Back to GetFilings.com
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 [Fee Required] for the fiscal year ended June 30, 1996 or
[ ] Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] 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 (I.R.S. Employer Identification No.)
incorporation or organization)
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 $74,874,143 as of September 6, 1996.
Number of shares outstanding of each class of common stock as of September 6,
1996: 3,332,750 shares of Common Stock, par value $2.00 per share, and
2,548,619 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 18, 1996, are incorporated by reference into Part III of this Report.
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.
During fiscal year 1996, the following significant events and initiatives
were undertaken:
The Company announced a restructuring plan involving the shift of wood
production from Modar, in Benton Harbor, Michigan, to Hirsh, in Skokie,
Illinois, and the subsequent sale or closure of the Modar facility, the
transfer of redundant manufacturing operations performed at KV Canada to
the corporate headquarters in Grand Rapids and an early retirement program
to salaried employees at the Grand Rapids location. As an additional part
of the plan, the board of directors authorized the liquidation of slow moving
inventory. This will create additional manufacturing and warehousing space
and enable management to focus its energy and attention on higher-margin new
and existing products.
In August 1996, the Company announced its decision to sell Roll-it, the
Company's store fixture operation located in Quebec, because it does not fit
within the Company's core business strengths. The Company is actively seeking
a buyer and recorded an after-tax charge of $2,700,000 in 1996 to cover the
estimated loss from the sale. Roll-it is reported as a discontinued
operation, and the consolidated financial statements have been reclassified
to segregate the net assets and the operating results of the business.
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
shelving systems and free-standing steel shelving systems. Drawer slides
manufactured by the Company include precision, Euro-style and utility slides.
The Company manufactures many different hardware products such as closet rods,
kitchen storage products and various fixtures. The Company intends to sell,
or close, its Modar facility which produces laminated particle board furniture
components.
The Company's products are sold throughout the United States and Canada,
as well as in 50 other countries. During the past fiscal year, the Company
estimates that approximately 49% of the Company's sales were to major co-op
wholesalers, contract hardware jobbers, display and fixture jobbers, specialty
wholesalers and other independent hardware distributors. Approximately 50% of
sales were to export outlets, various government agencies, original equipment
manufacturers, national mass merchants, large home centers, and building
supply outlets. The remaining 1% were miscellaneous sales not elsewhere
classified.
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:
Year Ended June 30
Class of Products 1996 1995 1994
(dollars in millions)
Sales Sales Sales
Shelving Systems $ 79.5 $ 80.8 $ 65.3
Drawer Slides 52.4 52.0 50.9
Hardware 28.1 30.0 22.8
Furniture Components 3.0 5.4 6.5
------- ------- -------
Total $163.0 $168.2 $145.5
New Product or Industry Segment Information. The Company has announced
its intentions to develop new drawer slide products which the Company believes
should increase drawer slide sales and maintain capital spending at
approximately the same level as in fiscal year 1996, when capital spending
was $8.0 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 5,000 active customers with approximately 35,000 outlets,
of which the five largest customers account for less than 16% 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
no reliable statistics are available to enable the Company accurately to
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 and
that it is one of the four leading manufacturers of drawer slides.
Research, Design and Development. Approximately $1,223,000 was spent
during the last fiscal year in the development of new products and in the
improvement of existing products; approximately $1,038,000 was spent in fiscal
year 1995 and $1,026,000 in fiscal year 1994 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.
Employees. An average of 1,084 persons were employed by the Company
during the fiscal year ended June 30, 1996. There were 1,160 persons employed
by the Company in July 1995, and 1,056 in June 1996. None of the Company's
employees are represented by collective bargaining agents except the hourly
employees at The Hirsh Company, who are represented by the International
Association of Bridge, Structural and Ornamental Iron Workers.
Forward-Looking Statements. This report contains certain forward-looking
statements which involve risks and uncertainties. When used in this report,
the words "believe," "anticipate," "think," "intend," "goal" and similar
expressions identify forward-looking statements. Such statements are subject
to certain risks and uncertainties which could cause actual results to differ
materially from those anticipated. Readers are cautioned not to place undue
reliance on those forward-looking statements which speak only as of the date
of this report.
Item 1(d)--Information About Foreign Operations
The Company's Canadian operation accounted for approximately 9% of
consolidated sales and had a net loss from operations during fiscal year 1996.
Approximately 4% of consolidated net sales and 4% of income from continuing
operations 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 3 and 14 of the Notes to the Company's Consolidated Financial Statements
contained herein for the fiscal year ended June 30, 1996, 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, 1996:
Location Description Interest
Grand Rapids, Michigan Executive offices and manufacturing Owned
facilities; 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; 23,000 sq. ft. Leased
Benton Harbor, Michigan Manufacturing facility and office; Owned
132,000 sq. ft. on 17 acres
Etobicoke, Ontario Manufacturing facility and office; Owned
78,000 sq. ft. on 3 acres
Etobicoke, Ontario Warehouse; 37,000 sq. ft. Leased
Lachine, Quebec Manufacturing facility and office; Leased
151,000 sq. ft. on 9 acres
Lachine, Quebec Warehouse; 15,000 sq. ft. Leased
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, 1996
the Company spent approximately $35,987,000 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.
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, 1996.
ADDITIONAL ITEM--EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Company were, at June 30, 1996, as follows:
Year First Elected
Name Age Positions and Offices Held an Executive Officer
Allan E. Perry 56 Director, President and Chief 1978
Executive Officer
Richard C. Simkins 53 Director, Executive V.P., C.F.O., 1985
Secretary and Treasurer
Michael G. Van Rooy 43 Vice President--Manufacturing 1994
Vice President and Chief Operating
Officer of The Hirsh Company
Tim L. Kuzma 43 President of Feeny Manufacturing Company 1987
Gary Cichon 43 Vice President--General Manager 1993
of Modar, Inc.
Anthony R. Taylor 53 President of Knape & Vogt Canada 1978
Carman D. Hepburn 48 Vice President--Sales and Marketing 1985
of Knape & Vogt Canada
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 financial
department and has held a variety of management positions.
Mr. Van Rooy has been the Vice President - Manufacturing since December 1993
and Vice President Chief Operating Officer of the Hirsh Company since January
1995. Mr. Van Rooy joined the Company in 1985 in the engineering department
and has held a variety of management positions.
Mr. Kuzma has been the President of Feeny Manufacturing Company since March
1994. Mr. Kuzma joined the Company in 1987 as Vice President - General
Manager of Feeny when the Company purchased the Feeny subsidiary.
Mr. Cichon was named the Vice President - General Manager of Modar, Inc. in
July 1993 after serving as the Company's purchasing director for nine years.
Mr. Cichon joined the Company in 1973 as a manufacturing employee and has
held a variety of positions.
Mr. Taylor has been President of Knape & Vogt Canada since January 1994.
Mr. Taylor joined the Company in 1974 in the finance department and has held
a variety of management positions.
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 18,
1996.
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 September 6, 1996, there were approximately 3,100
shareholders of the Company's Common Stock and Class B Common Stock.
1996 Bid Price 1995 Bid Price
Quarter High Low High Low
First $18.25 $15.00 $20.25 $16.82
Second $19.50 $12.75 $20.50 $18.25
Third $17.88 $13.25 $19.79 $15.00
Fourth $17.50 $13.25 $17.00 $14.75
Dividends. The Company paid per share dividends on its shares of Common
Stock and Class B Common Stock in the following amounts during the last two
fiscal years.
Per Share Dividends
Year Ended June 30, 1996 Common Stock Class B Common Stock
First Quarter $.165 $.15
Second Quarter $.165 $.15
Third Quarter $.165 $.15
Fourth Quarter $.165 $.15
Per Share Dividends
Year Ended June 30, 1995 Common Stock Class B Common Stock
First Quarter $.165 $.15
Second Quarter $.165 $.15
Third Quarter $.165 $.15
Fourth Quarter $.165 $.15
The Company expects to continue to pay dividends quarterly during the
fiscal year ending June 30, 1997. The Board of Directors has declared a $.165
per share dividend on shares of the Company's Common Stock and $.15 per share
dividend on shares of its Class B Common Stock, payable September 13, 1996,
to shareholders of record on September 4, 1996.
ITEM 6--SELECTED FINANCIAL DATA
For the Year Ended 1996 1995 1994
Net Sales. . . . . . . . . . . . $163,012,030 $168,190,969 $145,504,536
Cost of sales. . . . . . . . . . 124,408,648(a) 127,296,470 107,701,337
Operating expenses
(excluding interest
expense). . . . . . . . . . . . 31,211,332(a) 26,983,142 25,043,151
Interest expense . . . . . . . . 2,253,992 2,471,652 1,426,328
Income from continuing
operations before taxes . . . . 5,138,058(a) 11,439,705 11,333,720
Income taxes . . . . . . . . . . 2,035,000(a) 3,849,000 4,020,000
Income from continuing
operations. . . . . . . . . . . 3,103,058(a) 7,590,705 7,313,720
Income (loss) from
discontinued operation. . . . . (3,037,926)(b) 654,433 842,556
Net income . . . . . . . . . . . 65,132(a,b) 8,245,138 8,156,276
Earnings per share from
continuing operations . . . . . 0.53 (a) 1.29 1.24
Earnings per share from
discontinued operation. . . . . (0.52)(b) 0.11 0.15
Earnings per share . . . . . . . 0.01(a,b) 1.40 1.39
Dividends paid . . . . . . . . . 3,727,321 3,722,814 3,373,493
Dividend payout, percent of
income from continuing
operations. . . . . . . . . . . 120% 49% 46%
Dividends per share common . . . 0.66 0.66 0.60
Dividends per share
Class B common . . . . . . . . 0.60 0.60 0.545
Percentage of pre-tax income
from continuing operations
to sales. . . . . . . . . . . . 3.2% 6.8% 7.8%
Capital expenditures . . . . . . 8,032,779 4,181,472 3,837,249
Depreciation . . . . . . . . . . $6,190,031 $5,876,391 $5,250,453
____________________________________________________________________________
At Year-End
Working capital. . . . . . . . . $ 39,535,991 $ 45,796,753 $ 39,572,003
Ratio of current assets
to current liabilities. . . . . 4.0 5.8 3.4
Net property and equipment . . . 50,381,608 48,698,785 50,395,355
Total assets . . . . . . . . . . 129,225,159 131,433,714 133,655,919
Total debt . . . . . . . . . . . 35,000,000 35,800,000 40,000,000
Debt to capitalization,
percent . . . . . . . . . . . . 51% 49% 59%
Stockholders' equity . . . . . . 69,173,750 72,713,836 67,973,890
Restated weighted average
shares outstanding. . . . . . . 5,883,227 5,890,931 5,877,959
Stockholders' equity per share . $11.76 $12.34 $11.56
Number of employees. . . . . . . 1,084 1,136 1,137
(a) 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 share.
(b) 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.
(c) 1993 figures include the expense of restructuring the Roll-it
operation of $1,529,000 recorded in operating expenses and an income
tax benefit of $566,000, for an after-tax effect of $963,000, or
$0.16 per share.
ITEM 6--SELECTED FINANCIAL DATA
For the Year Ended 1993 1992
Net sales. . . . . . . . . . . . $114,010,930 $111,816,332
Cost of sales. . . . . . . . . . 81,483,000 80,049,625
Operating expenses
(excluding interest expense). . 20,796,203 20,784,123
Interest expense . . . . . . . . 771,012 746,628
Income from continuing
operations before taxes . . . . 10,960,715 10,235,956
Income taxes . . . . . . . . . . 3,871,000 3,552,000
Income from continuing
operations. . . . . . . . . . . 7,089,715 6,683,956
Income (loss) from
discontinued operation. . . . . (1,571,583)(c) (49,023)
Net income . . . . . . . . . . . 5,518,132 6,634,933
Earnings per share from
continuing operations . . . . . 1.21 1.16
Earnings per share from
discontinued operation. . . . . (0.27)(c) (0.01)
Earnings per share . . . . . . . 0.94 1.15
Dividends paid . . . . . . . . . 3,360,108 2,988,661
Dividend payout, percent of
income from continuing
operations. . . . . . . . . . . 47% 45%
Dividends per share common . . . 0.60 0.545
Dividends per share
Class B common. . . . . . . . . 0.545 0.487
Percentage of pre-tax income
from continuing operations
to sales. . . . . . . . . . . . 9.6% 9.2%
Capital expenditures . . . . . . 11,366,533 8,569,433
Depreciation . . . . . . . . . . $3,945,043 $3,541,648
_____________________________________________________________________________
At Year-End
Working capital. . . . . . . . . $ 33,264,343 $ 28,414,322
Ratio of current assets
to current liabilities. . . . . 5.0 3.3
Net property and equipment . . . 45,325,109 38,164,357
Total assets . . . . . . . . . . 95,173,490 87,236,319
Total debt . . . . . . . . . . . 12,750,000 6,000,000
Debt to capitalization,
percent . . . . . . . . . . . . 20% 10%
Stockholders' equity . . . . . . 63,875,962 62,067,298
Restated weighted average
shares outstanding. . . . . . . 5,856,952 5,779,543
Stockholders' equity
per share . . . . . . . . . . . $10.91 $10.74
Number of employees. . . . . . . 968 942
(a) 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 share.
(b) 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.
(c) 1993 figures include the expense of restructuring the Roll-it
operation of $1,529,000 recorded in operating expenses and an income
tax benefit of $566,000, for an after-tax effect of $963,000, or
$0.16 per share.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS
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
Overview of Significant Events
During fiscal year 1996, the following significant events and initiatives were
undertaken:
* At the end of the second quarter, the Company announced the process of
consolidating the administrative functions, such as billing, accounting and
customer service, from Hirsh to the corporate headquarters in Grand Rapids.
This process was completed in the fourth quarter and the Company expects
annual pre-tax savings of approximately $650,000 to begin in fiscal year 1997.
* At the end of the fourth quarter, the Company announced a restructuring
plan involving the shift of wood production from Modar to Hirsh and the
subsequent sale or closure of the Modar facility, the transfer of redundant
manufacturing operations performed at KV Canada to the corporate headquarters
in Grand Rapids and an early retirement program to salaried employees at the
Grand Rapids location. As an additional part of the plan, the board of
directors authorized the liquidation of slow moving inventory. This will
create additional manufacturing and warehousing space and enable management
to focus its energy and attention on higher-margin new and existing products.
These actions reduced fiscal year 1996 net earnings by $2,825,000, but after-
tax savings are expected to be $2,300,000 spread across 1997 and 1998 as the
plan is fully implemented.
* In August 1996, the Company announced its decision to sell Roll-it, the
Company's store fixture operation, because it does not fit within the
Company's core business strengths. The Company is actively seeking a buyer
and recorded an after-tax charge of $2,700,000 in 1996 to cover the estimated
loss from the sale. Roll-it is reported as a discontinued operation, and the
consolidated financial statements have been reclassified to segregate the net
assets and the operating results of the business.
Management believes the cumulative effect of these actions will improve the
future results of operations.
Net Sales
Net sales in 1996 decreased $5.2 million to $163.0 million, or 3.1 percent
less than 1995 record sales of $168.2 million. Drawer slide sales increased
$0.4 million with strong sales of precision drawer slides being offset by
decreased sales of utility drawer slides. Sales growth of precision slides
came mostly from new customers and increased unit sales with existing
customers. Utility slides decreased due to the discontinuation of the "Value
Line" drawer slide products. Drawer slide sales are expected to increase in
fiscal year 1997 with continued gains in precision drawer slide sales and the
introduction of the 2800 Euro-style line of self-closing roller drawer
slides. Shelving system sales decreased $1.3 million mainly due to lower
sales of the wall-attached shelving line, with relatively flat sales of free-
standing shelving systems. Shelving sales are projected to increase slightly
in fiscal year 1997 due to new customers and increased sales of the new Space
Solutions line introduced in 1996. Hardware sales decreased $1.9 million
primarily due to fewer promotions of the Iron Horse product line by large
retail customers. Hardware sales are estimated to have a small increase in
fiscal 1997 due to the expansion in sales of the retail program for Feeny
storage products. Furniture component sales decreased $2.4 million as the
Modar operation had reduced volumes with furniture component customers as it
mainly produces intercompany wood products.
Net sales in 1995 increased $22.7 million to a record $168.2 million, or
15.6 percent, over 1994 sales of $145.5 million. Shelving system sales
increased $15.5 million, due to $12.8 million of Hirsh shelving sales in this
product line. Hardware sales increased $7.2 million, with $3.1 million of the
increase due to KV Canada's contract painting and hardware products
business and $2.0 million of the increase due to Hirsh sales. Drawer slide
sales increased $1.1 million, primarily due to the continuing demand for
precision drawer slides since the Company introduced the 8400 line of
precision drawer slides in fiscal 1994. Furniture component sales decreased
$1.1 million. During the year Modar concentrated its efforts on intercompany
production of wood products to Hirsh and shelves to Knape & Vogt and Knape &
Vogt Canada, which resulted in lower sales volumes with furniture component
customers.
Cost of Sales
Cost of sales as a percentage of sales was 76.3 percent in 1996, compared
to 75.7 percent in 1995. Cost of sales in 1996 includes an $863,000 charge
for liquidation of inventories to create additional manufacturing and
warehousing space. Without this charge, cost as a percentage of sales would
have been 75.8 percent in 1996, which is comparable to cost of sales in 1995.
Costs as a percentage of sales in 1996 were reduced by decreases in raw
material costs, but this was offset by fixed costs that could not be absorbed
due to lower sales levels. The restructuring plan consolidates some
manufacturing operations and is expected to reduce fixed costs in the future.
Cost of sales as a percentage of sales was 75.7 percent in 1995, compared
to 74.0 percent in 1994. In 1995 price increases in steel, particle board,
plastic and packaging added 1.9 percent to the cost of sales. Sales price
decreases to obtain new business and maintain existing relationships also
contributed to the decrease in margins in 1995.
Selling and Administrative Expenses
Selling expenses in 1996 increased to 12.9 percent of sales from 11.8
percent in 1995. In 1996 selling expenses increased as new products such as
Space Solutions and Lumber Loc were introduced and a retail program for
Feeny storage products was initiated. Co-op advertising and consumer product
sales promotions also contributed to the higher selling expense. Selling
expenses are expected to stay at approximately the same percentage of sales
in fiscal year 1997 as new products are introduced and programs are developed
to increase consumer sales. Administrative expenses as a percentage of sales
were 3.9 percent of sales in 1996, down from 4.1 percent in 1995.
Administrative expenses decreased in 1996 due to a reduction in Michigan
Single Business Tax expense and administrative staff reductions at Modar and
Hirsh. The impact of the restructuring plan should further reduce
administrative expenses as a percentage of sales in future years.
Selling expenses in 1995 decreased to 11.8 percent of sales from 12.7
percent in 1994. Hirsh contributed to the decrease in selling expenses as a
percentage of sales in 1995 due to the combining of sales forces after the
acquisition. In 1995 all locations showed a decrease in selling expenses as
a percentage of sales. Administrative expenses as a percentage of sales were
4.1 percent in 1995, down from 4.3 percent in 1994. Administrative expenses
in 1995 decreased due to a full year of activity for Hirsh which had lower
administrative expenses as a percentage of sales. The decrease in 1995 was
also due to a reduction in bad debt expense as collections of accounts
receivable improved compared to 1994.
Restructuring and Impairment of Assets
In the fourth quarter of 1996, the Company initiated the aforementioned
restructuring plan to improve operating efficiencies. The restructuring and
impairment charges of $3,496,000 primarily relate to severance and employee
benefit costs ($1,635,000), the write-down of assets to be disposed of to
their fair market value ($1,509,000) and other costs ($352,000).
Other Expenses
Other expenses in 1996 decreased by $118,833 compared to 1995 mainly due
to a reduction in interest expense caused by lower interest rates and slightly
lower debt levels. Other expenses in 1995 increased compared to 1994 due to
the acquisition of Hirsh which increased the Company's long-term debt in
November 1994, and an increase in interest rates in 1995 offset the lower
debt levels that were maintained in the second half of fiscal 1995.
Income Taxes
The effective tax rate was 39.6 percent in 1996 compared to 33.6 percent
in 1995, and 35.5 percent in 1994. The increase in the effective tax rate in
1996 is due to the reduction in use of research and development and foreign
tax credits compared to the prior years. Tax laws in the United States which
created research and development tax credits expired on June 30, 1995, and
the Company was not able to use these credits to reduce 1996 income tax
expense. The effective tax rate is composed of federal, foreign, state and
local tax rates.
Income from Continuing Operations
Income from continuing operations in 1996 was $3.1 million, or $0.53 per
share, compared to $7.6 million, or $1.29 per share in 1995 and $7.3 million,
or $1.24 per share, in 1994. Without the $2.8 million charge in 1996 for
restructuring, impairment of assets and inventory liquidations, the income
from continuing operations would have been $5.9 million, or $1.01 per share.
Income (Loss) from Discontinued Operation
The results of operations of Roll-it, net of income taxes, are presented
as a discontinued operation. In 1996 the company recorded an estimated loss
on the sale of Roll-it of $3.9 million, which includes a reduction in asset
values of $3.6 million and a provision for anticipated closing costs and
operating losses until disposal of $0.3 million. The loss is reported net
of an income tax benefit of $1.2 million, for an after-tax loss of $2.7
million.
FINANCIAL POSITION
Liquidity and Capital Resources
The Company's financial position at June 30, 1996, remains strong with
excellent liquidity. Corporate liquidity as measured by the current ratio
remains solid at 4.0 - to - 1, with working capital of $39.5 million. Net
cash provided from operating activities was the largest in three years at
$13.5 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 FLOW
Operating Activities
Operating activities generated $13,485,377 in 1996 compared to $12,779,621
in 1995. Depreciation and amortization increased mainly due to the additional
capital asset expenditures and the investment in other assets. Most of the
restructuring expenses ($3,440,184) and loss on discontinued operation
($3,866,000) have not yet caused a cash outflow and the tax effect of these
transactions is the main reason for the reduction of deferred income taxes
($1,060,000) and the increase in refundable income taxes ($1,627,737).
Prepaid expenses in 1996 had a modest increase of $160,535 compared to 1995
when prepaid expenses increased by $1,410,260. In fiscal 1995 the Company
implemented improved internal control procedures relating to tooling and
repair supplies, and a prepaid supplies asset was recorded. Changes in
accounts payable and accruals in 1996 and 1995 were primarily caused by the
timing of when payments for the liabilities were due. Reduction of certain
accrued selling expenses in association with the combining of sales forces
accounted for $637,000 of the $1,981,633 reduction in accruals in 1995.
Investing Activities
Investing activities used $9,328,566 in 1996 compared to $5,075,219 in
1995. In 1996 capital expenditures increased to $8,032,779 from $4,181,472
in 1995, with the largest expenditures for woodworking equipment of
approximately $1.9 million and machinery and tooling for a new drawer slide
product of about $1.2 million. Expenditures during 1997 are expected
to remain at approximately the same levels as in 1996, with most of the
anticipated expenditures for machinery and tooling to produce new products
and meet anticipated volume increases in current products.
Financing Activities
Financing activities used $4,510,697 in 1996, compared to $7,817,582 in
1995. The Company reduced debt by $800,000 in 1996, compared to $4,200,000
in 1995. The total debt to ending equity ratio is 51 percent compared to
49 percent last year. The Company received $16,624 from the issuance of
common stock to employees exercising options issued under the stock option
plan, compared to $115,780 in 1995. Cash dividend payments totaled $0.66 per
share on common stock and $0.60 on Class B common stock. At June 30, 1996,
the Company had $35,000,000 outstanding on the $47,500,000 long-term revolving
credit agreement. Anticipated cash flow from operations will substantially
fund working capital, capital expenditures, dividend payments and
restructuring costs. The Company will use long-term debt to the point where
financial flexibility is preserved and undue financial risk is not incurred.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Immediately following are the consolidated balance sheets of the Company
and its subsidiaries as of June 30, 1996, and the related consolidated
statements of income, stockholders' equity and cash flows for each of the
three years in the period ended June 30, 1996, the notes thereto, summary of
accounting policies, and the independent auditors' report.
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
_____________________________________________________________________________
Year Ended June 30, 1996 1995
_____________________________________________________________________________
Assets:
Current Assets:
Cash and equivalents $ 244,271 $ 534,280
Accounts receivable,
less allowances of $563,000
and $554,000, respectively 22,763,645 23,269,196
Refundable income taxes 1,860,191 229,183
Inventories (Note 5) 23,016,541 23,721,668
Prepaid expenses 3,058,021 2,896,794
Net current assets of
discontinued operation (Note 3) 1,790,740 4,691,453
_____________________________________________________________________________
Total Current Assets 52,733,409 55,342,574
_____________________________________________________________________________
Property and Equipment:
Land and improvements 1,981,144 1,980,621
Buildings 18,194,668 18,066,497
Machinery and equipment 61,953,623 57,673,428
_____________________________________________________________________________
82,129,435 77,720,546
Less accumulated depreciation 31,747,827 29,021,761
_____________________________________________________________________________
Net Property and Equipment 50,381,608 48,698,785
_____________________________________________________________________________
Net Property and Equipment of
Discontinued Operation (Note 3) 1,775,225 3,376,618
_____________________________________________________________________________
Goodwill, net 18,916,360 19,422,953
_____________________________________________________________________________
Other Assets 5,418,557 4,592,784
_____________________________________________________________________________
$129,225,159 $131,433,714
=============================================================================
See accompanying notes to consolidated financial statements
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Balance Sheets
Year Ended June 30, 1996 1995
_____________________________________________________________________________
Liabilities and Stockholders' Equity:
Current Liabilities:
Accounts payable $ 4,825,372 $ 4,533,165
Accruals:
Taxes other than income 1,381,324 1,567,103
Compensation 1,410,521 1,801,566
Retirement plan contributions 581,126 605,399
Restructuring Costs (Note 2) 3,440,184 -
Miscellaneous 1,558,891 1,038,588
_____________________________________________________________________________
Total Current Liabilities 13,197,418 9,545,821
Supplemental Retirement Benefits
(Notes 7 and 8) 1,504,067 1,439,167
Long-Term Debt (Note 6) 35,000,000 35,800,000
Deferred Lease Costs 2,360,124 2,885,090
Deferred Income Taxes (Note 10) 7,989,800 9,049,800
_____________________________________________________________________________
Total Liabilities 60,051,409 58,719,878
_____________________________________________________________________________
Commitments (Notes 7, 8 and 9)
Stockholders' Equity (Notes 11 and 12)
Stock:
Common, $2 par - 6,000,000 shares
authorized; 3,327,918 and
3,295,496 issued 6,655,836 6,590,992
Class B common, $2 par -
4,000,000 shares authorized;
2,553,151 and 2,584,418 issued 5,106,302 5,168,836
Preferred, 2,000,000 shares
authorized and unissued - -
Additional paid-in capital 33,080,087 33,065,773
Retained earnings 25,542,811 29,205,000
Cumulative foreign currency
translation adjustment (1,211,286) (1,316,765)
_____________________________________________________________________________
Total Stockholders' Equity 69,173,750 72,713,836
_____________________________________________________________________________
$129,225,159 $131,433,714
=============================================================================
See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Income
Year ended June 30, 1996 1995 1994
Net Sales $163,012,030 $168,190,969 $145,504,536
Cost of Sales 124,408,648 127,296,470 107,701,337
______________________________________________________________________________
Gross profit 38,603,382 40,894,499 37,803,199
______________________________________________________________________________
Expenses:
Selling and shipping 21,044,004 19,882,242 18,547,404
Administrative and general 6,394,013 6,922,412 6,188,530
Restructuring and impairment
of assets (Note 2) 3,496,000 - -
______________________________________________________________________________
Total expenses 30,934,017 26,804,654 24,735,934
______________________________________________________________________________
Operating income 7,669,365 14,089,845 13,067,265
______________________________________________________________________________
Other Expenses:
Interest 2,253,992 2,471,652 1,426,328
Other, net 277,315 178,488 307,217
______________________________________________________________________________
Total other expenses 2,531,307 2,650,140 1,733,545
______________________________________________________________________________
Income from continuing operations
before income taxes 5,138,058 11,439,705 11,333,720
Income Taxes-Continuing Operations
(Note 10) 2,035,000 3,849,000 4,020,000
______________________________________________________________________________
Income from continuing operations 3,103,058 7,590,705 7,313,720
______________________________________________________________________________
Discontinued Operation,
Net of Income
Taxes (Note 3)
Income (loss) from operation (337,926) 654,433 842,556
Estimated loss on sale (2,700,000) - -
______________________________________________________________________________
Total discontinued operation,
net of income taxes (3,037,926) 654,433 842,556
______________________________________________________________________________
Net Income $ 65,132 $8,245,138 $8,156,276
==============================================================================
Net Income Per Share
(Notes 2, 3 and 12)
From continuing operations $ .53 $ 1.29 $ 1.24
From discontinued operation $ (.52) $ .11 $ .15
______________________________________________________________________________
Total Net Income Per Share $ .01 $ 1.40 $ 1.39
==============================================================================
Dividends Per Share
Common stock $ .66 $ .66 $ .60
Class B common stock $ .60 $ .60 $ .545
==============================================================================
Weighted Average Shares
Outstanding (Note 12) 5,883,227 5,890,931 5,877,959
==============================================================================
See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Stockholders' Equity
Cumulative
foreign
Additional currency
Common paid-in Retained translation
stock capital earnings adjustment
Balance, July 1, 1993 $10,643,990 $23,689,539 $30,044,186 $ (501,753)
Net income for 1994 - - 8,156,276 -
Cash dividends - - (3,373,493) -
Stock issued under
stock option plan
(Note 11) 32,664 209,883 - -
Foreign currency
translation
adjustment - - - (927,402)
______________________________________________________________________________
Balance, June 30, 1994 10,676,654 23,899,422 34,826,969 (1,429,155)
Net income for 1995 - - 8,245,138 -
Cash dividends - - (3,722,814) -
10% stock dividend
(Note 12) 1,066,710 9,067,035 (10,144,293) -
Stock issued under
stock option
plan (Note 11) 16,464 99,316 - -
Foreign currency
translation adjustment - - - 112,390
______________________________________________________________________________
Balance, June 30, 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 (Note 11) 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)
==============================================================================
See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries
Consolidated Statements of Cash Flows
Year ended June 30, 1996 1995 1994
Operating Activities
Net income $ 65,132 $ 8,245,138 $ 8,156,276
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation of fixed assets 6,190,031 5,876,391 5,250,453
Amortization of other assets 1,155,322 1,022,047 836,048
Increase (decrease) in
deferred income taxes (1,060,000) 1,339,000 712,000
Increase (decrease) in
supplemental retirement
benefits 64,612 112,089 (23,717)
Increase (decrease) in
deferred lease costs (524,966) (509,234) (289,814)
Loss on sale of the
discontinued operation 3,866,000 - -
Changes in operating assets
and liabilities:
Decrease (increase) in:
Accounts receivable 515,079 (40,221) (1,007,096)
Refundable income
taxes (1,627,737) (502,295) 1,034,359
Inventories 720,025 1,909,457 (122,998)
Net assets of
discontinued
operation 636,106 184,722 (1,702,032)
Prepaid expenses (160,535) (1,410,260) 148,846
Increase (decrease) in:
Accounts payable 289,679 (1,465,580) (2,895,957)
Accrued restructuring
costs 3,440,184 - -
Accruals (83,555) (1,981,633) 64,043
______________________________________________________________________________
Net cash provided by
operating activities 13,485,377 12,779,621 10,160,411
______________________________________________________________________________
Investing Activities
Additions to property,
plant and equipment (8,032,779) (4,181,472) (3,837,249)
Sales of property,
plant and equipment 175,651 20,015 32,595
Payments for purchase of
subsidiaries - - (29,270,859)
Payments for other assets (1,471,438) (913,762) (738,844)
______________________________________________________________________________
Net cash used for investing
activities (9,328,566) (5,075,219) (33,814,357)
______________________________________________________________________________
Financing Activities
Purchase of fractional shares - (10,548) -
Cash dividends declared (3,727,321) (3,722,814) (3,373,493)
Proceeds from issuance of
common stock 16,624 115,780 242,547
Additions to long-term debt
including current portion - - 27,250,000
Payments on long-term debt (800,000) (4,200,000) -
______________________________________________________________________________
Net cash provided by (used
for) financing activities (4,510,697) (7,817,582) 24,119,054
______________________________________________________________________________
Effect of Exchange Rate
Changes on Cash 63,877 80,380 (488,117)
______________________________________________________________________________
Net Decrease in Cash and
Equivalents (290,009) (32,800) (23,009)
Cash and Equivalents, beginning
of year 534,280 567,080 590,089
______________________________________________________________________________
Cash and Equivalents, end of
year $244,271 $534,280 $567,080
==============================================================================
See accompanying notes to consolidated financial statements.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
1. Summary of Principles of Consolidation
Significant
Accounting The consolidated financial statements include the
Policies 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 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. 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 customers in the retail hardware and cabinet
manufacturing industries. 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 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.
Cash Equivalents
All highly liquid debt instruments with a maturity of
three months or less when purchased are classified as
cash equivalents.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Inventories Inventories are stated at the lower of FIFO (first-in,
first-out) cost or market for 100% and 87% of the
inventories at June 30, 1996 and 1995, respectively.
Until 1996, one subsidiary used the LIFO (last-in,
first-out) method to determine cost, the inventory value
of which was approximately $418,000, lower than it would
have been under the FIFO method at June 30, 1995. During
1996, the subsidiary changed to the FIFO method. The
change in accounting principle was made to provide a
better matching of revenue and expenses. This accounting
change was not material to the financial statements on an
annual or quarterly basis, and accordingly, no
retroactive restatement of prior years' financial
statements was made.
Property, Equipment, Depreciation and Amortization
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 $1,347,358 and $840,765 at
June 30, 1996 and 1995, respectively. The Company
periodically reviews goodwill for impairment based upon
undiscounted operating income over the remaining life of
the goodwill.
Deferred Lease Costs
Deferred lease costs arising from an acquisition
represent the excess of actual rent payments on an
operating lease over the current market rental rate at
the acquisition date. The deferred lease cost is
amortized over 57 months, the remaining life of the
lease.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
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 March 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards
(SFAS) No. 121, Accounting for the Impairment of Long-
Lived Assets. The Company is required to adopt this
statement by its fiscal year ending in 1997. The new
statement requires the Company to review long-lived
assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of an
asset may not be recoverable. The Company does not
expect the adoption of this statement to have a material
impact on its financial position or results of
operations.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Advertising
The Company expenses the costs of advertising as
incurred. Advertising expense was $553,000 in 1996,
$622,000 in 1995, and $416,000 in 1994.
Earnings Per Share
Earnings per share are computed on the weighted average
number of the combined common and Class B common shares
outstanding during each year. Earnings per share is
computed using the treasury stock method, under which
the number of shares outstanding reflects the assumed
repurchase of shares of the Company's common stock with
the proceeds from the assumed exercise of outstanding
stock options.
2. Restructuring On June 24, 1996, the Board of Directors of the Company
and Impairment approved a restructuring plan designed to improve
of Assets operating efficiencies. The plan involves the shift of
wood production from Modar to Hirsh and the subsequent
sale or closure of the Modar facility, the transfer of
redundant manufacturing operations performed at Knape &
Vogt Canada to the corporate headquarters in Grand
Rapids, and an early retirement program to salaried
employees at the Grand Rapids location. The
restructuring and impairment charge of $3,496,000
primarily relates to severance and employee benefit
costs ($1,635,000), the write-down of assets to be
disposed of to their fair market value ($1,509,000)
and other costs ($352,000). As an additional part of
the plan which is reported as part of costs of sales,
the Board of Directors authorized the liquidation of
$863,000 of slow moving inventories in order to create
additional manufacturing and warehousing space. After
an income tax benefit of $1,534,000, these actions
reduced fiscal year 1996 earnings by $2,825,000 or
$.48 per share.
3. Discontinued On August 20, 1996, the Company announced its decision
Operation to sell the Roll-it division of Knape & Vogt Canada
Inc. (Roll-it), the Company's store fixture operation.
Roll-it is reported as a discontinued operation, and
the consolidated financial statements have been
reclassified to segregate the net assets and operating
results of the business.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The estimated loss on the sale of Roll-it is $3.9
million, which includes 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 is reported net of an income tax
benefit of $1.2 million, for an after-tax loss of $2.7
million. The amounts are based on estimates of the
proceeds expected to be realized on the sale of the
store fixture operation. The amounts the Company will
ultimately realize could differ materially in the
near term from the amounts assumed in arriving at the
loss on disposal of the discontinued operation.
Summary operating results of the discontinued operation
(in thousands) are as follows:
June 30, 1996 1995 1994
Revenues . . . . . . . $13,540 $14,851 $14,371
Costs and expenses . . 13,990 13,823 13,056
Income (loss)
before taxes. . . . . (450) 1,028 1,315
Income tax
expense (benefit) . . (112) 374 472
Net income (loss). . . $ (338) $ 654 $ 843
Net assets of the discontinued operation at June 30,
1996, of approximately $3.6 million consisted of $1.8
million of current assets, deductions for an allowance
for the estimated loss on disposal, estimated operating
losses to the anticipated disposal date, current
liabilities and $1.8 million of equipment.
4. Acquisition On November 30, 1993, the Company acquired all of the
issued and outstanding capital stock of The Hirsh
Company (Hirsh). Located in Skokie, Illinois, Hirsh
is a manufacturer of steel shelving products, home
workshop items, closet storage systems and other
storage products. Hirsh is being operated as a
subsidiary of the Company. The stock of Hirsh was
purchased with cash, and in connection with the
acquisition, the Company contributed to the capital of
Hirsh to repay all of its outstanding indebtedness.
The Company's aggregate acquisition cost was
$29,270,859, and the funds required for the acquisition
were borrowed under the Company's $47,500,000 line of
credit with a local bank. The transaction was
accounted for as a purchase; therefore, the results of
the operations for Hirsh since the acquisition date
are included in the accompanying consolidated financial
statements.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
Unaudited pro forma 1994 results of operations, as if
the acquisition had occurred July 1, 1993, are as
follows:
Net sales $166,072,763
Net income 7,496,878
Net income per share 1.28
============================================
5. Inventories Inventories are summarized as follows:
June 30, 1996 1995
Finished products $13,189,032 $13,791,986
Work in process 2,665,754 2,275,296
Raw materials and supplies 7,161,755 7,654,386
-------------------------------------------------------
$23,016,541 $23,721,668
=======================================================
6. Long-Term Debt At June 30, 1996 and 1995, 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. At June 30, 1996 there was a
$35,000,000 balance outstanding under the revolving
credit agreement; with an effective interest rate of
5.45%. The agreement contains certain covenants which
the Company is in compliance with at June 30, 1996.
The revolving credit is required to be repaid by
November 1, 1997. Annually, the Company may request
that the maturity of the revolving credit be extended
by another year.
7. 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 Company also has a supplemental retirement program
for designated officers of the Company which also
includes death and disability benefits.
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The cost of retirement benefits is as follows:
Year ended June 30, 1996 1995 1994
-------------------------------------------------------
Discretionary
profit-sharing $ 585,965 $ 576,558 $ 741,187
Pension 261,781 301,349 257,597
Supplemental
retirement 193,960 158,442 132,200
-------------------------------------------------------
$1,041,706 $1,036,349 $1,130,984
=======================================================
Net periodic cost for the pension plans included the
following components:
Year ended June 30, 1996 1995 1994
Service cost -
benefits earned
during the period $ 280,075 $ 251,503 $ 204,733
Interest cost on
projected benefit
obligation 737,433 726,789 711,826
Actual return on
plan assets (1,208,193) (930,192) (25,277)
Net deferral and
amortization of
unrecognized
amounts 452,466 253,249 (633,685)
-------------------------------------------------------
Net periodic
pension cost $ 261,781 $ 301,349 $ 257,597
=======================================================
The weighted average discount rate used in determining
the actuarial present value of the projected benefit
obligation of the pension plans was 8.5% at June 30,
1996 and 1995. The expected long-term rate of return
on plan assets was 8.5%.
The funded status of the pension plans is as follows:
June 30, 1996 1995
Actuarial present value
of benefit obligations:
Accumulated and projected
benefit obligation,
vested benefits of
$9,149,228 and
$8,790,594 $9,248,880 $8,890,564
Plan assets at fair
value, primarily
equity securities
and fixed income funds 10,183,105 9,169,454
-------------------------------------------------------
Plan assets in excess of
projected benefit
obligations 934,225 278,890
-------------------------------------------------------
Unrecognized net obligations:
Unrecognized net loss 292,637 853,808
Unrecognized prior service
cost 910,955 981,820
Unrecognized transition
net asset, being recognized
over 14.4 years (402,500) (456,900)
-------------------------------------------------------
Unrecognized net obligations 801,092 1,378,728
-------------------------------------------------------
Prepaid pension cost
included in other assets $1,735,317 $1,657,618
=======================================================
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidate Financial Statements
8. Postretirement The Company maintains a defined benefit postretirement
Health Care plan for substantially all employees which provides
Benefits 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 and is being
amortized over 20 years. During fiscal year 1994, the
Company revised the eligibility definition for
benefits. This reduced the liability as of July 1,
1993 by $916,457. This decrease in the liability is
being amortized over 17 years, the average remaining
service period of the active employees.
The components of net periodic postretirement benefit
cost are as follows:
Year ended June 30, 1996 1995 1994
Service cost -
benefits earned
during the year $ 82,461 $107,493 $114,233
Interest cost on
projected benefit
obligation 126,329 144,266 134,645
Amortization of
transition
liability over
20 years 93,861 93,861 93,861
Amortization of prior
service costs (57,279) (57,279) (25,561)
Amortization of
unrecognized net loss 18,415 37,162 -
-------------------------------------------------------
Net postretirement
health care cost $263,787 $325,503 $317,178
=======================================================
A reconciliation of the accumulated postretirement
benefit obligation to the liability recognized in the
consolidated balance sheets is as follows:
June 30, 1996 1995
-------------------------------------------------------
Accumulated postretirement
benefit obligation:
Active participants $ 828,891 $ 1,010,493
Retirees 704,498 731,874
-------------------------------------------------------
1,533,389 1,742,367
Unrecognized transition
obligation (1,501,763) (1,595,624)
-------------------------------------------------------
31,626 146,743
Unrecognized net loss (443,795) (682,130)
Unrecognized prior service
cost 744,620 801,899
-------------------------------------------------------
Postretirement health care
liability $ 332,451 $ 266,512
=======================================================
Knape & Vogt Manufacturing Company and Subsidiaries
Notes to Consolidated Financial Statements
The actuarial calculation assumes a health care
inflation rate of 9.8% in 1996 and grades down
uniformly to 6.5% 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, 1996,
accumulated postretirement benefit obligation by
$118,378, and the 1996 net postretirement health care
cost by $20,294. The discount rate used in determining
the accumulated postretirement benefit obligation was
8.5%. The Company's postretirement health care plans
are not funded. Prior to 1993, the cost of providing
postretirement benefits was expensed as incurred.
9. Lease Commitments The Company is leasing certain real property under the
terms of two to five year leases.
Future minimum payments are as follows:
Year ending June 30,
-------------------------------------------------------
1997 $1,508,148
1998 1,543,804
1999 1,562,573
2000 1,422,191
2001 217,462
-------------------------------------------------------
$6,254,178
=======================================================
Rent expense under all operating leases was
approximately $2,076,000, $2,070,000 and $1,461,000
in 1996, 1995 and 1994, respectively.
10. Income Taxes Income from continuing operations before income taxes
consists of:
Year ended
June 30, 1996 1995 1994
-------------------------------------------------------
United States $5,603,192 $10,708,095 $10,686,317
Foreign (465,134) 731,610 647,403
-------------------------------------------------------
Income from
continuing
operations
before
income taxes $5,138,058 $11,439,705 $11,333,720
=======================================================
Income tax expense (benefit) from continuing operations
consists of:
Year ended
June 30, 1996 1995 1994
-------------------------------------------------------
Current:
United States $3,189,000 $2,298,000 $2,942,000
Foreign (152,000) 129,000 210,000
State and local 58,000 83,000 103,000
-------------------------------------------------------
Total current 3,095,000 2,510,000 3,255,000
-------------------------------------------------------
Deferred:
United States (1,159,000) 1,208,000 609,000
Foreign 14,000 121,000 15,000
State and local 85,000 10,000 141,000
-------------------------------------------------------
Total deferred (1,060,000) 1,339,000 765,000
-------------------------------------------------------
Income tax
expense $2,035,000 $3,849,000 $4,020,000
=======================================================
The difference between the effective tax rates of 40%,
34%, and 35% in 1996, 1995 and 1994, respectively, and
the federal statutory rate of 34% is due to foreign,
state and local income taxes. The increase in
consolidated income tax expense in 1996 is due to the
reduction of use by the Company of research and
development credits compared to prior years. Tax laws
in the United States which created research and
development tax credits expired on June 30, 1995, and
the Company was not able to use these credits to reduce
1996 income tax expense.
The sources of the net deferred income tax liability
are as follows:
June 30, 1996 1995
-------------------------------------------------------
Different book/tax basis of
property and equipment $ 9,742,000 $ 9,713,000
Inventory valuation
reserves 478,000 427,000
Net operating loss
carryforward expiring
through 2008 (1,228,000) (1,179,000)
Restructuring accrual (1,207,000) ----
Other 204,800 88,800
-------------------------------------------------------
$ 7,989,800 $ 9,049,800
=======================================================
The Company has not provided for United States income
taxes on undistributed earnings of foreign
subsidiaries. Earnings are being reinvested, the
remittance of which has been indefinitely postponed.
In the event these earnings were remitted to the
Company, foreign tax credits would be used to offset a
substantial portion of the United States income taxes.
11. Stock Option The 1987 Stock Option Plan grants key employees of the
Plan 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,
are exercisable from that date and terminate 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.
Transactions are as follows:
1996 1995 1994
Options outstanding,
beginning of year 129,945 103,411 85,070
Granted 45,000 32,250 36,000
Exercised (1,155) (8,232) (16,332)
Forfeited (1,050) (7,430) (1,327)
10% stock dividend - 9,946 -
-------------------------------------------------------
Options outstanding
and exercisable,
end of year 172,740 129,945 103,411
=======================================================
Options price range,
end of year $ 9.58- $ 9.58- $ 9.58-
20.00 20.00 28.41
Options available
for grant, end
of year 46,967 90,917 14,018
=======================================================
In October 1995, the Financial Accounting Standards
Board issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 allows companies to
continue to account for their stock-based compensation
plans in accordance with APB Opinion 25, but encourages
the adoption of the new accounting method to record
compensation expense based on the estimated fair value
of employee stock-based compensation. Companies
electing not to follow the new fair value based method
are required to provide expanded footnote disclosures,
including pro forma net income and earnings per share,
determined as if the company has adopted the new
method. The Statement is required to be adopted for
fiscal years beginning after December 15, 1995.
Management intends to continue to account for its
stock-based compensation plans in accordance with APB
Opinion 25 and provide the supplemental disclosures as
required by SFAS No. 123, beginning in 1997.
12. Stockholders' On August 19, 1994, the board of directors declared a
Equity 10% stock dividend of the Company's common stock and
Class B common stock. Applicable share and per share
data have been restated to reflect the 10% stock
dividend.
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 Business 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.
13. Supplemental Total interest paid during the years ended June 30,
Cash Flows 1996, 1995 and 1994, was $2,245,136, $2,452,649 and
Information $1,319,657, respectively.
Total income taxes paid during the years ended June 30,
1996, 1995 and 1994, were $2,540,139, $3,375,972, and
$2,739,174, respectively.
14. Foreign The Company has operations in the United States and
Operations Canada:
Year ended
June 30, 1996 1995 1994
-------------------------------------------------------
Net sales:
United States $147,691,899 $151,261,132 $132,348,494
Canada 15,320,131 16,929,837 13,156,042
-------------------------------------------------------
$163,012,030 $168,190,969 $145,504,536
=======================================================
Operating income:
United States $ 8,178,485 $ 13,412,124 $ 12,440,250
Canada (509,120) 677,721 627,015
-------------------------------------------------------
$ 7,669,365 $ 14,089,945 $ 13,067,265
=======================================================
Total assets:
United States $116,460,936 $115,120,879 $117,567,637
Canada 12,764,223 16,312,835 15,680,164
-------------------------------------------------------
$129,225,159 $131,433,714 $133,247,801
=======================================================
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, 1996 and 1995, and
the related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended June 30, 1996. 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, 1996 and 1995, and
the results of their operations and their cash flows for each of the three
years in the period ended June 30, 1996, in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
August 21, 1996
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 18, 1996,
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 1996 and Year End Option Values," is incorporated herein by
reference from the Company's definitive Proxy Statement for the Annual Meeting
of Shareholders to be held October 18, 1996, 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 18, 1996, 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 18, 1996,
filed pursuant to Regulation 14A.
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 Balance Sheets . . . . . . . . . . . . . . . 14
Consolidated Statements of Income . . . . . . . . . . . . 15
Consolidated Statements of Stockholders' Equity . . . . . 16
Consolidated Statements of Cash Flows . . . . . . . . . . 17
Summary of Accounting Policies. . . . . . . . . . . . . . 18
Notes to Consolidated Financial Statements. . . . . . . . 18
Independent Auditors' Report. . . . . . . . . . . . . . . 30
(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 . . . . . . . . . . 33
Schedule II -- Valuation and Qualifying Accounts and Reserves . . 34
Consent of Independent Certified Public Accountants . . . . . . . 36
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 38 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, 1996.
Independent Auditors' Report on Schedule
Knape & Vogt Manufacturing Company
Grand Rapids, Michigan
The audits referred to in our report dated August 21, 1996, 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
September 24, 1996
Knape & Vogt Manufacturing Company and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
Column A Column B Column C additions Column D Column E
- ------------------------------------------------------------------------------
Balance, Charged to Charged to Balance,
beginning costs and other end of
Description of period expenses accounts Deductions period
(1) (2)
- ------------------------------------------------------------------------------
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
- ------------------------------------------------------------------------------
(1) Write-off of doubtful accounts and collections on accounts
previously written off, including reduction in allowance balance.
Knape & Vogt Manufacturing Company and Subsidiaries
Schedule II - Valuation and Qualifying Accounts and Reserves
Column A Column B Column C additions Column D Column E
- ------------------------------------------------------------------------------
Balance Charged to Charged to Balance,
beginning costs and other end of
Description of period expenses accounts Deductions period
(1) (2) (1)
- ------------------------------------------------------------------------------
Year ended June 30,
1995:
Allowances deducted
from assets:
Accounts receivable
for:
Doubtful accounts $582,500 $145,000 $ - $389,500 $338,000
Cash discounts 216,000 - - - 216,000
- ------------------------------------------------------------------------------
$798,500 $145,000 $ - $389,500 $554,000
- ------------------------------------------------------------------------------
Year ended June 30,
1994:
Allowances deducted
from assets:
Accounts receivable
for:
Doubtful accounts $252,902 $ 33,959 $306,847 $ 11,208 $582,500
Cash discounts 190,000 26,000 - - 216,000
- ------------------------------------------------------------------------------
$442,902 $ 59,959 $306,847 $ 11,208 $798,500
==============================================================================
(1) Write-off of doubtful accounts and collections on accounts
previously written off.
(2) Allowances related to acquisition in fiscal year 1994.
Consent of Independent Certified Public Accountants
We hereby consent to the incorporation by reference of our reports dated
August 21, 1996 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, 1996, in that corporation's
previously filed Form S-8 Registration Statements (file numbers 33-20227,
33-43704, 33-88206 and 33-88212).
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
September 24, 1996
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 23, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on September 23, 1996, by the following persons
on behalf of the registrant in the capacities indicated. Each director or
officer of the registrant, whose signature appear 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/ Richard C. Simkins
Allan E. Perry, Chief Executive Richard C. Simkins, Principal Financial
Officer and Director and Accounting Officer and Director
/s/ Mary Rita Cuddohy /s/ William R. Dutmers
Mary Rita Cuddohy, Director William R. Dutmers, Director
/s/ John E. Fallon /s/ Michael J. Kregor
John E. Fallon, Director Michael J. Kregor, Director
/s/ Raymond E. Knape
Herbert F. Knape, Director Raymond E. Knape, Director
/s/ Richard S. Knape /s/ Robert T. Kroon
Richard S. Knape, Director Robert T. Kroon, Director
KNAPE & VOGT MANUFACTURING COMPANY
ANNUAL REPORT - FORM 10-K
EXHIBIT INDEX
Page
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 ended 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
18 Letter Regarding Change in Accounting Principle. . . . . . . . . . . 39
21 Subsidiaries of Registrant . . . . . . . . . . . . . . . . . . . . . 40
24 Power of Attorney (Included on page 37).
August 21, 1996
Mr. Richard C. Simkins
Executive Vice President, Finance,
Secretary and Treasurer
Knape & Vogt Manufacturing Company
2700 Oak Industrial Drive, N.W.
Grand Rapids, Michigan 49505-6081
Dear Mr. Simkins:
As stated in Note 1 to the consolidated financial statements of Knape & Vogt
Manufacturing Company (Company) for the year ended June 30, 1996, the Company
changed its method of determining inventory cost at one of its subsidiaries
from the last-in, first-out (LIFO) method to the first-in, first out (FIFO)
method because such a method provides a better matching of revenue and
expenses. The Company believes that the impact of this change is not material
to the financial statements and therefore has not restated its financial
statements as otherwise called for by paragraph 27 of Accounting Principles
Board Opinion No. 20. However, pursuant to paragraph 28 of Accounting
Principles Board Opinion No. 20, the Company has disclosed in its 1996 annual
report the nature and justification of this change.
In connection with our audit of the financial statements, included in the
above-mentioned annual report, we have evaluated the circumstances and the
business judgment and planning which formulated your basis to make the change
in accounting principle.
It should be understood that criteria have not been established by the
Financial Accounting Standards Board for selecting from among the alternative
accounting principles that exist in this area. Further, the American
Institute of Certified Public Accountants has not established the standards
by which an auditor can evaluate the preferability of one accounting principle
among a series of alternatives. However, for purposes of the Company's
compliance with the requirements of the Securities and Exchange Commission,
we are furnishing this letter.
Based on our audit, we concur in management's judgment that the newly adopted
accounting principle described in Note 1 is preferable in the circumstances.
In formulating this position, we are relying on management's business planning
and judgment, which we do not find to be unreasonable.
Very truly yours,
/s/ BDO Seidman, LLP
BDO Seidman, LLP
Grand Rapids, Michigan
EXHIBIT 18
SCHEDULE OF SUBSIDIARIES OF KNAPE & VOGT MANUFACTURING
COMPANY
Knape & Vogt Canada, Inc. (organized under the laws of Ontario, Canada)
Modar, Inc. (organized under the laws of Michigan)
Feeny Manufacturing Company (organized under the laws of Michigan)
The Hirsh Company (organized under the laws of Illinois)
EXHIBIT 21
EXHIBIT 10(d)
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (the "Amendment"), made
as of
June 28, 1996, by and between KNAPE & VOGT MANUFACTURING COMPANY, a
Michigan
corporation (the "Company") and OLD KENT BANK (formerly Old Kent Bank and
Trust Company), a Michigan banking corporation, of Grand Rapids, Michigan
(the "Bank"):
R E C I T A L S :
A. Company and Bank have signed a Loan Agreement, dated as of
November 29, 1993, and a First Amendment to Loan Agreement, dated as of
February 16, 1995 (the Loan Agreement and the First Amendment to Loan
Agreement are collectively the "Loan Agreement"), providing for Bank to extend
to Company a revolving bank credit of up to $47,500,000;
B. Company and Bank wish to amend the Loan Agreement on the terms and
conditions set forth in this Amendment.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Restatement of Warranties and Representations. Company hereby
confirms to Bank that the warranties and representations set forth in the
Loan Agreement were true, accurate and complete when made and remain true,
accurate and complete as of the date of this Amendment.
2. No Events of Default; Compliance with Covenants. Company hereby
confirms and acknowledges to Bank that no event of default has occurred under
the Loan Agreement as of the date of this Amendment, and that as of the date
of this Amendment, Company has complied with all of the affirmative and
negative covenants set forth in the Loan Agreement.
3. Amendments Concerning Definitions Under the Loan Agreement.
(A) The Following definitions set forth in Section 1.1 of the Loan
Agreement are hereby amended in their entirety to read as follows:
"Adjusted Federal Funds Rate" means the Federal Funds Rate in effect
from time to time, plus the Applicable Margin.
"Eurodollar Rate" means, with respect to any Eurodollar Loan and the
related Eurodollar Interest Period, the per annum rate that is equal to
the sum of:
(a) the Applicable Margin, plus
(b) the rate obtained by dividing (I) the per annum rate of
interest at which deposits in Dollars for that Eurodollar Interest
Period and in an aggregate amount comparable to the amount of such
Eurodollar Loans are offered to the Bank by other prime banks in
the London interbank market, selected in the Bank's discretion, at
approximately 11:00 a.m. London time, as the case may be, on the
second Banking Day prior to the first day of that Eurodollar
Interest Period by (ii) a percentage equal to 100 percent minus the
percentage, if any, that is specified on the first day of that
Eurodollar Interest Period by the Board of Governors of the Federal
Reserve System (or any successor agency) (including, without
limitation, any marginal, emergency, supplemental, special or other
reserves) for determining the reserve requirements with respect to
eurocurrency funding (currently referred to as "eurocurrency
liabilities" in Regulation D of that Board maintained by a member
bank of that System, and for purposes hereof, any Eurodollar Loan
shall be considered to be "eurocurrency liabilities" as defined in
Regulation D) to be maintained by member banks of such System;
"Termination Date" means the earlier to occur of (a)
November 1, 1997 and (b) the date on which the Credit shall be
terminated pursuant to Sections 2.5 or 7.
(B) The following definitions are hereby added to the Loan
Agreement:
"Applicable Margin" shall mean the following margin based upon
the Interest Coverage Ratio as adjusted on the first day of each
fiscal quarter of the Company based upon such ratio for the four
fiscal quarters immediately preceding the fiscal quarter most
recently ended; provided, that, the Eurodollar Rate shall not be
adjusted pursuant to the Applicable Margin for any outstanding
Eurodollar Loan until after the end of the Eurodollar Interest
Period for such Eurodollar Loan:
APPLICABLE MARGIN
Eurodollar Federal Commitment
Interest Coverage Ratio Loans Funds Loans Fee
- ------------------------------------------------------------------------------
(a) Greater than 15.0 to 1.0 .25% .40% .10%
(b) Greater than or equal to .30% .40% .125%
10.0 to 1.0 but less than
or equal to 15.0 to 1.0
(c) Greater than or equal to .35% .45% .125%
4.0 to 1.0 but less than
10.0 to 1.0
(d) Less than 4.0 to 1.0 .40% .50% .15%
"EBIT" shall mean, for any period, the earnings of the Company for
such period before interest, extraordinary items consented to by the Bank
in writing, and taxes, all as determined in accordance with GAAP.
"Interest Coverage Ratio" shall mean, as of the end of any fiscal
quarter, the ratio of (a) EBIT for the four fiscal quarters then ending
to (b) all interest paid or payable by Company on Indebtedness, all as
determined in accordance with GAAP.
4. Amendments Concerning Article II of the Loan Agreement.
(A) Execution of New Revolving Note. To reflect the change in
the definition of the Termination Date, Company shall execute and deliver
to Bank a Revolving Note in the form attached hereto as Exhibit A which
will replace, in its entirety, the Revolving Note previously executed
and delivered to Bank on February 16, 1995.
(B) Commitment Fee. Section 2.9 of the Loan Agreement is
hereby amended in its entirety as follows:
As long as Bank is obligated to extend Revolving Loans to Company,
Company shall pay to Bank a revolving line of credit facility fee
on the daily average unused amount of the maximum $47,500,000
commitment of Bank to extend Revolving Loans at a rate equal to the
Applicable Margin computed on the basis of a 360 day year for the
actual number of days elapsed. These accrued revolving line of
credit facility fees shall be paid quarterly in arrears on the first
day of each May, August, November and February, commencing August 1,
1996.
5. Other Provisions Not Effected. Except as hereby amended, no other
provisions of the Loan Agreement shall be amended and all provisions of the
Loan Agreement shall hereafter remain in full force and effect.
IN WITNESS WHEREOF, the parties have signed and delivered this Amendment
on the date first written above.
KNAPE & VOGT MANUFACTURING COMPANY
By: /s/ Richard C. Simkins
Its: Executive Vice President
OLD KENT BANK
By: /s/ Peter T. Campbell
Peter T. Campbell, Vice President
EXHIBIT A
REVOLVING NOTE
$47,500,000 Grand Rapids, Michigan
June 28, 1996
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, 1997, 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 provided 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 the
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:_______________________________
Its:_________________________
Accepted by:
OLD KENT BANK
By:_______________________________
Peter T. Campbell, Vice President
SCHEDULE TO REVOLVING NOTE
DATED JUNE 28,1996, MADE BY
KNAPE & VOGT MANUFACTURING COMPANY
IN FAVOR OF
OLD KENT BANK
Principal
Date Loan Principal Type Interest Amount Paid, Principal
Made or Amount of of Period (if Prepaid or Balance Notation
Converted Loan Loan applicable Converted Outstanding Made By
- --------- --------- ---- ---------- ----------- ----------- --------
FIRST AMENDMENT TO LOAN AGREEMENT
THIS FIRST AMENDMENT TO LOAN AGREEMENT (the "Amendment"), is made
as of
February 16, 1995, by and between KNAPE & VOGT MANUFACTURING COMPANY,
a
Michigan corporation (the "Company") and OLD KENT BANK (formerly Old Kent Bank
and Trust Company), a Michigan banking corporation (the "Bank').
RECITALS:
A. On November 29, 1993, Company and Bank signed a Loan Agreement (the
"Loan Agreement"), providing for Bank to extend to Company a revolving bank
credit of up to $43,500,000;
B. Company and Bank wish to amend the Loan Agreement on the terms and
conditions set forth in this Amendment.
NOW, THEREFORE, THE PARTIES AGREE AS FOLLOWS:
1. Restatement of Warranties and Representations. Company hereby
confirms to Bank that the warranties and representations set forth in the
Loan Agreement were true, accurate and complete when made and remain true,
accurate and complete as of the date of this Amendment.
2. No Events of Default; Compliance with Covenants. Company hereby
confirms and acknowledges to Bank that no event of default has occurred under
the Loan Agreement as of the date of this Amendment, and that as of the date
of this Amendment, Company has complied with all of the affirmative and
negative covenants set forth in the Loan Agreement.
3. Amendments Concerning Definitions Under the Loan Agreement. The
following definitions set forth in Section 1.1 of the Loan Agreement are
hereby amended in their entirety to read as follows:
"Adjusted Federal Funds Rate" means fifty-five one-hundredths of one
percent (.55%) above the Federal Funds Rate in effect from time to time.
"Eurodollar Rate" means, with respect to any Eurodollar Loan and the
related Eurodollar Interest Period, the per annum rate that is equal to the
sum of:
(a) fifty one-hundredths of one percent (.50%) per annum,
plus
(b) the rate obtained by dividing (1) the per annum rate of
interest at which deposits in Dollars for that Eurodollar Interest
Period and in an aggregate amount comparable to the amount of such
Eurodollar Loan are offered to the Bank by other prime banks in the
London interbank market, selected in the Bank's discretion, at
approximately 11:00 a.m. London time, as the case may be, on the
second Banking Day prior to the first day of that Eurodollar
Interest Period, by (ii) a percentage equal to 100 percent minus
the percentage, if any, that is specified on the first day of that
Eurodollar Interest Period by the Board of Governors of the Federal
Reserve System (or any successor agency) (including, without
limitation, any marginal, emergency, supplemental, special or other
reserves) for determining the reserve requirements with respect to
eurocurrency funding (currently referred to as "eurocurrency
liabilities" in Regulation D of that Board maintained by a member
bank of that System, and for purposes hereof, any Eurodollar Loan
shall be considered to be "eurocurrency liabilities" as defined in
Regulation D) to be maintained by member banks of such System;
all as conclusively determined by the Bank, that sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%), and that Eurodollar Rate to be adjusted as and when any change
occurs in the reserve requirements referred to in subparagraph (b) above.
"Termination Date" means the earlier to occur of (a) November 1, 1996 and
(b) the date on which the Credit shall be terminated pursuant to Sections 2.5
or 7.
4. Amendments Concerning Article H of the Loan Agreement.
(a) Section 2.1 of the Loan Agreement is hereby amended to replace
the number $43,500,000 with the number $47,500,000 so that the maximum
amount of Revolving Loans that Company may borrow from Bank under the
Loan Agreement is increased from $43,500,000 to $47,500,000.
(b) To evidence the increase in the maximum amount of the Revolving
Loans from $43,500,000 to $47,500,000, Company shall execute and deliver
to Bank a Revolving Note in the form attached hereto as Exhibit A which
will replace in its entirety the Revolving Note previously executed and
delivered to Bank on November 29, 1993.
(c) The following Section 2.9 is hereby added to the Loan
Agreement:
2.9 Commitment Fee. As long as Bank is obligated to extend
Revolving Loans to Company, Company shall pay to Bank a revolving line
of credit facility fee on the daily average unused amount of the maximum
$47,500,000 commitment of Bank to extend Revolving Loans at a rate equal
to one-eighth of one percent (1/8%) per year, computed on the basis of a
360 day year for the actual number of days elapsed. These accrued
revolving line of credit facility fees shall be paid quarterly in arrears
on the first day of each May, August, November and February, commencing
May 1, 1995.
5. Other Provisions Not Effected. Except as hereby amended, no other
provisions of the loan Agreement shall be amended and all provisions of the
Loan Agreement shall hereafter remain in full and effect.
IN WITNESS WHEREOF, the parties have signed and delivered this Amendment
on the date first written above.
KNAPE & VOGT MANUFACTURING COMPANY
By /s/ Raymond E. Knape
Raymond E. Knape, Chairman
OLD KENT BANK
By /s/ David W. Edwards
David W. Edwards, Vice President
EXHIBIT A
REVOLVING NOTE
$47,500,000 Grand Rapids, Michigan
February 6, 1995
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, 1996, 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 provided 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 the
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 (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/ Raymond E. Knape
Raymond E. Knape, Chairman
Accepted by:
OLD KENT BANK
By /s/ David W. Edwards
David W. Edwards, Vice President
SCHEDULE TO REVOLVING NOTE
DATED FEBRUARY 16, 1995, MADE BY
KNAPE & VOGT MANUFACTURING COMPANY
IN FAVOR OF
OLD KENT BANK
Principal
Date Loan Principal Type Interest Amount Paid, Principal
Made or Amount of of Period (if Prepaid or Balance Notation
Converted Loan Loan applicable) Converted Outstanding Made By
- --------- --------- ---- ---------- ----------- ---------- --------
CLOSING MEMORANDUM
with respect to a
$43,500,000 Revolving Line of Credit
extended by
OLD KENT BANK AND TRUST COMPANY
to
KNAPE & VOGT MANUFACTURING COMPANY
Closing: November 29, 1993
Closing Memorandum lists the closing documents and other items executed
and/or delivered by Old Kent Bank and Trust Company (the "Bank") and Knape &
Vogt Manufacturing Company (the "Borrower") in connection with a $43,500,000
Revolving Line of Credit, as described below:
A. The following documents were prepared by Warner, Norcross & Judd, as
counsel to the Bank, and were executed and delivered by the parties at the
closing:
1. Loan Agreement between the Borrower and the Bank.
2. Revolving Note in the amount of $43,500,000 from the Borrower
to the Bank.
B. The following documents were requested by the Bank and were
delivered by the Borrower at the closing:
3. Opinion letter from counsel for the Borrower, dated as of the
closing.
4 Borrower's certified Articles of Incorporation, certified by
the Michigan Department of Commerce.
5. Borrower's Good Standing Certificate issued by the Michigan
Department of Commerce.
6. Certification of Bylaws, Incumbency and Corporate Authorizing
Resolutions of Borrower (with attachments).
7. Borrower's initial Request for Disbursement of Proceeds of
Revolving Line of Credit.
LOAN AGREEMENT
between
KNAPE & VOGT MANUFACTURING COMPANY
and
OLD KENT BANK AND TRUST COMPANY
Dated November 29, 1993
TABLE OF CONTENTS
Page
ARTICLE I. DEFINITIONS AND TERMS.. . . . . . . . . . . . . . . .1
1.1 Definitions. . . . . . . . . . . . . . . . . . . . . .1
1.2 Financial Terms. . . . . . . . . . . . . . . . . . . .4
ARTICLE II. THE LOANS.. . . . . . . . . . . . . . . . . . . . .4
2.1 Revolving Loans. . . . . . . . . . . . . . . . . . . .4
2.2 Loan Options . . . . . . . . . . . . . . . . . . . . .4
2.3 Borrowing Procedures . . . . . . . . . . . . . . . . .4
2.4 Continuation and/or Conversion of Loans. . . . . . . .5
2.5 Termination and Reduction of Credit. . . . . . . . . .5
2.6 Conditions for Disbursement of Initial Loan. . . . . .5
2.7 Conditions for Disbursement of Each Loan . . . . . . .6
2.8 Minimum Amounts; Limitation on Number of Loans . . . .6
ARTICLE III. PAYMENTS, OFFSETS, AND PREPAYMENTS. . . . . . . . .6
3.1 Method and Place of Payment. . . . . . . . . . . . . .6
3.2 Principal Payments . . . . . . . . . . . . . . . . . .6
3.3 Prepayments. . . . . . . . . . . . . . . . . . . . . .6
3.4 Interest Payments. . . . . . . . . . . . . . . . . . .7
3.5 Method of Calculating Interest . . . . . . . . . . . .7
3.6 Offset . . . . . . . . . . . . . . . . . . . . . . . .7
3.7 Payment on Non-Banking Day; Payment Computations . . .7
3.8 HLT Classification . . . . . . . . . . . . . . . . . .7
ARTICLE IV. YIELD PROTECTION AND CONTINGENCIES.. . . . . . . . .8
4.1 Additional Costs . . . . . . . . . . . . . . . . . . .8
4.2 Limitation of Requests and Elections . . . . . . . . .8
4.3 Capital Adequacy Adjustment. . . . . . . . . . . . . .8
4.4 Illegality and Impossibility . . . . . . . . . . . . .9
4.5 Indemnification. . . . . . . . . . . . . . . . . . . .9
ARTICLE V. WARRANTIES AND REPRESENTATIONS.. . . . . . . . . . .9
5.1 Corporate Existence. . . . . . . . . . . . . . . . . .9
5.2 Qualifications . . . . . . . . . . . . . . . . . . . .9
5.3 Power, Authority, Licenses and Permits . . . . . . . .9
5.4 Financial Statements . . . . . . . . . . . . . . . . .9
5.5 Adverse Changes. . . . . . . . . . . . . . . . . . . .9
5.6 No Misrepresentations. . . . . . . . . . . . . . . . 10
5.7 No Litigation; Defaults. . . . . . . . . . . . . . . 10
5.8 Corporate Power, Due Authorization, No Conflict
and Approvals. . . . . . . . . . . . . . . . . . . . 10
5.9 Taxes. . . . . . . . . . . . . . . . . . . . . . . . 10
5.10 Margin Securities . . . . . . . . . . . . . . . 10
5.11 Liens. . . . . . . . . . . . . . . . . . . . . . . . 10
5.12 Subsidiaries . . . . . . . . . . . . . . . . . . . . 10
5.13 Purpose. . . . . . . . . . . . . . . . . . . . . . . 10
5.14 Compliance . . . . . . . . . . . . . . . . . . . . . 10
5.15 Investment Company Act Representation. . . . . . . . 11
5.16 Public Utility Holding Company Act Representation. . 11
ARTICLE VI. AFFIRMATIVE AND NEGATIVE COVENANTS. . . . . . . . 11
6.1 Financial Statements and Other Information . . . . . 11
6.2 Corporate Existence. . . . . . . . . . . . . . . . . 11
6.3 Access . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 Insurance. . . . . . . . . . . . . . . . . . . . . . 12
6.5 Repair . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Taxes and Liabilities. . . . . . . . . . . . . . . . 12
6.7 Merger, Acquisitions, Purchase and Sale. . . . . . . 12
6.8 Compliance with ERISA. . . . . . . . . . . . . . . . 12
6.9 Minimum Working Capital. . . . . . . . . . . . . . . 12
6.10 Minimum Stockholders' Equity . . . . . . . . . . . . 12
6.11 Ratio of Liabilities to Stockholders' Equity . . . . 12
6.12 Intangibles. . . . . . . . . . . . . . . . . . . . . 13
6.13 Liens. . . . . . . . . . . . . . . . . . . . . . . . 13
6.14 Rental Payments. . . . . . . . . . . . . . . . . . . 13
6.15 Other Agreements . . . . . . . . . . . . . . . . . . 13
6.16 Use of Proceeds. . . . . . . . . . . . . . . . . . . 13
6.17 Notice of Investigations and Proceeding and
Litigation . . . . . . . . . . . . . . . . . . . . . 13
6.18 Dividends. . . . . . . . . . . . . . . . . . . . . . 13
6.19 Distribution of Assets . . . . . . . . . . . . . . . 13
ARTICLE VII. EVENTS OF DEFAULT AND REMEDIES.. . . . . . . . . 14
7.1 Events of Default. . . . . . . . . . . . . . . . . . 14
7.2 Remedies . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE VIII. OTHER PROVISIONS.. . . . . . . . . . . . . . . . 15
8.1 Delay. . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Notice . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Expenses . . . . . . . . . . . . . . . . . . . . . . 15
8.4 Law. . . . . . . . . . . . . . . . . . . . . . . . . 15
8.5 Successors . . . . . . . . . . . . . . . . . . . . . 15
8.6 Usury. . . . . . . . . . . . . . . . . . . . . . . . 16
8.7 Amendments, Etc. . . . . . . . . . . . . . . . . . . 16
8.8 Headings . . . . . . . . . . . . . . . . . . . . . . 16
8.9 Integration and Severability . . . . . . . . . . . . 16
8.10 Independence of Covenants. . . . . . . . . . . . . . 16
8.11 Rights Cumulative and Waivers. . . . . . . . . . . . 16
8.12 Relationship of Company and Bank . . . . . . . . . . 16
EXHIBIT A. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
EXHIBIT B. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
EXHIBIT C. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
EXHIBIT D. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
EXHIBIT E. . . . . . . . . . . . . . . . . . . . . . . . . . . .1
LOAN AGREEMENT
THIS LOAN AGREEMENT (the "Agreement"), dated November 29, 1993, is
entered into between KNAPE & VOGT MANUFACTURING COMPANY, a Michigan
corporation (the "Company") and OLD KENT BANK AND TRUST COMPANY, a
Michigan
banking corporation (the "Bank).
The Company desires to obtain a revolving bank credit in the principal
sum not to exceed Forty-three Million Five Hundred Thousand Dollars
($43,500,000), in order to provide funds for the acquisition of the stock of
The Hirsh Company and for its general corporate purposes, and the Bank is
willing to extend that credit to the Company upon the terms and conditions
set forth herein.
NOW, THEREFORE, in consideration of the mutual agreements herein
contained, the parties hereto agree as follows:
ARTICLE I. DEFINITIONS AND TERMS.
1.1 Definitions. In addition to the terms defined elsewhere in this
Agreement, the following terms shall have the meanings indicated for purposes
of this Agreement (those meanings to be equally applicable to both the
singular and plural forms of the terms defined):
"Adjusted Federal Funds Rate" means eighty-five one hundredths of
one percent (.85%) above the Federal Funds Rate in effect from time to time.
"Affiliate" has the meaning given to such term under Section
407(d)(7) of ERISA.
"Banking Day" means any day other than a Saturday, Sunday or other
day on which Bank is open for the transaction of substantially all of its
banking functions and, with respect to Eurodollar Loans, on which dealings
in foreign exchange and currencies may be carried on by the Bank in the
interbank eurodollar market.
"Capitalized Lease Obligation" means any obligation of the Company
to pay future rentals under a lease which, in accordance with GAAP, is
required to be shown as a liability on the combined balance sheet of the
Company.
"Credit" means the Bank's commitment to make Revolving Loans under
the term of this Agreement.
"Current Assets" and "Current Liabilities" mean, at any time, all
assets or liabilities, respectively, that, in accordance with GAAP, should be
classified as current assets or current liabilities, respectively, on a
balance sheet of the Company.
"Dollars" and the sign "$" means lawful money of the United States
of America.
"Effective Date" means November 29, 1993.
"Environmental Laws" means all applicable laws, ordinances, rules,
regulations, and orders that regulate or are intended to protect public health
or the environment, or that establish liability for the investigation, removal
or cleanup of or damage caused by any contamination including, without
limitation, any law, ordinance, rule, regulation, or order that regulates, or
prescribes requirements for, air quality, water quality, or the disposition,
transportation, or management of waste materials or toxic substances.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"Eurodollar Interest Period" means, with respect to any Eurodollar Loan,
the period commencing on the day that Loan is made or converted to a
Eurodollar Loan and ending on the date one (1), two (2), three (3) or six (6)
months thereafter, as the Company may elect under Sections 2.3 or 2.4
hereof, and each subsequent period commencing on the expiration of the
immediately preceding Eurodollar Interest Period and ending on the date one
(1), two (2), three (3) or six (6) months thereafter, as the Company may elect
under Sections 2.3 or 2.4 hereof, provided, however, that (a) any Eurodollar
Interest Period which commences on the last Banking Day of a calendar month
(or on any day for which there is no numerically corresponding day in the
appropriate subsequent calendar month) shall end on the last Banking Day of
the appropriate subsequent calendar month), (b) each Eurodollar Interest
Period which would otherwise end on a day which is not a Banking Day shall
end on the next succeeding Banking Day or if that next succeeding Banking Day
falls in the next succeeding calendar month, on the next preceding Banking
Day, and (c) no Eurodollar Interest Period shall be permitted which extends
beyond the Termination Date.
"Eurodollar Loan" means, any Revolving Loan that bears interest at the
Eurodollar Rate.
"Eurodollar Rate" means, with respect to any Eurodollar Loan and the
related Eurodollar Interest Period, the per annum rate that is equal to the
sum of:
(a) seventy-five one hundredths of one percent (.75%) per annum,
plus
(b) the rate obtained by dividing (1) the per annum rate of
interest at which deposits in Dollars for that Eurodollar Interest Period
and in an aggregate amount comparable to the amount of such Eurodollar
Loan are offered to the Bank by other prime banks in the London interbank
market, selected in the Bank's discretion, at approximately 11:00 a.m.
London time, as the case may be, on the second Banking Day prior to the
first day of that Eurodollar Interest Period, by (ii) a percentage equal
to 100 percent minus the daily average during that Eurodollar Interest
Period of the percentages in effect on each day of that Interest Period
of all reserve requirements (including, without limitation, any marginal
emergency, supplemental special or other reserves) that are prescribed by
the Board of Governors of the Federal Reserve System (or any successor
agency thereto) for determining the reserve requirements with respect to
eurocurrency funding (currently referred to as "eurocurrency liabilities"
in Regulation D of that Board maintained by a member bank of that System,
and for purposes hereof any Eurodollar Loan shall be deemed to be
"eurocurrency liabilities" as defined in said Regulation D) maintained by
member banks of such System;
all as conclusively determined by the Bank, that sum to be rounded up, if
necessary, to the nearest whole multiple of one one-hundredth of one percent
(1/100 of 1%), and that Eurodollar Rate to be adjusted as and when any change
occurs in the reserve requirements referred to in subparagraph (b) above.
"Event of Default" means any of the events described in Section 7.
"FDIC" means the Federal Deposit Insurance Corporation.
"Federal Funds Rate" means the rate of interest announced from time
to time by the Federal Reserve Bank of New York as the "average federal funds
rate," which Federal Funds Rate shall change simultaneously with any change
in that "average federal funds rate."
"Federal Funds Loan" means any Loan that bears interest at the
Adjusted Federal Funds Rate.
"GAAP" means generally accepted accounting principles, consistently
applied.
"Indebtedness" means indebtedness for borrowed money, indebtedness
representing the deferred purchase price of property (excluding indebtedness
under normal trade credit for property purchased in, the normal course of
operations), obligations under notes payable or drafts accepted representing
extensions of credit, indebtedness (whether or not assumed) secured by
mortgages, security interests, or other liens on property owned by the Company
or any Subsidiary and any Capitalized Lease Obligation.
"Intangibles" means (a) goodwill including any amounts, however
designated on a combined balance sheet of the Company, representing the excess
of the purchase price paid for assets or stock acquired over the value
assigned thereto on the books of the Company, (b) patents, trademarks,
tradenames, and copyrights; (c) treasury stock, and (d) loans and advances to
stockholders, directors, officers or employees.
"Interest Period" means any Eurodollar Interest Period.
"Liabilities" means all Indebtedness that, in accordance with GAAP,
is required to be classified as liabilities on a consolidated balance sheet
of the Company.
"Loans" means the Revolving Loans made pursuant to Section 2.1.
"Note" means the Revolving Note referred to in Section 2.3.
"Overdue Rate" means (a) in respect of principal of any Eurodollar
Loan a rate per annum that is equal to the sum of two percent (2%) per annum
plus the per annum rate in effect thereon until the end of the then current
Interest Period of that Loan and, thereafter, a rate per annum that is equal
to the sum of two percent (2%) per annum plus the Prime Rate, (b) in respect
of principal of any Prime Loan or Federal Funds Loan, a rate per annum that
is equal to the sum of two percent (2%) per annum plus the Prime Rate, and
(c) in respect of other amounts payable by the Company hereunder (other than
interest), a per annum rate that is equal to the sum of two percent (2%) per
annum plus the Prime Rate.
"Payment Date" shall mean as to any Eurodollar Loan the last day of
each Interest Period with respect thereto, and as to any Prime Loan or Federal
Funds Loan, the 12th calendar day of each month.
"PBGC" means the Pension Benefit Guaranty Corporation and any entity
succeeding to any or all of its functions under ERISA.
"Plan" has the meaning given to that term in Section 3(3) of ERISA
and established or maintained by the Company, any of its Subsidiaries or any
Affiliate and includes any Plan as to which the Company, any of its
Subsidiaries or any Affiliate may have any liability.
"Prime Loan" means any Loan that bears interest at the Prime Rate.
"Prime Rate" means at any time the rate of interest most recently
announced by the Bank as its "prime rate", which is not necessarily the lowest
rate of interest charged by the Bank to its customers, which Prime Rate shall
change simultaneously with any change in the Bank's "prime rate".
"Revolving Loans" means the Loans described in Section 2.1, and
shall be Prime Loans or Eurodollar Loans, or Federal Funds Loans.
"Revolving Note" means the Note described in Section 2.3.
"Stock Acquisition Agreement" means the Stock Acquisition Agreement
dated October 26, 1993, between the Company, The Hirsh Company and all of the
shareholders of The Hirsh Company.
"Stockholders' Equity" means, at any time, the sum of the following
accounts set forth in a combined balance sheet of the Company, prepared in
accordance with GAAP: (a) all outstanding capital stock, (b) capital surplus
and additional paid in capital; and (c) retained earnings.
"Subsidiary" means any corporation, voluntary association, joint
stock company, voting trust or similar organization of which the Company and
its other subsidiaries own directly or indirectly more than 50 percent of
the shares of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors, managers,
trustees or others performing similar functions.
"Termination Date" means the earlier to occur of (a) December 1,
1995 and (b) the date on which the Credit shall be terminated pursuant to
Sections 2.5 or 7.
"Unmatured Event of Default' means an event or condition which with
the lapse of time or giving of notice to the Company, or both, would
constitute an Event of Default.
"Working Capital" means at any time, the amount by which Current
Assets exceed Current Liabilities.
1.2 Financial Terms. Unless otherwise defined or the context otherwise
requires, all financial and accounting terms shall be defined under generally
accepted accounting principles. For purposes of calculating covenants under
this Agreement, any amounts which would otherwise be included as liabilities
or amortized on any financial statement of the Company pursuant to SFAS #106,
regarding post retirement health care benefits, shall not be considered as
liabilities or expenses of the Company.
ARTICLE II. THE LOANS.
2.1 Revolving Loans. Subject to the terms and conditions of this
Agreement, the Bank agrees to make loans (collectively called the "Revolving
Loans" and individually called a Revolving Loan") to the Company, which
Revolving Loans the Company may repay and reborrow during the period from
the Effective Date, to but not including, the Termination Date, in those
amounts as the Company may from time to time request, but not exceeding
Forty-three Million Five Hundred Thousand Dollars ($43,500,000) (or that
amount as may be fixed by the Company pursuant to Section 2.5) in the
aggregate at any one time outstanding.
2.2 Loan Options. Each Revolving Loan shall bear interest at the
Eurodollar Rate, the Prime Rate, or the Adjusted Federal Funds Rate and for
those Interest Periods as the Company may elect.
As to the Eurodollar Loan, the Bank may, if it so elects, fulfill
its commitment by causing a branch or affiliate to make or continue that Loan,
provided that in that event that Loan shall be deemed for the purposes of this
Agreement to have been made by the Bank and the obligation of the Company to
repay such Loan shall nevertheless be to the Bank and shall be deemed held by
the Bank, to the extent of that Loan, for the account of such branch or
affiliate. Notwithstanding any provision of this Agreement to the contrary,
the Bank shall be entitled to fund and maintain its funding of all or any
part of the Loans in any manner it sees fit, it being understood, however,
that for the purposes of this Agreement all determinations hereunder shall be
made as if the Bank had actually funded and maintained each Eurodollar Loan
during each related Interest Period through the purchase of deposits in the
interbank eurodollar market having a maturity corresponding to that related
Interest Period and bearing an interest rate equal to the Eurodollar Rate for
that Interest Period.
2.3 Borrowing Procedures. The Company shall before l:00 p.m. on a
Banking Day give the Bank at least three (3) full Banking Days' prior
telephonic notice (promptly confirmed in writing) of each request for a
Eurodollar Loan. The Company shall give the Bank telephonic notice (promptly
confirmed in writing) before 3:00 p.m. on any Banking Day on which the Company
wants the Bank to make a Prime Loan or Federal Funds Loan. Each request shall
specify the date (which day shall be a Banking Day), amount and type of Loan
and, if that Loan is to be a Eurodollar Loan, the initial Interest Period for
that Loan. The Company shall apportion each Eurodollar Loan, Prime Loan or
Federal Funds Loan only in minimum aggregate amounts of $100,000 or integral
multiples thereof. Subject to the terms and conditions of this Agreement, the
proceeds of each requested Loan shall be made available to the Company by
depositing the proceeds thereof, in immediately available funds, in an account
maintained and designated by the Company at the Bank. All Revolving Loans
shall be evidenced by the Revolving Note in the form set forth as Exhibit A
hereto, with appropriate insertions, which Revolving Note shall be dated the
date of the initial Revolving Loan and shall mature on the Termination
date. The Bank is hereby authorized by the Company to note on the schedule
attached to the Revolving Note or on its books and records, the date, amount
and type of each Loan and the 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
books and records, as the case may be, shall constitute prima facie evidence
of the information so noted, provided that failure of the Bank to make any
such notation shall not relieve the Company of its obligation to repay, the
outstanding principal amount of the Loans, all accrued interest thereon and
other amounts payable with respect thereto in accordance with the terms of
the Revolving Note and this Agreement.
2.4 Continuation and/or Conversion of Loans. The Company may elect (I)
to continue any outstanding Eurodollar Loan from the current Interest Period
into a subsequent Interest Period to begin on the last day of that current
Interest Period, or (ii) subject to the limitations of Section 2.8 hereof, to
convert any portion of a Eurodollar Loan, Prime Loan or a Federal Funds Loan
from a Loan of one type into a Loan of another type, by giving at least three
(3) Banking Days' prior telephonic notice (promptly confirmed in writing) to
the Bank of such continuation or conversion, specifying the date, amount and,
for each Eurodollar Loan, the Interest Period. Absent notice of continuation
or conversion, each Loan shall automatically continue as a Loan of the current
type, in the same amount and the same Interest Period on the last day of the
current Interest Period for that Loan. No portion of the Loan shall be
converted to another type of Loan at any time that an Event of Default or an
Unmatured Event of Default shall exist.
2.5 Termination and Reduction of Credit. The Company shall have the
right to terminate or permanently reduce the amount of the Credit at any time
and from time to time, subject to the requirements set forth under Section
4.5,12 provided, however, that (a) the Company shall give written notice of
such termination or reduction to the Bank specifying the amount and effective
date thereof (b) each partial reduction of the Credit shall be in an amount
equal to $100,000 or an integral multiple thereof (c) no termination or
reduction shall be permitted with respect to any portion of the Credit as
to which a request for a Loan pursuant to Section 2.3 is then pending, and
(d) the Company shall repay the outstanding principal of the Revolving Note
in excess of the then reduced amount of the Credit, including accrued interest
to the date of the reduction on the principal amount being repaid. The Credit
or any portion thereof so terminated or reduced may not be reinstated.
2.6 Conditions for Disbursement of Initial Loan. The obligation of the
Bank to make the initial Loan hereunder is subject to receipt by the Bank of
the following documents and fulfillment by the Company of the following
requirements, in form and substance satisfactory to the Bank:
(a) Certificates of recent date of the appropriate authority or
official of the Company's and each of its Subsidiaries' respective states
of incorporation certifying as to the good standing and corporate
existence of the Company and each Subsidiary together with copies of all
articles or certificates of incorporation of the Company and each such
Subsidiary on file in that office certified as a recent date by that
authority or official and certified as true and correct as of the date of
that Loan by a duly authorized officer of the Company;
(b) Copies of the bylaws of the Company together with all
authorizing resolutions and evidence of other corporate action taken by
the Company to authorize the execution, delivery and performance by the
Company of this Agreement and the Note and the consummation by the
Company of the transactions contemplated hereby, each certified as true
and correct as of the date of that Loan by a duly authorized officer of
the Company;
(c) Certificates of incumbency of the Company, containing, and
attesting to the genuineness of the signatures of those officers
authorized to act on behalf of the Company in connection with this
Agreement and the Revolving Note and the consummation by the Company of
the transactions contemplated hereby, certified as true and correct as of
the date of such Loan by a duly authorized officer of the Company;
(d) The Revolving Note duly executed on behalf of the Company and
dated on or before the date of such Loan; and
(e) The favorable written opinion of the Company's counsel,
addressed to the Bank and dated the Effective Date, in substantially the
form of Exhibit B.
2.7 Conditions for Disbursement of Each Loan. The obligation of the
Bank to make any Loan (including the initial Loan) is subject to the
satisfaction of the following conditions precedent:
(a) The representations and warranties contained in Article V of
this Agreement shall be true and correct on and as of the date that Loan
is made; and
(b) No Event of Default, and no event or condition which might
become such an Event of Default with notice or lapse of time, or both,
shall exist or shall have occurred and be continuing on the date such
Loan is made.
The Company shall be deemed to have made a certification to the Bank at the
time of the making of each Loan to the effects set forth in clauses (a) and
(b) of this Section 2.7.
2.8 Minimum Amounts; Limitation on Number of Loans. Except for
conversions or payments required pursuant to Section 4.4, each Loan and each
prepayment thereof shall be in a minimum amount of $100,000.
ARTICLE III. PAYMENTS, OFFSETS, AND PREPAYMENTS.
3.1 Method and Place of Payment. All payments hereunder shall be made
without set off or counterclaim and shall be made to the Bank prior to 3:00
p.m., Grand Rapids, Michigan time, on the date due at its principal banking
office in the City of Grand Rapids, Michigan, or at any other place as may be
designated by the Bank to the Company in writing. Any payments received after
3:00 p.m., Grand Rapids, Michigan time, shall be deemed received on the next
Banking Day. Subject to the definition of "Interest Period", whenever any
payment to be made hereunder or under the Note shall be stated to be due on a
date other than a Banking Day, that payment may be made on the next Banking
Day, and that extension of time shall be included in the computation of
interest or any fees. At the time of making each payment, the Company shall
specify to the Bank that obligation of the Company hereunder to which that
payment is to be applied, or, in the event that the Company fails to so
specify or if an Event of Default has occurred and is continuing, that payment
shall be applied as the Bank may determine in its sole discretion.
3.2 Principal Payments. Unless earlier payment is required under this
Agreement, the Company shall pay to the Bank on the Termination Date the
outstanding principal amount of the Revolving Loans.
3.3 Prepayments.
(a) The Company may from time to time prepay the principal of the
Revolving Loan in whole or in part without premium, provided, however,
that any prepayment of a Eurodollar Loan shall be made on a Payment Date;
provided further that any partial prepayment of principal shall be in an
amount of $100,000 or an integral multiple thereof.
(b) The Company shall prepay the principal of the Revolving Loan
in whole without premium within sixty (60) days of a material change in
the Company's management, provided, however, that any such prepayment of
a Eurodollar Loan shall be made on the last day of that 60-day period, if
that last day is a Payment Date, and if it is not a Payment Date, on the
next Payment Date immediately following the end of that 60-day period,
and provided, further that any such prepayment shall include accrued
interest to the date of prepayment. For the purposes hereof, a "material
change in the Company's management" shall mean a majority of the people
who are members of the Board of Directors of the Company on the date
hereof ceasing to hold those positions.
3.4 Interest Payments. The Company shall pay interest to the Bank on
the unpaid principal amount of each Loan, for the period commencing on the
date such Loan is made until such Loan is paid in full on the Payment Date
applicable thereto and at maturity (whether at stated maturity, by
acceleration or otherwise), and thereafter on demand, at the following rates
per annum:
(a) During those periods that Loan is a Eurodollar Loan, the
Eurodollar Rate applicable to that Loan for each related Eurodollar
Interest Period.
(b) During those periods that that Loan is a Prime Loan, the Prime
Rate.
(c) During those periods that that Loan is a Federal Funds Loan,
the Adjusted Federal Funds Rate.
(d) Notwithstanding the foregoing paragraphs (a), (b) and (c), the
Company agrees to pay interest on demand at the Overdue Rate on the
outstanding principal amount of any Loan and any other amount payable by
the Company hereunder (other than interest) which is not paid in full
when due (whether at stated maturity, by acceleration or otherwise) for
the period commencing on the due date thereof until the same is paid in
full
3.5 Method of Calculating Interest. Interest on the Loan and other
amounts due under this Agreement shall be computed on the basis of a year
consisting of 360 days and paid for actual days elapsed, calculated as to each
Interest Period from and including the day thereof but excluding the last day
of the relevant period.
3.6 Offset. In addition to and not in limitation of all rights of
offset that the Bank or other holder of the Revolving Note may have under
applicable law, the Bank or other holder of the Revolving Note shall upon the
occurrence of any Event of Default have the right to appropriate and apply to
the payment of the Revolving Note, any and all balances, credits, deposits,
accounts or moneys of the Company then or thereafter with the Bank or other
holder.
3.7 Payment on Non-Banking Day; Payment Computations. Except as
otherwise provided in this Agreement to the contrary, whenever any installment
of principal of, or interest on, any Loan outstanding hereunder or any other
amount due hereunder, becomes due and payable on a day that is not a Banking
Day, the maturity thereof shall be extended to the next succeeding Banking Day
and, in the case of any installment of principal, interest shall be payable
thereon at the rate per annum determined in accordance with this Agreement
during that extension.
3.8 HLT Classification. In the event that after the Effective Date,
the Loans or any Credit hereunder are classified on the Bank's books as a
"highly leveraged transaction" (an "HLT Classification") by the Bank or any
governmental authority, central bank or comparable agency having jurisdiction
over the Bank, the Bank shall promptly give notice of that HLT Classification
to the Company whereupon the Bank and the Company shall commence negotiations
in good faith to agree on revised interest rates and/or margins hereunder
reflecting that HLT Classification. In the event that the Company and the
Bank fail to agree on revised interest rates and/or margins within 90 days of
the notice given by the Bank referred to above, then the Bank may (I) by five
Banking Days' notice to the Company terminate the unused portions of the
Credit and they shall thereupon terminate, and (ii) by five Banking Days'
notice to the Company declare all amounts outstanding under the Revolving
Note (together with accrued interest thereon and any other amounts payable
hereunder) to be, and all such amounts shall thereupon become, absolutely and
immediately due and payable. The Company hereby absolutely and unconditionally
agrees to pay to the Bank on the date of any such acceleration all amounts
payable hereunder and under the Note. The Bank acknowledges that an HLT
Classification (including any election to accelerate amounts payable hereunder
and under the Notes, as provided herein) is not a Default or an Event of
Default hereunder.
ARTICLE IV. YIELD PROTECTION AND CONTINGENCIES.
4.1 Additional Costs. In the event that any applicable law, treaty,
rule or regulation (whether domestic or foreign) now or hereafter in effect
and whether or not presently applicable to the Bank, or any interpretation or
administration thereof by any governmental authority charged with the
interpretation or administration thereof, or compliance by the Bank with any
request or directive of any such authority (whether or not having the force of
law), shall (I) affect the basis of taxation of payments to the Bank of any
amounts payable by the Company under this Agreement (other than taxes imposed
on the overall net income of the Bank), or (ii) shall impose, modify or deem
applicable any reserve, special deposit or similar requirement against assets
of, deposits with or for the account of, or credit extended by the Bank, or
(iii) shall impose any other condition with respect to this Agreement, the
Revolving Note or the Loans, and the result of any of the foregoing is to
increase the cost to the Bank of making or maintaining any Eurodollar Loan or
to reduce the amount of any sum receivable by the Bank thereon, then the
Company shall pay to the Bank, from time to time, upon request by the Bank
additional amounts sufficient to compensate the Bank for such increased cost
or reduced sum receivable to the extent the Bank is not compensated therefor
in the computation of the interest rate applicable to that Eurodollar Loan. A
detailed statement as to the amount of that increased cost or reduced sum
receivable, prepared in good faith and submitted by the Bank to the Company,
shall be conclusive and binding for all purposes absent manifest error in
computation.
4.2 Limitation of Requests and Elections. Notwithstanding any other
provision of this Agreement to the contrary, if, upon receiving a request for
a Eurodollar Loan, pursuant to Section 2.3, or a request for a continuation
of a Loan as a Loan of the then existing type pursuant to Section 2.4, or
conversion of a Loan to a Loan of a different type pursuant to Section 2.4,
(a) in the case of any Eurodollar Loan, deposits in Dollars for periods
comparable to the Interest Period elected by the Company are not available to
the Bank in the relevant interbank or secondary market or otherwise, or (b)
the Eurodollar Rate will not adequately and fairly reflect the cost to the
Bank of making or maintaining the related Eurodollar Loan, or (c) by reason of
national or international financial, political or economic conditions or by
reason of any applicable law, treaty, rule or regulation (whether domestic or
foreign) now or hereafter in effect, or the interpretation or administration
thereof by any governmental authority charged with the interpretation or
administration thereof, or compliance by the Bank with any request or
directive of that authority (whether or not having the force of law),
including without limitation exchange controls, it is impracticable, unlawful
or impossible for the Bank (I) to make the relevant Loan or (ii) to continue
such Loan as a Loan of the then existing type or (iii) to convert a Loan, then
the Company shall not be entitled, so long as such circumstances continue, to
request a Loan of the affected type pursuant to Section 2.3 or a continuation
of or conversion to a Loan of the affected type pursuant to Section 2.4. In
the event that such circumstances no longer exist, the Bank shall, again
consider requests for continuations of and conversions to Loans of the
affected type pursuant to Section 2.4.
4.3 Capital Adequacy Adjustment. In the event that any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect and whether or not presently applicable to the Bank, or any
interpretation or administration thereof by any governmental authority charged
with the interpretation or administration thereof, or compliance by the Bank
with any guideline, request or directive of that authority (whether or not
having the force of law), including any risk-based capital guidelines,
affects or would affect the amount of capital required or expected to be
maintained by the Bank or any corporation controlling the Bank and the Bank
determines that the amount of that capital is increased by or based upon the
existence of the Bank's obligations hereunder and that increase has the effect
of reducing the rate of return on the Bank's or that controlling corporation's
capital as a consequence of those obligations hereunder to a level below that
which the Bank or that controlling corporation could have achieved but for
such circumstances (taking into consideration its policies with respect to
capital adequacy) by an amount deemed by the Bank to be material then the
Company shall pay to the Bank, from time to time, upon written request by the
Bank, additional amounts sufficient to compensate the Bank for any increase
in the amount of capital and reduced rate of return which the Bank reasonably
determines to be allocable to the existence of the Bank's obligations
hereunder. A statement as to the amount of that compensation, prepared in
good faith and in reasonable detail by the Bank, and submitted by the Bank to
the Company, shall be conclusive and binding for all purposes absent manifest
error in computation.
4.4 Illegality and Impossibility. In the event that any applicable law,
treaty, rule or regulation (whether domestic or foreign) now or hereafter in
effect, or any interpretation or administration thereof by any governmental
authority charged with the interpretation or administration thereof, or
compliance by the Bank with any request or directive of such authority
(whether or not having the force of law), including without limitation
exchange controls, shall make it unlawful or impossible for the Bank to
maintain any Loan under this Agreement, the Company shall upon receipt of
notice thereof from the Bank, either convert the Loan to a Loan of a different
type, or repay in full the then outstanding principal amount of each Loan so
affected together with all accrued interest thereon to the date of payment
and all amounts due to the Bank under Section 4.5 (a) on the last day of the
then current Interest Period applicable to that Loan if the Bank may lawfully
continue to maintain such Loan to that day, or (b) immediately if the Bank may
not continue to maintain that Loan to that day.
4.5 Indemnification. If the Company makes any payment of principal with
respect to any Loan on any other date than the last day of an Interest Period
applicable thereto (except for any prepayment made under Section 4.4 of this
Agreement) or if the Company fails to make any payment of principal or
interest in respect of a Loan when due, the Company shall reimburse the Bank
on demand for any resulting loss or expense incurred by the Bank, including
without limitation any loss incurred in obtaining, liquidating or employing
deposits from third parties. A detailed statement as to the amount of that
loss or expense, prepared in good faith and submitted by the Bank to the
Company, shall be conclusive and binding for all purposes absent manifest
error in computation. Notwithstanding the foregoing, if the Bank proposes to
charge any amount to the Company under Section 4.1 or Section 4.3, the Company
shall have the right to immediately prepay all Revolving Loans and shall not
be responsible for any loss or expense incurred by the Bank as a result of
that prepayment.
ARTICLE V. WARRANTIES AND REPRESENTATIONS.
The Company represents and warrants to the Bank as follows:
5.1 Corporate Existence. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Michigan.
5.2 Qualifications. The Company and its Subsidiaries are duly qualified
and authorized to do business, and are in good standing as foreign
corporations, in each jurisdiction in which the failure to be so qualified or
authorized to do business would have a material adverse effect upon the
Company's consolidated financial condition, their contracts, their continuing
business operations or the validity or enforceability of this Agreement or
the Note.
5.3 Power, Authority, Licenses and Permits. The Company and its
Subsidiaries have all requisite corporate power and authority and all
necessary licenses and permits to own and operate their properties and to
carry on their businesses as now conducted.
5.4 Financial Statements. The consolidated balance sheet of the
Company as of June 30, 1993, and the related consolidated statements of
income, of retained earnings and of changes in financial position for the
fiscal year then ended, accompanied by audit reports thereon containing
opinions without qualification, except as therein noted, of the Company's
independent certified public accountants, copies of all of which have been
delivered to the Bank, have been prepared by the Company in accordance with
generally accepted accounting principles consistently applied and present
fairly the consolidated financial position of the Company as of such date and
the results of its consolidated operations for such fiscal year.
5.5 Adverse Changes. Since June 30, 1993, there has been no change in
the business, prospects, profits, properties or condition (financial or
otherwise) of the Company or its Subsidiaries that individually or in the
aggregate has been or is likely to be materially adverse.
5.6 No Misrepresentations. Neither this Agreement, nor the financial
statements referred to in Section 5.4 above, nor any other written statement
furnished by the Company to the Bank in connection with the negotiation of
the Loans provided for herein, contains any untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein or herein not misleading. There is no fact that the Company has not
disclosed to the Bank in writing that materially affects adversely, or, to the
best of the knowledge of the officers and directors of the Company, in the
future is likely to materially affect adversely, the properties, business,
prospects, profits or condition (financial or otherwise) of the Company or
its ability to perform its obligations under this Agreement.
5.7 No Litigation; Defaults. Except as disclosed on Exhibit C attached
hereto, there are no proceedings pending, or to the knowledge of the officers
of the Company threatened, before any court, governmental authority or
arbitration board or tribunal, against or affecting the Company or any of its
Subsidiaries, the outcome of which may reasonably be expected to materially
adversely affect the financial condition, business, operations or properties
of the Company or any of its Subsidiaries. Neither the Company nor any of its
Subsidiaries is in default with respect to any order, judgment or decree of
any court, governmental authority or arbitration board or tribunal.
5.8 Corporate Power, Due Authorization, No Conflict and Approvals. The
Company has full corporate power to execute, deliver and perform this
Agreement and the Note; the execution, delivery and performance of this
Agreement and of the Note, have been duly authorized by appropriate corporate
action of the Company and will not conflict with or violate the provisions of
the articles of incorporation or bylaws of the Company or of any law, rule,
judgment, order, agreement or instrument to which the Company is a party or
by which it is bound, nor do the same require any approval or consent of any
public authority or other third party; and this Agreement and the Note have
been duly executed and delivered by, and constitute the valid and binding
obligations of the Company, enforceable in accordance with their terms.
5.9 Taxes. To the best of the knowledge of the Company and its officers
and directors, all tax returns required to be filed by the Company and its
Subsidiaries in any jurisdiction have been filed, and all taxes, assessments,
fees and other governmental charges upon the Company or upon its assets,
income or franchises, which are shown on such returns to be due and payable,
have been paid. The Company knows of no proposed additional tax assessment
against it or its Subsidiaries.
5.10 Margin Securities. The Company does not own or intend to carry or
purchase any "margin security" within the meaning of Regulation U of the Board
of Governors of the Federal Reserve System, 12 C.F.R. Chapter II.
5.11 Liens. None of the assets of the Company or any of its Subsidiaries
is subject to any mortgage, pledge, title retention lien, or other lien,
encumbrance or security interest, except (I) for current taxes not delinquent
or taxes being contested in good faith and by appropriate proceedings, (ii)
for liens arising in the ordinary course of business for sums not due or sums
being contested in good faith and by appropriate proceedings and not involving
any deposits or advances or borrowed money or the deferred purchase price
of property or services, (iii) to the extent shown in the financial statements
referred to in Section 5.4 and (iv) as listed on Exhibit D.
5.12 Subsidiaries. Exhibit E to this Agreement correctly sets forth (I)
the state in which the Company and its Subsidiaries, respectively, are
incorporated, (ii) the state or states in which the Company and its
Subsidiaries conduct their respective businesses and (iii) a list of the stock
of each class of each Subsidiary of the Company, showing in each case the
number of shares of stock of each class outstanding and the shares of each
class owned by the Company and each Subsidiary of the Company. The shares
of stock listed on Exhibit E as owned by the company have been duly issued and
are fully paid and nonassessable and are so owned free and clear of any liens,
claims or other encumbrances.
5.13 Purpose. The proceeds of the Loans will be used by the Company (a)
to acquire the stock of The Hirsh Company pursuant to the Stock Purchase
Agreement and (b) for general working capital purposes.
5.14 Compliance. The Company and its Subsidiaries are in material
compliance with all statutes and governmental rules and regulations
applicable to them, including without Stations ERISA insofar as such Act
applies to them. There is no condition with any Plan which could result in
the incurrence by the Company or any of its Subsidiaries of any material
liability, fine or penalty.
5.15 Investment Company Act Representation. The Company is not an
"investment company" or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
5.16 Public Utility Holding Company Act Representation. The Company is
not a "holding company", or a "subsidiary company" of a "holding company", or
an "affiliate" of a "holding company", within the meaning of the, Public
Utility Holding Company Act of 1935, as amended.
ARTICLE VI. AFFIRMATIVE AND NEGATIVE COVENANTS.
From the date of this Agreement and thereafter until the Termination Date
and until the Note and other liabilities of the Company hereunder are paid in
full, the Company agrees that it will:
6.1 Financial Statements and Other Information. Furnish to the Bank:
(I) within 100 days after each fiscal year of the Company, a copy
of the Company's annual audit report prepared on a consolidated basis in
conformity with generally accepted accounting principles applied on a
basis consistent with that of the preceding fiscal year and certified by
an independent certified public accountant who shall be satisfactory to
the Bank;
(ii) within 45 days after each quarter (except the last quarter)
of each fiscal year of the Company, a copy of its unaudited financial
statement, prepared in the same manner as the audit report referred to
in clause (I) hereof and signed by the Company's chief financial officer;
(iii) together with the financial statements furnished by the
Company under preceding clauses (I) and (ii), a certificate of the
Company's chief financial officer to the effect that no Event of Default
or Unmatured Event of Default has occurred and is continuing, or, if
there is any such event, describing it and the steps, if any, being taken
to cure it and containing a computation of, and showing compliance with,
each of the financial ratios and restrictions contained in this Section
6;
(iv) copies of each filing and report made by the Company or any
Subsidiary with or to any securities exchange or the Securities and
Exchange Commission, and of each communication from the Company or any
Subsidiary to shareholders generally, promptly upon the filing or making
thereof;
(v) immediately upon learning of the occurrence of any of the
following, written notice thereof, describing the same and the steps
being taken by the Company or the Subsidiary affected with respect
thereto: (a) the occurrence of an Event of Default or an Unmatured Event
of Default or (b) the institution of, or any adverse determination in,
any litigation, arbitration proceeding or governmental proceeding which
is material to the Company and its Subsidiaries on a consolidated basis;
and
(vi) from time to time, such other information as the Bank may
reasonably request.
6.2 Corporate Existence. Maintain and preserve, and cause each
Subsidiary to maintain and preserve, its respective corporate existence and
all rights, privileges, license, patents, patent rights, copyrights,
trademarks, trade names, franchises and other authority to the extent material
and necessary for the conduct of its respective business in the ordinary
course as conducted from time to time.
6.3 Access. Permit, and cause each Subsidiary to permit, access by the
Bank to the books and records of the Company and each Subsidiary during normal
business hours and permit, and cause each Subsidiary to permit, the Bank to
make copies of said books and records.
6.4 Insurance. Maintain, and cause each Subsidiary to maintain,
insurance to such extent and against such hazards and liabilities as is
commonly maintained by companies similarly situated or as the Bank may
reasonably request from time to time.
6.5 Repair. Maintain, preserve and keep its, and cause each Subsidiary
to maintain, preserve and keep their properties in good repair, working order
and condition and from time to time make and cause each Subsidiary to make,
all necessary and proper repairs, renewals, replacements, additions and
improvements thereto so that at all times the efficiency thereof shall be
fully preserved and maintained.
6.6 Taxes and Liabilities. Pay, and cause each Subsidiary to pay,
before the same becomes delinquent all taxes, assessments and other
liabilities, except as contested in good faith and by appropriate proceedings.
6.7 Merger, Acquisitions, Purchase and Sale. Not:
(I) be a party to any merger or consolidation;
(ii) except in the normal course of its business, sell transfer,
convey or lease all or any substantial part of its assets;
(iii) sell or assign, with or without recourse, any accounts
receivable or chattel paper; or
(iv) purchase or otherwise acquire all or substantially all the
assets of any person, corporation, or other entity, or any shares of the
stock of, or similar interest in, any other corporation or entity; except
that the Bank agrees that the Company may (a) merge or consolidate with
or acquire another corporation so long as the Company is the surviving
entity of any of the foregoing and (b) sell, transfer, convey or lease
any of its assets so long as such arrangement does not result in a
material adverse change in the business, financial condition or
operations of the Company, provided, however, that the foregoing
exceptions and consent shall only be applicable if (x) in the event of
any transaction involving ten percent (10%) or more of the Company's
assets (determined on a consolidated basis), the Bank shall have given
its prior written consent thereto and (y) in all cases, immediately prior
to and following that transaction, the Company shall be in compliance
with all covenants contained in Article VI hereof and there shall not
have occurred an Event of Default or Unmatured Event of Default.
6.8 Compliance with ERISA. Comply, and cause each Subsidiary to comply,
with all statutes and governmental rules and regulations applicable to them,
including, without Stations ERISA insofar as that Act applies to them. Not
permit, and not permit any Subsidiary to permit, any condition to exist in
connection with any Plan which might constitute grounds for the PBGC to
institute proceedings to have such Plan terminated or a trustee appointed to
administer that Plan; and not engage in, or permit to exist or occur, or
permit any of its Subsidiaries to engage in, or permit to exist or occur, any
other condition, event or transaction with respect to any such Plan which
could result in the incurrence by the Company or any of its Subsidiaries of
any material liability, fine or penalty.
6.9 Minimum Working Capital. Maintain at all times a consolidated
Working Capital of not less than $20,000,000.
6.10 Minimum Stockholders' Equity. Maintain at all times a consolidated
Stockholders' Equity of not less than $62,000,000.
6.11 Ratio of Liabilities to Stockholders' Equity. Maintain a ratio of
total consolidated Liabilities to consolidated Stockholders' Equity that is
not greater than 1.25 to 1.0.
6.12 Intangibles. Not permit consolidated Intangibles to exceed
$23,000,000.
6.13 Liens. Not, and not permit any Subsidiary to, create or permit to
exist any mortgage, pledge, title retention lien, or other lien, encumbrance
or security interest ("Lien") with respect to any assets now owned or
hereafter acquired, except for Liens:
(I) for current taxes not delinquent or taxes being contested in
good faith and by appropriate proceedings;
(ii) arising in the ordinary course of business for sums not due
or sums being contested in good faith and by appropriate proceedings and
not involving any deposits or advances or borrowed money or the deferred
purchase price of property or services;
(iii) referred to in Section 5.11; or
(iv) arising in connection with property acquired after the date
hereof and attaching only to the property being acquired, provided,
however, that except for Liens permitted by paragraphs (I) and (iii) of
this Section, no Liens may attach to any of the Company's current assets.
6.14 Rental Payments. Not make aggregate rental payments on non-
capitalized, non-cancelable leases with remaining terms in excess of one (1)
year in any twelve (12) month period that exceed five percent (5%) of the
Company's consolidated Stockholders' Equity determined as of the last day
of such period, provided that rental payments made under the following leases
shall be excluded in determining whether the Company has compiled with this
covenant: (a) Lease, dated August 17, 1993, between The Hirsh Company and
American National Bank and Trust Company of Chicago, et al., and (b) Agreement
of Lease, dated March 1, 1988, between 160508 Canada, Inc. and Roll-it, Inc.
6.15 Other Agreements. Not enter into any agreement containing any
provision which would be violated or breached by the performance of its
obligations hereunder or under any instrument or document delivered hereunder.
6.16 Use of Proceeds. Not use or permit any Loans hereunder to be used,
either directly or indirectly, for any purpose which would violate Regulation
G or U of the Board of Governors of the Federal Reserve System, as amended
from time to time (and furnish to the Bank, upon its request, a statement of
conformity with the requirements of Federal Reserve Form U-1 referred to in
Regulation U of the Board of Governors of the Federal Reserve.
6.17 Notice of Investigations and Proceeding and Litigation. Notify the
Bank in writing within 10 days after receipt whenever the Company receives
notice of the commencement of (a) formal proceedings or any investigation by
a federal or state environmental agency against the Company or any Subsidiary
regarding the compliance by the Company or any Subsidiary with Environmental
Laws, or (b) any other materia judicial or administrative proceeding or
litigation commenced by or against the Company or any Subsidiary.
6.18 Dividends. Pay any dividends, other than dividends payable in the
capital stock of the Company on any shares of any class of its capital stock
during any period when an Event of Default or an Unmatured Event of Default
shall exist.
6.19 Distribution of Assets. Except for dividends permitted by Section
6.18 hereof, and except for redemptions of stock of the Company not in excess
of $100,000 in any fiscal year, purchase, redeem, or otherwise acquire or make
other distribution of its assets, by reduction of capital or otherwise, with
respect to any shares of any class of its capital stock.
ARTICLE VII. EVENTS OF DEFAULT AND REMEDIES.
7.1 Events of Default. Each of the following shall constitute an Event
of Default under this Agreement:
(I) Non-Payment. Default, and the continuance thereof for five
(5) days, in the payment of principal of, or interest on, the Note when
due, or any fee hereunder.
(ii) Default Under Other Indebtedness. Default in the payment when
due (subject to any applicable grace period), whether by acceleration or
otherwise, of any other Indebtedness (whether owed to the Bank or any
other person or entity) in excess of $50,000 of, or guaranteed by, the
Company or any Subsidiary (except any such indebtedness of any Subsidiary
to the Company or to any other Subsidiary) or default in the performance
or observance of any obligation or condition with respect to such
Indebtedness if the effect of such default is to accelerate the maturity
of that Indebtedness or to permit the holder or holders thereof, or any
trustee or agent for such holders, to immediately cause that Indebtedness
to become due and payable prior to its expressed maturity.
(iii) Insolvency. The Company or any of its Subsidiaries becomes
insolvent or generally fails to pay, or admits in writing its inability
to pay, its debts as they mature, or applies for, consents to, or
acquiesces in the appointment of a trustee, receiver or other custodian
for the Company, such Subsidiary or any property thereof; or, in the
absence of such application, consent or acquiescence, a trustee, receiver
or other custodian is appointed for the Company, any of its Subsidiaries
or for a substantial part of the property of the Company or any of its
Subsidiaries and is not discharged within sixty (60) days; or any
bankruptcy, reorganization, debt arrangement or other proceeding under
any bankruptcy or insolvency law, or any dissolution or liquidation
proceeding is instituted by or against the Company or any of its
Subsidiaries and if instituted against the Company or any of its
Subsidiaries is consented to or acquiesced in by the Company or such
Subsidiary or remains for sixty (60) days undismissed; or any warrant of
attachment is issued against any substantial portion of the property of
the Company or any of its Subsidiaries which is not released within
sixty (60) days of service.
(iv) ERISA. The PBGC applies to a United States District Court for
the appointment of a trustee to administer any Plan or for a decree
adjudicating that any Plan must be terminated; a trustee is appointed
pursuant to ERISA to administer any Plan; any action is taken to
terminate any such Plan or any Plan is permitted or caused to be
terminated if, at the time such action is taken or such termination of
any such Plan occurs, the Plan's "vested liabilities", as defined in
Section 3(25) of ERISA, exceed the then value of its assets at the time
of such termination.
(v) Agreements. Default in the performance of any of the Company's
agreements herein set forth (and not constituting an Event of Default
under any of the preceding subsections of this Section 7.1) and
continuance of such default for thirty (30) days after notice thereof to
the Company from the Bank, provided that any failure by the Company to
comply with its covenants set forth in Sections 6.7, 6.9, 6.10, 6.11,
6.12, 6.13, 6.18 and 6.19 shall constitute an Event of Default without
notice to the Company from the Bank.
(vi) Warranty. Any warranty made by the Company herein is untrue
in any material respect, or any schedule, statement, report, notice,
writing or certification furnished by the Company to the Bank is untrue
in any material respect on the date as of which the facts set forth are
stated or certified.
(vii) Litigation. Notice is given to the Company by the Bank that,
in the good faith opinion of the Bank, any litigation, arbitration
proceeding or government proceeding which has been instituted against the
Company or any of its Subsidiaries will, to a material extent, adversely
affect the consolidated financial condition or continued operation of the
Company, and such litigation or proceeding is not dismissed within 30
days after such notice.
7.2 Remedies. If any Event of Default described in Section 7.1 is
continuing, the Bank may declare the Credit. to be terminated and the Note to
be due and payable, whereupon the Credit shall immediately terminate and the
Note shall become immediately due and payable, all without notice of any kind
(except that if an event described in Section 7.1(iii) occurs, the Credit
shall immediately terminate and the outstanding Note shall become immediately
due and payable without declaration or notice of any kind). The Bank shall
promptly advise the Company of any declaration, but failure to do so shall
not impair the effect of that declaration.
ARTICLE VIII. OTHER PROVISIONS.
8.1 Delay. No delay on the part of the Bank or the holder of the Note in
the exercise of any power or right shall operate as a waiver thereof, nor
shall any single or partial exercise of any power or right preclude other or
further exercise thereof, or the exercise of any other power or right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
8.2 Notice. Any notice hereunder to the Company or the Bank shall be
in writing and, if mailed, shall be deemed to be given one business day after
being sent by registered or certified mail, postage prepaid, and addressed to
the Company or the Bank as its address set forth below, or at such other
address as the Company or the Bank may, by written notice, designate as its
address for purposes of notice hereunder.
Bank: Old Kent Bank and Trust Company
Corporate Banking Department
One Vandenberg Center
Grand Rapids, Michigan 49503
ATTN: David W. Edwards, Vice President
Company: Knape & Vogt Manufacturing Company
2700 Oak Industrial Drive, N.E.
Grand Rapids, Michigan 49505
ATTN: Raymond E Knape, President
8.3 Expenses. The Company agrees, whether or not any Loan is made
hereunder, to pay the Bank upon demand for all reasonable expenses, including
reasonable fees of attorneys for the Bank incurred by the Bank in connection
with (I) the preparation, negotiation and execution of this Agreement, the
Note and any document required to be furnished in connection therewith, (ii)
the negotiation, preparation and signing of waivers of this Agreement or the
Note, (iii) the preparation of any and all amendments to this Agreement or
the Note and all other instruments or documents provided for herein or
delivered or to be delivered hereunder or in connection herewith, and (iv)
the enforcement of the Company's obligations hereunder or under the Note.
The Company also agrees (v) to indemnify and hold the Bank harmless from any
loss or expense that may arise or be created by the acceptance of telephonic
or other instructions for making Loans and (vi) to pay, and save the Bank
harmless from all liability for, any stamp or other taxes which may be
payable with respect to the execution or delivery of this Agreement or the
issuance of the Note or of any other instruments or documents provided for
herein or to be delivered hereunder or in connection herewith. The Company's
foregoing obligations shall survive any termination of this Agreement.
8.4 Law. This Agreement and the Revolving Note shall be governed by and
construed in accordance with the laws of the State of Michigan, without regard
to principles of conflicts of law.
8.5 Successors. This Agreement shall be binding upon the Company and
the Bank and their respective successor and assigns, and shall inure to the
benefit of the Company and the Bank and the successors and assigns of the
Bank. The Company shall not assign its rights or delegate its duties
hereunder without the consent of the Bank.
8.6 Usury. Notwithstanding any provisions of this Agreement or the
Revolving Note, in no event shall the amount of interest paid or agreed to be
paid to the Bank exceed an amount computed as the highest rate of interest
permissible under applicable law. If, from any circumstances whatsoever,
fulfillment of any provisions of this Agreement or the Revolving Note at the
time performance of such provision shall be due, shall involve exceeding the
interest rate limitation validly prescribed by law which a count of competent
jurisdiction may deem applicable hereto, then ipso facto, the obligations to
be fumed shall be reduced to an amount computed at the highest rate of
interest permissible under applicable law, and if for any reason whatever the
Bank shall ever receive as interest an amount that would be deemed unlawful
under applicable law, that interest shall be automatically applied to the
payment of principal of the Loan outstanding hereunder (whether or not then
due and payable) and not to the payment of Interest or shall be refunded to
the Company if such principal has been paid in full.
8.7 Amendments, Etc. This Agreement and any term or provision hereof
may be amended, waived or terminated by an instrument in writing by the party
against which it is to be enforced, unless that instrument by its terms calls
for the execution by both parties, in which event such instrument must be
signed by both the Company and the Bank. Any such amendment, waiver or
termination shall be effective only in the specific instance and for the
specific purpose for which given.
8.8 Headings. The headings of the various subdivisions hereof are for
the convenience of reference only and shall in no way modify any of the terms
or provisions hereof.
8.9 Integration and Severability. This Agreement embodies the entire
agreement and understanding between the Company and the Bank and supersedes
all prior agreements and understandings relating to the subject matter hereof.
In case any one or more of the obligations of the Company under this Agreement
or the Note shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining obligations of
the Company by, and any invalidity, illegality or unenforceability in one
jurisdiction shall not affect the validity, legality or enforceability of the
obligations of the Company under this Agreement or the Note in any other
jurisdiction.
8.10 Independence of Covenants. All covenants contained herein shall be
given independent effect so that if a particular action or condition is not
permitted by any of those covenants, the fact that it would be permitted by
an exception to, or be otherwise within the limitation of, another covenant
shall not avoid the occurrence of an Event of Default if that action is taken
or condition exists.
8.11 Rights Cumulative and Waivers. Each and every right granted to
the Bank hereunder or under any other document delivered hereunder, or in
connection herewith, or allowed it by law or equity, shall be cumulative and
may be exercised from time to time. No failure on the part of the Bank to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof or as a waiver of any other right.
8.12 Relationship of Company and Bank. The relationship between the
Company and the Bank is solely that of borrower and lender. The Bank has no
fiduciary responsibilities to the Company. The Bank does not undertake any
responsibility to the Company to review or inform the Company of any matter
in connection with any phase of the Company's business or operations. The
Company shall rely entirely upon its own judgment with respect to its
business, and any review, inspection, supervision, or information supplied
to the Company by the Bank is for the protection of the Bank and neither the
Company nor any third party is entitled to rely thereon.
IN WHEREOF, the parties hereto have caused this Agreement to be executed
as of the date stated above in the first paragraph of this Agreement.
KNAPE & VOGT MANUFACTURING COMPANY
By /s/ Raymond E. Knape
Raymond E. Knape, President
OLD KENT BANK AND TRUST COMPANY
By /s/ David W. Edwards
David W. Edwards, Vice President
EXHIBIT A
REVOLVING NOTE
$43,500,000 Grand Rapids, Michigan
November 29, 1993
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 AND TRUST COMPANY, a Michigan banking corporation
(the
"Bank"), in lawful currency of the United States of America and in immediately
available funds, on December 1, 1995, the principal sum of Forty-three Million
Five Hundred Thousand Dollars ($43,500,000), 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 provided 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 the
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, (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/ Raymond E. Knape
Raymond E. Knape, President
Accepted by:
OLD KENT BANK AND TRUST COMPANY
By /s/ David W. Edwards
David W. Edwards, Vice President
SCHEDULE TO REVOLVING NOTE
DATED NOVEMBER 29, 1993, MADE BY
KNAPE & VOGT MANUFACTURING COMPANY
IN FAVOR OF
OLD BANK AND TRUST COMPANY
Principal
Date Loan Principal Interest Amount Paid Principal
Made or Amount Type of Period (if Prepaid or Balance Notation
Converted of Loan Loan applicable) Converted Outstanding Made By
- --------- ------- ------- ---------- ----------- ---------- --------
EXHIBIT B
FORM OF COMPANY COUNSEL OPINION
November 29, 1993
Old Kent Bank and Trust Company
One Vandenberg Center
Grand Rapids, Michigan 49503
Ladies and Gentlemen:
We have acted as counsel to Knape & Vogt Manufacturing Company, a
Michigan corporation (the "Company") in connection with the Loan Agreement
dated as of November 29, 1993 (the "Loan Agreement"), entered into between
the Company and Old Kent Bank and Trust Company (the "Bank"). Except as
otherwise indicated in this Opinion Letter, capitalized terms are defined as
set forth in the Loan Agreement or the Accord (see below).
This Opinion Letter is governed by, and shall be interpreted in
accordance with, the Legal Opinion Accord (the "Accord") of the ABA Section
of Business Law (1991). Accordingly, it is subject to a number of
qualifications, exceptions, definitions, limitations on coverage and other
limitations, all as more particularly described in the Accord. The law
covered by the opinions expressed in this Opinion Letter is limited to the
federal law of the United States and the law of the state of Michigan.
For purposes of this Opinion Letter, we have examined copies of the Loan
Agreement and the Revolving Note dated November 29, 1993 (the "Revolving
Note") made by the Company in favor of the Bank in the principal amount of
$43,500,000. The Loan Agreement and the Revolving Note are hereinafter
together referred to as the "Loan Documents".
Based upon and subject to the foregoing, we are of the opinion that:
1. The Company is a corporation duly organized, validly existing and
in good standing under the laws of the state of Michigan, has the requisite
corporate power and authority to carry on its business as presently conducted,
and to own and operate its properties and to enter into and perform its
obligations under the Loan Documents, and is duly qualified to transact
business in all other jurisdictions where, because of the nature of its
activities or properties, such qualification is required.
2. Each of the Affiliates (as hereinafter defined) is a corporation
duly organized, validly existing and in good standing under the laws of the
state of Michigan, and is duly qualified to transact business in all other
jurisdictions where, because of the nature of its respective activities or
properties, such qualification is required. As used herein, "Affiliates"
means Modar, Inc., a Michigan corporation, and Feeny Manufacturing Company,
a Michigan corporation.
3. The Loan Documents are enforceable against the Company.
4. The execution, delivery and performance by the Company of the Loan
Documents do not (I) violate the articles of incorporation or bylaws of the
Company, or (ii) result in any breach of any of the obligations of, or
constitute a default under, the provisions of any written agreement or other
written instrument relating to the borrowing of money to which the Company is
a party, or by which it may be bound, or (iii) violate applicable provisions
of statutory law or regulation.
5. No consent or approval of any governmental body, federal or state
of Michigan, or of any non-governmental person (including, without limitation,
any creditor or stockholder of the Company or any of the Affiliates)
is necessary for the execution, delivery and performance by the Company of
the Loan Documents; provided, however, no opinion is expressed with respect
to the effect of your compliance with any laws or regulations applicable to
the transaction on account of the nature of your business, or facts relating
specifically to you, or as to the effect of any such non-compliance on the
opinions set forth above.
6. The Company does not, in its ordinary course of business, extend
or maintain credit for the purpose, whether immediate, incidental or ultimate,
of buying or carrying margin stock (within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System) and, based on the
representations of the Company in the Loan Documents, no part of the proceeds
of the Loan Documents will be used for the purpose, whether immediate,
incidental or ultimate, of buying or carrying any such margin stock or
maintaining or extending credit to others for such purpose.
We hereby confirm to you that, except as set forth in Exhibit C to the
Loan Agreement, there are not actions or proceedings against the Company
pending, or overtly threatened in writing, before any court, governmental
agency or arbitrator which, if adversely determined, could have a materially
adverse effect on the Company's financial condition or business or on the
Company's ability to perform or otherwise comply with its obligations set
forth in the Loan Documents.
Very truly yours,
VARNUM, RIDDERING, SCHMIDT & HOWLETTLLP
/s/ Jeffrey L. Schad
Jeffrey L. Schad
EXHIBIT C
DESCRIPTION OF PENDING LITIGATION
Kessler vs. Knape & Vogt Mfg, Co. et. al., U.S. District Court (S.D.
Florida), Case No. 93-2174, relates to claimed infringement of Kessler Patent
(U.S, Patent No.: 4,315,661) on a "Euro-slide" mechanism. Answer is due on
December 10, 1993. Significant prior art has been uncovered which appears to
support a defense of patent invalidity.
Edward Frabizio vs. Tomisite Systems Corp., et. al., Supreme Court of
the State of New York, Case No.: 92-17657, relates to a personal injury case
(injury to foot) resulting from a lateral file cabinet failure. Knape & Vogt
was made a third party defendant by the cabinet manufacturer, Fillip Metal
Cabinet Company. Plaintiff's demand is for $3 million with respect to first
party defendants, Globe Desk Company and Fillip Metal Cabinet Company. Knape &
Vogt has filed an answer and affirmative defenses. The Home Insurance Company
has undertaken to defend for its insured, Knape & Vogt. See related case,
Baer Supply vs. Fillip Metal, below.
Baer Supply Company vs. Fillip Metal Cabinet Company, Circuit Court
(Illinois 19th Judicial District), Case No.: 92 L 191, relates to a commercial
contract claim asserted by Baer Supply as against Fillip Metal for nonpayment
of open account. Fillip Metal counterclaimed against Baer and by third party
complaint against Knape & Vogt alleging breach of express and/or implied
warranties for drawer slide products. Knape & Vogt moved for and obtained
summary judgment on the grounds of lack of privity and lack of warranty.
Fillip Metal has appealed and all parties have filed briefs. Appellate
decision will likely issue in 18 to 24 months.
Rev-A-Shelf, Inc., vs. Knape & Vogt Mfg. Co., U.S. District Court
(W.D. Kentucky), Case No.: 92-0168-L (CS), relates to a declaratory judgment
action brought by Rev-A-Shelf in order to determine whether their product
infringes a patent licensed to Knape & Vogt. This matter has been in a
settlement mode since the deposition of Rev-A-Shelf's key witness. It is
anticipated that Rev-A-Shelf will cease its infringing activities and will
enter into a consent order.
Knape & Vogt Mfg. Co. vs. Advertising Technologies, Inc., U.S. District
Court (W.D. Michigan), Case No.: 1-93 cv 866, relates to a breach of contract
claim for a failure on the part of Adtech to provide advertising audit
services. Damages are approximately $59,000. Counsel for Adtech has
indicated he will propose a stipulated judgment.
Knape & Vogt Mfg. Co. vs. Accuride International, Inc., U.S. District
Court (W.D, Michigan), Case No.: 1:93 cv 959, relates to a claim by Knape &
Vogt regarding deceptive trade practices on the part of a competing drawer
slide manufacturer. A consent order enjoining the practices has entered with
costs and fees to Knape & Vogt. The court retains jurisdiction for the
purpose of monitoring the terms of the consent order for the next two months.
In Re PNP Holdings Corporation (Pay 'n Pak Stores, Inc.), U.S. Bankruptcy
Court (W.D. Washington), Case No.: 91-06976/91-06977, Adversary No.:
A93-07175, relates to a preference claim asserted by debtor PNP against Knape
& Vogt. The claim totals approximately $341,000 although substantial set-offs
(subsequent new value, tort claims, etc.) have been raised by Knape & Vogt.
Exposure in this matter is believed to be less than $160,000. This case is
likely to be set for trial in March of 1994.
Knape & Vogt Mfg,. Co. vs. Venture Horizon Corporation, State Court
California, relates to a collection action to recover approximately $23,000
in accounts receivable. A verbal agreement to compromise this for
approximately $13,000 in view of claimed set-offs has been reached.
Northeast Gravel is a state (Michigan) waste site that is currently the
focus of a voluntary remedial investigation. Knape & Vogt has been noticed
as a potentially responsible party. Although it is far too early to forecast
exposure potential, it is clear that Knape & Vogt's respective share will be
quite small.
U.S.E.P.A. vs. Butterworth Landfill relates to a Superfund action brought
by the U.S.E.P.A. Currently the six major PRP's are working on a remedial
design work plan. Knape & Vogt has been noticed as a de minimis PRP.
Potential exposure is unknown. We have had some insurance reimbursement in
this case for defense costs.
U.S.E.P.A. vs. Conservation Chemical Company, relates to a Superfund
action in Gary, Indiana involving a landfill. Knape & Vogt has been noticed
as a de minimis PRP and has participated in a de minimis PRP group. Exposure
so far has been limited to approximately $750,00. This site has a very large
number of PRP's and it is expected that Knape & Vogt's liability, if any,
will be modest.
U.S.E.P.A. vs. Lakeland Disposal, relates to an Indiana landfill
currently the subject of a Superfund action. Knape & Vogt has been noticed
as a PRP although no evidence has been produced to link Knape & Vogt to the
site. The U.S.E.P.A. is considering our arguments for removal from the PRP
list.
U.S.E.P.A. vs. State Disposal, relates to a landfill in Grand Rapids
Township. Knape & Vogt received a Section 104(e) request from the U.S.E.P.A.
in 1990, and no further agency action has been undertaken since that time.
U.S.E.P.A. vs. Muncie Race Track, relates to a landfill in Muncie,
Indiana currently the subject of Superfund action. Knape & Vogt's subsidiary,
Feeny Mfg., was served with a Section 104(e) request from the U.S.E.P.A. A
freedom of information request indicates that Feeny contributed general
trash only to this site.
Lucille Davis vs. Knape & Vogt, Workers' Compensation Appeals Board
(California), Case No.: BGN 0129163, relates to a workers compensation claim
filed by a former employee of the Knape & Vogt Western Division. A settlement
offer of $17,000 has reportedly been accepted by the claimant.
In Re National Transport Services, Inc., U.S. Bankruptcy Court, (W.D.
Arkansas), Case No.: 90-1204M, Adversary No.: 92-7595, relates to a rate
undercharge claim by the Trustee against Modar, Inc. Case is being settled
for $1,000.
Knape & Vogt Mfg. Co. vs. Huls America, et. al., Kent County Circuit
Court (Michigan), Case No.: 92-77171-NZ, relates to claims of breach of
warranty, negligence and misrepresentation against defendants roof installer
and manufacturer of roof membrane. Damages are believed to be in excess of
$500,000. Trial is currently anticipated in the summer of 1994.
Helen Brown, is a workers' compensation claim that has been paid
voluntarily. Currently, the claimant is seeking to redeem her claim and
terminate her employment with the company. Estimated settlement value of
this case lies in the range of $25,000 to $60,000.
Therese Foley vs. Knape & Vogt Mfg. Co., Bureau of Workers' Disability
Compensation, (Michigan), relates to a claim of work related injury. This
claim has been compromised and a redemption of $50,000 has been scheduled.
Dorothy Johnson vs. Knape & Vogt Mfg. Co., Michigan Department of Civil
Rights, Case No.: 124654-EMD, 23A926519R relates to a claim of race/gender
discrimination. The Company feels strongly that there is no basis for the
claim. Estimated exposure presuming a finding in favor of the claimant would
he in the range of $15,000 to $50,000.
Diane L. Marr vs. Knape & Vogt Mfg. Co., Michigan Department of Civil
Rights, Case No., 117813-EM20, relates to a claim of discrimination on the
basis of a disability. Claimant had pursued and received a workers'
compensation award for a shoulder pain that turned out to result from a torn
rotator cuff. Claimant brought a concurrent claim with the MDCR owing to her
belief that she was eligible for a return to work and, also, that she could
be accommodated. Her initial claim was denied by MDCR and she has petitioned
for a redetermination. The Company vigorously contests this claim and
perceives no merit in it.
Donald Teets vs. Knape & Vogt Mfg. Co., Bureau of Workers' Disability
Compensation, Michigan), relates to a claim of work related injury that has
been handled on a voluntary basis. The last petition in this matter related
to the establishment of a new date of injury. Claimant has affected a
return to work under light duty status. The Bureau retains jurisdiction.
EXHIBIT D
LIST OF EXISTING LIENS
Blanket filing by Irwin J. Ferdinand, as nominee and agent of the
Landlordsm under the Skokie Lease dated August 20, 1990
EXHIBIT E
SUBSIDIARIES OF THE COMPANY
State
in which Stock of Stock
State of Business is Each Class Owned by
Company Incorporation Conducted Outstanding the Company
- ------- ------------- ----------- ----------- -----------
Knape & Vogt Michigan Michigan, Common - None
Manufacturing Co. California 2,919,845
shares
Class B
Common -
2,402,784
shares
Modar, Inc. Michigan Michigan Common - 100%
8,581
shares
Feeny Michigan Michigan, Common - 100%
Manufacturing Co. Indiana 1,000
shares
Knape & Vogt Ontario, Quebec, Common - 100%
Canada, Inc. Canada Ontario 100,000
shares
Preferred -
5,589,565
shares
TERM SHEET
Borrower: Knape & Vogt Manufacturing Company
Lender: Old Kent Bank and Trust Company
Amount: $43,500,000 Revolving Line of Credit
Purpose: Working-capital and stock acquisition of The Hirsh Company
Maturity: December 1, 1995
Collateral: Unsecured
Repayment: Interest-only monthly, commencing January 1, 1994
Covenants: Affirmative covenants to provide financial information,
maintain corporate existence, permit access to books and
records, maintain insurance, maintain properties in repair,
to pay taxes, comply with ERISA requirements, maintain a
consolidated working capital of not less than $20 million,
maintain consolidated net worth of not less than $63 million
(with no more than $23 of intangible assets) and maintain a
ratio of total consolidated liabilities to consolidated
net worth that is not more than 1.25 to 1.0.
Negative covenants not to merge or consolidate or, except in
the normal course of business, sell all or substantially all
assets or sell accounts receivable or chattel paper or make
other acquisitions, subject to exceptions to be defined in
the loan agreement.
Various other affirmative and negative covenants as may be
included in the definitive loan agreement.
Interest Lesser of the following:
Rate:
1. Old Kent Bank and Trust Company Index Rate.
2. Average daily Federal Funds rate, as quoted by the Detroit
branch of the Chicago Federal Reserve District, plus 85
Basis Points.
3. London Interbank Offered Rate (LIBOR) plus 75 Basis Points.
CERTIFICATE OF KNAPE & VOGT MANUFACTURING COMPANY
The undersigned, Raymond E. Knape, President and Chief Executive Officer
of Knape & Vogt Manufacturing company, a Michigan corporation (the "Company"),
hereby certifies that:
1. Except for the terms of that certain Loan Agreement between the
Company and Metropolitan Life Insurance Company, dated March 16, 1988, and
the terms of that certain Loan Agreement between the Company and Old Kent Bank
& Trust Company of even date herewith, the Company is not a party to any
other agreement pursuant to which the Company has borrowed funds from a bank
or other lending source.
2. The execution, delivery and performance by the Company of the Loan
Agreement by and among the Company and Old Kent Bank & Trust Company will not
contravene any contract or undertaking entered into by Company.
3. Based in part upon an examination of the business and operation of
the Company and its subsidiaries, Modar, Inc., a Michigan corporation, and
Feeny Manufacturing Company, a Michigan corporation:
A. The Company does business solely in the states of California and
Michigan. The Company does not transact business in any other
state.
B. Modar, Inc. does business solely in the state of Michigan. Modar,
Inc. does not transact business in any other state.
C. Feeny Manufacturing corporation does business solely in the states
of Michigan and Indiana. Feeny Manufacturing Company does not
transact business in any other state.
Dated: November 29, 1993 KNAPE & VOGT MANUFACTURING COMPANY
By /s/ Raymond E. Knape
Raymond E. Knape
Its President and CEO