-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MMT2gnmxYkiZwJNZVbrr8qeiwDFq29IEbubfhnad5aIHkQ3xo+UOp6J6+H/7QZ8G qKorGz9lPOLWy3eX8CKwNw== 0001011570-00-000004.txt : 20000331 0001011570-00-000004.hdr.sgml : 20000331 ACCESSION NUMBER: 0001011570-00-000004 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000330 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KNOLL INC CENTRAL INDEX KEY: 0001011570 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FURNITURE & FIXTURES [2590] IRS NUMBER: 133873847 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-12907 FILM NUMBER: 588855 BUSINESS ADDRESS: STREET 1: 1235 WATER ST CITY: EAST GREENVILLE STATE: PA ZIP: 18041 BUSINESS PHONE: 2156797991 MAIL ADDRESS: STREET 1: 1235 WATER STREET CITY: EAST GREENVILLE STATE: PA ZIP: 18041 10-K 1 FORM 10-K FOR THE FISCAL YEAR ENDED 12/31/99 =============================================================================== 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. =============================================================================== TABLE OF CONTENTS ----------------- Item Page - ------ ------ 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 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. 2 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. 3 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 4 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. 5 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. 6 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 7 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. 8 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. 9 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:
Broker Proposal For Against Abstain Non-Votes ------------------ ------------ ---------- ---------- ----------- Proposal 1........ 29,929,743 11,478 5,324 5,356,824 Proposal 3........ 35,272,677 3,440 27,252 --
10 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 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."
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) | 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 ======== ======== | ======== ======== ======== ========
12
Predecessor | The Company -------------- | -------------------------------------------------------- | December 31, December 31, | -------------------------------------------------------- 1995 | 1996 1997 1998 1999 -------------- | ------------ ------------ ------------ ------------ (In Thousands) | (In Thousands) | 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)
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 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 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:
1999 1998 1997 ---------- ---------- ---------- (In Thousands) 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)
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 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 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 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 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.
2000 2001 2002 2003 2004 Thereafter Total Fair Value -------- -------- -------- -------- -------- ---------- ---------- ---------- (Dollars in Thousands) 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%
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 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 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.
Name Age Position ------------------------ ----- -------------------------------------- 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
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 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 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 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").
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) - --------------------------- ------ ---------- ---------- ---------- ----------- ----------- ---------- 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
___________________________ (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 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.
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) ----------------------- ----------- ---------- --------- ---------- ---------- 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-
_______________________ (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.
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 ----------------------- ----------- ---------- -------------------- -------------------- 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-
25 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 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 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.
Number of Shares of Beneficial Owner (1) Common Stock (2) Percentage ---------------------------------- ------------------- -------------- 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
__________________________ * 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 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 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 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 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
Exhibit Number Description --------- --------------------------------------------------------------------------- 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.
32
Exhibit Number Description --------- --------------------------------------------------------------------------- 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
(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 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 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 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 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 KNOLL, INC. CONSOLIDATED BALANCE SHEETS DECEMBER 31, 1999 AND 1998 (Dollars In Thousands, Except Per Share Data)
1999 1998 ---------- ---------- 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 ======== ========
See accompanying notes to the consolidated financial statements. F-3 KNOLL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (In Thousands)
1999 1998 1997 ---------- ---------- ---------- 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 ======== ======== ========
See accompanying notes to the consolidated financial statements. F-4 KNOLL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (In Thousands)
1999 1998 1997 ---------- ---------- ---------- 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 ========= ======== ========
See accompanying notes to the consolidated financial statements. F-5 KNOLL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT) YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997 (Dollars In Thousands)
Unearned Accumulated Total Additional Stock Retained Other Stockholders' Preferred Common Paid-In Grant Earnings Comprehensive Equity Stock Stock Capital Compensation (Deficit) Income (Deficit) --------- ------ ---------- ------------ ---------- -------------- ------------- 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) ====== ===== ========= ======= ========= ======= =========
See accompanying notes to the consolidated financial statements. F-6 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 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 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 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
1999 1998 ---------- ---------- (In Thousands) Raw materials............................... $49,795 $42,625 Work in process............................. 10,313 11,827 Finished goods.............................. 22,630 22,661 ------- ------- Inventories................................. $82,738 $77,113 ======= =======
7. PROPERTY, PLANT AND EQUIPMENT
1999 1998 ---------- ---------- (In Thousands) 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 ======== ========
F-10 KNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued) 8. INTANGIBLE ASSETS
1999 1998 ---------- ---------- (In Thousands) 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 ======== ========
9. OTHER CURRENT LIABILITIES
1999 1998 ---------- ---------- (In Thousands) 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 ======== ========
10. INDEBTEDNESS The Company's long-term debt is summarized as follows:
1999 1998 ---------- ---------- (In Thousands) 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 ======== ========
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 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 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 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 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:
1999 1998 1997 ---------- ---------- ---------- (In Thousands) U.S. operations................. $151,350 $142,483 $ 82,851 Foreign operations.............. 4,163 14,932 31,618 -------- -------- -------- $155,513 $157,415 $114,469 ======== ======== ========
F-15 KNOLL, INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (continued) Income tax expense, excluding extraordinary items, is comprised of the following:
1999 1998 1997 ---------- ---------- ---------- (In Thousands) 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 ======= ======= =======
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:
1999 1998 ---------- ---------- (In Thousands) 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 ======== ========
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 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:
1999 1998 1997 -------- -------- -------- 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% ==== ==== ====
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 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:
Pension Benefits Other Benefits ---------------------- ---------------------- 1999 1998 1999 1998 ---------- ---------- ---------- ---------- (In Thousands) (In Thousands) 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) ======= ======= ======== ========
Significant assumptions as of December 31 that were used in accounting for the pension and other postretirement benefits plans are as follows:
Pension Benefits Other Benefits ------------------ ------------------ 1999 1998 1999 1998 -------- -------- -------- -------- 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
F-18 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:
Pension Benefits Other Benefits ---------------------------- ---------------------------- 1999 1998 1997 1999 1998 1997 -------- -------- -------- -------- -------- -------- (In Thousands) (In Thousands) 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 ====== ====== ====== ====== ====== ======
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 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:
1999 1998 1997 ----------------------- ----------------------- ----------------------- Weighted Weighted Weighted Number Average Number Average Number Average of Exercise of Exercise of Exercise Options Price Options Price Options Price ----------- ---------- ----------- ---------- ----------- ---------- 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 ========= ========= =========
F-20 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:
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 ----------------- ----------- ------------- ---------- ----------- ---------- $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 ========= =======
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 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 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.
United States Canada Europe Consolidated ---------- ---------- ---------- ------------ (In Thousands) 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
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.
First Second Third Fourth Quarter Quarter Quarter Quarter ----------- ----------- ----------- ----------- (In Thousands) 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
F-23 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 KNOLL, INC. BALANCE SHEET DECEMBER 31, 1999 (In Thousands)
Guarantors ------------------------ Spinneybeck Knoll Knoll, Enterprises, Overseas, Non- Inc. Inc. Inc. Guarantors Eliminations Total ---------- ------------ --------- ----------- ------------ ----------- 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 ======== ======= ======= ======== ========= ========
F-25 KNOLL, INC. BALANCE SHEET DECEMBER 31, 1998 (In Thousands)
Guarantors ------------------------ Spinneybeck Knoll Knoll, Enterprises, Overseas, Non- Inc. Inc. Inc. Guarantors Eliminations Total ---------- ------------ --------- ----------- ------------ ----------- 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 ======== ======= ======= ======== ========= ========
F-26 KNOLL, INC. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1999 (In Thousands)
Guarantors ------------------------ Spinneybeck Knoll Knoll, Enterprises, Overseas, Non- Inc. Inc. Inc. Guarantors Eliminations Total ---------- ------------ --------- ----------- ------------ ----------- 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 ======== ======= ======= ======== ========= ========
F-27 KNOLL, INC. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1998 (In Thousands)
Guarantors ------------------------ Spinneybeck Knoll Knoll, Enterprises, Overseas, Non- Inc. Inc. Inc. Guarantors Eliminations Total ---------- ------------ --------- ----------- ------------ ----------- 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 ======== ======= ====== ======== ========= ========
F-28 KNOLL, INC. STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31, 1997 (In Thousands)
Guarantors ------------------------ Spinneybeck Knoll Knoll, Enterprises, Overseas, Non- Inc. Inc. Inc. Guarantors Eliminations Total ---------- ------------ --------- ----------- ------------ ----------- 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 ======== ======= ======= ======== ========= ========
F-29 KNOLL, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1999 (In Thousands)
Guarantors ------------------------ Spinneybeck Knoll Knoll, Enterprises, Overseas, Non- Inc. Inc. Inc. Guarantors Eliminations Total ---------- ------------ --------- ----------- ------------ ----------- 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 ========= ==== ==== ======= ==== =========
F-30 KNOLL, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1998 (In Thousands)
Guarantors ------------------------ Spinneybeck Knoll Knoll, Enterprises, Overseas, Non- Inc. Inc. Inc. Guarantors Eliminations Total ---------- ------------ --------- ----------- ------------ ----------- 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 ======== ==== ==== ======= ==== ========
F-31 KNOLL, INC. STATEMENT OF CASH FLOWS YEAR ENDED DECEMBER 31, 1997 (In Thousands)
Guarantors ------------------------ Spinneybeck Knoll Knoll, Enterprises, Overseas, Non- Inc. Inc. Inc. Guarantors Eliminations Total ---------- ------------ --------- ----------- ------------ ----------- 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 ========= ======= ==== ======= ======= ========
F-32 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
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) 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
____________________ (1) Uncollectible accounts written off and foreign currency translation. S-1 EXHIBIT INDEX
Exhibit Number Description Page - --------- --------------------------------------------------------------------------- ------ 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.
Exhibit Number Description Page - --------- --------------------------------------------------------------------------- ------ 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.
- ----------------------------------------- * 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. EX-10.8 2 AMENDED & RESTATED EMPLOYMENT AGREEMENT 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 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 2 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. 3 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 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 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 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 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 EX-10.13 3 AMENDMENT #3 TO EMPLOYMENT AGREEMENT 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 EX-10.15 4 AMENDED & RESTATED STOCKHOLDERS AGREEMENT 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. 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. 2 (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 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 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 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 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 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 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 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 (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 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 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 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 (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 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 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 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 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 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 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 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 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 (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 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 SCHEDULE I (Intentionally Omitted) 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: EX-10.16 5 AMENDED & RESTATED STCKHLDRS AGRMNT (STOCK PLANS) 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: "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 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 (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 (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 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 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 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 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 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 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 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 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 (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 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 /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 SCHEDULE I (Intentionally Omitted) 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: EX-10.17 6 AMENDED & RESTATED 1996 STOCK INCENTIVE PLAN 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, 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 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 "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 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 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 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 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 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 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 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 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 (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 EX-10.18 7 AMENDED & RESTATED 1997 STOCK INCENTIVE PLAN 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 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 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 "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 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 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 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 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 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 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 (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 (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 EX-10.19 8 1999 STOCK INCENTIVE PLAN 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 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 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. 3 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 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 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 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 7 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 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 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 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 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 (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 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 EX-10.20 9 FORM OF NON-QUALIFIED STOCK OPTION AGREEMENT 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. 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- 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- 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- 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- 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- 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- (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- 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- 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- 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- 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- EX-27 10 FINANCIAL DATA SCHEDULE
5 1,000 YEAR DEC-31-1999 DEC-31-1999 18,561 0 174,550 6,783 82,738 299,226 279,972 95,331 742,306 195,139 592,876 0 0 233 (94,427) 742,306 984,511 984,511 593,442 593,442 0 0 21,611 155,513 66,351 89,162 0 (10,801) 0 78,361 0 0
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