<PAGE> 1
Preliminary Proxy Materials
---------------------------
KRUG INTERNATIONAL CORP.
6 NORTH MAIN STREET SUITE 500
DAYTON, OHIO 45402-1900
June 14, 1996
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 16, 1996, 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 1996 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
<PAGE> 2
Preliminary Proxy Materials
---------------------------
KRUG INTERNATIONAL CORP.
6 North Main Street Suite 500
Dayton, Ohio 45402-1900
-------------
NOTICE OF 1996 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 16, 1996
---------------
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 16,
1996, 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 three directors for a two-year term;
2. An amendment to the Corporation's Regulations
making the Ohio Control Share Acquisition Statute
inapplicable to the Corporation; 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 14, 1996
<PAGE> 3
KRUG INTERNATIONAL CORP.
6 North Main Street Suite 500
Dayton, Ohio 45402-1900
---------------------
PROXY STATEMENT
FOR 1996 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 16, 1996 and any adjournment thereof. The close
of business on June 6, 1996 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
___________ Common Shares outstanding at the close of business on June 6, 1996.
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 W. E. Greenhalgh, Karen Beth Brenner and Bernee D.L.
Strom as directors of the Corporation and FOR adoption of the proposed amendment
to the Regulations. 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 14, 1996.
<PAGE> 4
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 1996 Annual Meeting, shareholders will elect three
directors who will hold office until the Annual Meeting of Shareholders in 1998.
Maurice F. Krug, who has been a director and Chief Executive Officer of the
Corporation since its inception in 1959, and Earl T. O'Loughlin, who has been a
director since 1987, are not standing for reelection. Accordingly, two new
directors will be elected to fill their positions. The Board of Directors has
nominated W. E. Greenhalgh, who is presently a director of the Corporation, and
Karen Beth Brenner and Bernee D.L. Strom, neither of whom is a director, for
election to a term of office expiring at the 1998 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 Mr.
Greenhalgh, Ms. Brenner and Ms. Strom. 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 three nominees receiving the highest
number of votes cast will be elected directors.
The following table sets forth certain information about the
nominees for election and the directors whose terms of office will continue
after the meeting.
<TABLE>
<CAPTION>
COMMON SHARES
BENEFICIALLY OWNED
AS OF 6/6/96
NAME AND OFFICES ------------
PRESENTLY HELD DIRECTOR
WITH CORPORATION SINCE NUMBER(1) % OF CLASS
- ---------------- ----- --------- ----------
NOMINEES FOR TERM OF
OFFICE EXPIRING IN 1998:
- ------------------------
<S> <C> <C> <C>
W. E. Greenhalgh, 1993 37,128(2) (6)
Director, KRUG
International (UK)
Ltd. Non-executive
Chairman of its two
subsidiaries -
Beldray Ltd. and
Sowester Ltd.
Karen Beth Brenner NA ----- ---
Bernee D.L. Strom NA ----- ---
</TABLE>
-2-
<PAGE> 5
<TABLE>
<CAPTION>
DIRECTORS WHOSE TERM OF
OFFICE EXPIRES IN 1997:
- -----------------------
<S> <C> <C> <C>
T. Wayne Holt, 1993 76,883(3) 1.5
Director and
President of the
Corporation's
subsidiary--KRUG
Life Sciences Inc.
James J. Mulligan, 1966 32,285(4) (6)
Secretary and Director
Charles Linn Haslam, 1996(5) ----- ---
Director, President and
Chief Executive Officer
Robert M. Thornton, 1996(5) ----- (6)
Director
<FN>
- ---------------------
(1) This column shows the number of Common Shares of the
Corporation beneficially owned as of June 6, 1996 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) These shares may be acquired upon the exercise of options within 60
days of June 6, 1996.
(3) Includes 25,000 shares that may be acquired upon the exercise of
options within 60 days of June 6, 1996 and 5,952 shares that may be
acquired upon the exercise of warrants.
(4) Includes 5,380 shares that may be acquired upon the
exercise of warrants.
(5) At a meeting of the Board of Directors of the Corporation
held on May 17, 1996, Marvin E. Bruce, who had been a
director since 1974, and Rex M. Fleet, who had been a
director since 1993, resigned as directors and Messrs.
Haslam and Thornton were elected to succeed them as
directors of the Corporation for a term expiring at the
1997 Annual Meeting of Shareholders. Mr. Haslam was also
elected President and Chief Executive Officer to succeed
Maurice F. Krug, who resigned those offices on May 17,
1996.
(6) Less than 1%.
</TABLE>
-3-
<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.
W. E. Greenhalgh, 65, 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.
Karen Beth Brenner, 43, has been President of Fortuna Advisors,
Inc., an investment advisory firm located in Newport Beach, California since
1993, and general partner of Fortuna Unplugged, a California limited
partnership. Fortuna Advisors, Inc. succeeded to the business of Karen Brenner
Registered Investment Advisor which was formed by Ms. Brenner in 1984 and
operated by her from 1984 to 1993. Ms. Brenner is also an owner and officer of
Fortuna Capital Management, a California corporation which is the general
partner of Fortuna Investment Partners, a private investment partnership; and a
managing partner of the general partner of Fortuna Acquisition Partners, L.P., a
California limited partnership.
Bernee D.L. Strom, __,
T. Wayne Holt, 69, 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. Since April 15, 1995, Mr. Holt
has been President of KRUG Life Sciences Inc., a position he previously held.
James J. Mulligan, 74, has been a member of the law firm of
Mulligan & Mulligan since January 1993. He was a member of the law firm of Smith
& Schnacke from 1953 to 1989 and a member of the law firm of Thompson Hine &
Flory P.L.L. from 1989 until his retirement in 1991. Mulligan & Mulligan is
general counsel to the Corporation and received $80,465 for legal services
rendered during the Corporation's last fiscal year.
Charles Linn Haslam, 52, has practiced law in Washington, D.C.,
from 1980 to the present. He was General Counsel, United States Department of
Commerce during the Carter Administration (January 1977 to December 1979) and
University
-4-
<PAGE> 7
Counsel and Adjunct Professor of Law at Duke University from 1974 to 1977.
Robert M. Thornton, Jr., __,
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors held five meetings during fiscal 1996.
The Board has an Executive Committee, an Audit Committee and an Executive
Compensation Committee, but no nominating committee. The Audit Committee held
one meeting and the Executive Compensation Committee held two meetings in fiscal
1996.
The Executive Committee 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 members of the
Committee are Messrs. Krug (Chairman), Haslam and Mulligan. Mr. Bruce was a
member until he resigned on May 17, 1996.
The Audit Committee 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. The members
of the Committee are Messrs. Mulligan (Chairman), Greenhalgh and Thornton. Mr.
Fleet was a member until he resigned on May 17, 1996.
The Executive Compensation Committee acts in an advisory
capacity to the Board of Directors with respect to compensation of the
Corporation's executives. The members of the Committee are Messrs. Thornton
(Chairman), Greenhalgh and O'Loughlin. Messrs. Bruce and Fleet were members
until they resigned on May 17, 1996.
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, $500 for attending a committee meeting and
$400 for participating in telephone meetings. In fiscal 1996, all directors
attended all of the meetings of the Board of Directors and of the committees on
which they served.
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
-5-
<PAGE> 8
persons required to file such reports, that all filing requirements applicable
to such persons during the period from April 1, 1995 through March 31, 1996 have
been met.
PRINCIPAL HOLDERS OF COMMON SHARES
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, 1996.
<TABLE>
<CAPTION>
Common Shares
Beneficially Owned
as of 6/6/96
-------------------------------
Name and Address Number % of Class
- ------------------------------- ------ ----------
<S> <C> <C>
FORTUNA ACQUISITION PARTNERS, L.P. 1,779,809(1) 33.2
100 Wilshire Boulevard
Fifteenth Floor
Santa Monica, California 90401
FORTUNA INVESTMENT PARTNERS, L.P. 322,890(2) 6.3
100 Wilshire Boulevard
Fifteenth Floor
Santa Monica, California 90401
<FN>
(1) Includes 279,568 shares that may be acquired upon the
exercise of warrants.
(2) Includes 57,972 shares that may be acquired upon the
exercise of warrants.
</TABLE>
On April 30, 1996, Maurice F. Krug, President, Chairman and
Chief Executive Officer of the Corporation, and related persons sold for $5.50
per share in cash a total of 1,500,241 common shares and warrants to purchase
292,089 shares of the Corporation, which amounted to approximately 33.2% of the
outstanding shares and constituted control of the Corporation, to the following
group (each of whom purchased the number of shares and warrants to purchase the
number of shares set forth opposite their respective names):
<TABLE>
<CAPTION>
Warrants to
Purchase
Number of Number
Name Shares of Shares
- ---- ------ ---------
<S> <C> <C>
Fortuna Acquisition Partners, L.P. 1,173,041 218,611
Strome-Susskind HedgeCap Fund, L.P. 245,400 47,713
Strome HedgeCap Limited 81,800 15,224
</TABLE>
The purchasers used working capital to fund the purchase. Prior
to the transaction, Mr. Krug owned approximately
-6-
<PAGE> 9
21.7% of the Corporation's outstanding shares. Strome-Susskind HedgeCap Fund,
L.P. and Strome HedgeCap Limited have given proxies to vote the shares of the
Corporation owned by them to Fortuna Acquisition Corp., the general partner of
Fortuna Acquisition Partners, L.P. The address of the purchasers and of said
general partner is 100 Wilshire Boulevard, 15th Floor, Santa Monica, California.
COMMON SHARES OWNED BY MANAGEMENT
The following table sets forth the number of Common Shares of
the Corporation beneficially owned as of June 6, 1996 by each named executive
listed in the Summary Compensation Table and by all directors, nominees and
executive officers as a group.
<TABLE>
<CAPTION>
Common Shares
Beneficially Owned
as of 6/6/96
-------------------------------
Name and Address Number % of Class
- ------------------------------ ------ ----------
<S> <C> <C>
Maurice F. Krug 0 0
T. Wayne Holt 76,883(1) 1.5
Thomas W. Kemp 45,618(2) (4)
Directors, Nominees and ______(3) ____
Executive Officers as
a Group (10 persons)
<FN>
- ----------------------
(1) Includes 25,000 shares that may be acquired upon the exercise of
options within 60 days of June 6, 1996 and 5,952 shares that may be
acquired upon the exercise of warrants.
(2) Includes 22,128 shares that may be acquired upon the exercise of
options within 60 days of June 6, 1996 and 1,893 shares that may be
acquired upon the exercise of warrants.
(3) Includes ______ shares that may be acquired upon the exercise of
options within 60 days of June 6, 1996 and _______ shares that may be
acquired upon the exercise of warrants.
(4) Less than 1%.
</TABLE>
-7-
<PAGE> 10
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, 1996, whose salary and bonus
for fiscal year 1996 exceeded $100,000.
-8-
<PAGE> 11
SUMMARY COMPENSATION TABLE
The following table presents for the three fiscal years ended
March 31, 1996, the compensation of the Chief Executive Officer and the other
executive officers at March 31, 1996, whose salary and bonus in fiscal 1996
exceeded $100,000.
<TABLE>
<CAPTION>
Long-Term Compensation
-------------------------------
Annual Compensation Awards Payouts
------------------------------------------------ ----------------------- -------
Long
Term
Securities Incen-
Other Restricted Under- tive
Annual Stock lying Plan All Other
Name and Compensation Award(s) Options Payouts Compensation
Principal Position Year Salary ($) Bonus ($) ($) ($) (#) ($) ($)
- ------------------ ---- ---------- --------- ------------ --------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Maurice F. Krug, Chairman, 1996 $320,000 $ 0 $ 0 $ 0 0 $ 0 $2,273(2)
President and CEO(1) 1995 320,000 0 0 0 0 0 2,133
1994 320,000 0 0 0 0 0 3,640
T. Wayne Holt, President, 1996 130,000 $12,000 0 0 25,000 0 $1,873(2)
KRUG Life Sciences Inc. 1995 0 0 0 0 0 0 0
1994 0 0 0 0 0 0 0
Thomas W. Kemp, Vice President- 1996 $ 98,000 $10,000 0 0 10,000 0 $1,619(2)
Finance and Treasurer 1995 95,600 10,000 0 0 0 0 1,583
1994 93,000 10,000 0 0 0 0 1,543
<FN>
(1) C. L. Haslam succeeded Mr. Krug as President and Chief Executive Officer on May 17, 1996.
(2) These amounts were contributed by the Corporation under the 401(k) plan for the benefit of the named executive.
</TABLE>
-9-
<PAGE> 12
OPTION GRANTS IN LAST FISCAL YEAR(1)
The following table shows, for the named executive
officers, additional information about option grants for the fiscal year ended
March 31, 1996.
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------------------------
Number of % of Total Potential Realizable Value at
Shares Options Assumed Annual Rates of Stock
Underlying Granted to Exercise Price Appreciation for Option
Options Employees or Base Term(2)
Granted in Fiscal Price Expiration -----------------------------
Name (#) Year ($/Share) Date 0%($) 5%($) 10%($)
- --------------------- ------------- ------------- ------------- ------------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
Maurice F. Krug 0 NA NA NA NA NA NA
T. Wayne Holt 25,000 37.9 $3.00 11/3/05 $0 $47,175 $119,525
Thomas W. Kemp 10,000 15.2 $3.00 11/3/05 $0 $18,870 $ 47,810
<FN>
(1) The Corporation has never granted Stock Appreciation Rights (SARs).
(2) Potential Realizable Value is based on the assumed annual growth rates
for the ten-year option term. Actual gains, if any, on stock option
exercises will depend on the future performance of the stock and there
is no assurance that the amounts reflected in this table will be
achieved.
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows information about stock option
exercises during fiscal 1996 and unexercised stock options at 1996 fiscal year
end for the named executive officers.
<TABLE>
<CAPTION>
Number of
Shares 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
T. Wayne Holt 16,171 $15,605 25,000/0 $12,500/$0
Thomas W. Kemp 12,128 $10,188 22,128/0 $12,823/$0
</TABLE>
-10-
<PAGE> 13
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 Years Estimated Annual Retirement Benefits
of Employment 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 - 36 years, Mr. Kemp
- - 6 years and Mr. Holt - 1 year. Amounts shown are straight life annuity amounts
and are not subject to any deduction for Social Security benefits.
OTHER
Mr. Krug, Chairman of the Corporation, resigned as President and
Chief Executive Officer effective May 17, 1996. During the fiscal year ended
March 31, 1996, he was employed by the Corporation under the terms of an Amended
Founder's Agreement pursuant to which he received a salary of $320,000 during
the year. On May 17, 1996, the Amended Founder's Agreement was terminated and
the Corporation entered into a Consulting Agreement with Mr. Krug. The principal
provisions of the Consulting Agreement call for payments of $300,000 during the
first year, $200,000 during the second year, $100,000 during the third year, and
$25,000 per year for the next four years, plus continuation of his medical
insurance and group life insurance. While such payments are being made, Mr. Krug
is prohibited from
-11-
<PAGE> 14
competing with the Corporation. Such payments are guaranteed by Fortuna
Acquisition Partners, L.P.
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, 1991 and reinvestment of all
dividends). The peer group index is comprised of 242 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.
[PERFORMANCE GRAPH]
<TABLE>
<CAPTION>
PERFORMANCE DATA
1991 1992 1993 1994 1995 1996
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
KRUG International Corp. 100 70.59 92.68 77.89 97.36 90.87
Peer Group Index 100 129.59 112.55 100.15 72.30 64.61
Broad NASDAQ Market Index 100 105.40 117.95 136.32 144.62 194.52
</TABLE>
-12-
<PAGE> 15
FISCAL 1996 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 1996 are the following:
<TABLE>
<S> <C> <C>
50-OFF STORES INC ELEPHANT & CASTLE GROUP MINNESOTA BREWING
ACRODYNE COMMUNICATIONS ENERGY WEST INC MOBILE MINI INC
ADVANCED DEPOSITION TECH ENSCOR INC MONACO FINANCE CL A
ADVANCED ENVIRON RECYCLE ENTERACTIVE INC MPM TECHNOLOGIES INC
AFGL INTERNATIONAL INC ENVIRONMENT/ONE CORP NAPCO SECURITY SYSTS INC
AG-BAG INTERNATIONAL EUROPA CRUISES CORP NATHANS FAMOUS INC
AGRI-NUTRITION GROUP LTD EVANS SYSTEMS INC NATIONAL TECHNICAL SYSTS
AJAY SPORTS INC FEDERAL AGRICULTURE CL A NEVADA ENERGY CO INC CLA
AMEDISYS INC FIBERSTARS INC NEW IMAGE INDUSTRIES
AMERICAN ECOLOGY CORP FIND/SVP INC NEWS COMMUNICATION INC
AMERICAN RESOURCES OF DE FIRST CASH INC NITCHES INC
AMERICAN WHITE CROSS INC FOCUS ENHANCEMENT INC NOBLE ROMANS INC
ANIKA RESEARCH INC FOILMARK INC NORRIS COMMUNICATIONS CP
AQUAGENIX INC FORELAND CORP NORTECH SYSTEMS INC
ARC CAPITAL CL A GEERLINGS & WADE INC NSA INTERNAT INC
AREL COMM & SOFTWARE GEHABILICARE INC NSC CP
ARMANINO FOODS OF DISTN GENERAL MAGNAPLATE CORP NUMED HOME HEALTH CARE
ATHEY PRODUCTS CORP GISH BIOMEDICAL INC NYER MEDICAL GR
AULT INC GLOBAL RESOURCES INC OI CORP
AVERT INC GLOBAL TELECOMM SOLUTIONS OILGEAR CO
AW COMPUTER SYSTEMS CL A GOLD STANDARD INC PAC RIM HLDG CO
BANCA QUADRUM SA SPN ADR GOLDEN EAGLE GROUP INC PACIFIC DUNLOP LTD ADR
BANCINSURANCE CORP GREAT TRAIN STORE PACIFIC SENTINEL GOLD CP
BARBER HAIRSTYLING M&W GRILL CONCEPTS PANATECH RES & DEV CP
BARRY'S JEWELERS INC H.D. VEST INC PARACELSIAN INC
BCAM INTERNATIONAL INC HALSTEAD ENERGY CORP PARIS CORPORATION
BCT INTERNATIONAL HANOVER GOLD CO INC PEERLESS MANUFACTURING
BF ENTERPRISES INC HANSEN NATURAL CORP PENNICHUCK CP
BIO-REFERENCE LABS INC HARISTON CORP PERSONNEL MGMT INC
BIODENTAL TECHNOLOGIES HARRY'S FARMERS MARKETS PHARMCHEM LAB
BIOJECT MEDICAL TECH HEALTH FITNESS PHYS THER POLK AUDIO INC
BIOSPECIFICS TECHNOL CP HECTOR COMMUNICATIONS POSITRON CP
BIRD CORP HI-RISE RECYCLING SYSTEM PRIME EQUITIES INTERNAT
BLYVOOR GOLD MINING ADR HICKOK INC CL A PROGROUP INC
BT SHIPPING LTD ADR HMG WORLDWIDE CORP PROTEIN POLYMER TECH
CALNETICS CORP I V C INDUSTRIES INC PROVIDENCE & WORCESTR RR
CARE GROUP INC (THE) IDAN SOFTWARE IND ISI PST VANS INC
CCAIR INC INLAND RESOURCES INC WA I PURE WORLD INC
CECO ENVIRONMENTAL CORP NNODATA CORPORATION QUIPP INC
CENTURY CASINOS INC INNOVIR LABS INC RAILAMERICA INC
CHARLES JW FINANCIAL SVC INSTITUFORM EAST INC I REUNION INDUSTRIES INC
CINERGI PICTURES ENT NTERNAT PRECIOUS METALS REXHALL IND INC
CITIZENS SECURITY GROUP INTERSTATE NAT DEALER RINGER CP
COBRA ELECTRONICS CORP IPI INC RIVERSIDE GROUP INC
COIN BILL VALIDATOR INC IRATA INC CL A ROYAL GRIP INC
COLORADO MEDTECH INC ISRAMCO INC SAINT HELENA GOLD MINES
COMMERCE GROUP CORP IVF AMERICA INC SALTON /MAXIM HOUSEWARES
COMPUTER OUTSOURCING SVC JACKSON HEWITT INC SANCTUARY WOOD MULTIMED
COOPER LIFE SCIENCES INC LIUSKI INTERNAT INC SANDS REGENT
CUSAC GOLD MINES LIVE ENTERTAINMENT INC SANYO ELEC CO LTD
CYGNE DESIGNS INC LORONIX INFORMATION SYST SCHERER HEALTHCARE INC
DANSKIN INC LOWRANCE ELECTRONICS INC SELFIX INC
DATAFLEX CORP LUTHER MEDICAL PRODUCTS SENTEX SENSING TECH INC
DATAKEY INC M-WAVE INC SMITH ENVIRON TECH
DATAMARINE INTERNAT INC MAGAL SECURITY SYSTEMS SMITHFIELD COS
DELAWARE OTSEGO CORP MAIN STREET & MAIN INC SMT HEALTH SVCS INC
DERMA SCIENCES INC MAKITA CORP SPONS ADR SOFTECH INC
DIASYS CORP MANAGEMENT TECHNOL INC SONESTA INTERNAT HOTELS
DIEHL GRAPHSOFT INC MARCUM NATURAL GAS SVCS SOUTHERN MINERAL CORP
DIGITAL RECORDERS INC MARINA L.P. SPAN-AMER MEDICAL
DM MANAGEMENT MAYS J.W. INC SYSTS SPARTA PHARMACEUTICALS
DOCUCON INC MEDCROSS INC SPECIALTY TELECONSTRUCT
DOMINGUEZ SERVICES CORP MEDICAL ACTION IND INC SPEIZMAN IND INC
DRYPERS CORP MEDICAL GRAPHICS CORP STAR MULTI CARE SVCS
DWYER GROUP INC MICHEAL, J. INC STARCRAFT CORP
EA ENGINEERING SCI & TEC MICROELECTRONIC PACK SUNDANCE HOMES INC
EAGLE PACIFIC INDUSTRIES MICROS-TO MAINFRAMES INC SUNPHARM CP
EATERIES INC MIDLAND RESOURCES INC SUNRISE RESOURCES INC
ELECTROCON INTERNATIONAL MIKRON INSTRUMENT CO SUPREMA SPECIALITIES INC
ELECTRONIC FAB TECH MILES HOLMES INC SURGICAL TECHNOLOGIES
</TABLE>
-13-
<PAGE> 16
<TABLE>
<S> <C>
T*HQ INC
THERMAL IND
TIMELINE INC
TOPS APPLIANCE CITY
TOREADOR ROYALTY CORP
TOTAL CONTAINMENT INC
TRACER PETROL CP
TRANS-INDUSTRIES INC
TRANSMATION INC
TRANSNET CP
TRINITY BIOTECH PLC ADR
TRIPOS INC TVG
TECHNOL LTD ORD
U.S. HOMECARE CP
ULTRADATA SYST INC
UNITED NEWS & MEDIA PLC
UNIVERSAL HOLDINGS CORP
UNIVERSAL SEISMIC ASSOCS
URETHANE TECHNOL
US WATS INC
UTILX CP
VALLEY FORGE SCIENTIFIC
VERMONT PURE HLDG
VERMONT TEDDY BEAR CO
VESTRO NATURAL FOODS INC
VOICE POWERED TECH INT
WATER-JET TECHNOLOGIES
WATSON GENERAL CP
WAVETECH INC
WELCOME HOME INC
WESTERN COUNTRY CLUBS
XETA CORP
</TABLE>
-14-
<PAGE> 17
FISCAL 1995 PEER GROUP
These companies were in the Peer Group for Fiscal 1995 but no longer meet
the market value criteria for inclusion in the Fiscal 1996 Peer Group.
<TABLE>
<S> <C>
AMERICAN INTERNAT PETRO MCM CP
AMERICAN MED ALERT MEDICAL INNOVATIONS INC
AMERICAN MED TECHNOLOGS METALCLAD CP
AMERICAN VANGUARD CP MICROTEL FRANCHISE & DEV
ANALYTICAL SURVEYS INC MILTOPE GROUP INC
ARTISTIC GREETINGS INC MMI MEDICAL INC
ASTROSYSTEMS INC MONMOUTH RE INVEST CP A
AUTOMOBILE PROTECTION CP NOVITRON INTERNAT INC
BALTEK CP NRP INC
BIOMECHANICS CP AMER NYCOR INC
CADE IND INC OSHAP TECHNOLOGIES LTD
CARETENDERS HEALTHCORP OXIS INTERNATIONAL INC
CEL-SCI CP PACER TECHNOLOGY
CIPRICO INC PARIS BUSINESS FORMS INC
CIRCUIT SYTEMS INC POLYDEX PHARMACEUTICALS
COLLINS IND INC PROSPECT GROUP INC
COMPARATOR SYSTEMS CP PUBCO CP
CORTEX PHARMACEUTICALS RADA ELECTRONICS IND LTD
CRYENCO SCIENCES INC RAND CAPITAL CP
DETECTION SYSTEMS INC RANDOM ACCESS INC
DETROIT & CANADA TUNNEL SA HOLDINGS INC
DUSTY MAC OIL & GAS LTD SECURITY NATL FIN CL A
E-Z EM INC CL A SEIBELS BRUCE GROUP INC
EMISPHERE TECHNOLOGIES SI HANDLING SYSTEMS INC
ENGINEERED SUPPORT SYS SOUTHWALL TECHNOLOGIES
ESCALADE INC SOUTHWEST WATER CO
FIBERCHEM INC SPEC'S MUSIC INC
FIRST AMERICAN HLTH CON STACEY'S BUFFET INC
FUTURE MEDICAL PRODS STEVE'S HOMEMADE ICE CRM
GAMBRO INC AB STROBER ORGANIZATION INC
GENCOR IND STUART ENTERTAINMENT
GENERAL PARCEL SERVICES SURGICAL LASER TECH
GIGA TRONICS INC SYNBIOTICS CP
GRIFFIN TECHNOLOGY INC TCI INTERNATIONL INC
GZA GEOENVIRON TECH TECHNOLOGY RESEARCH INC
HEALTHCARE TECHNOLOGIES THOMASTON MILLS INC CL B
HEI INC TIGERA GROUP INC
HITOX CP OF AMERICA TOTAL RESEARCH CP
ICOT CP TRANS LEASING INTERNAT
ILX INC UNICOMP INC
INDUSTRIAL FUNDING CP A USP REAL EST INVSTRS TR
INTERA INFO TECHNS CL A VAUGHN'S COMMUNICATIONS
K-TRON INTERNAT INC ZING TECHNOLOGIES
KOLL REAL ESTATE GRP INC
LIBERTY HOMES CL B
LINDAL CEDAR HOMES INC
MARKET FACTS INC
MAXWELL LABS INC
</TABLE>
-15-
<PAGE> 18
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
-16-
<PAGE> 19
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, U.S. 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. Under prior U.S. option Plans, the options expired five years
after grant. Under the 1995 Incentive Stock Option Plan, however, options do not
expire until ten years after the date of grant. 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. In view of the recent
change in control of the Corporation, the Board of Directors on April 30, 1996
amended all outstanding options to provide that they are now fully exercisable.
Options are generally granted only to those executives whose positions and
performance have the potential to improve shareholder value.
Mr. Krug was CEO of the Corporation from its organization in
1959 until his resignation on May 17, 1996. He was employed by the Corporation
pursuant to the terms of an Amended Founder's Agreement which was terminated on
May 17, 1996 (see page ______). In fiscal 1996, Mr. Krug's total compensation
was his salary of $320,000 as provided for in the Amended Founder's Agreement.
This report has been submitted by the Executive Compensation
Committee:
Marvin E. Bruce Rex M. Fleet Earl T. O'Loughlin
-17-
<PAGE> 20
PROPOSAL TO ADOPT AMENDMENT TO THE CORPORATION'S REGULATIONS TO
OPT OUT OF OHIO CONTROL SHARE ACQUISITION STATUTE
At the Annual Meeting, shareholders will consider and vote on
adoption of an amendment to the regulations of the Corporation which, if
adopted, would make an Ohio anti-takeover statute (referred to herein as the
"Control Share Acquisition Statute") inapplicable to the Corporation (the
"Amendment"). Adoption of the Amendment requires the affirmative vote of the
holders of two-thirds of the outstanding common shares of the Corporation. THE
BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ADOPTION OF THE AMENDMENT.
Background
- ----------
In November 1982, the Ohio General Corporation Law was amended
to include Sections 1701.01(Z)(1) and 1701.831 of the Ohio Revised Code (the
"Control Share Acquisition Statute") which require that control share
acquisitions (as defined below) be approved by shareholders. In adopting the
statute, the General Assembly of Ohio found that Ohio corporate law did not
adequately protect the interests of shareholders of Ohio corporations when
confronted with "non-traditional" changes of control of a corporation, such as
changes of control effected by tender offers or accumulations of significant
blocks of shares in the public markets or private transactions. The Ohio Control
Share Acquisition Statute gives shareholders who are not holders of "interested
shares" (as defined below) a veto power over certain acquisitions of shares of
an Ohio corporation. The Control Share Acquisition Statute automatically applies
to all corporations incorporated in Ohio and having certain jurisdictional
contacts with Ohio, unless the shareholders vote to "opt out" of the statute.
The Board of Directors believes that the reasons given for
adoption of the Control Share Acquisition Statute are not as compelling today as
they were in 1982. Since 1982, there have been significant developments in Ohio
corporate law and federal law, which provide additional protection to
shareholders when faced with a tender offer or significant blocks of a
corporation's shares are purchased in the open market or in private
transactions. In addition, the Board believes there are circumstances under
which compliance with the Control Share Acquisition Statute may be unnecessarily
costly to the Corporation, have a chilling effect on the willingness of third
parties to buy shares of the Corporation, may deprive shareholders of the right
to sell their shares or may adversely impact the Board's ability to act in what
it believes is the best interests of shareholders in change of control contests.
Summary of Control Share Acquisition Statute
- --------------------------------------------
Under the Control Share Acquisition Statute, the acquisition
by any person (as used in this section, an "acquiring person") of voting shares
of a corporation giving the acquiring person voting power within any of the
following ranges would
-18-
<PAGE> 21
constitute a "control share acquisition": (a) one-fifth or more but less than
one-third of such voting power; (b) one-third or more but less than a majority
of such voting power; or (c) a majority or more of such voting power. An
acquiring person may make a control share acquisition only if (1) the
shareholders of the corporation who hold shares entitling them to vote in the
election of directors authorize such acquisition at a special meeting of
shareholders held for that purpose at which a quorum is present by an
affirmative vote of a majority of the voting power of the corporation in the
election of directors represented at such meeting in person or by proxy, and of
a majority of the portion of such voting power excluding the voting power of
interested shares and (2) such acquisition is consummated, in accordance with
the terms so authorized, no later than 360 days following shareholder
authorization of the control share acquisition. A quorum is deemed to be present
at such special meeting if at least a majority of the voting power of the
corporation in the election of directors, and a majority of the portion of such
voting power excluding the voting power of interested shares, are represented at
such meeting in person or by proxy.
"Interested shares" means the shares of the corporation in
respect of which any of the following persons may exercise or direct the
exercise of the voting power of the corporation in the election of directors:
(a) the acquiring person; (b) any officer of the corporation elected or
appointed by the directors of the corporation; or (c) any employee of the
corporation who is also a director of the corporation. Interested shares also
means any shares of the corporation acquired, directly or indirectly, by any
person from the holder or holders thereof for a valuable consideration during
the period beginning with the date of the first public disclosure of a proposed
control share acquisition of the corporation or any proposed merger,
consolidation, or other transaction that would result in a change in control of
the corporation or all or substantially all of its assets and ending on the date
of any special meeting of the corporation's shareholders held thereafter for the
purpose of voting on a control share acquisition proposed by an acquiring person
if either of the following applies: (a) the aggregate consideration paid or
given by the person who acquired the shares, and any other persons acting in
concert with him, for all such shares exceeds two hundred fifty thousand dollars
or (b) the number of shares acquired by the person who acquired the shares, and
any other persons acting in concert with him, exceeds one-half of one percent of
the outstanding shares entitled to vote in the election of directors.
Certain transactions which come within the definition of a
control share acquisition are, by the specific language of the Control Share
Acquisition Statute, deemed not to be control share acquisitions for which
shareholder approval is required. One such transaction is the purchase of shares
from a person who acquired his shares prior to the enactment of the Control
Share Acquisition Statute on November 18, 1982. It was in reliance on this
exemption that Maurice F. Krug, Chairman and former
-19-
<PAGE> 22
President and Chief Executive Officer of the Corporation, and related persons,
without first obtaining approval of shareholders of the Corporation in
accordance with the Control Share Acquisition Statute, sold shares of the
Corporation, which Mr. Krug acquired prior to November 18, 1982, to the Fortuna
Group on April 30, 1996. See "Certain Effect of the Amendment and the Fortuna
Group," below.
Reasons for the Proposed Amendment
- ----------------------------------
The Board of Directors believes that adoption of the Proposed
Amendment is advantageous to the Corporation and its shareholders.
(a) Developments in Ohio corporate and securities law. The
Board of Directors believes that the reasons for enactment of the Control Share
Acquisition Statute are not as compelling today as they were in 1982. In 1990,
Ohio enacted the "Ohio Interested Shareholder Transaction Statute," discussed
below, which severely limits a purchaser of 10% or more of the shares of an Ohio
corporation from engaging in transactions with such corporation unless such
purchaser first obtains approval of the board of directors of the corporation of
his acquisition of 10% or more of the shares of the corporation. In 1986, Ohio
corporate law was amended to confirm the authority of Ohio corporations to adopt
certain provisions which are common to so-called "shareholder rights" or "poison
pill" plans. These plans can have the effect of strengthening the bargaining
power of a board of directors in a change of control contest. The Board of
Directors of the Corporation, however, does not presently anticipate adopting
such a plan. Subsequent to 1982, the provisions of the Ohio Securities Act
regulating "control bids" (defined below) have been administered by the Ohio
Division of Securities in such a manner that they are not presently held to be
unenforceable due to preemption by federal law or invalid under the Constitution
of the United States.
(b) Developments in Federal Tender Offer Regulation. Since
1982, there have been amendments to rules and regulations promulgated under the
Securities Exchange Act of 1934 (the "1934 Act") or changes in the
interpretation of such rules and regulations which lessen the "coercive" effect
of tenders offers. These changes relate to the length of the tender offer
period, all holders and best price rule, withdrawal of tenders, required
disclosures, and timeliness of disclosures.
(c) Untimely and Costly Special Meetings of Shareholders.
Under the Control Share Acquisition Statue, the board of directors of a
corporation is required to convene a special meeting of shareholders of the
corporation to vote on a control share acquisition if any person, even a person
who does not own any shares of the corporation, sends an acquiring party
statement to the corporation stating, among other things, that within the next
360 days such person may effect a control share acquisition and represents to
the corporation that he has the financial capability to effect a control share
acquisition.
-20-
<PAGE> 23
Under the statute, the meeting to vote on the control share acquisition is
required to be held within 50 days of the corporation's receipt of the acquiring
party statement. Since the corporation is subject to the proxy rules promulgated
under the 1934 Act, the corporation must immediately convene a meeting of its
Board of Directors to determine the corporation's position with respect to the
proposed control share acquisition, to authorize and approve appropriate proxy
materials for the special meeting, and generally to take all action necessary
and appropriate to convene a special meeting of shareholders of a public
company. Not only can this be costly to the corporation, but the uncertainty of
the outcome of the vote on the control share acquisition could adversely affect
trading in the corporation's securities or adversely impact or delay pending
corporate transactions, such as a public or private equity or debt financing,
proposed acquisitions or sales, or other major transactions.
(d) Possible Adverse Impact in a Change of Control Contest. On
its face, the Control Share Acquisition Statute appears protective of the
interests of shareholders in that it allows the holders of shares which are not
interested shares to determine the outcome of a change of control contest. In
many situations, however, the Board of Directors believes that the uncertainty
and delay caused by the requirements of the statute could hamper the ability of
the Board to induce other parties to present competing offers. In addition, a
situation could develop where if the first person to propose a control share
acquisition owns a substantial percentage of the Corporation's shares, e.g. 19%,
such a person could be in a position to have a veto power over any subsequent
and competing control share acquisition. This results from the fact that such a
19% holder would be the holder of a substantial portion of the shares which
would be treated as "disinterested" shares when voting on a competing control
share acquisition since many of the Corporation's outstanding shares are likely
to be treated as interested shares.
(e) Unnecessarily Restricts the Right of a Shareholder to Sell
or Buy Shares. As noted above, no shareholder is permitted, without the approval
of the holders of interested shares, to sell his shares to any person who as a
result of such purchase would first attain ownership of 20%, 33% or a majority
of the outstanding shares of the corporation. The Board believes, as discussed
above, that such a restriction on a shareholder's right to sell shares, or
another person's right to buy shares, is unnecessary in view of the other
protections afforded shareholders by Ohio corporate and federal law.
Certain Effect of the Amendment and the Fortuna Group
- -----------------------------------------------------
The Fortuna Group owns 2,102,699 shares, or 38.8% of the
Corporation's outstanding shares. On April 30, 1996, the Fortuna Group acquired
1,500,241 shares from Mr. Krug and related persons at $5.50 per share. As result
of such acquisition, the Fortuna Group is permitted under the Control Share
Acquisition Statute to increase its percentage ownership up to 50% of the
Corporation's
-21-
<PAGE> 24
outstanding shares, without seeking shareholder approval pursuant to the Control
Share Acquisition Statute. If the Amendment is adopted, the acquisition of a
majority of the shares by the Fortuna Group or any other person could be
effected without approval of shareholders of the Corporation.
Other Anti-takeover Provisions of Ohio Law.
- -------------------------------------------
As mentioned above, the Ohio Interested Shareholder
Transaction Law at Chapter 1704 of the Ohio Revised Code and the control bid
provisions of the Ohio Securities Act may discourage or impede a change of
control of the Corporation.
(a) Ohio Interested Shareholder Transaction Law.
Under the Ohio Interested Shareholder Transaction Law, a
corporation is prohibited from entering into a "Chapter 1704 transaction" (as
defined herein) with the direct or indirect beneficial owner of 10% or more of
the shares of a corporation (a "10% shareholder") for at least three years after
the shareholder attains his 10% ownership unless the board of directors of the
corporation approves, before the shareholder attains his 10% ownership, either
the transaction or the purchase of shares resulting in his 10% ownership. A
"Chapter 1704 transaction" is broadly defined to include, among other things, a
merger or consolidation involving the corporation and the 10% shareholder, a
sale or purchase of substantial assets between the corporation and the 10%
shareholder, a reclassification, recapitalization, or other transaction proposed
by the 10% shareholder that results in an increase in the proportion of shares
beneficially owned by the 10% shareholder, and the receipt by the 10%
shareholder of a loan, guarantee, other financial assistance, or tax benefit not
received proportionately by all shareholders. Even after the three-year period,
Ohio law restricts these transactions between the corporation and the 10%
shareholder. At that time, such a transaction may proceed only if (a) the board
of directors of the corporation had approved the purchase of shares that gave
the shareholder his 10% ownership, (b) the transaction is approved by the
holders of shares of the corporation with at least two-thirds of the voting
power of the corporation (or a different proportion set forth in the
corporation's articles of incorporation), including at least a majority of the
outstanding shares after excluding shares held or controlled by the 10%
shareholder, or (c) the business combination results in shareholders, other than
the 10% shareholder, receiving a prescribed fair price plus interest for their
shares.
On April 30, 1996, the Board of Directors of the Corporation
approved, within the meaning of the Ohio Interested Shareholder Transaction Law,
the Fortuna Group's acquisition of common shares of the Corporation from Mr.
Krug and related persons and the acquisition of additional shares of the
Corporation by the Fortuna Group provided the Fortuna Group's percentage
ownership of the Corporation did not exceed 50%. On May 17, 1996, the Board
approved a resolution which has the effect of making the Ohio Interested
Shareholders Transaction Law
-22-
<PAGE> 25
inapplicable to any future acquisition of shares of the Corporation by the
Fortuna Group.
(b) Control Bid Provisions of the Ohio Securities Act.
Ohio law further requires that any offeror making a control bid
for any securities of a "subject company" pursuant to a tender offer must file
information specified in the Ohio Securities Act with the Ohio Division of
Securities when the bid commences. The Ohio Division of Securities must then
decide whether it will suspend the bid under the statute within three calendar
days. If it does so, it must initiate hearings on the suspension within 10
calendar days of the suspension date and make a determination of whether to
maintain the suspension, within 16 calendar days of the suspension date. For
this purpose, a "control bid" is the purchase of, or an offer to purchase, any
equity security of a subject company from a resident of Ohio that would, in
general, result in the offeror acquiring 10% or more of the outstanding shares
of such company. A "subject company" includes any company with both (a) its
principal place of business or principal executive office in Ohio or assets
located in Ohio with a fair market value of a least $1,000,000 and (b) more than
10% of its record or beneficial equity security holders in Ohio, more than 10%
of its equity securities owned of record or beneficially by Ohio residents, or
more than 1,000 of its record or beneficial equity security holders in Ohio.
Anti-takeover Provisions of the Corporation's Articles and Regulations
- ----------------------------------------------------------------------
The Board of Directors of the Corporation is divided into two
classes of directors, with one class elected at each annual meeting of
shareholders for a two-year term. Directors may be removed from office without
cause by the affirmative vote of holders of two-thirds of the Corporation's
outstanding common shares. Except for the foregoing provisions, the Board of
Directors of the Corporation believes that there are no provisions of the
Articles of Incorporation or Regulations of the Corporation which might
discourage a potential acquiror from seeking control of the Corporation.
At the meeting, shareholders will vote on the following
resolution:
RESOLVED, that the Regulations of the Corporation be
amended by the addition thereto of Article XI as follows:
ARTICLE XI
----------
Ohio Control Share Acquisition Statute
--------------------------------------
The provisions of Section 1701.831 of the Ohio Revised
Code requiring shareholder approval of control share
acquisitions, as
-23-
<PAGE> 26
defined at Section 1701.01(Z)(1) of such Code,
shall not be applicable to the Corporation.
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, 1997.
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 1997 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
15, 1997 in order to be eligible for such inclusion.
-24-
<PAGE> 27
By order of the Board of Directors.
JAMES J. MULLIGAN
Secretary
Dayton, Ohio
June 14, 1996
-25-
<PAGE> 28
PROXY
KRUG INTERNATIONAL CORP.
ANNUAL MEETING OF SHAREHOLDERS, JULY 16, 1996
The undersigned holder(s) of Common Shares of KRUG International Corp., an Ohio
corporation (the "Corporation"), hereby appoints C. L. HASLEM and ROBERT M.
THORNTON, JR., 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 16, 1996, 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.
W. E. Greenhalgh, Karen Beth Brenner and Bernee D.L. Strom
2. An amendment to the Corporation's Regulations making the
Ohio Control Share Acquisition Statute inapplicable to the
Corporation.
|_| FOR |_| AGAINST |_| ABSTAIN
3. In their discretion, upon such other business as may
properly come before the meeting or at any adjournment
thereof.
-1-
<PAGE> 29
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, 1996.
Dated _____________________, 1996
----------------------------------
----------------------------------
(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
-2-
