiction, such determination shall not effect the
remaining provisions of this Agreement which shall remain in full force and
effect.
(f) 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.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Stockholders
Agreement as of the date first above written.
KNOLL, INC.
By: /s/ Douglas J. Purdom
---------------------------
Name: Douglas J. Purdom
Title: Senior Vice President and
Chief Financial Officer
WARBURG, PINCUS VENTURES, L.P.
By: Warburg, Pincus & Co.,
General Partner
By: /s/ Jeffrey Harris
--------------------------
Name: Jeffrey Harris
Title: Partner
MANAGEMENT STOCKHOLDERS:
/s/ Burton B. Staniar
--------------------------
Burton B. Staniar
/s/ John H. Lynch
--------------------------
John H. Lynch
/s/ Kathleen G. Bradley
--------------------------
Kathleen G. Bradley
15
<PAGE>
/s/ Andrew B. Cogan
--------------------------
Andrew B. Cogan
/s/ Arthur C. Graves
--------------------------
Arthur C. Graves
/s/ Stephen A. Grover
--------------------------
Stephen A. Grover
/s/ Carl G. Magnusson
--------------------------
Carl G. Magnusson
/s/ Douglas J. Purdom
--------------------------
Douglas J. Purdom
/s/ Barbara E. Ellixson
--------------------------
Barbara E. Ellixson
/s/ Barry L. McCabe
--------------------------
Barry L. McCabe
/s/ Patrick A. Milberger
--------------------------
Patrick A. Milberger
16
<PAGE>
SCHEDULE I
(Intentionally Omitted)
<PAGE>
Exhibit A
---------
JOINDER AGREEMENT
-----------------
Joinder Agreement, dated as of this __ day of ________, _____, by
and among Knoll, Inc., a Delaware corporation (the "Company"), and the
undersigned (the "Stockholder").
Reference is made to that certain Amended and Restated Stockholders
Agreement (Common Stock Under Stock Incentive Plans) (the "Stockholders
Agreement"), dated as of November __, 1999, by and among Knoll, Inc., 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:
KNOLL, INC.
_____________________________
Name:
Title:
<PAGE>
Exhibit 10.17
KNOLL, INC.
1996 STOCK INCENTIVE PLAN
(Amended and Restated as of November 4, 1999)
ARTICLE I
Purpose
-------
The Knoll, Inc. 1996 Stock Incentive Plan (Amended and Restated as of
November 4, 1999) (the "Plan") is intended as an incentive to encourage stock
ownership by officers and certain other key employees of Knoll, Inc. (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. During any such time that the Company
is subject to Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") each member of the Committee shall, unless otherwise
determined by the Board, be a "Non-Employee Director" within the meaning of
the rules promulgated under Section 16(b) and during any such time that the
Company is subject to Section 162(m) of the Code each member of the Committee
shall, unless otherwise determined by the Board, 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 of the eligible employees of the Company
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,
<PAGE>
which price shall be not less than the minimum specified in ARTICLE VII; (e) to
determine the nature of any rights and restrictions to be imposed on Restricted
Shares granted under the Plan; (f) to 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 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); (h) to adopt, amend and rescind such rules and regulations as, in
its opinion, may be advisable in the administration of the Plan; and (i) 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, 1,500,000 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.
2
<PAGE>
ARTICLE IV
Eligibility of Participants
---------------------------
Subject to ARTICLE IX in the case of incentive stock options, officers
and other key employees of the Company (excluding any person who is a member of
the Committee) shall be eligible to receive Restricted Shares and options under
the Plan. In addition, options which are not incentive stock options may be
granted to directors, consultants or other key persons (excluding any person
who is a member of the Committee) 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 Knoll, Inc. Amended and
Restated Stockholders Agreement (Common Stock Under Stock Incentive Plans) (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.
3
<PAGE>
"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.
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
4
<PAGE>
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). Except as set forth in any applicable Restricted Share 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.
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
---------------------
Subject to ARTICLE IX in the case of incentive stock options, (i) in
the case of each option granted under the Plan which is not an incentive stock
option, the option exercise price shall be not less than the Fair Market Value
Per Share at the time the option was granted and (ii) in the case of each
option granted under the Plan which is an incentive stock option, the option
exercise price shall not be less than the Fair Market Value Per Share at the
time the option is 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
5
<PAGE>
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, including a change in
control of the Company. 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
accelerate the exercisability of any option granted hereunder. 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.
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
6
<PAGE>
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.
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. Any adjustment shall be conclusively determined
by the Committee.
7
<PAGE>
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 foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in 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.
8
<PAGE>
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 lending 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.
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
9
<PAGE>
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 29, 1996, 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 28, 2006.
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, and provided further
that no such action by the Board, without approval of the stockholders, may
(a) increase the total number of shares of Stock which may be purchased
pursuant to options granted under the Plan, except as contemplated in Article
XII; (b) expand the class of employees eligible to receive options under the
Plan; (c) decrease the minimum option price; (d) extend the maximum term of
options granted hereunder, or (e) extend the term of the Plan.
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
10
<PAGE>
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 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
11
<PAGE>
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 Delaware 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 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.
12
<PAGE>
(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 Knoll, Inc.,
formerly T.K.G. Acquisition Corp., as of February 28, 1996
and amended and restated as of November 4, 1999.
13
<PAGE>
Exhibit 10.18
KNOLL, INC.
1997 STOCK INCENTIVE PLAN
(Amended and Restated as of November 4, 1999)
ARTICLE I
Purpose
-------
The Knoll, Inc. 1997 Stock Incentive Plan (Amended and Restated as of
November 4, 1999) (the "Plan") is intended as an incentive to encourage stock
ownership by officers, certain other key employees, directors and consultants
of Knoll, Inc. (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. During any such time that the Company
is subject to Section 16(b) of the Securities Exchange Act of 1934, each member
of the Committee shall, unless otherwise determined by the Board, be a "Non-
Employee Director" within the meaning of the rules promulgated under Section
16(b) and during any such time that the Company is subject to Section 162(m) of
the Code each member of the Committee shall, unless otherwise determined by the
Board, 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
<PAGE>
Restricted Shares granted under the Plan; (f) to 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, 2,255,772 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.
2
<PAGE>
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. 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. Notwithstanding anything to
the contrary herein, the maximum number of shares of Stock with respect to
which options may be granted to any individual in any one year shall not exceed
the maximum number of shares of Stock available for issue hereunder, as such
number may change from time to time.
ARTICLE V
Fair Market Value
-----------------
"Fair Market Value Per Share" means, 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 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.
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,
3
<PAGE>
"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). Except as set forth in any applicable Restricted Share 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.
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
4
<PAGE>
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, including a change in
control of the Company. 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 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.
5
<PAGE>
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 Per Share equal to
the amount of such exercise price.
6
<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
which may be subject to options granted to any one person in any one year, 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. 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, the number or kind of shares of Stock which may
be subject to options granted to any one person in any one year, 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.
7
<PAGE>
The foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in 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
8
<PAGE>
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.
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
9
<PAGE>
thereunder. The expiration date of the Plan, after which no option may be
granted hereunder, shall be February 13, 2007.
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.
10
<PAGE>
(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 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 Delaware without reference to the principles of
conflicts of law thereof.
11
<PAGE>
(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 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
and amended by the Board of Directors of
Knoll, Inc. as of May 6, 1997 and
amended and restated as of October 22, 1997
and amended and restated as of November 4, 1999.
12
<PAGE>
Exhibit 10.19
KNOLL, INC.
1999 STOCK INCENTIVE PLAN
ARTICLE I
Purpose
-------
The Knoll, Inc. 1999 Stock Incentive Plan (the "Plan") is intended as
an incentive to encourage stock ownership by officers, certain other key
employees, directors and consultants of Knoll, Inc. (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. During any such time that the Company
is subject to Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") each member of the Committee shall, unless otherwise determined
by the Board, be a "Non-Employee Director" within the meaning of the rules
promulgated under Section 16(b) and during any such time that the Company is
subject to Section 162(m) of the Code each member of the Committee shall,
unless otherwise determined by the Board, 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 determine the time or times when each
option becomes exercisable, the duration of the
<PAGE>
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; (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; and (k) to make determinations as to any other
awards to be made under 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, 2,300,000 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 unexercised
and outstanding, (iii) the number of shares issued upon exercise of options,
and (iv) the number of shares subject to other then outstanding awards and the
number of shares issued upon the exercise of other awards (except for such
awards satisfied or to be satisfied in cash). In the event that any Restricted
Shares are forfeited or that any outstanding option or other award under the
Plan for any reason expires, is forfeited, 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 or other award shall again be available for
grant or issuance under the Plan.
2
<PAGE>
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, other awards and options under the Plan. In addition, Restricted
Shares, other awards 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 such awards under the
Plan. Notwithstanding anything to the contrary herein, during any time that
the Company is subject to Section 162(m) of the Code, the maximum number of
shares of Stock with respect to which options and stock appreciation rights
(to the extent granted as an award under the plan) may be granted to any
individual in any one year shall not exceed the maximum number of shares of
Stock available for issue hereunder, as such number may change from time to
time.
As of any grant date which is during any time that the Stock is neither
publicly traded nor 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 or other electronic securities
exchanges, it shall be a condition to the grant of Restricted Shares or Stock
upon the exercise of options under the Plan that the grantee or optionee
execute a Joinder Agreement in the form attached to the Knoll, Inc.
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 Per Share" means, as of any date when the Stock is
quoted on the NASDAQ 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 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.
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<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 dividends 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). Except as set forth in
4
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any applicable Restricted Share 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.
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
the Plan, 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
5
<PAGE>
appropriate, including a change in control of the Company. 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 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.
6
<PAGE>
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 Per Share equal to
the amount of such exercise price.
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 and other awards granted hereunder, the number of
shares of Stock which may be subject to options and stock appreciation rights
granted to any one person in any one year, the number of shares of Stock
covered by each outstanding option and other award 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. 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
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<PAGE>
or kind of shares of Stock or other securities issued or reserved for issuance
pursuant to the Plan, the number or kind of shares of Stock which may be
subject to options and stock appreciation rights granted to any one person in
any one year, and the number or kind of shares of Stock or other securities
covered by outstanding options and other awards, 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 foregoing adjustments and the manner of application of the
foregoing provisions shall be determined by the Committee in 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.
8
<PAGE>
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.
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. Notwithstanding any
terms or conditions of any award to the contrary, the Company shall be under
no obligation to offer to sell or to sell and shall be prohibited from offering
to sell or selling any shares of Stock or other security pursuant to an award
under the Plan unless such shares or other securities have been properly
registered for sale
9
<PAGE>
pursuant to the Securities Act with the Securities and Exchange Commission or
unless the Company has received advice of counsel, satisfactory to the Company,
that such shares or securities may be offered or sold without such registration
pursuant to an available exemption therefrom and the terms and conditions of
such exemption have been fully complied with. The Company shall be under no
obligation to register for sale under the Securities Act any of the shares of
Stock or other securities to be offered or sold under the Plan. If the shares
of Stock or other securities offered for sale or sold under the Plan are
offered or sold pursuant to an exemption from registration under the Securities
Act, the Company may restrict the transfer of such shares and may legend the
Stock certificates representing such shares in such manner as it deems
advisable or to ensure the availability of any such exemption.
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 November 4, 1999, the date of adoption of
the Plan by the 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 November 4, 2009.
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.
10
<PAGE>
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 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,
11
<PAGE>
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 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 Delaware 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 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.
12
<PAGE>
(g) Each member of the Committee and each member of the 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.
ARTICLE XXIII
Other Awards
------------
The Committee may grant any other cash, stock or stock-related awards
to any eligible individual under this Plan that the Committee deems
appropriate, including, but not limited to, stock appreciation rights, limited
stock appreciation rights, phantom stock awards, the bargain purchase of Stock
and stock bonuses. Any such benefits and any related agreements shall contain
such terms and conditions as the Committee deems appropriate. Such awards and
agreements need not be identical. With respect to any benefit under which
shares of Stock are or may in the future be issued (other than shares issued
from the Company's treasury) for consideration other than prior services, the
amount of such consideration shall not be less than the amount (such as the
par value of such shares) required to be received by the Company in order to
comply with applicable state law.
13
<PAGE>
Shares of Stock may also be used to satisfy obligations of the Company
to deliver shares of Stock (whether or not restricted) under other compensation
and benefit plans heretofore or hereafter established by the Company.
* * *
As adopted by the Board of Directors of
Knoll, Inc. as of November 4, 1999
14
<PAGE>
Exhibit 10.20
NON-QUALIFIED
STOCK OPTION AGREEMENT
UNDER THE
KNOLL, INC.
1999 STOCK INCENTIVE PLAN
THIS AGREEMENT, made this ___ day of _________, ____, by and between
Knoll, Inc., a Delaware corporation (the "Company"), and ____________________
(the "Optionee").
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, the Optionee is now employed by or currently engaged as a
consultant to the Company or one of its subsidiaries in a key capacity or is a
director of the Company, and the Company desires to have _____ remain in
such employment or engagement and to afford _____ the opportunity to acquire,
or enlarge, _____ ownership of the Company's Common Stock, par value $.01 per
share ("Stock"), so that _____ may have a direct proprietary interest in the
Company's success (all references to employment hereafter shall relate to any
consulting or similar relationship, if applicable);
NOW, THEREFORE, in consideration of the covenants and agreements
herein contained, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
---------------
herein and in the Company's 1999 Stock Incentive Plan (the "Plan"), the Company
hereby grants to the Optionee, during the period commencing on the date of this
Agreement and ending ten (10) years from the date hereof (the "Termination
Date"), the right and option (the right to purchase any one share of Stock
hereunder being an "Option") to purchase from the Company, at a price of
$______ per share, an aggregate of ____________ shares of Stock. The Optionee
expressly acknowledges receipt of a copy of the Plan and agrees to be bound by
all of the provisions of the Plan.
<PAGE>
2. Limitations on Exercise of Option. The exercise of the Options
---------------------------------
is expressly contingent upon the Optionee's having executed a Joinder Agreement
agreeing to be bound by the provisions of the Stockholders Agreement. Subject
to compliance with the terms and conditions set forth herein, the Optionee may
exercise ____% of the Options on and after ___________________________________
_______________, an additional ____% of the Options on and after _____________
__________________________________, an additional ____% of the Options on and
after ________________________________________________ and an additional ____%
of the Options on and after ________________________________________________.
Notwithstanding the vesting provisions in this Section 2, upon a Change in
Control (following the date hereof), as defined in Exhibit A annexed hereto,
100% of the Options, to the extent not previously exercised, shall become fully
vested and exercisable.
3. Termination of Employment.
-------------------------
(a) If prior to the Termination Date, the Optionee shall cease to be
employed by the Company by reason of a disability, as defined in Section
22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"), or by
reason of retirement on or after age 65 and such cessation of employment occurs
during a time when the Stock is listed or quoted on a national securities
exchange or in the over-the-counter market ("Publicly Traded"), the Options
shall remain exercisable until the earlier of the Termination Date or one year
after the date of cessation of employment to the extent the Options were
exercisable at the time of cessation of employment. In the event of such
cessation of employment during a time when the Stock is not Publicly Traded,
the Options that were exercisable at the time of such cessation of employment
shall remain exercisable until the earlier of (i) the Termination Date, (ii)
the date that is the three year anniversary of such cessation of employment or
(iii) the date that is 90 days after the date that the Stock becomes Publicly
Traded. For purposes of calculating the 90 day period in (iii) above, any days
during which the Optionee is prohibited from selling Stock into the public
market on account
-2-
<PAGE>
of (A) any applicable underwriter's lock-up period or (B) any blackout period
imposed under the Company's policy governing insider trading, shall (without
duplication) not be counted (the appropriate date under (i), (ii) or (iii)
(taking into account any days not counted pursuant to clause (A) or (B)) is
hereafter referred to as the "Non-Public Termination Date"). Notwithstanding
the foregoing, if such cessation of employment occurs at a time when the Stock
is not Publicly Traded and less than one year prior to the Non-Public
Termination Date, such Options shall remain exercisable until the date that is
one year from the date of such cessation of employment but not beyond the
Termination Date.
(b) If the Optionee shall cease to be employed by the Company prior
to the Termination Date by reason of death, or the Optionee shall die while
entitled to exercise any of the Options pursuant to paragraph 3(a) or paragraph
3(c) and such death occurs during a time when the Stock is Publicly Traded,
the executor or administrator of the estate of the Optionee or the person or
persons to whom the Options shall have been validly transferred by the
executor or administrator pursuant to will or the laws of descent and
distribution shall have the right, until the earlier of the Termination Date
or one year after the date of death, to exercise the Options to the extent that
the Optionee was entitled to exercise them on the date of death, subject to any
other limitation contained herein on the exercise of the Options in effect on
the date of exercise. In the event such death occurs during a time when the
Stock is not Publicly Traded, the Options that were exercisable at the time of
such death shall remain exercisable until the Non-Public Termination Date.
Notwithstanding the foregoing, if such death occurs at a time when the Stock
is not Publicly Traded and less than one year prior to the Non-Public
Termination Date, such Options shall remain exercisable until the date that is
one year from the date of such death but not beyond the Termination Date.
(c) If the Optionee voluntarily terminates employment (including but
not limited to retirement prior to age 65) with
-3-
<PAGE>
the Company for reasons other than death, disability, or retirement on or
after age 65 (a termination on account of death, disability or retirement on
or after age 65 being referred to herein as a "Special Circumstances
Termination"), or if the Optionee's employment with the Company is terminated
without Cause, as hereinafter defined, and such cessation of employment occurs
during a time when the Stock is Publicly Traded, the Options, to the extent
exercisable immediately prior to such termination, shall continue to be
exercisable until the earlier of the Termination Date or 90 days after the
date of such termination. For purposes of calculating the 90 day period in the
immediately preceding sentence, any days during which the Optionee is
prohibited from selling Stock into the public market on account of (A) any
applicable underwriter's lock-up period or (B) any blackout period imposed
under the Company's policy governing insider trading, shall (without
duplication) not be counted. In the event of such termination of employment
during a time when the Stock is not Publicly Traded, the Options that were
exercisable at the time of such termination of employment shall remain
exercisable until the Non-Public Termination Date. If the Company terminates
the Optionee's employment for Cause, as hereinafter defined, unless otherwise
provided by the Committee, the Options, to the extent not exercised prior to
such termination, shall lapse and be canceled.
(d) For purposes of this Agreement, unless otherwise provided in an
employment agreement between the Company and the Optionee, "Cause" shall mean:
(i) the Optionee's failure (except where due to a disability), neglect or
refusal to perform his duties which failure, neglect or refusal shall not have
been corrected by the Optionee within 30 days of receipt by the Optionee of
written notice from the Company of such failure, neglect or refusal, which
notice shall specifically set forth the nature of said failure, neglect or
refusal, (ii) any engaging by the Optionee in conduct that has the effect of
injuring the reputation or business of the Company or its affiliates in any
material respect; (iii) any continued or repeated absence from the Company,
unless such absence is (A) approved or excused by
-4-
<PAGE>
the Board or (B) is the result of the Optionee's illness, disability or
incapacity; (iv) use of illegal drugs by the Optionee or repeated drunkenness;
(v) conviction of the Optionee for the commission of a felony; or (vi) the
commission by the Optionee of an act of fraud or embezzlement against the
Company.
(e) Except as otherwise provided in paragraph 3(d) hereof, whether
employment has been or could have been terminated for the purposes of this
Agreement, and the reasons therefor, shall be determined by the Committee,
whose determination shall be final, binding and conclusive.
(f) After the expiration of any exercise period described in either of
paragraphs 3(a), 3(b) or 3(c) hereof, the Options shall terminate together with
all of the Optionee's rights hereunder, to the extent not previously exercised.
Except as set forth herein, all vesting with respect to the Options shall cease
upon the Optionee's termination of employment and all Options to the extent
unvested at the time of termination shall expire.
4. Method of Exercising Option.
---------------------------
(a) The Optionee may exercise any or all of the Options by delivering
to the Company a written notice signed by the Optionee stating the number of
Options that the Optionee has elected to exercise at that time, together with
full payment of the purchase price of the shares to be thereby purchased from
the Company. Payment of the purchase price of the shares may be made by
certified or bank cashier's check payable to the order of the Company, or, in
the sole discretion of the Committee, (i) by surrender or delivery to the
Company of shares of Stock or other property acceptable to the Committee in its
sole discretion, which Stock or other property shall have a value equal to the
purchase price, (ii) after the date of an IPO, by delivery to the Committee of
a copy of irrevocable instructions to a stockbroker to deliver promptly to the
Company an amount of sale or loan
-5-
<PAGE>
proceeds sufficient to pay the purchase price, or (iii) by such other means as
the Committee shall allow in its discretion.
(b) At the time of exercise, the Optionee shall 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 incurred by reason of
the exercise or the transfer of shares thereupon.
5. Issuance of Shares. Subject to any limitations set forth in the
------------------
Plan, as promptly as practical after receipt of such written notification and
full payment of such purchase price and any required income tax withholding
amount, the Company shall issue or transfer to the Optionee the number of
shares with respect to which Options have been so exercised, and shall deliver
to the Optionee a certificate or certificates therefor, registered in the
Optionee's name.
6. Successors. Whenever the word "Optionee" is used in any
----------
provision of this Agreement under circumstances where the provision should
logically be construed to apply to the executors, the administrators, or the
person or persons to whom the Options may be transferred by will or by the laws
of descent and distribution, the word "Optionee" shall be deemed to include
such person or persons.
7. Non-Transferability. The Options are not transferable by the
-------------------
Optionee otherwise than by will or the laws of descent and distribution and are
exercisable during the Optionee's lifetime only by him. No assignment or
transfer of the Options, or of the rights represented thereby, whether
voluntary or involuntary, by operation of law or otherwise (except by will or
the laws of descent and distribution), shall vest in the assignee or transferee
any interest or right herein whatsoever, but immediately upon such assignment
or transfer the Options shall terminate and become of no further effect.
-6-
<PAGE>
8. Rights as Stockholder. The Optionee or a transferee of the
---------------------
Options shall have no rights as a stockholder with respect to any share covered
by the Options until he shall have become the holder of record of such share,
and no adjustment shall be made for dividends or distributions or other rights
in respect of such share for which the record date is prior to the date upon
which he shall become the holder of record thereof.
9. Recapitalizations, Reorganizations, etc.
----------------------------------------
(a) The existence of the Options shall not affect in any way the
right or power of the Company or its stockholders to make or authorize any or
all adjustments, recapitalizations, reorganizations or other changes in the
Company's capital structure or its business, or any merger or consolidation of
the Company, or any issue of stock or of options, warrants or rights to
purchase stock or of bonds, debentures, preferred or prior preference stocks
ahead of or affecting the Stock or the rights thereof or convertible into or
exchangeable for Stock, or the dissolution or liquidation of the Company, or
any sale or transfer of all or any part of its assets or business, or any other
corporate act or proceeding, whether of a similar character or otherwise.
(b) The shares with respect to which the Options are granted are
shares of Stock of the Company as presently constituted, but if, and whenever,
prior to the delivery by the Company of all of the shares of the Stock with
respect to which the Options are granted, the Company shall effect a
subdivision or consolidation of shares of the Stock outstanding, without
receiving compensation therefor in money, services or property, the number and
price of shares remaining under the Options shall be appropriately adjusted.
Such adjustment shall be made by the Committee, whose determination as to what
adjustment shall be made, and the extent thereof, shall be final, binding and
conclusive. Any such adjustment may provide for the elimination of any
fractional share which might otherwise become subject to the Options.
-7-
<PAGE>
(c) 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 or shares of Stock or other securities covered by the Options
and the option price thereof. The Committee shall notify the Optionee of any
intended sale of all or substantially all of the Company's assets within a
reasonable time prior to such sale.
(d) Except as herein before expressly provided, the issue by the
Company of shares of stock of any class, or securities convertible into or
exchangeable for shares of stock of any class, for cash or property, or for
labor or services, either upon direct sale or upon the exercise of options,
rights or warrants to subscribe therefor, or to purchase the same, or upon
conversion of shares or obligation of the Company convertible into such shares
or other securities, shall not affect, and no adjustment by reason thereof
shall be made with respect to, the number or price of shares of Stock subject
to the Options.
10. Compliance with Law. Notwithstanding any of the provisions
-------------------
hereof, the Optionee hereby agrees that he will not exercise the Options, and
that the Company will not be obligated to issue or transfer any shares to the
Optionee hereunder, if the exercise hereof or the issuance or transfer of such
shares shall constitute a violation by the Optionee or the Company of any
provisions of any law or regulation of any governmental authority. Any
determination in this connection by the Committee shall be final, binding and
conclusive. The Company shall in no event be obliged to register any
securities pursuant to the Securities Act of 1933 (as now in effect or as
hereafter amended) or to take any other affirmative action in order to cause
the exercise of the Options or the issuance or transfer of shares pursuant
thereto to comply with any law or regulation of any governmental authority.
-8-
<PAGE>
11. Notice. Every notice or other communication relating to this
------
Agreement shall be in writing, and shall be mailed to or delivered to the party
for whom it is intended at such address as may from time to time be designated
by it in a notice mailed or delivered to the other party as herein provided,
provided that, unless and until some other address be so designated, all
notices or communications by the Optionee to the Company shall be mailed or
delivered to the Company at its principal executive office, and all notices or
communications by the Company to the Optionee may be given to the Optionee
personally or may be mailed to him at the address shown below his signature to
this Agreement.
12. Non-Qualified Options. The Options granted hereunder are not
---------------------
intended to be incentive stock options within the meaning of Section 422 of
the Code.
13. Binding Effect. Subject to Section 7 hereof, this Agreement
--------------
shall be binding upon the heirs, executors, administrators and successors of
the parties hereto.
14. Governing Law. This Agreement shall be construed and interpreted
-------------
in accordance with the internal laws of the State of Delaware without reference
to the principles of conflicts of law thereof.
15. Plan. The terms and provisions of, and the defined terms used
----
in, the Plan, a copy of which is attached hereto, are incorporated herein by
reference. Unless a different meaning is expressly set forth herein, the
defined terms used in this Agreement shall have the same meaning given to such
terms in the Plan. In the event of a conflict or inconsistency between
discretionary terms and provisions of the Plan and the express provisions of
this Agreement, this Agreement shall govern and control. In all other
instances of conflicts or inconsistencies
-9-
<PAGE>
or omissions, the terms and provisions of the Plan shall govern and control.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.
KNOLL, INC.
By: __________________________
Senior Vice President
OPTIONEE:
___________________________
-10-
<PAGE>
EXHIBIT A
---------
Change in Control. For purposes of this Agreement, a "Change in Control" shall
- -----------------
be deemed to have occurred if: (i) any person (as defined in Section 3(a)(9)
of the Securities Exchange Act of 1934, as amended from time to time (the
"Exchange Act"), and as used in Sections 13(d) and 14(d) thereof, including
any "group" as defined in Section 13(d)(3) thereof (a "Person"), but excluding
the Company, any majority owned subsidiary of the Company (a "Subsidiary"),
Warburg, Pincus & Co. ("Warburg") and any affiliate of Warburg (other than a
Warburg portfolio company), and any employee benefit plan sponsored or
maintained by the Company or any Subsidiary (including any trustee of such plan
acting as trustee), becomes the beneficial owner of shares of the Company
having at least 50% of the total number of votes that may be cast for the
election of directors of the Company (the "Voting Shares") provided, however,
that such an event shall not constitute a Change in Control if the acquiring
Person has entered into an agreement with the Company approved by the Board
which materially restricts the right of such Person to direct or influence
the management or policies of the Company; (ii) the shareholders of the Company
shall approve any merger of other business combination of the Company, sale of
the Company's assets or combination of the foregoing transactions (a
"Transaction") other than a Transaction involving only the Company and one or
more of its Subsidiaries, or a Transaction immediately following which the
shareholders of the Company immediately prior to the Transaction continue to
have a majority of the voting power in the resulting entity; or (iii) within
any 24-month period beginning on or after November 4, 1999, the persons who
were members of the Board on or immediately before the beginning of such period
(the "Incumbent Directors") shall cease (for any reason other than death) to
constitute at least a majority of members of the Board or the board of
directors of any successor to the Company, provided that any director who was
not a director as of November 4, 1999 shall be deemed to be an Incumbent
-11-
<PAGE>
Director if such director was elected to the Board by, or on the recommendation
of or with the approval of, at least two-thirds of the directors who then
qualified as Incumbent Directors either actually or by prior operation of this
definition. Notwithstanding the foregoing, no Change in Control shall be
deemed to have occurred for purposes of this Agreement by reason of (i) any
actions or events in which the Grantee participates in a capacity other than
in his capacity as an employee of the Company or any Subsidiary, or (ii) any
decrease in the share ownership of Warburg and its affiliates, to the extent
such decrease is attributable to such shareholders having distributed shares
owned by them directly to one or more members of their investment group.
-12-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 18,561
<SECURITIES> 0
<RECEIVABLES> 174,550
<ALLOWANCES> 6,783
<INVENTORY> 82,738
<CURRENT-ASSETS> 299,226
<PP&E> 279,972
<DEPRECIATION> 95,331
<TOTAL-ASSETS> 742,306
<CURRENT-LIABILITIES> 195,139
<BONDS> 592,876
0
0
<COMMON> 233
<OTHER-SE> (94,427)
<TOTAL-LIABILITY-AND-EQUITY> 742,306
<SALES> 984,511
<TOTAL-REVENUES> 984,511
<CGS> 593,442
<TOTAL-COSTS> 593,442
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 21,611
<INCOME-PRETAX> 155,513
<INCOME-TAX> 66,351
<INCOME-CONTINUING> 89,162
<DISCONTINUED> 0
<EXTRAORDINARY> (10,801)
<CHANGES> 0
<NET-INCOME> 78,361
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
