UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended April 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period From ______________ To _______________
Commission File Number 2-18868
KNAPE & VOGT MANUFACTURING COMPANY
(Exact name of registrant as specified in its charter)
Michigan 38-0722920
(State of Incorporation) (IRS Employer Identification No.)
2700 Oak Industrial Drive, NE
Grand Rapids, Michigan 49505
(Address of principal executive offices) (Zip Code)
(616) 459-3311
(Telephone Number)
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 ____
2,024,545 common shares were outstanding as of April 28, 2000.
2,188,270 Class B common shares were outstanding as of April 28, 2000.
The Exhibit Index appears on page 15.
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
INDEX
Page No.
PART I. FINANCIAL INFORMATION --------
Item 1. Financial Statements.
Condensed Consolidated Balance Sheets
--April 1, 2000 and June 30, 1999................................2
Condensed Consolidated Statements of Income
--Nine Months and Three Months Ended April 1, 2000 and
March 31, 1999...................................................3
Condensed Consolidated Statements of Cash Flows
--Nine Months Ended April 1, 2000 and March 31, 1999.............4
Notes to Condensed Consolidated Financial Statements...........5-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations...........................8-11
Item 3. Quantitative and Qualitative Disclosures About Market Risk......12
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K................................13
SIGNATURES....................................................................14
EXHIBIT INDEX.................................................................15
1
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited) (Audited)
April 1, 2000 June 30, 1999
------------- --------------
Assets
Current assets
Cash $ 1,636,207 $ 1,621,002
Accounts receivable - net 20,539,249 18,930,039
Inventories 14,112,224 13,149,649
Prepaid expenses and other 1,950,519 2,008,809
------------- -------------
Total current assets 38,238,199 35,709,499
------------- -------------
Property, plant and equipment 72,342,040 66,656,411
Less accumulated depreciation 34,800,057 31,357,471
------------- -------------
Net property, plant and equipment 37,541,983 35,298,940
------------- -------------
Goodwill 5,062,502 575,433
Other assets 3,710,145 3,476,117
------------- -------------
$ 84,552,829 $ 75,059,989
============= =============
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable $ 11,546,928 $ 9,129,514
Other accrued liabilities 10,561,052 8,444,285
------------- --------------
Total current liabilities 22,107,980 17,573,799
------------- --------------
Long-term debt 20,000,000 17,700,000
Deferred income taxes and other long-term liabilities 8,019,445 8,027,405
------------- --------------
Total liabilities 50,127,425 43,301,204
------------- --------------
Stockholders' Equity
Common stock (Common - 2,027,880 and 2,073,148 shares issued,
Class B common - 2,188,428 and 2,238,227 shares issued,
Preferred - unissued) 8,432,616 8,622,750
Additional paid-in capital 2,992,478 4,409,415
Unearned stock grant (94,500) -
Accumulated other comprehensive income:
Foreign currency translation adjustment 380 (29,983)
Minimum supplemental executive retirement plan
liability adjustment (449,243) (448,623)
Retained earnings 23,543,673 19,205,226
------------- --------------
Total stockholders' equity 34,425,404 31,758,785
------------- --------------
$ 84,552,829 $ 75,059,989
============= ==============
See accompanying notes.
2
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
For the Nine Months Ended For the Three Months Ended
------------------------- --------------------------
Apr. 1, 2000 Mar. 31, 1999 Apr. 1, 2000 Mar. 31, 1999
------------ ------------- ------------ -------------
Net sales $ 110,191,475 $ 116,075,990 $ 38,704,961 $ 36,038,270
Cost of sales 80,365,025 88,583,489 28,195,678 27,092,969
-------------- ------------- ------------- -------------
Gross profit 29,826,450 27,492,501 10,509,283 8,945,301
Selling and administrative expenses 18,938,712 19,176,244 6,772,571 6,276,471
Impairment loss - 600,000 - -
-------------- ------------- ------------ -------------
Operating income 10,887,738 7,716,257 3,736,712 2,668,830
Interest/Other expenses (income) 1,052,994 (93,014) 363,123 237,713
-------------- ------------- ------------ -------------
Income before income taxes 9,834,744 7,809,271 3,373,589 2,431,117
Income taxes 3,483,000 2,697,000 1,197,000 866,000
-------------- ------------- ------------- -------------
Net income $ 6,351,744 $ 5,112,271 $ 2,176,589 $ 1,565,117
============== ============= ============= =============
Basic earnings per share:
Net income per share $ 1.49 $ 1.00 $ 0.51 $ 0.34
============== ============= ============= =============
Weighted average shares outstanding 4,269,228 5,129,301 4,246,294 4,622,142
Diluted earnings per share:
Net income per share $ 1.49 $ .99 $ 0.51 $ 0.34
============== ============= ============= =============
Weighted average shares outstanding 4,272,796 5,143,606 4,248,849 4,627,993
Cash dividend - common stock $ .495 $ .495 $ .165 $ .165
Cash dividend - Class B common stock $ .45 $ .45 $ .15 $ .15
See accompanying notes.
3
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended
-----------------
Apr. 1, 2000 Mar. 31, 1999
------------- -------------
Operating Activities:
Net income $ 6,351,744 $ 5,112,271
Non-cash items:
Depreciation and amortization 4,395,431 4,597,447
Deferred income taxes (294,000) (406,129)
Other long-term liabilities (584,359) 506,454
Loss on disposal of fixed assets 17,446 101,086
Impairment loss - 600,000
Stock grants earned - 177,187
Changes in operating assets and liabilities:
Accounts receivable (922,290) 4,799,746
Inventories (711,872) (1,208,158)
Other current assets 89,534 1,132,684
Accounts payable and accrued expenses 3,605,246 (7,331,151)
------------- ------------
Net cash provided by operating activities 11,946,880 8,081,437
------------- ------------
Investing Activities:
Additions to property, plant and equipment (5,401,009) (3,066,746)
Sale of Hirsh subsidiary - 18,129,569
Net cash paid for acquisition (5,309,674) -
Changes in other non-current assets 190,966 (133,074)
------------- ------------
Net cash provided by (used for) investing activities (10,519,717) 14,929,749
------------ ------------
Financing Activities:
Cash dividends paid (2,013,297) (2,436,117)
Proceeds from issuance of common stock 188,483 570,096
Repurchase and retirement of common stock (1,898,386) (31,333,723)
Borrowings on long-term debt 2,300,000 8,300,000
------------- ------------
Net cash used for financing activities (1,423,200) (24,899,744)
------------- ------------
Effect of Exchange Rate Changes on Cash 11,242 (53,449)
------------- ------------
Net Increase (Decrease) in Cash 15,205 (1,942,007)
Cash, beginning of year 1,621,002 3,057,158
------------- ------------
Cash, end of period $ 1,636,207 $ 1,115,151
============= ============
Cash Paid During the Period - interest $ 1,032,216 $ 509,390
- income taxes $ 2,975,000 $ 3,242,773
See accompanying notes.
4
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Basis of Financial Statement Preparation
The accompanying unaudited condensed consolidated financial statements and
related notes have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. The information furnished reflects all
adjustments, which are, in the opinion of management, necessary for a fair
statement of the results of operations and consist of only normal recurring
adjustments. Interim results are not necessarily indicative of the results for
the year-end and are subject to year-end adjustments, and audit by independent
public accountants. The balance sheet at June 30, 1999, has been taken from the
audited financial statements at that date. The condensed consolidated financial
statements and notes should be read in conjunction with the Company's 1999
annual report.
Effective July 1, 1999, the Company adopted a 52- or 53-week fiscal year,
changing the year-end date from June 30 to the Saturday nearest the end of June.
Certain prior year information has been reclassified to conform to the current
year presentation.
Note 2 - Common Stock and Per Share Information
Common stock is $2 par - shares authorized 6,000,000 of common stock and
4,000,000 of Class B common stock.
The following table reconciles the numerators and denominators used in the
calculations of basic and diluted EPS for each of the periods presented:
For the nine months ended For the three months ended
------------------------- --------------------------
Apr. 1, 2000 Mar. 31, 1999 Apr. 1, 2000 Mar. 31, 1999
------------ ------------- ------------ -------------
Numerators:
Numerator for both basic and
diluted EPS, net income $6,351,744 $5,112,271 $2,176,589 $1,565,117
============= ============= ============ ============
Denominators:
Denominator for basic EPS,
weighted-average common shares
outstanding 4,269,228 5,129,301 4,246,294 4,622,142
Potentially dilutive shares
resulting from stock option plans 3,568 14,305 2,555 5,851
------------- ------------- ------------ ------------
Denominator for diluted EPS 4,272,796 5,143,606 4,248,849 4,627,993
============= ============= ============ ============
The following exercisable stock options were not included in the computation of
diluted EPS because the option prices were greater than average quarterly market
prices.
Apr. 1, 2000 Mar. 31, 1999
---------------- -----------------
Exercise Price
$15.00 - -
$15.50 - 29,750
$18.41 10,450 14,575
$20.00 10,000 17,500
Note 3 - Inventories
Inventories are valued at the lower of FIFO (first-in, first-out) cost or
market.
5
Inventories are summarized as follows:
Apr. 1, 2000 June 30, 1999
-------------------- -------------------
Finished products $ 8,696,663 $ 8,523,866
Work in process 1,995,108 1,634,904
Raw materials 3,420,453 2,990,879
-------------------- -------------------
Total $ 14,112,224 $ 13,149,649
-------------------- -------------------
Note 4 - New Accounting Standards Not Yet Adopted
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounts Standard No. 133, Accounting for Derivative Instruments and
Hedging Activities. The statement requires companies to recognize all derivative
contracts on the balance sheet at fair value and establishes accounting rules or
changes in fair value that result from hedging activities. The statement is
effective for fiscal years beginning after June 15, 2000. Management is
currently evaluating the impact that the statement may have on its financial
statements.
Note 5 - Comprehensive Income
Comprehensive income is comprised of net income and all changes to stockholders'
equity, except those due to investments by stockholders.
Comprehensive income and its components consist of the following:
For the Nine Months Ended For the Three Months Ended
------------------------- --------------------------
Apr. 1, 2000 Mar. 31, 1999 Apr. 1, 2000 Mar. 31, 1999
--------------- ---------------- ------------------ ------------------
Net income $6,351,744 $ 5,112,271 $2,176,589 $ 1,565,117
Other comprehensive income:
Foreign currency translation adjustment 30,363 (116,466) (6,973) 40,987
Minimum SERP liability adjustment (620) (447,714) 142 (525)
------------- --------------- ------------- --------------
Comprehensive income $6,381,487 $ 4,548,091 $2,169,758 $ 1,605,579
============= =============== ============= ==============
Note 6 - Acquisition
On October 1, 1999, the Company acquired substantially all of the assets of Idea
Industries, Inc. ("Idea"). Idea designs, manufactures and markets ergonomic
office products, including adjustable keyboard mechanisms, keyboard and computer
mouse platforms, wrist rests and CPU holders. The acquisition was recorded using
the purchase method of accounting. Accordingly, the purchase price was allocated
to the assets acquired and liabilities assumed, based on the estimated fair
values at the date of the acquisition. The cost of the acquisition in excess of
net identifiable assets acquired has been recorded as goodwill and is being
amortized on a straight-line basis over 15 years.
The terms of the Idea acquisition agreement provide for additional consideration
to be paid if Idea's sales exceed certain targeted levels. The maximum amount of
contingent consideration is $550,000 payable through 2001. In calendar year
1999, the additional consideration payment was $41,797, which has been included
in goodwill. Any additional consideration paid will be recorded as goodwill when
payment is made.
The results of the acquisition were not material to the Company's consolidated
operating results, therefore pro forma financial statements have not been
prepared.
6
Note 7 - Sale of The Hirsh Company
On September 1, 1998, the Company sold The Hirsh Company ("Hirsh"), a wholly
owned subsidiary. This resulted in a pre-tax loss of $11,800,000, which was
included in the June 30, 1998, financial results. The loss included the
write-off of the unamortized balance of goodwill recorded in connection with the
purchase of Hirsh. In connection with the sale, the Company recognized an
additional tax cost of $1,000,000, resulting in a total loss related to the sale
of Hirsh of $12,800,000.
Note 8 - Restricted Stock and Performance-Option Plan
On February 1, 2000, William Dutmers, Chairman of the Board, President and Chief
Executive Officer of Knape & Vogt was granted 6,000 shares of restricted common
stock and the option to purchase an additional 25,000 shares of the Company's
common stock at a price of $15.875 per share. The grant and the options will
vest if the Company achieves specific financial objectives within a five-year
performance period. During the performance period, the grantee may vote and
receive dividends on the restricted shares, but the shares are subject to
transfer restrictions and are forfeited if the grantee terminates employment or
the Company does not achieve its financial objectives.
Note 9 - Stock Repurchase
On September 1, 1998, the Company announced its intention to purchase up to
1,200,000 shares of the Company's common stock pursuant to a Dutch Auction
self-tender offer at a price range of $19 to $22 per share. The Board of
Directors also approved the purchase in the open market or in privately
negotiated transactions, following the completion of the Dutch Auction, of
shares 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 Dutch
Auction was concluded on October 7, 1998, with the purchase of 1,230,784 shares
at a price of $21 per share.
At each of the January 22, 1999, and the August 20, 1999, Board of Directors
meetings, the Board approved an additional 400,000 shares for the stock
repurchase program. Utilizing these Board authorizations, the Company has
purchased 113,597 shares during the first nine months of fiscal 2000 for
approximately $1.9 million with the price per share ranging from approximately
$14.25 to $17.75. Since the beginning of the stock repurchase program in fiscal
1999, the Company has purchased 1,786,340 shares for approximately $35.3
million.
7
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Certain matters discussed in this section include forward-looking statements
involving risks and uncertainties. When used in this document, the words
"believes," "expects," "anticipates," "goal," "think," "forecast," "project,"
and similar expressions identify forward-looking statements. Forward-looking
statements include, but are not limited to, statements concerning future revenue
growth, and the expected ability of the Company and its key customers, dealers
and suppliers to successfully manage Year 2000 issues. 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 that speak only as of the date of this report.
RESULTS OF OPERATIONS
Net Sales
The following table indicates the Company's net sales (in millions) and
percentage of total sales by product category for the nine-month and three-month
periods ended April 1, 2000 and March 31, 1999:
Nine Months End Three Months Ended
--------------- ------------------
Apr. 1, Mar. 31, Apr. 1, Mar. 31,
2000 % 1999 % 2000 % 1999 %
------------------------ -------------------------- -------------------------- -------------------------
Shelving systems $ 37.9 34.4% $ 44.2 38.0% $13.3 34.4% $12.8 35.4%
Drawer slides 51.1 46.4% 53.9 46.5% 17.5 45.1% 17.7 49.1%
Hardware/ Other 21.2 19.2% 18.0 15.5% 7.9 20.5% 5.5 15.5%
------------------------ -------------------------- -------------------------- -------------------------
Total $110.2 100.0% $116.1 100.0% $38.7 100.0% $36.0 100.0%
======================== ========================== ========================== =========================
Net sales for the third quarter of fiscal 2000 increased $2.7 million from the
same period in the prior year. For the nine-month period net sales decreased
$5.9 million from one year ago. The sales decline for the nine-month period is
due to the contribution of The Hirsh Company, which was sold in September 1998.
Excluding its contribution, net sales for the first nine months of fiscal 1999
would have been $108.6 million. Sales of precision drawer slides remain strong,
however, they haven't been able to offset the sales decline in utility slides
following their discontinuance during the second quarter of fiscal 1999. In
addition, the Company continues to face strong competition and downward pricing
pressures in the retail market and believes that this will continue. A majority
of the sales growth in both the third quarter and for the first nine months of
fiscal 2000 is attributable to new products introduced in the current fiscal
year and the acquisition of Idea Industries, Inc. Management anticipates that
newly introduced products will be the primary drivers of net sales growth in the
future.
Gross Profit
Gross profit, as a percentage of net sales, was 27.2% for the third quarter and
27.1% for the first nine months of fiscal 2000 compared to 24.8% and 23.7%,
respectively, for the same periods in the prior year. The increase in gross
profit during fiscal 2000 reflects the Company's restructuring efforts,
including the sale of The Hirsh Company, and its emphasis on cost reduction
combined with continuous improvement in the manufacturing process. In fact,
promotional pricing offered during the third quarter o fiscal 2000 to launch one
of the Company's new product lines into the retail market negatively impacted
gross margins. Excluding the impact of these launch costs, gross margins would
have approximated those earned in the second quarter of fiscal 2000. During the
first nine months of fiscal 1999, the Company recorded a $400,000 inventory
write-off for potentially obsolete inventory related to certain product lines
that were discontinued.
8
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Operating Expenses
Selling and administrative expenses, as a percentage of net sales, for the third
quarter of fiscal 2000 increased to 17.5% from 17.4% in the same period in the
prior year. For the nine-month period ended April 1, 2000, selling and general
administrative expenses, as a percentage of net sales, increased to 17.2% from
16.5% in the prior year. Fiscal 2000 expenses included higher levels of spending
associated with the launch of certain new products and additional development
costs being incurred to bring other new products to market. The prior year
included Michigan Single Business Tax refunds of $852,460 pre-tax.
As a result of the decision to re-deploy certain production assets, the Company
recorded an impairment loss of $600,000 in the second quarter of fiscal 1999.
This loss reflected the write-down of the related tooling assets to their
estimated fair value.
Other Expenses/(Income)
Interest expense was $362,932 for the quarter and $1,051,793 for the nine months
ended April 1, 2000, compared with $228,013 and $533,791, respectively, for the
same periods in the prior year. The increase in interest expense was
attributable to the higher level of borrowings during fiscal 2000.
Other miscellaneous expense/(income) was $191 for the third quarter and $1,201
for the first nine months of fiscal 2000. This compares to $9,700 and
$(626,805), respectively, for fiscal 1999. In fiscal 1999, the Company received
interest income on Michigan Single Business Tax refunds and two patent
infringement settlements.
Income Taxes
The effective tax rates for the quarter and nine months ended April 1, 2000,
were 35.5% and 35.4% compared with the rates of 35.6% and 34.5%, respectively,
for the same periods in the prior year. The increase in the nine-month rate
compared to the prior year was primarily due to foreign tax credits recognized
in the second quarter of fiscal 1999.
Net Income
For the quarter ended April 1, 2000, net income was $2,176,589 or $0.51 per
diluted share compared to $1,565,117 or $0.34 per diluted share for the third
quarter of last year. Net income of $6,351,744, or $1.49 per diluted share was
recorded for the first nine months of fiscal 2000 compared with $5,112,271, or
$.99 per diluted share for the same period in the prior year. Fiscal 1999
results included the impairment loss and related inventory obsolescence reserve
recorded in the second quarter, which decreased net income by $650,000 for both
the second quarter and the fiscal year. This charge was offset by income
recognized in the first quarter of fiscal 1999 on the Michigan Single Business
Tax refunds and the two patent settlements of approximately $895,000.
Liquidity and Capital Resources
Net cash from operating activities for the first nine months of fiscal 2000
provided $11,946,880 compared with $8,081,437 for the first nine months of
fiscal 1999. Cash flows were positively impacted by the increase in accounts
payable and accrued expenses. The conversion to a 52-week fiscal year increased
accounts payable due to timing of payments at the end of March. The increase in
accrued expenses reflected an increase in certain benefit-related accruals such
as bonus and vacation.
9
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Capital expenditures totaled $5,401,009 for the nine months ended April 1, 2000,
compared to $3,066,746 for the nine months ended March 31, 1999. The increased
capital spending reflects investments in manufacturing technology, manufacturing
support systems, tooling for new products and the expansion of the Company's
Indiana facility. At April 1, 2000, the only significant capital expenditure
commitment was for the new facility being constructed at the Company's Indiana
location. The commitment for the new building approximated $1.0 million.
Commitments for the related machinery and equipment are approximately $.7
million. Capital expenditures during the remainder of the fiscal year are
anticipated to remain at approximately the same level as those in the first nine
months.
On October 1, 1999, the Company acquired substantially all of the assets of Idea
Industries, Inc. ("Idea") for a purchase price of $5,267,877. Idea designs,
manufactures and markets ergonomic office products, including adjustable
keyboard mechanisms, keyboard and computer mouse platforms, wrist rests and CPU
holders. The acquisition was recorded using the purchase method of accounting.
Accordingly, the purchase price was allocated to the assets acquired and
liabilities assumed, based on the estimated fair values at the date of the
acquisition. The cost of the acquisition in excess of net identifiable assets
acquired has been recorded as goodwill and is being amortized on a straight-line
basis over 15 years.
The terms of the Idea acquisition agreement provide for additional consideration
to be paid if Idea's sales exceed certain targeted levels. The maximum amount of
contingent consideration is $550,000 payable through 2001. In calendar year
1999, the additional consideration payment was $41,797, which has been included
in goodwill. Any additional consideration paid will be recorded as goodwill when
payment is made.
In fiscal 1999, the Company recorded $18,129,569 of proceeds from the sale of
the Hirsh subsidiary and the related loss in fiscal 1998.
On September 1, 1998, the Company announced its intention to purchase up to
1,200,000 shares of the Company's common stock pursuant to a Dutch Auction
self-tender offer at a price range of $19 to $22 per share. The Board of
Directors also approved the purchase in the open market or in privately
negotiated transactions, following the completion of the Dutch Auction, of
shares 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 Dutch
Auction was concluded on October 7, 1998, with the purchase of 1,230,784 shares
at a price of $21 per share.
At each of the January 22, 1999, and the August 20, 1999, Board of Directors
meetings, the Board approved an additional 400,000 shares for the stock
repurchase program. Utilizing these Board authorizations, the Company has
purchased 113,597 shares during the first nine months of fiscal 2000 for
approximately $1.9 million with the price per share ranging from approximately
$14.25 to $17.75. Since the beginning of the stock repurchase program in fiscal
1999, the Company has purchased 1,786,340 shares for approximately $35.3
million.
The long-term debt balance increased to $20,000,000 at April 1, 2000 compared
with $17,700,000 at June 30, 1999, and $18,000,000 at March 31, 1999. The
increase from June 30, 1999, primarily reflects the purchase of Idea. The
increase from the March 31, 1999, balance reflects funds utilized for the stock
repurchase program.
Anticipated cash flows from operations and available balances on the revolving
credit line are expected to be adequate to fund working capital, capital
expenditures, stock repurchases and dividend payments.
10
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Continued)
Year 2000
As of May 5, 2000, the Company has not experienced any Year 2000 related
disruptions to its own internal systems nor have any third party vendors
experienced any Year 2000 disruptions that have materially affected their
ability to do business with the Company.
Although the Company and its third party vendors do not appear to have suffered
any significant Year 2000 related disruptions as a result of the rollover from
1999 to 2000, it is possible that certain Year 2000 problems may exist but have
not yet materialized.
11
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company is exposed to market risks, which include changes in the foreign
currency exchange rate as measured against the U.S. dollar and changes in U.S.
interest rates. The Company holds a derivative instrument in the form of an
interest rate swap, which is viewed as a risk management tool and is not used
for trading or speculative purposes. The intent of the interest rate swap is to
effectively fix the interest rate on part of the borrowings under the Company's
variable rate revolving credit agreement.
Quantitative disclosures relating to financial instruments and debt are included
in the tables below.
The following table provides information on the Company's fixed maturity
investments as of April 1, 2000 that are sensitive to changes in interest rates.
The table also presents the corresponding interest rate swap on this debt. Since
the interest rate swap effectively fixes the interest rate on the notional
amount of debt, changes in interest rates have no current effect on the interest
expense recorded by the Company on the portion of the debt covered by the
interest rate swap.
Liability Amount Maturity Date
- --------- ------ -------------
Variable rate revolving credit
agreement $45 million November 1, 2004
First $20,000,000 at an interest rate
of 6.1088% plus weighted average
credit spread of .500 %
Amounts in excess of $20,000,000 have
an interest rate of approximately 6.82%
Interest Rate Swap
- ------------------
Notional amount $20 million June 1, 2006
Pay fixed/Receive variable - 6.10125%
Pay fixed interest rate - 6.25%
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 through working capital
management. The Company does not hedge its exposure to translation gains and
losses relating to foreign currency net asset exposures.
12
KNAPE & VOGT MANUFACTURING COMPANY AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index
(b) Reports on Form 8-K
There were no reports on Form 8-K filed for the three months ended
April 1, 2000.
13
SIGNATURES
Pursuant to the requirements 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
(Registrant)
Date: May 5, 2000 /s/ William R. Dutmers
William R. Dutmers
Chairman, President, Chief Executive Officer
and Principal Financial Officer
14
EXHIBIT INDEX
10.1 Restricted Share Grant Agreement dated February 1, 2000, between Knape
& Vogt Manufacturing Company and William R. Dutmers - filed herewith.
10.2 Stock Option Agreement for Nonqualified Stock Option dated February 1,
2000, between Knape & Vogt Manufacturing and William R. Dutmers -
filed herewith.
(27) Financial Data Schedule
15
RESTRICTED SHARE GRANT AGREEMENT
AGREEMENT made as of this 1st day of February, 2000, by KNAPE & VOGT
MANUFACTURING COMPANY, a Michigan corporation (the "Company"), and WILLIAM R.
DUTMERS, an individual (the "Grantee").
RECITALS
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.
This award is made under the terms of Article 7 of the Company's 1997 Stock
Incentive Plan.
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 February 1, 2000.
1.6 "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.
1.7. "Reverted Shares" means Shares which have reverted to the Company
pursuant to Section 5.2.
1.8 "Shares" means the shares of Common Stock awarded, issued and delivered
to the Grantee under this Agreement, subject to adjustment as provided in
Section 6.1.
1.9 "Target Price" means a target price as defined in Section 5.1, subject
to adjustment as provided in Section 6.1.
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 6,000 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 2000 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 Withholding. Unless the Grantee has made the election specified in
Section 2.3 and paid any applicable tax as a result thereof, a Vested Share
shall remain as a Restricted Share until the satisfaction of withholding tax or
other withholding liabilities, if any, under federal, state and local laws in
connection with the vesting of the Vested Shares. The Vested Shares will not
become Unrestricted Shares unless applicable withholdings shall have been
effected or obtained in a manner acceptable to the Company's Executive
Compensation Committee. Unless otherwise prohibited by the Company's Executive
Compensation Committee, the Grantee may satisfy any such withholding tax
obligation by any of the following means or by a combination of such means (a)
tendering a cash payment; or (b) delivering to the Company Vested Shares or
other unencumbered shares of Common Stock owned by the Grantee having a fair
market value, as of the date that the amount of tax to be withheld is to be
determined, equal to the amount of the withholding tax obligation plus, if
necessary, cash to avoid fractional shares.
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 Restricted Share Grant Agreement entered into between
the registered owner and the Company, dated February 1, 2000. A copy of the
Grant 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 Common Stock 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 or
Section 6.2 and the requirements of Section 2.4 are satisfied. 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 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.
5. VESTING AND REVERSION
5.1 Vesting. Three thousand (3,000) Shares shall become 100% vested on that
date on which the Company's Common Stock shall have for the prior twenty
consecutive trading days closed at or above a sale price on the NASDAQ National
Market of $25 per Share ("$25 Target Price"). Three thousand (3,000) Shares
shall become 100% vested on that date on which the Company's Common Stock shall
for the prior twenty consecutive trading days closed at or above a sale price on
the NASDAQ National Market o $30 per Share ($30 Target Price").
5.2 Reversion. Unless already vested pursuant to Section 5.1 or Section
6.2, all Shares which have not become Vested Shares prior to February 1, 2005
shall automatically revert to the Company.
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. ANTI-DILUTION; CHANGE IN CONTROL; ADJUSTMENT
6.1 Anti-Dilution. Subject to the provisions of this Article 6, if the
outstanding shares of the Common Stock are increased, decreased, or exchanged
for a different number or kind of shares or other securities, or if additional
shares or new or different shares or other securities are distributed with
respect to such shares of Common Stock or other securities, through merger,
consolidation, sale of all or substantially all of the assets of the Company,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other distribution with respect to such shares of Common
Stock or other securities, an appropriate and proportionate adjustment shall be
made in (i) the number of Shares, (ii) the number and kind of shares or other
securities subject to this Agreement, and (iii) the Target Prices. This
Agreement shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capita or
business structure or to merge or consolidate or to dissolve, liquidate, sell,
or transfer all or any part of its business or assets.
6.2 Change in Control. Notwithstanding Section 5.1 or Section 6.1, upon the
occurrence of a Change in Control, all Shares shall become Vested Shares.
6.3 Adjustment by Committee. Any adjustments pursuant to this Article 6
shall be made by the Company's Executive Compensation Committee, whose
determination as to what adjustments will be made and the extent thereof will be
final and binding and conclusive. No fractional share interest will be issued
under this Agreement on account of any such adjustments. Only cash payments will
be made in lieu of fractional shares.
6.4 No Other Adjustments. Except as provided in this Article 6, the Grantee
shall have no rights by reason of any subdivision or combination or shares of
stock of any class or the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any sale
of assets, dissolution, liquidation, merger or consolidation or spin-off of
assets or stock of another corporation.
7. GENERAL PROVISIONS
7.1 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.
7.2 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.
7.3 Complete Agreement. This Agreement between the Company and Grantee
contain the complete agreement between the parties relating 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.
7.4 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.
7.5 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.
7.6 Amendment. This Agreement may be amended, modified or terminated by
written agreement between the Company and the Grantee.
7.7 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.
7.8 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.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
Grantee: KNAPE & VOGT MANUFACTURING
COMPANY
_______________________ By_______________________________
William R. Dutmers
Its _____________________________
Address:
KNAPE & VOGT MANUFACTURING COMPANY
Stock Option Agreement
for Nonqualified Stock Option
STOCK OPTION AGREEMENT, made this 1st day of February, 2000 between KNAPE &
VOGT MANUFACTURING COMPANY ("Company") and WILLIAM R. DUTMERS, an officer of the
Company ("Optionee"). This option is granted to the Optionee in consideration of
his prior service and continuing service to the Company.
ACCORDINGLY, IT IS AGREED AS FOLLOWS:
1. Grant and Designation of Option
Subject to the provisions of this agreement, the Company hereby grants to
the Optionee the option to purchase 25,000 shares of the Company's common stock.
This option is not an incentive stock option under the terms of Section 422A of
the Internal Revenue Code of 1986, as amended.
2. Purchase Price
The purchase price for shares purchased under this option is $15.875 per
share, which was the last sale price reported prior to the date of this option
for a share of the Company's common stock.
3. Term of Option
The term of this option shall be for a period of five (5) years from the
date hereof, subject to earlier termination as provided herein.
4. No Guaranteed Employment
The option shall not impose upon the Company or the Bank any obligation to
retain the Optionee in its employ or service for any period.
5. Exercise of Option
Except as herein, set forth this option shall not be exercisable prior to
that date on which the Corporation's common stock shall have for the prior
twenty consecutive trading days closed at or above a sale price on the NASDAQ
National Market of $21.00 per share ("Target Price"). Thereafter, this option
may be exercised at any time and from time to time, as to any part or all of the
shares covered hereby, but not as to less than 100 shares at any one time,
unless the number purchased is the total number at that time purchasable under
the option. This option may not be exercised and shall be forfeited if the
Target Price is not achieved before the expiration or earlier termination of
this option. This option shall be exercised, if at all, by written notice to the
Company. Such notice shall:
(a) State the election to exercise the option, the number of shares
with respect to which it is being exercised, the person in whose name the
stock certificate or
certificates for such shares is to be registered and his or her address and
social security number (or if more than one, the names, addresses and
social security numbers of such persons);
(b) Be signed by the person entitled to exercise the option and, if
being exercised by any person or persons other than the Optionee, be
accompanied by proof, satisfactory to legal counsel for the Company, of the
right of such person or persons to exercise the option;
(c) Be in writing and delivered in person or by registered or
certified mail to the chair of the Executive Compensation Committee or
chief financial officer of the Company; and
(d) Be accompanied by payment in full of the option price for the
shares to be purchased, which shall be payable to the Company either (i) in
United States dollars in cash or by check, bank draft or money order
payable to the order of the Company or (ii) at the discretion of the
Company's Board of Directors, through the delivery of shares of common
stock of the Company with a fair market value on the date of exercise equal
to the option price, provided such shares are utilized as payment to
acquire at least 100 shares of optioned stock, unless the remaining shares
covered by an option are less than 100 shares, or (iii) at the discretion
of the Company's Board of Directors, by a combination of (i) and (ii)
above.
This option may not be exercised if the issuance of shares upon such exercise
would constitute a violation of any applicable federal or state securities or
other law or valid regulation. As a condition to the exercise of this option,
the Company may require the person exercising this option to make any
representations and warranties to the Company as the Company may deem to be
required by applicable law or regulation. In such event, no shares shall be
issued unless and until the Company is satisfied wit the correctness of any such
representation and warranty. Moreover, the Company, in its discretion, may
postpone the issuance and/or delivery of shares upon the exercise of this option
until completion of such stock exchange listing, or registration, or other
qualification of such shares under any state and/or federal law, rule or
regulation as the Company may consider appropriate. Upon exercise of all or any
portion of this option and receipt of proper payment, the certificate or
certificates for the number of shares as to which the option is exercised shall
be issued to and registered in the name of the person or persons exercising the
option.
6. Nontransferability
This option shall not be transferable other than by will or the laws of
descent and distribution and may be exercised during the lifetime of the
Optionee only by the Optionee. Without limiting the generality of the foregoing,
except as otherwise provided herein, this option shall not be sold, pledged,
assigned, or transferred in any way, nor be assignable by operation of law or
subject to execution, levy, attachment or similar process. Any attempted sale,
pledge, assignment, or other transfer of this option contrary to the terms
hereof, and any execution, levy, attachment or similar process upon the option,
shall be null and void and without effect. The designation of a person entitled
to exercise this option after the Optionee's death will not be deemed a
transfer.
7. Termination of Employment; Death; Disability
(a) Termination of Employment Due to Death. If the Optionee's
employment by the Company terminates by reason of death, this option may
thereafter be exercised by the person or persons designated by the Optionee
in writing to exercise the option on his death or, if no designation has
been made, by the person or persons entitled to do so under the Optionee's
will or, if the Optionee shall fail to make a testamentary disposition of
this option, or shall die intestate, the Optionee's legal representative or
representatives, at any time prior to the expiration date of this option or
within 12 months after the date of death, whichever period is the shorter.
Further, this option shall be exercisable only to the extent it was
exercisable as of the date of death.
(b) Termination of Employment Due to Disability. In the event the
employment of the Optionee is terminated by reason of Disability as defined
below, this option shall be exercisable by the Optionee at any time prior
to the expiration date of the option or within 12 months after the date of
Disability, whichever period is the shorter. This option shall be
exercisable only to the extent it was exercisable as of the date of such
Disability. However, if the Optionee dies within the period of 12 months
after his Disability, this option shall thereafter be exercisable for a
period not to exceed 12 months after the date of death or the expiration
date of the option, whichever is shorter. Such exercise shall only be made
by the person or persons designated by the Optionee in writing to exercise
the option on his death or, if no designation has been made, by the person
or persons to whom the option shall have passed by will or the laws of
descent and distribution. "Disability" means the permanent and total
inability, by reason of physical or mental infirmity, or both, of the
Optionee, to perform the work customarily assigned to him by the Company.
The determination of the existence or nonexistence of Disability shall be
made by the Executive Compensation Committee pursuant to a medical
examination by a medical doctor selected or approved by the Executive
Compensation Committee.
(c) Termination of Employment Due to Discharge for Cause. Paragraphs
7(a) and 7(b) notwithstanding, if the Optionee is discharged for cause,
which shall be limited to fraud, felony, willful misconduct or the
commission of an act which causes or may reasonably be expected to cause
substantial injury to the Company, this option shall terminate immediately
upon giving to him notice of such termination, or if the Optionee leaves in
violation of provisions of an employment agreement wit the Company, this
option shall terminate immediately.
(d) Any Other Termination of Employment. If the employment of the
Optionee by the Company shall terminate otherwise than for any of the
reasons covered in Paragraphs 7(a), 7(b) or 7(c), this option shall be
exercisable by the Optionee at any time prior to the expiration date of
this option or within three months after the date of the termination of
employment, whichever period is the shorter. This option shall be
exercisable only to the extent it was exercisable as of the date of such
termination of employment. However, if the Optionee dies within the
three-month period after his termination, this option shall thereafter be
exercisable for a period not to exceed 12 months or the expiration date of
the option, whichever is shorter. Such exercise shall only be made by the
person or persons designated by the Optionee in writing to exercise the
option on his death or, if no designation has been made, by the person or
persons to whom the option shall have passed by will or the laws o descent
and distribution.
8. Changes in Capital Structure
(a) Anti-Dilution. Subject to the provisions of this Paragraph 8, if
the outstanding shares of the common stock are increased, decreased, or
exchanged for a different number or kind of shares or other securities, or
if additional shares or new or different shares or other securities are
distributed with respect to such shares of common stock or other
securities, through merger, consolidation, sale of all or substantially all
of the assets of the Company, reorganization, recapitalization,
reclassification, stock dividend, stock split, reverse stock split or other
distribution with respect to such shares of common stock or other
securities, an appropriate and proportionate adjustment shall be made in
(i) the number and kind of shares or other securities subject to this
agreement, (ii) the option price and (iii) the Target Price. This Agreement
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes o its capital or
business structure or to merge or consolidate or to dissolve, liquidate,
sell, or transfer all or any part of its business or assets.
(b) Change in Control. Notwithstanding Paragraph 5 and Paragraph 8(a),
upon the occurrence of a Change in Control, this option shall immediately
thereafter become exercisable.
(c) Adjustment by Committee. Any adjustments pursuant to this
Paragraph 8 shall be made by the Company's Executive Compensation
Committee, whose determination as to what adjustments will be made and the
extent thereof will be final and binding and conclusive. No fractional
share interest will be issued under this Agreement on account of any such
adjustments. Only cash payments will be made in lieu of fractional shares.
(d) No Other Adjustments. Except as provided in this Paragraph 8, the
optionee shall have no rights by reason of any subdivision or combination
or shares of stock of any class or the payment of any stock dividend or any
other increase or decrease in the number of shares of stock of any class or
by reason of any sale of assets, dissolution, liquidation, merger or
consolidation or spin-off of assets or stock of another corporation.
9. Rights of Shareholder
Neither the Optionee nor a transferee of this option shall have any rights
as a shareholder with respect to any shares covered hereby until the date he
shall have become a holder of record of such shares. No adjsutment shall be made
for dividends, distributions or other rights for which the record date is prior
to the date on which the Optionee shall have become the holder of record
thereof, except as provided in paragraph 8 hereof.
10. Modification, Extension and Renewal
The Company's Board of Directors may modify or renew this option, or accept
its surrender (to the extent not theretofore exercised) and authorize the
granting of a new option or options in substitution therefor (to the extent not
theretofore exercised). Notwithstanding the foregoing, no modification shall,
without the consent of the Optionee, alter or impair any of the Optionee's
rights or the Company's obligations hereunder.
11. Tax Withholding
The exercise of all or any portion of this option is subject to the
satisfaction of withholding tax or other withholding liabilities, if any, under
federal, state and local laws, in connection with such exercise or the delivery
or purchase of shares pursuant hereoto. The exercise of this option shall not be
effective unless applicable withholding shall have been effected or obtained in
the following manner or in any manner acceptable to the Company's Executive
Compensation Committee. Unless otherwise prohibited by the Company's Executive
Compensation Committee, the Optionee may satisfy any such withholding tax
obligation by any of the following means or by a combination of such means: (a)
tendering a cash payment; (b) authorizing the Company to withhold from the
shares otherwise issuable to the Optionee as a result of the exercise of a stock
option a number of shares having a fair market value as of the date that the
amount of tax to be withheld is to be determined ("Tax Date"), less than or
equal to the amount of the withholding tax obligation; or (c) delivering to the
Company unencumbered shares owned by the Optionee having a fair market value, as
of the Tax Date, equal to the amount of the withholding tax obligation, plus, if
necessary, cash to avoid fractional shares. The Optionee's election to pay the
withholding tax obligation by either of the latter two means of payment is
irrevocable and may be disapproved by the Company's Executive Compensation
Committee.
12. Surrender of Agreement
In the event this option is exercixed in whole, this agreement shall be
surrendered to the Company for cancellation. In the event this option is
exercised in part, or a change in the number or designation of the common shares
subject to this option is made, this agreement shall be delivered to the Company
for the purpose of making appropriate notation thereon, or otherwise reflecting,
in such manner as the Company shall determine, the partial exercise or the
change in the number or designation of the common shares.
IN WITNESS WHEREOF, this agreement has been executed the date first above
written.
KNAPE & VOGT MANUFACTURING
COMPANY
"Company"
By ________________________________________
Its ____________________________________
"Optionee"
__________________________________________
William R. Dutmers