<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended March 31, 1998
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 No. 0-2901
KRUG INTERNATIONAL CORP.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 31-0621189
-------------------------------- --------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
1290 Hercules Drive, Suite 120, Houston, Texas 77058
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(Address of principal executive offices)
Registrant's telephone number, including area code: (281) 212-1233
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each Class Name of each Exchange on which registered
- ------------------- -----------------------------------------
Common Shares without par Value American Stock Exchange
Securities Registered Pursuant to Section 12(g) of the Act:
Warrants to purchase Common Shares
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 the 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]
At the close of business on June 3, 1998:
<TABLE>
<S> <C>
Number of Common Shares without par value
outstanding 5,237,230
-----------
Aggregate market value of Common
Shares without par value held by
non-affiliates of the Corporation $20,377,748
------------
</TABLE>
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
1. KRUG International Corp. Proxy Statement for its Annual Meeting of
Shareholders on July 13, 1998, definitive copies of which were filed with
the Commission within 120 days after the end of the Corporation's last
fiscal year. Only such portions of the Proxy Statement as are specifically
incorporated by reference under Part III of this Report shall be deemed
filed as part of this Report.
CERTAIN CAUTIONARY STATEMENTS
In addition to historical information, this document contains certain
forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 including, without limitation, statements
regarding management's outlook for each of its businesses, the sufficiency of
the Corporation's liquidity and sources of capital and the impact of Year 2000
issues. These forward-looking statements are subject to certain risks,
uncertainties and other factors which could cause actual results, performance
and achievements to differ materially from those anticipated, including, without
limitation, general economic and business conditions in the U.S. and abroad,
restrictions imposed by debt agreements, competition in the Housewares and Child
Safety Products businesses, governmental budgetary constraints, the regulatory
environment for the Corporation's businesses, consolidation and acquisition
trends in the Corporation's businesses, competition in the acquisition market,
changes in exchange rates, increases in prices of raw materials and services,
the purchasing practices of significant customers, the availability of qualified
management and staff personnel in each subsidiary, the functionality of the
Corporation's computer systems, claims for product liability from continuing and
discontinued operations, and operating performance of minority-owned affiliates.
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PART I
ITEM 1. BUSINESS
KRUG International Corp., an Ohio Corporation organized in June 1959, and
its subsidiaries (sometimes collectively called the "Corporation") currently
operate one business segment, Houseswares and Child Safety Products, which
conducts its business primarily in the United Kingdom with subsidiary operations
in several western European countries.
In addition, the Corporation owns approximately 38% of Wyle Laboratories,
Inc. ("Wyle"), a company which merged in March 1998 with the Corporation's two
subsidiaries which previously comprised the Life Sciences and Engineering
Segment. Wyle operates testing facilities and provides engineering and life
science support services to commercial and government customers, primarily in
the United States.
Information concerning the revenues, operating profit and identifiable
assets of the business segments for the fiscal years ended March 31, 1998, 1997
and 1996 is set forth at Note M of the Notes to Consolidated Financial
Statements of the Corporation, which is incorporated herein by this reference.
The Corporation's objective is to increase shareholder value by the
investment in and management of businesses which offer growth opportunities. The
Corporation evaluates its operating subsidiaries for growth potential and seeks
opportunities, including acquisitions and divestitures, for the profitable
employment and realization of capital. The Corporation's goal for acquisitions
is to acquire new businesses which are attractive and present the opportunity to
increase the Corporation's profitability.
SIGNIFICANT RECENT TRANSACTIONS
On March 16, 1998, the Corporation merged its Life Sciences and Engineering
Segment subsidiaries into Wyle for approximately 38% of Wyle's capital stock, a
cash payment of $3,052,000 and the assumption of approximately $3,300,000 of
working capital debt of such subsidiaries. On April 16, 1998, the Corporation
sold its Leisure Marine Segment subsidiary to a company formed by the
subsidiary's management for approximately $8,100,000 in cash, deferred payments
of approximately $800,000 due within one year and the assumption of
approximately $6,100,000 of the subsidiary's debt.
HOUSEWARES AND CHILD SAFETY PRODUCTS
Bradley International Holdings Limited , a subsidiary of KRUG International
(UK) Ltd., operates the Corporation's Housewares and Child Safety Products
business through its Beldray Limited ("Beldray"), Hago Products Ltd. ("Hago")
and Klippan Limited ("Klippan") subsidiaries (collectively "Bradley"). Beldray
manufactures consumer durable products sold under the "Beldray" and "Dennison"
names, as well as private labels, including ironing tables and accessories,
aluminum ladders and work platforms, garden equipment, indoor and outdoor racks
for drying clothes and child safety gates. Beldray is a long established name in
household laundry products with significant recognition among the buying public
throughout the United Kingdom and, together with Hago, manufactures and sells
child safety gates and accessories under the KiddiProof(R) tradename. Klippan,
which was acquired by Bradley on October 2, 1997, manufactures child automobile
seats and accessories in the United Kingdom and Finland and has sales operations
in France, Germany and Sweden. Klippan is a significant brand in the United
Kingdom and Scandinavia.
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The Housewares and Child Safety Products Segment's firm order backlog is
typically less than one month's sales. The Segment's primary competitors are
manufacturing companies, some of which are larger and have more resources than
Bradley and compete on the bases of product quality, speed and reliability of
delivery, and price.
OUTLOOK
Over the past two years, Bradley has expanded its product offerings to
include child safety gates and child automobile seats through its acquisitions
of Hago and Klippan. During fiscal 1998, Bradley reorganized its manufacturing
capability by moving the Hago manufacturing operations into Beldray's
manufacturing facility. Concurrent with its acquisition by the Company, Klippan
initiated a comprehensive product redevelopment program for its child automobile
seats which will result in the offering of one new model and five redesigned
models in the third quarter of fiscal 1999. The Bradley subsidiaries have also
upgraded their information technology, reorganized their European sales offices
and added management in connection with and in anticipation of expanded
operations in Western Europe and possible future acquisitions. Management
believes Bradley should continue to improve its manufacturing operations,
strengthen its management team and broaden its customer base and geographic
distribution, particularly in Europe, with the objective of maintaining and
enhancing its competitive position including, as appropriate, by the acquisition
of companies with complementary or similar products or which utilize similar
manufacturing processes or distribution channels. Bradley faces competition for
acquisitions from both financial and strategic buyers, some of whom have greater
financial resources than Bradley. Such competition for acquisitions could have
an adverse impact on Bradley's ability to make acquisitions on favorable terms.
INVESTMENT IN WYLE LABORATORIES, INC.
Wyle is a U.S. company headquartered in El Segundo, California, with other
major facilities located in Virginia, Alabama, Texas and Ohio. Wyle primarily
supports the following industries: aerospace and defense, energy,
transportation, electronics and telecommunications. Wyle's range of products and
services spans eight major areas of expertise: testing services, special test
systems, nuclear services, life sciences, support services, environmental
remediation, acoustic research and consulting, and specialty manufacturing. Wyle
employs approximately 1,300 people at eleven U.S. facilities. The Corporation's
strategy in connection with the merger of its Life Sciences and Engineering
subsidiaries with Wyle and resulting minority ownership interest in Wyle is to
participate in the growth potential of Wyle over time while reducing the risk
inherent in owning subsidiaries dependent almost solely on two U.S. government
customers (NASA and the U.S. Air Force).
SALE OF LEISURE MARINE SEGMENT
Sowester Limited ("Sowester"), a subsidiary of KRUG International (U.K.)
Ltd. until its sale to a group headed by its managing director and finance
director on April 16, 1998, is located in the port of Poole, Dorset, England,
and distributes sail and power boat equipment and personal watercraft to the
leisure marine market. Sowester's principal product lines include: marine
chandlery, boat fittings, equipment and clothing; Mercury outboard engines;
Mercury MerCruiser sterndrive and inboard engines; Sea Doo personal watercraft;
Morse controls, steering systems and controls for power and sail boats; and
diesel engines which provide auxiliary power for sailing yachts. For
approximately 36 years, Sowester
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has been the exclusive distributor of certain Mercury engineering products in
the United Kingdom and the Republic of Ireland under distribution agreements
effective through July 1, 1998.
Sowester sells its products to two principal markets -- boat
manufacturers and marine retailers -- through a network of over 100 sales and
service dealers. The marine products business is seasonal, with the highest
sales occurring in spring and summer. Order backlog is not a factor in the
Leisure Marine Segment since virtually all orders are shipped within days of
receipt.
The leisure marine business conducted by Sowester is specialized and
requires substantial industry-specific knowledge and skills. Management believes
the leisure marine business in the U.K. and Europe is moving toward a
consolidation phase likely to be dominated by and rewarding to larger companies.
Such changes would likely affect the structural nature of marine distribution as
conducted by Sowester. Accordingly, during 1997 and 1998 the Corporation
investigated growth opportunities in the leisure marine business and took steps
to refocus Sowester's management objectives. Ultimately, however, the
Corporation concluded that Sowester's dependence on a limited number of
suppliers, and the local nature of the leisure marine business in Europe would
limit Sowester's ability to achieve the Corporation's objectives. Further,
Mercury indicated to the Corporation that it would not renew the existing
distribution agreement upon its expiration on July 1, 1998, and Mercury has
subsequently undergone management changes which the Corporation believed could
further undermine Sowester's prospects for a profitable, long-term distribution
relationship. After considering the Corporation's objectives and Sowester's
limited growth prospects and evaluating the risks attendant to Sowester's
concentration of significant suppliers, the Corporation decided to sell Sowester
to the management group, as indicated under "Significant Recent Transactions."
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GENERAL INFORMATION
The Corporation owns a number of patents and patent applications but the
Corporation derives no revenues from this intellectual property, and it is not
possible to estimate their value. The Corporation does not believe its present
business is materially dependent on any patents or patent applications.
During the fiscal year ended March 31, 1998, the Housewares and Child
Safety business had revenues from one customer of $15,238,000 or 16% of
consolidated revenues. Revenues from agencies of the U.S. government (all
derived from the Life Sciences and Engineering Segment) were $ 44,139,000 or 47%
of consolidated revenues.
As of May 31, 1998, the Corporation employed 6 persons in the United
States, none of whom is represented by a union and 550 in Europe, 250 of whom is
represented by a union. The Corporation believes its labor relations are
satisfactory.
Compliance with federal, state and local laws regulating the discharge of
materials into the environment or otherwise relating to the protection of the
environment has had no material effect upon the capital expenditures, earnings,
and competitive position of the Corporation. To the best of management's
knowledge, the Corporation is in compliance with federal, state and local
environmental regulations.
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ITEM 2. PROPERTIES
The principal properties of the Corporation as of June 3, 1998 are
listed below:
<TABLE>
<CAPTION>
OWNED LEASE
OR EXPIRATION SQUARE
LOCATION LEASED DATE FOOTAGE USE
- -------- ------ ---------- ------- ---------------------
<S> <C> <C> <C> <C>
A. UNITED STATES
Knoxville, Tennessee Leased Dec 1998 387,000 Plant-Subleased (1)
Dayton, Ohio Leased June 1999 11,500 Office-Subleased (2)
Atlanta, Georgia Leased Mar 2001 1,448 Office
B. EUROPE
BELDRAY LIMITED & SUBSIDIARIES
Bilston, West Midlands, U.K. Leased June 2014 105,000 Plant
Owned 85,000 Plant
Bognor Regis, West Sussex, Leased June 1999 59,000 Plant (1)
U.K.
KLIPPAN LTD. & SUBSIDIARY
COMPANIES
Helsinki, Finland Leased Aug 1999 31,104 Office & Plant
Paris, France Leased Oct 1998 432 Office
Freilassing, Germany Leased July 1999 1,559 Office
Landskrona, Sweden Leased Dec 2000 8,554 Office & Warehouse
Carlisle, United Kingdom Leased Jan 2011 62,424 Office & Plant
Carlisle, United Kingdom Leased Jan 2011 6,372 Warehouse
</TABLE>
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(1) This property is no longer used by the Corporation; a portion is subleased
and the remainder is available for sublease.
(2) This property is no longer used by the Corporation and is subleased for the
remaining term of the Corporation's lease.
The Corporation maintains its plants and offices in good repair. In the
opinion of management, the various facilities used by the Corporation are
adequate for the needs of the businesses conducted therein.
ITEM 3. LEGAL PROCEEDINGS
Neither the Corporation nor any of its subsidiaries is a party to any
material legal proceedings.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Corporation, as of June 3, 1998, their
positions with the Corporation and their ages are as follows:
<TABLE>
<CAPTION>
NAME OFFICES AGE
---- ------- ---
<S> <C> <C>
Charles Linn Haslam Chairman of the Board of Directors and Chief Executive Officer 54
Robert M.Thornton, Jr. Director, President and Chief Financial Officer 49
James J. Mulligan Director and Secretary 76
Mark J. Stockslager Corporate Controller and Principal Accounting Officer 38
Michael H. Dell Managing Director, Bradley International Holdings Ltd. and Beldray Ltd. 39
</TABLE>
All officers of the Corporation are elected annually by the Board of
Directors.
Charles Linn Haslam has been Chairman of the Board since July 16, 1996,
Chief Executive Officer since May 17, 1996 and was President of the Corporation
from May 17, 1996 until July 16, 1996. Mr. Haslam practiced law in Washington,
D.C. from January 1980 to May 1996. He was General Counsel, United States
Department of Commerce during the Carter Administration (January 1977 to
December 1979) and University Counsel and Adjunct Professor of Law at Duke
University from 1974 to 1977.
Robert M. Thornton, Jr. has been President of the Corporation since
July 16, 1996 and Chief Financial Officer since July 18, 1997. From October 1994
to the present, he has been a private investor and, since March 1995, Chairman
and Chief Executive Officer of CareVest Capital, LLC, a private investment and
management services firm. Mr. Thornton was President, Chief Operating Officer,
Chief Financial Officer and a Director of Hallmark Healthcare Corporation from
November 1993 until Hallmark's merger with Community Health Systems, Inc. in
October 1994. From October 1987 until November 1993, Mr. Thornton was Executive
Vice President, Chief Financial Officer, Secretary and Treasurer and a Director
of Hallmark.
James J. Mulligan has been a member of the law firm of Mulligan &
Mulligan since January 1993. He was a member of the law firm of Smith & Schnacke
from 1953 to 1989 and a member of the law firm of Thompson Hine & Flory LLP from
1989 until his retirement in 1991. He became Secretary of the Corporation in
1966.
Mark J. Stockslager has been Corporate Controller since November 6,
1996 and Principal Accounting Officer since March 11, 1998. He has been
continuously associated with the Corporation's accounting and finance operations
since June 1988 and has held several positions, including Manager of U.S.
Accounting from June 1993 until November 1996. From June 1982 through May 1988,
Mr. Stockslager was employed by Price Waterhouse & Co. in their Auditing
Department.
Michael H. Dell has been Group Managing Director of Bradley
International Holdings Limited since November 1997 and Managing Director of
Beldray Limited since September 1995. From January 1988 until September 1995,
Mr. Dell held various operational management positions with subsidiaries of the
Newman Tonks Group, a U.K. hardware and building products manufacturing company,
including Director and General Manager of NT Brassart Ltd. from October 1994
until September 1996, Sales and Marketing Director of various subsidiaries from
July 1991 until October 1994 and Director and General Manager of NT Access Ltd.
from January 1988 until July 1991.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
KRUG International Corp.'s Common Shares are traded on the American
Stock Exchange under the symbol KRG and trading in its warrants is reported to
and compiled by the National Quotation Bureau under the symbol KRUGW. The Table
below sets forth the high and low sales prices for the Common Shares for fiscal
1998 and 1997. The number of shareholders of record was 969 as of March 31,
1998. No cash dividends were paid in fiscal 1998 or 1997. Prior to December 30,
1996, the Common Shares were traded on the NASDAQ National Market System.
<TABLE>
<CAPTION>
QUARTER 4TH 3RD 2ND 1ST
- ------- --- --- --- ---
<S> <C> <C> <C> <C> <C>
1998................... HIGH $6.13 $7.63 $6.25 $6.13
LOW 5.00 5.50 5.00 4.63
1997................... HIGH $6.88 $4.88 $5.25 $5.75
LOW 4.75 4.13 4.50 3.25
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following table summarizes certain selected financial data which
should be read in conjunction with the Corporation's Consolidated Financial
Statements and related Notes and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
FISCAL YEARS 1998 1997 1996 1995 1994
- ------------ -------- -------- -------- -------- --------
(All dollar amounts in thousands,
except for per share amounts)
<S> <C> <C> <C> <C> <C>
Revenues .................................... $ 93,694 $ 83,081 $ 70,787 $ 70,842 $ 70,353
Earnings (Loss) from
Continuing Operations .................... (705) 1,062 188 1,457 1,623
Net Earnings ................................ 256 2,096 1,171 2,012 1,418
Earnings (Loss) Per Share from
Continuing Operations
Basic .................................... (0.14) 0.21 0.04 0.29 0.32
Diluted .................................. (0.14) 0.20 0.04 0.29 0.32
Net Earnings Per Share
Basic .................................... 0.05 0.41 0.23 0.40 0.28
Diluted .................................. 0.05 0.40 0.23 0.40 0.28
Total Assets ................................ 39,579 41,085 34,664 35,824 33,703
Debt ........................................ 6,703 8,331 9,225 10,223 11,717
Shareholders' Equity ........................ 18,099 17,960 14,530 14,068 10,616
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CERTAIN CAUTIONARY STATEMENTS
In addition to historical information, Item 7 of this document contains
certain forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995 including, without limitation, statements
regarding management's outlook for each of its businesses, the sufficiency of
the Corporation's liquidity and sources of capital and the impact of Year 2000
issues. These forward-looking statements are subject to certain risks,
uncertainties and other factors which could cause actual results, performance
and achievements to differ materially from those anticipated, including, without
limitation, general economic and business conditions in the U.S. and abroad,
restrictions imposed by debt agreements, competition in the Housewares and Child
Safety Products businesses, governmental budgetary constraints, the regulatory
environment for the Corporation's businesses, consolidation and acquisition
trends in the Corporation's businesses, competition in the acquisition market,
changes in exchange rates, increases in prices of raw materials and services,
the purchasing practices of significant customers, the availability of qualified
management and staff personnel in each subsidiary, the functionality of the
Corporation's computer systems, claims for product liability from continuing and
discontinued operations, and operating performance of minority-owned affiliates.
GENERAL
During March 1998, the Corporation merged KRUG Life Sciences Inc and
Technology/Scientific Services, Inc., its two subsidiaries which comprised the
Life Sciences and Engineering Segment ("LS&E Segment"), with Wyle Laboratories,
Inc. in exchange for a 38% equity interest in Wyle. Although accounted for as
continuing operations herein, the LS&E Segment will, in the future, report its
equity in Wyle's earnings or losses as a single line item in its consolidated
statement of earnings pursuant to APB No. 18.
In April 1998, the Corporation sold its Leisure Marine subsidiary.
Accordingly, the results of operations of the Leisure Marine Segment are
included in discontinued operations for fiscal years 1998, 1997 and 1996.
RESULTS OF OPERATIONS - CONTINUING OPERATIONS
The Corporation's fiscal 1998 revenues of $93.7 million increased 13% from
fiscal 1997. Fiscal 1997 revenues increased 17% from fiscal 1996.
Fiscal 1998 revenues of the Housewares and Child Safety Products Segment,
which operates in the United Kingdom and Europe, increased by $15.9 million or
48% to $49.0 million over $33.1 million for 1997. The increased sales were due
to the acquisition of Klippan Limited and its four European subsidiaries
("Klippan") on October 2, 1997, a full year's sales for Hago Products Limited
("Hago"), which was purchased on October 31, 1996, and increased sales at
Beldray Limited ("Beldray"). Klippan, which manufactures child automobile seats,
added $7.8 million of revenues and Hago, which manufactures child safety gates
and accessories, added $5.3 million of revenues. Beldray's revenues increased
$1.3 million during fiscal 1998 and the favorable effect of currency translation
contributed $1.5 million of revenue to the Segment. Beldray's sales of child
safety gates, garden products and indoor airers increased, while sales of
ladders and rotary dryers decreased.
Fiscal 1997 revenues of the Housewares and Child Safety Products Segment
were $33.1 million, an increase of $6.6 million from the prior year. Hago, which
was included in fiscal 1997 for five months, added $4.4 million of revenues and
Beldray's revenues increased by $2.2 million. The favorable effect of currency
translation contributed $0.4 million of revenues to the Segment. All Housewares
and Child Safety Products product groups had increased sales in fiscal 1997 with
laundry products, child safety gates and indoor airer sales having the largest
increases.
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Revenues for the U.S. Life Sciences and Engineering Segment were $44.7
million in fiscal 1998, $50.0 million in fiscal 1997 and $44.3 million in fiscal
1996. The lower 1998 revenues resulted from decreased material purchases and
labor services provided under contracts with the National Aeronautics and Space
Administration (NASA) and the U.S. Air Force. Reported LS&E Segment revenues
were also reduced by the merger of the LS&E Segment with Wyle on March 16, 1998.
As a result of the merger, the Corporation reported only eleven and one-half
months of LS&E revenues in fiscal 1998. In the future, results of operations of
the LS&E Segment will be reported on the equity method of accounting as a single
line item in the statement of operations, reflecting the Corporation's 38%
equity ownership of Wyle.
In fiscal 1997, increased labor services, material purchases and
subcontract services provided to NASA and the Air Force resulted in the
increased revenues of this Segment.
Order backlog is not meaningful for the Housewares and Child Safety
Products Segment due to the short time between order placement and shipment. As
a result of the merger of the LS&E Segment's operating subsidiaries with Wyle,
the Corporation had no order backlog at March 31, 1998. Order backlog for the
LS&E Segment was $106.9 million at March 31, 1997 compared to $60.4 million at
March 31,1996.
Gross profit margins (revenues less cost of goods sold) were 8.4%, 10.1%
and 9.6% in fiscal 1998, 1997 and 1996, respectively. The decrease in gross
profit margin in fiscal 1998 was due primarily to an operating loss of $2.2
million incurred by the Housewares and Child Safety Products Segment in 1998
versus operating profit of $0.7 million in 1997. During the third quarter of
fiscal 1998, the Housewares and Child Safety Products Segment commenced
consolidation of the manufacturing operations of Hago into Beldray's
manufacturing facility in Bilston, England. The consolidation was completed
during May 1998. The Hago consolidation caused (in addition to restructuring
charges discussed below) higher manufacturing costs (including labor, material
and overhead costs) due to inefficiencies prior to and during the move of the
factory, as well as disruption of operations in the Beldray facility. As a
result of such operating cost increases, Beldray and Hago experienced operating
losses. The Segment also experienced negative pressure on its gross margin at
Klippan as a result of the cost of Klippan's product redevelopment program (in
addition to the reorganization of its sales offices in Germany and France
discussed below in connection with restructuring charges). The Corporation
anticipates that it will experience continued negative pressure on the Segment's
gross profit margin through fiscal 1999.
The increase in gross profit margin in fiscal 1997 was due to increased
margins in the Housewares and Child Safety Products Segment, which increased to
10.8% from 7.1% in fiscal 1996, due to increased selling prices and lower raw
material costs.
The gross profit margin of the LS&E Segment decreased slightly in fiscal
1998 as compared to fiscal 1997 as a result of lower fees received for labor
services and lower material purchases under contracts with NASA and the U.S. Air
Force. The gross profit margin of the LS&E Segment decreased during fiscal 1997
due to material purchases and subcontract services provided to NASA and the U.S.
Air Force at lower margins.
Selling and administrative expenses were $8.8 million, $5.5 million and
$5.5 million in fiscal 1998, 1997 and 1996, respectively. The increase in fiscal
1998 was due primarily to additional costs in the Housewares and Child Safety
Products Segment as a result of the purchase of Klippan in October 1997, which
added $2.1 million of expense, the inclusion of Hago's operations for a full
year, which added $0.5 million of expense, $0.3 million of expense related to an
abandoned acquisition, $0.1 million increased legal expense and $0.2 million
unfavorable currency translation. Selling and administrative expenses were
unchanged in fiscal 1997 as compared to fiscal 1996 because decreased U.K.
pension expense and
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lower U.S. corporate expense offset increased expenses as a result of the Hago
acquisition during the year.
The Corporation also recorded $1.6 million of restructuring charges during
fiscal 1998. As a result of the decision to close Hago's manufacturing facility
in Bognor Regis, England, and relocate its operation to the Beldray facility in
Bilston, England, the Corporation recorded a pre-tax restructuring charge of
$1.5 million for employee severance costs, costs of moving equipment, disposal
of excess and obsolete equipment and occupancy costs related to the vacated
facility. The relocation of the Hago operations was completed in May 1998 Also,
Klippan relocated its German sales office in January 1998 resulting in a pre-tax
restructuring charge of $0.1 million for employee severance and occupancy costs
related to the vacated offices.
In fiscal 1997, the Corporation closed its executive offices in Dayton,
Ohio, and relocated its headquarters activities to Houston, Texas. A pre-tax
restructuring charge of $0.5 million was recorded for estimated costs relating
to severance for six employees and rent and other costs related to the vacated
offices in Dayton, Ohio.
Interest expense increased $0.2 million in fiscal 1998, primarily as a
result of the $3.9 million debt financing for the purchase of Klippan in October
1997. U.S. interest expense remained unchanged during fiscal 1998 as the
increased interest expense for working capital was offset by decreased interest
expense for a building mortgage which was repaid in November 1997 upon the sale
of the building. Interest expense decreased $0.1 million in fiscal 1997 compared
to fiscal 1996 due to lower average debt levels in both the U.S. and UK.
Other income for fiscal 1998 of $3.8 million includes a $2.9 million gain
resulting from the merger of the LS&E subsidiaries with Wyle and a $0.9 million
gain from the sale of assets, primarily excess land and a building in Dayton,
Ohio. Other income was not significant in fiscal 1997 and 1996.
The Corporation recorded an income tax provision of $0.8 million in fiscal
1998 even though it reported a loss. The effective income tax rate was 29.8% for
fiscal 1997 and 34.9% for fiscal 1996. The tax provision for fiscal 1998 was due
to losses, resulting from both operating losses and restructuring charges,
recorded by the Housewares and Child Safety Products Segment which cannot be
deducted currently. Such losses resulted in tax loss carryforwards in the United
Kingdom and Germany which may be available to offset a portion of future income,
if any. The fiscal 1997 effective income tax rate was lower than the statutory
U.S. tax rate primarily due to deductible U.K. pension amounts which were higher
than recorded pension expense, and the effective tax rate for fiscal 1996 was
slightly higher than the statutory U.S. tax rate due to U.K. pension expense
recorded in excess of deductible amounts, and due to amortization of
intangibles. The U.K. pension expense under FAS No. 87 differs from tax
deductible pension amount because only amounts contributed the pension plan are
deductible for tax.
The loss from continuing operations was $0.7 million ($0.14 per share) in
fiscal 1998 compared to earnings from continuing operations of $1.1 million
($0.21 per share) in fiscal 1997. The loss in fiscal 1998 is due primarily to
the operating losses and restructuring charges for the Housewares and Child
Safety Products Segment for which no income tax benefit has been recognized, and
lower earnings from the LS&E Segment. The Corporation's loss from continuing
operations was somewhat offset by other income representing the gain from the
Wyle merger and sales of assets. Earnings from continuing operations increased
by $0.9 million to $1.1 million ($0.21 per share) in fiscal 1997 from $ 0.2
million ($0.04 per share) in fiscal 1996. The increase was due to profits earned
in the Housewares and Child Safety Products Segment versus losses in fiscal
1996.
12
<PAGE> 13
RESULTS OF OPERATIONS - DISCONTINUED OPERATIONS
In April 1998, the Corporation sold its U.K. Leisure Marine Segment
subsidiary, Sowester Limited, to Sowester's management The purchase price was
approximately $15.0 million, comprised of approximately $8.1 million in cash,
deferred payments of $0.8 million due within one year and the assumption of
approximately $6.1 million of Sowester debt. The Corporation expects to realize
no material gain or loss on the sale transaction . As a result of this sale, the
Leisure Marine Segment has been included in Discontinued Operations for the
three fiscal years presented herein.
In fiscal 1989, the Corporation discontinued the operations of its
Industrial Segment and subsequently disposed of substantially all related net
assets. However, obligations remain relating to leased property in Knoxville,
Tennessee, leased property in Toronto, Canada, and product liability claims for
products manufactured and sold prior to the disposal. During the year ended
March 31, 1998, the Corporation recorded a charge of $0.8 million (net of a tax
benefit of $0.4 million) to increase the provision for losses from such
discontinued operations. The increase was due to increased losses and legal,
professional and insurance costs related to product liability claims. During
fiscal 1998, the Corporation settled one product liability claim and became
aware of another potentially significant claim. During the year ended March 31,
1997, the Corporation recorded a charge of $0.5 million (net of a tax benefit of
$0.2 million) to increase the provision for costs relating to the Knoxville
property, decreased sublease income from the Knoxville property, increased
insurance costs related to product liability claims and the loss of future
sublease income caused by the bankruptcy filing of a tenant in the Toronto
facility.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1998, the Corporation had outstanding debt of $3.9 million
under a variable rate loan with a U.K. bank, the proceeds of which were used to
purchase Klippan in October 1997. The debt is payable in equal quarterly
installments beginning July 4, 1998 with the balance due March 31, 2003. The
Corporation also has an outstanding term loan relating to the Beldray
manufacturing facility totaling $1.9 million with a U.K. bank which requires
quarterly principal payments and matures in fiscal 2005. In addition, the
Corporation has a $3.3 million line of credit for its U.K. subsidiaries with a
U.K. bank, all of which was unused at March 31, 1998. The U.K. loan agreements
are collateralized by substantially all of the Corporation's U.K. assets,
contain affirmative and negative covenants (including financial covenants
relating to cash flow and tangible net worth requirements) and are cross
guaranteed among the U.K. subsidiaries. The Corporation expects to renegotiate
its U.K. bank debt in fiscal 1999 which may result in a partial paydown on such
debt.
At March 31, 1998, the Corporation had a cash balance of $4.2 million and
no outstanding U.S. debt. As a result of the sale of Sowester Limited in April
1998, the Corporation received approximately $8.1 million in cash of which $ 3.3
million is held by its U.K. bank pending renegotiation of its U.K. bank debt.
The Corporation believes it has adequate financing in both the U.S. and U.K. to
support its current level of operations.
The Corporation generated $7.8 million, $2.0 million and $1.6 million from
operating activities for fiscal 1998, 1997 and 1996, respectively. The increase
in cash generated in fiscal 1998 compared to fiscal 1997 was due to increased
cash generated from the liquidation of the Life Sciences and
13
<PAGE> 14
Engineering Segment receivables as a result of the merger with Wyle, increased
cash generated from the sale of the Leisure Marine Segment and decreased cash
usage by the discontinued Industrial Segment. The $0.4 million increase in cash
generated from operating activities in fiscal 1997 as compared to fiscal 1996
was due primarily to increased profit in the U.K. Housewares and Child Safety
Products Segment and utilization of tax prepayments in the U.K., offset somewhat
by increased U.K. inventory levels, increased prepaid expenses and increased
cash used by the discontinued U.S. Industrial Segment.
During fiscal 1998, the Corporation's U.K. Housewares and Child Safety
Products Segment expended $3.9 million for the purchase of Klippan and $1.3
million for property, plant and equipment. Capital expenditures for fiscal 1997
and 1996, primarily for new equipment for the Housewares and Child Safety
Products Segment, were $0.3 million and $0.2 million. At March 31, 1998, the
Corporation had $0.7 million committed for a new paint plant at the Beldray
manufacturing facility. Installation of this paint plant is expected to be
completed in the quarter ending June 30, 1998.
INFLATION
During periods of inflation and labor shortages, wages increase and
suppliers pass along rising costs to the Corporation in the form of higher
prices for their raw materials and services and employee wages increase. The
Corporation has not always been able to offset increases in operating costs by
increasing prices for its products, increasing its manufacturing efficiency or
implementing cost control measures. The Corporation is unable to predict its
ability to offset or control future cost increases, or its ability to pass along
the increased costs to customers.
RECENT ACCOUNTING PRONOUNCEMENTS
Recent Accounting Pronouncements and their expected impact are
discussed in Note A to the Consolidated Financial Statements in Item 8.
IMPACT OF YEAR 2000
Some older computer programs and systems were written using two digits
rather than four to define the applicable year (for example, 98 to denote 1998).
As a result, those computer programs have software which may recognize a date
using "00" as the year 1900 rather than the year 2000. This may result in a
computer system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Corporation has replaced certain of its financial and operational
systems in the normal course of business during the last two years to enhance or
better meet its functional business and operational requirements. Management
believes that such replacements substantially meet or address its Year 2000
issues. In addition to such normal replacement, the Corporation may be required
to modify some of the existing software and hardware in order for its computer
systems to function properly with respect to dates in the year 2000 and
thereafter. The estimated cost of the remaining replacement and modification for
the Year 2000 issue is not considered material to the Corporation's earnings or
financial position.
The Corporation has initiated a communication process with its
significant vendors and customers to determine the extent to which the
Corporation's interface systems are vulnerable to failure as a result of those
third parties unremediated Year 2000 issues. There can be no assurance that the
systems of other companies on which the Corporation's systems rely will be
timely converted and will not have an adverse affect on the Corporation's
systems.
The Corporation estimates that its Year 2000 project will be completed
not later than December 31, 1999, which the Corporation believes is prior to the
anticipated impact on its operating systems. The
14
<PAGE> 15
Corporation believes that modifications to existing software and hardware and
new software minimize the risk of significant operational problems for its
computer systems as a result of the Year 2000 issue. However, if such
replacements and modifications are not made timely, or key third parties do not
remediate their Year 2000 issues timely, the Year 2000 issue could have a
material impact on the operations of the Corporation.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Index to Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report...................................... 16
Consolidated Balance Sheets -- March 31, 1998 and 1997............ 17 - 18
Consolidated Statements of Earnings --
for the fiscal years ended March 31, 1998, 1997 and 1996...... 19
Consolidated Statements of Shareholders' Equity --
for the fiscal years ended March 31, 1998, 1997 and 1996...... 20
Consolidated Statements of Cash Flows --
for the fiscal years ended March 31, 1998, 1997 and 1996...... 21
Notes to Consolidated Financial Statements --
for the fiscal years ended March 31, 1998, 1997 and 1996...... 22 - 37
</TABLE>
15
<PAGE> 16
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
KRUG International Corp.
Houston, Texas
We have audited the accompanying consolidated balance sheets of KRUG
International Corp. and Subsidiaries (the "Corporation") as of March 31, 1998
and 1997 and the related consolidated statements of earnings, shareholders'
equity and cash flows for each of the three years in the period ended March 31,
1998. These financial statements are the responsibility of the Corporation's
management. Our responsibility is to express an opinion on these 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of KRUG International Corp. and
Subsidiaries as of March 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended March 31,
1998 in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
Houston,Texas
June 2, 1998
16
<PAGE> 17
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS,
MARCH 31, 1998 AND 1997
(ALL DOLLAR AMOUNTS IN THOUSANDS)
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
ASSETS (NOTE G) 1998 1997
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 4,205 $ 53
Receivables - net (Note E) 10,314 16,129
Inventories (Note F) 5,000 4,130
Prepaid expenses 664 1,010
Net current assets of discontinued operations (Note D) 4,527 6,905
---------- ----------
Total current assets 24,710 28,227
PROPERTY, PLANT AND EQUIPMENT - At cost (Note K):
Land 358 192
Buildings and improvements 1,445 3,545
Equipment 8,658 7,731
---------- ----------
10,461 11,468
Less accumulated depreciation 4,863 6,191
---------- ----------
5,598 5,277
OTHER NONCURRENT ASSETS:
Goodwill (Note B) 1,714
Deferred tax assets (Note I) 2,529 2,041
Pension assets (Note J) 1,557 1,997
Net noncurrent assets of discontinued operations (Note D) 2,740 3,318
Other 731 225
---------- ----------
9,271 7,581
---------- ----------
TOTAL ASSETS $ 39,579 $ 41,085
========== ==========
</TABLE>
See notes to consolidated financial statements.
17
<PAGE> 18
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY 1998 1997
<S> <C> <C>
CURRENT LIABILITIES:
Bank borrowings (Note G) $ 1,161
Accounts payable $ 9,482 8,112
Accrued payroll and related taxes 1,012 2,594
Pension liability (Note J) 542
Other accrued expenses 3,418 2,811
Income taxes 323 116
Current maturities of long-term debt (Note G) 1,238 2,345
---------- ----------
Total current liabilities 16,015 17,139
LONG-TERM DEBT (Note G) 5,465 5,986
---------- ----------
Total liabilities 21,480 23,125
COMMITMENTS AND CONTINGENCIES (Note K)
SHAREHOLDERS' EQUITY (Note H):
Preferred Shares, authorized and unissued, 2,000,000 shares
Common Shares, no par value; authorized, 12,000,000 shares;
issued and outstanding, 5,198,730 and 5,151,206 at March 31,
1998 and 1997, respectively 2,599 2,576
Additional paid-in capital 4,590 4,399
Retained earnings 10,222 9,966
Foreign currency translation adjustment 1,305 1,019
Minimum pension liability adjustment, net of taxes (Note J) (617)
---------- ----------
Total shareholders' equity 18,099 17,960
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 39,579 $ 41,085
========== ==========
</TABLE>
18
<PAGE> 19
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(ALL AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
REVENUES $ 93,694 $ 83,081 $ 70,787
COST OF GOODS SOLD 85,835 74,673 64,016
SELLING AND ADMINISTRATIVE EXPENSES 8,758 5,505 5,527
RESTRUCTURING AND RELOCATION CHARGES
(Note L) 1,630 530
---------- ---------- ----------
OPERATING PROFIT (LOSS) (2,529) 2,373 1,244
OTHER INCOME (EXPENSE:)
Interest (1,111) (936) (1,006)
Gain on merger of Life Sciences and Engineering
Subsidiaries with Wyle Laboratories Inc. (Note C) 2,850
Gain on sale of assets 939 10 31
Equity in loss of Wyle Laboratories Inc. (Note C) (55)
Other income-net 19 65 20
---------- ---------- ----------
EARNINGS FROM CONTINUING OPERATIONS
BEFORE INCOME TAXES 113 1,512 289
INCOME TAXES (Note I) 818 450 101
---------- ---------- ----------
EARNINGS (LOSS) FROM CONTINUING OPERATIONS (705) 1,062 188
EARNINGS FROM DISCONTINUED OPERATIONS
(Note D) 961 1,034 983
---------- ---------- ----------
NET EARNINGS $ 256 $ 2,096 $ 1,171
========== ========== ==========
EARNINGS (LOSS) PER SHARE (Note N):
Continuing operations:
Basic $ (0.14) $ 0.21 $ 0.04
Diluted (0.14) 0.20 0.04
Net earnings:
Basic $ 0.05 $ 0.41 $ 0.23
Diluted 0.05 0.40 0.23
</TABLE>
See notes to consolidated financial statements.
19
<PAGE> 20
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(ALL AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
FOREIGN MINIMUM
COMMON SHARES ADDITIONAL CURRENCY PENSION
----------------------- PAID-IN RETAINED TRANSLATION LIABILITY
SHARES AMOUNT CAPITAL EARNINGS ADJUSTMENT ADJUSTMENT
<S> <C> <C> <C> <C> <C> <C>
MARCH 31, 1995 5,011 $ 2,506 $ 4,090 $ 6,699 $ 773
Net earnings 1,171
Common shares issued 66 32 134
Foreign currency translation adjustment (875)
-------- ---------- ---------- ---------- ----------
MARCH 31, 1996 5,077 2,538 4,224 7,870 (102)
Net earnings 2,096
Common shares issued 74 38 175
Foreign currency translation adjustment 1,121
-------- ---------- ---------- ---------- ----------
MARCH 31, 1997 5,151 2,576 4,399 9,966 1,019
-------- ---------- ---------- ---------- ----------
Net earnings 256
Common shares issued 48 23 191
Foreign currency translation adjustment 286
Minimum pension liability adjustment (Note J) $ (617)
-------- ---------- ---------- ---------- ---------- -------
MARCH 31, 1998 5,199 $ 2,599 $ 4,590 $ 10,222 $ 1,305 $ (617)
======== ========== ========== ========== ========== =======
</TABLE>
See notes to consolidated financial statements.
20
<PAGE> 21
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(ALL DOLLAR AMOUNTS IN THOUSANDS)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 256 $ 2,096 $ 1,171
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization 1,152 769 740
Amortization of intangibles 206 54 60
Deferred income taxes 258 80 148
Provision for loss from discontinued operations 1,257 691
Gain on merger of Life Sciences and Engineering Subsidiaries (Note C) (2,850)
Gain on sale of assets (939) (10) (31)
Change in assets and liabilities:
Receivables 8,073 479 (870)
Inventories 740 (29) 602
Prepaid expenses and other assets 1,805 (709) 34
Accounts payable and accrued expenses (3,511) 2 159
Income taxes (539) 854 62
Net cash provided by (used in) discontinued operations 1,909 (2,241) (516)
--------- --------- ---------
Net cash provided by operating activities 7,817 2,036 1,559
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of subsidiaries (Note B) (3,882) (1,783)
Proceeds from merger of Life Sciences and Engineering Subsidiaries (Note C) 3,052
Proceeds from sales of assets 1,808 37 108
Expenditures for property, plant and equipment (1,400) (295) (226)
--------- --------- ---------
Net cash used in investing activities (422) (2,041) (118)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 214 213 166
Bank borrowings - net (1,164) 1,093 (547)
Additions to long-term debt 3,882
Payment of long-term debt (6,191) (1,690) (976)
--------- --------- ---------
Net cash used in financing activities (3,259) (384) (1,357)
EFFECT OF EXCHANGE RATES CHANGES ON CASH 16 3 (1)
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 4,152 (386) 83
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 53 439 356
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 4,205 $ 53 $ 439
========= ========= =========
CASH PAID FOR:
Income taxes $ 306 $ 237 $ 575
Interest 1,167 1,136 1,095
NONCASH INVESTING AND FINANCING ACTIVITIES:
Capital leases $ 941 $ 772 $ 414
Merger of Life Sciences and Engineering Subsidiaries (Note C) 177
</TABLE>
See notes to consolidated financial statements.
21
<PAGE> 22
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED MARCH 31, 1998, 1997 AND 1996
(ALL DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
- --------------------------------------------------------------------------------
A. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements
include the accounts of the Corporation and its domestic and foreign
subsidiaries. All significant intercompany transactions and balances have
been eliminated.
REVENUE RECOGNITION - Revenues within the Life Sciences and Engineering
Segment from cost reimbursement and time and material government contracts
are recorded as costs are incurred and include estimated earned fees.
Earned fees on contracts with fixed-fee provisions are based on the
proportion that costs incurred to date bear to total estimated costs at
completion. For contracts with award fee provisions, fees are based on
semiannual performance evaluations. Revenues from fixed-price contracts
are generally recognized using the percentage-of-completion method for
financial accounting purposes. Claims for recovery of additional contract
costs are recognized only to the extent that the recoverable amounts can
be determined with reasonable certainty. Costs not recoverable upon
completion of contracts are immediately charged against earnings.
USE OF ESTIMATES - The preparation of financial statements in conformity
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.
INVENTORIES - Inventories are valued at the lower of cost or market using
the first-in first-out method.
LONG-LIVED ASSETS - The Corporation adopted Statement of Financial
Accounting Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" effective
April 1, 1996. Implementation of SFAS No. 121 had no impact on the
consolidated financial statements.
GOODWILL - Goodwill is amortized using the straight-line method over a
period of five years. Management periodically performs an evaluation of
whether any impairment of goodwill has occurred; if such impairment is
determined, a writedown of the goodwill is recorded.
DEPRECIATION - Property, plant and equipment, including capital leases, is
depreciated over its estimated useful life principally using the
straight-line method.
STOCK-BASED COMPENSATION - The Corporation measures compensation cost for
stock options issued to employees using the intrinsic value based method
of accounting.
EARNINGS PER SHARE - The Corporation adopted SFAS No. 128, "Earnings per
Share" effective December 31, 1997. This statement requires presentation
of basic and diluted earnings per share in place of primary and fully
diluted earnings per share. Previously reported earnings per share have
been restated to reflect the adoption of this accounting standard.
FOREIGN CURRENCY TRANSLATION - The assets and liabilities of the
Corporation's wholly owned European subsidiaries are translated using
exchange rates in effect at the balance sheet date, and amounts for the
consolidated statements of earnings are translated using average exchange
rates for the period.
22
<PAGE> 23
Translation gains and losses are recorded in shareholders' equity and
transaction gains and losses are included in the consolidated statement of
earnings for the period.
FINANCIAL INSTRUMENTS - The recorded values of cash and trade receivables
and payables approximate their fair values because of the relatively short
maturity of these instruments. Similarly, the fair value of the
Corporation's long-term debt is estimated to approximate its recorded
value due to its relatively short maturity and its interest rate
characteristics.
RECENT ACCOUNTING STANDARDS - SFAS No. 130, "Reporting Comprehensive
Income" requires that all components of comprehensive income and total
comprehensive income be reported on one of the following: (1) the
statement of operations, (2) the statement of stockholders' equity, or (3)
a separate statement of comprehensive income. Comprehensive income is
comprised of net income and all changes to stockholders' equity, except
those due to investments by owners (changes in paid-in capital) and
distributions to owners (dividends). This statement is effective for
fiscal years beginning after December 15, 1997.
SFAS No. 131, "Disclosure About Segments of an Enterprise and Related
Information" requires public companies to report certain information about
their operating segments in annual financial statements and quarterly
reports issued to shareholders. It also requires public companies to
report certain information about their products and services, the
geographic areas in which they operate, and their major customers. This
statement is effective for fiscal years beginning after December 15, 1997.
SFAS No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits" revises employers' disclosures about pension and
other postretirement benefit plans to require additional information on
changes in the benefit obligations and fair values of plan assets. This
statement is effective for fiscal years beginning after December 15, 1997.
Adoption of these pronouncements is not expected to have a material effect
on the Corporation's consolidated financial statements.
RECLASSIFICATIONS - Amounts in prior years' consolidated financial
statements have been reclassified to conform to the 1998 presentation.
Primarily, the amounts relating to the Leisure Marine Segment have been
reclassified as required with respect to discontinued operations.
B. ACQUISITIONS
KLIPPAN LIMITED - On October 2, 1997, the Corporation's United Kingdom
("U.K.") housewares and child safety subsidiary purchased the outstanding
common stock of Klippan Limited ("Klippan"), a manufacturer of children's
automobile safety seats and accessories having manufacturing facilities
and sales offices in the U.K. and Europe, for approximately $3.9 million
in cash. The acquisition was financed under the Corporation's U.K. bank
credit facility. Goodwill totaling $1,892 was recognized in the
transaction.
HAGO PRODUCTS LTD. - Effective October 31, 1996, the Corporation's U.K.
housewares and child safety subsidiary purchased the outstanding common
stock of Hago Products Ltd. ("Hago"), a U.K. manufacturer of child safety
gates and fireguards, for approximately $1.8 million in cash. The
acquisition was financed with internally available funds including
borrowings under the U.K. line of credit.
Both acquisitions were accounted for using the purchase method of
accounting. Accordingly, the consolidated statements of earnings only
include the results of operations of the individual companies since the
effective date of each acquisition. Pro-forma disclosure of the
acquisitions is included in Note C.
23
<PAGE> 24
C. MERGER OF LIFE SCIENCES AND ENGINEERING SUBSIDIARIES
On March 16, 1998, the Corporation merged its domestic subsidiaries, KRUG
Life Sciences Inc. and Technology Scientific Services, Inc. (the
"Subsidiaries"), into Wyle Laboratories, Inc. ("Wyle"). Wyle provides
high-technology testing and technical services to commercial and
government customers in the U.S.
In the merger, the Corporation exchanged its ownership of the Subsidiaries
for (i) 3.8 million shares of Series A-1 Preferred Stock that have voting
rights and are convertible into approximately 38% of Wyle's common stock,
(ii) cash of $3,052 received by the Corporation, (iii) shares of Series B
Senior Preferred Stock of Wyle that are nonvoting and have a face amount
and an aggregate liquidation preference of $954 payable in even increments
on December 22, 2003, 2004 and 2005 and (iv) a stock option that entitles
the Corporation to purchase approximately 38% of the shares issuable under
existing employee stock options of Wyle, as and if such shares are
purchased by existing employees. The Series A-1 Preferred Stock bears a
cumulative annual dividend of $780. Payment of the dividend is subject to
the prior redemption of the Series B Senior Preferred Stock, compliance by
Wyle with any applicable loan covenants and Wyle's availability of funds.
In connection with the merger, Wyle assumed approximately $3,300 of the
Subsidiaries' working capital debt.
The Corporation entered into a stockholders agreement with Wyle providing
that for so long as the Corporation owns 10% or more of the stock of Wyle,
that (i) the Corporation will appoint two of seven directors, (ii) the
vote of six of the seven directors or a class vote of each series of
preferred stock is necessary for certain significant corporate
transactions, and (iii) the Corporation will have demand registration
rights beginning nine months after the closing of the merger. The
Corporation issued warrants to purchase 25,000 shares of its common stock
to investment advisors assisting in the merger (see Note H).
The Corporation recognized a partial gain totaling $2,850 as a result of
the transaction. Recognition of additional gain was precluded because of
the significance of the nonmonetary assets received by the Corporation.
Summarized unaudited financial information of Wyle is presented below:
<TABLE>
<CAPTION>
MARCH 31,
1998
<S> <C>
Current assets $ 26,774
Property, plant and equipment, net 11,270
Goodwill 5,403
Other assets 3,723
----------
Total assets $ 47,170
==========
Current liabilities $ 17,754
Other liabilities 2,971
Long-term debt 20,501
Owners' equity 5,944
----------
Total liabilities and equity $ 47,170
==========
Corporation's proportionate share of the underlying net assets of Wyle $ 2,258
==========
Corporation's investment in Wyle, at equity, included in other
noncurrent assets at March 31, 1998 $ 122
==========
</TABLE>
The Corporation accounts for its investment in Wyle using the equity
method of accounting. The difference between the Corporation's
proportionate share of Wyle's net assets and its recorded
24
<PAGE> 25
investment in Wyle totaled $2,136 at March 31, 1998. This non-cash amount
will be recognized as income over a period of 15 years.
PRO-FORMA DISCLOSURE - The information below presents combined results of
operations on a pro-forma basis assuming the acquisitions of Klippan and
Hago (see Note B) and the merger of the Life Sciences and Engineering
Subsidiaries occurred at the beginning of fiscal year 1997:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------
1998 1997
(UNAUDITED)
<S> <C> <C>
Revenues $ 57,167 $ 48,771
Earnings (loss) from continuing operations (1,617) 31
Net earnings (loss) (656) 1,065
Net earnings (loss) per share:
Basic (0.13) 0.21
Diluted (0.13) 0.21
</TABLE>
The pro-forma amounts include adjustments to reflect interest expense for
acquisition-related debt and amortization of goodwill related to the
Klippan and Hago acquisitions and adjustments to eliminate the revenues
and earnings of the Life Sciences and Engineering Subsidiaries and reflect
the Corporation's equity in earnings of Wyle. The pro-forma amounts are
not necessarily indicative of the consolidated results that would have
occurred had the transactions taken place on April 1, 1996; nor are they
necessarily indicative of results that may occur in the future.
D. DISCONTINUED OPERATIONS
LEISURE MARINE SEGMENT - On April 16, 1998, the Corporation sold its
Leisure Marine Segment to a company formed by the Segment's management.
The purchase price was approximately $15,000 comprised of approximately
$8,100 in cash, deferred payments of $800 due within one year and the
assumption of approximately $6,100 of debt.
As a result of this subsequent disposal, the Corporation has classified
the Leisure Marine Segment as a discontinued operation as of March 31,
1998. Accordingly, the Leisure Marine Segment's balance sheet information
as of March 31, 1998 and 1997 has been reclassified under the captions
"Net assets of discontinued operations" and its income statement
information for the years ended March 31, 1998, 1997 and 1996 has been
reclassified under the caption "Earnings from discontinued operations."
Results of discontinued operations of the Leisure Marine Segment were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------
1998 1997 1996
<S> <C> <C> <C>
Revenues $ 32,197 $ 28,658 $ 25,034
Earnings from operations before income taxes 2,667 2,399 1,605
Income taxes 876 909 622
Earnings from discontinued segment 1,791 1,490 983
</TABLE>
INDUSTRIAL SEGMENT - In fiscal year 1989, the Corporation discontinued the
operations of its Industrial Segment and subsequently disposed of
substantially all related net assets. However, obligations remain relating
to leased properties in Knoxville, Tennessee, and in Toronto, Canada, and
to product liability claims for products sold prior to the disposal.
During the year ended March 31, 1998, the Corporation recorded a charge of
$830 (net of a tax benefit of $427) to provide for estimated additional
product liability losses and increased legal and professional and
insurance costs for such discontinued operations.
25
<PAGE> 26
During the year ended March 31, 1997, the Corporation recorded a charge of
$456 (net of a tax benefit of $235) to provide for estimated additional
losses for such discontinued operations. The charge was due to additional
repair and maintenance costs relating to the Knoxville property, decreased
sublease income from the Knoxville property, increased insurance costs
related to product liability claims and loss of future sublease income
caused by the bankruptcy filing of a tenant in the Toronto facility.
During the year ended March 31, 1998, the reserve for losses from
discontinued operations increased by the $1,257 provision previously
discussed and decreased by $600 for charges to the reserve, leaving a
balance of $1,575 at March 31, 1998. During the year ended March 31, 1997,
the reserve for losses from discontinued operations increased by the $691
charge previously discussed and decreased by $1,192 for charges to the
reserve, leaving a balance of $918 at March 31, 1997. During the year
ended March 31, 1996, the reserve for losses from discontinued operations
increased by $140 from asset sales and decreased by $781 for charges to
the reserve.
The reserve for losses from discontinued operations represents
management's best estimate of the Corporation's liability with regard to
resolution of all property and product liability claims for which it may
incur liability. These estimates are based on the Corporation's judgments
using currently available information as well as consultation with its
insurance carriers and legal counsel. The Corporation historically has
purchased insurance policies to reduce its exposure to product liability
claims and anticipates it will continue to purchase such insurance
policies where available at commercially reasonable prices.
While the Corporation has based its estimates on its evaluation of
available information to date, it is impossible to predict with certainty
the ultimate outcome of these contingencies. The Corporation will adjust
its estimates of the reserve as additional information is developed and
evaluated. However, management believes that the final resolution of these
contingencies will not have a material adverse impact on the financial
position, cash flows or results of operation of the Corporation.
The Corporation is directly or contingently liable for lease and other
commitments related to property formerly used by its discontinued
operations. Commitments, net of minimum sublease rentals expected to be
received, are $101 in 1999.
E. RECEIVABLES
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1998 1997
<S> <C> <C>
Trade accounts receivable $ 10,288 $ 6,935
Contract receivables:
Amounts billed 6,986
Recoverable costs and accrued profit on work completed
but not yet billed 2,166
Other 200 178
---------- ----------
10,488 16,265
Less allowance for doubtful accounts (174) (136)
---------- ----------
Total $ 10,314 $ 16,129
========== ==========
</TABLE>
26
<PAGE> 27
F. INVENTORIES
<TABLE>
<CAPTION>
MARCH 31,
----------------------
1998 1997
<S> <C> <C>
Finished goods $ 1,599 $ 1,198
Work-in-process 1,194 1,291
Raw materials 2,207 1,641
---------- ----------
Total $ 5,000 $ 4,130
========== ==========
</TABLE>
G. LONG-TERM DEBT
<TABLE>
<CAPTION>
MARCH 31,
-----------------------
1998 1997
<S> <C> <C>
U.K. Variable Rate Loan $ 3,948
U.K. Term Loan 1,880 $ 2,090
U.S. Revolving Credit Line 3,793
U.S. Mortgage 1,743
Capital leases 875 705
---------- ----------
Total 6,703 8,331
Less current maturities (1,238) (2,345)
---------- ----------
Long-term portion $ 5,465 $ 5,986
========== ==========
</TABLE>
The U.K. Variable Rate Loan commenced October 2, 1997 with a U.K. bank.
The loan is due March 31, 2003 and is payable in equal quarterly
installments of $197 plus interest, at the bank's base rate plus 1 1/4%
(8.25% at March 31, 1998) beginning June 30, 1998.
The U.K. Term Loan is a ten-year term loan which commenced in July 1995
with a U.K. bank. The loan has quarterly principal payments of $63, plus
interest, at the bank's base rate plus 1 1/2% (8.5% at March 31, 1998).
Substantially all foreign assets (except shares of the foreign
subsidiaries) are pledged as collateral for the U.K. Variable Rate and
Term Loans. These loans include certain tangible net worth and cash flow
requirements relating to the foreign subsidiaries.
The Corporation has a line of credit for its U.K. subsidiaries of $3,342,
all of which was unused at March 31, 1998. Borrowings under this line of
credit were $1,161 at March 31, 1997. Interest is payable quarterly on the
line of credit at the bank's base rate plus 1 1/2% (8.5% at March 31,
1998).
The U.S. Revolving Credit Line was assumed by Wyle as part of the merger
of the Life Sciences and Engineering subsidiaries (see Note C). The U.S.
Mortgage was repaid in November 1997 when the Corporation's Dayton, Ohio
real property was sold.
Annual payments of long-term debt, including capital leases, for the next
five years are as follows: 1999 - $1,238; 2000 - $1,342; 2001 - $1,175;
2002 - $1,081; and 2003 - $1,040.
H. SHAREHOLDERS' EQUITY
STOCK OPTION PLANS - The Corporation's 1995 Incentive Stock Option Plan
permits the grant of options to officers and key employees for purchase of
up to 250,000 common shares through May 2005, of
27
<PAGE> 28
which 156,000 options have been granted through March 31, 1998. Vesting
and option expiration periods are determined by the Board of Directors but
may not exceed ten years.
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED-AVERAGE RANGE OF
SHARES EXERCISE PRICE EXERCISE PRICES
<S> <C> <C> <C>
Options outstanding, March 31, 1995 143,515 $2.68 $2.16 - 3.14
Granted 66,000 3.00 3.00
Exercised (40,427) 2.28 2.16 - 2.57
Forfeited (42,448) 2.87 2.57 - 3.14
------------ ------------ ------------
Options outstanding, March 31, 1996 126,640 2.93 2.57 - 3.14
Granted 75,000 4.50 4.50
Exercised (74,256) 2.86 2.57 - 3.00
Expired (6,064) 2.57 2.57
------------ ------------ ------------
Options outstanding, March 31, 1997 121,320 3.96 $3.00 - 4.50
Granted 15,000 5.13 5.13
Exercised (32,820) 3.24 3.14 - 4.50
Forfeited (13,000) 4.50 4.50
------------ ------------ ------------
Options outstanding, March 31, 1998 90,500 $ 4.34 $3.00 - 5.13
============ ============ ============
Options exercisable, March 31, 1998 84,500 $ 4.33 $3.00 - 5.13
============ ============ ============
Weighted-average remaining contractual
life at March 31, 1998 1.7 years
============
</TABLE>
On April 30, 1996, the Board of Directors approved the immediate vesting
of all of the then outstanding stock options. Options granted during the
year ended March 31, 1997 vest ratably over two years from November 1996.
In March 1998, in connection with the merger of its Life Sciences and
Engineering Subsidiaries with Wyle (see Note C), the Board of Directors
approved the immediate vesting of the 40,000 outstanding stock options
held by employees of the Subsidiaries. Under the 1995 Plan provisions,
these former employees have until June 15, 1998 to exercise or forfeit
their stock options.
The weighted-average fair value of the options granted during the years
ended March 31, 1998, 1997 and 1996 was $2.11, $1.65 and $1.15,
respectively. The fair value of each stock option grant was estimated
using the Black-Scholes option pricing model with the following
weighted-average assumptions used for grants during the years ended March
31, 1998, 1997 and 1996, respectively: estimated volatility of 60%, 51%
and 55%; risk-free interest rate of 6%; dividend yield of 0%; and an
expected life of 2.5 years.
Using the intrinsic value method, no compensation costs have been
recognized for the stock option plans since the exercise price of the
options is not less than the fair value of the Corporation's common stock
at the grant date. Net earnings and net earnings per share, had
compensation costs been determined using the fair value based method,
follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
----------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Net earnings $ 224 $ 2,033 $ 1,169
Net earnings per share:
Basic 0.04 0.40 0.23
Diluted 0.04 0.39 0.23
</TABLE>
28
<PAGE> 29
1997 EMPLOYEE STOCK PURCHASE PLAN - The 1997 Employee Stock Purchase Plan
was approved by the Board of Directors in November 1996. Each employee
continuously employed through December 31, 1997 by KRUG International
Corp. and KRUG Life Sciences Inc. was eligible to purchase up to 200
Common Shares for 85% of the fair market value as determined based on the
lower of the last sale price at January 2, 1997 or December 31, 1997.
Payments for stock subscribed under the plan were made by payroll
deductions. A total of 14,704 common shares were issued under this plan.
WARRANTS - The Corporation issued warrants to shareholders of record on
December 23, 1995. For each five common shares held, the Corporation
distributed one warrant for the purchase of one common share. The warrants
entitled the holders to purchase, in the aggregate, 999,487 common shares
for $8.625 per share through their expiration on January 31, 1998. The
Corporation may reduce the purchase price at any time. In January 1998,
the Corporation extended the expiration date of the warrants to January
31, 1999.
The Corporation issued warrants to purchase 25,000 shares of its common
stock for $5.75 per share to investment advisors assisting the Corporation
in the merger of its Life Sciences and Engineering Subsidiaries (see Note
C).
I. INCOME TAXES
The provisions for income taxes on continuing operations include the
following:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Domestic:
Current $ 332 $ 11 $ 9
Deferred 343 148 189
---------- ---------- ----------
Total domestic tax expense 675 159 198
Foreign:
Current 228 359 (56)
Deferred (85) (68) (41)
---------- ---------- ----------
Total foreign tax expense 143 291 (97)
---------- ---------- ----------
Total income tax expense $ 818 $ 450 $ 101
========== ========== ==========
</TABLE>
29
<PAGE> 30
Deferred tax assets recorded in the balance sheets include the following:
<TABLE>
<CAPTION>
MARCH 31,
--------------------------
1998 1997
<S> <C> <C>
Domestic:
Alternative minimum tax credit carryforward $ 483 $ 150
Contract accounting 121
Net operating loss carryforwards 268 3,797
Provision for loss on discontinued operations 536 312
Other 339 (1)
---------- ----------
1,626 4,379
Less valuation allowance (3,156)
---------- ----------
Total domestic deferred tax assets 1,626 1,223
Foreign:
Net operating loss carryforwards 984
Capital loss carryforward 2,427 2,380
Tax prepayments not currently utilized 1,320 1,385
Depreciation expense (848) (648)
Other 431 81
---------- ----------
4,314 3,198
Less valuation allowance (3,411) (2,380)
---------- ----------
Total foreign deferred tax assets 903 818
---------- ----------
Net deferred tax assets $ 2,529 $ 2,041
========== ==========
</TABLE>
At March 31, 1998, the Corporation had accumulated domestic net operating
loss carryforwards (expiring in 2009) of approximately $800 available to
offset future domestic taxable income.
The differences between income taxes at the federal statutory rate and the
effective tax rate were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
Income taxes at federal statutory rate $ 38 $ 514 $ 98
Foreign tax rate differential 106 (32) 3
Changes in valuation allowance (2,125) (483) (261)
U.S. deemed dividend 2,550 469 196
U.K. pension 18 (62) (8)
U.K. amortization of intangibles 70 17
Other 161 44 56
---------- ---------- ----------
Total income tax expense $ 818 $ 450 $ 101
========== ========== ==========
</TABLE>
Earnings (loss) from continuing operations before income taxes include
$(3,537), $1,040, and $(294) in 1998, 1997 and 1996, respectively, of
foreign earnings. Domestic income taxes have not been provided on
undistributed earnings of the foreign subsidiaries aggregating $18,000 at
March 31, 1998 because such amounts are considered to be permanently
invested abroad. To date, the Corporation has paid taxes as U.S. deemed
dividends on approximately $9,500 of this amount. Determination of the
amount of the unrecognized deferred tax liability for these undistributed
earnings, net of the previously taxed U.S. deemed dividends, is not
practicable.
30
<PAGE> 31
J. EMPLOYEE BENEFITS
DEFINED BENEFIT PLANS - The Corporation has historically maintained
defined benefit retirement plans covering substantially all of its
employees. Benefits are principally based on years of service and level of
earnings. The Corporation funds the domestic plan, which is
noncontributory, at a rate that meets or exceeds the minimum amounts
required by ERISA. The Corporation funds monthly contributions to the
foreign plans, which are contributory, based on actuarially determined
rates.
Effective February 28, 1997, the Corporation amended its domestic plan to
freeze participant benefits and close the plan to new participants. As a
result, the Corporation recognized a curtailment gain of $369 for the year
ended March 31, 1997 primarily due to the reduction of the projected
benefit obligation. During the year ended March 31, 1998, the Corporation
recognized a curtailment loss of $190 for a partial plan settlement of
pension obligations to vested former employees. The Corporation approved a
plan amendment as of March 31, 1998 to terminate its domestic plan.
Management expects that, subject to required regulatory approvals, final
payment of plan termination benefits will be made by March 31, 1999.
The components of net pension expense for all plans, excluding the
curtailment gain and loss above, were as follows:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
-------------------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN DOMESTIC FOREIGN
<S> <C> <C> <C> <C> <C> <C>
Service cost $ 467 $ 434 $ 272 $ 477 $ 312
Interest cost $ 422 653 449 493 446 486
Expected return on assets (411) (685) (825) (542) (732) (1,084)
Net amortization and deferral 27 (8) 317 58 324 761
--------- --------- --------- --------- --------- ---------
Net pension expense $ 38 $ 427 $ 375 $ 281 $ 515 $ 475
========= ========= ========= ========= ========= =========
</TABLE>
31
<PAGE> 32
Summary information for the plans is as follows:
<TABLE>
<CAPTION>
MARCH 31,
-------------------------------------------------------------------------
1998 1997
--------------------------------- --------------------------------------
DOMESTIC FOREIGN DOMESTIC FOREIGN
<S> <C> <C> <C> <C>
Vested benefit obligation $ 6,166 $ 9,979 $ 5,701 $ 6,221
========== ========== ========== ==========
Accumulated benefit obligation $ 6,166 $ 9,979 $ 5,911 $ 6,261
========== ========== ========== ==========
Projected benefit obligation $ 6,166 $ 10,270 $ 5,911 $ 6,760
Fair value of plan assets 5,624 10,584 6,343 6,870
---------- ---------- ---------- ----------
Plan assets greater (less) than projected benefit
obligation (542) 314 432 110
Reconciliation of financial status of plans to
amounts recorded in the balance sheets:
Unamortized plan assets in excess of plan liabilities
(overfunding) to be recognized as a reduction of
future years' pension expense (458) (34) (507)
Unrecognized net loss from experience different
than plan assumptions 934 892 223 875
Additional minimum liability (934)
Unamortized prior service cost from change in
benefit formula 809 898
---------- ---------- ---------- ----------
Pension asset (liability) included in the balance
sheets $ (542) $ 1,557 $ 621 $ 1,376
========== ========== ========== ==========
</TABLE>
The Corporation has reflected the additional minimum liability as a
reduction in shareholders' equity, net of related tax benefits, because
such amount exceeds the amount of unrecognized prior service costs at
March 31, 1998. This amount will be charged against earnings upon
settlement of the domestic plan.
The weighted-average discount rate used for the domestic plan was 6.17% in
1998 and 7.46% in 1997. The projected rate of compensation increases was
4.5% in 1997 and the expected rate of return on plan assets was 6.5% in
1998 and 8% in 1997. Domestic plan assets are primarily invested in listed
bonds and U.S. government obligations. Changes in the actuarial
assumptions during fiscal years 1998 and 1997 were made because of the
pending settlement of the domestic plan.
The weighted-average discount rate used for the foreign plans was 6.5% in
1998 and 9% in 1997. The projected rate of compensation increases was 4.5%
in 1998 and 7% in 1997, and the expected rate of return on plan assets was
7.5% in 1998 and 9% in 1997. Foreign plan assets are invested in managed
fund units in the U.K.
DEFINED CONTRIBUTION PLAN - The Corporation had until March 16, 1998 a
defined contribution plan pursuant to IRS Section 401(k) covering
substantially all domestic employees. The Corporation matches a specified
percentage of the employees' contribution as determined periodically by
its Board of Directors. Plan expense was $415 in 1998, $200 in 1997 and
$169 in 1996. The plan was transferred to Wyle in connection with the
merger (see Note C).
32
<PAGE> 33
K. COMMITMENTS AND CONTINGENCIES
LEASES - The Corporation leases various land, buildings and equipment
(principally for its European operations under capital and operating lease
obligations having noncancelable terms ranging from 1 to 18 years. Minimum
lease commitments as of March 31, 1998 follow:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
<S> <C> <C>
1999 $ 458 $ 1,620
2000 328 1,124
2001 145 709
2002 45 653
2003 653
Later years 6,699
---------- ----------
Total minimum lease payments 976 $ 11,458
==========
Amount representing interest (101)
----------
Present value of minimum lease payments 875
Less current maturities of capital leases 396
----------
Long-term portion of capital leases $ 479
==========
</TABLE>
At March 31, 1998 and 1997, buildings and equipment under capital leases
of $2,090 and $1,591 (less accumulated depreciation of $680 and $445),
respectively, are included in property, plant and equipment. Rent expense
under operating leases was $1,716, $1,171 and $993 for the years ended
March 31, 1998, 1997 and 1996, respectively.
LITIGATION - The Corporation is a party to claims and litigation
incidental to its business, as to which it is not currently possible to
determine the ultimate liability, if any. Based on an evaluation of
information currently available and consultation with legal counsel,
management believes that resolution of such claims and litigation is not
likely to have a material effect on the financial position, cash flows, or
results of operations of the Corporation.
CONSULTING AGREEMENTS - The Corporation entered into a consulting
agreement with its former chairman in April 1996 and terminated its
obligation to him under a previous founder's agreement. The remaining
obligation under the consulting agreement of $233 and $450 at March 31,
1998 and 1997, respectively, is included in other accrued expenses in the
consolidated balance sheets.
L. RESTRUCTURING AND RELOCATION CHARGES
During the year ended March 31, 1998, the Corporation recorded
restructuring and relocation charges of $1,630 related to its Housewares
and Child Safety Products Segment. In the restructuring, the Corporation
closed its manufacturing facility in Bognor Regis, England and moved the
operations to its facility in Bilston, England. Also, the Corporation
relocated its German sales offices. The restructuring and relocation
charges were provided for manufacturing plant relocation, employee
severance costs for approximately one hundred five employees, rent and
other costs related to the vacated facilities.
In September 1996 the Corporation closed its executive offices in Dayton,
Ohio and consolidated its headquarters in Houston, Texas. A restructuring
charge of $530 was recorded for such office consolidation during the year
ended March 31, 1997. The charge consisted primarily of estimated costs
relating to severance for six employees and rent, net of expected sublease
income, and other costs related to the vacated offices in Dayton, Ohio.
33
<PAGE> 34
At March 31, 1998, accrued expenses included accrued restructuring charges
of $572 primarily for rent and other expenses payable through June 1999,
the lease termination date of the offices in Dayton, Ohio vacated by the
Corporation and the vacated manufacturing facility in Bognor Regis,
England.
M. INDUSTRY SEGMENTS
The Corporation's continuing operations consist of its Housewares and
children's automobile Safety Products Segment located in Europe and its
equity in earnings of Wyle.
The Housewares and Child Safety Products Segment is composed of Beldray
Ltd., Klippan Ltd. and Hago Products Ltd., subsidiaries which manufacture
and sell under various proprietary brand names and private labels ironing
tables, household ladders, rotary dryers, indoor airers, children's
automobile safety seats, gates and accessories and garden equipment.
Customers include do-it-yourself retailers, supermarkets, mail order
catalogs, wholesalers and department stores, primarily in the U.K.,
Finland and Ireland.
The Life Sciences and Engineering Segment was composed of two
subsidiaries, KRUG Life Sciences Inc. and Technology/Scientific Services,
Inc., engaged in basic and applied biotechnological research, support
services and engineering pursuant to contracts primarily with agencies of
the U.S. government. The Corporation's ownership of these subsidiaries was
exchanged for an equity interest in Wyle on March 16, 1998 (see Note C).
Activity associated with these Subsidiaries prior to the exchange with
Wyle is reported below. Prior period segment information has not been
restated for the merger with Wyle.
34
<PAGE> 35
Information concerning the Corporation's continuing operations by industry
segment is presented in the following table:
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
------------------------------------------
1998 1997 1996
<S> <C> <C> <C>
REVENUES FROM UNAFFILIATED CUSTOMERS (1):
Housewares and Child Safety Products (2) $ 49,008 $ 33,071 $ 26,442
Life Sciences and Engineering (3) 44,686 50,010 44,345
---------- ---------- ----------
$ 93,694 $ 83,081 $ 70,787
========== ========== ==========
OPERATING PROFIT:
Housewares and Child Safety Products $ (3,845) $ 729 $ (847)
Life Sciences and Engineering 2,883 3,592 3,786
Corporate expense (1,567) (1,948) (1,695)
---------- ---------- ----------
(2,529) 2,373 1,244
Interest expense (1,111) (936) (1,006)
Equity in loss of Wyle (Note C) (55)
Other income - net 3,808 75 51
---------- ---------- ----------
Earnings from continuing operations before income taxes $ 113 $ 1,512 $ 289
========== ========== ==========
IDENTIFIABLE ASSETS:
Housewares and Child Safety Products $ 24,794 $ 16,041 $ 10,167
Life Sciences and Engineering 9,976 10,723
Other 14,785 15,068 13,774
---------- ---------- ----------
$ 39,579 $ 41,085 $ 34,664
========== ========== ==========
DEPRECIATION AND AMORTIZATION:
Housewares and Child Safety Products $ 1,055 $ 640 $ 559
Life Sciences and Engineering 59 115 150
Other 38 14 31
---------- ---------- ----------
$ 1,152 $ 769 $ 740
========== ========== ==========
CAPITAL ADDITIONS:
Housewares and Child Safety Products $ 1,273 $ 221 $ 209
Life Sciences and Engineering 127 72 17
Other 2
---------- ---------- ----------
$ 1,400 $ 295 $ 226
========== ========== ==========
</TABLE>
(1) Revenues from tangible products were $56,880, $44,649, and $34,350 and
revenues from services were $36,814 $38,432 and $36,437 for the years
ended March 31, 1998, 1997 and 1996, respectively. Related cost of goods
sold for tangible products was $57,361 $40,118 and $31,560 and related
cost of services was $28,474, $34,555, and $32,456, respectively.
(2) Includes revenues from one customer of $15,238 in 1998 and $11,913 in
1997.
(3) Includes revenues from the U.S. government of $44,139 in 1998, $49,808 in
1997 and $44,091 in 1996.
35
<PAGE> 36
N. EARNINGS PER SHARE
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- -------------------------- -------------------------
PER SHARE PER SHARE PER SHARE
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
<S> <C> <C> <C> <C> <C> <C>
Earnings from continuing operations $ (705) $ 1,062 $ 188
Basic -
Weighted average shares outstanding 5,168 $ (0.14) 5,135 $ 0.21 5,044 $ 0.04
========== ========== ========== ========== ========== ==========
Diluted:
Weighted average shares outstanding 5,168 5,135 5,044
Effect of dilutive securities - options 58 23
---------- ---------- ----------
Total 5,168 $ (0.14) 5,193 $ 0.20 5,067 $ 0.04
========== ========== ========== ========== ========== ==========
</TABLE>
The Corporation's earnings per share from discontinued operations were
$0.19 in 1998, $0.20 in 1997 and $0.19 in 1996.
O. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL
YEAR
ENDED FOURTH THIRD SECOND FIRST
MARCH 31, QUARTER QUARTER QUARTER QUARTER
<S> <C> <C> <C> <C> <C>
REVENUES 1998 $ 24,123 $ 27,220 $ 22,646 $ 19,705
1997 22,888 23,075 20,265 16,853
GROSS PROFIT (Revenues less cost of goods sold) 1998 1,440 2,530 2,090 1,799
1997 2,525 1,952 1,968 1,963
EARNINGS FROM CONTINUING OPERATIONS 1998 (796) (321) 229 183
1997 765 253 (258) 302
NET EARNINGS 1998 (1,204) (396) 771 1,085
1997 705 258 84 1,049
EARNINGS (LOSS) PER SHARE:
Continuing operations
Basic 1998 (0.15) (0.06) 0.04 0.04
1997 0.15 0.05 (0.05) 0.06
Diluted 1998 (0.15) (0.06) 0.04 0.04
1997 0.15 0.05 (0.05) 0.06
Net earnings
Basic 1998 (0.23) (0.08) 0.15 0.21
1997 0.14 0.05 0.02 0.21
Diluted 1998 (0.23) (0.08) 0.15 0.21
1997 0.14 0.05 0.02 0.20
SHARES USED IN COMPUTING EARNINGS
(LOSS) PER SHARE:
Basic 1998 5,193 5,170 5,160 5,151
1997 5,151 5,151 5,145 5,092
Diluted 1998 5,214 5,208 5,196 5,183
1997 5,186 5,199 5,210 5,174
</TABLE>
36
<PAGE> 37
The Corporation files quarterly information on Form 10-Q with the
Securities and Exchange Commission. The quarterly amounts reported above
have been restated to reflect the Corporation's Leisure Marine Segment as
a discontinued operation (see Note D). Quarterly amounts reported for
earnings (loss) per share may not total annual reported amounts due to
rounding.
Significant activity in the amounts reported for the quarter ended March
31, 1998 include the gain on merger of the Life Sciences and Engineering
Subsidiaries of $1,881, net of a tax benefit of $969 (see Note C);
relocation charges related to its Housewares and Child Safety Products
Segment of $715, net of a tax benefit of $368 (see Note L); the provision
for losses related to the discontinued Industrial Segment operations of
$830, net of a tax benefit of $427 (see Note D); and the reduction in the
valuation allowance against deferred tax assets (see Note I).
******
37
<PAGE> 38
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 is incorporated herein by
reference from the Corporation's Proxy Statement for its Annual Meeting of
Shareholders on July 13, 1998, except for certain information concerning the
executive officers of the Corporation which is set forth in Part I of this
Report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is set forth in the
Corporation's Proxy Statement for its Annual Meeting of Shareholders on July 13,
1998, and is incorporated herein by this reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is set forth in the Corporation's
Proxy Statement for its Annual Meeting of Shareholders on July 13, 1998, and is
incorporated herein by this reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is set forth in the
Corporation's Proxy Statement for its Annual Meeting of Shareholders on July 13,
1998, and is incorporated herein by this reference.
38
<PAGE> 39
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) (1) Financial Statements
The following consolidated financial statements of the Corporation and its
subsidiaries are incorporated by reference as part of this Report at Item 8
hereof.
Independent Auditors' Report.
Consolidated Balance Sheets -- March 31, 1998 and 1997.
Consolidated Statements of Earnings -- for the fiscal years ended March 31,
1998, 1997 and 1996.
Consolidated Statements of Shareholders' Equity -- for the fiscal years
ended March 31, 1998, 1997 and 1996.
Consolidated Statements of Cash Flows -- for the fiscal years ended March
31, 1998, 1997 and 1996.
Notes to Consolidated Financial Statements -- for the fiscal years ended
March 31, 1998, 1997 and 1996.
(a) (2) Financial Statement Schedules
Independent Auditors' Report -- .............. At page 40 of this Report.
Schedule II -- ................................ Valuation and qualifying
accounts (at page 41 of
this Report)
The information required to be submitted in Schedules I, III, IV and V for
KRUG International Corp. and consolidated subsidiaries has either been shown in
the financial statements or notes, or is not applicable or required under
Regulation S-X, and, therefore, those schedules have been omitted.
(b) Reports on Form 8-K
During the quarter ended March 31, 1998, the Corporation filed one
report on Form 8-K. The report was dated March 31, 1998 reporting Item
2 - Acquisition or Disposition of Assets. related to the merger of KRUG
Life Sciences Inc. and Technology/Scientific Services, Inc. into Wyle
Laboratories, Inc.
In addition, on May 1, 1998, the Corporation filed a report on Form
8-K. The report reported Item 2. Acquisition or Disposition of Assets,
related to the sale of Sowester Limited to a corporation formed by
Sowester Limited's management and Item 5. Other Events, reporting that
on April 16, 1998, the Board of Directors of the Corporation authorized
the Corporation to repurchase for cash in the open market up to 200,000
Common Shares of KRUG International Corp.
(c) Exhibits
The "Index to Exhibits" to the this Annual Report on Form 10-K is
incorporated by reference.
39
<PAGE> 40
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Shareholders of
KRUG International Corp.
Houston, Texas
We have audited the consolidated financial statements of KRUG International
Corp. and Subsidiaries as of March 31, 1998 and 1997, and for each of the three
years in the period ended March 31, 1998, and have issued our report thereon
dated June 2, 1998 (included elsewhere in this Form 10-K). Our audits also
included the consolidated financial statement schedule of KRUG International
Corp. and Subsidiaries, listed in Item 14. This consolidated financial statement
schedule is the responsibility of the Corporation's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such consolidated financial statement schedule, when considered in relation to
the basic financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
DELOITTE & TOUCHE LLP
Houston,Texas
June 2, 1998
40
<PAGE> 41
KRUG INTERNATIONAL CORP. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
AMOUNTS IN THOUSANDS
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
--------------- ---------- -------------------------- ----------- --------
CURRENCY
ALLOWANCE FOR BALANCE AT CHARGED TO TRANSLATION/ DEDUCTIONS BALANCE
DOUBTFUL BEGINNING COST AND ACQUISITION/ FROM AT END
ACCOUNTS OF YEAR EXPENSES DISPOSITION RESERVES OF YEAR
--------------- ---------- ---------- ------------ ----------- --------
<S> <C> <C> <C> <C> <C>
YEAR ENDED $ 856 $ 21 $ (645) $ 58 $ 174
MARCH 31, 1998
YEAR ENDED
MARCH 31, 1997 $ 658 $ 184 $ 54 $ 40 $ 856
YEAR ENDED
MARCH 31, 1996 $ 595 $ 144 $ (37) $ 44 $ 658
</TABLE>
<TABLE>
<CAPTION>
DEFERRED INCOME CURRENCY
TAX ASSET BALANCE AT ADDITIONS TRANSLATION/ DEDUCTIONS BALANCE
VALUATION BEGINNING TO ACQUISITION/ FROM AT END
ALLOWANCE OF YEAR RESERVES DISPOSITION RESERVES OF YEAR
--------------- ---------- ---------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C>
YEAR ENDED $ 5,536 $ 984 $ 47 $ 3,156 $ 3,411
MARCH 31, 1998
YEAR ENDED
MARCH 31, 1997 $ 6,019 $ -- $ 157 $ 640 $ 5,536
YEAR ENDED
MARCH 31, 1996 $ 6,280 $ -- $ (136) $ 125 $ 6,019
</TABLE>
41
<PAGE> 42
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on this 12th
day of June, 1998.
KRUG INTERNATIONAL CORP.
By: /s/ CHARLES LINN HASLAM
--------------------------------------
Charles Linn Haslam
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of KRUG
International Corp. and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------
Name Title Date
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
/s/ CHARLES LINN HASLAM Director, Chairman and Chief Executive Officer June 12, 1998
- ------------------------------------------- (principal executive officer)
Charles Linn Haslam
/s/ ROBERT M. THORNTON, JR. Director, President and Chief Financial Officer June 12, 1998
- ------------------------------------------- (principal financial officer)
Robert M. Thornton, Jr.
/s/ MARK J. STOCKSLAGER Principal Accounting Officer June 12, 1998
- ------------------------------------------- (principal accounting officer)
Mark J. Stockslager
/s/ JAMES J. MULLIGAN Director June 12, 1998
- -------------------------------------------
James J. Mulligan
* RONALD J. VANNUKI Director June 12, 1998
- -------------------------------------------
Ronald J. Vannuki
* BERNEE D. L. STROM Director June 12, 1998
- -------------------------------------------
Bernee D. L. Strom
* T. WAYNE HOLT Director June 12, 1998
- -------------------------------------------
T. Wayne Holt
* KAREN B. BRENNER Director June 12, 1998
- -------------------------------------------
Karen B. Brenner
</TABLE>
42
<PAGE> 43
* The undersigned, by signing his name hereto, executes this Report on Form 10-K
for the fiscal year ended March 31, 1998 pursuant to powers of attorney executed
by the above named persons and filed with the Securities and Exchange
Commission.
/s/ CHARLES LINN HASLAM
--------------------------------------
Charles Linn Haslam
Their Attorney-in-Fact
43
<PAGE> 44
INDEX TO EXHIBITS
(3) ARTICLES OF INCORPORATION AND BY-LAWS:
3.1 Amended Articles of Incorporation of KRUG International Corp.
3.2 Code of Regulations of KRUG International Corp., as amended
(incorporated by reference to Exhibit 3.1 of the Corporation's
Report on Form 10-Q for the quarter ended June 30, 1996).
(4) INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS, INCLUDING
INDENTURES:
4.1 Loan Facility dated December 8, 1994 among KRUG International
(UK) Limited, Sowester Limited and National Westminster Bank
(incorporated by reference to Exhibit 4.8 of the Corporation's
Report on Form 10-K for the year ended March 31, 1996).
4.2 Loan Facility dated December 8, 1994 among KRUG International
(UK) Limited, Beldray Limited and National Westminster Bank
(incorporated by reference to Exhibit 4.9 of the Corporation's
Report on Form 10-K for the year ended March 31, 1996).
4.3 Commercial Variable Rate Loan Agreement dated October 2, 1997
among KRUG International (UK) Limited, Bradley International
Holdings Limited and National Westminster Bank.
4.4 Supplemental Agreement to the Loan Facility among KRUG
International (UK) Limited, Sowester Limited and National
Westminster Bank (listed as 4.1 above) dated October 2, 1997.
4.5 Supplemental Agreement to the Loan Facility among KRUG
International (UK) Limited, Beldray Limited and National
Westminster Bank (listed as 4.2 above) dated October 2, 1997.
(10) MATERIAL CONTRACTS:
10.1 1995 Incentive Stock Option Plan (incorporated by reference to
Exhibit 10.3 of the Corporation's Report on Form 10-K for the
year ended March 31, 1996).
10.2 Consulting Agreement between KRUG International Corp. and
Maurice F. Krug dated April 30, 1996 (incorporated by
reference to Exhibit 10.4 of the Corporation's Report on Form
10-K for the year ended March 31, 1996).
10.3 Employment Agreement between KRUG International Corp. and
Charles Linn Haslam dated May 17, 1996 (incorporated by
reference to Exhibit 10.1 of the Corporation's Report on Form
10-Q for the quarter ended June 30, 1996).
10.4 Consulting and Employment Agreement between KRUG International
Corp. and Robert M. Thornton, Jr. dated May 17, 1996 Ground
Equipment, records, tolls, rents, income, proceeds and
products (incorporated by reference to Exhibit 10.2 of the
Corporation's Report on Form 10-Q for the quarter ended June
30, 1996).
10.5 Employment Agreement between KRUG International Corp. and
Thomas W. Kemp dated October 1, 1996 (incorporated by
reference to Exhibit 10.7 of the Corporation's Report on Form
10-K for the year ended March 31, 1997).
<PAGE> 45
10.6 1997 Employee Stock Purchase Plan (incorporated by reference
to Exhibit 10.8 of the Corporation's Report on Form 10-K for
the year ended March 31, 1997).
10.7 Amendment to Employment Agreement between KRUG International
Corp. and Charles Linn Haslam (incorporated by reference to
Exhibit 10.1 of the Corporation's Report on Form 10-Q for the
quarter ended June 30, 1997.
10.8 Amendment to Employment Agreement between KRUG International
Corp. and Robert M Thornton, Jr. (incorporated by reference to
Exhibit 10.1 of the Corporation's Report on Form 10-Q for the
quarter ended June 30, 1997).
10.9 Amended and Restated Stockholder Agreement between Wyle
Laboratories, Inc., KRUG International, Corp., Westminster
Partners L.P. and certain senior managers of Wyle
Laboratories, Inc. dated March 16, 1998 is filed as an Exhibit
to this Report.
10.10 Agreement and Plan of Merger by and among KRUG Life Sciences,
Inc., Technology/Scientific Services, Inc. and Wyle
Laboratories, Inc. dated March 12, 1998 (incorporated by
reference to Exhibit 10.1 of the Registrant's Current Report
on Form 8-K filed March 31, 1998).
10.11 Share Sale and Purchase Agreement between KRUG International
(U.K.), Limited and Blakedew Ninety-Four Limited, dated April
16, 1998 (incorporated by reference to Exhibit 10.1 of
Registrant's Current Report on Form 8-K filed May 1, 1998).
10.12 Deed of Tax Covenant between KRUG International (U.K.),
Limited and Blakedew Ninety-Four Limited, dated April 16, 1998
(incorporated by reference to Exhibit 10.2 of Registrant's
Current Report on Form 8-K filed May 1, 1998).
(21) SUBSIDIARIES:
21.1 List of Subsidiaries.
(23) CONSENTS OF EXPERTS AND COUNSEL:
<PAGE> 46
23.1 Consent of Deloitte & Touche LLP dated June 12, 1998 with
respect to material incorporated by reference into the KRUG
International Corp. Registration Statement on Form S-8 (No.
333-42217) relating to the Corporation's 1997 Employee Stock
Purchase Plan, the Registration Statement on Form S-8 (No.
333-06129) relating to the Corporation's 1995 Incentive Stock
Option Plan and the Registration Statement on Form S-3 (No.
33-88190) relating to the Corporation's Warrants to purchase
Commons Shares.
(24) POWER OF ATTORNEY:
24.1 Power of attorney of any person who has signed this report on
Form 10-K by authorizing another person to sign on his behalf
pursuant to said power of attorney.
(27) FINANCIAL DATA SCHEDULES:
27.1 Financial Data Schedule and Restated Financial Data Schedules
to for the fiscal years ended March 31, 1998, 1997 and 1996
27.9 and the interim fiscal periods for the fiscal years ended
March 31, 1998 and 1997.
<PAGE> 1
EXHIBIT 3.1
AMENDED ARTICLES OF INCORPORATION
- of -
KRUG INTERNATIONAL CORP.
FIRST: The name of the Corporation shall be KRUG International
Corp.
SECOND: The principal office of the Corporation shall be
located in the City of Dayton, Montgomery County, Ohio
THIRD: The purpose or purposes for which the Corporation is
formed are:
A. To engage in the trade or business of research, design,
development and manufacture of semiautomatic and automatic equipment
and components in the electrical, electromechanical and electronic
fields, to consult and perform services related to design application
and integration of units and devices into systems in these fields; to
conduct studies, consult, do research in, make data processing
reduction and analysis of, design and manufacture and perform other
services related to these units, instrumentation, test, calibration,
installation, maintenance, repair, component replacement on military
and commercial flight and space vehicles and devices, the instruments
thereon, the components thereof and the equipment associated therewith.
B. To manufacture, purchase or otherwise acquire, sell, assign
and transfer, exchange or otherwise dispose of, and to invest, trade,
deal in or deal with goods, wares and merchandise and personal property
of every class and description.
C. To purchase or otherwise acquire, construct, hold,
maintain, work, develop, sell, lease, exchange, convey, transfer,
mortgage, pledge, hypothecate, loan money upon, or in any manner
dispose of and deal in, within and without the State of Ohio, wherever
situated, real property of every kind, character and description
whatsoever and any interest therein, and personal or mixed property of
every kind, character and description whatsoever, including the shares
of stock and other securities or obligations of other corporations, and
any franchises, rights, licenses, or privileges necessary, convenient
or appropriate for any of the purposes herein expressed.
D. To enter into, make and perform contracts of every kind of
any lawful purpose, with any person, firm, association, corporation,
municipality, state or government, or any political or other
subdivision of any of the same.
E. To apply for, obtain, purchase, take licenses in respect of
or otherwise acquire, and to hold, own, use, grant, pledge or otherwise
dispose of, and in any manner deal with, any and all inventions,
devices, processes and any improvement and
-1-
<PAGE> 2
modifications thereof; and any and all letters patent of the United
States or of any other country, state, territory, or locality, and all
rights connected therewith or appertaining thereunto; any and all
copyrights granted by the United States or any other country, state,
territory, or locality; and any and all trade-marks, trade names, trade
symbols and other indications of origin and ownership granted by or
recognized under the laws of the United States or of any other country,
state, territory or locality.
F. To purchase or otherwise acquire the whole or any part of
the property, assets, business, goodwill and rights, and to undertake
and assume the whole or any part of the liabilities and obligations, or
any person, firm, association or corporation, and to pay for the same
in cash or in shares of any class or series, or in bonds, debentures,
notes or other obligations of the corporation, or otherwise, to hold or
in any manner to dispose of the whole or any part of the property or
assets so acquired, and to conduct the whole or any part of the
business so acquired, and to exercise all the powers necessary or
convenient in and about the conduct, management and carrying on of any
such business.
G. To do any and all things necessary, convenient, or
expedient for the accomplishment of any of the purposes or the
furtherance of any of the powers hereinbefore set forth either alone or
in association with other corporations, firms or individuals, and in
general to carry on any other business not forbidden by the General
Corporation Law of the State of Ohio.
Each purpose specified in any clause or paragraph contained in
this Article THIRD shall be deemed to be independent of all other purposes
herein specified and shall not be limited or restricted by reference to or
inference from the terms of any other clause or paragraph of these Articles of
Incorporation.
FOURTH: The maximum number of shares which the Corporation is
authorized to have outstanding is 14,000,000 shares which shall be classified as
follows:
2,000,000 Preferred Shares without par value (hereinafter called
"Preferred Shares"); and
12,000,000 Common Shares without par value (hereinafter called "Common
Shares").
SECTION 1. The express terms and provisions of the Preferred
Shares are as follows:
I. Preferred Shares may be issued in series from time to time.
Within the limitations and restrictions set forth in this Article FOURTH, the
Board of Directors is expressly authorized, at one time or from time to time, to
adopt amendments to the Articles of Incorporation in respect of any authorized
and unissued Preferred Shares to fix or alter the division of such shares into
series, the designation and number of shares of each series, the dividend rates,
the date of payment of dividends, the dates from which dividends shall be
-2-
<PAGE> 3
cumulative, redemption rights, redemption prices, liquidation prices, sinking
fund requirements, conversion rights, and restrictions on issuance of shares of
the same series or of any other class or series. The express terms and
provisions of Preferred Shares of different series shall be identical except
that there may be variations in respect of any or all of the particulars
hereinbefore set forth in this subsection I. In case the stated dividends or the
amounts payable on dissolution, liquidation, or sale of assets of the
corporation are not paid in full, all Preferred Shares of all series shall
participate ratably in the payment of dividends, including accumulations, if
any, in proportion to the sums which would be payable thereon if all dividends
thereon were paid in full, and, in any distribution of assets other than by way
of dividends, in proportion to the sums which would be payable on such
distribution if all sums payable thereon to holders of Preferred Shares were
discharged in full.
II. The holders of Preferred Shares shall be entitled to
receive when and as declared out of the surplus of the Corporation, subject to
any limitations prescribed by statute, cash dividends at the respective rates
and on the respective dates fixed by the Board of Directors for the shares of
the several series of Preferred Shares, and no more. Dividends on each Preferred
Share shall be cumulative from the date fixed therefor by the Board of
Directors.
Subject to the provisions of this Article FOURTH, the holders
of all Common Shares shall be entitled to receive such dividends as may from
time to time be declared thereon by the Board of Directors.
III. Upon dissolution, liquidation or sale of all or
substantially all the assets of the Corporation, the holders of Preferred Shares
shall be entitled to receive the following sums, before any payment shall be
made to the holders of Common Shares with respect to payment upon dissolution,
liquidation or sale of assets:
(a) in case of any involuntary dissolution or liquidation or
forced sale of all or substantially all the assets of the Corporation, each
Preferred Share of each series shall be entitled to receive the sum fixed for
such contingency by the Board of Directors in respect of such series, together
with a sum, whether or not earned or declared, equivalent to all accumulated and
unpaid dividends thereon to the date of such payment; or
(b) in case of any voluntary dissolution or liquidation or
voluntary sale of all or substantially all the assets of the Corporation, each
Preferred Share of each series shall be entitled to receive the amount fixed for
such contingency by the Board of Directors in respect of such series prior to
the initial issuance of the first shares or series, together with a sum, whether
or not earned or declared, equivalent to all accumulated and unpaid dividends
thereon to the date of such payment.
After all sums payable on the Preferred Shares as herein provided upon a
particular contingency shall have been paid in full, but not prior thereto, the
Common Shares shall be entitled to payment of all other sums then distributable.
For the purposes of this subsection III, a
-3-
<PAGE> 4
consolidation or merger of the Corporation with or into any other corporation,
or a consolidation or merger of any other corporation, with or into the
Corporation shall not be deemed a dissolution, liquidation, or sale of assets.
IV. The holders of Preferred Shares shall be entitled to one
vote for each Preferred Share held by them respectively.
V. So long as any of the Preferred Shares shall remain
outstanding, no dividend (other than dividends payable in Common Shares) shall
be paid, nor shall any distribution (by purchase, redemption, payment to any
sinking fund or market fund, or otherwise) be made, on any of the Common Shares
unless:
(a) all dividends on all outstanding Preferred Shares shall
have been paid, and full dividends thereon for the then current quarterly
dividend period shall have been declared and a sum sufficient for the payment
thereof set apart therefor; and
(b) the Corporation shall not be in arrears in respect of any
sinking fund obligation in respect of any series of Preferred Shares.
VI. Preferred Shares acquired by the Corporation through the
exercise by the holders thereof of any conversion privilege shall not be
re-issued except as hereinafter provided. Such shares and any other Preferred
Shares acquired by the Corporation otherwise than through the operation of any
sinking fund and not used to reduce the amount of any sinking fund installment
shall, upon compliance with such provisions of law relating to the retirement of
shares as may be applicable, have the status of authorized and unissued
Preferred Shares which are unclassified into any series. Preferred Shares
acquired by the Corporation through the operation of any sinking fund or which
have been used to reduce the amount of any sinking fund installment shall be
canceled and not reissued, and the Corporation shall from time to time take
appropriate corporate action to reduce the authorized number of Preferred Shares
accordingly.
SECTION 2. The express terms and provisions of the Common
Shares are as follows:
I. The rights and preferences of the Common Shares shall be
subject in all respects to the rights and preferences of the Preferred Shares in
the manner and to the extent provided in this Article FOURTH.
II. The Common Shares shall rank junior to the Preferred
Shares with respect to the payment of dividends. Out of the assets of the
Corporation available for dividends remaining after there shall have been paid
or declared and set apart for payment full dividends on the Preferred Shares,
and subject to the restrictions or limitations contained in the express terms
and provisions of any series of Preferred Shares with respect to the payment of
dividends,
-4-
<PAGE> 5
dividends may be declared and paid upon the Common Shares, but only when and as
determined by the Board of Directors.
III. The Common Shares shall rank junior to the Preferred
Shares with respect to payment upon dissolution, liquidation or sale of assets
of the Corporation. Upon the dissolution, liquidation or sale of all or
substantially all the assets of the Corporation, after there shall have been
paid to or set apart for holders of the Preferred Shares the full preferential
amounts to which they are entitled, the holders of Common Shares shall be
entitled to receive pro rata all of the remaining assets of the Corporation
available for distribution to its shareholders.
IV. The holders of Common Shares shall be entitled to one vote
for each Common Share held by them respectively.
SECTION 3. No shareholder of the Corporation shall have the
right to vote cumulativly in the election of directors of the Corporation.
FIFTH: When authorized by the affirmative vote of the Board of
Directors, without the action or approval of the shareholders of this
Corporation, this Corporation may purchase, or contract to purchase, at any time
and from time to time, shares of any class issued by this Corporation, voting
trust certificates for shares, bonds, debentures, notes, scrip, warrants,
obligations, evidences of indebtedness or any other securities of this
Corporation, for such prices and upon and subject to such terms and conditions
as the Board of Directors may determine, provided that no such purchase shall be
made, pursuant to any such contract or otherwise, if after such purchase the
assets of this Corporation would be less than its liabilities plus stated
capital or if it is insolvent as defined in the General Corporation Law of Ohio
or if there is reasonable ground to believe that by such purchase it would be
rendered insolvent.
SIXTH: No shareholder of this Corporation shall be entitled,
as such, as a matter of right to subscribe for or purchase shares of any class
now or hereafter authorized, or to purchase or subscribe for securities
convertible into or exchangeable for shares of the Corporation or to which shall
be attached or appertain any warrants or rights entitling the holder thereof to
subscribe for or purchase shares except such rights of subscription or purchase,
if any, at such price or prices and upon such terms and conditions as the Board
of Directors, in its discretion, from time to time may determine.
SEVENTH: This Corporation may amend its Articles of
Incorporation in any respect in the manner provided by law, and may make
amendments substantially changing the purposes for which the Corporation is
formed.
EIGHTH: The Board of Directors is hereby authorized to fix and
determine and to vary the amount of working capital of the Corporation, to
determine to the extent permitted by the General Corporation Law of Ohio whether
any, and, if any, what part of its
-5-
<PAGE> 6
surplus, however created or arising, shall be used or disposed of or declared in
dividends or paid to shareholders.
NINTH: Every statute of the State of Ohio hereafter enacted
whereby the rights or privileges of shareholders of a corporation organized
under the General Corporation Law of said State are increased, diminished or in
any way affected, or whereby effect is given to any action authorized, ratified
or approved, by less than all the Shareholders of any such corporation, shall
apply to this Corporation and shall be binding upon every shareholder thereof to
the same extent as if such statute had been in force at the date of the filing
of these Amended Articles of Incorporation.
TENTH: A director of this Corporation shall not be
disqualified by his office from dealing or contracting with the Corporation as a
vendor, purchaser, employee, agent or otherwise; nor shall any transaction or
contract or act of this Corporation be void or voidable or in any way affected
or invalidated by reason of the fact that any director or any firm of which any
director is a member or any corporation of which any director is a shareholder
or director is in any way interested in such transaction or contract or act,
provided the fact that such director or such firm or such corporation is so
interested shall be disclosed or shall be known to the Board of Directors or
such members thereof as shall be present at any meeting of the Board of
Directors at which action upon any such contract or transaction or act shall be
taken; nor shall any such director be accountable or responsible to the
Corporation for or in respect of any such transaction or contract or act of this
Corporation or for any gains or profits realized by him by reason of the fact
that he or any firm of which he is a member or any corporation of which he is a
shareholder or director is interested in such transaction or contract or act;
and any such director may be counted in determining the existence of a quorum at
any meeting of the Board of Directors of the Corporation which shall authorize
or take action in respect to any such contract or transaction or act, and may
vote thereat to authorize, ratify or approve any such contract or transaction or
act, with like force and effect as if he or any firm of which he is a member or
any corporation of which he is a shareholder or director were not interested in
such transaction or contract or act.
The Board of Directors shall have the power to fix
compensation of officers or directors or both and a director may be counted in
determining the existence of a quorum at any meeting of the Board of Directors
which shall take such action and may vote thereat in favor or against such
action whether or not such director may be interested in the action so taken.
ELEVENTH: These Amended Articles of Incorporation supersede
the existing Articles of Incorporation and all amendments thereto.
-6-
<PAGE> 1
EXHIBIT 4.3
COMMERCIAL VARIABLE RATE LOAN
AGREEMENT
We, NATIONAL WESTMINSTER BANK PLC and any person to whom we transfer our rights
or duties under this agreement agree to offer you a loan under the terms and
conditions set out below and on the attached appendix. The first part of the
appendix explains some of the words and phrases used in this agreement.
1 DATE OF OFFER:
2(a) YOUR NAME: Bradley International Holdings Limited (Company
No. 3407901) whose registered office is at PO Box
20, Beldray Road, Bilston, West Midlands WV14 7NF.
2(b) YOUR PARENT: Krug International (UK) Limited (Company No.
0516171) whose registered office is at c/o Touche
Ross & 6 Columbia Centre Market Street Brocknell
Berkshire RG 12 1 Pt.
3 LENDING BRANCH: South West Surrey Corporate Business Centre, PO
Box 1, 1 Stoke Road, Guildford, Surrey GUI 3ZR.
4 AMOUNT: Up to L.2,550,000 (two million five hundred and
fifty thousand pounds).
5 PURPOSE OF THE LOAN: To fund the purchase of the whole of the issued
share capital of Klippan Limited and associated
costs.
6 PERIOD OF THE LOAN: To 31 March 2003.
7 INTEREST RATE: The rate of interest for each Fixture Period shall be
the aggregate (rounded up to the nearest one-sixteenth per cent) of:
(i) 1.25 per cent per annum;
(ii) LIBOR for such Fixture Period for a corresponding amount on
the first Business Day of such Fixture Period; and
(iii) MLA Costs.
(Please see paragraph 4 of the appendix.)
8 FEE: L.32,750 (thirty two thousand seven hundred and fifty pounds) due
on the date on which you draw the Loan to include our security fees
(but to exclude any out of pocket expenses or expenses incurred in
relation to legal due diligence) in accordance with the terms of this
agreement.
1
<PAGE> 2
COMMERCIAL VARIABLE RATE LOAN
9 DRAWING THE LOAN: You must draw the Loan in full in one amount. Any
amount not drawn within 24 hours of the Date of Offer will be cancelled.
10 REPAYMENT: You must have repaid the Loan in full on the last day of the
period shown in tern 6 of this agreement.
Subject always to our rights under paragraph 12 of the appendix, you
will repay the Loan by twenty equal instalments of principal in such
amount as we shall specify, payable every quarter starting on 30 June
1998. (The payment of the final instalment shall be paid together with
all other amounts then outstanding under the Loan).
From the date on which a drawing is first made under the Loan until such
date as you commence your instalments of principal hereunder, you will
pay interest on each Interest Payment Date. When you start making your
repayment instalment we will add on any interest which has accrued but
has not been paid since the last date on which you made an interest
payment.
11 SECURITY:
(a) mortgage debentures by your Parent, Hago Products Limited,
Sowester Limited and Beldray Limited;
(b) first legal mortgage over the freehold premises of Beldray
Limited at Etruria Way, Mount Pleasant, Bilston, West Midlands;
(c) first legal mortgage over Sowester's freehold land and warehouse
at Stinsford Road, Poole;
(d) mortgage debentures by you and Klippan Limited;
(e) a composite, cross guarantee by you, your Parent, Hago Products
Limited, Sowester Limited, Beldray Limited and Klippan
Limited;
(f) letters of negative pledge from each of the Overseas
Subsidiaries except Akba Barnsakert and Oy Klipper AB (except)
in respect of the assets financed by Hire Purchase or leasing to
be agreed with us on an annual basis);
together with any additional documentation in respect of the above
security as we may reasonably require and all in form and substance
satisfactory to us.*
(Items (a), (b) and (c) being the existing security granted in our
favour prior to the Agreement Date and items (d), (e) and (f) above the
"new security".)
12 FINANCIAL AGREEMENTS:
- ---------
* You undertake to prove that within a reasonable time after Oy Klippan AB
becomes a wholly-owned subsidiary of Klippan Limited, Oy Klippan AB will
execute a negative pledge in favour of us in a similar form to the negative
pledge executed in our favour by Klippan CmbH and Klippan SAKL.
2
<PAGE> 3
COMMERCIAL VARIABLE RATE LOAN
You agree to the following:
Please see paragraph 2 of the appendix for an explanation of the words
and phrases used below.
(a) You will not allow TANGIBLE NET WORTH to be less than
L.9,000,000.
(b) You will not allow TOTAL BORROWING to be more than 75% of
TANGIBLE NET WORTH.
(c) You will, not allow CASH GENERATED during each period specified
in Column A below to be less than the percentage of DEBT SERVICE
COSTS specified in Column B below:
<TABLE>
<CAPTION>
COLUMN A COLUMN B
-------- --------
(Minimum Level)
<S> <C>
(Agreement date to 31 March 1998) (Not tested)
1 April 1.998 to 31 March 1999 110%
1 April 1,51,99 to 31 Much 2000
and for each successive period of
12 months, thereafter 120%
</TABLE>
(d) You will not allow PBIT during each period specified in Column A
below to be less than the percentage of INTEREST PAID specified
in Column B below:
<TABLE>
<CAPTION>
COLUMN A COLUMN B
-------- --------
(Minimum Level)
<S> <C>
Financial year to 31 March 1998 350%
1 April 1998 to 31 March 1999 and
for each successive period of 12
months thereafter 375%
</TABLE>
(e) You and your Parent will not and each of you will procure that
no other member of the Group will, without our prior written
consent, (such consent not to be unreasonably withheld) either
create, extend or increase any security interest on the whole or
any part of your or the Group's undertaking, property or assets
(including uncalled capital) whether present or future except
for security interests arising in the ordinary course of
trading. Security interest includes (without limitation) liens,
pledges, charges, mortgages or other encumbrances.
3
<PAGE> 4
COMMERCIAL VARIABLE RATE LOAN
(f) You will provide us with such financial and other information
relating to you or to the Group as we may reasonably require
including (without limitation) copies of:
(i) the consolidated audited accounts of the Group not later
than 120 days after the end of the financial year to
which they relate;
(ii) management information not later than 21 days after the
end of the quarter to which it relates (to include
profit and loss and balance sheet information on a
consolidated basis and for individual members of the
Group) together with calculations in respect of
financial covenants (where appropriate);
(iii) published quarterly and annual accounts relating to Krug
International Corp. not later than 60 and 90 days
respectively after the end of the quarter or financial
year to which they relate;
(iv) management accounts in respect of you and your
Subsidiary Undertakings not later than 21 days after the
end of each month (to include profit and loss and
balance sheet information for individual operating
companies with supporting management commentary
and updated capital expenditure budgets as
appropriate); and
(v) annual budgets and projections for the forthcoming 12
months (to include profit and loss, balance sheet and
cash flow forecasts) within 28 days of the end of the
financial year, for individual members of the Group
and on a consolidated basis.
In order to verify whether you are complying with these covenants, we
will refer to the consolidated, audited, interim or management accounts
of your Parent as we think appropriate. The financial covenant set out
in paragraph (c) shall be tested annually. that set out in paragraph (d)
shall be tested against interim and annual accounts, and those set out
in paragraphs (a) and (b) shall be tested on an ongoing basis.
13 OVERDUE PAYMENTS:
If you do not make any payment under this agreement on the date it is
due, then, without prejudice to our other rights, we will charge,
interest on the overdue amount from the date it was due to the date upon
which we receive payment (as well after as before judgement). This will
be calculated (and compounded in accordance with our normal practice) on
the basis of a year of 365 days and the actual number of days elapsed.
You will pay interest to us at a rate which is equal to the sum of:
4
<PAGE> 5
COMMERCIAL VARIABLE RATE LOAN
5% per year; and the costs to us of funding such overdue amount during
such period (as we shall determine in our discretion) expressed as an
annual percentage rate.
Any late payments may be debited to a separate account.
14 EARLY REPAYMENT:
Paragraph 7 of the appendix gives details of how you may ask to repay
the Loan before the specified repayment dates.
15 ENVIRONMENTAL LIABILITIES
Paragraph 21 of the appendix will apply.
APPENDIX
1 AGREEMENT
This appendix forms part of the agreement between us.
If we refer to a paragraph, this will mean a paragraph of this appendix.
If we refer to a term this will mean a term of the agreement.
2 MEANINGS OF WORDS AND PHRASES USED IN THIS AGREEMENT:
"AGREEMENT DATE" means the date on which our offer is accepted in the
way set out in paragraph 3 of the appendix.
"BUSINESS DAY" means a day on which banks in general are open in the
City of London for the transaction of business of the nature set out in
this agreement.
"EVENT OF DEFAULT" means any event specified in paragraph 12 of the
appendix.
"FACILITY ONE" means a facility letter dated 8 December 1994 from us to
your Parent and Beldray Limited offering a facility of L1,500,000 duly
accepted by the addressees on 7 March 1995.
"FACILITY TWO" means a facility letter dated 8 December 1994 from us to
your Parent and Sowester Limited offering a facility of L2,500.000 duly
accepted by the addressees on 7 March 1995.
5
<PAGE> 6
COMMERCIAL VARIABLE RATE LOAN
"FINANCE DOCUMENT" means this agreement, any Security, in the case of
any Group member party to Facility One and/or Two, Facilities One
and/or Two (as appropriate) and the side letters to them and any notice
of drawing and any other related document.
"FIXTURE PERIOD" means a period fixed for the calculation of the
applicable interest rate in accordance with paragraph 4.
"GROUP" means you, your Parent and any other Subsidiary Undertakings
from time to time of each of you taken as a whole (and, save where the
context does not admit, any of them individually); (if there are no
Subsidiary Undertakings for the time being, references to the Group
shall be taken to be references to you and the word consolidated in
relation to any accounts or other financial matters shall be ignored.)
"INTEREST PAYMENT DATE" means the last day of each Fixture Period (and
if any Fixture Period is for longer than six months, the day falling six
months after the first day of such Fixture Period).
"LIBOR" means the rate at which sterling deposits are offered to us in
the London Inter-Bank Market.
"LOAN" means the loan facility which we have agreed to provide under the
terms and subject to the, conditions of this agreement and, where
necessary, it will mean all amounts owed under this agreement.
"MLA COSTS" means such costs, if any, as we shall determine to be
necessary to compensate us for complying with any reserve asset and/or
any special deposit or liquidity requirements or other requirements
having the same or similar purpose of the Bank of England or other UK
Government Authority, whether or not such requirements have the force of
law.
"OFFER DATE" is the date shown in term 1 of the agreement. This is the
date on which we make the written offer of the Loan.
"OVERSEAS SUBSIDIARIES" means OY Klippan AB, AKTA Barnsakerhet AB,
Klippan GmbH, Klippan, SARL.
"SECURITY" means, the security shown in term 11 of the agreement.
"SUBSIDIARY UNDERTAKING" means a subsidiary undertaking (as defined by
S.258 of the Companies Act 1985).
"TRANSACTION DOCUMENTS" means the sale and purchase agreement relating
to the acquisition of whole of the issued share capital of Klippan
Limited and any other related document.
6
<PAGE> 7
COMMERCIAL VARIABLE RATE LOAN
The following definitions apply to the financial agreements in term 12
of the agreement:
"BORROWINGS" means at any time the aggregate (without double counting)
of the following
(i) the outstanding principal amount of any moneys borrowed by any
member of the Group and any outstanding overdraft debit
balance of any member of the Group, including for the
avoidance of doubt, the outstanding principal amount of any
hire purchase obligations;
(ii) the outstanding principal amount of any debenture, bond,
note, loan, stock or other security of any member of the
Group;
(iii) the outstanding principal amount of the acceptance
under any acceptance credit opened by a bank or other
financial institution in favour of any member of the Group;
(iv) the outstanding principal amount of all moneys owing to a member
of the Group in connection with the sale or discounting of
receivables (otherwise than on a non-recourse basis);
(v) the outstanding principal amount of any indebtedness of any
member of the Group arising from any advance or deferred payment
agreements arranged primarily as a method of raising finance or
financing the acquisition of the asset,
(vi) the capitalised element of indebtedness of any member of in
respect of a finance lease entered into primarily as a method of
raising finance or financing the acquisition of the asset
leased;
(vii) the outstanding principal amount of any indebtedness of any
person of a type referred to in sub-paragraphs (i) - (vi) above
which is the subject of a guarantee, indemnity and/or other form
of assurance against financial loss by any member of the Group.
"CAPITAL EXPENDITURE" means, in respect of any financial period, the
aggregate expenditure of the Group on the purchase of fixed assets (as
determined in accordance with generally accepted United Kingdom
accounting principles (consistently applied)
"CASH GENERATED" means, in relation to the Group, the aggregate of:
(i) PBIT; PLUS
(ii) the aggregate net value of non cash movements (including, but
not
7
<PAGE> 8
COMMERCIAL VARIABLE RATE LOAN
limited to, depreciation expense, other provisions and write
backs of a non-cash nature); plus
(iii) the aggregate value of any decrease in net working assets; PLUS
(iv) the proceeds received by any member of the Group from the issue
of new ordinary (or non-redeemable) equity capital;
LESS
(i) tax paid; PLUS
(ii) the aggregate value of any increase in net working assets; PLUS
(iii) an amount equal to the Capital Expenditure by the Group (but not
including the capital amounts of such expenditure funded by hire
purchase or finance leases) during such period less an amount
equal to the net proceeds of disposal of fixed assets during
such period; PLUS
(iv) investments, including acquisitions (and investments in/loans to
Krug International Corp. other than of a non-cash nature); PLUS
(v) dividends paid on shares of your Parent (other than redeemable
shares) or in respect of any minority interests; PLUS
(vi) any extraordinary items.
"DEBT SERVICE COSTS" (OR "BORROWING COSTS") means, in respect of any
financial period:
(i) all interest, commission, periodic fees, and other financial
charges payable by any member of the Group during such period in
relation to Borrowings (including the interest element payable
under hire purchase contracts and finance leases); PLUS
(ii) the aggregate amount of all dividend payments on ordinary and
redeemable preference shares (and other redeemable shares) paid;
PLUS
(iii) the aggregate amount of all repayments of Borrowings made by any
member of the Group or due from any member of the Group
(including redemption of any redeemable preference shares)
during such period.
"INTEREST PAID" means all interest, acceptance commission and all other
continuing, regular or periodic costs, charges and expenses in the
nature of interest (whether paid, payable, or capitalised) including,
for the avoidance of doubt, finance charges including, for the avoidance
of doubt, finance charges
8
<PAGE> 9
COMMERCIAL VARIABLE RATE LOAN
relating to finance leases and hire purchase obligations.
"PBIT" means, in respect of any period, the profits of the Group for
that period before the deduction of Interest Paid and corporation tax
on the income of the Group payable in respect of any financial year:
(i) excluding extraordinary items under FRS 3;
(ii) excluding interest of whatever nature received by the Group;
(iii) after deduction of any management charges levied by Krug
International Corp. or its subsidiaries or affiliates;
"TANGIBLE NET WORTH" means at any time the aggregate of:
(i) the amount paid up or credited as paid up on the issued share
capital of the Parent; and
(ii) the amount standing to the credit of the consolidated capital
and revenue reserves of the Group
based on the Balance Sheet but adjusted by:
(1) adding any amount standing to the credit of the profit and loss
account for the Group for the period ending on the date of the
Balance Sheet, to the extent not included in sub-paragraph (h)
above and to the extent the amount is not attributable to any
dividend or other distribution declared, recommended or made by
any member of the Group;
(2) deducting any amount standing to the debit of the profit and
loss account for the Group the period ending on the date of the
Balance Sheet;
(3) deducting any amount attributable to goodwill or any other
intangible asset;
(4) excluding any amount attributable to deferred taxation;
(5) excluding any amount attributable to minority interests; and
(6) deducting amounts attributable to the investment in Krug
International Corp. or owed to the Group by Krug International
Corp. by way of inter company Loan or other Borrowing
instrument.
3 AVAILABILITY OF LOAN
9
<PAGE> 10
COMMERCIAL VARIABLE RATE LOAN
From the Offer Date shown in term 1 of the agreement you will have 30 days in
which you can draw the Loan. However, you can only accept this offer and draw
the Loan if we have received the following items from you and are satisfied with
them:
(a) A copy of this agreement with the acceptance form signed on
your behalf and on behalf of your Parent.
(b) A certified copy of a resolution of your board of directors
showing that it:
* accepts the terms and conditions of the Loan;
* agrees to provide the new security to which it is party
set out in term 11 of the agreement;
* authorises a person or persons to sign/execute each such
document and take such other action on your behalf as
may be necessary for the purpose of the agreement.
(c) A copy of your Memorandum and Articles of Association (including
copies of all amending resolutions) certified in each case by
your secretary or a director as being up to date.
(d) The new security referred to in term 11 of the agreement duly
executed by the panics to it, together with a resolution of the
board of directors (in such form as we shall require) and a copy
of the Memorandum and Articles of Association (including copies
of all amending resolutions) certified in each case as being up
to date by its secretary or one of its directors, in respect of
each security provider (other than the Borrower).
(e) The fee referred to in term 8 of the agreement.
(f) A final due diligence report addressed to us by independent
accountants approved by us.
(g) Confirmation from our Solicitors that the Transaction Documents,
are, in all respects, satisfactory.
(h) Confirmation from our Solicitors that the statutory
declarations, auditors' reports and other documentation
necessary or desirable to ensure that the arrangements
evidenced by this agreement, the Security and the Transaction
Documents will not contravene Sections 151-158 of the Companies
Act 1985, are, in all respects satisfactory,
(i) Certified copies of each of the documents referred to in
paragraph (g)
10
<PAGE> 11
COMMERCIAL VARIABLE RATE LOAN
and (h) above duly signed or executed (as appropriate) by each
of the parties to them.
(j) Customer references as proposed in the draft due diligence
report.
(k) a copy of:
(i) a side letter from us to Beldray Limited and your Parent
amending the terms of Facility One; and
(ii) a side letter from us to your Parent and Sowester
Limited amending the terms of Facility Two;
with the acceptance signed on behalf of each of the addressees
in the letters.
(1) Evidence of the discharge of any security interest over any of
your property held by each company in the Group (except for such
security granted in our favour or as disclosed to and approved
by us). (If we, in our absolute discretion, permit drawdown
before this condition is satisfied, you will have 28 days in
which to satisfy this condition),
You must give us one day's notice of your intention to draw the Loan.
These days must be Business Days. We will credit your current account
with the amount of the Loan.
4. INTEREST
The rate of interest shall be fixed for successive period of 3, 6 or 12
months as selected by you in writing not later than 11:00 am on the
first day of the relevant Fixture Period, or such other Fixture Periods
as may be necessary to ensure that any repayment installment takes place
at the end of the Fixture Period (or, exceptionally, such other Fixture
Period as the Bank may agree). If any Fixture Period would end on a day
which is not a Business Day it shall be extended to the next succeeding
Business Day if you fail to select a Fixture Period, the period of 3
months (or such other period necessary as aforesaid) shall apply,
Interest, calculated on the basis of a year of 365 days and the actual
number of days elapsed, will be paid in arrears on each Interest Payment
Date. You authorise us (but without any obligation on us to do so, and
without prejudice to our rights in respect thereof) to debit any such
interest to a current account in your name at the Lending Branch on each
Interest Payment Date.
If at any time during the existence of the Loan any change takes place
in the operation or structure of the London Inter-Bank Market for
sterling deposits so as to make such deposits no longer available in the
said Market or so that the offered rate available in the said Market or
so that the offered rate
11
<PAGE> 12
COMMERCIAL VARIABLE RATE LOAN
of interest for such deposits is on a basis which is, in our opinion
unreasonable for the calculation of the rate of interest payable on the
Loan, then the provisions hereunder shall apply:
(a) We shall within a reasonable period notify you that such change
has taken place.
(b) On the next Interest Payment Date immediately following such
change we, in our absolute discretion, shall apply a rate of
interest to the Loan for a period of three months for such
interest payment date ("the negotiating period") but so that the
revised rate of interest shall not exceed the aggregate (rounded
up to the nearest one-sixteenth per cent) of:
(i) 25 per cent per annum;
(ii) the rate at which we shall be able at such time to
purchase sterling funds of a comparable amount and
tenor; and
(iii) the MLA Costs.
(c) During the negotiation period you and we shall by negotiation
attempt to agree a new basis for the calculation of the rate of
interest applicable to the Loan and if so agreed a rate
calculated on the said new basis shall apply from the first day
following the end of the negotiated period.
(d) In the event that we are not being able within the negotiating
period to agree on a basis for the calculation of the
interest rate, then all moneys outstanding advanced under the
Loan, together with all interest accrued due thereon (if any)
shall become repayable on the first day following the end of the
negotiated period during which agreement has not been reached
and the Loan shall be cancelled.
5 SECURITY
You must Provide to us (if not already provided) the security shown in
term 11 of the agreement. All security must be a continuing security for
the discharge on demand of all indebtedness and other liabilities to us
from time to time.
You and your Parent will forthwith notify us of any company which
becomes or ceases to be a Subsidiary Undertaking of either of you after
the Agreement Date and shall procure that such Subsidiary Undertaking
grants such security in our favour as we shall specify.
6 FEES AND COSTS
We have the right to debit your current account with the fees set out in
terms 8 and 14 of the agreement and any other costs and any other
expenses payable by you under
12
<PAGE> 13
COMMERCIAL VARIABLE RATE LOAN
this agreement.
7 EARLY REPAYMENT
We agree to let you repay the Loan early if you ask us in writing. You
must give us five days notice in writing to do this. This notice shall
be irrevocable and these days must be Business Days. If you repay the
Loan early, the prepayment will be on such terms as we may require
including (without limitation) you indemnifying us against any funding
or other costs, losses, expenses or liabilities (including loss of
profit) sustained or incurred by us as a result of such prepayment and
in the event of a Fixture Period being broken by any prepayment, you
will pay to us an additional amount calculated by reference to
prevailing London Inter-Bank Market rates of interest, to compensate us
for the loss (if any) we may incur in replacing the prepaid funds in the
Market for the remainder of the relative Fixture Period.
A certificate by one of our officers as to any of the amounts due from
you under this paragraph shall, save for manifest error, be conclusive
evidence (and admissible as such) against and binding on you.
You cannot re-borrow any amount you prepaid.
8 LIABILITY
If you are more than one person then the expression "you" shall mean all
of such persons and (save where the context does not so admit) any of
them and the obligation of those persons shall be joint and several.
Each such person irrevocably appoints each other person as his agent for
the service of any demand or notice under this agreement.
You shall indemnify us on demand against any loss or expense (including,
but not limited to loss of margin or any other loss or expense sustained
or incurred by us in liquidating or employing deposits acquired or
contracted for) suffered by us as a result of a drawing not being made
after you have given notice to us of your intention to draw the Loan for
any reason (except arising as a result of any failure on our part) or as
a result of your failure to make payment on the due date of any sum due
under the Finance Documents.
9 CURRENT ACCOUNTS
You agree to maintain a current account with us throughout the period of
the Loan.
10 PAYMENTS
WE MAY TRANSFER AMOUNTS FROM YOUR CURRENT ACCOUNT TO MEET THE REPAYMENTS
SET OUT IN TERM 10 OF THE AGREEMENT.
13
<PAGE> 14
COMMERCIAL VARIABLE RATE LOAN
We may use any repayment instalment (including instalments of
principal and interest) or amount prepaid (with our consent) or any
part of any such payment to:
* reduce the amount of principal outstanding on the Loan.
* pay interest accrued on the Loan.
* discharge any other payment due by you to us.
You must make all payments under this agreement in full in pounds
sterling without any deduction or withholding (whether in respect of
set-off, counterclaim, duties, taxes, charges or otherwise howsoever).
If you are compelled by law to make any deduction or withholding, you
will promptly pay to us such additional amounts as will make the net
amount received by us equal to the full amount payable by you had there
been no deduction or withholding.
If at any time we receive any payment by or on behalf of you, your
Parent or any other member of the Group (including any receipt by us as
a result of enforcement of this agreement or any of the Security) other
than in the appropriate payment currency (the "Appropriate Payment
Currency") then such a payment shall take effect as the payment to us of
the amount in the Appropriate Payment Currency which we are able to
purchase (after deduction of any relevant costs) with the amount of the
payment so received in accordance with our usual practice.
To the extent that any payment to us under any judgement or court order
in relation to this agreement or the Security is in a currency other
than the Appropriate Payment Currency and on actual conversion into the
Appropriate Payment Currency (after deduction of any relevant costs)
falls short of the relevant liability expressed in the Appropriate
Payment Currency, you as a separate and independent obligation will
indemnify us against such a shortfall and will pay interest on such a
shortfall from the date of such payment to the date the shortfall is
paid. Such interest will be calculated under term 13 of this agreement
as if the shortfall were an overdue amount.
11 SET OFF
We shall be entitled to set-off against any of your liabilities to us
under this agreement (whether present, future, actual or contingent) any
of your credit balances on any of your accounts with us or in your name.
We do not have to give you any prior notice to do this.
12 DEFAULT
If any of the following events occur, we may, by giving you written
notice, cancel our outstanding commitments to you (including the
availability of the Loan if you have not drawn it) and demand immediate
repayment of your indebtedness to us and
14
<PAGE> 15
COMMERCIAL VARIABLE RATE LOAN
exercise our rights under any Security.
(a) If any member of the Group breaches any term or condition
(including any covenant) of any Finance Document to which it is
which a party.
(b) If any member of the Group does not make any payment on the date
it is due under any Finance Documents or otherwise to us or any
other member of the National Westminster Group and whether by
way of principal, interest or otherwise when such default
extends two days beyond the due date for such payment.
(c) If you do not use the Loan for the purpose set out in term 5 of
the agreement.
(d) If the Security or any part of the Security shall cease to be
fully enforceable in accordance with its terms, the continuing
nature of any Security is determined (whether such determination
be by actual or constructive notice or be deemed to have
occurred) or any undertaking provided in the Security or any
part of the Security shall be breached or any member of the
Group does anything evidencing an intention to repudiate, cancel
or terminate any Finance Document.
(e) If any member of the Group sells or disposes of any asset
subject to a fixed security interest created by the Security
listed in term 11 of the agreement or it ceases to be in such
member's sole possession.
(f) If your current account becomes overdrawn after the debiting of
any payment due from you under the Loan or it becomes overdrawn
in excess of any limit agreed with us and you do not offer
payment in cash to us when we inform you of this.
(g) If any representation, warranty or statement made to in
connection with the Loan or any Finance Documents is breached or
is false or if you fail, your Parent or any member of the Group
fails to tell us anything which in our opinion is material to
the Loan.
(h) If you or any member of the Group makes any default in the
performance of any other agreement for borrowed money whether
with us or any other lender whereby the due date of repayment
thereunder is rendered capable of acceleration; or
If any of our indebtedness or the indebtedness in respect of
borrowed money of any member of the Group becomes or is
declared by the holder or the lender thereof to be due and
payable prior to its stated maturity or such indebtedness is not
repaid in full at its stated maturity; or
If your indebtedness or the indebtedness in respect of borrowed
monies of any member of the Group is repayable on demand and is
not repaid in full
15
<PAGE> 16
COMMERCIAL VARIABLE RATE LOAN
immediately upon demand being made or if any guarantee or
indemnity given by any giver of security in connection with any
of your liabilities to us or the liabilities of any member of
the Group to us or any other lender is not honoured when due and
called upon.
(i) If a petition is presented or a resolution passed for your
winding up or that of any member of the Group or a petition is
presented for an administration order to be made in relation to
you or any member of the Group; or Your directors or the
directors of any member of the Group make a proposal for a
voluntary arrangement with your or its creditors; or You are
unable to pay your debts within the meaning of Section 123 of
the Insolvency Act 1986 or any member of the Group is unable to
pay its debts within the meaning of such section or an
encumbrancer takes possession, of or a receiver, an
administrator, an administrative receiver, trustee or similar
officer is appointed over any of, your assets or over the assets
of any member of the Group.
(j) If there shall occur in our opinion a material effective change
of control (as defined by Section 840 of the Income and
Corporation Taxes Act 1988) of any member of the Group.
(k) If there has occurred any change which in our reasonable
opinion is a material adverse change in your business, assets or
financial condition or in the business, assets or financial
condition of the Group or any member of the Group which, in our
reasonable opinion, may affect your ability or the ability of
any member of the Group to comply with your or its obligations
under any Finance Document.
(1) If any judgement, distress, warrant of attachment, writ of
execution or similar process is issued, levied or enforced upon
any of your assets or the assets of any member of the Group or
if any asset held by the Bank as security for the Loan is
charged or becomes encumbered elsewhere.
(m) If you or any member of the Group ceases or threatens to cease
to carry on its business or sells, transfers or otherwise
disposes of in any one transaction or series of related
transactions any substantial part of its assets.
(n) If anything analogous to or having a substantially similar
effect to any of the events specified in paragraphs (i) or (1)
occurs under the laws of any applicable jurisdiction.
13 DELAY IN EXERCISING OUR RIGHTS
No failure or delay by us in giving any notice or exercising any of our
rights powers or privileges under this agreement this should not be
construed as a waiver of any of
16
<PAGE> 17
COMMERCIAL VARIABLE RATE LOAN
our rights nor shall any single or partial exercise of any right, power
or privilege preclude any other or further exercise thereof or of any
other the right, power or privilege. The rights and remedies provided in
this agreement are cumulative and not exclusive of any provided by law.
14 DEMANDS AND NOTICES
Any demand or notice to you will be made in writing and be signed by one
of our officers and served either by personal delivery on you at any
place or by post addressed to you at your place of business last known
to us. Service by post on you shall be deemed to be effective on the
next Business Day after the date of posting even if it is returned
undelivered. Any notice to us under this agreement must be made in
writing and signed by a duly authorised on your behalf. It must be
delivered by hand or by post to the lending branch specified in term 3
of the agreement.
15 COSTS AND EXPENSES
You will pay all costs, charges and expenses (including, without
limitation, all legal and other professional fees) arising in connection
with the Loan and the Security including the negotiation and preparation
of this agreement, the Security and any supporting documentation and in
connection with any confirmation to be given to us by our Solicitors
under this agreement, and all costs, charges and expenses arising in
connection with the preservation and/or enforcement of our rights under
this agreement or under the Security and will indemnify us for any and
all losses, costs, and expenses occasioned by the occurrence of an Event
of Default.
16 INCREASED COSTS AND ILLEGALITY
(a) If we determine in our sole opinion that as a result of any law,
regulation, directive or official request (whether or not having
the force of law) ("Requirement") or compliance by us with any
Requirement (including compliance by us with any change in any
Requirement or change in the interpretation of any Requirement)
the cost to us of funding, maintaining or making available the
Loan (or any undrawn amount of the Loan) is increased or the
effective return to us on the Loan is reduced then you shall pay
to us on demand such sum as may be certified to you by us as
shall compensate us for such increased cost or such reduction.
(b) If the effect of the introduction of or any change in applicable
law or directive or the interpretation of such law or directive
is to make or purport to make the Loan unlawful then our
obligations under this agreement shall cease and you will on
demand pay to us all amounts outstanding under the Loan.
17
<PAGE> 18
COMMERCIAL VARIABLE RATE LOAN
17 GENERAL POINTS
(a) If at any time any one or more of the provisions in this
agreement is or becomes invalid, illegal or unenforceable in any
respect, the validity, legality or enforceability of the
remaining provisions of this agreement shall not in any way be
affected or impaired.
(b) Unless we expressly agree to do so in writing we do not hold
ourselves out as providing advice on or considering the general
suitability of this Loan for your particular circumstances
(including tax circumstances) and neither we nor our employees
shall be liable for any indications given as to such
suitability. We make no warranties or representations about the
advisability of any underlying transaction entered into by you
or any other member of the Group. Each member of the Group
should obtain independent professional advice on such matters,
and upon any Security required by us.
(c) This Agreement is governed by the laws of England.
(d) All expressions in this letter bearing a plural meaning shall
(where the context so admits) also bear the singular meaning
and vice versa.
(e) All references in this letter to any statutory provision shall
be deemed to include any statutory modification or re-enactment
of such provision.
(f) Any document or agreement (including this agreement) shall be
deemed to include references to those documents as amended,
supplemented, substituted, varied or replaced from time to time.
(g) "YOU" means Bradley International Holdings Limited and "WE" and
"US" means National Westminster Bank Plc.
18 REPRESENTATIONS AND WARRANTIES
You and your Parent each represent and warrant that each of you have
full power to accept and be bound by the terms and conditions set out in
this agreement and in the Security to which each of you are party and
that you have full power to draw the Loan and that each member of the
Group has full power to enter into and grant the Security or other
Finance Documents to which it is or they are party and that all
necessary steps have been taken and necessary consents and
authorisations obtained to do so and that accordingly this agreement and
the Security constitutes the legal, valid and binding obligations of the
parties to such documents, fully enforceable against each such party.
You and your Parent also represent and warrant as follows:-
18
<PAGE> 19
COMMERCIAL VARIABLE RATE LOAN
(a) Each of you are duly incorporated and validly existing under the
laws of England.
(b) No Event of Default has occurred or is outstanding and no event
has occurred which, with the giving of notice or the lapse of
time, would constitute an Event of Default.
(c) All information, exhibits and reports furnished to us in
connection with this agreement and the Security were and remain
true and accurate in all respects and do not omit any facts
thereby rendering misleading any statement contained therein.
(d) The latest audited accounts (consolidated, where applicable)
have been prepared in accordance with generally accepted
accounting principles and practices consistently applied and
fairly represent your financial condition (or, where applicable,
the financial condition of the Group) at that date and the
results of its operations for the accounting period ended on
that date, and there have been no adverse change in such
conditions since that date which would materially affect your
ability or the ability of any other member of the Group to
perform and observe the obligations and provisions binding on it
in any Finance Document.
(e) No member of the Group is in default under any agreement to
which it is party or by which it may be bound nor of any statute
or legal requirement binding upon it and no litigation,
arbitration or administrative proceedings are presently current
or pending or, to the best of its knowledge, threatened which
would materially affect your ability or the ability of any other
member of the Group to perform and observe the obligations and
provisions binding on it under any Finance Document.
The representations and warranties set out above shall survive your
acceptance of this agreement and the drawing of the Loan and shall be
deemed to be repeated on each day throughout the period of the Loan with
reference to the facts and circumstances existing at that time.
19 COVENANTS
You covenant and undertake that you shall notify us of the occurrence of
any Event of Default or any such event which, with the giving of notice
or lapse of time, could constitute an Event of Default.
20 ASSIGNMENT AND TRANSFER
(a) Neither you nor your Parent or any other member of the Group may
assign/transfer all or any part of your obligations and/or
rights under any
19
<PAGE> 20
COMMERCIAL VARIABLE RATE LOAN
Finance Document to which you are or it is party.
(b) You hereby give your irrevocable consent to any
assignment/transfer of any one or more of our rights/obligations
under any Finance Document and "we" and "us'" shall be
construed to include any assignee or transferee of our rights
and obligations.
21 ENVIRONMENTAL MATTERS
(a) You must notify us immediately if you receive any claim, notice
or other communication in respect of any alleged breach of
Environmental Law.
(b) You undertake to notify us immediately if any Environmental
Licence is withdrawn or is not renewed.
(c) You represent and warrant to us that you have obtained all
necessary Environmental Licences and have at all times complied
in all material respects with the terms and conditions of all
applicable Environmental Licences and all other applicable
Environmental Law.
You also confirm that no Hazardous Materials (other than those
incidental to your business and which are stored in full
compliance with Environmental Licence(s)) have been used,
disposed of, generated, stored, transported, deposited, buried
or emitted at, on, from or under any premises (whether or not
owned, leased, occupied or controlled by you) in circumstances
where this might result in a liability on you.
(d) You will indemnify and hold us and our respective officers,
directors, employees and agents (the "Indemnified Parties") free
and harmless from and against any and all actions, causes of
action, losses, costs, liabilities and damages of any kind and
every kind of character known or unknown, fixed or contingent,
out of pocket or consequential and all expenses incurred in
connection therewith including reasonable legal fees and
disbursements (the "Indemnified Environmental Liabilities")
incurred by the Indemnified Parties or any of them as a result
of or arising out of or relating to:-
(i) The imposition or recording of any liens, pledges,
charges or mortgages on or over any of your assets by
any government agency or local governmental agency or
authority pursuant to any Environmental Law or the
removal of any such liens, pledges, charges or
mortgages over your assets.
(ii) The claims of any private parties or local government or
government agency or authority regarding violations of
Environmental Law in connection with your operations or
the effect of the presence of any
20
<PAGE> 21
COMMERCIAL VARIABLE RATE LOAN
Hazardous Material on the value of your assets or in
connection with compliance by yourself or the
Indemnified Parties with any regulation or order issued
pursuant to Environmental Law. For the purposes of this
agreement:
"Environmental Law" shall mean any law, regulation, code of practice, circular,
guidance notes or the like (whether in the United Kingdom or elsewhere and
whether now existing or subsequently enacted or promulgated) or any judicial or
administrative interpretation thereof concerning the protection of human health
or the environment or the conditions of the work place or, the generation,
transportation, storage, treatment and disposal of hazardous materials.
"Hazardous Materials" shall mean any radioactive emissions and any natural or
artificial substance (whether in solid or liquid form or in the form of a gas or
vapour and whether alone or in combination with any other substance) which are
defined, determined identified prohibited, limited or regulated by
Environmental Law or any other chemical, material, substance or element existing
now or in the future and which is capable of causing harm to man or any other
living organism which is capable of damaging the environment or public health or
welfare including any controlled, special, dangerous, toxic, radioactive or
hazardous waste.
"Environmental Licence" shall mean any permit, licence or authorisation, consent
or other approval required by Environmental Law.
/s/ R. Cook
For and on behalf of
National Westminster Bank Plc
21
<PAGE> 22
COMMERCIAL VARIABLE RATE LOAN
FORM OF ACCEPTANCE
We accept the Loan on the terms and conditions set out in this letter
Date: 2 October 1997
---------------------
By: /s/ M. DELL
-----------------------
For and on behalf of Bradley International Holdings Limited
22
<PAGE> 23
COMMERCIAL VARIABLE RATE LOAN
FORM OF ACCEPTANCE
We accept the Loan on the terms and conditions set out in this letter
Date: 2 October 1997
---------------------
By: /s/ C.L. HASLAM
-----------------------
For and on behalf of Krug International (UK) Limited
23
<PAGE> 1
EXHIBIT 4.4
From: National Westminster Bank Plc
To: The Directors Krug International (UK) Limited and
the Directors Sowester Limited
c/o Touche Ross & Co.
Columbia Centre
Market Street
Brocknell
Berkshire RG12 IPA
1 October 1997
Dear Sirs
FACILITY LETTER FROM NATIONAL WESTMINISTER BANK PLC TO KRUG INTERNATIONAL (UK)
LIMITED AND SOWESTER LIMITED
We write with reference to the facility letter dated 8th December 1994 from us
to you and accepted by you on 7th March 1995 in respect of a facility of
L2,500,000 for the purpose of refinancing the cost of purchase of land and the
development of a building at Stinsford Road, Poole, (the agreement between us
constituted by your acceptance, the "Facility Agreement").
We have been requested by Krug International (UK) Limited to make further
facilities available to its Group to enable the subsidiary, Bradley
International Holdings Limited, to purchase the whole of the issued share
capital of Klippan Limited. We have agreed to make such facilities available on
condition that (inter alia) the financial covenants in all facilities between us
and the Group are made the same.
We therefore propose that the Facility Agreement shall be varied by the terms of
this letter. (The agreement constituted by your acceptance of this letter, the
"Supplemental Agreement").
With effect from the date of your acceptance of this Supplemental Agreement; (i)
the existing clauses 17a and b (the "Old Clauses") in the Facility Agreement
shall be deleted and the following Clause shall be substituted
"17 You agree to the following:
(a) You will not allow TANGIBLE NET WORTH to be less than L9,000,000.
(b) You, will not allow TOTAL BORROWING to be more than 75% OF TANGIBLE NET
WORTH.
1
<PAGE> 2
(c) You will not allow CASH GENERATED during each period specified in Column
A below to be less than the percentage of DEBT SERVICE COSTS specified
in Column B below
<TABLE>
<CAPTION>
Column A Column B
-------- --------
(Minimum Level)
<S> <C>
(Agreement date to 31 March 1998) (Not tested)
1 April 1998 to 31 March 1999 110%
1 April 1999 to 31 March 2000
and for each successive period of
12 months thereafter 120%
</TABLE>
(d) You will not allow PBIT during each period specified in Column A below
to be less than the percentage of INTEREST PAID specified in Column B
below:
<TABLE>
<CAPTION>
Column A Column B
-------- --------
(Minimum Level)
<S> <C>
Financial year to 31 March 1998 350%
1 April 1998 to 31 March 1999
and for each successive period of 12
months thereafter 375%
</TABLE>
(e) Each of you will not and each of you will procure that no other member
of the Group will, without our prior written consent, (such consent not
to be unreasonably withheld) either create, extend or increase any
security interest on the whole or any part of your or the Group's
undertaking, property or assets (including uncalled capital) whether
present or future except for security interests arising in the ordinary
course of trading. Security interest includes (without limitation)
liens, pledges, charges, mortgages or other encumbrances.
(f) You will provide us with such financial and other information relating
to you or to the Group as we may reasonably require including (without
limitation) copies of:
(i) the consolidated audited accounts of the Group not later than 120
days, after the end of the financial year to which they relate;
(ii) management information not later than 21 days after the end of the
quarter to which it relates (to include profit and loss and
balance sheet information on a consolidated basis and for
individual members of the Group) together with calculations in
respect of financial covenants (where appropriate);
-2-
<PAGE> 3
(iii) published quarterly and annual accounts relating to Krug
International Corp. not later than 60 and 90 days respectively
after the end of the quarter or financial year to which they
relate;
(iv) management accounts in respect of you and your Subsidiary
Undertakings not later than 21 days after the end of each
month (to include profit and loss and balance sheet
information for individual operating companies with supporting
management commentary and updated capital expenditure budgets
as appropriate); and
(v) annual budgets and projections for the forthcoming 12 months
(to include profit and loss, balance sheet and cash flow
forecasts) within 28 days of the end of the financial year,
for individual members of the Group and on a consolidated
basis.
In order to verify whether you are complying with these covenants, we will
refer to the consolidated, audited, interim or management accounts of Krug
International (UK) Limited as we think appropriate. The financial covenant
set out in paragraph (c) shall be tested annually, that set out in
paragraph (d) shall be tested against interim and annual accounts, and
those set out in paragraphs (a) and (b) shall be tested on an ongoing
basis".
(ii) the existing clause 17c shall be renumbered 17g.
The explanation of the words and phrases used in the new clauses 17a - 17f ("the
New Clauses") shall be as set out in the Appendix to this letter (and not, for
the avoidance of doubt as defined or explained in the Facility Agreement prior
to amendment by this Supplemental Agreement.) To the extent that any defined
terms in the Facility Agreement (prior to amendment by this Supplemental
Agreement) are used only in the Old Clauses, such terms shall be treated as
deleted.
Further, with effect form the date of your acceptance of this Supplemental
Agreement, all references in the Facility Agreement to "this letter" and like
expressions shall be construed as including the Facility Agreement as amended
by this Supplemental Agreement and the Facility Agreement and the Supplemental
Agreement are to be read together and construed accordingly.
We agree that except where amended by the Supplemental Agreement, the terms,
rights and obligations of the Facility Agreement shall remain in full force
and effect.
This Supplemental Agreement shall be governed by and construed in accordance
with English law and we agree to submit to the jurisdiction of the English
courts.
We hereby accept the terms and conditions of this Supplemental Agreement
-3-
<PAGE> 4
Dated 30 September 1997
------------------
/s/ R. COOK
- ---------------------------
For and on behalf of NATIONAL WESTMINSTER BANK PLC
-4-
<PAGE> 5
FORM OF ACCEPTANCE
We hereby accept the terms and conditions of this Supplemental Agreement
Dated 2 October 1997
---------------
/s/ C.L. HASLAM
- ---------------------------
For and on behalf of KRUG INTERNATIONAL (UK) LIMITED
-5-
<PAGE> 6
FORM OF ACCEPTANCE
We hereby accept the terms of this Supplemental Agreement
Dated 2 October 1997
---------------
/s/ W.E. GREENHALGH
- -------------------------------
For and on behalf of SOWESTER LIMITED
-6-
<PAGE> 7
APPENDIX
"BORROWINGS" means at any time the aggregate (without double counting) of the
following:
(i) the outstanding principal amount of any moneys borrowed by any member
of the Group and any outstanding overdraft debit balance of any member
of the Group, including for the avoidance of doubt, the outstanding
principal amount of any hire purchase obligations;
(ii) the outstanding principal amount of any debenture, bond, note, loan
stock or other security of any member of the Group;
(iii) the outstanding principal amount of the acceptance under any acceptance
credit opened by a bank or other financial institution in favour of any
member of the Group;
(iv) the outstanding principal amount of all moneys owing to a member of
the Group in connection with the sale or discounting of receivables
(otherwise than on a non-recourse basis);
(v) the outstanding principal amount of any indebtedness of any member of
the Group arising from any advance or deferred payment agreements
arranged primarily as a method of raising finance or financing the
acquisition of the asset;
(vi) the capitalised element of indebtedness of any member of the Group in
respect of a finance lease entered into primarily as a method of
raising finance or financing the acquisition of the asset leased;
(vii) the outstanding principal amount of any indebtedness of any person of a
type referred to in sub-paragraphs (i) - (vi) above which is the
subject of a guarantee, indemnity and/or other form of assurance
against financial loss by any member of the Group.
"CAPITAL EXPENDITURE" means, in respect of any financial period, the aggregate
expenditure of the Group on the purchase of fixed assets (as determined in
accordance with generally accepted United Kingdom accounting principles
(consistently applied)
"CASH GENERATED" means, in relation to the Group, the aggregate of:
(i) PBIT; PLUS
(ii) the aggregate net value of non cash movements (including, but not
limited to, depreciation expense, other provisions and write backs
of a
-7-
<PAGE> 8
non-cash nature); PLUS
(iii) the aggregate value of any decrease in net working assets; PLUS
(iv) the proceeds received by any member of the Group from the issue of new
ordinary (or non-redeemable) equity capital;
LESS
(i) tax paid; PLUS
(ii) the aggregate value of any increase in net working assets; PLUS
(iii) an amount equal to the Capital Expenditure by the Group (but not
including the capital amounts of such expenditure funded by hire
purchase or finance leases) during such period less an amount equal to
the net proceeds of disposal of fixed assets during such period; PLUS
(iv) investments, including acquisitions (and investments in/loans to Krug
International Corp. other than of a non-cash nature); PLUS
(v) dividends paid on shares of Krug International (UK) Limited (other than
redeemable shares) or in respect of any minority interests; PLUS
(vi) any extraordinary items.
"DEBT SERVICE COSTS" (OR "BORROWING COSTS") means, in respect of any financial
period:
(i) all interest, commission, periodic fees, and other financial charges
payable by any member of the Group during such period in relation to
Borrowings (including the interest element payable under hire purchase
contracts and finance leases); PLUS
(ii) the aggregate amount of all dividend payments on ordinary and
redeemable preference shares (and other redeemable shares) paid; PLUS
(iii) the aggregate amount of all repayments of Borrowings made by any member
of the Group or due from any member of the Group (including redemption
of any redeemable preference shares) during such period.
"GROUP" means Krug International (UK) Limited, Sowester Limited and any other
Subsidiary Undertakings from time to time of each of them taken as a whole (and,
save where the context does not admit, any of them individually); (if there are
no Subsidiary Undertakings for the time being, references to the Group shall be
taken to be references to you and the word "consolidated" in relation to any
accounts or other financial matters
-8-
<PAGE> 9
shall be ignored.)
"INTEREST PAID" means all interest, acceptance commission and all other
continuing, regular or periodic costs, charges and expenses in the nature of
interest (whether paid, payable or capitalised) including, for the avoidance of
doubt, finance charges relating to finance leases and hire purchase obligations.
"PBIT" means, in respect of any period, the profits of the Group for that period
before the deduction of Interest Paid and corporation tax on the income of the
Group payable in respect of any financial year:
(i) excluding extraordinary items under FRS 3;
(ii) excluding interest of whatever nature received by the Group;
(iii) after deduction of any management charges levied by Krug International
Corp. or its subsidiaries or affiliates;
"SUBSIDIARY UNDERTAKING" means a subsidiary undertaking (as defined by S.258 of
the Companies Act 1985).
"TANGIBLE NET WORTH" means at any time the aggregate of:
(i) the amount paid up or credited as paid up on the issued share capital
of Krug International (UK) Limited; and
(ii) the amount standing to the credit of the consolidated capital and
revenue reserves of the Group;
based on the Balance Sheet but adjusted by:
(1) adding any amount standing to the credit of the profit and loss account
for the Group for the period ending on the date of the Balance Sheet,
to the extent not included in sub-paragraph (ii) above and to the
extent the amount is not attributable to any dividend or other
distribution declared, recommended or made by any member of the Group;
(2) deducting any amount standing to the debit of the profit and loss
account for the Group the period ending on the date of the Balance
Sheet;
(3) deducting any amount attributable to goodwill or any other intangible
asset;
(4) excluding any amount attributable to deferred taxation;
(5) excluding any amount attributable to minority interests; and
-9-
<PAGE> 10
(6) deducting amounts attributable to the investment in Krug International
Corp. or owed to the Group by Krug International Corp. by way of inter
company loan or other Borrowing instrument.
-10-
<PAGE> 1
EXHIBIT 4.5
From: National Western Westminster Bank Plc
To: The Directors Krug International (UK) Limited and
the Directors Beldray Limited
c/o Touche Ross & Co
Columbia Centre
Market Street
Brockwell
Berkshire RG12 IPA
1 October 1997
Dear Sirs
FACILITY LETTER FROM NATIONAL WESTMINSTER BANK PLC TO KRUG INTERNATIONAL (UK)
LIMITED AND BELDRAY LIMITED
We write with reference to the facility letter dated 8th December 1994 from us
to you and accepted by you on 7th March 1995 in respect of a facility of
L1,500,000 for the purpose of refinancing the cost of purchase of land and the
development of the factory premises at Etruria Way, Mount Pleasant Bilston, West
Midlands (the agreement between us constituted by your acceptance, the "Facility
Agreement").
We have been requested by Krug International (UK) Limited to make further
facilities available to its Group to enable the subsidiary, Bradley
International Holdings Limited, to purchase the whole of the issued share
capital of Klippan Limited. We have agreed to make such facilities available on
condition that (inter alia) the financial covenants in all facilities between us
and the Group are made the same.
We therefore propose that the Facility Agreement shall be varied by the terms of
this letter. (The agreement constituted by your acceptance of this letter, the
"Supplemental Agreement").
With effect from the date of your acceptance of this Supplemental Agreement;
(i) the existing clauses 17a and b (the "Old Clauses") in the Facility Agreement
shall be deleted and the following Clause shall be substituted:
"17 You agree to the following:
(a) You will not allow TANGIBLE NET WORTH to be less than L9,000,000
-1-
<PAGE> 2
(b) You will not allow TOTAL BORROWING to be more than 75% of TANGIBLE NET
WORTH.
(c) You will not allow CASH GENERATED during each period specified in
Column A below to be less than the percentage of DEBT SERVICE COSTS
specified in Column B below,
<TABLE>
<CAPTION>
Column A Column B
-------- --------
(Minimum Level)
<S> <C>
(Agreement date to 31 March 1998) (Not tested)
1 April, 1998 to 31 March 1999 110%
1 April 1999 to 31 March 2000
and for each successive period of
12 months thereafter 120%
</TABLE>
(d) You will, not allow PBIT during each period specified in Column A below
to be less than the percentage of INTEREST PAID specified in Column B
below:
<TABLE>
<CAPTION>
Column A Column B
-------- --------
(Minimum Level)
<S> <C>
Financial year to 31 March 1998 350%
1 April 1998 to 31 March 1999
and for each successive period of
12 months thereafter 375%
</TABLE>
(e) Each of you will not and each of you will procure that no other member
of the Group will, without our prior written consent, (such consent not
to be unreasonably withheld) either create, extend or increase any
security interest on the whole or any part of your or the Group's
undertaking, property or assets (including uncalled capital) whether
present or future except for security interests arising in the ordinary
course of trading. Security interest includes (without limitation)
liens, pledges, charges, mortgages or other encumbrances.
(f) You will provide us with such financial and other information relating
to you or to the Group as we may reasonably require including (without
limitation) copies of:
(i) the consolidated audited accounts of the Group not later than
120 days after the end of the financial year to which they
relate;
(ii) management information not later than 21 days after the end of
the quarter to which it relates (to include profit and loss and
balance sheet
-2-
<PAGE> 3
information on a consolidated basis and for individual members
of the Group) together with calculations in respect of
financial covenants (where appropriate);
(iii) published quarterly and annual accounts relating to Krug
International Corp. not later than 60 and 90 days respectively
after the end of the quarter or financial year to which they
relate;
(iv) management accounts in respect of you and your Subsidiary
Undertakings not later than 21 days after the end of each month
(to include profit and loss and balance sheet information for
individual operating companies with supporting management
commentary and updated capital expenditure budgets as
appropriate); and
(v) annual budgets and projections for the forthcoming 12 months
(to include profit and loss, balance sheet and cash flow
forecasts) within 28 days of the end of the financial year, for
individual members of the Group and on a consolidated basis.
In order to verify whether you are complying with these covenants, we will
refer to the consolidated, audited, interim or management accounts of Krug
International (UK) Limited as we think appropriate. The financial covenant
set out in paragraph (c) shall be tested annually, that set out in
paragraph (d) shall be tested against interim and annual accounts, and
those set out in paragraphs (a) and (b) shall be tested on an ongoing
basis".
(ii) the existing clause 17c shall be renumbered 17g.
The explanation of the words and phrases used in the new clauses 17a-17f
("the New Clauses") shall be as set out in the Appendix to this letter (and
not, for the avoidance of doubt as defined or explained in the Facility
Agreement prior to amendment by this Supplemental Agreement.) To the extent that
any defined terms in the Facility Agreement (prior to amendment by this
Supplemental Agreement) are used only in the Old Clauses, such terms shall be
treated as deleted.
Further, with effect from the date of your acceptance of this Supplemental
Agreement, all references in the Facility Agreement to "this letter" and like
expressions shall be construed as including the Facility Agreement as amended by
this Supplemental Agreement and the Facility Agreement and the Supplemental
Agreement are to be read together and construed accordingly.
We agree that except where amended by the Supplemental Agreement, the terms,
rights and obligations of the Facility Agreement shall remain in full force and
effect.
This Supplemental Agreement shall be governed by and construed in accordance
with English law and we agree to submit to the jurisdiction of the English
courts.
-3-
<PAGE> 4
We hereby accept the terms and conditions of this Supplemental Agreement
Dated 30 September 1997
------------------
/s/ R. COOK
- ---------------------------
For and on behalf of NATIONAL WESTMINSTER BANK PLC
-4-
<PAGE> 5
FORM OF ACCEPTANCE
We hereby accept the terms and conditions of this Supplemental Agreement
Dated 2 October 1997
---------------
/s/ C.L. HASLAM
- ---------------------------
For and on behalf of KRUG INTERNATIONAL (UK) LIMITED
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FORM OF ACCEPTANCE
We hereby accept the terms of this Supplemental Agreement Dated
Dated 2 October 1997
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/s/ W.E. GREENHALGH
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For and on behalf of BELDRAY LIMITED
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APPENDIX
"BORROWINGS" means at any time the aggregate (without double counting) of the
following:-
(i) the outstanding principal amount of any moneys borrowed by any member
of the Group and any outstanding overdraft debit balance of any member
of the Group, including for the avoidance of doubt, the outstanding
principal amount of any hire purchase obligations;
(ii) the outstanding principal amount of any debenture, bond, note, loan
stock or other security of any member of the Group;
(iii) the outstanding principal amount of the acceptance under any acceptance
credit opened by a bank or other financial institution in favour of any
member of the Group;
(iv) the outstanding principal amount of all moneys owing to a member of the
Group in connection with the sale or discounting of receivables
(otherwise than on a non-recourse basis);
(v) the outstanding principal amount of any indebtedness of any member of
the Group arising from any advance or deferred payment agreements
arranged primarily as a method of raising finance or financing the
acquisition of the asset;
(vi) the capitalised element of indebtedness of any member of the Group in
respect of a finance lease entered into primarily as a method of
raising finance or financing the acquisition of the asset leased;
(vii) the outstanding principal amount of any indebtedness of any person of a
type referred to in sub-paragraphs (i)-(vi) above which is the
subject of a guarantee, indemnity and/or other form of assurance
against financial loss by any member of the Group.
"CAPITAL EXPENDITURE" means, in respect of any financial period, the aggregate
expenditure of the Group on the purchase of fixed assets (as determined in
accordance with generally accepted United Kingdom accounting principles
(consistently applied)
"CASH GENERATED" means, in relation to the Group, the aggregate of:
(i) PBIT; PLUS
(ii) the aggregate net value of non cash movements (including, but not
limited to, depreciation expense, other provisions and write backs of a
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non-cash nature); PLUS
(iii) the aggregate value of any decrease in net working assets; PLUS
(iv) the proceeds received by any member of the Group from the issue of new
ordinary (or non-redeemable) equity capital;
LESS
(i) tax paid; PLUS
(ii) the aggregate value of any increase in net working assets; PLUS
(iii) an amount equal to the Capital Expenditure by the Group (but not
including the capital amounts of such expenditure funded by hire
purchase or finance leases) during such period less an amount equal to
the net proceeds of disposal of fixed assets during such period; PLUS
(iv) investments, including acquisitions (and investments in/loans to Krug
International Corp. other than of a non-cash nature); PLUS
(v) dividends paid on shares of Krug International (UK) Limited (other than
redeemable shares) or in respect of any minority interests; PLUS
(vi) any extraordinary items.
"DEBT SERVICE COSTS" (OR "BORROWING COSTS") means, in respect of any financial
period:
(i) all interest, commission, periodic fees, and other financial charges
payable by any member of the Group during such period in relation to
Borrowings (including the interest element payable under hire purchase
contracts and finance leases); PLUS
(ii) the aggregate amount of all dividend payments on ordinary and
redeemable preference shares (and other redeemable shares) paid; PLUS
(iii) the aggregate amount of all repayments of Borrowings made by any member
of the Group or due from any member of the Group (including redemption
of any redeemable preference shares) during such period.
"GROUP" means Krug International (UK) Limited, Beldray Limited and any other
Subsidiary Undertakings from time to time of each of them taken as a whole (and,
save where the context does not admit, any of them individually); (if there are
no Subsidiary Undertakings for the time being, references to the Group shall be
taken to be references to you and the word "consolidated" in relation to any
accounts or other financial matters
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shall be ignored.)
"INTEREST PAID" means all interest, acceptance commission and all other
continuing, regular or periodic costs, charges and expenses in the nature of
interest (whether paid, payable or capitalized) including, for the avoidance of
doubt, finance charges relating to finance leases and hire purchase
obligations.
"PBIT" means, in respect of any period, the profits of the Group for that period
before the deduction of Interest Paid and corporation tax on the income of the
Group payable in respect of any financial year:
(i) excluding extraordinary items under FRS 3;
(ii) excluding interest of whatever nature received by the Group;
(iii) after deduction of any management charges levied by Krug International
Corp. or its subsidiaries or affiliates;
"SUBSIDIARY UNDERTAKING" means a subsidiary undertaking (as defined by S.258 of
the Companies Act 1985).
"TANGIBLE NET WORTH" means at any time the aggregate of:
(i) the amount paid up or credited as paid up on the issued share capital
of Krug International (UK) Limited; and
(ii) the amount standing to the credit of the consolidated capital and
revenue reserves of the Group;
based on the Balance Sheet but adjusted by:
(1) adding any amount standing to the credit of the profit and loss account
for the Group for the period ending on the date of the Balance Sheet,
to the extent not included in sub-paragraph (ii) above and to the
extent the amount is not attributable to any dividend or other
distribution declared, recommended or made by any member of the Group;
(2) deducting any amount standing to the debit of the profit and loss
account for the Group the period ending on the date of the Balance
Sheet;
(3) deducting any amount attributable to goodwill or any other intangible
asset;
(4) excluding any amount attributable to deferred taxation;
(5) excluding any amount attributable to minority interests; and
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(6) deducting amounts attributable to the investment in Krug International
Corp. or owed to the Group by Krug International Corp. by way of inter
company loan or other Borrowing instrument.
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EXHIBIT 10.9
AMENDED AND RESTATED STOCKHOLDERS AGREEMENT
This AMENDED AND RESTATED STOCKHOLDERS AGREEMENT (this "Agreement"),
dated as of March 16, 1998, is by and among WYLE LABORATORIES, INC., a Delaware
corporation (the "Company"), KRUG INTERNATIONAL CORP. ("Krug"), WESINVEST
PARTNERS, L.P. ("Wesinvest") and certain senior managers of the Company (each
such senior manager, a "Management Stockholder," and collectively, the
"Management Stockholders"). Each of the parties hereto (other than the Company)
and any other person who shall hereafter become a party to or agree to be bound
by the terms of this Agreement is sometimes hereinafter referred to as a
"Stockholder" and all of such parties are sometimes hereinafter referred to as
the "Stockholders."
RECITALS
WHEREAS, this Agreement amends and restates the Stockholders
Agreement dated December 23, 1994 among Wesinvest and the Management
Stockholders, as amended on August 5, 1996, April 1997, September 24, 1997 and
November 7, 1997, to, among other things, add Krug as a party, and to reflect
additional terms and conditions as set forth herein.
WHEREAS, the parties hereto deem it in their best interests and in
the best interest of the Company to provide for the consistent and uniform
management of the Company, to regulate certain of their rights in connection
with their interests in the Company and to restrict the sale, assignment,
transfer, encumbrance or other disposition of the Company Stock held by the
Stockholders, and desire to enter into this Agreement in order to effectuate
those purposes and to otherwise establish certain rights among themselves, all
as hereinafter provided.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual covenants and premises
contained herein and for other good and valuable consideration, the receipt and
adequacy of which are hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS;
REPRESENTATIONS AND WARRANTIES
1.1 Terms. As used herein, the terms below shall have the following
meanings:
"Affiliate" shall mean with respect to a Person, any other Person
that directly or indirectly, through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person. For the purposes of
this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
Person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the
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management or policies of such Person, whether through the ownership of voting
securities or by agreement or otherwise.
"Beneficial Owner" shall mean any Person who directly or indirectly
through any contract, arrangement, understanding, relationship, or otherwise has
or shares voting power, which includes the power to vote, or to direct the
voting of, such security; and/or investment power which includes the power to
dispose, or to direct the disposition of, such security.
"Board of Directors" shall mean the Board of Directors of the
Company.
"Common Stock" shall mean, at any time, the then outstanding common
stock par value $.01, of the Company, including Special Common Stock.
"Company Stock" shall mean, at any time, the then outstanding Common
Stock and Preferred Stock of the Company.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
"Permitted Transferee" shall mean (i) with respect to each Management
Stockholder, any immediate family member, provided that any such family member
shall be deemed a "Permitted Transferee" only if the Transfer (as hereinafter
defined) in question is effected solely for estate planning purposes or occurs
by operation of law, including community property and family laws, and (ii) with
respect to Krug and Wesinvest, any Affiliate.
"Person" shall mean an individual, partnership, association, joint
venture, corporation, trust or unincorporated organization, a government or any
department, agency or political subdivision thereof or other entity.
"Preferred Stock" shall mean, at any time, the then outstanding (i)
Series A-1 Preferred Stock, (ii) Series B Senior Preferred Stock, (iii) Series C
Preferred Stock, and (iv) Series D Preferred Stock of the Company.
"Prospectus" shall mean the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement, with respect
to the terms of the offering of any portion of the Registrable Securities (as
defined in Section 5.1(a)) covered by such Registration Statement and by all
other amendments and supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such prospectus.
"Public Event" shall mean a Qualifying IPO or a Public Merger.
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"Public Merger" shall mean a merger or consolidation of the Company
with and into any other corporation or corporations in which the Common Stock is
canceled and exchanged in whole or in part for securities belonging to a class
of securities registered under the Exchange Act.
"Qualifying IPO" shall mean the first offering for sale in a firm
commitment underwriting pursuant to a prospectus contained in an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), which registration statement may register shares offered for
sale by the Corporation or stockholders exercising registration rights or both,
and which results in gross offering proceeds (without deduction for underwriting
discount or selling expenses) of at least Twenty-Five Million Dollars
($25,000,000.00).
"Register," "Registered" and "Registration" refer to a registration
effected by preparing and filing with the Commission a Registration Statement in
compliance with the Securities Act and this Agreement, and the declaration or
ordering of the effectiveness of such Registration Statement.
"Registration Statement" shall mean any registration statement of the
Company which covers any of the Registrable Securities (as defined in Section
5.1(a)) pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such Registration Statement, including
post-effective amendments, all exhibits to and all material incorporated by
reference in such Registration Statement.
"Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
successor to such Rule that may be promulgated by the Commission.
"SEC" shall mean the Securities and Exchange Commission.
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect at the time.
"Shelf Registration" shall have the meaning ascribed to such term in
Section 5.2(f) hereof.
"Subsidiary" shall mean any corporation, partnership, joint venture
or other entity of which any Stockholder owns, directly or indirectly, a
majority of the capital stock or is a general partner.
"Underwritten registration" or "underwritten offering" shall mean a
registration in which securities of the Company are sold to an underwriter for
reoffering to the public pursuant to a firm underwriting commitment.
1.2 Representations and Warranties. As of the date hereof, the
Company represents and warrants that, except as set forth on Exhibit A hereto,
there are no shares of outstanding capital stock of the Company and no rights,
options or warrants (whether or not now exercisable) to purchase or
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acquire capital stock of the Company. Each party hereto, other than the Company,
as to itself only, represents and warrants that:
(a) as of the date hereof, such party will beneficially
own the number of shares of Company Stock as set forth on Exhibit A hereto, and,
except as provided by the respective certificates of designations of the shares
of Preferred Stock, it has no option or right to acquire any additional shares
of Company Stock pursuant to any agreement or understanding;
(b) such party has full power and authority to execute and
deliver this Agreement and the execution and delivery by it of this Agreement
has been duly authorized by all necessary action; and
(c) this Agreement has been duly and validly executed and
delivered by such party and constitutes the binding obligation of such party,
enforceable against such party in accordance with its terms.
ARTICLE II
BOARD OF DIRECTORS; VOTING OF CAPITAL STOCK;
CERTAIN OTHER MATTERS
2.1 Board of Directors. From the date hereof and through the
termination of this Agreement in accordance with its terms, the parties hereto
shall take all action within their respective power, including the voting of
Company Stock, required to cause the Board of Directors of the Company to
consist of seven directors, who shall be designated as follows:
(a) Designees of the Management Stockholders. For so long
as the Management Stockholders collectively are the Beneficial Owners of 10% or
more of the Company Stock, the Management Stockholders (as a group acting
collectively as described in Section 2.9 hereof) shall designate and elect, in
the aggregate, two directors of the Company (or if the total number of directors
of the Company shall be different than seven, two-sevenths of such directors,
rounded up to the nearest director).
(b) Designees of Krug. For so long as Krug is the
Beneficial Owner of 10% or more of the Company Stock, Krug shall designate and
elect, in the aggregate, two directors of the Company (or if the total number of
directors of the Company shall be different than seven, two-sevenths of such
directors, rounded up to the nearest director).
(c) Designees of Wesinvest. For so long as Wesinvest is
the Beneficial Owner of 10% or more of the Company Stock, Wesinvest shall
designate and elect, in the aggregate, two directors of the Company (or if the
total number of directors of the Company shall be different than seven,
two-sevenths of such directors, rounded up to the nearest director).
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(d) Chief Executive Officer. The person appointed from
time to time by the Board of Directors of the Company to serve as Chief
Executive Officer of the Company shall be designated and elected a director for
so long as such person continues to serve as Chief Executive Officer.
2.2 Removal. If a director designated and elected pursuant
to Section 2.1 hereof:
(a) has been designated by the Management Stockholders
and the Management Stockholders request that such director be removed (with or
without cause) by written notice thereof to Krug and Wesinvest; or
(b) has been designated by Krug and Krug requests that such
director be removed (with or without cause) by written notice thereof to the
Management Stockholders and Wesinvest;
(c) has been designated by Wesinvest and Wesinvest
requests that such director be removed (with or without cause) by written
notice thereof to the Management Stockholders and Krug; or
(d) has been designated and elected in his or her capacity
as Chief Executive Officer and the majority of the Board of Directors requests
that such director be removed (with or without cause) by written notice to the
Management Stockholders, Krug and Wesinvest;
then such director shall be removed, with or without cause, upon the affirmative
vote of holders of a majority of the outstanding shares of Company Stock, and
each Stockholder hereby agrees to vote all shares of Company Stock owned or held
of record by such Stockholder to effect such removal upon such request.
2.3 Vacancies. In the event that a vacancy is created on the Board of
Directors at any time by the death, disability, retirement, resignation, removal
(with or without cause) or otherwise, or if for any other reason there shall
exist or occur any vacancy on the Board of Directors, each Stockholder hereby
agrees to cause the director(s) designated by such Stockholder to vote for that
individual designated to fill such vacancy and serve as a director by whichever
of the Stockholders that had designated (pursuant to Section 2.1 hereof) the
director whose death, disability, retirement, resignation or removal (with or
without cause) resulted in such vacancy on the Board of Directors (in the manner
set forth in Section 2.1); provided, however, that such other individual so
designated may not previously have been a director of the Company who was
removed for cause from its Board of Directors.
2.4 Actions of the Board of Directors.
(a) The By-Laws of the Company shall provide that the
presence of a majority of the directors (that includes at least one director
designated by each of Krug, Wesinvest and the
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Management Stockholders) shall be necessary to constitute a quorum at any
meeting of the Board of Directors.
(b) The By-Laws of the Company shall also provide that any
action of the Board of Directors requires the vote of a majority of the
directors present at a meeting with respect to which a quorum is in attendance;
provided, however, that an affirmative vote of six of the directors (or, if
there shall be a number of directors other than seven, six-sevenths of such
number, rounded up to the nearest director) at such a meeting shall be required
to approve the following:
(i) the dissolution of the Company;
(ii) the creation of another class or series of
equity securities of the Company with rights superior or inferior or
pari passu, to those of the Preferred Stock or Special Common Stock
or, except for the issuance of options to purchase up to 984,370
shares of the Common Stock to officers and/or employees of the
Company and Krug, as provided in Section 2.12 hereof, the issuance of
any equity securities of the Company, whether Preferred Stock or
Common Stock or rights to purchase equity securities of the Company
(including any issuance in connection with an acquisition described
in Section 2.4(b)(iii));
(iii) the acquisition of any business enterprise
or partial interest therein (whether or not acquired in a direct
acquisition or merger transaction and whether or not in the form of
stock, assets or an interest in a joint venture, partnership or
limited liability company) or any assets (or group of related
assets), outside of the ordinary course of the Company's business,
but only if the net value of the consideration paid by the Company
(as reasonably determined by the Board of Directors) in connection
with such acquisition, and any related series of acquisitions,
exceeds 15% of the Company's annual net revenues for the then most
recent trailing 12-month period, as reasonably determined by the
Company's Chief Financial Officer in conformity with the Company's
accounting policies and generally accepted accounting principles
consistently applied.
(c) The By-Laws of the Company shall further provide that
the Board of Directors may only take actions with respect to matters described
as proposed subjects for action in the written notice of meeting circulated as
provided in the By-Laws; provided, however, that the By-Laws shall also provide
that this limitation can be waived by the unanimous vote of the directors in
attendance at a meeting of the Board of Directors with respect to which (i) a
quorum and (ii) at least one designee of each of the Management Stockholders,
Krug and Wesinvest is in attendance.
(d) The By-Laws of the Company shall further provide that
any transaction between the Company and any of its officers or directors or any
party hereto holding at least 10% or more of the Company Stock, must be
approved by two-thirds of all disinterested directors.
2.5 Compensation of Directors. The Board of Directors shall,
from time to time,
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establish policies governing the compensation of directors and the reimbursement
of such directors for their reasonable out-of-pocket expenses; provided,
however, (i) that prior to the Qualifying IPO, no designee of Krug or Wesinvest
shall receive compensation for their services as directors, and (ii) that the
Company shall reimburse the directors for the reasonable travel expenses they
incur in connection with their attendance at meetings and other functions of the
Board of Directors.
2.6 Financial Information for the Board of Directors. Annual budgets
applicable to the Company shall be provided to the Board of Directors prior to
the beginning of each fiscal year in a form acceptable to the Board of
Directors. Monthly financial information shall be provided to the Board of
Directors within 30 days of the end of each month. Annual financial statements
for each fiscal year will be audited by a nationally recognized accounting firm
selected by the Board of Directors and shall be provided to the Board of
Directors within 90 days following the end of each such fiscal year.
2.7 Covenant to Vote.
(a) Each Stockholder hereby agrees to take all actions
necessary to call, or to cause the Company and the appropriate officers and
directors of the Company to call, a special or annual meeting of stockholders of
the Company and to vote all shares of voting stock of the Company owned or held
of record by such Stockholder at any such annual or special meeting in favor of,
or take all action by written consent in lieu of any such meeting, necessary to
ensure that the number of directors constituting the entire Board of Directors
is consistent with, and that the election as members of the Board of Directors
of those individuals so designated is in accordance with, and to otherwise
effect the intent of, this Article II. In addition, each Stockholder agrees to
vote the shares of such voting stock owned or held of record by such
Stockholder, or over which such Stockholder has voting control, upon any other
matter arising under this Agreement submitted to a vote of the Stockholders in a
manner so as to implement the terms of this Agreement.
(b) In the event of a proposed registered public offering
of Common Stock by the Company, each Stockholder also agrees, upon the request
of the Board of Directors, to vote, at a meeting convened for such purpose, or
to take action by written consent in lieu of such meeting, to increase the
number of authorized shares of Common Stock and, if recommended by the Board of
Directors, to increase the number of issued and outstanding shares of Common
Stock, whether by stock split, stock dividend or otherwise.
(c) No party hereto shall enter into any agreement with
respect to the voting of shares of Company Stock except as provided herein.
2.8 Other Activities of Krug and Wesinvest; Fiduciary Duties. It is
understood and accepted that Krug and Wesinvest and their Affiliates have or may
hereafter have interests in other business ventures that are or may be
competitive with the activities of the Company and that, to the fullest extent
permitted by law, nothing in this Agreement shall limit the current or future
business activities of Krug and Wesinvest or any of their Affiliates whether or
not such activities are
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competitive with those of the Company or otherwise. Except as expressly provided
herein, nothing in this Agreement shall limit in any manner the ability of Krug
and Wesinvest to exercise their rights under this Agreement or as a Stockholder
of the Company and this Agreement shall not create, or be deemed or interpreted
to create, any fiduciary or similar duty of any party owing to any other party
or the Company. The foregoing notwithstanding, Krug and Wesinvest covenant that
if Krug or Wesinvest, as applicable, or one or more of their Affiliates acquires
control of any Person engaged in a business directly competitive with that of
the Company's business (as determined immediately after giving effect of the
merger of Krug Life Sciences, Inc. and Technology/Scientific Services, Inc. with
and into the Company), then Krug and Wesinvest, as applicable, shall not permit
an individual who serves as an officer or director of such other Person also to
serve as an officer or director of the Company without the approval of a
majority in Company Stock interest of the Management Stockholders. Krug and
Wesinvest also covenant that if either directly engages in a business directly
competitive with that of the Company's business, then Krug and Wesinvest, as the
case may be, shall not permit an individual directly involved in the management
and activities of such business to serve as a director of the Company and shall
not use or permit the use of confidential information of the Company in such
business.
2.9 Action of the Management Stockholders as a Group. Any reference
herein to an action of the Management Stockholders as a group or acting
collectively shall mean such action approved by the Management Stockholders who
are the Beneficial Owners of in excess of 50% of all Company Stock held by all
Management Stockholders. Any reference herein to an action of one or more
individual Management Stockholders shall refer to the action of such individuals
and not to a group action.
2.10 Insurance. The Company shall use its best efforts to maintain
directors' and officers' insurance (covering directors and officers serving from
time to time after the date hereof) in the amount of $5,000,000 per occurrence
and $20,000,000 in the aggregate.
2.11 Dividends. Prior to the consummation of the Public Event, the
Company shall declare and pay no dividend other than the dividends required to
be paid with respect to the Series A-1 Preferred Stock, Series B Senior
Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock;
provided, that the Company may declare within 30 days of a Public Event or sale
or liquidation of the Company's business dividends accruing with respect to
Special Common Stock and pay such dividends at the closing of such Public Event,
sale or liquidation.
2.12 Stock Options. Promptly following the date hereof, the Company
shall issue options to purchase up to an aggregate of 610,310 shares of Common
Stock to the officers and employees listed on Exhibit 2.12 hereto and shall
issue an option to Krug promptly to purchase up to 374,060 shares of Common
Stock, such options to be evidenced by the option agreements substantially in
the form attached hereto as Exhibit 2.12A and 2.12B, respectively.
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ARTICLE III
TRANSFERS OF COMPANY STOCK
3.1 General. No Stockholder shall, directly or indirectly, sell,
assign, pledge, encumber, hypothecate, gift, bequest or otherwise transfer,
whether for value or no value and whether voluntary or involuntary (including,
without limitation, by operation of law or by judgment, levy, attachment,
garnishment, bankruptcy or other legal or equitable proceedings, in each case a
"Transfer") Company Stock except in accordance with this Agreement. The Company
shall not, and shall not permit any transfer agent or registrar for the Company
Stock to, Transfer upon the books of the Company any shares of Company Stock by
any Stockholder to any Transferee (as hereinafter defined), in any manner,
except in accordance with this Agreement, and any purported Transfer not in
compliance with this Agreement shall be void.
3.2 Legends; Shares Subject to this Agreement. In the event a
Stockholder shall Transfer any shares of Company Stock (including any such
Company Stock acquired after the date hereof) to any Person (all Persons
acquiring shares of Company Stock, regardless of the method of transfer, shall
be referred to herein collectively as "Transferees" and individually as a
"Transferee") in accordance with this Agreement, such securities shall
nonetheless bear legends as provided in Section 6.1 hereof, as the case may be;
provided, however, that the provisions of this Section shall not apply in
respect of a sale of shares included in a registered public offering under the
Securities Act or a sale of shares of Company Stock pursuant to Rule 144 under
the Securities Act.
3.3 No Violations or Breach. No Stockholder shall, directly or
indirectly, Transfer any shares of Company Stock at any time if such action
would constitute a violation of any federal or state securities or blue sky laws
or a breach of the conditions to any exemption from registration of shares of
Company Stock under any such laws or a breach of any undertaking or agreement of
such Stockholder entered into pursuant to such laws or in connection with
obtaining an exemption thereunder.
3.4 Permitted Transfers of Company Stock. No Stockholder shall,
directly or indirectly, Transfer any shares of Company Stock except pursuant to
an exercise following compliance with the rights of first refusal set forth in
Article IV hereof, either to the designated Transferee or pursuant to an
exercise of such rights pursuant to a registered public offering under Section
5.1 or 5.2 of this Agreement, provided that a Stockholder may transfer shares of
Company Stock to a Permitted Transferee (as defined in Section 1.1 hereof).
In the event of any such Transfer (including a transfer to a
Permitted Transferee but excluding transfers pursuant to a registered public
offering), the Company shall cause the Transferee to execute a copy of this
Agreement and the Transferee shall be subject to this Agreement and may further
Transfer shares of Company Stock to Transferees only in compliance with this
Agreement as if such Transferee was the original transferor. A Transferee of a
Stockholder shall be treated for purposes of this Agreement as if such
Transferee is the same category of Person (Management
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Stockholders, Krug or Wesinvest) as is the transferor and shall in all respects
be bound by the decisions taken pursuant to Section 6.10. Such Transferee shall
be required to provide the Company with an acceptable waiver or limitation of
its rights under this Agreement, execute a valid and irrevocable proxy in favor
of the Transferor satisfactory to the Company and agree to such other waivers,
limitations and restrictions as the Company may reasonably require, including,
in the case of a Permitted Transferee of a Management Stockholder, including any
spouse or former spouse of a Management Stockholder, a waiver of voting rights
prior to a Public Event.
3.5 Documentation Required. Prior to any proposed Transfer of Company
Stock as permitted by this Agreement, if such Transfer is not made pursuant to
an effective registration statement under the Securities Act or pursuant to Rule
144 under the Securities Act, the Stockholder making the Transfer must provide
the Company with an opinion of counsel, reasonably satisfactory in form and
substance to the Company, that such securities may be sold without registration
under the Securities Act.
3.6 No Agreements. Except as set forth in Section 3.4, no Stockholder
shall grant any irrevocable proxy or any other proxy inconsistent with this
Agreement or enter into or agree to be bound by any voting trust with respect to
any shares of Company Stock nor shall any Stockholder enter into any stockholder
agreements or arrangements of any kind with any person with respect to any
shares of Company Stock (whether or not such agreements and arrangements are
with other Stockholders or holders of Company Stock who are not parties to this
Agreement), including agreements or arrangements with respect to the
acquisition, disposition or voting (if applicable) of any shares of Company
Stock, except this Agreement, nor shall any Stockholder act, for any reason, as
a member of a group or in concert with any other persons in connection with the
acquisition, disposition or voting (if applicable) of any shares of Company
Stock, except to the extent consistent with this Agreement.
3.7 Endorsement of Certificates.
(a) Upon the execution of this Agreement, the certificates
representing shares of Company Stock shall be endorsed as provided herein.
(b) All certificates representing shares of Company Stock
hereafter issued to or acquired by any of the Stockholders or their successors
shall bear the legends set forth. The obligations of each party hereto shall be
binding upon each Transferee to whom shares of the applicable Stock are
Transferred by any party hereto except for Transfers pursuant to a registered
public offering. Prior to the consummation of any Transfer except for Transfers
pursuant to such a registered public offering, such party shall cause the
Transferee to execute an agreement in form and substance reasonably satisfactory
to the other parties hereto, providing that such Transferee shall fully comply
with the terms of this Agreement.
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ARTICLE IV
RIGHTS OF FIRST REFUSAL
4.1 Transfer of Company Stock by Management Stockholders.
(a) Notice of Intention. If at any time any of the
Management Stockholders shall desire to Transfer any shares of Company Stock
beneficially owned by it (other than pursuant to a registered public offering),
and if such proposed Transfer is otherwise permitted by Article III, then any
such Selling Stockholder shall deliver written notice of its desire to Transfer
(a "Notice of Intention"), accompanied by a copy of the proposal relating to
such Transfer (the "Sale Proposal"), to (i) each of the other Management
Stockholders, (ii) Krug, (iii) Wesinvest, and (iv) the Company, setting forth
such Selling Stockholder's desire to make such Transfer, the number of shares of
Company Stock to be Transferred (the "Offered Shares") and the price at which
such Selling Stockholder proposes to Transfer the Offered Shares (the "Offer
Price").
(b) Notice of Exercise. Upon receipt of the Notice of
Intention, the other Management Stockholders, Krug, Wesinvest and the Company
(each, an "Offeree"), in the priority specified below, shall have the right to
purchase at the Offer Price all, but not less than all, of the Offered Shares
available to be purchased under such priority, exercisable by the delivery of
notice to the Selling Stockholder (the "Notice of Exercise"), within 30 calendar
days from the date of receipt of the Notice of Intention. The right of the
Offerees pursuant to this Section 4.2 shall terminate if not exercised within 30
calendar days after receipt by the Company of the Notice of Intention. The
Notice of Intention shall constitute an offer to each of the other Management
Stockholders, Krug, Wesinvest and the Company to acquire the Offered Shares in
the following priority: (i) the other Management Stockholders shall be given the
first right to elect to acquire, individually, the Offered Shares, in such
individual proportions equal to the ratio of the number of shares of Company
Stock that each such Management Stockholder then owns to the number of shares of
Company Stock owned by the other non-selling Management Stockholders; (ii) to
the extent that each of the Management Stockholders does not elect to acquire
the Offered Shares, the Management Stockholders may acquire the Offered Shares
in a manner determined by them; (iii) to the extent that the Management
Stockholders, collectively, do not elect to acquire all of the Offered Shares,
Krug and Wesinvest may acquire the Offered Shares based on their respective
ownership of Company Stock; (iv) if Krug does not elect to acquire the Offered
Shares, Wesinvest may acquire the Offered Shares; (v) if Wesinvest does not
elect to acquire the Offered Shares, Krug may acquire the Offered Shares; and
(vi) if Krug and Wesinvest do not elect to acquire the Offered Shares, the
Company may elect to acquire the Offered Shares.
4.2 Transfer of Company Stock by Krug.
(a) Notice of Intention. If at any time Krug shall
desire to Transfer any shares of Company Stock owned by it (other than
pursuant to a registered public offering) and if such proposed Transfer is
otherwise permitted by Article III, then Krug shall deliver written notice of
its
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desire to Transfer (a "Notice of Intention"), accompanied by a copy of the
proposal relating to such Transfer (the "Sale Proposal"), to (i) each of the
Management Stockholders, (ii) Wesinvest, and (iii) the Company, setting forth
Krug's desire to make such Transfer, the number of shares of Company Stock to be
Transferred (the "Offered Shares") and the price at which Krug proposes to
Transfer the Offered Shares (the "Offer Price").
(b) Notice of Exercise. Upon receipt of the Notice of
Intention, the other Management Stockholders, Wesinvest and the Company (each,
an "Offeree"), in the priority specified below, shall have the right to purchase
at the Offer Price all, but not less than all, of the Offered Shares available
to be purchased under such priority, exercisable by the delivery of notice to
Krug (the "Notice of Exercise"), within 30 calendar days from the date of
receipt of the Notice of Intention. The right of the Offerees pursuant to this
Section 4.2 shall terminate if not exercised within 30 calendar days after
receipt by the Company of the Notice of Intention. The Notice of Intention shall
constitute an offer to each of the Management Stockholders, Wesinvest and the
Company to acquire the Offered Shares in the following priority: (i) Wesinvest
may acquire the Offered Shares to the extent that the number of such Offered
Shares plus the number of Offered Shares previously purchased by Wesinvest
pursuant to this Section 4.2(b)(i) does not exceed five-hundred thousand
(500,000) shares of Company Stock in the aggregate (as adjusted for all stock
splits, stock dividends, consolidations, recapitalizations and reorganizations);
(ii) each Management Stockholder and Wesinvest may acquire the Offered Shares
pro rata based on their respective ownership of Company Stock; (iii) to the
extent that each Management Stockholder does not elect to acquire the Offered
Shares, the Management Stockholders, collectively, and Wesinvest may acquire the
Offered Shares pro rata based on their respective ownership of Company Stock;
(iv) if Wesinvest does not elect to acquire the Offered Shares, Management
Stockholders, collectively, may acquire the Offered Shares; (v) to the extent
that the Management Stockholders, collectively, do not elect to acquire the
Offered Shares, Wesinvest may acquire the Offered Shares; and (vi) to the extent
that the Management Stockholders, collectively, and Wesinvest do not elect to
acquire the Offered Shares, the Company may elect to acquire the Offered Shares.
4.3 Transfer of Company Stock by Wesinvest.
(a) Notice of Intention. If at any time Wesinvest shall
desire to Transfer any shares of Company Stock owned by it (other than pursuant
to a registered public offering), and if such proposed Transfer is otherwise
permitted by Article III, then Wesinvest shall deliver written notice of its
desire to Transfer (a "Notice of Intention"), accompanied by a copy of the
proposal relating to such Transfer (the "Sale Proposal"), to (i) each of the
Management Stockholders, (ii) Krug, and (iii) the Company, setting forth
Wesinvest' desire to make such Transfer, the number of shares of Company Stock
to be Transferred (the "Offered Shares") and the price at which Wesinvest
proposes to Transfer the Offered Shares (the "Offer Price").
(b) Notice of Exercise. Upon receipt of the Notice of
Intention, the other Management Stockholders, Krug and the Company (each, an
"Offeree"), in the priority specified below, shall have the right to purchase
at the Offer Price all, but not less than all, of the Offered
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Shares available to be purchased under such priority, exercisable by the
delivery of notice to Wesinvest (the "Notice of Exercise"), within 30 calendar
days from the date of receipt of the Notice of Intention. The right of the
Offerees pursuant to this Section 4.3 shall terminate if not exercised within 30
calendar days after receipt by the Company of the Notice of Intention. The
Notice of Intention shall constitute an offer to each of the Management
Stockholders, Krug and the Company to acquire the Offered Shares in the
following priority: (i) Krug may acquire the Offered Shares to the extent that
the number of such Offered Shares plus the number of Offered Shares previously
purchased by Krug pursuant to this Section 4.2(b)(i) does not exceed
five-hundred thousand (500,000) shares of Company Stock in the aggregate (as
adjusted for all stock splits, stock dividends, consolidations,
recapitalizations and reorganizations); (ii) each Management Stockholder and
Krug may acquire the Offered Shares based on their respective ownership of
Company Stock; (iii) to the extent that each Management Stockholder does not
elect to acquire the Offered Shares, Krug and Management Stockholders,
collectively, may acquire the Offered Shares pro rata based on their respective
ownership of Company Stock; (iv) if Krug does not elect to acquire the Offered
Shares, Management Stockholders, collectively, may acquire the Offered Shares;
(v) to the extent that the Management Stockholders, collectively, do not elect
to acquire the Offered Shares, Krug may acquire the Offered Shares; and (vi) to
the extent that the Management Stockholder, collectively, and Krug do not elect
to acquire the Offered Shares, the Company may elect to acquire the Offered
Shares.
4.4 Non-Cash Consideration. If the Offer Price, or a portion of the
Offer Price, involves consideration other than cash, the Offeree shall have the
right to purchase the Offered Shares for a cash amount equal to the sum of the
portion of such consideration which is cash plus the Cash Value of the non-cash
consideration. For purposes of this Section 4.2, Cash Value shall mean, in the
case of securities which are quoted on NASDAQ or any securities exchange, an
amount equal to the average of the high bid low sales price reported on such
exchange for such securities on the date of the Notice of Intention and, in the
case of securities or other property for which there is no such readily
available market price, an amount equal to the fair market value of such
securities or property as determined in good faith by the Board of Directors.
4.5 Obligation to Sell. In the event that any of the Stockholders or
the Company exercise their rights to purchase the Offered Shares in accordance
with Section 4.1, 4.2 or 4.3, as the case may be, then the selling Stockholder
must sell the Offered Shares to such party or parties after not less than 30 and
not more than 90 calendar days from the date of the delivery of the Notice of
Exercise.
4.6 Closing. At the closing of the purchase of the Offered Shares,
the selling Stockholder shall deliver certificates evidencing the Offered
Shares, duly endorsed, or accompanied by written instruments of transfer in form
reasonably satisfactory to the purchaser(s) that delivered a Notice of Exercise,
duly executed by the selling Stockholder, free and clear of any adverse claims,
against payment of the purchase price therefor in cash. The closing date shall
be a date which is not less than 30 nor more than 90 calendar days after the
date of the related Notice of Exercise.
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4.7 Transfer of Offered Shares to Third Parties. If (a) all notices
required to be given pursuant to Section 4.1, 4.2 or 4.3, as applicable, have
been duly given and (b) the Management Stockholders, Wesinvest, Krug and/or the
Company, as the case may be, has exercised their respective options to purchase
all of the Offered Shares at the Offer Price, then the selling Stockholder shall
have the right, for a period of 90 calendar days from the earlier of (i) the
expiration of the last applicable option period pursuant to Section 4.1, 4.2 or
4.3, as the case may be, with respect to such Sale Proposal, or (ii) the date on
which the Selling Stockholder receives notice from the Management Stockholders,
Krug, Wesinvest and the Company, as the case may be, that they will not exercise
the options granted pursuant to Section 4.1, to sell to a third party the
Offered Shares on terms and conditions no more favorable to such third party
than those set forth in the related Sale Proposal and otherwise in full
compliance with any other applicable provisions of this Agreement.
ARTICLE V
REGISTRATION RIGHTS
5.1 Piggyback Registrations.
(a) Participation. Subject to Section 5.1(b) hereof, if
at any time the Company files a Registration Statement under the Securities Act
with respect to any offering of Common Stock by the Company for its own account
or for the account of any of its equity holders (other than (i) a registration
on Form S-4 or S-8 or any successor form to such Forms, (ii) in connection with
mergers, acquisitions, exchange offers or comparable transactions, or (iii) any
registration of securities as it relates to an offering and sale to management
of the Company pursuant to any employee stock plan or other employee benefit
plan arrangement) then, as soon as practicable (but in no event less than 20
days prior to the proposed date of filing of such registration statement), the
Company shall give written notice of such proposed filing to each Beneficial
Owner of Common Stock (the "Registrable Securities"), and such notice shall
offer the Beneficial Owners of Registrable Securities the opportunity to
register such number of Registrable Securities as each such Beneficial Owner may
request (a "Piggyback Registration"). Subject to Section 5.1(b), the Company
shall include in such registration statement all Registrable Securities
requested within 20 days after the receipt of any such notice (which request
shall specify the Registrable Securities intended to be disposed of by such
Beneficial Owner) to be included in the registration for such offering pursuant
to a Piggyback Registration; provided, however, that if, at any time after
giving written notice of its intention to register any such Common Stock and
prior to the effective date of the registration statement filed in connection
with such registration, the Company shall determine for any reason not to
register or to delay registration of such securities, the Company may, at its
election, give written notice of such determination to each Beneficial Owner of
Registrable Securities and, thereupon, (i) in the case of a determination not to
register, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration (but not from its obligation to
pay the Registration Expenses in connection therewith), and (ii) in the case of
a determination to delay registering, shall be permitted to delay registering
any Registrable Securities, for the same period as the delay in registering such
other securities. If the offering pursuant to such Registration Statement
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is to be underwritten, then each Beneficial Owner making a request for a
Piggyback Registration pursuant to this Section 5.1(a) must participate in (or
may withdraw from) such underwritten offering and shall not be permitted to make
any other offering in connection with such registration. If the offering
pursuant to such Registration Statement is to be on any other basis, then each
Beneficial Owner making a request for a Piggyback Registration pursuant to this
Section 5.1(a) must participate in (or may withdraw from) such offering on such
basis and shall not be permitted to make an underwritten offering in connection
with such registration. Each Beneficial Owner of Registrable Securities shall be
permitted to withdraw all or part of such Beneficial Owner's Registrable
Securities from a Piggyback Registration at any time prior to the effective date
thereof, unless such Beneficial Owner has agreed with the Company or the
managing underwriter or underwriters to limit such withdrawal right.
(b) Underwriter's Cutback. The Company shall attempt to
cause the managing underwriter or underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included in the
registration for such offering under Section 5.1(a) or pursuant to other
piggyback registration rights granted by the Company, if any (the "Piggyback
Securities"), to be included on the same terms and conditions as any similar
securities included therein. Notwithstanding the foregoing, if the managing
underwriter or underwriters of any such proposed underwritten offering informs
the Company that, in its opinion, the total amount or kind of securities,
including Piggyback Securities, which such Beneficial Owners and any other
persons or entities intend to include in such offering would be reasonably
likely to adversely affect the price or distribution of the securities offered
in such offering or the timing thereof, then the securities to be included in
such registration shall be (i) first, 90% of the securities that the Company
proposes to sell, and (ii) second, the number of securities that, in the opinion
of such underwriter or underwriters, can be sold without an adverse effect on
the price, timing or distribution of the securities to be included (but not less
than 10% of the securities the Company proposes to sell), selected pro rata
among the Beneficial Owners which have requested pursuant to Section 5.l(a) to
be included in such Piggyback Registration, based on the amount of Common Stock
that such Beneficial Owners originally sought to register (provided that
Beneficial Owners of Common Stock resulting from conversion of Series A-1
Preferred Stock or Series C Preferred Stock shall have priority over other
holders or Beneficial Owners of Common Stock).
5.2 Demand Registration Rights.
(a) Upon the delivery to the Company by Krug or Wesinvest
of a written request for registration of all or any part of such Stockholder's
Registrable Securities, the Company shall, provided that the requesting
Stockholder at the time of making such request is the Beneficial Owner of at
least 10% or more of the Company Stock, and subject to the provisions hereof,
use its best efforts to effect, as expeditiously as practicable, the
Registration of the Registrable Securities specified in such registration
request in accordance with the intended method of disposition stated therein.
Such Stockholder or Stockholders shall send a copy of the Registration Request
to each other Beneficial Owner concurrently with the giving of such notice to
the Company. The Company shall prepare and file with the Commission a
Registration Statement, on any form that the Company
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is eligible to use, such form to be selected by the Company, which form must be
reasonably acceptable to the Stockholder or Stockholders requesting
Registration, in order to permit the public offering of the Registrable
Securities being offered in accordance with the intended method of disposition
upon the effective date of the Registration Statement relating to such
Registrable Securities; provided, however, the Company is not required to
proceed with the Registration Request if in the opinion of a recognized
investment bank such Registration would not result in a Qualifying IPO and a
Qualifying IPO has not already occurred; provided, however, if Krug or
Wesinvest, as the case may be, seeks to include all of its Registrable
Securities in such Registration and such Registration would not result (in the
opinion of such investment bank) in a Qualifying IPO, then the Company shall use
its best efforts to include in such Registration Statement shares of Common
Stock for sale by the Company in such number necessary to cause the Registration
to result in a Qualifying IPO. Except as provided in Section 5.2(b), the Company
must include in such Registration Statement any other shares of Registrable
Securities that a Beneficial Owner possessing demand registration rights
requests to be included in such Registration. The Company may elect to include
in such Registration: (i) any other shares of Common Stock that the Company has
been requested to register by the Beneficial Owners thereof, and (ii) all shares
of Company Stock that the Company may elect to register for its own account,
subject in either case to Section 5.2(b) hereof.
(b) If a requested Registration pursuant to this Section
5.2 involves an underwritten offering, and the managing underwriter shall advise
the Company in writing (with a copy to each Beneficial Owner) that in the good
faith exercise of its reasonable business judgment, the number of shares of
Company Stock requested to be included in such Registration exceeds the number
that can be sold in such offering without materially and adversely affecting the
successful marketing of the Registrable Securities of the requesting Stockholder
or Stockholders or the trading market in Company Stock, the Company will include
in such Registration the number of shares that the Company is so advised can be
sold in such offering without such material adverse effect in the following
priority: (i) first, Registrable Securities requested to be included in such
Registration by each Beneficial Owner possessing demand registration rights (and
if such number exceeds the number advised by such underwriter, the number
requested by each such Beneficial Owner shall be proportionately reduced based
on the ratio of the number each requested over the total requested by such
Beneficial Owners); (ii) second, Registrable Securities of other Beneficial
Owners included in the Registration; and (iii) third, other Company Stock
proposed to be included in such Registration, in accordance with the priorities,
if any, then existing among the Company and the holders of such other
securities.
(c) Registration rights under this Section 5.2 shall only
be available to Krug and
Wesinvest for a Registration Statement that becomes effective subsequent to the
expiration of six (6) months from and after the date of the Qualifying IPO. No
Registration Request pursuant to this Section 5.2 hereof may be submitted to the
Company any earlier than forty-five (45) days prior to the expiration of six
months (6) from and after the date of the Qualifying IPO. Except as provided in
Section 5.10 hereof, no Registration Request pursuant to this Section 5.2 may be
submitted to the Company by a Stockholder who at the time of making such request
is not the Beneficial Owner of at least 10% or more of the Company's outstanding
Company Stock.
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(d) Krug and Wesinvest shall each be entitled to demand
one Registration pursuant to this Section 5.2 during any 24-month period. A
registration of Registrable Securities will not count as a demand Registration
pursuant to this Section 5.2 until it has become effective under the Securities
Act; provided, however, that if after the Registration Statement has become
effective, the offering of Registrable Securities pursuant to such Registration
is interfered with by a stop order, injunction or other requirement of the SEC
or other governmental agency or court not resulting from the acts or omissions
of any Stockholder or Stockholders whose securities are so Registered and no
Registrable Securities are actually sold thereunder, such registration will be
deemed not to have become effective and shall not count as a demand Registration
pursuant to this Section 5.2; provided, further, that a registration that does
not become effective after the Company has substantially prepared and has filed
or is in a position to file a Registration Statement with respect thereto solely
by reason of the refusal to proceed by the Stockholder or Stockholders
requesting Registration (other than any refusal to proceed based upon (i) the
advice of its counsel that the Registration Statement, or the prospectus
contained therein, contains an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing, which untrue statement or omission is not related to information
provided pursuant to Section 5.4 hereof, or (ii) the failure or inability of the
Company to meet the conditions to closing specified in any underwriting
agreement to which the Company and/or a Beneficial Owner is a party and that was
entered into in connection with such registration).
(e) The Company shall use its best efforts to keep any
Registration Statement filed pursuant to this Section 5.2 effective for the
period of distribution contemplated by such Registration Statement, which in no
event need be later than (i) in the case of a Registration other then a Shelf
Registration, the earlier to occur of (x) the date on which the Registrable
Securities offered under such Registration Statement are sold or the offer
thereof is discontinued by the Stockholder or Stockholders requesting
Registration thereunder, or (y) 180 days after the effective date of such
Registration Statement and (ii) in the case of a Shelf Registration, the earlier
to occur of (x) the date on which the Registrable Securities offered under such
Shelf Registration are sold, or (y) two years after the effective date of such
Shelf Registration.
(f) The Company, at its election, may cause one or more
Registration Statements under Rule 415 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
successor Rule that may be promulgated by the Commission (each a "Shelf
Registration") to be filed covering the disposition by the Stockholder or
Stockholders of their Registrable Securities.
(g) Notwithstanding the foregoing obligations of the
Company to use its best efforts to cause the Registrable Securities to be
Registered under the Securities Act, if the Company shall furnish to the
Stockholder or Stockholders requesting Registration a certificate signed by an
officer of the Company stating that in the good faith judgment of the Company's
Board of Directors it would be materially detrimental to the Company or its
stockholders for such a Registration
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Statement to be filed as expeditiously as possible and that it is therefore
necessary to postpone the filing of such Registration Statement and, to the
extent practicable, containing a statement of the reasons for such deferral and
an estimate of the anticipated delay, the Company shall have the right, subject
to the provisions of this Section 5.2(g), to postpone such filing for such
period as may be necessary so as not to interfere with corporate transactions of
the Company or other compelling business reasons. Any such certificate must be
furnished within five days after a Registration Request is given or, if later,
as soon as reasonably possible after the determination forming the basis for
such certificate is made by the Company. If as a result of any such
postponement, the Company does not for a period of 180 days after the
postponement effect a Registration of the Registrable Securities desired by a
Stockholder or Stockholders to be Registered pursuant to this Section 5.2, the
Company will use its best efforts promptly to effect such Registration. The
Company may not postpone a Registration in this manner more than once in any
12-month period. If the Company shall postpone the filing of a Registration
Statement pursuant to the foregoing for 45 days after the delivery of the
above-referenced certificate, the Stockholder requesting registration shall have
the right to withdraw the Registration Request by giving written notice to the
Company within fifteen days after such 45-day period and, in the event of such
withdrawal, such Registration Request shall not be counted for purposes of the
requests for Registration to which the Stockholders are entitled pursuant to
Section 5.2.
(h) If a requested Registration pursuant to this Section
5.2 involves an underwritten offering, the Stockholder or Stockholders
requesting Registration shall have the right to select the investment banker and
manager or co-managers that will administer the offering (after consulting with
the Company as to such selection and upon the written consent of the Company,
which consent shall not be withheld unreasonably). The Company will promptly
enter into an underwriting agreement reasonably acceptable to the Company and
such Stockholder or Stockholders with such underwriters for such offering, such
agreement to contain such terms and provisions as are customarily contained in
underwriting agreements with respect to secondary distributions, including,
without limitation, indemnities to the effect and to the extent provided in
Section 5.8 hereof. Each Stockholder requesting Registration shall be a party to
such underwriting agreement and may, at its option, require that any or all of
the representations and warranties by, and the other agreements on the part of,
the Company to and for the benefit of such underwriters shall also be made to
and for the benefit of such Stockholder or Stockholders and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to any obligations of such
Stockholder or Stockholders; provided, however, that such Stockholder or
Stockholders shall be required to agree to indemnify the Company and its
officers and directors to the same extent as provided in Section 5.8 hereof.
5.3 Hold-Back Agreements. Each Beneficial Owner of Registrable
Securities (whether or not such Registrable Securities are covered by a
Registration Statement filed pursuant to Section 5.1 or 5.2 hereof) agrees, if
requested by the managing underwriters in an underwritten offering, not to
effect any public sale or distribution of securities of the Company the same as
or similar to those being registered, or any securities convertible into or
exchangeable or exercisable for such securities, in the applicable registration
statement, including a sale pursuant to Rule 144 under the Securities
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Act (except as part of such registration), during the 14-day period prior to,
and during the Holdback Period (as defined below), to the extent timely notified
by the Company or the managing underwriters. For the purpose of this Section
5.3, the "Holdback Period" shall mean, (a) in the case of a Beneficial Owner of
Registrable Securities covered by a Registration Statement filed pursuant to
Section 5.1 or 5.2, the 180-day period beginning on the effective date of such
Registration Statement or the commencement of the public distribution of
securities, and (b) in the case of a Beneficial Owner of Registrable Securities
which are not covered by such a Registration Statement, the 90-day period
beginning on the effective date of the applicable registration statement or the
commencement of the public distribution of securities (or, with respect to a
Piggyback Registration, such longer period of up to 180 days as may be required
by the underwriter for such offering); provided, however, that in the case of
the Qualifying IPO, the Holdback Period with respect to all Beneficial Owners of
Registrable Securities (whether or not such Registrable Securities are covered
by the applicable registration statement) shall mean the 180-day period
beginning on the effective date of such registration statement or the
commencement of the public distribution of securities.
5.4 Registration Procedures. In connection with the Company's
registration obligations pursuant to Section 5.1 and 5.2 hereof, the Company
will use its reasonable efforts to effect such registration to permit the sale
of such Registrable Securities in accordance with the intended method or methods
of distribution thereof, and pursuant thereto the Company will as expeditiously
as possible:
(a) prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its reasonable efforts to
cause such Registration Statement to become effective, and, upon the request of
the Stockholders holding a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to 90 days or
until all of the securities registered thereunder are sold, whichever occurs
sooner;
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the Prospectus used in connection
with such Registration Statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such Registration Statement;
(c) furnish to the Stockholders such numbers of copies of
a prospectus, including a preliminary Prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) use its reasonable efforts to register and qualify the
securities covered by such Registration Statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Stockholders, provided that the Company shall not be required in connection
therewith or as a condition thereto to qualify to do business or to file a
general consent to service of process in any such states or jurisdictions;
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(e) in the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter of such offering, and each
Stockholder participating in such underwriting shall also enter into and perform
its obligations under such an agreement; and
(f) notify each Stockholder holding Registrable Securities
covered by such Registration Statement at any time when a Prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the Prospectus included in such Registration
Statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
The Company may require each seller of Registrable Securities as to which any
registration is being effected to furnish to the Company such information
regarding the distribution of such securities and such other information
relating to such Stockholder and its ownership of Registrable Securities as the
Company may from time to time reasonably request in writing. Each Stockholder
holding Registrable Securities agrees to furnish such information to the Company
in a timely manner and to cooperate with the Company as necessary to enable the
Company to comply with the provisions of this Agreement.
5.5 Underwritten Offerings.
(a) Incidental Underwritten Offering. If the Company
proposes to register securities under the Securities Act as contemplated by
Section 5.1 and such securities are to be distributed by or through one or more
underwriters, the Company will, if requested by any Beneficial Owner of
Registrable Securities pursuant to Section 5.1 and subject to the provisions of
Section 5.1(b), attempt to arrange for such underwriters to include all the
Registrable Securities to be offered and sold by such Beneficial Owner among the
securities of the Company to be distributed by such underwriters. The Beneficial
Owners of Registrable Securities to be distributed by such underwriters shall be
parties to the underwriting agreement between the Company and such underwriters.
(b) Participation in Underwritten Registrations. No
Person may participate in any underwritten registration hereunder unless such
Person (i) agrees to sell such Person's securities on the basis provided in any
underwriting arrangements approved by the Persons entitled to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements.
5.6 Preparation; Reasonable Investigation. In connection with the
preparation and filing of each Registration Statement, the Company will give the
Beneficial Owners of Registrable Securities registered under such Registration
Statement, their underwriters, if any, and their respective counsel and
accountants the opportunity to participate in the preparation of such
Registration Statement, each Prospectus included therein or filed with the SEC,
and, to the extent
20
<PAGE> 21
practicable, each amendment thereof or supplement thereto, and give each of them
such access to its books and records (to the extent customarily given to
underwriters of the Company's securities) and such opportunities to discuss the
business of the Company with its officers and the independent public accountants
who have certified its financial statements as shall be necessary, in the
opinion of such Beneficial Owners' and such underwriters' respective counsel, to
conduct a reasonable investigation within the meaning of the Securities Act;
provided, however, that any books, records, information or documents that are
designated by the Company in writing as confidential shall be kept confidential
by such Persons unless disclosure thereof is required by law.
5.7 Registration Expenses. The Company shall bear and pay all
expenses reasonably incurred in connection with any registration, filing or
qualification of Registrable Securities whether pursuant to the Selling
Stockholder's right to require such registration in accordance with this Article
V or otherwise, including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and fees and disbursements of one counsel for the Selling Stockholders
selected by them (which the Company may request be the Company's counsel if such
counsel is reasonably acceptable to such selling Stockholders), but excluding
underwriting discounts and commissions and stock transfer taxes relating to
Registrable Securities.
5.8 Indemnification.
(a) Indemnification by the Company. To the extent
permitted by law, the Company will indemnify and hold harmless each Stockholder,
any underwriter (as defined in the Securities Act) and each person, if any, who
controls such Stockholder or underwriter within the meaning of the Securities
Act or the Exchange Act, against any losses, claims, damages, or liabilities
joint or several) to which they may become subject under the Securities Act, or
the Exchange Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement, including
any preliminary Prospectus or final Prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
or the Exchange Act or any state securities law; and the Company will pay to
each such Stockholder, underwriter or controlling person, as incurred, any legal
or other expenses reasonably incurred by one law firm retained by them, plus
appropriate local counsel (or such additional law firms retained by a
Stockholder or Stockholders if such Stockholder or Stockholders reasonably
believe there exists a conflict of interest among them), in connection with
investigating or defending any such loss, claim, damage, lability, or action;
provided, however, that the indemnity agreement contained in this Section 5.8(a)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
lability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of
21
<PAGE> 22
or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by any such Stockholder, underwriter or controlling person.
(b) Indemnification by the Selling Stockholder. To the
extent permitted by law, each Selling Stockholder will indemnify and hold
harmless the Company, each of its directors, each of its officers who has signed
the Registration Statement, each person, if any, who controls the Company within
the meaning of the Securities Act, any underwriter, any other Stockholder
selling securities in such Registration Statement and any controlling person of
any such underwriter or other Stockholder, against any losses, claims, damages,
or liabilities joint or several) to which any of the foregoing persons may
become subject, under the Securities Act, or the Exchange Act or other federal
or state law, insofar as such losses, claims, damages, or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Stockholder expressly for use in connection with such registration; and each
such Stockholder will pay, as incurred, any legal or other expenses reasonably
incurred by any person intended to be indemnified pursuant to this Section
5.8(b), in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this Section 5.8(b) shall not apply to amounts paid in settlement
of any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the indemnifying Stockholder, which consent
shall not be unreasonably withheld; provided, further, that, in no event shall
any indemnity under this Section 5.8(b) exceed the net proceeds from the
offering received by such Stockholder.
(c) Procedures. Promptly after receipt by an indemnified
party under this Section 5.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
5.8, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel (plus appropriate local counsel), with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial in any material respect to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 5.8, but the omission so
to deliver written notice to the indemnifying party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 5.8.
22
<PAGE> 23
(d) Survival. The obligations of the Company and
Stockholders under this Section 5.8 shall survive the completion of any
offering of Registrable Securities in a Registration Statement under this
Agreement, and otherwise.
5.9 Rule 144. If the Company shall have filed a registration
statement pursuant to the requirements of Section 12 of the Exchange Act or a
Registration Statement pursuant to the duplicative requirements of the
Securities Act, the Company covenants that it will file any reports required to
be filed by it under the Securities Act and the Exchange Act, and it will take
such further action as any Beneficial Owner of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
Beneficial Owner to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by (a) Rule 144
under the Securities Act, as such Rule may be amended from time to time, or (b)
any similar rule or regulation hereafter adopted by the SEC. Upon the request of
any Beneficial Owner of Registrable Securities, the Company will deliver to such
Beneficial Owner a written statement as to whether it has complied with such
requirements. The foregoing notwithstanding, the provisions of this Section 5.9
shall not limit in any respect the restrictions on Transfer contained in Article
III hereof.
5.10 Timing of Conversions. Only shares of Common Stock may be
registered under Article V hereof. Demand registration permitted by Section 5.2
hereof may be made in connection with notice of conversion of a series of
convertible Preferred Stock, which conversion shall be effective as of the
effective date of the Registration Statement registering the Common Stock into
which such Preferred Stock converts.
ARTICLE VI
MISCELLANEOUS
6.1 Endorsement of Stock Certificates. All certificates evidencing
shares of the Company Stock shall bear substantially the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY
NOT BE TRANSFERRED, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER SAID ACT AND THE
RULES AND REGULATIONS THEREUNDER AND ALL APPLICABLE STATE SECURITIES
OR "BLUE SKY" LAWS OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ALL
APPLICABLE STATE SECURITIES OR "BLUE SKY" LAWS."
23
<PAGE> 24
In addition, each certificate evidencing shares of the Company Stock
will bear a legend reading substantially as follows until the transfer
restrictions with respect to such shares contained in this Agreement are no
longer effective:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO CERTAIN TRANSFER RESTRICTIONS SET FORTH IN AN AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT DATED AS OF MARCH ___, 1998, A COPY OF WHICH
MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE,
AND MAY NOT BE SOLD, ASSIGNED, PLEDGED, HYPOTHECATED OR OTHERWISE
DISPOSED OF WITHOUT COMPLYING WITH THE TERMS AND CONDITIONS OF SUCH
AGREEMENT."
6.2 Term.
(a) Unless earlier terminated as expressly provided herein,
this Agreement shall terminate ten years from the date of this Agreement.
(b) The provisions of Article V shall terminate upon the
first to occur of ten years from the date of this Agreement or the date upon
which all of the Registrable Securities have ceased to be such pursuant to
Sections 5.1 or 5.2 hereof or the closing of a Public Merger.
(c) Notwithstanding the foregoing, this Agreement shall
in any event terminate with respect to any Stockholder when such Stockholder
no longer owns any shares of the Company Stock (except if such shares are
transferred in violation of this Agreement).
6.3 Injunctive Relief. It is hereby agreed and acknowledged that it
will be impossible to measure in money the damages that would be suffered if the
parties fail to comply with any of the obligations herein imposed on them and
that in the event of any such failure, an aggrieved Person will be irreparably
damaged and will not have an adequate remedy at law. Any such Person shall,
therefore, be entitled to injunctive relief, including specific performance, to
enforce such obligations, and if any action should be brought in equity to
enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
6.4 Notices. Any and all notices, designations, consents, offers,
acceptances, or other communications provided for herein (each a "Notice") shall
be given in writing personally by hand-delivery, overnight courier, telegram, or
telecopy which shall be addressed, or sent, to the respective addresses or
telecopy numbers as follows (or such other address or telecopy number as the
Company or any Stockholder may specify for itself to the Company and all other
Stockholders by Notice):
24
<PAGE> 25
The Company: Wyle Laboratories, Inc.
128 Maryland Street
El Segundo, California 90245
Fax: (310) 640-6826
With copies to: Sanders, Barnet, Goldman, Simons & Mosk,
A Professional Corporation
1901 Avenue of the Stars; Suite 850
Los Angeles, California 90067-6078
Attention: Michael Sanders, Esq.
Fax: (310) 553-2435
Krug: Krug International Corp.
4620 Sedgwick Street, NW
Washington, DC 20016
Attention: Chief Executive Officer
Fax: (202) 537-5903
With copies to: Smith, Gambrell & Russell, LLP
1230 Peachtree Street, NE; Suite 3100
Atlanta, Georgia 30326-1010
Attention: Howard E. Turner, Esq.
Fax: (404) 685-6894
Wesinvest: William E. Simon & Sons, Inc.
10990 Wilshire Boulevard; 56th Floor
Los Angeles, California 90067-6078
Attention: Michael Lenard
Fax:
With copies to: Latham & Watkins
633 West 5th Street; Suite 4000
Los Angeles, California 90071
Attention: Jeffrey L. Kateman
Fax:
Each Stockholder: To such address or telecopy number of such
Stockholder as is reflected on the stock
transfer records of the Company at the time
in question.
All Notices shall be deemed effective, delivered and received (a) at the time
delivered by hand, if personally delivered; (b) if given by telecopy, when such
telecopy is transmitted to the telecopy number specified above and receipt
thereof is confirmed; (c) if given by overnight courier, on the
25
<PAGE> 26
business day immediately following the day on which such Notice is delivered to
a reputable overnight courier service; or (d) if given by telegram, when such
Notice is delivered at the address specified above.
Whenever pursuant to this Agreement any Notice is required to be given by any
Stockholder to any other Stockholder or Stockholders, such Stockholder may
request from the Company a list of addresses of all Stockholders of the Company,
which list shall be promptly furnished to such Stockholder.
6.5 Assignment. Except as set forth herein, neither this Agreement
nor any of the rights or obligations hereunder may be assigned by any party
hereto except in connection with the sale of Company Stock by such party in
accordance with the terms of Article IV hereof, unless such assignment receives
the approval of 90% of the Company Stock. Subject to the foregoing (and to the
provisions of Section 6.10 hereof), this Agreement shall inure to the benefit of
and be binding upon the parties, and permitted successors and assigns of each of
the parties. If any Stockholder shall acquire any shares of Company Stock in any
manner, whether by operation of law or otherwise, such Company Stock shall be
held subject to all of the terms of this Agreement.
6.6 Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Delaware without regard to the
principles of conflicts of laws.
6.7 Headings. The headings in this Agreement are inserted herein for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
6.8 Severability. In the event that any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable, the validity, legality and enforceability of
any such provision in every other respect and of the remaining provisions
contained herein shall not be affected or impaired thereby.
6.9 Entire Agreement. This Agreement contains the entire agreement
among the parties hereto with respect to the subject matter contained herein,
and supersede all prior agreements, negotiations and understandings, whether
written or oral, with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings relating to such subject
matter other than those set forth in this Agreement.
6.10 Amendments and Waiver. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and the Beneficial Owners of 80% of the amount of
Company Stock then held in the aggregate by the Stockholders (provided, Article
II hereof may not be amended or modified or impaired without the written
approval of Management Stockholders, acting collectively, Krug and Wesinvest).
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon each Beneficial Owner
26
<PAGE> 27
of any Company Stock then outstanding, each future Beneficial Owner of all such
Company Stock, and the Company. In the event of the amendment or modification of
this Agreement in accordance with its terms, the Stockholders shall cause the
Board of Directors to meet within 30 calendar days following such amendment or
modification or as soon thereafter as is practicable for the purpose of adopting
any amendment to the Certificate of Incorporation and By-Laws of the Company
that may be required as a result of such amendment or modification to this
Agreement, and, if required, proposing such amendments to the Stockholders
entitled to vote thereon. No action taken pursuant to this Agreement shall be
deemed to constitute a waiver by the party taking such action of compliance with
any covenants or agreements contained herein. No failure to exercise and no
delay in exercising any right, power or privilege of a party hereunder shall
operate as a waiver or a consent to the modification of the terms hereof unless
given by that party in writing. The waiver by any party hereto of a breach of
any provision of this Agreement shall not operate or be construed as a waiver of
any preceding or succeeding breach.
6.11 Inspection. So long as this Agreement shall be in effect, this
Agreement shall be made available for inspection by any Stockholder of the
Company at the principal offices of the Company.
6.12 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts each of which
when so executed shall be deemed to be an original and all of which together
shall constitute one and the same Agreement.
6.13 Not for Benefit of Third Parties. This Agreement is not made
for the benefit of any third party.
6.14 Recapitalizations, Exchanges. Etc., Affecting Common Stock. The
provisions of this Agreement shall apply, to the full extent set forth herein
with respect to shares of the Company Stock, to any and all shares of capital
stock of the Company or any successor or assigns of the Company (whether by
merger, consolidation, sale of assets, or otherwise) which may be issued in
respect of, or in substitution for, shares of the Company Stock, and shall be
approximately adjusted for any stock dividends, splits, reverse splits,
combinations, recapitalizations and the like occurring after the date hereof.
6.15 Service of Process; Consent to Jurisdiction.
(a) Service of Process. Each party hereto irrevocably
consents to the service of any process, pleading, notices or other papers by the
mailing of copies thereof by registered, certified or first class mail, postage
prepaid, to such party at such party's address set forth herein, or by any other
method provided or permitted under Delaware law.
(b) Consent and Jurisdiction. Each party hereto
irrevocably and unconditionally (i) agrees that any suit, action or other legal
proceeding arising out of this Agreement may be brought in a United States
District Court in the State of Delaware or, if such court does not have
jurisdiction
27
<PAGE> 28
or will not accept jurisdiction, in any court of general jurisdiction in
Delaware; (ii) consents to the jurisdiction or any such court in any such suit,
action or proceeding; and (iii) waives any objection which such party may have
to the laying of venue of any such suit, action or proceeding in any such court.
6.16 Confidentiality. The parties hereto shall, and shall cause their
respective officers, directors, employees, and agents and their respective
Affiliates and their respective officers, directors, employees and agents to,
hold confidential and not use in any manner detrimental to the Company all
information they may have or obtain pursuant to their rights under this
Agreement concerning the Company and their respective assets, business,
operations, or prospects; provided, however, that the foregoing shall not apply
to (a) information that is or becomes generally available to the public other
than as a result of the improper disclosure by a party or any of its Affiliates
or such party's or Affiliates' employees, agents, accountants, legal counsel, or
other representatives, (b) information that is or becomes available to a party
or any of its employees, agents, accountants, legal counsel, or other
representatives on a nonconfidential basis prior to its disclosure by the
Company or its employees, agents, accountants, legal counsel, or other
representatives, and (c) information that is required to be disclosed by a party
or any of its Affiliates or such party's or Affiliates' employees, agents,
accountants, legal counsel, or other representatives as a result of any
applicable law, rule, or regulation of any governmental authority or stock
exchange.
28
<PAGE> 29
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
or have caused this Agreement to be duly executed on their respective behalf by
their respective officers or partners thereunto duly authorized, as of the day
and year first above written.
WYLE LABORATORIES, INC.
By: /s/ F. Stephen Wyle
----------------------------------------
Its: Chairman of the Board
KRUG INTERNATIONAL CORP.
By: /s/ C. L. Haslam
----------------------------------------
Its: Chairman of the Board and Chief
Executive Officer
WESINVEST PARTNERS, L.P.
By: General Partner Wesinvest Inc.
Its: President /s/ Michael B. Leonard
--------------------------------------
MANAGEMENT STOCKHOLDERS'
SIGNATURES START ON NEXT PAGE
29
<PAGE> 30
/s/ Gordon B. Bakken /s/ David D. Edwards
- ----------------------------- -----------------------------
Gordon B. Bakken David D. Edwards
Hans B. Bausch and Carmelita Robert B. Everleigh and Frances
M. Bausch, Joint Tenants with C. Everleigh, Joint Tenants with
Right of Survivorship Right of Survivorship
By:/s/ Hans B. Bausch By: /s/ Robert B. Everleigh
----------------------------- -----------------------------
/s/ Harold D. Bradley
- ----------------------------- /s/ James Foglietta
Harold D. Bradley -----------------------------
James Foglietta
/s/ David Brown
- ----------------------------- /s/ Ronald E. Giuntini
David Brown -----------------------------
Ronald E. Giuntini
/s/ Javier Santa Cruz, Jr.
- -----------------------------
Javier Santa Cruz, Jr. /s/ Constantine Glaretas
-----------------------------
Constantine Glaretas
/s/ Harry P. Dansforth
- -----------------------------
Harry P. Dansforth /s/ Alan Gormley
-----------------------------
Alan Gormley
/s/ Domenico M. DeLucchi
- -----------------------------
Domenico M. DeLucchi /s/ George E. Hauer
-----------------------------
George E. Hauer
/s/ David F. Dougherty
- -----------------------------
David F. Dougherty /s/ Joseph T. Hazeltine
-----------------------------
Joseph T. Hazeltine
Signature Page to
Amended and Restated
Stockholders' Agreement
30
<PAGE> 31
John R. Herring and Doris J. /s/ Herschel D. Jordan
Herring, Trustees of the --------------------------------
Herring Family Trust Dated Herschel D. Jordan
October 10, 1992
/s/ John P. King
By: /s/ John R. Herring --------------------------------
----------------------------- John P. King
/s/ Keith Hightower
- -------------------------------- /s/ Gary Krasnianski
Keith Hightower --------------------------------
Gary Krasnianski
/s/ William W. Holbrook
- --------------------------------
William W. Holbrook Gary Krasnianski and Cathy
Krasnianski, Community Property
/s/ Robert R. Houser
- -------------------------------- By: /s/ Gary Krasnianski
Robert R. Houser -----------------------------
Robert R. Houser and Donna /s/ Marilyn L. Kuhn
J. Houser, Community Property --------------------------------
Marilyn L. Kuhn
By: /s/ Robert R. Houser
----------------------------- /s/ John E. Lindsey
--------------------------------
John E. Lindsey
/s/ Dennis D. Hubbard
- -------------------------------- /s/ Donald MacKenzie
Dennis D. Hubbard --------------------------------
Donald MacKenzie
/s/ Sherwyn D. Hyten
- -------------------------------- /s/ Mehdi Navid
Sherwyn D. Hyten --------------------------------
Mehdi Navid
/s/ John A. Iacobucci
- --------------------------------
John A. Iacobucci
Signature Page to
Amended and Restated
Stockholders' Agreement
31
<PAGE> 32
Mehdi Navid and Farzaneh Navid, Simon Shih and Evelyn
Joint Tenants with Right of Chiang Shih,
Survivorship Community Property
By: /s/ Mehdi Navid By: /s/ Simon Shih
---------------------------- ----------------------------
/s/ Robert L. Porter /s/ John J. Shimada
- ------------------------------- -------------------------------
Robert L. Porter John J. Shimada
Robert A. Rieth and Katherine A. John J. Shimada and Loraine
Rieth, Co-Trustees of the S. Shimada, Joint Tenants
Rieth Living Trust with Right of Survivorship
UA DTD 8/29/96
By: /s/ John J. Shimada
By: /s/ Robert E. Rieth ----------------------------
----------------------------
/s/ Donald E. Smith
/s/ Richard E. Rupert -------------------------------
- ------------------------------- Donald E. Smith
Richard E. Rupert
Richard E. Rupert and Barbara /s/ Drexel L. Smith
G. Rupert, Community Property -------------------------------
Drexel L. Smith
By: /s/ Richard E. Rupert
---------------------------- Drexel L. Smith and Jacqueline
L. Smith, Joint Tenants
/s/ Roy M. Scates
- -------------------------------
Roy M. Scates By: /s/ Drexel L. Smith
----------------------------
/s/ Simon Shih
- ------------------------------- /s/ Edward W. Smith
Simon Shih -------------------------------
Edward W. Smith
Signature Page to
Amended and Restated
Stockholders' Agreement
32
<PAGE> 33
/s/ L. Craig Smith /s/ John J. Wood
- ------------------------------- -------------------------------
L. Craig Smith John J. Wood
/s/ Rick D. Smith /s/ F. Stephen Wyle
- ------------------------------- -------------------------------
Rick D. Smith F. Stephen Wyle
Rick D. Smith and Karen K. Smith, F. Stephen Wyle and Deborah S.
Joint Tenants with Right of Wyle, Community Property
Survivorship
By: /s/ F. Stephen Wyle
By: /s/ Rick D. Smith ----------------------------
----------------------------
/s/ Hillard Sorey /s/ Constantinos D. Yiakas
- ------------------------------- -------------------------------
Hillard Sorey Constantinos D. Yiakas
John R. Stearns and Helen M. Constantinos D. Yiakas and Argyro
Stearns, as Trustees under Yiakas, Community Property
Stearns (John R. and Helen M.)
October 13, 1987 Family Trust
By: /s/ Constantinos D. Yiakas
----------------------------
By: /s/ John R. Stearns
----------------------------
/s/ Claude Thibault
- -------------------------------
Claude Thibault
WESINVEST PARTNERS, L.P.
By: General Partner Wesinvest Inc.
Its: President /s/ Michael B. Leonard
--------------------------------
Signature Page to
Amended and Restated
Stockholders' Agreement
33
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
The active subsidiaries of KRUG International Corp. are listed below,
do business under the name under which they are organized, and are included in
the consolidated financial statements of the Corporation. The names,
jurisdiction of incorporation of such subsidiaries, and percentage of voting
securities owned by the Corporation are set forth below.
<TABLE>
<CAPTION>
JURISDICTION PERCENTAGE OF
IN WHICH VOTING SECURITIES
NAME OF SUBSIDIARY INCORPORATED OWNED
- ------------------ ---------------- -----------------
<S> <C> <C>
KRUG Properties Inc. Ohio 100% (1)
SunLink Services, Inc. Georgia 100%
KRUG Properties Ltd. Ontario, Canada 100% (1)
KRUG International (U.K.) Ltd. United Kingdom 100%
Bradley International Holdings Limited United Kingdom 100% (2)
Beldray Limited United Kingdom 100% (3)
Hago Products Limited United Kingdom 100% (4)
Klippan Ltd. United Kingdom 100% (3)
Oy Klippan AB Finland 100% (5)
AKTA Barnsakerhet AB Sweden 100% (5)
Klippan sarl France 100% (5)
Klippan GmbH Germany 100% (5)
</TABLE>
- ------------------
(1) Subsidiaries included within discontinued operations.
(2) Subsidiaries of KRUG International (U.K.) Ltd.
(3) Subsidiary of Bradley International Holdings Ltd.
(4) Subsidiary of Beldray Limited
(5) Subsidiary of Klippan Limited
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements Nos.
333-42217 and 333-06129 of KRUG International Corp. on Forms S-8 and in
Registration Statement No. 33-88190 of KRUG International Corp. on Form S-3 of
our reports dated June 2, 1998, appearing in the Annual Report on Form 10-K of
KRUG International Corp. for the year ended March 31, 1998.
DELOITTE & TOUCHE LLP
Houston, Texas
June 12, 1998
<PAGE> 1
EXHIBIT 24.1
KRUG INTERNATIONAL CORP.
POWER OF ATTORNEY
WHEREAS, KRUG International Corp. (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for the
fiscal year ended March 31, 1998;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company hereby appoints Charles Linn Haslam and Robert M. Thornton, Jr., and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, to execute in his name, place and stead, the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998
(including any amendment to such report) and any and all other instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be done, as
fully to all intents and purposes as the undersigned might or could do in
person. The undersigned hereby ratifies and approves the acts of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
26th day of May 1998.
/s/ Ronald J. Vannuki
------------------------------
Ronald J. Vannuki
<PAGE> 2
KRUG INTERNATIONAL CORP.
POWER OF ATTORNEY
WHEREAS, KRUG International Corp. (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for the
fiscal year ended March 31, 1998;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company hereby appoints Charles Linn Haslam and Robert M. Thornton, Jr., and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, to execute in his name, place and stead, the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998
(including any amendment to such report) and any and all other instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be done, as
fully to all intents and purposes as the undersigned might or could do in
person. The undersigned hereby ratifies and approves the acts of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
26th day of May 1998.
/s/ Karen Brenner
-----------------------------
Karen Brenner
<PAGE> 3
KRUG INTERNATIONAL CORP.
POWER OF ATTORNEY
WHEREAS, KRUG International Corp. (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for the
fiscal year ended March 31, 1998;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company hereby appoints Charles Linn Haslam and Robert M. Thornton, Jr., and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, to execute in his name, place and stead, the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998
(including any amendment to such report) and any and all other instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be done, as
fully to all intents and purposes as the undersigned might or could do in
person. The undersigned hereby ratifies and approves the acts of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
26th day of May 1998.
/s/ Bernee D.L. Strom
------------------------------
Bernee D.L. Strom
<PAGE> 4
KRUG INTERNATIONAL CORP.
POWER OF ATTORNEY
WHEREAS, KRUG International Corp. (the "Company") intends to file with
the Securities and Exchange Commission its Annual Report on Form 10-K for the
fiscal year ended March 31, 1998;
NOW, THEREFORE, the undersigned in his capacity as a director of the
Company hereby appoints Charles Linn Haslam and Robert M. Thornton, Jr., and
each of them, his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution, to execute in his name, place and stead, the
Company's Annual Report on Form 10-K for the fiscal year ended March 31, 1998
(including any amendment to such report) and any and all other instruments
necessary or incidental in connection therewith, and to file the same with the
Securities and Exchange Commission. Said attorneys shall have full power and
authority to do and perform in the name and on behalf of the undersigned, in the
aforesaid capacity, every act whatsoever necessary or desirable to be done, as
fully to all intents and purposes as the undersigned might or could do in
person. The undersigned hereby ratifies and approves the acts of said attorneys.
IN WITNESS WHEREOF, the undersigned has executed this instrument this
26th day of May 1998.
/s/ T. Wayne Holt
-------------------------
T. Wayne Holt
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