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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000
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 [ ]
There is no public market for the voting stock of the Registrant.
As of March 30, 2001, there were 23,190,829 shares of the Registrant's
common stock, par value $0.01 per share, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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TABLE OF CONTENTS
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Item Page
- ------ ------
PART I
1. Business....................................................... 2
2. Properties..................................................... 8
3. Legal Proceedings.............................................. 9
4. Submission of Matters to a Vote of Security Holders............ 9
PART II
5. Market for Registrant's Common Equity and Related
Stockholder Matters.......................................... 10
6. Selected Financial Data........................................ 11
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 12
7A. Quantitative and Qualitative Disclosures about Market Risk..... 17
8. Financial Statements and Supplementary Data.................... 18
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 18
PART III
10. Directors and Executive Officers of the Company................ 19
11. Executive Compensation......................................... 21
12. Security Ownership of Certain Beneficial Owners and
Management................................................... 25
13. Certain Relationships and Related Transactions................. 26
PART IV
14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K..................................................... 29
Signatures.......................................................... 32
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, whose successor is Viacom Inc. ("Westinghouse"). 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.
Pursuant to an agreement and plan of merger, the Company consummated a
recapitalization (merger) transaction on November 4, 1999 whereby a newly
formed entity, which was organized by Warburg, Pincus Ventures, L.P.
("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 New York
Stock Exchange ("NYSE"), and the registration of the Company's securities
under the Securities Exchange Act of 1934, as amended (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.
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 2000.
U.S. % of U.S.
Product Category Category Size Market
---------------- ------------- ----------
(In Billions)
Office systems.................... $4.7 35.7%
Seating........................... 3.3 25.0
Storage........................... 1.4 10.9
Desks and casegoods............... 2.2 16.9
Tables............................ 0.9 7.0
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
2
writing desks in private offices to conference and meeting room tables that
can accommodate sophisticated technological demands.
Management believes that fundamental trends 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, business confidence and corporate
cash flow, that influence industry revenues.
Growth in the office furniture industry decelerated in the latter part of
2000, and such deceleration is expected to continue into 2001. This slowdown
is due primarily to a reduction in business confidence, corporate profitability
and white-collar employment growth in response to a general softening in the
economy in North America.
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, but
management believes that they are not currently affecting the office furniture
industry's traditional channels of distribution. The Company has developed
and continues to develop initiatives in an effort to take advantage of
opportunities presented by the Internet. In 2000, the Company began its
development of an e-business strategy to link its dealers and customers with
the Company's internal systems via the Internet in order to simplify the
purchasing process and reduce cycle time and related costs. In addition, the
Company began offering a limited number of its products for sale via the
Internet in 2000 and enhanced its available on-line product information.
There can be no assurance that any of such initiatives will be successful,
will be completed in a timely fashion or will 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.
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.
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 units 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
3
accounted for approximately 71.3% of the Company's sales in 2000, 68.9% of
sales in 1999 and 68.4% of sales in 1998.
Seating
The Company believes that the office seating portion of the office furniture
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. In 2001, the Company expects to begin
shipping its mid-priced RPM chair.
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 three product lines in the tables category: INTERACTION
tables, PROPELLER tables and UPSTART 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. The recently introduced UPSTART tables are a line of adjustable,
stand-alone tables, offered in new shapes and surfaces, that support the needs
of rapidly growing organizations.
KNOLLSTUDIO
The Company's historically significant KNOLLSTUDIO collection serves the
design-conscious segment of the fine contract furniture portion of the 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. KNOLLSTUDIO includes complete collections by individual designers
as well as distinctive single items. 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 Ludwig Mies van der Rohe, Marcel
Breuer, Eero Saarinen and Frank O. Gehry, for prestigious corporate and
residential interiors. The KNOLLSTUDIO line also offers a signature collection
of products designed by Maya Lin, the internationally known designer of the
National Veterans Memorial in Washington, D.C., and certain design classics of
Fritz Hansen A/S for which Knoll is the exclusive North American distributor.
During 2000, the Company introduced the FOG chair, designed by Frank O. Gehry,
as a KNOLLSTUDIO offering.
4
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. In 2000,
the Company began selling the IMAGO product, which combines the benefit of a
hard surface material with the texture and translucence of a textile.
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, the recently
introduced KNOLLSCOPE system and the SOHO DESKING SYSTEM; (ii) KNOLLSTUDIO,
which serves the image and design-oriented segment of the fine furniture
portion of the market; (iii) seating, including a comprehensive range of chairs
such as SAPPER, BULLDOG, PARACHUTE and SOHO; and (iv) storage units, 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.
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
5
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 390 direct sales representatives, who work closely with its
approximately 230 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 6.0% of the Company's North American sales in 2000.
Additionally, no single customer represented more than 2.5% of the Company's
North American sales during 2000. 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 8.8% of consolidated sales in 2000.
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 6.1% of the Company's sales in 2000. In
the Latin American and Asia-Pacific markets, which accounted for less than
1.0% of the Company's sales in 2000, 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.
In 2000, the Company implemented programs and procedures in its manufacturing
operations intended to improve customer service. As part of these initiatives,
the Company increased its focus on process cycle time, percentage of orders
shipped complete and on-time, order correctness and other key measures aimed
at driving service improvements. The Company made substantial progress in
each of these areas during 2000.
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,
(iv) on-time delivery and (v) service and technical support. In the United
States, where the Company had an estimated 8.1% market share and derived
approximately 91.2% of its sales in 2000, five companies (including the
Company) represented approximately 66.9% of the market in 2000.
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., Teknion Corporation 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 61.0% 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 107 active United States utility patents on
various components used in its products and systems and approximately 132
active United States design patents. The Company also has approximately 212
patents in various foreign countries. Knoll(R), KnollStudio(R), KnollExtra(R),
Good Design Is Good Busines(R), Bulldog(R), Calibre(R), Currents(R),
Dividends(R), Equity(R), Imago(TM), KnollScope(TM), Parachute(R), Propeller(R),
Reff(R), RPM(TM) and Upstart(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 $170.6 million at December 31,
2000 and $203.3 million at December 31, 1999. 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 the Company's Predecessor in 1990, been accomplished without
having a material adverse effect on the operations of the Company. There can
be no assurance that such regulations will not change in the future or that
the Company will not incur material costs as a result of such regulations.
While it is difficult to estimate the timing and ultimate costs to be incurred
due to uncertainties about the status of laws, regulations and technology,
management presently has no planned expenditures of significant amounts for
future environmental compliance.
7
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 28, 2001, the Company employed a total of 4,435 people,
including 2,927 hourly and 1,508 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, and none have occurred during the past year.
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.
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 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"). On December 21, 2000, GSA, Knoll and the
former shareholders of The Shaw-Walker Company entered into a settlement
agreement whereby the former shareholders of The Shaw-Walker Company agreed to
pay the U.S. government, pursuant to the terms thereof, a cash payment in full
and final satisfaction of the Shaw-Walker GSA Claims. This settlement has
been completed.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on December 4, 2000. The
Company's stockholders were asked to take the following actions at the meeting:
(1) 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 1").
(2) Ratify the appointment of the firm Ernst & Young LLP as independent
auditors of Knoll for the 2000 fiscal year ("Proposal 2").
With respect to Proposal 1, all nine individuals nominated for director were
elected. The nominees and the votes each received are as follows:
Nominee For Withheld
------------------------ -------------- ----------
Burton B. Staniar....... 22,387,721 --
John H. Lynch........... 22,387,721 --
Andrew B. Cogan......... 22,387,721 --
Kathleen G. Bradley..... 22,387,721 --
Jeffrey A. Harris....... 22,387,721 --
Sidney Lapidus.......... 22,387,721 --
Kewsong Lee............. 22,387,721 --
Lloyd Metz.............. 22,387,721 --
Henry B. Schacht........ 22,387,721 --
Proposal 2 was also approved by affirmative vote of a majority of shares of
common stock present at the annual meeting. Such proposal received 22,387,721
votes FOR and zero votes AGAINST. There were no abstentions.
On March 19, 2001, by written consent of the Company's majority stockholder
in an action taken without a meeting, the employment agreements for Andrew B.
Cogan and Kathleen G. Bradley were approved. Such approval was obtained in
compliance with Section 280G(b)(5) of the Internal Revenue Code of 1986, as
amended.
9
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information and Dividend Policy
There has been no established trading market for the Company's common stock,
par value $0.01 per share since cessation of trading on November 3, 1999, the
day before consummation of the merger. 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
---------- ----------
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, 2001, 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. On December 20, 2000, the Company's Board of Directors
declared a special cash dividend of $9.50 per share of common stock
(approximately $220.3 million in the aggregate) payable on January 5, 2001 to
stockholders of record as of the close of business on December 20, 2000. Such
dividend was in compliance with the covenants contained in the aforementioned
debt agreements, as amended. Prior to December 20, 2000, the Company had
never declared any dividends on its common stock. 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
Options to purchase an aggregate of 40,000 shares of Knoll common stock were
granted to certain employees of the Company on October 30, 2000. These options
were granted at an exercise price of $28.00, will vest in installments over
four years (30% on the first vesting date, 20% on each of the second and third
vesting dates and 30% on the fourth vesting date) 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 of 1933, as amended (the "Securities
Act"), as not involving the sale of a security.
Options to purchase an aggregate of 200,000 shares of Knoll common stock were
granted to certain employees of the Company on February 6, 2001. These options
were granted at an exercise price of $34.50, will vest in installments over
four years (30% on the first vesting date, 20% on each of the second and third
vesting dates and 30% on the fourth vesting date) 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.
10
ITEM 6. SELECTED FINANCIAL DATA
The following table presents selected consolidated financial information of
the Predecessor for the period 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
Ended | Ended Years Ended December 31,
February 29, | December 31, ------------------------------------------------------
1996 | 1996 1997 1998 1999 2000
------------ | ------------ ------------ ------------ ------------ ------------
(In Thousands)| (In Thousands, Except Per Share Data)
|
Operating Data |
Sales................. $ 90,232 | $561,534 $810,857 $948,691 $984,511 $1,163,477
Cost of sales ........ 59,714 | 358,841 489,962 572,756 593,442 682,421
-------- | -------- -------- -------- -------- ----------
Gross profit.......... 30,518 | 202,693 320,895 375,935 391,069 481,056
Selling, general and |
administrative |
expenses............ 21,256 | 131,349 183,018 204,392 206,919 243,885
Westinghouse long- |
term incentive |
compensation........ 47,900 | -- -- -- -- --
Allocated corporate |
expenses............ 921 | -- -- -- -- --
-------- | -------- -------- -------- -------- ----------
Operating income |
(loss).............. (39,559) | 71,344 137,877 171,543 184,150 237,171
Interest expense...... 340 | 32,952 25,075 16,860 21,611 44,437
Recapitalization |
expense............. -- | -- -- -- 6,356 --
Other income |
(expense), net...... (296) | 447 1,667 2,732 (670) 3,026
-------- | -------- -------- -------- -------- ----------
Income (loss) before |
income tax expense |
(benefit) and |
extraordinary item.. (40,195) | 38,839 114,469 157,415 155,513 195,760
Income tax expense |
(benefit)........... (16,107) | 16,844 48,026 64,371 66,351 79,472
-------- | -------- -------- -------- -------- ----------
Income (loss) before |
extraordinary item.. (24,088) | 21,995 66,443 93,044 89,162 116,288
Extraordinary loss |
on early |
extinguishment of |
debt, net of taxes.. -- | 5,159 5,337 -- 10,801 --
-------- | -------- -------- -------- -------- ----------
Net income (loss)..... $(24,088) | $ 16,836 $ 61,106 $ 93,044 $ 78,361 $ 116,288
======== | ======== ======== ======== ======== ==========
|
Per Share Data |
Cash dividends |
declared............ $ -- | $ -- $ -- $ -- $ -- $ 9.50
11
The Company
----------------------------------------------------------------------
December 31,
----------------------------------------------------------------------
1996 1997 1998 1999 2000
------------ ------------ ------------ ------------ ------------
(In Thousands)
Balance Sheet Data
Working capital.............. $ 64,754 $ 65,553 $ 95,040 $104,087 $ 32,678
Total assets................. 675,712 680,859 714,027 742,306 695,130
Total long-term debt,
including current portion.. 354,154 207,029 169,255 610,376 425,755
Total liabilities............ 497,908 392,570 370,177 836,500 899,505
Stockholders' equity
(deficit).................. 177,804 288,289 343,850 (94,194) (204,375)
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
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 securities under the
Exchange Act was terminated.
The merger and related transactions were accounted for as a leveraged
recapitalization. The historical accounting bases of Knoll's assets and
liabilities were retained subsequent to the transactions. See Note 3 to the
consolidated financial statements for further discussion of the merger.
2000 was a record year for Knoll in terms of sales and profits. It was the
first year in the history of the Company in which annual sales exceeded
$1.0 billion. As previously discussed in the "Industry Overview" section
of Item 1, "Business," growth in the office furniture industry decelerated
in the latter half of 2000, and such deceleration is expected to continue
into 2001. The Company anticipates that its sales in the first quarter of
2001 will be down compared to the first quarter of 2000 due principally to the
economic slowdown being experienced in North America. In response to the
expectation of lower sales volumes, the Company is taking steps intended to
prevent deterioration in year-over-year profits as a percentage of sales by
aggressively managing certain discretionary costs.
Results of Operations
Sales
2000 sales of $1,163.5 million were up 18.2%, or $179.0 million, from
$984.5 million in sales for 1999. Such growth resulted primarily from
increased volume in both North America and Europe. 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 increased volume was primarily attributable to
office systems and specialty products in 2000 and office systems and storage
products in 1999. 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 $4.7 billion, or 35.7% of total industry sales,
in 2000. Office systems accounted for 71.3% of the Company's sales in 2000,
68.9% of sales in 1999 and 68.4% of sales in 1998.
12
Gross Profit and Operating Income
Gross profit and operating income as a percentage of sales were very strong in
2000, as they benefited from increased volume, the Company's continued focus
on cost control and the correction of certain manufacturing inefficiencies at
the Company's Toronto, Canada facility that resulted in part from
implementation issues associated with the transition to a new manufacturing
system in 1999. As a percentage of sales, gross profit was 41.3% for 2000,
39.7% for 1999 and 39.6% for 1998 and operating income was 20.4% for 2000,
18.7% for 1999 and 18.1% for 1998. The Company's 1999 gross profit and
operating income were impacted negatively by the aforementioned manufacturing
inefficiencies.
Although selling, general and administrative expenses increased in terms of
dollars in 2000 compared to 1999 and in 1999 compared to 1998, such expenses
remained relatively unchanged as a percentage of sales. The increase of
$37.0 million from 1999 to 2000 was due primarily to incremental employee
costs, including incentives, related to higher sales, profit and employment
levels in 2000 in addition to increased expenses related to sales, marketing
and technology initiatives. The increase of $2.5 million from 1998 to 1999
resulted primarily from increased expenses related to sales and technology
initiatives in 1999. The Company's selling, general and administrative
expenses as a percentage of sales were 21.0% for each of 2000 and 1999 and
21.5% for 1998.
Interest Expense
In connection with the merger that was consummated on November 4, 1999, the
Company incurred $533.0 million of debt under a new senior credit agreement
with higher interest rates than those under the credit agreement replaced
thereby. Such debt resulted in significantly higher outstanding debt balances
during the last two months of 1999 and the year 2000. The higher debt balances
were the principal cause of the increases in interest expense in 2000 and 1999.
See "Liquidity and Capital Resources" for further discussion of such senior
credit agreement.
Recapitalization Expense
In 1999, 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
The Company's effective tax rate was 40.6% for 2000, 42.7% for 1999 and 40.9%
for 1998. The increase in the effective tax rate from 1998 to 1999 and the
decrease in the effective tax rate from 1999 to 2000 were due primarily to
$5.2 million of recapitalization expense recorded in 1999 that was not
deductible for income tax purposes. The effective tax rate was also impacted,
to a lesser extent, by the changes in consolidated pretax income and the mix
of pretax income and varying effective tax rates attributable to the countries
in which the Company operates.
Extraordinary Items
In connection with the merger in 1999, 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.
13
Liquidity and Capital Resources
The following table highlights certain key cash flow and capital information
pertinent to the discussion that follows:
2000 1999 1998
---------- ---------- ----------
(In Thousands)
Cash provided by operating
activities....................... $ 222,711 $127,987 $114,563
Capital expenditures............... 24,097 25,095 36,390
Purchase of common stock........... 322 28,703 38,849
Payment of merger consideration.... -- 496,682 --
Payment of recapitalization costs.. 230 8,843 --
Payment of fees to amend debt
agreements....................... 682 12,870 --
Net proceeds from (repayment of)
long-term debt................... (184,500) 441,250 (37,799)
The Company generated strong cash flow from operating activities in 2000
primarily as a result of its improved earnings before noncash items in addition
to positive cash flow from working capital. The Company's cash flow provided
by operations has generally been used to fund capital expenditures 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 2001 will be
approximately $35.0 million.
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.
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 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.
The Company repaid $38.0 million of its outstanding senior bank debt during
1998 and repaid $47.0 million of such debt from January 1, 1999 through
November 3, 1999. On November 4, 1999, in connection with the consummation of
the merger, 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. The credit agreement was amended on December 20,
2000 in connection with the declaration of a special cash dividend, which is
discussed below.
14
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: $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 $17.5 million and
$167.0 million of borrowings under the term loan facility and revolving credit
facility, respectively, in 2000 and 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, 2000, the Company had an
aggregate of $307.9 million available for borrowing under the revolving credit
facility.
On December 20, 2000, the Company declared a special cash dividend of $9.50
per share of common stock payable on January 5, 2001 to stockholders of record
as of the close of business on December 20, 2000. The Company borrowed
$221.0 million under the revolving credit facility on January 5, 2001 to fund
the payment of the dividend.
In addition to the credit facilities, the Company has $107.2 million aggregate
principal amount of Senior Subordinated Notes outstanding. 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.
The Company's foreign subsidiaries maintain local credit facilities to
provide credit for overdraft, working capital and other purposes. As of
December 31, 2000, total credit available under such facilities was
approximately $8.7 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 twelve months.
Inflation
There was no significant impact on Knoll's operations as a result of inflation
during the three years ended December 31, 2000.
15
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. 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 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; fluctuations in industry revenues driven by a variety of
macroeconomic factors, including white-collar employment levels, business
confidence 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; the impact of
the recent downturn in the high-technology industry; 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 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; risks associated with conducting
business via the Internet and the Company's ability to react appropriately
and in a timely fashion to changing technologies and business models; and
fluctuations in foreign currency exchange rates. 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.
16
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.
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 following table summarizes the Company's market risks associated with its
debt obligations and interest rate collar agreements as of December 31, 2000.
For debt obligations, the table presents principal cash flows and related
weighted 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, 2000. For
interest rate caps and floors, the table presents the notional amounts and
related interest rates by year of maturity. The forward rates presented for
the caps and floors are the average forward rates for the term of each
contract.
2001 2002 2003 2004 2005 Thereafter Total Fair Value
-------- -------- -------- -------- -------- ---------- ---------- ----------
(Dollars in Thousands)
Rate Sensitive Liabilities
Long-term Debt:
Fixed Rate............. -- $ 60 $ 75 $ 75 $ 75 $107,720 $108,005 $105,515
Average Interest
Rate............. 10.81% 10.84% 10.85% 10.85% 10.85% 10.85%
Variable Rate.......... $31,250 $52,500 $ 63,750 $81,250 $89,000 -- $317,750 $317,750
Average Interest
Rate............. 7.36% 7.36% 7.36% 7.36% 7.36% --
Rate Sensitive Derivative
Financial Instruments
Interest Rate Caps:
Notional Amount........ -- -- $135,000 -- -- -- $135,000 --
Strike Rate............ -- -- 10.00% -- -- --
Forward Rate........... -- -- 6.40% -- -- --
Interest Rate Floors:
Notional Amount........ -- -- $135,000 -- -- -- $135,000 --
Strike Rate............ -- -- 5.64% -- -- --
Forward Rate........... -- -- 6.40% -- -- --
At December 31, 1999, the Company had total debt outstanding of $610.4 million,
of which $502.3 million was variable rate debt. The decrease in the variable
rate debt from December 31, 1999 to December 31, 2000 was due to the repayment
of $184.5 million of senior bank debt during 2000.
As previously discussed in "Management's Discussion and Analysis of Financial
Condition and Results of Operations," the Company borrowed $221.0 million
under its senior revolving credit facility on January 5, 2001 in connection
with the payment of a special cash dividend. Consequently, this additional
variable rate debt has significantly increased the Company's market risk
exposure related to changes in interest rates.
17
At December 31, 2000, the Company had three interest rate collar agreements
outstanding with an aggregate notional principal amount of $135.0 million,
related weighted average maximum and minimum rates of 10.00% and 5.64%,
respectively, and a termination date of February 2003. In February 2001, the
Company negotiated modifications to these agreements that increased the
aggregate notional principal amount to $200.0 million, decreased the weighted
average minimum rate to 5.12% and extended the termination date to February
2004. The Company did not have any interest rate collar agreements outstanding
at December 31, 1999. During the years ended December 31, 2000 and 1999, the
Company was not required to make nor was it entitled to receive any payments
as a result of its use of interest rate collar agreements.
The Company will continue to review its exposure to interest rate fluctuations
and evaluate whether it should manage such exposure through derivative
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 8.8% of the Company's revenues and
24.7% of the Company's expenses in 2000 and 8.3% of the Company's revenues and
26.5% of the Company's expenses in 1999 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 2000 and 1999.
The Company generally does not hedge its foreign currency exposure. However,
from time to time, the Company enters into foreign currency forward exchange
contracts and foreign currency option 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, 2000 and 1999 as well as the amount of gains and losses recorded
during 2000 and 1999 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.
18
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 will
be directors and executive officers of the Company as of April 2001.
Name Age Position
------------------------ ----- --------------------------------------
Burton B. Staniar....... 59 Chairman of the Board
Andrew B. Cogan......... 38 Chief Executive Officer, Knoll, Inc.,
and Director
Kathleen G. Bradley..... 51 President and Chief Executive Officer,
Knoll North America, and Director
Arthur C. Graves........ 54 Senior Vice President--Sales and
Distribution
Stephen A. Grover....... 48 Senior Vice President--Operations
Carl G. Magnusson....... 61 Senior Vice President--Design
Barry L. McCabe......... 54 Senior Vice President, Treasurer and
Controller
Andrew C. McGregor...... 51 Chief Marketing and Development Officer
Patrick A. Milberger.... 44 Senior Vice President, General Counsel
and Secretary
S. David Wolfe.......... 43 Vice President--Human Resources
Jeffrey A. Harris....... 45 Director
Sidney Lapidus.......... 63 Director
Kewsong Lee............. 35 Director
John H. Lynch........... 48 Director
Lloyd Metz.............. 32 Director
Henry B. Schacht........ 66 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 Company and Church and Dwight Co.,
Inc. Mr. Staniar is also a director of Church and Dwight Co., Inc.
Andrew B. Cogan has been a director of the Company since February 1996.
Effective April 2001, he will serve as Chief Executive Officer of Knoll, Inc.
He was appointed to this position after having served as Chief Operating
Officer since December 1999, Executive Vice President--Marketing and Product
Development since August 1998 and Senior Vice President since May 1994. Mr.
Cogan held several positions in the design and marketing group since joining
the Company in 1989.
Kathleen G. Bradley has been a director of the Company since November 1999.
Effective April 2001, she will serve as President and Chief Executive Officer
of Knoll North America. She was appointed to this position after having
served as President of the Company since December 1999, Executive Vice
President--Sales, Distribution and Customer Service since August 1998, Senior
Vice President since 1996, Divisional Vice President for Knoll's southeast
division since 1988 and regional manager for the Company's Atlanta region
since 1983. She began her career with Knoll in 1979.
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.
19
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. Prior to such time, Mr. McCabe worked with
the public accounting firm of Deloitte Haskins & Sells.
Andrew C. McGregor joined the Company in June 2000 as Chief Marketing and
Development Officer. Prior to joining the Company, Mr. McGregor spent over 24
years at Herman Miller, Inc., where he held a variety of management and
executive positions.
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.
S. David Wolfe was promoted to Vice President--Human Resources in October 2000.
Mr. Wolfe joined the Company in May 2000 as Process Improvement Manager.
Prior to joining the Company, he spent seven years at General Electric Company,
where he held a variety of management positions, the last being Manager of
Installation Services for GE Medical Systems. Prior to that time, he held
management positions at Solvay America, Inc. and Atofina Chemicals, Inc.
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 Avaya Inc., Industri-Matematik International Corp., ECsoft Group
plc, Spinnaker Exploration Company 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, Information
Holdings, Inc., 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 Foods
Holdings, Inc. and several privately held companies.
John H. Lynch resigned as Chief Executive Officer of the Company effective
April 2001. Mr. Lynch has been a director of the Company since May 1994 and
will remain as a director subsequent to his resignation. Mr. Lynch joined the
Company as Vice Chairman of the Board in May 1994. He 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.
20
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.
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. He is currently on unpaid leave from Warburg,
Pincus and E.M. Warburg and is serving as Chairman and Chief Executive Officer
of Lucent Technologies, Inc. ("Lucent"). Mr. Schacht returned to Lucent in
October 2000, after serving as Chairman of Avaya Inc., a spin-off of Lucent,
in October 2000. 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 April 1996 to February 1998, Chief
Executive Officer of Lucent from February 1996 to October 1997 and Chairman of
the Board (1977-1995) and Chief Executive Officer (1973-1994) of Cummins
Engine Company, Inc. Mr. Schacht is also a director of Avaya Inc., Aluminum
Company of America (Alcoa), Johnson & Johnson Corp. and The New York Times
Company.
Except for Mr. Magnusson, all directors and executive officers of Knoll are
citizens of the United States.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth, for the years ended December 31, 2000, 1999
and 1998, 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 2000 (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.......... 2000 $200,004 $ 625,000 $ 6,940 $ -- -- $9,180
Chairman of the Board 1999 400,008 450,000 7,559 -- 150,000 7,299
1998 399,996 900,000 9,428 -- -- 8,019
John H. Lynch.............. 2000 400,008 1,450,000 7,430 -- -- 9,180
Chief Executive Officer 1999 400,008 450,000 7,610 -- 300,000 7,299
1998 399,996 900,000 7,595 -- -- 8,019
Andrew B. Cogan............ 2000 300,000 905,000 4,985 -- -- 99
Chief Operating Officer 1999 254,174 400,000 4,875 -- 200,000 99
1998 222,502 400,000 2,560 -- -- 99
Kathleen G. Bradley........ 2000 300,000 1,800,000 5,145 -- -- 9,180
President 1999 254,174 400,000 71,444 -- 200,000 7,299
1998 222,502 400,000 6,125 -- -- 8,019
Arthur C. Graves........... 2000 200,683 600,000 6,866 -- -- 9,180
Senior Vice President-- 1999 139,704 100,000 114,312 -- 50,000 7,299
Sales and Distribution 1998 116,122 195,000 62,079 -- -- 8,019
___________________________
(1) $64,239 of the amount indicated in 1999 for Ms. Bradley and $54,215 of
the amount indicated in 1999 for Mr. Graves represents expenses related
to their relocation to the Company's headquarters in East Greenville,
Pennsylvania. With respect to Mr. Graves, the indicated amounts also
include sales commissions of $53,376 in 1999 and $55,373 in 1998. All
other amounts represent benefit dollars allocated to the Named Executive
Officers pursuant to terms of the Company's employee benefit plans.
21
(2) On February 29, 1996, Messrs. Staniar, Lynch, Cogan and Graves and Ms.
Bradley were granted 941,829, 941,829, 376,731, 70,637 and 188,365
shares of vested and unvested restricted stock, respectively. Holders
of shares of restricted stock are not entitled to receive dividends
until such shares vest and become unrestricted. At December 31, 2000,
100% of the shares granted to Messrs. Staniar, Lynch and Cogan were
vested. Ms. Bradley and Mr. Graves held 37,673 and 14,129 shares of
unvested restricted stock, respectively, at December 31, 2000. Such
shares vested on March 1, 2001. The values of the shares of unvested
restricted stock held by Ms. Bradley and Mr. Graves at December 31, 2000
were $1,299,719 and $487,451, respectively. These values were based on
an estimated fair value of $34.50 per share of Knoll common stock.
Such fair value was based on an independent appraisal.
(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.
Stock Option Grants
No individual grants of options to purchase common stock were made to the
Named Executive Officers during 2000.
Aggregate Stock Option Exercise Table
The following table sets forth information regarding the exercise of options
by the Named Executive Officers during 2000. The table also shows the number
and value of unexercised options that were held by the Named Executive Officers
on December 31, 2000. The values of unexercised options are based on an
independent appraised fair value of $34.50 per share of Knoll common stock on
December 31, 2000.
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 (1) / Unexercisable (1)
----------------------- ----------- ---------- -------------------- ----------------------
Burton B. Staniar...... N/A N/A 45,000 / 105,000 $ 292,500 / 682,500
John H. Lynch.......... N/A N/A 90,000 / 210,000 585,000 / 1,365,000
Andrew B. Cogan........ N/A N/A 81,000 / 154,000 446,625 / 947,750
Kathleen G. Bradley.... N/A N/A 173,019 / 215,346 2,488,763 / 2,309,175
Arthur C. Graves....... N/A N/A 15,000 / 35,000 97,500 / 227,500
_______________________
(1) Does not reflect the February 2001 adjustments to outstanding
options by the Company's Stock Plan Committee of the Board of
Directors in response to dilution created by the special cash
dividend paid on January 5, 2001. See Note 18 (Stock Plans) of
the Notes to the Consolidated Financial Statements beginning on
page F-20 for further discussion of such adjustments.
22
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, 2000, the estimated annual benefits payable upon normal retirement
under the Company Pension Plan was $12,013 for each of the Named Executive
Officers.
Remuneration covered by the Company Pension Plan primarily includes salary and
bonus, as set forth in the "Summary Compensation Table." As of December 31,
2000, each of the Named Executive Officers had 4.83 years of credited service.
Director Compensation
During 2000, the Company's directors did not receive compensation for service
on the Board of Directors but were reimbursed for certain expenses in
connection with attendance at Board and committee meetings.
Employment Arrangements
The Company entered into employment agreements with Messrs. Staniar, Lynch and
Cogan for terms that 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, with the last amendment
as of December 4, 1999, to provide for a base salary of $300,000. Mr. Cogan's
agreement also provided 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. Lynch and Cogan have
been terminated (in the case of Mr. Lynch) and superseded (in the case of Mr.
Cogan). The employment agreement for Mr. Staniar will continue to renew
automatically each January 1, unless either party gives 60 days notice not to
renew. Mr. Staniar's agreement may be terminated at any time by the Company,
but if so terminated without "cause," or if the Company fails to renew the
agreement, the Company must pay him 125% of one year's base salary. The
agreement also contains non-compete, non-solicitation (during the term of the
agreement and for one year thereafter) and confidentiality provisions.
On December 5, 2000, the Company announced that Mr. Lynch had decided to
resign his position as Chief Executive Officer effective April 2001.
Accordingly, on March 23, 2001, the Company and Mr. Lynch entered into an
agreement pursuant to which his employment agreement was terminated by mutual
consent as of March 31, 2001 without the payment of termination compensation.
Mr. Lynch will continue as a member of the Company's Board of Directors.
On March 23, 2001, the Company entered into employment agreements with Mr.
Cogan and Ms. Bradley. Mr. Cogan's agreement replaces and supersedes his
agreement described above. These agreements each commence on April 1, 2001
and have an initial term of one year, subject to automatic one-year extensions.
Each provides for a base salary of $400,000 subject to annual review and a
target annual bonus of 100% of base salary based upon the attainment of targets
set by the Board of Directors. The employment agreements for Mr. Cogan and
Ms. Bradley will continue to renew automatically each April 1 unless either
party gives 60 days notice of his, her or its intention not to renew. The
agreements may be terminated by the Company at any time, but if so terminated
without "cause," or if the Company fails to renew the agreements, the Company
must pay the employee termination compensation. In the case of Mr. Cogan, the
termination compensation is 200% of his then current base salary plus the
average of the annual bonuses paid for the last two completed fiscal years
23
preceding the fiscal year of termination. In the case of Ms. Bradley, the
termination compensation is 100% of her then current base salary plus the
average of the annual bonuses paid for the last two completed fiscal years
preceding the fiscal year of termination. The agreements also contain non-
compete, non-solicitation (during the term of the agreement and for two years
thereafter for Mr. Cogan and during the term of the agreement and for one year
thereafter for Ms. Bradley) and confidentiality provisions.
In 1999, Mr. Graves was promoted to Senior Vice President--Sales and
Distribution. For 2001, Mr. Graves' base salary is $208,000 and his target
bonus amount is $250,000, based upon the attainment of certain goals set by
the Company. This bonus is subject to certain conditions, including approval
of the Company's Board of Directors.
The Named Executive Officers and the Company have entered into certain stock
option agreements that contain provisions regarding change in control of the
Company. The agreements provide that upon a Change in Control, as defined
therein, 100% of the options, to the extent not previously exercised, shall
become fully vested and exercisable.
Compensation Committee Interlocks and Insider Participation
During the year ended December 31, 2000, the base compensation of Messrs.
Staniar, Lynch, Cogan and Graves was determined pursuant to the employment
arrangements discussed above. See "Employment Arrangements." Except as
otherwise described herein, the 2000 compensation of each of Messrs. Staniar,
Lynch, Cogan and Graves and Ms. Bradley was determined by the Compensation
Committee of the Board of Directors, which was comprised of Messrs. Harris,
Lapidus and Lynch. Mr. Lynch abstained from actions regarding the 2000
incentive compensation of Messrs. Staniar and Lynch.
Options are granted under the Company's stock incentive plans at the
discretion of the Stock Option Committee of the Board of Directors, which was
comprised of Messrs. Harris, Lapidus and Lynch in 2000. No options were
granted to the Named Executive Officers during 2000.
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, 2000, 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.
24
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, 2001, 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 and Note 6 to the table, the business address of each person
is 1235 Water Street, East Greenville, PA 18041. 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 90.5%
Burton B. Staniar................. 718,465 3.1
John H. Lynch .................... 562,896 2.4
Andrew B. Cogan................... 290,927 1.2
Kathleen G. Bradley............... 324,550 1.4
Arthur C. Graves.................. 45,998 *
Jeffrey A. Harris (4) (6)......... 20,981,956 90.5
Sidney Lapidus (4) (6)............ 20,981,956 90.5
Kewsong Lee (4) (6)............... 20,981,956 90.5
Lloyd Metz (6).................... -- --
Henry B. Schacht (5) (6).......... 17,742 *
All directors and executive
officers as a group
(16 persons).................... 23,175,708 97.1
__________________________
* 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 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, 2001 are outstanding
for the purpose of computing the percentage of common stock owned
by such person or group. However, those 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 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, 2001 was
23,190,829 shares of common stock.
(2) Excludes options to purchase 124,194, 248,388, 282,153, 41,398,
11,828, 310,154 and 1,407,260 shares of common stock held by
Messrs. Staniar, Lynch, Cogan, Graves and Schacht, Ms. Bradley
and all directors and executive officers as a group, respectively,
that will not vest within 60 days of March 30, 2001.
25
(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 (who is currently on unpaid leave
from Warburg, Pincus and E.M. Warburg), directors of the Company,
are Managing Directors and members of E.M. Warburg and general
partners of Warburg, Pincus. As such, Messrs. Harris, Lapidus and
Lee 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
and Warburg, Pincus. See Note 4 below.
(4) 20,709,922 and 272,034 of the shares indicated as owned by Messrs.
Harris, Lapidus and Lee 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 and Lee disclaim "beneficial ownership" of these shares
within the meaning of Rule 13d-3 under the Exchange Act. See
Note 3 above.
(5) Reflects 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.
(6) The business address of each of Messrs. Harris, Lapidus, Lee,
Metz and Schacht is 466 Lexington Avenue, New York, NY 10017.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Stockholders Agreement
On November 4, 1999, Warburg and four senior members of management (each a
"Holder" and collectively, the "Holders") and the Company entered into an
Amended and Restated Stockholders Agreement (the "Stockholders Agreement")
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 shares of common stock with an aggregate public offering
price of at least $25 million, subject to certain conditions. If officers or
directors of the Company holding other securities of the Company request
inclusion of their securities in any such registration, or if holders of
securities of the Company other than Registrable Securities who are entitled,
by contract with the Company or otherwise, to have securities included in such
a registration (the "Other Stockholders"), request such inclusion, the Holders
shall offer to include the securities of such officers, directors and Other
Stockholders in any underwriting involved in such registration, provided,
among other conditions, that the underwriter representative of any such
offering has the right, subject to certain conditions, to limit the number of
Registrable Securities included in the registration. The Company may defer
the registration for 120 days if it believes that it would be seriously
detrimental to the Company for such registration statement to be filed.
The Stockholders Agreement further provides that, if the Company proposes to
register any of its securities (other than registrations related solely to
employee benefit plans or pursuant to Rule 145 or on a form which does not
permit secondary sales or does not include substantially the same information
as would be required to be included in a registration statement covering the
sale of Registrable Securities), either for its own account or for the account
of other security holders, holders of Registrable Securities may require the
Company to include all or a portion of their Registrable Securities in the
registration and in any underwriting involved therein, provided,
26
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 such shares with an aggregate price to the public of
more than $5 million, subject to certain conditions, provided that the Company
will not be required to effect such a registration within 180 days of the
effective date of the most recent registration pursuant to this provision.
In general, all fees, costs and expenses of such registrations (other than
underwriting discounts and selling commissions applicable to sales of the
Registrable Securities) and all fees and disbursements of counsel for the
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
then 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. Graves received
70,637 restricted shares. The agreements for each recipient were dated
February 29, 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. As of December 31, 2000, 100% of the shares granted
to Messrs. Staniar, Lynch and Cogan were vested. Ms. Bradley and Mr. Graves
held 37,673 and 14,129 shares of unvested restricted stock, respectively, at
December 31, 2000. Such shares vested on March 1, 2001.
27
Other
During the year ended December 31, 2000, the Company paid approximately
$456,000 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.
28
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 First Amendment to Credit Agreement, dated as of December 20, 2000, by
and among the Company, the Guarantors (as defined therein), the Lenders
(as defined therein) party thereto, and Bank of America, N.A., as
Administrative Agent.
10.4* 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.
10.5* 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.
10.6** 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.
10.7++ Letter Agreement between Oak Hill Securities Fund, L.P. and the Company,
dated August 13, 1999.
29
Exhibit
Number Description
--------- ---------------------------------------------------------------------------
10.8+ 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.
10.9+++++ Amended and Restated Employment Agreement, dated as of January 1, 2000,
between the Company and Burton B. Staniar.
10.10** Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and John H. Lynch.
10.11 Letter Agreement, dated as of March 23, 2001, between the Company and
John H. Lynch.
10.12** Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and Andrew B. Cogan.
10.13*** Amendment to Employment Agreement, dated as of April 30, 1997, between the
Company and Andrew B. Cogan.
10.14**** Amendment #2 to Employment Agreement, dated as of August 1, 1998, between
the Company and Andrew B. Cogan.
10.15+++++ Amendment #3 to Employment Agreement, dated as of December 4, 1999,
between the Company and Andrew B. Cogan.
10.16 Employment Agreement, dated as of March 23, 2001, between the Company and
Andrew B. Cogan.
10.17 Employment Agreement, dated as of March 23, 2001, between the Company and
Kathleen G. Bradley.
10.18+++++ Amended and Restated Stockholders Agreement, dated as of November 4, 1999,
among the Company, Warburg, Pincus Ventures, L.P., and the signatories
thereto.
10.19+++++ 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.
10.20+++++ Amended and Restated Knoll, Inc. 1996 Stock Incentive Plan.
10.21+++++ Amended and Restated Knoll, Inc. 1997 Stock Incentive Plan.
10.22+++++ Knoll, Inc. 1999 Stock Incentive Plan.
10.23+++++ Form of Non-Qualified Stock Option Agreement under the Knoll, Inc. 1999
Stock Incentive Plan, entered into by the Company and certain executive
officers.
21** Subsidiaries of the Registrant.
(b) Current Reports on Form 8-K:
On December 8, 2000, the Company filed a report on Form 8-K dated
December 5, 2000. In that Form 8-K under Item 5 -- Other Events, the
Company reported its December 5, 2000 press release regarding (i) the
resignation of John H. Lynch, Chief Executive Officer, effective April
2001 and (ii) the promotions of Andrew B. Cogan to the position of Chief
Executive Officer, Knoll, Inc., and Kathleen G. Bradley to the position of
President and Chief Executive Officer, Knoll North America effective April
2001.
On December 21, 2000, the Company filed a report on Form 8-K dated
December 20, 2000. In that Form 8-K under Item 5 -- Other Events, the
Company reported its December 21, 2000 press release regarding the
declaration of a special cash dividend of $9.50 per share payable on
January 5, 2001 to shareholders of record as of December 20, 2000.
30
- -----------------------------------------
* 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.
+++++ Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.
31
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 2001.
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, 2001
- ---------------------------
Burton B. Staniar
/s/ John H. Lynch Chief Executive Officer March 30, 2001
- --------------------------- and Director
John H. Lynch (Principal Executive Officer)
/s/ Andrew B. Cogan Chief Operating Officer March 30, 2001
- --------------------------- and Director
Andrew B. Cogan
/s/ Kathleen G. Bradley President and Director March 30, 2001
- ---------------------------
Kathleen G. Bradley
/s/ Barry L. McCabe Controller March 30, 2001
- --------------------------- (Principal Accounting Officer)
Barry L. McCabe
/s/ Jeffrey A. Harris Director March 30, 2001
- ---------------------------
Jeffrey A. Harris
/s/ Sidney Lapidus Director March 30, 2001
- ---------------------------
Sidney Lapidus
/s/ Kewsong Lee Director March 30, 2001
- ---------------------------
Kewsong Lee
/s/ Lloyd Metz Director March 30, 2001
- ---------------------------
Lloyd Metz
/s/ Henry B. Schacht Director March 30, 2001
- ---------------------------
Henry B. Schacht
32
KNOLL, INC.
TABLE OF CONTENTS FOR THE FINANCIAL STATEMENTS
Page
------
Report of Independent Auditors........................................ F-2
Consolidated Balance Sheets at December 31, 2000 and 1999............. F-3
Consolidated Statements of Operations for the Years Ended
December 31, 2000, 1999 and 1998................................... F-4
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2000, 1999 and 1998................................... F-5
Consolidated Statements of Changes in Stockholders' Equity
(Deficit) for the Years Ended December 31, 2000, 1999 and 1998..... 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, 2000 and 1999, 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, 2000. 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, 2000 and 1999, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000, 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 2, 2001
F-2
KNOLL, INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2000 AND 1999
(Dollars In Thousands, Except Per Share Data)
2000 1999
---------- ----------
ASSETS
Current assets:
Cash and cash equivalents........................ $ 22,339 $ 10,785
Restricted cash (Note 3)......................... -- 7,776
Customer receivables, net........................ 132,183 167,767
Inventories...................................... 79,203 82,738
Deferred income taxes............................ 22,236 22,440
Prepaid and other current assets................. 7,421 7,720
--------- --------
Total current assets......................... 263,382 299,226
Property, plant and equipment, net............... 179,629 184,641
Intangible assets, net........................... 245,879 254,957
Other noncurrent assets.......................... 6,240 3,482
--------- --------
Total Assets................................. $ 695,130 $742,306
========= ========
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Current maturities of long-term debt............. $ 31,250 $ 17,500
Accounts payable................................. 85,795 72,914
Income taxes payable............................. 5,668 3,483
Other current liabilities........................ 107,991 101,242
--------- --------
Total current liabilities.................... 230,704 195,139
Dividend payable (Note 10)....................... 220,339 --
Long-term debt................................... 394,505 592,876
Deferred income taxes............................ 24,675 18,956
Postretirement benefits other than pension....... 18,016 18,426
Other noncurrent liabilities..................... 11,266 11,103
--------- --------
Total liabilities............................ 899,505 836,500
--------- --------
Stockholders' deficit:
Common stock, $0.01 par value; authorized
100,000,000 shares; 23,193,629 shares issued
and outstanding (net of 12,500 treasury
shares) in 2000 and 23,289,898 shares issued
and outstanding (net of 1,000 treasury
shares) in 1999................................ 232 233
Additional paid-in-capital....................... 3,591 4,173
Unearned stock grant compensation................ (2) (433)
Retained deficit................................. (195,379) (91,328)
Accumulated other comprehensive loss............. (12,817) (6,839)
--------- --------
Total stockholders' deficit.................. (204,375) (94,194)
--------- --------
Total Liabilities and Stockholders' Deficit.. $ 695,130 $742,306
========= ========
See accompanying notes to the consolidated financial statements.
F-3
KNOLL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In Thousands)
2000 1999 1998
------------ ------------ ------------
Sales.............................. $1,163,477 $984,511 $948,691
Cost of sales...................... 682,421 593,442 572,756
---------- -------- --------
Gross profit....................... 481,056 391,069 375,935
Selling, general and
administrative expenses.......... 243,885 206,919 204,392
---------- -------- --------
Operating income................... 237,171 184,150 171,543
Interest expense................... 44,437 21,611 16,860
Recapitalization expense (Note 3).. -- 6,356 --
Other income (expense), net........ 3,026 (670) 2,732
---------- -------- --------
Income before income tax expense
and extraordinary item........... 195,760 155,513 157,415
Income tax expense................. 79,472 66,351 64,371
---------- -------- --------
Income before extraordinary item... 116,288 89,162 93,044
Extraordinary loss on early
extinguishment of debt, net
of taxes (Note 9)................ -- 10,801 --
---------- -------- --------
Net income......................... $ 116,288 $ 78,361 $ 93,044
========== ======== ========
See accompanying notes to the consolidated financial statements.
F-4
KNOLL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(In Thousands)
2000 1999 1998
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income............................... $ 116,288 $ 78,361 $ 93,044
Adjustments to reconcile net income to
cash provided by operating activities:
Depreciation....................... 25,843 25,135 28,686
Amortization of intangible assets.. 8,106 7,873 7,816
Recapitalization expense........... -- 6,356 --
Extraordinary loss, net of taxes... -- 10,801 --
Other noncash items................ 351 7,748 (1,636)
Changes in assets and liabilities:
Customer receivables........... 33,033 (31,134) (15,184)
Inventories.................... 1,958 (6,364) (9,061)
Accounts payable............... 14,197 13,848 (6,452)
Current and deferred income
taxes........................ 10,339 13,715 591
Other current assets........... (2,028) (166) (237)
Other current liabilities...... 15,646 2,038 13,547
Other noncurrent assets and
liabilities.................. (1,022) (224) 3,449
--------- --------- --------
Cash provided by operating activities.... 222,711 127,987 114,563
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures..................... (24,097) (25,095) (36,390)
Proceeds from sale of assets............. 139 114 152
--------- --------- --------
Cash used in investing activities........ (23,958) (24,981) (36,238)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from (repayment of) revolving
credit facility, net................... (167,000) 120,000 (38,000)
Proceeds from long-term debt............. -- 325,000 201
Repayment of long-term debt.............. (17,500) (3,750) --
Payment of debt issuance costs........... -- (7,864) --
Payment of fees to amend debt
agreements............................. (682) (12,870) --
Net proceeds from issuance of stock...... -- 4,746 4,813
Purchase of common stock................. (322) (28,703) (38,849)
Payment of merger consideration.......... -- (496,682) --
Payment of recapitalization costs........ (230) (8,843) --
--------- --------- --------
Cash used in financing activities........ (185,734) (108,966) (71,835)
--------- --------- --------
Effect of exchange rate changes on cash
and cash equivalents................... (1,465) (720) 185
--------- --------- --------
Increase (decrease) in cash and cash
equivalents............................ 11,554 (6,680) 6,675
Cash and cash equivalents at beginning
of year................................ 10,785 17,465 10,790
--------- --------- --------
Cash and cash equivalents at end
of year................................ $ 22,339 $ 10,785 $ 17,465
========= ========= ========
See accompanying notes to the consolidated financial statements.
F-5
KNOLL, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
(Dollars In Thousands)
Unearned Accumulated Total
Additional Stock Retained Other Stockholders'
Common Paid-In- Grant Earnings Comprehensive Equity
Stock Capital Compensation (Deficit) Loss (Deficit)
------ ---------- ------------ ---------- -------------- -------------
Balance at December 31, 1997
(43,234,943 shares)........... $ 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.... 233 4,173 (433) (91,328) (6,839) (94,194)
---------
Net income...................... -- -- -- 116,288 -- 116,288
Foreign currency
translation adjustment........ -- -- -- -- (5,978) (5,978)
---------
Comprehensive income............ 110,310
---------
Purchase of common stock
(11,500 shares)............... -- (322) -- -- -- (322)
Shares forfeited under
stock incentive plan
(84,769 shares)............... (1) (260) 261 -- -- --
Cash dividend ($9.50 per share). -- -- -- (220,339) -- (220,339)
Earned stock grant
compensation.................. -- -- 170 -- -- 170
----- --------- ----- --------- -------- ---------
Balance at December 31, 2000
(23,193,629 shares)........... $ 232 $ 3,591 $ (2) $(195,379) $(12,817) $(204,375)
===== ========= ===== ========= ======== =========
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 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.
Revenue Recognition
Revenue from the sale of products is recognized upon transfer of title to
the customer, which usually occurs at the time of shipment.
F-7
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Shipping and Handling
Amounts billed to customers for shipping and handling of products are
classified as sales in the consolidated statements of operations. Costs
incurred by the Company for shipping and handling are classified as cost
of sales.
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 loss.
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.
Accounting Pronouncement Pending Adoption as of December 31, 2000
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities," as amended (SFAS 133). The Company
adopted SFAS 133 on January 1, 2001. Because of the Company's limited
use of derivatives, the adoption of SFAS 133 did not 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. RECAPITALIZATION (MERGER)
Pursuant to an Agreement and Plan of Merger dated as of June 21, 1999 (as
amended on July 29, 1999), the Company consummated a recapitalization
(merger) transaction on November 4, 1999 whereby a newly formed entity,
which was organized by Warburg, Pincus Ventures, L.P. ("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 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, and the registration of the Company's
securities under the Securities Exchange Act of 1934 was terminated. The
Company's consolidated balance sheet as of December 31, 1999 included
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 presented to the exchange agent as of
December 31, 1999.
In connection with the merger, the Company entered into an agreement on
August 13, 1999 with the holder of a majority of its 10.875% Senior
Subordinated Notes due 2006 ("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 9 for further discussion of this transaction.
The merger and related transactions were accounted for as a leveraged
recapitalization. The historical accounting bases 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 represents 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 9 for further discussion of such credit agreement and
the extraordinary loss noted above.
4. CUSTOMER RECEIVABLES
Customer receivables are presented net of an allowance for doubtful
accounts of $6,682,000 and $6,783,000 at December 31, 2000 and 1999,
respectively. Management performs ongoing credit evaluations of its
customers and generally does not require collateral. As of December 31,
2000 and 1999, the U.S. government represented approximately 13.7% and
8.9%, respectively, of gross customer receivables.
F-9
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INVENTORIES
2000 1999
---------- ----------
(In Thousands)
Raw materials............................... $50,626 $49,795
Work in process............................. 8,633 10,313
Finished goods.............................. 19,944 22,630
------- -------
Inventories................................. $79,203 $82,738
======= =======
6. PROPERTY, PLANT AND EQUIPMENT
2000 1999
---------- ----------
(In Thousands)
Land and buildings.......................... $ 70,740 $ 71,002
Machinery and equipment..................... 213,180 193,000
Construction in progress.................... 14,908 15,970
--------- --------
Property, plant and equipment............... 298,828 279,972
Accumulated depreciation.................... (119,199) (95,331)
--------- --------
Property, plant and equipment, net.......... $ 179,629 $184,641
========= ========
7. INTANGIBLE ASSETS
2000 1999
---------- ----------
(In Thousands)
Goodwill.................................... $ 52,278 $ 53,966
Trademarks.................................. 219,900 219,900
Deferred financing fees..................... 8,546 7,864
-------- --------
Intangible assets........................... 280,724 281,730
Accumulated amortization.................... (34,845) (26,773)
-------- --------
Intangible assets, net...................... $245,879 $254,957
======== ========
8. OTHER CURRENT LIABILITIES
2000 1999
---------- ----------
(In Thousands)
Accrued employee compensation............... $ 62,215 $ 45,684
Accrued product warranty.................... 9,748 9,925
Other....................................... 36,028 45,633
-------- --------
Other current liabilities................... $107,991 $101,242
======== ========
F-10
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. INDEBTEDNESS
The Company's long-term debt is summarized as follows:
2000 1999
---------- ----------
(In Thousands)
10.875% Senior Subordinated Notes due 2006.. $107,250 $107,250
Term loans, variable rate (7.355% at
December 31, 2000 and 7.545% at
December 31,1999), due through 2005....... 303,750 321,250
Revolving loans, variable rate (7.355% at
December 31, 2000 and 7.545% at
December 31, 1999), due 2005.............. 14,000 181,000
Other....................................... 755 876
-------- --------
425,755 610,376
Less current maturities..................... (31,250) (17,500)
-------- --------
Long-term debt.............................. $394,505 $592,876
======== ========
Senior Subordinated Notes
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, 2000 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, 2000.
As discussed in Note 3, 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.
F-11
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 credit agreement was amended on
December 20, 2000 in connection with the declaration of a special cash
dividend, which is discussed in Note 10.
The 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, 2000, the
Company had an aggregate of $3,057,000 of letters of credit outstanding
and $307,943,000 available for borrowing under the revolving credit
facility. On January 5, 2001, the Company borrowed $221,000,000 under
the revolving credit facility in connection with the payment of a special
cash dividend (see Note 10).
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, the Company is required to pay a letter of
credit fee ranging from 0.625% to 1.625%, depending on the Company's
ratio of funded debt to earnings before income taxes, depreciation,
amortization and other noncash charges ("EBITDA"), and an issuing lender
fee equal to 0.25% on the amount available to be drawn under letters of
credit. As of December 31, 2000, the commitment and letter of credit
fees applicable to the Company were 0.175% and 0.625%, 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 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 maintain interest rate protection agreements in a
notional amount of at least $135,000,000 for at least three years. The
Company believes
F-12
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
that it was in compliance with the credit agreement covenants at
December 31, 2000. See Note 12 for further discussion of interest rate
protection agreements.
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, 2000, total credit available under such agreements was
approximately $8,745,000 or the foreign currency 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, 2000, the
Company did not have any outstanding borrowings under the European
credit facilities.
Interest Paid
During 2000, 1999 and 1998, the Company made interest payments totaling
$44,407,000, $18,110,000 and $15,943,000, respectively.
Maturities
Aggregate principal maturities of the Company's indebtedness as of
December 31, 2000 are as follows (in thousands):
2001................................ $ 31,250
2002................................ 52,560
2003................................ 63,825
2004................................ 81,325
2005................................ 89,075
Subsequent years.................... 107,720
--------
$425,755
========
10. DIVIDEND
On December 20, 2000, the Company's Board of Directors declared a
special cash dividend of $9.50 per share of common stock payable on
January 5, 2001 to stockholders of record as of the close of business on
December 20, 2000. The payment of the dividend on January 5, 2001 was
funded with borrowings under the Company's senior revolving credit
facility. As such, the aggregate dividend payable of $220,339,000 is
classified as a noncurrent liability in the Company's consolidated
balance sheet as of December 31, 2000.
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 12% Participating
Convertible Preferred Stock, of which 1,602,998 shares have been retired
and canceled and 317,002 shares remain eligible to be issued. Subject to
applicable 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.
F-13
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into interest rate collar agreements with major
financial institutions 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.
At December 31, 2000, the Company had three interest rate collar
agreements outstanding with an aggregate notional principal amount of
$135,000,000, related weighted average maximum and minimum rates of
10.00% and 5.64%, respectively, and a termination date of February 2003.
In February 2001, the Company negotiated modifications to these agreements
that increased the aggregate notional principal amount to $200,000,000,
decreased the weighted average minimum rate to 5.12% and extended the
termination date to February 2004. The Company did not have any interest
rate collar agreements outstanding at December 31, 1999. During 2000,
1999 and 1998, the Company was not required to make nor was it entitled
to receive any payments as a result of its use of interest rate collar
agreements.
From time to time, the Company enters into foreign currency forward
exchange contracts and foreign currency option 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, 2000 and 1999 as well as the amounts
of gains and losses recorded during 2000, 1999 and 1998 were not material.
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 $423,265,000 at
December 31, 2000 and $610,239,000 at December 31, 1999 while the
carrying amounts were $425,755,000 and $610,376,000, respectively.
F-14
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Letters of Credit
The Company had outstanding letters of credit totaling $3,057,000 and
$2,517,000 at December 31, 2000 and 1999, respectively. Historically,
no claims have been made against letters of credit under which the
Company was liable, and the Company does not expect any future claims
against these financial instruments. Therefore, the Company believes
that the fair value of the letters of credit is zero.
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, 2000.
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, 2000 and 1999.
15. INCOME TAXES
Income before income tax expense and extraordinary item consists of the
following:
2000 1999 1998
---------- ---------- ----------
(In Thousands)
U.S. operations................. $180,398 $151,350 $142,483
Foreign operations.............. 15,362 4,163 14,932
-------- -------- --------
$195,760 $155,513 $157,415
======== ======== ========
Income tax expense, excluding extraordinary items, is comprised of the
following:
2000 1999 1998
---------- ---------- ----------
(In Thousands)
Current:
Federal..................... $55,334 $46,651 $42,364
State....................... 12,449 10,198 9,456
Foreign..................... 4,324 2,206 5,414
------- ------- -------
Total current........... 72,107 59,055 57,234
------- ------- -------
Deferred:
Federal..................... 4,097 6,385 4,423
State....................... 976 1,256 1,113
Foreign..................... 2,292 (345) 1,601
------- ------- -------
Total deferred.......... 7,365 7,296 7,137
------- ------- -------
Income tax expense.............. $79,472 $66,351 $64,371
======= ======= =======
Income taxes paid by the Company during 2000, 1999 and 1998 totaled
$68,290,000, $52,285,000 and $61,404,000, respectively.
F-15
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth the tax effects of temporary differences
that give rise to the deferred tax assets and liabilities:
2000 1999
---------- ----------
(In Thousands)
Deferred tax assets:
Accounts receivable, principally due
to allowance for doubtful accounts.... $ 2,355 $ 2,327
Inventories............................. 2,924 3,030
Net operating loss carryforwards........ 9,753 13,432
Obligation for postretirement benefits
other than pension.................... 7,835 7,787
Accrued liabilities and other items..... 18,467 19,541
-------- --------
Gross deferred tax assets........... 41,334 46,117
Valuation allowance..................... (11,594) (16,137)
-------- --------
Net deferred tax assets............. 29,740 29,980
-------- --------
Deferred tax liabilities:
Intangibles, principally due to
differences in amortization........... 19,210 15,249
Plant and equipment, principally due
to differences in depreciation and
assigned values....................... 12,969 11,155
Other items............................. -- 92
-------- --------
Gross deferred tax liabilities...... 32,179 26,496
-------- --------
Net deferred tax asset (liability).......... $ (2,439) $ 3,484
======== ========
As of December 31, 2000, the Company had net operating loss carryforwards
totaling approximately $24,483,000 in various foreign tax jurisdictions.
Such net operating loss carryforwards may be carried forward for an
unlimited time.
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, 1998, the valuation allowance was
$22,528,000. The decrease in the valuation allowance from 1998 to 1999
and from 1999 to 2000 resulted primarily from the expiration and
utilization of net operating loss carryforwards in the foreign tax
jurisdictions.
For 2000, 1999 and 1998, 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 $1,403,000,
$430,000 and $1,457,000, respectively. If additional tax benefits are
recognized in the future through further reduction of the valuation
allowance, such benefits will generally reduce goodwill.
F-16
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table sets forth a reconciliation of the statutory federal
income tax rate to the effective income tax rate:
2000 1999 1998
-------- -------- --------
Federal statutory tax rate............ 35.0% 35.0% 35.0%
Increase in the tax rate
resulting from:
State taxes, net of
federal effect................ 4.6 4.9 4.4
Nondeductible recapitalization
expense....................... -- 1.2 --
Higher income tax rates of
other countries............... 0.5 1.3 1.2
Nondeductible goodwill
amortization.................. 0.2 0.3 0.2
Other........................... 0.3 -- 0.1
---- ---- ----
Effective tax rate.................... 40.6% 42.7% 40.9%
==== ==== ====
The Company has not made provisions for U.S. federal and state income
taxes as of December 31, 2000 on $46,912,000 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 2000, 1999 and 1998 was $10,505,000, $9,626,000 and $9,256,000,
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):
2001................................ $ 9,315
2002................................ 8,652
2003................................ 6,015
2004................................ 3,393
2005................................ 2,450
Subsequent years.................... 6,836
-------
Total minimum rental payments....... $36,661
=======
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
---------------------- ----------------------
2000 1999 2000 1999
---------- ---------- ---------- ----------
(In Thousands)
Change in benefit obligation:
Benefit obligation at January 1.... $24,250 $17,897 $ 19,503 $ 18,778
Service cost....................... 6,830 6,826 693 582
Interest cost...................... 1,754 1,204 1,393 1,256
Participant contributions.......... 264 225 -- --
Amendment.......................... -- -- -- 4
Actuarial loss (gain).............. 654 (1,781) 917 180
Benefits paid...................... (219) (121) (1,879) (1,297)
------- ------- -------- --------
Benefit obligation at December 31.. 33,533 24,250 20,627 19,503
------- ------- -------- --------
Change in plan assets:
Fair value of plan assets at
January 1........................ 14,466 8,641 -- --
Actual return on plan assets....... 1,595 336 -- --
Employer contributions............. 9,397 5,385 1,879 1,297
Participant contributions.......... 264 225 -- --
Benefits paid...................... (219) (121) (1,879) (1,297)
------- ------- -------- --------
Fair value of plan assets at
December 31...................... 25,503 14,466 -- --
------- ------- -------- --------
Funded status...................... (8,030) (9,784) (20,627) (19,503)
Unrecognized net loss (gain)....... 1,082 756 887 (118)
Unrecognized prior service cost.... 347 381 4 4
------- ------- -------- --------
Accrued benefit cost............... $(6,601) $(8,647) $(19,736) $(19,617)
======= ======= ======== ========
At December 31, 2000, one of the Company's pension plans had an
accumulated benefit obligation in excess of plan assets. The accumulated
benefit obligation applicable to such plan was $21,800,000 and the fair
value of the related plan assets was $20,774,000. The accrued benefit
cost recorded with respect to this plan was $5,209,000.
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
------------------ ------------------
2000 1999 2000 1999
-------- -------- -------- --------
Discount rate...................... 7.25% 7.25% 7.25% 7.25%
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
---------------------------- ----------------------------
2000 1999 1998 2000 1999 1998
-------- -------- -------- -------- -------- --------
(In Thousands)
Service cost............ $ 6,830 $6,826 $5,396 $ 693 $ 582 $ 595
Interest cost........... 1,754 1,204 615 1,393 1,256 1,294
Expected return on
plan assets........... (1,267) (744) (321) -- -- --
Amortization of prior
service cost.......... 34 35 35 -- -- --
Recognized actuarial
loss (gain)........... -- 27 (22) (88) (94) --
------- ------ ------ ------ ------ ------
Net periodic benefit
cost.................. $ 7,351 $7,348 $5,703 $1,998 $1,744 $1,889
======= ====== ====== ====== ====== ======
For purposes of measuring the benefit obligation and the net periodic
benefit cost as of and for the year ended December 31, 2000, respectively,
associated with the Company's other postretirement benefits plans, a 5.5%
annual rate of increase in the per capita cost of covered health care
benefits was assumed for 2000 and thereafter. Increasing the assumed
health care cost trend rate by 1.0% in each year would increase the
benefit obligation as of December 31, 2000 by $1,899,000 and increase the
aggregate of the service and interest cost components of net periodic
benefit cost for 2000 by $228,000. Decreasing the assumed health care
cost trend rate by 1.0% in each year would decrease the benefit obligation
as of December 31, 2000 by $1,655,000 and decrease the aggregate of the
service and interest cost components of net periodic benefit cost for
2000 by $213,000.
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 2000, 1999
and 1998 was $854,000, $679,000 and $842,000, 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 plan, 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 $6,603,000,
$9,466,000 and $5,472,000 for 2000, 1999 and 1998, 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. During such time, the
plan purchased shares of Knoll common stock on the open market. In
connection with the merger, which is discussed in Note 3, 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. As of December 31, 2000, a
combined maximum of 9,264,898 shares or options to purchase shares were
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. During 2000 and 1999, 84,769 and 18,837
nonvested restricted shares, respectively, were forfeited by employees
that terminated employment. As of December 31, 2000, a total of 282,573
restricted shares were not vested. Such shares will vest in March 2001.
The following table summarizes the Company's stock option activity in the
years indicated:
2000 1999 1998
----------------------- ----------------------- -----------------------
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... 3,706,338 $25.37 1,965,511 $21.27 2,142,158 $20.73
Granted............... 180,000 28.00 2,305,500 26.74 50,000 28.21
Exercised............. -- -- (244,798) 15.93 (196,647) 16.06
Forfeited............. (179,893) 25.22 (269,875) 17.28 (30,000) 28.50
Canceled ............. -- -- (50,000) 17.00 -- --
--------- --------- ---------
Outstanding at end
of year............. 3,706,445 25.51 3,706,338 25.37 1,965,511 21.27
========= ========= =========
Exercisable at end
of year............. 1,327,359 25.56 396,427 26.17 240,789 24.33
========= ========= =========
Available for
future grants....... 1,076,584 991,922 658,710
========= ========= =========
F-20
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Options were granted with an exercise price that equals the market price
of a share of Knoll common stock on the date of grant, while the
Company's stock was publicly traded, or the estimated fair value of a
share of Knoll common stock on the date of grant, subsequent to the
November 4, 1999 merger. 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, 2000:
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 - $21.25 921,445 6.90 years $17.66 314,959 $16.94
$24.19 - $26.75 95,000 8.30 25.95 30,000 26.18
$28.00 - $33.13 2,690,000 8.30 28.18 982,400 28.30
--------- ---------
$15.93 - $33.13 3,706,445 7.95 25.51 1,327,359 25.56
========= =========
In February 2001, the Stock Plan Committee granted an additional 200,000
options with an exercise price of $34.50 per share and approved certain
adjustments to outstanding options in response to dilution created by
the special cash dividend paid on January 5, 2001 (see Note 10). The
adjustments included increasing the number of shares under option from
3,706,445 to 4,383,968, lowering the range of exercise prices to $13.47 -
$28.01 and increasing the number of options available for future grants
to 1,273,382. All vesting and term provisions of each award remain
unchanged. No compensation expense was recognized in connection with the
adjustments since (i) the adjustments were executed in response to an
equity restructuring and (ii) the modifications to the awards did not
increase the aggregate intrinsic value of each award and did not reduce
the per share ratio of the exercise price to the market value.
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 and 1998, the Company issued 40,972 shares
and 75,609 shares, respectively, at a weighted average per share price of
$20.66 and $21.89, 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 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. Total compensation expense incurred in
connection with this award was $723,000 for 2000 and $992,000 for 1999.
2,140 and 370 units were forfeited during 2000 and 1999, respectively.
As of December 31, 2000, 38,630 of the units outstanding were vested. In
January 2001, the number of notional units outstanding was adjusted, in
accordance with the plan provisions, in response to the special cash
dividend that was paid (see Note 10). Subsequent to the adjustment, there
were approximately 49,369 notional units vested.
F-21
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
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 2000 and 1999, the Company
repurchased 9,500 and 1,000 of the contributed common shares,
respectively, from the 401(k) plan at a weighted average price per share
of $28.00. Such shares are held in treasury.
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 $108,680,000, $75,476,000 and $89,804,000 for
2000, 1999 and 1998, respectively.
For purposes of calculating pro forma net income, the weighted average
per share fair value of options was $9.28 for 2000 grants, $10.22 for
1999 grants and $13.68 for 1998 grants. Additionally, the weighted
average fair value of stock purchase rights granted under the employee
stock purchase plan was $3.76 and $4.84 per share in 1999 and 1998,
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, which is
discussed in Note 3, 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 and 5.75% in 1998; dividend yield of zero in 1999
and 1998; expected volatility of the market price of the common stock of
35.0% in 1999 and 1998; and weighted average expected lives of 7 years
for the options and 3 months for the stock purchase rights in 1999 and
1998. Under the minimum value method, the Company used the following
assumptions: risk-free interest rate of 5.75% in 2000 and 6.5% in 1999;
dividend yield of zero in 2000 and 1999; and weighted average expected
lives of 7 years in 2000 and 1999. 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. In connection with the merger, which is discussed in Note 3,
all shares that were held in treasury immediately prior to the merger were
canceled and retired, and the share repurchase program thereby came to an
end.
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)
2000
Sales to customers.... $1,060,894 $32,191 $70,392 $1,163,477
Operating income...... 223,931 10,848 2,392 237,171
Property, plant and
equipment, net...... 140,046 29,707 9,876 179,629
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
21. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth unaudited summary information on a
quarterly basis for the Company for 2000 and 1999.
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------- ----------- ----------- -----------
(In Thousands)
2000
Sales.................... $268,834 $315,374 $295,357 $283,912
Gross profit............. 108,183 132,437 122,282 118,154
Net income............... 24,166 35,918 32,491 23,713
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
In connection with the merger and related transactions discussed in
Note 3, the Company recorded recapitalization expense totaling $3,000,000,
$541,000 and $2,815,000 in the second, third and fourth quarters of 1999,
respectively, 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.
F-23
KNOLL, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
22. FINANCIAL INFORMATION FOR GUARANTORS OF THE COMPANY'S DEBT
As discussed in Note 9, 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, 2000, 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, 2000
and 1999 and for the years ended December 31, 2000, 1999 and 1998 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, 2000
(In Thousands)
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
ASSETS
Current assets:
Cash and cash equivalents... $ 104 $ 598 $ -- $ 21,637 $ -- $ 22,339
Customer receivables, net... 102,365 2,153 -- 27,665 -- 132,183
Accounts receivable--
related parties........... 8,092 118 1,446 38,309 (47,965) --
Inventories................. 55,281 6,981 -- 16,941 -- 79,203
Deferred income taxes....... 21,277 -- -- 959 -- 22,236
Prepaid and other current
assets.................... 3,583 706 14 3,118 -- 7,421
--------- ------- ------- -------- --------- ---------
Total current assets.. 190,702 10,556 1,460 108,629 (47,965) 263,382
Property, plant and
equipment, net................ 139,694 352 -- 39,583 -- 179,629
Intangible assets, net.......... 246,155 -- -- (276) -- 245,879
Equity investments.............. 124,416 987 17,096 -- (142,499) --
Other noncurrent assets......... 5,717 -- 97 426 -- 6,240
--------- ------- ------- -------- --------- ---------
Total Assets.......... $ 706,684 $11,895 $18,653 $148,362 $(190,464) $ 695,130
========= ======= ======= ======== ========= =========
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current liabilities:
Current maturities of
long-term debt............ $ 31,250 $ -- $ -- $ -- $ -- $ 31,250
Accounts payable--trade..... 64,902 922 -- 19,971 -- 85,795
Accounts payable--related
parties................... 37,549 760 1,695 7,961 (47,965) --
Income taxes payable........ 927 412 7 4,322 -- 5,668
Other current liabilities... 92,338 1,487 1,740 12,426 -- 107,991
--------- ------- ------- -------- --------- ---------
Total current
liabilities......... 226,966 3,581 3,442 44,680 (47,965) 230,704
Dividend payable................ 220,339 -- -- -- -- 220,339
Long-term debt.................. 393,750 -- -- 755 -- 394,505
Deferred income taxes........... 22,353 -- -- 2,322 -- 24,675
Postretirement benefits
other than pension............ 18,016 -- -- -- -- 18,016
Other noncurrent
liabilities................... 5,048 -- -- 6,218 -- 11,266
--------- ------- ------- -------- --------- ---------
Total liabilities..... 886,472 3,581 3,442 53,975 (47,965) 899,505
--------- ------- ------- -------- --------- ---------
Stockholders' equity (deficit):
Common stock................ 232 -- -- -- -- 232
Additional paid-in-capital.. 15,361 (9,413) 12,896 60,292 (75,545) 3,591
Unearned stock grant
compensation.............. (2) -- -- -- -- (2)
Retained earnings (deficit). (195,379) 17,727 2,315 46,912 (66,954) (195,379)
Accumulated other
comprehensive loss........ -- -- -- (12,817) -- (12,817)
--------- ------- ------- -------- --------- ---------
Total stockholders'
equity (deficit).... (179,788) 8,314 15,211 94,387 (142,499) (204,375)
--------- ------- ------- -------- --------- ---------
Total Liabilities
and Stockholders'
Equity (Deficit).... $ 706,684 $11,895 $18,653 $148,362 $(190,464) $ 695,130
========= ======= ======= ======== ========= =========
F-25
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 loss........ -- -- -- (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-26
KNOLL, INC.
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2000
(In Thousands)
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
Sales to customers.............. $1,034,115 $26,779 $ -- $102,583 $ -- $1,163,477
Sales to related parties........ 31,457 4,098 1,088 127,568 (164,211) --
---------- ------- ------ -------- --------- ----------
Total sales..................... 1,065,572 30,877 1,088 230,151 (164,211) 1,163,477
Cost of sales to customers...... 631,000 10,368 573 77,731 (37,251) 682,421
Cost of sales to related
parties....................... 17,783 4,098 -- 105,079 (126,960) --
---------- ------- ------ -------- --------- ----------
Gross profit.................... 416,789 16,411 515 47,341 -- 481,056
Selling, general and
administrative expenses....... 200,409 8,838 537 34,101 -- 243,885
---------- ------- ------ -------- --------- ----------
Operating income (loss)......... 216,380 7,573 (22) 13,240 -- 237,171
Interest expense................ 44,365 -- -- 72 -- 44,437
Other income (expense), net..... 1,148 -- (316) 2,194 -- 3,026
Income from equity investments.. 13,086 209 911 -- (14,206) --
---------- ------- ------ -------- --------- ----------
Income before income tax
expense (benefit)............. 186,249 7,782 573 15,362 (14,206) 195,760
Income tax expense (benefit).... 69,961 3,144 (100) 6,467 -- 79,472
---------- ------- ------ -------- --------- ----------
Net income...................... $ 116,288 $ 4,638 $ 673 $ 8,895 $ (14,206) $ 116,288
========== ======= ====== ======== ========= ==========
F-27
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 (loss) 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 (loss) 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 (loss)............... $ 78,361 $ 4,016 $(1,525) $ 2,495 $ (4,986) $ 78,361
======== ======= ======= ======== ========= ========
F-28
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 (benefit)............. 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-29
KNOLL, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2000
(In Thousands)
Guarantors
------------------------
Spinneybeck Knoll
Knoll, Enterprises, Overseas, Non-
Inc. Inc. Inc. Guarantors Eliminations Total
---------- ------------ --------- ----------- ------------ -----------
CASH PROVIDED BY OPERATING
ACTIVITIES $ 205,309 $ 164 $ -- $17,238 $ -- $ 222,711
CASH FLOWS FROM INVESTING
ACTIVITIES
Capital expenditures............ (20,041) (228) -- (3,828) -- (24,097)
Proceeds from sale of assets.... 21 -- -- 118 -- 139
--------- ----- ---- ------- ---- ---------
Cash used in investing
activities.................... (20,020) (228) -- (3,710) -- (23,958)
CASH FLOWS FROM FINANCING
ACTIVITIES
Proceeds from revolving
credit facility, net.......... (167,000) -- -- -- -- (167,000)
Repayment of long-term debt..... (17,500) -- -- -- -- (17,500)
Payment of fees to amend
debt agreements............... (682) -- -- -- -- (682)
Purchase of common stock........ (322) -- -- -- -- (322)
Payment of recapitalization
costs......................... (230) -- -- -- -- (230)
--------- ----- ---- ------- ---- ---------
Cash used in financing
activities.................... (185,734) -- -- -- -- (185,734)
Effect of exchange rate changes
on cash and cash equivalents.. -- -- -- (1,465) -- (1,465)
--------- ----- ---- ------- ---- ---------
Increase (decrease) in cash
and cash equivalents.......... (445) (64) -- 12,063 -- 11,554
Cash and cash equivalents
at beginning of year.......... 549 662 -- 9,574 -- 10,785
--------- ----- ---- ------- ---- ---------
Cash and cash equivalents
at end of year................ $ 104 $ 598 $ -- $21,637 $ -- $ 22,339
========= ===== ==== ======= ==== =========
F-30
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 fees to amend
debt agreements............... (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-31
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-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 Year Expenses Deductions (1) of Year
- --------------------------------------- ------------ ------------ -------------- ------------
(In Thousands)
Valuation Accounts Deducted in the
Consolidated Balance Sheet from the
Assets to which They Apply:
Year Ended December 31, 2000:
Allowance for doubtful accounts.... $6,783 $1,565 $1,666 $6,682
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
____________________
(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 First Amendment to Credit Agreement, dated as of December 20, 2000, by
and among the Company, the Guarantors (as defined therein), the Lenders
(as defined therein) party thereto, and Bank of America, N.A., as
Administrative Agent.
10.4* 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.
10.5* 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.
10.6** 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.
10.7++ Letter Agreement between Oak Hill Securities Fund, L.P. and the Company,
dated August 13, 1999.
10.8+ 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.
10.9+++++ Amended and Restated Employment Agreement, dated as of January 1, 2000,
between the Company and Burton B. Staniar.
10.10** Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and John H. Lynch.
10.11 Letter Agreement, dated as of March 23, 2001, between the Company and
John H. Lynch.
10.12** Employment Agreement, dated as of February 29, 1996, between T.K.G.
Acquisition Corp. and Andrew B. Cogan.
10.13*** Amendment to Employment Agreement, dated as of April 30, 1997, between the
Company and Andrew B. Cogan.
10.14**** Amendment #2 to Employment Agreement, dated as of August 1, 1998, between
the Company and Andrew B. Cogan.
Exhibit
Number Description Page
- --------- --------------------------------------------------------------------------- ------
10.15+++++ Amendment #3 to Employment Agreement, dated as of December 4, 1999,
between the Company and Andrew B. Cogan.
10.16 Employment Agreement, dated as of March 23, 2001, between the Company and
Andrew B. Cogan.
10.17 Employment Agreement, dated as of March 23, 2001, between the Company and
Kathleen G. Bradley.
10.18+++++ Amended and Restated Stockholders Agreement, dated as of November 4, 1999,
among the Company, Warburg, Pincus Ventures, L.P., and the signatories
thereto.
10.19+++++ 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.
10.20+++++ Amended and Restated Knoll, Inc. 1996 Stock Incentive Plan.
10.21+++++ Amended and Restated Knoll, Inc. 1997 Stock Incentive Plan.
10.22+++++ Knoll, Inc. 1999 Stock Incentive Plan.
10.23+++++ Form of Non-Qualified Stock Option Agreement under the Knoll, Inc. 1999
Stock Incentive Plan, entered into by the Company and certain executive
officers.
21** Subsidiaries of the Registrant.
- -----------------------------------------
* 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.
+++++ Incorporated by reference to the Company's Annual Report on Form 10-K
for the year ended December 31, 1999.