<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
Filed by the Registrant / /
Filed by a party other than the Registrant / /
Check the appropriate box:
/ / 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 Section 240.14a-11(c) or Section
240.14a-12
KRUG International Corp.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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>
KRUG INTERNATIONAL CORP.
900 CIRCLE 75 PARKWAY, SUITE 1300
ATLANTA, GEORGIA 30339
October 21, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of
Shareholders which will be held at 2:00 p.m., on Friday, November 19, 1999,
at the Sheraton Suites Galleria, 2844 Cobb Parkway S.E., Atlanta, Georgia
30339.
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 1999 Annual Report to
Shareholders is also enclosed.
We hope you will be able to attend the Meeting.
Whether or not you plan to attend the Annual Meeting, please 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. If
you have questions or need assistance regarding your shares, please call our
proxy solicitor, Georgeson Shareholder Communications, Inc., at (800)
223-2064.
Sincerely,
/s/ Robert M. Thornton, Jr.
ROBERT M. THORNTON, JR.
Chairman
<PAGE>
KRUG INTERNATIONAL CORP.
900 CIRCLE 75 PARKWAY, SUITE 1300
ATLANTA, GEORGIA 30339
------------
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON NOVEMBER 19, 1999
------------
To the Shareholders of
KRUG INTERNATIONAL CORP.:
The Annual Meeting of Shareholders of KRUG INTERNATIONAL CORP. will
be held at 2:00 p.m., Eastern Standard Time, on Friday, November 19, 1999, at
the Sheraton Suites Galleria, 2844 Cobb Parkway S.E., Atlanta, Georgia 30339,
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
October 21, 1999
<PAGE>
KRUG INTERNATIONAL CORP.
900 CIRCLE 75 PARKWAY, SUITE 1300
ATLANTA, GEORGIA 30339
------------
PROXY STATEMENT
FOR 1999 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 November 19, 1999 and any adjournment thereof.
The close of business on October 14, 1999 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 4,976,285 Common Shares outstanding at the close of business on October
14, 1999.
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 James J. Mulligan, Ronald J.
Vannuki and Steven Baileys, D.D.S., 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 October 21, 1999.
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 three members
and the other class four members. One class of directors is elected at each
Annual Meeting of Shareholders for a term of two years.
At the 1999 Annual Meeting, shareholders will elect three directors
who will hold office until the Annual Meeting of Shareholders in 2001. At the
meeting of the Board of Directors held on August 9, 1999, Bernee D. L. Strom
resigned her seat in the 2000 Class of Directors,
1
<PAGE>
and T. Wayne Holt, a member of the 1999 Class, announced that he would not
stand for election at the 1999 Annual Meeting. Robert M. Thornton, Jr.
resigned his position in the 1999 Class and the remaining directors elected
him to the 2000 Class seat previously held by Ms. Strom. Following Mr.
Thornton's resignation as a member of the 1999 Class, the Board of Directors
reduced the size of the 1999 Class from four members to three. At the meeting
of the Board of Directors held on October 8, 1999, the Directors increased
the size of the 2000 Class from three members to four and C. Michael Ford was
elected a director in the 2000 Class. As a result of such changes, the Board
of Directors has nominated Mr. Mulligan and Mr. Vannuki, who are presently
directors of the Corporation, and Dr. Baileys, who is not presently a
director, for election to a term of office expiring at the 2001 Annual
Meeting. Continuing Directors who comprise the 2000 Class of Directors are
Karen B. Brenner, Mr. Ford, Mr. Thornton and Howard E. Turner.
It is the intention of the proxy agents named in the proxy, unless
otherwise directed, to vote such proxy for the election of Mr. Mulligan, Mr.
Vannuki and Dr. Baileys. 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>
NAME AND OFFICES COMMON SHARES
PRESENTLY HELD WITH CORPORATION BENEFICIALLY OWNED AS OF 10/14/99
------------------------------- DIRECTOR ---------------------------------
NOMINEES FOR TERM OF OFFICE EXPIRING IN 2001: SINCE NUMBER (1) % OF CLASS (1)
- --------------------------------------------- ----- --------- --------------
<S> <C> <C> <C>
James J. Mulligan 1966 32,085 (2) (8)
Director and Secretary
Ronald J. Vannuki 1998 190,875 (3) 3.7
Director
Steven Baileys, D.D.S. N/A 715,198 (4) 14.1
Nominee
DIRECTORS WHOSE TERM OF OFFICE EXPIRES IN 2000:
- -----------------------------------------------
Robert M. Thornton, Jr. 1996 176,024 (5) 7.0
Director, Chairman, President,
Chief Executive Officer and
Chief Financial Officer
Karen B. Brenner 1996 827,348 (6) 16.3
Director
Howard E. Turner 1998 136,337 (7) 2.7
Director
C. Michael Ford 1999 0 0
Director
</TABLE>
(1) These columns show the number of Common Shares beneficially owned as of
October 14, 1999, as confirmed by each beneficial owner, and the
percentage of class represented thereby, 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
<PAGE>
(2) Includes 5,380 shares that may be acquired upon the exercise of
warrants.
(3) These shares (which include 151,557 shares which may be acquired upon
the exercise of warrants) are beneficially owned by Fortuna Investment
Partners, L.P. Mr. Vannuki is the president of its general partner,
Fortuna Capital Management, Inc.
(4) Dr. Baileys has shared investment power over all of these shares
(which include 102,982 shares which may be acquired upon the exercise
of warrants).
(5) Includes 37,540 shares that may be acquired upon exercise of warrants.
(6) Includes 815,228 shares (which includes 110,882 shares which may be
acquired upon the exercise of warrants) over which Ms. Brenner, as a
registered investment advisor and sole shareholder of Fortuna Advisors,
Inc., has shared investment power.
(7) Includes 12,685 shares that may be acquired upon the exercise of
warrants.
(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.
James J. Mulligan, 77, became Secretary of the Corporation in 1966.
Mr. Mulligan has been a member of the law firm of Mulligan & Mulligan since
January 1993. He was a member of the law firm of Smith & Schnacke from 1953
to 1989 and a member of the law firm of Thompson Hine & Flory LLP from 1989
until his retirement in 1991. Mulligan & Mulligan is general counsel to the
Corporation and received $105,063 for legal services rendered during the
Corporation's fiscal year ended March 31, 1999.
Ronald J. Vannuki, 58, has been a registered investment adviser with
Fortuna Advisors, Inc., an 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. Mr.
Vannuki is a director of Wyle Laboratories, Inc., a privately held
corporation, of which 38% of the equity is owned by the Corporation.
Steven Baileys, D.D.S, 45, has been Chairman of the Board of
Directors and Chief Executive Officer of SafeGuard Health Enterprises Inc., a
public dental care benefits company, since 1995, President from 1981 until
1997 and Chief Operating Officer from 1981 until 1995. Dr. Baileys is
licensed to practice dentistry in the State of California.
Robert M. Thornton, Jr., 50, has been Chairman and Chief Executive
Officer of the Corporation since September 10, 1998, President since July 16,
1996 and Chief Financial Officer since July 18, 1997. From October 1994 to
the present, Mr. Thornton 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.
Karen B. Brenner, 46, 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
3
<PAGE>
director of Wyle Laboratories, Inc., a privately held corporation, of which
38% of the equity is owned by the Corporation. Ms. Brenner is also a director
of Creative Bakeries, Inc.
Howard E. Turner, 57, has been a partner in the law firm of Smith,
Gambrell & Russell, LLP, since 1971, where he serves on the firm's executive
committee and heads one of it's corporate sections. Mr. Turner has been
involved in numerous corporate mergers, acquisitions and dispositions; in
structuring public and private equity and debt financing; and has represented
special committees and board of directors of large public companies. Mr.
Turner has served as a director of Avlease, Ltd., a lessor of large
commercial aircraft, and currently serves as an officer and director of HSR,
Ltd. Mr. Turner provides legal services to the Corporation through the law
firm, Smith, Gambrell & Russell, LLP, as requested by the Corporation.
C. Michael Ford, 60, has been the owner and Chairman of the Board of
Montpelier Corporation, a venture capital and real estate holding company,
since October 1997. Mr. Ford served as Vice President of Development of
Columbia/HCA Healthcare Corporation from September 1994 to September 1997,
and was Vice President of Marketing of Meditrust from October 1993 to
September 1994. Mr. Ford was employed by Charter Medical Corporation from
1976 to 1990 in a variety of positions, which included Secretary and
Treasurer, Chief Financial Officer and a member of the Board of Directors.
Mr. Ford is a director and Chairman of the Audit Committee of In Home Health,
Inc. (IHHI), a publicly held home healthcare company.
INFORMATION CONCERNING THE BOARD OF DIRECTORS
The Board of Directors held ten meetings during fiscal 1999. The
Board has an Executive Committee, an Audit Committee and an Executive
Compensation Committee, but no nominating committee. The Executive Committee
held one meeting and took action by unanimous written consent three times in
fiscal 1999. The Audit Committee held one meeting and the Executive
Compensation Committee held three meetings in fiscal 1999.
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. Thornton (Chairman) and Turner 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 Messrs. Mulligan (Chairman) and Ford and Ms.
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 Ms. Brenner (Chairperson) and
Mr. Mulligan.
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 Executive Committee meetings and actions taken by
unanimous written consent.
4
<PAGE>
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 October 14, 1999.
<TABLE>
<CAPTION>
COMMON SHARES AND WARRANTS TO PURCHASE
COMMON SHARES BENEFICIALLY OWNED
AS OF 10/14/99 (1)
----------------------------------------------------
NUMBER
------
NAME AND ADDRESS SHARES WARRANTS % OF CLASS
---------------- ------ -------- ----------
<S> <C> <C> <C>
FORTUNA ADVISORS, INC. (2) 815,228 110,662 16.0
1300 Bristol Street North
Suite 100
Newport Beach, CA 92660
KAREN B. BRENNER 827,348 110,882 16.3
1300 Bristol Street North
Suite 100
Newport Beach, CA 92660
BAILEYS FAMILY TRUST (3) 378,649 52,041 7.5
P.O. Box 9109
Newport Beach, CA 92658
STEVEN BAILEYS (3) 715,198 102,982 14.1
P.O. Box 9109
Newport Beach, CA 92658
DIMENSIONAL FUND 272,949 0 5.5
ADVISORS
1299 Ocean Avenue
Eleventh Floor
Santa Monica, CA 90401
WESTSIDE CAPITAL 275,700 0 5.5
PARTNERS, L.P.
575 Lexington Avenue
Seventh Floor
New York, NY 10022
</TABLE>
(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 October 14, 1999. Unless otherwise indicated, sole
voting power and sole investment power are exercised by the named entity.
In calculating "% of Class" for an entity, shares which may be acquired by
the entity within such 60-day period are treated as owned by the entity and
as outstanding shares.
(2) Fortuna Advisors, Inc., 1300 Bristol Street North, Suite 100, Newport
Beach, CA 92660, provides discretionary investment management services to
clients. Karen B. Brenner is president of Fortuna Advisors, Inc. Ms.
Brenner also serves as a consultant to and a director of the Corporation.
(3) The business of the Baileys Family Trust is investment, and Steven Baileys,
D.D.S., is a private investor, serves as the Trustee of Baileys Family
Trust and is a nominee for election as a director.
5
<PAGE>
The parties listed above in this section together with Ronald J.
Vannuki, and except for Dimensional Fund Advisors and Westside Capital
Partners, L.P., 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. 6 to
Schedule 13D dated October 22, 1998 and filed April 1, 1999, as supplemented
by members of the group. The parties listed above, except Dimensional Fund
Advisors and Westside Capital Partners, L.P., are sometimes referred to as
the Fortuna Group. As a group, the Fortuna Group beneficially owns 1,018,223
shares (including warrants to purchase 262,435 shares) or 19.4% 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 October 14, 1999 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 10/14/99
------------------------------
NAME NUMBER % OF CLASS
- --------------------------- ------ ----------
<S> <C> <C>
Robert M. Thornton, Jr. 176,024(1) 3.5
C. L. Haslam (2) 0 0
Directors, Nominees and Executive Officers as a 1,442,570(3) 27.1
Group (10 persons)
</TABLE>
(1) Includes 37,540 shares that may be acquired upon the exercise of
warrants.
(2) On September 10, 1998, C. L. Haslam resigned as Chairman and
Chief Executive Officer of the Corporation.
(3) Includes 325,889 shares that may be acquired upon the exercise
of warrants and 18,000 shares that may be acquired upon the
exercise of options within 60 days of October 14, 1999.
6
<PAGE>
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, 1999, whose salary
and bonus for fiscal year 1999 exceeded $100,000.
SUMMARY COMPENSATION TABLE
The following table presents for the three fiscal years ended March
31, 1999, the compensation of each person who was Chief Executive Officer of
the Corporation during the year ended March 31, 1999 and the other executive
officers at March 31, 1999, whose salary and bonus during fiscal 1999
exceeded $100,000.
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
-----------------------------------
AWARDS PAYOUTS
--------------------- -----------
ANNUAL COMPENSATION
---------------------------------- LONG-TERM
OTHER RESTRICTED SECURITIES INCENTIVE
ANNUAL STOCK UNDERLYING PLAN ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($) ($)
- --------------------------- ------ --------- -------- -------------- ----------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ROBERT M. THORNTON, JR., 1999 $196,700 $0 $0 $0 20,000 $0 $0
Chairman, President, 1998 159,500 35,000 (2) 0 0 0 0 4,785 (3)
Chief Executive Officer 1997 106,250 0 0 0 0 0 25,979 (4)
and Chief Financial
Officer (1)
C. L. HASLAM, 1999 $96,000 $0 $0 $0 0 $0 $96,528 (5)
Former Chairman 1998 189,500 0 0 0 0 0 5,685 (3)
and Chief Executive 1997 156,875 0 0 0 0 0 1,125 (3)
Officer (1)
- ---------------------------
</TABLE>
(1) Mr. Thornton succeeded Mr. Haslam as Chairman and Chief Executive
Officer on September 10, 1998.
(2) This bonus was for services performed in fiscal 1997 and fiscal 1998.
(3) These amounts were contributed by the Corporation under the 401(k)
plan for the benefit of the named executives.
(4) This amount includes $24,479 paid to Mr. Thornton under a Consulting
Agreement from May 17, 1996 to July 16, 1996.
(5) This amount was paid to Mr. Haslam following his resignation as
Chairman and Chief Executive Officer.
7
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table shows, for the named executive officers, additional
information about option grants for the fiscal year ended March 31, 1999.
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
-------------------------------------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF % OF TOTAL OF STOCK PRICE
SHARES OPTIONS APPRECIATION FOR OPTION
UNDERLYING GRANTED TO ------------------------------
OPTIONS EMPLOYEES EXERCISE OR TERM
GRANTED IN FISCAL BASE PRICE EXPIRATION ------------------------------
NAME (#) YEAR ($/SHARE) DATE 0%($) 5%($) 10%($)
- ---------------------------- -------- --------- ----------- ---------- -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert M. Thornton, Jr. 20,000 25.3% $1.6875 12/21/2003 $0 $4,538 $14,565
C. L. Haslam 0 N/A N/A N/A N/A N/A N/A
- ----------------------------
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
The following table shows information about stock option exercises during
fiscal 1999 and unexercised stock options at March 31, 1999 for the named
executive officers.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES YEAR-END FISCAL YEAR-END
ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/
NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE (#) UNEXERCISABLE ($)
- --------------------------- ------------ ------------ ----------------- -----------------
<S> <C> <C> <C> <C>
Robert M. Thornton, Jr. 0 $0 0/20,000 $0/$3,750
C. L. Haslam 0 N/A N/A N/A
- ----------------------------
</TABLE>
LONG TERM INCENTIVE PLANS - AWARDS IN LAST FISCAL YEAR
The following table shows for the named executive officers, additional
information about awards during the fiscal year ended March 31, 1999 under
long-term incentive plans.
<TABLE>
<CAPTION> ESTIMATED FUTURE PAYOUTS UNDER
NUMBER OF PERFORMANCE OR NON-STOCK PRICE-BASED PLANS
SHARES, UNITS OTHER PERIOD -----------------------------------------
OR OTHER UNTIL MATURIATION THRESHOLD TARGET MAXIMUM
NAME RIGHTS (#) OR PAYOUT ($ OR #) ($ OR #) ($ OR #)
- --------------------------- ---------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Robert M. Thornton, Jr. 0 N/A N/A N/A N/A
C. L. Haslam 0 N/A N/A N/A N/A
- ---------------------------
</TABLE>
8
<PAGE>
OTHER
Mr. Thornton, Chairman, President, Chief Executive Officer and Chief
Financial Officer, is currently employed by the Corporation under the terms
of an Employment Agreement effective August 1, 1998. The initial period of
the Agreement expired July 31, 1999, but the Agreement continues in force
thereafter until either Mr. Thornton or the Corporation provides four months
written notice terminating the Agreement. The Agreement provides for an
annual base salary of $210,000, plus any increases that may be granted from
time to time by the Corporation. Mr. Thornton is also eligible to receive a
bonus equal to twenty-five percent of his annual base salary if certain
goals, agreed to by the parties to the Agreement, for fiscal 1999 and future
fiscal years, are met. During the term of his employment, Mr. Thornton is
also eligible to participate in any stock option or compensation plan adopted
for officers and shall receive the fringe benefits extended by the
Corporation to its most highly compensated executives.
The Agreement also provides for severance payments in the event Mr.
Thornton ceases to be employed by the Corporation (whether voluntarily by Mr.
Thornton or otherwise) within one year after a change in control of the
Corporation (as defined in the Agreement). In such event, the Corporation is
required to pay Mr. Thornton an amount equal to one year's base salary. In
addition, any stock options held by Mr. Thornton on the date the Agreement is
terminated become immediately exercisable and may be exercised by Mr.
Thornton within ninety days of the termination of the Agreement, but only if
Mr. Thornton terminates the Agreement. While Mr. Thornton is receiving
payments pursuant to the Agreement, he is prohibited from competing with the
Corporation.
Mr. Haslam resigned as Chairman and Chief Executive Officer of the
Corporation effective September 10, 1998. He was employed by the Corporation
under the terms of an Employment Agreement effective May 17, 1996. The
Agreement provided for a monthly salary of $15,000, which was increased to
$16,000 per month effective June 1, 1998.
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. 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.
9
<PAGE>
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 investments of $100 in each vehicle on March
31, 1994 and reinvestment of all dividends). The peer group index is
comprised of 66 companies and includes all non-financial American Stock
Exchange companies with a market capitalization of between $20 and $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.
[OBJECT OMITTED]
PERFORMANCE DATA
<TABLE>
<CAPTION>
1994 1995 1996 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
KRUG International Corp. 100 125.00 116.67 170.83 187.50 50.00
Peer Group Index 100 87.67 81.89 80.89 74.44 38.83
Broad AMEX Market Index 100 105.47 127.50 128.79 168.22 159.18
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</TABLE>
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FISCAL 1999 AMEX PEER GROUP
The peer group is comprised of American Stock Exchange non-financial
companies with a market value between $20 and 40 million. The only companies
meeting this criteria for fiscal 1999 are the following:
Acme United Corp.
Advanced Photonix Cl A
Autobond Acceptance Corp
Avenue Entertainment Group
B&H Ocean Carriers Ltd.
Beard Co.
BFX Hospitality Corp.
Canyon Resources Corp.
Cardiotech International Inc.
CEC Resources Ltd.
CET Environmental Inc.
Commodore Applied Tech.
Computrac Inc.
Concord Fabrics Inc. A
Concord Fabrics Inc. B
Continucare Corp.
CPS Systems Inc.
Creative Computer Applications
Dairy Mart Convenience Cl B
Etz Lavud Ltd. Ord.
EXX Inc. Cl A
Farmstead Telephone Gr.
Flanigan's Enterprise Inc.
Fortune Natural Resources Corp.
Goldfield Corp.
HMG/Courtland Prop. Inc.
ILX Resorts Inc.
Income Opportunity Realty Investment
Integrated Orthopedics
Integrated Tech USA
International Airline Supp. Group
International Remote Imaging Systems
Intersystems Inc.
Jaclyn Inc
Jinpan International Ltd.
Joule Inc.
Killearn Properties Inc.
Kit Manufacturing Co.
Laser Technology Inc.
Leather Factory Inc.
Luxtec Corp.
LXR Biotechnology Inc.
Matec Corp.
MC Shipping Inc.
McRae Industries Cl A
Multigraphics Inc.
Oriole Homes Cl B
Plymouth Rubber Inc. Cl A
Plymouth Rubber Inc. Cl B
Polyphase Corp.
Professional Dental Tech
Provena Foods Inc.
Sentry Technology Corp.
Soligen Technologies Inc.
Star Struck Ltd.
Stevens International Cl A
Strategia Corp.
Teletouch Commun.
Thermwood Corp.
Top Air Manufacturing
Trans Lux Corp.
Trio-Tech International
Tuxis Corporation
United Foods Inc. Cl A
Unimar Co.
Wendt Bristol Health Services
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. Except as specifically authorized by the Board, 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.
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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 normally 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.
With respect to the Chairman, President, CEO and CFO (Mr. Thornton),
the Committee believes that his base salary is at the 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 a
bonus for Mr. Thornton, but concluded to defer such action because, even
though a number of important initiatives had been commenced, none had been
successfully accomplished at that time.
With respect to fiscal 1998, while the Committee was disappointed
with the Corporation's financial results for 1998, even though there were
mitigating circumstances, a number of important actions had been successfully
completed: the acquisitions of Hago Products Limited and Klippan Limited; the
sale of Sowester Limited; 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 segments. These actions produced the following important results
for the Corporation: the Corporation's presence in the child safety area was
rapidly and substantially enlarged; the Corporation's exposure to the risks
inherent in the government contracting business was significantly limited;
the Corporation's long-term debt was substantially reduced; the Corporation's
cash position was greatly improved; and, the Corporation's balance sheet was
materially strengthened. These steps rationalized the Corporation's
activities and put it in position to continue to pursue an acquisition
program with the ultimate goal of increasing shareholder value. Since some of
these actions were not completed until after the end of the 1998 fiscal year,
the Committee decided to postpone consideration of a bonus for Mr. Thornton
until fiscal 1999.
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In November, 1998, the Board of Directors, upon the recommendation
of the Committee, awarded Mr. Thornton a cash bonus of $35,000 in recognition
of his services in fiscal 1997 and 1998, which were, in considerable part,
responsible for the actions and results set forth above. In November 1998,
the Directors adopted the recommendation of the Committee and entered into an
Employment Agreement with Mr. Thornton, which is described under the heading
"Other." The Agreement provides, among other things, that Mr. Thornton can
earn a bonus equal to 25% of his annual base salary if goals agreed to by the
Corporation and Mr. Thornton are met. For fiscal 1999, it was agreed that Mr.
Thornton would be entitled to receive one-half of the bonus if certain
specific operating results were achieved during the third and fourth quarters
of fiscal 1999 and that the other one-half would be payable wholly at the
discretion of the Directors (although the Directors would give consideration
to the accomplishment of major tasks, such as the acquisition or divestiture
of significant assets, the refinancing of the European loans and the
repatriation of U.K. funds). No bonus was paid to Mr. Thornton because the
operating results were not achieved and the Corporation's financial results
for fiscal 1999 were very disappointing.
Nonetheless, the Committee believes that Mr. Thornton has the
ability, determination, energy, experience, and leadership qualities, as well
as a substantial financial interest in the Corporation, to turn the
Corporation around and produce acceptable results for the shareholders. As an
expression of that confidence, in December 1998, the Corporation granted Mr.
Thornton an option to purchase 20,000 shares of the Corporation's common
shares at the market price on the date of the grant.
This report was submitted by the Executive Compensation
Committee on June 18, 1999.
Bernee D. L. Strom Karen B. Brenner James J. Mulligan
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Executive Compensation Committee are Ms.
Brenner (Chairperson) 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
(which is described under the heading "Other" at page 11). Mr. Mulligan is
Secretary of the Corporation and a member of the law firm of Mulligan &
Mulligan, general counsel for the Corporation. Mulligan & Mulligan
received $105,063 for legal services rendered during the Corporation's
1999 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, 1998 through March 31, 1999 have
been met, except that Karen B. Brenner filed three reports late concerning
seven intra-family transactions.
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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 directors, 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. The Corporation
has also engaged Georgeson & Company at a fee of $20,000 to assist in the
solicitation of proxies from such institutions and individuals.
SHAREHOLDER PROPOSALS
A proposal by a shareholder intended for inclusion in the
Corporation's proxy statement and form of proxy for the 2000 Annual Meeting
of Shareholders must, in accordance with applicable regulations of the
Securities and Exchange Commission, be received by the Corporation at 900
Circle 75 Parkway, Suite 1300, Atlanta, Georgia 30339, Attention: Secretary,
on or before June 21, 2000 in order to be eligible for such inclusion.
By order of the Board of Directors
JAMES J. MULLIGAN
SECRETARY
Dayton, Ohio
October 21, 1999
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PROXY PROXY
KRUG INTERNATIONAL CORP.
ANNUAL MEETING OF SHAREHOLDERS, NOVEMBER 19, 1999
The undersigned holder(s) of Common Shares of KRUG International Corp., an
Ohio corporation (the "Corporation"), hereby appoints ROBERT M. THORNTON, JR.
and KAREN B. BRENNER, 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 Friday, November 19, 1999 at 2:00 p.m., and at any and all adjournments
of said meeting, as follows:
PLEASE MARK, SIGN, DATE AND MAIL THIS CARD PROMPTLY
IN THE ENCLOSED ENVELOPE
(Continued and to be signed on reverse side.)
<PAGE>
/X/
PLEASE MARK
VOTE AS IN
THIS EXAMPLE:
<TABLE>
<CAPTION>
FOR WITHHOLD FOR ALL
1. ELECTION OF DIRECTORS ALL ALL (EXCEPT NOMINEE(S) WRITTEN BELOW)
<S> <C> <C> <C> <C>
NOMINEES: James J. Mulligan, Ronald J. Vannuki / / / / / /
and Steven Baileys, D.D.S.
2. In their discretion, upon such other business as
may properly come before the meeting or at any
adjournment thereof.
</TABLE>
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, 1999.
Dated: ____________________, 1999
Signature(s) __________________________
_______________________________________
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.
