<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)
XXXXXXXXXXXXXXXX
(NAME OF PERSON(S) FILING PROXY STATEMENT, IF OTHER THAN THE REGISTRANT)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) 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.
1290 HERCULES DRIVE, SUITE 120
HOUSTON, TEXAS 77058
June 15, 1998
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
which will be held at 10:00 a.m., on Monday, July 13, 1998, at the American
Stock Exchange, 86 Trinity Place, New York, New York.
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 1998 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.
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. If you
later find you can attend the Meeting, you may then withdraw your proxy and vote
in person.
Sincerely,
/s/ Charles Linn Haslam
CHARLES LINN HASLAM
Chairman
<PAGE> 3
KRUG INTERNATIONAL CORP.
1290 HERCULES DRIVE, SUITE 120
HOUSTON, TEXAS 77058
------------
NOTICE OF 1998 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 13, 1998
------------
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 Monday, July 13, 1998, at the
American Stock Exchange, 86 Trinity Place, New York, New York, for the purpose
of considering and voting upon:
1. Election of three directors for a two-year term; and
2. 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 15, 1998
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, 1998, whose salary and bonus for fiscal
year 1998 exceeded $100,000.
SUMMARY COMPENSATION TABLE
The following table presents for the three fiscal years ended March 31,
1998, the compensation of the Chief Executive Officer and the other executive
officers at March 31, 1998, whose salary and bonus in fiscal 1998 exceeded
$100,000.
<PAGE> 4
1998
KRUG International Corp.
Peer Group Index
Broad AMEX Market Index
KRUG INTERNATIONAL CORP.
1290 HERCULES DRIVE, SUITE 120
HOUSTON, TEXAS 77058
------------
PROXY STATEMENT
FOR 1998 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 13, 1998 and any adjournment thereof. The close of business on
June 3, 1998 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 5,237,230 Common
Shares outstanding at the close of business on June 3, 1998.
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 Charles Linn Haslam, Karen Brenner and Bernee D.L. Strom as
directors of the Corporation. 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 15, 1998.
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.
<PAGE> 5
At the 1998 Annual Meeting, shareholders will elect three directors who
will hold office until the Annual Meeting of Shareholders in 2000. The Board of
Directors has nominated Charles Linn Haslam, Karen Brenner and Bernee D.L.
Strom, all of whom are presently directors of the Corporation, for election to a
term of office expiring at the 2000 Annual Meeting. At the meeting of the Board
of Directors held on May 11, 1998, Mr. Haslam resigned his position as a
director and Mr. Vannuki was elected by the remaining directors to fill the
vacancy. Also, W.E. Greenhalgh, who had been a director since 1993, resigned his
position as a director and Mr. Haslam was elected by the remaining directors to
fill that vacancy. Mr. Haslam resigned and was elected in Mr. Greenhalgh's place
in order to have the Chief Executive Officer and the President in different
classes.
It is the intention of the proxy agents named in the proxy, unless
otherwise directed, to vote such proxy for the election of Mr. Haslam and Mses.
Brenner and 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
NAME AND OFFICES DIRECTOR AS OF 6/3/98
PRESENTLY HELD WITH CORPORATION SINCE NUMBER(1) % OF CLASS
<S> <C> <C> <C>
NOMINEES FOR TERM OF OFFICE EXPIRING IN 2000:
Charles Linn Haslam(2)............................... 1996 300 (3) (8)
Director, Chairman and
Chief Executive Officer
Karen Brenner(2)..................................... 1996 1,714,636 (3)(4) 30.9
Director
Bernee D.L. Strom(2)................................. 1996 0 0
Director
DIRECTORS WHOSE TERM OF OFFICE EXPIRES IN 1999:
Robert M. Thornton, Jr.(2)........................... 1996 68,000 (3)(5) 1.3
Director, President and
Chief Financial Officer
T. Wayne Holt........................................ 1993 15,931 (8)
Director
James J. Mulligan.................................... 1966 32,185 (6) (8)
Director and Secretary
Ronald J. Vannuki(2)................................. 1998 1,665,971 (3)(7) 29.7
Director
</TABLE>
(1) This column shows the number of Common Shares of the Corporation
beneficially owned as of June 3, 1998 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 or her
household.
(2) Mses. Brenner and Strom and Messrs. Haslam, Thornton and Vannuki were
recommended for election as directors by the Fortuna Group (see "Principal
Holders of Common Shares").
2
<PAGE> 6
(3) Ms. Brenner and Messrs. Haslam, Thornton and Vannuki each have significant
equity interests in one or more of the Fortuna Group entities (see
"Principal Holders of Common Shares").
(4) Includes 114,520 shares (which includes 7,670 shares which may be acquired
upon the exercise of warrants) over which Ms. Brenner, as a registered
investment advisor, has shared investment power. This number also includes
1,591,496 shares (which includes 296,722 shares which may by acquired upon
the exercise of warrants) beneficially owned by Fortuna Acquisition
Partners, L.P. Information concerning Fortuna Acquisition Partners, L.P.
may be found at footnote 2 under the heading "Principal Holders of Common
Shares".
(5) Includes 23,000 shares that may be acquired upon the exercise of warrants.
(6) Includes 5,380 shares that may be acquired upon the exercise of warrants.
(7) Includes 1,591,496 shares (which includes 296,722 shares which may be
acquired upon the exercise of warrants) beneficially owned by Fortuna
Acquisition Partners, L.P. and 74,475 shares which may be acquired upon the
exercise of warrants beneficially owned by Fortuna Investment Partners,
L.P. Information concerning Fortuna Acquisition Partners, L.P. and Fortuna
Investment Partners, L.P. may be found at footnote 2 under the heading
"Principal Holders of Common Shares".
(8) Less than 1%.
Certain information concerning each person listed in the above table,
including his or her principal occupation for at least the last five years, is
set forth below.
Charles Linn Haslam, 54, has been Chairman of the Board since July 16,
1996, Chief Executive Officer since May 17, 1996 and was President of the
Corporation from May 17, 1996 until July 16, 1996. Mr. Haslam practiced law in
Washington, D.C., from January 1980 to May 1996. He was General Counsel, United
States Department of Commerce, during the Carter Administration (January 1977 to
December 1979) and University Counsel and Adjunct Professor of Law at Duke
University from 1974 to 1977. Mr. Haslam is a director of Wyle Laboratories,
Inc., a privately held corporation, 38% of the outstanding shares of which are
owned by the Corporation.
Karen Brenner, 45, has been President of Fortuna Advisors, Inc., an
investment advisory firm located in Newport Beach, California since 1993.
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 a director of DDL Electronics, Inc. and
Creative Bakeries, Inc.
Bernee D. L. Strom, 51 , has been President and Chief Executive Officer of
The Strom Group (an investment and business advisory firm that specializes in
startups and turnarounds of high technology companies) since 1990. From July
1997, she has been a director of Walker Digital (an intellectual property
studio) and its first spin-out, Priceline.com (an internet commerce company).
From April 1995 to June 1997, she was President and Chief Executive Officer of
USA Digital Radio Partners, LP (a communication and technology company), a
partnership between Gannett Co., Inc., and Westinghouse Electric Corporation.
From 1990 to 1994, she was President and Chief Executive Officer of MBS
Technologies, Inc. (a software publishing company). She is also a director of
Polaroid Corporation, a former director of Software Publishing and DDL
Electronics, Inc. and a member of the Board of Advisors of the J. L. Kellogg
Graduate School of Management of Northwestern University.
3
<PAGE> 7
Robert M. Thornton, Jr., 49, has been President of the Corporation since
July 16, 1996 and Chief Financial Officer since July 18, 1997. From October 1994
to the present, he has been a private investor and, since March 1995, Chairman
and Chief Executive Officer of CareVest Capital, LLC, a private investment and
management services firm. Mr. Thornton was President, Chief Operating Officer,
Chief Financial Officer and a director of Hallmark Healthcare Corporation from
November 1993 until Hallmark's merger with Community Health Systems, Inc. in
October 1994. From October 1987 until November 1993, Mr. Thornton was Executive
Vice President, Chief Financial Officer, Secretary, Treasurer and a director of
Hallmark.
T. Wayne Holt, 71, 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 initial 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. Mr. Holt came out of retirement and was
President of KRUG Life Sciences Inc., a position he previously held, from April
15, 1995 until his second retirement on April 15, 1997.
James J. Mulligan, 76, has been a member of the law firm of Mulligan &
Mulligan since January 1993. He was a member of the law firm of Smith & Schnacke
from 1953 to 1989 and a member of the law firm of Thompson Hine & Flory LLP from
1989 until his retirement in 1991. Mulligan & Mulligan is general counsel to the
Corporation and received $95,724 for legal services rendered during the
Corporation's last fiscal year.
Ronald J. Vannuki, 57, has been a registered investment adviser with
Strome-Susskind Securities, L.P., a broker and investment adviser, since 1995.
From 1988 to 1995, Mr. Vannuki was Managing Director of Drake Capital
Securities, Inc., a registered broker-dealer, and from 1990 to 1995 was a
Director and Portfolio Manager of Drake Capital Advisers, Inc., a registered
investment adviser. From 1987 to 1988, he was President of Los Angeles
Securities, a broker-dealer and from 1984 to 1987, he was Vice President of
Kayne, Anderson & Co., Inc., a broker-dealer and money manager. Mr. Vannuki is a
director of Wyle Laboratories, Inc., a privately held corporation, 38% of the
outstanding shares of which are owned by the Corporation.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors held 7 meetings and took 1 action by unanimous
written consent during fiscal 1998. The Board has an Executive Committee, an
Audit Committee and an Executive Compensation Committee, but no nominating
committee. The Executive Committee took action by unanimous written consent 4
times in fiscal 1998. The Audit Committee held 2 meetings and the Executive
Compensation Committee held 1 meeting in fiscal 1998.
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.
Haslam (Chairman) and Thornton and Ms. Brenner.
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
Mr. Mulligan (Chairman) and Mses. Strom and Brenner.
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 Mses. Strom (Chairman) and Brenner and Mr.
Mulligan.
4
<PAGE> 8
Each non-employee director receives a monthly fee of $700 for services as a
director. In addition, he or she 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. Directors receive no compensation for
actions taken by unanimous written consent.
PRINCIPAL HOLDERS OF COMMON SHARES
Set forth below is certain information concerning the only person known by
the Board of Directors of the Corporation to be the beneficial owner of more
than 5% of the outstanding Common Shares of the Corporation as of June 3, 1998.
<TABLE>
<CAPTION>
COMMON SHARES AND WARRANTS TO PURCHASE
COMMON SHARES BENEFICIALLY OWNED
AS OF 6/3/98 (1)
--------------------------------------
NUMBER
------
NAME AND ADDRESS SHARES WARRANTS % OF CLASS
---------------- ------ -------- ----------
<S> <C> <C> <C>
FORTUNA ACQUISITION
PARTNERS, L.P.(2)............... 1,294,774 296,722 28.8
100 Wilshire Boulevard
Fifteenth Floor
Santa Monica, CA 90401
<FN>
- ----------
(1) Under applicable Securities and Exchange Commission regulations, shares are
treated as "beneficially owned" if a person has or shares voting or
investment power with respect to the shares or has a right to acquire the
shares within 60 days of June 3, 1998. Unless otherwise indicated, sole
voting power and sole investment power are exercised by the named person.
In calculating "% of Class" for a person, shares which may be acquired by
the person within such 60-day period are treated as owned by the person and
as outstanding shares.
(2) The shares and warrants beneficially owned by Fortuna Acquisition Partners,
L.P. include warrants to purchase 64,252 shares beneficially owned by
Strome-Susskind Hedgecap Fund, L.P., 100 Wilshire Boulevard, Fifteenth
Floor, Santa Monica, CA 90401. Strome-Susskind Hedgecap Fund, L.P. has
granted an irrevocable proxy to vote its shares, subject to certain
conditions, to Fortuna Acquisition Corp., the general partner of FC
Partners, L.P., which is the general partner of Fortuna Acquisition
Partners, L.P.
FC Partners, L.P., 100 Wilshire Boulevard, Fifteenth Floor, Santa Monica,
CA 90401, is the general partner of Fortuna Acquisition Partners, L.P.
Fortuna Acquisition Corp., 100 Wilshire Boulevard, Fifteenth Floor, Santa
Monica, CA 90401, is the general partner of FC Partners, L.P., and has sole
voting power with respect to all of the shares of the Corporation
beneficially owned by Fortuna Acquisition Partners, L.P., and sole
investment power with respect to 1,527,244 of said shares.
Ronald J. Vannuki, 100 Wilshire Boulevard, Fifteenth Floor, Santa Monica,
CA 90401, Karen Brenner, 1300 Bristol Street North, Suite 230, Newport
Beach, CA 92660, C.L. Haslam, 4620 Sedgwick Street, N.W., Washington, D.C.
20016, and Robert M. Thornton, Jr., 900 Circle 75 Parkway, Suite 1300,
Atlanta, GA 30339, own all of the outstanding shares of Fortuna Acquisition
Corp. Mr. Vannuki and Ms. Brenner are the directors and officers of said
corporation.
</TABLE>
5
<PAGE> 9
Fortuna Investment Partners, L.P., 100 Wilshire Boulevard, Fifteenth Floor,
Santa Monica, CA 90401, beneficially owns warrants to purchase 74,475 shares.
Fortuna Capital Management, Inc., 100 Wilshire Boulevard, Fifteenth Floor, Santa
Monica, CA 90401, is the general partner of Fortuna Investment Partners, L.P.
Ronald J. Vannuki is the sole shareholder and President of Fortuna Capital
Management, Inc. Fortuna Advisors, Inc. is an advisor to Fortuna Investment
Partners, L.P.
Fortuna Advisors, Inc., 1300 Bristol Street North, Suite 230, Newport
Beach, CA 92660, a registered investment adviser, is the beneficial owner of
114,520 shares (including warrants to purchase 7,670 shares) held in clients'
accounts. Karen Brenner is the sole shareholder and President of Fortuna
Advisors, Inc. Ms. Brenner also beneficially owns an additional 8,620 shares
(including warrants to purchase 220 shares) of the Corporation.
CareVest Capital, LLC ("CareVest"), 900 Circle 75 Parkway, Suite 1300,
Atlanta, GA 30339, beneficially owns 62,800 shares (including warrants to
purchase 23,000 shares). Robert M. Thornton, Jr., owns a majority of the
outstanding shares of CareVest. Mr. Thornton also beneficially owns an
additional 5,200 shares of the Corporation.
Strome-Susskind Hedgecap Fund, L.P., 100 Wilshire Boulevard, Fifteenth
Floor, Santa Monica, CA 90401, beneficially owns warrants to purchase 64,252
shares. Strome-Susskind Investment Management, L.P., 100 Wilshire Boulevard,
Fifteenth Floor, Santa Monica, CA 90401 ("SSIM"), is an investment adviser and
general partner of Strome-Susskind Hedgecap Fund, L.P. and, as such, it has sole
investment power with respect to these securities. SSCO, Inc., 100 Wilshire
Boulevard, Fifteenth Floor, Santa Monica, CA 90401, is the general partner of
SSIM. Mark E. Strome, 100 Wilshire Boulevard, Fifteenth Floor, Santa Monica, CA
90401, is the settlor and trustee of The Strome Family Trust which is the
controlling shareholder of SSCO, Inc.
The parties listed above in this section have filed with the Securities and
Exchange Commission, as a group, a Schedule 13D and amendments thereto under the
Securities Exchange Act of 1934 relating to their beneficial ownership of shares
of the Corporation. The information set forth herein with respect to beneficial
ownership of shares of the Corporation was obtained from Amendment No. 3 to
Schedule 13D dated March 6, 1997, as supplemented by members of the group. The
parties listed above are sometimes referred to as the "Fortuna Group". As a
group, the Fortuna Group beneficially owns 1,857,111 shares (including warrants
to purchase 402,087 shares) or 32.9% of the outstanding shares of the
Corporation.
COMMON SHARES OWNED BY MANAGEMENT
The following table sets forth the number of Common Shares of the
Corporation beneficially owned as of June 3, 1998 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 6/3/98
----------------------------------------
NAME NUMBER % OF CLASS
---- ------ ----------
<S> <C> <C>
C. L. Haslam.............................. 300 (3)
Robert M. Thornton, Jr.................... 68,000 (1) 1.3
Michael H. Dell........................... 0 0
Directors, Nominees and .................. 1,953,545 (2) 34.5
Executive Officers as a Group (10 persons)
<FN>
(1) Includes 23,000 shares that may be acquired upon the exercise of warrants.
(2) Includes 409,360 shares that may be acquired upon the exercise of warrants
and 12,000 shares that may be acquired upon the exercise of options within
60 days of June 3, 1998.
(3) Less than 1%.
</TABLE>
6
<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, 1998, whose salary and bonus for fiscal
year 1998 exceeded $100,000.
SUMMARY COMPENSATION TABLE
The following table presents for the three fiscal years ended March 31,
1998, the compensation of the Chief Executive Officer and the other executive
officers at March 31, 1998, whose salary and bonus in fiscal 1998 exceeded
$100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
------------------------------------
AWARDS PAYOUTS
------------------------------------
ANNUAL COMPENSATION LONG TERM
-------------------
OTHER RESTRICTED SECURITIES INCENTIVE ALL
ANNUAL STOCK UNDERLYING PLAN OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
------------------ ---- ------ ----- ------------ --------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
C.L. Haslam,............. 1998 $189,500 $ 0 $0 $0 0 $0 $ 5,685 (1)
Chairman and 1997 156,875 0 0 0 0 0 1,125
Chief Executive Officer 1996 0 0 0 0 0 0 0
Robert M. Thornton, Jr.,. 1998 $159,500 $ 0 $0 $0 0 $0 $ 4,785 (1)
President and 1997 106,250 0 0 0 0 0 25,979 (2)
Chief Financial Officer 1996 0 0 0 0 0 0 0
Michael H. Dell,......... 1998 $120,537 $ 0 $0 $0 0 $0 $ 0
Managing Director, 1997 111,244 12,191 0 0 0 0 0
Bradley International 1996 63,985 0 0 0 0 0 0
Holdings Limited
- -------------------------
<FN>
(1) These amounts were contributed by the Corporation under the 401(k) plan for
the benefit of the named executive.
(2) This amount includes $24,479 paid to Mr. Thornton under a Consulting
Agreement from May 17, 1996 to July 16, 1996.
</TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, for the named executive officers, additional
information about option grants for the fiscal year ended March 31, 1998.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SHARES OPTIONS ASSUMED ANNUAL RATES OF STOCK
UNDERLYING GRANTED TO EXERCISE PRICE APPRECIATION FOR OPTION
OPTIONS EMPLOYEES OR BASE TERM
GRANTED IN FISCAL PRICE EXPIRATION --------------------------------
NAME (#) YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
---- ------ --------- -------- ---------- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C> <C>
C. L. Haslam.......... 0 NA NA NA NA NA NA
Robert M.
Thornton, Jr.. ....... 0 NA NA NA NA NA NA
Michael H. Dell....... 0 NA NA NA NA NA NA
- ----------------------
</TABLE>
7
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows information about stock option exercises during
fiscal 1998 and unexercised stock options at 1998 fiscal year end for the named
executive officers.
<TABLE>
<CAPTION>
NUMBER OF
SHARES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS OPTIONS
AT FISCAL AT FISCAL
YEAR-END (#) YEAR-END ($)
SHARES
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
---- ------------ ------------ ------------- --------------
<S> <C> <C> <C> <C>
C.L. Haslam.................... 0 $0 0/0 $0/$0
Robert M. Thornton, Jr......... 0 $0 0/0 $0/$0
Michael H. Dell................ 0 $0 0/0 $0/$0
- ---------------
</TABLE>
LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
NUMBER OF OR OTHER UNDER NON-STOCK PRICE-BASED PLANS
SHARES, UNITS PERIOD UNTIL -----------------------------------------
OR OTHER MATURATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#) OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
---- ---------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
C.L. Haslam.................... 0 NA NA NA NA
Robert M. Thornton, Jr......... 0 NA NA NA NA
Michael H. Dell(1)............. 9,864 5 years NA NA NA
- -----------------
<FN>
(1) Mr. Dell was awarded 9,864 Notional Shares of Beldray Limited on April 22,
1997, under The Beldray Share Appreciation Rights Plan 1997. The price of
the Notional Shares on the date of grant was (pound)10.14 (approximately
$16.73). The Notional Shares vest at the rate of 20% per year, starting On
the first anniversary of the date of grant, and terminate after ten years.
The grant of Notional Shares lapses if Mr. Dell dies or ceases to be a
director or employee of Beldray Limited. The payout is determined by
multiplying the number of Notional Shares exercised by the difference
between the market value of a Notional Share on the date of exercise, as
determined by the directors, and the grant price.
</TABLE>
OTHER
Mr. Haslam, Chairman and Chief Executive Officer of the Corporation, is
currently employed by the Corporation under the terms of an Employment Agreement
effective May 17, 1996. The Agreement provides for a monthly salary of $15,000,
which was increased to $16,000 per month effective June 1, 1997. The Agreement
is terminable by either party on the last day of any month upon 30 days prior
written notice.
Mr. Thornton, President and Chief Financial Officer of the Corporation, is
currently employed by the Corporation under the terms of an Employment Agreement
also effective May 17, 1996. The Agreement provides for a monthly salary of
$12,500, which was increased to $13,500 per month effective June 1, 1997. The
Agreement is terminable by either party on the last day of any month upon 30
days prior written notice.
Effective April 1, 1998, Ronald J. Vannuki, a director of the Corporation,
entered into a Consulting Agreement with the Corporation. Mr. Vannuki's duties
under the Agreement are to prepare short-term and intermediate-term acquisition
plans and investigate and evaluate potential acquisitions for the Corporation.
8
<PAGE> 12
The amount of time to be devoted by him to his duties will be agreed to by the
parties but it is anticipated that Mr. Vannuki on average will perform
approximately 20 hours of service per month. The Agreement provides for a fee to
Mr. Vannuki of $5,000 per month. The Agreement also provides that, during its
term, Mr. Vannuki will not provide similar services to anyone else. The
Agreement may be terminated by either party upon 30 days written notice.
Also effective April 1, 1998, the Corporation entered into an identical
Consulting Agreement with Fortuna Advisors, Inc. Karen Brenner, a director of
the Corporation, is the sole shareholder and President of Fortuna Advisors, Inc.
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 American Stock Exchange Market Index and an American Stock
Exchange listed market capitalization based peer group index over the same
period (assuming the investment of $100 in each vehicle on March 31, 1993 and
reinvestment of all dividends). The peer group index is comprised of 134
companies and includes all non-financial American Stock Exchange companies with
a market capitalization of between $20 - $40 million, which were publicly traded
throughout the five-year period. The peer group index was developed by an
independent agency. 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.
[Graph]
PERFORMANCE DATA
<TABLE>
<CAPTION>
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
KRUG International Corp. 100 84.03 105.04 98.04 143.56 157.56
Peer Group Index 100 103.86 96.21 96.94 91.66 92.36
Broad AMEX Market Index 100 103.05 108.69 131.40 132.72 173.35
</TABLE>
9
<PAGE> 13
FISCAL 1998 AMEX PEER GROUP
The Peer Group is made up of American Stock Exchange non-financial
companies with a market value between $20-40 million. The only companies meeting
this criteria for Fiscal 1998 are the following:
ALLIANCE BNCP OF NEW ENG
AMERICAN INSURED MTG 84
AMERICAN REAL ESTATE INV
AMERICAN VANGUARD CORP
AMTEC INC
APOGEE INC
ATLANTIC PREMIUM BRANDS
AUDITS & SURVEYS WW INC
AUTOBOND ACCEPTANCE CORP
AVIVA PETROLEUM INC
AZCO MINING INC
B&H OCEAN CARRIERS LTD
BARNWELL INDUSTRIES INC
BLACKROCK BROAD INV 2009
BLIMPIE INTERNAT INC
BOWLIN OUTDOOR ADV AND TRA
BRILLIANT DIGITAL ENT
BULL & BEAR GLOBAL I FD
CANNON EXPRESS INC CL A
CARVER BANCORP INC
CET ENVIRONMENTAL INC
CITADEL HOLDING CORP
COHEN & STEERS RLTY IF
COLUMBUS ENERGY CORP
CONCORD FABRICS INC A
CONTINENTAL MATERIALS CP
CORNERSTONE BANK
DATAMETRICS CORP
DATARAM CORP
DECORATOR INDUSTRIES INC
DENAMERICA CORPORATION
DEWOLFE COMPANIES INC
DREYFUS NY MUNI INC FUND
E-Z EM INC CL A
E-Z EM INC CL B
E-Z SERVE CORP
ELECTRO CHEMICAL IND LTD
EMERSON RADIO CORP
ENVIRONMENTAL TECTONICS
FALMOUTH BANCORP INC
FEMALE HEALTH CO (THE)
FIRST WEST VA BANCORP
FLORIDA PUBLIC UTILITIES
FORTUNE NATURAL RES CORP
GAMMA BIOLOGICALS INC
GLOBALINK INC GO-VIDEO INC
GRAHAM CORP
HALSEY DRUG CO
HAMPTON INDUSTRIES INC
HAYWOOD BANCSHARES INC
HEARTLAND PARTNERS L.P.
HEARTLAND TECHNOLOGY INC
HECTOR COMMUNICATIONS
HEIN-WERNER CORP
HEIST C.H. CORPORATION
HIGHLANDER INCOME FUND
HUNGARIAN TEL & CABLE CP
IGI INC
INDEPENDENT BANKSHARES
INTEGRATED ORTHOPAEDICS
INTERLOTT TECH INC
INTERNAT REMOTE IMAG SYS
KENTUCKY FIRST BANCORP
KINARK CORP
MAINE PUBLIC SERVICE CO
MARQUEE GROUP INC (THE)
MASSACHUSETTS H&E TRUST
MERRIMAC INDUSTRIES INC
MICHAEL ANTHONY JEWELERS
MIDSOUTH BANCORP
MINNESOTA MUN TERM TR II
MOORE MEDICAL CORP
MORGAN GROUP INC CL A
NEOPHARM INC
NEW YORK TAX EXEMPT INC
NORTHEAST BANCORP
NORTHERN TECHNOLOGY
NTN COMMUNICATIONS INC
NUVEEN MO PREMIUM IMF
NUVEEN WA PREMIUM IMF
O'OKIEP COPPER CO
OHIO ART CO
ONCOR INC
ONCORMED INC
ONE LIBERTY PROPS INC
OSHMAN'S SPORTING GOODS
PAMIDA HOLDINGS CORP
PC QUOTE INC
PHONETEL TECHNOLOGIES
PIEDMONT BANCORP INC
PINNACLE BANCSHARES INC
POLK AUDIO INC
PRESIDENTIAL REALTY CL B
PROFESSIONAL BANCORP INC
PROVIDENCE & WORCESTR RR
PUBLIC STORAGE PROP XX
PUTNAM NY INV GRD MUN TR
REEDS JEWELERS INC
REFAC TECHNOLOGY DEVELP
RF POWER PRODUCTS
RICHTON INTERNAT CORP
ROTTLUND INC
SABA PETROLEUM CO
SERVOTRONICS INC
SKYLINE CHILI INC
SOLIGEN TECHNOLOGIES INC
SOUTHERN BANC CO INC
SOUTHFIRST BANCSHARES
SPATIAL TECHNOLOGY INC
STERLING CAP CP
STONE STREET BANCORP INC
SURETY CAPITAL CORP
SWING N SLIDE CORP
TEAM INC
TOP SOURCE TECHNOLOGIES
UNAPIX ENTERTAINMENT INC
UNI-MARTS INC
UNIFLEX INC
UNIMAR CO
UNITED GUARDIAN INC
UNITED STATES EXPLOR INC
VAN KAMPEN AM CAP CA MT
VAN KAMPEN AM CAP FL MOT
VAN KAMPEN AM CAP MA VMI
VAN KAMPEN AM CAP NJ VMI
VAN KAMPEN AM CAP OH VMI
VERSAR INC
VICON INDUSTRIES INC
VISTA GOLD CORP
VOYAGEUR FL INS MUNI INC
VOYAGEUR MN MUNI INC FD3
WASHINGTON SAV BANK
WELLS-GARDNER ELECTRONIC
10
<PAGE> 14
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
(Mr. Mulligan was Secretary of the Corporation during the last fiscal year). 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 only minor changes were made.
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,
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. In the
past, the Corporation has granted options for five, six and ten year terms.
Recently, however, the Board of Directors concluded that options for shorter
terms should provide incentives for more immediate improved performance.
Accordingly, options recently granted under the 1995 Incentive Stock Option Plan
have been for three year terms; they may not be exercised during the first year
after grant and then become exercisable one-half per year in the second and
third years, respectively. The Directors also decided to grant options to more
key employees than in the past.
11
<PAGE> 15
With respect to the compensation of the Chairman and CEO (Mr. Haslam)
and the President and CFO (Mr. Thornton), the Committee believes that their base
salaries are at the very low end for positions requiring similar competence,
dedication, creativity, experience and leadership qualities.
With respect to fiscal 1997, the Corporation's 1997 results exceeded
the Committee's expectations and the Committee considered recommending bonuses
for Messrs. Haslam and Thornton but concluded to defer such action because, even
though they had commenced a number of important initiatives, none had been
successfully accomplished at that time. With respect to fiscal 1998, the
Committee is disappointed with the Corporation's financial results for 1998,
even though there were mitigating circumstances. On the other hand, Messrs.
Haslam and Thornton, working together as a team, have successfully completed the
following actions: the acquisitions of Hago Products Ltd. and Klippan Ltd.; the
sale of Sowester Ltd.; the merger of KRUG Life Sciences Inc. and
Technology/Scientific Services, Inc. into Wyle Laboratories, Inc.; and the
restructuring of the manufacturing and sales functions of the Housewares and
Child Safety Products Segment. These actions produced the following important
results: the Corporation's presence in the child safety products area has been
rapidly and substantially enlarged; the Corporation's exposure to the risks
inherent in the government contracting business has been significantly limited;
the Corporation's long term debt has been substantially reduced; the
Corporation's cash position has been greatly improved; and the Corporation's
balance sheet has been materially strengthened. These steps have rationalized
the Corporation's activities and put it in position to continue to pursue an
aggressive acquisition program with the ultimate goal of increasing shareholder
value. Some of these actions were not completed until after the end of the 1998
fiscal year. Under these circumstances and in order to be able to fully evaluate
the performance of Messrs. Haslam and Thornton, the Committee has decided to
postpone consideration of changes in their compensation packages until the early
part of fiscal 1999.
This report has been submitted by the Executive Compensation Committee:
Bernee D.L. Strom Karen Brenner James J. Mulligan
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Executive Compensation Committee are Mses. Strom
(Chairman) and Brenner and Mr. Mulligan. Ms. Brenner is the sole shareholder and
President of Fortuna Advisors, Inc. Effective April 1, 1998, Fortuna Advisors,
Inc. entered into a Consulting Agreement with the Corporation (see "Other"). Mr.
Mulligan is Secretary of the Corporation and is a member of the law firm of
Mulligan & Mulligan, the general counsel of the Corporation. Mulligan & Mulligan
received $95,724 for legal services rendered during the Corporation's last
fiscal year.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1997 through March 31, 1998 have been met.
12
<PAGE> 16
INDEPENDENT PUBLIC ACCOUNTANTS
Deloitte & Touche LLP has performed an audit of the Corporation's financial
statements annually since 1962. It is anticipated that representatives of
Deloitte & Touche LLP 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.
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 1999 Annual Meeting of Shareholders
must, in accordance with applicable regulations of the Securities and Exchange
Commission, be received by the Corporation at 1290 Hercules Drive, Suite 120,
Houston, Texas 77058, Attention: Secretary, on or before February 12, 1999 in
order to be eligible for such inclusion.
By order of the Board of Directors
JAMES J. MULLIGAN
Secretary
Dayton, Ohio
June 15, 1998
13
<PAGE> 17
PROXY
KRUG INTERNATIONAL CORP.
ANNUAL MEETING OF SHAREHOLDERS, JULY 13, 1998
The undersigned holder(s) of Common Shares of KRUG International Corp., an
Ohio corporation (the "Corporation"), hereby appoints C. L. HASLAM 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
Monday, July 13, 1998, 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.
Charles Linn Haslam, Karen Brenner and Bernee D.L. Strom.
2. 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 Proposal 1.
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, 1998.
Dated __________________________, 1998
------------------------------------
------------------------------------
(Signatures)
Shareholders should date this proxy and
sign here exactly as the name appears at
left. If shares are 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
