<PAGE> 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SCHEDULE 14A
(RULE 14A)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
(AMENDMENT NO. )
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
<TABLE>
<S> <C>
/ / Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE COMMISSION
ONLY (AS PERMITTED BY RULE 14A-6(E)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to sec.240.14a-11(c) or sec.240.14a-12
</TABLE>
KRUG INTERNATIONAL CORP.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Krug International Corp.
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 2
KRUG INTERNATIONAL CORP.
6 NORTH MAIN STREET SUITE 500
DAYTON, OHIO 45402-1900
June 16, 1995
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
which will be held at 10:00 a.m., on Tuesday, July 18, 1995, at Sinclair
Community College, Frederick C. Smith Auditorium, Sinclair Center - Building
12, 444 West Third Street, Dayton, Ohio.
The accompanying Notice of the Annual Meeting and Proxy Statement
contain detailed information concerning the matters to be considered and acted
upon at the Meeting. The Corporation's 1995 Annual Report to Shareholders is
also enclosed.
We hope you will be able to attend the Meeting and meet and talk with
your Corporation's management. As in the past, we will report on the operations
of the Corporation and comment on matters of current interest. An informal
question and answer period is also on our agenda.
Whether or not you plan to attend the Annual Meeting, it would be most
helpful if you would execute and return the enclosed proxy card at your
earliest convenience. That way you will be sure to be represented at the
Meeting and the Corporation will avoid the expense of follow-up letters to
assure a quorum and the largest representation possible. If you later find you
can attend the Meeting, you may then withdraw your proxy and vote in person.
Sincerely,
MAURICE F. KRUG
Chairman, President and
Chief Executive Officer
<PAGE> 3
KRUG INTERNATIONAL CORP.
6 NORTH MAIN STREET SUITE 500
DAYTON, OHIO 45402-1900
____________
NOTICE OF 1995 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 18, 1995
____________
To the Shareholders of
KRUG INTERNATIONAL CORP.:
The Annual Meeting of Shareholders of KRUG INTERNATIONAL CORP. will be
held at 10:00 a.m., Eastern Daylight Savings Time, on Tuesday, July 18, 1995 at
Sinclair Community College, Frederick C. Smith Auditorium, Sinclair Center -
Building 12, 444 West Third Street, Dayton, Ohio, for the purpose of
considering and voting upon:
1. Election of four directors for a two-year term;
2. Approval of the 1995 Incentive Stock Option Plan described
in the accompanying Proxy Statement; and
3. Such other business as may properly come before the
meeting or any adjournment thereof.
Whether or not you expect to be present, please mark, sign, date and
return the enclosed proxy promptly in the envelope provided. Giving the proxy
will not affect your right to vote in person if you attend the meeting.
By order of the Board of Directors
JAMES J. MULLIGAN
Secretary
June 16, 1995
<PAGE> 4
KRUG INTERNATIONAL CORP.
6 NORTH MAIN STREET SUITE 500
DAYTON, OHIO 45402-1900
PROXY STATEMENT
FOR 1995 ANNUAL MEETING OF SHAREHOLDERS
This proxy statement is furnished in connection with the solicitation
by the Board of Directors of KRUG INTERNATIONAL CORP., an Ohio corporation (the
"Corporation"), of proxies to be used at the Annual Meeting of Shareholders to
be held on July 18, 1995 and any adjournment thereof. The close of business on
June 6, 1995 has been fixed as the record date for the determination of the
holders of Common Shares entitled to vote at the meeting and each such
shareholder is entitled to one vote per share. There were 5,011,523 Common
Shares outstanding at the close of business on June 6, 1995.
All shares represented by properly executed proxies received by the
Board of Directors pursuant to this solicitation will be voted in accordance
with the shareholder's directions specified on the proxy. If no directions have
been specified by marking the appropriate places on the accompanying proxy
card, the shares will be voted in accordance with the Board's recommendations
which are FOR the election of Marvin E. Bruce, Rex M. Fleet, T. Wayne Holt and
James J. Mulligan as directors of the Corporation and FOR the adoption of the
1995 Incentive Stock Option Plan. A shareholder signing and returning the
accompanying proxy has power to revoke it at any time prior to its exercise by
delivering to the Corporation a later dated proxy or by giving notice to the
Corporation in writing or in open meeting but without affecting any vote
previously taken.
The presence, in person or by properly executed proxy, of the holders
of a majority of the Corporation's outstanding shares is necessary to
constitute a quorum at the Annual Meeting. Shares represented by proxies
received by the Corporation will be counted as present at the Annual Meeting
for the purpose of determining the existence of a quorum, regardless of how or
whether such shares are voted on a specific proposal. Abstentions will be
treated as votes cast on a particular matter as well as shares present at the
Annual Meeting. Where nominee shareholders do not vote on specific issues
because they did not receive specific instructions on such issues from the
beneficial owners of such shares ("Broker Nonvotes"), such Broker Nonvotes will
not be treated as either votes cast or shares present.
This proxy statement and the accompanying proxy card were first mailed
to shareholders on or about June 16, 1995. All information in this proxy
statement has been adjusted to reflect the 10% share dividend on December 23,
1994.
ELECTION OF DIRECTORS
The Corporation's Board of Directors is presently comprised of seven
persons and is divided into two classes, with one class having four members and
the other class three members. One class of directors is elected at each Annual
Meeting of Shareholders for a term of two years.
At the 1995 Annual Meeting, shareholders will elect four directors who
will hold office until the Annual Meeting of Shareholders in 1997. The Board of
Directors has nominated Marvin E. Bruce, Rex M. Fleet, T. Wayne Holt and James
J. Mulligan, all of whom are presently directors of the Corporation, for
election to a term of office expiring at the 1997 Annual Meeting.
It is the intention of the proxy agents named in the proxy, unless
otherwise directed, to vote such proxy for the election of Messrs. Bruce,
Fleet, Holt and Mulligan. Should any of them be unable to accept the office of
director, an eventuality which is not anticipated, proxies may be voted with
discretionary authority for a substitute nominee or nominees designated by the
Board of Directors. The four nominees receiving the highest number of votes
cast will be elected directors.
1
<PAGE> 5
<TABLE>
<CAPTION>
The following table sets forth certain information about the nominees for election and the directors whose terms of office
will continue after the meeting.
COMMON SHARES
BENEFICIALLY OWNED
AS OF 6/6/95
NAME AND OFFICES PRESENTLY DIRECTOR ------------------------------
HELD WITH CORPORATION SINCE NUMBER(1) % OF CLASS
- --------------------------- -------- --------- ----------
<S> <C> <C> <C>
NOMINEES FOR TERM OF
OFFICE EXPIRING IN 1997:
- -----------------------------
Marvin E. Bruce, Director 1974 9,094 (9)
Rex M. Fleet, Director 1993 1,454 (3) (9)
T. Wayne Holt, Director 1993 51,883 (4) 1.0
James J. Mulligan, 1966 32,285 (5) (9)
Secretary and Director
DIRECTORS WHOSE TERM OF
OFFICE EXPIRES IN 1996:
- -----------------------
Maurice F. Krug, 1959 1,193,163 (6) 22.9
Chairman, President
and Chief Executive Officer
W. E. Greenhalgh, 1993 12,128 (7) (9)
Director, KRUG International Corp. and
KRUG International (UK) Ltd.
Non-executive Chairman of its two
subsidiaries - Beldray Ltd. and Sowester Ltd.
Earl T. O'Loughlin, Director 1987 582 (8) (9)
</TABLE>
(1) This column shows the number of Common Shares of the Corporation
beneficially owned as of June 6, 1995 as confirmed by each nominee
or director and includes, where applicable, shares owned by
members of the individual's household. Unless otherwise indicated,
each individual has voting power and investment power which are
exercisable solely by such individual or are shared by such
individual with members of his household.
(2) Includes 1,515 shares that may be acquired upon the exercise of
warrants.
(3) Includes 242 shares that may be acquired upon the exercise of
warrants.
(4) Includes 16,171 shares that may be acquired upon the exercise of
options within 60 days of June 6, 1995 and 5,952 shares that may
be acquired upon the exercise of warrants.
(5) Includes 5,380 shares that may be acquired upon the exercise of
warrants.
(6) Includes 202,860 shares that may be acquired upon the exercise of
warrants.
(7) These shares may be acquired upon the exercise of options within
60 days of June 6, 1995.
(8) Includes 97 shares that may be acquired upon the exercise of
warrants.
(9) Less than 1%.
2
<PAGE> 6
Certain information concerning each person listed in the above table,
including his principal occupation for at least the last five years, is set
forth below.
Marvin E. Bruce, 66, has been Chairman since January 1991 and a
director since 1972 of TBC Corporation (a marketer of tires, batteries and
other automotive products under private labels). He also served as Chief
Executive Officer of TBC Corporation from 1973 until August 1994 and as
President from 1972 until February 1991. Mr. Bruce is also a director of Union
Planters Corporation.
Rex M. Fleet, 63, was employed by NCR Corporation from 1951 until his
retirement in 1991. He was Vice President - International Marketing Services
from 1973 to 1977, Vice President-Financial Marketing from 1983 to 1985, and
Chairman and Managing Director of NCR (UK) Ltd. from 1977 to 1983 and from
1985 until his retirement in 1991. He was a director of KRUG International (UK)
Ltd. and Beldray Ltd. from 1987 to 1992.
T. Wayne Holt, 68, was involved continuously with the Corporation's
life sciences, aerospace and engineering operations for 22 years commencing
with his initial employment in 1971 until his retirement in 1993. He held a
number of positions, including Vice President-Aerospace Group from 1981 to
1988, Assistant to the Chairman, Aerospace Group, from 1988 to 1990, Vice
President from May 1990 to February 1991, Executive Vice President from
February 1991 to December 31, 1992, and Advisor to the Chairman, Life Sciences
and Engineering from January 1, 1993 to May 1, 1993. On April 17, 1995, Mr.
Holt was named President of KRUG Life Sciences Inc., a position he had
previously held.
James J. Mulligan, 73, 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 and
Flory from 1989 until his retirement in 1991. Mulligan & Mulligan is general
counsel to the Corporation and received $75,985 for legal services rendered
during the Corporation's last fiscal year.
Maurice F. Krug, 66, has been Chairman of the Board and Chief
Executive Officer of the Corporation since 1959. From 1959 until February 1987
and from 1989 to the present, he has also served as President of the
Corporation.
W. E. Greenhalgh, 64, has been associated continuously with KRUG
International (UK) Ltd. (formerly Butterfield Harvey PLC) from 1960 to the
present. He has served in a variety of capacities, including as Chief Executive
Officer from 1983 until his retirement in 1989, and as a non-executive director
and consultant from 1989 to the present. He has also served as the
non-executive Chairman of Beldray Ltd. and Sowester Ltd. from 1989 to the
present.
General Earl T. O'Loughlin, 64, was the Commander of the United States
Air Force Logistics Command at Wright-Patterson AFB, Ohio from September 1984
until his retirement in August 1987. General O'Loughlin is also a director of
Amcast Industrial Corporation, Fleet Aerospace, Inc., Aeronca Inc., Price
Brothers Company and Huron Community Bank.
3
<PAGE> 7
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors held four meetings during fiscal 1995. The
Board has an Executive Committee, an Audit Committee and an Executive
Compensation Committee, but no nominating committee. The Executive Committee
held no meetings, the Audit Committee held three meetings, and the Executive
Compensation Committee held two meeting in fiscal 1995.
The Executive Committee (Messrs. Krug [Chairman], Bruce and Mulligan)
is empowered to exercise all of the authority of the Board of Directors except
as to matters not delegable to a committee under the General Corporation Law of
Ohio.
The Audit Committee (Messrs. Mulligan [Chairman], Fleet and
Greenhalgh) meets with Corporation personnel and representatives of the
Corporation's independent public accountants to review internal accounting
controls, internal auditing procedures and matters relating to the annual audit
of the Corporation's financial statements. The Committee reports its findings
and recommendations to the Board of Directors. Mr. T. Wayne Holt was a member
of the Audit Committee during fiscal 1995 but resigned from this position after
he became President of KRUG Life Sciences Inc. in April 1995, and was replaced
by Mr. Fleet.
The Executive Compensation Committee (Messrs. Bruce [Chairman], Fleet
and O'Loughlin) acts in an advisory capacity to the Board of Directors with
respect to compensation of the Corporation's executives.
Each non-employee director receives a monthly fee of $700 for services
as a director. In addition, he receives $850 for attendance at a meeting of the
Board of Directors and $500 for attending a committee meeting. In fiscal 1995,
all directors attended all of the meetings of the Board of Directors and of the
committees on which they served, except that one director missed one committee
meeting.
The Corporation maintains a deferred compensation plan for directors
and officers under which a director may elect to defer all or part of his
compensation until either (i) he ceases to be a director or (ii) such later
date as the director specifies. Amounts deferred are credited to the director's
account in the form of Common Share Equivalents. The number of Common Share
Equivalents credited is equal to the number of shares that could be purchased
with the amount of compensation being deferred. The director's account is
credited with dividend equivalents. Distributions are payable in cash and the
director may elect either a lump sum distribution or payment in up to five
equal annual installments. At the time of distribution, the number of Common
Share Equivalents in a director's account are converted to cash based upon the
fair market value of a share at that time.
Section 16(a) of the Securities Exchange Act of 1934 requires
directors and certain officers of the Corporation and owners of more than 10%
of the Corporation's Common Shares to file an initial ownership report with the
Securities and Exchange Commission and a monthly or annual report listing any
subsequent change in their ownership of Common Shares. The Corporation
believes, based on information provided to the Corporation by the persons
required to file such reports, that all filing requirements applicable to such
persons during the period from April 1, 1994 through March 31, 1995 have been
met.
4
<PAGE> 8
PRINCIPAL HOLDERS OF COMMON SHARES
<TABLE>
<CAPTION>
Set forth below is certain information concerning the only persons known by the Board of Directors of the Corporation to be
the beneficial owners of more than 5% of the outstanding Common Shares of the Corporation as of June 6, 1995.
COMMON SHARES
BENEFICIALLY OWNED
AS OF 6/6/95
------------------------------------------
NAME AND ADDRESS NUMBER % OF CLASS
- ------------------------------ ------------------ ----------------
<S> <C> <C>
Maurice F. Krug 1,193,163(1) 22.9
6 North Main Street Suite 500
Dayton, Ohio 45402-1900
Key Trust Company of Ohio, N.A. 515,133 (2) 10.1
32 North Main Street
Dayton, Ohio 45402
- ------------------------------
</TABLE>
(1) Includes 202,860 shares that may be acquired upon the exercise of
warrants.
(2) Key Trust has sole voting power with respect to all the shares,
sole investment power with respect to 512,089 shares, and shared
investment power with respect to 3,044 shares. 84,355 of
these shares may be acquired upon the exercise of warrants. Key
Trust holds 181,003 shares as Trustee of a trust established in
connection with a pension plan of the Corporation, including 30,167
shares that may be acquired upon the exercise of warrants.
<TABLE>
<CAPTION>
COMMON SHARES OWNED BY MANAGEMENT
The following table sets forth the number of Common Shares of the
Corporation beneficially owned as of June 6, 1995 by each named executive listed
in the Summary Compensation Table and by all directors, nominees and executive
officers as a group.
COMMON SHARES
BENEFICIALLY OWNED
AS OF 6/6/95
----------------------------------------
NAME AND ADDRESS NUMBER % OF CLASS
- -------------------------- ---------------- -----------------
<S> <C> <C>
Maurice F. Krug 1,193,163 (1) 22.9
Thomas W. Kemp 31,575 (2) (4)
Directors, Nominees and 1,332,164 (3) 25.3
Executive Officers as
a Group (8 persons)
</TABLE>
(1) Includes 202,860 shares that may be acquired upon the exercise of
warrants.
(2) Includes 20,213 shares that may be acquired upon the exercise of
options within 60 days of June 6, 1995 and 1,893 shares that may
be acquired upon the exercise of warrants.
(3) Includes 48,512 shares that may be acquired upon the exercise of
options within 60 days of June 6, 1995 and 217,939 shares that may
be acquired upon the exercise of warrants.
(4) Less than 1%.
5
<PAGE> 9
EXECUTIVE COMPENSATION
The following sections of this Proxy Statement set forth compensation
information relating to the Chief Executive Officer and the other executive
officers of the Corporation at March 31, 1995, whose salary and bonus for
fiscal year 1995 exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
The following table presents for the three fiscal years ended March 31,
1995, the compensation of the Chief Executive Officer and the other executive
officers at March 31, 1995, whose salary and bonus in fiscal 1995 exceeded
$100,000.
LONG-TERM COMPENSATION
----------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
------------------- --------------------- ----------
OTHER RESTRICTED SECURITIES LONG TERM
ANNUAL STOCK UNDERLY INCENTIVE PLAN ALL OTHER
NAME AND COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR SALARY($) BONUS($) ($) ($) (#) ($) ($)
- -------------------------- ----- ------ -------- ------------ -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maurice F. Krug, Chairman, 1995 $320,000 $ 0 $ 0 $ 0 0 $ 0 $2,133(1)
President and CEO 1994 320,000 0 0 0 0 0 3,640
1993 320,000 0 0 0 0 0 3,501
James M. Vanderploeg, M.D., 1995 129,792 0 0 0 0 0 $2,179(1)
Executive Vice President 1994 128,047 15,000 0 0 0 0 2,071
and General Manager - 1993 118,766 10,000 0 0 18,192 0 1,945
KRUG Life Sciences Inc. (2)
Thomas W. Kemp, 1995 95,600 10,000 0 0 0 0 $1,583(1)
Vice President- 1994 93,000 10,000 0 0 0 0 1,543
Finance and Treasurer 1993 88,958 10,000 0 0 6,064 0 1,509
</TABLE>
(1) These amounts were contributed by the Corporation under the 401(k)
plan for the benefit of the named executive.
(2) Dr. Vanderploeg left the employment of the Corporation on April
15, 1995. He presently serves as a consultant to the Corporation.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
The following table shows information about stock option exercises
during fiscal 1995 and unexercised stock options at 1995 fiscal year end for the
named executive officers.
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL AT FISCAL
YEAR-END (#) YEAR-END ($)
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------- ------------- ------------- -------------- --------------
<S> <C> <C> <C> <C>
Maurice F. Krug 0 $ 0 0/0 $0/$0
James M. Vanderploeg, M.D. 0 0 18,192/6,064 $25,286/$4,852
Thomas W. Kemp 0 0 14,149/16,171 $14,816/$15,322
</TABLE>
6
<PAGE> 10
RETIREMENT PLAN
The following table shows the estimated maximum annual retirement
benefits payable at normal retirement age (65) under the Corporation's
Retirement Plan at selected earnings levels after various years of service.
<TABLE>
<CAPTION>
AVERAGE ANNUAL EARNINGS
DURING HIGHEST FIVE CONSECUTIVE ESTIMATED ANNUAL RETIREMENT BENEFITS
YEARS IN THE LAST TEN YEARS FOR SPECIFIED YEARS OF SERVICE
10 YEARS 20 YEARS 30 YEARS
<S> <C> <C> <C>
$ 50,000 $ 8,000 $ 17,000 25,000
100,000 18,000 36,000 54,000
150,000 28,000 55,000 83,000
</TABLE>
The Corporation has a noncontributory Retirement Plan for officers and
other covered employees. Retirement benefits under the plan are calculated on
the basis of the employee's average annual earnings for the highest five
consecutive years of employment and years of credited service up to a maximum
of thirty years. No benefits are payable in respect of annual earnings in
excess of $150,000.
Earnings for the purpose of calculating retirement benefits include
salary and bonus. Such earnings are shown in the Summary Compensation Table.
The credited years of service for the persons named in the Summary Compensation
Table who participate in the plan are Mr. Krug - 35 years, Dr. Vanderploeg - 6
years and Mr. Kemp - 5 years. Amounts shown are straight life annuity amounts
and are not subject to any deduction for Social Security benefits.
OTHER
Mr. Krug, President, Chairman and Chief Executive Officer of the
Corporation, is currently employed by the Corporation under the terms of an
Amended Founder's Agreement which will expire on February 14, 1997. The
Agreement provides for an annual base salary of $320,000 plus any increases
that may be granted from time to time by the Corporation. The Agreement also
provides that the Corporation will pay Mr. Krug for life a monthly retirement
payment equal to one-twelfth of 50% of his average annual cash compensation for
the three highest of his last 15 years of employment with the Corporation.
Monthly retirement payments under the Agreement are reduced by the amount of
the monthly retirement payment Mr. Krug would receive under the Corporation's
Retirement Plan (discussed above), assuming his benefits under such plan
commenced upon his termination of employment and were payable monthly.
The Agreement also provides for severance payments in the event Mr.
Krug ceases to be employed by the Corporation within two years of a change in
control of the Corporation (as defined in the Agreement). In such event, the
Corporation is required to continue to pay Mr. Krug for three years after
termination of employment his base salary under the Agreement and a monthly
payment equal to 1/12 of his average annual incentive compensation during his
last two years of employment. While such severance payments are being made, no
retirement benefit is payable to Mr. Krug under the Agreement and he is
prohibited from competing with the Corporation.
7
<PAGE> 11
PERFORMANCE GRAPH
The following graph compares the cumulative total shareholder return
on the Corporation's Common Shares for its last five fiscal years with the
cumulative total return of the NASDAQ Market Index and a market capitalization
based peer group index over the same period (assuming the investment of $100 in
each vehicle on March 31, 1990 and reinvestment of all dividends). The peer
group index is comprised of 120 companies and was developed by an independent
agency to include all non-financial NASDAQ companies with a market
capitalization of between $15 - $20 million, which were publicly traded
throughout the five-year period. The Corporation is not aware of any
appropriate industry or line-of-business index with which to compare itself
because of the diversity of the Corporation's businesses and, therefore, it
believes a market capitalization index is appropriate.
<TABLE>
[GRAPH NO. 1]
<CAPTION>
PERFORMANCE DATA
1990 1991 1992 1993 1994 1995
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
KRUG International Corp. 100 94.44 66.67 87.53 73.56 91.95
Peer Group Index 100 89.98 81.86 79.38 101.04 106.39
Broad NASDAQ Market Index 100 110.28 116.23 130.08 150.33 159.48
</TABLE>
FISCAL 1995 PEER GROUP
The Peer Group is made up of NASDAQ non-financial companies with a
market value of between $15 and $20 million. The only companies meeting this
criteria for Fiscal 1995 are the following:
AJAY SPORTS INC BALTEK CP CIRCUIT SYTEMS INC
ALTAI INC BF ENTERPRISES INC COLLINS IND INC
AMERICAN INTERNAT PETRO BIOMECHANICS CP AMER COMPARATOR SYSTEMS CP
AMERICAN MED ALERT BLYVOOR GOLD MINING ADR CORTEX PHARMACEUTICALS
AMERICAN MED TECHNOLOGS CADE IND INC CRYENCO SCIENCES INC
AMERICAN VANGUARD CP CARETENDERS HEALTHCORP DELAWARE OTSEGO CP
ANALYTICAL SURVEYS INC CCAIR INC DETECTION SYSTEMS INC
ARTISTIC GREETINGS INC CEL-SCI CP DETROIT & CANADA TUNNEL
ASTROSYSTEMS INC CHARLES JW FINANCIAL SVC DOMINGUEZ SERVICES CP
AUTOMOBILE PROTECTION CP CIPRICO INC DUSTY MAC OIL & GAS LTD
8
<PAGE> 12
E-Z EM INC CL A MAXWELL LABS INC SA HOLDINGS INC
EMISPHERE TECHNOLOGIES MCM CP SANYO ELECTRIC CO LTD
ENERGY WEST INC MEDICAL INNOVATIONS INC SECURITY NATL FIN CL A
ENGINEERED SUPPORT SYS METALCLAD CP SEIBELS BRUCE GROUP INC
ESCALADE INC MICROTEL FRANCHISE & DEV SELFIX INC
FIBERCHEM INC MILTOPE GROUP INC SI HANDLING SYSTEMS INC
FIRST AMERICAN HLTH CON MMI MEDICAL INC SOFTECH INC
FUTURE MEDICAL PRODS MONMOUTH RE INVEST CP A SONESTA INTERNAT HOTELS
GAMBRO INC AB NEW IMAGE IND SOUTHWALL TECHNOLOGIES
GENCOR IND NOVITRON INTERNAT INC SOUTHWEST WATER CO
GENERAL MAGNAPLATE CP NRP INC SPEC'S MUSIC INC
GENERAL PARCEL SERVICES NYCOR INC STACEY'S BUFFET INC
GIGA TRONICS INC OI CP STEVE'S HOMEMADE ICE CRM
GRIFFIN TECHNOLOGY INC OSHAP TECHNOLOGIES LTD STROBER ORGANIZATION INC
GZA GEOENVIRON TECH OXIS INTERNATIONAL INC STUART ENTERTAINMENT
HEALTHCARE TECHNOLOGIES PACER TECHNOLOGY SURGICAL LASER TECH
HEI INC PACIFIC DUNLOP LTD ADR SYNBIOTICS CP
HITOX CP OF AMERICA PANATECH RES & DEV CP TCI INTERNATIONL INC
ICOT CP PARIS BUSINESS FORMS INC TECHNOLOGY RESEARCH INC
ILX INC PEERLESS MANUFACTURING THERMAL IND
INDUSTRIAL FUNDING CP A POLK AUDIO INC THOMASTON MILLS INC CL B
INSITUFORM EAST INC POLYDEX PHARMACEUTICALS TIGERA GROUP INC
INTERA INFO TECHNS CL A PROGROUP INC TOREADOR ROYALTY CP
ISRAMCO INC PROSPECT GROUP INC TOTAL RESEARCH CP
K-TRON INTERNAT INC PROVIDENCE & WORCESTR RR TRANS LEASING INTERNAT
KOLL REAL ESTATE GRP INC PUBCO CP UNICOMP INC
LIBERTY HOMES CL B RADA ELECTRONICS IND LTD UNIVERSAL HOLDING CP
LINDAL CEDAR HOMES INC RAND CAPITAL CP USP REAL EST INVSTRS TR
LOWRANCE ELECTRONICS INC RANDOM ACCESS INC VAUGHN'S COMMUNICATIONS
MARKET FACTS INC REXHALL IND INC. ZING TECHNOLOGIES
FISCAL 1994 PEER GROUP
These companies were in the Peer Group for Fiscal 1994 but no longer
meet the market value criteria for inclusion in the Fiscal 1995 Peer Group.
ABRAMS IND INC EATERIES INC MEDICAL DYNAMICS INC
AEQUITRON MEDICAL INC ELECTRIC & GAS TECH INC MOTO PHOTO INC
ALPHA SOLARCO INC EVANS INC NAPCO SEC SYS INC
AMERICAN CASINO ENTERPRS EVRO CP NATIONAL TECHNICAL SYSTS
AMNEX INC FDP CP NEOLENS INC
BEEBA'S CREATIONS INC FEDERAL SCREW WORKS PARLEX CP
BLISS & LAUGHLIN IND FIND/SVP INC PIEDMONT MINING CO
CANDELA LASER CP GALAXY FOODS CO POLLUTION RESEARCH & CTL
CECO ENVIRONMENTAL CP GISH BIOMEDICAL INC RULE IND
CELLEX BIOSCIENCES INC GRADCO SYTEMS INC SBC TECHNOLOGIES INC
CERADYNE INC GREAT AMER RECREATION SBE INC
CHIEF CON MINING CO GRIFFITH CONSUMERS CO SOUND ADVICES INC
CHILDRENS COMPREHEN SVCS HARCOR ENERGY INC SPAN-AMER MEDICAL SYSTS
CHOICE DRUG SYSTEMS INC HATHAWAY CP SPORTS TECH INC
CLINTON GAS SYSTEMS INC HURCO CO STAR TECHNOLOGIES INC
CRITICARE SYSTEMS INC INFORMATION INTERNAT INC SWANK INC
CROP GENETICS INT CP INTERFACE SYSTEMS INC TELEVIDEO SYSTEMS INC
DAIRY MART CONV CL B INTERMETRICS INC TIMBERLINE SOFTWARE CP
DANNINGER MEDICAL TECH INTERNAT RESEARCH & DEV U.S. ENERGY CP WYO
DATASOUTH COMPUTER CP MAGELLAN PETROLEUM CP UNIMED INC
DAVOX CP MAGNETIC TECHNOLOGIES CP VERTEX IND INC
DDI PHARMACEUTICAL INC MARGATE IND INC ZITEL CP
DETREX CP MEDICAL ACTION IND ZYGO CP
DIGITAL PRODUCTS CP INCHEI INC
9
<PAGE> 13
EXECUTIVE COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Executive Compensation Committee of the Board of Directors is
comprised of three directors who are not employees or former employees of the
Corporation. The Committee's stated function is to act in an advisory capacity
to the Board with respect to compensation of executives of the Corporation. The
Committee does not have the authority to fix the compensation of any employee,
officer or director of the Corporation. However, since the Committee's creation
in 1977, the Board has only on rare occasions not completely adopted the
recommendations of the Committee and on those occasions the changes were minor.
The goal of the Committee has been to adopt a compensation approach
that is basically simple, internally equitable and externally competitive, and
that attracts, motivates and retains qualified people capable of contributing
to the growth, success and profitability of the Corporation, thereby
contributing to long-term shareholder value. Given the size of the Corporation
and the limited number of its executive officers, the Committee has
traditionally chosen to evaluate each executive individually and on a
subjective basis, without resort to mathematical performance formulas. The
principle followed is to provide what the Committee believes is suitable
compensation based on its subjective evaluation of the executive's contribution
to the profitability of the Corporation.
The three key elements of executive compensation are base salary,
short-term incentives and long-term incentives.
The Corporation's base salaries are intended to be consistent with its
understanding of competitive practices, level of responsibility, qualifications
necessary for the particular position, and experience. Salary increases reflect
the Corporation's belief as to competitive trends, the performance of the
individual and the overall financial performance of the Corporation.
The short-term incentive for an executive is the opportunity to earn
an annual cash bonus. In line with the Corporation's discretionary approach,
the Committee considers all relevant facts and circumstances in evaluating an
executive. The Committee considers performance over a period of time, not
merely performance in the most recent year. However, in general, the most
important consideration is how well the executive has met his individual goals
as set forth in the most recent operating plan. Generally, the second most
important consideration is the Corporation's overall financial performance in
the most recent year. The Committee also considers factors beyond the
executive's control, such as, general economic conditions, industry trends,
inflation, exchange rates, changes in government policies, etc., which may have
had a material effect (positive or negative) on an individual's overall
performance. After considering all of these factors, the Committee recommends
whether or not a particular executive should be awarded a bonus and, if so, the
amount.
While salary and short-term incentives are primarily designed to
compensate current and past performance, the main purpose of the long-term
incentive compensation program is to directly link management compensation with
the long-term interests of shareholders. The Corporation is currently using, as
it has for many years, stock options to provide that link. Options are intended
to provide strong incentives for superior long-term future performance and are
generally forfeited if the executive leaves the Corporation for any reason
other than death. The issuance of stock options at 100% of the fair market
value assures that executives will receive a benefit only when the stock price
increases. In a further effort to retain competent executives, options may not
be exercised until two years have elapsed from the date of grant and then
become exercisable one-third per year in the third, fourth and fifth years,
respectively, at which time they expire. Pursuant to UK tax laws, options
granted to UK executives may not be exercised until the expiration of three
years from date of grant at which time they become immediately exercisable in
full until their expiration at the end of six years. Options are generally
granted only to those executives whose positions and performance have the
potential to improve shareholder value. In fiscal 1995, no stock options were
granted by the Corporation.
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<PAGE> 14
Mr. Krug has been CEO of the Corporation since its organization in
1959. He is currently employed by the Corporation pursuant to the terms of an
Amended Founder's Agreement (see page seven). The Founder's Agreement is
intended to secure for the Corporation the continued services of Mr. Krug and
the other benefits it receives by having readily available his knowledge of the
Corporation, its businesses, employees, customers and suppliers. Pursuant to
the Amended Founder's Agreement (and the original Founder's Agreement), Mr.
Krug's annual salary was set at $320,000 in 1988 and has not been changed
since. At Mr. Krug's request, no consideration was given to increasing his
salary or paying incentive compensation to him.
This report has been submitted by the Executive Compensation Committee:
Marvin E. Bruce Rex M. Fleet Earl T. O'Loughlin
APPROVAL OF STOCK OPTION PLAN
Shareholders of the Corporation are also being asked to consider and
act upon approval of the Corporation's 1995 Incentive Stock Option Plan (the
"1995 Plan"). The 1995 Plan, which was approved by the Board of Directors on
May 19, 1995, will become effective if approved by a majority of the shares
represented at the meeting. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR
APPROVAL OF THE PLAN. A description of the essential features of the 1995 Plan
appears below.
The Corporation has for a long period of time utilized stock options
as an important component of compensation for officers and other key employees
of the Corporation and its subsidiaries. Since July 1, 1980, the Corporation's
only form of incentive compensation for officers and other key employees, other
than cash bonuses which are paid from time to time at the discretion of the
Board of Directors, has been the 1981 Incentive Stock Option Plan (the "1981
Plan"), the 1985 Incentive Stock Option Plan (the "1985 Plan") and the
Incentive Share Option Scheme 1985 (the "1985 Scheme"). There are options to
purchase 82,875 common shares outstanding under the 1981 Plan and options to
purchase 60,640 common shares outstanding under the 1985 Plan and 1985 Scheme.
The 1981 Plan expired in 1991 and the 1985 Plan and the 1985 Scheme will expire
on October 25, 1995 and August 21, 1995, respectively. Accordingly, the Board
of Directors is recommending adoption of the 1995 Plan which will authorize the
grant of options to purchase up to a maximum of 250,000 Common Shares without
par value.
The 1995 Plan is designed to attract, retain and motivate officers and
other key employees who bear the major responsibility for the growth and
development of the Corporation. The 1995 Plan provides such employees the
opportunity and incentive to acquire shares as a long-term investment and
thereby participate in the Corporation's growth and development.
OPTIONS AND ELIGIBLE EMPLOYEES
Under the 1995 Plan, options may be granted to officers and other key
employees of the Corporation and its subsidiaries. The 1995 Plan will be
administered by the Board of Directors, except that grants of options to key
employees who are also directors of the Corporation will only be made by a
committee of three or more directors who are "disinterested persons" within the
meaning of Rule 16b-3 promulgated by the Securities and Exchange Commission.
Options granted under the 1995 Plan are intended to qualify as
incentive stock options ("Incentive Stock Options") under Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). The Board may, however,
in its discretion, grant options which would not qualify as Incentive Stock
Options.
Options permit the optionee to purchase the number of shares subject
to the option by paying to the Corporation the option price specified in the
employee's option agreement. The option price is payable either in cash, by
delivery to the Corporation of shares of the Corporation already owned by the
optionee, or by any combination of such methods of payment. Under the plan, an
optionee may use shares received upon the exercise of a portion of an option to
pay the exercise price for additional portions of the option. The Board
11
<PAGE> 15
is authorized at any time to adopt guidelines limiting or restricting the use of
already owned shares as a method of payment of the option price.
The Board may grant options under the 1995 Plan in accordance with the
following provisions:
(a)The option price per share may not be less than the fair
market value of a share on the date the option is granted. In general, fair
market value, for purposes of the Plan, is determined by reference to quoted
market prices.
(b)Each option shall be for a term of ten years after the
date of grant.
(c)No option may be exercised within two years after the date
of grant. The option becomes exercisable with respect to one- third of the
shares subject to the option in the third year after grant, an additional
one-third in the fourth year, and is fully exercisable in the fifth year and
thereafter. The Board may, however, either before or after an option is
granted, provide that an option may be exercised at any time (including during
the first two years after the grant of the option), either as to an increased
number of shares per year or as to all shares, in such cases as the Board may
deem appropriate.
(d)Options may not be assigned or transferred (except by will
and the laws of descent and distribution) and may be exercised only if the
optionee has been continuously employed by the Corporation or a subsidiary from
the date of grant to the date of exercise, except that an option may be
exercised for a period of one year after termination of employment if the cause
of termination was death.
INCENTIVE STOCK OPTIONS
There are certain additional provisions which apply to Incentive Stock
Options granted under the 1995 Plan. They are as follows:
(a)In the event an Incentive Stock Option is granted to an
employee who at the time of grant owns shares possessing more than 10% of the
voting power of all classes of shares of the Corporation, the option price must
be at least 110% of the fair market value of the shares subject to the option
on the date the option is granted, and such an option may not be exercised
after the expiration of five years from the date of grant.
(b)No Incentive Stock Option may be exercisable in an amount
exceeding the limitations of Section 422(d) of the Code.
GENERAL
The 1995 Plan provides for an adjustment in the maximum number of
shares that may be optioned under the 1995 Plan, the number of shares subject
to an outstanding option and the option price of outstanding options in the
event of a change in outstanding shares by reason of a share dividend,
recapitalization, merger, consolidation, split-up, combination, exchange of
shares, or the like.
Shares subject to an option which terminates before being fully
exercised may again be subject to options granted under the Plan.
No options may be granted under the Plan after May 19, 2005. The 1995
Plan may be amended, modified, or terminated by the Board, but shareholder
approval will be required for any amendment that would increase the number of
shares subject to the 1995 Plan, extend the term of the 1995 Plan, materially
increase benefits to participants or modify eligibility requirements.
At the close of business on June 6, 1995, the last sale price for the
Corporation's shares reported on NASDAQ's National Market System was $3.50.
12
<PAGE> 16
FEDERAL INCOME TAX CONSEQUENCES
Under current Federal income tax laws and regulations, an optionee
will not be taxed at the time an option is granted under the 1995 Plan.
In the case of an Incentive Stock Option, the optionee will recognize
no income at the time the option is exercised. If the shares received upon
exercise of an Incentive Stock Option are not disposed of within (i) two years
from the date of grant of the option nor (ii) one year after exercise of the
option, the excess of the amount received by the optionee in connection with
any disposition of the shares over the option price will be taxed as a capital
gain, and the Corporation will not receive any tax deduction. If the option
granted under the Plan does not qualify as an Incentive Stock Option, then at
the time the optionee exercises the option, the optionee will be taxed on the
excess of the fair market value of shares acquired pursuant to the option over
the option price on the date the option was exercised, and the Corporation will
be entitled to a tax deduction equal to the amount of income recognized by the
optionee.
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche has performed an audit of the Corporation's
financial statements annually since 1962. It is anticipated that
representatives of Deloitte & Touche will be present at the Annual Meeting of
Shareholders to respond to appropriate questions and to make a statement if
such representatives so desire.
The Board of Directors of the Corporation annually appoints the
independent public accountants for the Corporation after receiving the
recommendation of its Audit Committee. The Board of Directors has appointed
Deloitte & Touche as independent public accountants for the Corporation for the
year ending March 31, 1996.
OTHER BUSINESS
The Board of Directors does not intend to present, and has no
knowledge that others will present, any other business at the meeting.
However, if any other matters are properly brought before the meeting, it is
intended that the holders of proxies in the enclosed form will vote thereon in
their discretion.
COST OF SOLICITATION
The cost of solicitation of proxies will be borne by the Corporation.
In addition to the use of the mails, proxy solicitations may be made by
officers and employees of the Corporation, personally or by telephone and
telegram, without receiving additional compensation. It is also anticipated
that banks, brokerage houses and other custodians, nominees and fiduciaries
will be requested to forward soliciting material to their principals and to
obtain authorization for the execution of proxies. The Corporation will
reimburse banks, brokerage houses and other custodians, nominees and
fiduciaries for their out-of-pocket expenses.
SHAREHOLDER PROPOSALS
A proposal by a shareholder intended for inclusion in the
Corporation's proxy statement and form of proxy for the 1996 Annual Meeting of
Shareholders must, in accordance with applicable regulations of the Securities
and Exchange Commission, be received by the Corporation at 6 North Main Street
Suite 500, Dayton, Ohio 45402-1900, Attention: Secretary, on or before February
20, 1996 in order to be eligible for such inclusion.
By order of the Board of Directors
JAMES J. MULLIGAN
Secretary
Dayton, Ohio
June 16, 1995
13
<PAGE> 17
APPENDIX A
PROXY
KRUG INTERNATIONAL CORP.
ANNUAL MEETING OF SHAREHOLDERS, JULY 18, 1995
The undersigned holder(s) of Common Shares of KRUG International
Corp., an Ohio corporation (the "Corporation"), hereby appoints MAURICE F. KRUG
and JAMES J. MULLIGAN, and each of them, attorneys of the undersigned, with
power of substitution, to vote all of the Common Shares which the undersigned
is entitled to vote at the Annual Meeting of Shareholders of the Corporation to
be held on Tuesday, July 18, 1995, at 10:00 a.m., and at any and all
adjournments of said meeting, as follows:
1. ELECTION OF DIRECTORS.
___FOR all nominees listed below (except as marked to the contrary
below).
___WITHHOLD AUTHORITY to vote for all nominees listed below.
INSTRUCTION: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name below.
Marvin E. Bruce, Rex M. Fleet, T. Wayne Holt and James J. Mulligan
2. APPROVAL OF THE 1995 INCENTIVE STOCK OPTION PLAN DESCRIBED IN THE
ACCOMPANYING PROXY STATEMENT.
___FOR ___AGAINST ___ABSTAIN
3. In their discretion, upon such other business as may properly come
before the meeting or at any adjournment thereof.
This proxy is solicited on behalf of the Board of Directors of the
Corporation. When properly executed, this proxy will be voted in the manner
directed by the undersigned shareholder. If no direction is specified, this
proxy will be voted FOR proposals 1 and 2.
Receipt is acknowledged of Notice of the above meeting, the Proxy
Statement relating thereto and the Annual Report to Shareholders for the fiscal
year ended March 31, 1995.
Dated ___________________________________ , 1995
________________________________________________
________________________________________________
(Signatures)
Shareholders should date this proxy and sign here
exactly as name appears at left. If stock is held
jointly, both owners should sign this proxy.
Executors, administrators, trustees, guardians and
others signing in a representative capacity should
indicate the capacity in which they sign.
PLEASE MARK, SIGN, DATE AND MAIL THIS
CARD PROMPTLY IN THE ENCLOSED ENVELOPE
14
<PAGE> 18
APPENDIX B
KRUG INTERNATIONAL CORP.
1995 INCENTIVE STOCK OPTION PLAN
--------------------------------
Section 1. Purposes.
- ---------------------
The purposes of the 1995 Incentive Stock Option Plan (the
"Plan") are (a) to provide incentives to officers and other key employees of
the Corporation upon whose judgment, initiative and efforts the long-term
growth and success of the Corporation is largely dependent; (b) to assist the
Corporation in attracting and retaining key employees of proven ability; and
(c) to increase the identity of interests of such key employees with those of
the Corporation's shareholders by providing such employees options to acquire
Common Shares, without par value, of the Corporation and thereby participate in
the growth and development of the Corporation.
Section 2. Definitions.
- ------------------------
(a) "Board" means the Board of Directors of the Corporation.
(b) "Corporation" means KRUG International Corp.; when used
in the Plan with reference to employment, "Corporation" shall include any
Subsidiary of the Corporation.
(c) "Fair Market Value" means (1) if the Shares are listed on
the NASDAQ National Market, the last sale price of a Share on the National
Market on the date the value of a Share is to be determined or, if there are no
sales on such date, the mean of the bid and asked prices for Shares on the
National Market at the close of business on such date; or (2) if the Shares are
not listed on the NASDAQ National Market, the value determined by such
reasonable method as shall be approved by the Board.
(d) "Incentive Stock Option" means an option granted under
the Plan which qualifies as an incentive stock option under Section 422 of the
Internal Revenue Code of 1986, as amended.
(e) "Rule 16b-3" means Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 as the same may be amended from time to time.
(f) "Share" or "Shares" means the Common Shares, without par
value, of the Corporation.
(g) "Subsidiary" means any company more than 50% of the
voting stock of which is owned or controlled, directly or indirectly, by the
Corporation.
<PAGE> 19
Section 3. Administration.
- ---------------------------
(a) ADOPTION. The Plan was approved by the Board on May 19,
1995 and will become effective upon its approval by the holders of a majority
of the shares constituting a quorum and present, in person or by proxy, at the
1995 Annual Meeting of Shareholders. The Plan will terminate on May 19, 2005,
and no options may be granted under the Plan after termination.
(b) AMENDMENT. The Plan and options granted under the Plan
may be amended, modified or terminated by the Board, provided that:
(1) No action with respect to an outstanding option may be taken
that would adversely affect the rights of the holder of such option
without such holder's consent; and
(2) No amendment to the Plan shall become effective without
approval by the holders of a majority of the Shares present, in person
or by proxy, at an annual or special shareholders meeting at which a
quorum is present if such amendment would:
(i) increase the number of shares with respect to
which options may be granted under the Plan; or
(ii) extend the term of the Plan; or
(iii) materially increase the benefits accruing to or
modify eligibility requirements for participants in the Plan.
(c) OPTION GRANTS. Subject to the provisions of the Plan,
except as provided in Section 5, the Board shall, in its sole discretion,
determine the persons to whom, and the times at which, options are granted, the
number of Shares subject to each option, the option price per Share, and any
other terms of options.
(d) INTERPRETATION. The Board will have the sole discretion
and authority to interpret the Plan and to decide all questions arising under
the Plan.
Section 4. Option Shares.
- --------------------------
(a) NUMBER. The maximum number of Shares that may be issued
upon exercise of options granted under the Plan is 250,000 Shares. Such Shares
may be authorized and unissued Shares or treasury Shares.
2
<PAGE> 20
(b) ADJUSTMENT. The Board will appropriately adjust the
number of Shares subject to the Plan and the number and option price of Shares
subject to outstanding options in the event of any change in outstanding Shares
by reason of a share dividend, recapitalization, merger, consolidation,
split-up, combination, exchange of shares or other similar corporate change.
(c) UNEXERCISED OPTIONS. Shares subject to unexercised
options which terminate will thereupon become available for the grant of
additional options.
Section 5. Eligible Employees.
- -------------------------------
Options may be granted by the Board to officers and other key
employees of the Corporation, except that options to officers and other key
employees who are also members of the Board may only be granted by a committee
comprised of three or more directors, each of whom is a disinterested person
within the meaning of Rule 16b-3.
Section 6. Options and Option Terms.
- -------------------------------------
(a) DESIGNATION OF OPTIONS. Options granted under the Plan
are intended to qualify as Incentive Stock Options. The Board may, however, in
its discretion, grant options under the Plan which would not qualify as
Incentive Stock Options.
(b) OPTION AGREEMENT. The terms of each option will be set
forth in a stock option agreement approved by the Board.
(c) TERMS OF ALL OPTIONS. The following terms and provisions
shall apply to all options granted under the Plan:
(1) No option may be granted under the Plan at an option price
which is less than the Fair Market Value of a Share on the date of
grant.
(2) Each option shall be for a term of 10 years after the date
of grant.
(3) No option will be exercisable either in whole or in part
within two years after the date on which it is granted. Thereafter,
each option may be exercised as follows: one-third of the total
number of Shares covered thereby may be purchased during the third
year after grant of the option, an additional one-third during the
fourth year and an additional one-third during the fifth year. To the
extent that any Shares are not purchased during the third, fourth or
fifth year periods after the grant of the option, they may be
purchased during the remaining period or periods of the option.
Notwithstanding the foregoing, the Board may, either
3
<PAGE> 21
before or after the grant of an option, provide that an option may be
exercised at any time (including during the first two years after the
grant of the option), either as to an increased number of Shares or as
to all Shares, in such cases as the Board may deem appropriate,
including without limitation, in the event the optionee retires with
the approval of the Corporation or in the event of a proposed merger
or consolidation to which the Corporation may be a party or a sale of
substantially all the assets of the Corporation.
(4) No option may be exercised under the Plan unless the
optionee has been continuously employed by the Corporation from the
date of grant to the date of exercise except that an option may be
exercised within one year after the termination of the optionee's
employment, to the extent the option was exercisable on the date of
termination, if the cause of termination was death.
(d) ADDITIONAL PROVISIONS RELATING TO INCENTIVE STOCK
OPTIONS. The following additional terms and provisions shall apply to
Incentive Stock Options granted under the Plan:
(1) No Incentive Stock Option shall be granted to an employee
who possesses at the time of grant more than 10% of the voting power
of all classes of stock of the Corporation unless the option price is
at least 110% of the Fair Market Value of the Shares subject to the
option on the date the option is granted and the option is not
exercisable after the expiration of five years from the date of grant.
(2) No Incentive Stock Option may be exercisable in an amount
exceeding the limitation of Section 422(d) of the Internal Revenue
Code of 1986, as amended.
Section 7. Procedure for Exercise and Payment.
- -----------------------------------------------
An option granted under the Plan may be exercised by the
optionee giving written notice of exercise to the President (or the designee of
the President) of the Corporation. The option price for the Shares purchased
shall be paid in full at the time such notice is given. An option shall be
deemed exercised on the date the Corporation receives written notice of
exercise, together with full payment for the Shares purchased. The option
price may be paid to the Corporation either in cash, by delivery to the
Corporation of Shares already-owned by the optionee or by any combination of
cash and such Shares. The Board may, however, at any time and in its
discretion, adopt guidelines limiting or restricting the use of already-owned
Shares to pay all or any portion of the option price. In the event
already-owned Shares are
4
<PAGE> 22
used to pay all or a portion of the option price, the amount credited to
payment of the option price shall be the Fair Market Value of the already-owned
Shares on the date the option is exercised. In no case may an option be
exercised for a fraction of a Share.
Section 8. Non-Transferability.
- --------------------------------
Options may not be sold, pledged, assigned, hypothecated, or
transferred except by will, by the laws of descent and distribution or pursuant
to a qualified domestic relations order as defined in Rule 16b-3.
Section 9. Conditions Upon Granting of Options and Issuance of Certificates.
- ------------------------------------------------------------------------------
No option shall be granted and Shares shall not be issued upon
the exercise of an option unless the grant of options, the exercise of such
option, and the issuance and delivery of Shares pursuant thereto shall comply
with all relevant provisions of Federal and state law, including, without
limitation, the Securities Act of 1933, as amended, the Securities Exchange Act
of 1934, as amended, the rules and regulations promulgated thereunder, and the
requirements of the NASDAQ National Market or any stock exchange upon which the
Shares may then be listed.
Section 10. Notices.
- ---------------------
Each notice relating to this Plan shall be in writing and
delivered in person or sent by certified or registered mail to the proper
address. Each notice shall be deemed to have been given on the date it is
delivered or mailed. Each notice to the Corporation shall be addressed as
follows: KRUG International Corp., 6 North Main Street, Suite 500, Dayton,
Ohio 45402-1900, Attention: President. Each notice to the optionee or other
person or persons then entitled to exercise an option shall be addressed to the
optionee or such other person or persons at the optionee's address set forth in
the option. Anyone to whom a notice may be given under this Plan may designate
a new address by written notice to the other party to that effect.
Section 11. Pronouns.
- ----------------------
All pronouns used herein shall be deemed to refer to the
masculine, feminine, singular or plural, as the identity of the person or
persons may require.
Section 12. Effect of Termination of Plan.
- -------------------------------------------
The termination of the Plan shall not adversely affect the
rights of an optionee with respect to any option granted prior to the
termination of the Plan.
5
