e10-k
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION    WASHINGTON, DC 20549

FORM 10-K

  ANNUAL REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
 
  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
     
For Fiscal Year Ended June 2, 2001
Commission File Number 0-5813
Herman Miller, Inc.
(Exact name of registrant as specified in its charter)
Michigan
(State or other jurisdiction of incorporation or organization)
38-0837640
(I.R.S. Employer Identification Number)
855 East Main Avenue, PO Box 302, Zeeland, MI 49464-0302
(Address of principal executive offices and Zip Code)
Registrant’s telephone number, including area code:
616 654 3000
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $.20 Par Value
(Title of Class)

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   No   

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. 

      The aggregate market value of the voting stock held by “nonaffiliates” of the registrant (for this purpose only, the affiliates of the registrant have been assumed to be the executive officers and directors of the registrant and their associates) as of August 3, 2001, was $1,883,208,669 (based on $25.49 per share which was the closing sale price as reported by NASDAQ).

      The number of shares outstanding of the registrant’s common stock, as of August 3, 2001:
Common stock, $.20 par value—75,678,661 shares outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant’s Proxy Statement for the Annual Meeting of Shareholders to be held on October 1, 2001, are incorporated into Part III of this report.

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PART 1 BUSINESS
PROPERTIES PENDING LEGAL PROCEEDINGS
SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS EXECUTIVE OFFICERS OF THE REGISTRANT
PART II MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
SELECTED FINANCIAL DATA REVIEW OF OPERATIONS
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
PART III DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT EXECUTIVE COMPENSATION
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
PART IV EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
SIGNATURES
SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS
EXHIBIT INDEX
Form of Change in Control Agreement
Change in Control Agreement for Michael A Volkema
Letter Regarding Change in Accounting Principles
Subsidiaries
Consent of Independent Public Accountants


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PART 1
BUSINESS

ITEM 1 BUSINESS

(A)   GENERAL DEVELOPMENT OF BUSINESS

The company researches, designs, manufactures and distributes interior furnishings and provides related services that support companies all over the world. The company’s products are sold primarily to or through independent contract office furniture dealers. Through research, the company seeks to define and clarify customer needs and problems existing in its markets and to design, through innovation where appropriate and feasible, products, systems, and services as solutions to such problems. Ultimately, the company seeks to assist its customers in creating great places to work.

      Herman Miller, Inc., was incorporated in Michigan in 1905. One of the company’s major plants and its corporate offices are located at 855 East Main Avenue, PO Box 302, Zeeland, Michigan, 49464-0302, and its telephone number is (616) 654-3000. Unless otherwise noted or indicated by the context, the term “company” includes Herman Miller, Inc., its predecessors and subsidiaries.

(B)   FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

The company’s operations are in a single industry segment—the design, manufacture, and sale of office furniture systems and furniture, and related products and services. Accordingly, no separate industry segment information is presented.

(C)   NARRATIVE DESCRIPTION OF BUSINESS

The company’s principal business consists of the research, design, development, manufacture, and sale of office systems, products and related services. Most of these systems and products are coordinated in design so that they may be used both together and interchangeably.

      The company is a leader in design and development of furniture and furniture systems. This leadership is exemplified by the innovative concepts introduced by the company in its modular systems known as Action Office®, Q™ System, Ethospace®, and Resolve®. Action Office, the company’s series of three freestanding office partition and furnishing systems, is believed to be the first such system to be introduced and nationally marketed and, as such, popularized the “open plan” approach to office space utilization. Ethospace interiors is a system of movable full- and partial-height walls, with panels and individual wall segments that interchangeably attach to wall framework. It includes wall-attached work surfaces and storage/display units, electrical distribution, lighting, organizing tools, and freestanding components. Resolve, the company’s newest product line, is a more flexible systems solution that is based on 120 degree angles around a steel pole and uses fabric screens and canopies for office definition. The company also offers a broad array of seating (including Aeron®, Equa®, Ergon®, Ambi®, and Reaction® office chairs), storage (including Meridian® filing products), wooden casegoods (including Geiger products), and freestanding furniture products (including Passage®).

      The company’s products are marketed worldwide by its own sales staff, its owned dealer network and via the Internet. These sales persons work with dealers, the design and architectural community, as well as directly with end-users. Seeking and strengthening the various distribution channels within the marketplace is a major focus of the company. Independent dealerships concentrate on the sale of Herman Miller products and some complementary product lines of other manufacturers. Approximately 70 percent of the company’s sales in the fiscal year ended June 2, 2001, were made to or through independent dealers. The remaining sales (30

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percent) were made directly to end-users, including federal, state, and local governments, and several major corporations, by either the company’s own sales staff or its owned dealer network.

      The company is also a recognized leader within its industry for the use, development and integration of customer-centered technologies that enhance the reliability, speed, and efficiency of its operations. This includes proprietary sales tools, interior design and product specification software, order entry and manufacturing scheduling and production systems, and direct connectivity to the company’s suppliers.

      The company’s furniture systems, seating, storage, casegoods and freestanding furniture products, and related services are used in (1) office/institution environments including offices and related conference, lobby and lounge areas, and general public areas including transportation terminals; (2) health/science environments including hospitals and other healthcare facilities; (3) clinical, industrial, and educational laboratories; and (4) residential and other environments.

      New Product and Industry Segment Information During the past 12 months, the company has not made any public announcement of, or otherwise made public information about, a new product or a new industry segment which would require the investment of a material amount of the company’s assets or which would otherwise result in a material cost.

      Raw Materials The company’s manufacturing materials are available from a significant number of sources within the United States, Canada, Europe, and Asia. To date, the company has not experienced any difficulties in obtaining its raw materials. The raw materials used are not unique to the industry nor are they rare.

      Patents, Trademarks, Licenses, Etc.   The company has approximately 138 active United States utility patents on various components used in its products and approximately 100 active United States design patents. Many of the inventions covered by the United States patents also have been patented in a number of foreign countries. Various trademarks, including the name and style “Herman Miller,” and the “Herman Miller Symbol” trademark, are registered in the United States and many foreign countries. The company does not believe that any material part of its business is dependent on the continued availability of any one or all of its patents or trademarks, or that its business would be materially adversely affected by the loss of any thereof, except the “Herman Miller,” “Action Office,” “Aeron,” “Ergon,” “Equa,” “Ethospace,” “Q,” “Resolve,” “SQA,” “Geiger”, and “Herman Miller Symbol” trademarks.

      Working Capital Practices The company does not believe that it or the industry in general has any special practices or special conditions affecting working capital items that are significant for an understanding of the company’s business.

      Customer Base No single dealer accounted for more than 5 percent of the company’s net sales in the fiscal year ended June 2, 2001. For fiscal 2001, the largest single end-user customer accounted for approximately 5 percent of the company’s net sales with the 10 largest of such customers accounting for approximately 12 percent of net sales. The company does not believe that its business is dependent on any single or small number of customers, the loss of which would have a materially adverse effect upon the company.

      Backlog of Orders As of June 2, 2001, the company’s backlog of unfilled orders was $224.0 million. At June 3, 2000, the company’s backlog totaled $283.7 million. It is expected that substantially all the orders forming the backlog at June 2, 2001, will be filled during the current fiscal year. Many orders received by the company are reflected in the backlog for only a short period while other orders specify delayed shipments and are carried in the backlog for up to one year. Accordingly, the amount of the backlog at any particular time is not necessarily indicative of the level of net sales for a particular succeeding period.

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      Government Contracts Other than standard price reduction and other provisions contained in contracts with the United States government, the company does not believe that any significant portion of its business is subject to material renegotiation of profits or termination of contracts or subcontracts at the election of various government entities.

      Competition All aspects of the company’s business are highly competitive. The principal methods of competition utilized by the company include design, product and service quality, speed of delivery, and product pricing. The company is one of the largest office furniture manufacturers in the world. However, in several of the markets served by the company, it competes with over 400 smaller companies and with several manufacturers that have significantly greater resources and sales. Price competition remained relatively stable from 1997 through 2001.

      Research, Design and Development One of the competitive strengths of the company is its research, design and development programs. Accordingly, the company believes that its research and design activities are of significant importance. Through research, the company seeks to define and clarify customer needs and problems and to design, through innovation where feasible and appropriate, products and services as solutions to these customer needs and problems. The company utilizes both internal and independent research and design resources. Exclusive of royalty payments, approximately $37.2 million, $35.1 million, and $33.4 million was spent by the company on design and research activities in 2001, 2000, and 1999, respectively. Royalties are paid to designers of the company’s products as the products are sold and are not included in research and development costs as they are variable based on product sales.

      Environmental Matters The company does not believe, based on current facts known to management, that existing environmental laws and regulations have had or will have any material effects upon the capital expenditures, earnings, or competitive position of the company. Further, the company continues to rigorously reduce, recycle, and reuse the solid wastes generated by its manufacturing processes. Its accomplishments and these efforts have been widely recognized.

      Human Resources The company considers another of its major competitive strengths to be its human resources. The company stresses individual employee participation and incentives, and believes that this emphasis has helped to attract and retain a capable work force. The company has a human resources group to provide employee recruitment, education and development, and compensation planning and counseling. There have been no work stoppages or labor disputes in the company’s history, and its relations with its employees are considered good. Approximately 589 of the company’s employees are represented by collective bargaining agents, most of whom are employees of its Integrated Metal Technology, Inc., and Herman Miller Limited (U.K.) subsidiaries. As such, these subsidiaries are parties to collective bargaining agreements with these employees.

      As of June 2, 2001, the company employed 9,951 full-time and 314 part-time employees, representing a .8 percent increase in full-time employees and an 18.0 percent decrease in part-time employees compared with June 3, 2000. In addition to its employee work force, the company uses purchased labor to meet uneven demand in its manufacturing operations.

(D)   INFORMATION ABOUT INTERNATIONAL OPERATIONS

The company’s sales in international markets primarily are made to office/institutional customers. Foreign sales mostly consist of office furniture products such as Ethospace and Action Office systems, seating, and storage products. The company is in the following major markets: Canada, Europe, Latin America, and the Asia/Pacific

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PROPERTIES
PENDING LEGAL PROCEEDINGS

region. In certain other foreign markets, the company’s products are offered through licensing of foreign manufacturers on a royalty basis.

      At the present time, the company’s products sold in international markets are manufactured by wholly owned subsidiaries in the United States, United Kingdom, and Mexico. Sales are made through wholly owned subsidiaries in Australia, Canada, France, Germany, Italy, Japan, Mexico, the Netherlands, and the United Kingdom. The company’s products are offered in the Middle East, South America, and Asia through dealers.

      In several other countries, the company licenses manufacturing and selling rights. Historically, these licensing arrangements have not required a significant investment of funds or personnel by the company, and, in the aggregate, have not produced material net income for the company.

      Additional information with respect to operations by geographic area appears in the note “Operating Segments” of the Notes to the Consolidated Financial Statements set forth on page 40. Fluctuating exchange rates and factors beyond the control of the company, such as tariff and foreign economic policies, may affect future results of international operations.

ITEM 2 PROPERTIES

The company owns or leases facilities which are located throughout the United States and several foreign countries, including Australia, Canada, France, Germany, Italy, Japan, Mexico, and the United Kingdom. The location, square footage, and use of the most significant facilities at June 2, 2001, were as follows:

             
Owned Locations Square Footage Use
 
Spring Lake, Michigan
921,700
Manufacturing, Warehouse, and Office
Holland, Michigan
850,500
Manufacturing, Distribution, Warehouse, and Office
Zeeland, Michigan
749,000
Manufacturing, Warehouse, and Office
Rocklin, California
338,100
Manufacturing and Warehouse
Holland, Michigan
238,300
Design Center and Office
 
Leased Locations
 
Holland, Michigan
369,900
Manufacturing, Distribution, and Warehouse
Canton, Georgia
327,800
Manufacturing and Warehouse
Zeeland, Michigan
303,700
Manufacturing, Warehouse, and Office
Fulton, Georgia
176,700
Manufacturing, Warehouse, and Office
England, U.K
168,900
Manufacturing and Warehouse
Atlanta, Georgia
115,000
Warehouse and Distribution
Mexico
68,100
Manufacturing, Warehouse, and Office

      The company also maintains showrooms or sales offices near most major metropolitan areas throughout North America, Europe, the Middle East, Asia/Pacific, and South America. The company considers its existing facilities to be in excellent condition, efficiently utilized, well suited, and adequate for its design, production, distribution, and selling requirements.

ITEM 3 PENDING LEGAL PROCEEDINGS

The company, for a number of years, has sold various products to the United States Government under General Services Administration (GSA) multiple award schedule contracts. The GSA is permitted to audit the company’s compliance with the GSA contracts. At any point in time, a number of GSA audits are either

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SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS EXECUTIVE OFFICERS OF THE REGISTRANT

scheduled or in progress. Management does not expect resolution of the audits to have a material adverse effect on the company’s consolidated financial statements.

      The company is also involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation currently pending will not materially affect the company’s consolidated financial statements.

ITEM 4 SUBMISSION OF MATTER TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of the year ended June 2, 2001.

ADDITIONAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT

Certain information relating to Executive Officers of the company is as follows:

                     
Name Age Year Elected Position with the Company
an Executive
Officer




James E. Christenson
54 1989
Senior Vice President, Legal Services, and Secretary
Robert Frey
58 1996
President, Herman Miller International
David M. Knibbe
46 1997
Executive Vice President, Sales and Distribution
Gary S. Miller
51 1984
Chief Development Officer
Elizabeth A. Nickels
39 2000
Chief Financial Officer
Gary VanSpronsen
45 1998
Executive Vice President, eBusiness
Michael A. Volkema
45 1995
Chairman, President and Chief Executive Officer
Brian C. Walker
39 1996
President, Herman Miller North America

      Except as discussed in this paragraph, each of the named officers has served the company in an executive capacity for more than five years. Mr. Frey joined Herman Miller, Inc., in November 1996, and prior to 1996 was chairman of the board and chief executive officer of Asian operations and an elected executive vice president at Whirlpool Corporation. Mr. Knibbe was the vice president of sales and distribution for Herman Miller, Inc., from March 1996 to May 1997; president of Workplace Resource, Inc., from March 1995 to April 1996; and vice president of sales and distribution for Meridian, Inc., from April 1990 to March 1995. Ms. Nickels joined Herman Miller, Inc., in February 2000, and prior to 2000 was chief financial officer of Universal Forest Products, Inc., for seven years. Mr. VanSpronsen was the president of Miller SQA from January 1998 to September 1998, and vice president and general manager of Miller SQA from June 1992 to December 1997. Mr. Walker was the Chief Financial Officer of Herman Miller, Inc. from March 1996 to February 2000, and before that he served in various finance roles with the company.

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PART II
MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

ITEM 5 MARKET FOR THE REGISTRANT’S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS

SHARE PRICE, EARNINGS, AND DIVIDENDS SUMMARY

Herman Miller, Inc., common stock is quoted in the NASDAQ-National Market System (NASDAQ-NMS Symbol: MLHR). As of August 3, 2001, there were approximately 24,000 shareholders of record of the company’s common stock.

                                         
Per Share and Unaudited Market Price Market Price Market Price Earnings Dividends
High Low Close Per Per
Share–Diluted Share






YEAR ENDED JUNE 2, 2001
First quarter(1)
$ 32.813 $ 25.875 $ 32.000 $ .41 $ .03625
Second quarter
32.250 23.625 24.000 .54 .03625
Third quarter
29.375 22.625 25.938 .43 .03625
Fourth quarter
28.050 23.000 26.900 .43 .03625
Year
$ 32.813 $ 22.625 $ 26.900 $ 1.81 $ .14500
YEAR ENDED JUNE 3, 2000
First quarter
$ 26.250 $ 20.125 $ 24.438 $ .43 $ .03625
Second quarter
25.500 20.938 23.250 .41 .03625
Third quarter
24.125 20.125 20.688 .40 .03625
Fourth quarter
29.750 19.875 29.750 .50 .03625
Year
$ 29.750 $ 19.875 $ 29.750 $ 1.74 $ .14500





(1)   The first quarter of 2001 includes a pre-tax charge of $5.4 million ($3.5 million after tax, or $.05 per diluted share) for the cumulative effect of a change in accounting principle for pensions. Previous to the restatement, diluted earnings per share for the first quarter were $.46.

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SELECTED FINANCIAL DATA
REVIEW OF OPERATIONS

ITEM 6 SELECTED FINANCIAL DATA
REVIEW OF OPERATIONS

                                 
(In Millions, Except Per Share Data) 2001 2000 1999 1998





OPERATING RESULTS
Net Sales(3)
$ 2,236.2 $ 2,010.2 $ 1,828.4 $ 1,773.0
Gross Margin(3)
755.7 680.4 641.6 613.0
Selling, General, and Administrative(3)
475.4 404.4 379.3 370.9
Design and Research Expense
44.3 41.3 38.0 33.8
Operating Income
236.0 234.7 224.3 208.3
Income (Loss) Before Income Taxes
225.1 221.8 229.9 209.5
Net Income (Loss)
140.6 139.7 141.8 128.3
Cash Flow from Operating Activities
211.8 202.1 205.6 268.7
Depreciation and Amortization
92.6 77.1 62.1 50.7
Capital Expenditures
105.0 135.7 103.4 73.6
Common Stock Repurchased plus
Cash Dividends Paid
$ 105.3 $ 101.6 $ 179.7 $ 215.5




KEY RATIOS
Sales Growth(3)
11.2 9.9 3.1 14.8
Gross Margin(1,3)
33.8 33.8 35.1 34.6
Selling, General, and Administrative(1,3)
21.3 20.1 20.7 20.9
Design and Research Expense(1,3)
2.0 2.1 2.1 1.9
Operating Income(1,3)
10.6 11.7 12.3 11.7
Net Income Growth (Decline)
0.6 (1.5 ) 10.5 72.4
After-Tax Return on Net Sales(3)
6.3 6.9 7.8 7.2
After-Tax Return on Average Assets
14.5 16.5 18.5 16.7
After-Tax Return on Average Equity
43.5 55.5 64.4 49.5




SHARE AND PER SHARE DATA(2)
Earnings per Share-Diluted
$ 1.81 $ 1.74 $ 1.67 $ 1.39
Cash Dividends Declared per Share
.15 .15 .15 .15
Book Value per Share at Year End
4.63 3.76 2.63 2.66
Market Price per Share at Year End
$ 26.90 $ 29.75 $ 20.19 $ 27.69
Weighted Average Shares Outstanding-Diluted
77.6 80.5 84.8 92.0




FINANCIAL CONDITION
Total Assets
$ 996.5 $ 941.2 $ 751.5 $ 784.3
Working Capital(4)
191.6 99.1 55.5 77.2
Current Ratio
1.5 .9 1.0 1.1
Interest-Bearing Debt
259.3 225.6 147.6 130.7
Shareholders’ Equity
351.5 294.5 209.1 231.0
Total Capital
610.8 520.1 356.7 361.7
EBITDA
$ 334.5 $ 312.3 $ 299.3 $ 268.5
Debt-to-EBITDA Ratio
.8 .7 .5 .5
EBITDA-to-Interest Expense Ratio
19.9 23.3 41.0 32.3




(1)   Shown as a percent of net sales. (2) Retroactively adjusted to reflect two-for-one stock splits occurring in 1998 and 1997. (3) Amounts restated to reflect reclassification of certain expenses to conform to 2001 presentation. (4) Calculated using current assets less non-interest bearing current liabilities.

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1997 1996 1995 1994 1993 1992 1991







$ 1,543.8 $ 1,325.0 $ 1,117.8 $ 983.7 $ 883.1 $ 830.5 $ 906.8
509.5 418.4 362.0 322.9 285.7 265.0 300.9
335.2 299.5 287.4 230.9 217.4 217.3 219.9
29.1 27.5 33.7 30.2 24.5 20.7 23.2
130.7 74.9 9.1 61.8 43.8 2.0 39.2
125.9 70.1 4.0 63.5 42.4 (1.0 ) 33.2
74.4 45.9 4.3 40.4 22.1 (14.1 ) 14.1
218.2 124.5 29.9 69.8 82.6 77.0 86.4
48.0 45.0 39.7 33.2 31.6 30.5 32.8
54.5 54.4 63.4 40.3 43.4 32.0 32.6
$ 110.4 $ 38.1 $ 13.6 $ 38.5 $ 21.2 $ 23.6 $ 18.0







16.5 18.5 13.6 11.4 6.3 (8.4 ) 0.3
33.0 31.6 32.4 32.8 32.4 31.9 33.2
21.7 22.6 25.7 23.5 24.6 26.2 24.3
1.9 2.1 3.0 3.1 2.8 2.5 2.6
8.5 5.7 0.8 6.3 5.0 0.2 4.3
62.1 967.4 (89.4 ) 82.8 256.7 (200.0 ) (69.7 )
4.8 3.5 0.4 4.1 2.5 (1.7 ) 1.6
10.3 6.8 0.7 7.9 4.6 (2.9 ) 2.7
25.0 15.4 1.5 13.9 7.8 (4.7 ) 4.5







$ .77 $ .46 $ .04 $ .40 $ .22 $ (.14 ) $ .14
.13 .13 .13 .13 .13 .13 .13
3.12 3.12 2.89 3.01 2.84 2.78 3.08
$ 17.88 $ 7.72 $ 5.42 $ 6.22 $ 6.41 $ 4.75 $ 5.03
96.1 100.5 99.2 101.0 100.0 100.7 102.7







$ 755.6 $ 694.9 $ 659.0 $ 533.7 $ 484.3 $ 471.3 $ 492.9
135.7 151.8 133.7 106.6 87.8 93.4 135.0
1.4 1.6 1.2 1.3 1.5 1.5 2.1
127.4 131.7 144.2 70.0 39.9 54.0 75.7
287.1 308.1 286.9 296.3 283.9 280.1 314.8
414.5 439.8 431.1 366.3 323.8 334.1 390.5
$ 182.7 $ 123.0 $ 50.1 $ 98.5 $ 76.0 $ 36.4 $ 76.2
.7 1.1 2.9 .7 .5 1.5 1.0
20.7 15.6 7.9 54.7 38.0 5.3 7.5







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the classification of revenues and expenses related to shipping and handling activities. The company adopted EITF 00-10 effective with the fourth quarter 2001 and has restated prior periods to reflect the reclassification to cost of sales of certain shipping and handling related costs which were previously reported as components of net sales and operating expenses.

      Reclassifications Certain prior year information has been reclassified to conform to the current year presentation.

ACQUISITIONS AND DIVESTITURES

The company made several acquisitions during the past three years, all of which were recorded using the purchase method of accounting. Accordingly, the purchase price of these acquisitions has been allocated to the assets acquired and liabilities assumed based on the estimated fair values at the date of the acquisition. The cost of the acquisitions in excess of net identifiable assets acquired has been recorded as goodwill.

      Effective July 30, 1999, the company acquired Geiger Group, Inc. (“Geiger”), a manufacturer of high-quality wood furnishings for the contract furniture industry, including casegoods, freestanding furniture, and seating. The acquisition was completed for $5.0 million in cash and the issuance of 1,312,187 shares of Herman Miller, Inc., stock to Geiger’s shareholders. The excess of purchase price over the estimated fair market value of net assets acquired of approximately $24.8 million was recorded as goodwill. Additional purchase price may be paid based on Geiger’s operating results over the three-year period ending on July 18, 2002. The operating results of Geiger have been included in the consolidated financial statements of the company since the date of acquisition. If this purchase had been effective May 31, 1998, there would have been no material effect on the company’s results of operations and financial condition for fiscal 2000 or 1999.

      During 2001, 2000 and 1999, the company purchased various privately owned North American dealers. The results of the acquisitions were not material to the company’s consolidated operating results.

INVENTORIES

                 
(In Millions) 2001 2000


Finished products
$ 22.5 $ 20.5
Work in process
11.1 13.2
Raw materials
22.3 20.0


$ 55.9 $ 53.7


      Inventories are valued at the lower of cost or market and include material, labor, and overhead. The inventories of certain subsidiaries are valued using the last-in, first-out (LIFO) method. The inventories of all other subsidiaries are valued using the first-in, first-out method. Inventories valued using the LIFO method amounted to $16.7 and $18.0 million at June 2, 2001, and June 3, 2000, respectively.

      If all inventories had been valued using the first-in, first-out method, inventories would have been $12.5 and $12.7 million higher than reported at June 2, 2001, and June 3, 2000, respectively.

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PREPAID EXPENSES AND OTHER

                 
(In Millions) 2001 2000


Current deferred income taxes
$ 21.5 $ 21.3
Other
33.0 27.3


$ 54.5 $ 48.6


ACCRUED LIABILITIES

                 
(In Millions) 2001 2000


Compensation and employee benefits
$ 51.7 $ 60.1
Income taxes
33.2 41.7
Unearned revenue
19.1 19.8
Warranty reserves
23.3 23.9
Other
39.1 40.0


$ 166.4 $ 185.5


OTHER LIABILITIES

                 
(In Millions) 2001 2000


Pension benefits
$ 47.9 $ 40.9
Postretirement benefits
9.3 9.3
Other
45.3 44.7


$ 102.5 $ 94.9


NOTES PAYABLE
                 
(In Millions) 2001 2000


U.S. dollar currencies
$ $ 114.0
Non-U.S. dollar currencies
3.1 8.7


$ 3.1 $ 122.7


      The following information relates to short-term borrowings in 2001:

                 
(In Millions) Domestic Foreign


Weighted-average interest rate at June 2, 2001
N/A 5.9 %
Weighted-average interest rate at June 3, 2000
6.9 % 5.5 %
Weighted-average interest rate during 2001
6.8 % 6.7 %
Unused short-term credit lines
$ 200.0 $


      The company has available an unsecured revolving credit loan that provides for $200.0 million. The loan permits borrowings in multiple currencies and matures on April 16, 2005. Outstanding borrowings bear interest, at the option of the company, at rates based on the prime rate, certificates of deposit, LIBOR, or negotiated rates. Interest is payable periodically throughout the period a borrowing is outstanding. During 2001 and 2000, the company borrowed at the LIBOR contractual rate or other negotiated rates.

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      In addition to the company’s formal short-term credit lines shown above, the company has available informal lines of credit totaling $20.0 million.

LONG-TERM DEBT

                 
(In Millions) 2001 2000

 

Series A senior notes, 6.37%, due March 5, 2006
$ 50.0 $ 60.0
Series B senior notes, 6.08%, due March 5, 2001
15.0
Series C senior notes, 6.52%, due March 5, 2008
15.0 15.0
Debt securities, 7.13%, due March 15, 2011
175.0
Other
16.2 12.9


256.2 102.9
Less current portion
23.3 25.1


$ 232.9 $ 77.8


      The company has a private placement of $100.0 million of senior notes with seven insurance companies of which $65.0 million was outstanding at June 2, 2001. The Series C notes have interest-only payments until March 5, 2004.

      Provisions of the senior notes and the unsecured senior revolving credit loan restrict, without prior consent, the company’s borrowings, long-term leases, and sale of certain assets. In addition, the company has agreed to maintain certain financial performance ratios, which are based on earnings before taxes, interest expense, depreciation and amortization. At June 2, 2001, the company was in compliance with all of these provisions.

      On May 5, 2000, the company filed a shelf registration on a form S-3 registration statement with the Securities and Exchange Commission (SEC), under file number 333-36442, for the sale of up to $300 million in debt securities. The form S-3 registration statement was declared effective on June 2, 2000. On March 6, 2001, debt securities totaling $175 million, of the $300 million registered, were sold. These Notes mature on March 15, 2011, and bear an annual interest rate of 7.125 percent, with interest payments due semi-annually. The net proceeds from the sale of these securities were used for the repayment of outstanding domestic borrowings under the company’s revolving credit facility and for general corporate purposes.

      Annual maturities of long-term debt for the five years subsequent to June 2, 2001 (in millions), are as follows: 2002–$23.3; 2003–$10.7; 2004–$13.7; 2005–$13.7; 2006–$13.7; thereafter–$181.1.

OPERATING LEASES

The company leases real property and equipment under agreements that expire on various dates. Certain leases contain renewal provisions and generally require the company to pay utilities, insurance, taxes, and other operating expenses.

      Future minimum rental payments required under operating leases that have initial or remaining noncancellable lease terms in excess of one year as of June 2, 2001, are as follows (in millions): 2002–$26.7; 2003–$21.0; 2004–$16.8; 2005–$12.3; 2006–$8.2; thereafter–$1.7.

      Total rental expense charged to operations was $32.4, $28.3, and $17.6 million in 2001, 2000, and 1999, respectively. Substantially all such rental expense represented the minimum rental payments under operating leases.

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EMPLOYEE BENEFIT PLANS

The company maintains plans which provide retirement benefits for substantially all employees.

      Pension Plans The principal domestic plan is a defined-benefit plan with benefits determined by a cash-balance calculation. Benefits under this plan are based upon an employee’s years of service and earnings.

      In addition to the domestic plan and the retiree healthcare and life insurance plan, one of Herman Miller, Inc.’s wholly owned foreign subsidiaries has a defined-benefit pension plan which is based upon an average final pay benefit calculation. The plan has not been amended and is included in the following information.

      During the fourth quarter of 2001, the company changed its method of determining the market-related value of its plan assets from the fair-value method to a calculated-value method, which recognizes the changes in the fair value of the plan assets on a systematic basis over a five-year period. This new method provides for better matching of the value of plan assets and liabilities under the cash balance retirement plan. Additionally, this method is consistent with that being used by many other manufacturing companies. The impact of this change is reported as a change in accounting principle for pensions, with a cumulative, pre-tax charge of $5.4 million, recorded retroactively, to the beginning of fiscal year 2001.

                                 
(In Millions) Pension Benefits Postretirement Benefits



2001 2000 2001 2000

 

Change in benefit obligations
Benefit obligations at beginning of year
$ 231.0 $ 217.4 $ 10.4 $ 10.8
Service cost
12.4 10.8
Interest cost
16.6 15.8 .8 .7
Actuarial (gain) loss
(8.1 ) (2.1 ) 1.5 (.1 )
Benefits paid
(11.7 ) (10.9 ) (1.1 ) (1.0 )




Benefit obligations at end of year
240.2 231.0 11.6 10.4




Change in plan assets
Fair value of plan assets at beginning of year
288.5 252.1
Actual return on plan assets
(58.1 ) 45.6
Employer contribution
2.3 1.7 1.1 1.0
Benefits paid
(11.7 ) (10.9 ) (1.1 ) (1.0 )




Fair value of plan assets at end of year
221.0 288.5




Funded status
(20.6 ) 57.5 (11.6 ) (10.4 )
Unrecognized transition amount
(.4 ) (.9 )
Change in unrecognized net loss from revaluation of market-related value of assets
5.4
Unrecognized net actuarial (gain) loss
5.5 (59.3 ) 1.9 .4
Unrecognized prior service cost
(35.2 ) (38.2 ) .6 .7




Accrued benefit cost
$ (45.3 ) $ (40.9 ) $ (9.1 ) $ (9.3 )




Weighted average assumptions
Discount rate
7.25 % 7.75 % 7.25 % 7.75 %
Expected return on plan assets
9.50 % 9.00 % N/A N/A
Rate of compensation increase
4.50 % 5.00 % N/A N/A




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      For measurement purposes, a 10.0 percent annual rate of increase in the per capita cost of covered healthcare benefits was assumed for 2001. The rate was assumed to decrease gradually to 5.5 percent by 2010 and remain at that level thereafter.

                                                 
(In Millions) Pension Benefits Postretirement Benefits



2001 2000 1999 2001 2000 1999






 

Components of net periodic benefit cost:
Service cost
$ 12.4 $ 10.8 $ 11.5 $ $ $
Interest cost
16.6 15.8 14.3 .8 .7 .7
Expected return on plan assets
(22.9 ) (23.1 ) (20.9 )
Net amortization
(4.4 ) (3.0 ) (4.2 ) .1 .1 .1
Net periodic benefit cost
$ 1.7 $ .5 $ .7 $ .9 $ .8 $ .8






      A one-percentage-point increase in assumed healthcare cost trend rates would have increased the accumulated postretirement benefit obligation at June 2, 2001 by $.7 million. A one-percentage-point decrease would have decreased the accumulated postretirement benefit obligation at June 2, 2001 by $.6 million.

      Plan assets consist primarily of listed common stocks, mutual funds, and corporate obligations. Plan assets at both June 2, 2001 and June 3, 2000 included 1,043,619 shares of Herman Miller, Inc., common stock.

      Profit Sharing and 401(k) Plan Domestically, Herman Miller, Inc. has a trusteed profit sharing plan that includes substantially all employees. These employees are eligible to begin participating at the beginning of the quarter following their date of hire. The plan provides for discretionary contributions (payable in the company’s common stock) of not more than 6.0 percent of employees’ wages based on the company’s EVA performance. The cost of the plan charged against operations was $5.4, $5.6, and $14.0 million in 2001, 2000, and 1999, respectively.

      Effective December 1, 1998, the company began to match the employees’ contributions to their 401(k) accounts. The amount matched is equal to half of the employees’ contribution up to the first 6.0 percent of the employees’ pay. The company’s contributions charged against operations were $2.9, $3.2, and $2.9 million in fiscal 2001, 2000, and 1999, respectively.

COMMON STOCK AND PER SHARE INFORMATION

The following table reconciles the numerators and denominators used in the calculations of basic and diluted EPS for each of the last three years:

                           
(In Millions, Except Shares) 2001 2000 1999




 

Numerators:
Numerators for both basic and diluted EPS, net income
$ 140.6 $ 139.7 $ 141.8



Denominators:
Denominators for basic EPS,
weighted-average common shares outstanding
76,663,746 79,526,026 83,734,707
Potentially dilutive shares resulting from stock option plans
983,565 1,005,257 1,096,375



Denominator for diluted EPS
77,647,311 80,531,283 84,831,082



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      Certain exercisable stock options were not included in the computations of diluted EPS because the option prices were greater than average quarterly market prices for the periods presented. The number of stock options outstanding at the end of each year presented which were not included in the calculation of diluted EPS and the ranges of exercise prices were: 2,406,140 at $25.81—$32.50 in 2001; 1,368,832 at $26.75—$32.50 in 2000; and 3,346,421 at $19.88—$32.50 in 1999.

STOCK PLANS

Under the terms of the company’s 1995 Employee Stock Purchase Plan, 4.1 million shares of authorized common stock were reserved for purchase by plan participants at 85.0 percent of the market price. At June 2, 2001, 2,740,062 shares remained available for purchase through the plan, and there were 9,823 employees eligible to participate in the plan, of which 2,880, or 29.3 percent, were participants. During 2001, 2000, and 1999, employees purchased 204,223 shares for the weighted-average fair value of $22.84; 214,307 shares for the weighted-average fair value of $20.51; and 253,076 shares for the weighted-average fair value of $17.37, respectively.

      The company has stock option plans under which options are granted to employees and nonemployee officers and directors at a price not less than the market price of the company’s common stock on the date of grant. All options become exercisable between one year and four years from date of grant and expire 10 years from date of grant. At June 2, 2001, there were 166 employees and 10 nonemployee officers and directors eligible. At June 2, 2001, there were 3,366,863 shares available for future options.

      The company’s Long-Term Incentive Plan, along with the Nonemployee Officer and Director Stock Option Plan, authorizes reload options. Reload options provide for the purchase of shares equal to the number of shares delivered upon exercise of the original options plus the number of shares delivered to satisfy the tax liability incurred in the exercise. The reload options retain the expiration date of the original options; however, the exercise price must equal the fair market value on the date the reload options are granted. During fiscal 2001, 2000, and 1999, 357,517, 260,018, and 252,998 reload options, respectively, were automatically granted.

      A summary of shares subject to options follows:

                                                   
2001 2000 1999
Weighted- Weighted- Weighted-
Average Average Average
2001 Exercise 2000 Exercise 1999 Exercise
Shares Prices Shares Prices Shares Prices






 

Outstanding at beginning of year:
5,238,504 $ 20.89 4,899,767 $ 19.67 3,463,814 $ 14.19
Granted
1,910,206 $ 26.17 1,344,900 $ 23.98 2,174,247 $ 26.50
Exercised
(782,357 ) $ 17.95 (685,983 ) $ 16.11 (676,584 ) $ 13.01
Terminated
(101,333 ) $ 26.10 (320,180 ) $ 25.47 (61,710 ) $ 25.86
Outstanding at end of year:
6,265,020 $ 22.78 5,238,504 $ 20.89 4,899,767 $ 19.67






Exercisable at end of year:
3,685,579 $ 21.11 3,279,665 $ 19.35 2,744,960 $ 14.33






Weighted-average fair-market
value of options granted
$ 9.96 $ 8.86 $ 8.71






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A summary of stock options outstanding at June 2, 2001, follows:

                                       
Outstanding Stock Options Exercisable Stock Options


Shares Weighted- Weighted- Shares Weighted-
Average Average Average
Remaining Exercise Exercise
Contractual Prices Prices
Life





 

$4.66—$22.50
2,134,160 5.49 years $ 15.17 1,481,660 $ 12.02
$23.19—$27.36
2,879,622 8.32 years $ 25.46 962,281 $ 24.16
$27.50—$32.50
1,251,238 6.62 years $ 29.61 1,241,638 $ 29.61





Total
6,265,020 7.02 years $ 22.78 3,685,579 $ 21.11





      The company accounts for its employee stock purchase plan and its stock option plans under APB Opinion 25; therefore, no compensation costs are recognized when employees purchase stock or when stock options are granted or exercised. If compensation costs had been computed under SFAS No. 123, “Accounting for Stock-Based Compensation,” the company’s net income and earnings per share would have been reduced by approximately $12.2 million, or $.16 per share in 2001, $7.5 million, or $.09 per share in 2000, and $12.8 million, or $.15 per share in 1999.

      For purposes of computing compensation costs of stock options granted, the fair value of each stock option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions:

                         
2001 2000 1999



 

Risk-free interest rates
4.46%—6.26 % 5.50%–6.71 % 4.39%–5.48 %
Expected term of options
3 years 3–4 years 3–5 years
Expected volatility
49%—50 % 46%–50 % 37%–46 %
Dividend yield
.5 % .5 % .5 %

      Black-Scholes is a widely accepted stock option pricing model; however, the ultimate value of stock options granted will be determined by the actual lives of options granted and future price levels of the company’s common stock.

KEY EXECUTIVE AND DIRECTOR STOCK PROGRAMS

Restricted Stock Grants The company grants restricted common stock to certain key employees. Shares are awarded in the name of the employee, who has all rights of a shareholder, subject to certain restrictions on transferability and a risk of forfeiture. The forfeiture provisions on the awards expire annually, over a period not to exceed six years, as certain financial goals are achieved. During fiscal 2001, 49,841 shares were granted under the company’s long-term incentive plan, no shares were forfeited, and the forfeiture provisions expired on 18,848 shares. As of June 2, 2001, 41,531 shares remained subject to forfeiture provisions and restrictions on transferability. During fiscal 2000, 10,513 shares were granted, 1,980 shares were forfeited, and the forfeiture provisions expired on 63,894 shares. During fiscal 1999, 8,100 shares were granted, none were forfeited, and the forfeiture provisions expired on 72,174 shares.

      The remaining shares subject to forfeiture provisions have been recorded as unearned stock grant compensation and are included as a separate component of shareholders’ equity under the caption Key Executive Stock Programs. The unearned compensation is being charged to selling, general, and administrative

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expense over the five-year vesting period and was $1.1, $.7, and $1.2 million in 2001, 2000, and 1999, respectively.

      Key Executive Deferred Compensation Plan The company established the Herman Miller, Inc., Key Executive Deferred Compensation Plan, which allows certain executives to defer receipt of all or a portion of their EVA cash incentive. The company may make a matching contribution of 30 percent of the executive’s contribution up to 50 percent of the deferred EVA cash incentive. The company matching contribution vests at the rate of 33 1/3 percent annually. In accordance with the terms of the plan, the executive deferral and company matching contribution have been placed in a “Rabbi” trust, which invests solely in the company’s common stock. These Rabbi trust arrangements offer the executive a degree of assurance for ultimate payment of benefits without causing constructive receipt for income tax purposes. Distributions to the executive from the Rabbi trust can only be made in the form of the company’s common stock. The assets in the Rabbi trust remain subject to the claims of creditors of the company and are not the property of the executive and are, therefore, included as a separate component of shareholders’ equity under the caption Key Executive Stock Programs.

      Key Executive Stock Purchase Assistance Plan The company adopted a key executive stock purchase assistance plan whereby the company may extend credit to officers and key executives to purchase the company’s stock through the exercise of options or on the open market. These loans are secured by the shares acquired and are repayable under full recourse promissory notes. The sale or transfer of shares is restricted for five years after the loan is fully paid. The plan provides for the key executives to earn repayment of a portion of the notes, including interest, based on meeting annual performance objectives as set forth by the Executive Compensation Committee of the Board of Directors. The notes bear interest at 7.0 percent per annum. Interest is payable annually and principal is due on various dates through September 1, 2008. As of June 2, 2001, the notes outstanding relating to the exercise of options were $.1 million. Notes outstanding related to open-market purchases were $2.3 million and are recorded in other assets. Compensation expense related to earned repayment was $.2 million in 2001, $.4 million in 2000, and $1.7 million in 1999.

      Director Fees During fiscal 2000, the Board of Directors approved a plan that allows the Board members to elect to receive their director fees in one or more of the following forms: cash, deferred compensation in the form of shares, unrestricted company stock at the market value at the date of election, or stock options that vest in one year and expire in ten years. The stock options are granted at a price not less than the market price of the company’s common stock on the date of grant. Under the plan, the Board members received 42,150 options, 7,710 unrestricted shares, and 11,243 shares through the deferred compensation program during fiscal 2001. In fiscal 2000, Board members received 20,530 options, 6,144 unrestricted shares, and 55,070 shares through the deferred compensation program.

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INCOME TAXES

The components of income from continuing operations before income taxes and cumulative effect of change in accounting are as follows:

                         
(In Millions) 2001 2000 1999




 

Domestic
$ 204.8 $ 198.7 $ 206.0
Foreign
20.3 23.1 23.9



$ 225.1 $ 221.8 $ 229.9



      The provision for income taxes consisted of the following:

                           
(In Millions) 2001 2000 1999




 

Current: Domestic—Federal
$ 68.0 $ 67.6 $ 62.5
     Domestic—State
4.5 3.6 4.2
     Foreign
7.2 8.9 7.9



79.7 80.1 74.6



Deferred: Domestic—Federal
.7 1.9 13.7
       Domestic—State
.3 .2 (.3 )
       Foreign
.3 (.1 ) .1
1.3 2.0 13.5



Total income tax provision
$ 81.0 $ 82.1 $ 88.1



      The following table represents a reconciliation of income taxes at the United States statutory rate with the effective tax rate as follows:

                           
(In Millions) 2001 2000 1999




 

Income taxes computed at the United States statutory rate of 35% $ 78.8 $ 77.6 $ 80.5
Increase (decrease) in taxes resulting from:
Corporate-owned life insurance
7.6
State taxes, net
3.1 2.5 2.5
Other
(.9 ) 2.0 (2.5 )



$ 81.0 $ 82.1 $ 88.1



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      The tax effects and types of temporary differences that give rise to significant components of the deferred tax assets and liabilities at June 2, 2001, and June 3, 2000, are presented below:

                   
(In Millions) 2001 2000


 

Deferred tax assets:
Foreign net operating loss carryforwards
$ $ .8
Book over tax loss on sale of fixed assets
6.6 6.1
Compensation-related accruals
12.6 11.6
Accrued pension and postretirement benefit obligations
20.2 18.6
Reserves for inventory
3.3 5.0
Reserves for uncollectible accounts and notes receivable
5.4 3.4
Other
25.4 29.2
Valuation allowance
(.8 )


$ 73.5 $ 73.9


Deferred tax liabilities:
Book basis in property in excess of tax basis
$ (12.5 ) $ (13.7 )
Capitalized software costs
(23.0 ) (22.1 )
Prepaid employee benefits
(3.4 ) (2.9 )
Other
(9.4 ) (8.7 )


$ (48.3 ) $ (47.4 )


      The company has not provided for United States income taxes on undistributed earnings of foreign subsidiaries totaling $65.4 million. Recording of deferred income taxes on these undistributed earnings is not required, since these earnings have been permanently reinvested. These amounts would be subject to possible U.S. taxation only if remitted as dividends. The determination of the hypothetical amount of unrecognized deferred U.S. taxes on undistributed earnings of foreign entities is not practicable.

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of the company’s financial instruments included in current assets and current liabilities approximates their fair value due to their short-term nature. The fair value of the notes receivable is estimated by discounting expected future cash flows using current interest rates at which similar loans would be made to borrowers with similar credit ratings and remaining maturities. As of June 2, 2001, and June 3, 2000, the fair value of the notes receivable approximated the carrying value. The company intends to hold these notes to maturity and has recorded allowances to reflect the terms negotiated for carrying value purposes. As of June 2, 2001, the carrying value of the company’s long-term debt including current maturities was $256.2 million with a corresponding fair market value of $252.2 million. At June 3, 2000, the carrying value and fair market value was $102.9 million and $99.9 million, respectively.

FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK

The company utilizes derivative financial instruments to manage its exposure to foreign currency volatility at the transactional level. The majority of these contracts relate to major currencies such as the Japanese yen, the Australian dollar, and the British pound. The exposure to credit risk is minimal, since the counterparties are major financial institutions. The market risk exposure is essentially limited to currency rate movements. The

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gains or losses arising from these financial instruments are applied to offset exchange gains or losses on related hedged exposures. Realized gains or losses in 2000, 1999, and 1998 were not material to the company’s results of operations. At June 2, 2001, and June 3, 2000, the company had no outstanding derivative financial instruments.

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

The following table presents the adjustments to reconcile net income to net cash provided by operating activities:

                         
(In Millions) 2001 2000 1999




 

Depreciation and amortization
$ 92.6 $ 77.1 $ 62.1
Provision for losses on accounts and notes receivable
6.6 3.2 4.4
Loss (gain) on sales of property and equipment
5.4 5.0 (6.9 )
Deferred taxes
1.3 2.0 13.5
Other liabilities
4.9 (5.7 ) 4.5
Stock grants earned
1.1 .7 1.2
Changes in current assets and liabilities:
Decrease (increase) in assets:
Accounts receivable
10.6 (24.6 ) 5.4
Inventories
(2.0 ) (14.8 ) 15.2
Prepaid expenses and other
(5.7 ) (2.3 ) (6.5 )
Increase (decrease) in liabilities:
Accounts payable
(19.3 ) 25.4 (11.7 )
Accrued liabilities
(27.8 ) (3.6 ) (17.4 )



Total changes in current assets and liabilities
(44.2 ) (19.9 ) (15.0 )



Total adjustments
$ 67.7 $ 62.4 $ 63.8



      Cash payments for interest and income taxes were as follows:

                         
(In Millions) 2001 2000 1999




 

Interest paid
$ 13.5 $ 12.0 $ 8.1
Income taxes paid
$ 80.1 $ 75.8 $ 78.7



CONTINGENCIES

The company, for a number of years, has sold various products to the United States Government under General Services Administration (GSA) multiple award schedule contracts. The GSA is permitted to audit the company’s compliance with the GSA contracts. At any point in time, a number of GSA audits are either scheduled or in progress. Management does not expect resolution of the audits to have a material adverse effect on the company’s consolidated financial statements.

      The company is also involved in legal proceedings and litigation arising in the ordinary course of business. In the opinion of management, the outcome of such proceedings and litigation currently pending will not materially affect the company’s consolidated financial statements.

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OPERATING SEGMENTS

The company is engaged worldwide in the design, manufacture, and sale of office furniture systems, products, and related services through its wholly owned subsidiaries. Throughout the world the product offerings, the production processes, the methods of distribution, and the customers serviced are consistent. The product lines consist primarily of office furniture systems, seating, storage solutions, and casegoods. Management evaluates the company as one operating segment in the office furniture industry.

      Sales to customers are attributed to the geographic areas based on the location of the customer. Long-lived assets consist of property and equipment. Geographic information is as follows:

                           
(In Millions) 2001 2000 1999




 

Net sales:
United States
$ 1,889.2 $ 1,723.6 $ 1,565.1
International
347.0 286.6 263.3



$ 2,236.2 $ 2,010.2 $ 1,828.4



Long-lived assets:
United States
$ 396.8 $ 386.9 $ 305.4
International
12.2 11.8 11.3



$ 409.0 $ 398.7 $ 316.7



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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Shareholders and Board of Directors of Herman Miller, Inc.:

We have audited the accompanying consolidated balance sheets of Herman Miller, Inc., (a Michigan Corporation) and subsidiaries as of June 2, 2001, and June 3, 2000, and the related consolidated statements of income, shareholders’ equity, and cash flows for each of the three years in the period ended June 2, 2001. These financial statements are the responsibility of the company’s management. Our responsibility is to express an opinion on these financial statements 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 financial position of Herman Miller, Inc., and subsidiaries as of June 2, 2001 and June 3, 2000, and the results of their operations and their cash flows for each of the three years in the period ended June 2, 2001, in conformity with accounting principles generally accepted in the United States.

      As explained in the Employee Benefit Plans note to the consolidated financial statements, effective June 4, 2000, Herman Miller, Inc. changed its method of accounting for pensions.

Arthur Andersen LLP     Grand Rapids, Michigan     June 25, 2001

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MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS
DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

MANAGEMENT’S REPORT ON FINANCIAL STATEMENTS

The consolidated financial statements of Herman Miller, Inc., and subsidiaries were prepared by, and are the responsibility of, management. The statements have been prepared in conformity with accounting principles generally accepted in the United States appropriate in the circumstances and include amounts that are based on management’s best estimates and judgments.

      The company maintains systems of internal accounting controls designed to provide reasonable assurance that all transactions are properly recorded in the company’s books and records, that policies and procedures are adhered to, and that assets are protected from unauthorized use. The systems of internal accounting controls are supported by written policies and guidelines and are complemented by a staff of internal auditors and by the selection, training, and development of professional financial managers.

      The consolidated financial statements have been audited by the independent public accounting firm Arthur Andersen LLP, whose appointment is ratified annually by shareholders at the annual shareholders’ meeting. The independent public accountants conduct a review of internal accounting controls to the extent required by auditing standards generally accepted in the United States and perform such tests and related procedures as they deem necessary to arrive at an opinion on the fairness of the financial statements.

      The Audit Committee of the Board of Directors, composed solely of directors from outside the company, regularly meets with the independent public accountants, management, and the internal auditors to satisfy itself that they are properly discharging their responsibilities. The independent public accountants have unrestricted access to the Audit Committee, without management present, to discuss the results of their audit and the quality of financial reporting and internal accounting control.

Michael A. Volkema, Chairman, President, and Chief Executive Officer     June 25, 2001
Elizabeth A. Nickels, Chief Financial Officer     June 25, 2001

 

ITEM 9   DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

No changes in, or disagreements with, accountants referenced in Item 304 of Regulation S-K occurred during the 24-month period ended June 2, 2001.

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PART III

DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE COMPENSATION

ITEM 10   DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Directors of Registrant Information relating to directors and director nominees of the registrant is contained under the caption “Director and Executive Officer Information,” in the company’s definitive Proxy Statement, dated August 23, 2001, relating to the company’s 2001 Annual Meeting of Shareholders and the information within that section is incorporated by reference. Information relating to Executive Officers of the company is included in Part I hereof entitled “Executive Officers of the Registrant.”

      There are no family relationships between or among the above-named executive officers. There are no arrangements or understandings between any of the above-named officers pursuant to which any of them was named an officer.

ITEM 11   EXECUTIVE COMPENSATION

Information relating to management remuneration is contained under the tables and discussions on page 15 in the company’s definitive Proxy Statement, dated August 23, 2001, relating to the company’s 2001 Annual Meeting of Shareholders, and the information within those sections is incorporated by reference, however, the information under the captions, “Executive Compensation Committee Report” and the “Shareholder Return Performance Graph” are specifically excluded.

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

ITEM 12   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The sections entitled “Voting Securities and Principal Shareholders” and “Director and Executive Officer Information” in the definitive Proxy Statement, dated August 23, 2001, relating to the company’s 2001 Annual Meeting of Shareholders and the information within those sections is incorporated by reference.

ITEM 13   CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Information concerning certain relationships and related transactions contained under the captions “Director and Executive Officer Information” and “Compensation of Board Members and Non-Employee Officers” in the definitive Proxy Statement, dated August 23, 2001, relating to the company’s 2001 Annual Meeting of Shareholders is incorporated by reference.

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PART IV

EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

ITEM 14   EXHIBITS, FINANCIAL STATEMENT SCHEDULE, AND REPORTS ON FORM 8-K

(A) 1. FINANCIAL STATEMENTS

The following consolidated financial statements of the company are included in this Form 10-K on the pages noted:

22 Consolidated Statements of Income
 
23 Consolidated Balance Sheets
 
24 Consolidated Statements of Shareholders’ Equity
 
25 Consolidated Statements of Cash Flows
 
26 Notes to Consolidated Financial Statements
 
41 Report of Independent Public Accountants
 
42 Management’s Report on Financial Statements

(A) 2. FINANCIAL STATEMENT SCHEDULE

The following financial statement schedule and related Report of Independent Public Accountants on the Financial Statement Schedule are included in this Form 10-K on the pages noted:

46 Report of Independent Public Accountants on Financial Statement Schedule
 
48 Schedule II Valuation and Qualifying
 
  Accounts and Reserves for the Years Ended June 2, 2001; June 3, 2000; and May 29, 1999

      All other schedules required by Form 10-K Annual Report have been omitted because they were inapplicable, included in the notes to consolidated financial statements, or otherwise not required under instructions contained in Regulation S-X.

(A) 3. EXHIBITS

Reference is made to the Exhibit Index which is included in this Form 10-K Annual Report.

(B) REPORTS ON FORM 8-K

No reports on Form 8-K were filed during the fourth quarter of the year ended June 2, 2001.

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Table of Contents

REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE

To the Shareholders and Board of Directors of Herman Miller, Inc.:

We have audited in accordance with auditing standards generally accepted in the United States, the consolidated financial statements of Herman Miller, Inc., and subsidiaries included in this Form 10-K, and have issued our report thereon dated June 25, 2001. Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The schedule listed at Item 14(a)2 above is the responsibility of the company’s management and is presented for purposes of complying with the Securities and Exchange Commission’s rules and is not part of the basic financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the basic financial statements and, in our opinion, fairly states in all material respects the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.

 
/s/  Arthur Andersen LLP
Grand Rapids, Michigan
June 25, 2001

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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 to be signed on its behalf by the undersigned, thereunto duly authorized.

               
HERMAN MILLER, INC
 
/s/ Michael A. Volkema /s/ Elizabeth A. Nickels


By Michael A. Volkema
(Chairman, President, and
Chief Executive Officer)
Elizabeth A. Nickels
(Chief Financial Officer)

Date: August 20, 2001

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below on August 20, 2001, by the following persons on behalf of the Registrant in the capacities indicated. Each Director of the Registrant, whose signature appears below, hereby appoints Michael A. Volkema as his attorney-in-fact, to sign in his name and on his behalf, as a Director of the Registrant, and to file with the Commission any and all amendments to this Report on Form 10-K.

               
/s/ Michael A. Volkema /s/ Thomas C. Pratt


Michael A. Volkema
(Chairman, President, and
Chief Executive Officer)
Thomas C. Pratt
(Director)
 
/s/ David O. Ulrich /s/ E. David Crockett


David O. Ulrich
(Director)
E. David Crockett
(Director)
 
/s/ Dorothy A. Terrell /s/ Lord Griffiths of Fforestfach


Dorothy A. Terrell
(Director)
Lord Griffiths of Fforestfach
(Director)
 
/s/ J. Harold Chandler /s/ C. William Pollard


J. Harold Chandler
(Director)
C. William Pollard
(Director)
 
/s/ Mary Vermeer Andringa /s/ Ruth A. Reister


Mary Vermeer Andringa
(Director)
Ruth A. Reister
(Director)

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SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

HERMAN MILLER, INC., AND SUBSIDIARIES

SCHEDULE II—VALUATION AND QUALIFYING ACCOUNTS

                                 
Column A Column B Column C



Description (In Millions) Additions Increased

Balance at charged to net
beginning costs and Acquired operating
of period expenses reserves losses




Year ended June 2, 2001:
Allowance for possible losses
on accounts receivable
$ 17.7 $ 6.6 $ .1 $
Allowance for possible losses
on notes receivable
$ 4.2 $ $ $
Valuation allowance for
deferred tax asset
$ .8 $ $ $




Year ended June 3, 2000:
Allowance for possible losses
on accounts receivable
$ 14.1 $ 3.2 $ .7 $
Allowance for possible losses
on notes receivable
$ 5.5 $ $ $
Valuation allowance for
deferred tax asset
$ 1.1 $ $ $




Year ended May 29, 1999:
Allowance for possible losses
on accounts receivable
$ 13.8 $ 3.2 $ $
Allowance for possible losses
on notes receivable
$ 8.5 $ 1.2 $ $
Valuation allowance for
deferred tax asset
$ 8.1 $ $ $ .2





[Additional columns below]

[Continued from above table, first column(s) repeated]

                                 
Column A Column D Column E



Description (In Millions) Uncollectible Deducted

accounts from Balance at
written costs and Losses end of
off, net(1) expenses utilized(2) period




Year ended June 2, 2001:
Allowance for possible losses
on accounts receivable
$ 5.3 $ $ $ 19.1
Allowance for possible losses
on notes receivable
$ $ 1.6 $ $ 2.6
Valuation allowance for
deferred tax asset
$ $ $ .8 $




Year ended June 3, 2000:
Allowance for possible losses
on accounts receivable
$ .3 $ $ $ 17.7
Allowance for possible losses
on notes receivable
$ $ 1.3 $ $ 4.2
Valuation allowance for
deferred tax asset
$ $ $ .3 $ .8




Year ended May 29, 1999:
Allowance for possible losses
on accounts receivable
$ 2.9 $ $ $ 14.1
Allowance for possible losses
on notes receivable
$ 4.2 $ $ $ 5.5
Valuation allowance for
deferred tax asset
$ $ $ 7.2 $ 1.1






(1)   Includes effects of foreign currency translation. (2) Includes utilization of capital and net operating losses. In 1999, this includes write-off of net operating loss carryforwards that cannot be utilized.

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EXHIBIT INDEX

HERMAN MILLER, INC., AND SUBSIDIARIES
EXHIBIT INDEX

             
(3) Articles of Incorporation and Bylaws
(a) Articles of Incorporation are incorporated by reference to Exhibit 3(a) and 3(b) of the Registrant’s 1986 Form 10-K Annual Report.
(b) Certificate of Amendment to the Articles of Incorporation, dated October 15, 1987, are incorporated by reference to Exhibit 3(b) of the Registrant’s 1988 Form 10-K Annual Report.
(c) Certificate of Amendment to the Articles of Incorporation, dated May 10, 1988, are incorporated by reference to Exhibit 3(c) of the Registrant’s 1988 Form 10-K Annual Report.
(d) Amended and Restated Bylaws, dated January 6, 1997, are incorporated by reference to Exhibit 3(d) of the Registrant’s 1997 Form 10-K Annual Report.
(4) Instruments Defining the Rights of Security Holders
(a) Specimen copy of Herman Miller, Inc., common stock is incorporated by reference to Exhibit 4(a) of Registrant’s 1981 Form 10-K Annual Report.
(b) Note Purchase Agreement dated March 1, 1996, is incorporated by reference to Exhibit 4(b) of the Registrant’s 1996 Form 10-K Annual Report.
(c) First Amendment to the Note Purchase Agreement dated February 11, 1999, is incorporated by reference to Exhibit 4(c) of the Registrant’s 1999 Form 10-K Annual Report.
(d) Other instruments which define the rights of holders of long-term debt individually represent debt of less than 10% of total assets. In accordance with item 601(b)(4)(iii)(A) of regulation S-K, the Registrant agrees to furnish to the Commission copies of such agreements upon request.
(e) Dividend Reinvestment Plan for Shareholders of Herman Miller, Inc., dated January 6, 1997, is incorporated by reference to Exhibit 4(d) of the Registrant’s 1997 Form 10-K Annual Report.
(f) Form of indenture for registration of debt securities, incorporated by reference to exhibit 4.1 of the company’s registration statement on form S-3, file number 333-36442.
(10) Material Contracts
(a) Officers’ Supplemental Retirement Income Plan is incorporated by reference to Exhibit 10(f) of the Registrant’s 1986 Form 10-K Annual Report. *
(b) Officers’ Salary Continuation Plan is incorporated by reference to Exhibit 10(g) of the Registrant’s 1982 Form 10-K Annual Report. *
(c) Herman Miller, Inc., Plan for Severance Compensation after Hostile Takeover is incorporated by reference to Exhibit 10(f) of the Registrant’s 1986 Form 10-K Annual Report. *
(d) Amended Herman Miller, Inc., Plan for Severance Compensation after Hostile Takeover, dated January 17, 1990, is incorporated by reference to Exhibit 10(n) of the Registrant’s 1990 Form 10-K Annual Report. *
(e) Herman Miller, Inc., 1994 Key Executive Stock Purchase Assistant Plan, dated October 6, 1994, is incorporated by reference to Appendix C of the Registrant’s 1994 Proxy Statement. *
(f) First Amendment to the Herman Miller, Inc., 1994 Key Executive Stock Purchase Assistant Plan, dated April 28, 1998, is incorporated by reference to Exhibit 10(g) of the Registrant’s 1998 Form 10-K Annual Report. *

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Table of Contents

             
(g) Incentive Share Grant Agreement, dated October 4, 1995, between the company and Michael A. Volkema is incorporated by reference to Exhibit 10(g) of the Registrant’s 1996 Form 10-K Annual Report. *
(h) Incentive Share Grant Agreement, dated May 15, 1996, between the company and Michael A. Volkema is incorporated by reference to Exhibit 10(h) of the Registrant’s 1996 Form 10-K Annual Report. *
(i) Herman Miller, Inc., Long-Term Incentive Plan, dated October 6, 1994, is incorporated by reference to Exhibit 4 of the Registrant’s May 22, 1996, Form S-8 Registration No. 33-04369.*
(j) Herman Miller, Inc., 1994 Nonemployee Officer and Director Stock Option Plan, dated October 6, 1994, is incorporated by reference to Exhibit 4 of the Registrant’s May 22, 1996, Form S-8 Registration No. 33-04367. *
(k) First Amendment to Herman Miller, Inc., 1994 Nonemployee Officer and Director Stock Option Plan, dated January 7, 1997, is incorporated by reference to Exhibit 10(m) of the Registrant’s 1998 Form 10-K Annual Report. *
(l) Herman Miller, Inc., Key Executive Deferred Compensation Plan and form of Deferred Compensation Agreement, dated February 28, 1997, is incorporated by reference to Exhibit 10(l) of the Registrant’s 1997 Form 10-K Annual Report.
(m) First Amendment to the Herman Miller, Inc., Key Executive Deferred Compensation Plan, dated January 20, 1998, is incorporated by reference to Exhibit 10(o) of the Registrant’s 1998 Form 10-K Annual Report.
(n) Herman Miller, Inc., Incentive Cash Bonus Plan, dated September 29, 1998, is incorporated by reference to Appendix A of the Registrant’s 1998 Proxy Statement.*
(o) Credit Agreement dated April 16, 1999, is incorporated by reference to Exhibit 10(o) of the Registrant’s 1999 Form 10-K Annual Report.
(p) Form of Change in Control Agreement.
(q) Change in Control Agreement for Michael A. Volkema.

(18) Letter Regarding Change in Accounting Principles.

(21) Subsidiaries.

(23) Consent of Independent Public Accountants

(27) Financial Data Schedule (exhibit available upon request)


* Denotes compensatory plan or arrangement.

50 ex10-p

FORM OF CHANGE IN CONTROL AGREEMENT

EXHIBIT 10(p)
FORM OF CHANGE IN CONTROL AGREEMENT

SEVERANCE AGREEMENT

THIS AGREEMENT is entered into as of _____________________, 2001, by and between Herman Miller, Inc., a Michigan corporation, and _________________________________ (the “Executive”).

      WHEREAS, the Executive currently serves as a key employee of the Company (as defined in Section 1) and his services and knowledge are valuable to the Company in connection with the management of one or more of the Company’s principal operating facilities, divisions, departments or subsidiaries; and

      WHEREAS, the Board (as defined in Section 1) has determined that it is in the best interests of the Company and its stockholders to secure the Executive’s continued services and to ensure the Executive’s continued dedication and objectivity in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as defined in Section 1) of the Company, without concern as to whether the Executive might be hindered or distracted by personal uncertainties and risks created by any such possible Change in Control, and to encourage the Executive’s full attention and dedication to the Company, the Board has authorized the Company to enter into this Agreement.

      NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Executive hereby agree as follows:

1.   Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below:

  (a)   “Board” means the Board of Directors of the Company.
 
  (b)   “Bonus Reserve Account” has the meaning stated in the Incentive Cash Bonus Plan.
 
  (c)   “Cause” means (1) a material breach by the Executive of those duties and responsibilities of the Executive which do not differ in any material respect from the duties and responsibilities of the Executive during the ninety (90) day period immediately prior to a Change in Control (other than as a result of incapacity due to physical or mental illness) which is demonstrably willful and deliberate on the Executive’s part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach or (2) the commission by the Executive of a felony involving moral turpitude.
 
  (d)   “Change in Control” means:

  (1)   the acquisition by any Person of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 20 percent or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities unless such outstanding convertible or exchangeable securities were acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the

51


      Company or (D) any acquisition by any corporation pursuant to a reorganization, merger or consolidation involving the Company, if, immediately after such reorganization, merger or consolidation, each of the conditions described in clauses (i), (ii) and (iii) of subsection (3) of this Section (1)(c) shall be satisfied; and provided further that, for purposes of clause (B), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 20 percent or more of the Outstanding Company Common Stock or 20 percent or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Company Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change in Control;
 
  (2)   individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board;
 
  (3)   consummation of a reorganization, merger or consolidation unless, in any such case, immediately after such reorganization, merger or consolidation, (i) more than 60 percent of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and more than 60 percent of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than the Company, any employee benefit plan [or related trust] sponsored or maintained by the Company or the corporation resulting from such reorganization, merger or consolidation [or any corporation controlled by the Company] and any Person which beneficially owned, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20 percent or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20 percent or more of the then outstanding shares of common stock of such corporation or 20 percent or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of

52


      directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger or consolidation; or
 
  (4)   consummation of (i) a plan of complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 60 percent of the then outstanding shares of common stock thereof and more than 60 percent of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan [or related trust] sponsored or maintained by the Company or such corporation [or any corporation controlled by the Company] and any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 20 percent or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20 percent or more of the then outstanding shares of common stock thereof or 20 percent or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale of other disposition.

  (e)   “Company” means Herman Miller, Inc., a Michigan corporation.
 
  (f)   “Date of Termination” means (1) the effective date on which the Executive’s employment by the Company terminates as specified in a prior written notice by the Company or the Executive, as the case may be, to the other, delivered pursuant to Section 11 or (2) if the Executive’s employment by the Company terminates by reason of death, the date of death of the Executive.
 
  (g)   “Deferred Compensation Plan” means the Herman Miller, Inc. Key Executive Deferred Compensation Plan.
 
  (h)   “Earned Bonus” has the meaning stated in the Incentive Cash Bonus Plan.
 
  (i)   “Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
  (j)   “Good Reason” means, without the Executive’s express written consent, the occurrence of any of the following events after a Change in Control:

  (1) any of (i) the assignment to the Executive of any duties inconsistent in any material respect with the Executive’s position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in the Executive’s reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any removal or involuntary termination of the Executive from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect the Executive to any position with the Company held by the Executive immediately prior to such Change in Control;

53


  (2)   a reduction by the Company in the Executive’s rate of annual base salary or annual Target Bonus as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter;
 
  (3)   any requirement of the Company that the Executive be based at a location in excess of 50 miles from the facility which is the Executive’s principal business office at the time of the Change in Control;
 
  (4)   the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which the Executive is participating immediately prior to such Change in Control, unless the Executive is permitted to participate in other plans providing the Executive with substantially comparable benefits, or the taking of any action by the Company which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under any such plan, or (ii) provide the Executive and the Executive’s dependents welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive immediately prior to such Change in Control or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; or
 
  (5)   the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 10(b).
 
  For purposes of this Agreement, an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive shall not constitute Good Reason.

  (k)   “Incentive Cash Bonus Plan” means the Herman Miller, Inc. Incentive Cash Bonus Plan which became effective September 29, 1998.
 
  (l)   “Nonqualifying Termination” means a termination of the Executive’s employment (1) by the Company for Cause, (2) by the Executive during the first 180 days following a Change in Control for any reason other than the Good Reason specified in Section 1(j)(2); (3) by the Executive after the first 180 days following a Change in Control for any reason other than any Good Reason, (4) as a result of the Executive’s death or (5) by the Company due to the Executive’s absence from his duties with the Company on a full-time basis for at least 180 consecutive days as a result of the Executive’s incapacity due to physical or mental illness.
 
  (m)   “Person” means any individual, entity or group including any “person” within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act.
 
  (n)   “Silver Parachute Plan” means the Herman Miller, Inc. Plan for Severance Compensation After Hostile Takeover.
 
  (o)   “Target Bonus” has the meaning stated in the Incentive Cash Bonus Plan.
 
  (p)   “Termination Period” means the period of time beginning with a Change in Control and ending on the earlier to occur of (1) 24 months following such Change in Control and (2) the Executive’s death.

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2.   Obligations of the Executive.

  (a)   The Executive agrees that in the event any Person attempts a Change in Control, he shall not voluntarily leave the employ of the Company without the Good Reason specified in Section 1(j)(2) until (1) such attempted Change in Control terminates or (2) if a Change in Control shall occur, 180 days following such Change in Control. For purposes of clause (1) of the preceding sentence, Good Reason shall be determined as if a Change in Control had occurred when such attempted Change in Control became known to the Board.
 
  (b)   The following definitions apply to the remainder of this Section 2:

  (1)   “Affiliate” means and includes any person or entity which controls a party, which such party controls or which is under common control with such party.
 
  (2)   “Competing Business” means a business which engages or is making plans to engage, in whole or in part, in the manufacturing, marketing, distribution or sale of products which are competitive with any products manufactured, distributed, marketed or sold by the Company during the Restricted Period.
 
  (3)   “Competing Products” means products manufactured by a Competing Business.
 
  (4)   “Control” means the power, direct or indirect, to direct or cause the direction of the management and policies of a person or entity through voting securities, contract or otherwise.
 
  (5)   “Restricted Period” means the period of the Executive’s employment with the Company and a period of two years after the Date of Termination.

  (c)   Executive acknowledges and agrees that (i) through his continuing services to the Company, he will learn valuable trade secrets and other proprietary information relating to the Company’s business, (ii) the Executive’s services to the Company are unique in nature, (iii) the Company’s business is international in scope and (iv) the Company would be irreparably damaged if the Executive were to provide services to any person or entity in violation of the restrictions contained in this Section 2(c). Accordingly, as an inducement to the Company to enter into this Agreement, Executive agrees that if the Executive is entitled to and does receive a payment pursuant to Section 3(a)(2) of this Agreement, neither Executive nor any Affiliate of the Executive shall during the Restricted Period, directly or indirectly, either for himself or for any other person or entity:

  (1)   anywhere in the world in which the Company is then doing business, engage or participate in, or assist, advise or be connected with (including as an employee, owner, partner, shareholder, officer, director, advisor, consultant, agent or [without limitation by the specific enumeration of the foregoing] otherwise), or permit his name to be used by or render services for, any person or entity engaged in a Competing Business; provided, however, that nothing in this Agreement shall prevent Executive from acquiring or owning, as a passive investment, up to two percent (2%) of the outstanding voting securities of an entity engaged in a Competing Business which are publicly traded in any recognized national securities market;
 
  (2)   take any action, in connection with a Competing Business, which might divert from the Company or an Affiliate of the Company any opportunity which would be within the scope of the Company’s or such Affiliate’s then business;

55


  (3)   solicit or attempt to solicit any person or entity who is or has been (A) a customer of the Company at any time during the Restricted Period to purchase Competing Products from any person or entity (other than the Company) or (B) a customer, supplier, licensor, licensee or other business relation of the Company at any time during the Restricted Period to cease doing business with the Company; or
 
  (4)   solicit or hire any person or entity who is a director, officer, employee or agent of the Company or any Affiliate of the Company to perform services for any entity other than the Company and its Affiliates.

  (d)   Executive agrees that any violation by the Executive of Section 2(c) of this Agreement would be highly injurious to the Company and would cause irreparable harm to the Company. By reason of the foregoing, Executive consents and agrees that if the Executive violates any provision of Section 2(c) of this Agreement, the Company shall be entitled, in addition to any other rights and remedies that it may have, to apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any continuing violation of, the provisions of such section. In the event Executive breaches a covenant contained in Section 2(c) of this Agreement, the Restricted Period applicable to Executive with respect to such breached covenant shall be extended for the period of such breach. Executive also recognizes that the territorial, time and scope limitations set forth in Sections 2(c), are reasonable and are properly required for the protection of the Company and in the event that any such territorial, time or scope limitation is deemed to be unreasonable, by a court of competent jurisdiction, the Company and Executive agree, and Executive submits, to the reduction of any or all of said territorial, time or scope limitations to such an area, period or scope as said court shall deem reasonable under the circumstances.
 
  (e)   Termination of the Executive’s employment shall have no effect on the continuing operation and enforceability of Sections 2(b), 2(c) or 2(d) and each such section shall continue to be fully effective and enforceable after any such termination.

3.   Obligations of the Company Upon Termination of Employment.

  (a)   If during the Termination Period the employment of the Executive shall terminate, other than by reason of a Nonqualifying Termination, then the Company shall pay to the Executive (or the Executive’s beneficiary or estate) within thirty (30) days following the Date of Termination, as compensation for services to the Company;

  (1)   a cash amount equal to the sum of (i) the Executive’s base salary from the Company and its affiliated companies through the Date of Termination, to the extent not theretofore paid, (ii) the Executive’s Target Bonus for the Company’s fiscal year in which the Date of Termination occurs multiplied by a fraction, the numerator of which is the number of days in that fiscal year through the Date of Termination and the denominator of which is 365 or 366, as applicable, (iii) any positive balance in the Executive’s Bonus Reserve Account; and (iv) any compensation previously deferred by the Executive other than pursuant to the Deferred Compensation Plan or any tax qualified plan (together with any interest and earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid; plus
 
  (2)   a lump-sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 5) in an amount equal to (i) two times the Executive’s highest annual base salary from the Company and its affiliated companies in effect during the twelve (12) month period

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      prior to the Date of Termination, plus (ii) two times the higher of (a) the average of the Executive’s Earned Bonus for the three fiscal years of the Company preceding the fiscal year in which the Change in Control occurs, or (b) the Executive’s Target Bonus for the fiscal year of the Company in which the Change in Control occurs; provided, however, that any amount to be paid pursuant to this Section 3(a)(2) shall be reduced by any other amount of severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under the Silver Parachute Plan or any other severance plan, policy or arrangement of the Company and any severance payments the Company is required to make pursuant to the requirements of any U.S. or foreign law or regulation.

  (b)   If during the Termination Period the employment of the Executive shall terminate, other than by reason of a Nonqualifying Termination:

  (1)   In addition to the payments to be made pursuant to Section 3(a), for a period of three years commencing on the Date of Termination, the Company shall continue to keep in full force and effect all policies of medical, accident, disability and life insurance with respect to the Executive and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent as such policies shall have been in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as provided generally with respect to other peer executives of the Company and its affiliated companies, and the Company and the Executive shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination; provided that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, in the event the Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of the Executive’s eligibility, but only to the extent that the Company reimburses the Executive for any increased cost and provides additional benefits necessary to give the Executive the benefits provided hereunder.
 
  (2)   All stock options, restricted awards, other equity based awards and all stock units credited to the Executive’s account under the Deferred Compensation Plan shall be fully vested. All stock options shall remain exercisable for a period of ninety days from the Date of Termination or the earlier expiration of their initial term; provided, that, if the Executive would be prohibited from exercising any stock option due to pooling of interests or other restraints imposed under applicable accounting rules or securities laws, such option shall remain exercisable for thirty days after such restriction ceases to apply.
 
  (3)   To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

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  (c)   If during the Termination Period the employment of the Executive shall terminate by reason of a Nonqualifying Termination, then the Company shall pay to the Executive within thirty (30) days following the Date of Termination, a cash amount equal to the sum of (1) the Executive’s full annual base salary from the Company through the Date of Termination, to the extent not theretofore paid, and (2) the Other Benefits.

4.   Certain Additional Payments by the Company.

  (a)   Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or its affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement of otherwise, but determined without regard to any additional payments required under this Section 4) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
 
  (b)   Subject to the provisions of Section 4(c), all determinations required to be made under this Section 4, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s public accounting firm (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the Person effecting the Change in Control, the Executive shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 4, shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm’s determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 4(c) and the Executive thereafter is required to make a payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the

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      benefit of the Executive.
 
  (c)   The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) days period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:

  (1)   give the Company any information reasonably requested by the Company relating to such claim,
 
  (2)   take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
 
  (3)   cooperate with the Company in good faith in order effectively to contest such claim, and
 
  (4)   permit the Company to participate in any proceedings relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

  (d)   If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(c), the Executive becomes entitled to receive, and receives, any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 4(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon

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      after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

5.   Withholding Taxes. The Company may withhold from all payments due to the Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom.
 
6.   Reimbursement of Expenses. If any contest or dispute shall arise under this Agreement involving termination of the Executive’s employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Executive, on a current basis, for all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute, together with interest thereon at a rate equal to the prime rate, as published under “Money Rates” in The Wall Street Journal from time to time, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives the Executive’s statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, the Executive’s claims in such contest or dispute, the Executive shall be required to reimburse the Company, over a period of twelve (12) months from the date of such resolution, for all sums advanced to the Executive pursuant to this Section 6.
 
7.   Operative Event. Notwithstanding any provision herein to the contrary, no amounts shall be payable hereunder unless and until there is a Change in Control at a time when the Executive is employed by the Company.
 
8.   Termination of Agreement.

  (a)   This Agreement shall be effective on the date hereof and shall continue until terminated by the Company as provided in Section 8(b); provided, however, that this Agreement shall terminate in any event upon the earlier to occur of (i) termination of the Executive’s employment with the Company prior to a Change in Control and (ii) the Executive’s death.
 
  (b)   The Company shall have the right prior to a Change in Control, in its sole discretion, pursuant to action by the Board, to approve the termination of this Agreement, which termination shall not become effective until the date fixed by the Board for such termination, which date shall be at least 120 days after notice thereof is given by the Company to the Executive in accordance with Section 11; provided, however, that no such action shall be taken by the Board during any period of time when the Board has knowledge that any Person has taken steps reasonably calculated to effect a Change in Control until, in the opinion of the Board, such Person has abandoned or terminated its efforts to effect a Change in Control; and provided further, that in no event shall this Agreement be terminated in the event of a Change in Control.

9.   Scope of Agreement. Nothing in this Agreement shall be deemed to entitle the Executive to continued employment with the Company or its subsidiaries and, if the Executive’s employment with the Company shall terminate prior to a Change in Control, then the Executive shall have no further rights under this

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    Agreement; provided, however, that any termination of the Executive’s employment following a Change in Control shall be subject to all of the provisions of this Agreement.
 
10.   Successors; Binding Agreement.

  (a)   This Agreement shall not be terminated by any merger or consolidation of the Company whether the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred.
 
  (b)   The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in Section 10(a), it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Agreement and shall entitle the Executive to compensation and other benefits from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive’s employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination.
 
  (c)   This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts would be payable to the Executive hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by the Executive to receive such amounts or, if no person is so appointed, to the Executive’s estate.

11.   Notices.

  (a)   For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Executive, to _____________________, and if to the Company, to 855 East Main Avenue, Zeeland, MI 49464, attention General Counsel, with a copy to the Secretary, or (2) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
 
  (b)   A written notice of the Executive’s Date of Termination by the Company or the Executive, as the case may be, to the other shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and (iii) specify the termination date (which date shall be not less than fifteen (15) days after the giving of such notice). The failure by the Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

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12.   Full Settlement; Resolution of Disputes.

  (a)   The Company’s obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment except to the extent provided in Section 3(b)(1).
 
  (b)   If there shall be any dispute between the Company and the Executive in the event of any termination of the Executive’s employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the Executive terminated his employment without Good Reason, or that the Company is not otherwise obligated to pay any amount or provide any benefit to the Executive and his dependents or other beneficiaries, as the case may be, under Sections 3(a), 3(b) and 4, the Company shall pay all amounts, and provide all benefits, to the Executive and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Sections 3(a), 3(b) and 4 as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this Section 12(b) except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled.

13.   Employment with Subsidiaries. Employment with the Company for purposes of this Agreement shall include employment with any corporation or other entity in which the Company has a direct or indirect ownership interest of 50 percent or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors.
 
14.   Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Michigan without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which other provisions shall remain in full force and effect.
 
15.   Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed to be an original and both of which together shall constitute one and the same instrument.
 
16.   Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by the Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by the Executive or the Company to insist upon strict compliance with any provisions of this Agreement or to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any other provision or right of this Agreement. Except as otherwise expressly set forth in this Agreement, the rights of, and benefits payable to, the Executive, his estate or his beneficiaries pursuant to this Agreement are in addition to any rights of, or

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    benefits payable to, the Executive, his estate or his beneficiaries under any other employee benefit plan or compensation plan, policy practice or program of the Company or any other contract or agreement with the Company.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and the Executive has executed this Agreement as of the day and year first above written.

HERMAN MILLER, INC.
By:
EXECUTIVE
Executive’s Name

63 ex10-q

CHANGE IN CONTROL AGREEMENT FOR

MICHAEL A. VOLKEMA

EXHIBIT 10(q)

CHANGE IN CONTROL AGREEMENT FOR MICHAEL A. VOLKEMA

SEVERANCE AGREEMENT

THIS AGREEMENT is entered into as of March 30, 2001, by and between Herman Miller, Inc., a Michigan corporation, and Michael A. Volkema (the “Executive”).

      WHEREAS, the Executive currently serves as a key employee of the Company (as defined in Section 1) and his services and knowledge are valuable to the Company in connection with the management of one or more of the Company’s principal operating facilities, divisions, departments or subsidiaries; and

      WHEREAS, the Board (as defined in Section 1) has determined that it is in the best interests of the Company and its stockholders to secure the Executive’s continued services and to ensure the Executive’s continued dedication and objectivity in the event of any threat or occurrence of, or negotiation or other action that could lead to, or create the possibility of, a Change in Control (as defined in Section 1) of the Company, without concern as to whether the Executive might be hindered or distracted by personal uncertainties and risks created by any such possible Change in Control, and to encourage the Executive’s full attention and dedication to the Company, the Board has authorized the Company to enter into this Agreement.

      NOW, THEREFORE, for and in consideration of the premises and the mutual covenants and agreements herein contained, the Company and the Executive hereby agree as follows:

1.   Definitions. As used in this Agreement, the following terms shall have the respective meanings set forth below:

  (a)   “Board” means the Board of Directors of the Company.
 
  (b)   “Bonus Reserve Account” has the meaning stated in the Incentive Cash Bonus Plan.
 
  (c)   “Cause” means (1) a material breach by the Executive of those duties and responsibilities of the Executive which do not differ in any material respect from the duties and responsibilities of the Executive during the ninety (90) day period immediately prior to a Change in Control (other than as a result of incapacity due to physical or mental illness) which is demonstrably willful and deliberate on the Executive’s part, which is committed in bad faith or without reasonable belief that such breach is in the best interests of the Company and which is not remedied in a reasonable period of time after receipt of written notice from the Company specifying such breach or (2) the commission by the Executive of a felony involving moral turpitude.
 
  (d)   “Change in Control” means:
 
  (1)   the acquisition by any Person of beneficial ownership within the meaning of Rule 13d-3 promulgated under the Exchange Act, of 20 percent or more of either (i) the then outstanding shares of common stock of the Company (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding securities of the Company entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (A) any acquisition directly from the Company (excluding any acquisition resulting from the exercise of a conversion or exchange privilege in respect of outstanding convertible or exchangeable securities unless such outstanding convertible or exchangeable securities were acquired directly from the Company), (B) any acquisition by the Company, (C) any acquisition by an employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the

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      Company or (D) any acquisition by any corporation pursuant to a reorganization, merger or consolidation involving the Company, if, immediately after such reorganization, merger or consolidation, each of the conditions described in clauses (i), (ii) and (iii) of subsection (3) of this Section (1)(c) shall be satisfied; and provided further that, for purposes of clause (B), if any Person (other than the Company or any employee benefit plan (or related trust) sponsored or maintained by the Company or any corporation controlled by the Company) shall become the beneficial owner of 20 percent or more of the Outstanding Company Common Stock or 20 percent or more of the Outstanding Company Voting Securities by reason of an acquisition by the Company and such Person shall, after such acquisition by the Company, become the beneficial owner of any additional shares of the Outstanding Company Common Stock or any additional Outstanding Company Voting Securities and such beneficial ownership is publicly announced, such additional beneficial ownership shall constitute a Change in Control;
 
  (2)   individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of such Board; provided, however, that any individual who becomes a director of the Company subsequent to the date hereof whose election, or nomination for election by the Company’s stockholders, was approved by the vote of at least a majority of the directors then comprising the Incumbent Board shall be deemed to have been a member of the Incumbent Board; and provided further, that no individual who was initially elected as a director of the Company as a result of an actual or threatened election contest, as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act, or any other actual or threatened solicitation of proxies or consents by or on behalf of any Person other than the Board shall be deemed to have been a member of the Incumbent Board;
 
  (3)   consummation of a reorganization, merger or consolidation unless, in any such case, immediately after such reorganization, merger or consolidation, (i) more than 60 percent of the then outstanding shares of common stock of the corporation resulting from such reorganization, merger or consolidation and more than 60 percent of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals or entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such reorganization, merger or consolidation and in substantially the same proportions relative to each other as their ownership, immediately prior to such reorganization, merger or consolidation, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (ii) no Person (other than the Company, any employee benefit plan [or related trust] sponsored or maintained by the Company or the corporation resulting from such reorganization, merger or consolidation [or any corporation controlled by the Company] and any Person which beneficially owned, immediately prior to such reorganization, merger or consolidation, directly or indirectly, 20 percent or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20 percent or more of the then outstanding shares of common stock of such corporation or 20 percent or more of the combined voting power of the then outstanding securities of such corporation entitled to vote generally in the election of directors and (iii) at least a majority of the members of the board of

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      directors of the corporation resulting from such reorganization, merger or consolidation were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such reorganization, merger or consolidation; or
 
  (4)   consummation of (i) a plan of complete liquidation or dissolution of the Company or (ii) the sale or other disposition of all or substantially all of the assets of the Company other than to a corporation with respect to which, immediately after such sale or other disposition, (A) more than 60 percent of the then outstanding shares of common stock thereof and more than 60 percent of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities immediately prior to such sale or other disposition and in substantially the same proportions relative to each other as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and the Outstanding Company Voting Securities, as the case may be, (B) no Person (other than the Company, any employee benefit plan [or related trust] sponsored or maintained by the Company or such corporation [or any corporation controlled by the Company] and any Person which beneficially owned, immediately prior to such sale or other disposition, directly or indirectly, 20 percent or more of the Outstanding Company Common Stock or the Outstanding Company Voting Securities, as the case may be) beneficially owns, directly or indirectly, 20 percent or more of the then outstanding shares of common stock thereof or 20 percent or more of the combined voting power of the then outstanding securities thereof entitled to vote generally in the election of directors and (C) at least a majority of the members of the board of directors thereof were members of the Incumbent Board at the time of the execution of the initial agreement or action of the Board providing for such sale of other disposition.
 
  (e)   “Company” means Herman Miller, Inc., a Michigan corporation.
 
  (f)   “Date of Termination” means (1) the effective date on which the Executive’s employment by the Company terminates as specified in a prior written notice by the Company or the Executive, as the case may be, to the other, delivered pursuant to Section 11 or (2) if the Executive’s employment by the Company terminates by reason of death, the date of death of the Executive.
 
  (g)   “Deferred Compensation Plan” means the Herman Miller, Inc. Key Executive Deferred Compensation Plan.
 
  (h)   “Earned Bonus” has the meaning stated in the Incentive Cash Bonus Plan.
 
  (i)   “Exchange Act” means the Securities Exchange Act of 1934, as amended.
 
  (j)   “Good Reason” means, without the Executive’s express written consent, the occurrence of any of the following events after a Change in Control:

  (1)   any of (i) the assignment to the Executive of any duties inconsistent in any material respect with the Executive’s position(s), duties, responsibilities or status with the Company immediately prior to such Change in Control, (ii) a change in the Executive’s reporting responsibilities, titles or offices with the Company as in effect immediately prior to such Change in Control or (iii) any removal or involuntary termination of the Executive from the Company otherwise than as expressly permitted by this Agreement or any failure to re-elect the Executive to any position with the Company held by the Executive immediately prior to such Change in Control;

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  (2)   a reduction by the Company in the Executive’s rate of annual base salary or annual Target Bonus as in effect immediately prior to such Change in Control or as the same may be increased from time to time thereafter;
 
  (3)   any requirement of the Company that the Executive be based at a location in excess of 50 miles from the facility which is the Executive’s principal business office at the time of the Change in Control;
 
  (4)   the failure of the Company to (i) continue in effect any employee benefit plan or compensation plan in which the Executive is participating immediately prior to such Change in Control, unless the Executive is permitted to participate in other plans providing the Executive with substantially comparable benefits, or the taking of any action by the Company which would adversely affect the Executive’s participation in or materially reduce the Executive’s benefits under any such plan, or (ii) provide the Executive and the Executive’s dependents welfare benefits (including, without limitation, medical, prescription, dental, disability, salary continuance, employee life, group life, accidental death and travel accident insurance plans and programs) in accordance with the most favorable plans, practices, programs and policies of the Company and its affiliated companies in effect for the Executive immediately prior to such Change in Control or, if more favorable to the Executive, as in effect generally at any time thereafter with respect to other peer executives of the Company and its affiliated companies; or
 
  (5)   the failure of the Company to obtain the assumption agreement from any successor as contemplated in Section 10(b).
 

      For purposes of this Agreement, an isolated, insubstantial and inadvertent action taken in good faith and which is remedied by the Company promptly after receipt of notice thereof given by the Executive shall not constitute Good Reason.
 
  (k)   “Incentive Cash Bonus Plan” means the Herman Miller, Inc. Incentive Cash Bonus Plan which became effective September 29, 1998.
 
  (l)   “Nonqualifying Termination” means a termination of the Executive’s employment (1) by the Company for Cause, (2) as a result of the Executive’s death or (3) by the Company due to the Executive’s absence from his duties with the Company on a full-time basis for at least 180 consecutive days as a result of the Executive’s incapacity due to physical or mental illness. The term “Nonqualifying Termination” does not include a termination of the Executive’s employment by the Executive for any reason or no reason following a Change of Control.
 
  (m)   “Person” means any individual, entity or group including any “person” within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act.
 
  (n)   “Silver Parachute Plan” means the Herman Miller, Inc. Plan for Severance Compensation After Hostile Takeover.
 
  (o)   “Target Bonus” has the meaning stated in the Incentive Cash Bonus Plan.
 
  (p)   “Termination Period” means the period of time beginning with a Change in Control and ending on the earlier to occur of (1) 24 months following such Change in Control and (2) the Executive’s death.

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2.   Obligations of the Executive.

  (a)   The Executive agrees that in the event any Person attempts a Change in Control, he shall not voluntarily leave the employ of the Company without the Good Reason specified in Section 1(j)(2) until (1) such attempted Change in Control terminates or (2) if a Change in Control shall occur, 180 days following such Change in Control. For purposes of clause (1) of the preceding sentence, Good Reason shall be determined as if a Change in Control had occurred when such attempted Change in Control became known to the Board.
 
  (b)   The following definitions apply to the remainder of this Section 2:
 

  (1)   “Affiliate” means and includes any person or entity which controls a party, which such party controls or which is under common control with such party.
 
  (2)   “Competing Business” means a business which engages or is making plans to engage, in whole or in part, in the manufacturing, marketing, distribution or sale of products which are competitive with any products manufactured, distributed, marketed or sold by the Company during the Restricted Period.
 
  (3)   “Competing Products” means products manufactured by a Competing Business.
 
  (4)   “Control” means the power, direct or indirect, to direct or cause the direction of the management and policies of a person or entity through voting securities, contract or otherwise.
 
  (5)   “Restricted Period” means the period of the Executive’s employment with the Company and a period of three years after the Date of Termination.
 
  (c)   Executive acknowledges and agrees that (i) through his continuing services to the Company, he will learn valuable trade secrets and other proprietary information relating to the Company’s business, (ii) the Executive’s services to the Company are unique in nature, (iii) the Company’s business is international in scope and (iv) the Company would be irreparably damaged if the Executive were to provide services to any person or entity in violation of the restrictions contained in this Section 2(c). Accordingly, as an inducement to the Company to enter into this Agreement, Executive agrees that if the Executive is entitled to and does receive a payment pursuant to Section 3(a)(2) of this Agreement, neither Executive nor any Affiliate of the Executive shall during the Restricted Period, directly or indirectly, either for himself or for any other person or entity:

 
  (1)   anywhere in the world in which the Company is then doing business, engage or participate in, or assist, advise or be connected with (including as an employee, owner, partner, shareholder, officer, director, advisor, consultant, agent or [without limitation by the specific enumeration of the foregoing] otherwise), or permit his name to be used by or render services for, any person or entity engaged in a Competing Business; provided, however, that nothing in this Agreement shall prevent Executive from acquiring or owning, as a passive investment, up to two percent (2%) of the outstanding voting securities of an entity engaged in a Competing Business which are publicly traded in any recognized national securities market;
 
  (2)   take any action, in connection with a Competing Business, which might divert from the Company or an Affiliate of the Company any opportunity which would be within the scope of the Company’s or such Affiliate’s then business;

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  (3)   solicit or attempt to solicit any person or entity who is or has been (A) a customer of the Company at any time during the Restricted Period to purchase Competing Products from any person or entity (other than the Company) or (B) a customer, supplier, licensor, licensee or other business relation of the Company at any time during the Restricted Period to cease doing business with the Company; or
 
  (4)   solicit or hire any person or entity who is a director, officer, employee or agent of the Company or any Affiliate of the Company to perform services for any entity other than the Company and its Affiliates.
 
  (d)   Executive agrees that any violation by the Executive of Section 2(c) of this Agreement would be highly injurious to the Company and would cause irreparable harm to the Company. By reason of the foregoing, Executive consents and agrees that if the Executive violates any provision of Section 2(c) of this Agreement, the Company shall be entitled, in addition to any other rights and remedies that it may have, to apply to any court of competent jurisdiction for specific performance and/or injunctive or other relief in order to enforce, or prevent any continuing violation of, the provisions of such section. In the event Executive breaches a covenant contained in Section 2(c) of this Agreement, the Restricted Period applicable to Executive with respect to such breached covenant shall be extended for the period of such breach. Executive also recognizes that the territorial, time and scope limitations set forth in Sections 2(c), are reasonable and are properly required for the protection of the Company and in the event that any such territorial, time or scope limitation is deemed to be unreasonable, by a court of competent jurisdiction, the Company and Executive agree, and Executive submits, to the reduction of any or all of said territorial, time or scope limitations to such an area, period or scope as said court shall deem reasonable under the circumstances.
 
  (e)   Termination of the Executive’s employment shall have no effect on the continuing operation and enforceability of Sections 2(b), 2(c) or 2(d) and each such section shall continue to be fully effective and enforceable after any such termination.

3.   Obligations of the Company Upon Termination of Employment.

  (a)   If during the Termination Period the employment of the Executive shall terminate, other than by reason of a Nonqualifying Termination, then the Company shall pay to the Executive (or the Executive’s beneficiary or estate) within thirty (30) days following the Date of Termination, as compensation for services to the Company;
 
  (1)   a cash amount equal to the sum of (i) the Executive’s base salary from the Company and its affiliated companies through the Date of Termination, to the extent not theretofore paid, (ii) the Executive’s Target Bonus for the Company’s fiscal year in which the Date of Termination occurs multiplied by a fraction, the numerator of which is the number of days in that fiscal year through the Date of Termination and the denominator of which is 365 or 366, as applicable, (iii) any positive balance in the Executive’s Bonus Reserve Account; and (iv) any compensation previously deferred by the Executive other than pursuant to the Deferred Compensation Plan or any tax qualified plan (together with any interest and earnings thereon) and any accrued vacation pay, in each case to the extent not theretofore paid; plus
 
  (2)   a lump-sum cash amount (subject to any applicable payroll or other taxes required to be withheld pursuant to Section 5) in an amount equal to (i) three times the Executive’s highest annual base salary from the Company and its affiliated companies in effect during the twelve (12) month period

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  prior to the Date of Termination, plus (ii) three times the higher of (a) the average of the Executive’s Earned Bonus for the three fiscal years of the Company preceding the fiscal year in which the Change in Control occurs, or (b) the Executive’s Target Bonus for the fiscal year of the Company in which the Change in Control occurs; provided, however, that any amount to be paid pursuant to this Section 3(a)(2) shall be reduced by any other amount of severance relating to salary or bonus continuation to be received by the Executive upon termination of employment of the Executive under the Silver Parachute Plan or any other severance plan, policy or arrangement of the Company and any severance payments the Company is required to make pursuant to the requirements of any U.S. or foreign law or regulation.

  (b)   If during the Termination Period the employment of the Executive shall terminate, other than by reason of a Nonqualifying Termination:
 
  (1)   In addition to the payments to be made pursuant to Section 3(a), for a period of three years commencing on the Date of Termination, the Company shall continue to keep in full force and effect all policies of medical, accident, disability and life insurance with respect to the Executive and his dependents with the same level of coverage, upon the same terms and otherwise to the same extent as such policies shall have been in effect immediately prior to the Date of Termination or, if more favorable to the Executive, as provided generally with respect to other peer executives of the Company and its affiliated companies, and the Company and the Executive shall share the costs of the continuation of such insurance coverage in the same proportion as such costs were shared immediately prior to the Date of Termination; provided that, if the Executive cannot continue to participate in the Company plans providing such benefits, the Company shall otherwise provide such benefits on the same after-tax basis as if continued participation had been permitted. Notwithstanding the foregoing, in the event the Executive becomes reemployed with another employer and becomes eligible to receive welfare benefits from such employer, the welfare benefits described herein shall be secondary to such benefits during the period of the Executive’s eligibility, but only to the extent that the Company reimburses the Executive for any increased cost and provides additional benefits necessary to give the Executive the benefits provided hereunder.
 
  (2)   All stock options, restricted awards, other equity based awards and all stock units credited to the Executive’s account under the Deferred Compensation Plan shall be fully vested. All stock options shall remain exercisable for a period of ninety days from the Date of Termination or the earlier expiration of their initial term; provided, that, if the Executive would be prohibited from exercising any stock option due to pooling of interests or other restraints imposed under applicable accounting rules or securities laws, such option shall remain exercisable for thirty days after such restriction ceases to apply.
 
  (3)   To the extent not theretofore paid or provided, the Company shall timely pay or provide to the Executive any other amounts or benefits required to be paid or provided or which the Executive is eligible to receive under any plan, program, policy or practice or contract or agreement of the Company and its affiliated companies through the Date of Termination (such other amounts and benefits shall be hereinafter referred to as the “Other Benefits”).

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  (c)   If during the Termination Period the employment of the Executive shall terminate by reason of a Nonqualifying Termination, then the Company shall pay to the Executive within thirty (30) days following the Date of Termination, a cash amount equal to the sum of (1) the Executive’s full annual base salary from the Company through the Date of Termination, to the extent not theretofore paid, and (2) the Other Benefits.

4.   Certain Additional Payments by the Company.

  (a)   Anything in this Agreement to the contrary notwithstanding, in the event it shall be determined that any payment or distribution by the Company or its affiliated companies to or for the benefit of the Executive (whether paid or payable or distributed or distributable pursuant to the terms of this Agreement of otherwise, but determined without regard to any additional payments required under this Section 4) (a “Payment”) would be subject to the excise tax imposed by Section 4999 of the Code, or any interest or penalties are incurred by the Executive with respect to such excise tax (such excise tax, together with any such interest and penalties, are hereinafter collectively referred to as the “Excise Tax”), then the Executive shall be entitled to receive an additional payment (a “Gross-Up Payment”) in an amount such that after payment by the Executive of all taxes (including any interest or penalties imposed with respect to such taxes), including, without limitation, any income taxes (and any interest and penalties imposed with respect thereto) and Excise Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the Gross-Up Payment equal to the Excise Tax imposed upon the Payments.
 
  (b)   Subject to the provisions of Section 4(c), all determinations required to be made under this Section 4, including whether and when a Gross-Up Payment is required and the amount of such Gross-Up Payment and the assumptions to be utilized in arriving at such determination, shall be made by the Company’s public accounting firm (the “Accounting Firm”) which shall provide detailed supporting calculations both to the Company and the Executive within fifteen (15) business days of the receipt of notice from the Executive that there has been a Payment, or such earlier time as is requested by the Company. In the event that the Accounting Firm is serving as accountant or auditor for the Person effecting the Change in Control, the Executive shall appoint another nationally recognized public accounting firm to make the determinations required hereunder (which accounting firm shall then be referred to as the Accounting Firm hereunder). All fees and expenses of the Accounting Firm shall be borne solely by the Company. Any Gross-Up Payment, as determined pursuant to this Section 4, shall be paid by the Company to the Executive within five (5) days of the receipt of the Accounting Firm’s determination. If the Accounting Firm determines that no Excise Tax is payable by the Executive, it shall furnish the Executive with a written opinion that failure to report the Excise Tax on the Executive’s applicable federal income tax return would not result in the imposition of a negligence or similar penalty. Any determination by the Accounting Firm shall be binding upon the Company and the Executive. As a result of the uncertainty in the application of Section 4999 of the Code at the time of the initial determination by the Accounting Firm hereunder, it is possible that Gross-Up Payments which will not have been made by the Company should have been made (“Underpayment”), consistent with the calculations required to be made hereunder. In the event that the Company exhausts its remedies pursuant to Section 4(c) and the Executive thereafter is required to make a

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  payment of any Excise Tax, the Accounting Firm shall determine the amount of the Underpayment that has occurred and any such Underpayment shall be promptly paid by the Company to or for the benefit of the Executive.

  (c)   The Executive shall notify the Company in writing of any claim by the Internal Revenue Service that, if successful, would require the payment by the Company of the Gross-Up Payment. Such notification shall be given as soon as practicable but no later than ten (10) business days after the Executive is informed in writing of such claim and shall apprise the Company of the nature of such claim and the date on which such claim is requested to be paid. The Executive shall not pay such claim prior to the expiration of the thirty (30) days period following the date on which the Executive gives such notice to the Company (or such shorter period ending on the date that any payment of taxes with respect to such claim is due). If the Company notifies the Executive in writing prior to the expiration of such period that it desires to contest such claim, the Executive shall:
 
  (1)   give the Company any information reasonably requested by the Company relating to such claim,
 
  (2)   take such action in connection with contesting such claim as the Company shall reasonably request in writing from time to time, including, without limitation, accepting legal representation with respect to such claim by an attorney reasonably selected by the Company,
 
  (3)   cooperate with the Company in good faith in order effectively to contest such claim, and
 
  (4)   permit the Company to participate in any proceedings relating to such claim; provided, however, that the Company shall bear and pay directly all costs and expenses (including additional interest and penalties) incurred in connection with such contest and shall indemnify and hold the Executive harmless, on an after-tax basis, for any Excise Tax or income tax (including interest and penalties with respect thereto) imposed as a result of such representation and payment of costs and expenses. Without limitation on the foregoing provisions of this Section 4(c), the Company shall control all proceedings taken in connection with such contest and, at its sole option, may pursue or forgo any and all administrative appeals, proceedings, hearings and conferences with the taxing authority in respect of such claim and may, at its sole option, either direct the Executive to pay the tax claimed and sue for a refund or contest the claim in any permissible manner, and the Executive agrees to prosecute such contest to a determination before any administrative tribunal, in a court of initial jurisdiction and in one or more appellate courts, as the Company shall determine; provided, however, that if the Company directs the Executive to pay such claim and sue for a refund, the Company shall advance the amount of such payment to the Executive on an interest-free basis and shall indemnify and hold the Executive harmless, on an after-tax basis, from any Excise Tax or income tax (including interest or penalties with respect thereto) imposed with respect to such advance or with respect to any imputed income with respect to such advance; and provided further, that any extension of the statute of limitations relating to payment of taxes for the taxable year of the Executive with respect to which such contested amount is claimed to be due is limited solely to such contested amount. Furthermore, the Company’s control of the contest shall be limited to issues with respect to which a Gross-Up Payment would be payable hereunder and the Executive shall be entitled to settle or contest, as the case may be, any other issue raised by the Internal Revenue Service or any other taxing authority.

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  (d)   If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(c), the Executive becomes entitled to receive, and receives, any refund with respect to such claim, the Executive shall (subject to the Company’s complying with the requirements of Section 4(c)) promptly pay to the Company the amount of such refund (together with any interest paid or credited thereon after taxes applicable thereto). If, after the receipt by the Executive of an amount advanced by the Company pursuant to Section 4(c), a determination is made that the Executive shall not be entitled to any refund with respect to such claim and the Company does not notify the Executive in writing of its intent to contest such denial of refund prior to the expiration of thirty (30) days after such determination, then such advance shall be forgiven and shall not be required to be repaid and the amount of such advance shall offset, to the extent thereof, the amount of Gross-Up Payment required to be paid.

5.   Withholding Taxes. The Company may withhold from all payments due to the Executive (or his beneficiary or estate) hereunder all taxes which, by applicable federal, state, local or other law, the Company is required to withhold therefrom.
 
6.   Reimbursement of Expenses. If any contest or dispute shall arise under this Agreement involving termination of the Executive’s employment with the Company or involving the failure or refusal of the Company to perform fully in accordance with the terms hereof, the Company shall reimburse the Executive, on a current basis, for all legal fees and expenses, if any, incurred by the Executive in connection with such contest or dispute, together with interest thereon at a rate equal to the prime rate, as published under “Money Rates” in The Wall Street Journal from time to time, but in no event higher than the maximum legal rate permissible under applicable law, such interest to accrue from the date the Company receives the Executive’s statement for such fees and expenses through the date of payment thereof; provided, however, that in the event the resolution of any such contest or dispute includes a finding denying, in total, the Executive’s claims in such contest or dispute, the Executive shall be required to reimburse the Company, over a period of twelve (12) months from the date of such resolution, for all sums advanced to the Executive pursuant to this Section 6.
 
7.   Operative Event. Notwithstanding any provision herein to the contrary, no amounts shall be payable hereunder unless and until there is a Change in Control at a time when the Executive is employed by the Company.
 
8.   Termination of Agreement.

  (a)   This Agreement shall be effective on the date hereof and shall continue until terminated by the Company as provided in Section 8(b); provided, however, that this Agreement shall terminate in any event upon the earlier to occur of (i) termination of the Executive’s employment with the Company prior to a Change in Control and (ii) the Executive’s death.
 
  (b)   The Company shall have the right prior to a Change in Control, in its sole discretion, pursuant to action by the Board, to approve the termination of this Agreement, which termination shall not become effective until the date fixed by the Board for such termination, which date shall be at least 120 days after notice thereof is given by the Company to the Executive in accordance with Section 11; provided, however, that no such action shall be taken by the Board during any period of time when the Board has knowledge that any Person has taken steps reasonably calculated to effect a Change in

73


  Control until, in the opinion of the Board, such Person has abandoned or terminated its efforts to effect a Change in Control; and provided further, that in no event shall this Agreement be terminated in the event of a Change in Control.

9.   Scope of Agreement. Nothing in this Agreement shall be deemed to entitle the Executive to continued employment with the Company or its subsidiaries and, if the Executive’s employment with the Company shall terminate prior to a Change in Control, then the Executive shall have no further rights under this Agreement; provided, however, that any termination of the Executive’s employment following a Change in Control shall be subject to all of the provisions of this Agreement.
 
10.   Successors; Binding Agreement.

  (a)   This Agreement shall not be terminated by any merger or consolidation of the Company whether the Company is or is not the surviving or resulting corporation or as a result of any transfer of all or substantially all of the assets of the Company. In the event of any such merger, consolidation or transfer of assets, the provisions of this Agreement shall be binding upon the surviving or resulting corporation or the person or entity to which such assets are transferred.
 
  (b)   The Company agrees that concurrently with any merger, consolidation or transfer of assets referred to in Section 10(a), it will cause any successor or transferee unconditionally to assume, by written instrument delivered to the Executive (or his beneficiary or estate), all of the obligations of the Company hereunder. Failure of the Company to obtain such assumption prior to the effectiveness of any such merger, consolidation or transfer of assets shall be a breach of this Agreement and shall entitle the Executive to compensation and other benefits from the Company in the same amount and on the same terms as the Executive would be entitled hereunder if the Executive’s employment were terminated following a Change in Control other than by reason of a Nonqualifying Termination. For purposes of implementing the foregoing, the date on which any such merger, consolidation or transfer becomes effective shall be deemed the Date of Termination.
 
  (c)   This Agreement shall inure to the benefit of and be enforceable by the Executive’s personal or legal representatives, executors, administrators, successors, heirs, distributees, devisees and legatees. If the Executive shall die while any amounts would be payable to the Executive hereunder had the Executive continued to live, all such amounts, unless otherwise provided herein, shall be paid in accordance with the terms of this Agreement to such person or persons appointed in writing by the Executive to receive such amounts or, if no person is so appointed, to the Executive’s estate.

11.   Notices.

  (a)   For purposes of this Agreement, all notices and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given when delivered or five days after deposit in the United States mail, certified and return receipt requested, postage prepaid, addressed (1) if to the Executive, to _______________ and if to the Company, to 855 East Main Avenue, Zeeland, MI 49464, attention General Counsel, with a copy to the Secretary, or (2) to such other address as either party may have furnished to the other in writing in accordance herewith, except that notices of change of address shall be effective only upon receipt.
 
  (b)   A written notice of the Executive’s Date of Termination by the Company or the Executive, as the case may be, to the other shall (i) indicate the specific termination provision in this Agreement relied upon, (ii) to the extent applicable, set forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of the Executive’s employment under the provision so indicated and

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  (iii) specify the termination date (which date shall be not less than fifteen (15) days after the giving of such notice). The failure by the Executive or the Company to set forth in such notice any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of the Executive or the Company hereunder or preclude the Executive or the Company from asserting such fact or circumstance in enforcing the Executive’s or the Company’s rights hereunder.

12.   Full Settlement; Resolution of Disputes.

  (a)   The Company’s obligation to make any payments provided for in this Agreement and otherwise to perform its obligations hereunder shall not be affected by any set-off, counterclaim, recoupment, defense or other claim, right or action which the Company may have against the Executive or others. In no event shall the Executive be obligated to seek other employment or take any other action by way of mitigation of the amounts payable to the Executive under any of the provisions of this Agreement and such amounts shall not be reduced whether or not the Executive obtains other employment except to the extent provided in Section 3(b)(1).
 
  (b)   If there shall be any dispute between the Company and the Executive in the event of any termination of the Executive’s employment, then, unless and until there is a final, nonappealable judgment by a court of competent jurisdiction declaring that such termination was for Cause, that the Executive terminated his employment without Good Reason, or that the Company is not otherwise obligated to pay any amount or provide any benefit to the Executive and his dependents or other beneficiaries, as the case may be, under Sections 3(a), 3(b) and 4, the Company shall pay all amounts, and provide all benefits, to the Executive and his dependents or other beneficiaries, as the case may be, that the Company would be required to pay or provide pursuant to Sections 3(a), 3(b) and 4 as though such termination were by the Company without Cause or by the Executive with Good Reason; provided, however, that the Company shall not be required to pay any disputed amounts pursuant to this Section 12(b) except upon receipt of an undertaking by or on behalf of the Executive to repay all such amounts to which the Executive is ultimately adjudged by such court not to be entitled.
 
13.   Employment with Subsidiaries. Employment with the Company for purposes of this Agreement shall include employment with any corporation or other entity in which the Company has a direct or indirect ownership interest of 50 percent or more of the total combined voting power of the then outstanding securities of such corporation or other entity entitled to vote generally in the election of directors.
 
14.   Governing Law; Validity. The interpretation, construction and performance of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of Michigan without regard to the principle of conflicts of laws. The invalidity or unenforceability of any provision of this Agreement shall not affect the validity or enforceability of any other provisions of this Agreement, which other provisions shall remain in full force and effect.
 
15.   Counterparts. This Agreement may be executed in two counterparts, each of which shall be deemed to be an original and both of which together shall constitute one and the same instrument.
 
16.   Miscellaneous. No provision of this Agreement may be modified or waived unless such modification or waiver is agreed to in writing and signed by the Executive and by a duly authorized officer of the Company. No waiver by either party hereto at any time of any breach by the other party hereto of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of similar or dissimilar provisions or conditions at the same or at any prior or subsequent time. Failure by the Executive or the Company to insist upon strict compliance with any

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  provisions of this Agreement or to assert any right the Executive or the Company may have hereunder, including, without limitation, the right of the Executive to terminate employment for Good Reason, shall not be deemed to be a waiver of such provision or right or any ot her provision or right of this Agreement. Except as otherwise expressly set forth in this Agreement, the rights of, and benefits payable to, the Executive, his estate or his beneficiaries pursuant to this Agreement are in addition to any rights of, or benefits payable to, the Executive, his estate or his beneficiaries under any other employee benefit plan or compensation plan, policy practice or program of the Company or any other contract or agreement with the Company.

IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by a duly authorized officer of the Company and the Executive has executed this Agreement as of the day and year first above written.

HERMAN MILLER, INC.
By:
EXECUTIVE
Executive’s Name Michael A. Volkema

76 ex18

LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLES

EXHIBIT 18

LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLES

Herman Miller, Inc.            855 East Main Avenue           Zeeland, MI 49464-0302

Re: Form 10-K Report for the year ended June 2, 2001

Ladies and Gentlemen:

This letter is written to meet the requirements of Regulation S-K calling for a letter from a registrant’s independent accountants whenever there has been a change in accounting principle or practice.

      As described in the Employee Benefit Plans note to the consolidated financial statements of Herman Miller, Inc. (the “Company”) included in this Form 10-K, as of June 4, 2000, the Company changed its method of determining the market related value of plan assets for purposes of accounting for pensions from the fair value method to a calculated value method which recognizes the changes in the fair value of plan assets on a systematic basis over a five-year period. According to the management of the Company, this change was made to better match the change in fair value of plan assets and liabilities under the Company’s cash balance retirement plan and is also consistent with the method being used by many other manufacturing companies.

      A complete coordinated set of financial and reporting standards for determining the preferability of accounting principles among acceptable alternative principles has not been established by the accounting profession. Thus, we cannot make an objective determination of whether the change in accounting described in the preceding paragraph is to a preferable method. However, we have reviewed the pertinent factors, including those related to financial reporting, in this particular case on a subjective basis, and our opinion stated below is based on our determination made in this manner.

      We are of the opinion that the Company’s change in method of accounting is to an acceptable alternative method of accounting, which, based upon the reasons stated for the change and our discussions with management, is also preferable under the circumstances in this particular case. In arriving at this opinion, we have relied on the business judgment and business planning of the Company’s management.

 
Very truly yours,
 
/s/ Arthur Andersen LLP

     Grand Rapids, Michigan
ex21

HERMAN MILLER, INC., SUBSIDIARIES

 

EXHIBIT 21

HERMAN MILLER, INC., SUBSIDIARIES
The company’s principal subsidiaries are as follows:


           
Name Ownership Jurisdiction of Incorporation

 

Coro Acquisition Corporation
100% company
California
Coro Services, Inc.
100% company
Michigan
Corporate Vision Interiors, Inc.
100% company
Illinois
G. West Brooks, Inc.
100% company
California
Geiger Worldwide, Inc.
100% company
Georgia
Herman Miller (Australia) Pty., Ltd.
100% company
Australia
Herman Miller B.V. (Netherlands)
100% company
Netherlands
Herman Miller Canada, Inc.
100% company
Canada
Herman Miller Ltd. Niederlassung Deutschland, Inc.
100% company
Germany
Herman Miller Et Cie
100% company
France
Herman Miller Italia S.p.A
100% company
Italy
Herman Miller Japan, Ltd.
100% company
Japan
Herman Miller Limited
100% company
England, U.K.
Herman Miller Mexico S.A. de C.V.
100% company
Mexico
Herman Miller Transportation Company
100% company
Michigan
HMI Liquidating Company
100% company
Michigan
Integrated Metal Technology, Inc.
100% company
Michigan
Meridian Incorporated
100% company
Michigan
Milcare, Inc.
100% company
Michigan
Milsure Insurance Limited
100% company
Barbados
Miller SQA, Inc.
100% company
Michigan
National Systems, Inc.
100% company
Georgia
W.B. Wood N.Y., Inc.
100% company
New York
Office Pavilion South Florida, Inc.
100% company
Florida
OP Corporate Furnishings, Inc.
100% company
Texas
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ex23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS

EXHIBIT 23

CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Herman Miller, Inc.:

As independent public accountants, we hereby consent to the incorporation of our report dated June 25, 2001, included in this Form 10-K, into the Company's previously filed Form S-8 Registration Statement File Numbers 33-5810, 33-43234, 33-45812, 2-84202,  33-04369, 333-04367, 333-04365 and 333-42506, and Form S-3 Registration File Numbers 333-86027 and
333-36442.

 
 
/s/ Arthur Andersen LLP

     Grand Rapids, Michigan
     August 20, 2001

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