<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ..................... to .......................
Commission File Number 0-2901
KRUG INTERNATIONAL CORP.
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(Exact name of registrant as specified in its charter)
Ohio 31-0621189
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 North Main Street Suite 500 Dayton, Ohio 45402-1900
- -------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
(513) 224-9066
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(Registrant's telephone number including area code)
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
--- ---
The number of Common Shares, without par value, outstanding as of August 5, 1996
was 5,151,206.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
------- --------
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 3,074 $ 439
Receivables 17,239 18,309
Inventories (Note B) 8,100 8,635
Prepaid expenses 917 627
------- -------
Total Current Assets 29,330 28,010
------- -------
Property, Plant and Equipment 15,993 15,701
Less accumulated depreciation 6,737 6,444
------- -------
9,256 9,257
Pension Asset 2,415 2,316
Deferred Tax Assets 2,002 2,508
Other Assets 255 280
------- -------
Total Assets $43,258 $42,371
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Bank borrowings $ $ 31
Accounts payable 9,008 8,205
Accrued expenses 5,494 5,534
Income taxes 222 218
Net current liabilities of discontinued
operations (Note D) 500 500
Current maturities of long-term debt 1,158 1,166
------- -------
Total Current Liabilities 16,382 15,654
------- -------
Long-Term Debt 10,905 11,982
Net Non-Current Liabilities of Discontinued
Operations (Note D) 22 205
------- -------
Total Liabilities 27,309 27,841
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Shareholders' Equity:
Common Shares, no par value:
issued and outstanding, 5,126,206
at June 30, 1996 and
5,076,950 at March 31, 1996 2,563 2,538
Additional paid in capital 4,337 4,224
Retained earnings 8,919 7,870
Foreign currency translation adjustment 130 (102)
------- -------
Total Shareholders' Equity 15,949 14,530
------- -------
Total Liabilities and Shareholders' Equity $43,258 $42,371
======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE> 3
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands, except per share)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30,
--------------------
1996 1995
-------- --------
<S> <C> <C>
Revenues $ 26,507 $ 25,025
Costs and Expenses:
Costs, including product
development 22,442 21,786
Selling and administrative 2,268 2,357
Interest expense 290 297
Other (income) expense (64) (8)
-------- --------
24,936 24,432
-------- --------
Earnings Before Income Taxes 1,571 593
Income Taxes (Note C) 522 207
-------- --------
Net Earnings $ 1,049 $ 386
======== ========
Net Earnings Per Share $ 0.20 $ 0.08
======== ========
Average Common and Common Equivalent
Shares Outstanding 5,174 5,038
======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE> 4
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
increase (decrease) in cash
<TABLE>
<CAPTION>
THREE MONTHS ENDED
June 30,
------------------
1996 1995
------- -------
<S> <C> <C>
Net Cash Provided by
Operating Activities $ 3,794 $ 1,700
------- -------
Cash Flows From Investing Activities:
Expenditures for property, plant
and equipment (88) (74)
Proceeds from sale of assets 3
------- -------
Net Cash Used in Investing
Activities (88) (71)
------- -------
Cash Flows From Financing Activities:
Bank borrowings-net (31) (1,055)
Payments on long-term debt (1,230) (515)
Sale of Common Shares under Options 137
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Net Cash (Used In) Financing Activities (1,124) (1,570)
------- -------
Effect of Exchange Rate Changes on Cash 53 0
------- -------
Net Increase In Cash 2,635 59
Cash at Beginning of Period 439 363
------- -------
Cash at End of Period $ 3,074 $ 422
======= =======
Cash Paid For:
Income taxes $ 0 $ 1,001
======= =======
Interest $ 329 $ 323
======= =======
Non-Cash Investing and Financing Activities-
Capital leases $ 47 $ 91
======= =======
</TABLE>
See notes to consolidated financial statements
<PAGE> 5
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED JUNE 30, 1996
(dollar in thousands)
Note A -- Basis of Presentation
The Condensed Consolidated Financial Statements for the quarters ended
June 30, 1996 and 1995 are unaudited and have been prepared in accordance with
Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and, as
such, do not include all information required by generally accepted accounting
principles. They should be read in conjunction with the audited financial
statements included in the Corporation's Annual Report on Form 10-K filed on
July 1, 1996. In the opinion of management, the Condensed Consolidated Financial
Statements include all adjustments, consisting only of normal recurring
adjustments necessary to present fairly the financial position and results of
operations, have been made for the periods indicated.
Note B -- Inventories
<TABLE>
<CAPTION>
June 30, March 31,
1996 1996
-------- --------
<S> <C> <C>
Finished goods $ 5,572 $ 6,352
Work-in-process 1,281 1,101
Raw materials and supplies 1,247 1,182
-------- --------
$ 8,100 $ 8,635
======== ========
</TABLE>
Note C -- Income Taxes
The provisions for income taxes are composed of the following:
<TABLE>
<CAPTION>
Quarter Ended June 30, 1996 1995
---------------------- -------- --------
<S> <C> <C>
Domestic $ 65 $ 16
Foreign 457 191
---- ----
$522 $207
==== ====
</TABLE>
Note D -- Discontinued Operations
In prior years, the Corporation discontinued the operations and
disposed of substantially all of the net assets of its Industrial Segment.
Remaining obligations related to this Segment include a leased property in
Knoxville, Tennessee, a leased property in Toronto, Canada, and product
liability claims related to products sold prior to the disposal of the
Industrial Segment.
<PAGE> 6
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following discussion contains certain forward-looking statements that are
based upon assumptions believed by management to be relevant to an understanding
of the Corporation's business, including anticipated levels of U.S. government
defense and aerospace spending, timing, volume and pricing of customers orders
and industry-specific economic outlooks. Forward-looking statements herein are
subject to risks and uncertainties that could cause actual results to differ
materially from those outlined in the forward-looking statements.
First quarter fiscal 1997 revenues of $26.5 million increased $1.5 million or 6%
from the comparable quarter of fiscal 1996. The U.K. Leisure Marine Segment
revenue increased by $1.5 million from the same period in fiscal 1996. A $1.9
million increase in sales volume for the segment was offset by $0.4 million of
unfavorable foreign currency translation effect. All Leisure Marine product
groups had higher sales volume over the prior year. The U.K. Housewares Segment
revenue decreased by $0.1 million from the comparable period of fiscal 1996 as a
result of unfavorable foreign currency translation effect, however, sales volume
for the Segment increased slightly over last year as all product groups
experienced increased sales volume except ladders. The Life Sciences and
Engineering Segment revenue increased by $0.1 million from the first quarter of
fiscal 1996. Increased material purchases by NASA at the Johnson Space Center
resulted in the increased fiscal 1997 revenues.
Life Sciences and Engineering order backlog at June 30, 1996 was $48.2 million
compared with $60.4 million at March 31, 1996 and $80.0 million at June 30,
1995. In February 1996, KRUG Life Sciences Inc. signed a nine month extension to
its current Medical Operations and Research Support Contract with NASA's Johnson
Space Center. With this extension, the contract will end on November 30, 1996.
The extension added approximately $25.0 million to the order backlog. The
original support contract was a $136 million five-year contract which has grown
to $170 million as a result of added material purchases and contract extensions.
This contract represents approximately one-third of the Corporation's revenues
and a corresponding percentage of its net earnings. It is anticipated that the
work performed under our current NASA contract will be split into three separate
new contracts scheduled to commence December 1, 1996 - Medical Operations,
Biotechnology and Flight Hardware. KRUG Life Sciences Inc. (KLSI) has submitted
its bid for the Medical Operations contract covering five year service. NASA has
notified KLSI expect the award of sole-source follow-on contracts for the
Biotechnology and Flight Hardware work. The revenue generated from all three new
contracts is expected to approximate the Corporation's
<PAGE> 7
current contract with NASA. However there is no assurance the Corporation will,
in fact, receive all or any of these contracts or what the level of
profitability of these contracts will be if received.
The gross profit margin for the quarter ended June 30, 1996 increased to 15.3%
compared to 12.9% for the same quarter of the previous year. The increase is due
to an increased margin from the Housewares Segment. The margin increased to
11.7% from 4.0% last year due to decreased material prices for aluminum and
steel and higher product selling prices. The margin earned by the Leisure Marine
Segment decreased slightly because of higher sales of lower margin products. The
Life Sciences & Engineering margin also decreased slightly in the current
quarter as compared to the prior fiscal year's quarter because of lower fees
from material purchases for the NASA contract extension.
Selling and administrative expense decreased by $0.1 million in the first
quarter of fiscal 1997 as compared to the first quarter of fiscal 1996. The
increase was primarily attributable to the favorable effect of currency
translation. The Corporation has announced that it will close its executive
offices in Dayton, Ohio in September 1996 and consolidate its headquarters
activities with its primary operations facility adjacent to the NASA Johnson
Center in Houston, Texas, resulting in an estimated pre-tax charge of
approximately $1.0 million in the quarter ended September 30, 1996. This office
consolidation is estimated to result in an annual cost savings of approximately
$0.4 million.
Interest expense for the first quarter of fiscal 1997 decreased by 2% compared
to the first quarter of fiscal 1996 due to lower debt levels.
Net earnings were $1.05 million for the first quarter of fiscal 1997 compared to
$0.39 million for the comparable period of fiscal 1996. The increase in earnings
is generally due to the 18% increase in Leisure Marine sales volume and the
increased gross profit margin of the Housewares Segment. The Housewares Segment
was profitable in the first quarter of fiscal 1997 while it was not profitable
in the first quarter of fiscal 1996. The Corporation's Leisure Marine business
is highly seasonal. During fiscal 1996, 33% of the Leisure Marine business'
revenue and gross profit occurred during the first quarter primarily because
of the product requirements of customers for the peak summer boating months of
May through August.
Discontinued Operations
The adequacy of the provision for losses related to the discontinued Industrial
Segment was reviewed by the Corporation during the first three months of fiscal
1997 and no changes were deemed appropriate.
<PAGE> 8
Liquidity and Capital Resources
Under the Corporation's revolving credit facility with a U.S. business credit
corporation, the Corporation had a loan outstanding of $3.8 million at June 30,
1996. Availability under the revolving credit facility is based upon the amount
of billed and unbilled U.S. accounts receivable and is limited to a maximum of
$10.0 million. The credit facility expires March 31, 2000. At June 30, 1996, the
Corporation had a $2.0 million mortgage outstanding on its Dayton, Ohio real
property. The mortgage was provided by five U.S. banks and matures on March 31,
1998. The Corporation's U.K. subsidiaries at June 30, 1996 had two term loans
outstanding totaling $5.7 million. The loans require quarterly principal
payments and mature in fiscal 2005. In addition, the Corporation has an unused
line of credit of $3.9 million available at June 30, 1996 for its U.K.
subsidiaries. The Corporation believes it has adequate financing in both the
U.S. and U.K. to support its current level of operations.
<PAGE> 9
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
On July 16, 1996, the Corporation held its Annual Meeting of
Shareholders. At the meeting three directors, Ms. Karen
Brenner, Ms. Bernee D.L. Strom and Mr. W. E. Greenhalgh, were
elected to two year terms of office expiring at the Annual
Meeting of Shareholders in 1998. 4,688,722 shares were voted
in favor of electing Ms. Brenner and 19,369 were withheld,
4,687,235 shares were voted in favor of electing Ms. Strom and
20,856 were withheld, and 4,688,757 shares were voted in favor
of electing Mr. Greenhalgh and 19,334 were withheld.
Also at the meeting, the shareholders voted to amend the
Corporation's Code of Regulations to opt out of the Ohio
Control Share Acquisition Statue. In general, under the Ohio
Control Share Acquisition Statue, the acquisition by any
person of voting shares of a corporation giving that person
voting power within any of the following ranges would
constitute a "control share acquisition": (a) one-fifth or
more but less than one-third of the voting power; (b)
one-third or more but less than a majority of the voting
power; or (c) a majority or more of the voting power. A person
may make a control share acquisition only if (1) the
shareholders authorize the acquisition by a majority vote of
shares at a special meeting called for that purpose and, in
addition, a majority of the shares, excluding interested
shares, which include those owned by by the acquiring person
and also officers of the corporation, also vote in favor of
the transaction and (2) the acquisiton is completed within 360
days following shareholder authorization of the transaction.
3,947,206 shares were voted in favor of the amendment, 58,979
shares were voted against and the holders of 39,664 shares
voted to abstained.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibit 3.1 - Code of Regulations of KRUG International
Corp., as amended, is filed as an exhibit to this report.
(B) Exhibit 10.1 - Employment agreement between KRUG
International Corp. and Charles Linn Haslam dated May
17,1996 is filed as an exhibit to this report.
(C) Exhibit 10.2 - Consulting and employment agreement between
KRUG International Corp. and Robert M. Thornton, Jr. dated
May 17,1996 is filed as an exhibit to this report.
(D) Exhibit 27 - Financial Data Schedule
<PAGE> 10
Item 6. Exhibits and Reports on Form 8-K (continued)
(E) Reports on Form 8-K - During the quarter ended June 30,
1996, the Corporation filed two Reports on Form 8-K. The
first, dated April 30, 1996, reported Item 1 - Change in
Control of Registrant. The second, dated May 17, 1996,
reported Item 5 - Other Events.
<PAGE> 11
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, KRUG
International Corp. has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
KRUG INTERNATIONAL CORP.
By: /s/ Thomas W. Kemp
---------------------
THOMAS W. KEMP
Vice President - Finance
(Principal financial
officer and principal
accounting officer)
Dated: August 12, 1996
<PAGE> 1
EXHIBIT 3.1
Amended July 22 and 24, 1986;
August 17, 1990; and July 16, 1996
KRUG INTERNATIONAL CORP.
------------------------
CODE OF REGULATIONS
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ARTICLE I
---------
Office
------
The principal office of the Corporation shall be located in the
City of Dayton, Montgomery County, Ohio.
ARTICLE II
----------
Meeting of Shareholders
-----------------------
SECTION 1. ANNUAL MEETING. The annual meeting of the
shareholders of the Corporation for the purpose of electing directors and
transacting such other business as may be specified in the notice thereof shall
be held at the principal office of the Corporation or at such other place either
within or without the State of Ohio as may be specified in said notice, on such
date during the month of July or August of each year as shall be determined by
the Board of Directors or, in the absence of such determination, on the fourth
Tuesday of July of each year.
SECTION 2. SPECIAL MEETINGS. Special meetings of the
shareholders may be called by the President, or in case of the President's
absence, death or disability, the Vice President authorized to exercise the
authority of the President, or the Board of Directors by action at a meeting, or
a majority of the directors acting without a meeting, and shall be called by the
Secretary upon written request of shareholders holding of record fifty (50)
percent or more of all shares outstanding and entitled to vote thereat. Any such
request for a special meeting of shareholders shall state the purpose or
purposes of the meeting.
Special meetings of the shareholders may be held at such time
and place, either within or without the State of Ohio, as may be designated in
the notice thereof.
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<PAGE> 2
SECTION 3. NOTICE OF MEETINGS. Unless waived by him, a written
or printed notice of each annual or special meeting stating the time and place
and the purpose or purposes thereof shall be mailed postage prepaid to each
shareholder of record entitled to notice thereof, not more than sixty (60) days
nor less than seven (7) days before any such meeting. If mailed, it shall be
addressed to the shareholder at his address as it appears upon the records of
the Corporation. Notice of adjournment of a meeting need not be given if the
time and place to which it is adjourned are fixed and announced at such meeting.
Notice of the time, place and purposes of any meeting of
shareholders, whether required by law, the Articles of Incorporation or this
Code of Regulations, may be waived in writing either before or after the holding
of such meeting by any shareholder, which writing shall be filed with or entered
upon the records of the meeting. The attendance of any shareholder at any such
meeting without protesting prior to or at the commencement of the meeting, the
lack of proper notice shall be deemed to be a waiver by him of notice of such
meeting.
SECTION 4. QUORUM. At any meeting, the holders of shares
entitling them to exercise a majority of the voting power of the Corporation,
present in person or represented by proxy, shall constitute a quorum for all
purposes, except when a greater proportion is required by law. At any meeting at
which a quorum is present, all questions and business which shall come before
the meeting shall be determined by the vote of the holders of a majority of the
voting shares held by shareholders present in person or by proxy at the meeting,
except when a different proportion is required by law.
At any meeting, whether a quorum is present or not, the holders
of a majority of the voting shares held by shareholders present in person or by
proxy may adjourn from time to time and from place to place without notice other
than by announcement at the meeting. At any such adjourned meeting at which a
quorum is present, any business may be transacted which may be transacted at the
meeting as originally notified or held.
SECTION 5. PROXIES. The instrument appointing a proxy shall be
in a writing signed by the person making the appointment. The person so
appointed need not be a shareholder. A vote in accordance with the terms of a
proxy shall be valid notwithstanding the previous death or incapacity of the
principal or revocation of the appointment
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unless notice in writing of such death, incapacity or revocation shall have been
given to the Corporation before a vote is taken. The presence of a shareholder
at a meeting shall not operate to revoke a proxy unless and until notice of such
revocation is given to the Corporation in writing or in open meeting.
SECTION 6. FINANCIAL REPORT. At the annual meeting of
shareholders, or the meeting held in lieu thereof, there shall be laid before
the shareholders a financial statement consisting of a balance sheet containing
a summary of the assets, liabilities, stated capital, and surplus (showing
separately any capital surplus arising from unrealized appreciation of assets,
other capital surplus, and earned surplus) of the Corporation as of a date not
more than four (4) months before such meeting (except that if such meeting is an
adjourned meeting, said balance sheet may be as of a date not more than four (4)
months before the date of the meeting as originally convened), and a statement
of profit and loss and surplus, including a summary of profits, dividends paid,
and other changes in the surplus accounts of the Corporation for the period for
which the last preceding statement of profit and loss was made as required
hereby and ending with the date of said balance sheet.
The financial statement shall have appended thereto a
certificate signed by the President or a Vice President or the Treasurer or an
Assistant Treasurer of the Corporation, or by a public accountant or firm of
public accountants to the effect that the financial statement presents fairly
the position of the Corporation and the results of its operations in conformity
with generally accepted accounting principles applied on a basis consistent for
the period covered thereby, or such other certificate as is in accordance with
sound accounting principles.
ARTICLE III
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Directors
---------
SECTION 1. NUMBER OF DIRECTORS AND TERM OF OFFICE. Unless
changed in accordance with the provisions of Section 2 of this Article III, the
number of directors of the Corporation shall be fixed at six (6) and shall be
divided into two (2) classes of directors, each of which shall have three (3)
directors. One class of three directors shall be elected at the annual meeting
of shareholders at which this
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<PAGE> 4
Section 1 is adopted for a term of office expiring at the annual meeting of
shareholders to be held in 1992 and until their successors are elected and
qualified. The other class of three directors shall initially be comprised of
the three directors of the Corporation whose terms of office on the date this
Section 1 is adopted by shareholders are scheduled to expire at the annual
meeting of shareholders in 1991 and shall hold office until such annual meeting
of shareholders in 1991 and until their successors are elected and qualified. At
the annual meeting of shareholders to be held in 1991 and each subsequent annual
meeting, directors to succeed those whose terms of office shall expire at such
annual meeting shall be elected for a two-year term of office and until their
successors are elected and qualified.
SECTION 2. CHANGE IN NUMBER OF DIRECTORS. The number of
authorized directors and the number of directors in each class may be changed
either by the affirmative vote of the holders of record of two-thirds of the
voting power of the Corporation at a meeting of shareholders called for that
purpose and for the purpose of electing directors, or by the affirmative vote of
a majority of the directors in office; provided, however, that in no event shall
any class contain fewer than three (3) directors nor more than four (4)
directors. No reduction in the number of directors, either by the shareholders
or the directors, shall of itself have the effect of shortening the term of any
incumbent director.
SECTION 3. QUALIFICATION OF DIRECTORS. Directors of the
Corporation need not be shareholders of the Corporation.
SECTION 4. VACANCIES. The remaining directors, though less than
a majority of the whole authorized number of directors, may, by the vote of a
majority of their number, fill any vacancy in the Board of Directors however
arising, including a vacancy arising from an increase in the number of
authorized directors, for the unexpired term thereof. Any person elected a fill
a vacancy in the Board of Directors shall hold office until the expiration of
the term of office for the class to which he is elected and until his successor
is elected and qualified.
SECTION 5. NOMINATIONS. Only persons who are nominated in
accordance with the following procedures shall be eligible for election as
directors. Nominations of persons for election as directors of the Corporation
may be made at a meeting of shareholders (i) by or at the direction of the Board
of Directors or by any committee or person
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<PAGE> 5
appointed by the Board of Directors or (ii) by any shareholder of the
Corporation entitled to vote for the election of directors at the meeting who
complies with the notice procedures set forth in this Section 5. Any nomination
other than those governed by clause (i) of the preceding sentence shall be made
pursuant to timely notice in writing to the Secretary of the Corporation. To be
timely, a shareholder's notice shall be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 50 days nor
more than 75 days prior to the meeting; provided, however, that in the event
that less than 60 days' notice or prior public disclosure of the date of meeting
is given or made to shareholders, notice by the shareholder to be timely must be
so received not later than the close of business on the 10th day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. Such shareholder's notice to the Secretary shall set forth
(a) as to each person whom the shareholder proposes to nominate for election as
a director (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of any shares of the Corporation which are beneficially owned
by such person and (iv) any other information relating to such person that is
required to be disclosed in solicitations for proxies for election of directors
pursuant to any then existing rule or regulation promulgated under the
Securities Exchange Act of 1934, as amended; and (b) as to the shareholder
giving the notice (i) the name and record address of such shareholder and (ii)
the class and number of shares of the Corporation which are beneficially owned
by such shareholder. The Corporation may require any proposed nominee to furnish
such other information as may reasonably be required by the Corporation to
determine the eligibility of such proposed nominee to serve as a director. No
person shall be eligible for election as a director unless nominated as set
forth herein.
SECTION 6. REMOVAL OF DIRECTORS. No director may be removed
prior to the expiration of such director's term of office, except by the
affirmative vote of the holders of two-thirds of the voting power of the
Corporation entitled to vote in the election of directors.
SECTION 7. LIMITATION OF LIABILITY AND INDEMNIFICATION OF
DIRECTORS, OFFICERS, EMPLOYEES AND AGENTS.
A. No person shall be liable to the Corporation for any loss or
damage suffered by it on account of any
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<PAGE> 6
action taken or omitted to be taken by him as a director or officer of
the Corporation in good faith, if such person (i) exercised or used the
same degree of care and skill as a prudent man would have exercised or
used under the circumstances in the conduct of his own affairs, or (ii)
took, or omitted to take, such action in reliance upon advice of counsel
for the Corporation or upon statements made or information furnished by
officers or employees of the Corporation which he had reasonable grounds
to believe or upon a financial statement of the Corporation prepared by
an officer or employee of the Corporation in charge of its accounts or
certified by a public accountant or firm of public accountants, or (iii)
considered the assets to be of their book value or followed what he
believed to be sound accounting and business practice.
B. (1) In case any person was or is a party, or is threatened to
be made a party, to any threatened, pending, or completed action, suit,
or proceeding, whether civil, criminal, administrative, or
investigative, other than an action by or in the right of the
Corporation, by reason of the fact that he is or was a director,
officer, employee, or agent of the Corporation, or is or was serving at
the request of the Corporation as a director, trustee, officer,
employee, or agent of another corporation, domestic or foreign,
nonprofit or for profit, partnership, joint venture, trust, or other
enterprise, the Corporation shall indemnify such person, against
expenses, including attorneys' fees, judgments, decrees, fines,
penalties, and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit, or proceeding, if
he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Corporation, and with
respect to any matter the subject of a criminal action, suit, or
proceeding, he had no reasonable cause to believe that his conduct was
unlawful. The termination of any action, suit or proceeding by judgment,
order, settlement, or conviction, or upon a plea of nolo contendere or
its equivalent, shall not, itself, create a presumption that the person
did not act in good faith and in a manner which he reasonably believed
to be in or not opposed to the best interests of the Corporation, and
with respect to any matter the subject of a criminal action, suit or
proceeding, that he had reasonable cause to believe that his conduct was
unlawful.
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<PAGE> 7
(2) In case any person was or is a party, or is threatened to be
made a party, to any threatened, pending, or completed action or suit by
or in the right of the Corporation to procure a judgment in its favor by
reason of the fact that he is or was a director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, officer, employee, or agent of
another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust, or other enterprise, the Corporation
shall indemnify such person, against expenses, including attorneys'
fees, actually and reasonably incurred by him in connection with the
defense or settlement of such action or suit if he acted in good faith
and in a manner he reasonably believed to be in or not opposed to the
best interests of the Corporation, except that no indemnification shall
be made in respect of any claim, issue, or matter as to which such
person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the Corporation, unless and
only to the extent that the Court of Common Pleas, or the Court in which
such action or suit was brought, shall determine upon application that,
despite the adjudication of liability, but in view of all the
circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses as the Court of Common Pleas or such
other Court shall deem proper.
(3) To the extent that a director, trustee, officer, employee,
or agent has been successful on the merits or otherwise in defense of
any action, suit, or proceeding referred to in paragraphs (1) and (2) of
this Subsection 7B or in defense of any claim, issue or matter therein,
the Corporation shall indemnify him against expenses, including
attorneys' fees, actually and reasonably incurred by him in connection
therewith.
(4) Any indemnification under paragraphs (1) and (2) of this
Subsection 7B, unless ordered by a court, shall be made by the
Corporation only as authorized in the specific case upon a determination
that indemnification of the director, trustee, officer, employee, or
agent is proper in the circumstances because he has met the applicable
standard of conduct set forth in paragraphs (1) and (2) of this
Subsection 7B. Such determination shall be made (a) by a majority vote
of a quorum consisting of directors of the Corporation who were not and
are not parties to or threatened with any such action, suit, or
proceeding, or
-7-
<PAGE> 8
(b) if such a quorum is not obtainable or if a majority vote of a quorum
of disinterested directors so directs, in a written opinion by
independent legal counsel other than an attorney, or a firm having
associated with it an attorney, who has been retained by or who has
performed services for the Corporation or any person to be indemnified
within the past five years, or (c) by the shareholders, or (d) by the
Court of Common Pleas or the Court in which such action, suit, or
proceeding was brought. Any determination made by the disinterested
directors under subparagraph (a) of this paragraph (4) or by independent
legal counsel under subparagraph (b) of this paragraph (4) shall be
promptly communicated to the person who threatened or brought the action
or suit by or in the right of the Corporation referred to in paragraph
(2) of this Subsection 7B, and if, within ten days after the receipt of
such notification, such person shall petition the Court of Common Pleas
or the Court in which such action or suit was brought to review the
reasonableness of such determination, no action in implementing such
determination shall be taken until after the final judgment of such
Court has been rendered and such determination has been modified to the
extent necessary to accord with such judgment; however, if, after such
ten-day period, such person shall not have petitioned the Court of
Common Pleas or the Court in which such action or suit was brought to
review the reasonableness of such determination, the Corporation shall
proceed to implement such determination.
(5) Expenses, including attorneys' fees, incurred in defending
any action, suit or proceeding referred to in paragraphs (1) and (2) of
this Subsection 7B, may be paid by the Corporation in advance of the
final disposition of such action, suit or proceeding as authorized by
the directors in the specific case upon the receipt of an undertaking by
or on behalf of the director, trustee, officer, employee, or agent to
repay such amount, unless it shall ultimately be determined that he is
entitled to be indemnified by the Corporation as authorized in this
Subsection 7B.
(6) The indemnification provided by this Subsection 7B shall not
be deemed exclusive of any other rights to which those seeking
indemnification may be entitled under the Articles or the Regulations of
the Corporation, or any agreement, vote of shareholders or disinterested
directors, or otherwise, both as to action in his official capacity and
as to action in another capacity while holding such office, and shall
continue
-8-
<PAGE> 9
as to a person who has ceased to be a director, trustee, officer,
employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person. Notwithstanding any
repeal of this Subsection 7B or other amendment thereof, the
indemnification provided for in this Subsection 7B shall be binding upon
the Corporation in accordance with the provisions thereof as to all
actions, suits, or proceedings instituted or threatened which arise out
of matters occurring during, or referable to, the period prior to any
such repeal or amendment.
(7) The Corporation may purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee, or
agent of the Corporation, or is or was serving at the request of the
Corporation as a director, trustee, officer, employee, or agent of
another corporation, domestic or foreign, nonprofit or for profit,
partnership, joint venture, trust or other enterprise, against any
liability asserted against him and incurred by him in any such capacity
or arising out of his status as such, whether or not the Corporation
would have indemnified him against such liability under this Subsection
7B.
ARTICLE IV
----------
Powers and Meetings of the Board of Directors
---------------------------------------------
SECTION 1. POWERS OF THE BOARD. Except as otherwise provided in
the General Corporation Law of Ohio, or in the Articles of Incorporation, in
respect of action required to be taken, authorized or approved by the
shareholders, all the capacity of the Corporation shall be vested in and all its
authority shall be exercised by the Board of Directors.
SECTION 2. MEETINGS OF THE BOARD. A regular meeting of the Board
of Directors shall be held immediately following the adjournment of each
shareholders' meeting at which directors are elected, and notice of such meeting
need not be given.
The Board of Directors may, by by-law or resolution, provide for
other meetings of the Board.
-9-
<PAGE> 10
Special meetings of the Board of Directors may be held at any
time upon call of the President, a Vice President, or any two members of the
Board.
Meetings of the Board of Directors may be held at any place
either within or without the State of Ohio. Written notice of the time and place
of each special meeting of the Board of Directors shall be given by mailing the
same to each director at his last known address at least three (3) days prior to
the date of said meeting, or such notice may be personally delivered or
telegraphed in substance to each director not less than twenty-four (24) hours
before the meeting, which notice need not specify the purposes of the meeting.
Such notice may be waived in writing, either before or after the holding of such
meeting, by any director, which writing shall be filed with or entered upon the
records of the meeting. The attendance of any director at any such meeting
without protesting, prior to or at the commencement of the meeting, the lack of
proper notice shall be deemed to be a waiver by him of notice of such meeting.
Notice of adjournment of a meeting need not be given if the time and place to
which it is adjourned are fixed and announced at such meeting.
SECTION 3. QUORUM. A majority of the Board of Directors shall
constitute a quorum for the transaction of business, provided that whenever less
than a quorum is present at any time or place appointed for a meeting of the
Board, a majority of those present may adjourn the meeting from time to time
without notice, other than by announcement at the meeting, until a quorum shall
be present. The act of a majority of directors present at a meeting at which a
quorum is present shall be the act of the Board of Directors.
SECTION 4. BY-LAWS OF THE BOARD. The Board of Directors may
adopt by-laws for the government of its actions consistent with the Articles of
Incorporation and these Regulations.
ARTICLE V
---------
Committees
----------
SECTION 1. COMMITTEES. The Board of Directors by resolution
adopted by a majority of the whole Board, may appoint three or more directors to
constitute one or more committees of directors. The resolution establishing each
-10-
<PAGE> 11
such committee shall specify a designation by which it shall be known and shall
fix its powers and authority. The Board of Directors may delegate to any such
committee any of the authority of the Board of Directors, however conferred,
other than that of filling vacancies among the directors or in any committee of
the directors.
The Board of Directors may likewise appoint one or more
directors as alternate members of any such committee, who may take the place of
any absent member or members at any meeting of such committee.
Each such committee shall serve at the pleasure of the Board of
Directors, shall act only in the intervals between meetings of the Board of
Directors, and shall be subject to the control and direction of the Board of
Directors. All actions by any such committee shall be subject to revision and
alteration by the Board of Directors provided that no rights of third persons
shall be adversely affected by any such revision or alteration.
An act or authorization of an act by any such committee within
the authority delegated to it by the resolution establishing it shall be as
effective for all purposes as the act or authorization of the Board of
Directors.
Any such committee may act by a majority of its members at a
meeting or by a writing or writings signed by all of its members.
The Board of Directors may likewise appoint other members of any
committee who are not members of the Board of Directors who shall act in an
advisory capacity but who shall have no vote upon any matter of business before
the committee.
ARTICLE VI
----------
Officers
--------
SECTION 1. OFFICERS. The officers of this Corporation shall be a
President, one or more Vice Presidents, a Secretary, a Treasurer, and such other
officers, subordinate officers and assistants as the Board of Directors may from
time to time determine.
-11-
<PAGE> 12
Any two or more offices may be held by one person, except the
offices of President and Vice President.
SECTION 2. ELECTION OF OFFICERS. All officers of the Corporation
shall be elected by the Board of Directors, and shall hold office until the
organization meeting of the Board of Directors following the date of the
election of such directors or until their successors are elected and qualified.
The Board of Directors may remove any officer at any time, with or without
cause, by a majority vote. The Board of Directors may fill any vacancy in any
office occurring from whatever cause.
ARTICLE VII
-----------
Duties of Officers
------------------
SECTION 1. PRESIDENT. The President shall have general
supervision, administration and direction of all the Corporation's affairs,
subject to the direction of the Board of Directors. He shall preside at all
meetings of shareholders and directors and sign all certificates for shares,
contracts, notes, deeds, mortgages, bonds, other obligations, or other papers
requiring his signature, and he shall perform such other and further duties as
may from time to time be required of him by the Board of Directors.
SECTION 2. VICE PRESIDENTS. The Vice Presidents, in the order
designated by the Board of Directors, shall perform all duties of the President,
in case of his absence or disability, together with such other duties as the
Board of Directors may from time to time prescribe. The authority of the Vice
Presidents to execute certificates for shares, contracts, deeds, notes,
mortgages, bonds, other obligations and other papers in the name of the
Corporation shall be coordinate with like authority of the President.
SECTION 3. SECRETARY. The Secretary shall keep minutes of all
the proceedings of the shareholders and Board of Directors, and shall make
proper record of the same, which shall be attested by him; sign all certificates
for shares, contracts, deeds, notes, mortgages, bonds, other obligations, and
other papers executed by the Corporation requiring his signature; give notice of
meetings of shareholders and directors; keep such books as may be required by
the Board of Directors and perform such other and further duties as may from
time to time be required of him by the Board of Directors.
-12-
<PAGE> 13
SECTION 4. TREASURER. The Treasurer shall have general
supervision of all finances. He shall receive and have in charge all money,
bills, notes, deeds, leases, mortgages, insurance policies and similar property
belonging to the Corporation, and shall do with the same as may from time to
time be required by the Board of Directors. He shall cause to be kept adequate
and correct accounts of the business transactions of the Corporation, including
accounts of its assets, liabilities, receipts, disbursements, gains, losses,
stated capital, and shares, together with such other accounts as may be
required, and, on the expiration of his term of office shall turn over to his
successor or to the Board of Directors all property, books, papers and money of
the Corporation in his hands. He shall also perform such other duties as may be
assigned to him by the Board of Directors.
SECTION 5. ASSISTANT OFFICERS. Assistant officers shall act as
assistants to and under the direction of their superior officers, and shall be
vested with all the powers and be required to perform any of the duties of their
superior officers in their absence, and they shall perform such other and
further duties as may from time to time be required of them by the Board of
Directors.
ARTICLE VIII
------------
Certificates for Shares of Stock
--------------------------------
SECTION 1. The interest of each shareholder of the Corporation
shall be evidenced by a certificate or certificates for shares in such form as
the Board of Directors may from time to time prescribe. The shares of the
Corporation shall be transferable on the books of the Corporation by the holder
thereof in person or by his attorney, upon surrender for cancellation of a
certificate or certificates for the same number of shares, with an assignment
and power of transfer endorsed thereon or attached thereto, duly executed, and
with such proof of the authenticity of the signature as the Corporation or its
agent may reasonably require.
SECTION 2. The certificates for shares shall be signed by the
President or a Vice President and by the Secretary or the Treasurer or an
Assistant Secretary or an Assistant Treasurer (except that where any such
certificate is countersigned by an incorporated transfer agent or registrar, the
signatures of any such President, Vice
-13-
<PAGE> 14
President, Secretary, Treasurer, Assistant Secretary or Assistant Treasurer, may
be facsimile, engraved, stamped or printed), and shall be countersigned and
registered in such manner, if any, as the Board of Directors may by resolution
prescribe. In case any officer or officers who shall have signed, or whose
facsimile signature or signatures shall have been used on any such certificate
or certificates shall cease to be such officer or officers of the Corporation,
whether because of death, resignation or otherwise, before such certificate or
certificates shall have been delivered by the Corporation, such certificate or
certificates shall nevertheless be effective in all respects when delivered, as
though the person or persons who signed such certificate or certificates, or
whose facsimile signature or signatures shall have been used thereon had not
ceased to be such officer or officers of the Corporation.
SECTION 3. No certificate for shares shall be delivered in place
of any certificate alleged to have been lost, stolen or destroyed, except upon
production of such evidence of such loss, theft or destruction and upon delivery
to the Corporation of a bond of indemnity in such amount, upon such terms and
secured by such surety, as the Board of Directors in its discretion may require.
ARTICLE IX
----------
Seal
----
The seal of the Corporation shall be circular with the name of
the Corporation and the word "OHIO" surrounding the word "SEAL."
ARTICLE X
---------
Amendments
----------
This Code of Regulations may be amended or repealed at any
meeting of shareholders called for that purpose by the affirmative vote of the
holders of record of shares entitling them to exercise at least two-thirds of
the voting power on such proposal, or, without a meeting, by the written consent
of holders of record of shares entitling them to exercise at least two-thirds of
the voting power on such proposal.
-14-
<PAGE> 15
ARTICLE XI
----------
Ohio Control Share Acquisition Statute
--------------------------------------
The provisions of Section 1701.831 of the Ohio Revised Code
requiring shareholder approval of control share acquisitions, as defined in
Section 1701.01(Z)(1) of such Code, shall not be applicable to the Corporation.
-15-
<PAGE> 1
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between Krug
International Corp. ("Krug" or "the Company") and Charles Linn Haslam ("Haslam")
as of May 17, 1996.
In consideration of the mutual promises exchanged herein, the parties
are agreed as follows:
1. POSITION AND DUTIES. The Company agrees to employ Haslam, and Haslam agrees
to serve, as the Chairman and Chief Executive Officer of the Company.
2. SALARY. The Company shall pay Haslam a salary equal to Fifteen Thousand
Dollars ($15,000) per month, such salary to be paid at such times and periodic
intervals as may be consistent with salary payments to other officers of the
Company.
3. BENEFITS. Haslam shall be entitled, at his option, to participate in medical
insurance, group life insurance, and other benefits plans on the same basis as
other officers of the Company.
4. OUTSIDE INTERESTS. Haslam shall devote a reasonable portion of his
professional time to the Company to discharge his duties thereto; provided,
however, that he shall not be precluded from the incidental practice of law so
long as such practice does not interfere with his obligations to the Company.
5. REIMBURSEMENT OF EXPENSES. The Company shall reimburse Haslam promptly for
any and all reasonable and necessary expenses incurred on behalf of or in the
conduct of the Company's business, subject to compliance with the Company's
policies concerning such matters.
6. TERMINATION. This Agreement may be terminated by either party, without cause,
on the last day of any calendar month provided that the other party is notified
in writing of an intent to terminate not later than thirty (30) days prior to
the proposed effective date.
7. NOTICES. Any written notices required to be given pursuant to this Agreement
may be given by one party to the other at the following address:
<PAGE> 2
If to the Company: Krug International Corp.
6 North Main Street, Suite 500
Dayton, Ohio 45402-1900
If to Haslam: Charles Linn Haslam
4620 Sedgwick Street, N.W.
Washington, D.C. 20016
8. CHOICE OF LAW. This Agreement shall be governed and construed in accordance
with the laws and judicial decisions of the State of Ohio.
7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement between the
parties and supersedes all prior understandings, whether written or verbal,
between the parties.
IN WITNESS WHEREOF, the parties have entered into this Employment
Agreement as of the date first above written.
KRUG INTERNATIONAL CORP.
/s/ James J. Mulligan
- -------------------------------- ---------------------------
By: James J. Mulligan, Secretary Attest:
CHARLES LINN HASLAM
/s/ Charles Linn Haslam
- --------------------------------
<PAGE> 1
EXHIBIT 10.2
CONSULTING AND EMPLOYMENT AGREEMENT
This Employment Agreement is entered into by and between Krug
International Corp. ("Krug" or "the Company") and Robert M. Thornton, Jr.
("Thornton") as of May 17, 1996.
In consideration of the mutual promises exchanged herein, the parties
are agreed as follows:
1. POSITION AND DUTIES. The Company agrees to employ Thornton, and Thornton
agrees to serve, as the President of the Company effective as of July 16, 1996.
Prior to such date, Thornton shall perform such duties as directed by the Chief
Executive Officer on the same terms as indicated herein.
2. SALARY. The Company shall pay Thornton a salary and, prior to July 16, 1996,
a consulting fee equal to Twelve Thousand Five Hundred Dollars ($12,500) per
month, such payments to be paid at such times and periodic intervals as may be
consistent with salary payments to other officers of the corporation.
3. BENEFITS. Thornton shall be entitled, at his option, to participate in
medical insurance, group life insurance, and other benefits plans on the same
basis as other officers of the Company.
4. OUTSIDE INTERESTS. Thornton shall devote a reasonable portion of his
professional time to the Company to discharge his duties thereto; provided,
however, that he shall not be precluded from performing his duties as Chairman
and CEO of CareVest Capital, LLC, so long as such activities do not interfere
with his obligations to the Company.
5. REIMBURSEMENT OF EXPENSES. The Company shall reimburse Thornton promptly for
any and all reasonable and necessary expenses incurred on behalf of or in the
conduct of the Company's business, subject to compliance with the Company's
policies concerning such matters.
6. TERMINATION. This Agreement may be terminated by either party, without cause,
on the last day of any calendar month provided that the other party is notified
in writing of an intent to terminate not later than thirty (30) days prior to
the proposed effective date.
<PAGE> 2
7. NOTICES. Any written notices required to be given pursuant to this Agreement
may be given by one party to the other at the following address:
If to the Company: Krug International Corp.
6 North Main Street, Suite 500
Dayton, Ohio 45402-1900
If to Thornton: Robert M. Thornton, Jr.
CareVest Capital, LLC
1090 Northchase Parkway, Suite 200S
Marietta, GA 30067-6402
8. CHOICE OF LAW. This Agreement shall be governed and construed in
accordance with the laws and judicial decisions of the State of Ohio.
7. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
between the parties and supersedes all prior understandings, whether written or
verbal, between the parties.
IN WITNESS WHEREOF, the parties have entered into this Employment
Agreement as of the date first above written.
KRUG INTERNATIONAL CORP.
/s/ James J. Mulligan
- -------------------------------- ---------------------------
By: James J. Mulligan, Secretary Attest:
ROBERT M. THORNTON, JR.
/s/ Robert M. Thornton, Jr.
- --------------------------------
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-END> JUN-30-1996
<CASH> 3,074
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<RECEIVABLES> 17,947
<ALLOWANCES> 708
<INVENTORY> 8,100
<CURRENT-ASSETS> 29,330
<PP&E> 15,993
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<TOTAL-ASSETS> 43,258
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<BONDS> 10,905
<COMMON> 2,563
0
0
<OTHER-SE> 13,386
<TOTAL-LIABILITY-AND-EQUITY> 43,258
<SALES> 26,507
<TOTAL-REVENUES> 26,507
<CGS> 22,442
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