-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ONuX4jkF+0POg11Oe2eoxLfjfDE3FsHWbrx1mkIcSCX0F9Xu7UHSgTpqF9TEHB9T Qt8EGDOp62YNA4HVynNtZA== 0000950129-97-003307.txt : 19970815 0000950129-97-003307.hdr.sgml : 19970815 ACCESSION NUMBER: 0000950129-97-003307 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KRUG INTERNATIONAL CORP CENTRAL INDEX KEY: 0000096793 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMMERCIAL PHYSICAL & BIOLOGICAL RESEARCH [8731] IRS NUMBER: 310621189 STATE OF INCORPORATION: OH FISCAL YEAR END: 0331 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-12607 FILM NUMBER: 97660516 BUSINESS ADDRESS: STREET 1: PO BOX 3065 OVERLOOK BRANCH STREET 2: STE 120 CITY: DAYTON STATE: OH ZIP: 45437-3065 BUSINESS PHONE: 5132249066 MAIL ADDRESS: STREET 1: 6 NORTRH MAIN ST SUITE 500 STREET 2: 6 NORTRH MAIN ST SUITE 500 CITY: DAYTON STATE: OH ZIP: 45402 FORMER COMPANY: FORMER CONFORMED NAME: TECHNOLOGY INC DATE OF NAME CHANGE: 19860803 FORMER COMPANY: FORMER CONFORMED NAME: COMANCO INDUSTRIES INC DATE OF NAME CHANGE: 19710719 10-Q 1 KRUG INTERNATIONAL CORP. - 6/30/97 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON D.C. 20549 FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ................ TO .............. COMMISSION FILE NUMBER 0-2901 KRUG INTERNATIONAL CORP. ------------------------ (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) Ohio 31-0621189 ---- ---------- (STATE OR OTHER JURISDICTION OF INCORPORATION (I.R.S. EMPLOYER OR ORGANIZATION) IDENTIFICATION NO.) 1290 Hercules Drive Suite 120 Houston, Texas 77058 - ---------------------------------------------- ----- (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) (281)212-1233 ------------- (REGISTRANT'S TELEPHONE NUMBER INCLUDING AREA CODE) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filings requirements for the past 90 days. Yes [X] No [ ] The number of Common Shares, without par value, outstanding as of July 31, 1997 was 5,157,270. 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KRUG INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (dollars in thousands)
June 30, March 31, 1997 1997 ---------- ---------- ASSETS Current Assets: Cash $ 714 $ 105 Receivables - net 20,713 21,631 Inventories (Note B) 12,097 11,103 Prepaid expenses 1,433 1,058 ---------- ---------- Total Current Assets 34,957 33,897 ---------- ---------- Property, Plant and Equipment 19,209 18,488 Less accumulated depreciation 8,064 7,650 ---------- ---------- 11,145 10,838 ---------- ---------- Pension Asset 3,046 2,966 Deferred Tax Assets 1,470 2,041 Other Assets 431 225 ---------- ---------- $ 51,049 $ 49,967 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Bank borrowings $ -- $ 1,161 Accounts payable 11,819 11,650 Accrued expenses (Note D) 6,458 6,176 Income taxes 484 451 Net current liabilities of discontinued operations (Note E) 450 450 Current maturities of long-term debt 2,967 2,922 ---------- ---------- Total Current Liabilities 22,178 22,810 ---------- ---------- Long-Term Debt 9,582 9,173 Net Non-Current Liabilities of Discontinued Operations (Note E) 24 ---------- ---------- Total Liabilities 31,760 32,007 ---------- ---------- Shareholders' Equity: Common Shares, no par value: issued and outstanding, 5,151,206 at June 30, 1997 and March 31, 1997 2,576 2,576 Additional paid-in capital 4,399 4,399 Retained earnings 11,051 9,966 Foreign currency translation adjustment 1,263 1,019 ---------- ---------- Total Shareholders' Equity 19,289 17,960 ---------- ---------- Total Liabilities and Shareholders' Equity $ 51,049 $ 49,967 ========== ==========
See notes to consolidated financial statements 3 KRUG INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (in thousands, except per share)
Three Months Ended June 30, ------------------------------ 1997 1996 ----------- ----------- Revenues $ 30,508 $ 26,507 Costs and Expenses: Cost of goods sold 26,057 22,442 Selling and administrative 2,474 2,268 Interest expense 318 290 Other income -- net (4) (64) ----------- ----------- 28,845 24,936 ----------- ----------- Earnings before Income Taxes 1,163 1,571 Income Taxes (Note C) 578 522 ----------- ----------- Net Earnings $ 1,085 $ 1,049 =========== =========== Net Earnings Per Share $ 0.21 $ 0.20 =========== =========== Average Common and Common Equivalent Shares Outstanding 5,183 5,174 =========== ===========
See notes to consolidated financial statements 4 KRUG INTERNATIONAL CORP. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
THREE MONTHS ENDED June 30, -------------------------- 1997 1996 -------------------------- Net Cash Provided by Operating Activities $ 1,953 $ 3,794 ---------- ---------- Cash Flows From Investing Activities: Expenditures for property, plant and equipment (214) (88) Proceeds from sale of assets 31 -- ---------- ---------- Net Cash Used in Investing Activities (183) (88) ---------- ---------- Cash Flows From Financing Activities: Bank borrowings - net (1,158) (31) Payments on long-term debt (13) (1,230) Proceeds from exercise of stock options -- 137 ---------- ---------- Net Cash Provided by (Used in) Financing Activities (1,171) (1,124) ---------- ---------- Effect of Exchange Rate Changes on Cash 10 53 ---------- ---------- Net Increase in Cash 609 2,635 Cash at Beginning of Period 105 439 ---------- ---------- Cash at End of Period $ 714 $ 3,074 ========== ========== Cash Paid For: Income Taxes $ -- $ -- ========== ========== Interest $ 326 $ 329 ========== ========== Non-Cash Investing and Financing Activities- Capital leases $ 367 $ 47 ========== ==========
See notes to consolidated financial statements 5 KRUG INTERNATIONAL CORP. AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS QUARTER ENDED JUNE 30, 1997 (DOLLARS IN THOUSANDS) NOTE A -- BASIS OF PRESENTATION The unaudited Condensed Consolidated Financial Statements for the three months ended June 30, 1997 have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities and Exchange Commission and, as such, do not include all information required by generally accepted accounting principles. These Condensed Consolidated Financial Statements should be read in conjunction with the consolidated financial statements included in the Corporation's Annual Report on Form 10-K filed on June 16, 1997. In the opinion of management, the Condensed Consolidated Financial Statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the financial position and results of operations for the periods indicated. The results of operations for the three months ended June 30, 1997 are not necessarily indicative of the results that may be expected for the entire fiscal year or any interim period. NOTE B-- INVENTORIES
June 30, March 31, 1997 1997 ---------- ---------- Finished goods $ 8,752 $ 8,171 Work-in-process 1,138 1,291 Raw materials and supplies 2,207 1,641 ---------- ---------- $ 12,097 $ 11,103 ========== ==========
NOTE C-- INCOME TAXES The provision for income taxes is composed of the following:
Three Months Ended June 30, 1997 1996 - --------------------------- ------- ------- Domestic $ 17 $ 65 Foreign 561 457 ------- ------- $ 578 $ 522 ======= =======
6 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) NOTE D -- RESTRUCTURING CHARGE In September 1996, the Corporation closed its executive offices in Dayton, Ohio and consolidated its headquarters activities with its primary operations facility adjacent to the NASA Johnson Space Center in Houston, Texas. At June 30, 1997, accrued expenses included the accrued restructuring charge of $298 which relates primarily to rent (net of expected sublease rental income) and other expenses payable through June 1999, the lease termination date of the offices in Dayton, Ohio vacated by the Corporation. NOTE E -- DISCONTINUED OPERATIONS In prior years, the Corporation discontinued the operations and disposed of substantially all of the net assets of its Industrial Segment. Remaining obligations related to this Segment include leased property in Knoxville, Tennessee and in Toronto, Canada, and product liability claims related to products sold prior to the disposal of the Industrial Segment. NOTE F -- RECENT ACCOUNTING STANDARDS In February 1997, Statement of Financial Accounting Standards No. 128, "Earnings per Share" ("SFAS NO. 128") was issued. This statement requires dual presentation of basic and diluted earnings per share on the face of the statement of earnings for entities with complex capital structures. SFAS No. 128 is effective for financial statements for periods ending after December 15, 1997, including interim periods. Implementation of this pronouncement is not expected to have a material effect on reported earnings per share. In June 1997, SFAS No. 130, "Reporting Comprehensive Income" ("SFAS No. 130") was issued. This statement 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 shareholders' equity or (3) a new separate statement of comprehensive income. Comprehensive income is comprised of net income and all changes to shareholders' equity, except for 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 although earlier application is permitted. SFAS No. 130 does not change the current accounting treatment for components of comprehensive income (i.e. changes in unrealized gains or losses on securities). Implementation of SFAS No. 130 is not expected to have a material impact on the Corporation's Consolidated Financial Statements. In June 1997, SFAS No. 131, "Disclosure and Segments of an Enterprise and Related Information" ("SFAS No. 131") was issued. This statement requires public companies to report certain information about their operating segments in their 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 although earlier application is encouraged. Implementation of SFAS No. 131 is not expected to have a material effect on the Corporation's Consolidated Financial Statements. 7 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FINANCIAL SUMMARY
THREE MONTHS ENDED June 30, -------------------------- 1997 1996 ---------- ---------- REVENUES: Leisure Marine $ 10,802 $ 9,654 Housewares 9,595 6,572 Life Sciences and Engineering 10,111 10,281 ---------- ---------- $ 30,508 $ 26,507 ========== ========== OPERATING PROFIT: Leisure Marine $ 1,467 $ 1,167 Housewares 111 141 Life Sciences and Engineering 692 815 ---------- ---------- 2,270 2,123 Corporate expense (293) (326) ---------- ---------- Operating profit 1,977 1,797 Other income - net 4 64 Interest expense (318) (290) ---------- ---------- Earnings before Income Taxes $ 1,663 $ 1,571 ========== ========== CAPITAL ADDITIONS: Leisure Marine $ 0 $ 12 Housewares 198 62 Life Sciences and Engineering 16 14 ---------- ---------- $ 214 $ 88 ========== ==========
RESULTS OF OPERATIONS First quarter revenues for fiscal 1998 of $30.5 million increased $4.0 million or 15% from the comparable quarter of fiscal 1997. The U.K. Leisure Marine Segment revenue increased by $1.1 million from the same period in fiscal 1997. A $0.4 million increase in sales volume, resulting from increased chandlery and personal watercraft sales offset somewhat by decreased outboard and inboard engine sales, and $0.7 million favorable effect of foreign currency translation combined for the increase in revenues. The U.K. Housewares Segment revenue increased by $3.0 million from the comparable period of fiscal 1997. Of the increase, $2.5 million was due to revenues of Hago Products Limited (Hago) which was purchased on October 31, 1996, $0.4 million was due to the favorable effect of foreign currency translation and $0.1 million was due to increases in sales volume. Sales volume in child safety gates and garden products increased while ladder sales decreased. The Life Sciences and Engineering Segment (LS&E) revenue decreased by $0.1 million from the first quarter of fiscal 1997. Decreased material purchases on contracts with NASA at the Johnson Space Center in Houston, Texas partially offset by increased labor revenue and material purchases under contracts with the U.S. Air Force resulted in the decreased LS&E revenue. The LS&E order backlog at June 30, 1997 was $139.9 million compared with $106.9 million at March 31, 1997 and $48.2 million at June 30, 1996. In June 1997, KRUG Life Sciences Inc. (KLSI) was awarded a new five-year, $40.1 million NASA contract for biotechnology and bioengineering services 8 with NASA at the Johnson Space Center. A total of approximately $110 million of order backlog relating to three NASA contracts has been awarded since the beginning of calendar 1997. Operating profit (revenues less cost of goods sold and selling and administrative expenses) increased $0.18 million or approximately 10% over the same quarter of the previous year due primarily to increased operating profit in the Leisure Marine Segment resulting from increased chandlery and personal watercraft sales and increased margins on engine parts sales. Operating profit of the LS&E Segment declined $0.12 million in the fiscal 1998 quarter due to a favorable contract settlement in the prior year's quarter of $0.14 million. Excluding this favorable contract settlement, LS&E had a slight increase in operating profit in the current year. The lower operating profit reported by the Housewares Segment resulted from decreased gross profit (revenues less cost of goods sold) margin. For the quarter ended June 30, 1997, the operating profit margin for the Corporation decreased to 6.5% from 6.8% in the same quarter of the previous year primarily as a result of lower gross profit margin in the Housewares Segment. Selling and administrative expense increased by $0.2 million in the first quarter of fiscal 1998 as compared to the first quarter of fiscal 1997. Of the increase, $0.1 million was due to the unfavorable effect of currency translation. Increased Leisure Marine Segment selling expense, resulting from increased volume, and the addition of Hago to the current year's results also increased selling and administrative expenses. These increases were partially offset by decreased LS&E segment bid and proposal expenses. Interest expense for the first quarter of fiscal 1998 increased by $0.03 million compared to the first quarter of fiscal 1997 due to increased U.S. and U.K. interest rates and higher U.K. debt levels. Net earnings were $1.09 million for the first quarter of fiscal 1998 compared to $1.05 million for the comparable period of fiscal 1997 . The increase in earnings is primarily due to the increased revenue and gross profit margin of the Leisure Marine Segment. DISCONTINUED OPERATIONS The adequacy of the provision for losses related to the discontinued Industrial Segment was reviewed by the Corporation during the first three months of fiscal 1998 and no changes were deemed appropriate. LIQUIDITY AND CAPITAL RESOURCES Under the Corporation's revolving credit facility with a U.S. business credit corporation, the Corporation had a loan outstanding of $4.2 million at June 30, 1997. Availability under the revolving credit facility is based upon the amount of billed and unbilled U.S. accounts receivable and is limited to a maximum of $10.0 million. The credit facility expires March 15, 2000. At June 30, 1997, the Corporation had a $1.7 million mortgage loan outstanding on its Dayton, Ohio real property. The mortgage loan was provided by five U.S. banks and matures on March 31, 1998. The Corporation's U.K. subsidiaries at June 30, 1997 had two term loans outstanding totaling $5.5 million. The term loans require quarterly principal payments and mature in fiscal 2005. In addition, the Corporation has an unused line of credit of $4.2 million available at June 30, 1997 for its U.K. subsidiaries. The Corporation believes it has adequate financing in both the U.S. and U.K. to support its current level of operations. During the first quarter of 1998, the Corporation expended $0.21 for capital additions compared to $0.09 million for the comparable quarter in fiscal 1997. Capital additions were primarily for equipment purchases by the Corporation's Housewares Segment. The Corporation generated $1.95 million from operating activities in the first three months of fiscal 1998. compared to $3.8 million for the first three months of fiscal 1997. The decrease in cash generated from operating activities in the current year was due primarily to increased inventory in the U.K. and decreased cash generated from receivables in the U.S. 9 CERTAIN CAUTIONARY STATEMENTS In addition to historical information, Item 2 of this document contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 which may include, without limitation, statements regarding management's outlook for each of its businesses and the sufficiency of the Corporation's liquidity and sources of capital. These forward-looking statements are subject to certain risks, uncertainties and other factors which could cause actual results to differ materially from those anticipated, including, without limitation, restrictions imposed by debt agreements, competition in the Housewares and Leisure Marine businesses and for government services provided by the Life Sciences and Engineering Segment, governmental and budgetary constraints, the regulatory environment for the Corporation's businesses, consolidation trends in the Corporation's businesses, competition in the acquisition market, changes in exchange rates, increases in raw material prices, the purchasing practices of significant customers, the availability of qualified management and staff personnel in each business segment and claims for product liability from continuing and discontinued operations. 10 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS On July 18, the Corporation held its Annual Meeting of Shareholders. At the meeting four directors, Charles Linn Haslam, Robert M. Thornton, Jr., T. Wayne Holt and James J. Mulligan, were elected to two-year terms of office expiring at the Annual Meeting of Shareholders in 1999. 3,005,439 shares were voted in favor of electing Mr. Haslam and 3,663 shares were withheld, 3,005,439 shares were voted in favor of electing Mr. Thornton and 3,663 shares were withheld, 3,003,962 shares were voted in favor of electing Mr. Holt and 5,140 shares were withheld, and 3,003,653 shares were voted in favor of electing Mr. Mulligan and 5,449 shares were withheld. Also at the meeting, the shareholders voted to adopt the Corporation's 1997 Employee Stock Purchase Plan (the 1997 Plan). In general, the 1997 Plan allows employees of the Corporation to receive an option to buy a maximum of 200 shares of the Corporation at a price equal to 85% of the fair market value of the shares on either January 1, 1997 or December 31, 1997, whichever is the lower. The shares are paid for through a payroll deduction program and participants earn 7% interest on the amount of accumulated payroll deductions and on any additional cash payments made. A participant may elect at any time to abandon all or any part of the option and, upon such abandonment, the Corporation will pay to the participant the amount of the payroll deduction or cash payment applicable to the abandoned shares, plus interest. The 1997 Plan commenced on January 1, 1997 and terminates on December 31, 1997. The Board of Directors may renew the 1997 Plan for four one-year periods. 2,980,784 shares were voted in favor of adoption of the 1997 Plan, 13,281 shares were voted against and the holders of 15,037 shares abstained from voting. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibit 10.1 - Amendment dated May 27, 1997 to Employment Agreement between KRUG International Corp. and Charles Linn Haslam dated May 17, 1996 is filed as an exhibit to this report. (B) Exhibit 10.2- Amendment dated May 27, 1997 to Consulting and Employment Agreement between KRUG International Corp. and Robert M. Thornton, Jr. dated May 17, 1996 is filed as an exhibit to this report. (C) Exhibit 10.3 - Employment Agreement between KRUG Life Sciences Inc. and Joseph P. Kerwin dated April 1, 1997 is filed as an exhibit to this report. (D) Exhibit 10.4 - Summary of verbal Consulting Agreement between KRUG Life Sciences Inc. and T. Wayne Holt dated April 16, 1997 is filed as an exhibit to this report. (E) Exhibit 10.5 - Amendment No. 3 to Loan and Security Agreement between KRUG International Corp., KRUG Life Sciences Inc., Technology/Sciences Services, Inc. and Transamerica Business Credit Corporation dated February 10, 1997 is filed as an exhibit to this report. 11 (F) Exhibit 10.6 - Amendment No. 4 to Loan and Security Agreement between KRUG International Corp., KRUG Life Sciences Inc., Technology/Sciences Services, Inc. and Transamerica Business Credit Corporation dated April 21, 1997 is filed as an exhibit to this report. (G) Exhibit 27 - Financial Data Schedule 12 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, KRUG International Corp. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KRUG International Corp. By: /s/ Robert M. Ellis ---------------------------------- Robert M. Ellis Principal Accounting Officer Dated : August 14, 1997 13 INDEX TO EXHIBITS
EXHIBIT NUMBER DESCRIPTION - ------- ----------- 10.1 -Amendment dated May 27, 1997 to Employment Agreement between KRUG International Corp. and Charles Linn Haslam dated May 17, 1996 is filed as an exhibit to this report. 10.2 -Amendment dated May 27, 1997 to Consulting and Employment Agreement between KRUG International Corp. and Robert M. Thornton, Jr. dated May 17, 1996 is filed as an exhibit to this report. 10.3 -Employment Agreement between KRUG Life Sciences Inc. and Joseph P. Kerwin dated April 1, 1997 is filed as an exhibit to this report. 10.4 -Summary of verbal Consulting Agreement between KRUG Life Sciences Inc. and T. Wayne Holt dated April 16, 1997 is filed as an exhibit to this report. 10.5 -Amendment No. 3 to Loan and Security Agreement between KRUG International Corp., KRUG Life Sciences Inc., Technology/Sciences Services, Inc. and Transamerica Business Credit Corporation dated February 10, 1997 is filed as an exhibit to this report. 10.6 -Amendment No. 4 to Loan and Security Agreement between KRUG International Corp., KRUG Life Sciences Inc., Technology/Sciences Services, Inc. and Transamerica Business Credit Corporation dated April 21, 1997 is filed as an exhibit to this report. 27 -Financial Data Schedule
EX-10.1 2 EMPLOYMENT AGREEMENT (CHARLES LINN HASLAM) 1 EXHIBIT 10.1 May 27, 1997 C. L. Haslam, Esq. 4620 Sedgwick Street, N.W. Washington, DC 20016 Dear Mr. Haslam: KRUG International Corp. ("Corporation") hereby offers to amend Section 2 of the Employment Agreement dated May 17, 1996 between you and the Corporation to increase your monthly salary to $16,000, effective June 1, 1997. If this is agreeable to you, please sign the enclosed copy of this letter and return it to me. Very truly yours, KRUG International Corp. By /s/ James J. Mulligan ----------------------------- Secretary Agreed: /s/ C. L. Haslam - --------------------------------- C. L. Haslam EX-10.2 3 CONSULTING & EMPLOYMENT AGREEMENT(ROBERT THORNTON) 1 EXHIBIT 10.2 May 27, 1997 Mr. Robert M. Thornton, Jr. 1090 Northchase Parkway Suite 200 South Marietta, GA 30067-6402 Dear Mr. Thornton: KRUG International Corp. ("Corporation") hereby offers to amend Section 2 of the Consulting and Employment Agreement dated May 17, 1996 between you and the Corporation to increase your monthly salary to $13,500, effective June 1, 1997. If this is agreeable to you, please sign the enclosed copy of this letter and return it to me. Very truly yours, KRUG International Corp. By /s/ James J. Mulligan ------------------------------- Secretary Agreed: /s/ Robert M. Thornton, Jr. - --------------------------------- Robert M. Thornton, Jr. EX-10.3 4 EMPLOYMENT AGREEMENT (JOSEPH P. KERWIN) 1 EXHIBIT 10.3 EMPLOYMENT AGREEMENT This Agreement, effective April 1, 1997, is entered into between KRUG LIFE SCIENCES, INC., an Ohio corporation (the "Corporation"), and Joseph P. Kerwin, M.D. ("KERWIN", or the "Employee"), under the following circumstances: A. The Corporation desires to secure KERWIN's services over the next two years; and B. KERWIN desires the security of an employment agreement and is willing to enter into such an agreement upon the terms and conditions stated herein.. Now, therefore, in consideration of the respective covenants of the parties contained herein, the parties hereto agree as follows: SECTION 1. TERM OF EMPLOYMENT. The Corporation hereby agrees to employ KERWIN, and KERWIN hereby agrees to be employed by the Corporation, for a period of two (2) years beginning April 1, 1997 and expiring on March 31, 1999. SECTION 2. POSITION AND DUTIES (a) During KERWIN's term of employment hereunder, the Corporation shall employ KERWIN as, and KERWIN shall serve as, the President of the Corporation with his duties, authority and responsibilities to be of the same character and importance as those normally performed and exercised by a corporate president. (b) KERWIN shall devote his full-time efforts to the business and affairs of the Corporation and shall perform his duties as President faithfully, diligently, and to the best of his ability. He shall act in conformity with the policies of the Corporation and under and subject to such reasonable directions and instructions as the Board of Directors may issue from time to time. SECTION 3. SALARY AND BONUS (a) During the term of this Agreement, the Corporation shall pay KERWIN a base salary at a rate of One Hundred and Forty Thousand Dollars ($140,000) per year, payable in approximately equal instalments in accordance with the normal pay schedule for officers of the Corporation. (b) In addition to his base salary, KERWIN shall be eligible to receive an incentive [Page 1 of 4] 2 bonus of up to 12% of his base salary for each fiscal year, based upon annual performance criteria approved by the Board of Directors within sixty (60) days after the beginning of the fiscal year. Any such bonus shall be paid in a lump sum, subject to appropriate tax and other withholdings, and shall be paid within a reasonable time after it is earned and the corporation's financial statements for the fiscal year are published. SECTION 4. STOCK OPTION. Subject to the prior approval of the Executive Committee of the Board of Directors of Krug International Corp., the Corporation hereby grants to KERWIN, effective April 1, 1997, an option to purchase 15,000 Common Shares of the Corporation under the 1995 Incentive Stock Option Plan of the Corporation (a copy of which is attached hereto). SECTION 5. AUTOMOBILE ALLOWANCE. Upon the execution of this Agreement, KERWIN shall receive a Six Thousand Dollar ($6,000) payment as an automobile allowance. SECTION 6. VACATION. KERWIN shall be entitled to fifteen (15) working days of paid vacation per year. SECTION 7. OTHER BENEFITS. In addition to the base salary and incentive bonus compensation payable pursuant to Section 3, the Corporation shall also provide to KERWIN, on an equivalent basis, the same fringe benefits (including, but not limited to, health insurance, group life insurance, 401(k) retirement plan, and other similar personal benefits) that are received generally by other employees of the Corporation. SECTION 8. EXPENSE REIMBURSEMENT. KERWIN shall be entitled to reimbursement from the Corporation for reasonable "out-of-pocket" expenses incurred with the approval of the Corporation in the performance of his duties hereunder, in accordance with the Corporation's expense reimbursement policy. SECTION 9. NON-DISCLOSURE. Without the Corporation's prior express written consent, KERWIN will not, whether during or after expiration of this Agreement, in any manner whatsoever, except as necessary to fulfill any obligation to the Corporation as an employee, (i) furnish, disclose or make accessible to any person or entity, (ii) assist any person or entity in obtaining or learning, or (iii) use, any confidential or proprietary information which is owned or held by the Corporation in any form. After termination of this Agreement, KERWIN shall surrender any such tangible confidential information, including all copies thereof, to the Corporation immediately upon the Corporation's written request. KERWIN shall continue to adhere to all of his obligations hereunder after any such return of any tangible confidential information and shall not thereafter make use of any such confidential information for any purpose until such information ceases to be confidential or becomes part of the public domain through no fault [Page 2 of 4] 3 of KERWIN. SECTION 10. NOTICES. All notices required or permitted under this Agreement shall be in writing and shall be deemed delivered when delivered in person or deposited in the United States mail, postage prepaid, addressed as follows: Corporation: KRUG International Corp. Attention: Chief Executive Officer 1290 Hercules Drive, Suite 120 Houston, TX 77058 KERWIN: Joseph P. Kerwin, M.D. 1802 Royal Fern Court Houston TX 77062 Such address may be changed from time to time by either party by providing written notice to the other in the manner set forth above. SECTION 11. ENTIRE AGREEMENT. This Agreement contains the entire agreement of the parties and there are no other promises or conditions in any other agreement whether oral or written. This Agreement supersedes any prior written or oral agreements between the parties. SECTION 12. AMENDMENT. This Agreement may be modified or amended if the amendment is made in writing and signed by both parties. SECTION 13. SEVERABILITY. If any provision of this Agreement shall be held to be invalid or unenforceable for any reason, the remaining provisions shall continue to be valid and enforceable. If a court finds that any provision of this Agreement is invalid or unenforceable, but that by limiting such provision it would become valid and enforceable, then such provision shall be deemed to be written, construed and enforced as so limited. SECTION 14. WAIVER OF CONTRACTUAL RIGHT. The Failure of either party to enforce any prevision of this Agreement shall not be construed asa waiver or limitation of that party's right to subsequently enforce and compel strict compliance with every provision of this Agreement. IN WITNESS WHEREOF, the undersigned have set their hands hereto effective on [Page 3 of 4] 4 the date first set forth above. /s/ Joseph P. Kerwin --------------------------------------- JOSEPH P. KERWIN, M.D. KRUG LIFE SCIENCES, INC. By:/s/ C. L. Haslam --------------------------------------- Charles Linn Haslam, Chairman [Page 4 of 4] EX-10.4 5 CONSULTING AGREEMENT (T. WAYNE HOLT) 1 EXHIBIT 10.4 Effective April 16, 1997, KRUG Life Sciences Inc. (KLSI) and T. Wayne Holt entered into a verbal Consulting Agreement whereby Mr. Holt would serve as a consultant to KLSI for the recompetition of KLSI's contract at Armstrong Laboratories, Brooks AFB, San Antonio, Texas. Under the terms of the Agreement, Mr. Holt is to be paid $7,000 per month and reimbursed for reasonable expenses that he incurs. The Agreement may be terminated at any time by either party, upon written notice. EX-10.5 6 AMEND.#3 TO LOAN & SECURITY AGREEMENT 1 EXHIBIT 10.5 AMENDMENT NO. 3 TO LOAN AND SECURITY AGREEMENT AMENDMENT NO. 3, dated as of February 10, 1997, between TRANSAMERICA BUSINESS CREDIT CORPORATION ("Lender"), and KRUG INTERNATIONAL CORP. ("Borrower") and Borrower's wholly-owned Subsidiaries, KRUG LIFE SCIENCES INC. ("Life Sciences") and TECHNOLOGY/SCIENTIFIC SERVICES, INC. ("TSSI") (Life Sciences and TSSI hereinafter referred to individually as a "Borrowing Subsidiary", and collectively as "Borrowing Subsidiaries"). Lender and Borrower and Borrowing Subsidiaries are parties to a Loan and Security Agreement, dated as of March 16, 1995, as amended by an Amendment No. 1 to Loan and Security Agreement dated as of September 26, 1995, and by an Amendment No. 2 to Loan and Security Agreement dated July 16, 1996 (the "Loan and Security Agreement"). Lender, Borrower and Borrowing Subsidiaries desire to amend the Loan and Security Agreement in certain respects and, accordingly, the parties hereto agree as follows: 1. DEFINITIONS. Except as otherwise provided herein, the terms defined in the Loan and Security Agreement are used herein as defined therein. 2. AMENDMENT. Effective as of December 31, 1996, Sections 7.2(K) and 7.3(A) of the Loan and Security are amended and restated as follows: Section 7.2 (K) Permit the aggregate of all Accounts owing from U.K. Subsidiary at any time to exceed Two Hundred Thousand Dollars ($200,000) (other than in connection with transactions related to dividends from U.K. Subsidiary to Borrower), or permit the aggregate of all Accounts owing from KRUG Properties Inc. to exceed the sum of the amount of such Account as of March 31, 1995, plus the net expenses of Borrower's discontinued operations for the Fiscal Years commencing with the Fiscal Year ending March 31, 1996, but not to exceed Eight Hundred Thousand Dollars ($800,000) for the Fiscal Year ending March 31, 1996, One Million Dollars ($1,000,000) for the Fiscal Year ending March 31, 1997, and Six Hundred Thousand Dollars ($600,000) for each Fiscal Year thereafter. Section 7.3 (A) Borrower and U.S. Subsidiaries shall have, on a consolidated basis, (i) at the end of each of the Fiscal Quarters within the Fiscal Years ending March 31, 1995, and March 31, 1996, commencing with the Fiscal Quarter ending March 31, 1995, a Fixed Charge Coverage Ratio equal to or greater than 0.8 to 1.0, (ii) at the end of each of the Fiscal Quarters ending June 30, 1996 and September 30, 1996, a Fixed Charge Coverage Ratio equal to or greater than 1.0 to 1.0, (iii) at the end of the Fiscal Quarter ending December 31, 1996, a Fixed Charge Coverage Ratio equal to or greater than 0.8 to 1.0, and (iv) at the end of each Fiscal Quarter thereafter, a Fixed Charge Coverage Ratio equal to or greater than 1.0 to 1.0. 3. REPRESENTATION AND WARRANTY. Borrower and each Borrowing Subsidiary represents and warrants to Lender that the execution and delivery by Borrower and each Borrowing Subsidiary of this Amendment No. 3 are within Borrower's and each Borrowing Subsidiary's corporate power, have been duly authorized by all necessary or proper corporate action, are not in contravention of any provision of Borrower's or either Borrowing Subsidiary's Articles or Certificate of Incorporation or Regulations, will not violate any law or regulation, or any order or decree of any court or governmental instrumentality, will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrower or either Borrowing Subsidiary is a party or by which Borrower or either Borrowing Subsidiary or any of its property is bound and do not require the consent or approval of any governmental body, agency, authority or any other person. 2 4. NO DEFAULT. Borrower and each Borrowing Subsidiary represents and warrants that no Default or Event of Default exists as of the date hereof. 5. MISCELLANEOUS. Except as herein provided, the Loan and Security Agreement shall remain unchanged and in full force and effect. This Amendment No. 3 may be executed in any number of separate counterparts, each of which shall, collectively and separately, constitute one agreement. This Amendment No. 3 and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. IN WITNESS WHEREOF, this Amendment No. 3 has been duly executed as of the day and year specified at the beginning hereof. TRANSAMERICA BUSINESS CREDIT KRUG INTERNATIONAL CORP. CORPORATION By: /s/ Matthew N. McAlpine By: /s/ Robert M. Thornton, Jr. --------------------------------- ------------------------------------ Name: Matthew N. McAlpine Name: Robert M. Thornton, Jr. ----------------------------- Title: Vice-President Title: President ----------------------------- KRUG LIFE SCIENCES INC. By: /s/ T. Wayne Holt ------------------------------------ Name: T. Wayne Holt ----------------------------- Title: President ----------------------------- TECHNOLOGY/SCIENTIFIC SERVICES, INC. By: /s/ Robert C. DeLong ------------------------------------ Name: Robert C. DeLong ----------------------------- Title: President ----------------------------- 2 EX-10.6 7 AMEND.#4 TO LOAN & SECURITY AGREEMENT 1 EXHIBIT 10.6 AMENDMENT NO. 4 TO LOAN AND SECURITY AGREEMENT AMENDMENT NO. 4, dated as of April 21, 1997, between TRANSAMERICA BUSINESS CREDIT CORPORATION ("Lender"), and KRUG INTERNATIONAL CORP. ("Borrower") and Borrower's wholly-owned Subsidiaries, KRUG LIFE SCIENCES INC. ("Life Sciences") and TECHNOLOGY/SCIENTIFIC SERVICES, INC. ("TSSI") (Life Sciences and TSSI hereinafter referred to individually as a "Borrowing Subsidiary", and collectively as "Borrowing Subsidiaries"). Lender and Borrower and Borrowing Subsidiaries are parties to a Loan and Security Agreement, dated as of March 16, 1995, as amended by an Amendment No. 1 to Loan and Security Agreement dated as of September 26, 1995, and by an Amendment No. 2 to Loan and Security Agreement dated July 16, 1996, and by an Amendment No. 3 to Loan and Security Agreement dated as of February 10, 1997 (the "Loan and Security Agreement"). Lender, Borrower and Borrowing Subsidiaries desire to amend the Loan and Security Agreement in certain respects and, accordingly, the parties hereto agree as follows: 1. DEFINITIONS. Except as otherwise provided herein, the terms defined in the Loan and Security Agreement are used herein as defined therein. 2. AMENDMENT. The definition of "Borrowing Base" in Section 3.1(a) of the Loan and Security Agreement is amended and restated as follows: "The `Borrowing Base' shall mean, at any particular time, an amount equal to (a) ninety percent (90%), or such other percentage as Lender, in its sole discretion, exercised in a commercially reasonable manner, shall from time to time consider appropriate, of Eligible Accounts - Billed, plus (b) the lesser of (x) Four Million, Five Hundred Thousand Dollars ($4,500,000) or (y) seventy percent (70%), or such other percentage as Lender, in its sole discretion, exercised in a commercially reasonable manner, shall from time to time consider appropriate, of Eligible Accounts - Estimated, provided that Lender shall give Borrower thirty (30) days prior written notice of any change to such percentages." 3. REPRESENTATION AND WARRANTY. Borrower and each Borrowing Subsidiary represents and warrants to Lender that the execution and delivery by Borrower and each Borrowing Subsidiary of this Amendment No. 4 are within Borrower's and each Borrowing Subsidiary's corporate power, have been duly authorized by all necessary or proper corporate action, are not in contravention of any provision of Borrower's or either Borrowing Subsidiary's Articles or Certificate of Incorporation or Regulations, will not violate any law or regulation, or any order or decree of any court or governmental instrumentality, will not conflict with or result in the breach or termination of, constitute a default under, or accelerate any performance required by, any indenture, mortgage, deed of trust, lease, agreement or other instrument to which Borrower or either Borrowing Subsidiary is a party or by which Borrower or either Borrowing Subsidiary or any of its property is bound and do not require the consent or approval of any governmental body, agency, authority or any other person. 4. NO DEFAULT. Borrower and each Borrowing Subsidiary represents and warrants that no Default or Event of Default exists as of the date hereof. 2 5. MISCELLANEOUS. Except as herein provided, the Loan and Security Agreement shall remain unchanged and in full force and effect. This Amendment No. 4 may be executed in any number of separate counterparts, each of which shall, collectively and separately, constitute one agreement. This Amendment No. 4 and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with, the laws of the State of Illinois applicable to contracts made and performed in such state, without regard to the principles thereof regarding conflict of laws, and any applicable laws of the United States of America. IN WITNESS WHEREOF, this Amendment No. 4 has been duly executed as of the day and year specified at the beginning hereof. TRANSAMERICA BUSINESS CREDIT KRUG INTERNATIONAL CORP. CORPORATION By: By: --------------------------------- ---------------------------------- Name: Name: --------------------------- --------------------------- Title: Title: --------------------------- --------------------------- KRUG LIFE SCIENCES INC. By: /s/ Robert M. Ellis ---------------------------------- Name: Robert M. Ellis --------------------------- Title: Vice President --------------------------- TECHNOLOGY/SCIENTIFIC SERVICES, INC. By: ---------------------------------- Name: --------------------------- Title: --------------------------- 2 EX-27 8 FINANCIAL DATA SCHEDULE
5 1,000 3-MOS MAR-31-1998 JUN-30-1997 714 0 21,619 906 12,097 34,957 19,209 8,064 51,049 22,178 9,582 0 0 2,576 16,713 51,049 30,508 30,508 26,057 28,531 0 0 318 1,663 578 1,085 0 0 0 1,085 .21 .00
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