SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the fiscal year ended June 30, 1998
or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ________ to _________
Commission file number 2-18868
KNAPE & VOGT MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-0722920
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
2700 Oak Industrial Drive, N.E., Grand Rapids, MI 49505
(Address of principal executive offices) (Zip Code)
(616) 459-3311
(Registrant's telephone number, including area code)
Securities registered pursuant to 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
Securities Registered pursuant to Section 12(g) of the Act:
Common Stock, par value $2.00 per share
(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 X 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. [X]
The aggregate market value of voting stock held by nonaffiliates of the
registrant was $104,763,139 as of August 28, 1998.
Number of shares outstanding of each class of common stock as of August 28,
1998: 3,523,375 shares of Common Stock, par value $2.00 per share, and 2,427,727
shares of Class B Common Stock, par value $2.00 per share.
Documents incorporated by reference. Certain portions of the Registrant's Proxy
Statement for the Annual Meeting of Shareholders to be held on October 16, 1998,
are incorporated by reference into Part III of this Report.
<PAGE>
PART I
ITEM 1--BUSINESS
Item 1(a)--General Development of Business
The Company is engaged primarily in the design, manufacture, and marketing
of storage products, which serve the consumer, contract builder, hardware, and
original equipment manufacturer markets. The Company was incorporated in
Michigan in 1906, reorganized in Delaware in 1961, and reorganized in Michigan
in 1985. The Company's main plant and corporate offices are located at 2700 Oak
Industrial Drive, N.E., Grand Rapids, Michigan 49505, and its telephone number
is (616) 459-3311. Unless otherwise noted or indicated by the context, the term
"Company" includes Knape & Vogt Manufacturing Company, its predecessors and its
subsidiaries.
The following significant events occurred in fiscal 1998:
On March 27, 1998, the Company completed the sale of Roll-it, which was
accounted for as a discontinued operation.
In May of 1998 the Company sold its Knape & Vogt Canada manufacturing
facility and equipment in the Toronto area as part of a plan of
reorganization of its Canadian operation. The Company will continue to sell
and distribute its products in Canada and maintain a sales office in the
Toronto area.
The following significant events occurred subsequent to June 30, 1998:
On August 31, 1998, the Company entered into a definitive agreement to sell
The Hirsh Company, a wholly owned subsidiary, which manufactures
free-standing shelving, wood storage products and workshop accessories.
On September 1, 1998, the Company announced its Board of Directors had
approved a new financial strategy which includes authorization to purchase up to
1.35 million shares of the Company's common stock, including 1.2 million shares
pursuant to a "Dutch Auction" self-tender offer. Also included in the new
financial strategy was approval by the Board of Directors of a post Dutch
Auction purchase in the open market or in privately negotiated transactions of
common stock in an amount which when added to the number of shares of common
stock purchased in the Dutch Auction would equal 1,350,000.
Item 1(b)--Financial Information About Industry Segments
The Company believes that a dominant portion of the Company's operations
(more than 95%) is in a single industry segment -- the design, manufacture, and
marketing of storage products. Accordingly, no separate industry segment
information is presented.
Item 1(c)--Narrative Description of Business
Products, Services, Markets, and Methods of Distribution. The Company's
storage products include a complete line of decorative and utility wall-
attached shelving systems. Drawer slides manufactured by the Company include
precision, Euro-style and utility slides. Precision drawer slides use ball
bearings, and Euro-style and utility drawer slides use rollers. The Company
manufactures many different hardware products such as closet rods, kitchen
storage products and various fixtures.
Approximately 44% of the Company's sales were to the consumer market and
56% of the Company's sales were to original equipment manufacturers and
specialty distributors.
2
<PAGE>
While the Company does not maintain precise sales records by product
category, management believes that the approximate sales of the Company's major
product groups during the last three fiscal years were as follows:
<TABLE>
Year Ended June 30
Class of Products 1998 1997 1996
(dollars in millions)
Sales Sales Sales
<S> <C> <C> <C>
Shelving Systems $ 83.0 $ 82.0 $ 79.5
Drawer Slides 69.8 62.3 52.4
Hardware 28.8 29.3 28.1
Furniture Components 0.0 3.0 3.0
------ ------ ------
Total $181.6 $176.6 $163.0
===== ===== =====
</TABLE>
New Product and Capital Spending Information. Capital spending in fiscal
1999 should remain at approximately the same level as in fiscal 1998, when
capital spending was $4.2 million.
Sources and Availability of Raw Materials. Most of the Company's storage
products are produced primarily from steel or wood. During the past fiscal year,
the Company experienced no difficulty in obtaining these raw materials.
Patents, Licenses, Etc. Patents, trademarks, licenses, franchises, or
concessions do not play an important part in the Company's business.
Seasonal Nature of Business. The business of the Company is not seasonal.
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.
Importance of Limited Number of Customers. The Company estimates that at
present it has over 1,400 active customers with approximately 35,000 outlets, of
which the five largest customers account for less than 15% of sales and no one
of which accounts for more than 6% of sales. The Company does not believe that
its business is dependent upon any single or small number of customers, the loss
of which would have a materially adverse effect upon the Company.
Backlog of Orders. The Company does not believe that information concerning
backlog is material to an understanding of its business.
Government Contracts. The Company does not believe that any portion of its
business is subject to renegotiation of profits or termination of contracts or
subcontracts at the election of the government.
Competition. All aspects of the business in which the Company is engaged
are highly competitive. Competition is based upon price, service and quality. In
the various markets served by the Company, it competes with a number of
manufacturers that have significantly greater resources and sales, including
several conglomerate corporations, and with numerous smaller companies. While
the Company is not aware of any reliable statistics that are available to enable
the Company to accurately determine its relative position in the industry,
either overall or with respect to any particular product or market, the Company
believes that it is one of the three leading manufacturers of its type of
shelving systems in North America and that it is one of the three leading
manufacturers of drawer slides in North America.
Research, Design and Development. Approximately $1,225,000 was spent in
fiscal 1998 in the development of new products and in the improvement of
existing products; approximately $1,373,000 was spent in fiscal 1997 and
$1,223,000 in fiscal 1996 for the same purposes. The amount of research and
development expenditures are determined by specific identification of the costs,
which are expensed as incurred.
Environmental Matters. The Company does not believe that existing
environmental regulations will have any material effect upon the capital
expenditures, earnings, and competitive position of the Company.
3
<PAGE>
Employees. At June 30, 1998, the Company employed approximately 950
persons. None of the Company's employees are represented by collective
bargaining agents except the hourly employees at The Hirsch Company, who are
represented by the International Association of Bridge, Structural and
Ornamental Iron Workers.
Item 1(d)--Information About Foreign Operations
The Company's Canadian operation accounted for approximately 8% of
consolidated sales. Approximately 5% of consolidated net sales were derived from
export shipments from the Company's United States operations to customers in
other foreign countries. The Company does not know of any particular risks
attendant thereto, except that fluctuating exchange rates between the United
States and Canadian currencies and other factors beyond the control of the
Company, such as tariff and foreign economic policies, may affect future results
of such business. Reference is made to Notes 2 and 3 of the Notes to the
Company's Consolidated Financial Statements contained herein for the fiscal year
ended June 30, 1998, for a presentation of additional information concerning the
Company's foreign operations.
ITEM 2--PROPERTIES
The Company owned or leased the following offices and manufacturing
facilities as of June 30, 1998:
<TABLE>
Location Description Interest
<S> <C> <C>
Grand Rapids, Michigan Executive offices and manufacturing facilities; Owned
444,000 sq. ft. on 41 acres.
Sparks, Nevada Warehouse; 76,000 sq. ft. Leased
Skokie, Illinois Manufacturing facility and offices; Leased
298,000 sq. ft. on 12 acres.
Muncie, Indiana Manufacturing facilities and office; Owned
98,000 sq. ft. on 12 acres.
Muncie, Indiana Warehouse; 5,000 sq. ft. Leased
Mississauga, Ontario Office; 1,900 sq. ft. Leased
</TABLE>
The facilities indicated are owned in fee by the Company and are subject to no
material encumbrances. The Company believes that its facilities are generally
adequate for its operations and are maintained in a state of good repair. The
Company believes it is in compliance with all applicable state and federal air
and water pollution control laws. During the five years ended June 30, 1998, the
Company spent approximately $28,000,000 for expansion, modernization and
improvements of its facilities and equipment.
ITEM 3--LEGAL PROCEEDINGS
As of the date hereof, the Company has no material pending legal
proceedings other than ordinary routine litigation incidental to the Company's
business.
4
<PAGE>
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year ended June 30, 1998.
ADDITIONAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company were, at June 30, 1998, as follows:
<TABLE>
Year First Elected
Name Age Positions and Offices Held an Executive Officer
<S> <C> <C> <C>
William R. Dutmers 41 Chairman of the Board of Directors 1998
Allan E. Perry 58 Director, President and Chief 1978
Executive Officer
Richard C. Simkins 55 Director, Executive V.P., C.F.O., 1985
Secretary and Treasurer
Michael G. Van Rooy 45 Vice President - Manufacturing 1994
John W. Vogus 36 Vice President - Sales & Marketing 1997
Carman D. Hepburn 50 Vice President - Sales and Marketing 1985
of Knape & Vogt Canada
</TABLE>
Mr. Dutmers was named Chairman of the Board of Directors in January 1998.
Mr. Dutmers has been a member of the Board of Directors since April 1996.
Mr. Perry was named President and Chief Executive Officer in April 1996.
Mr. Perry joined the Company in 1978 as General Manager of Modar, Inc. and has
held a variety of senior level management positions.
Mr. Simkins was named Executive Vice President and C.F.O. in April 1996.
Mr. Simkins has been Secretary of the Company since July 1992 and Treasurer
since October 1987. Mr. Simkins joined the Company in 1970 in the finance
department and has held a variety of management positions.
Mr. Van Rooy has been the Vice President - Manufacturing since December
1993. Mr. Van Rooy joined the Company in 1985 in the engineering department and
has held a variety of management positions.
Mr. Vogus was named Vice President - Sales and Marketing in June of 1997.
Mr. Vogus joined the Company in March 1993 as Director of Marketing.
Mr. Hepburn has been Vice President - Sales and Marketing at Knape & Vogt
Canada since November 1985. Mr. Hepburn joined the Company in May 1969 in the
sales department and has held a variety of management positions.
All terms of office are on an annual basis and will expire on October 16,
1998.
5
<PAGE>
PART II
ITEM 5--MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S
COMMON STOCK AND RELATED SECURITY HOLDER MATTERS
Market Price. The Company's Common Stock is traded on the NASDAQ National
Market under the ticker symbol KNAP. Stock price quotations can be found in
major daily newspapers (listed KnapeV) and in the Wall Street Journal (listed
KnapeVogt). As of August 28, 1998, there were approximately 3,300 shareholders
of the Company's Common Stock and Class B Common Stock.
<TABLE>
1998 Bid Price 1997 Bid Price
---------------------------------------- ----------------------------------------
Quarter High Low High Low
- ---------------- ------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
First $18.50 $15.88 $16.88 $12.25
Second $22.75 $18.50 $17.63 $14.25
Third $23.00 $20.00 $18.50 $15.50
Fourth $24.75 $21.25 $17.00 $14.75
</TABLE>
Dividends. The Company paid cash dividends on its shares of Common Stock
and Class B Common Stock in the following amounts during the last two fiscal
years.
<TABLE>
Per Share Cash Dividends
Year Ended June 30, 1998 Common Stock Class B Common Stock
- ------------------------ ------------ --------------------
<S> <C> <C>
First Quarter $.165 $.15
Second Quarter $.165 $.15
Third Quarter $.165 $.15
Fourth Quarter $.165 $.15
</TABLE>
<TABLE>
Per Share Cash Dividends
Year Ended June 30, 1997 Common Stock Class B Common Stock
- ------------------------ ------------ --------------------
<S> <C> <C>
First Quarter $.165 $.15
Second Quarter $.165 $.15
Third Quarter $.165 $.15
Fourth Quarter $.165 $.15
</TABLE>
On August 14, 1998, the Board of Directors declared a $.165 per share cash
dividend on shares of the Company's Common Stock and $.15 per share cash
dividend on shares of its Class B Common Stock, payable September 4, 1998, to
shareholders of record on August 25, 1998. On September 1, 1998, the Company
announced its Board of Directors had approved a new financial strategy. Part of
the new financial strategy included the substitution of quarterly stock
dividends for cash dividends beginning with the fiscal 1999 second quarter.
6
<PAGE>
ITEM 6--SELECTED FINANCIAL DATA
<TABLE>
For the Year Ended 1998 1997 1996 1995 1994
(a) (b) (c)
<S> <C> <C> <C> <C> <C>
Net sales...................................................$181,632,570 $176,630,294 $163,012,030 $168,190,969 $145,504,536
Cost of sales............................................... 139,332,670 133,081,765 124,408,648 127,296,470 107,701,337
Operating expenses (excluding interest expense)............. 45,513,688 28,972,779 31,211,332 26,983,142 25,043,151
Interest expense............................................ 1,224,394 1,986,522 2,253,992 2,471,652 1,426,328
Income (loss) from continuing operations before taxes....... (4,438,182) 12,589,228 5,138,058 11,439,705 11,333,720
Income taxes................................................ 3,931,000 4,264,000 2,035,000 3,849,000 4,020,000
Income (loss) from continuing operations.................... (8,369,182) 8,325,228 3,103,058 7,590,705 7,313,720
Income (loss) from discontinued operation................... (1,368,278) (471,624) (3,037,926) 654,433 842,556
Net income (loss) .......................................... (9,737,460) 7,853,604 65,132 8,245,138 8,156,276
Basic earnings per share from continuing operations......... (1.41) 1.41 0.53 1.29 1.24
Basic earnings per share from discontinued operation........ (0.23) (0.08) (0.52) 0.11 0.15
Basic earnings per share.................................... (1.64) 1.33 0.01 1.40 1.39
Diluted earnings per share from continuing operations....... (1.41) 1.41 0.53 1.29 1.24
Diluted earnings per share from discontinued operation...... (0.23) (0.08) (0.52) 0.11 0.14
Diluted earnings per share.................................. (1.64) 1.33 0.01 1.40 1.38
Dividends paid.............................................. 3,760,383 3,738,138 3,727,321 3,722,814 3,373,493
Dividend payout, percent of income from continuing operations (45%) 45% 120% 49% 46%
Dividends per share--common................................. 0.66 0.66 0.66 0.66 0.60
Dividends per share--Class B common ........................ 0.60 0.60 0.60 0.60 0.545
Percentage of pre-tax income from continuing operations
to sales (2.4%) 7.1% 3.2% 6.8% 7.8%
Capital expenditures........................................ 4,228,552 7,763,482 8,032,779 4,181,472 3,837,249
Depreciation................................................ $6,604,799 $6,542,750 $6,190,031 $5,876,391 $5,250,453
At Year-End
Working capital............................................. $38,276,167 $39,266,034 $39,535,991 $45,796,753 $39,572,003
Ratio of current assets to current liabilities.............. 2.5 4.2 4.0 5.8 3.4
Net property and equipment.................................. 36,654,720 48,586,802 50,381,608 48,698,785 50,395,355
Total assets................................................ 104,033,087 125,741,698 129,225,159 131,433,714 133,655,919
Total debt.................................................. 9,700,000 29,000,000 35,000,000 35,800,000 40,000,000
Debt to equity, percent..................................... 16% 39% 51% 49% 59%
Stockholders' equity........................................ 61,756,674 73,460,498 69,173,750 72,713,836 67,973,890
Weighted average shares outstanding - basic................. 5,920,380 5,889,420 5,881,069 5,879,914 5,872,160
Weighted average shares outstanding - diluted............... 5,954,713 5,903,237 5,897,141 5,893,651 5,896,164
Stockholders' equity per share - basic...................... $10.43 $12.47 $11.76 $12.37 $11.58
Stockholders' equity per share - diluted.................... $10.37 $12.44 11.73 12.34 11.53
Number of employees......................................... 944 1,061 1,084 1,136 1,137
</TABLE>
(a) 1998 figures include 1) an adjustment to the inventory obsolescence reserve
of $910,000 recorded in cost of sales; 2) a restructuring charge for the
reorganization of KV Canada of $3,992,276 recorded in operating expenses,
and an income tax benefit of $600,000, for an after-tax effect of
$3,392,276, or $0.57 per basic and diluted share; 3) an impairment charge
for the sale of Hirsh of $11,800,000 recorded in operating expenses, and an
income tax expense of $1,000,000, for an after-tax effect of $12,800,000,
or $2.16 per basic and diluted share; 4) a $448,284 write-off of idle
equipment; and 4) an after-tax charge of $937,268 or $0.16 per basic and
diluted share to record the sale of Roll-it, a discontinued operation.
(b) 1997 figures include an after-tax charge of $246,235 or $0.04 per basic and
diluted share to record the March 1997 sale of Modar.
(c) 1996 figures include an inventory liquidation of $863,000 recorded in cost
of sales, a restructuring charge of $3,496,000 recorded in operating
expenses, and an income tax benefit of $1,534,000, for an after-tax effect
of $2,825,000, or $0.48 per basic and diluted share. The 1996 figures also
include an after-tax charge of $2,700,000 to recognize the estimated loss
on the sale of Roll-it, the Company's discontinued store fixture operation.
7
<PAGE>
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion and analysis provides information which management
believes is relevant to an assessment and understanding of the Company's
financial condition and results of operations. The discussion should be read in
conjunction with the consolidated financial statements and footnotes.
Results of Operations
The table below sets forth certain items in the Consolidated Statements of
Operations from continuing operations as a percentage of net sales:
<TABLE>
Year ended June 30, 1998 1997 1996
- -------------------------------------------- ------------------ ------------------- -------------------
<S> <C> <C> <C>
Net sales................................... 100.0% 100.0% 100.0%
Cost of sales............................... 76.7 75.3 76.3
------------------ ------------------- -------------------
Gross profit.............................. 23.3 24.7 23.7
Selling and administrative expenses......... 16.1 16.1 16.8
Restructuring and impairment of assets...... 8.7 .3 2.1
------------------ ------------------- -------------------
Operating income (loss)................... (1.5) 8.3 4.8
Interest expense............................ .6 1.1 1.4
Other expense............................... .3 .1 .2
------------------ ------------------- -------------------
Income (loss) from continuing operations
before income taxes...................... (2.4) 7.1 3.2
Income taxes - continuing operations........ 2.2 2.4 1.3
------------------ ------------------- -------------------
Income (Loss)from continuing operations... (4.6)% 4.7% 1.9%
- -------------------------------------------- ------------------ ------------------- -------------------
</TABLE>
Fiscal 1998 compared with fiscal 1997
Net sales in fiscal 1998 increased $5.0 million to a record $181.6 million,
or 2.8%, over fiscal 1997 sales of $176.6 million. The increase in sales was due
primarily to an increase in unit volumes. Drawer slide sales led this increase
with a $7.5 million improvement. The increase was due to precision drawer slide
sales continuing their rapid growth and the expansion of shipments into the
metal office furniture market. Euro-style drawer slide sales increases in fiscal
1998 were offset by a decline in sales of utility slides. Drawer slide sales are
expected to continue to increase in fiscal 1999 due to increases in demand for
precision drawer slides and further penetration into the metal office furniture
market. Shelving system sales increased by $1.0 million due to increases in
sales of wall-attached shelving. The Company anticipates that sales from the
wall-attached shelving portion of the shelving system product line will continue
to grow in fiscal 1999. The free-standing shelving portion of the shelving
system product line will be discontinued in fiscal 1999 with the sale of Hirsh
(discussed below). Hardware sales declined $0.5 million in fiscal 1998 compared
to fiscal 1997. Feeny's continued increase in the sales of its kitchen and bath
storage products were offset by a decrease in the Hirsh Iron Horse product line.
The decrease in sales of the Iron Horse product line was caused by a reduction
in promotions of the product line at major home centers. Hardware sales will
decline in fiscal 1999 with the discontinuance of the Iron Horse line due to the
sale of Hirsh. The Company anticipates that sales of Feeny products will
increase in fiscal 1999. Furniture component sales declined $3.0 million. No
sales were recorded in fiscal 1998 due to the elimination of the product line in
fiscal 1997 with the sale of Modar Inc. Hirsh sales in fiscal 1998 were
approximately $38 million with about 90% of these sales in the shelving system
product group and 10% in the hardware product group.
Gross profit as a percentage of net sales was 23.3% in fiscal 1998,
compared to 24.7% in fiscal 1997. Gross profit in fiscal 1998 included a
$910,000 unfavorable adjustment to the inventory obsolescence reserve. Without
this charge, gross profit as a percentage of net sales would have been 23.8 % in
fiscal 1998. The decrease in margin is attributable to 1) the Company's
continued investments in manufacturing and sales to aggressively enter the metal
office furniture market; 2) transition costs that cannot be classified as
restructuring related to the reorganization of the Company's Canadian operation
near Toronto, and 3) continued softness in the Canadian dollar.
Selling and administrative expenses as a percent of sales were 16.1% in
both fiscal 1998 and fiscal 1997.
A pre-tax restructuring charge of $3,992,276 was recorded in the third
quarter of fiscal 1998 for Knape & Vogt Canada. In March 1998, Knape & Vogt
announced its plans to reorganize its Canadian operation, including the sale of
the Company's manufacturing facility and equipment in the Toronto area. The sale
was completed in May of 1998. The Company will continue to sell and
8
<PAGE>
distribute its products in Canada and maintain a sales office in the Toronto
area. The Company signed a definitive agreement to sell substantially all the
assets of The Hirsh Company, a wholly owned subsidiary of Knape & Vogt, on
August 31, 1998. At June 30, 1998, the carrying value of the net assets subject
to the sale were reduced to fair value based on the estimated selling price less
costs to sell. This resulted in a pre-tax impairment of assets charge of
$11,800,000. The sale of Hirsh reflects the Company's desire to enhance its
corporate margins and profitability and remain focused on its core drawer slide,
kitchen and bath storage and wall-attached shelving products. During fiscal
1997, the sale of Modar was completed and resulted in an additional pre-tax
restructuring and impairment of assets charge of $373,235 which represents the
difference between the original estimate and the actual loss from the sale.
Total other expenses in fiscal 1998 decreased by $356,318 compared to
fiscal 1997. Interest expense declined 38% or $762,000, reflecting the Company's
continued dedication to improving cash flow using Economic Value Added
principles. The decrease in interest expense was offset by a $448,284 write-off
of idle equipment.
See Note 9 to the consolidated financial statements for an explanation of
the effective income tax rate.
Income (loss) from continuing operations in fiscal 1998 was ($8.4) million,
or ($1.41) per diluted share, compared to $8.3 million, or $1.41 per diluted
share in fiscal 1997. Without the $12.8 million after-tax charge for impairment
of assets of Hirsh, the $3.4 million restructuring charge for Knape & Vogt
Canada, the $0.6 million after-tax adjustment to the inventory reserve and the
$0.2 adjustment due to the write-off of idle equipment, income from continuing
operations would have been $8.6 million or $1.45 per diluted share in fiscal
1998. This is compared with $8.6 million, or $1.45 per diluted share, in fiscal
1997 without the restructuring charge pertaining to the sale of Modar.
Net of the 1998 restructuring, impairment of assets and other one-time
charges, the Company expects fiscal 1999 to generate improved income from
continuing operations over fiscal 1998. However, the Company anticipates that
the operating profit for the first quarter of fiscal 1999 will be less than
operating profit for the first quarter of fiscal 1998, with other income causing
net earnings for the first quarter of fiscal 1999 to be only slightly less than
the net earnings for the first quarter of fiscal 1998. The Company expects that
most of its profit improvement will be generated in the second half of fiscal
1999 as the Company further increases its sales of precision drawer slides and
receives the benefit from the implementation of the Company's new KVOPS
"Operation Improvement Program." At the cornerstone of KVOPS is Continuous Flow
Manufacturing, which is designed to make the Company the low-cost producer, the
best service provider and the quality leader.
The results of operations of Roll-it, net of income taxes, are presented as
a discontinued operation. In fiscal 1998, the after-tax loss from discontinued
operation was $1.4 million compared to $0.5 million in fiscal 1997. On March 27,
1998, the Company signed an agreement to sell Roll-it which resulted in an
additional loss of $1.0 million, which represents the difference between the
original estimate and the actual loss from the sale of Roll-it.
Fiscal 1997 compared with fiscal 1996
Net sales in fiscal 1997 increased $13.6 million to a record $176.6
million, or 8.4%, over fiscal 1996 sales of $163.0 million. The increase in
sales was due primarily to an increase in unit volumes. Drawer slide sales led
this increase with a $9.9 million improvement. The majority of this increase was
due to precision drawer slide sales continuing their rapid growth. Euro-style
and utility slide sales were also improved over fiscal 1996. Shelving system
sales increased by $2.5 million primarily due to an increase in wall-attached
shelving. The increase in wall-attached shelving sales was primarily
attributable to the addition of two significant customers in the middle of
fiscal 1997. Hardware sales increased in fiscal 1997 by $1.2 million over fiscal
1996 levels led by the Feeny kitchen and bath product line. There was no change
in furniture component sales in fiscal 1997, and with the sale of Modar, this
product line has been eliminated.
Gross profit as a percentage of net sales was 24.7% in fiscal 1997,
compared to 23.7% in fiscal 1996. Gross profit in fiscal 1996 included an
$863,000 charge for liquidation of inventories to create additional
manufacturing and warehousing space. Without this charge, gross profit as a
percentage of net sales would have been 24.2 % in fiscal 1996. The improvement
in gross profit during fiscal 1997 was due to successful cost containment
efforts and higher sales levels which absorbed fixed overhead costs.
Selling and administrative expenses in fiscal 1997 decreased to 16.1% of
net sales from 16.8% in fiscal 1996. The decrease was due to expense controls
put into place during the fiscal year and the increase in sales.
During fiscal 1997, the sale of Modar was completed and resulted in an
additional restructuring and impairment of assets charge of $373,235 which
represents the difference between the original estimate and the actual loss from
the sale.
9
<PAGE>
Other expenses in fiscal 1997 decreased by $381,571 compared to fiscal 1996
mainly due to a reduction in interest expense caused by lower debt levels.
The effective income tax rate was 33.9% in fiscal 1997 compared to 39.6% in
fiscal 1996. See note 9 to the consolidated financial statements for an
explanation of the effective income tax rate.
Income from continuing operations in fiscal 1997 was $8.3 million, or $1.41
per share, compared to $3.1 million, or $0.53 per share in fiscal 1996. Without
the $2.8 million charge for restructuring, impairment of assets and inventory
liquidations, the income from continuing operations would have been $5.9
million, or $1.01 per share in fiscal 1996.
The results of operations of Roll-it, net of income taxes, are presented as
a discontinued operation. In fiscal 1997, the after-tax loss from discontinued
operation was $0.5 million compared to $3.0 million in fiscal 1996. The 1996
loss includes an estimated after-tax loss on the sale of Roll-it of $2.7
million.
Liquidity And Capital Resources
The Company's focus on aggressively generating cash using the newly adopted
Economic Value Added, or EVA, philosophy resulted in a reduction of long-term
debt by $19.3 million to $9.7 million at the end of fiscal 1998 from $29.0
million at the end of fiscal 1997. The debt to equity ratio at the end of fiscal
1998 was 16% compared to 39% at the end of fiscal 1997. Net cash provided from
operating activities in fiscal 1998 was a record $23.4 million. Financial
resources, including borrowing capacity and anticipated funds from operations,
are expected to be adequate to satisfy all short-term obligations and the
internal growth objectives of the Company.
Cash flows from operating activities generated $23.2 million in fiscal 1998
compared to $16.2 million in fiscal 1997. Cash flows in fiscal 1998 increased
over fiscal 1997 levels primarily due to an increase in accounts payable. As
part of the Company's focus on EVA and cash flow, payment terms for most of the
Company's payables were extended by 30 days resulting in a $7.6 million
increase.
Investing activities provided $1.2 million in fiscal 1998 compared to $5.9
million of cash used for investing activities in fiscal 1997. Capital
expenditures decreased to $4.2 million in fiscal 1998 from $7.8 million in
fiscal 1997. In fiscal 1997, approximately $3.3 million was expended for
additional equipment to manufacture precision drawer slides for the wood
furniture and metal office furniture markets. The disposition of Roll-it, a
discontinued operation, generated $2.0 million in cash in fiscal 1998. Capital
expenditures in fiscal 1999 are expected to remain at approximately the same
levels as in fiscal 1998. It is anticipated that the sale of Hirsh in fiscal
1999 will result in $15.9 million of cash, after expenses. The sale of Modar in
fiscal 1997 was the primary reason for the $3.0 million of cash generated from
the sales of property, plant and equipment.
Financing activities used $22.6 million in fiscal 1998, compared to $9.4
million in fiscal 1997. The Company reduced debt by $19.3 million in fiscal 1998
and declared cash dividends of $3.8 million. The Company believes that cash
flows from operations and funds available under an existing credit facility are
sufficient to fund working capital requirements and capital expenditures in
fiscal 1999. The Company announced on September 1, 1998, that it was initiating
a stock dividend sale plan and eliminating cash dividends. Shareholders can
elect to have their quarterly stock dividends automatically sold by a broker. On
September 1, 1998, the Company announced the purchase by the Company of up to
1.2 million shares of the Company's common stock pursuant to a Dutch Auction
self-tender offer. The Company also announced on September 1, 1998, that the
Board of Directors approved, following the Dutch Auction, a purchase in the
market or in negotiated transactions of common stock in an amount which when
added to the number of shares of common stock purchased in the Dutch Auction
would equal 1,350,000. The Company will use long-term debt to the point where
financial flexibility is preserved and undue financial risk is not incurred.
Year 2000 Compliance
The Year 2000 issue is the result of computer systems that use two digits
rather than four to define the applicable year, which may prevent such systems
from accurately processing dates ending in the year 2000 and after. This could
result in system failures or in miscalculations causing disruption of
operations, including, but not limited to, an inability to process transactions,
to send and receive electronic data, or to engage in routine business activities
and operations.
In 1995 the Company established a Year 2000 task force for Information
Technology ("IT") to develop and implement a Year 2000 readiness program. The
Company has developed a Year 2000 readiness plan, and has completed the audit,
assessment and
10
<PAGE>
scope phases of its plan. The Company has completed an inventory of the software
applications that it uses. The Company has also installed its Corporate
Information System software at its subsidiaries to improve efficiency and
facilitate Year 2000 compliance. The Company estimates that the implementation
phase is 50% complete for the Company's IT systems. The Company's readiness
program includes installing software releases designed to cause the software to
be Year 2000 compliant. The Company is in the process of testing its IT systems
for Year 2000 compliance, and expects testing activities to continue into 1999.
The Company's goal is to be substantially Year 2000 compliant by December 1998,
to allow for testing all systems during 1999.
In addition, in 1997 the Company began evaluating non-IT systems such as
imbedded chips in production equipment and personal computer hardware and
software. With respect to these non-IT systems, the Company has completed the
audit phase, and the assessment and scope phases are approximately 50% complete.
The Company is presently in the process of testing and implementation, and is
upgrading its non-IT systems to become Year 2000 compliant. The Company's goal
is to complete the remediation of non-IT systems by June 30, 1999.
In addition to reviewing its internal systems, the Company has had formal
communications with its significant customers, vendors and freight companies
concerning Year 2000 compliance, including electronic commerce. There can be no
assurance that the systems of other companies that interact with the Company
will be sufficiently Year 2000 compliant so as to avoid an adverse impact on the
Company's operations, financial condition and results of operations. The Company
does not believe that its products and services involve any Year 2000 risks.
The Company does not presently anticipate that the costs to address the
Year 2000 issue will have a material adverse effect on the Company's financial
condition, results of operations or liquidity. Present estimated cost for
remediation are as follows:
<TABLE>
Previous Fiscal Years Fiscal 1999
<S> <C> <C>
Labor $ 313,000 $276,000
Software 4,000 44,000
Hardware 34,000 0
Year 2000 solution providers 101,000 76,000
---------- ---------
$ 452,000 $396,000
========== =========
</TABLE>
The Company presently anticipates that it will complete its Year 2000
assessment and remediation by December 31, 1999. However, there can be no
assurance that the Company will be successful in implementing its Year 2000
remediation plan according to the anticipated schedule. In addition, the Company
may be adversely affected by the inability of other companies whose systems
interact with the Company to become Year 2000 compliant and by potential
interruptions of utility, communication or transportation systems as a result of
Year 2000 issues.
Although the Company expects its internal systems to be Year 2000 compliant
as described above, the Company intends to prepare a contingency plan that will
specify what it plans to do if it or important external companies are not Year
2000 compliant in a timely manner. The Company expects to prepare its
contingency plan during 1999.
This report contains certain forward-looking statements which involve risks
and uncertainties. When used in this report, the words "believe," "anticipate,"
"think," "intend," "goal," "forecast," "expect" and similar expressions identify
forward-looking statements. Forward-looking statements include, but are not
limited to, statements concerning anticipated income from operations and net
income for fiscal 1999. Such statements are subject to certain risks and
uncertainties which would cause actual results to differ materially from those
expressed or implied by such forward-looking statements. Readers are cautioned
not to place undue reliance on those forward-looking statements which speak only
as of the date of this report.
ITEM 7A--QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in U.S.
interest rates and changes in foreign currency exchange rate as measured against
the U.S. dollar.
Interest Rate Risk -- The interest payable for the Company's revolving
credit agreement is principally between 40 and 50 basis points above the federal
funds rate and therefore affected by changes in market interest rates. However,
the Company has the option to pay the balance in full at any time without
penalty. As a result, the Company believes that the market risk is minimal.
11
<PAGE>
Foreign Currency Risk -- The Company has a sales office located in Canada.
Sales are typically denominated in Canadian dollars, thereby creating exposures
to changes in exchange rates. The changes in the Canadian/U.S. exchange rate may
positively or negatively affect the Company's sales, gross margins, and retained
earnings. The Company attempts to minimize currency exposure risk through
working capital management. There can be no assurance that such an approach will
be successful, especially in the event of a significant and sudden decline in
the value of the Canadian dollar. The Company does not hedge against foreign
currency risk.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Immediately following are the consolidated balance sheets of the Company
and its subsidiaries as of June 30, 1998, and the related consolidated
statements of operations, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1998, the notes thereto, summary of
accounting policies, and the independent auditors' report.
12
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Operations
<TABLE>
Year ended June 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $181,632,570 $176,630,294 $163,012,030
Cost of Sales 139,332,670 133,081,765 124,408,648
- -----------------------------------------------------------------------------------------------------------------
Gross Profit 42,299,900 43,548,529 38,603,382
- ------------------------------------------------------------------------------------------------------------------
Expenses
Selling and shipping 22,594,546 21,545,425 21,044,004
Administrative and general 6,557,842 6,890,905 6,394,013
Restructuring and impairment of assets 15,792,276 373,235 3,496,000
- -------------------------------------------------------------------------------------------------- ------------------
Total Expenses 44,944,664 28,809,565 30,934,017
- -------------------------------------------------------------------------------------------------- ------------------
Operating Income (Loss) (2,644,764) 14,738,964 7,669,365
- -------------------------------------------------------------------------------------------------- ------------------
Other Expenses
Interest 1,224,394 1,986,522 2,253,992
Other, net 569,024 163,214 277,315
- -------------------------------------------------------------------------------------------------- ------------------
Total Other Expenses 1,793,418 2,149,736 2,531,307
- -------------------------------------------------------------------------------------------------- ------------------
Income (Loss) From Continuing Operations Before Income Taxes
(4,438,182) 12,589,228 5,138,058
Income Taxes - Continuing Operations 3,931,000 4,264,000 2,035,000
- -------------------------------------------------------------------------------------------------- ------------------
Income (Loss) From Continuing Operations (8,369,182) 8,325,228 3,103,058
- -------------------------------------------------------------------------------------------------- ------------------
Discontinued Operation, Net of Income Taxes
Loss from operations (431,010) (471,624) (337,926)
Estimated loss on sale (937,268) - (2,700,000)
- --------------------------------------------------------------------------------------------------------------------
Total Discontinued Operation, Net of
Income Taxes (1,368,278) (471,624) (3,037,926)
- --------------------------------------------------------------------------------------------------------------------
Net Income (Loss) $ (9,737,460) $ 7,853,604 $ 65,132
================================================================================================== ==================
Basic Earnings Per Share
Income (loss) from continuing operations $ (1.41) $ 1.41 $ .53
Loss from discontinued operation $ (0.23) $ (0.08) $ (.52)
- -------------------------------------------------------------------------------------------------- ------------------
Net Income (Loss) Per Share $ (1.64) $ 1.33 $ .01
================================================================================================== ==================
Weighted Average Shares Outstanding 5,920,380 5,889,420 5,881,069
- -------------------------------------------------------------------------------------------------- ------------------
Diluted Earnings Per Share
Income (loss) from continuing operations $ (1.41) $ 1.41 $ 53
Loss from discontinued operation $ (0.23) $ (0.08) $ (.52)
- -------------------------------------------------------------------------------------------------- ------------------
Net Income (Loss) Per Share $ (1.64) $ 1.33 $ .01
=====================================================================================================================
Weighted Average Shares Outstanding 5,954,713 5,903,237 5,897,141
Dividends Per Share
Common stock $ .66 $ .66 $ .66
Class B common stock $ .60 $ .60 $ .60
=====================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
13
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
<TABLE>
June 30, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Current Assets
Cash $ 3,057,158 $ 1,146,546
Accounts receivable, less allowances of $352,000
and $525,000, respectively 25,677,043 24,991,341
Refundable income taxes 176,204 1,578,681
Inventories 12,808,532 18,629,454
Prepaid expenses 2,706,490 3,686,042
Net current assets of discontinued operation - 1,462,089
Net assets held for sale 18,648,000 -
- -------------------------------------------------------------------------------------------------------------------
Total Current Assets 63,073,427 51,494,153
- -------------------------------------------------------------------------------------------------------------------
Property and Equipment
Land and improvements 1,804,948 1,874,420
Buildings 14,353,886 16,573,882
Machinery and equipment 44,743,067 62,322,944
- -------------------------------------------------------------------------------------------------------------------
60,901,901 80,771,246
Less accumulated depreciation 24,247,181 32,184,444
- -------------------------------------------------------------------------------------------------------------------
Net Property and Equipment 36,654,720 48,586,802
- -------------------------------------------------------------------------------------------------------------------
Net Property and Equipment of Discontinued Operation - 1,440,740
- -------------------------------------------------------------------------------------------------------------------
Goodwill, net 593,277 18,409,767
- -------------------------------------------------------------------------------------------------------------------
Other Assets 3,711,663 5,810,236
- -------------------------------------------------------------------------------------------------------------------
$ 104,033,087 $ 125,741,698
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
14
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
<TABLE>
June 30, 1998 1997
- -------------------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity
<S> <C> <C>
Current Liabilities
Accounts payable $ 17,765,610 $ 5,976,683
Accruals:
Income taxes 847,306 382,273
Taxes other than income 860,928 1,551,686
Compensation 3,067,186 2,460,426
Retirement plan contributions 769,978 740,666
Restructuring costs 828,932 -
Miscellaneous 657,320 1,116,385
- -------------------------------------------------------------------------------------------------------------------
Total Current Liabilities 24,797,260 12,228,119
Supplemental Retirement Benefits 1,837,153 1,579,653
Long-Term Debt 9,700,000 29,000,000
Deferred Lease Costs - 1,818,428
Deferred Income Taxes 5,942,000 7,655,000
- -------------------------------------------------------------------------------------------------------------------
Total Liabilities 42,276,413 52,281,200
- -------------------------------------------------------------------------------------------------------------------
Commitments
Stockholders' Equity
Stock:
Common, $2 par - 6,000,000 shares authorized; 3,530,042 and
3,465,664 issued 7,060,084 6,931,328
Class B common, $2 par - 4,000,000 shares authorized;
2,405,583 and 2,438,165 issued 4,811,166 4,876,330
Preferred - 2,000,000 shares authorized and unissued - -
Additional paid-in capital 33,724,990 33,340,541
Retained earnings 16,160,434 29,658,277
Cumulative foreign currency translation adjustment - (1,345,978)
- -------------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 61,756,674 73,460,498
- -------------------------------------------------------------------------------------------------------------------
$ 104,033,087 $ 125,741,698
===================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
15
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
<TABLE>
Cumulative
foreign
Additional currency
Common paid-in Retained translation
stock capital earnings adjustment
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, July 1, 1995 $ 11,759,828 $ 33,065,773 $ 29,205,000 $ (1,316,765)
Net income for 1996 - - 65,132 -
Cash dividends - - (3,727,321) -
Stock issued under stock option plan 2,310 14,314 - -
Foreign currency translation adjustment - - - 105,479
- ---------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 11,762,138 33,080,087 25,542,811 (1,211,286)
Net income for 1997 - - 7,853,604 -
Cash dividends - - (3,738,138) -
Stock issued under stock option plan 45,520 260,454 - -
Foreign currency translation adjustment - - - (134,692)
- ---------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 11,807,658 33,340,541 29,658,277 (1,345,978)
Net loss for 1998 - - (9,737,460) -
Cash dividends - - (3,760,383) -
Stock issued under stock option plan 63,592 384,449 - -
Foreign currency translation adjustment - - - (259,327)
Sale of Knape & Vogt Canada assets - - - 1,605,305
- ---------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1998 $ 11,871,250 $ 33,724,990 $ 16,160,434 $ -
=====================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
16
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Cash Flows
<TABLE>
Year ended June 30, 1998 1997 1996
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income (loss) $ (9,737,460) $ 7,853,604 $ 65,132
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation of fixed assets 6,604,799 6,542,750 6,190,031
Amortization of other assets 1,361,584 1,185,853 1,155,322
Decrease in deferred income taxes (752,000) (334,800) (1,060,000)
Increase in supplemental retirement benefits 264,957 76,740 64,612
Decrease in deferred lease costs (556,992) (541,696) (524,966)
Loss on sale of the discontinued operation 937,268 - 3,866,000
Write-off of foreign currency translation adjustment 1,605,305 - -
Impairment loss - Hirsh 12,800,000 - -
Changes in operating assets and liabilities:
Decrease (increase) in:
Accounts receivable (809,180) (2,248,856) 515,079
Refundable income taxes 1,157,735 272,579 (1,627,737)
Inventories 1,903,218 4,372,415 720,025
Net assets of discontinued operation (995,000) 592,226 636,106
Prepaid expenses 384,903 (629,600) (160,535)
Increase (decrease) in:
Accounts payable 8,776,835 1,158,861 289,679
Accrued restructuring costs 672,004 (3,440,184) 3,440,184
Accruals (383,204) 1,326,505 (83,555)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 23,234,772 16,186,397 13,485,377
- -----------------------------------------------------------------------------------------------------------------------
Investing Activities
Additions to property, plant and equipment (4,228,552) (7,763,482) (8,032,779)
Sales of property, plant and equipment 2,564,744 2,985,833 175,651
Disposition of discontinued operation 2,045,364 - -
Payments for other assets 803,530 (1,079,168) (1,471,438)
- -----------------------------------------------------------------------------------------------------------------------
Net cash provided by (used for) investing activities 1,185,086 (5,856,817) (9,328,566)
- -----------------------------------------------------------------------------------------------------------------------
Financing Activities
Cash dividends declared (3,760,383) (3,738,138) (3,727,321)
Proceeds from issuance of common stock 448,041 305,974 16,624
Payments on long-term debt (19,300,000) (6,000,000) (800,000)
- -----------------------------------------------------------------------------------------------------------------------
Net cash used for financing activities (22,612,342) (9,432,164) (4,510,697)
- -----------------------------------------------------------------------------------------------------------------------
Effect of Exchange Rate Changes on Cash 103,096 4,859 63,877
- -----------------------------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash 1,910,612 902,275 (290,009)
Cash, beginning of year 1,146,546 244,271 534,280
- -----------------------------------------------------------------------------------------------------------------------
Cash, end of year $ 3,057,158 $ 1,146,546 $ 244,271
=======================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
17
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Significant
Accounting
Policies
Principles of Consolidation
The consolidated financial statements include the accounts of Knape & Vogt
Manufacturing Company and its wholly-owned subsidiaries (Company). All
material intercompany balances, transactions and stockholdings have been
eliminated in consolidation.
Description of Business, Revenue Recognition and Concentration of Credit
Risk
The Company designs, manufactures and distributes storage products
including decorative and utility shelving systems, drawer slides, home
workshop items, kitchen and closet storage products and cabinet hardware.
On August 20, 1996, the Company announced its decision to sell its store
fixture operation and this portion of the business is shown as a
discontinued operation. The Company primarily sells its products to
hardware chains, home centers, specialty distributors and original
equipment manufacturers and recognizes revenue upon shipment of products to
customers. No single customer accounts for more than 10% of consolidated
sales. The Company performs ongoing credit evaluations and maintains
reserves for potential credit losses.
Foreign Currency Translation
The accounts of the foreign subsidiary are translated into U.S. dollars in
accordance with Statement of Financial Accounting Standards (SFAS) No. 52.
Assets and liabilities are translated at year-end exchange rates. Income
and expense accounts are translated at average exchange rates in effect
during the year. Adjustments relating to the translation process are
accumulated and reported in the stockholders' equity section as a
cumulative foreign currency translation adjustment.
Fair Value of Financial Instruments
The carrying amounts of the Company's financial instruments, which consist
of cash, receivables, bank revolving credit agreement and accounts payable,
approximate their fair values.
Inventories
Inventories are stated at the lower of FIFO (first-in, first-out) cost or
market at June 30, 1998 and 1997.
Property, Equipment and Depreciation
Property and equipment are stated at cost after elimination of fully
depreciated items. For financial reporting purposes, depreciation is
computed over the estimated useful lives of the assets by the straight-line
method. For income tax purposes, accelerated depreciation methods and
shorter useful lives are used.
Goodwill
Goodwill represents the amount by which the cost of businesses purchased
exceeds the fair value of the net assets acquired. Goodwill is amortized
over a period of 40 years using the straight-line method. Accumulated
amortization of goodwill was $120,441 and $1,853,951 at June 30, 1998 and
1997, respectively. The Company periodically reviews goodwill for
impairment based upon undiscounted operating income over the remaining life
of the goodwill. While the estimates are based on management's historical
experience and assumptions regarding future operations, the amounts the
18
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Company will ultimately realize could differ from those used in the 1998
SFAS No. 121 analysis.
Employee Retirement Plans
The Company has pension and profit-sharing plans covering substantially all
employees. The Company's policy is to fund pension costs for the plan in
amounts which equal or exceed the ERISA minimum requirements.
The Company has a supplemental retirement program for officers. The cost of
the supplemental program is actuarially determined and is accrued but not
funded.
Income Taxes
The Company accounts for certain income and expenses in different periods
for financial reporting and income tax purposes. The Company utilizes the
liability method to account for deferred income taxes by applying statutory
tax rates in effect at the balance sheet date to differences between the
financial reporting and tax bases of assets and liabilities. The resulting
deferred tax liabilities or assets are adjusted to reflect changes in tax
laws or rates by means of charges or credits to income tax expense.
Use of Estimates in Preparation of Financial Statements
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Accounting for the Impairment of Long-Lived Assets
In accordance with SFAS No. 121, Accounting for the Impairment of
Long-Lived Assets, the Company reviews long-lived assets for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Advertising
The Company expenses the costs of advertising as incurred. Advertising
expense was $299,000 in 1998, $422,000 in 1997 and $553,000 in 1996.
Earnings Per Share
During fiscal 1998, the Company adopted SFAS No. 128, Earnings Per Share.
SFAS No. 128 replaces the calculation of primary and fully diluted earnings
per share with basic and diluted earnings per share. Unlike primary
earnings per share, basic earnings per share excludes the dilutive effects
of options, warrants and convertible securities. Diluted earnings per share
is very similar to the previously reported fully diluted earnings per
share. SFAS No. 128 requires that earnings per share amounts for all prior
periods presented be restated to give effect to the provisions of the
statement. SFAS No. 128 did not materially impact earnings per share
information previously reported. For the periods presented, the numerators
remained the same in both the basic and diluted earnings per share
calculations. The denominator was increased in the diluted computation due
to the recognition of stock options as common stock equivalents.
19
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
New Accounting Standards Not Yet Adopted
SFAS No. 130, Reporting Comprehensive Income, establishes standards for the
reporting and display of comprehensive income, its components and
accumulated balances. Comprehensive income is defined to include all
changes in equity except those resulting from investments by owners and
distributions to owners. Among other disclosures, SFAS No. 130 requires
that all items that are required to be recognized under current accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. This statement is effective for the Company for 1999 and
requires comparative information for earlier years to be restated.
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information, which supersedes SFAS No. 14, Financial Reporting for Segments
of a Business Enterprise, establishes standards for the way that public
enterprises report information about operating segments in annual financial
statements and requires reporting of selected information about operating
segments in interim financial statements issued to the public. It also
establishes standards for disclosures regarding products and services,
geographic areas and major customers. SFAS No. 131 defines operating
segments as components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. This statement is effective for the Company in 1999.
SFAS No. 132, Employers' Disclosures About Pensions and Other
Postretirement Benefits, revises existing disclosure requirements for
pension and other postretirement benefit plans thereby intending to improve
the understandability of benefit disclosures, eliminate certain
requirements that the Financial Accounting Standards Board believes are no
longer necessary, and standardize footnote disclosures. This statement is
effective for the Company for 1999 and requires comparative information for
earlier years to be restated.
Management is currently evaluating the impact, if any, SFAS No. 130, SFAS
No. 131 and SFAS No. 132 may have on future financial statement
disclosures.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
requires companies to recognize all derivatives contracts as either assets
or liabilities in the balance sheet and to measure them at fair value. If
certain conditions are met, a derivative may be specifically designated as
a hedge, the objective of which is to match the timing of gain or loss
recognition on the hedging derivative with the recognition of (i) the
changes in the fair value of the hedged asset or liability that are
attributable to the hedged risk or (ii) the earnings effect of the hedged
forecasted transaction. For a derivative not designated as a hedging
instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for fiscal years beginning after June 15,
1999.
Historically, the Company has not entered into derivatives contracts either
to hedge existing risks or for speculative purposes. Accordingly, the
Company does not expect adoption of the new standard for fiscal year 2000
to affect its financial statements.
2. Restructuring and
Impairment of
Assets
In fiscal 1996 the Board of Directors of the Company approved a
restructuring plan. The restructuring and impairment charge of $3,496,000
primarily related to severance and employee benefit costs ($1,635,000), the
write-down of assets to be disposed of to their
20
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
fair market value ($1,509,000) and other costs ($352,000). The Board of
Directors also authorized as part of the plan the liquidation of slow
moving inventories of $863,000. After an income tax benefit of $1,534,000,
these actions reduced fiscal year 1996 earnings by $2,825,000 or $.48 per
diluted share.
During 1997, the sale of Modar was completed and resulted in an additional
impairment charge of $373,235 which represents the difference between the
original estimate and the actual loss from the sale. After a related income
tax benefit of $127,000, fiscal year 1997 earnings were reduced by $246,235
or $.04 per diluted share.
A one-time restructuring charge of $3,992,276 was recorded in the third
quarter of fiscal 1998 for Knape & Vogt Canada. Included in the
restructuring charge is a reduction of the foreign currency translation
adjustment account of $1,605,305. In March 1998, Knape & Vogt announced its
plans to reorganize its Canadian operation, including the sale of the
Company's manufacturing facility and equipment in the Toronto area. The
sale was completed in May of 1998. The Company will continue to sell and
distribute its products in Canada and maintain a sales office in the
Toronto area. The after-tax effect of the sale was a loss of $3,392,276, or
$.57 per diluted share.
The Company is in the process of completing the negotiation of a definitive
agreement to sell The Hirsh Company, a wholly owned subsidiary (see Note
13). Hirsh manufactures free-standing shelving, wood storage products and
workshop accessories. At June 30, 1998, the carrying value of the net
assets subject to the sale was reduced to fair value based on the estimated
selling price less costs to sell. This resulted in a loss of $12,800,000,
which is included in the restructuring and impairment of assets line of the
consolidated statement of operations. The loss includes the write-off of
the unamortized balance of goodwill recorded in connection with the
purchase of Hirsh. Management expects to complete the sale during the first
quarter of fiscal year ending June 30, 1999.
The components of the net assets held for sale are as follows:
<TABLE>
<S> <C>
Current assets $ 4,483,000
Property and equipment 6,923,000
Other assets 8,985,000
Liabilities (1,743,000)
- -----------------------------------------------------------------------------
Net assets held for sale $ 18,648,000
=============================================================================
</TABLE>
Summary operating results for Hirsh (in thousands) are as follows:
<TABLE>
June 30, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 35,634 $ 36,589 $ 37,312
Costs and expenses 47,880 37,344 37,880
- -------------------------------------------------------------------------------
Income (loss) before taxes (12,246) (755) (568)
Income tax expense (benefit) 998 (79) (57)
Net income (loss) $(13,244) $ (676) $ (511)
===============================================================================
</TABLE>
3. Discontinued Operation
On August 20, 1996, the Company announced its decision to sell the Roll-it
division of Knape & Vogt Canada Inc. (Roll-it), the Company's store fixture
operation. Accordingly, Roll-it is reported as a discontinued operation,
and the consolidated
21
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
financial statements have been reclassified to segregate the net assets and
operating results of the business.
The estimated loss recorded during fiscal 1996 on the sale of Roll-it was
$3.9 million, which included a reduction in asset values of $3.6 million
and a provision for anticipated closing costs and operating losses until
disposal of $.3 million. The loss was reported net of an income tax benefit
of $1.2 million, for an after-tax loss of $2.7 million.
During the third quarter of fiscal year 1997, the Company recorded an
additional after-tax loss of $471,624 which was an adjustment to the
estimated provision for operating loss of Roll-it through fiscal year 1997.
Income or loss attributable to Roll-it's operations beyond fiscal year 1997
through the date of the sale will be reflected as incurred in each
reporting period.
On March 27, 1998, the Company signed an agreement to sell Roll-it which
resulted in an additional loss of $937,268, which represents the difference
between the original estimate and the actual loss from the sale of Roll-it.
Summary operating results of the discontinued operation (in thousands) are
as follows:
<TABLE>
June 30, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues $ 11,865 $ 10,531 $ 13,540
Costs and expenses 12,519 11,237 13,990
- -------------------------------------------------------------------------------
Income (loss) before taxes (654) (706) (450)
Income tax expense (benefit) (223) (234) (112)
- -------------------------------------------------------------------------------
Net Income (Loss) $ (431) $ (472) $ (338)
===============================================================================
</TABLE>
4. Inventories
Inventories are summarized as follows:
<TABLE>
June 30, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Finished products $ 7,369,923 $ 11,219,379
Work in process 1,719,891 1,950,391
Raw materials and supplies 3,718,718 5,459,684
- -------------------------------------------------------------------------------
$ 12,808,532 $ 18,629,454
===============================================================================
</TABLE>
5. Long-Term Debt
At June 30, 1998 and 1997, long-term debt consisted of borrowings under an
unsecured revolving credit agreement which provides for loans up to
$47,500,000 with interest between 40 and 50 basis points above the federal
funds rate depending on the Company's interest coverage ratio (averaging 6%
for the month ended June 30, 1998). There was a $9,700,000 balance
outstanding under the revolving credit agreement at June 30, 1998. The
agreement contains certain covenants which the Company is in compliance
with at June 30, 1998. The revolving credit agreement is required to be
repaid by November 1, 1999. Annually, the Company may request that the
maturity of the revolving credit agreement be extended by another year.
22
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
6. Retirement Plans
The Company has several noncontributory defined benefit pension plans and
defined contribution plans covering substantially all of its employees. The
defined benefit plans provide benefits based on the participants' years of
service. The Company's funding policy for defined benefit plans is to make
annual contributions which equal or exceed regulatory requirements. The
Company's Board of Directors annually approves contributions to defined
contribution plans. The pension and profit-sharing plans hold a combined
total of 304,425 shares of the Company's Class B common stock with a market
value of $6,849,563 and $4,870,800 at June 30, 1998 and 1997, respectively.
Dividends paid to the plans totaled $182,655 for the years ended June 30,
1998 and 1997.
The Company also has a supplemental retirement program for designated
officers of the Company which also includes death and disability benefits.
The costs of retirement benefits are as follows:
<TABLE>
Year ended June 30, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Discretionary profit-sharing $ 758,055 $ 685,564 $ 585,965
Pension 535,192 309,415 261,781
Supplemental retirement 320,534 199,700 193,960
- -------------------------------------------------------------------------------
$ 1,613,781 $ 1,194,679 $ 1,041,706
===============================================================================
</TABLE>
Net periodic cost for the pension plans include the following components:
<TABLE>
Year ended June 30, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the period $ 267,092 $ 276,718 $ 280,075
Interest cost on projected
benefit obligation 885,949 847,333 737,433
Actual return on plan assets (2,102,398) (1,504,890) (1,208,193)
Net deferral and amortization of
unrecognized amounts 1,282,412 715,578 452,466
- -------------------------------------------------------------------------------
Net periodic pension cost $ 333,055 $ 334,739 $ 261,781
===============================================================================
</TABLE>
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation of the pension plans was
7.5% and 8.5% at June 30, 1998 and 1997, respectively. The expected
long-term rate of return on plan assets was 8.5%.
23
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The funded status of the pension plans is as follows:
<TABLE>
June 30, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated and projected benefit
obligation, vested benefits of
$11,799,750 and $10,280,087 $ 12,292,838 $ 10,681,208
Plan assets at fair value, primarily
equity securities and fixed income funds 13,389,253 11,794,363
- -------------------------------------------------------------------------------
Plan assets in excess of projected
benefit obligations 1,096,415 1,113,155
- -------------------------------------------------------------------------------
Unrecognized net obligations:
Unrecognized net loss (gain) 47,659 (248,149)
Unrecognized prior service cost 1,287,172 1,421,142
Unrecognized transition net assets,
being recognized over 12.4 years (293,700) (348,100)
- -------------------------------------------------------------------------------
Unrecognized net obligations 1,041,131 824,893
Prepaid pension cost included in other assets $ 2,137,546 $ 1,938,048
===============================================================================
</TABLE>
7. Postretirement Health
Care Benefits
The Company maintains a defined benefit postretirement plan for
substantially all employees which provides certain health care benefits.
Eligibility and benefits are based on age and years of service. On July 1,
1992, the Company adopted SFAS No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, on a prospective basis. The
transition obligation represents the difference between the Company's July
1, 1992, accrued postretirement benefit costs prior to the adoption of SFAS
No. 106 and the Plan's unfunded liability as of that date reduced by a 1994
revision in the eligibility definition for benefits. During 1998, the
unrecognized prior service costs were combined with the above noted items
and are all being amortized over 15 years.
The components of net periodic postretirement benefit cost are as follows:
<TABLE>
Year ended June 30, 1998 1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost - benefits earned
during the year $ 85,042 $ 86,588 $ 82,461
Interest cost on projected benefit
obligation 156,507 138,498 126,329
Amortization of transition liability
over 15 years 48,037 93,861 93,861
Amortization of prior service costs - (57,279) (57,279)
Amortization of unrecognized net loss 27,614 24,412 18,415
- --------------------------------------------------------------------------------
Net postretirement health care cost $ 317,200 $ 286,080 $ 263,787
================================================================================
</TABLE>
24
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
A reconciliation of the accumulated postretirement benefit obligation to
the liability recognized in the consolidated balance sheets is as follows:
<TABLE>
June 30, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Active participants $ 1,000,409 $ 931,487
Retirees 1,093,330 769,823
- -------------------------------------------------------------------------------
2,093,739 1,701,310
Unrecognized transition obligation (672,524) (1,407,902)
- -------------------------------------------------------------------------------
1,421,215 293,408
Unrecognized net loss (679,380) (467,660)
Unrecognized prior service cost - 687,341
- -------------------------------------------------------------------------------
Postretirement health care liability $ 741,835 $ 513,089
===============================================================================
</TABLE>
The actuarial calculation assumes a health care inflation rate of 7.45% in
1998 and grades down uniformly to 5.0% in 2002 and remains level
thereafter. The health care cost trend rate has an effect on the amounts
reported. Increasing the health care inflation rate by 1% would increase
the June 30, 1998, accumulated postretirement benefit obligation by
$248,527, and the 1998 net postretirement health care cost by $33,551. The
discount rate used in determining the accumulated postretirement benefit
obligation was 7.5%. The Company's postretirement health care plans are not
funded. Prior to 1993, the cost of providing postretirement benefits was
expensed as incurred.
8. Lease Commitments
The Company is leasing certain real property and equipment under
noncancelable agreements which expire at various dates through 2000. The
definitive agreement being negotiated for the sale of Hirsh (see Notes 2
and 13) includes the assumption of the lease for the Hirsh building by the
buyer of Hirsh.
Annual minimum rental payments required under operating leases are
(excluding Hirsh) as follows:
<TABLE>
Year ending June 30,
- -----------------------------------------------------------------------------
<S> <C>
1999 $ 230,351
2000 141,956
-------------
$ 372,307
===============================================================================
</TABLE>
Rent expense under all operating leases was approximately $1,848,000,
$1,991,000 and $2,076,000 in 1998, 1997 and 1996, respectively.
25
<PAGE>
9. Income Taxes
The components of income (loss) from continuing operations before taxes
consists of:
<TABLE>
Year ended June 30, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
United States $ (919,274) $ 12,028,340 $ 5,603,192
Foreign (3,518,908) 560,888 (465,134)
- -------------------------------------------------------------------------------
Income (loss) from
continuing operations
before income taxes $ (4,438,182) $ 12,589,228 $ 5,138,058
===============================================================================
</TABLE>
Income tax expense (benefit) from continuing operations consists of:
<TABLE>
Year ended June 30, 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
United States $ 3,740,000 $ 4,558,800 $ 3,189,000
Foreign 541,000 (115,000) (152,000)
State and local 368,000 155,000 58,000
- -------------------------------------------------------------------------------
Total current 4,649,000 4,598,800 3,095,000
- -------------------------------------------------------------------------------
Deferred:
United States 377,000 (546,800) (1,159,000)
Foreign (955,000) 287,000 14,000
State and local (140,000) (75,000) 85,000
- -------------------------------------------------------------------------------
Total deferred (718,000) (334,800) (1,060,000)
- -------------------------------------------------------------------------------
Income tax expense $ 3,931,000 $ 4,264,000 $ 2,035,000
===============================================================================
</TABLE>
The difference between the federal statutory tax rate and the effective tax
rate on continuing operations is as follows:
<TABLE>
Year ended June 30, 1998 1997 1996
- ------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) from
continuing operations $ (1,509,000) $ 4,280,000 $ 1,747,000
Foreign earnings taxed at
different rates 237,000 109,000 (137,000)
Nondeductible losses-Hirsh Sale 5,012,000 - -
Write-off of foreign currency
translation adjustment 546,000 - -
State and local income
taxes 530,000 159,000 141,000
Tax credits and other (885,000) (284,000) (73,000)
Tax bracket change - - 357,000
- -------------------------------------------------------------------------------
Income tax expense $ 3,931,000 $ 4,264,000 $ 2,035,000
===============================================================================
</TABLE>
26
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The sources of the net deferred income tax liability are as follows:
<TABLE>
June 30, 1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Property and equipment $ 7,716,000 $ 9,475,000
Pension accrual 705,000 756,000
Net operating loss carryforward (995,000) (1,308,000)
Stock basis of Canadian subsidiary (1,419,000) (1,105,000)
Other (65,000) (163,000)
- -------------------------------------------------------------------------------
$ 5,942,000 $ 7,655,000
===============================================================================
</TABLE>
For Canadian tax purposes, the Company has net operating losses expiring
through 2005 totaling approximately $5,000,000. The tax benefit reflected
above for these loss carryforwards is net of a valuation allowance of
$1,255,000.
10. Stock Option Plan
The 1987 Stock Option Plan granted key employees of the Company options to
purchase shares of common stock. Options were granted at or above the
market price of the Company's common stock on the date of the grant, were
exercisable from that date and terminated ten years from the grant date.
The plan, as amended in October 1994 and in October 1991, authorized a
total of 300,000 shares to be available for issuance under the plan. Grants
can no longer be made under the 1987 Stock Option Plan.
Transactions under the 1987 Stock Option Plan are as follows:
<TABLE>
Weighted Weighted
average average
exercise exercise
June 30, 1998 price 1997 price
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Options outstanding,
beginning of year 170,337 $15.55 172,740 $15.57
Granted - 0.00 50,000 15.50
Exercised (31,796) 16.40 (22,760) 15.50
Forfeited (4,500) 17.00 (29,643) 15.50
- ---------------------------------------------------------------------------------
Options outstanding and
exercisable, end of year 134,041 $15.30 170,337 $15.55
=================================================================================
Options available for grant,
end of year - 26,610
=================================================================================
Weighted average fair value of
options granted during the year N/A $4.92
=================================================================================
</TABLE>
27
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The Company accounts for its stock option plans in accordance with APB
Opinion 25, Accounting for Stock Issued to Employees. Since the exercise
price of the Company's employee stock options equals the market price of
the underlying stock on the date of the grant, no compensation cost is
recognized under APB Opinion 25. In accordance with SFAS No. 123,
Accounting for Stock-Based Compensation, the Company is required to provide
pro forma information regarding net income compensation costs for the
Company's stock option plan had been determined using a fair value based
estimate. The Company uses the Black-Scholes option-pricing model to
determine the fair value of each option at the grant date with the
following weighted average assumptions:
<TABLE>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Dividends per share $ 0.66 $ 0.66
Expected volatility 0.3134 0.3592
Risk-free interest rate 5.4% 6.5%
Expected lives 10.0 9.3
===============================================================================
</TABLE>
Under the accounting provisions of SFAS No. 123, the Company's net income
(loss), earnings per share and pro forma amounts are indicated below:
<TABLE>
1998 1997
- -------------------------------------------------------------------------------
<S> <C> <C>
Net income (loss):
As reported $ (9,737,460) $ 7,853,604
Pro forma (9,737,460) 7,680,684
Earnings per share:
As reported (1.64) 1.33
Pro forma (1.64) 1.30
===============================================================================
</TABLE>
Shareholders at the 1997 annual meeting approved the Company's 1997 Stock
Incentive Plan. Under this plan, up to 600,000 shares of the Company's
common stock are available for issuance. Issuance can be in the form of
stock options or restricted stock; however, no more than 50,000 shares can
be issued as restricted stock. Stock options can be granted as incentive
stock options or nonqualified stock options. The number of shares of common
stock subject to an option granted to a participant under this plan will be
determined based on the amount of the participant's election under the EVA
bonus plan. Each participant may elect to receive options by electing to
forego a portion of the cash bonus that may be earned by them, with the
option price determined in accordance with the plan. The exercise price per
share of common stock purchasable under an option shall be a single fixed
exercise price equal to 100% of the fair market value of the common stock
at the award date increase (based on U.S. Treasury Securities plus 2% less
a projected dividend yield) compounded annually over the term of the
option. In general, the options vest three years after the date of option
was granted and expire five years after the grant date. No options or
restricted stock shares were granted during fiscal 1998.
Of the 600,000 shares available for issuance under the 1997 Stock Incentive
Plan, no more than 50,000 shares may be issued as restricted stock. The
Executive
28
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Compensation Committee shall, subject to the approval of the Board of
Directors, determine the eligible persons to whom, and the price (if any)
to be paid by the participant. The participant shall not be permitted to
sell, transfer, pledge, or assign the shares of the restricted stock
awarded under this Plan. Subject to these limits, the Committee has sole
discretion to set, accelerate or waive the restrictions of the stock.
Except as provided above, upon issuance of the restricted stock, the
participant will have all the rights of a shareholder with respect to the
shares, including the right to vote them and to receive all dividends and
other related distributions. If termination of employment occurs within the
restricted period, all shares of stock still subject to restriction will
vest or be forfeited in accordance with the terms and conditions
established by the Committee.
In July 1, 1998, William Dutmers, Chairman of the Board of Knape & Vogt,
was granted 10,500 shares of common stock. The stock is subject to
restrictions on transfer for one year. The stock is the primary
compensation for one year's service by Mr. Dutmers to the Company as
Chairman of the Board of Directors. In addition, under the EVA bonus plan,
Mr. Dutmers is eligible to receive a target bonus of 65% times the value of
the above awarded shares which is determined by using the average stock
price in the 30 day period preceding the date of grant. Mr. Dutmers has
elected to utilize up to 50% of his fiscal 1999 target bonus to purchase
leveraged stock options.
11. Stockholders' Equity
The Company has three classes of stock, common stock, Class B common stock
and unissued preferred stock. Each share of common stock entitles the
holder thereof to one vote on all matters submitted to the shareholders.
Each share of Class B common stock entitles the holder to ten votes on all
such matters, except that the holders of common stock are entitled to
elect, voting separately as a class, at least one quarter of the Company's
directors to be elected at each meeting held for the election of directors.
In all other instances, holders of common stock and Class B common stock
vote together, except for matters affecting the powers, preferences or
rights of the respective classes or as otherwise required under the
Michigan Corporation Act. With respect to dividend rights, each share of
common stock is entitled to cash dividends at least ten percent (10%)
higher than those payable on each share of Class B common stock. Class B
common stock is subject to certain restrictions on transfer, but is
convertible into common stock on a share-for-share basis at anytime.
12. Supplemental Cash Flow
Information
Total interest paid during the years ended June 30, 1998, 1997 and 1996,
was $1,310,066, $2,025,599 and $2,245,136, respectively.
Total income taxes paid during the years ended June 30, 1998, 1997 and
1996, were $3,686,753, $4,324,000 and $2,540,139, respectively.
In 1998 the Company recorded an accrued liability of approximately
$3,000,000 in connection with the sale of Hirsh. The accrual represents
closing and other costs associated with the planned sale of Hirsh.
13. Subsequent Events
The Board of Directors gave final approval on August 31, 1998, authorizing
the purchase by the Company of up to 1,200,000 shares of the Company's
common stock pursuant to a Dutch Auction self-tender offer at a price range
to be determined. The self-tender offer will commence in September 1998.
The Company plans to use a portion of the proceeds from the sale of Hirsh
and its existing credit facility to fund the repurchase of shares of stock
The Board also approved a purchase in the open market or in privately
negotiated transactions, following the completion of the Dutch Auction, of
shares of common stock
29
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
in an amount which when added to the number of shares of common stock
purchased in the Dutch Auction would equal 1,350,000.
Also, on August 31, 1998, the Company signed the definitive agreement to
sell The Hirsh Co. (see Notes 2 and 8).
30
<PAGE>
Independent Auditors' Report
Board of Directors
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
We have audited the accompanying consolidated balance sheets of Knape & Vogt
Manufacturing Company and subsidiaries as of June 30, 1998 and 1997, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1998. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Knape & Vogt
Manufacturing Company and subsidiaries at June 30, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ BDO Seidman, LLP
Grand Rapids, Michigan
August 7, 1998
except for Note 13, as to which the date is August 31, 1998
31
<PAGE>
ITEM 9--DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
No changes in, or disagreements with, the Company's accountants occurred,
requiring disclosure under Item 304 of Regulation S-K.
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of Registrant. Information relating to directors and director
nominees of the Company, contained in the Company's definitive Proxy Statement
for its Annual Meeting of Shareholders to be held October 16, 1998, and filed
pursuant to Regulation 14A, is incorporated herein by reference.
Executive Officers of Registrant. Information relating to the executive
officers of the Company is included in Part I of this Form 10-K.
ITEM 11--EXECUTIVE COMPENSATION
The information under the captions "Summary Compensation Table," "Option
Grants in Last Fiscal Year," and "Aggregated Stock Option Exercises in Fiscal
1998 and Year End Option Values," is incorporated herein by reference from the
Company's definitive Proxy Statement for the Company's Annual Meeting of
Shareholders to be held October 16, 1998, filed pursuant to Regulation 14A.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the captions "Voting Securities and Principal
Shareholders" and "Directors and Nominees" is incorporated herein by reference
from the Company's definitive Proxy Statement for the Company's Annual Meeting
of Shareholders to be held October 16, 1998, filed pursuant to Regulation 14A.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Directors and Nominees" is incorporated
herein by reference from the Company's definitive Proxy Statement for the
Company's Annual Meeting of Shareholders to be held October 16, 1998, filed
pursuant to Regulation 14A.
32
<PAGE>
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following financial statements and schedules, all of which are set
forth in Item 8, are filed as part of this report.
Page Number in
10-K Report
Consolidated Statements of Operations 13
Consolidated Balance Sheets 14
Consolidated Statements of Stockholders' Equity 16
Consolidated Statements of Cash Flows 17
Notes to Consolidated Financial Statements 18
Independent Auditors' Report 31
(2) Financial Statement Schedule
The following financial statement schedule and related Independent
Auditors' Report on such schedule are included in this Form 10-K on the pages
noted.
Page Number in
10-K Report
Independent Auditors' Report on such schedule 34
Schedule II -- Valuation and Qualifying Accounts and Reserves 35
All other schedules are not submitted because they are not applicable or
not required, or because the required information is included in the financial
statements or notes thereto.
(3) Exhibits
Reference is made to the Exhibit Index which is found on page 37 of 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 30, 1998.
33
<PAGE>
Independent Auditors' Report on Schedule
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
The audits referred to in our report dated August 7, 1998, except for Note 13,
as to which the date is August 31, 1998, relating to the consolidated financial
statements of Knape & Vogt Manufacturing Company which is contained in Item 8 of
this Form 10-K, included the audit of the financial statement schedule listed in
the accompanying table of contents. This financial statement schedule is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement schedule based upon our audits.
In our opinion, the financial statement schedule presents fairly, in all
material respects, the information set forth therein.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
August 7, 1998
34
<PAGE>
Knape & Vogt Manufacturing Company and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
<TABLE>
Column A Column B Column C Column D Column E
- --------------------------------------------------------------------------------------------------------
Balance Charged to Balance
beginning costs and end of
Description of period expenses(1) Deductions(1) period
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended June 30, 1998:
Allowances deducted from assets:
Accounts receivable for:
Doubtful accounts $268,000 $390,000 $381,000 $277,000
Cash discounts 257,000 - 63,000 194,000
- --------------------------------------------------------------------------------------------------------
$525,000 $390,000 $444,000 $471,000
Year ended June 30, 1997
Allowances deducted from
assets:
Accounts receivable for:
Doubtful accounts $ 340,000 $ 318,000 $ 390,000 $ 268,000
Cash discounts 223,000 34,000 - 257,000
- --------------------------------------------------------------------------------------------------------
$ 563,000 $ 352,000 $ 390,000 $ 525,000
Year ended June 30, 1996
Allowances deducted from
assets:
Accounts receivable for:
Doubtful accounts $ 338,000 $ 593,000 $ 591,000 $340,000
Cash discounts 216,000 7,000 - 223,000
- ---------------------------------- ---------------- --------------- ---------------- ----------------
$554,000 $ 600,000 $ 591,000 $563,000
</TABLE>
(1) Write-off of doubtful accounts and collections on accounts previously
written off, including reduction in allowance balance.
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
KNAPE & VOGT MANUFACTURING COMPANY
By /s/ Allan E. Perry
Allan E. Perry, President and Chief
Executive Officer
Date: September 1, 1998
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on September 1, 1998, by the following persons on
behalf of the registrant in the capacities indicated. Each director or officer
of the registrant, whose signature appears below, hereby appoints Richard C.
Simkins as his attorney-in-fact, to sign in his name and on his behalf, as a
director or officer of the registrant, and to file with the Commission any and
all amendments to this Report on Form 10-K.
/s/ Allan E. Perry /s/ William R. Dutmers
Allan E. Perry, Chief Executive Officer William R. Dutmers,
and Director Chairman of the Board
/s/ Richard C. Simkins /s/ Jack D. Poindexter
Richard C. Simkins, Executive Vice Jack D. Poindexter, Principal
President and Director Financial and Accounting Officer
/s/ John E. Fallon
Mary Rita Cuddohy, Director John E. Fallon, Director
/s/ Herbert F. Knape
Michael J. Kregor, Director Herbert F. Knape, Director
/s/ Raymond E. Knape /s/ Richard S. Knape
Raymond E. Knape, Director Richard S. Knape, Director
36
<PAGE>
KNAPE & VOGT MANUFACTURING COMPANY
ANNUAL REPORT - FORM 10-K
EXHIBIT INDEX
3(a) Certificate of Amendment to the Articles of Incorporation, and the
Restated Articles of Incorporation of the Company, which was filed as
Exhibit 3(a) of the Registrant's Form 10-K Annual Report for the
fiscal year ended June 30, 1987, is incorporated by reference.
3(b) Bylaws, filed as Exhibit 3(b) of the Registrant's Form 10-K Annual
Report for the fiscal year June 30, 1987, is incorporated by
reference.
10(a) Supplemental Executive Retirement Plan, which was filed as Exhibit 10
of the Registrant's Form 10-K Annual Report for the fiscal year ended
June 30, 1981, is incorporated by reference.
10(b) Knape & Vogt Manufacturing Company 1987 Stock Option Plan, effective
October 16, 1987, which was filed as Exhibit I to Registrant's
definitive Proxy Statement dated September 23, 1987, is incorporated
by reference.
10(c) Knape & Vogt Manufacturing Company Employees' Retirement Savings Plan
(July 1, 1989 Restatement), as amended, which was filed as Exhibit 99
to Registrant's Registration Statement on Form S-8 (Reg. No.
33-88212), is incorporated by reference.
10(d) Loan agreement with Old Kent Bank dated November 29, 1993, as amended,
which was filed as Exhibit 10(d) to the Registrant's Form 10-K Annual
Report for the fiscal year ended June 30, 1996, is incorporated by
reference.
10(e) Agreement dated November 1, 1997, amending loan agreement with Old
Kent Bank - filed herewith.
10(f) Knape & Vogt Manufacturing Company 1997 Stock Incentive Plan, which
was filed as Appendix A to the Registrant's proxy statement dated
September 17, 1997, is incorporated by reference.
10(g) Letter Agreement dated July 1, 1998 between Knape & Vogt Manufacturing
Company and William R. Dutmers - filed herewith.
10(h) Restricted Share Award Agreement dated July 1, 1998 between Knape &
Vogt Manufacturing Company and William R Dutmers - filed herewith.
10(i) Management Continuity Agreement dated July 1, 1997, between Knape &
Vogt Manufacturing Company and Allan E. Perry - filed herewith.
Registrant has entered into identical agreements with Messrs. Richard
C. Simkins, Michael G. Van Rooy and John Vogus.
21 Subsidiaries of Registrant.
23 Consent of BDO Seidman, LLP, independent public accountants.
24 Power of Attorney (Included on page 36).
27 Financial Data Schedule
37
<PAGE>
EXHIBIT 10(e)
REVOLVING NOTE
$47,500,000 Grand Rapids, Michigan
November 1, 1997
FOR VALUE RECEIVED, the undersigned, KNAPE & VOGT MANUFACTURING COMPANY, a
Michigan corporation (the "Company"), hereby promises to pay to the order of OLD
KENT BANK, a Michigan banking corporation (the "Bank"), in lawful currency of
the United States of America and in immediately available funds, on November 1,
1999, the principal sum of Forty-seven Million Five Hundred Thousand Dollars
($47,500,000), or, if less, the aggregate unpaid principal amount of revolving
Loans made by the Bank to the Company pursuant to the Loan Agreement described
below and to pay interest on the unpaid principal balance hereof from time to
time outstanding, in like money and funds, for the period from the date hereof
until those Revolving Loans shall be paid in full, at the rates per annum and on
the dates proviced in the Loan Agreement referred to below.
The Bank is hereby authorized by the Company to note on the schedule
attached to this Revolving Note or on its books and records the date and amount
of each Revolving Loan, the applicable interest rate and type and duration of
the related Interest Period (if applicable), the amount of each payment or
prepayment of principal thereon, and the other information provided for on that
schedule, which schedule or such books and records, as the case may be, shall
constitute prima facie evidence of the information so noted, provided that any
failure by the Bank to make any that notation shall not relieve the Company of
its obligation to repay the outstanding principal amount of this Revolving Note,
all accrued interest hereon and any amount payable with respect hereto in
accordance with the terms of this Revolving Note and the Loan Agreement.
The Company and each endorser or guarantor hereof waives demand,
presentment, protest, diligence, notice of dishonor and any other formality in
connection with this Revolving Note.
This Revolving Note evidences one or more Revolving Loans made under a Loan
Agreement, dated as of November 29, 1993, and amended on February 16, 1995, and
June 28, 1996 (collectively, the "Loan Agreement"), between the Company and the
Bank, to which reference is hereby made for a statement of the circumstances
under which this Revolving Note is subject to prepayment and under which its due
day may be accelerated. Capitalized terms used but not defined in this Revolving
Note shall have the respective meanings assigned to them in the Loan Agreement.
KNAPE & VOGT MANUFACTURING COMPANY
By /s/ Richard C. Simkins
Richard C. Simkins
Its Executive Vice President
Accepted by:
OLD KENT BANK
By
Andrew P. Gavulic, Vice President
#196636
<PAGE>
EXHIBIT 10(g)
July 1, 1998
Mr. William R. Dutmers
1848 Antisdale Road
Muskegon, MI 49441
Dear Bill:
This letter will serve as our agreement concerning your compensation and
the services to be provided by you to Knape & Vogt Manufacturing Company (the
"Company"). This agreement becomes effective as of July 1, 1998.
Services Rendered. You are presently serving as Chairman of the Board of
Directors of the Company. You have been providing and expect to continue
providing consulting services to the Company concerning mergers, acquisitions,
asset dispositions and other special projects that may be assigned to you from
time to time by the Board of Directors or management of the Company. You will
also be expected to perform those duties outlined in a written job description
to be approved by the Compensation Committee and the full Board of Directors
prior to July 1, 1998. It is expected that you will devote at least 80% of your
business time to the Company's business. You will report directly to the Board
of Directors.
Restricted Shares. Your base compensation for services rendered will be an
annual award at the beginning of each fiscal year of 10,500 restricted shares of
the Company's common stock. This restricted share award will be granted as of
the beginning of each fiscal year for five years, subject to prior termination
of the arrangement by the Board of Directors. The restricted shares will not
vest and may not be transferred until one year after they are issued. During the
restricted period, the restricted shares will be forfeited if you cease to be
Chairman of the Board of Directors for any reason or cease to be a member of the
Board of Directors for any reason, other than your death or disability. After
the one year restricted period, the restricted shares will vest and become
freely transferrable. The restricted shares will be issued to you in a private
placement and will not have been registered under state and federal securities
law. During the one year restriction period, you will be permitted to vote the
restricted shares and will be entitled to dividends paid on the restricted
shares. The
<PAGE>
Mr. William R. Dutmers
July 1, 1998
Page 2
restricted shares will vest automatically upon a change of control of the
Company. The terms and conditions of the restricted shares will be described in
more detail in a Restricted Share Award Agreement to be signed by you and the
Company, a copy of which is attached to this letter.
EVA Bonus. During the term of this Agreement, you will be paid a bonus
based on Economic Value Added determined in the same manner as provided in the
Company's Management Incentive Compensation Plan (the EVA Bonus Plan). For
purposes of calculating an equivalent to the bonus that would be payable under
the EVA Bonus Plan, your "base" for EVA bonus purposes for each fiscal year will
equal the fair market value of the 10,500 restricted shares. Fair market value
will be the average closing price per share during the month of June as reported
in the Wall Street Journal prior to the date the restricted shares were awarded.
July 1 will be the award date for the restricted shares. Your Target Bonus
Percentage will be 65% for purposes of calculating your EVA bonus. Any bonus
earned by you will be allocated to leveraged stock options in the same
percentage as the maximum percentage of EVA bonus that the Company's President
and Chief Executive Officer is eligible to designate as his EVA Bonus Option
Amount under the EVA Bonus Plan. In addition, if the amount of leveraged stock
options that the President and Chief Executive Officer of the Company is
eligible to receive is reduced because of the limitations contained in Section
6.4(a) of the 1997 Stock Incentive Plan, then the number of leveraged stock
options that you may receive will also be reduced on a pro rata basis. Although
you are not a participant in the Company's EVA Bonus Plan, the leveraged stock
options will be granted to you on terms equivalent to the leveraged stock
options that would have been granted under the EVA Bonus Plan had you been a
participant in the EVA Bonus Plan. The options and the shares covered by the
options will be issued in a private placement and will not be registered under
state and federal securities laws.
Additional Compensation. The Company will also provide you with coverage
under the Company's medical insurance plan. The Company will lease a suitable
automobile for your use and reimburse you for automobile expenses related to the
Company's business.
Independent Contractor. We agree that you are providing services to the
Company as an independent contractor, and not as an employee. As an independent
contractor, you set your own hours and determine the manner and method of your
performance. This agreement is not an employment agreement and does not create
an employment relationship.
<PAGE>
Mr. William R. Dutmers
July 1, 1998
Page 3
This agreement supersedes and replaces any and all other agreements or
arrangements and may be canceled by you or the Company at any time. This
agreement is not a commitment to nominate or elect you to the Company's Board of
Directors.
If this letter accurately reflects the agreement between you and the
Company concerning these matters, please acknowledge below and return a copy to
the Company.
Sincerely,
KNAPE & VOGT MANUFACTURING COMPANY
By: /s/ Allan E. Perry
Its: President
Acknowledged and agreed:
/s/William R. Dutmers
William R. Dutmers
::ODMA\PCDOCS\GRR\140334\1
<PAGE>
EXHIBIT 10(h)
RESTRICTED SHARE AWARD AGREEMENT
AGREEMENT made as of this 1st day of July, 1998, by KNAPE & VOGT
MANUFACTURING COMPANY, a Michigan corporation (the "Company"), and WILLIAM R.
DUTMERS, an individual (the "Grantee").
RECITALS
The Company and the Grantee have entered into a consulting agreement
providing for the grant by the Company to the Grantee of restricted shares of
common stock of the Company.
The Board of Directors of the Company has approved an award of restricted
shares to the Grantee upon the terms and conditions set forth in this Agreement.
The Company and the Employee desire to confirm in this Agreement the terms,
conditions and restrictions applicable to the award of restricted stock.
NOW, THEREFORE, intending to be bound, the parties agree as follows:
1. DEFINITIONS
1.1 "Board" means the Board of Directors of the Company.
1.2 "Change in Control" shall have the meaning ascribed to such term in
Section 10.2 of the Company's 1997 Stock Incentive Plan.
1.3 "Common Stock" means the common stock of the Company, par value $2.00
per share.
1.4 "Company" means Knape & Vogt Manufacturing Company, a Michigan
corporation, its successors and assigns.
1.5 "Effective Date of this Agreement" means July 1, 1998.
1.6 "Fiscal Year" means the twelve month period ending June 30 of each
year, or such other fiscal year as may be adopted for the Company by the Board.
1.7 "Restricted Share" means a Share which is subject to the restriction on
sale, pledge or other transfer imposed by Section 3.1. An "Unrestricted Share"
is a Share which is no longer a Restricted Share.
<PAGE>
1.8 "Reverted Shares" means Shares which have reverted to the Company
pursuant to Section 5.2.
1.9 "Shares" means the shares of Common Stock awarded, issued and delivered
to the Grantee under this Agreement. If, as a result of a stock split, stock
dividend, combination of stock, or any other change or exchange of securities,
by reclassification, reorganization, recapitalization or otherwise, the Shares
shall be increased or decreased, or changed into or exchanged for a different
number or kind of shares of stock or other securities of the Company or another
corporation, the term "Shares" shall mean and include the shares of stock or
other securities issued with respect to the Shares.
1.10 "Vested Shares" shall have the meaning expressed in Section 5.1.
2. AWARD AND ACCEPTANCE OF AWARD; TAX ELECTION
2.1 Award. The Company confirms the award to the Grantee of 10,500 shares
of Common Stock (the "Shares") as restricted stock, upon the terms, restrictions
and conditions of this Agreement. The award of Shares shall be effective as of
the Effective Date of this Agreement. The Company agrees to issue and deliver to
the Grantee a certificate representing the Shares promptly after the Effective
Date of this Agreement.
2.2 Acceptance. The Grantee accepts this award of Shares and agrees to hold
them subject to the terms, restrictions and conditions of this Agreement.
2.3 Tax Election. The Grantee may elect to be taxed in 1998 [the year in
which this award is made] on the fair market value of the Shares awarded by
signing an election to be so taxed under Section 83(b) of the Internal Revenue
Code, and filing such election with the Internal Revenue Service within thirty
(30) days after the Effective Date of this Agreement. If the Grantee chooses not
to make such an election, the Grantee will be taxed on the fair market value of
the Shares in the year in which the restrictions lapse.
2.4 No Withholding. The Grantee recognizes that he is an independent
contractor with respect to the Company and not an employee of the Company. The
Company will not withhold any amounts from the award of Shares for tax purposes.
Grantee is responsible for his own tax consequences with respect to the award of
Shares.
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<PAGE>
3. RESTRICTIONS ON TRANSFER OF SHARES; LAPSE OF RESTRICTIONS
3.1 Transfer Prohibition. The Grantee shall not sell, pledge or otherwise
assign or transfer any Share or any interest in any Share while such Share is a
Restricted Share.
3.2 Restricted Shares. Every Share shall be a Restricted Share until the
restrictions lapse as provided in Section 3.6.
3.3 Securities Law Compliance. The Grantee shall not sell or transfer any
Share or any interest in any Share, whether such Share is or is not a Restricted
Share, unless either (a) the Company shall consent in writing to such transfer,
or (b) the Company shall have received an opinion of counsel satisfactory to the
Company to the effect that such transfer will not violate the registration
requirements imposed by the Securities Act of 1933 or any other provision of law
which the Company shall desire such opinion to cover. The Grantee acknowledges
that the Shares have not been registered under the federal securities laws or
the securities laws of any state.
3.4 Legend. Every certificate representing a Share shall at all times bear
the following legend:
"The transferability of this certificate and the shares of stock
represented hereby are subject to the terms and conditions (including
forfeiture) of the Award Agreement entered into between the registered
owner and the Company, dated July 1, 1998. A copy of the Award
Agreement is on file in the offices of the Company, 2700 Oak Industrial
Drive, N.E., Grand Rapids, MI 49505."
3.5 Stop Transfer Instructions. The Company shall have the right to issue
instructions to the transfer agent for the shares of the Company, prohibiting
transfer of any Shares except in accordance with the requirements of this
Agreement.
3.6 Unrestricted Shares. The restrictions imposed by Section 3.1 shall
lapse at the time a Share becomes a Vested Share pursuant to Section 5.1. At
that time, the Share will be an Unrestricted Share.
3.7 New Certificate for Unrestricted Shares. If the Grantee holds a
certificate representing Shares which are no longer Restricted Shares, the
Grantee shall be entitled to receive from the Company, in exchange therefor, a
certificate representing such Unrestricted Shares, bearing a legend, if the
Company shall deem such a legend to be appropriate, only to the effect that the
transfer of such Shares is prohibited if it would violate the Securities Act of
1933, or any state securities law. If the Grantee's certificate represents both
Restricted and Unrestricted Shares, the Grantee shall be entitled to receive two
certificates in exchange
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<PAGE>
therefor, one of which shall represent the Restricted Shares and one of which
shall represent Unrestricted Shares.
3.8 Rights of Shareholder. Except for the restrictions imposed in this
Article 3 and unless the Shares have reverted to the Company pursuant to Section
5.2, the Grantee shall have all the rights of a shareholder with respect to the
Restricted Shares, including the right to vote and to receive the dividends
declared and paid thereon.
4. ACQUISITION WARRANTIES
In order to induce the Company to issue and deliver the Shares on the terms
of this Agreement, the Grantee warrants to and agrees with the Company as
follows:
4.1 No Participating Interest. The Grantee is acquiring the Shares for the
Grantee's own account, and has not made any arrangement to convey any interest
in the Shares to any person, other than to transfer Reverted Shares to the
Company pursuant to Section 5.3.
4.2 Ability to Evaluate. Because of the Grantee's knowledge and experience
in financial and business matters, the Grantee is capable of evaluating the
merits and risks of acquiring the Shares under the arrangements prescribed by
this Agreement.
4.3 Familiarity with Company. The Grantee is familiar with the business,
financial condition, earnings and prospects of the Company, and confirms that
the Company has not made any representation regarding the foregoing matters or
the merits of this Agreement.
4.4 All Questions Answered. The Grantee understands all of the terms of
this Agreement and the consequences to the Grantee of any actions which may be
taken under this Agreement. The Grantee confirms there are no questions relating
to any such matters which have not been answered to the Grantee's complete
satisfaction.
4.5 Accredited Investors Status. The Grantee represents and warrants to the
Company that he is an "accredited investor" as such term is defined in
Regulation D under the Securities Act of 1933, as amended, because Grantee's net
worth exceeds $1,000,000.
4.6 Separate Award. The Company and the Grantee understand that Grantee is
not a participant in the Company's 1997 Stock Incentive Plan, and this Agreement
is not subject to the Company's 1997 Stock Incentive Plan.
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<PAGE>
5. VESTING AND REVERSION
5.1 Vesting. All Shares shall become 100% Vested Shares on the earlier of
(i) July 1, 1999 (one year from the date of this Agreement), (ii) the occurrence
of a Change of Control, (iii) Grantee's death, or (iv) Grantee's disability,
unless prior to such time such shares revert to the Company pursuant to Section
5.2 of this Agreement because Grantee ceases to be Chairman of the board or a
member of the Board of Directors for any reason (other than death or
disability), whether Grantee's departure was because of resignation or any other
reason (other than death or disability).
5.2 Reversion. Unless already vested pursuant to Section 5.1 above, all
Shares which have not become Vested Shares shall automatically revert to the
Company if prior to July 1, 1999 (one year from the date of this Agreement)
Grantee ceases to be Chairman of the Board of Directors or a member of the Board
of Directors for any reason (other than death or disability), whether Grantee's
departure was because of resignation or any other reason. No compensation shall
be payable to the Grantee for shares which revert to the Company (other than
death or disability).
5.3 Effect of Reversion. Upon reversion of any Shares (a) absolute
ownership thereof shall automatically revert to the Company at that time, (b)
such Shares shall be deemed to be "Reverted Shares" for purposes of this
Agreement, (c) all the Grantee's rights and interests in the Reverted Shares
shall cease at that time, and (d) the Grantee shall be obligated immediately to
surrender to the Company the certificates representing the Reverted Shares, but
the failure to do so shall not impair the immediate effect of clauses (a), (b)
and (c) above.
6. GENERAL PROVISIONS
6.1 No Right to Employment. This Agreement is not an employment contract.
Grantee is an independent contractor with respect to the Company.
6.2 Severability. Whenever possible, each provision of this Agreement shall
be interpreted in such manner as to be valid and enforceable, but if any
provision of this Agreement shall be held to be prohibited or unenforceable
under applicable law (a) such provision shall be deemed amended to accomplish
the objectives of the provision as originally written to the fullest extent
permitted by law, and (b) all other provisions of this Agreement shall remain in
full force and effect.
6.3 Captions. The captions used in this Agreement are for convenience only,
do not constitute a part of this Agreement and all of the provisions of this
Agreement shall be enforced and construed as if no captions had been used.
-5-
<PAGE>
6.4 Complete Agreement. This Agreement and the Letter Agreement dated July
1, 1998, between the Company and Grantee contain the complete agreement between
the parties relating in any way to the subject matter of this Agreement and
supersede any prior understandings, agreements or representations, written or
oral, which may have related to such subject matter in any way.
6.5 Notices.
(a) Procedures Required. Each communication given or delivered under
this Agreement must be in writing and may be given by personal delivery or
by certified mail, return receipt requested. A written communication shall
be deemed to have been given on the date it shall be delivered to the
address required by this Agreement.
(b) Communications to the Company. Communications to the Company shall
be addressed to it at the principal corporate headquarters and marked to
the attention of the Company's Executive Compensation Committee Chair.
(c) Communications to the Grantee. Every communication to the Grantee
shall be addressed to the Grantee at the address given immediately below
the Grantee's signature to this Agreement, or to such other address as the
Grantee shall specify to the Company.
6.6 Assignment. This Agreement is not assignable by the Grantee during the
Grantee's lifetime. This Agreement shall be binding upon and inure to the
benefit of (a) the successors and assigns of the Company, and (b) any person to
whom the Grantee's rights under this Agreement may pass by reason of the
Grantee's death.
6.7 Amendment. This Agreement may be amended, modified or terminated by
written agreement between the Company and the Grantee.
6.8 Waiver. No delay or omission in exercising any right hereunder shall
operate as a waiver of such right or of any other right hereunder. A waiver upon
any one occasion shall not be construed as a bar or waiver of any right or
remedy on any other occasion. All of the rights and remedies of the parties
hereto, whether evidenced hereby or granted by law, shall be cumulative.
6.9 Choice of Law. This Agreement shall be deemed to be a contract made
under the laws of the State of Michigan and for all purposes shall be construed
in accordance with and governed by the laws of the State of Michigan.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Grantee: KNAPE & VOGT MANUFACTURING
COMPANY
/s/William R. Dutmers By /s/Allan E. Perry
William R. Dutmers Its President
Address:
1848 Antisdale
Muskegon, MI 49441
::ODMA\PCDOCS\GRR\140209\3
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<PAGE>
EXHIBIT 10(i)
MANAGEMENT CONTINUITY AGREEMENT
THIS IS AN AGREEMENT between KNAPE & VOGT MANUFACTURING COMPANY (the
"Corporation"), whose principal offices are 2700 Oak Industrial Drive, N.E.
Grand Rapids, MI 49505, and ALLAN E. PERRY (the "Executive"), who resides at
10127 Augusta Valley Court, S.E., Ada, MI 49301, dated July 1, 1997.
RECITALS
The Executive is a key executive officer of the Corporation whose continued
dedication, availability, advice and counsel to the Corporation is deemed
important to the Board of Directors of the Corporation ("Board"), the
Corporation and its shareholders. The services of the Executive, his experience
and knowledge of the affairs of the Corporation and his reputation and contacts
in the industry are extremely valuable to the Corporation. The Corporation
wishes to attract and retain such well-qualified executives, and it is in the
best interests of the Corporation and of the Executive to secure the continued
services of the Executive notwithstanding any change in control of the
Corporation. The Corporation considers the establishment and maintenance of a
sound and vital management to be part of its overall corporate strategy and to
be essential to protecting and enhancing the best interests of this Corporation
and its shareholders. Accordingly, the Board has approved this Agreement with
the Executive and authorized its execution and delivery on behalf of the
Corporation.
AGREEMENT
1. Term of Agreement. This Agreement will begin on the date entered above
(the "Commencement Date") and will continue in effect through the third
anniversary of the Commencement Date. However, as of the third anniversary of
the Commencement Date, and as of each third anniversary date thereafter, the
term of this Agreement may be extended for three (3) additional years if the
Board specifically approves such an extension. If this Agreement is not so
extended, it will terminate unless the following sentence applies. If a Change
of Control occurs during the term of this Agreement, this Agreement will
continue in effect for at least thirty-six (36) months beyond the end of the
month in which any Change of Control occurs.
2. Definitions. The following defined terms shall have the meanings set
forth below, for purposes of this Agreement:
(a) Change of Control. A "Change of Control" of the Corporation shall
be deemed to have occurred only if:
<PAGE>
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934 (the "Exchange Act")) is
or becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the
Corporation representing fifty-one percent (51%) or more of the
combined voting power of the Corporation's then outstanding
securities; or
(ii) At any time a majority of the Board of Directors of the
Corporation is comprised of other than Continuing Directors (for
purposes of this and the following paragraphs, the term Continuing
Director means a director who was either (A) first elected or
appointed as a Director prior to the date of this Agreement; or (B)
subsequently elected or appointed as a director if such director was
nominated or appointed by at least a majority of the then Continuing
Directors); or
(iii) Any of the following occur:
(A) Any merger or consolidation of the Corporation, other
than a merger or consolidation in which the voting securities of
the Corporation immediately prior to the merger or consolidation
continue to represent (either by remaining outstanding or being
converted into securities of the surviving entity) fifty-one
percent (51%) or more of the combined voting power of the
Corporation or surviving entity immediately after the merger or
consolidation with another entity;
(B) Any sale, exchange, lease, mortgage, pledge, transfer,
or other disposition (in a single trans action or a series of
related transactions) of all or substantially all of the assets
of the Corporation, which shall not include any asset sales
approved by the Continuing Directors for the specific purpose of
downsizing of the Corporation's continuing business operations;
(C) Any liquidation or dissolution of the Corporation; or
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<PAGE>
(D) Any transaction or series of related trans actions
having, directly or indirectly, the same effect as any of the
foregoing; or any agreement, contract, or other arrangement
providing for any of the foregoing.
(b) Disability. "Disability" means that, as a result of Executive's
incapacity due to physical or mental illness, the Executive shall have been
found to be eligible for the receipt of benefits under the Corporation's
long term disability plan.
(c) Cause. "Cause" means (i) the willful commission by the Executive
of a criminal or other act that causes or will probably cause substantial
economic damage to the Corporation or a Subsidiary or substantial injury to
the business reputation of the Corporation or a Subsidiary; (ii) the
commission by the Executive of an act of fraud in the performance of such
Executive's duties on behalf of the Corporation or a Subsidiary; or (iii)
the continuing willful failure of the Executive to perform the duties of
such Executive to the Corporation or a Subsidiary (other than any such
failure resulting from the Executive's Disability or occurring after
issuance by Executive of a Notice of Termination for Good Reason) after
written notice thereof (specifying the particulars thereof in reasonable
detail) and a reasonable opportunity to be heard and cure such failure are
given to the Executive by the Executive Compensation Committee of the
Board. For purposes of this subparagraph, no act, or failure to act, on the
Executive's part shall be deemed "willful" unless done, or omitted to be
done, by the Executive not in good faith and without reasonable belief that
the action or omission was in the best interest of the Corporation or a
Subsidiary.
(d) Good Reason. For purposes of this Agreement, "Good Reason" means
the occurrence of any one or more of the following without the Executive's
express written consent:
(i) The assignment to Executive of duties which are materially
different from or inconsistent with the duties, responsibilities, and
status of Executive's position at any time during the six (6) month
period prior to the Change of Control of the Corporation, or which
result in a significant reduction in Executive's authority and
responsibility as a senior executive of the Corporation;
(ii) A reduction by the Corporation in Executive's base salary or
salary grade as of the day prior to the Change of
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<PAGE>
Control, or the failure to grant salary increases and bonus payments
on a basis comparable to those granted to other executives of the
Corporation, or reduction of Executive's most recent incentive bonus
potential prior to the Change of Control under the Corporation's
Management Bonus Plan, or any successor plan;
(iii) The Corporation requiring Executive to be based at a
location in excess of forty (40) miles from the location where
Executive is currently based, or in the event of any relocation of the
Executive with the Executive's express written consent, the failure of
the Corporation or a Subsidiary to pay (or reimburse the Executive
for) all reasonable moving expenses by the Executive relating to a
change of principal residence in connection with such relocation and
to indemnify the Executive against any loss realized in the sale of
the Executive's principal residence in connection with any such change
of residence, all to the effect that the Executive shall incur no loss
on an after tax basis;
(iv) The failure of the Corporation to obtain a satisfactory
agreement from any successor to the Corporation to assume and agree to
perform this Agreement, as contemplated in Paragraph 6 hereof;
(v) Any termination by the Corporation of Executive's employment
that is not effected pursuant to a Notice of Termination;
(vi) Any termination of Executive's employment, reduction in
Executive's compensation or benefits, or adverse change in Executive's
location or duties, if such termination, reduction or adverse change
(aa) occurs within six (6) months before a Change of Control, (bb) is
in contemplation of such Change in Control, and (cc) is taken to avoid
the effect of this Agreement should such action occur after such
Change in Control;
(vii) The failure of the Corporation to provide the Executive
with substantially the same fringe benefits (including, without
limitation, retirement plan, health care, insurance, stock options and
paid vacations) that were provided to him
-4-
<PAGE>
immediately prior to the Change in Control, or with a package of
fringe benefits that, though one or more of such benefits may vary
from those in effect immediately prior to such Change in Control, is
substantially comparable in all material respects to such fringe
benefits taken as a whole.
The existence of Good Reason shall not be affected by Executive's
Disability. Executive's continued employment shall not constitute a waiver
of Executive's rights with respect to any circumstance constituting Good
Reason under this Agreement.
(e) Notice of Termination. "Notice of Termination" means a written
notice indicating the specific termination provision in this Agreement
relied upon and setting forth in reasonable detail the facts and
circumstances claimed to provide a basis for termination of the employment
under the provision so indicated. The Executive shall not be entitled to
give a Notice of Termination that the Executive is terminating employment
for Good Reason more than six (6) months following the occurrence of the
event alleged to constitute Good Reason, except with respect to an event
which occurred before the Change of Control, in which case the Notice of
Termination must be given within six (6) months following the Change of
Control.
(f) Retirement. "Retirement" means having reached normal retirement
age as defined in the Corporation's profit sharing plan or taking early
retirement in accordance with the terms of the Corporation's profit sharing
plan.
(g) Subsidiary. "Subsidiary" means a corporation with at least eighty
percent (80%) of its outstanding capital stock owned by the Corporation.
3. Eligibility for Severance Benefits. Subject to Paragraph 5, the
Executive shall receive the Severance Benefits described in Paragraph 4 if the
Executive's employment is terminated during the term of this Agreement, and
(a) The termination occurs within thirty-six (36) months after a
Change of Control, unless the termination is (i) because of Executive's
death or Disability, (ii) by the Corporation for Cause, or (iii) by the
Executive other than for Good Reason; or
(b) The Corporation terminates the employment within six (6) months
before a Change of Control, in contemplation of such Change of
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<PAGE>
Control, and to avoid the effect of this Agreement should such action occur
after such Change of Control.
4. Severance Benefits. Subject to Paragraph 5, the Executive shall receive
the following Severance Benefits (in addition to accrued compensation and vested
benefits) if eligible under Paragraph 3:
(a) A lump sum cash amount equal to Executive's annual base salary at
the highest annual rate in effect during the twelve (12) month period
immediately prior to the Change of Control or, if greater, at the rate in
effect at the time Notice of Termination is given (or on the date the
employment is terminated if no Notice of Termination is required),
multiplied by 2.5;
(b) The average incentive bonus paid to Executive over the preceding
three (3) full year period, multiplied by 2.5;
(c) For a three (3) year period after the date the employment is
terminated, the Corporation will arrange to provide to Executive at the
Corporation's expense, with:
(i) Health care coverage equal to that in effect for Executive
prior to the termination (or, if more favorable to Executive, that
furnished generally to salaried employees of the Corporation),
including, but not limited to, hospital, surgical, medical, dental,
prescription and dependent coverages. Upon the expiration of the
health care benefits required to be provided pursuant to this
subparagraph 4(c), the Executive shall be entitled to the continuation
of such benefits under the provisions of the Consolidated Omnibus
Budget Reconciliation Act. Health care benefits otherwise receivable
by Executive pursuant to this subparagraph 4(c) shall be reduced to
the extent comparable benefits are actually received by Executive from
a subsequent employer during the three (3) year period following the
date the employment is terminated and any such benefits actually
received by Executive shall be reported to the Corporation;
(ii) Life and accidental death and dismemberment insurance
coverage (including supplemental coverage purchase opportunity and
double indemnity for accidental death) equal (including policy terms)
to that in effect at the time Notice of Termination is given (or on
the date the employment is terminated if no Notice of Termination is
required) or, if more
-6-
<PAGE>
favorable to Executive, equal to that in effect at the date the Change
of Control occurs; and
(iii) Disability insurance coverage (including policy terms)
equal to that in effect at the time Notice of Termination is given (or
on the date employment is terminated if no Notice of Termination is
required) or, if more favorable to Executive, equal to that in effect
immediately prior to the Change of Control; provided, however, that no
income replacement benefits will be payable under such disability
policy with regard to the three (3) year period following a
termination of employment provided that the payments payable under
subparagraphs 4(a) and (b) above have been made;
(d) The Corporation shall pay all fees for outplacement services for
the Executive up to a maximum equal to fifteen percent (15%) of the
Executive's base salary used to calculate his benefit under subparagraph
4(a) plus provide a travel expense account of up to $5000 to reimburse job
search travel;
(e) In computing and determining Severance Benefits under
subparagraphs 4(a), (b), (c), and (d) above, a decrease in Executive's
salary, incentive bonus, or insurance benefits shall be disregarded if such
decrease occurs within six (6) months before a Change of Control, is in
contemplation of such Change of Control, and is taken to avoid the effect
of this Agreement should such action be taken after such Change of Control;
in such event, the salary, incentive bonus, and/or insurance benefits used
to determine Severance Benefits shall be that in effect immediately before
the decrease that is disregarded pursuant to this subparagraph 4(c);
(f) Executive shall not be required to mitigate the amount of any
payment provided for in this Paragraph 4 by seeking other employment or
otherwise, nor shall the amount of any payment provided for in this
Paragraph 4 be reduced by any compensation earned by Executive as the
result of employment by another employer after the date the employment is
terminated, or otherwise, with the exception of a reduction in health
insurance coverage as provided in subparagraph 4(c)(i).
The payments provided in subparagraphs 4(a) and (b) above shall be made not
later than thirty (30) business days following the date the employment
terminates.
-7-
<PAGE>
Any termination by the Corporation for Cause or due to Executive's
Disability, or by Executive for Good Reason shall be communicated by Notice of
Termination to the other party.
5. Maximum Payments. Notwithstanding any provision in this Agreement to the
contrary, if part or all of any amount to be paid to Executive by the
Corporation under this Agreement or otherwise constitute a "parachute payment"
(or payments) under Section 280G or any other similar provision of the Internal
Revenue Code of 1986, as amended (the "Code"), the following limitation shall
apply:
If the aggregate present value of such parachute payments (the
"Parachute Amount") exceeds 2.99 times Executive's "base amount" as
defined in Section 280G of the Code, and if as a result the amounts
otherwise payable to or for the benefit of the Executive subsequent to
the termination of his employment, and taken into account in
calculating the Parachute Amount (the "termination payments"), shall be
reduced and/or delayed, as further described below, to the extent
necessary so that the Parachute Amount is equal to 2.99 times the
Executive's "base amount."
Any determination or calculation described in this Paragraph 5 shall be
made by the Corporation's independent accountants. Such determination, and any
proposed reduction and/or delay in termination payments shall be furnished in
writing promptly by the accountants to the Executive. The Executive may then
elect, in his sole discretion, which and how much of any particular termination
payment shall be reduced and/or delayed and shall advise the Corporation in
writing of his election, within thirty (30) days of the accountant's
determination, of the reduction or delay in termination payments. If no such
election is made by the Executive within such 30-day period, the Corporation may
elect which and how much of any termination payment shall be reduced and/or
delayed and shall notify the Executive promptly of such election. As promptly as
practicable following such determination and the elections hereunder, the
Corporation shall pay to or distribute to or for the benefit of the Executive
such amounts as are then due to the Executive.
Any disagreement regarding a reduction or delay in termination payments
will be subject to arbitration under Paragraph 15 of this Agreement. Neither the
Executive's designation of specific payments to be reduced or delayed, nor the
Executive's acceptance of reduced or delayed payments, shall waive the
Executive's right to contest such reduction or delay.
6. Successors; Binding Agreements. This Agreement shall inure to the
benefit of and be enforceable by Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. Executive's rights and benefits under this Agreement may not be
assigned, except that if Executive dies while any
-8-
<PAGE>
amount would still be payable to Executive hereunder if Executive had continued
to live, all such amounts, unless otherwise provided herein, shall be paid in
accordance with the terms of this Agreement, to the beneficiaries designated by
the Executive to receive benefits under this Agreement in a writing on file with
the Corporation at the time of the Executive's death or, if there is no such
beneficiary, to Executive's estate. The Corporation will require any successor
(whether direct or indirect, by purchase, merger, consolidation, or otherwise)
to all or substantially all of the business and/or assets of the Corporation (or
of any division or Subsidiary thereof employing Executive) to expressly assume
and agree to perform this Agreement in the same manner and to the same extent
that the Corporation would be required to perform it if no such succession had
taken place. Failure of the Corporation to obtain such assumption and agreement
prior to the effectiveness of any such succession shall be a breach of this
Agreement and shall entitle Executive to compensation from the Corporation in
the same amount and on the same terms to which Executive would be entitled
hereunder if Executive terminated the employment for Good Reason following a
Change of Control.
7. Withholding of Taxes. The Corporation may withhold from any amounts
payable under this Agreement all federal, state, city, or other taxes as
required by law.
8. Notice. For the purpose of this Agreement, notices and all other
communications provided for in this Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, addressed to the
respective addressees set forth on the first page of this Agreement, or at such
other addresses as the parties may designate in writing.
9. Miscellaneous. No provision of this Agreement may be modified, waived,
or discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by Executive and such officer as may be specifically
designated by the Board of Directors of the Corporation. The validity,
interpretation, construction, and performance of this Agreement shall be
governed by the laws of the State of Michigan.
10. Employment Rights. This Agreement shall not confer upon Executive any
right to continue in the employ of the Corporation or its subsidiaries and shall
not in any way affect the right of the Corporation or its subsidiaries to
dismiss or otherwise terminate Executive's employment at any time with or
without cause.
11. No Vested Interest. Neither Executive nor Executive's beneficiary shall
have any right, title, or interest in any benefit under this Agreement prior to
the occurrence of the right to the payment thereof, or in any property of the
Corporation or its subsidiaries or affiliates.
12. Prior Agreements. This Agreement contains the understanding between the
parties hereto with respect to Severance Benefits in connection with a Change of
Control of
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<PAGE>
the Corporation and supersedes any such prior agreement between the Corporation
(or any predecessor of the Corporation) and Executive. If there is any
discrepancy or conflict between this Agreement and any plan, policy, or program
of the Corporation regarding any term or condition of Severance Benefits in
connection with a Change of Control of the Corporation, the language of this
Agreement shall govern.
13. Validity. The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other provision
of this Agreement, which shall remain in full force and effect.
14. Counterparts. This Agreement may be executed in several counterparts,
each of which shall be deemed to be an original but all of which together shall
constitute one and the same instrument.
15. Arbitration. The sole and exclusive method for resolving any dispute
arising out of this Agreement shall be arbitration in accordance with this
paragraph. Except as provided otherwise in this paragraph, arbitration pursuant
to this paragraph shall be governed by the Commercial Arbitration Rules of the
American Arbitration Association. A party wishing to obtain arbitration of an
issue shall deliver written notice to the other party, including a description
of the issue to be arbitrated. Within fifteen (15) days after either party
demands arbitration, the Corporation and the Executive shall each appoint an
arbitrator. Within fifteen (15) additional days, these two arbitrators shall
appoint the third arbitrator by mutual agreement; if they fail to agree within
said fifteen (15) day period, then the third arbitrator shall be selected
promptly pursuant to the rules of the American Arbitration Association for
Commercial Arbitration. The arbitration panel shall hold a hearing in Kent
County, Michigan, within ninety (90) days after the appointment of the third
arbitrator. The fees and expenses of the arbitrator, and any American
Arbitration Association fees, shall be paid by the Corporation. Both the
Corporation and the Executive may be represented by counsel and may present
testimony and other evidence at the hearing. Within ninety (90) days after
commencement of the hearing, the arbitration panel will issue a written
decision; the majority vote of two of the three arbitrators shall control. The
majority decision of the arbitrators shall be final and binding on the parties,
and shall be enforceable in accordance with law. Judgment may be entered on the
arbitrators' award in any court having jurisdiction. The Executive shall be
entitled to seek specific performances of his rights under this Agreement during
the pendency of any dispute or controversy arising under or in connection with
this Agreement. The Corporation will reimburse Executive for all reasonable
attorney fees incurred by Executive as the result of any arbitration with regard
to any issue under this Agreement (or any judicial proceeding to compel or to
enforce such arbitration); (i) which
-10-
<PAGE>
is initiated by Executive if the Corporation is found in such proceeding to have
violated this Agreement substantially as alleged by Executive; or (ii) which is
initiated by the Corporation, unless Executive is found in such proceeding to
have violated this Agreement substantially as alleged by the Corporation.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day
and year written above.
CORPORATION:
KNAPE & VOGT MANUFACTURING
COMPANY
By /s/Herbert F. Knape
Its: Chairman of the Executive Compensation
Committee
EXECUTIVE:
/s/Allan E. Perry
Allan E. Perry
::ODMA\PCDOCS\GRR\46599\1
-11-
<PAGE>
EXHIBIT 21
SCHEDULE OF SUBSIDIARIES OF KNAPE & VOGT MANUFACTURING COMPANY
Knape & Vogt Canada, Inc. (organized under the laws of Ontario, Canada)
Feeny Manufacturing Company (organized under the laws of Michigan)
The Hirsh Company (organized under the laws of Illinois)
38
<PAGE>
EXHIBIT 23
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference of our reports dated August
7, 1998, except for Note 13, as to which the date is August 31, 1998, relating
to the consolidated financial statements and schedule of Knape & Vogt
Manufacturing Company, appearing in that Corporation's annual report on Form
10-K for the year ended June 30, 1998, in that corporation's previously filed
Form S-8 Registration Statements (file numbers 33-20227, 33-43704, 33-88206,
33-88212 and 333-45411).
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
September 1, 1998
39
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