<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
SCHEDULE 13E-4
ISSUER TENDER OFFER STATEMENT
(PURSUANT TO SECTION 13(E)(1) OF THE SECURITIES EXCHANGE ACT OF 1934)
(AMENDMENT NO. ______________)
KRUG INTERNATIONAL CORP.
------------------------
(Name of the Issuer)
KRUG INTERNATIONAL CORP.
------------------------
(Name of Person(s) Filing Statement)
SENIOR SUBORDINATED ZERO COUPON NOTES DUE 2007
----------------------------------------------
AND WARRANTS
------------
(Title of Class of Securities)
501067 128; 501067 AAO
----------------------
(CUSIP Number of Class of Securities)
ROBERT M. THORNTON, JR.,
KRUG INTERNATIONAL CORP.
SUITE 1300
900 CIRCLE 75 PARKWAY
ATLANTA, GEORGIA 30339
(770) 933-7000
--------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices
and Communications on Behalf of Person(s) Filing Statement)
AUGUST 20, 1999
---------------
(Date Tender Offer First Published, Sent or Given to Security Holders)
CALCULATION OF FILING FEE
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Transaction
Valuation (1) Amount Of Filing Fee (2)
- --------------------------------------------------------------------------------
<S> <C>
$ 3,915,375.00 $ 784.00
- --------------------------------------------------------------------------------
</TABLE>
1. Based upon the purchase of 2,470,000 shares at $1.5625 per share and 30,000
shares at $2.00 per share. For purposes of determining this fee, the market
value of the Common Stock proposed to be acquired in exchange for new
securities of the registrant was established, in part, by multiplying the
average high and low trading price of the Common Stock on the AMEX on
August 19 1999 by 2,470,000.
2. The amount of the filing fee equals 1/50 of one percent of the value of the
securities to be acquired, as provided in Regulation 240.0-11 of the
Securities Exchange Act of 1934.
[ ] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
Amount previously paid: Filing party:
------------------ ----------------------
Form or registration no.: Date filed:
----------------- ------------------------
<PAGE> 2
ITEM 1. SECURITY AND ISSUER.
(a) The name of the issuer is KRUG International Corp., an Ohio
corporation ("KRUG"), which has its principal executive offices at
900 Circle 75 Parkway, Suite 1300, Atlanta, Georgia 30339. KRUG's
telephone number is 770-933-7000.
(b) The information required by this Item is incorporated by
reference to information under the caption "Summary of the Exchange
Offer - Common Stock," "Summary of the Exchange Offer - Maximum
Number of Shares of Common Stock to be Accepted in the Exchange
Offer," "Summary of the Exchange Offer - Exchange Consideration," and
"Summary of the Exchange Offer - Potential Change of Control and
Conflicts of Interest" (at pages 9 and 12 of the Exchange Offer).
(c) The information required by this Item is incorporated by
reference to information under the caption "Price Range of Common
Stock and Dividend Policy" (at page 36 of the Exchange Offer).
(d) This statement is being filed by the issuer, KRUG.
ITEM 2. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information required by this Item is incorporated by
reference to information under the caption "Risk Factors - Access to
Cash - Uncertainly of Future Funding," "Risk Factors - Priority of
Notes; Reduction in Shareholders' Equity" (at pages 29 and 30 of the
Exchange Offer).
(b) Not applicable.
ITEM 3. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE ISSUER OR
AFFILIATE.
(a) - (j) The information required by this Item is incorporated by
reference to information under the captions "Special Factors
Background of the Exchange Offer," "Special Factors - Purpose of the
Exchange Offer", "Special Factors - Certain Effects of the Exchange
Offer" and "The Exchange Offer - Effect of the Exchange Offer on the
Market for the Common Stock; AMEX Listing; Registration Under the
Exchange Act" (at pages 14, 16, 17 and 51 of the Exchange Offer).
ITEM 4. INTEREST IN SECURITIES OF THE ISSUER.
The information required by this Item is incorporated by reference to
information under the caption "Repurchases of Common Stock" (at page
37 of the Exchange Offer).
ITEM 5. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE ISSUER'S SECURITIES.
None
<PAGE> 3
ITEM 6. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information required by this Item is incorporated by reference to
information under the caption "The Exchange Offer - Solicitation of
Tenders; Expenses" (at page 61 of the Exchange Offer).
ITEM 7. FINANCIAL INFORMATION.
(a)(1) The information required by this Item is incorporated by
reference to KRUG's Annual Report on Form 10-K for the fiscal year
ended March 31, 1999.
(a)(2) The information required by this Item is incorporated by
reference to KRUG's Quarterly Report on Form 10-Q for the Quarter
Ended June 30, 1999.
(a)(3) & (4) This information required by this Item is incorporated
by reference to information under the caption "Summary Financial
Information" (at page 38 of the Exchange Offer).
(b) The information required by this Item is incorporated by
reference to information under the caption "Summary Financial
Information," "Pro Forma Balance Sheet - March 31, 1999," "Pro Forma
Balance Sheet - June 30, 1999," "Pro Forma Statements of Earnings
Year Ended March 31, 1999" and "Pro Forma Statements of Earnings
Quarter Ended June 30, 1999" (at pages 38, 41, 43, 45 and 46 of the
Exchange Offer).
ITEM 8. ADDITIONAL INFORMATION.
(a) The information required by this Item is incorporated by
reference to information under the caption "Special Factors - Certain
Effects of the Exchange Offer" and "Special Factors - Potential
Change of Control and Conflicts of Interest" (at pages 17 and 20 or
the Exchange Offer).
(b) The information required by this Item is incorporated by
reference to information under the caption "The Exchange Offer
Certain Conditions to the Exchange Offer" (at page 54 of the Exchange
Offer).
(c) The information required by this Item is incorporated by
reference to information under the caption "The Exchange Offer Effect
of the Exchange Offer on the Market for the Common Stock; AMEX
Listing; Registration under the Exchange Act" (at page 51 of the
Exchange Offer).
(d) and (e) None.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
(a) 99.1 The Exchange Offer.
99.2 Letter of Transmittal.
<PAGE> 4
99.3 KRUG's Letter to Shareholders.
99.4 KRUG's Letter to Securities Dealers,
Commercial Banks, Trust Companies and other
Nominees.
99.5 Nominee's Letter to Clients.
99.6 Notice of Guaranteed Delivery.
99.7 Press Release.
99.8 Guidelines for Certification of Taxpayer
Identification Number.
99.9 Form of Trust Indenture is incorporated by
reference to Exhibit T3C to the registrant's
Form T-3 filed August 20, 1999.
99.10 Form of Senior Subordinated Zero Coupon Note
due 2007.
99.11 Form of Warrant Agreement with attached
Warrant.
(b) None.
(c) None.
(d) None.
(e) None.
(f) None.
<PAGE> 5
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
August 20, 1999
KRUG International Corp.
By: /s/ Robert M. Thornton, Jr.
-----------------------------
Robert M. Thornton, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE> 1
EXHIBIT 99.1
OFFERING CIRCULAR
OFFER TO PURCHASE
BY
KRUG INTERNATIONAL CORP.
UP TO 2,500,000 SHARES OF ITS COMMON STOCK
BY EXCHANGING, PER SHARE,
$5 PRINCIPAL AMOUNT OF SENIOR SUBORDINATED ZERO COUPON NOTES DUE 2007 AND
ONE-FOURTH OF A WARRANT TO PURCHASE ONE SHARE OF COMMON STOCK
-----------------------
KRUG International Corp. ("KRUG") offers to purchase up to 2,500,000
shares of its common stock (the "Common Stock") by exchanging for each share
(the "Exchange Offer") (a) $5 principal amount of Senior Subordinated Zero
Coupon Notes due July 1, 2007 (the "Notes") and (b) one-fourth of a Warrant,
each whole Warrant entitling the holder to purchase one share of Common Stock
for $3.875, exercisable October 1, 2000 through September 30, 2002
(collectively, the "Exchange Consideration"). Alternatively, if you hold fewer
than 100 shares of Common Stock as of August 13, 1999, instead of participating
in the Exchange Offer, you may elect to tender all of your shares for a cash
payment of $2.00 per share. The Exchange Offer is subject to the terms and
conditions set forth later in this Offering Circular.
The Exchange Offer is conditioned upon, among other things, a minimum
of 1,000,000 shares being tendered in the Exchange Offer.
The Exchange Offer, proration period and withdrawal rights will expire
at 12:00 midnight, Atlanta, Georgia time, on September 17, 1999, unless the
Exchange Offer is extended (the "Expiration Date"). Shares tendered pursuant to
the Exchange Offer may be withdrawn at any time prior to the Expiration Date.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION ("SEC"), NOR HAS THE SEC PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION, NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
The Notes and Warrants offered hereby involve a high degree of risk.
See page 27, "Risk Factors," for a discussion of certain factors that should be
considered by prospective participants in the Exchange Offer.
-----------------------
The date of this Offering Circular is August 20, 1999.
<PAGE> 2
The Common Stock is currently traded on the American Stock Exchange
(the "AMEX") under the symbol "KRG." On August 19, 1999, the last reported sales
price of the Common Stock on the AMEX before the announcement of the Exchange
Offer was $ 1.63 per share. Shareholders are urged to obtain a current market
quotation for the Common Stock.
Upon consummation of the Exchange Offer, the Common Stock may cease to
be listed on the AMEX, in which case an over-the-counter trading market for the
Common Stock may develop. See "The Exchange Offer - Effect of the Exchange Offer
on the Market for the Common Stock; AMEX Listing; Registration under the
Exchange Act."
------------------------------
The Board of Directors of KRUG has determined, after giving
consideration to a number of factors, including the written opinion dated August
9, 1999 of Rogers & Company, Inc. ("Rogers & Company"), financial advisor to
KRUG, to the effect, and subject to the limitations therein, that the Exchange
Offer described herein is fair from a financial point of view to the
shareholders of KRUG, including those that participate in the Exchange Offer.
See "Special Factors - Position of the Board of Directors" and "Special Factors
- - Opinion of Financial Advisor."
2
<PAGE> 3
IMPORTANT
If you desire to tender all or any portion of your shares of Common
Stock, please either (1) complete and sign the Letter of Transmittal or a
facsimile thereof in accordance with the instructions in the Letter of
Transmittal and mail or deliver it, together with your stock certificate(s) and
any other required documents, to the Exchange and Information Agent, or tender
such shares of Common Stock pursuant to the procedure for book-entry transfer
set forth in this Offering Circular under "The Exchange Offer - How to Tender"
or (2) request your broker, dealer, commercial bank, trust company or other
nominee to effect the transaction for you. If your shares of Common Stock are
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee, you must contact such broker, dealer, commercial bank, trust
company or other nominee to tender such shares of Common Stock. If you desire to
tender shares of Common Stock but your certificates for such shares of Common
Stock are not immediately available, or if you cannot comply with the procedure
for book-entry transfer on a timely basis, you may tender your shares of Common
Stock by following the procedure for guaranteed delivery set forth in this
Offering Circular under "The Exchange Offer - How to Tender."
Questions and requests for assistance may be directed to the Exchange
and Information Agent at its address and telephone number set forth on the back
cover of this Offering Circular. Requests for additional copies of this Offering
Circular and the Letter of Transmittal may be directed to the Exchange and
Information Agent or to brokers, dealers, commercial banks or trust companies.
The Exchange Offer is being made by KRUG in reliance upon the exemption
from the registration requirements of the Securities Act of 1933, as amended
(the "Securities Act"), afforded by Section 3(a)(9) thereof. KRUG will not pay
any commission or other remuneration to any broker, dealer, salesman or other
person for soliciting tenders of the Common Stock. The Exchange and Information
Agent will assist shareholders in obtaining copies of the materials relating to
the Exchange Offer. Regular employees of KRUG may solicit tenders from holders
of Common Stock, but they will not receive additional compensation therefor.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Offering Circular. If given or made, such information or representations
should not be relied upon as having been authorized by KRUG. The delivery of
this Offering Circular shall not, under any circumstances, imply that the
information herein is correct as of any time subsequent to its date.
This Offering Circular does not constitute an Exchange Offer to any
person in any jurisdiction in which that Exchange Offer would be unlawful, and
KRUG will not accept tenders from shareholders in any jurisdiction in which such
acceptance would not be in compliance with the Securities or Blue Sky Laws of
such jurisdiction.
3
<PAGE> 4
CERTAIN CAUTIONARY STATEMENTS
In addition to historical information, this document contains certain
"forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995 including, without limitation, statements
regarding management's outlook for each of KRUG's businesses, possible future
acquisition and disposition activities, the sufficiency of KRUG's liquidity and
sources of capital, possible future capital-related transactions and the impact
of Year 2000 issues. These forward-looking statements are subject to certain
risks, uncertainties and other factors over which KRUG may have little or no
control, which could cause actual results, performance and achievements to
differ materially from those anticipated, including, without limitation, general
economic and business conditions in the U.S., the United Kingdom, the European
Union and elsewhere abroad, restrictions imposed by debt agreements, competition
in the housewares and child safety products businesses, governmental budgetary
constraints, the regulatory environment for KRUG's businesses, consolidation and
acquisition trends in KRUG's businesses, competition in the acquisition market,
changes in exchange rates (including in Europe, the effect of the European
currency, the Euro), increases in prices of raw materials and services, the
purchasing practices of significant customers, the availability of qualified
management and staff personnel in each subsidiary, the functionality of KRUG's
computer systems, claims for product liability from continuing and discontinued
operations, and the operating performance of minority-owned affiliates.
Also, please review "Risk Factors" beginning on page 27 for additional
cautionary statements.
4
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.............................................................................. 7
Incorporation of Certain Documents by Reference.................................................... 7
Introduction....................................................................................... 8
Summary of the Exchange Offer...................................................................... 9
Special Factors..................................................................................... 14
Background of the Exchange Offer............................................................... 14
Purpose of the Exchange Offer.................................................................. 16
Certain Effects of the Exchange Offer.......................................................... 17
Potential Change of Control and Conflicts of Interest.......................................... 20
Position of the Board of Directors............................................................. 22
Opinion of Financial Advisor................................................................... 23
Risk Factors........................................................................................ 27
Failure to Consummate the Exchange Offer....................................................... 27
Delay in Completion of the Exchange Offer...................................................... 27
Failure to Complete the Sale of Wyle Shares.................................................... 27
Repurchase of Common Stock; Future Capital Stock Transactions.................................. 27
Control by Officers and Directors upon Consummation of the Exchange Offer...................... 28
Possible Future Change of Control upon Consummation of the Exchange Offer...................... 28
History of Losses; Uncertainty of Future Profitability and Cash Flows.......................... 28
Business Strategy; Growth by Acquisitions...................................................... 29
Management Resources........................................................................... 29
Access to Cash; Uncertainty of Future Funding.................................................. 29
Priority of Notes; Reduction in Shareholders' Equity........................................... 29
Conduct of Business Through Subsidiaries....................................................... 30
Disposition of Assets.......................................................................... 30
Trading Market for Notes....................................................................... 31
Trading Market for Common Stock................................................................ 31
Limitations on Exercise of Warrants; Trading Market for Warrants............................... 31
Product Liability and Discontinued Operations.................................................. 31
Economic and Business Conditions in the U.S. and Abroad........................................ 32
Anti-Takeover Provisions....................................................................... 32
Description of KRUG................................................................................. 33
Housewares and Child Safety Segments........................................................... 34
Investment in Wyle Laboratories, Inc. ......................................................... 35
Sale of Leisure Marine Segment................................................................. 35
Price Range of Common Stock and Dividend Policy..................................................... 36
Repurchases of Common Stock......................................................................... 37
Summary Financial Information....................................................................... 38
Capitalization...................................................................................... 40
Pro Forma Financial Information..................................................................... 41
Ownership of Securities by Certain Beneficial Owners, Directors and Officers........................ 47
Purpose of the Exchange Offer....................................................................... 49
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Exchange Offer.................................................................................. 49
Terms of the Exchange Offer; Number of Shares of Common Stock; Proration....................... 49
No Appraisal Rights............................................................................ 51
Effect of the Exchange Offer on the Market for the Common Stock; AMEX
Listing; Registration under the Exchange Act............................................... 51
Trading Market for Notes....................................................................... 52
Trading Market for Warrants.................................................................... 53
Expiration and Extension of Tender Period; Termination; Amendment.............................. 53
Certain Conditions of the Exchange Offer....................................................... 54
Fractional Exchange Consideration.............................................................. 55
How to Tender.................................................................................. 56
Terms and Conditions of the Letter of Transmittal.............................................. 58
Withdrawal Rights.............................................................................. 59
Acceptance of Tenders.......................................................................... 60
Exchange Agent................................................................................. 61
Financial Advisor.............................................................................. 61
Solicitation of Tenders; Expenses.............................................................. 61
Certain Federal Income Tax Consequences............................................................. 62
Initial Tax Basis.............................................................................. 63
Tax Treatment of the Exchange for the Tendering Shareholder.................................... 63
The Notes...................................................................................... 65
Warrants....................................................................................... 65
Original Issue Discount........................................................................ 65
Tax Consequences of the Exchange to KRUG....................................................... 67
Back-up Withholding............................................................................ 67
State and Local Income Taxes................................................................... 67
Fees and Expenses................................................................................... 67
Description of Capital Stock........................................................................ 68
Common Stock................................................................................... 68
American Stock Exchange Listing................................................................ 69
Common Stock and Warrant Transfer Agent........................................................ 69
Preferred Stock................................................................................ 69
Ohio Law and Certain Charter Provisions............................................................. 70
Repurchase Program.................................................................................. 70
Description of Notes................................................................................ 71
General........................................................................................ 71
Optional Redemption............................................................................ 72
Subordination of Notes......................................................................... 72
Events of Default and Remedies................................................................. 73
Dividends and Restricted Payments.............................................................. 74
Merger, Consolidation, or Sale of Assets....................................................... 74
Amendment, Supplement and Waiver............................................................... 74
Transfer and Exchange.......................................................................... 75
Concerning the Trustee......................................................................... 75
Description of Warrants............................................................................. 75
</TABLE>
6
<PAGE> 7
AVAILABLE INFORMATION
KRUG is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the SEC.
Such reports, proxy statements and other information filed by KRUG can be
inspected and copied at the public reference facilities of the SEC, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, as well as at the
following Regional Offices: 7 World Trade Center, New York, New York 10048; and
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511. Copies can be obtained by mail at prescribed rates.
Requests for copies should be directed to the SEC's Public Reference Section,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. In addition,
reports, proxy statements and other information concerning KRUG can be inspected
and copied at the offices of the American Stock Exchange, Inc., 86 Trinity
Place, New York, New York 10006. Filings by KRUG with the SEC are also available
to the public on the SEC Internet site (http://www.sec.gov).
KRUG has filed with the SEC an Issuer Tender Offer Statement on
Schedule 13E-4 and a Rule 13E-3 Transaction Statement on Schedule 13E-3 under
the Exchange Act, both of which furnish certain additional information with
respect to the Exchange Offer. Such Schedule 13E-4 and Schedule 13E-3 and any
amendments thereto, including exhibits, may be inspected without charge at the
offices of the SEC, the addresses of which are set forth above, and copies may
be obtained therefrom at prescribed rates.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by KRUG with the SEC pursuant
to the Exchange Act are incorporated herein by reference:
(a) KRUG's Annual Report on Form 10-K for the year ended March 31,
1999;
(b) KRUG's Quarterly Report on Form 10-Q for the quarter ended
June 30, 1999.
All documents filed by KRUG pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Offering Circular and prior to
the termination of the Exchange Offer shall be deemed to be incorporated by
reference into this Offering Circular and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Offering Circular to the extent that a statement
contained herein or in any other subsequently filed document which also is or is
deemed to be incorporated by reference herein modifies or supersedes such
statement. Any such statement so modified or superseded shall not be deemed,
except as so modified or superseded, to constitute a part of this Offering
Circular.
ANY PERSON RECEIVING A COPY OF THIS OFFERING CIRCULAR MAY OBTAIN
WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST, A COPY OF ANY OF THE DOCUMENTS
INCORPORATED BY REFERENCE HEREIN, EXCEPT FOR EXHIBITS TO SUCH DOCUMENTS (UNLESS
SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE INTO SUCH DOCUMENTS).
REQUESTS SHOULD BE ADDRESSED TO
7
<PAGE> 8
KRUG INTERNATIONAL CORP., 900 CIRCLE 75 PARKWAY, SUITE 1300, ATLANTA, GEORGIA
30339, ATTENTION: MARIA E. ROBINSON, ASSISTANT SECRETARY, 770-933-7000.
INTRODUCTION
KRUG is undertaking the Exchange Offer to allow shareholders the
opportunity to restructure their investment in KRUG in line with their personal
investment objectives. By means of the Exchange Offer, KRUG is giving
shareholders the choice of (i) exchanging (in whole or in part, depending on the
number of shares of Common Stock tendered) their investment in the Common Stock
for a debt security of KRUG in the form of the Notes while also retaining an
opportunity to reinvest in the Common Stock in the future pursuant to the terms
of the Warrants, (ii) retaining all of their shares of Common Stock, thus
increasing such shareholders' proportionate interest in the common equity of
KRUG following completion of the Exchange Offer, or (iii) some combination of
(i) and (ii).
The Common Stock is presently traded on the AMEX. On August 19, 1999,
the last reported sales price of the Common Stock reported on the AMEX before
the announcement of the Exchange Offer was $1.63. See "Price Range of Common
Stock and Dividend Policy."
The AMEX has indicated that, as a matter of policy, it will consider
suspension of trading in or delisting a security when, in the opinion of the
AMEX, the financial condition and operating results of the issuer appear to be
unsatisfactory or the extent of public distribution or the aggregate market
value of the security has become so reduced as to make further dealings on the
AMEX inadvisable. KRUG reported substantial operating losses for the year ended
March 31, 1999 and for the quarter ended June 30, 1999. Based on its current
operating results, the Common Stock may be subject to suspension of trading or
removal from listing on the AMEX. In addition, the Exchange Offer may
substantially reduce the public distribution and aggregate market value of the
Common Stock. Accordingly, upon consummation of the Exchange Offer, the Common
Stock may be subject to suspension of trading and removal from listing on the
AMEX. Assuming the Exchange Offer is accepted by the minimum or greater number
of shares of Common Stock, KRUG does not currently intend to seek to retain the
listing of its Common Stock on the AMEX should the AMEX seek to terminate KRUG's
listing. Should the Common Stock be delisted from the AMEX, it is anticipated
that an over-the-counter market for the Common Stock would develop.
In determining whether the Exchange Consideration to be paid to KRUG's
shareholders was fair, the Board of Directors of KRUG relied in part on an
opinion dated August 9, 1999, rendered by Rogers & Company to the effect that,
and subject to the limitations therein, the consideration to be received by the
shareholders of KRUG in the Exchange Offer is fair, from a financial point of
view, to the shareholders. The Board of Directors of KRUG determined that KRUG
should make the Exchange Offer and that the Exchange Consideration is fair to
KRUG's shareholders. See "Special Factors - Position of the Board of Directors"
and "Special Factors - Opinion of Financial Advisor."
8
<PAGE> 9
SUMMARY OF THE EXCHANGE OFFER
Exchange Consideration For each share of Common Stock
tendered (i) $5 face amount of the
Notes, and (ii) one-fourth of a
Warrant. If you hold less than 100
shares of Common Stock as of August
13, 1999, instead of participating
in the Exchange Offer, you may elect
to tender all of your shares in
exchange for a cash payment of $2.00
per share. See "The Exchange Offer -
Terms of the Exchange Offer; Number
of Shares of Common Stock;
Proration."
Expiration Date of Exchange Offer 12:00 midnight, Atlanta, Georgia
time, on September 17, 1999, unless
extended. See "The Exchange Offer -
Expiration and Extension of Tender
Period; Termination; Amendment."
Maximum Number of Shares of Subject to the terms and conditions
Common Stock to be of the Exchange Offer, up to
Accepted in the Exchange Offer 2,500,000 shares of Common Stock
will be accepted if duly tendered
and not withdrawn prior to the
Expiration Date. The Exchange Offer
is conditioned upon, among other
things, a minimum of 1,000,000
shares being tendered. See "The
Exchange Offer - Terms of the
Exchange Offer; Number of Shares of
Common Stock; Proration."
The Notes The Notes will be unsecured general
obligations of KRUG subordinate to
all existing and future Senior
Indebtedness of KRUG, as defined. At
June 30, 1999, Senior Indebtedness
totaled approximately $5,902,000.
The Notes will be issued in
denominations of $1,000 or integral
multiples thereof and in fractional
denominations of less than $1,000.
The Notes will mature at face value
on July 1, 2007. The Notes will not
bear interest and do not provide for
a sinking fund. Each $1,000 Note
will be callable at KRUG's option
during each year at the following
prices: year 1 - $450, year 2 -
$500, year 3 - $550, year 4 - $600,
year 5 - $700, year 6 - $800 and
thereafter - $1,000. The indenture
under which the Notes will be issued
(the "Indenture") contains covenants
which limit the payment of dividends
on Common Stock and restrict KRUG's
ability to engage in mergers,
consolidations or sales of assets.
9
<PAGE> 10
The Notes have not been registered
under the Securities Act in reliance
upon the exemption from registration
afforded by Section 3(a)9 thereof.
The Notes may trade in the
over-the-counter market if such a
trading market develops. KRUG does
not plan to seek to list the Notes
on any exchange. See "Description of
Notes."
The Warrants Each whole Warrant entitles the
holder, upon exercise, to purchase
one share of Common Stock at a price
per share of $3.875 from October 1,
2000 through September 30, 2002. The
Warrants may be exercised only when
a registration statement covering
the underlying shares of the Common
Stock issuable upon exercise of the
Warrants is effective with the SEC.
KRUG has the obligation after July
15, 2000, to register such Common
Stock as promptly as practicable
once the closing price per share of
the Common Stock is above $3.50 for
10 consecutive trading days. KRUG is
obligated during the term of the
Warrants to endeavor to maintain the
effectiveness of such registration
statement for a period of the
greater of (i) 90 days or (ii) for
consecutive 60-day periods after the
date the registration statement
covering such Common Stock is first
declared effective by the SEC so
long as the Closing Price, as
hereinafter defined, of the Common
Stock continues to be above $3.50
for at least 10 consecutive trading
days during each such period.
Although there is no obligation or
present intention to do so, KRUG
reserves the right to reduce the
exercise price of the Warrants, on
30 days notice, for a minimum of 20
days. KRUG does not intend to seek
to list the Warrants on any
exchange; however, an
over-the-counter trading market may
develop for the Warrants. See
"Description of Warrants."
Conditions of the Exchange Offer KRUG's obligation to consummate the
Exchange Offer is subject to certain
conditions, including the receipt of
valid tenders of at least 1,000,000
shares of Common Stock in the
Exchange Offer, the absence of a
significant decline in the stock
price or the business, operations or
condition of KRUG, and the
qualification of the Indenture under
the Trust Indenture Act of 1939 (the
"1939 Act"). KRUG's obligation to
consummate the offer to holders of
less
10
<PAGE> 11
than 100 shares to purchase their
shares for cash is contingent upon
the tender for cash of no more than
30,000 shares tendered in the
aggregate from all shareholders who
hold less than 100 shares. See "The
Exchange Offer - Certain Conditions
of the Exchange Offer."
Withdrawal Rights Tenders may be withdrawn (i) at any
time prior to the Expiration Date,
and (ii) if not yet accepted for
exchange, at any time after October
1, 1999. See "The Exchange Offer -
Withdrawal Rights."
How to Tender Tendering shareholders must either:
(i) complete and sign a Letter of
Transmittal, have their signatures
guaranteed, if required, forward the
Letter of Transmittal and any other
required documents to the Exchange
and Information Agent at one of the
addresses set forth on the back
cover of this Offering Circular and
either deliver the certificates
representing the tendered shares to
the Exchange and Information Agent
or tender such shares pursuant to
the procedures for book-entry
transfer; or (ii) request a broker,
dealer, bank, trust company or other
nominee to effect the transaction
for them. Holders of shares of
Common Stock registered in the name
of a broker, dealer, bank, trust
company or other nominee must
contact such institution to tender
their shares of Common Stock.
Certificates for shares of Common
Stock may be physically delivered,
but physical delivery is not
required if a confirmation of a
book-entry transfer of such shares
to the Exchange and Information
Agent's account at a book-entry
transfer facility is delivered in a
timely fashion. Certain provisions
have also been made for holders
whose stock certificates are not
readily available or who cannot
comply with the procedure for
book-entry transfer on a timely
basis. Questions regarding how to
tender and requests for information
should be directed to the Exchange
and Information Agent. See "The
Exchange Offer - How to Tender."
Acceptance of Tenders Subject to the terms and conditions
of the Exchange Offer, including the
reservation of certain rights by
KRUG, shares of Common Stock validly
tendered will be accepted on or
promptly after the Expiration Date.
Subject to such terms and
conditions, the Notes
11
<PAGE> 12
and Warrant certificates to be
issued or cash to be paid in
exchange for properly tendered
shares of the Common Stock will be
mailed by the Exchange and
Information Agent to the holder
promptly after acceptance of the
shares tendered. Although KRUG does
not presently intend to do so, if it
modifies the terms of the Exchange
Offer, such modified terms will be
available to all holders of shares
of Common Stock, whether or not
their shares have been tendered
prior to such modification. Any
material modification will be
disclosed in accordance with the
applicable rules of the SEC and the
AMEX and, if required, the Exchange
Offer will be extended to permit
shareholders adequate time to
consider such modification. See "The
Exchange Offer - Acceptance of
Tenders."
Common Stock KRUG has 12,000,000 authorized
shares of Common Stock, of which
4,977,530 shares were outstanding as
of August 13, 1999. In addition,
1,164,487 of the authorized but
unissued shares were reserved for
issuance in connection with
outstanding warrants and stock
options. Shares of Common Stock
tendered and accepted pursuant to
the Exchange Offer will be retired
and, thus, become authorized but
unissued shares available for future
issuance. See "Description of
Capital Stock."
Potential Change of Control and As of August 13, 1999, KRUG's
Conflicts of Interest directors and executive officers as
a group beneficially owned 1,442,570
shares of Common Stock, or 27.1% of
the shares of Common Stock, which
includes 343,889 of the shares of
Common Stock issuable upon exercise
of stock options and Warrants. KRUG
has been informed by its directors
and executive officers that they and
their affiliates do not intend to
tender any of the shares of Common
Stock owned by them pursuant to the
Exchange Offer. Accordingly,
assuming the minimum number of
shares are tendered and accepted
(1,000,000 shares), shares
beneficially owned by directors and
executive officers as a group would
comprise 33.4% of the shares
outstanding after the Exchange
Offer, and if 2,500,000 shares are
validly tendered and accepted,
shares beneficially owned by
directors and executive officers as
a group would comprise 51.1% of the
shares outstanding after the
12
<PAGE> 13
Exchange Offer. See "Special Factors
- Potential Change of Control and
Conflicts of Interest."
Federal Income Tax Consequences The exchange of shares of Common
Stock for Exchange Consideration
pursuant to the Exchange Offer (or
for cash by electing holders of
fewer than 100 shares) will be a
redemption of those shares of Common
Stock, which is taxable as a sale or
exchange and may give rise to a gain
or loss if the tendering
shareholder's receipt of the
Exchange Consideration (or the cash
by electing holders of fewer than
100 shares) (i) is "substantially
disproportionate" with respect to
such shareholder, (ii) is "not
essentially equivalent to a
dividend" with respect to such
shareholder, or (iii) results in a
complete termination of the
shareholder's interest in KRUG. If
the tendering shareholder does not
satisfy any of these tests, the fair
market value of the Exchange
Consideration (or, if applicable,
the cash) will be taxable as a
dividend to the extent of any
current or accumulated earnings and
profits of KRUG. Any additional
value received in the Exchange (or
pursuant to the cash offer) will be
treated first as a recovery of basis
in the shareholder's Common Stock
and then as gain from the sale of a
capital asset. See "Certain Federal
Income Tax Consequences - Tax
Treatment of the Exchange for the
Tendering Shareholder."
Exchange and Information Agent First Union National Bank
13
<PAGE> 14
SPECIAL FACTORS
Background of the Exchange Offer
Strategy --- KRUG's objective is to increase shareholder value by the
investment in and management of businesses which offer growth opportunities.
KRUG evaluates its operating subsidiaries for growth potential and seeks
acquisition opportunities for the profitable employment of capital. KRUG's
criteria for acquisitions is to acquire new businesses which it believes present
an opportunity for increased value without regard to current profitability.
KRUG currently intends to direct its long-term acquisition strategy
towards acquisition of whole or minority interests in companies in the
healthcare and technology areas, as broadly defined. KRUG believes heavy
regulation, cost consciousness and consumer empowerment are leading to the
convergence of healthcare, technology and safety products, especially products
and services which promote wellness, reduce injury or illness, and increase
efficiency.
KRUG's strategy will not be confined to any sector of the healthcare
and technology areas, but will encompass sectors KRUG believes have an
opportunity to participate in future growth. KRUG's initial strategic focus is
expected to be deliberately broad but may narrow as acquisition opportunities
increase.
In the short-term, KRUG will seek and evaluate acquisitions without
regard to industry or profitability which it believes provide meaningful U.S.
operations and an opportunity to achieve cashflow.
Recent Operating Results --- For the year ended March 31, 1999, KRUG
reported a loss from continuing operations of $9,000,000 ($1.78 per share). The
loss resulted primarily from its European housewares and child safety segments,
which incurred significant losses in each quarter since December 31, 1997, from
KRUG's investment in Wyle Laboratories, Inc. ("Wyle") with which KRUG merged its
Life Sciences and Engineering segment in March 1998, from the provision of
valuation allowances against deferred tax assets and from a charge relating to
the impairment of purchased goodwill relating to the child safety segment. KRUG
acquired Klippan Ltd. ("Klippan") in fiscal 1998 and Hago Products Ltd. in
fiscal 1997. Both acquisitions, which comprise part of the European housewares
and child safety products segments, were incurring losses at the time of their
acquisition by KRUG.
For the quarter ended June 30,1999, KRUG reported a loss from
continuing operations of $593,000 ($0.12 per share). The loss resulted primarily
from restructuring charges relating to the European child safety products
segment and corporate expenses in the U.S. and Europe.
Acquisition Activities --- As discussed above under "Special Factors -
Background of the Exchange Offer - Strategy," KRUG's Board of Directors has
determined to pursue growth by acquisitions. As a result of its operating losses
and the need to invest additional capital into its subsidiaries, KRUG conducted
only limited discussions and evaluations concerning potential acquisitions
during the first nine months of fiscal 1999. During the fourth quarter of fiscal
1999, and subsequently, KRUG has increased its acquisition evaluation
activities. KRUG's activities to
14
<PAGE> 15
date have primarily involved seeking information and making preliminary contacts
with potential acquisition targets. Where appropriate, KRUG intends to pursue
acquisition opportunities to acquire majority or minority ownership interests.
To date, KRUG has made no offers, nor entered into any agreements for any
acquisition.
Disposition and Financing Activities --- KRUG considers, from time to
time, the disposition of any subsidiary or affiliate when it believes the
subsidiary or affiliate no longer offers suitable opportunities for growth or
profitability, or when KRUG believes better opportunities would be provided for
the utilization of KRUG's capital by the disposition of such subsidiary or
affiliate.
KRUG has recently reached an agreement in principle to sell its Series
A Preferred Stock in Wyle, which comprises a substantial portion of its
investment in Wyle, to Wyle for $4,000,000. The sale is conditioned upon Wyle
modifying certain terms of the Series B Preferred Stock and stock options
currently held and to be retained by KRUG. The sale is also subject to Wyle's
ability to obtain funding for the purchase of KRUG's Series A shares of Wyle and
for substantially all equity held by other non-employee stockholders. Further,
the transaction is subject to the negotiation of definitive agreements with KRUG
and the other selling stockholders and certain other conditions. Assuming the
transaction is completed, KRUG expects to report an after tax gain of
approximately $3,110,000 from the sale in its second fiscal quarter. There can
be no assurance the sale will close, and if it does, that it will be on the
terms currently included in the agreement in principle.
KRUG has considered disposing of its European operations and
redeploying its investment therein to the U.S. Management believes its ability
to achieve an acceptable price for the European operations is dependent on,
among other things, sustaining improved operating performance from such
operations. KRUG is currently discussing a refinancing of its U.K. debt which
would allow KRUG to repatriate funds from the U.K. to the U.S. There can be no
assurance KRUG will be able to consummate any such refinancing, and if it does,
whether any funds could be repatriated to the U.S.
Possible Registration as an Investment Company --- If KRUG were to sell
its current operating businesses it would, absent the acquisition of a majority
interest in another company, have no other majority-owned operating
subsidiaries. Under such circumstances, KRUG may be required to report as a
Registered Investment Company under the Securities Act of 1933. Further, should
KRUG not find suitable acquisition opportunities in which it could own a
majority interest, KRUG may acquire a minority interest in other companies.
Under such circumstances, KRUG may convert itself into an investment company, or
establish one or more subsidiaries which are investment companies.
Deliberations by the Board and Management --- Commencing in January
1999, the Board has considered several corporate strategies and has discussed
the desirability of resuming its search for acquisitions, particularly in the
United States. The Board has considered the possible sale of one or more of
KRUG's current subsidiaries and has approved the agreement in principle for the
sale of KRUG's Wyle investment. The Board has not made a decision to proceed
with any sales other than the Wyle investment.
15
<PAGE> 16
Commencing in approximately February 1999, KRUG's Executive Committee
discussed the possibility of an Exchange Offer to allow shareholders the
opportunity to restructure their investment in KRUG in line with their personal
investment objectives. Management developed the proposed terms for an Exchange
Offer which was discussed and approved at a Special Meeting of the Board of
Directors on April 9, 1999, after considering KRUG's overall strategy, its
current operations, the opinion of a financial advisor, and the desires
expressed by certain shareholders. Management subsequently determined that the
Exchange Offer should await completion of KRUG's audit for the year ended March
31, 1999, and clarification of its future business strategy. Following revisions
to the Exchange Offer, the Board considered it again at its Special Meeting on
July 1, 1999. The Board took no action on the Exchange Offer at such meeting. On
August 9, 1999 the Board considered the Exchange Offer and determined by a
majority vote that it would be in the best interest of KRUG and its shareholders
and authorized Management to proceed with the Exchange Offer.
Alternatives Considered --- The Board of Directors considered and
rejected several alternatives to the Exchange Offer. The Board considered a
possible merger or liquidation strategy for KRUG but determined that shareholder
value could best be enhanced by KRUG redeploying its assets from Europe to the
United States and following the acquisition strategy the Board has adopted.
Nevertheless, the Board believes there is considerable uncertainty as to KRUG's
ability to sell its existing operating businesses in Europe on acceptable terms
at this time, and that the sale of a substantial portion of its operations for
the purpose of undertaking acquisition activities unrelated to its current
activities will entail different and possibly greater risks than its current
operations. Therefore, the Board concluded that KRUG's acquisition activities
should be undertaken in conjunction with KRUG providing shareholders, especially
those who wish to reduce their level of exposure to such strategy, an
opportunity to exchange all or part of their equity investment in the Common
Stock for a debt instrument (i.e., the Notes) and Warrants.
The Board of Directors also considered purchasing additional Common
Stock in the open market, but rejected such alternative at this time because a
substantial portion of KRUG's cash resources are currently held primarily in the
United Kingdom and serve to support the debt and operation's of the European
housewares and child safety segments and because the use of cash which may be
available in the near future for open market purchases of Common Stock would
reduce KRUG's funds available for acquisition opportunities.
Although there are no current plans to do so, the Board may consider
KRUG purchasing additional Common Stock in the open market after the Exchange
Offer, if and at such price as it believes appropriate. In addition, the Board
may consider additional exchange offers, tender offers or other transactions by
KRUG which provide value or liquidity to stockholders. Such transactions may
include debt, equity and cash payments.
Purpose of the Exchange Offer
The Exchange Offer is designed to allow each shareholder the
opportunity to restructure his or her investment in KRUG in line with his or her
personal investment objectives. By means of the Exchange Offer, KRUG is giving
shareholders the choice of (i) exchanging (in whole or part, depending on the
number of shares of Common Stock tendered) their investment in the Common
16
<PAGE> 17
Stock for a debt obligation of KRUG in the form of the Notes, while also
retaining an opportunity to reinvest in the Common Stock in the future, pursuant
to the terms of the Warrants, (ii) retaining all their shares of Common Stock,
thus increasing such shareholder's proportionate interest in the common equity
of KRUG following completion of the Exchange Offer, or (iii) some combination of
(i) and (ii).
The Exchange Offer will enable shareholders to exchange their shares of
Common Stock for Exchange Consideration at a price which KRUG believes
represents a premium over recent market prices of the Common Stock. Management
believes that there is a limited market for KRUG's shares of Common Stock due to
KRUG's low market capitalization and the limited number of publicly held shares
outstanding. Management believes that the limited supply of shares traded in the
public market offers limited opportunity for such shareholders to realize the
true value of their investment in KRUG, and the low market capitalization of
such shares limits KRUG's ability to access additional equity capital for
growth. The Exchange Offer is intended to afford shareholders the opportunity to
dispose of their shares for Notes and Warrants in light of the current
relatively low liquidity, low market capitalization, and limited public float of
the Common Stock and in light of KRUG's possible disposition of one or more of
its existing businesses and redeployment of resources obtained therefrom to
acquisition opportunities in the United States. KRUG has not paid cash or other
dividends in recent years, and does not expect to pay dividends in the
foreseeable future. Following completion of the Exchange Offer, the shares may
be delisted from the AMEX, although if delisted, an over-the-counter trading
market may develop.
Certain Effects of the Exchange Offer
If consummated, the Exchange Offer (i) may result in the delisting of
the Common Stock from the AMEX, (ii) may result in the Common Stock becoming
eligible for termination of Registration pursuant to Section 12(g)(4) of the
Exchange Act, and (iii) would result in a change of the capitalization of KRUG
by (a) further leveraging KRUG through conversion of a portion of the currently
outstanding shares of Common Stock to debt represented by the Notes and (b)
issuance of the Warrants.
Possible Delisting of the Common Stock --- The Common Stock is
presently traded on the AMEX. As of August 13, 1999, there were 3,330,200 shares
publicly held (for the purposes of the AMEX) and approximately 905 holders of
record of the outstanding shares. Shares of Common Stock held directly or
indirectly by an officer or director of the issuer or by any beneficial holder
of more than 5% of the shares of the issuer ordinarily may not be considered as
being publicly held for this purpose.
The AMEX has indicated that, as a matter of policy, it will consider
suspension of trading in or delisting a security when, in the opinion of the
AMEX, the financial condition and operating results of the issuer appear to be
unsatisfactory or the extent of public distribution or the aggregate market
value of the security has become so reduced as to make further dealings on the
AMEX inadvisable. KRUG reported substantial operating losses for the year ended
March 31, 1999 and the quarter ended June 30, 1999. Based on its current
operating results, the Common Stock may be subject to suspension of trading or
removal from listing on the AMEX. In addition, the Exchange Offer may
substantially reduce the public distribution and aggregate market value of the
Common Stock. Accordingly, upon consummation of the Exchange Offer, the Common
17
<PAGE> 18
Stock may be subject to suspension of trading and removal from listing on the
AMEX. Assuming the Exchange Offer is accepted by the minimum or greater number
of shares of Common Stock, KRUG does not currently intend to seek to retain the
listing of its Common Stock on the AMEX should the AMEX seek to terminate KRUG's
listing.
Should the Common Stock be delisted from the AMEX, an over-the-counter
market for the Common Stock may develop and price quotations might still be
available from other sources. The extent of the public market for the shares and
the availability of such quotations would, however, depend upon the number of
holders of shares remaining at such time, the interest on the part of securities
firms in maintaining a market in the shares, the termination of the registration
under the Exchange Act as described below and other factors.
Termination of Registration --- The shares are currently registered
under the Exchange Act, which requires, among other things, that KRUG furnish
information to its shareholders and to the SEC and comply with the SEC's proxy
rules in connection with meetings of KRUG's shareholders. If, as a result of the
Exchange Offer, there are fewer than 300 holders of record of the Common Stock,
registration of the Common Stock under the Exchange Act may be terminated upon
application by KRUG to the SEC if the Common Stock is not listed on a national
securities exchange. If there are fewer than 300 holders of record of the Common
Stock, upon conclusion of the Exchange Offer, KRUG does not intend immediately
to apply to the SEC for termination of registration of the shares under the
Exchange Act, but may do so in the future. The terms of the Warrants provide
that KRUG shall not apply for termination of registration so long as any
Warrants are outstanding.
The termination of the registration of the Common Stock under the
Exchange Act would substantially reduce the information required to be furnished
by KRUG to its shareholders and to the SEC and would render inapplicable certain
provisions of the Exchange Act, including requirements that KRUG file periodic
reports (including financial statements), the requirements of Rule 13e-3 under
the Exchange Act with respect to "going private" transactions, requirements that
KRUG's officers, directors and ten-percent shareholders file certain reports
concerning ownership of KRUG's equity securities and provisions that any profit
by such officers, directors and shareholders realized through purchases and
sales of KRUG's equity securities within any six-month period may be recaptured
by KRUG. In addition, the ability of "affiliates" of KRUG and other persons to
dispose of shares of Common Stock which are "restricted securities" under Rule
144 under the Securities Act may be impaired or eliminated.
Change in Capitalization --- The Exchange Offer will have the effect of
substantially increasing KRUG's debt. Long-term debt (including current
maturities) as of June 30, 1999 was $5,902,000. Assuming 2,500,000 shares are
tendered and accepted, KRUG's long-term debt on a pro forma basis would be
increased to $10,774,000.
In addition, if 2,500,000 shares of the Common Stock are tendered and
accepted, such shares would be retired as authorized but unissued shares and the
book value of KRUG's shareholders' equity would be substantially reduced. The
book value of shareholders' equity as of June 30, 1999 was $6,463,000. Upon
completion of the Exchange Offer, assuming 2,500,000
18
<PAGE> 19
shares are tendered and accepted (and excluding any profit or loss during the
interim), and assuming completion of the sale of the Wyle Series A Preferred
Stock ("Wyle Shares") for an after tax gain of $3,110,000, the book value of
KRUG's shareholders' equity on a pro forma basis would be reduced to $4,451,000.
KRUG incurred substantial losses from continuing operations for the
fiscal year ended March 31, 1999 and for the first fiscal quarter ended June 30,
1999. For the year ended March 31, 1999, KRUG's loss from continuing operations
was $9,000,000 ($1.78 per share). Had the Exchange Offer been completed at April
1, 1998 (assuming 2,500,000 shares validly tendered and accepted), KRUG's loss
from continuing operations on a pro forma basis would have increased to
$9,859,000 ($3.87 per share) for the year ended March 31, 1999. For the quarter
ended June 30, 1999, KRUG's loss from continuing operations was $593,000 ($0.12
per share). Had the Exchange Offer been completed at April 1, 1998 (assuming
2,500,000 shares validly tendered and accepted), KRUG's loss from continuing
operations on a pro forma basis would have increased to $764,000 ($0.31 per
share).
KRUG presently does not have earnings sufficient to cover its fixed
charges. For the year ended March 31, 1999, KRUG's fixed charges exceeded
earnings by $7,085,000. Had the Exchange Offer been completed at April 1, 1998
(assuming 2,500,000 shares validly tendered and accepted), fixed charges would
have exceeded earnings on a pro forma basis by $7,944,000 for the year ended
March 31, 1999. For the quarter ended June 30, 1999, KRUG's fixed charges
exceeded earnings by $572,000. Had the Exchange Offer been completed at April 1,
1998 (assuming 2,500,000 shares validly tendered and accepted), fixed charges
would have exceeded earnings on a pro forma basis by $743,000 for the quarter
ended June 30, 1999.
The Notes do not bear interest and mature at par on July 1, 2007.
KRUG's current results of operations would not produce funds sufficient to
retire the Notes at maturity or at a date prior to maturity. In the absence of
results of operations sufficient to retire the Notes at maturity, KRUG would be
required at that time to sell one or more of its subsidiaries or affiliates or
obtain refinancing and use all or a portion of the proceeds for the redemption
of the Notes. There can be no assurance that KRUG would be able to sell any such
assets or obtain any refinancing, or, if it does, that the net cash proceeds
would be sufficient to retire the existing or future Senior Debt or the Notes.
If KRUG is not able to return to profitable operations at a level
sufficient to service its existing debt, as well as the Notes, or is not able to
sell assets or refinance for an amount sufficient to pay such debt and the
Notes, shareholders who exchange, as well as shareholders who do not exchange,
could lose some or all of their investment in KRUG.
Board of Directors --- The Board of Directors determined, at its
meeting on August 9, 1999, to restructure the Board of Directors and fix the
number of Directors in each class at three and hold open two seats to which it
may appoint additional directors at any time in connection with acquisitions or
otherwise.
At the meeting of the Board of Directors on August 9, 1999, Ms. Strom
resigned her seat on the 2000 Class of Directors, and Mr. Holt, a member of the
1999 Class, announced that he would
19
<PAGE> 20
not stand for election at the 1999 annual meeting. Robert M. Thornton, Jr.
resigned his seat in the 1999 Class and the remaining Directors appointed him to
the 2000 Class seat previously held by Ms. Strom. As a result of such changes,
the Board nominated for election at the 1999 annual meeting Mr. Mulligan, Mr.
Vannuki and Steven Baileys, D.D.S. Continuing Directors who comprise the 2000
Class of Directors are Ms. Brenner, Mr. Thornton and Mr. Turner.
The Board selected Dr. Baileys for nomination because he is a
substantial shareholder as well as a businessman with many years of experience
in the healthcare field. KRUG believes Dr. Baileys will provide additional
experience and acumen on the Board as it seeks to implement KRUG's strategy.
The Board scheduled the 1999 Annual Meeting on November 19, 1999, in
Atlanta, Georgia, at a time and place therein to be designated by the Chairman
and authorized by the Chairman to fix the record date for the 1999 Annual
Meeting. KRUG expects to set a record date for the 1999 Annual Meeting upon
completion of the Exchange Offer.
Except as disclosed in this section and under "Special Factors -
Potential Change of Control and Conflicts of Interest," and elsewhere in this
Exchange Offer, KRUG has no other present plans or proposals that relate to or
would result in (i) the acquisition by any person of additional securities of
KRUG, or the disposition of securities of KRUG, (ii) any extraordinary corporate
transaction, such as a merger, reorganization, liquidation or sale or transfer
of a material amount of assets, involving KRUG, (iii) any change in the present
Board of Directors of KRUG or management of KRUG, including any plan or proposal
to change the number or term of the directors, to fill any existing vacancy on
the Board of Directors or to change any material term of the employment contract
of any executive officer, (iv) any material change in the present dividend
policy or indebtedness or capitalization of KRUG, (v) any other material change
in KRUG's corporate structure or business, or (vi) any change in KRUG's Amended
Articles of Incorporation, Code of Regulations or instruments corresponding
thereto or any other actions which may impede the acquisition of control of KRUG
by any person.
The Notes have not been registered under the Securities Act in reliance
on an exemption in Section 3(a)9 thereof. The Notes may trade in the
over-the-counter market if such a trading market develops. KRUG does not plan to
seek to list the Notes on any exchange. The Warrants will be freely tradable
(subject to the existence of a trading market for the Warrants), however, KRUG
does not intend to seek to list the Warrants on any exchange.
Potential Change of Control and Conflicts of Interest
Shareholders should be aware in considering their decision to
participate in the Exchange Offer that each of the members of the Board of
Directors has, to some degree, interests which may present such directors with
an actual or potential conflict of interest in connection with the Exchange
Offer. As of August 13, 1999, the directors and executive officers as a group
beneficially owned 1,442,570 shares of Common Stock, or 27.1% of the Common
Stock outstanding, which included 343,889 shares issuable upon exercise of stock
options and warrants. KRUG has been informed by its directors and executive
officers that neither they nor their affiliates intend to tender any shares
owned by them pursuant to the Exchange Offer. Accordingly,
20
<PAGE> 21
assuming the minimum number of shares are tendered and accepted (1,000,000
shares), shares beneficially owned by directors and executive officers as a
group would comprise 33.4% of the shares outstanding after the Exchange Offer
and if 2,500,000 shares are validly tendered and accepted, shares beneficially
owned by directors and executive officers as a group would comprise 51.1% of the
shares outstanding after the Exchange Offer.
Ms. Brenner, Dr. Baileys and Mr. Vannuki, individually and as
principals of other entities, known collectively as the Fortuna Group, have
filed a Schedule 13D, Statement of Beneficial Ownership, reporting that the
Fortuna Group owns beneficially an aggregate of 1,018,223 shares of Common
Stock, which includes 262,439 warrants, or 19.4% of the outstanding Common
Stock. If the minimum number of shares are tendered and accepted in the Exchange
Offer, the Fortuna Group would own 24.0% of the Common Stock. If the maximum
number of shares are tendered and accepted in the Exchange Offer, the Fortuna
Group would own 37.2% of the outstanding Common Stock.
Executive Employment Contracts --- Mr. Thornton's employment agreement
provides that if his employment is terminated within one year after a change of
control, as defined, he will have the right to receive severance pay equal to
one year's base salary. In addition, any options which Mr. Thornton holds under
any stock option plan of KRUG on the date of the termination may be exercised
any time within 90 days of such termination. Neither the restructuring of the
Board of Directors nor the consummation of the Exchange Offer will individually
result in a change of control pursuant to Mr. Thornton's employment agreement.
However, subsequent to the Exchange Offer, certain other events, such as the
increased ownership of a person or group resulting from the Exchange Offer, a
further change in the Board of Directors or the sale of substantially all of the
assets of KRUG could result in a change of control pursuant to the agreement.
Directors Consulting Agreements --- KRUG has entered into consulting
agreements with Mr. Vannuki (as an individual) and Ms. Brenner (through a
corporation of which she is the sole shareholder and president) ("Consultants")
to prepare short-term and intermediate-term acquisition plans and investigate
and evaluate potential acquisitions for KRUG. The amount of time devoted by the
Consultants to KRUG under such agreements is agreed upon between the Consultants
and KRUG periodically and is expected to average approximately 20 hours per
month. Each Agreement provides a fee of $5,000 per month and may be terminated
by either party on 30-days written notice.
Possible Future Compensation Plans --- KRUG may establish additional
compensation plans covering its directors, officers, employees and Consultants.
Such plans may include equity components, annual or long-term incentive bonuses,
milestone bonuses, success fees, severance arrangements and other compensation
and benefits. KRUG expects to grant stock options to certain officers and key
employees, including existing and future officers and employees, in order to
promote equity ownership and enhance their efforts to increase shareholder
value. In addition, KRUG may grant to officers and key employees phantom stock
options, stock appreciation rights, or other compensation tied to the value of
KRUG's Common Stock, or to the equity of its subsidiaries. KRUG presently has no
plans or commitments for such additional compensation plans but expects to
develop and implement such plans in connection with acquisitions, and may
21
<PAGE> 22
develop and implement such plans otherwise, including to attract and retain
current and future officers and employees.
Directors Billing Legal Fees --- Mr. Mulligan and Mr. Turner each
provide legal services to KRUG through law firms in which they are partners, as
requested by KRUG and in their capacity as General Counsel and Special Counsel,
respectively, to KRUG. During the year ended March 31, 1999, KRUG paid $105,063
to Mr. Mulligan's firm and $39,945 to Mr. Turner's firm for services they
provided to KRUG.
Position of the Board of Directors
Over the past several months, the Board of Directors has evaluated
KRUG's objectives, operations and strategic alternatives and considered
alternatives to the Exchange Offer. See "Special Factors - Background of the
Exchange Offer." The Board of Directors, based on the recommendation of its
advisors and management, and after considering the purposes and effects of the
Exchange Offer and other factors, has unanimously concluded, and believes it has
a reasonable basis to conclude, that the Exchange Offer is fair from a financial
point of view to the shareholders of KRUG and, by less than unanimous vote, has
approved the making of the Exchange Offer. Ms. Brenner, Ms. Strom and Mr. Holt
dissented to the approval of the Exchange Offer. Ms. Brenner stated she
dissented based on a concern that, as a business matter, the Exchange Offer
would result in less liquidity for non-exchanging shareholders. Ms. Strom
indicated that she dissented because she believes, as a business matter, KRUG
should retain its resources, including debt capacity, for other corporate
purposes such as growth and acquisitions. Mr. Holt indicated that he dissented
because, as a business matter, he believes the result of the Exchange Offer
would be to increase the debt of KRUG at a time when its operating results are
unable to support such additional debt.
The Board of Directors considered that the Exchange Offer is being made
to all shareholders on the same basis and any such shareholder may choose
whether or not to tender any shares pursuant to the Exchange Offer. In approving
making the Exchange Offer and determining that the Exchange Offer is fair to the
shareholders of KRUG (including non-affiliated shareholders of KRUG), the Board
of Directors consulted with its legal and financial advisors as well as with
KRUG's management and considered numerous factors, including, but not limited
to, (i) the operations, capital structure, earnings, properties and prospects of
KRUG and its subsidiaries, as well as the risk associated therewith, (ii) the
fact that the Exchange Offer will provide shareholders with an opportunity to
receive a fair price for their tendered shares, (iii) recent market prices for
the Common Stock as well as market prices for the past several years, and (iv)
the written opinion of Rogers & Company dated August 9, 1999, that, based on the
matters described therein, as of the date of such opinion, the Exchange
Consideration to be received by the shareholders in the Exchange Offer is fair
to the shareholders of KRUG from a financial point of view. In light of the
number and variety of factors that the Board of Directors considered in
connection with this evaluation of the Exchange Offer, it did not find it
practical to, and did not quantify or assign relative weights to these factors.
KRUG has been informed by its directors and executive officers that
they and their affiliates do not intend to tender any of the shares of Common
Stock owned by them pursuant to the Exchange Offer.
22
<PAGE> 23
The transactions contemplated by this Exchange Offer are not structured
so that approval of at least a majority of the non-affiliated shareholders is
required. The Board of Directors of KRUG, a majority of whom are not employees
of KRUG, has unanimously determined, after giving consideration to a number of
factors, including the written opinion dated August 9, 1999 of the Financial
Advisor of KRUG, that the Exchange Offer described herein is fair to the
shareholders of KRUG. The Exchange Offer was not approved by a majority of
directors who are not employees (of the four directors voting in favor of the
Exchange Offer, three are not employees and one is an employee).
Opinion of Financial Advisor
Pursuant to the Engagement Letter, the Board of Directors of KRUG
retained Rogers & Company to act as its financial advisor and to render its
opinion to KRUG's Board of Directors as to the fairness to the shareholders of
KRUG, from a financial point of view, of the consideration to be received by the
shareholders of KRUG pursuant to the Exchange Offer. See "Special Factors -
Background of the Exchange Offer." A majority of directors who are not employees
of KRUG has not retained an unaffiliated representative to act solely on behalf
of unaffiliated shareholders for purposes of negotiating the terms of the
Exchange Offer or preparing a report concerning the fairness of the transaction.
In its written opinion dated August 9, 1999, Rogers & Company advised
the Board of Directors of KRUG that based on the matters described therein, as
of the date of such opinion, the Exchange Consideration to be received by the
shareholders in the Exchange Offer is fair, from a financial point of view, to
the shareholders of KRUG (the "Opinion").
The summary of the Opinion set forth in this Exchange Offer is
qualified in its entirety by reference to the full text of such opinion attached
as Annex A to this Exchange Offer. KRUG's shareholders are urged to, and should,
read the Opinion carefully in its entirety in conjunction with this Exchange
Offer for the assumptions made, matters considered and limits of the review
undertaken by Rogers & Company. The Opinion addresses only the fairness of the
consideration to be received by the shareholders of KRUG pursuant to the
Exchange Offer from a financial point of view and does not constitute a
recommendation to the shareholders of KRUG as to whether such shareholders
should tender their shares in the Exchange Offer. The Board of Directors
determined the amount to be paid pursuant to the Exchange Offer and the
financial advisor opined as to the fairness, from a financial point of view, of
the Exchange Consideration to the shareholders.
As set forth in the Opinion, Rogers & Company met with members of the
senior management of KRUG to discuss the prospects for the businesses of KRUG
and its subsidiaries. In connection with Rogers & Company's review and analysis
and in arriving at the Opinion, Rogers & Company relied upon the accuracy and
completeness of the financial and other information provided to it by KRUG and
did not undertake any independent verification of such information or undertake
an independent appraisal of the assets or liabilities of KRUG. With respect to
the financial forecasts provided to Rogers & Company by KRUG, Rogers & Company
assumed that such forecasts (and assumptions and bases therefor) had been
reasonably prepared and represented management's best currently available
estimates as to the future financial performance of KRUG.
23
<PAGE> 24
Further, the Opinion is necessarily based on economic, financial and market
conditions as they existed and could be evaluated as of the date of the Opinion.
In connection with its engagement and the preparation of the Opinion,
Rogers & Company was not authorized by KRUG or its Board of Directors to
solicit, nor has Rogers & Company solicited, indications of interest from third
parties for the acquisition of KRUG or any of its subsidiaries. No other
restrictions were imposed by KRUG's Board of Directors upon Rogers & Company
with respect to the investigations made or procedures followed by Rogers &
Company in rendering the Opinion. The Opinion does not address nor should it be
construed to address the relative merits of the Exchange Offer with any
alternative business strategy that may be available to KRUG.
In conducting its analysis and arriving at the Opinion, Rogers &
Company reviewed such materials and considered such financial and other factors
as it deemed relevant under the circumstances, including: (i) certain publicly
available historical financial and operating data concerning KRUG, including the
Annual Reports to Shareholders and Annual Reports on Form 10-K for the five
fiscal years ended March 31, 1999, (ii) the Quarterly Report on Form 10-Q for
the quarter ended June 30, 1999, (iii) certain information of KRUG, including
internal financial information relating to the businesses, earnings, cash flow,
assets and prospects of KRUG and its subsidiaries prepared by the management of
KRUG and its subsidiaries, (iv) publicly available financial, operating and
stock market data concerning certain companies engaged in businesses Rogers &
Company deemed relatively comparable to KRUG or otherwise relevant to its
inquiry, (v) the financial terms of certain recent transactions Rogers & Company
deemed relevant to its inquiry, (vi) the historical market prices and trading
volumes of the shares of Common Stock, and (vii) such other financial studies,
analyses and investigations that Rogers & Company deemed appropriate.
In arriving at its Opinion, Rogers & Company performed a variety of
financial analyses, including those summarized herein. The summary set forth
below of the analyses presented to KRUG's Board of Directors at the August 9,
1999, meeting does not purport to be a complete description of the analyses
performed. The preparation of a fairness opinion is a complex process that
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstance and, therefore, such an opinion is not necessarily susceptible to
partial analysis or summary description. Rogers & Company believes that its
analysis must be considered as a whole and that selecting portions thereof or
portions of the factors considered by it, without considering all analyses and
factors, could create an incomplete view of the evaluation process underlying
the Opinion. Rogers & Company made numerous assumptions with respect to industry
performance, general business, economic, market and financial conditions and
other matters, many of which are beyond the control of KRUG. Any estimates
contained in Rogers & Company's analyses are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by such analyses. Additionally, estimates of the values
of businesses and securities do not purport to be appraisals or necessarily
reflect the prices at which businesses or securities may be sold. Accordingly,
such analyses and estimates are inherently subject to substantial uncertainty.
Subject to the foregoing, the following is a summary of the material financial
analyses presented by Rogers & Company to KRUG's Board of Directors on August 9,
1999.
24
<PAGE> 25
Projected financial and other information concerning KRUG are not
necessarily indicative of future results. All projected financial information is
subject to numerous contingencies, many of which are beyond the control of
management of KRUG.
Analysis of Comparable Companies --- Rogers & Company sought to compare
selected financial and performance ratios, stock price ratios and enterprise
value ratios of KRUG to the same set of ratios of other publicly traded
companies whose lines of business are similar to those of KRUG. Management knew
of no such companies, and extensive screening by Rogers & Company failed to
identify any useful comparables.
Analysis of Comparable Transactions --- Rogers & Company sought to
compare the terms and conditions of the Exchange Consideration to the terms and
conditions of the consideration paid in similar transactions involving the
exchange of debt and warrants for common stock. An extensive search by Rogers &
Company failed to produce any such comparable transactions.
Discounted Cash Flow Analysis --- Rogers & Company gave consideration
to performing a discounted cash flow analysis to determine an estimated present
value per share of the Common Stock. Discounted cash flow analysis is based
largely on the existence of long-range financial projections that provide a
reasonable expectation of the future performance of the enterprise. As indicated
in the Offering Circular, KRUG's Board of Directors has adopted a strategy
whereby it will seek acquisition opportunities and continue to consider the
disposition of existing operations. Given such a strategy and in view of the
absence of any impending acquisitions, it was not possible for management to
produce financial projections that are extensive enough to support a discounted
cash flow analysis.
Analysis of the Senior Subordinated Zero Coupon Notes --- Rogers &
Company performed an internal rate of return analysis and a present value
analysis of the Notes. The internal rate of return analysis establishes the
relationship between the current price of the Common Stock and the face value of
the Notes, in terms of an internal rate of return. For purposes of this
analysis, Rogers & Company recorded the closing price of the Common Stock on
August 6, 1999, and used this closing price of $1.75 per share to represent the
value that can be exchanged for the right to receive $5.00 at the end of seven
years and nine months. The internal rate of return (assuming annual compounding)
which equates a present value of $1.75 to a future value of $5.00 at the end of
seven years and nine months is approximately 14.48 percent. In the event that
the Notes are called prior to maturity at the specified call prices, the
internal rates of return will range from 14.43 percent to 28.57 percent
(depending on the year in which the Notes are called and assuming a call date of
September 30).
The present value analysis establishes a current price of the Notes,
given a fixed rate of return (yield to maturity) which reflects the appropriate
levels of investment risk and credit risk associated with the Notes. For
purposes of this analysis, Rogers & Company selected rates of return ranging
from 12.5 percent to 13.5 percent to represent various levels of return that
holders of the Notes might require. These rates compare to the risk free yield
of 6.20 percent on U.S. Treasury Notes maturing in August 2007 and the average
yield of 10.39 percent on high-yield corporate bonds comprising the Merrill
Lynch High-Yield Bond Index, as of August 6, 1999.
25
<PAGE> 26
Assuming rates of return (yields to maturity) of 12.5 percent to 13.5
percent (compounded annually) and a redemption price of $5.00 per Note at the
end of seven years and nine months, the current price of the Notes, as
calculated, range from $1.87 per Note to $2.00 per Note, representing premiums
of 6.86 percent to 14.29 percent above the closing price per share of the Common
Stock on August 6, 1999. If the event that the Notes are called prior to
maturity at the specified call prices, the yields to the call (assuming yields
to maturity of 12.5 percent to 13.5 percent) will range from 10.67 percent to
20.32 percent (depending on the year in which the Notes are called and assuming
a call date of September 30).
Analysis of the Warrants --- Rogers & Company reviewed the terms of the
Warrants and discussed with management the basis on which management set such
terms. According to management, the rationale for including the Warrants as part
of the Exchange Consideration is to allow those shareholders tendering their
Common Stock for exchange the opportunity to benefit from a rise in the price of
the Common Stock to an amount in excess of $3.875 per share during a specified
period of time. It is expected that the Warrants will have little, if any, value
initially and may expire without ever having value. Accordingly, Rogers &
Company believes that the portion of the Exchange Consideration attributable to
the Warrants is negligible.
KRUG selected Rogers & Company as its financial advisor because, among
other things, its president was formerly an officer of a well recognized
regional investment banking firm engaged in the valuation of businesses and
their securities in connection with mergers and acquisitions and for other
purposes and because its president has substantial experience in rendering
fairness opinions. The Engagement Letter with Rogers & Company provides that
KRUG will pay Rogers & Company an advisory fee equal to $30,000. In addition,
the Engagement Letter with Rogers & Company provides that KRUG will reimburse
Rogers & Company for its out-of-pocket expenses and will indemnify Rogers &
Company and certain related persons against certain liabilities, including
liabilities under securities laws, arising out of its engagement.
Although the Opinion is attached as Annex A to the Exchange Offer, the
Opinion of Rogers & Company is also available for inspection and copying at
KRUG's principal executive offices during regular business hours by any
interested equity security holder of KRUG or his or her duly designated
representative.
26
<PAGE> 27
RISK FACTORS
Failure to Consummate the Exchange Offer
If the Exchange Offer is not consummated, KRUG intends to proceed with
its business strategy of seeking to grow by acquisitions. In pursuing its
strategy and acquisitions, KRUG would likely be required to use its cash
resources together with the proceeds from any debt and equity sold or issued by
KRUG, some or all of which could be used to help fund such acquisitions. KRUG
believes a portion of its cash resources should be retained to support current
operations, but would use a substantial portion of its cash resources for
acquisitions. In addition, it will likely be necessary for KRUG to incur debt
for acquisitions and such debt could be on terms less favorable than the Notes.
Accordingly, KRUG's debt service requirements would likely increase as a result
of any such acquisition and KRUG's ability to service such debt would depend
primarily on the acquired companies. Further, KRUG may issue additional equity
for acquisitions which could have a dilutive effect at the current price of the
Common Stock. See "Special Factors - Certain Effects of the Exchange Offer -
Change in Capitalization."
Delay in Completion of the Exchange Offer
KRUG may not consummate the Exchange Offer before qualification of the
Indenture. If qualification of the Indenture is not obtained or is delayed
substantially beyond the completion of the Exchange Offer, KRUG may be required
to delay conclusion of or terminate the Exchange Offer. In either such event,
KRUG could incur substantial additional costs.
Failure to Complete the Sale of Wyle Shares
If KRUG is unable to complete the sale of Wyle Shares to Wyle, KRUG
intends to proceed with the Exchange Offer. In such events, cash which KRUG
anticipated from the sale would not be available for acquisitions and other
corporate purposes. In addition, the anticipated increase in shareholders'
equity as a result of the gain KRUG would realize upon the sale of Wyle Shares
would not occur. Under such circumstances, KRUG's acquisition program may be
impaired or delayed and stockholders' equity underlying KRUG's debt could be
substantially diminished while its long-term debt would increase as a result of
Notes issued pursuant to the Exchange Offer.
In addition, as discussed under "Description of KRUG - Investment in
Wyle Laboratories, Inc.," Wyle is highly leveraged and its operations in recent
periods have been unprofitable. Thus, there exists a risk KRUG could realize
less value or no value from its investment in Wyle if the sale of Wyle Shares to
Wyle does not occur.
Repurchase of Common Stock; Future Capital Stock Transactions
To the extent that KRUG determines it has cash resources which it could
devote to repurchasing its Common Stock, KRUG may decide to repurchase shares of
Common Stock, whether or not the Exchange Offer is consummated, for cash in the
open market after the Exchange Offer, at such prices as it believes would be
appropriate to do so. In addition, the Board may consider additional exchange
offers, tender offers or other transactions which it believes provide
27
<PAGE> 28
value or liquidity to shareholders. Such transactions may include debt, equity
and cash payments, and may be at prices higher than offered in this Exchange
Offer. Any such repurchases of Common Stock, exchange offers, tenders offers,
dividends or other capital stock activities would reduce shareholder equity and
may increase debt and decrease cash resulting in less resources available to
KRUG for other purposes, including for working capital and acquisitions.
Control by Officers and Directors upon Consummation of the Exchange Offer
Upon completion of the Exchange Offer, assuming 2,500,000 shares are
validly tendered and accepted, ownership of KRUG by its executive officers and
directors would comprise 51.1% of the outstanding shares. Accordingly, the
officers and directors would hold sufficient voting power to elect all the
directors and to control the outcome of issues submitted to a vote of the
shareholders. This concentration of ownership may, among other things, have the
effect of delaying, deferring, or avoiding a change in control of KRUG,
including transactions in which the holders of Common Stock might receive a
premium for their shares over prevailing market prices or permitting a change in
control, including transactions in which the holders of Common Stock might
receive less than maximum value. See "Special Factors - Potential Change of
Control and Conflicts of Interest."
Possible Future Change of Control Upon Consummation of the Exchange Offer
Upon completion of the Exchange Offer, assuming less than 2,500,000
shares are validly tendered and accepted, ownership of KRUG by its executive
officers and directors would comprise less than 50% of the outstanding shares.
Accordingly, the future concentration of shares in the hands of shareholders
other than officers and directors may give such shareholders sufficient voting
power to control the outcome of issues submitted to a vote of the shareholders.
Two shareholders, Dimensional Fund Advisors, Inc. and Westside Capital Partners,
L.P., currently own 11.0% of the outstanding shares, and upon consummation of
the Exchange Offer, assuming 1,000,000 shares are validly tendered and accepted,
would own 13.8% of the outstanding shares. KRUG has been notified by another
shareholder that he intends to nominate certain persons for election to the
Board of Directors at the 1999 annual meeting. Upon consummation of the Exchange
Offer, assuming less than 2,500,000 shares are validly tendered and accepted,
shareholders other than KRUG's executive officers and directors, including
Dimensional Fund Advisors, Inc. and Westside Capital Partners, L.P., may decide
to vote for nominees other than those proposed by the Board.
History of Losses; Uncertainty of Future Profitability and Cash Flows
KRUG incurred substantial operating losses for fiscal 1999 and for the
first quarter of fiscal 2000. There can be no assurance that KRUG will be able
to achieve profitability and positive cash flows from operations or that
profitability and positive cash flows from operations, if achieved, can be
sustained on an ongoing basis. Moreover, if achieved, the level of profitability
or positive cash flows cannot accurately be predicted. Thus, there is a risk
that KRUG will not be able to service its existing debt and, upon consummation
of the Exchange Offer, the additional debt incurred as a result of the issuance
of Notes. See "Special Factors Certain Effects of the Exchange Offer - Change in
Capitalization."
28
<PAGE> 29
Upon consummation of the Exchange Offer, a greater portion of KRUG's
positive cash flows, if achieved, will be required ultimately to repay the
Notes. Accordingly, such portion of cash flows will not be available for
acquisitions, reinvestment in the business or other uses that might benefit
holders of Common Stock. See "Special Factors - Certain Effects of the Exchange
Offer - Change in Capitalization."
Business Strategy; Growth by Acquisitions
KRUG's business strategy, which has recently been modified, anticipates
growth by acquisitions (which acquired companies may be incurring losses at the
time of acquisition) and expansion into areas and activities not currently
conducted by KRUG. Because of its limited financial and management resources,
KRUG may not locate suitable acquisitions or may not be able to diversify its
investments. In addition, KRUG may acquire minority interests in other companies
and, in such an event, would not be able to exercise control over such
companies' activities, which may result in losses on such investments. Further,
KRUG may invest in startup and early stage enterprises which generate operating
losses as well as carry a high risk of investment loss. See "Special Factors -
Background of the Exchange Offer - Strategy," "Special Factors - Background of
the Exchange Offer Acquisition Activities" and "Description of KRUG."
Management Resources
KRUG's acquisition activities are expected to place increased demands
on KRUG's resources, including, in addition to its financial resources, its
management resources and personnel. These demands are expected to require the
retention of current management and the Consultants, the addition of new
management personnel and the development of additional expertise in areas of
business conducted by acquired companies. The failure to retain current
management and the Consultants, obtain effective new management personnel or to
develop such expertise could have a material adverse effect on the prospects for
KRUG's success.
Access to Cash; Uncertainty of Future Funding
A substantial portion of KRUG's cash held in the United Kingdom is
restricted under its U.K. debt agreements as a result of the losses incurred by
the U.K. subsidiaries. If KRUG is unable to achieve positive cash flows from its
U.K. operations, access cash held in the U.K. (by refinancing or otherwise) and
transfer such funds to the U.S., it may be unable to make acquisitions in the
U.S. and may be unable to pay the Notes at maturity. In either such case, KRUG
may be required to issue additional equity securities which could result in
substantial dilution to existing holders of Common Stock or incur additional
debt on terms which may be unfavorable. There can be no assurance that any
source of funds, whether in the form of debt or equity securities, will be
available, and if available, that such funds would be provided on acceptable
terms. See "Special Factors - Certain Effects of the Exchange Offer - Change in
Capitalization."
29
<PAGE> 30
Priority of Notes; Reduction in Shareholders' Equity
The Notes will be subordinate to all present and future Senior Debt of
KRUG. If KRUG is unable to service its senior debt pursuant to its terms, it may
be required to restructure such debt, sell assets, or take other actions which
could impair the value of the Notes or result in a default under the Indenture.
Upon consummation of the Exchange Offer, assuming 2,500,000 shares of
Common Stock are tendered and accepted (and no holders of fewer than 100 shares
tendered their shares for cash), KRUG would issue Notes in the face amount of
$12,500,000, and shareholders' equity would be reduced on a pro forma basis as
of June 30, 1999 by approximately $2,012,000 to $4,451,000 (including the gain
on the sale of Wyle Shares). Such Notes will be superior to the Common Stock (or
any other equity security of KRUG which may hereafter be issued) in any
reorganization or liquidation. Accordingly, following completion of the Exchange
Offer, assuming the minimum number of shares are tendered and accepted, if you
keep Common Stock and do not participate in the Exchange Offer (1) you will own
a greater percentage of the outstanding Common Stock than prior to completion of
the Exchange Offer, but (2) KRUG will have less shareholders' equity and more
debt, and (3) your shares of Common Stock will rank below all debt, including
the Notes, in right of payment and upon liquidation. See "Special Factors
Certain Effects of the Exchange Offer - Change in Capitalization," "Description
of the Notes - General," and "Description of the Notes - Subordination of
Notes."
Conduct of Business Through Subsidiaries
The Notes are exclusively general unsecured obligations of KRUG.
Substantially all of KRUG's business is conducted through subsidiaries.
Therefore, the cash flows available to KRUG to satisfy its indebtedness,
including the Notes, are dependent upon the earnings or sales of assets of
subsidiaries, and the distribution of cash to KRUG. KRUG's housewares and child
safety products subsidiaries conduct all of their operations outside of the
United States and are subject to foreign and U.S. regulations which may
constrain such subsidiaries' ability to make distributions to KRUG. KRUG's
subsidiaries have no obligation, contingent or otherwise, to make any payment on
the Notes, or to make funds available therefor. Any rights of KRUG to receive
assets of any subsidiary (and consequently the ability of Notes to possibly
benefit therefrom) in any liquidation or reorganization of the subsidiary will
be effectively subordinated to the creditors, including trade creditors, of the
subsidiary. See "Description of the Notes - Subordination of Notes."
Disposition of Assets
KRUG has considered disposing of certain operations. There can be no
assurance that KRUG will dispose of any subsidiaries, or if any are disposed of,
that a loss on such disposition will not result. Further, there can be no
assurance that the funds received from any such disposal will be in cash, or if
in cash, will be sufficient to pay the existing indebtedness of the
subsidiaries, including senior bank debt, or that any funds will be available
for distribution from such subsidiaries to KRUG to pay the Notes. See "Summary
of the Exchange Offer," "Special Factors - Background of the Exchange Offer -
Disposition and Financing Activities" and "Description of KRUG."
30
<PAGE> 31
Trading Market for Notes
KRUG does not intend to list the Notes on any securities exchange.
Accordingly, there is no assurance that any trading market for the Notes will
develop. If any such market develops, the amount of Notes outstanding, and the
limited number of holders thereof, may result in only a limited trading market
for such Notes. Such limitations would likely have an adverse effect on the
overall liquidity and market value of the Notes. If a trading market develops,
the trading market for Notes in denominations of less than $1,000 will be more
limited than for Notes in denominations of $1,000 or integral multiples thereof.
Thus, Notes issued in denominations of less than $1,000 would likely suffer even
more diminution in trading value due to the failure of such Notes to trade. See
"The Exchange Offer - Trading Market for Notes."
Trading Market for Common Stock
Upon consummation of the Exchange Offer, fewer shares of Common Stock
will be outstanding and the Common Stock may be delisted from the AMEX. Whether
or not the Common Stock is delisted from the AMEX, the trading market for the
Common Stock will be more limited and, as a result of the lower volume of shares
outstanding and fewer holders thereof, may have an adverse effect on the market
price of the Common Stock. See "The Exchange Offer - Effect of the Exchange
Offer on the Market for the Common Stock; Amex Listing; Registration under the
Exchange Act."
Limitations on Exercise of Warrants; Trading Market for Warrants
The Warrants may not be exercised prior to October 1, 2000 and until
KRUG has an effective registration statement with the SEC covering the shares
underlying the Warrants. The Warrants expire on September 30, 2002. KRUG is not
obligated to file such a registration statement until after July 15, 2000 and
the Closing Price of the Common Stock is above $3.50 for 10 consecutive trading
days. KRUG is obligated during the term of the Warrants to endeavor to maintain
the effectiveness of such registration statement for a period of the greater of
(i) 90 days or (ii) for consecutive 60-day periods after the date the
registration statement covering such Common Stock is first declared effective by
the SEC so long as the Closing Price of the Common Stock continues to be above
$3.50 for at least 10 consecutive trading days during each such period. The
maximum number of Warrants outstanding (assuming 2,500,000 shares of Common
Stock tendered and accepted) will be 625,000. Thus, if any trading market
develops for the Warrants, it will probably be limited, will result in little
liquidity and will likely have an adverse effect on the market price of the
Warrants. See "The Exchange Offer - Trading Market for Warrants."
Product Liability and Discontinued Operations
KRUG's European housewares and child safety segments manufacture and
distribute household and child safety products which customers may allege result
in injury or damage. Also, KRUG's discontinued industrial products division has
incurred, and continues to incur, product liability claims relating to
activities previously conducted by KRUG. KRUG currently maintains product
liability insurance for its European housewares and child safety segments and
for certain product liability claims arising from its discontinued U.S.
operations. However, KRUG may not in
31
<PAGE> 32
the future be able to obtain liability insurance, or if obtained, such insurance
may not be adequate or on acceptable terms or in sufficient amounts to protect
it from claims. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources" included in KRUG's
Annual Report on Form 10-K for the year ended March 31, 1999 and Quarterly
Report on Form 10-Q for the quarter ended June 30, 1999.
Economic and Business Conditions in the U.S. and Abroad
KRUG's European housewares and child safety segments conduct all of
their operations overseas. Accordingly, KRUG is dependent upon foreign economic
conditions, tax laws and regulations, exchange rate fluctuations, capital
distribution limitations and the local availability of skilled management and
employees. Thus, there can be no assurance KRUG will achieve and sustain
profitable operations in its European housewares and child safety segments or,
if profitability is achieved, that KRUG will be able to distribute such profits
to the United States. See "Description of KRUG - Housewares and Child Safety
Segments."
Anti-Takeover Provisions
KRUG is subject to certain provisions of the Ohio anti-takeover statute
which, in general, prohibits a publicly held Ohio corporation from engaging in
certain transactions with an Interested Shareholder for a period of at least 3
years after the date of the transaction or purchase by which the person became
an Interested Shareholder, unless the Board of Directors, prior to the person
becoming an Interested Shareholder, approves the transaction or purchase. Such
transactions include, among other things, a merger, asset sale or other
transaction that results in either (i) an increase in the ownership interest of,
or (ii) some other financial benefit not proportionately received by all
shareholders to, the Interested Shareholder. An Interested Shareholder means any
person who, together with affiliates and associates, owns or can control 10% of
the voting power of the corporation.
KRUG's Amended Articles of Incorporation authorize two million shares
of preferred stock, the rights, preferences, qualifications, limitations and
restrictions on which may be fixed by the Board of Directors without any further
vote or action by the shareholders. The issuance of shares of preferred stock
and the terms thereof could have the effect of diluting the Common Stock or
reducing working capital that would otherwise be available to KRUG.
KRUG's Code of Regulations also provides for a classified Board of
Directors, with directors divided into two classes serving staggered terms. The
Board of Directors has the authority to modify the classes, provided the number
of Directors is not more than eight or less than six. The Board of Directors
determined at its meeting on August 9, 1999 to restructure the Board of
Directors and fix the number of Directors in each class at three and hold open
two seats to which it may appoint additional directors at any time.
In addition, KRUG's Stock Option Plan generally provides for the
acceleration of options granted under such plan in the event of certain
transactions which result in a change of control of KRUG, and the Board of
Directors may reduce the exercise price of KRUG's outstanding Warrants
32
<PAGE> 33
at any time. Further, Mr. Thornton's employment agreement provides for severance
benefits in the event of certain transactions which result in a change of
control in KRUG.
These factors may have the effect of increasing the cost of, delaying,
or preventing a change of control of KRUG without action by the shareholders,
and therefore, could adversely affect the price of the Common Stock.
See "Ohio Law and Certain Charter Provisions."
DESCRIPTION OF KRUG
KRUG, an Ohio corporation organized in June 1959, currently
manufactures and distributes through its subsidiaries housewares and child
safety products, primarily in the United Kingdom, with operations in several
western European countries.
In addition, KRUG owns approximately 38% of the equity of Wyle, a
company which merged in March 1998 with KRUG's two subsidiaries which previously
comprised its life sciences and engineering ("LS&E") segment. Wyle operates
testing facilities and provides engineering and life sciences support services
to commercial and government customers, primarily in the United States. KRUG has
reached an agreement in principle to sell its Series A Preferred Stock in Wyle,
which comprises a substantial portion of its investment in Wyle, to Wyle for
$4,000,000. The sale is conditioned upon Wyle modifying certain terms of the
Series B Preferred Stock and stock options currently held and to be retained by
KRUG and further is subject to Wyle's ability to obtain funding for the purchase
of KRUG's Series A shares and for substantially all equity held by other
non-employee stockholders. The transaction is also subject to the negotiation of
definitive agreements with KRUG and the other selling stockholders and certain
other conditions. Assuming the transaction is effected, KRUG expects to report
an after tax gain of approximately $3,110,000 from the sale, in its second
fiscal quarter.
Certain information concerning the business segments for the fiscal
years ended March 31, 1999, 1998 and 1997 and the quarter ended June 30, 1999 is
set forth at Note 13 of the Notes to Consolidated Financial Statements of KRUG
contained in KRUG's Annual Report on Form 10-K for the year ended March 31,
1999, and in Management's Discussion and Analysis of Financial Condition and
Results of Operations contained in KRUG's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1999, which are incorporated herein by reference.
KRUG's objective is to increase shareholder value by the investment in
and management of businesses which offer growth opportunities. KRUG evaluates
its operating subsidiaries for growth potential and seeks acquisition
opportunities for the profitable employment of capital. KRUG's goal for
acquisitions is to acquire new businesses which it believes present an
opportunity for increased value without regard to current profitability. KRUG
currently intends to direct its long-term acquisition strategy towards companies
in the healthcare and technology areas, as broadly defined. KRUG believes heavy
regulation, cost consciousness and consumer empowerment are leading to the
convergence of healthcare, technology and safety products, especially products
and services which promote wellness, reduce injury or illness, and increase
efficiency.
33
<PAGE> 34
KRUG's strategy will not be confined to any sector of the healthcare
and technology areas, but will encompass sectors KRUG believes have an
opportunity to participate in future growth. KRUG's initial strategic focus is
expected to be deliberately broad but may narrow as acquisition opportunities
increase.
In the short-term, KRUG will seek and evaluate acquisitions without
regard to industry or profitability which it believes provide meaningful U.S.
operations and an opportunity to achieve cashflow.
KRUG considers, from time to time, the disposition of any subsidiary or
affiliate when it believes the subsidiary or affiliate no longer offers suitable
opportunities for growth or profitability, or when KRUG believes better
opportunities for utilization of KRUG's capital would be provided by the
disposition of such subsidiary or affiliate.
Housewares and Child Safety Segments
Bradley International Holdings Limited, a subsidiary of KRUG
International (UK) Ltd., operates KRUG's housewares and child safety segments
(collectively "Bradley"). The housewares segment is comprised of the Beldray
Limited ("Beldray") and Hago Products Limited ("Hago") subsidiaries which
manufacture and sell consumer durable products, including ironing tables,
household ladders, rotary dryers, indoor airers, garden equipment and child
safety gates and accessories under the "Beldray," "Hago" and "Dennison" names as
well as private labels. Beldray is a long-established name in household laundry
products which management believes has significant recognition among the buying
public throughout the U.K. and, together with Hago, which was acquired in
October 1996, manufactures and sells child safety gates and accessories under
the KiddiProof(R) tradename. Customers include do-it-yourself retailers,
supermarkets, mail order catalogs, wholesalers and department stores, primarily
in the U.K. and Ireland. The child safety segment is comprised of Klippan
Limited ("Klippan"), which was acquired by Bradley on October 2, 1997. Klippan
manufactures children's automobile safety seats in the U.K. and Finland which
are sold under various proprietary brand names and private labels with sales
operations in the U.K., France, Germany and Sweden. Management believes Klippan
is a significant brand in the United Kingdom and Scandinavia.
The housewares and child safety segments order backlogs are typically
less than one month's sales. The segments' primary competitors are manufacturing
companies, some of which are larger and have more resources than Bradley, and
compete with Bradley on the basis of product quality, speed and reliability of
delivery, and price.
Over the past three years, Bradley has expanded its product offerings
to include child safety gates and children's automobile safety seats through its
acquisitions of Hago and Klippan. During fiscal 1998, Bradley reorganized its
manufacturing capability by moving the Hago manufacturing operations into
Beldray's manufacturing facility. In addition, Klippan, concurrent with its
acquisition by Bradley, initiated a comprehensive product redevelopment program
for its children's automobile safety seats which resulted in the offering of new
and redesigned models in the third quarter of fiscal 1999. The Bradley
subsidiaries have also upgraded their information technology, reorganized their
European sales offices and added management in connection with and in
34
<PAGE> 35
anticipation of expanded operations in Western Europe and possible future
acquisitions. Management's operating strategy for Bradley is to continue to
improve its manufacturing operations, reduce its costs, strengthen its
management team and broaden its customer base and geographic distribution, and
believes such improvements offer Bradley an opportunity to maintain and enhance
its competitive position.
Investment in Wyle Laboratories, Inc.
On March 16, 1998, KRUG merged its life sciences and engineering
subsidiaries into Wyle for approximately 38% of Wyle's equity, a cash payment of
$3,052,000 and the assumption of approximately $3,300,000 of working capital
debt of such subsidiaries.
Wyle is a U.S. company headquartered in El Segundo, California, with
other major facilities located in Alabama, Florida, Ohio, Texas and Virginia.
Wyle is a scientific, engineering and management concern that primarily supports
the following industries: aerospace and defense, electronics, energy,
telecommunications and transportation. Wyle's range of products and services
spans eight major areas of expertise: acoustic research and consulting,
environmental remediation, life sciences, nuclear services, special test
systems, specialty manufacturing, support services and testing services. Wyle
employs approximately 1,300 people at eleven U.S. facilities.
Wyle is highly leveraged and its operations in recent periods have been
unprofitable. KRUG's objective is to sell its investment in Wyle pursuant to the
agreement in principle discussed above. Should the sale not occur, Wyle's
operations continue to be unprofitable, and Wyle be unable to reduce its debt
(including by assets sales) or refinance its debt to provide lower debt service
requirements and achievable financial covenants, KRUG believes there exists a
risk that KRUG would be unable to find another buyer for and could realize no
value from its approximately 38% equity interest in Wyle. The book value of
KRUG's investment in Wyle at June 30, 1999 is zero.
Sale of Leisure Marine Segment
Sowester Limited ("Sowester"), a subsidiary of KRUG International
(U.K.) Ltd. until its sale to a group headed by its managing director and
finance director on April 16, 1998, is located in the port of Poole, Dorset,
England, and distributes sail and power boat equipment and personal watercraft
to the leisure marine market. During fiscal 1998, KRUG concluded that Sowester's
dependence on a limited number of suppliers and the local nature of the leisure
marine business in Europe would limit Sowester's ability to achieve KRUG's
growth and profit objectives and sold Sowester to the management group for
approximately $8,900,000 in cash and the assumption of approximately $6,100,000
of the subsidiary's debt.
35
<PAGE> 36
PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY
The Common Stock is currently listed on the AMEX under the symbol
"KRG." The closing price of the Common Stock on the AMEX on August 19, 1999, was
$1.63. As of August 13, 1999, KRUG had approximately 905 shareholders of record.
The following table sets forth, for the fiscal periods indicated, the high and
low prices of the Common Stock reported on the AMEX Composite Tape.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
SALES PRICE
LOW HIGH
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1997:
First Quarter......................................... $3.25 $5.75
Second Quarter........................................ 4.50 5.25
Third Quarter......................................... 4.13 4.88
Fourth Quarter........................................ 4.75 6.88
- -------------------------------------------------------------------------------------------------------------
1998:
First Quarter......................................... 4.63 6.13
Second Quarter........................................ 5.00 6.25
Third Quarter......................................... 5.50 7.63
Fourth Quarter........................................ 5.00 6.13
- -------------------------------------------------------------------------------------------------------------
1999:
First Quarter......................................... 5.25 6.50
Second Quarter........................................ 2.88 5.44
Third Quarter......................................... 1.56 2.94
Fourth Quarter........................................ 1.19 1.94
- -------------------------------------------------------------------------------------------------------------
2000:
First Quarter......................................... 1.25 1.88
Second Quarter (through August 13, 1999).............. 1.25 1.88
- -------------------------------------------------------------------------------------------------------------
</TABLE>
No cash dividends were declared during any quarter of fiscal 2000,
1999, 1998 and 1997. As a result of KRUG's operating losses and restrictions
which will be contained in the Indenture, KRUG's ability to pay cash dividends
in the foreseeable future will be limited.
36
<PAGE> 37
REPURCHASES OF COMMON STOCK
In April 1998, the Board of Directors authorized the purchase from time
to time for cash in the open market of up to 200,000 shares of Common Stock at
management's discretion. In August 1998, the Board of Directors authorized the
purchase of an additional 100,000 shares. KRUG has purchased and retired 278,700
shares of Common Stock to date. No such shares of Common Stock will be purchased
by KRUG during the pendency of the Exchange Offer or until ten business days
following the expiration or termination of the Exchange Offer.
KRUG has repurchased Common Stock since March 31, 1997, as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Price Range Average Purchase
Number of Shares Per Share Price Per Share
------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1998:
First Quarter................ -- -- --
Second Quarter............... -- -- --
Third Quarter................ -- -- --
Fourth Quarter............... -- -- --
------------------------------------------------------------------------------------------------
1999:
First Quarter................ 159,600 $5.25 - $6.00 $5.52
Second Quarter............... 119,100 $3.69 - $5.25 $4.05
Third Quarter................ -- -- --
Fourth Quarter............... -- -- --
------------------------------------------------------------------------------------------------
2000:
First Quarter ............... -- -- --
Second Quarter (through
August 13, 1999) ............ -- -- --
------------------------------------------------------------------------------------------------
</TABLE>
Based upon KRUG's records and upon information provided to KRUG by its
directors, executive officers and affiliates, neither KRUG nor any of its
subsidiaries nor, to the best of KRUG's knowledge, any of the directors or
executive officers of KRUG or its subsidiaries, nor any associates of any of the
foregoing, has effected any transactions in the Common Stock during the
60-business-day period prior to the date hereof.
37
<PAGE> 38
SUMMARY FINANCIAL INFORMATION
The following table sets forth data regarding KRUG's historical and pro
forma consolidated operating results and financial position. This data should be
read in conjunction with Management's Discussion and Analysis of Financial
Condition and Results of Operations and the Consolidated Financial Statements
included in KRUG's 1999 Annual Report on Form 10-K for the year ended March 31,
1999 and Quarterly Report on Form 10-Q for the quarter ended June 30, 1999.
Copies of such documents are available as described in "Incorporation of Certain
Documents by Reference."
<TABLE>
<CAPTION>
Historical Pro Forma
-------------------------------------------------------------------- -------------------------------
Fiscal Year Ended Fiscal Quarter Ended Fiscal Year Fiscal Quarter
March 31, June 30, Ended March 31 Ended June 30,
1999 1998 1997 1999 1998 1999 (a) 1999 (a)
-------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED
STATEMENTS OF
EARNINGS DATA
Total Revenues $ 50,295 $ 93,694 $83,081 $ 11,428 $ 11,744 $ 50,295 $ 11,428
=======================================================================================================
Earnings (Loss) from
Continuing Operations $ (9,000) $ (705) $ 1,062 $ (593) $ (1,234) $ (9,859) $ (764)
=======================================================================================================
Earnings (Loss) from
Continuing Operations
per Common Share:
Basic $ (1.78) $ (0.14) $ 0.21 $ (0.12) $ (0.24) $ (3.87) $ (0.31)
=======================================================================================================
Diluted $ (1.78) $ (0.14) $ 0.20 $ (0.12) $ (0.24) $ (3.87) $ (0.31)
=======================================================================================================
Weighted Average
Common Shares
Outstanding:
Basic 5,049 5,168 5,135 4,978 5,215 2,549 2,478
=======================================================================================================
Diluted 5,049 5,168 5,193 4,978 5,215 2,549 2,478
=======================================================================================================
Ratio of Earnings
to Fixed Charges (b) (c) 1.02 2.34 (c) (c) (c) (c)
=======================================================================================================
CONSOLIDATED
BALANCE SHEETS
DATA (AT END
OF PERIOD)
Total Assets $ 29,742 $ 39,579 $41,085 $ 25,536 $ 36,957 $ 33,432 $ 29,226
Long-term Debt $ 6,278 $ 6,703 $ 8,331 $ 5,902 $ 7,314 $ 11,150 $ 10,774
Shareholders' Equity $ 7,480 $ 18,099 $17,960 $ 6,463 $ 16,477 $ 5,468 $ 4,451
Common Shares
Outstanding 4,978 5,199 5,151 4,978 5,097 2,478 2,478
Book Value per
Common Share $ 1.50 $ 3.48 $ 3.49 $ 1.30 $ 3.23 $ 2.21 $ 1.80
</TABLE>
The financial information is expressed in thousands, except for per
share amounts and ratios.
38
<PAGE> 39
(a) As if the Exchange Offer and the sale of the Wyle Shares had been
consummated at April 1, 1998, assuming that 2,500 shares of Common
Stock were exchanged for $12,500 face amount of Notes and 625 Warrants
and that expenses of the Exchange Offer total $250.
(b) For purposes of calculating this ratio, earnings include income (loss)
from continuing operations before income taxes adjusted to reflect the
exclusion of the equity in the loss of Wyle and the addback of fixed
charges (interest expense and an estimate of interest within rental
expense).
(c) Fixed charges exceeded earnings by $7,085 for the fiscal year ended
March 31, 1999, by $572 for the quarter ended June 30,1999 and by
$1,176 for the quarter ended June 30, 1998. Pro forma fixed charges
exceeded earnings by $7,944 for the fiscal year ended March 31, 1999
and by $743 for the quarter ended June 30, 1999.
39
<PAGE> 40
CAPITALIZATION
(UNAUDITED)
The following table sets forth, as of June 30, 1999, the capitalization
of KRUG and the adjusted pro forma capitalization of KRUG giving effect to the
Exchange Offer and the sale of Wyle Shares as if they occurred at June 30, 1999.
This data should be read in conjunction with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Consolidated
Financial Statements included in KRUG's 1999 Annual Report on Form 10-K for the
year ended March 31, 1999 and Quarterly Report on Form 10-Q for the quarter
ended June 30, 1999, copies of which are available as described in
"Incorporation of Certain Documents by Reference."
<TABLE>
<CAPTION>
JUNE 30, 1999
-------------------------------------
ACTUAL PRO FORMA (a)
-------------------------------------
<S> <C> <C>
LONG-TERM DEBT:
U.K. Variable Rate Loan $ 3,017 $ 3,017
U.K. Term Loan 1,498 1,498
Capital Leases 1,004 1,004
Finland Loan 254 254
Other 129 129
Senior Subordinated Zero Coupon Notes - 4,872
-------------------------------------
TOTAL LONG-TERM DEBT $ 5,902 $ 10,774
-------------------------------------
SHAREHOLDERS' EQUITY:
Common Shares, no par value,
4,977,530 issued and outstanding
before Exchange Offer $ 2,489 $ 1,239
Additional Paid-in Capital 3,605 -
Retained Earnings 997 3,840
Accumulated Other Comprehensive Loss (628) (628)
-------------------------------------
TOTAL SHAREHOLDERS' EQUITY $ 6,463 $ 4,451
-------------------------------------
TOTAL CAPITALIZATION $ 12,365 $ 15,225
=====================================
</TABLE>
(a) Includes pro forma adjustments for the effect of the Exchange Offer and
the sale of Wyle Shares. Assumes that 2,500,000 shares of Common Stock
are tendered and accepted in exchange for $12,500 face amount of Notes
(recorded based on a discount rate of 12-1/2 %, for a recorded amount
of $4,872) and 625,000 Warrants and that expenses of the Exchange Offer
total $250. No payments to holders of less than 100 shares have been
assumed. Also includes sale of Wyle Shares for $4,000 and an after tax
gain of $3,110.
The financial information is expressed in thousands, except for the
share and warrant amounts.
40
<PAGE> 41
PRO FORMA BALANCE SHEET
MARCH 31, 1999
(UNAUDITED)
The following pro forma balance sheet reflects the exchange of
2,500,000 shares of Common Stock for $12,500 of Senior Subordinated Zero Coupon
Notes and 625,000 Warrants and the sale of the Wyle Shares as if they occurred
at March 31, 1999. No payments to holders of less than 100 shares have been
assumed. This pro forma information should be read in conjunction with the pro
forma statements of earnings for the fiscal year ended March 31, 1999 and notes
thereto, and the financial statements and notes contained in KRUG's Annual
Report on Form 10-K for the year ended March 31, 1999 and Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, which are incorporated herein by
reference.
<TABLE>
<CAPTION>
AS EXCHANGE SALE OF WYLE AS
REPORTED OFFER SHARES ADJUSTED
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents,
including restricted cash $ 9,321 $ (250) (1) $3,940 (3) $ 13,011
Receivables, net 7,174 7,174
Inventories 4,959 4,959
Prepaid expenses and other 778 778
---------------------------------------------------------------
Total Current Assets 22,232 (250) 3,940 25,922
Property, Plant and Equipment, net 5,928 5,928
Other Long-term Assets 1,582 1,582
---------------------------------------------------------------
Total Assets $ 29,742 $ (250) $3,940 $ 33,432
===============================================================
Current Liabilities:
Accounts payable $ 10,129 $ - $ - $ 10,129
Other current liabilities 10,291 830 (4) 11,121
---------------------------------------------------------------
Total Current Liabilities 20,420 - 830 21,250
Long-term Debt 931 931
Senior Subordinated Notes 4,872 (2) 4,872
Net Non-current Liabilities of
Discontinued Operations 911 911
Shareholders' Equity:
Common shares 2,628 (1,250) (2) 1,378
Additional paid-in capital 4,829 (3,622) (2) 1,207
Retained earnings 1,589 (250) (1) 3,110 (5) 4,449
Treasury shares at cost (1,363) (1,363)
Accumulated other comprehensive loss (203) (203)
---------------------------------------------------------------
Total Shareholders' Equity 7,480 (5,122) 3,110 5,468
---------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 29,742 $ (250) $3,940 $ 33,432
===============================================================
</TABLE>
The financial information is expressed in thousands, except for the
share and warrant amounts.
41
<PAGE> 42
(1) Expenses of $250 incurred and expensed for Exchange Offer.
(2) 2,500,000 shares are tendered for $12,500 face amount (recorded based
on a discount rate of 12-1/2%, for a recorded amount of $4,872) of
Senior Subordinated Zero Coupon Notes.
(3) Cash received for Wyle Shares less expenses of $60.
(4) Tax liability from gain on sale of Wyle Shares.
(5) After tax gain on sale of Wyle Shares.
42
<PAGE> 43
PRO FORMA BALANCE SHEET
JUNE 30, 1999
(UNAUDITED)
The following pro forma balance sheet reflects the exchange of
2,500,000 shares of Common Stock for $12,500 of Senior Subordinated Zero Coupon
Notes and 625,000 Warrants and the sale of the Wyle Shares as if they occurred
at June 30, 1999. No payments to holders of less than 100 shares have been
assumed. The pro forma information should be read in conjunction with the pro
forma statements of earnings for the quarter ended June 30, 1999 and notes
thereto, and the financial statements and notes contained in KRUG's Annual
Report on Form 10-K for the year ended March 31, 1999 and Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, which are incorporated herein by
reference.
<TABLE>
<CAPTION>
AS EXCHANGE SALE OF WYLE AS
REPORTED OFFER SHARES ADJUSTED
------------------------------------------------------------------
<S> <C> <C> <C> <C>
Current Assets:
Cash and cash equivalents,
including restricted cash $ 6,645 $ (250)(1) $ 3,940 (3) $ 10,335
Receivables, net 6,020 6,020
Inventories 4,722 4,722
Prepaid expenses and other 948 948
------------------------------------------------------------------
Total Current Assets 18,335 (250) 3,940 22,025
Property, Plant and Equipment, net 5,678 5,678
Other Long-term Assets 1,523 1,523
------------------------------------------------------------------
Total Assets $ 25,536 $ (250) $ 3,940 $ 29,226
==================================================================
Current Liabilities:
Accounts payable $ 7,671 $ - $ - $ 7,671
Other current liabilities 9,606 830 (4) 10,436
------------------------------------------------------------------
Total Current Liabilities 17,277 - 830 18,107
Long-term Debt 900 900
Subordinated Debt 4,872 (2) 4,872
Net Non-current Liabilities of
Discontinued Operations 896 896
Shareholders' Equity:
Common shares 2,489 (1,250)(2) 1,239
Additional paid-in capital 3,605 (3,605)(2) -
Retained earnings 997 (267)(1)(2) 3,110 (5) 3,840
Accumulated other comprehensive loss (628) (628)
------------------------------------------------------------------
Total Shareholders' Equity 6,463 (5,122) 3,110 4,451
------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $ 25,536 $ (250) $ 3,940 $ 29,226
==================================================================
</TABLE>
The financial information is expressed in thousands, except for the
share and warrant amounts.
43
<PAGE> 44
(1) Expenses of $250 incurred and expensed for Exchange Offer.
(2) 2,500,000 shares are tendered for $12,500 face amount (recorded based
on a discount rate of 12-1/2%, for a recorded amount of $4,872) of
Senior Subordinated Zero Coupon Notes.
(3) Cash received for Wyle Shares less expenses of $60.
(4) Tax liability from gain on sale of Wyle Shares.
(5) After tax gain on sale of Wyle Shares.
44
<PAGE> 45
PRO FORMA STATEMENT OF EARNINGS
(UNAUDITED)
The following pro forma statement of earnings reflects the exchange of
2,500,000 shares of Common Stock for $12,500 of Senior Subordinated Zero Coupon
Notes and 625,000 Warrants as if it had occurred at April 1, 1998. This pro
forma information should be read in conjunction with the pro forma balance sheet
at March 31, 1999 and notes thereto. It should also be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements contained in KRUG's Annual
Report on Form 10-K for the year ended March 31, 1999 and Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, which are incorporated herein by
reference.
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31, 1999
------------------------------------------------
AS EXCHANGE AS
REPORTED OFFER ADJUSTED
------------------------------------------------
<S> <C> <C> <C>
Revenues $ 50,295 $ - $ 50,295
Cost of goods sold 47,322 47,322
Selling and administrative expenses 8,487 250 (1) 8,737
Restructuring and impairment charges 1,727 1,727
Interest income 532
Interest expense 447 609 (2) 1,056
Equity in loss of Wyle 123 123
Other income - net 175 175
-----------------------------------------------
Loss From Continuing Operations
Before Income Taxes (7,104) (859) (7,963)
Income Taxes 1,896 1,896
-----------------------------------------------
Loss From Continuing Operations $ (9,000) $ (859) $ (9,859)
===============================================
Loss Per Share from Continuing
Operations:
Basic $ (1.78) $ (3.87)
========= ================
Diluted $ (1.78) $ (3.87)
========= ================
Weighted Average Common Shares
Outstanding (in thousands):
Basic 5,049 (2,500) (3) 2,549
===============================================
Diluted 5,049 (2,500) (3) 2,549
===============================================
</TABLE>
The financial information is expressed in thousands, except for the share,
per share and warrant amounts.
(1) Expenses of $250 incurred and expensed for Exchange Offer.
(2) Imputed interest expense at a rate of 12-1/2% on Notes.
(3) Retirement of shares acquired in Exchange Offer.
45
<PAGE> 46
PRO FORMA STATEMENT OF EARNINGS
(UNAUDITED)
The following pro forma statement of earnings reflect the exchange of
2,500,000 shares of Common Stock for $12,500 of Senior Subordinated Zero Coupon
Notes and 625,000 Warrants as if it had occurred at April 1, 1998. This pro
forma information should be read in conjunction with the pro forma balance sheet
at June 30, 1999 and notes thereto. It should also be read in conjunction with
Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements contained in KRUG's Annual
Report on Form 10-K for the year ended March 31, 1999 and Quarterly Report on
Form 10-Q for the quarter ended June 30, 1999, which are incorporated herein by
reference.
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1999
-------------------------------------------
AS EXCHANGE AS
EPORTED OFFER ADJUSTED
-------------------------------------------
<S> <C> <C> <C>
Revenues $ 11,428 $ - $ 11,428
Cost of goods sold 9,970 9,970
Selling and administrative expenses 1,807 1,807
Restructuring charges 222 222
Interest income 82 82
Interest expense 57 171 (1) 228
Equity in loss of Wyle
Other income - net 1 1
-------------------------------------------
Loss From Continuing Operations
Before Income Taxes (545) (171) (716)
Income Taxes 48 48
-------------------------------------------
Loss From Continuing Operations $ (593) $ (171) $ (764)
===========================================
Loss Per Share from Continuing
Operations:
Basic $ (0.12) $ (0.31)
======== ========
Diluted $ (0.12) $ (0.31)
======== =========
Weighted Average Common Shares
Oustanding (in thousands):
Basic 4,978 (2,500)(2) 2,478
===========================================
Diluted 4,978 (2,500)(2) 2,478
===========================================
</TABLE>
The financial information is expressed in thousands, except for the
share, per share and warrant amounts.
(1) Imputed interest expense at a rate of 12-1/2% on Notes.
(2) Retirement of shares acquired in Exchange Offer.
46
<PAGE> 47
OWNERSHIP OF SECURITIES BY CERTAIN BENEFICIAL
OWNERS, DIRECTORS AND OFFICERS
The following table sets forth information as of August 13, 1999, with
respect to the beneficial ownership of the Common Stock by (i) each person known
to KRUG who beneficially owns more than 5% of any class of voting securities of
KRUG, (ii) each director of KRUG, (iii) KRUG's Chief Executive Officer, and (iv)
all directors and executive officers of KRUG as a group.
<TABLE>
<CAPTION>
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
Common Shares
Beneficially Owned as
Common Shares of August 13, 1999
Beneficially Owned as of assuming 2,500,000
Name August 13, 1999 (1) % of Class (1) Shares Tendered (2) % of Class (3)
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
<S> <C> <C> <C> <C>
Robert M. Thornton, Jr. (4) 176,024 3.5 176,024 7.0
Director, Chairman of the
Board, President, Chief
Executive Officer and Chief
Financial Officer
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
Karen B. Brenner (5) 827,348 16.3 827,348 32.0
Director
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
T. Wayne Holt (6) 21,883 (13) 21,883 (13)
Director
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
James J. Mulligan (7) 32,085 (13) 32,085 1.3
Director and Secretary
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
Howard E. Turner (8) 136,337 2.7 136,337 5.5
Director
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
Ronald J. Vannuki (9) 190,875 3.7 190,875 7.3
Director
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
Fortuna Group (10) 1,018,223 19.4 1,018,223 37.2
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
Dimensional Fund 272,949 5.5 272,949 11.0
Advisors, Inc. (11)
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
Westside Capital 275,700 5.5 275,700 11.1
Partners, L.P. (12)
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
All Executive Officers 1,442,570 27.1 1,442,570 51.1
and directors as a group
(9 persons) (14)
- ------------------------------------ -------------------------- ------------------ ------------------------- ------------------
</TABLE>
(1) These columns show the number of Common Shares beneficially owned as of
August 13, 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.
47
<PAGE> 48
(2) This column shows the number of Common Shares of KRUG which would be
beneficially owned upon completion of the Exchange Offer, assuming
2,500,000 shares are tendered and accepted, and after giving effect to
shares the beneficial owner has confirmed to KRUG it intends to
exchange in the Exchange Offer. The officers and directors in this
table all have confirmed to KRUG that they do not intend to exchange
any shares in the Exchange Offer.
(3) This column shows the percent of Common Stock which would be owned by
the beneficial owner upon completion of the Exchange Offer, assuming
2,500,000 shares are tendered and accepted, and after giving effect to
shares the beneficial owner has confirmed to KRUG it intends to
exchange in the Exchange Offer. The officers and directors in this
table all have confirmed to KRUG that they do not intend to exchange
any shares in the Exchange Offer.
(4) Includes 37,540 shares that may be acquired upon exercise of warrants.
(5) 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.
(6) Includes 5,952 shares that may be acquired upon the exercise of
warrants.
(7) Includes 5,380 shares that may be acquired upon the exercise of
warrants.
(8) Includes 12,685 shares that may be acquired upon the exercise of
warrants.
(9) Includes 190,875 shares (which includes 151,557 shares which may be
acquired upon the exercise of warrants) beneficially owned by Fortuna
Investment Partners, L.P., of which Mr. Vannuki is the president of its
general partner.
(10) As reported on Schedule 13D filed April 1, 1999 by the Fortuna Group,
which includes, among others, Ms. Brenner and Mr. Vannuki.
(11) As reported on Schedule 13G filed by Dimensional Fund Advisors, Inc.,
dated February 11, 1999.
(12) As reported on Schedule 13D filed by Westside Capital Partners, L.P.
dated July 6, 1999.
(13) Less than 1%.
(14) Includes 343,889 shares that may be acquired upon the exercise of stock
options and warrants.
48
<PAGE> 49
PURPOSE OF THE EXCHANGE OFFER
The Exchange Offer is designed to allow each shareholder the
opportunity to restructure his or her investment in line with his or her
personal investment objectives. By means of the Exchange Offer, KRUG is giving
shareholders a choice of (i) exchanging (in whole or part, depending on the
number of shares of Common Stock tendered) their investment in the Common Stock
for a debt obligation to KRUG in the form of the Notes, while also retaining an
opportunity to reinvest in the Common Stock in the future, pursuant to the terms
of the Warrants, (ii) retaining all their shares of Common Stock, thus
increasing such shareholders' proportionate interest in the common equity of
KRUG following completion of the Exchange Offer, or (iii) some combination of
(i) and (ii). Alternatively, if a shareholder holds less than 100 shares, such
shareholder may elect to sell his or her investment in Common Stock to KRUG for
cash.
Any shares of Common Stock acquired by KRUG pursuant to the Exchange
Offer will be cancelled and retired and will resume the status of authorized but
unissued Common Stock and will be available for future reissuance. Such Common
Stock would be available for use by KRUG, without further shareholder
authorization (except as required by applicable law), for general or other
corporate purposes, including stock splits or dividends, acquisitions, sales to
a third party or parties, or issuance of options, rights and warrants to
purchase Common Stock. Except for outstanding stock options and future grants of
stock options, KRUG has no present commitment or plan to use any authorized but
unissued Common Stock, or Common Stock held as treasury shares, for any such
purpose.
THE EXCHANGE OFFER
Terms of the Exchange Offer; Number of Shares of Common Stock; Proration
KRUG offers to purchase up to 2,500,000 shares of its Common Stock, by
exchanging for each share (i) $5 principal amount of the Notes and (ii)
one-fourth of a Warrant. Each Warrant entitles the holder to purchase one share
of Common Stock for $3.875 beginning October 1, 2000 through September 30, 2002.
Alternatively, if you hold fewer than 100 shares of Common Stock as of August
13,1999, instead of participating in the Exchange Offer, you may elect to tender
all of your shares in exchange for a cash payment of $2.00 per share. The
Exchange Offer applies only to shares of Common Stock validly tendered and not
properly withdrawn. The Exchange Offer is subject to the terms and conditions
set forth in this Offering Circular and in the related Letter of Transmittal.
On August 13, 1999, there were 4,977,530 shares of Common Stock
outstanding.
The Warrants may not be exercised prior to October 1, 2000. The
Warrants may be exercised on or after October 1, 2000 through September 30,
2002, only when a registration statement covering the Common Stock issuable upon
exercise of the Warrants is effective with the SEC. KRUG has the obligation to
register with the SEC the Common Stock issuable upon exercise of the Warrants as
promptly as practicable after July 15, 2000, once the Closing Price per share of
49
<PAGE> 50
the Common Stock is above $3.50 for 10 consecutive trading days1. KRUG is
obligated during the term of the Warrants to endeavor to maintain the
effectiveness of such registration statement for a period of the greater of (i)
90 days or (ii) for consecutive 60-day periods after the date the registration
statement covering such Common Stock is first declared effective by the SEC so
long as the Closing Price of the Common Stock continues to be above $3.50 for at
least 10 consecutive trading days during each such period.
The Exchange Offer is conditioned, among other things, upon a minimum
of 1,000,000 shares of the Common Stock being tendered and accepted.
The Exchange Offer will expire at 12:00 midnight, Atlanta, Georgia
time, on the Expiration Date. See "The Exchange Offer - Expiration and Extension
of Tender Period; Termination; Amendment."
Shareholders who wish to exchange shares of Common Stock for Exchange
Consideration and who validly tender certificates of Common Stock to the
Exchange and Information Agent or validly tender shares of Common Stock by
complying with the book-entry transfer procedures described below and, in each
case, who furnish the Letter of Transmittal and any other required documents to
the Exchange and Information Agent, will have notes and certificates for the
Exchange Consideration mailed to them by First Union National Bank, as Exchange
and Information Agent, promptly after the tender is accepted by KRUG. Subject to
the terms and conditions of the Exchange Offer, properly tendered shares of
Common Stock will be accepted on or promptly after the Expiration Date. Subject
to the applicable rules of the SEC, KRUG, however, reserves the right to delay
acceptance of tendered shares upon the occurrence of any of the conditions set
forth below under the caption "Certain Conditions of the Exchange Offer." KRUG
confirms that its reservation of the right to delay acceptance of tendered
shares is subject to the provisions of Rules 13e-4(f)(5) and 14e-1(c) under the
Exchange Act, which require that a tender offeror pay the consideration offered
or return the tendered securities promptly after the termination or withdrawal
of a tender offer.
KRUG is not obligated to accept for exchange more than 2,500,000 nor
fewer than 1,000,000 shares of Common Stock. In the case of oversubscription,
Common Stock properly tendered and not withdrawn will be accepted on a pro rata
basis, in conformity with Rule 13e-4 of the Exchange Act. Fractional Exchange
Consideration will be issued.
- -------------------------
1. The "Closing Price" of the Common Stock shall mean (i) the closing price of
the Common Stock on the applicable day(s) on the American Stock Exchange or such
other national securities exchange, or The Nasdaq Stock Market ("NASDAQ National
Market"), whichever is the principal market on which such Common Stock is then
listed or admitted to trading, (ii) if no sale takes place on such day(s) on
such exchange or the NASDAQ National Market, as the case may be, the highest
reported closing bid price on such day(s) as officially quoted on such exchange
or the NASDAQ National Market, as the case may be, (iii) if the Common Stock is
not then listed or admitted to trading on any such securities exchange or the
NASDAQ National Market, as the case may be, the highest reported closing bid on
such day(s) in the over-the-counter market, as furnished by the NASDAQ system,
(iv) if such corporation at the time is not engaged in the business of reporting
such prices, such price as furnished by any similar firm then engaged in such
business, or (v) if there is no such firm, such price as furnished by any
nationally recognized member of the NASD selected by KRUG which is independent
of KRUG. The "Closing Price" shall mean the referenced prices on a "regular way"
basis, i.e., priced exclusive of any dividends.
50
<PAGE> 51
In the event of proration, because of the difficulty of determining the
precise number of shares of Common Stock validly tendered and not withdrawn,
KRUG does not expect to be able to announce the final proration factor until at
least five AMEX trading days after the Expiration Date.
KRUG's obligation to consummate the offer to holders of less than 100
shares to purchase their shares for cash is contingent upon the tender of no
more than 30,000 shares tendered in the aggregate from all shareholders who hold
less than 100 shares.
This Offering Circular and the related Letter of Transmittal will be
mailed to record holders of Common Stock as of August 20, 1999 and will be
furnished to brokers, banks and similar persons whose names, or the names of
whose nominees, appear on the shareholder list or, if applicable, who are listed
as participants in a clearing agency's position listing for subsequent
transmittal to beneficial owners of Common Stock.
No Appraisal Rights
Shareholders are not entitled to appraisal rights under Ohio law if
they object to the Exchange Offer.
Effect of the Exchange Offer on the Market for the Common Stock; AMEX Listing;
Registration under the Exchange Act
The Common Stock is currently listed on the AMEX. The exchange of the
Common Stock pursuant to the Exchange Offer will reduce the number of shares of
Common Stock that might otherwise trade publicly and will reduce the number of
holders of Common Stock. As a result, if the Exchange Offer is effected, one
result may be the delisting of the Common Stock from the AMEX and such Exchange
Offer may result in the Common Stock becoming eligible for termination of
registration pursuant to Section 12(g)(4) of the Exchange Act.
As of August 13, 1999, there were 3,330,200 shares publicly held (for
the purposes of the AMEX) and approximately 905 holders of record of the
outstanding shares. Shares of Common Stock held directly or indirectly by an
officer or director of KRUG or by any beneficial holder of more than 5% of the
shares of KRUG ordinarily may not be considered as being publicly held for the
purpose of the public float required by listed companies.
The AMEX has indicated that, as a matter of policy, it will consider
suspension of trading in or delisting a security when, in the opinion of the
AMEX, the financial condition and operating results of the issuer appear to be
unsatisfactory or the extent of public distribution or the aggregate market
value of the security has become so reduced as to make further dealings on the
AMEX inadvisable. KRUG reported substantial operating losses for the fiscal year
ended March 31, 1999 and for the fiscal quarter ended June 30, 1999. Based on
its current operating results, the Common Stock may be subject to suspension of
trading or removal from listing on the AMEX. In addition, the Exchange Offer may
substantially reduce the public distribution and aggregate market value of the
Common Stock. Accordingly, upon consummation of the Exchange Offer, the Common
Stock may be subject to suspension of trading and removal from listing on the
AMEX. Assuming the Exchange Offer is accepted by the minimum or greater number
of shares of Common Stock,
51
<PAGE> 52
KRUG does not currently intend to seek to retain the listing of its Common Stock
on the AMEX should the AMEX seek to terminate KRUG's listing.
Should the Common Stock be delisted from the AMEX, it is anticipated
that an over-the-counter market for the Common Stock would develop and price
quotations might still be available from other sources. The extent of the public
market for the shares and the availability of such quotations would, however,
depend upon the number of holders of shares remaining at such time, the interest
in maintaining a market in the shares on the part of securities firms, whether
KRUG remains a reporting company under the Exchange Act, and other factors.
The Common Stock is currently registered under the Exchange Act, which
requires, among other things, that KRUG furnish information to its shareholders
and to the SEC and comply with the SEC's proxy rules in connection with meetings
of KRUG's shareholders. If, as a result of the Exchange Offer, there are fewer
than 300 holders of record of the Common Stock, registration of the shares under
the Exchange Act may be terminated upon application of KRUG to the SEC if the
shares are not listed on a national securities exchange. If there are fewer than
300 holders of record of the shares upon conclusion of the Exchange Offer, KRUG
does not intend to apply immediately to the SEC for termination of registration
of the shares under the Exchange Act, but may do so in the future. The terms of
the Warrants provide that KRUG shall not apply for termination of registration
so long as any Warrants are outstanding.
The termination of the registration of the shares of Common Stock under
the Exchange Act would substantially reduce the information required to be
furnished by KRUG to its shareholders and to the SEC and would render
inapplicable certain provisions of the Exchange Act, including requirements that
KRUG file periodic reports (including financial statements), the requirements of
Rule 13e-3 under the Exchange Act with respect to "going private" transactions,
requirements that KRUG's officers, directors and ten-percent shareholders file
certain reports concerning ownership of KRUG's equity securities and provisions
that any profit by such officers, directors and shareholders realized through
purchases and sales of KRUG's equity securities within any six-month period may
be recaptured by KRUG. In addition, the ability of "affiliates" of KRUG and
other persons to dispose of shares of Common Stock which are "restricted
securities" under Rule 144 under the Securities Act may be impaired or
eliminated.
Shares of the Common Stock do not qualify as "margin securities" under
the rules of the Federal Reserve Board, thus, brokers do not extend credit on
the collateral of such Common Stock. KRUG expects that, following the Exchange
Offer, the Common Stock will not constitute "margin securities" for purposes of
the Federal Reserve Board's margin regulations.
Trading Market for Notes
The Notes will be not registered under the Securities Act but will be
tradeable in the over-the-counter market if a trading market develops. KRUG does
not plan to seek to list the Notes on any exchange.
52
<PAGE> 53
Trading Market for Warrants
The Warrants will be freely tradeable, subject to the existence of a
trading market for the Warrants. KRUG does not intend to seek to list the
Warrants on any exchange, however, an over-the-counter trading market may
develop for the Warrants.
Expiration and Extension of Tender Period; Termination; Amendment
The Exchange Offer will expire at 12:00 midnight, Atlanta, Georgia
time, on the Expiration Date. KRUG expressly reserves the right, in its sole
discretion, at any time and from time to time, and regardless of whether or not
any of the events set forth under "The Exchange Offer--Certain Conditions of the
Exchange Offer" have occurred or are deemed by KRUG to have occurred, to extend
the period of time during which the Exchange Offer is open and thereby delay
acceptance of the tender of Common Stock by giving oral or written notice of
such extension to the Exchange and Information Agent and making a public
announcement thereof.
During any such extension, all Common Stock previously tendered and not
exchanged or withdrawn will remain subject to the Exchange Offer, except to the
extent that such Common Stock may be withdrawn. KRUG also expressly reserves the
right, in its sole discretion, to terminate the Exchange Offer and not accept
for exchange any Common Stock not theretofore accepted for exchange or, subject
to applicable law, to postpone the exchange of Common Stock upon the occurrence
of any of the conditions specified in this Offering Circular by giving oral or
written notice of such termination or postponement to the Exchange and
Information Agent and making a public announcement thereof.
KRUG's reservation of the right to delay the exchange of Common Stock
which it has accepted for payment is limited by Rules 13e-4(f)(2) and
13e-4(f)(5) promulgated under the Exchange Act. Rule 13e-4(f)(2) requires that
KRUG permit Common Stock tendered pursuant to the Exchange Offer to be withdrawn
(i) at any time during the period the Exchange Offer remains open and (ii) if
not yet accepted for exchange, after the expiration of 40 business days from
commencement of the Exchange Offer. Rule 13e-4(f)(5) requires that KRUG pay the
consideration offered or return the Common Stock tendered promptly after
termination or withdrawal of a tender offer.
Subject to compliance with applicable law, KRUG further reserves the
right, in its sole discretion, and regardless of whether or not any of the
events set forth under "The Exchange Offer--Certain Conditions of the Exchange
Offer" have occurred or are deemed by KRUG to have occurred, to amend the
Exchange Offer in any respect (including without limitation by decreasing or
increasing the value of the consideration offered in exchange for Common Stock
tendered pursuant to the Exchange Offer or by decreasing or increasing the
number of shares of Common Stock being sought in the Exchange Offer) or to waive
the limitation on the minimum or maximum number of shares of Common Stock to be
exchanged pursuant to the Exchange Offer. Amendments to the Exchange Offer may
be made at any time and from time to time effected by public announcement
thereof, such announcement, in the case of an extension, to be issued no later
than 9:00 a.m., Atlanta, Georgia time, on the next business day after the
previously scheduled Expiration Date. Any public announcement made pursuant to
the Exchange Offer will be
53
<PAGE> 54
disseminated promptly to shareholders in a manner reasonably designed to inform
shareholders of such change. Without limiting the manner in which KRUG may
choose to make a public announcement, except as required by applicable law, KRUG
will have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by making a release to the Dow Jones News
Service.
If (i) KRUG increases or decreases the value of the consideration
offered in exchange for Common Stock, or KRUG increases the maximum number of
shares of Common Stock being sought by an amount exceeding 2% of the outstanding
shares of Common Stock (99,550 shares of Common Stock as of August 13, 1999), or
KRUG decreases the minimum or maximum number of shares of Common Stock being
sought, and (ii) the Exchange Offer is scheduled to expire earlier than the
tenth business day from the date that notice of such increase or decrease is
first published, sent or given, the Exchange Offer will be extended until such
tenth business day. For purposes of the Exchange Offer, a "business day" means
any day other than a Saturday, Sunday or federal holiday, and consists of the
time period from 12:01 a.m. through midnight, Atlanta, Georgia time. If KRUG
otherwise materially changes the terms of the Exchange Offer or the information
concerning the Exchange Offer, or if it waives a material condition of the
Exchange Offer, KRUG will extend the Exchange Offer to the extent required by
Rules 13e-4(d)(2) and 13e-4(e)(2) promulgated under the Exchange Act. These
rules provide that the minimum period during which a tender offer must remain
open following material changes in the terms of the offer or material
information concerning the offer (other than a change in price or a change in
the percentage of securities sought) will depend on the facts and circumstances,
including the relative materiality of such terms or information.
Certain Conditions of the Exchange Offer
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, KRUG will not be required to issue Exchange
Consideration in respect of any properly tendered shares of Common Stock not
accepted and may terminate the Exchange Offer (by oral or written notice to the
Exchange and Information Agent and by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a release
to the Dow Jones News Service) and, subject to compliance with the applicable
rules of the SEC, delay the acceptance of the tendered shares if any of the
following events shall have occurred (or shall have been determined by KRUG to
have occurred) and which in KRUG's sole judgment in any such case makes it
inadvisable to proceed with the Exchange Offer:
(a) Any action or proceeding, order, decree or injunction shall have
been taken or threatened, instituted or pending, or any statute, rule,
regulation, judgment, order, stay, decree or injunction shall have been sought,
promulgated, enacted, entered, enforced or deemed applicable to the Exchange
Offer or KRUG or its subsidiaries, individually or as a whole, by or before any
court or governmental, regulatory or administrative authority or agency or
tribunal, which (i) challenges the making of the Exchange Offer, the acquisition
of Common Stock or issuance of Exchange Consideration (or any portion thereof)
pursuant to the Exchange Offer or might directly or indirectly prohibit,
prevent, restrict or delay consummation of the Exchange Offer, or (ii)
materially adversely affects the business, operations, condition (financial or
otherwise), results of operations, prospects, assets, liabilities, working
capital or reserves of KRUG taken as a whole, or otherwise
54
<PAGE> 55
materially impairs in any way the contemplated future conduct of the business of
KRUG or its subsidiaries individually or as a whole.
(b) There shall have occurred (i) the declaration of any banking
moratorium or suspension of payments in respect of banks in the United States,
the United Kingdom, Finland, France or Germany, (ii) any general suspension of
trading in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market, (iii) the commencement of a war,
armed hostilities or any other national or international crisis directly or
indirectly involving the United States, the United Kingdom or the European
Union, (iv) any limitation (whether or not mandatory) by any government or
governmental, regulatory or administrative agency or authority on, or any event
which in KRUG's sole judgment might adversely affect the extension of credit by
banks or other lending institutions in the United States, the United Kingdom or
the European Union, (v) any significant decline in the market price of the
shares of Common Stock or any change in the general political, market, economic
or financial conditions in the United States or abroad that has a material
adverse effect on the ability to obtain financing generally or on the trading in
the shares of Common Stock or (vi) in the case of any of the foregoing existing
at the time of the commencement of the Exchange Offer, a material acceleration
or worsening thereof.
(c) There shall have occurred any event that has resulted, or may in
the sole judgment of KRUG result, in an actual or threatened change in the
business, operations, condition (financial or otherwise), results of operations,
prospects, assets, liabilities, working capital or reserves of KRUG or its
subsidiaries individually or as a whole.
(d) The SEC shall not have declared the Indenture to be qualified under
the 1939 Act or shall have objected to the Trustee serving as such under the
Indenture.
KRUG's obligation to consummate the offer to holders of less than 100
shares and purchase their shares for cash is contingent upon the tender for cash
of no more than 30,000 shares in the aggregate from all shareholders who hold
less than 100 shares.
The foregoing conditions are for the sole benefit of KRUG and may be
asserted by KRUG in its sole discretion regardless of the circumstances
(including any action or inaction by KRUG) giving rise to any such conditions,
or may be waived by KRUG, in its sole discretion, in whole or in part at any
time. The failure by KRUG at any time to exercise its rights under any of the
foregoing conditions shall not be deemed a waiver of any such right; the waiver
of any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances; and
each such right shall be deemed an ongoing right which may be asserted at any
time or from time to time. Any determination by KRUG concerning the events
described above shall be final and binding on all parties.
Fractional Exchange Consideration
Fractional Exchange Consideration will be issued as follows: Notes will
be issued in denominations of $1,000 or integeral multiples thereof and in
denominations of less than $1,000; fractional Warrants will be rounded up to one
whole Warrant.
55
<PAGE> 56
How to Tender
A shareholder may tender shares of the Common Stock by (a) properly
completing and signing the Letter of Transmittal or a facsimile thereof (all
references in this Offering Circular to the Letter of Transmittal shall be
deemed to include a facsimile thereof) and delivering the same, together with
the certificates representing the shares of Common Stock being tendered (or a
confirmation of a book-entry transfer of such shares) into the Exchange and
Information Agent's account at The Depository Trust Company, to the Exchange and
Information Agent on or prior to the Expiration Date, or (b) requesting a
broker, dealer, bank, trust company or other nominee to effect the transaction
for such shareholder prior to the Expiration Date.
If tendered shares are registered in the name of the signer of the
Letter of Transmittal and the Notes and Warrants to be issued in exchange
therefor are to be issued (or cash to be paid, if the holder holds less than 100
shares as of August 13,1999 and elects to tender all of his or her shares for
cash) in the name of the registered holder and delivered to the address
appearing on KRUG's stock transfer books, the signature of such signer need not
be guaranteed. If the Notes and Warrants are to be issued (or cash to be paid,
if the holder holds less than 100 shares as of August 13, 1999 and elects to
tender all of his or her shares for cash) in the name of a person other than the
registered holder of the shares of Common Stock tendered, the tendered
certificates must be endorsed or accompanied by stock powers or written
instruments of transfer in form satisfactory to KRUG and duly executed by the
registered owner, and the signature on the endorsement or stock power must be
guaranteed by a bank, broker, dealer, credit union, savings association or other
entity that is a member in good standing of a recognized Medallion Program
approved by The Securities Transfer Association, Inc. (any of the foregoing
hereinafter referred to as an "Eligible Institution"). If the Notes and Warrants
(or checks, if the holder holds less than 100 shares as of August 13, 1999 and
elects to tender all of his or her shares for cash) are to be delivered to an
address other than that of the registered holder appearing on KRUG's stock
transfer books, the signature on the Letter of Transmittal must be guaranteed by
an Eligible Institution.
The Exchange and Information Agent will establish an account with
respect to the shares of Common Stock at The Depository Trust Company (the
"Book-Entry Facility") within two business days after the date of this Offering
Circular, and any financial institution which is a participant in the Book-Entry
Facility may make book-entry delivery of the shares by causing the Book-Entry
Facility to transfer such shares into the Exchange and Information Agent's
account in accordance with the Book-Entry Facility's procedure for such
transfer. Although delivery of shares may be effected through book-entry
transfer into the Exchange and Information Agent's account at the Book-Entry
Facility, the Letter of Transmittal, with any required signature guarantees and
any other required documents, must in any case be transmitted to and received by
the Exchange and Information Agent on or prior to the Expiration Date at one of
its addresses set forth below under "Exchange and Information Agent" or on the
back cover of this Offering Circular, or the guaranteed delivery procedure
described below must be complied with. Delivery of documents to the Book-Entry
Facility does not constitute delivery to the Exchange and Information Agent. All
references in this Offering Circular to deposit or delivery of shares shall be
deemed to include the Book-Entry Facility's book-entry delivery method.
56
<PAGE> 57
The method of delivery of shares of Common Stock and all other
documents, including delivery through the book-entry facility, is at the
election and risk of the shareholder. If sent by mail, it is recommended that
registered mail, return receipt requested, be used, and proper insurance be
obtained.
To prevent backup Federal Income Tax withholding with respect to cash
received, a shareholder must provide the Exchange and Information Agent with his
or her correct taxpayer identification number and certify whether such
shareholder is subject to backup withholding of Federal Income Tax by completing
the substitute Form W-9 included in the letter of transmittal. Certain
shareholders (including, among others, all corporations and certain foreign
individuals) are not subject to these backup withholding and reporting
requirements. In order for a foreign individual to qualify as an exempt
recipient, the shareholder must submit a Form W-8, signed under penalties of
perjury, attesting to that individual's exempt status. See "Certain Federal
Income Tax Consequences - Backup Withholding.
If a shareholder desires to tender shares of Common Stock pursuant to
the Exchange Offer and such shareholder's certificates for the shares are not
immediately available or time will not permit all of the above documents to
reach the Exchange and Information Agent prior to the Expiration Date, or such
shareholder cannot complete the procedure for book-entry transfer on a timely
basis, such tender may be effected if the following conditions are satisfied:
(a) such tenders are made by or through an Eligible Institution;
(b) a properly completed and duly executed Notice of Guaranteed
Delivery, in substantially the form provided by KRUG, is received by the
Exchange and Information Agent as provided below on or prior to the Expiration
Date; and
(c) the certificates for all tendered shares, in proper form for
transfer (or confirmation of book-entry transfer of such shares into the
Exchange and Information Agent's account at a Book-Entry Facility as described
above), together with a properly completed and duly executed Letter of
Transmittal and all other documents required by the Letter of Transmittal are
received by the Exchange and Information Agent within three AMEX trading days
after the date of execution of such Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand or
transmitted by facsimile transmission or mail to the Exchange and Information
Agent and must include a guarantee by an Eligible Institution in the form set
forth in such Notice of Guaranteed Delivery.
A tender will be deemed to have been received as of the date when the
tendering shareholder's duly signed Letter of Transmittal accompanied by
certificates (or a timely confirmation received of a book-entry transfer of such
shares into the Exchange and Information Agent's account at the Book-Entry
Facility) or a Notice of Guaranteed Delivery from an Eligible Institution is
received by the Exchange and Information Agent. Issuances of Exchange
Consideration in exchange for shares of Common Stock tendered pursuant to a
Notice of Guaranteed Delivery by an Eligible Institution will be made only
against deposit of the Letter of Transmittal (and any other required documents)
and the tendered certificates (or a timely
57
<PAGE> 58
confirmation received of a book-entry transfer of such shares into the Exchange
and Information Agent's account at the Book-Entry Facility) with the Exchange
and Information Agent.
Any whole number of shares of Common Stock may be tendered for Notes
and Warrants. Only shareholders who have less than 100 shares as of August 13,
1999, in aggregate, without regard to the number of accounts or certificates
comprising such shares, may tender their shares and receive cash ("Permitted
Cash Tender"). If you hold less than 100 shares as of August 13, 1999, you must
tender all of your shares if you want to tender them for cash. Shareholders
tendering for Notes and Warrants may tender less than all of the shares
represented by the certificates they hold provided they appropriately indicate
this fact on the Letter of Transmittal accompanying the tendered Common Stock
certificates. If you tender shares in exchange for Notes and Warrants but tender
less than 200 shares you will receive a Note issued in a denomination less than
$1,000.
With respect to tenders of Common Stock, KRUG reserves full discretion
to determine whether the documentation is complete and generally to determine
all questions as to tenders, including the date of receipt of a tender, the
propriety of execution of any document, whether shares constitute a Permitted
Cash Tender, and other questions as to the validity, form, eligibility or
acceptability of any tender. KRUG reserves the right to reject any tender not in
proper form or otherwise not valid or the acceptance for exchange of which may,
in the opinion of KRUG or KRUG's counsel, be unlawful or to waive any
irregularities or conditions, and KRUG's interpretation of the terms and
conditions of the Exchange Offer (including the instructions on the Letter of
Transmittal) will be final. KRUG shall not be obligated to give notice of any
defects or irregularities in tenders and shall not incur any liability for
failure to give any such notice. Shares of Common Stock shall not be deemed to
have been duly or validly tendered unless and until all defects and
irregularities have been cured or waived. Any proxy granted or deemed granted
with respect to the shares tendered for exchange shall be automatically revoked
when the tender is accepted by KRUG. Certificates for all improperly tendered
shares, as well as balance certificates representing shares in excess of those
tendered for exchange, will be returned (unless, in the case of improperly
tendered shares, irregularities and defects are timely cured or waived), without
cost to the tendering shareholder (or, in the case of shares delivered by
book-entry transfer within the Book-Entry Facility, will be credited to the
account maintained within such Book-Entry Facility by the participant in the
Book-Entry Facility who delivered such shares), promptly after the Expiration
Date.
Terms and Conditions of the Letter of Transmittal
The Letter of Transmittal contains, among other things, certain terms
and conditions, which are summarized below and are part of the Exchange Offer.
Shares of Common Stock tendered in exchange for Exchange Consideration
(or a timely confirmation of a book-entry transfer of such shares into the
Exchange and Information Agent's account at the Book-Entry Facility) must be
received by the Exchange and Information Agent, with the Letter of Transmittal
and any other required documents by 12:00 midnight, Atlanta, Georgia time, on or
prior to the Expiration Date, or within the time periods set forth above in "The
Exchange Offer - How to Tender" pursuant to a Notice of Guaranteed Delivery from
an Eligible
58
<PAGE> 59
Institution. The party tendering the shares for exchange sells, assigns and
transfers the shares to KRUG and irrevocably constitutes and appoints the
Exchange and Information Agent as the holder's agent and attorney-in-fact to
cause the shares to be transferred and exchanged. The holder warrants that it
has full power and authority to tender, exchange, sell, assign and transfer the
shares of Common Stock and to acquire the Exchange Consideration issuable upon
the exchange of such tendered shares, that KRUG will acquire good and
unencumbered title to the tendered shares, free and clear of all liens,
restrictions, charges and encumbrances, and that the shares of Common Stock
tendered for exchange are not subject to any adverse claims or proxies when
accepted by KRUG. The holder also warrants that it will, upon request, execute
and deliver any additional documents deemed by KRUG or the Exchange and
Information Agent to be necessary or desirable to complete the exchange, sale,
assignment and transfer of the tendered shares. All authority conferred or
agreed to be conferred in the Letter of Transmittal by the holder will survive
the death or incapacity of the holder and any obligation of the holder shall be
binding upon the heirs, personal representatives, successors and assigns of such
holder.
Signature(s) on the Letter of Transmittal will be required to be
guaranteed and endorsement(s) on the certificates being tendered will be
required as set forth above in "The Exchange Offer - How to Tender." All
questions as to the validity, form, eligibility (including time of receipt) and
acceptability of any tender will be determined by KRUG, in its sole discretion,
and such determination will be final and binding. Unless waived by KRUG,
irregularities and defects must be cured by the Expiration Date. KRUG will pay
all stock transfer taxes applicable to the transfer and exchange of shares of
the Common Stock tendered unless shares are transferred to a third party.
Withdrawal Rights
All tenders may be withdrawn (i) at any time prior to the Expiration
Date or (ii) if not yet accepted for exchange, after October 1, 1999. To be
effective, a notice of withdrawal must be timely received by the Exchange and
Information Agent at one of its addresses set forth below under "The Exchange
Offer - Exchange Agent" and on the back cover of this Offering Circular. Any
notice of withdrawal must specify the person named in the Letter of Transmittal
as having tendered the number of shares of Common Stock to be withdrawn and the
name of the registered holder of such shares. If the shares of Common Stock have
been physically delivered to the Exchange and Information Agent, the tendering
shareholder must also submit the serial number shown on the particular
certificate(s) to be withdrawn. If the shares of Common Stock have been
delivered pursuant to the book-entry procedures set forth above under "The
Exchange Offer--How to Tender," any notice of withdrawal must specify the name
and number of the participant's account at the Book-Entry Facility to be
credited with the withdrawn shares. The Exchange and Information Agent will
return the properly withdrawn shares of Common Stock as soon as practicable
following receipt of notice of withdrawal. All questions as to the validity,
including time of receipt, of notices of withdrawals will be determined by KRUG,
and such determination will be final and binding on all parties.
59
<PAGE> 60
Acceptance of Tenders
Subject to the terms and conditions of the Exchange Offer, shares of
Common Stock tendered (either physically or through book-entry delivery as
described in "The Exchange Offer--How to Tender") with a properly executed
Letter of Transmittal and all other required documentation, and not withdrawn,
will be accepted on or promptly after the Expiration Date. Subject to such terms
and conditions, delivery of Exchange Consideration to be issued in exchange for
properly tendered shares of Common Stock will be made by the Exchange and
Information Agent promptly after acceptance of the tendered shares. Acceptance
of tendered shares will be effected by the delivery of a notice to that effect
by KRUG to the Exchange and Information Agent. Subject to the applicable rules
of the SEC, KRUG, however, reserves the right to delay acceptance of tendered
shares upon the occurrence of any of the conditions set forth above under the
caption "The Exchange Offer - Certain Conditions of the Exchange Offer." KRUG
confirms that its reservation of the right to delay acceptance of tendered
shares is subject to the provisions of Rules 13e-4(f)(5) and 14e-1(c) under the
Exchange Act, which require that a tender offeror pay the consideration offered
or return the tendered securities promptly after the termination or withdrawal
of a tender offer.
Although KRUG does not presently intend to do so, if it modifies the
terms of the Exchange Offer, such modified terms will be available to all
holders of Common Stock, whether or not their shares have been tendered prior to
such modification. Any material modification will be disclosed in accordance
with the applicable rules of the SEC and, if required, the Exchange Offer will
be extended to permit shareholders adequate time to consider such modification.
The tender of shares pursuant to any one of the procedures set forth in
"The Exchange Offer--How to Tender" will constitute an agreement between the
tendering shareholder and KRUG upon the terms and subject to the conditions of
the Exchange Offer.
60
<PAGE> 61
Exchange Agent
First Union National Bank has been appointed as Exchange and
Information Agent for the Exchange Offer. Letters of Transmittal must be
addressed to the Exchange Agent as follows:
FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile: By Hand or Overnight Courier:
First Union Customer (704) 590-7628 First Union Customer
Information Center Information Center
Corporate Trust Confirm by Telephone: Corporate Trust
Operations-NC1153 (704) 590-7408 Operations-NC1153
1525 West W.T. Harris Blvd., 3C3 1525 West W.T. Harris Blvd., 3C3
Charlotte, NC 28288-1153 Telephone: Charlotte, NC 28262-1153
Attention: Michael Klotz 1-800-829-8432 Attention: Michael Klotz
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY TO THE EXCHANGE AGENT.
Financial Advisor
KRUG has retained Rogers & Company, an investment banking firm, as its
financial advisor in connection with the Exchange Offer. Rogers & Company has
rendered advice to KRUG in connection with the Exchange Offer. Rogers & Company
has not been retained to solicit any tenders pursuant to the Exchange Offer. For
its services as financial advisor, Rogers & Company is entitled to receive a
fixed fee of $30,000 in cash, regardless of whether or not the Exchange Offer is
consummated. In addition, Rogers & Company is entitled to be reimbursed for
certain out-of-pocket expenses. KRUG has agreed to indemnify Rogers & Company
against certain losses, claims, damages and liabilities, including liabilities
under federal securities laws, to which Rogers & Company may become subject in
connection with its services to KRUG as financial advisor.
Solicitation of Tenders; Expenses
In addition to the use of the mails, solicitations to exchange may be
made by officers and employees of KRUG, personally or by telephone or telegram,
without receiving additional compensation.
KRUG will not make any payments to brokers, dealers or other persons
for soliciting or recommending acceptances of the Exchange Offer. KRUG will,
however, pay the Exchange and Information Agent reasonable and customary fees
for its services and will reimburse it for its reasonable out-of-pocket expenses
in connection therewith. KRUG will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Offering Circular and related
documents to the beneficial owners of the Common Stock and in handling or
forwarding tenders for their customers.
61
<PAGE> 62
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those contained
in this Offering Circular. If given or made, such information or representations
should not be relied upon as having been authorized by KRUG. Neither the
delivery of this Offering Circular nor any exchange made hereunder shall, under
any circumstances, create any implication that there has been no change in the
affairs of KRUG since the respective dates as of which information is given
herein. This Offering Circular does not constitute an offer to exchange, or a
solicitation of an offer to exchange, any securities other than the securities
covered by the Offering Circular by KRUG or any other person, nor does it
constitute an offer to exchange, or a solicitation of an offer to exchange, such
securities by KRUG or any such other person in any jurisdiction in which or to
any person to whom it is unlawful to make any such offer or solicitation. In any
jurisdiction the laws of which require the offer to be made by a licensed broker
or dealer, the offer is being made on behalf of KRUG by one or more registered
brokers or dealers licensed under the laws of such jurisdiction.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of certain federal income tax
consequences relevant to (i) the exchange of shares of Common Stock for Exchange
Consideration pursuant to the Exchange Offer, and (ii) the ownership and
disposition of shares of the Common Stock and Exchange Consideration, but does
not purport to be a complete analysis of all the potential tax effects thereof.
The discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), the regulations issued thereunder, and the Internal Revenue Service
(the "Service") rulings and judicial decisions now in effect, all of which are
subject to change at any time by legislative, judicial or administrative action.
No information is provided herein with respect to estate and gift, state and
local or foreign tax consequences. In addition, this discussion does not address
the tax consequences to certain holders as to whom special rules apply,
including life insurance companies, tax-exempt organizations, banks, dealers in
securities and holders who are not United States Persons. As used herein, the
term "United States Person" means a citizen or resident of the United States, a
corporation, partnership or other entity created or organized in or under the
laws of the United States or any state thereof or an estate or trust, the income
of which is subject to federal income taxation regardless of its source. This
summary does not discuss the tax considerations of subsequent purchases of Notes
or Warrants and is limited to offerees who will hold the Notes and Warrants as
"capital assets" within the meaning of Section 1221 of the Code. EACH OFFEREE
SHOULD CONSULT HIS OR HER OWN TAX ADVISOR CONCERNING THE TAX CONSEQUENCES TO HIM
OR HER OF THE EXCHANGE OF SHARES OF COMMON STOCK FOR EXCHANGE CONSIDERATION
PURSUANT TO THE EXCHANGE OFFER, AND OF THE OWNERSHIP AND DISPOSITION OF SUCH
SECURITIES.
While the characterization of the Notes as debt or equity for federal
income tax purposes is uncertain, KRUG intends to take the position for federal
income tax purposes that the Notes are properly characterized as debt. Under the
terms of Section 385(c) of the Code, KRUG's characterization will be binding on
KRUG and on any holder of a Note except for such a holder who explicitly
discloses (on such holder's federal income tax return for the year in which such
Note is acquired) that such holder intends to assert a different
characterization for federal income tax reporting purposes. Accordingly, a
holder wishing to take a different position than KRUG with respect to the
characterization of the Notes should consult such holder's own tax advisor. The
62
<PAGE> 63
discussion of the federal income tax consequences of the Exchange Offer set
forth herein under the heading "Certain Federal Income Tax Consequences" is, to
the extent related to the Notes, based, in part, on the assumption that the
Notes are properly characterized as debt for federal income tax purposes.
Initial Tax Basis
A shareholder who receives Exchange Consideration will be required to
allocate the fair market value of the Exchange Consideration between the Notes
and the Warrants in accordance with their relative fair market values to
determine their initial basis for federal income tax purposes. For purposes of
determining original issue discount on the Notes, KRUG will allocate the issue
price of the Exchange Consideration between the Notes and Warrants based on a
good faith determination of their relative fair market values at the time of
issuance and will provide such allocation to each exchanging shareholder. KRUG's
allocation will be binding on each holder unless the holder discloses that the
holder's allocation differs from KRUG's allocation on a statement attached to
the holder's timely filed federal income tax return for the year in which the
holder acquires the Exchange Consideration.
Tax Treatment of the Exchange for the Tendering Shareholder
The exchange of shares of Common Stock for Notes and Warrants pursuant
to the Exchange Offer will constitute a redemption of the Common Stock within
the meaning of Section 317 of the Code. The fair market value of the Exchange
Consideration will be taxable to the recipient as a distribution (to the extent
of KRUG's current or accumulated earnings and profits) unless, under the rules
of Code Section 302, the receipt of the Exchange Consideration (i) is
"substantially disproportionate" with respect to the shareholder, (ii) is "not
essentially equivalent to a dividend" with respect to the shareholder or (iii)
results in a complete termination of the shareholder's interest in KRUG. In
determining whether any of the Section 302 tests are satisfied, a shareholder
must take into account not only shares of Common Stock that the shareholder
actually owns, but also shares of Common Stock that the shareholder is deemed to
own under applicable attribution rules, such as shares which the shareholder has
the right to acquire by exercise of an option or a warrant and shares which are
owned by certain members of the shareholder's family.
The receipt of Exchange Consideration pursuant to the Exchange Offer
(or, if applicable, cash paid for Permitted Cash Tenders) will be "substantially
disproportionate" with respect to a shareholder if (i) the percentage of the
total voting power of all classes of voting stock of KRUG owned by the
shareholder immediately after the redemption is less than 50 percent and (ii)
the percentage of the outstanding shares of voting stock of KRUG owned by the
shareholder (or, if applicable, cash by electing holders of fewer than 100
shares) (actually or constructively) immediately following the redemption is
less than 80 percent of the percentage of the outstanding shares of voting stock
of KRUG owned by the shareholder (actually or constructively) immediately before
the redemption.
If a shareholder fails to satisfy the "substantially disproportionate"
test, the shareholder may nevertheless be able to satisfy the "not essentially
equivalent to a dividend" test. Whether the
63
<PAGE> 64
receipt of the Exchange Consideration (or the cash by electing holders of fewer
than 100 shares) will be "not essentially equivalent to a dividend" will depend
upon the shareholder's facts and circumstances, but will in any case require a
"meaningful reduction" in the shareholder's proportionate interest in KRUG. The
Service has indicated in administrative rulings that any actual reduction in the
proportionate interest of a small minority shareholder in a publicly held
corporation may constitute such a "meaningful reduction" if the shareholder
exercises no control over corporate affairs. The application of the "meaningful
reduction" standard to a particular shareholder cannot be predicted with
certainty because the application is dependent on the shareholder's particular
facts and circumstances.
As a portion of the Exchange Consideration consists of Warrants (which,
for purposes of the applicable attribution rules, will be treated as the shares
of Common Stock subject to the Warrants), a shareholder participating in the
Exchange Offer will not be able to satisfy the complete termination of interest
test, although a shareholder holding fewer than 100 shares accepting cash may be
able to satisfy that test.
The Section 302 tests must be separately applied to each exchanging
shareholder. If a shareholder satisfies one of the tests, the shareholder will
be treated as receiving the Exchange Consideration (or, if applicable, the cash
by electing holders of fewer than 100 shares) in a sale or exchange of the
tendered shares of Common Stock and will recognize taxable gain or loss, as
applicable, equal to the difference between (i) (a) if the shareholder is
participating in the exchange, the sum of the issue price of the Notes
(determined as described below under the heading "Certain Federal Income Tax
Consequences - Original Issue Discount") and the fair market value of the
Warrants received or (b) if the shareholder holding fewer than 100 shares is
accepting cash, the amount of cash received and (ii) the tax basis in the shares
of Common Stock tendered. The gain or loss will be long-term or short-term
depending on whether the tendered shares of Common Stock had been held for more
than one year. Because the Common Stock is publicly traded, the shareholder will
not be eligible to use the installment method of reporting.
If an exchanging shareholder satisfies none of the Section 302 tests
described above, the receipt of the Exchange Consideration will be treated as a
distribution subject to the rules of Code Section 301. That portion of the fair
market value of the Exchange Consideration received by a shareholder which does
not exceed the shareholder's pro rata share of KRUG's current or accumulated
earnings and profits (if any) will be treated as a dividend which will be
subject to taxation as ordinary income. If the fair market value of the Exchange
Consideration received exceeds the shareholder's share of the earnings and
profits, the excess value will be treated first as a non-taxable reduction in
the basis of all the shareholder's shares of Common Stock (not just those
tendered in the exchange), and any remaining portion of the fair market value of
the Exchange Consideration will be subject to taxation as a capital gain. KRUG
had approximately $8,000,000 of accumulated earnings and profits as of March 31,
1999, but at this time is unable to estimate the amount of earnings and profits
for fiscal year 2000, the taxable year in which the Exchange Offer will occur.
64
<PAGE> 65
The Notes
If a Note is called by KRUG for redemption, such redemption will be a
taxable sale. The holder of the Note will recognize taxable gain or loss upon
the sale to the extent that the cash received on redemption is more or less than
the holder's adjusted tax basis in the Note redeemed. If a holder sells a Note
in the market, the sale will be a taxable transaction with the same results as a
cash redemption by KRUG.
Warrants
When a Warrant is exercised to purchase a share of Common Stock, the
Warrant holder's cost basis in the share thus acquired will be the cost basis of
the Warrant exercised, plus the amount paid upon exercise. No gain or loss will
be recognized by a Warrant holder upon such exercise. Gain or loss will be
recognized, however, upon a subsequent sale of the share of Common Stock
acquired upon such exercise. Generally, the gain or loss will be a capital gain
or loss and will be long-term if the share of Common Stock is held for more than
one year. For this purpose, the holding period for the share of Common Stock
will begin with the date on which the Warrant is exercised.
Upon the sale of a Warrant, a Warrant holder will recognize gain or
loss equal to the amount realized upon such sale, less the cost basis of the
Warrant. The gain or loss will generally be a capital gain or loss and will be
long-term if the Warrant has been held for more than one year. Upon the
expiration of an unexercised Warrant, the Warrant holder will recognize a loss
(which will be a capital loss) equal to the cost basis of the Warrant.
Original Issue Discount
In general, a debt obligation is considered for federal income tax
purposes to be issued with original issue discount ("OID") if the "stated
redemption price at maturity" of the instrument exceeds such instrument's "issue
price." Under Section 1273(a)(3) of the Code and the regulations promulgated
thereunder, if the OID with respect to an obligation is less than 0.25% of the
obligation's stated redemption price at maturity multiplied by the number of
complete years from the issue date to the maturity date, the amount of OID with
respect to such obligation is considered to be zero.
The stated redemption price at maturity of a debt obligation is the
aggregate of all payments due to the holder under such debt obligation at or
before its maturity date, other than interest that is actually and
unconditionally payable in cash or property (other than debt instruments of the
issuer) at a single fixed (or a qualified floating) rate (or a permitted
combination of the two) at least annually (qualified stated periodic interest
payments or "QSIPs"). As the Notes do not accrue interest, there will be no
QSIPs.
The determination of the "issue price" of a debt obligation generally
depends, in part, on whether such obligation, or the property for which the debt
obligation is exchanged, is treated as "traded on an established market" at any
time during the 60-day period ending 30 days after the issue date. If the debt
obligation is listed on an established exchange, or such obligations are
65
<PAGE> 66
otherwise "traded on an established market," the "issue price" of the debt
obligation generally will be the fair market value of such obligation as of the
issue date (presumably the trading price). If the debt obligation is not treated
as "traded on an established market," the "issue price" generally will equal the
fair market value of the portion of the property deemed to be exchanged therefor
(assuming such property is publicly traded).
Further, because the Exchange Consideration includes Warrants as well
as Notes, the Exchange Consideration would constitute an "investment unit" under
Code Section 1273(c)(2). The investment unit provisions are intended to provide
an objective mechanism to determine the issue price of a debt instrument in
circumstances where, because of the issuance of other property as well as the
debt instrument, the value of the consideration allocable to the debt instrument
is not readily determinable. Under applicable Treasury regulations, the issue
price of an investment unit (presumably determined by reference to the publicly
traded property for which the investment unit is issued) is to be allocated
between (or among) the unit's components based on their relative fair market
values. The issuer's allocation of the issue price of the investment unit is
binding on all holders of the investment unit except for a holder who explicitly
discloses (on such holder's federal income tax return for the year in which the
investment unit is acquired) that such holder's allocation of the issue price of
the investment unit is different from the issuer's allocation. KRUG intends to
make a good faith determination of the relative fair market values of the Notes
and the Warrants (using the applicable trading price(s) as indicia of those
values if either the Notes or the Warrants (or both) are publicly traded) and
will calculate and report OID with respect to the Notes accordingly. A holder
wishing to take a different position should consult such holder's own tax
advisor.
Consequently, a holder will be required to include in gross income for
federal income tax purposes the sum of the daily portions of OID for each day
during the taxable year or portion thereof during which the holder holds such
Note, whether or not the holder actually receives a payment relating to OID in
such year. The daily portion is determined by allocating to each day of the
relevant "accrual period" a pro rata portion of an amount equal to (a) the
product of (i) the "adjusted issue price" of the applicable Note at the
beginning of each accrual period, multiplied by (ii) the yield to maturity of
such Note (determined by semi-annual compounding) less (b) the sum of any QSIPs
during the accrual period (zero in the case of the Notes since there will be no
QSIPs). The "adjusted issue price" of a new Note at the beginning of any accrual
period is its issue price increased by all accrued OID for prior accrual periods
and decreased by the amount of any payment previously made on such Note other
than a QSIP. The accrual period for a Note (except for any initial short period)
is each six-month period which ends on the day in each calendar year
corresponding to the maturity date of such Note or the date six months before
such maturity date.
Therefore, prospective holders of the Notes, should be aware that a
holder will be required to include OID in income as such OID accrues, regardless
of the holder's method of accounting and regardless of when such holder receives
cash payments relating to the OID. A holder's tax basis in a Note will be
increased by the amount of OID included in the holder's income.
KRUG will be required to furnish annually to the Service and to each
U.S. holder information regarding the amount of OID with respect to the new
Notes attributable to that year.
66
<PAGE> 67
Tax Consequences of the Exchange to KRUG
No gain or loss will be recognized by KRUG upon its receipt of shares
of Common Stock in exchange for Notes and Warrants pursuant to the Exchange
Offer (or for cash by electing holders of fewer than 100 shares).
Backup Withholding
Under the backup withholding provisions of the Code and applicable
regulations, a holder of Notes may be subject to backup withholding at a rate of
thirty-one percent (31%) with respect to OID accrued with respect to, or
proceeds received from a sale, exchange or call of, Notes, as the case may be.
The payor will be required to deduct and withhold tax if (i) the payee fails to
furnish a taxpayer identification number ("TIN") to the payor or establish an
exemption from backup withholding, (ii) the Service notifies the payor that the
TIN furnished by the payee is incorrect, (iii) there has been a notified payee
underreporting with respect to interest, dividends or OID described in Section
3406(c) of the Code, or (iv) there has been a failure of the payee to certify
under the penalty of perjury that the payee is not subject to withholding under
Section 3406(a)(1)(C) of the Code. Backup withholding will not be required if
such holder (a) is a corporation or comes within certain other exempt categories
and, when required, demonstrates this fact or (b) provides a TIN, certifies as
to no loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules.
State and Local Income Taxes
Holders receiving Exchange Consideration in the Exchange (or cash by
electing holders of fewer than 100 shares) may, as a result, be liable for
state, local and/or foreign income taxes. In addition, holders of Notes and
Warrants may be liable for state, local and/or income taxes with respect to OID
accrued with respect to, or gain from the sale, exchange or call of, Notes and
with respect to gain from the sale or exchange of Warrants. EACH OFFEREE IS
ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE STATE, LOCAL, FOREIGN
AND OTHER TAX CONSEQUENCES OF ACQUIRING, HOLDING AND DISPOSING OF COMMON STOCK
AND EXCHANGE CONSIDERATION.
FEES AND EXPENSES
KRUG has retained Rogers & Company as its financial advisor in
connection with the Exchange Offer. Rogers & Company will receive a fee of
$30,000 for its services as financial advisor. KRUG will also reimburse Rogers &
Company for its reasonable out-of-pocket expenses relating to the Exchange
Offer. KRUG has agreed to indemnify Rogers & Company against certain liabilities
in connection with the Exchange Offer, including certain liabilities under the
federal securities laws.
KRUG has retained First Union National Bank as Exchange and Information
Agent and Depositary in connection with the Exchange Offer. First Union National
Bank will receive reasonable and customary compensation for customary services
in connection with the Exchange
67
<PAGE> 68
Offer and will be reimbursed for customary and reasonable out-of-pocket
expenses. KRUG has agreed to indemnify First Union National Bank against certain
liabilities in connection with the Exchange Offer, including certain liabilities
under the federal securities laws. First Union National Bank has not been
retained to, nor is authorized to, make solicitations or recommendations in
connection with the Exchange Offer.
KRUG will not pay any fees or commissions to any broker, dealer,
commercial bank, trust company or other person for soliciting shares of Common
Stock pursuant to the Exchange Offer. KRUG will, however, on request, reimburse
such persons for customary handling and mailing expenses incurred in forwarding
materials in respect of the Exchange Offer to the beneficial owners for which
they act as nominees. No broker, dealer, commercial bank or trust company has
been authorized to act as an agent for KRUG for the purpose of the Exchange
Offer. KRUG will not pay (or cause to be paid) any stock transfer taxes on its
purchase of shares of Common Stock pursuant to the Exchange Offer, except as
otherwise provided in Instruction 6 of the Letter of Transmittal.
Estimated costs and fees in connection with the Exchange Offer, all of
which are the obligation of KRUG whether or not the Exchange Offer is
consummated, are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------
<S> <C>
Exchange and Information Agent's fees and expenses.......... $ 22,000
--------------------------------------------------------------------------
Filing fees................................................. 1,000
--------------------------------------------------------------------------
Financial advisory fees and expenses........................ 35,000
--------------------------------------------------------------------------
Legal, accounting and other professional fees............... 134,000
--------------------------------------------------------------------------
Printing and distribution costs............................. 19,000
--------------------------------------------------------------------------
Trustee's and Transfer Agent's fees and expenses............ 23,000
--------------------------------------------------------------------------
Miscellaneous............................................... 16,000
--------------------------------------------------------------------------
TOTAL $ 250,000
--------------------------------------------------------------------------
</TABLE>
The above amounts are estimates only and actual expenditures may vary
substantially from the estimates depending on the circumstances.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of KRUG consists of 12,000,000 shares of
Common Stock, without par value, and 2,000,000 shares of Preferred Stock.
Common Stock
At August 13, 1999, there were 4,977,530 issued and outstanding shares
of Common Stock and no Preferred Stock was outstanding. As of August 13, 1999,
KRUG had approximately 905 shareholders of record of Common Stock.
Holders of Common Stock are entitled to one vote per share on all
matters to be voted upon by the shareholders. KRUG's Restated Amended Articles
of Incorporation grants one vote per share to Preferred Stock and grants the
Board of Directors express authority to fix the designations, powers,
preferences, rights, qualifications, limitations, restrictions, dividend rates,
and, if any, the redemption rights, liquidation rights, sinking fund provisions,
and conversion rights of any future
68
<PAGE> 69
series of Preferred Stock which may be issued. Thus, the Board of Directors may
create one or more series of Preferred Stock which may in certain aspects
adversely affect the holders of shares of Common Stock in that such Preferred
Stock should be preferred over the Common Stock in matters of liquidation and/or
winding up and could have other conversion and preferential rights. Subject to
preferences that may be applicable to the holders of any outstanding shares of
Preferred Stock, if any, the holders of Common Stock are entitled to receive
such lawful dividends as may be declared by the Board of Directors. In the event
of liquidation, dissolution or winding up of KRUG, and subject to the rights of
the holders of outstanding shares of Preferred Stock, if any, the holders of
shares of Common Stock shall be entitled to receive pro rata all of the
remaining assets of KRUG available for distribution to its shareholders. There
are no preemptive or conversion rights or redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and nonassessable.
American Stock Exchange Listing
The Common Stock is currently listed on the AMEX. The AMEX has
indicated that, as a matter of policy, it will consider suspension of trading in
or delisting a security when, in the opinion of the AMEX, the financial
condition and operating results of the issuer appear to be unsatisfactory or the
extent of public distribution or the aggregate market value of the security has
become so reduced as to make further dealings on the AMEX inadvisable. KRUG
reported substantial operating losses for the fiscal year ended March 31, 1999,
and for the fiscal quarter ended June 30, 1999. Based on its current operating
results, the Common Stock may be subject to suspension of trading or removal
from listing on the AMEX. In addition, the Exchange Offer may substantially
reduce the public distribution and aggregate market value of the Common Stock.
Accordingly, upon consummation of the Exchange Offer, the Common Stock may be
subject to suspension of trading and removal from listing on the AMEX. Assuming
the Exchange Offer is accepted by the minimum or greater number of shares of
Common Stock, KRUG does not currently intend to seek to retain the listing of
its Common Stock on the AMEX should the AMEX seek to terminate KRUG's listing.
Should the Common Stock be delisted from the AMEX, it is anticipated that an
over-the-counter market for the Common Stock would develop.
Common Stock and Warrant Transfer Agent
The transfer agent and registrar for the Common Stock and Warrants is
Harris Trust Company.
Preferred Stock
No shares of Preferred Stock are outstanding. KRUG's Amended Articles
of Incorporation grant one vote per share to Preferred Stock; otherwise, the
Board of Directors has the authority, without further action by the
shareholders, to issue the shares of Preferred Stock in one or more series and
to fix the rights, preferences and privileges thereof, including, terms of
redemption, redemption prices, liquidation preferences, number of shares
constituting any series or the designation of such series, without further vote
or action by the shareholders. Although it presently has no intention to do so,
the Board of Directors, without shareholder approval, could issue
69
<PAGE> 70
Preferred Stock with voting and conversion rights which could adversely affect
the voting power of the holders of Common Stock.
KRUG's Amended Articles of Incorporation includes a provision that
allows the Board of Directors to issue Preferred Stock in one or more series
with such rights (other than voting rights) and other provisions as the Board of
Directors may determine. This provision may be deemed to have a potential
anti-takeover effect and the issuance of Preferred Stock in accordance with such
provision may delay or prevent a change of control of KRUG.
OHIO LAW AND CERTAIN CHARTER PROVISIONS
KRUG is subject to certain provisions of the Ohio General Corporation
Law, and its anti-takeover statute. In general, the statute prohibits a publicly
held Ohio corporation from engaging in a "Chapter 1704 transaction" (as defined
below) with an "interested shareholder" (as defined below) for a period of at
least 3 years after the date of the transaction or purchase by which the person
became an interested shareholder, unless the Board of Directors, prior to the
person becoming an interested shareholder, approves the transaction or purchase
by which the person became an interested shareholder. A "Chapter 1704
transaction" includes, among other things, a merger, asset sale or other
transaction that results in either (i) an increase in the ownership interest of,
or (ii) some other financial benefit not proportionately received by all
shareholders to, the interested shareholder. An "interested shareholder" means
any person who, together with affiliates and associates, owns or can control 10%
of the voting power of the corporation.
KRUG 's Amended Articles of Incorporation include a provision that
allows the Board of Directors to issue Preferred Stock in one or more series
with such rights (other than voting rights) and other provisions as the Board of
Directors may determine. Shares of Preferred Stock are entitled to one vote per
share. This provision may be deemed to have a potential anti-takeover effect and
the issuance of Preferred Stock in accordance with such provisions may delay or
prevent a change of control of KRUG. See "Description of Capital Stock -
Preferred Stock."
KRUG's Code of Regulations also provides for a classified Board of
Directors, with directors divided into two classes serving staggered terms. The
Board of Directors has the authority to modify the classes, provided the number
of Directors is not more than eight or less than six. The Board of Directors
determined on August 9, 1999 to restructure the Board of Directors resulting in,
among other things, the elimination of one Board seat which reduced the number
of Directors to six and the election of three Board members at the 1999 annual
meeting.
REPURCHASE PROGRAM
In April 1998, the Board of Directors authorized the purchase from time
to time for cash in the open market of up to 200,000 shares of Common Stock at
management's discretion. In August 1998, the Board of Directors authorized the
purchase of an additional 100,000 shares. KRUG has purchased and retired 278,700
shares of Common Stock through the date of this Offering Circular. No such
shares of Common Stock will be purchased by KRUG during the pendency of the
Exchange Offer or until ten business days following the expiration or
termination of the Exchange Offer.
70
<PAGE> 71
Based upon KRUG's records and upon information provided to KRUG by its
directors, executive officers and affiliates, neither KRUG nor any of its
subsidiaries nor, to the best of KRUG's knowledge, any of the directors or
executive officers of KRUG or its subsidiaries nor any associates of any of the
foregoing has effected any transactions in the Common Stock during the
60-business-day period prior to the date hereof.
DESCRIPTION OF NOTES
If the Exchange Offer is fully subscribed, KRUG will issue $12,500,000
principal amount of the Notes. The Notes will be issued under the Indenture
between KRUG and U.S. Bank Trust, National Association, as trustee (the
"Trustee").
The terms of the Notes include those stated in the Indenture and those
made part of the Indenture by reference to the 1939 Act as in effect on the date
of the Indenture. The Notes are subject to all such terms, and persons
interested in terms are referred to the Indenture and the 1939 Act for a
statement thereof. This summary makes use of terms defined in the Indenture and
does not purport to be complete, and is qualified in its entirety by references
to the Indenture and the 1939 Act. All references to "Section," "Article" or
"Paragraph" in this section refer to the applicable Section or Article of the
Indenture or the applicable Paragraph in the form of Note included in the
Indenture, as the case may be.
General
The Notes represent general unsecured obligations of KRUG, subordinate
in right of payment to certain other obligations of KRUG as described under
"Description of Notes - Subordination of Notes." The Notes will be initially
issued in fully registered form in denominations of $1,000 Principal Amount at
Maturity or any whole multiple thereof and in fractional denominations of less
than $1,000 divisible by five. The Notes will mature on July 1, 2007. The Notes
may be traded in the over-the-counter market but KRUG does not currently intend
to seek listing of the Notes on any securities exchange.
The Notes do not bear interest and do not provide for a sinking fund.
The principal amount of the Notes will be payable at maturity, without interest,
on July 1, 2007. KRUG may pay principal upon redemption or at maturity by its
check mailed to a holder's registered address. Principal, if any, will be
payable, and the Notes may be presented for registration of transfer and
exchange, without service charge, at the office of the Trustee in Atlanta,
Georgia.
71
<PAGE> 72
Optional Redemption
KRUG may, at its option, redeem all or part of the Notes on at least 15
days but not more than 60 days notice to each holder of the Notes to be redeemed
at the holder's registered address, at the redemption price (expressed as a
dollar amount of $1,000 Principal at Maturity of a Note) of:
<TABLE>
<S> <C> <C>
if called for redemption on or before September 30, 2000 - $ 450
thereafter, if called for redemption on or before September 30, 2001 - $ 500
thereafter, if called for redemption on or before September 30, 2002 - $ 550
thereafter, if called for redemption on or before September 30, 2003 - $ 600
thereafter, if called for redemption on or before September 30, 2004 - $ 700
thereafter, if called for redemption on or before September 30, 2005 - $ 800
thereafter, - $1,000
</TABLE>
Subordination of Notes
The payment of the principal of the Notes is subordinated in right of
payment, as set forth in the Indenture, to the prior payment in full of all
Senior Indebtedness, as defined in the Indenture, whether outstanding on the
date of the Indenture or thereafter created, incurred, assumed or guaranteed.
Upon (i) the maturity of Senior Indebtedness, including by acceleration or
otherwise, or (ii) any distribution of the assets of KRUG upon any dissolution,
winding up, liquidation or reorganization of KRUG, the holders of Senior
Indebtedness will be entitled to receive payment in full before the holders of
Notes are entitled to receive any payment (Article 10).
"Senior Indebtedness" of KRUG means (i) all Indebtedness of KRUG,
whether currently outstanding or hereafter issued, unless, by the terms of the
instrument creating or evidencing such indebtedness, it is provided that such
Indebtedness is not superior in right of payment to the Notes or to other
Indebtedness which is pari passu with or subordinated to the Notes, and (ii) any
modifications, refunding, deferrals, renewals or extensions of any such
Indebtedness or securities, notes or other evidences of Indebtedness issued in
exchange for such Indebtedness (Section 1.01).
"Indebtedness" means (a) all indebtedness, obligations, and other
liabilities (contingent or otherwise) for borrowed money, (b) all obligations
and other liabilities (contingent or otherwise) evidenced by bonds, notes or
other similar instruments, (c) all obligations and other liabilities (contingent
or otherwise) in respect of letters of credit or other similar instruments (and
reimbursement obligations with respect of letters of credit or other similar
instruments), (d) all obligations and other liabilities (contingent or
otherwise) to pay the deferred and unpaid purchase price of property or services
(other than any such obligations that represent trade payables or accrued
expenses incurred in the ordinary course of business), (e) all capitalized lease
obligations, (f) all Indebtedness of others secured by a lien on any asset or
assets of KRUG, whether or not such Indebtedness is assumed by KRUG (and, if not
assumed, such Indebtedness shall be limited to the fair market value of such
asset or assets as determined on the date such Indebtedness was incurred), and
(g) all Indebtedness of others guaranteed by KRUG to the extent of such
guarantee (Section 1.01).
72
<PAGE> 73
The principal amount of Senior Indebtedness at June 30, 1999 was
$5,902,000. In addition, the claims of third parties to the assets of KRUG's
subsidiaries incurring such obligations will be superior to those of KRUG as a
shareholder and, therefore, the Notes may be deemed to be effectively
structurally subordinated to the claims of such third parties. Substantially all
operations of KRUG are conducted through such subsidiaries, and the Notes are
effectively subordinated to repayment of KRUG's liabilities arising from those
operations. The Indenture will not limit the amount of additional indebtedness,
including Senior Indebtedness, which KRUG or any subsidiary can create, incur,
assume or guarantee. However, KRUG will not issue additional Indebtedness that
is both (i) junior to the Senior Indebtedness in priority and right of payment
and (ii) superior to the Notes in priority and right of payment. KRUG may issue
additional Indebtedness (i) that is both junior to the Senior Indebtedness in
priority and rights of payments and pari passu to the Notes, (ii) that is junior
to the Notes in priority and right of payment and (iii) that is Senior
Indebtedness. As a result of these subordination provisions, in the event of
insolvency, holders of the Notes may recover nothing or may recover less ratably
than other creditors of KRUG or its subsidiaries (Article 10).
Events of Default and Remedies
An Event of Default is the default in payment within 15 days of the
date when due of principal on the Notes, failure by KRUG for 30 days after
notice to comply with any of its other agreements in the Indenture or the Notes,
and certain events of bankruptcy or insolvency (Section 6.01).
If any Event of Default occurs and is continuing, the Trustee can give
notice to KRUG in order to accelerate and to declare all the Notes to be due and
payable immediately (Section 6.02). In the case of an Event of Default arising
from certain events of bankruptcy or insolvency and subject to applicable law,
the Notes become due and payable without notice in the amount at which KRUG
could then redeem the Notes (assuming there had been no Event of Default).
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy to collect the payment of the Notes or to enforce the
performance of any provision of the Indenture or the Notes. A delay or omission
by the Trustee or any noteholder in exercising any right or remedy shall not
impair the right or remedy or constitute a waiver of or acquiescence in the
Event of Default (Section 6.13).
Holders of the Notes may not enforce the Indenture or the Notes except
as provided in the Indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
Trustee regarding the time, method and place of exercising any trust or power
conferred on it (Section 6.05).
The Trustee is required, within 90 days after the occurrence of any
Event of Default which is known to the Trustee and continuing, to give the
holders of the Notes notice of such default (Section 7.05). The Trustee may
withhold from holders of the Notes notice of any continuing Event of Default
(except an Event of Default in payment of Notes) if it determines that
withholding notice is in their interest (Section 7.05). KRUG is required to
deliver to the Trustee annually a
73
<PAGE> 74
statement regarding compliance with the Indenture, and upon becoming aware of
any Event of Default, a statement specifying such Event of Default (Section
4.12).
Notwithstanding any other provision of the Indenture, the right of any
holder of a Note to receive payment on the Note, on or after the respective due
dates expressed in the Note, or to bring suit for the enforcement of any such
payment on or after such respective dates, shall not be impaired or affected
without the consent of the holder.
Dividends and Restricted Payments
The Indenture provides that KRUG will not make any Restricted Payments
(defined to be dividends and distributions on Common Stock other than dividends
to the extent payable in such Common Stock) unless, after giving effect to the
Restricted Payment, the aggregate of all Restricted Payments after September 30,
1999 will not exceed the sum of (a) the net income of KRUG after June 30, 1999
plus (b) $1,000,000 plus (c) the net proceeds from the issuance or sale after
June 30, 1999 of any shares of its Common Stock, including shares of Common
Stock issued on conversion of indebtedness, the exercise of warrants or options
or on conversion of any class of the capital stock of KRUG (Section 4.14).
In addition to limitations imposed by the Indenture and applicable law,
KRUG's other loan agreements may also contain limitations on the making of
Restricted Payments. Currently, KRUG's U.K. subsidiaries are parties to loan
agreements which restrict their ability to pay dividends and make distributions
on capital stock. While this does not prohibit KRUG from making Restricted
Payments, it does affect the ability of such subsidiaries to pay dividends and
make distributions on their capital stock to KRUG.
Merger, Consolidation, or Sale of Assets
KRUG may not consolidate or merge into, or transfer all or
substantially all (more than 80%) of its assets to, another corporation, person
or entity unless (i) the successor is a United States corporation organized
under the laws of the United States or any state or territory thereof, (ii) it
assumes all the obligations of KRUG on the Notes and under the Indenture, and
(iii) after such transaction no Event of Default exists (Article 5).
Amendment, Supplement and Waiver
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the holders of at least a majority
in principal amount of such then outstanding Notes, and any existing default or
compliance with any provision may be waived with the consent of the holders of
at least a majority in principal amount of the then outstanding Notes (Sections
9.01 and 6.04). Without the consent of any holder of the Notes, KRUG and the
Trustee may amend or supplement the Indenture or the Notes to cure any
ambiguity, defect or inconsistency, to provide for uncertificated Notes in
addition to or in place of certificated Notes, to provide for the assumption of
KRUG's obligations to holders of the Notes in the case of a merger or
acquisition, or to make any change that does not materially adversely affect the
rights of any holder of the Notes (Section 9.01). Without the consent of each
Note holder affected, KRUG may not (a) reduce the
74
<PAGE> 75
amount of Notes whose holders must consent to an amendment, supplement or
waiver; (b) reduce the rate of accrual or change the time for payment of OID on
any Note; (c) reduce the Principal Amount at Maturity or Issue Price of or
change the fixed maturity of any Note; or (d) waive a default in the payment of
any Note (Section 9.02).
Transfer and Exchange
A holder may transfer or exchange Notes in accordance with the
Indenture. The Registrar may require a holder, among other things, to furnish
appropriate endorsements and transfer documents, and to pay any taxes and fees
required by law or permitted by the Indenture. The Registrar is not required to
transfer or exchange any Note selected for redemption. Also, the Registrar is
not required to transfer or exchange any Note for a period of 15 days before a
selection of Notes to be redeemed (Section 2.07).
Concerning the Trustee
The Indenture contains certain limitations on the rights of the
Trustee, should it become a creditor of KRUG, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise (Section 7.03). The Trustee will be permitted to
engage in other transactions; however, if upon an Event of Default it acquires
any conflicting interest it must eliminate such conflict or resign within 90
days (Section 7.10).
The holders of a majority in principal amount of the then outstanding
Notes will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee. The Indenture
provides that in case an Event of Default shall occur (which shall not be
cured), the Trustee will be required, in the exercise of its power, to use the
degree of care of a prudent man in the conduct of his own affairs. Subject to
such provisions, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the holders of the
Notes, unless they shall have offered to the Trustee security and indemnity
satisfactory to it (Section 6.05).
DESCRIPTION OF WARRANTS
The Warrants, which will be freely tradable (subject to the existence
of a trading market for the Warrants), and entitle the holder to purchase, for
each Warrant exercised, one share of the Common Stock without par value at an
exercise price of $3.875 from October 1, 2000 through September 30, 2002. KRUG
reserves the right to reduce the exercise price of the Warrants on 30 days
notice for a minimum of 20 days. KRUG does not intend to seek to list the
Warrants on any exchange, however, an over-the-counter trading market may
develop for the Warrants.
The Warrants may be exercised only when a registration statement
covering the underlying Common Stock is effective with the SEC. KRUG has the
obligation after July 15, 2000 to register such Common Stock as promptly as
practicable once the Closing Price per share of the Common Stock is above $3.50
for 10 consecutive days. KRUG is obligated during the term of the Warrants to
endeavor to maintain the effectiveness of such registration statement for a
period of the greater of (i) 90 days or (ii) for consecutive 60-day periods
after the date the registration statement
75
<PAGE> 76
covering such Common Stock is first declared effective by the SEC so long as the
Closing Price of the Common Stock continues to be above $3.50 for at least 10
consecutive trading days during each such period.
The Warrant Agreement provides that KRUG shall at all times Warrants
are outstanding maintain adequate authorized but unissued shares to issue shares
upon exercise of the Warrants.
The Warrant Agreement provides that KRUG shall not make application to
terminate the registration of its Common Stock under the Exchange Act so long as
any Warrants shall be outstanding.
-------------------------------------------------
Facsimile copies of the Letter of Transmittal will be accepted. The
Letter of Transmittal, stock certificates and other required documents should be
sent or delivered by each shareholder or his or her broker, dealer, commercial
bank, trust corporation or other nominees to the Exchange and Information Agent
and any questions and requests for assistance or additional copies of this
Offering Circular, the Letter of Transmittal and the Notice of Guaranteed
Delivery may be directed to the Exchange and Information Agent at the telephone
numbers and addresses below. You may also contact your local broker, dealer,
commercial bank or trust company for assistance concerning the Exchange Offer.
The Exchange and Information Agent is:
FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile: By Hand or Overnight Courier:
First Union Customer (704)590-7628 First Union Customer
Information Center Information Center
Corporate Trust Confirm by Telephone: Corporate Trust
Operations-NC1153 (704)590-7408 Operations-NC1153
1525 West W.T. Harris Blvd., 3C3 1525 West W.T. Harris Blvd., 3C3
Charlotte, NC 28288-1153 Telephone: Charlotte, NC 28262-1153
Attention: Michael Klotz 1-800-829-8432 Attention: Michael Klotz
</TABLE>
DELIVERY OF THE LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE OR TRANSMISSION TO A FACSIMILE NUMBER OTHER THAN THE ONE LISTED ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY TO THE EXCHANGE AGENT.
76
<PAGE> 77
Annex A
ROGERS & COMPANY, INC.
Investment Bankers
Telephone 704-335-5518
2800 Two First Union Center Facsimile 704-335-5357
Charlotte, North Carolina 28282
August 9, 1999
Board of Directors
KRUG International Corp.
900 Circle 75 Parkway
Suite 1300
Atlanta, Georgia 30339
Members of the Board:
Pursuant to an offering circular (the "Offering Circular"), the most recent
draft of which has been furnished to us, KRUG International Corp. ("KRUG")
proposes to offer to purchase up to 2,500,000 shares of its common stock (the
"Common Stock") by exchanging for each share (the "Exchange Offer") (a) $5
principal amount of Senior Subordinated Zero Coupon Notes due July 1, 2007 (the
"Notes") and (b) one-quarter of a Warrant, each whole Warrant entitling the
holder to purchase one share of Common Stock for $3.875, exercisable October 1,
2000 through September 30, 2002 (collectively, the "Exchange Consideration").
The terms of the Exchange Offer are more fully set forth in the Offering
Circular. You have requested our opinion (the "Opinion") as to whether the
Exchange Consideration is fair, from a financial point of view, to the
shareholders of KRUG.
Rogers & Company, Inc. ("Rogers & Company"), as part of its financial advisory
practice, engages in the valuation of businesses and their securities in
connection with mergers and acquisitions and other corporate transactions.
In developing the Opinion, we have held discussions with members of senior
management of KRUG concerning KRUG's past and present operations, financial
condition and future prospects and have reviewed and relied upon certain
publicly available business and financial information and certain other
information provided to us in connection with the Exchange Offer including among
other things, the following:
1. KRUG's Annual Reports to shareholders and Annual Reports on Form 10-K
and related financial information for the five fiscal years
ended March 31, 1999;
2. KRUG's Quarterly Report on Form 10-Q and related financial information
for the quarter ended June 30, 1999;
3. KRUG's Annual Proxy Statements for the four fiscal years ended March
31, 1998;
4. Certain statistical information provided by the American Stock
Exchange relating to historical market prices, trading volumes and
other trading activity of the Common Stock;
5. The Offering Circular and related documents including, without
limitation, the Indenture under which the Senior Subordinated Zero
Coupon Notes due July 1, 2007 will be issued;
6. Other financial information concerning the business and operations of
KRUG and certain financial projections for KRUG prepared by senior
management; and
7. Such financial analyses, inquiries and other matters of due diligence
as we deemed necessary.
<PAGE> 78
Board of Directors
KRUG International Corp.
August 9, 1999
In preparing the Opinion, as contemplated under the terms of our engagement, we
have relied upon and assumed, without independent verification, the accuracy
and completeness of all information that was publicly available or otherwise
furnished to, reviewed by or discussed with us, and we do not assume any
responsibility or liability therefor. We did not make an independent evaluation
or appraisal of the assets or liabilities (expressed or contingent) of KRUG nor
have we been furnished with any such evaluations or appraisals. With respect
to the financial projections furnished by senior management, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of senior management of the future financial
performance of KRUG and that such performances will be achieved; and we express
no opinion as to such financial projections or the assumptions on which they are
based. We have assumed in all respects material to our analysis that KRUG will
remain as a going concern and that it will fulfill its current and future
financial obligations.
The Opinion is necessarily based on financial, economic, market and other
conditions as they exist and can be evaluated on the date hereof and the
information made available to us through the date hereof. Events occurring
after the date hereof could materially affect the Opinion. We have not
undertaken to update, revise or reaffirm the Opinion or otherwise comment on
events occurring after the date hereof. The Opinion is directed only to the
fairness, from a financial point of view, of the Exchange Consideration to the
shareholders of KRUG and does not address any other aspect of the Exchange
Offer, nor does it constitute a recommendation to any shareholder of KRUG as to
whether such shareholder should participate in the Exchange Offer; and it is
understood that this letter is solely for the information of the Board of
Directors of KRUG. We are expressing no opinion herein as to what the value of
the Notes and Warrants will be when issued to the shareholders of KRUG pursuant
to the Exchange Offer. The Opinion does not address the relative merits of the
Exchange Offer as compared to any alternative business or financial strategies
that might exist for KRUG.
Our fee for rendering the Opinion is not contingent upon the Opinion expresses
herein. Neither Rogers & Company nor any of its employees has a present or
intended material financial interest in KRUG.
It is understood that the Opinion may be included in its entirety in the
Offering Circular. The Opinion may not, however, be summarized, excerpted from
or otherwise publicly referred to without our prior written consent.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Consideration is fair, from a financial point of
view, to the shareholders of KRUG.
Very truly yours,
/s/ Rogers & Company, Inc.
ROGERS & COMPANY, INC.
<PAGE> 1
EXHIBIT 99.2
THE EXCHANGE OFFER WILL EXPIRE AT 12:00 MIDNIGHT
ATLANTA, GEORGIA TIME, ON SEPTEMBER 17, 1999, UNLESS EXTENDED
LETTER OF TRANSMITTAL
TO ACCOMPANY SHARES OF
COMMON STOCK OF
KRUG INTERNATIONAL CORP.
TENDERED PURSUANT TO THE OFFERING CIRCULAR
DATED AUGUST 20, 1999
(PLEASE READ THE INSTRUCTIONS CAREFULLY)
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR A FACSIMILE HEREOF) AND ALL
OTHER DOCUMENTS AND INSTRUMENTS REQUIRED HEREBY SHOULD BE SENT OR DELIVERED TO
THE EXCHANGE AND INFORMATION AGENT AT ONE OF THE ADDRESSES SET FORTH BELOW.
TENDERS MUST BE RECEIVED BY THE EXCHANGE AND INFORMATION AGENT PRIOR TO 12:00
MIDNIGHT, ATLANTA, GEORGIA TIME, ON SEPTEMBER 17, 1999, UNLESS THE EXCHANGE
OFFER IS EXTENDED (THE "EXPIRATION DATE").
The Exchange and Information Agent
FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile: By Hand or Overnight Courier:
First Union Customer (704) 590-7628 First Union Customer
Information Center Information Center
Corporate Trust Confirm by Telephone: Corporate Trust
Operations-NC1153 (704) 590-7408 Operations-NC1153
1525 West W.T. Harris Blvd., 3C3 1525 West W.T. Harris Blvd., 3C3
Charlotte, NC 28288-1153 Telephone: Charlotte, NC 28262-1153
Attention: Michael Klotz 1-800-829-8432 Attention: Michael Klotz
</TABLE>
DELIVERY TO ANY ADDRESS OTHER THAN AS SET FORTH HEREIN WILL NOT CONSTITUTE VALID
DELIVERY.
THE INSTRUCTIONS ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
<PAGE> 2
This Letter of Transmittal is to be completed by Holders of shares of
Common Stock (as defined below) only (a) if certificates for such shares are to
be forwarded herewith or (b) if delivery of such shares is to be made by
book-entry transfer to the account maintained by the Exchange and Information
Agent at The Depository Trust Company ("DTC"), (the "Book-Entry Facility")
pursuant to the procedures set forth under the caption "The Exchange Offer--How
to Tender" in KRUG's Offering Circular dated August 20, 1999. Delivery of
documents to a Book-Entry Facility does not constitute delivery to the Exchange
and Information Agent.
Holders of shares whose certificates are not immediately available or
who cannot deliver their certificates or deliver confirmation of the book-entry
transfer of their shares into the Exchange and Information Agent's account at a
Book-Entry Facility and all other documents required hereby to the Exchange and
Information Agent on or prior to the Expiration Date must tender their shares
pursuant to the guaranteed delivery procedure set forth under the caption "The
Exchange Offer--How to Tender" in the Offering Circular. See Instruction 2
herein.
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY.)
[ ] CHECK HERE IF TENDERED SHARES OF THE COMMON STOCK ARE BEING DELIVERED
BY BOOK-ENTRY TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE
AND INFORMATION AGENT WITH THE BOOK-ENTRY FACILITY SPECIFIED BELOW AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution:__________________________________________________
Account Number:_________________________________________________________________
[ ] DTC
Transaction Code Number_________________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AND INFORMATION
AGENT AND COMPLETE THE FOLLOWING:
Name(s) of Registered Owner(s)__________________________________________________
Date of Execution of Notice of Guaranteed Delivery______________________________
Name of Institution which Guaranteed Delivery___________________________________
IF DELIVERED BY BOOK-ENTRY TRANSFER:
Name of Tendering Institution___________________________________________________
Account Number:_________________________________________________________________
[ ] DTC
<PAGE> 3
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ------------------------------------------------------------------------------------------------------------------------
IF BLANK, PLEASE PRINT
NAME AND ADDRESS OF CERTIFICATE(S) TENDERED
REGISTERED HOLDER (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
TOTAL NUMBER OF SHARES NUMBER OF SHARES
CERTIFICATE NUMBER(S)* REPRESENTED BY CERTIFICATE(S)* TENDERED**
<S> <C> <C> <C>
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
TOTAL SHARES:
- ------------------------------------------------------------------------------------------------------------------------
* Need not be completed by Book-Entry Shareholders.
** All Shares tendered by certificates surrendered shall be deemed tendered unless a lesser number is specified
in this column. See Instruction 4.
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
[ ] CHECK HERE IF YOU CANNOT LOCATE YOUR CERTIFICATE(S) AND REQUIRE
ASSISTANCE IN REPLACING THEM. THE EXCHANGE AND INFORMATION AGENT WILL
CONTACT YOU DIRECTLY WITH REPLACEMENT INSTRUCTIONS. (SEE INSTRUCTION
9.)
[ ] CHECK HERE IF YOU HOLD FEWER THAN 100 SHARES OF COMMON STOCK AS OF
AUGUST 13, 1999 AND YOU WISH TO TENDER ALL OF YOUR SHARES IN EXCHANGE
FOR A CASH PAYMENT OF $2.00 PER SHARE.
<PAGE> 4
Ladies and Gentlemen:
Pursuant to the terms and subject to the conditions of the Exchange
Offer (as described below) of KRUG International Corp. ("KRUG"), to Holders of
the KRUG's common stock without par value (the "Common Stock"), as set forth in
the Offering Circular dated August 20, 1999 (the "Offering Circular") and this
Letter of Transmittal (which, together with the Offering Circular, constitute
the "Exchange Offer"), receipt of which are hereby acknowledged, the signer of
this Letter of Transmittal (the "Holder") hereby accepts the Exchange Offer and
tenders the shares of the Common Stock listed on this Letter of Transmittal. The
Holder acknowledges that he or she will receive, for each share of Common Stock
tendered (a) $5 Principal Amount of Senior Subordinated Zero Coupon Notes due
July 1, 2007 (the "Notes") and (b) one-fourth of a Warrant, each whole Warrant
entitling the Holder to purchase one share of Common Stock for $3.875,
exercisable October 1, 2000 through September 30, 2002 (collectively, the
"Exchange Consideration"), unless the Holder holds less than 100 shares and
elects to tender all of his or her shares for cash consideration of $2.00 per
share.
KRUG will not accept for exchange more than 2,500,000 shares of Common
Stock. In the case of oversubscription, Common Stock properly tendered and not
withdrawn will be accepted on a pro rata basis, in conformity with Rule 13e-4 of
the General Rules and Regulations under the Securities Exchange Act of 1934, as
amended. All Common Stock validly tendered for cash and not withdrawn prior to
the Expiration Date by persons who owned of record as of August 13, 1999 an
aggregate of 99 or fewer shares of Common Stock, and who validly tendered all
their shares of Common Stock prior to the Expiration Date, will be accepted
before proration, if any, of the exchange of other tendered shares of Common
Stock. Partial tenders will not qualify for this preference, and it is not
available to Holders who owned of record in the aggregate 100 or more shares of
Common Stock, even though such Holders have separate stock certificates for
fewer than 100 shares of Common Stock.
Accordingly, subject to, and effective upon, acceptance for exchange of
the shares of Common Stock tendered herewith in accordance with the terms and
conditions of the Exchange Offer, the Holder hereby sells, assigns and transfers
to KRUG all right, title and interest in and to all of the shares of Common
Stock that are being tendered hereby and hereby irrevocably constitutes and
appoints the Exchange and Information Agent the true and lawful agent and
attorney-in-fact of the Holder with respect to such shares, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) to (i) deliver certificates for shares of Common Stock
tendered hereby or transfer ownership of such shares on the account books
maintained by any Book-Entry Facility together, in either such case, with the
accompany evidences of transfer and authority, to KRUG upon the receipt by the
Exchange and Information Agent, as the Holder's agent, of the consideration
therefor pursuant to the Exchange Offer, (ii) present such shares for
registration and transfer on the books of KRUG, and (iii) receive all benefits
and otherwise exercise all rights of beneficial ownership of such shares.
THE HOLDER HEREBY REPRESENTS AND WARRANTS THAT THE HOLDER HAS FULL
POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE SHARES OF
COMMON STOCK TENDERED HEREBY, THAT KRUG WILL ACQUIRE GOOD AND UNENCUMBERED TITLE
TO SUCH TENDERED SHARES,
<PAGE> 5
FREE AND CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT
THE SHARES OF COMMON STOCK TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIM
OR PROXIES WHEN THE SAME ARE ACCEPTED BY KRUG. THE HOLDER WILL, UPON REQUEST,
EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS DEEMED BY KRUG OR THE EXCHANGE AND
INFORMATION AGENT TO BE NECESSARY OR DESIRABLE TO COMPLETE THE EXCHANGE, SALE,
ASSIGNMENT AND TRANSFER OF THE SHARES OF COMMON STOCK TENDERED HEREBY.
All authority herein conferred or agreed to be conferred in this Letter
of Transmittal shall survive the death or incapacity of the Holder and any
obligation of the Holder hereunder shall be binding upon the heirs, personal
representatives, successors and assigns of the Holder. Except as stated in the
Offering Circular, this tender is irrevocable.
A tender of shares pursuant to the procedures described in the Offering
Circular and in the instructions hereto will constitute the Holder's acceptance
of the terms and conditions of the Exchange Offer and a binding agreement
between the tendering shareholder and KRUG upon the terms and subject to the
conditions of the Exchange Offer. The Holder recognizes that, under certain
circumstances set forth in the Offering Circular, KRUG may not be required to
accept any of the shares of Common Stock tendered for exchange hereby. Unless
otherwise indicated in the box entitled "Special Issuance Instructions", the
Holder hereby directs any Notes, any certificates for Warrants, any certificates
for any shares of Common Stock not exchanged and any check to be issued for cash
be issued in the name of the Holder. The Holder understands that Holders who
tender shares of the Common Stock by book-entry transfer ("Book-Entry
Shareholders") may request that any shares of the Common Stock not exchanged
will be returned by crediting the account maintained by DTC, as such Book-Entry
Shareholder may designate, by making an appropriate entry under "Special
Issuance Instructions." Unless otherwise indicated in the box entitled "Special
Delivery Instructions" the Holder hereby directs that the Notes, any
certificates for Warrants, any certificates for any shares of the Common Stock
not exchanged and any check to be issued for cash be mailed to the person at the
address shown in the box entitled "Description of Shares Tendered". The Holder
recognizes that KRUG has no obligation pursuant to the Special Issuance
Instructions to transfer any shares of Common Stock from the name(s) of the
registered Holder(s) thereof if KRUG does not accept for exchange any of the
shares so tendered.
- -------------------------------------------------------------------------------
SHAREHOLDER SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 AT THE BACK OF THIS LETTER OF TRANSMITTAL)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED
BY INSTRUCTIONS 1 OR 5)
- -------------------------------------------------------------------------------
________________________________________________________________________________
(SIGNATURE(S) OF OWNER(S))
Dated ______________, 1999 Holder's Telephone Number (___) ___ - ____
<PAGE> 6
(Must be signed by registered Holder(s) exactly as name(s) appear(s) on stock
certificated(s) or by person(s) authorized to become registered Holder(s) by
certificates and documents transmitted herewith. If signature is by an attorney,
executor, administrator, trustee or guardian or others acting in a fiduciary
capacity, please set forth full title and see Instruction 5.)
<PAGE> 7
SIGNATURE(S) GUARANTEED
(SEE INSTRUCTIONS 1 AND 5)
(Firm--Please Print)____________________________________________________________
(Authorized Signature)__________________________________________________________
Date____________________________________________________________________________
________________________________________________________________________________
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 1, 2, 4, 5, 6 AND 7)
To be completed ONLY if Notes, certificates for Warrants, certificates for
shares of Common Stock not exchanged and cash are to be issued in the name of
and mailed to a beneficial owner other than the Holder or if shares of Common
Stock tendered by book-entry transfer which are not exchanged are to be returned
by credit to an account maintained by DTC.
Issue certificates to
________________________________________________________________________________
NAME--(PLEASE PRINT)
________________________________________________________________________________
(ADDRESS)
________________________________________________________________________________
(INCLUDE ZIP CODE)
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 4, 5, 6 AND 7)
To be completed ONLY if Notes, certificates for Warrants, certificates for
shares of Common Stock not exchanged and cash are to be sent to someone other
than the Holder or to the Holder at an address other than that shown above.
Mail certificates to:
________________________________________________________________________________
NAME--(PLEASE PRINT)
________________________________________________________________________________
(ADDRESS)
________________________________________________________________________________
(INCLUDE ZIP CODE)
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NO.)
[ ] Credit unexchanged shares of Common Stock tendered by book-entry
transfer to the DTC account set forth below:
Name of Account Party _____________
Account Number ___________________
[ ] DTC
(check one)
<PAGE> 8
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER.
1. GUARANTEE OF SIGNATURES. Except as otherwise provided below,
signatures on this Letter of Transmittal must be guaranteed by a bank, broker,
dealer, credit union, savings association or other entity that is a member in
good standing of a recognized Medallion Program approved by The Securities
Transfer Association, Inc. (an "Eligible Institution"), unless the Common Stock
tendered hereby is tendered (i) by the registered Holder (which term, for
purposes of this document, shall include any participant in a Book-Entry
Transfer Facility whose name appears on a security position listing as the owner
of Common Stock) of such Common Stock who has completed neither the box labeled
"Special Issuance Instructions" nor the box labeled "Special Delivery
Instructions" herein, or (ii) for the account of an Eligible Institution. See
Instruction 5. If the certificates representing the tendered Common Stock are
registered in the name of a person other than the signer of this Letter of
Transmittal, or if payment is to be made or delivered to, or certificates
evidencing the unexchanged Common Stock are to be issued or returned to, a
person other than the registered owner, then the certificates representing the
tendered Common Stock must be endorsed or accompanied by duly executed stock
powers, in either case signed exactly as the name or names of the registered
owner or owners appear on such certificates or stock powers guaranteed by an
Eligible Institution as provided herein. See Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES. In order to
participate in the Exchange Offer, a shareholder must properly complete and duly
execute (with signatures guaranteed if required by Instructions 1 or 5) the
Letter of Transmittal (or a facsimile thereof) and mail or deliver it, together
with the certificate(s) representing the shares of Common Stock to be tendered
for exchange (or the Exchange and Information Agent must receive a timely
confirmation of a book-entry transfer into the Exchange and Information Agent's
account at a Book-Entry Facility) and any other required documents, to the
Exchange and Information Agent. The Exchange and Information Agent must receive
the foregoing documents and instruments on or prior to the Expiration Date.
Delivery of documents to a Book-Entry Facility does not constitute delivery to
the Exchange and Information Agent.
If a shareholder desires to tender shares of Common Stock pursuant to
the Exchange Offer and such shareholder's certificate(s) for such shares are not
immediately available, or if the procedure for book-entry transfer cannot be
completed on a timely basis, or such shareholder cannot deliver the
certificate(s) and all other required documents to the Exchange and Information
Agent prior to the Expiration Date, such shares may be tendered if all of the
following guaranteed delivery procedures are complied with: (i) such tenders are
made by or through an Eligible Institution; (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, in substantially the form provided by
KRUG, is received by the Exchange and Information Agent on or prior to the
Expiration Date; and (iii) the certificates for all tendered shares, in proper
form for transfer (or confirmation of book-entry transfer of such shares into
the Exchange and Information Agent's account at a Book-Entry Facility as
described in the Offering Circular), together with a properly completed and duly
executed Letter of Transmittal and all other documents required by this Letter
of Transmittal, are received by the Exchange and Information Agent within three
<PAGE> 9
American Stock Exchange trading days after the date of execution of such Notice
of Guaranteed Delivery, all as provided under the caption "The Exchange
Offer--How to Tender" in the Offering Circular.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptability of shares of the Common Stock tendered will be
determined by KRUG, in its sole discretion, and such determinations will be
final and binding. KRUG reserves the right to reject any and all tenders
determined by it not to be in proper form or otherwise not valid or the
acceptance for exchange of which may, in the opinion of KRUG's counsel, be
unlawful. KRUG's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and Instructions thereto) will also
be final and binding. KRUG and the Exchange and Information Agent are not under
any duty to give notification of any irregularities or defects and shall not
incur any liability for failure to give any such notification. Tenders will not
be deemed to have been made until such irregularities or defects have been cured
or waived. Any tender (including the Letter of Transmittal and stock
certificates) that is not properly completed and executed, and as to which
irregularities or defects are not cured or waived, will be returned by the
Exchange and Information Agent to the tendering shareholder promptly after the
Expiration Date (or, in the case of shares delivered by book-entry transfer
within a Book-Entry Facility, the tendered shares will be credited to the
account maintained within such Book-Entry Facility by the participant and the
Book-Entry Facility which delivered such shares).
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE CERTIFICATES
FOR SHARES OF COMMON STOCK AND ALL OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY
THROUGH A BOOK-ENTRY FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING
SHAREHOLDER AND, EXCEPT AS OTHERWISE PROVIDED IN THIS INSTRUCTION 2, THE
DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE AND
INFORMATION AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, WITH RETURN RECEIPT
REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
No alternative, conditional or contingent tenders will be accepted. All
tendering shareholders, by execution of this Letter of Transmittal or facsimile
thereof, waive any rights to receive any notice of the acceptance of their
tender.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and the numbers of shares should be listed on a separate
signed schedule attached hereto.
4. PARTIAL TENDERS (NOT APPLICABLE TO BOOK-ENTRY SHAREHOLDER). If fewer
than all the shares evidenced by any certificate submitted are to be tendered,
the number of shares which are to be tendered should be stated in the box
entitled "Number of Shares Tendered." New certificate(s) for the remainder of
the shares which are evidenced by old certificate(s) will be sent to the
registered Holder of the certificate(s) tendered, unless otherwise provided by
checking the appropriate box on the Letter of Transmittal, as soon as
practicable after the tender has been accepted. All shares represented by
certificates listed are deemed to have been tendered unless otherwise indicated.
<PAGE> 10
5. SIGNATURES ON LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered Holder of the
certificate(s) tendered hereby, the signature must correspond exactly with the
name as written on the face of the certificate(s) without alteration,
enlargement or any change whatsoever.
If the shares of Common Stock tendered hereby are owned of record by
two or more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered shares of Common Stock are registered in different
names on several certificates, it will be necessary to complete, sign and submit
as many separate Letters of Transmittal as there are different registrations of
certificates.
When this Letter of Transmittal is signed by the registered Holder(s)
of the certificate(s) listed and transmitted hereby, no endorsement of
certificates or separate stock powers are required. If, however, any Notes,
certificates for Warrants or any certificates for shares of Common Stock not
tendered are to be issued to a person other than the registered Holder, then
endorsement of certificates transmitted hereby or separate stock powers are
required. Signatures on any such certificate(s) or stock powers must be
guaranteed by an Eligible Institution. If this Letter of Transmittal is signed
by a person other than the registered Holder of the certificate(s) listed, such
certificate(s) must be endorsed or accompanied by appropriate stock powers, in
either case signed exactly as the name or names of the registered Holder or
Holders appear on the certificate(s). Signatures on such certificate(s) or stock
powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificate(s) or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and proper evidence
satisfactory to KRUG of their authority so to act must be submitted. Signatures
on any such certificate(s) or stock powers must be guaranteed by an Eligible
Institution.
6. DELIVERY OF EXCHANGE CONSIDERATION. Delivery of Notes, Warrants and
any check to be issued for cash will be made promptly after the Expiration Date
for all shares of the Common Stock properly tendered and accepted for exchange
by KRUG. The Exchange Consideration will be issued in the name of the registered
Holder(s) of the Common Stock and mailed to him or her, unless otherwise
provided in the appropriate box on this Letter of Transmittal. In the case of
tenders by Notice of Guaranteed Delivery, Exchange Consideration will not be
delivered until the Letter of Transmittal, the certificate(s) representing
tendered shares relating to such Notice of Guaranteed Delivery (or a timely
confirmation of a book-entry transfer of such shares into the Exchange and
Information Agent's account at a Book-Entry Facility) and all other required
documents have been received by the Exchange and Information Agent.
7. STOCK TRANSFER TAXES. KRUG will pay all stock transfer taxes, if
any, applicable to the exchange of shares tendered and accepted pursuant to the
Exchange Offer. If, however, issuance of any Exchange Consideration is to be
made to, or (in circumstances permitted hereby) if shares not tendered are to be
registered in the name of any person other than the registered Holder, or if
tendered certificates are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of any stock transfer
taxes (whether
<PAGE> 11
imposed on the registered Holder or such person) payable on account of the
transfer must be paid to KRUG or the Exchange and Information Agent (or the
transferee must establish to the satisfaction of KRUG that such taxes have been
paid or need not be paid) before the Exchange Consideration will be issued.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 7, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE CERTIFICATES LISTED IN THIS LETTER OF
TRANSMITTAL.
8. WAIVER OF CONDITIONS. Subject to limitations set forth in the
Offering Circular, the conditions of the Exchange Offer may be waived by KRUG,
in whole or in part, at any time or from time to time, in KRUG's sole discretion
in the case of any shares of Common Stock tendered.
9. LOST, DESTROYED OR STOLEN CERTIFICATES. If the certificate(s) has
(have) been lost, stolen or destroyed, check the box on the front of this Letter
of Transmittal and send the Letter of Transmittal to the Exchange and
Information Agent. In such event, the Exchange and Information Agent will
forward an Affidavit of Loss and Bond of Indemnity requiring a 2% premium and a
$50.00 service charge. You are urged to properly complete and return documents
immediately.
10. REQUESTS FOR ADDITIONAL COPIES. Questions and requests for
additional copies of the Offering Circular and this Letter of Transmittal may be
directed to the Information Agent at the address and telephone numbers set forth
on the back cover of the Offering Circular.
11. SUBSTITUTE FORM W-9. Each tendering shareholder is required to
provide the Exchange and Information Agent with a correct Taxpayer
Identification Number ("TIN"), generally the shareholder's social security or
federal employer identification number, on Substitute Form W-9 enclosed
herewith. If a shareholder fails to provide a TIN to the Exchange and
Information Agent, such shareholder may be subject to a $50.00 penalty imposed
by the Internal Revenue Service. In addition, payments of cash that are made to
such shareholder with respect to Common Stock accepted pursuant to the Exchange
Offer may be subject to backup withholding of 31%. The "Certificate of Awaiting
Taxpayer Identification Number" should be completed if the tendering shareholder
has not been issued a TIN and has applied for a number or intends to apply for a
number in the near future. If such certificate is completed and the Exchange and
Information Agent is not provided with a TIN within 60 days, the Exchange and
Information Agent will withhold 31% of all payments of cash thereafter until a
TIN is provided to the Exchange and Information Agent. If the Common Stock is in
more than one name or is not in the name of the actual owner, consult the
enclosed Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9 for additional guidance on which number to report.
IMPORTANT: THIS LETTER OF TRANSMITTAL OR A FACSIMILE COPY HEREOF
(TOGETHER WITH COMMON STOCK CERTIFICATES OR CONFIRMATION OF BOOK-ENTRY TRANSFER
AND ALL OTHER REQUIRED DOCUMENTS) OR THE NOTICE OF GUARANTEED DELIVERY MUST BE
RECEIVED BY THE EXCHANGE AND INFORMATION AGENT ON OR PRIOR TO THE EXPIRATION
DATE.
<PAGE> 12
IMPORTANT TAX INFORMATION
Certain shareholders (including, among others, corporations and certain
foreign individuals) generally are not subject to backup withholding. In order
for a foreign individual to qualify as an exempt recipient, that shareholder
must submit a Form W-8, signed under penalties of perjury, attesting to that
individual's exempt status. A Form W-8 can be obtained from the Exchange and
Information Agent. See the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 for additional instructions.
Backup withholding is not an additional tax. Rather, the tax liability
of persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the Internal Revenue Service.
TO BE COMPLETED BY ALL TENDERING SHAREHOLDERS
PAYER'S NAME: ___________________________________________
- -------------------------------------------------------------------------------
Name as shown on account (if joint account, list first and circle the name
of the person or entity whose number you enter below)
- -------------------------------------------------------------------------------
Address
- -------------------------------------------------------------------------------
City, State and Zip Code
- -------------------------------------------------------------------------------
TAXPAYER IDENTIFICATION NUMBER--FOR ALL ACCOUNTS
SUBSTITUTE Enter your taxpayer identification number in
FORM W-9 the appropriate box. For most individuals,
DEPARTMENT OF this is your social security number. If you
THE TREASURY do not have a number, see the enclosed
INTERNAL Guidelines.
REVENUE SERVICE Note: if the account is in more than one
REQUEST FOR TAXPAYER name, see the chart in the enclosed Guide-
IDENTIFICATION NUMBER lines on which number enter.
AND CERTIFICATION
Social Security Number:_________________________________________________________
Or Employment Identification Number:____________________________________________
<PAGE> 13
- -------------------------------------------------------------------------------
CERTIFICATION.--Under the penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding because: (a) I am exempt from
backup withholding, or (b) I have not been notified by the Internal
Revenue Service ("IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS.--You must cross out item (2) above if you have been
notified by the IRS that you are currently subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if after
being notified by the IRS that you were subject to backup withholding you
received another notification from the IRS that you are no longer subject to
backup withholding, do not cross out item (2).
Signature _____________________________________________ Date __________________
(For joint names, only the person whose TIN is shown should sign)
- -------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU WROTE "APPLIED FOR"
IN THE SPACE FOR THE TIN ON SUBSTITUTE FORM W-9.
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification
number has not been issued to me, and either (a) I have mailed or delivered an
application to receive a taxpayer identification number to the appropriate
Internal Revenue Service or Social Security Administration Office or (b) I
intend to mail or deliver an application in the near future. I understand that
if I do not provide a taxpayer identification number within 60 days, 31% of all
reportable payments made to me thereafter will be withheld until I provide a
number.
__________________________________________ _______________________________
Signature Date
- -------------------------------------------------------------------------------
<PAGE> 14
The Exchange and Information Agent for the Exchange Offer is:
FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile: By Hand or Overnight Courier:
First Union Customer (704) 590-7628 First Union Customer
Information Center Information Center
Corporate Trust Confirm by Telephone: Corporate Trust
Operations-NC1153 (704) 590-7408 Operations-NC1153
1525 West W.T. Harris Blvd., 3C3 1525 West W.T. Harris Blvd., 3C3
Charlotte, NC 28288-1153 Telephone: Charlotte, NC 28262-1153
Attention: Michael Klotz 1-800-829-8432 Attention: Michael Klotz
</TABLE>
<PAGE> 1
EXHIBIT 99.3
[KRUG INTERNATIONAL LETTERHEAD]
August 20, 1999
Dear Shareholder:
KRUG International Corp. ("KRUG") is offering you the opportunity to
exchange shares of Common Stock for a combination of Senior Subordinated Zero
Coupon Notes due July 1, 2007, and Warrants. Each share of Common Stock accepted
in this Exchange Offer will be exchanged for (a) $5 Principal Amount of Senior
Subordinated Zero Coupon Notes due July 1, 2007 (the "Notes") and (b) one-fourth
of a Warrant, each whole Warrant entitling the Holder to purchase one share of
Common Stock for $3.875, exercisable October 1, 2000 through September 30, 2002
(collectively, the "Exchange Consideration"). Alternatively, if you hold fewer
than 100 shares of Common Stock as of August 13, 1999, instead of participating
in the Exchange Offer, you may elect to tender all of your shares in exchange
for a cash payment of $2.00 per share.
This Exchange Offer is for up to 2,500,000 shares of KRUG's Common
Stock (approximately 50% of the currently outstanding shares) and is conditioned
upon a minimum of 1,000,000 shares being tendered. You may tender all or any
portion of your Common Stock.
The purpose of this Exchange Offer is to allow you, should you desire,
to restructure your investment in Common Stock into a debt instrument with a
fixed maturity date (i.e., the Notes), together with an opportunity to
participate in KRUG's growth in the future through the right to purchase Common
Stock upon exercise of the Warrants. Should you choose instead to retain your
Common Stock, you will increase your proportionate interest in the common equity
of KRUG. KRUG benefits from the Exchange Offer by increasing its leverage which,
if KRUG achieves profitable operations, will increase earnings per Common Share
due to the lower number of shares outstanding. There are many factors which you
should consider in determining whether or not to tender your shares, many of
which are discussed in the enclosed Offering Circular.
The Exchange Offer is being made to all shareholders of KRUG. If the
Exchange Offer is oversubscribed, tendered stock will be prorated (except that
priority will be given to Holders of less than 100 shares who tender all of
their shares), and all unpurchased shares will be returned. The Exchange Offer,
proration period and withdrawal rights will expire at 12:00 midnight, Atlanta,
Georgia time, on September 17, 1999 unless the Exchange Offer is extended.
A majority of the Board of Directors of KRUG has approved the making of
the Exchange Offer and has determined, in part based upon the opinion of Rogers
& Company, Inc., that the Exchange Offer is fair, from a financial point of
view, to the shareholders. Each Holder of Common Stock must make his or her own
decision whether or not to tender his or her shares and, if so, how many shares
to tender.
<PAGE> 2
The Exchange Offer is explained in detail in, and is subject to, the
enclosed Offering Circular and Letter of Transmittal. If you decide to tender
all or part of your shares, the instructions on how to do this are contained in
the enclosed materials. Questions and requests for assistance with respect to
the mechanics of the Exchange Offer may be directed to our Exchange and
Information Agent, First Union National Bank, toll free at 1-800-829-8432.
Sincerely,
/s/ Robert M. Thornton, Jr.
- ---------------------------
Robert M. Thornton, Jr.
Chairman of the Board and
Chief Executive Officer
<PAGE> 1
EXHIBIT 99.4
KRUG International Corp.
OFFER TO EXCHANGE SENIOR SUBORDINATED ZERO COUPON NOTES
DUE JULY 1, 2007 AND WARRANTS FOR UP TO 2,500,000 SHARES
OF ITS COMMON STOCK
To Securities Dealers, Commercial Banks, Trust Companies and Other Nominees:
KRUG International Corp ("KRUG") is offering, upon the terms and
subject to the conditions set forth in the enclosed Offering Circular dated
August 20, 1999 (the "Offering Circular") and the enclosed Letter of Transmittal
(the "Letter of Transmittal" and, together with the Offering Circular, the
"Exchange Offer"), to purchase up to 2,500,000 shares of its common stock (the
"Common Stock") by exchanging for each share (the "Exchange Offer") (a) $5
Principal Amount of Senior Subordinated Zero Coupon Notes due July 1, 2007 (the
"Notes") and (b) one-fourth of a Warrant, each whole Warrant entitling the
Holder to purchase one share of Common Stock for $3.875, exercisable October 1,
2000 through September 30, 2002 (collectively, the "Exchange Consideration").
Alternatively, if you hold fewer than 100 shares of Common Stock as of August
13, 1999, instead of participating in the Exchange Offer, you may elect to
tender all of your shares in exchange for a cash payment of $2.00 per share.
We are asking you to contact your clients for whom you hold shares of
the Common Stock registered in your name or in the name of your nominee or who
hold shares of the Common Stock registered in their own names.
Enclosed are sets of Exchange Offer material, consisting of the
following:
1. The Offering Circular.
2. The Letter of Transmittal for your use and for the information of
your clients.
3. A Letter to Shareholders from the Chairman and Chief Executive
Officer of KRUG.
4. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
5. A form of letter which may be sent to your clients for whose account
you hold shares of the Common Stock registered in your name or the name of your
nominee, with space provided for obtaining such client's instructions with
regard to the Exchange Offer.
6. The Notice of Guaranteed Delivery to be used to accept the Exchange
Offer if certificates for shares are not immediately available or if the
procedure for book-entry transfer cannot be completed on a timely basis.
<PAGE> 2
Please forward this material as soon as possible to your beneficial
Holders. KRUG will not pay any fees or commissions to any broker, dealer or
other person for soliciting tenders of shares of the Common Stock pursuant to
the Exchange Offer. You will be reimbursed by KRUG for customary mailing and
handling expenses incurred by you in forwarding any of the enclosed materials
for your clients. KRUG will pay all transfer taxes, if any, applicable to the
transfer and exchange of shares of Common Stock, except as otherwise provided in
Instruction 7 of the Letter of Transmittal.
Your prompt action is requested. The Exchange Offer will expire at
12:00 midnight, Atlanta, Georgia time, on September 17, 1999, unless extended.
To participate in the Exchange Offer, stock certificates for shares of
the Common Stock and a duly executed and properly completed Letter of
Transmittal or facsimile thereof, together with any other required documents,
must be delivered to the Exchange and Information Agent as indicated in the
Offering Circular. Alternatively, in lieu of delivery of stock certificates, a
shareholder may tender by causing a transfer of his shares of the Common Stock
to the Exchange and Information Agent's account at The Depository Trust Company
or any other participating book-entry transfer facility at which the Exchange
and Information Agent has established an account with respect to the shares of
the Common Stock.
If shareholders wish to tender, but it is impracticable for them to
forward their stock certificates prior to the expiration of the Exchange Offer,
a tender may be effected by following the guaranteed delivery procedures
described in the Offering Circular under "The Exchange Offer--How to Tender."
Your solicitation of tenders of shares of the Common Stock will
constitute your representation to KRUG that (i) in connection with such
solicitation, you have complied with the applicable requirements of the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, any applicable state securities or blue sky law, and the applicable
rules and regulations thereunder, (ii) if a foreign broker or dealer, you have
conformed to the Rules of Fair Practice of the National Association of
Securities Dealers, Inc. in making solicitations, and (iii) in soliciting
tenders of such shares, you have not used any solicitation materials other than
those furnished by KRUG.
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, holders of shares of Common Stock residing in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such jurisdiction.
Additional copies of the enclosed material may be obtained from First
Union National Bank, the Exchange and Information Agent, at (800) 829-8432.
Very truly yours,
KRUG International Corp.
<PAGE> 3
NOTHING HEREIN OR THE IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU OR
ANY PERSON AS AN AGENT OF KRUG OR THE EXCHANGE AND INFORMATION AGENT, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY MATERIAL ON
BEHALF OF EITHER OF THEM WITH RESPECT TO THE EXCHANGE OFFER, EXCEPT FOR THE
MATERIAL ENCLOSED HEREWITH AND THE STATEMENTS EXPRESSLY MADE IN THE OFFERING
CIRCULAR OR THE LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT 99.5
KRUG International Corp.
OFFER TO EXCHANGE SENIOR SUBORDINATED ZERO COUPON NOTES DUE JULY 1,
2007 AND WARRANTS FOR UP TO 2,500,000 SHARES OF ITS COMMON STOCK
THE EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 12:00 MIDNIGHT, ATLANTA, GEORGIA TIME, ON SEPTEMBER 17, 1999, UNLESS
EXTENDED.
To our Clients:
Enclosed for your consideration are the Offering Circular dated August
20, 1999 (the "Offering Circular") and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, constitute the "Exchange
Offer") in connection with the offer by KRUG International Corp., an Ohio
corporation ("KRUG"), to issue Senior Subordinated Zero Coupon Notes due July 1,
2007 and Warrants (the "Exchange Consideration") in exchange for up to 2,500,000
shares of its common stock without par value (the "Common Stock"), upon the
terms and conditions set forth in the Exchange Offer. We are the Holder of
record of shares of Common Stock held for your account. A tender of such shares
can be made only by us as the Holder of record and pursuant to your
instructions. THE LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR YOUR INFORMATION
ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD BY US FOR YOUR ACCOUNT.
EACH SHAREHOLDER SHOULD MAKE HIS OR HER OWN DECISION WHETHER TO TENDER
SHARES OF COMMON STOCK, AND, IF SO, HOW MANY SHARES TO TENDER.
We request instructions as to whether you wish us to tender any or all
of the shares of Common Stock held by us for your account, upon the terms and
subject to the conditions set forth in the Exchange Offer.
If you wish to have us tender any or all of your shares of Common
Stock, please so instruct us by completing, executing, detaching and returning
to us the attached instruction form. An envelope to return your instructions to
us is enclosed. If you authorize tender of your shares of Common Stock, all such
shares will be tendered unless otherwise specified on the attached instruction
form.
YOUR INSTRUCTIONS SHOULD BE FORWARDED TO US IN AMPLE TIME TO PERMIT US
TO SUBMIT A TENDER ON YOUR BEHALF BY THE EXPIRATION OF THE EXCHANGE OFFER. THE
EXCHANGE OFFER, PRORATION PERIOD AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00
MIDNIGHT, ATLANTA, GEORGIA TIME, ON FRIDAY, SEPTEMBER 17, 1999, UNLESS KRUG
EXTENDS THE EXCHANGE OFFER.
The Exchange Offer is not being made to, nor will tenders be accepted
from or on behalf of, shareholders in any jurisdiction in which the making of
the Exchange Offer or acceptance thereof would not be in compliance with the
laws of such jurisdiction.
<PAGE> 2
INSTRUCTIONS WITH RESPECT TO OFFER TO EXCHANGE
SENIOR SUBORDINATED ZERO COUPON NOTES DUE JULY 1, 2007
AND WARRANTS FOR UP TO 2,500,000 SHARES OF THE COMMON STOCK
OF
KRUG INTERNATIONAL CORP.
The undersigned acknowledge(s) receipt of your letter, the enclosed
Offering Circular dated August 20, 1999, and the related Letter of Transmittal
in connection with the offer by KRUG International Corp., an Ohio corporation,
to issue Senior Subordinated Zero Coupon Notes due July 1, 2007 and Warrants in
exchange for up to 2,500,000 shares of its common stock without par value (the
"Common Stock").
This will instruct you to tender the number of shares of Common Stock
indicated below held by you for the account of the undersigned, upon the terms
and subject to the conditions set forth in the Offering Circular and the related
Letter of Transmittal.
Number of shares of Common Stock to be tendered: _________ Shares*
Account Number:
Dated: _________, 1999
* Unless otherwise indicated, it will be assumed that all shares held by us for
your account are to be tendered.
SIGN HERE
_____________________________________ ______________________________________
Signature(s)
_____________________________________ ______________________________________
_____________________________________ ______________________________________
_____________________________________ ______________________________________
Please print name(s) and address(es) here.
<PAGE> 1
EXHIBIT 99.6
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF COMMON STOCK
OF
KRUG INTERNATIONAL CORP.
This form or one substantially equivalent to that set forth below must
be used to accept the Exchange Offer (as defined below) if certificates for
shares of the common stock without par value (the "Common Stock"), of KRUG
International Corp., an Ohio corporation, are not immediately available, or the
procedure for book-entry transfer cannot be completed on a timely basis, or a
shareholder cannot deliver the certificate(s) and all other required documents
to the Exchange and Information Agent prior to the Expiration Date (as defined
in the Offering Circular referred to below). Such form must be delivered by hand
or sent by facsimile transmission or mail to the Exchange and Information Agent,
and must be received by the Exchange and Information Agent on or prior to the
Expiration Date. See "The Exchange Offer--How to Tender" in the Offering
Circular.
The Exchange and Information Agent:
FIRST UNION NATIONAL BANK
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile: By Hand or Overnight Courier:
First Union Customer (704) 590-7628 First Union Customer
Information Center Information Center
Corporate Trust Confirm by Telephone: Corporate Trust
Operations-NC1153 (704) 590-7408 Operations-NC1153
1525 West W.T. Harris Blvd., 3C3 1525 West W.T. Harris Blvd., 3CS
Charlotte, NC 28288-1153 Telephone: Charlotte, NC 28262-1153
Attention: Michael Klotz 1-800-829-8432 Attention: Michael Klotz
</TABLE>
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE OTHER THAN AS SET FORTH ABOVE
DOES NOT CONSTITUTE A VALID DELIVERY.
Gentlemen:
The undersigned hereby tenders to KRUG International Corp., an Ohio
corporation, upon the terms and subject to the conditions set forth in the
Offering Circular dated August 20, 1999 (the "Offering Circular") and the
related Letter of Transmittal (which together constitute the "Exchange Offer"),
receipt of both of which is hereby acknowledged, the number of shares of Common
Stock set forth below, pursuant to the guaranteed delivery procedures set forth
in the Offering Circular under the caption "The Exchange Offer--How to Tender."
<PAGE> 2
Number of Shares: Name(s) of Record Holders(s):
_____________________________________ ______________________________________
______________________________________
Certificate Nos.
(if available): Please Print Address(es) Here:
_____________________________________ ______________________________________
_____________________________________ ______________________________________
_____________________________________ ______________________________________
______________________________________
Check box if shares will be
tendered by book-entry transfer: Area Code and Telephone Number
______________________________________
[ ] The Depository Trust Company
_____________________________________ ______________________________________
Signature(s) Dated:
<PAGE> 3
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, broker, dealer, credit union, savings association or
other entity that is a member in good standing of a recognized Medallion Program
approved by The Securities Transfer Association, Inc., guarantees that the
undersigned will deliver to the Exchange and Information Agent the certificates
representing the shares tendered hereby in proper form for transfer, or timely
confirmation of book-entry transfer of such shares into the Exchange and
Information Agent's account at The Depository Trust Company, with a properly
completed and duly executed Letter of Transmittal (or manually signed facsimile
thereof) with any required signature guarantees and any other required
documents, all within three American Stock Exchange trading days after the date
hereof.
_____________________________________ ______________________________________
(Address) (Name of Firm)
_____________________________________ ______________________________________
(Area Code and Telephone Number) (Authorized Signature)
Dated: ________________________, 1999
The institution which completes this form must communicate the
guarantee to the Exchange and Information Agent and must deliver the Letter of
Transmittal and certificates for Common Stock to the Exchange and Information
Agent within the time period shown herein. Failure to do so could result in a
financial loss to such institution.
DO NOT SEND SHARE CERTIFICATES
WITH THIS FORM.
SHARE CERTIFICATES SHOULD BE SENT
WITH YOUR LETTER OF TRANSMITTAL.
<PAGE> 1
EXHIBIT 99.7
FOR IMMEDIATE RELEASE NEWS RELEASE
CONTACT:
ROBERT M. THORNTON, JR.
CHIEF EXECUTIVE OFFICER
(770) 933-7000
KRUG INTERNATIONAL ANNOUNCES EXCHANGE OFFER
OF NOTES AND WARRANTS FOR COMMON SHARES
Atlanta, Georgia (August 23, 1999) - KRUG International Corp.
(AMEX:KRG) announced today that its board of directors has authorized an offer
to exchange Senior Subordinated Zero Coupon Notes and warrants for up to
2,500,000 shares of KRUG's common stock. Each share of common stock accepted in
the exchange offer will be exchanged for $5 principal amount of KRUG's Senior
Subordinated Zero Coupon Notes due July 1, 2007 and one-fourth of a warrant,
each whole warrant entitling the holder to purchase one share of KRUG's common
stock for $3.875, exercisable October 1, 2000 through September 30, 2002.
Alternatively, instead of participating in the exchange offer, holders of less
than 100 shares of common stock as of August 13, 1999, may elect to tender all
of their shares for a cash payment of $2.00 per share.
The exchange offer is conditioned upon, among other things, a minimum
of 1,000,000 shares being tendered in the exchange offer. As of August 13, 1999,
KRUG had 4,977,530 common shares outstanding.
The exchange offer commences today and will expire at 12:00 midnight,
Atlanta, Georgia time on September 17, 1999, unless extended. The exchange offer
is subject to various terms and conditions described in the offering materials
mailed to shareholders today.
<PAGE> 2
The purpose of the exchange offer is to allow shareholders the
opportunity to restructure their investment in KRUG in line with their personal
investment objectives. By means of the exchange offer, KRUG is giving
shareholders the choice of (i) exchanging (in whole or in part, depending on the
number of shares of common stock tendered) their investment in the common stock
for a debt security of KRUG in the form of the Senior Subordinated Zero Coupon
Notes while also retaining an opportunity to reinvest in the common stock in the
future pursuant to the terms of the warrants, (ii) retaining all of their shares
of common stock, thus increasing such shareholders' proportionate interest in
the common equity of KRUG following completion of the exchange offer, or (iii)
some combination of (i) and (ii).
KRUG has recently modified its business strategy and anticipates growth
by acquisitions in the healthcare and technology areas, as broadly defined,
which will involve expansion into areas and activities not currently conducted
by KRUG. Therefore, the board concluded that KRUG's acquisition activity should
be undertaken in conjunction with providing shareholders, especially those who
wish to reduce their level of exposure to the modified business strategy, an
opportunity to exchange all or part of their common stock for Senior
Subordinated Zero Coupon Notes and warrants.
KRUG has been informed by its directors and executive officers that
they do not intend to tender any of their shares pursuant to the exchange offer.
The Senior Subordinated Zero Coupon Notes will not pay interest, do not
provide a sinking fund and are callable at KRUG's option at increasing prices
beginning at $450 in year one (i.e., through September 30, 2000) and increasing
to $500 in year two, $550 in year three, $600 in year four, $700 in year five,
$800 in year six and $1,000 thereafter. Assuming rates of return of 12.5% to
13.5% compounded annually, and a redemption price of $5.00 per note at maturity,
the current price of the notes on a yield to maturity basis would range from
$1.87 to $2.00 per note. The warrants may be exercised only when a registration
statement covering the underlying shares of the common stock is effective with
the SEC. KRUG has the obligation after July 15, 2000, to register the common
stock once the closing price of the common stock is above $3.50 for ten
consecutive trading days.
<PAGE> 3
KRUG does not plan to list the Senior Subordinated Zero Coupon Notes or
warrants on any exchange, although they may trade in the over-the-counter
market. Upon consummation of the exchange offer, if the public distribution or
aggregate market value of the common stock is substantially reduced, the common
stock may cease to be listed on the American Stock Exchange, although a more
limited public market for the common stock may exist.
KRUG's board of directors has determined, after considering a number of
factors, including the written opinion of its financial advisor, that the
exchange offer is fair from a financial point of view to KRUG shareholders,
including those who participate in the exchange offer.
First Union National Bank is serving as the Exchange and Information
Agent for the exchange offer. Requests for further information about the
exchange offer may be directed to Michael Klotz at 800-829-8432, First Union
National Bank, Customer Service.
The press release contains forward-looking information. The
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. Forward-looking statements
may be significantly impacted by certain risks and uncertainties described in
the offering materials and in KRUG's Annual Report on Form 10-K and Quarterly
Reports on Form 10-Q.
<PAGE> 1
EXHIBIT 99.8
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE PAYER.--
Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
- ------------------------------------ -----------------------------------
GIVE THE
SOCIAL SECURITY
FOR THIS TYPE OF ACCOUNT: NUMBER OF
- ------------------------------------ ------------------------------------
<S> <C> <C>
1. An individual's account The individual
2. Two or more individuals The actual owner
(joint account) of the account
or, if combined
funds, any one
of the individuals/1/
3. Husband and wife (joint The actual owner
account) of the account
or, if joint
funds, either
person/1/
4. Custodian account of The minor/2/
minor
(Uniform Gift to Minors Act)
5. Adult and minor (joint The adult or, if
account) the minor is the
only
contributor, the
minor/1/
6. Account in the name of The ward, minor,
guardian or committee or incompetent
for a designated ward, person/3/
minor, or incompetent
person
7. a The usual revocable The grantor-
savings trust account trustee/1/
(grantor is also
trustee)
b So-called trust The actual
account that is not owner/1/
legal or valid trust
under State law
8. Sole proprietorship The owner/4/
account
</TABLE>
<PAGE> 2
<TABLE>
<CAPTION>
- ------------------------------------ -----------------------------------
GIVE THE EMPLOYER
IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF
- ------------------------------------ ------------------------------------
<S> <C> <C>
9. A valid trust, estate, Legal entity (do
or pension trust not furnish the
identifying
number of the
personal
representative
or trustee
unless the legal
entity itself is
not designated
in the account
title.)/5/
10. Corporate account The corporation
11. Religious, charitable, The organization
educational
organization account
12. Partnership account The partnership
held in the name of the
business
13. Association, club, or The organization
other tax-exempt
organization
14. A broker or registered The broker or
nominee nominee
15. Account with the The public
Department of entity
Agriculture in the name
of a public entity
(such as a state or
local government,
school district, or
prison) that receives
agricultural program
payments
</TABLE>
/1/ List first and circle the name of the person whose number you furnish.
/2/ Circle the minor's name and furnish the minor's social security number.
/3/ Circle the ward's, minor's or incompetent person's name and furnish
such person's social security number.
/4/ Show the name of the owner.
/5/ List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number will
be considered to be that of the first name listed.
<PAGE> 3
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
|X| A corporation.
|X| A financial institution.
|X| An organization exempt from tax under section 501(a), or an individual
retirement plan.
|X| The United States or any agency or instrumentality thereof.
|X| A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
|X| A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
|X| An international organization or any agency, or instrumentality
thereof.
|X| A registered dealer in securities or commodities registered in the
United States or a possession of the United States.
|X| A real estate investment trust.
|X| A common trust fund operated by a bank under section 584(a).
|X| An exempt charitable remainder trust, or a non-exempt trust described
in section 4947(a)(1).
|X| An entity registered at all times under the Investment Corporation Act
of 1940.
|X| A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
|X| Payments to nonresident aliens subject to withholding under section
1441.
|X| Payments to partnerships not engaged in a trade or business in the
United States and which have at least one nonresident partner.
|X| Payments of patronage dividends where the amount received is not paid
in money.
|X| Payments made by certain foreign organizations.
|X| Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
|X| Payments of interest on obligations issued by individuals. NOTE: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's
<PAGE> 4
trade or business and you have not provided your correct taxpayer
identification number to the payer.
|X| Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
|X| Payments described in section 6049(b)(5) to nonresident aliens.
|X| Payments on tax-free covenant bonds under section 1451.
|X| Payments made by certain foreign organizations.
|X| Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE DIVIDENDS, ALSO
SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage
dividends, that are not subject to information reporting are also not subject to
backup withholding. For details, see the regulations under sections 6041,
6041A(a), 6045, and 6050A.
PRIVACY ACT NOTICE.--Section 6109 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payers must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE> 1
EXHIBIT 99.10
EXHIBIT A
[FORM OF FACE OF NOTE]
FOR PURPOSES OF SECTIONS 1273 AND 1275 OF THE INTERNAL REVENUE CODE OF 1986, AS
AMENDED, THE AMOUNT OF ORIGINAL ISSUE DISCOUNT WITH RESPECT TO EACH $1,000 OF
PRINCIPAL AMOUNT OF THIS NOTE IS $_________, THE ISSUE DATE IS SEPTEMBER __,
1999 AND THE YIELD TO MATURITY IS ____% (COMPUTED ON A SEMIANNUAL BOND
EQUIVALENT BASIS).
KRUG INTERNATIONAL CORP.
Senior Subordinated Zero Coupon Note
Due 2007
CUSIP NO.
No.
Issue Date: September ___, 1999
Issue Price: $_________
Original Issue Discount: $______
(for each $1,000 Principal Amount at Maturity
or fraction thereof originally issued)
KRUG International Corp., an Ohio corporation, promises to pay to
______________ or registered assigns, the Principal Amount at Maturity of
_____________ Dollars on July 1, 2007.
This Note shall not bear interest except as specified on the other side
of this Note. Original Issue Discount will accrue as specified on the other side
of this Note. This Note is not convertible into any security. All capitalized
terms used herein without definition shall have the respective meanings assigned
thereto in the Indenture referred to on the other side of this Note.
Additional provisions of this Note are set forth on the other side of
this Note.
Dated: KRUG INTERNATIONAL CORP.
--------------------
[SEAL] By:
--------------------------------
Name: Robert M. Thornton, Jr.
Title: Chief Executive Officer
<PAGE> 2
ATTEST:
- ------------------------------------
Name:
Title:
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities of the series
designated therein referred to in the
within-mentioned Indenture.
U.S. BANK TRUST NATIONAL ASSOCIATION,
as Trustee
By:
-----------------------------------
Authorized Officer
2
<PAGE> 3
[FORM OF REVERSE SIDE OF NOTE]
Senior Subordinated Zero Coupon Note
Due 2007
1. INTEREST
This Note shall not bear interest except as specified in this
paragraph or in paragraph 9 hereof. If the Principal Amount at Maturity hereof
or any portion of such Principal Amount at Maturity is not paid when due
(whether upon acceleration pursuant to Section 6.02 of the Indenture, upon the
date set for payment of the Redemption Price pursuant to paragraph 5 hereof),
then in each such case the overdue amount shall bear interest at the rate of 12%
per annum, compounded semiannually (to the extent that the payment of such
interest shall be legally enforceable), which interest shall accrue from the
date such overdue amount was due to the date payment of such amount, including
interest thereon, has been made or duly provided for.
All such interest shall be payable on demand.
Original Issue Discount (the difference between the Issue
Price and the Principal Amount at Maturity of the Note), in the period during
which a Note remains outstanding, shall accrue at __% per annum, on a semiannual
bond equivalent basis using a 360-day year composed of twelve 30-day months,
commencing on the Issue Date of this Note, and shall cease to accrue on the
earlier of (a) the date on which the Principal Amount at Maturity hereof or the
Issue Price and accrued Original Issue Discount become due and payable or (b)
any Redemption Date.
2. METHOD OF PAYMENT
Subject to the terms and conditions of the Indenture, KRUG
International Corp. (the "Company") will make payments in respect of any Note to
the persons in whose name that Note is registered at the close of business on
the Business Day preceding the Redemption Date or Stated Maturity, as the case
may be. Holders must surrender Notes to a Paying Agent to collect such payments
in respect of the Notes. The Company will pay cash amounts in money of The
United States of America that at the time of payment is legal tender for payment
of public and private debts. The Company will make such cash payments, at its
option, (i) by wire transfer of immediately available funds with respect to
Notes held in book-entry form or (ii) by check payable in such money mailed to a
Holder's registered address with respect to any certified Notes.
3. PAYING AGENT AND SECURITY REGISTRAR
Initially, First Union National Bank will act as Paying Agent
and Security Registrar. The Company may appoint and change any Paying Agent,
Security Registrar or co-registrar without notice, other than notice to the
Trustee, provided that the Company shall
3
<PAGE> 4
maintain in Atlanta, Georgia, an office or agency of the Security Registrar or
Paying Agent. The Company or any of its Subsidiaries or any of their Affiliates
may act as Paying Agent, Registrar or co-registrar.
4. INDENTURE
This Note of the Company, designated as its Senor Subordinated
Zero Coupon Note Due 2007, is issued under an Indenture dated as of August 20,
1999 (the "Indenture"), between the Company and the Trustee. The terms of the
Notes include those stated in the Indenture and those made part of the Indenture
by reference to the Trust Indenture Act of 1939, as amended and in effect on the
date of the Indenture (the "Trust Indenture Act"). Capitalized terms used herein
or on the face hereof and not defined herein have the meanings ascribed thereto
in the Indenture. The Notes are subject to all such terms, and Holders are
referred to the Indenture and the Trust Indenture Act for a statement of those
terms.
The Notes are unsecured, subordinated, general obligations of
the Company limited to an aggregate Principal Amount at Maturity specified in
Section 2.2 of the Indenture. The Indenture does not limit other indebtedness of
the Company, secured or unsecured, including Senior Indebtedness.
5. REDEMPTION AT THE OPTION OF THE COMPANY
No sinking fund is provided for the Notes. The Notes are
redeemable for cash as a whole at any time, or from time to time in part, at the
option of the Company at the Redemption Prices set forth below.
The table below shows the Redemption Prices of a Note per
$1,000 Principal Amount at Maturity on the dates shown below.
<TABLE>
<CAPTION>
Redemption
Price
----------
<S> <C>
if called for redemption on or before September 30, 2000 $450
thereafter, if called for redemption on or before September 30, 2001 $500
thereafter, if called for redemption on or before September 30, 2002 $550
thereafter, if called for redemption on or before September 30, 2003 $600
thereafter, if called for redemption on or before September 30, 2004 $700
thereafter, if called for redemption on or before September 30, 2005 $800
thereafter, if called for redemption on or before June 30, 2007 $1,000
</TABLE>
4
<PAGE> 5
If a Note has a Principal Amount at Maturity in an amount other than an
integral multiple of $1,000, then the Redemption Price with respect to that
portion of such Note that is not an integral multiple of $1,000 shall be (i)
such portion divided by $1,000, multiplied by (ii) the Redemption Price then
applicable per $1,000 Principal Amount at Maturity.
6. NOTICE OF REDEMPTION
Notice of redemption will be given in the manner provided in
the Indenture not less than 30 days nor more than 60 days prior to the
Redemption Date. If money sufficient to pay the Redemption Price of all Notes
(or portions thereof) to be redeemed on the Redemption Date is deposited with
the Paying Agent prior to or on the Redemption Date, from and after such
Redemption Date, Original Issue Discount and interest, if any, ceases to accrue
on such Notes or portions thereof. Notes in denominations larger than $1,000 of
Principal Amount at Maturity may be redeemed in part but only in integer
multiples of $1,000 of Principal Amount at Maturity.
7. DENOMINATIONS; TRANSFER; EXCHANGE
The Notes are in fully registered form, without coupons in
denominations of $1,000 Principal Amount at Maturity, in integer multiples
thereof or in denominations of less than $1,000, provided that after the Notes
are initially issued under the Indenture, Notes will not be issued in
denominations of less than $1,000 except as provided in Section 2.07 of the
Indenture. A Holder may transfer or exchange Notes in accordance with the
Indenture. The Security Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any taxes and
fees required by law or permitted by the Indenture. The Security Registrar need
not transfer or exchange any Notes selected for redemption (except, in the case
of a Note to be redeemed in part, the portion of the Note not to be redeemed) or
any Notes for a period of 15 days before a selection of Notes to be redeemed.
8. PERSONS DEEMED OWNERS
The registered Holder of this Note may be treated as the owner
of this Note for all purposes.
9. UNCLAIMED MONEY FOR SECURITIES
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, in trust for the payment of any amount with respect to
the Notes and remaining unclaimed for two years after such amounts have become
due and payable shall be paid to the Company at the Company's Request (unless
otherwise required by mandatory provisions of the applicable escheat or
abandoned or unclaimed property law), or (if then held by the Company) shall be
discharged from such trust; and the Holder of such Note shall thereafter, as an
unsecured general creditor, look only to the Company for payment thereof, and
all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee
5
<PAGE> 6
thereof, shall thereupon cease; provided, however, that the Trustee or such
Paying Agent, before being required to make any such repayment, may at the
expense of the Company cause to be published in a newspaper of general
circulation in Atlanta, Georgia notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will (unless otherwise required by mandatory provisions of applicable escheat or
abandoned or unclaimed property law) be repaid to the Company.
10. AMENDMENT; WAIVER
Subject to certain exceptions set forth in the Indenture, (i)
the Indenture or the Notes may be amended with the written consent of the
Holders of at least a majority in aggregate Principal Amount at Maturity of the
Notes at the time Outstanding and (ii) certain defaults or noncompliance with
certain provisions may be waived with the written consent of the Holders of a
majority in aggregate Principal Amount at Maturity of the Notes at the time
Outstanding. Subject to certain exceptions set forth in the Indenture, without
the consent of any Holder, the Company and the Trustee may amend or supplement
the Indenture or the Notes in certain respects set forth in the Indenture.
11. DEFAULTS AND REMEDIES
Under the Indenture, Events of Default include (i) default in
the payment of the Principal Amount at Maturity, Issue Price, accrued Original
Issue Discount or Redemption Price, as the case may be, with respect to any Note
when the same becomes due and payable; (ii) default in performance or breach of
any covenant of the Company in the Indenture or the Notes, subject to notice and
lapse of time; or (iii) certain events of bankruptcy, insolvency or
reorganization of the Company. If an Event of Default occurs and is continuing,
the Trustee may declare all the Notes to be due and payable immediately. The
principal amount of the Notes that may be declared due and payable in such event
shall be the amount of the Redemption Price then payable by the Company had the
Company elected to redeem the Notes and there had been no Event of Default.
Certain events of bankruptcy or insolvency are Events of Default that will
result in the Notes becoming due and payable immediately in said amount upon the
occurrence of such Events of Default.
As set forth in, and subject to the provisions of, the
Indenture, no holder of any Note shall have any right to institute any
proceeding, judicial or otherwise, with respect to the Indenture, or for the
appointment of a receiver or trustee, or for any other remedy thereunder, unless
certain conditions set forth in the Indenture have been satisfied. The Trustee
may refuse to enforce the Indenture or the Notes unless it receives reasonable
indemnity or security. Subject to certain limitations, Holders of a majority in
aggregate Principal Amount at Maturity of the Outstanding Notes shall have the
right to direct the time, method and place of conducting certain proceedings, or
exercising any trust or power conferred on the Trustee.
6
<PAGE> 7
12. TRUSTEE DEALINGS WITH THE COMPANY
Subject to certain limitations imposed by the Trust Indenture
Act, the Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Notes and may otherwise deal with the Company
with the same rights it would have if it were not Trustee.
13. NO RECOURSE AGAINST OTHERS
No recourse may be taken, directly or indirectly, against any
incorporator, subscriber to the capital stock, stockholder, officer, director or
employee of the Company or the Trustee or of any predecessor or successor of the
Company or the Trustee with respect to the Company's obligations on the Notes or
the obligations of the Company or the Trustee under the Indenture or any
certificate or other writing delivered in connection therewith.
14. SUBORDINATION
Indebtedness evidenced by the Notes is subordinated, to the
extent and in the manner provided in the Indenture, to the prior payment in full
of all Senior Indebtedness of the Company, whether outstanding at the date of
the Indenture or thereafter created, incurred, assumed or guaranteed. There is
no restriction under the Indenture on the Company's incurring additional
Indebtedness, including Senior Indebtedness, except the Company shall not sell
any Indebtedness that is both (i) junior in priority and right of payment to
Senior Indebtedness and (ii) senior in priority and right of payment to the
Note. Among other kinds of Indebtedness, the Company may issue from time to time
additional Indebtedness that is junior in priority and right of payment to
Senior Indebtedness and pari passu to the Notes. The Company, and each Holder by
accepting a Note, agrees to the subordination provided in the Indenture and that
the subordination provisions are for the benefit of the holders of Senior
Indebtedness.
Each Holder of a Note by his acceptance hereof authorizes and
expressly directs the Trustee on his behalf to take such action as may be
necessary or appropriate to effectuate the subordination provisions contained in
the Indenture and to protect the rights of the Holders of the Notes pursuant to
the Indenture, and appoints the Trustee his attorney-in-fact for such purpose,
including, in the event of any dissolution, winding up, liquidation or
reorganization of the Company (whether in bankruptcy, insolvency or receivership
proceedings or upon an assignment for the benefit of creditors of the Company),
the filing of a claim for the unpaid balance of his Notes in the form required
in said proceedings and cause said claim to be approved.
15. AUTHENTICATION
This Note shall not be valid until an authorized officer of
the Trustee manually signs the Certificate of Authentication on the other side
of this Note.
7
<PAGE> 8
16. ABBREVIATIONS
Customary abbreviations may be used in the name of a Holder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with right of survivorship and not as
tenants in common), CUST (=custodian), and UNIF TRANS MIN ACT (=Uniform
Transfers to Minors Act).
17. GOVERNING LAW
THE INDENTURE AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS TO THE CONTRARY.
18. INTEREST LIMITATIONS
Anything in this Note or in the Indenture to the contrary
notwithstanding, the Company shall never be required to pay unearned interest on
this Note and shall never be required to pay interest on this Note at a rate in
excess of the Highest Lawful Rate.
The Company will furnish to any Holder upon written request
and without charge a copy of the Indenture which has in it the text of this Note
in larger type. Requests may be made to:
KRUG International Corp.
c/o U.S. Bank Trust, National Association
Suite 900
3384 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attention: Corporate Trust Department
8
<PAGE> 9
ASSIGNMENT FORM
If you the Holder want to assign this Senior Subordinated Zero Coupon
Note due April 30, 2006, fill in the form below and have your signature
guaranteed:
I or we assign and transfer this Senior Subordinated Zero Coupon Note due
September 30, 2007 to:
- -----------------------------------------------------------------
- -----------------------------------------------------------------
- -----------------------------------------------------------------
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ___________ agent to transfer this Senior Subordinated
Zero Coupon Note due September 30, 2007 on the books of the Company. The agent
may substitute another to act for him.
Dated: Signed:
------------------ ---------------------------
-------------------------------------------------------
(Sign exactly as name appears on the face of this Note)
Signature Guarantee:___________________ Signature(s)
must be guaranteed by a member of or a participant in
the Notes Transfer Agents Medallion Program (STAMP),
the New York Stock Exchange Medallion Signature
Program (MSP) or the Stock Exchange Medallion Program
(SEMP) or a registered depositary as defined the
Securities Exchange Act of 1934, as amended, if Notes
are to be issued other than to and in the name of the
registered owner.
9
<PAGE> 1
EXHIBIT 99.11
KRUG INTERNATIONAL CORP.,
AS ISSUER
AND
HARRIS TRUST AND SAVINGS BANK,
AS WARRANT AGENT
-----------------
WARRANT AGREEMENT
DATED AS OF AUGUST 20, 1999
-----------------
<PAGE> 2
TABLE OF CONTENTS*
-----------------
<TABLE>
<CAPTION>
Page
<S> <C>
PARTIES........................................................................................................ 1
RECITALS....................................................................................................... 1
SECTION 1. Appointment of Warrant Agent................................................................. 2
SECTION 2. Form of Warrant Certificates................................................................. 1
SECTION 3. Execution of Warrant Certificates............................................................ 1
SECTION 4. Registration and Countersignature............................................................ 2
SECTION 5. Registration of Transfers and Exchanges...................................................... 2
SECTION 6. Duration and Exercise of Warrants and Residual Value......................................... 2
SECTION 7. Payment of Taxes............................................................................. 3
SECTION 8. Mutilated or Missing Warrant Certificates.................................................... 3
SECTION 9. Reservation of Shares........................................................................ 3
SECTION 10. Obtaining of Governmental Approvals.......................................................... 4
SECTION 11. Adjustment of Exercise Price and Number of Shares Purchasable or Number of Warrants.......... 4
SECTION 12. Fractional Warrants and Fractional Shares.................................................... 6
SECTION 13. Notice to Warrant Holders.................................................................... 6
SECTION 14. Merger, Consolidation or Change of Name of Warrant Agent..................................... 6
SECTION 15. Warrant Agent............................................................................... 7
SECTION 16. Disposition of Proceeds of Exercise of Warrants.............................................. 9
SECTION 17. Change of Warrant Agent...................................................................... 9
SECTION 18. Notices to Company and Warrant Agent......................................................... 9
SECTION 19. Supplements and Amendments................................................................... 10
SECTION 20. Successors................................................................................... 10
SECTION 21. Termination.................................................................................. 10
SECTION 22. Governing Law................................................................................ 10
SECTION 23. Benefits of This Agreement................................................................... 10
SECTION 24. Counterparts................................................................................. 11
SECTION 25. Definitions.................................................................................. 11
TESTIMONIUM.................................................................................................... 11
SIGNATURES AND SEALS........................................................................................... 11
EXHIBIT "A".................................................................................................... 12
</TABLE>
- -------------
* This table of Contents does not constitute a part of this Agreement or
have any bearing upon the interpretation of any of its terms or provisions.
<PAGE> 3
WARRANT AGREEMENT dated as of August 20, 1999, between KRUG
INTERNATIONAL CORP., an Ohio corporation (the "Company"), and HARRIS TRUST AND
SAVINGS BANK, an Illinois banking corporation, as Warrant Agent (the "Warrant
Agent").
WHEREAS, the Company proposes to issue and distribute up to 625,000
warrants (the "Warrants") entitling the holders to purchase a maximum aggregate
of 625,000 shares of its Common Stock, without par value (such 625,000 shares
being hereinafter referred to as the "Shares" and where appropriate such term
shall also mean the other securities or property purchasable upon the exercise
of a Warrant as provided for herein upon the happening of certain events; and
such Common Stock being hereinafter referred to as the "Common Stock") and the
certificates evidencing the Warrants being hereinafter referred to as "Warrant
Certificates"); and
WHEREAS, the Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent is willing so to act, in connection with the
issuance, registration, transfer, exchange, replacement and exercise of Warrant
Certificates and other matters as provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein set forth, the parties hereto agree as follows:
SECTION 1. Appointment of Warrant Agent. The Company hereby appoints
the Warrant Agent to act as agent for the Company in accordance with the
instructions set forth hereinafter in this Agreement, and the Warrant Agent
hereby accepts such appointment.
SECTION 2. Form of Warrant Certificates. The Warrant Certificates to be
delivered pursuant to this Agreement shall be in registered form only and shall
be substantially in the form set forth in Exhibit A attached hereto.
SECTION 3. Execution of Warrant Certificates. Warrant Certificates
shall be signed on behalf of the Company by its Chairman of the Board, Chief
Executive Officer, President, a Senior Vice President or a Vice President and by
its Secretary or an Assistant Secretary under its corporate seal. Each such
signature upon the Warrant Certificates may be in the form of a facsimile
signature of the present or any future Chairman of the Board, Chief Executive
Officer, President, Senior Vice President, Vice President, Secretary or
Assistant Secretary and may be imprinted or otherwise reproduced on the Warrant
Certificates and for that purpose the Company may adopt and use the facsimile
signature of any person who shall have been Chairman of the Board, Chief
Executive Officer, President, a Senior Vice President, a Vice President,
Secretary or an Assistant Secretary, notwithstanding the fact that at the time
the Warrant Certificates shall be countersigned and delivered or disposed of he
shall have ceased to hold such office. The seal of the Company may be in the
form of a facsimile thereof and may be impressed, affixed, imprinted or
otherwise reproduced on the Warrant Certificates.
In case any officer of the Company who shall have signed any of the
Warrant Certificates shall cease to be such officer before the Warrant
certificates so signed shall have been countersigned by the Warrant Agent, or
disposed of by the Company, such Warrant Certificates nevertheless may be
countersigned and delivered or disposed of as though such person had not ceased
to be such officer of the Company; and any Warrant Certificate may be signed on
behalf of the Company by any person who, at the actual date of the execution of
such Warrant Certificate, shall be a proper officer of the Company to sign such
Warrant Certificate, although at the date of the execution of this Warrant
Agreement any such person was not such officer.
In connection with the initial issuance of the Warrant Certificates,
upon receipt of Warrant Certificates executed by the Company and a written order
of the Company executed by its Chairman of the Board, Chief Executive Officer,
President, a Senior Vice President or a Vice President and by its Secretary or
an Assistant Secretary, the Warrant Agent will countersign and deliver Warrant
Certificates in accordance with the instructions contained in such order.
Warrant Certificates shall be dated the date of countersignature by the
Warrant Agent.
1
<PAGE> 4
SECTION 4. Registration and Countersignature. Warrant Certificates
distributed as provided in Section 12 shall be registered in the name of the
record holders of the Warrant Certificates to whom they are to be distributed.
Warrant Certificates shall be manually countersigned by the Warrant
Agent and shall not be valid for any purpose unless so countersigned.
The Company and the Warrant Agent may deem and treat the registered
holder of a Warrant Certificate as the absolute owner thereof (notwithstanding
any notation of ownership of other writing thereon made by anyone), for the
purpose of any exercise or conversion thereof and any distribution to the holder
thereof and for all other purposes, and neither the Company nor the Warrant
Agent shall be affected by any notice to the contrary.
SECTION 5. Registration of Transfers and Exchanges. The Warrant Agent
shall from time to time register the transfer of any outstanding Warrant
Certificates upon the records to be maintained by it for that purpose, upon
surrender thereof accompanied (if so required by it) by a written instrument or
instruments of transfer in form satisfactory to the Warrant Agent duly executed
by the registered holder or holders thereof or by the duly appointed legal
representative thereof or by a duly authorized attorney. Upon any such
registration of transfer, a new Warrant Certificate shall be issued to the
transferee and the surrendered Warrant Certificate shall be canceled by the
Warrant Agent. Canceled Warrant Certificates shall thereafter be disposed of in
a manner satisfactory to the Company.
Warrant Certificates may be exchanged at the option of the holders
thereof, when surrendered to the Warrant Agent at its office maintained for the
purpose of exchanging, transferring and exercising the Warrants in the Atlanta,
Georgia (the "Warrant Agent Office"), for another Warrant Certificate or other
Warrant Certificates of like tenor and representing in the aggregate a like
number of Warrants. Warrant Certificates surrendered for exchange, transfer and
exercise shall be canceled by the Warrant Agent. Such canceled Warrant
Certificates shall then be disposed of by the Warrant Agent in a manner
satisfactory to the Company.
The Warrant Agent is hereby authorized to countersign, in accordance
with the provisions of this Section 5 and of Section 4, and deliver the new
Warrant Certificates required pursuant to the provisions of this Section, and
for the purpose of any distribution of Warrant Certificates contemplated by
Section 12.
SECTION 6. Duration and Exercise of Warrants and Residual Value. The
Warrants shall expire on September 30, 2002 (such date of termination being
herein referred to as the "Termination Date"). Each Warrant may be exercised on
or after October 1, 2000 (on any business day prior to the close of business on
the Termination Date), but only if a registration statement covering the shares
issuable upon exercise of the Warrant has been declared effective by the
Securities and Exchange Commission ("SEC") and is effective at the time of
exercise. The Company shall file with the SEC a registration statement covering
the Shares issuable upon exercise of the Warrants as promptly as practicable
after July 15, 2000 at any time the Closing Price per Share exceeds $3.50 for 10
consecutive trading days (unless a registration statement covering such Shares
is then effective). The Company is obligated during the term of the Warrants to
endeavor to maintain the effectiveness of such registration statement the
greater of (i) 90 days or (ii) consecutive 60 day periods after the date the
registration statement covering such Common Stock is first declared effective by
the SEC, so long as the Closing Price of the Common Stock continues to be above
$3.50 per share for at least 10 consecutive trading days during each such
period. The Company reserves the right to reduce the exercise price of the
Warrants, on thirty days' notice, for a minimum of thirty days.
Subject to the provisions of this Agreement, when this Warrant is
exercisable as set forth above the holder of each Warrant shall have the right
to purchase from the Company (and the Company shall issue and sell to such
holder) one fully paid and non-assessable Share at the initial exercise price
(the "Exercise Price") of $3.875 upon the surrender on any business day prior to
the close of business (6:00 p.m. New York time) on the Termination Date to the
Warrant Agent at the Warrant Agent Office of the Warrant Certificate evidencing
such Warrant, with the form of election to purchase on the reverse thereof duly
filled in and signed, and upon payment of the Exercise Price in lawful money of
2
<PAGE> 5
the United States of America. Exercisable Warrants evidenced by a Warrant
Certificate shall be exercisable prior to the close of business on the
Termination Date, at the election of the registered holder thereof, either as an
entirety or from time to time for part of the number of Warrants specified in
the Warrant Certificate. In the event that less than all of the Warrants
evidenced by a Warrant Certificate surrendered upon the exercise of Warrants are
exercised at any time prior to the close of business on the Termination Date, a
new Warrant Certificate or Certificates will be issued for the remaining number
of Warrants evidenced by the Warrant Certificate so surrendered. No adjustments
shall be made for any cash dividends on Shares issuable on the exercise of a
Warrant.
Subject to Section 7, upon such surrender of a Warrant Certificate and
payment of the Exercise Price, the Warrant Agent shall requisition from the
transfer agent for the Shares for issuance and delivery to or upon the written
order of the registered holder of such Warrant Certificate and in such name or
names as such registered holder may designate, a certificate for the Share or
Shares issuable upon the exercise of the Warrant or Warrants evidenced by such
Warrant Certificate. Such certificate shall be deemed to have been issued and
any person so designated to be named therein shall be deemed to have become the
holder of record of such Share or Shares as of the date of the surrender of such
Warrant Certificate and payment of the Exercise Price. The Warrant Agent is
hereby authorized to countersign and deliver the required new Warrant
Certificate or Certificates, if any, pursuant to the provisions of this Section
6 and of Section 5.
The "Closing Price" of the Common Stock for purposes of this Section 6
shall mean (i) the closing price of the Common Stock on the applicable day(s) on
the American Stock Exchange or such other national securities exchange, or The
Nasdaq Stock Market's National Market ("Nasdaq National Market"), whichever is
the principal market on which such Common Stock is then listed or admitted to
trading, (ii) if no sale takes place on such day(s) on such exchange or the
Nasdaq National Market, as the case may be, the highest reported closing bid
price on such day(s) as officially quoted on such exchange or the Nasdaq
National Market, as the case may be, (iii) if the Common Stock is not then
listed or admitted to trading on any such securities exchange or the Nasdaq
National Market, as the case may be, the highest reported closing bid on such
day(s) in the over-the counter market, as furnished by the Nasdaq system, (iv)
if such corporation at the time is not engaged in the business of reporting such
prices, such price as furnished by any similar firm then engaged in such
business, or (v) if there is no such firm, such price as furnished by any
nationally recognized member of the NASD selected by the Company which is
independent of the Company. The "Closing Price" shall mean the referenced prices
on a "regular way" basis, i.e., priced exclusive of any dividends.
SECTION 7. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the initial issuance of Shares upon the exercise of
Warrants; provided, however, that the Company shall not be required to pay any
tax or taxes which may be payable in respect of any transfer involved in the
issue of any Warrant Certificates or any certificate for Shares in a name other
than that of the registered holder of a Warrant Certificate surrendered upon the
exercise of a Warrant, and the Company shall not be required to issue or deliver
such certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
SECTION 8. Mutilated or Missing Warrant Certificates. In case any of
the Warrant Certificates shall be mutilated, lost, stolen or destroyed, the
Company may in its discretion issue, and the Warrant Agent shall countersign and
deliver, in exchange and substitution for and upon cancellation of the mutilated
Warrant Certificate, or in lieu of and in substitution for the Warrant
Certificate lost, stolen or destroyed, a new Warrant Certificate of like tenor
and representing an equivalent number of Warrants, but only upon receipt of
evidence satisfactory to the Company and the Warrant Agent of such loss, theft
or destruction of such Warrant Certificate and indemnity or bond, if requested,
also satisfactory to them. Applicants for such substitute Warrant Certificates
shall also comply with such other reasonable regulations and pay such other
reasonable charges as the Company or the Warrant Agent may prescribe.
SECTION 9. Reservation of Shares. The Company will at all times reserve
and keep available, free from preemptive rights, out of the aggregate of its
authorized but unissued Common Stock or treasury Common Stock, for the purpose
of enabling it to satisfy any obligation to issue Shares upon exercise of
Warrants, through the close of
3
<PAGE> 6
business on the Termination Date, the number of Shares deliverable upon the
exercise of all outstanding Warrants, and the transfer agent for such Common
Stock is hereby irrevocably authorized and directed at all times to reserve such
number of authorized and unissued shares of Common Stock or treasury Common
Stock as shall be required for such purpose. The Company will keep a copy of
this Agreement on file with such transfer agent. The Warrant Agent is hereby
irrevocably authorized to requisition from time to time from such transfer agent
stock certificates issuable upon exercise of outstanding Warrants, and the
Company will supply such transfer agent with duly executed stock certificates
for such purpose.
Before taking any action which would cause an adjustment pursuant to
Section 11 reducing the Exercise Price below the then par value (if any) of the
Shares issuable upon exercise of the Warrants, the Company will take any
corporate action which may, in the opinion of its counsel (which may be counsel
employed by the Company), be necessary in order that the Company may validly and
legally issue fully paid and non-assessable Shares at the Exercise Price as so
adjusted.
The Company covenants that all Shares issued upon exercise of the
Warrants will, upon issuance in accordance with the terms of this Agreement, be
fully paid and non-assessable and free from all taxes, liens, charges and
security interests created by the Company with respect to the issuance thereof.
SECTION 10. Obtaining of Governmental Approvals. The Company from time
to time will use its best efforts to obtain and keep effective any and all
permits, consents and approvals of governmental agencies and authorities and to
make securities acts filings under federal and state laws, which may be or
become requisite in connection with the issuance, sale, transfer and delivery of
the Warrant Certificates, the exercise or conversion of the Warrants and the
issuance, sale, transfer and delivery of the Shares issued upon exercise of the
Warrants.
SECTION 11. Adjustment of Exercise Price and Number of Shares
Purchasable or Number of Warrants. The Exercise Price, the number of Shares
purchasable upon the exercise of each Warrant and the number of Warrants
outstanding are subject to adjustment from time to time upon the occurrence of
the events enumerated in this Section 11.
(a) In case the Company shall at any time after the date of this
Agreement (i) declare a dividend on the Common Stock payable in shares of its
capital stock (whether shares of Common Stock or of capital stock of any other
class), (ii) subdivide the outstanding Common Stock, (iii) combine the
outstanding Common Stock into a smaller number of shares or (iv) issue any of
its capital stock in a reclassification of the Common Stock (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), the Exercise Price in effect at the time
of the record date for such dividend or of the effective date of such
subdivision, combination or reclassification, and/or the number and kind of
shares of capital stock issuable on such date shall be proportionately adjusted
so that the holder of any Warrant exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Warrant had been exercised immediately prior to such date, he would have owned
upon such exercise and been entitled to receive by virtue of such dividend,
subdivision, combination or reclassification. Such adjustment shall be made
successively whenever any event listed above shall occur.
(b) In case the Company shall fix a record date for the making of a
distribution to all holders of Common Stock (including any such distribution
made in connection with a consolidation or merger in which the Company is the
continuing corporation) of evidences of indebtedness or assets (other than cash
dividends or cash distributions payable out of consolidated earnings or earned
surplus, or dividends payable in Common Stock or subscription rights or
warrants), the Exercise Price to be in effect after such record date shall be
determined by multiplying the Exercise Price in effect immediately prior to such
record date by a fraction, of which the numerator shall be the Fair Market Value
per share of Common Stock (as defined in Section 11 (c), on such record date,
less the fair market value (as determined by the Board of Directors of the
Company, whose determination shall be conclusive if based on reasonable
assumptions, and described in a statement filed with the Warrant Agent) of the
portion of the assets or evidences of indebtedness so
4
<PAGE> 7
to be distributed or of such subscription rights or warrants applicable to one
share of Common Stock and of which the denominator shall be such Fair Market
Value (as defined in Section 11 (c)) per share of Common Stock. Such adjustment
shall be made successively whenever such a record date is fixed; and in the
event that such distribution is not so made, the Exercise Price shall again be
adjusted to the Exercise Price which would then be in effect is such record had
not been fixed.
(c) For the purpose of any computation under Section 11(b), the Fair
Market Value per share of Common Stock on any date shall be deemed to be the
average of the daily Fair Market Value for the 30 consecutive trading days.
"Fair Market Value" means (i) the highest closing sale price, regular way
(excluding dividends or accrued interests), on such day on the National Exchange
which is the principal market for such securities, (ii) if no sale takes place
on such day(s) on such National Exchange, the last reported closing bid on such
day as officially quoted on such National Exchange or (iii) if the Common Stock
is not then listed or admitted to trading on any such National Exchange, the
last reported closing bid on such day(s) in the over-the-counter market, as
furnished by Nasdaq system or other recognized reporting entity.
(d) No adjustment in the Exercise Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in such price;
provided, however, that any adjustments which by reason of this Section 11(d)
are not required to be made shall be carried forward and into account in any
subsequent adjustment. All calculations under this Section 11 shall be made to
the nearest cent or to the nearest one-hundredth of a share, as the case may be.
(e) In the event that at any time, as a result of an adjustment made
pursuant to Section 11 (a), the holder of any Warrant thereafter exercised shall
become entitled to receive any shares of capital stock of the Company other than
shares of Common Stock, thereafter the number of such other shares so receivable
upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the Shares contained in Section 11(a) and (b), inclusive, and the
provisions of Sections 6, 7, 9, 10, 11(d), 11(i) and 12 with respect to the
Shares shall apply on like terms to any such other shares.
(f) In any case in which this Section 11 shall require that an
adjustment in the Exercise Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event the issuing to the holder of any Warrant exercised after such record date
the Shares and other capital stock of the Company, if any, issuable upon such
exercise over and above the Shares and other capital stock of the Company, of
any, issuable upon such exercise on the basis of the Exercise Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
such holder a due bill or other appropriate instrument evidencing such holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(g) Unless the Company shall have exercised its election as provided in
Section 11(h), upon each adjustment of the Exercise Price as a result of the
calculations made in Section 11 (a) or (b), each Warrant outstanding immediately
prior to the making of such adjustment shall thereafter evidence the right to
purchase, at the adjusted Exercise Price, that number of Shares (calculated to
the nearest hundredth) obtained by (A) multiplying the number of Shares
purchasable upon exercise of a Warrant immediately prior to such adjustment of
the number of Shares by the Exercise Price in effect immediately prior to such
adjustment of the Exercise Price and (B) dividing the product so obtained by the
Exercise Price in effect immediately after such adjustment of the Exercise
Price.
(h) The Company may elect on or after the date of any adjustment of the
Exercise Price to adjust the number of Warrants, in substitution for an
adjustment in the number of Shares purchasable upon the exercise of a Warrant as
provided in Section 11(g).
(i) In case of any capital reorganization of the Company, or of any
reclassification of the Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
subdivision or combination), or in case of the consolidation of the Company with
or the merger of the Company with or into any other corporation or other entity
(other than a consolidation or merger in which the Company is the
5
<PAGE> 8
continuing corporation) or of the sale of the properties and assets of the
Company as, or substantially as an entirety to any other corporation, each
Warrant shall after such reorganization, reclassification, consolidation, merger
or sale be exercisable, upon the terms and conditions specified in this
Agreement, for the number of shares of stock or other securities or property to
which a holder of the number of Shares purchasable (at the time of such
reorganization, reclassification, consolidation, merger or sale) upon exercise
of such Warrant would have been entitled upon such reorganization,
reclassification, consolidation, merger or sale; and in any such case, if
necessary, the provisions set forth in this Section 11 with respect to the
rights and interests thereafter of the holders of the Warrants shall be
appropriately adjusted so as to be applicable as nearly as may reasonably be, to
any shares of stock or other securities or property thereafter deliverable on
the exercise of the Warrants. The subdivision or combination of shares of Common
Stock at any time outstanding into a greater or lesser number of shares shall
not be deemed to be a reclassification of the Common Stock for the purposes of
this Section 11(i). The Company shall not effect any such consolidation, merger
or sale, unless prior to or simultaneously with the consummation thereof the
successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets or other
appropriate corporation or entity shall assume, by written instrument executed
and delivered to the Warrant Agent, the obligation to deliver to the holder of
each Warrant such shares of stock, securities or assets as, in accordance with
the foregoing provisions, such holder may be entitled to purchase and the other
obligations under this Agreement.
SECTION 12. Fractional Warrants and Fractional Shares. (a) The Company
shall not be required to issue fractions of Warrants on any distribution of
Warrants to holders of Warrant Certificates pursuant to Section 11 or to
distribute Warrant Certificates which evidence fractional Warrants. In lieu of
such fractional Warrants the Company, in its sole discretion shall either (i)
round the Warrants issuable up to the nearest whole Warrant or (ii) pay or cause
to be paid to the registered holders of the Warrant Certificates with regard to
which such fractional Warrants would otherwise be issuable, an amount in cash
equal to the same fraction of the current Fair Market Value of a full Warrant.
For purposes of this Section 12, the Fair Market Value of the Warrant shall be
the Fair Market Value of the Warrant (as determined pursuant to the second
sentence of Section 11(c)) for the trading day immediately prior to the date on
which such fractional Warrant would have been otherwise issuable.
SECTION 13. Notice to Warrant Holders. Upon any adjustment of the
Exercise Price pursuant to Section 11, the Company within 20 calendar days
thereafter shall (i) cause to be filed with the Warrant Agent a certificate of a
firm of independent public accountants with recognized standing selected by the
Company (who may be the regular auditors of the Company) setting forth the
Exercise Price after such adjustment and setting forth in reasonable detail the
method of calculation and the facts upon which such calculations are based and
setting forth the number of Shares purchasable upon exercise of a Warrant after
such adjustment in the Exercise Price, which certificate shall be conclusive
evidence of the correctness of the matters set forth therein and (ii) cause to
be given to each of the registered holders of the Warrant Certificates at his
address appearing on the Warrant register written notice of such adjustments by
first-class mail, postage prepaid. Where appropriate, such notice may be given
in advance and included as a part of the notice required to be mailed under the
other provisions of this Section 13. The Warrant Agent shall be fully protected
in relying on any such certificate and on any adjustment therein contained and
shall not be obligated or responsible for calculating any adjustment nor shall
it be deemed to have knowledge of such adjustment unless and until it shall have
received such certificate.
SECTION 14. Merger, Consolidation or Change of Name of Warrant Agent.
Any corporation into which the Warrant Agent may be merged or converted or with
which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Warrant Agent shall be a party, or any
corporation succeeding to the corporate trust business of the Warrant Agent,
shall be the successor to the Warrant Agent hereunder without the execution or
filing of any paper or any further act on the part of any of the parties hereto,
provided that such corporation would be eligible for appointment as a successor
Warrant Agent under the provisions of Section 18. In case at the time such
successor to the Warrant Agent shall succeed under this Agreement, any of the
Warrant Certificates shall have been countersigned but not delivered, any such
successor to the Warrant Agent may adopt the countersignature of the original
Warrant Agent; and in case at that time any of the Warrant Certificates shall
not have been countersigned, any successor to the Warrant Agent may countersign
such Warrant Certificates either in the name of the predecessor Warrant Agent
6
<PAGE> 9
or in the name of the successor Warrant Agent; and in all such cases such
Warrant Certificates shall have the full force provided in the Warrant
Certificates and in this Agreement.
In case at any time the name of the Warrant Agent shall be changed and
at such time any of the Warrant Certificates shall have been countersigned but
not delivered, the Warrant Agent whose name has changed may adopt the
countersignature under its prior name, and in case at that time any of the
Warrant Certificates shall not have been countersigned, the Warrant Agent may
countersign such Warrant Certificates either in its prior name or in its changed
name, and in all such cases such Warrant Certificates shall have the full force
provided in the Warrant Certificates and in this Agreement.
SECTION 15. Warrant Agent. The Warrant Agent undertakes the duties and
obligations imposed by this Agreement upon the following terms and conditions,
by all of which the Company and the holders of Warrants, by their acceptance
thereof, shall be bound:
(a) The statements contained herein and in the Warrant
Certificates shall be taken as statements of the Company, and the
Warrant Agent assumes no responsibility for the correctness of any of
the same except such as describe the Warrant Agent or action taken or
to be taken by it. The Warrant Agent assumes no responsibility with
respect to the execution, delivery or distribution of the Warrant
Certificates except as herein otherwise provided.
(b) The Warrant Agent shall not be responsible for any failure
of the Company to comply with any of the covenants contained in this
Agreement or in the Warrant Certificates to be complied with by the
Company nor shall it at any time be under any duty or responsibility to
any holder of a Warrant to make or cause to be made any adjustment in
the Exercise Price or in the number of Shares issuable (except as
instructed by the Company), or to determine whether any facts exist
which may require any such adjustments, or with respect to the nature
or extent of or method employed in making any such adjustments when
made.
(c) The Warrant Agent may consult at any time with counsel
satisfactory to it (who may be counsel for the Company) and the Warrant
Agent shall incur no liability or responsibility to the Company or to
any holder of any Warrant Certificate in respect of any action taken,
suffered or omitted by it hereunder in good faith and in accordance
with the opinion or the advice of such counsel.
(d) The Warrant Agent may conclusively rely upon and shall
incur no liability or responsibility to the Company or to any holder of
any Warrant Certificate for any action taken in reliance on any notice,
resolution, waiver, consent, order, certificate, or other paper,
document or instrument believed by it to be genuine and to have been
signed, sent or presented by the proper party or parties.
Notwithstanding anything in this Agreement to the contrary, in no event
shall the Warrant Agent be liable for special, indirect or
consequential loss or damage of any kind whatsoever (including but not
limited to lost profits), even if the Warrant Agent has been advised of
the likelihood of such loss or damage and regardless of the form of the
action.
(e) The Company agrees to pay to the Warrant Agent reasonable
compensation for all services rendered by the Warrant Agent under this
Agreement, to reimburse the Warrant Agent upon demand for all expenses,
taxes and governmental charges and other charges of any kind and nature
incurred by the Warrant Agent in the execution of its duties under this
Agreement and to indemnify the Warrant Agent and save it harmless
against any and all losses, liabilities and expenses, including
judgments, costs and counsel fees, for anything done or omitted by the
Warrant Agent arising out of or in connection with this Agreement,
except as a result of its negligence or bad faith. The costs and
expenses of enforcing this right of indemnification shall also be paid
by the Company. The indemnification provided for hereunder shall
survive the expiration of the Warrants and termination of this
Agreement.
7
<PAGE> 10
(f) The Warrant Agent shall be under no obligation to
institute any action, suit or legal proceeding or to take any other
action likely to involve expense unless the Company or one or more
registered holders of Warrant Certificates shall furnish the Warrant
Agent with reasonable security and indemnity for any costs and expenses
which may be incurred. All rights of action under this Agreement or
under any of the Warrants may be enforced by the Warrant Agent without
the possession of any of the Warrant Certificates or the production
thereof at any trial or other proceeding relative thereto, and any such
action, suit or proceeding instituted by the Warrant Agent shall be
brought in its name as Warrant Agent, and any recovery or judgment
shall be for the ratable benefit of the registered holders of the
Warrants, as their respective rights or interests may appear.
(g) The Warrant Agent, and any stockholder, director, officer
or employee thereof, may buy, sell or deal in any of the Warrants or
other securities of the Company or become pecuniarily interested in any
transaction in which the Company may be interested, or contract with or
lend money to the Company or otherwise act as fully and freely as
though it were not Warrant Agent under this Agreement. Nothing herein
shall preclude the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
(h) The Warrant Agent shall act hereunder solely as agent for
the Company, and its duties shall be determined solely by the
provisions hereof and no implied duties or obligations shall be read
into this Agreement against the Warrant Agent. The Warrant Agent shall
not be liable for anything which it may do or refrain from doing in
connection with this Agreement, except for its own negligence or bad
faith.
(i) The Company agrees that it will perform, execute,
acknowledge and deliver or cause to be performed, executed,
acknowledged and delivered all such further and other acts, instruments
and assurances as may reasonably be required by the Warrant Agent for
the carrying out or performing of the provisions of this Agreement.
(j) The Warrant Agent shall not be under any responsibility in
respect of the validity of this Agreement or the execution and delivery
hereof (except the due execution hereof by the Warrant Agent) or in
respect of the validity or execution of any Warrant Certificate (except
its countersignature thereof); nor shall the Warrant Agent by any act
hereunder be deemed to make any representation or warranty as to the
authorization or reservation of the Shares to be issued pursuant to
this Agreement or any Warrant Certificate or as to whether the Shares
will when issued by validity issued, fully paid and non-assessable or
as to the Exercise Price or the number of Shares issuable upon exercise
of any Warrant.
(k) The Warrant Agent is hereby authorized and directed to
accept instructions with respect to the performance of its duties
hereunder from the Chairman of the Board, the Chief Executive Officer,
the President, any Vice-President, the Secretary or an Assistant
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and shall not be liable for
any action taken or suffered to be taken by it in good faith in
accordance with instructions of any such officer or in good faith
reliance upon any statement signed by any one such officers of the
Company with respect to any fact or matter (unless other evidence in
respect thereof is herein specifically prescribed) which may be deemed
to be conclusively proved and established by such signed statement. Any
application by the Warrant Agent for written instructions from the
Company may, at the option of the Warrant Agent, set forth in writing
any action proposed to be taken or omitted by the Warrant Agent under
this Agreement and the date on or after which such action shall be
taken or such omission shall be effective. The Warranty Agent shall not
be liable for any action taken by, or omission of, the Warrant Agent in
accordance with a proposal included in any such application or after
the date specified in such application (which date shall not be less
than ten Business Days after the date any officer of the Company
actually receives such application, unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking any
such action (or the effective date in the case
8
<PAGE> 11
of an omission), the Warrant Agent shall have received written
instructions in response to such application subject to the proposed
action or omission and/or specifying the action taken or omitted.
(l) No provision of this Agreement shall require the Warrant
Agent to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or in the
exercise of its rights if there shall be reasonable grounds for
believing that repayment of such funds or adequate indemnification
against such risk or liability is not reasonably assured to it.
(m) The Warrant Agent shall not be required to take notice or
be deemed to have any notice of any fact, event or determination under
this Agreement unless and until the Warrant Agent shall be specifically
notified in writing by the Company of such fact, event or
determination.
(n) If, with respect to any Warrant Certificate surrendered to
the Warrant Agent for exercise or transfer, the certificate attached to
the form of assignment or form of election to purchase, as the case may
be, has not been completed, the Warrant Agent shall not take any
further action with respect to such requested exercise of transfer
without first consulting with the Company.
(o) The Warrant Agent shall be liable hereunder to the Company
and any other person only for its own negligence, bad faith or willful
misconduct.
SECTION 16. Disposition of Proceeds of Exercise of Warrants. The
Warrant Agent shall account promptly to the Company with respect to Warrants
exercised and concurrently pay to the Company all moneys received by the Warrant
Agent on the purchase of Shares through the exercise of Warrants.
SECTION 17. Change of Warrant Agent. If the Warrant Agent shall resign
(such resignation to become effective not earlier than 30 days after the giving
of written notice thereof to the Company and, at the expense of the Company, to
the registered holders of Warrant Certificates) or shall become incapable of
acting as Warrant Agent, the Company shall appoint a successor. If the Company
shall fail to make such appointment within a period of 30 days after it has been
so notified in writing by the Warrant Agent or by the registered holder of a
Warrant Certificate (in the case of incapacity), then the registered holder of
any Warrant Certificate may apply to any court of competent jurisdiction for the
appointment of a successor to the Warrant Agent. Pending appointment of a
successor to the Warrant Agent, either by the Company or by such a court, the
duties of the Warrant Agent shall be carried out by the Company. Any successor
warrant agent whether appointed by the Company or by such a court shall be a
bank or trust company, in good standing, incorporated under the laws of the
United States of America or any State thereof, and must have at the time of its
appointment as warrant agent a combined capital and surplus of at least fifty
million dollars. After appointment the successor warrant agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Warrant Agent without further act or deed; but the former
Warrant Agent shall deliver and transfer to the successor warrant agent any
property at the time held by it hereunder and execute and deliver, at the
expense of the Company, any further assurance, conveyance, act or deed necessary
for the purpose. Failure to give any notice provided for in this Section,
however, or any defect therein, shall not affect the legality or validity of the
removal of the Warrant Agent or the appointment of a successor warrant agent, as
the case may be.
SECTION 18. Notices to Company and Warrant Agent. Any notice or demand
authorized by this Agreement to be given or made by the Warrant Agent or by the
registered holder of any Warrant Certificate to the Company shall be
sufficiently given or made if sent by mail, first class or registered, postage
prepaid, addressed (until another address is filed in writing by the Company
with the Warrant Agent), as follows:
9
<PAGE> 12
Krug International Corp.
900 Circle 75 Parkway, Suite 1300
Atlanta, Georgia 30339
Attention: Robert M. Thornton, Jr.
Chief Executive Officer and President
In case the Company shall fail to maintain such office or agency or
shall fail to give such notice of the location or of any change in the location
thereof, presentations may be made and notices and demands may be served at the
principal office of the Warrant Agent.
Any notice pursuant to this Agreement to be given by the Company or by
the registered holder of any Warrant Certificate to the Warrant Agent shall be
sufficiently given if sent by registered or certified mail and shall be deemed
given upon receipt, addressed (until another address is filed in writing by the
Warrant Agent with the Company) to the Warrant Agent as follows:
Harris Trust and Savings Bank
700 Louisiana Street
Suite 3350
Houston TX 77002
Attention: Corporate Trust Department
SECTION 19. Supplements and Amendments. The Company and the Warrant
Agent may from time to time supplement or amend this Agreement without the
approval of any holders of Warrant Certificates in order to cure any ambiguity
or to correct or supplement any provision contained herein which may be
defective or inconsistent with any other provision herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Warrant Agent may deem necessary or desirable and which shall not
adversely affect the interests of the holders of Warrant Certificates. The
Company may extend the period during which the Warrants are exerciseable and
lower the Exercise Price without the approval of the holders or the Warrant
Agent. Notwithstanding anything in this Agreement to the contrary, no supplement
or amendment that changes the rights and duties of the Warrant Agent under this
Agreement will be effective against the Warrant Agent without the execution of
such supplement or amendment by the Warrant Agent.
SECTION 20. Successors. All the covenants and provisions of this
Agreement by or for the benefit of the Company or the Warrant Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.
SECTION 21. Termination. This Agreement shall terminate at the close of
business on April 30, 2002. Notwithstanding the foregoing, this Agreement will
terminate on any earlier date if all Warrants have been exercised. The
provisions of Section 15 shall survive such termination.
SECTION 22. Governing Law. This Agreement and each Warrant Certificate
issued hereunder shall be deemed to be a contract made under the laws of the
State of Ohio and for all purposes shall be construed in accordance with the
laws of said State.
SECTION 23. Benefits of This Agreement. Nothing in this Agreement shall
be construed to give to any person or corporation other than the Company, the
Warrant Agent and the registered holders of the Warrant Certificates any legal
or equitable right, remedy or claim under this Agreement; but this Agreement
shall be for the sole and exclusive benefit of the Company, the Warrant Agent
and the registered holders of the Warrant Certificates.
10
<PAGE> 13
SECTION 24. Counterparts. This Agreement may be executed in any number
of counterparts and each of such counterparts shall for all purposes be deemed
to be original, and all such counterparts shall together constitute but one and
the same instrument.
SECTION 25. Definitions. Certain capitalized terms used herein have the
meaning ascribed to them in the Definitions Appendix hereto dated an even date
herewith.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
KRUG INTERNATIONAL CORP.
By
---------------------------------------
Robert M. Thornton, Jr.
Chief Executive Officer and President
[SEAL]
Attest:
-----------------------------
Mark Stockslager
Controller
HARRIS TRUST AND SAVINGS BANK,
as Warrant Agent
By
------------------------------------
Vice President
11
<PAGE> 14
EXHIBIT "A"
[FORM OF WARRANT CERTIFICATE]
[FACE]
EXERCISABLE ONLY ON OR AFTER OCTOBER 1, 2000 DURING THE EFFECTIVENESS OF A
REGISTRATION STATEMENT COVERING THE COMMON STOCK ISSUABLE UPON EXERCISE AND
ON OR BEFORE SEPTEMBER 30, 2002
[ ##s] WARRANTS
WARRANT CERTIFICATE
KRUG INTERNATIONAL CORP.
This Warrant Certificate certifies that __________________, or
registered assigns, is the registered holder of [ ##s] Warrants (the "Warrants")
expiring September 30, 2002 to purchase shares of Common Stock, without par
value, of KRUG INTERNATIONAL CORP., an Ohio corporation (the "Company"). Each
Warrant entitles the holder to purchase from the Company on or after October 1,
2000 and on, or before the close of business (6:00 p.m. New York time) on April
30, 2002 one fully paid and non-assessable share of Common Stock, without par
value, of the Company (the "Shares") at the initial exercise price (the
"Exercise Price") of $3.875 per share payable in lawful money of the United
States of America, upon surrender of this Warrant Certificate and payment of the
Exercise Price at the office or agency of the Warrant Agent in Atlanta, Georgia
(the "Warrant Agent Office"), but only subject to the conditions set forth
herein and in the Warrant Agreement. As provided in the Warrant Agreement, each
Warrant may be exercised on or after October 1, 2000 only if a registration
statement covering the shares issuable upon exercise of the Warrant has been
declared effective by the Securities and Exchange Commission ("SEC") and is
effective at the time of exercise. The Exercise Price and number of Shares
purchasable upon exercise of the Warrants are subject to adjustment upon the
occurrence of certain events set forth in the Warrant Agreement.
Reference is hereby made to the further provisions of this Warrant
Certificate set forth on the reverse hereof and such further provisions shall
for all purposes have the same effect as though fully set forth at this place.
This Warrant Certificate shall not be valid unless countersigned by the
Warrant Agent, as such term is used in the Warrant Agreement.
WITNESS the facsimile seal of the Company and the facsimile signatures
of its duly authorized officers. Dated: KRUG INTERNATIONAL CORP.
By
---------------------------------
Chief Executive Officer and President
Countersigned:
HARRIS TRUST AND SAVINGS BANK,
as Warrant Agent
By
---------------------------------
Secretary
By:
--------------------------------
Authorized Signature
12
<PAGE> 15
[FORM OF WARRANT CERTIFICATE]
[REVERSE]
KRUG INTERNATIONAL CORP.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants expiring September 30, 2002 to purchase shares of
Common Stock, without par value, of the Company, and are issued or to be issued
pursuant to a Warrant Agreement dated as of August 20, 1999 (the "Warrant
Agreement"), duly executed and delivered by the Company to Harris Trust and
Savings Bank, as Warrant Agent (the "Warrant Agent"), which Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Warrant Agent, the Company
and the holders (the words "holders" and "holder" meaning the registered holders
or registered holder) of the Warrants.
Warrants may be exercised to purchase Shares from the Company on or
after October 1, 2000 and on or before the close of business (6:00 p.m. New York
time) on the Termination Date, at the Exercise Price set forth on the face
hereof, subject to adjustment, as hereinafter referred to, provided, however,
that a registration statement filed with the Securities and Exchange Commission
covering the Shares be effective at the time of such exercise. The holder of
exercisable Warrants evidenced by the Warrant Certificate may exercise them by
surrendering the Warrant Certificate, with the form of election to purchase set
forth hereon properly completed and executed, together with payment of the
Exercise Price at the Warrant Agent Office. In the event that upon any exercise
of Warrants evidenced hereby the number of Warrants exercised shall be less than
the total number of Warrants evidenced hereby, there shall be issued to the
holder hereof or his assignee a new Warrant Certificate evidencing the number of
Warrants not exercised. No adjustment shall be made for any cash dividends on
any Shares issuable upon exercise of this Warrant.
Payment of the Exercise Price of Warrants may be made by tendering cash
only.
The Warrant Agreement provides that, upon the occurrence of certain
events, the Exercise Price set forth on the face hereof may, subject to certain
conditions, be adjusted. If the Exercise Price is adjusted, the Warrant
Agreement provides that, at the election of the Company, either (i) the number
of Shares purchasable upon the exercise of each Warrant shall be adjusted or
(ii) each outstanding Warrant shall be adjusted to become a different number of
Warrants. In the latter event, the Company will cause to be distributed to
registered holders of Warrant Certificates either Warrant Certificates
representing the additional Warrants issuable pursuant to the adjustment or
substitute Warrant Certificates to replace all outstanding Warrant Certificates.
The Company may, but shall not be required to issue fractions of
Warrants or fractions of Shares or any certificates which evidence Warrants or
fractional Shares. In lieu of such fractional Warrants and fractional Shares,
the Company may instead pay to the registered holders of the Warrant
Certificates with regard to which such fractional Warrants or fractional Shares
otherwise issuable, at the sole election of the Company either (i) an amount in
cash equal to the same fraction of the current market value (as determined
pursuant to the Warrant Agreement) of a full Warrant or a full Share, as the
case may be or (ii) a full Warrant or full Share, as the case may be, in lieu of
such fractional Share or fractional Warrant.
Warrant Certificates, when surrendered at the Warrant Agent Office by
the registered holder thereof in person or by legal representative or by
attorney duly authorized in writing, may be exchanged, in the manner and subject
to the limitations provided in the Warrant Agreement, but without payment of any
service charge, for another Warrant Certificate or Warrant Certificates of like
tenor evidencing in the aggregate a like number of Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Agent Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee in exchange of this Warrant
Certificate, subject to the limitations provided in the Warrant Agreement,
without charge except for any tax or other governmental charge imposed in
connection therewith.
13
<PAGE> 16
The Company and the Warrant Agent may deem and treat the registered
holder hereof as the absolute owner of this Warrant Certificate (notwithstanding
any notation of ownership or other writing hereon made by anyone) for the
purpose of any exercise or conversion hereof and for all other purposes, and
neither the Company nor the Warrant Agent shall be affected by any notice to the
contrary.
14
<PAGE> 17
[FORM OF ELECTION TO EXERCISE]
(To be executed upon exercise of Warrant prior to the close of business
on the Termination Date)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____ Shares and herewith
tenders payment for such Shares in the amount of $________ cash. The undersigned
requests that a certificate representing the Shares be registered in the name of
_______________________ whose address is ______________ and that such
certificate be delivered to _____________________ whose address is ____________.
If said number of Shares is less than all the Shares purchasable hereunder, the
undersigned requests that a new Warrant Certificate representing the balance of
the Shares be registered in the name of ___________________ whose address is
_____________________ and that such Warrant Certificate be delivered to
_____________________ whose address is _______________________. Any cash
payments to be paid in lieu of a fractional Share should be made to __________
whose address is ___________________________ and the check representing payment
thereof should be delivered to ____________________ whose address is
_____________________________________.
Dated: _________________, ____
[Social Security Box]
Name of holder of Warrant Certificate: ________________
(Please print)
Address:______________________________________________
______________________________________________________
Signature: ___________________________________________
Note: The above signature must correspond
with the same as written upon the face of
this Warrant Certificate in every
particular, without alteration or
enlargement or may change whatever and if
the certificate representing the Shares or
any Warrant Certificate representing
Warrants not exercised hereunder is to be
registered in a name other than that in
which this Warrant Certificate is
registered, the signature of the holder
hereof must be guaranteed.
Signature Guaranteed:
15
<PAGE> 18
[FORM OF ASSIGNMENT]
For value received ______________________ hereby sells, assigns and
transfers unto _____________ the within Warrant Certificate, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ________________ attorney, to transfer said Warrant Certificate on the
books of the within-named Company, with full power of substitution in the
premises.
Dated: ___________________, ____
_____________________________________________________
Note: The above signature must correspond with the
name as written upon the face of this
Warrant Certificate in every particular,
without alteration or enlargement or any
change whatever.
Signature Guaranteed:
16
