<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-3
FOR APPLICATIONS FOR QUALIFICATION OF INDENTURES UNDER
THE TRUST INDENTURE ACT OF 1939
KRUG INTERNATIONAL CORP.
------------------------
(Name of applicant)
900 CIRCLE 75 PARKWAY, SUITE 1300, ATLANTA, GEORGIA 30339
---------------------------------------------------------
(Address of principal executive offices)
SECURITIES TO BE ISSUED UNDER THE INDENTURE TO BE QUALIFIED
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SENIOR SUBORDINATED ZERO COUPON NOTES DUE 2007 UP TO $12,500,000 IN AGGREGATE PRINCIPAL
- -------------------------------------------------------------------------------------------
<S> <C>
Title of Class Amount
</TABLE>
Approximate date of proposed public offering: AUGUST 20, 1999
----------------
Name and address of agent for service:
ROBERT M. THORNTON, JR.
CHIEF EXECUTIVE OFFICER
KRUG INTERNATIONAL CORP.
900 CIRCLE 75 PARKWAY, SUITE 1300,
ATLANTA, GEORGIA 30339
WITH A COPY TO
SMITH, GAMBRELL, & RUSSELL, LLP
PROMENADE II, SUITE 1300
1230 PEACHTREE STREET, N.E.
ATLANTA, GEORGIA 30309-3592
ATT: HOWARD E. TURNER, ESQ.
CARL L. SOLLEE, ESQ.
GENERAL
1. GENERAL INFORMATION.
(a) The applicant is a corporation.
(b) The applicant is organized under the laws of the
State of Ohio.
2. SECURITIES ACT EXEMPTION APPLICABLE.
The applicant, KRUG International Corp. ("KRUG"), claims the
exemption provided by Section 3(a)(9) of the Securities Act of
1933. Pursuant to the Offering Circular, KRUG offers to
purchase up to 2,500,000 shares of its Common Stock by
exchanging for each share (a) $5 principal amount of Senior
Subordinated Zero Coupon Notes due July 1, 2007 and (b) one
quarter of one 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. In the
alternative, holders of fewer than 100 shares are permitted to
tender all of their shares in exchange for a cash payment of
$2.00 per
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share. There have not been, and there are not going to be, any
sales of Common Stock, either by the applicant or by or
through an underwriter, at or about the same time as the
transaction for which the exemption is claimed. Furthermore,
KRUG will pay no commission or other remuneration or
consideration, directly or indirectly, to any broker, dealer,
salesman or other person for soliciting tenders of the Common
Stock; KRUG will pay remuneration to (i) its financial,
accounting and legal counsel for the provision of advisory,
accountancy, and legal services, respectively, and (ii) to
such individuals as is required for obtaining necessary
services incidental to the transaction, such as, for example,
printing and courier services.
AFFILIATIONS
3. AFFILIATES.
Response to this Item 3 is incorporated by reference to Item 5
of this Form T-3.
MANAGEMENT AND CONTROL
4. DIRECTORS AND EXECUTIVE OFFICERS. The names and complete
mailing addresses of all directors and executive officers of the applicant,
along with all offices held by each person named, are set forth below.
<TABLE>
<CAPTION>
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Name Address Office
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<S> <C> <C>
ROBERT M. THORNTON, JR. KRUG INTERNATIONAL CORP. DIRECTOR, CHAIRMAN OF THE BOARD,
900 CIRCLE 75 PARKWAY, SUITE 1300 PRESIDENT, CHIEF EXECUTIVE OFFICER
ATLANTA, GA 30339 AND CHIEF FINANCIAL OFFICER
KAREN B. BRENNER KRUG INTERNATIONAL CORP. DIRECTOR
900 CIRCLE 75 PARKWAY, SUITE 1300
ATLANTA, GA 30339
T. WAYNE HOLT KRUG INTERNATIONAL CORP. DIRECTOR
900 CIRCLE 75 PARKWAY, SUITE 1300
ATLANTA, GA 30339
JAMES J. MULLIGAN, ESQ. KRUG INTERNATIONAL CORP. DIRECTOR AND SECRETARY
900 CIRCLE 75 PARKWAY, SUITE 1300
ATLANTA, GA 30339
MARK J. STOCKSLAGER KRUG INTERNATIONAL CORP. CONTROLLER
900 CIRCLE 75 PARKWAY, SUITE 1300
ATLANTA, GA 30339
HOWARD E. TURNER, ESQ. KRUG INTERNATIONAL CORP. DIRECTOR
900 CIRCLE 75 PARKWAY, SUITE 1300
ATLANTA, GA 30339
RONALD J. VANNUKI KRUG INTERNATIONAL CORP. DIRECTOR
900 CIRCLE 75 PARKWAY, SUITE 1300
ATLANTA, GA 30339
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5. PRINCIPAL OWNERS OF VOTING SECURITIES. Furnish the following
information as to each person owning 10 percent or more of the voting securities
of the applicant. AS OF AUGUST 13, 1999:
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<CAPTION>
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Col. A Col. B Col. C Col. D
Name and Complete Title of Amount Percentage of Voting
Mailing Address Class Owned Owned Securities Owned
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<S> <C> <C> <C>
KAREN B. BRENNER COMMON STOCK, NO PAR 827,348 16.3
1300 BRISTOL STREET NORTH,
SUITE 100
NEWPORT BEACH, CA 92660
FORTUNA INVESTMENT PARTNERS COMMON STOCK, NO PAR 1,018,223 19.4
ET AL.
(FORTUNA GROUP)
100 WILSHIRE BLVD. 15TH FL
SANTA MONICA, CA 90401
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</TABLE>
UNDERWRITERS
6. UNDERWRITERS.
None.
CAPITAL SECURITIES
7. CAPITALIZATION.
(a) As of August 13, 1999
<TABLE>
<CAPTION>
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Col. A. Col. B Col. C.
Title of Class Amount Authorized Amount Outstanding
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<S> <C> <C>
Common Stock (1) 12,000,000 4,977,530
Preferred Stock 2,000,000 None
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</TABLE>
(1) The applicant also has outstanding 999,487 warrants
to purchase Common Stock. The warrants are
exercisable until January 31, 2000 at an exercise
price of $8.625.
(b) A description of the voting rights of the applicant's capital
stock is set forth under the caption "Description of Capital
Stock" of the Exchange Offer, which is set forth as Exhibit
T3E-1 to this form.
INDENTURE SECURITIES
8. ANALYSIS OF INDENTURE PROVISIONS.
The information required by this Item is incorporated by
reference to information under the caption "Description of the
Notes" of the Offering Circular, which is set forth as Exhibit
T3E-1 to this form.
9. OTHER OBLIGORS.
The applicant is the only obligor upon the indenture
securities.
3
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CONTENTS OF APPLICATION FOR QUALIFICATION. This application for
qualification comprises--
(a) Pages numbered 1 to 5 consecutively.
(b) The statement of eligibility and qualification of each trustee
under the indenture to be qualified (to be filed
supplementally as Exhibit T3-T1).
(c) The following exhibits in addition to those filed as a part of
the statement of eligibility and qualification of each
trustee:
(i) Exhibit T3A: a copy of KRUG's current Amended
Articles of Incorporation is incorporated by
reference to the applicant's Annual Report on Form
10-K for the fiscal year ended March 31, 1999;
(ii) Exhibit T3B: a copy of KRUG's Code of Regulations is
incorporated by reference to the applicant's
Quarterly Report on Form 10-Q for the quarter ended
June 30, 1996;
(iii) Exhibit T3C: a copy of the indenture by KRUG to be
qualified is filed herewith;
(iv) Exhibit T3D: not applicable;
(v) Exhibit T3E-1: a copy of the Offering Circular to be
sent or given to holders of KRUG Common Stock in
connection with the tender offer commenced August 20,
1999 is filed herewith;
Exhibit T3E-2 a copy of the Letter of Transmittal is
incorporated by reference to Exhibit 99.2 to the
applicant's Schedule 13E-4 filed August 20, 1999;
Exhibit T3E-3 a copy of the Letter to Securities
Dealers, Commercial Banks, Trust Companies and other
Nominees is incorporated by reference to Exhibit 99.4
to the applicant's Schedule 13E-4 filed August 20,
1999;
Exhibit T3E-4 a copy of the Nominee's Letter to
Clients is incorporated by reference to Exhibit 99.5
to the applicant's Schedule 13E-4 filed August 20,
1999;
Exhibit T3E-5 a copy of the Notice of Guaranteed
Delivery is incorporated by reference to Exhibit 99.6
to the applicant's Schedule 13E-4 filed August 20,
1999;
Exhibit T3E-6 a copy of the Guidelines for
Certification of Taxpayer Identification Number is
incorporated by reference to Exhibit 99.8 to the
applicant's Schedule 13E-4 filed August 20, 1999;
Exhibit T3E-7 a copy of the form of Senior
Subordinated Zero Coupon Note due 2007 is
incorporated by reference to Exhibit 99.10 to the
applicant's Schedule 13E-4 filed August 20, 1999;
Exhibit T3E-8 a copy of the form of Warrant Agreement
and Warrant is incorporated by reference to Exhibit
99.11 to the applicant's Schedule 13E-4 filed August
20, 1999 and
(vi) Exhibit T3F: a cross reference sheet showing the
location in the indenture of the provisions inserted
therein pursuant to Section 310 through 318(a),
inclusive, of the Act, in incorporated by reference
to the "Cross Reference Table" of the Indenture set
forth as Exhibit T3C hereof.
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SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, the
applicant, KRUG International Corp., a corporation organized and existing under
the laws of Ohio, has duly caused this application to be signed on its behalf of
the undersigned, thereunto duly authorized, and its seal to be hereunto affixed
and attested, all in the city of Atlanta and State of Georgia on the 20th day of
August, 1999.
KRUG INTERNATIONAL CORP.
By: /s/ Robert M. Thornton, Jr.
-------------------------------
Robert M. Thornton, Jr.
Chief Executive Officer
4
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EXHIBIT T3C
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KRUG INTERNATIONAL CORP.
AND
U.S. BANK TRUST, NATIONAL ASSOCIATION
AS TRUSTEE
INDENTURE
DATED AS OF AUGUST 20, 1999
SENIOR SUBORDINATED ZERO COUPON NOTES DUE JULY 1, 2007
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KRUG INTERNATIONAL CORP.
Reconciliation and Tie between Trust Indenture Act of 1939
and the Indenture dated as of August 20, 1999
<TABLE>
<CAPTION>
Trust Indenture Act Section Indenture Section
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<S> <C>
ss. 310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4) N.A.
(b) 7.08; 7.10; 11.02
(c) N.A.
ss. 311(a) 7.11
(b) 7.11
(c) N.A.
ss. 312(a) 2.06
(b) 11.03
(c) 11.03
ss. 313(a) 7.06
(b) 7.06; 11.02
(c)(1) 2.06; 7.06; 11.02
(c)(2) N.A.
(c)(3) 2.06; 7.06; 11.02
(d) 7.06
ss. 314(a) 4.11, 11.02
(b) N.A.
(c)(1) 11.04
(c)(2) 11.04
(c)(3) N.A.
(d) N.A.
(e) 11.05
(f) N.A.
ss. 315(a) 7.01(b)
(b) 7.05; 11.02
(c) 7.01(a)
(d) 7.01(c)
(e) 6.11
ss. 316(a)(last sentence) 2.09
(a)(1)(A) 6.05
(a)(1)(B) 6.04
(a)(2) N.A.
(b) 6.07
ss. 317(a)(1) 6.08
(a)(2) 6.09
(b) 2.05; 11.02
ss. 318(a) 11.01
</TABLE>
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N.A. means Not Applicable.
NOTE: This Reconciliation and Tie shall not, for any purpose, be deemed to be a
part of the Indenture.
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TABLE OF CONTENTS
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ARTICLE 1. DEFINITIONS AND INCORPORATION BY REFERENCE......................................................1
Section 1.01 Definitions...................................................................1
Section 1.02 Incorporation by Reference of Trust Indenture Act.............................6
Section 1.03 Rules of Construction.........................................................7
ARTICLE 2. THE NOTES.......................................................................................8
Section 2.01 Form and Dating...............................................................8
Section 2.02 Execution, Amount, Authentication and Delivery................................8
Section 2.03 Accrual of Original Issue Discount; Interest..................................9
Section 2.04 Registrar and Paying Agent....................................................9
Section 2.05 Paying Agent to Hold Money In Trust..........................................10
Section 2.06 Noteholder Lists.............................................................11
Section 2.07 Transfer and Exchange........................................................11
Section 2.08 Mutilated, Defaced, Destroyed, Lost and Stolen Notes.........................12
Section 2.09 Treasury Notes...............................................................13
Section 2.10 Temporary Notes..............................................................13
Section 2.11 Cancellation.................................................................14
ARTICLE 3. REDEMPTION.....................................................................................14
Section 3.01 Optional Redemption..........................................................14
Section 3.02 Redemption Notice to Trustee.................................................14
Section 3.03 Selection of Notes to be Redeemed............................................15
Section 3.04 Notice of Redemption.........................................................15
Section 3.05 Payment of Notes Called for Redemption.......................................16
ARTICLE 4. COVENANTS......................................................................................17
Section 4.01 Payment of Notes.............................................................17
Section 4.02 Maintenance of Office or Agency..............................................17
Section 4.03 Liquidation of the Company...................................................17
Section 4.04 Limitation on Repayment of Subordinated Indebtedness.........................18
Section 4.05 Insurance....................................................................18
Section 4.06 Waiver of Stay, Extension or Usury Laws......................................18
Section 4.07 Waiver of Certain Covenants..................................................18
Section 4.08 Corporate Existence..........................................................18
Section 4.09 Payment of Taxes and other Claims............................................19
Section 4.10 Notices......................................................................19
Section 4.11 Reports and Compliance Certificates..........................................19
Section 4.12 Books, Records, Access; Confidentiality......................................21
Section 4.13 Compliance with Laws, etc....................................................21
Section 4.14 Restricted Payment...........................................................21
Section 4.15 Restricted Payment...........................................................22
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<TABLE>
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ARTICLE 5. SUCCESSOR CORPORATION..........................................................................22
Section 5.01 Covenant Not to Consolidate, Merge, Convey or Transfer
Except Under Certain Conditions..............................................22
Section 5.02 Successor Person Substituted.................................................23
ARTICLE 6. DEFAULT AND REMEDIES...........................................................................23
Section 6.01 Events of Default............................................................23
Section 6.02 Acceleration.................................................................25
Section 6.03 Other Remedies...............................................................25
Section 6.04 Waiver of Past Defaults......................................................25
Section 6.05 Control by Majority..........................................................26
Section 6.06 Limitation on Suits..........................................................26
Section 6.07 Rights of Holders to Receive Payment.........................................26
Section 6.08 Collection Suit by Trustee...................................................27
Section 6.09 Trustee May File Proofs of Claim.............................................27
Section 6.10 Application of Proceeds......................................................27
Section 6.11 Undertaking for Costs........................................................28
Section 6.12 Restoration of Rights on Abandonment of Proceedings..........................28
Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default............................................................28
ARTICLE 7. TRUSTEE........................................................................................29
Section 7.01 Duties of Trustee............................................................29
Section 7.02 Rights of Trustee............................................................30
Section 7.03 Individual Rights of Trustee.................................................31
Section 7.04 Trustee's Disclaimer.........................................................31
Section 7.05 Notice of Defaults...........................................................31
Section 7.06 Reports and Notices by Trustee to Holders....................................31
Section 7.07 Compensation and Indemnity...................................................31
Section 7.08 Replacement of Trustee.......................................................32
Section 7.09 Successor Trustee by Merger, etc.............................................33
Section 7.10 Eligibility; Disqualification................................................33
Section 7.11 Preferential Collection of Claims Against Company............................34
Section 7.12 Investment of Funds by the Trustee...........................................34
ARTICLE 8. DISCHARGE OF INDENTURE.........................................................................34
Section 8.01 Termination of Company's Obligations.........................................34
Section 8.02 Application of Trust Money...................................................35
Section 8.03 Repayment to Company.........................................................35
Section 8.04 Reinstatement................................................................36
ARTICLE 9. AMENDMENTS, SUPPLEMENTS AND WAIVERS............................................................37
Section 9.01 Without Consent of Holders...................................................37
Section 9.02 With Consent of Holders......................................................37
</TABLE>
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<TABLE>
<S> <C> <C> <C>
Section 9.03 Compliance with Trust Indenture Act..........................................38
Section 9.04 Revocation and Effect of Consents............................................38
Section 9.05 Notation on or Exchange of Notes.............................................39
Section 9.06 Trustee to Sign Amendments, etc..............................................39
Section 9.07 Effect of Supplement and/or Amendment to Indenture...........................39
ARTICLE 10. SUBORDINATION..................................................................................40
Section 10.01 Notes Subordinated to Senior Indebtedness....................................40
Section 10.02 No Payment on Notes in Certain Circumstances.................................40
Section 10.03 Notes Subordinated to Prior Payment of All Senior Indebtedness
on Dissolution, Liquidation or Reorganization................................41
Section 10.04 Obligations of the Company Unconditional.....................................41
Section 10.05 Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice............................................................42
Section 10.06 Application by Trustee of Amounts Deposited With It..........................42
Section 10.07 Subordination Rights Not Impaired by Acts or Omissions of the
Company or Holders of Senior Indebtedness....................................42
Section 10.08 Trustee to Effectuate Subordination of Securities............................43
Section 10.09 Right of Trustee to Hold Senior Indebtedness.................................43
Section 10.10 Article 10 Not to Prevent Events of Default..................................43
Section 10.11 No Fiduciary Duty of Trustee to Holders of Senior Indebtedness...............43
Section 10.12 Article Applicable to Paying Agent...........................................43
ARTICLE 11. MISCELLANEOUS..................................................................................44
Section 11.01 Trust Indenture Act Controls.................................................44
Section 11.02 Notices......................................................................44
Section 11.03 Communications By Holders With Other Holders.................................45
Section 11.04 Certificate as to Conditions Precedent.......................................45
Section 11.05 Statements Required In Certificate or Opinion................................45
Section 11.06 Rules By Trustee, Paying Agent, Registrar....................................46
Section 11.07 Payment Dates................................................................46
Section 11.08 Governing Law................................................................47
Section 11.09 No Adverse Interpretation of Other Agreements................................47
Section 11.10 No Recourse Against Others...................................................47
Section 11.11 Provisions of Indenture for the Sole Benefit of Parties,
Noteholders and Certain holders of Senior Indebtedness.......................47
Section 11.12 Successors...................................................................47
Section 11.13 Duplicate Originals and Counterparts.........................................47
Section 11.14 Severability.................................................................47
Section 11.15 Effect of Headings...........................................................48
SIGNATURES.................................................................................................48
Exhibit A - Form of Senior Subordinated Zero Coupon Note
</TABLE>
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INDENTURE dated as of August 20, 1999, between KRUG INTERNATIONAL
CORP., an Ohio corporation (the "Company"), and U.S. BANK TRUST, NATIONAL
ASSOCIATION, a banking association organized and existing under the laws of the
United States as Trustee (the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the issuance of its Senior Subordinated
Zero Coupon Notes due July 1, 2007 (the "Notes") and, to provide, among other
things, for the authentication, delivery and administration thereof, the Company
has duly authorized the execution and delivery of this Indenture.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the Notes
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of the Notes, as follows:
ARTICLE 1.
DEFINITIONS AND INCORPORATION BY REFERENCE
Section 1.01 Definitions.
The following terms (except as otherwise expressly provided or unless
the context otherwise clearly requires), for all purposes of this Indenture,
shall have respective meanings specified in this Section 1.01.
"Affiliate" means, with respect to any specified Person, any other
Person which directly or indirectly controls or is controlled by, or is directly
or indirectly under common control with, such Person, as the case may be. For
the purposes of this definition, "control" (including "controlled by" and "under
common control with") means the power, directly or indirectly, to direct or
cause the direction of the management and policies of such Person, as the case
may be, whether through the ownership of voting securities, by contract or
otherwise.
"Agent" means any Registrar, Paying Agent or co-Registrar or co-Paying
Agent.
"Bankruptcy Court" means the United States Bankruptcy Court for the
District of Delaware.
"Bankruptcy Law" has the meaning provided in Section 6.01.
"Board of Directors" means the Board of Directors of the Company or any
committee of such board duly authorized to act in respect of any particular
matter hereunder.
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"Business Day" means any day other than a Saturday, Sunday or legal
holiday, on which banks located in the city in which the principal corporate
trust office of the Trustee is located are not authorized or obligated by law to
remain closed.
"Capitalized Lease Obligation" means, as applied to any Person at the
time any determination thereof is to be made for any period, an obligation of
such Person to pay rent or other amounts under a lease that is required to be
capitalized for financial reporting purposes in accordance with generally
accepted accounting principles, and the amount of such obligation shall be the
capitalized amount of such obligation determined in accordance with such
principles.
"Company" means the party named as such in the first paragraph of this
Indenture or any obligor on the Notes until a successor replaces it pursuant to
Article 7 of this Indenture and thereafter means the successor.
"Corporate Trust Office" when used with respect to the Trustee means
the office of the Trustee at which at any particular time its corporate trust
business is administered and which, at the date hereof, is located at 3384
Peachtree Road, Suite 900, Atlanta, Georgia 30326.
"Custodian" has the meaning provided in Section 6.01.
"Default" means any event which is, or after notice or passage of time,
or both, would be, an Event of Default.
"Event of Default" has the meaning provided in Section 6.01.
"Holder," "Holder of Notes" or "Noteholder" means the person in whose
name a Note is registered on the Register.
"Indebtedness" means, with respect to any Person at any date, without
duplication, (a) all indebtedness, obligations and other liabilities (contingent
or otherwise) of such Person for borrowed money (whether or not the recourse of
the lender is to the whole of the assets of such Person or only to a portion
thereof), (b) all obligations and other liabilities (contingent or otherwise) of
such Person evidenced by bonds, notes or other similar instruments, (c) all
obligations and other liabilities (contingent or otherwise) of such Person in
respect of letters of credit or other similar instruments (and reimbursement
obligations with respect thereto), (d) all obligations and other liabilities
(contingent or otherwise) of such Person 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 of such Person, (f) all Indebtedness of
others secured by a lien on any asset or assets of such Person, whether or not
such Indebtedness is assumed by such Person (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 such Person to the extent of such
guarantee. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability of such Person for any such contingent
obligations at such date. A change in generally accepted accounting
2
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principles that results in an obligation of the Company existing at the time of
such change becoming Indebtedness shall not be deemed an incurrence of such
Indebtedness.
"Indenture" means this Indenture as originally executed, as may be
amended or supplemented from time to time in accordance with the applicable
provisions hereof.
"Issue Price" means with respect to a Note, the amount set forth as
Issue Price on the face of such Note.
"Junior Security" of a Person means any Indebtedness of such Person
that is subordinated in right of payment to the Notes and has no scheduled
installment of principal due, by redemption, sinking fund payment or otherwise,
on or prior to July 1, 2007.
"Lien" means, with respect to any Property, any conveyance in trust,
assignment, mortgage, lien, pledge, charge, security interest or encumbrance of
any kind (including any conditional sale or other title retention agreement or
lease in the nature thereof) in respect of such Property.
"Net Income" ("Net Loss") of any Person for any period means the net
income (net loss) of such Person for such period after deducting any dividends
paid on such Person's preferred stock, determined in accordance with generally
accepted accounting principles.
"Net Cash Proceeds" means with respect to the sale, exchange, lease,
sublease or other disposition of any Property (voluntary or involuntary, and
including without limitation any taking by condemnation or eminent domain or
loss due to fire or other casualty), the cash proceeds (including without
limitation proceeds of insurance and condemnation awards or similar recoveries)
received by the Company from or in connection with such transaction (including
any cash received by way of deferred payment or liquidation of any securities or
other assets, received in consideration for such sale, exchange, lease, sublease
or other disposition, as and when received); less (i) reasonable costs necessary
to effectuate such transaction including brokerage fees or commissions and
reasonable fees and expenses of attorneys and other professionals, (ii) state,
federal or local transfer taxes and other taxes, including without limitation,
recording taxes, documentation stamp taxes, but excluding capital gains or other
federal, state or local taxes based on income, and (iii) prorated closing costs,
including without limitation fees and assessments; provided that, in the case of
any Sublease, the Net Cash Proceeds shall be determined as of the end of each
calendar quarter and shall be equal to the net amount of all rents and other
payments received by the Company during such calendar quarter with respect to
such Sublease over and above the rents and other payments due and payable by the
Company for such calendar quarter pursuant to the underlying Sublease.
"Notes" means the Senior Subordinated Zero Coupon Notes due July 1,
2007 of the Company, as amended or supplemented from time to time, that are
authenticated and delivered under this Indenture.
3
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"Officer" means the Chief Executive Officer, the President, any Vice
President of any grade, the Chief Financial Officer, the Treasurer, any
Assistant Treasurer, the Secretary or the Controller of the Company.
"Officer's Certificate" means a certificate signed by an Officer of the
Company satisfying the requirements of Sections 11.04 and 11.05.
"Opinion of Counsel" means a written opinion from the General Counsel
of the Company, legal counsel to the Company (which may be Smith, Gambrell &
Russell, LLP or Mulligan & Mulligan) or another legal counsel who is reasonably
acceptable to the Trustee, which Opinion of Counsel shall comply with Sections
11.04 and 11.05. The counsel may be an employee of the Company. The acceptance
by the Trustee (without written objection to the Company during the fifteen (15)
Business Days following receipt) of, or its action on, an opinion of counsel not
specifically referred to above shall be sufficient evidence that such counsel is
acceptable to the Trustee.
"Original Issuance Date" means the date specified as such in the Form
of Note attached hereto as Exhibit A, which date will be the Effective Date.
"Outstanding" or "outstanding" when used with respect to Notes or a
Note, means all Notes theretofore authenticated and delivered under this
Indenture, except:
(a) Notes theretofore canceled by the Trustee or delivered to
the Trustee for cancellation;
(b) Notes or portions thereof, for which payment in the
necessary amount has been deposited with the Trustee or any Paying
Agent in trust except to the extent provided in Section 8.01; and
(c) Notes which have been paid, or for which other Notes shall
have been authenticated and delivered in lieu thereof or in
substitution therefor pursuant to the terms of Section 2.07, unless
proof satisfactory to the Trustee is presented that any such Notes are
held by holders in due course.
A Note does not cease to be Outstanding because the Company or one of its
Affiliates holds the Note; provided, however, that in determining whether the
Holders of the requisite aggregate principal amount of Notes Outstanding have
given any request, demand, authorization, direction, notice, consent or waiver
under this Indenture, Section 2.08 shall be applicable.
"Original Issue Discount" with respect to a Note means the difference
between the Issue Price and Principal Amount at Maturity of such Note, which
shall accrue as described in such Note.
"Paying Agent" has the meaning provided in Section 2.04.
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"Person" means any individual, corporation, partnership, limited
liability company, joint venture, association, joint-stock company, trust,
unincorporated organization or government or other agency or political
subdivision thereof.
"Preferred Stock" means the capital stock of the Company having a
preference in liquidation or dividends over the Company's common stock.
"Principal Amount at Maturity" with respect to a Note shall be the
amount set forth as Principal Amount at Maturity on the face of such Note.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Record Date" means the fifteenth (15th) day preceding payment date of
Principal Amount at Maturity or Redemption Date, whether or not a Business Day.
"Redemption Date" when used with respect to any Note to be redeemed,
means the date fixed for such redemption by or pursuant to this Indenture and
the Notes.
"Register" has the meaning provided in Section 2.04.
"Registrar" has the meaning provided in Section 2.04.
"Request" means a written request for the action therein specified
signed on behalf of the Company by any Officer of the Company referred to in the
definition of the term "Officer's Certificate" and delivered to the Trustee.
Each Request shall be in form and substance reasonably satisfactory to the
Trustee and be accompanied by an Officer's Certificate if and to the extent
required by Section 11.04.
"Restricted Payment" has the meaning provided in Section 4.14.
"SEC" means the Securities and Exchange Commission and any government
agency succeeding to its functions.
"Senior Indebtedness" of the Company means (i) all Indebtedness of the
Company, 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.
"Significant Subsidiary" means any Subsidiary (as defined herein) which
is also a "Significant Subsidiary" within the meaning of Article 1 of Regulation
S-X of the Securities Exchange Act of 1934, as amended.
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"Subordinated Indebtedness" means any Indebtedness of the Company which
by its terms is subordinated in right of payment to the Notes.
"Subsidiary" means a corporation a majority of capital stock of which
having voting power to elect, under ordinary circumstances, a majority of
directors is at the time, directly or indirectly, owned by the Company, by the
Company and one or more Subsidiaries of the Company or by one or more
Subsidiaries of the Company.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code ss.ss.
77aaa-77bbbb), as amended, as in effect on the date as of which this Indenture
was executed.
"Trustee" means the party named as such in the first paragraph of this
Indenture until a successor replaces it in accordance with the provisions of
this Indenture and thereafter means the successor.
"Trust Officer" means any officer in the corporate trust department of
the Trustee, or any other officer or assistant officer of the Trustee assigned
by the Trustee to administer its corporate trust matters.
"U.S." or "United States" means the United States of America.
"U.S. Government Obligations" means securities which are (a) direct
obligations of the United States government for the timely payment of which its
full faith and credit is pledged or (b) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
government the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation of the United States government, which, in either
case, is not callable or redeemable at the option of the issuer thereof, and
shall also include a depository receipt issued by a bank or trust company (as
defined in Section 3(a)(2) of the Securities Act), as custodian with respect to
any such U.S. Government Obligation or a specific payment of interest on or
principal of any such U.S. Government Obligation held by such custodian for the
account of the holder of a depository receipt, provided that (except as required
by law) such custodian is not authorized to make any deduction from the amount
payable to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of interest on or principal of the U.S. Government Obligation evidenced by such
depository receipt.
Section 1.02 Incorporation by Reference of Trust Indenture Act.
Whenever this Indenture refers to a provision of the TIA, the provision
is incorporated by reference in and made a part of this Indenture. The following
TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Notes.
"indenture security holder" means a Noteholder.
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"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the indenture securities means the Company or any
other obligor on the Notes.
All other TIA terms used in this Indenture that are defined by the TIA,
defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
Section 1.03 Rules of Construction.
Unless the context otherwise requires:
(a) a term has the meaning assigned to it;
(b) whenever the context may require, any pronoun shall
include the corresponding masculine, feminine and neuter forms;
(c) the words "include," "includes" and "including" shall be
deemed to be followed by the phrase "without limitation";
(d) references to documents, contracts or agreements, shall
include any and all supplements and amendments thereto;
(e) references to a specific Person shall include the
successors and assigns of such Person;
(f) references to "applicable laws" shall include statutes,
ordinances, rules, regulations, court and administrative decisions and
conditions, restrictions and limitations in licenses, permits,
approvals and authorizations issued or granted by federal, state or
local United States or foreign governmental bodies and agencies;
(g) unless otherwise specified in the computation of a period
of time from a specified date to a later specified date, the word
"from" means "from and including," and the words "to" and "until" each
mean "to but excluding";
(h) words in the singular include the plural, and words in the
plural include the singular;
(i) provisions apply to successive events and transactions;
(j) "herein," "hereof" and other words of similar import refer
to this Indenture as a whole and not to any particular Article, Section
or other subsection; and
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(k) All accounting terms used herein and not expressly defined
shall have the meanings given to them in accordance with generally
accepted accounting principles, and the term "generally accepted
accounting principles" shall mean generally accepted accounting
principles set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board, or in such other statements by such other
entity as may be in general use by significant segments of the
accounting profession, which are applicable to the circumstances as of
the date of determination.
ARTICLE 2.
THE NOTES
Section 2.01 Form and Dating.
The Notes and the Trustee's certificates of authentication shall be
substantially in the form of Exhibit A hereto. Any of the Notes may be issued
with the appropriate insertions, omissions, substitutions and variations, and
may have imprinted or otherwise reproduced thereon such notations, legends or
endorsements, not inconsistent with the provisions of this Indenture, as may be
required to comply with any law or with any rules or regulations pursuant
thereto, or with the rules of any securities market in which the Notes are
admitted to trading, or to conform to general usage. The Company shall approve
the form of the Notes and any notation, legend or endorsement on them. Each Note
shall be dated the date of its authentication. No Note shall bear interest. The
Principal Amount at Maturity shall be paid as provided in the Note.
The definitive Notes shall be printed, lithographed, or otherwise
produced in any manner as determined by the Company, as evidenced by the
execution of such Notes by Officers of the Company.
The terms and provisions contained in the Notes, annexed hereto as
Exhibit A shall constitute, and are hereby expressly made, a part of this
Indenture. To the extent applicable, the Company and the Trustee, by their
execution and delivery of this Indenture, expressly agree to such terms and
provisions and to be bound thereby.
Section 2.02 Execution, Amount, Authentication and Delivery.
Two (2) Officers shall sign the Notes for the Company by manual or
facsimile signature and such signature may be imprinted or otherwise reproduced
on the Notes. The Company's seal shall be affixed to or reproduced on the Notes.
Typographical or other errors or defects in any such reproduction of the seal or
any such signature shall not affect the validity or enforceability of any Note
which has been duly authenticated and delivered by the Trustee. If an Officer
whose signature is on a Note no longer holds that office at the time the Trustee
authenticates the Note, the Note shall be valid nevertheless. A Note shall not
be valid until the Trustee manually signs the certificate of authentication on
the Note. The signature of the Trustee shall be conclusive evidence and the only
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evidence, that the Note has been authenticated and delivered under this
Indenture and is entitled to the benefits of this Indenture.
The Trustee shall authenticate Notes for issue in the aggregate
Principal Amount at Maturity of up to $15,000,000 (other than Notes issued
pursuant to Section 2.07 hereof) upon a written order from the Company signed by
an Officer of the Company. The order shall specify the amount of Notes to be
authenticated, the date on which the original issue of Notes is to be
authenticated, provide instructions with respect to the delivery thereof and
shall be accompanied by (a) an Officer's Certificate which certifies that such
Notes are being issued pursuant to and in accordance with this Indenture and
that all conditions precedent to the issuance have been complied with, and (b)
an Opinion of Counsel to the effect that such Notes have been duly authorized,
executed and delivered by the Company pursuant to and in accordance with this
Indenture and, upon authentication by the Trustee, such Notes will be the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms subject to customary exceptions for bankruptcy and
equitable remedies.
The aggregate Principal Amount at Maturity of Notes issued pursuant to
this Section 2.02 (other than Notes issued pursuant to Section 2.07 hereof)
shall not exceed $15,000,000.
The Notes shall be issuable only in registered form without coupons in
denominations of $1,000 or any integer multiple thereof and in denoniminations
of less than $1,000, provided that after the Notes are initially issued
hereunder (as determined by the Company), Notes will not be issued in
denominations of less than $1,000 except as provided in Section 2.07.
The Trustee may appoint an authenticating agent acceptable to the
Company to authenticate Notes. An authenticating agent may authenticate Notes
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the Company,
any guarantor or any Affiliate of the Company.
Section 2.03 Accrual of Original Issue Discount; Interest.
Original Issue Discount shall accrue with respect to the Notes at the
rate set forth in paragraph 1 of the Notes commencing on the Issue Date of the
Notes. There shall be no periodic payments of interest on the Notes. In case of
an Event of Default, the principal amount of the Notes that may be declared due
and payable shall be the amount at which the Company could then redeem the Notes
under Section 3.01 hereof (assuming there had been no Event of Default).
Section 2.04 Registrar and Paying Agent.
The Company shall maintain an office or agency where Notes may be
presented for registration of transfer or for exchange ("Registrar") and an
office or agency where Notes may be presented for payment ("Paying Agent"). The
Registrar shall keep a register of the Notes and of their transfer and exchange
("Register"). Such Register shall be in written form in the English language or
any other form capable of being converted into such form within a reasonable
time. At all
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reasonable times such Register shall be open for inspection by Trustee. The
Company may have one or more co-Registrars and one or more additional paying
agents. The term "Paying Agent" includes any additional paying agent.
The Company may enter into an appropriate agency agreement with any
Agent not a party to this Indenture. The agreement shall implement the
provisions of this Indenture that relate to such Agent. The Company shall notify
the Trustee of the name and address of any such Agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such.
The Company initially appoints U.S. Bank Trust, National Association as
Registrar and Paying Agent.
Section 2.05 Paying Agent to Hold Money In Trust.
Each Paying Agent shall hold in trust for the benefit of Noteholders or
the Trustee all money or Notes held by the Paying Agent for the payment of
principal of or interest on the Notes (whether such money has been paid to it or
Notes have been delivered to it by the Company or any other obligor on the
Notes), and shall notify the Trustee of any default by the Company (or any other
obligor on the Notes) in making any such payment. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and account
for any funds disbursed and the Trustee may at any time during the continuance
of any payment default under Section 6.01(a), upon written request to a Paying
Agent, require such Paying Agent to pay all money held by it to the Trustee and
to account for any funds distributed. Upon doing so the Paying Agent shall have
no further liability for the money.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the Notes, hold in irrevocable trust for the
benefit of the Persons entitled thereto a sum, sufficient to pay the principal
and accrued Original Issue Discount so becoming due until such sums shall be
paid or issued to such Persons or otherwise disposed of as herein provided, and
will promptly notify the Trustee of such action or any failure so to act.
The Company will, one (1) Business Day prior to each due date for the
payment of the principal and accrued Original Issue Discount on any Notes,
deposit with a Paying Agent a sum in same day funds, sufficient to pay the
principal and accrued Original Issue Discount so becoming due, such sum to be
held in irrevocable trust for the benefit of the Persons entitled to such
principal and accrued Original Issue Discount and (unless such Paying Agent is
the Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
The Company will cause each Paying Agent other than the Trustee to
execute and deliver to the Trustee an instrument in which such Paying Agent
shall agree with the Trustee, subject to the provisions of this Section 2.05,
that such Paying Agent will:
(a) hold all sums received by it as such agent for the payment
of the principal and accrued Original Issue Discount on Notes in trust
for the benefit of the Persons entitled
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thereto until such sums shall be paid to such Persons or otherwise
disposed of as herein provided;
(b) promptly give the Trustee notice of any failure by the
Company to make any payment of the principal of, or accrued interest
on, the Notes when the same shall be due and payable; and
(c) at any time during the continuance of any such failure,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
direct any Paying Agent to pay, to the Trustee all sums held in trust by the
Company or such Paying Agent, such sums to be held by the Trustee upon the same
trusts as those upon which such sums were held by the Company or such Paying
Agent; and, upon such payment by any Paying Agent to the Trustee, such Paying
Agent shall be released from all further liability with respect to such money
held by it as Paying Agent.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal and accrued Original
Issue Discount on any Note and remaining unclaimed for two (2) years after such
principal and accrued Original Issue Discount has become due and payable shall
be paid to the Company on its request, or (if then held by the Company) shall be
discharged from such trust, unless otherwise required by mandatory provisions of
applicable escheat or abandoned or unclaimed property law, 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 regard to such money, and all liability of the Company as trustee
thereof, shall thereupon cease.
Section 2.06 Noteholder Lists.
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Noteholders. If the Trustee is not the Registrar, the Company shall furnish to
the Trustee on or before the date of payment of Principal Amount at Maturity and
at such other times as the Trustee may request in writing a list in such form
and as of such date as the Trustee may reasonably require of the names and
addresses of Noteholders.
Section 2.07 Transfer and Exchange.
When Notes are presented to the Registrar or a co-Registrar with a
request to register the transfer, the Registrar shall register the transfer as
requested if its requirements for such transfer are met. When Notes of
denominations less than $1,000 (that nevertheless sum to or are in excess of
$1,000) are presented to the Registrar or co-Registrar with a request to combine
such Notes into denominations of $1,000, the Registrar or co-Registrar shall
effect such combination (by issuing one or more Notes in denominations that are
integer multiples of $1,000 and one Note for any remainder less than $1,000) and
register the same if its requirements for such combinations are met. To permit
registrations of transfers or combinations, the Company shall execute and the
Trustee shall
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authenticate Notes at the Registrar's or co-Registrar's written request. All
Notes presented for registration of transfer or combination, redemption or
payment shall (if so required by the Company or the Trustee) be duly endorsed
by, or be accompanied by a written instrument or instruments in form
satisfactory to the Company and the Trustee, duly executed by the Holder or his
or her attorney duly authorized in writing. The Company shall not charge a fee
for registration of transfer or combination but the Company may require the
payment of any applicable transfer taxes.
The Registrar shall not be required to register the transfer or
exchange of (a) any Note for a period beginning at the opening of business
fifteen (15) Business Days before the mailing of a notice of redemption of Notes
and ending at the close of business on the day of such mailing or (b) any Note
selected, called or being called for redemption, except, in the case of any Note
to be redeemed in part, the portion thereof not to be redeemed.
All Notes issued upon any transfer of Notes shall be valid obligations
of the Company, evidencing the same debt, and entitled to the same benefits
under this Indenture, as the Notes surrendered upon such transfer.
Notwithstanding anything to the contrary contained herein, the Trustee
or Registrar shall have no duty whatsoever to monitor federal or state
securities laws other than to collect the Notes required herein, subject to the
TIA.
Section 2.08 Mutilated, Defaced, Destroyed, Lost and Stolen Notes.
In case any temporary or definitive Note shall become mutilated,
defaced or be apparently destroyed, lost or stolen, the Company in its
discretion may execute, and upon the written request of any authorized officer
of the Company, the Trustee shall authenticate and deliver, a new Note, bearing
a number not contemporaneously outstanding, in exchange and substitution for the
mutilated or defaced Note, or in lieu of and substitution for the Note so
apparently destroyed, lost or stolen. In every case the applicant for a
substitute Note shall furnish to the Company and to the Trustee and any agent of
the Company or the Trustee such security or indemnity as may be required by them
to indemnify and defend and to save each of them harmless and, in every case of
destruction, loss or theft, evidence to their satisfaction of the apparent
destruction, loss or theft of such Note and of the ownership thereof.
Upon the issuance of any substitute Note, the Company may require the
payment of a sum sufficient to cover any tax or other governmental charge that
may be imposed in relation thereto and any other expenses (including, without
limitation, the fees and expenses of the Trustee) connected therewith. In case
any Note which has matured or is about to mature, or has been called for
redemption in full, shall become mutilated or defaced or be apparently
destroyed, lost or stolen, the Company may, instead of issuing a substitute
Note, pay or authorize the payment of the same (without surrender thereof except
in the case of a mutilated or defaced Note), if the applicant for such payment
shall furnish to the Company and to the Trustee and any agent of the Company or
the Trustee such security or indemnity as any of them may require to save each
of them harmless from all risks, however remote, and, in every case of apparent
destruction, loss or theft, the applicant shall also furnish to the Company and
the Trustee and any agent of the Company or the Trustee evidence
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to their satisfaction of the apparent destruction, loss or theft of such Note
and of the ownership thereof.
Every substitute Note issued pursuant to the provisions of this Section
by virtue of the fact that any Note is apparently destroyed, lost or stolen
shall constitute an original additional contractual obligation of the Company,
whether or not the apparently destroyed, lost or stolen Note shall be at any
time enforceable by anyone and shall be entitled to all the benefits of (but
shall also be subject to all the limitations of rights set forth in) this
Indenture equally and proportionately with any and all other Notes duly
authenticated and delivered hereunder. All Notes shall be held and owned upon
the express condition that, to the extent permitted by law, the foregoing
provisions are exclusive with respect to the replacement or payment of mutilated
or defaced or apparently destroyed, lost or stolen Notes and shall preclude any
and all other rights or remedies notwithstanding any law or statute existing or
hereafter enacted to the contrary with respect to the replacement or payment of
negotiable instruments or other securities without their surrender.
Section 2.09 Treasury Notes.
In determining whether the Holders of the required principal amount of
Notes have given or concurred in any amendment, request, demand, authorization,
direction, notice, consent or waiver under this Indenture, Notes held by the
Trustee under Section 2.02 and Notes owned by the Company, an Affiliate of the
Company, any other obligor or any Affiliate of such obligor shall be
disregarded, except that, for the purposes of determining whether the Trustee
shall be protected in relying on any such amendment, request, demand,
authorization, direction, notice, consent or waiver, only Notes held by the
Trustee under Section 2.02 or Notes which the Trustee knows are so owned shall
be so disregarded and deemed not to be Outstanding for the purpose of any such
determination. Notes so owned which have been pledged in good faith may be
regarded as Outstanding if the pledgee establishes to the satisfaction of the
Trustee the pledgee's right so to act with respect to such Notes and that the
pledgee is not the Company or any other obligor upon the Notes or any Affiliate
of the Company or any other obligor on the Notes. In case of a dispute as to
such right, the Trustee acting in good faith shall be entitled to rely upon the
advice of counsel, including counsel for the Company. Upon request of the
Trustee, the Company shall promptly furnish to the Trustee an Officer's
Certificate listing and identifying all Notes, if any, held by the Trustee under
Section 2.02 and Notes known by the Company to be owned or held by or for the
account of any of the above described Persons; and subject to Sections 7.01 and
7.02 herein, the Trustee shall be entitled to accept such Officer's Certificate
as conclusive evidence of the facts therein set forth and of the fact that all
Notes not listed therein are Outstanding for the purpose of any such
determination.
Section 2.10 Temporary Notes.
Until definitive Notes are ready for delivery, the Company may prepare,
and, upon written order of the Company, the Trustee shall authenticate,
temporary Notes in any authorized denominations. Temporary Notes shall be
substantially in the form of definitive Notes but may have variations that the
Company considers appropriate for temporary Notes. Without unreasonable delay,
the Company shall prepare and the Trustee shall authenticate and deliver
definitive Notes in
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exchange for temporary Notes. Until so exchanged, the temporary Notes shall be
entitled to the same benefits under this Indenture as definitive Notes.
Section 2.11 Cancellation.
The Company may at any time deliver Notes to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Notes surrendered to them for transfer, redemption or payment. The Trustee
and no one else shall cancel all Notes surrendered for transfer, redemption,
payment or cancellation. The Company may not issue new Notes to replace Notes it
has paid or delivered to the Trustee for cancellation. All canceled Notes held
by the Trustee shall be disposed of by the Trustee in accordance with its
customary procedures or as directed in writing by the Company. If the Company
shall acquire any of the Notes, such acquisition shall not operate as a
redemption or satisfaction of the indebtedness represented by such Notes unless
and until the same are delivered to the Trustee for cancellation.
ARTICLE 3.
REDEMPTION
Section 3.01 Optional Redemption.
The Notes Outstanding shall be subject to redemption at the option of
the Company as a whole or from time to time in part as provided herein. The
Company may redeem any Notes Outstanding from the date of issuance up to and
including September 30, 2000 by paying $450 per $1,000 face amount of the Notes.
The Company may redeem any Notes Outstanding from October 1, 2000 up to and
including September 30, 2001 by paying $500 per $1,000 face amount of the Notes.
The Company may redeem any Notes Outstanding from October 1, 2001 up to and
including September 30, 2002 by paying $550 per $1,000 face amount of the Notes.
The Company may redeem any Notes Outstanding from October 1, 2002 up to and
including September 30, 2003 by paying $600 per $1,000 face amount of the Notes.
The Company may redeem any Notes Outstanding from October 1, 2003 up to and
including September 30, 2004 by paying $700 per $1,000 face amount of the Notes.
The Company may redeem any Notes Outstanding from October 1, 2004 up to and
including September 30, 2005 by paying $800 per $1,000 face amount of the Notes.
The Company may redeem any Notes Outstanding from October 1, 2005 up to and
including September 30, 2007 by paying $1,000 per $1,000 face amount of the
Notes. The Securities Outstanding are redeemable at the amounts set forth in
this Section 3.01 regardless of the amount of accrued Original Issue Discount.
Section 3.02 Redemption Notice to Trustee.
The election of the Company to redeem Notes shall be evidenced by a
resolution of the Company's Board of Directors. If the Company elects to redeem
Notes as provided in Section 3.01, not less than forty-five (45) days prior to
the Redemption Date, it shall deliver to the Trustee a copy of the Board of
Directors resolution and an Officers' Certificate setting forth the Redemption
Date, the principal amount of Notes to be redeemed and all other information
needed for the notice to be given by the Trustee pursuant to Section 3.01 and
Section 3.04. Such Officers' Certificate shall be
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signed by an Officer and shall identify by registration and certificate number
all Notes owned of record and beneficially by, and not pledged or hypothecated
by either (a) the Company or (b) an Affiliate of the Company.
The Company shall give the notice provided for in this Section at least
fifteen (15) days (unless a shorter notice shall be satisfactory to the Trustee)
prior to the date the Trustee must give notice pursuant to Section 3.04.
Section 3.03 Selection of Notes to be Redeemed.
If less than all the Notes are to be redeemed, the Trustee shall select
first the Notes in denominations of less than $1,000 to be redeemed, second the
Notes in increments of $1,000 chosen on as near an approximation of pro rata as
is practicable based on the amount of Notes held (in denominations that are
integral multiples of $1,000) by each beneficial owner, and third the Notes
chosen by lot or such other method as the Trustee shall deem fair and
appropriate. The Trustee shall make the selection from the Notes Outstanding not
previously called for redemption. The Trustee shall promptly notify the Company
in writing of Notes selected for redemption and in the case of partial
redemption the amount thereof to be redeemed.
Section 3.04 Notice of Redemption.
At least thirty (30) days but no more than sixty (60) days before a
Redemption Date, unless a shorter period shall be specified in the Notes or this
Indenture, the Trustee shall mail a notice of redemption by first class mail
postage prepaid to each Holder of Notes Outstanding at their last addresses as
they shall appear on the Register.
The notice shall state:
(a) the amount of each Note held by each such Holder to be
redeemed;
(b) the Redemption Date;
(c) the Redemption Price;
(d) the name and address of the Paying Agent;
(e) that Notes called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price;
(f) the CUSIP number of Notes to be redeemed; and
(g) if the Company reserves the right to rescind its election
to redeem the Notes as permitted below, that it is doing so and the
means by which Holders will be notified whether or not the Company has
exercised the right so reserved; and
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(h) that, unless the Company rescinds its notice of redemption
or defaults in making the redemption payment, Original Issue Discount
on the Notes to be redeemed ceases to accrue on and after the
Redemption Date and the only remaining right of the Holders of such
Notes is to receive payment of the Redemption Price upon surrender to
the Paying Agent of the Notes.
Except as provided below, once notice of redemption is mailed, all
Notes called for redemption shall become due and payable on the Redemption Date
and at the Redemption Price as provided in Section 3.01. Upon surrender to the
Paying Agent, such Notes shall be paid at the Redemption Price.
At least one (1) Business Day prior to the Redemption Date, the Company
shall deposit with the Paying Agent immediately available funds sufficient to
pay the Redemption Price of all Notes to be redeemed on that date, other than
Notes or portions thereof which have been delivered by the Company to the
Trustee for cancellation.
Notwithstanding the foregoing, the Company may reserve the right at any
time prior to the Redemption Date to rescind its election to redeem the Notes so
called for redemption by mailing a notice of cancellation of redemption by first
class mail postage prepaid to the Trustee and each Holder of Notes Outstanding
not later than five (5) Business Days prior to the proposed Redemption Date, and
any funds deposited with the Paying Agent to effect such redemption shall be
promptly repaid by the Paying Agent to the Company, provided, however, nothing
contained in this Section 3.04 shall prevent the application by the Trustee of
any money deposited with it hereunder to the payment of securities called for
redemption, or the retention of such payment by the Holders, if, at the time of
such application by the Trustee, it had not received the notice of the Company
to rescind its redemption.
Any notice when mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the Holder of the
Note receives such notice. In any case, failure to give such notice or any
defect in such notice shall not affect the validity of any proceedings for
redemption, or cancellation of redemption, of any Note.
Section 3.05 Payment of Notes Called for Redemption.
If notice of redemption has been given (and not rescinded) as above
provided, the Notes specified in such notice shall become due and payable on the
date and at the place stated in such notice at the applicable Redemption Price
and on and after said date (unless the Company shall Default in the payment of
such Notes at the Redemption Price) Original Issue Discount on the Notes so
called for redemption shall cease to accrue and such Notes shall cease from and
after the date fixed for redemption to be entitled to any benefit under this
Indenture, and the Holders thereof shall have no right in respect of such Notes
except the right to receive the Redemption Price thereof. On presentation and
surrender of such Notes at a place of payment specified in said notice, said
Notes or the specified portions thereof shall be paid and redeemed by the
Company at the applicable Redemption Price.
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If any Note called for redemption shall not be so paid upon surrender
thereof for redemption, the Redemption Price shall, until paid or duly provided
for, bear interest from the date fixed for redemption at the rate of 12 percent
(12%) per annum.
ARTICLE 4.
COVENANTS
Section 4.01 Payment of Notes.
The Company covenants and agrees for the benefit of the Holders that it
shall duly and punctually pay the amounts owed on the Notes on the dates and in
the manner provided in this Indenture and in the Notes. Principal Amount at
Maturity or Redemption Price shall be considered paid on the date due if such
date the Paying Agent or Trustee holds in accordance with this Indenture
sufficient funds to pay principal and accrued interest then due and such
payments are not prohibited on that date pursuant to this Indenture.
Section 4.02 Maintenance of Office or Agency.
The Company shall maintain in the City of Atlanta, State of Georgia, an
office or agency where Notes may be surrendered for registration of transfer or
exchange or for presentation for payment and where notices and demands to or
upon the Company in respect of the Notes and this Indenture may be served. At
the written request of the Company, said office or agency may be the office of
an agent appointed by the Trustee for such purpose. The Company shall give
prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency not designated or appointed by the Trustee.
If at any time the Company shall fail to maintain any such required office or
agency or shall fail to furnish the Trustee with the address thereof, such
presentations, surrenders, notices and demands may be made or served at name and
address of Trustee.
The Company may also from time to time designate one or more other
offices or agencies where the Notes may be presented or surrendered for any or
all such purposes and may from time to time rescind such designations; provided,
however, that no such designation or rescission shall in any manner relieve the
Company of its obligation to maintain an office or agency in the City of
Atlanta, State of Georgia, for such purposes. The Company will give prompt
written notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency. The Company hereby
initially designates 900 Circle 75 Parkway, Suite 1300, Atlanta, Georgia 30339,
as one such office or agency of the Company.
Section 4.03 Liquidation of the Company.
Upon the liquidation or dissolution of the Company, after the payment
of all Senior Debt but prior to making any distribution of assets or properties
to the holders of capital stock of the Company or to the holders of any
Subordinated Indebtedness of the Company, the Company shall redeem all of the
Notes then Outstanding at a price equal to the amount at which the Company could
then redeem the Notes under Section 3.01 hereof.
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Section 4.04 Limitation on Repayment of Subordinated Indebtedness.
The Company shall not, directly or indirectly, pay, purchase, redeem,
defease (including, but not limited to, in-substance or legal defeasance) or
otherwise acquire or retire for value prior to the stated maturity of, or prior
to any scheduled mandatory redemption or sinking fund payment with respect to
(collectively, to "repay" or a "repayment"), the principal of any Indebtedness
of the Company which by its terms is subordinated in right of payment to the
Notes; provided, however, that any such repayment shall not be prohibited if
such repayment is financed with the proceeds of the sale of common stock,
Preferred Stock, Subordinated Indebtedness permitted hereunder or any other
security which by its terms or by operation of law is junior or subordinate in
right of payment or upon liquidation to the Notes.
Section 4.05 Insurance.
The Company shall maintain with financially sound and reputable
insurers, appropriate insurance (including prudent levels of self-insurance, as
determined by the Board of Directors of the Company) on the Company's Properties
and businesses against liabilities, casualties, risks and contingencies of the
type, as determined from time to time in good faith by the Board of Directors,
provided, however, that any such insurers shall be qualified to do business in
the jurisdiction where the insured property is located.
Section 4.06 Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do so) that
it will not at any time insist upon, or plead, or in any manner whatsoever
claim, the benefit or advantage of, any stay or extension law or any usury law
or other law that would prohibit or forgive the Company from paying all or any
portion of the principal of, or premium, if any, and interest on the Notes as
contemplated herein, wherever enacted, now or at any time hereafter in force, or
which may affect the covenants or the performance of this Indenture; and (to the
extent that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not hinder,
delay or impede the execution of any power granted to the Trustee herein, but
will suffer and permit the execution of every such power as though no such law
had been enacted.
Section 4.07 Waiver of Certain Covenants.
Subject to Section 4.01, compliance by the Company with any of the
covenants contained herein may be waived before the time for such compliance by
the Holders of at least a majority in aggregate principal amount of the Notes
then Outstanding, but in no event shall such waiver extend to or affect such
covenant or condition except to the extent so expressly waived and, until such
waiver shall become effective, the obligations of the Company in respect of any
such covenant or condition shall remain in full force and effect.
Section 4.08 Corporate Existence.
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Except as otherwise provided in Article 5, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate existence of each Subsidiary
engaged in substantial business activity each in accordance with the respective
organizational documents of the Company and each such Subsidiary and the rights
(charter and statutory), licenses, permits, approvals and governmental
franchises of the Company and each such Subsidiary necessary to the conduct of
its respective business; provided, however, that the Company shall not be
required to preserve any such right, license or franchise, or to preserve the
corporate existence of any such Subsidiary if the Board of Directors shall
determine that the preservation thereof is no longer in the interest of the
Company and that termination of such corporate existence is not disadvantageous
to the Holders in any material respect.
Section 4.09 Payment of Taxes and other Claims.
The Company shall, and shall cause each Subsidiary to, pay or discharge
or cause to be paid or discharged, before the same shall become delinquent, (a)
all taxes, assessments and governmental charges levied or imposed upon the
Company and each Subsidiary or upon the income, profits or property of the
Company and each Subsidiary, and (b) all lawful claims for labor, materials and
supplies which, if unpaid, might by law become a Lien upon the property of the
Company or a Subsidiary; provided, however, that the Company or a Subsidiary, as
the case may be, shall not be required to pay or discharge or cause to be paid
or discharged any such tax, assessment, charge or claim (i) the amount,
applicability or validity of which is being contested in good faith, or (ii) if
the Board of Directors shall determine that such non-payment and non-discharge
is in the interest of the Company and not prejudicial in any material respect to
the Holders.
Nothing contained herein or in the Notes shall be deemed to impose on
the Trustee or on the Company any obligation to pay on behalf of the Holder of
any Notes any tax, assessment or governmental charge required by any present or
future law of the U.S. or of any state, county, municipality or other taxing
authority thereof to be paid on behalf of, or withheld from the amount payable
to, the Holder of any Notes; rather any tax, assessment or governmental charge
shall be withheld from the amounts provided for herein.
Section 4.10 Notices.
The Company shall notify the Trustee in writing if an Event of Default
on the Notes shall occur and be continuing giving any Person the right to cause
the Notes to become due prior to their stated maturity or exercise other
remedies thirty (30) Business Days after an Officer learns of the occurrence
thereof, and, if applicable, the steps being taken by the Person(s) affected
which notice shall describe such event.
Section 4.11 Reports and Compliance Certificates.
The Company shall furnish to the Trustee:
(a) Within one hundred twenty (120) days after each fiscal
year of the Company, (i) a copy of an annual audited report of the
Company prepared in conformity with generally
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accepted accounting principles applied on a consistent basis duly
certified by a firm of independent certified public accountants of
recognized national or regional standing and who are members of the
AICPA SEC Practice Section selected by the Company and reasonably
acceptable to the Trustee (the "Independent Accountant") and (ii) a
copy of an annual unaudited report of the Company prepared in the same
manner as the audited report referred to in (i) of this subsection (a),
signed by a proper accounting officer of the Company.
(b) Within forty-five (45) days after each quarter of each
fiscal year of the Company, except the final quarter of such fiscal
year, a copy of an unaudited financial statement of the Company
prepared in the same manner, as customarily applied to interim
financial statements, signed by a proper accounting officer of the
Company and consisting of at least a balance sheet as at the close of
such quarter and statements of operations and cash flow for such
quarter and for the period from the beginning of such fiscal year to
the close of such quarter.
(c) Contemporaneously with the furnishing of a copy of each
annual report and of each quarterly statement referred to in (a) and
(b) above, an Officer's Certificate signed by the principal executive
officer, principal accounting officer or principal financial officer of
the Company dated the date of such annual report or such quarterly
statement to the effect that no Event of Default has occurred and is
continuing, or, if there is any such Event of Default, describing it
and the steps, if any, being taken to cure it. Upon receipt of any such
certificates, the Trustee may, but shall not be obligated to, request
any additional information from the Company which it in good faith
believes is necessary to enable it to determine the accuracy of the
information contained in such certificates.
(d) Copies of each filing and report made by the Company with
or to any securities exchange or the SEC, and of each communication
from the Company to shareholders generally, within five (5) days after
the Company is required to file the same. The foregoing shall include
copies of the annual reports and of the information, documents, and
other reports (or copies of such portions of any of the foregoing as
the SEC may by rules and regulations prescribe) which the Company is
required to file with the SEC pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended. The Company shall also
comply with the other provisions of TIA ss. 314(a).
(e) Upon request, the Company shall furnish to the Trustee an
Officer's Certificate setting forth (i) the amount of the original
issue discount on the Notes expressed as in U.S. dollars for each
$1,000 of Principal Amount at Maturity of such Notes and (ii) a table
of the amounts that would be due and payable upon a declaration of
acceleration of the maturity of the Notes for each day from the date of
original issuance of the Notes to the stated maturity of the Notes.
So long as any of the Notes remain Outstanding, the Company shall cause
its annual report to stockholders and any quarterly or other financial reports
furnished by it to stockholders to be mailed to the Holders of such Outstanding
Notes at their addresses appearing in the Register.
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Section 4.12 Books, Records, Access; Confidentiality.
(a) The Company shall, and shall cause each of its
Subsidiaries to (i) maintain books and records of account in which full
and correct entries sufficient to allow the preparation of financial
statements in conformity with generally accepted accounting principles,
shall be made of all dealings and transactions in relation to its
respective business and activities and (ii) permit authorized
representatives of the Trustee to visit and inspect the Properties of
the Company or its Subsidiaries, and any or all books, records and
documents in the possession of the Company, upon reasonable notice and
at such reasonable times during normal business hours and as often as
may be reasonably requested.
(b) The Trustee and its respective authorized representatives
referred to in clause (a) above agree not to use any information
obtained pursuant to this Section 4.12 for any purpose other than as
required in order to discharge its respective duties hereunder except
as otherwise required for such purpose to keep confidential and not to
disclose any such information to any person except that (i) the
recipient of the information may disclose any information which becomes
publicly available other than as a result of disclosure by such
recipient, (ii) the recipient of the information may disclose any
information which its counsel reasonably concludes is necessary to be
disclosed by law, pursuant to any court or administrative order or
ruling or in any pending legal or administrative proceeding or
investigation after notice to the Company adequate, subject to
applicable laws, to allow the Company to obtain a protective order or
other appropriate remedy, provided that the recipient of the
information will (if not otherwise required in order to discharge its
duties as aforesaid) cooperate with the Company's efforts to obtain a
protective order or other reliable assurance that confidential
treatment will be accorded any such information required to be so
disclosed, (iii) the recipient of the information may disclose any
information necessary to be disclosed pursuant to any provision of the
TIA, (iv) the recipient of the information may disclose any information
as may be necessary for the purpose of enforcing the rights of the
Trustee hereunder, and (v) nothing contained herein shall limit or
impair the right or obligation of the recipient of the information to
disclose such information to the extent required by law or by
appropriate regulatory authorities having or acquiring jurisdiction
over the affairs of such recipient.
Section 4.13 Compliance with Laws, etc.
The Company shall, and shall cause each of its Subsidiaries to, comply
with the requirements of applicable laws, noncompliance with which, individually
or in the aggregate, would reasonably be expected to have a material adverse
effect on the business, operations or financial condition of the Company and its
Subsidiaries taken as a whole.
Section 4.14 Restricted Payment.
The Company 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 or warrants or options to purchase Common Stock)
unless, after giving effect to the Restricted
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Payment, the aggregate of all Restricted Payments after December 31, 1998 will
not exceed the sum of (a) the net income of the Company after March 31, 1999
plus (b) $1,000,000 plus (c) the net proceeds from the issuance or sale after
March 31, 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 the Company.
Section 4.15 Restricted Payment.
The Company may incur 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.
ARTICLE 5.
SUCCESSOR CORPORATION
Section 5.01 Covenant Not to Consolidate, Merge, Convey or Transfer
Except Under Certain Conditions.
The Company shall not consolidate with, or merge with or into, or
convey or transfer all or substantially all of its properties and assets (which
shall be in excess of 80% of the Company's properties and assets, as determined
at the time of such transfer without regard to any prior transfer or series of
transfers made on unrelated transactions) to any other Person in one transaction
or a series of related transactions unless:
(a) The Company shall be the continuing Person or the Person
(if other than the Company) formed by such consolidation or into which
the Company is merged or to which the Properties of the Company as, or
substantially as, an entirety are transferred (the "surviving Person"):
(i) shall be a corporation organized and existing under the laws of the
United States of America or any state thereof or the District of
Columbia; and (ii) shall expressly assume, by an indenture and other
agreements supplemental hereto, executed and delivered to the Trustee,
in form satisfactory to the Trustee, the due and punctual payment of
the principal of and interest on all the Notes and the observance and
performance of every covenant, condition and obligation of this
Indenture and, the Notes on the part of the Company to be observed or
performed;
(b) Immediately before and immediately after giving effect to
such transaction and treating any Indebtedness which becomes an
obligation of the Company or the surviving Person as a result of such
transaction as having been incurred by the Company at the time of such
transaction, no Event of Default shall have occurred and be continuing
hereunder;
(c) The consolidated net worth (meaning consolidated
stockholders' equity in a Person and its Subsidiaries as determined in
accordance with generally accepted accounting principles) of the
Company or surviving Person immediately after giving effect to, but
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excluding goodwill resulting from, such transaction is not less than
50% of the consolidated net worth of the Company immediately before
such transaction; and
(d) The Company has delivered to the Trustee an Officer's
Certificate stating that such merger, consolidation, conveyance or
transfer of assets and such supplemental indenture comply with this
Article and that there has been compliance in all material respects
with the conditions precedent herein provided for or relating to such
transaction.
Section 5.02 Successor Person Substituted.
Upon any consolidation or merger, or any conveyance or transfer of the
properties and assets of the Company substantially as an entirety in accordance
with Section 5.01, the surviving entity formed by such consolidation or into
which the Company is merged or the surviving entity to which such conveyance or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, and be bound by and obligated to pay the obligations
of, the Company under this Indenture and the Notes with the same effect as if
such successor had been named as the Company herein and therein; and in the
event of any such conveyance (other than a conveyance by way of lease) or
transfer, the Company shall be discharged from all obligations and covenants
under the Indenture and the Notes and may be dissolved and liquidated.
Such surviving entity may cause to be signed, and may issue either in
its own name or in the name of the Company prior to such succession any or all
of the Notes issuable hereunder which theretofore shall not have been signed by
the Company and delivered to the Trustee; and, upon the order of such surviving
entity, instead of the Company, and subject to all the terms, conditions and
limitations in this Indenture prescribed, the Trustee shall authenticate and
shall deliver any Notes which previously shall have been signed and delivered by
the officers of the Company to the Trustee for authentication, and any Notes
which such surviving entity thereafter shall cause to be signed and delivered to
the Trustee for that purpose. All of the Notes so issued shall in all respects
have the same legal rank and benefit under this Indenture as the Notes
theretofore or thereafter issued in accordance with the terms of this Indenture
as though all of such Notes had been issued at the date of the execution hereof.
In case of any such consolidation, merger, sale, transfer or conveyance
such changes in phraseology and form (but not in substance) may be made in the
Notes thereafter to be issued as may be appropriate.
ARTICLE 6.
DEFAULT AND REMEDIES
Section 6.01 Events of Default.
An "Event of Default" occurs if:
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(a) the Company defaults in the payment of the Principal
Amount at Maturity of any Notes when the same becomes due and payable
at maturity or otherwise and the default continues for thirty (30)
days, subject to Article 10 hereof;
(b) the Company shall be in default of compliance with Section
5.01 hereof and such default shall continue unremedied for a period of
thirty (30) days after receipt of notice thereof from the Trustee;
(c) (i) the Company fails in any material respect to comply
with any of its other agreements contained in the Notes or this
Indenture and such non-compliance continues unremedied for a period of
forty-five (45) days after written notice has been given to the Company
by the Trustee, or (ii) any representation or warranty made by the
Company in this Indenture or in any certificate of the Company
delivered hereunder or under any such document shall prove to have been
untrue in any material respect when made, and in any such case such
default continues unremedied for a period of forty five (45) days after
receipt of notice thereof from the Trustee;
(d) the Company or any Significant Subsidiary, pursuant to or
within the meaning of any Bankruptcy Law (as hereinafter defined):
(i) commences with respect to it a voluntary case or
proceeding,
(ii) consents to the entry of an order for relief
against it in an involuntary case or proceeding,
(iii) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all of
its property, or
(iv) makes a general assignment for the benefit of
its creditors;
(e) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(i) is for relief against the Company or any
Significant Subsidiary, in an involuntary case or proceeding,
(ii) appoints a Custodian of the Company or any
Significant Subsidiary, for all or substantially all of its
properties, or
(iii) orders the liquidation of the Company or any
Significant Subsidiary,
and in each case the order and decree remains unstayed and in effect
for sixty (60) consecutive days.
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The term "Bankruptcy Law" means Title 11, U.S. Code, as amended, or any
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, sequestrator or similar
official under any Bankruptcy Law.
All notices of Default by the Trustee or by the Holders must specify
the Default, demand that it be remedied and state that the notice is a "Notice
of Default." When a Default is remedied or cured, it ceases.
Section 6.02 Acceleration.
If an Event of Default (other than an Event of Default specified in
Section 6.01 (d) or (e)) occurs, and is continuing, the Trustee may, by notice
to the Company, or the Holders of at least a majority in principal amount of the
Notes Outstanding may, by notice to the Company and the Trustee, and the Trustee
shall, upon the request of such Holders, declare the Notes Outstanding (if not
then due and payable) to be due and payable in the amount at which the Company
could then redeem the Notes under Section 3.01 hereof (assuming there had been
no Event of Default). If an Event of Default specified in Section 6.01 (d) or
(e) occurs, the Notes Outstanding shall ipso facto become and be immediately due
and payable in the amount at which the Company could then redeem the Notes under
Section 3.01 hereof (assuming there had been no Event of Default), without any
declaration or other act on the part of the Trustee or any Noteholder. Upon such
payment, all of the Company's obligations under the Notes and this Indenture,
other than obligations under Sections 7.07 and 8.04, shall terminate. The
Holders of a majority in principal amount of the Notes then outstanding by
notice to the Trustee and the Company may consent to the waiver of any past
default and rescind an acceleration and its consequences. No such rescission
shall affect any subsequent default or impair any right consequent thereon.
Section 6.03 Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue
any available remedy by proceeding at law or in equity to collect payment on the
Notes or to enforce the performance of any provision of the Notes or this
Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Notes or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Noteholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
Section 6.04 Waiver of Past Defaults.
Subject to Sections 6.07, 9.02 and 9.06, the Holders of a majority in
principal amount of the Notes Outstanding by notice to the Trustee may authorize
the Trustee to waive an existing Default or Event of Default and its
consequences, except a Default (i) in the payment on any Note as specified in
clause (a) of Section 6.01 or (ii) in respect of a covenant or provision hereof
which cannot be modified or amended without the consent of the Holder of each
Note affected. When a
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Default or Event of Default is waived, it is cured and ceases, and the Company,
the Holders and the Trustee shall be restored to their former positions and
rights hereunder respectively; but no such waiver shall extend to any subsequent
or other Default or Event of Default or impair any right consequent thereon.
Section 6.05 Control by Majority.
The Holders of a majority in principal amount of the Notes Outstanding
may direct the time, method and place of conducting any proceeding for any
remedy available to the Trustee or exercising any trust or power conferred on
it; provided that the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction. The Trustee may refuse to
follow any direction hereunder or authorization under Section 6.04 that
conflicts with law or this Indenture, that the Trustee determines may be unduly
prejudicial to the rights of another Noteholder, or that the Trustee determines
may subject the Trustee to personal liability, it being understood that the
Trustee does not have an affirmative duty to ascertain whether or not such
actions or forbearances are unduly prejudicial to such Noteholder. 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. However,
the Trustee shall have no liability for any actions or omissions to act which
are in accordance with any such direction or authorization.
Section 6.06 Limitation on Suits.
Except as provided in Section 6.05 and Section 6.07, a Noteholder may
not pursue any remedy with respect to this Indenture or the Notes.
A Noteholder may not use this Indenture to prejudice the rights of
another Noteholder or to obtain a preference or priority over such other Holder.
Section 6.07 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this 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.
It is hereby expressly understood, intended and agreed that any and all
actions which an individual Holder of the Notes may take to enforce the
provisions of this Indenture and/or collect amounts due hereunder or under the
Notes, except to the extent that such action is determined to be on behalf of
all Holders of the Notes, shall be in addition to and shall not in any way
change, adversely affect or impair the rights and remedies of the Trustee or any
other Holder of the Notes thereunder or under this Indenture and the Note
Documents.
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Section 6.08 Collection Suit by Trustee.
If an Event of Default in payment specified in clause (a) of Section
6.01 occurs and is continuing or payment of the Issue Price and accrued Original
Issue Discount has been validly accelerated under Section 6.02, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Notes for the whole amount of Issue Price
and accrued Original Issue Discount remaining unpaid, together with interest on
overdue amounts to the extent that payment of such interest is permitted by law,
at the rate per annum provided for by the Notes, and such further amount as
shall be sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
Section 6.09 Trustee May File Proofs of Claim.
The Trustee may file such proofs of claim and other papers or documents
as may be necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, disbursements
and advances of the Trustee, its agents and counsel) and the Noteholders allowed
in any judicial proceedings relative to the Company (or any other obligor upon
the Notes), its creditors or its property and shall be entitled and empowered to
collect and receive any moneys or other property payable or deliverable on any
such claims and to distribute the same, and any Custodian in any such judicial
proceedings is hereby authorized by each Noteholder to make such payments to the
Trustee and, in the event that the Trustee shall consent to the making of such
payments directly to the Noteholders, to pay to the Trustee any amount due to it
for the reasonable compensation, expenses, disbursements and advances of the
Trustee, its agent and counsel, and any other amounts due the Trustee under
Section 7.07, and unless prohibited by law or applicable regulations to vote on
behalf of the Holders of Notes for the election of a trustee in bankruptcy or
other person performing similar functions. Nothing herein contained shall be
deemed to authorize the Trustee to authorize or consent to or accept or adopt on
behalf of any Noteholder any plan of reorganization, arrangement, adjustment or
composition affecting the Notes or the rights of any Holder thereof, or to
authorize the Trustee to vote in respect of the claim of any Noteholder in any
such proceeding except, as aforesaid, for the election of a trustee in
bankruptcy or person performing similar functions.
Section 6.10 Application of Proceeds.
Any moneys collected by the Trustee pursuant to this Article shall be
applied in the following order at the date or dates fixed by the Trustee and, in
case of the distribution of such moneys to Noteholders, upon presentation of the
Notes and stamping (or otherwise noting) thereon the payment, or issuing Notes
in reduced principal amounts in exchange for the presented Notes if only
partially paid, or upon surrender thereof if fully paid:
FIRST: To the payment of costs and expenses, including
reasonable compensation to the Trustee and each predecessor Trustee and
their respective agents and attorneys (including amounts due and unpaid
under Section 7.07), and of all costs, fees, expenses and liabilities
incurred, and all advances made, by any and all of the foregoing
(including
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amounts due and unpaid under Section 7.07), except as a result of gross
negligence or willful misconduct;
SECOND: In case the Notes shall have become and shall be then
due and payable, to the payment of the amount of Issue Price and
accrued Original Issue Discount then owing and unpaid upon all the
Notes, with interest upon the overdue amount (to the extent that such
interest has been collected by the Trustee) at the same rate as the
rate of interest specified in the Notes; and in case such moneys shall
be insufficient to pay in full the whole amount so due and unpaid upon
the Notes, then to the payment of such Issue Price and accrued Original
Issue Discount, without preference or priority of Issue Price over
accrued Original Issue Discount, or of accrued Original Issue Discount
over Issue Price, of any Note over any other Note, ratably to the
aggregate of such Issue Price and accrued Original Issue Discount;
THIRD: To the payment of the remainder, if any, after payment
in full of the entire Issue Price and accrued Original Issue Discount
of the Notes and other amounts due upon or in respect of the Notes to
the Company or any other Person lawfully entitled thereto.
The Trustee, upon prior written notice to the Company, may fix a record
date and payment date for any payment to Noteholders pursuant to this Section
6.10.
Section 6.11 Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Note by his
acceptance thereof shall be deemed to have agreed, that any court in its
discretion may require in any suit for the enforcement of any right or remedy
under this Indenture or in any suit against the Trustee for any action taken or
omitted by it as Trustee, the filing by any party litigant in the suit of an
undertaking to pay the costs of the suit, and the court in its discretion may
assess reasonable costs, including reasonable attorneys' fees, against any party
litigant in the suit, having due regard to the merits and good faith of the
claims or defenses made by the party litigant; provided that the provisions of
this Section shall not apply to any suit instituted by the Trustee, or any suit
instituted by any indenture security holder, or group of indenture security
holders, holding in the aggregate more than 10 percent (10%) in principal amount
of the Outstanding Securities, or to any suit instituted by any Holder for the
enforcement of payment of the principal of or interest on the Notes, on or after
the respective due dates expressed herein.
Section 6.12 Restoration of Rights on Abandonment of Proceedings.
In case the Trustee shall have proceeded to enforce any right under
this Indenture and such proceedings shall have been discontinued or abandoned
for any reason, or shall have been determined adversely to the Trustee, then and
in every such case the Company, the Trustee and the Noteholders shall be
restored respectively to their former positions and rights hereunder, and all
rights, remedies and powers of the Company, the Trustee and the Noteholders
shall continue as though no such proceedings had been taken.
Section 6.13 Powers and Remedies Cumulative; Delay or Omission Not
Waiver of Default.
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No right or remedy herein conferred upon or reserved to the Trustee or
to the Noteholders is intended to be exclusive of any other right or remedy, and
every right and remedy shall, to the extent permitted by law, be cumulative and
in addition to every other right and remedy given hereunder or now or hereafter
existing at law or in equity or otherwise. The assertion or employment of any
right or remedy hereunder, or otherwise, shall not prevent the concurrent
assertion or employment of any other appropriate right or remedy.
No delay or omission of the Trustee or of any Holder of any of the
Notes to exercise any right or power accruing upon any Event of Default
occurring and continuing as aforesaid shall impair any such right or power or
shall be construed to be a waiver of any such Event of Default or an
acquiescence therein; and, subject to the other applicable provisions of this
Indenture, every power and remedy given by this Indenture or by law to the
Trustee or to the Noteholders may be exercised from time to time, and as often
as shall be deemed expedient, by the Trustee or by the Noteholders.
ARTICLE 7.
TRUSTEE
Section 7.01 Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the
Trustee shall exercise such of the rights and powers vested in it by
this Indenture and use the same degree of care and skill in their
exercise as a prudent person would exercise or use under the
circumstances in the conduct of his own affairs.
(b) Except during the continuance of an Event of Default:
(i) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others.
(ii) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon an Officer's Certificates, certificates or
opinions furnished to the Trustee and conforming to the
requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or
not they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(i) This paragraph (c) does not limit the effect of
paragraph (b) of this Section 7.01 or of Section 7.02.
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(ii) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts.
(iii) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to Section
6.05.
(d) The Trustee may refuse to perform any duty or exercise any
right or power unless it receives indemnity or security satisfactory to
it against any loss, liability or expense.
(e) Every provision of this Indenture that in any way relates
to the Trustee is subject to paragraphs (a), (b),(c) and (d) of this
Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in a separate writing
with the Company.
Section 7.02 Rights of Trustee.
(a) The Trustee may conclusively rely on any document believed
by it to be genuine and to have been signed or presented by the proper
person. The Trustee shall not be bound to investigate any fact or
matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may
require an Officer's Certificate or an Opinion of Counsel which shall
conform to Section 11.05. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
(c) The Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through its attorneys and agents and the Trustee shall not be
responsible for the misconduct or negligence of any agent or attorney
appointed with due care.
(d) The Trustee shall not be liable for any action it takes or
omits to take in good faith which it reasonably believes to be
authorized or within its rights or powers. The Trustee shall have the
right at any time to seek instruction concerning the administration of
this Indenture or the trust created hereby from any court of competent
jurisdiction.
(e) The Trustee may consult with counsel and the advice or
opinion of such counsel as to matters of law shall be full and complete
authorization and protection in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the
advice or opinion of such counsel.
(f) The Trustee shall not be required to risk or expend its
own funds or otherwise incur any financial liability in the performance
of any of its duties hereunder.
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Section 7.03 Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the
owner or pledgee of Notes and may otherwise deal with and collect obligations
owed to it by the Company or Affiliates of the Company with the same rights it
would have if it were not Trustee. Any Agent may do the same with like rights.
However, the Trustee is subject to Sections 7.10 and 7.11 of this Indenture.
Section 7.04 Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of
this Indenture or the Notes, it shall not be accountable for the Company's use
of the proceeds from the Notes, and it shall not be responsible for any
statement in the Notes or in this Indenture other than its certificate of
authentication.
Section 7.05 Notice of Defaults.
If a Default occurs and is continuing and if it is actually known to
the Trustee, the Trustee shall mail to each Noteholder notice of the Default
within ninety (90) days after the occurrence thereof except as otherwise
permitted by the TIA. Except in the case of a Default in payment on any Note,
the Trustee may withhold the notice if and so long as the Trustee in good faith
determines that withholding the notice is in the interest of the Noteholders.
Section 7.06 Reports and Notices by Trustee to Holders.
If circumstances require any report to Holders under TIA ss. 313(a), it
shall be mailed to Note Holders within sixty (60) days after each August 15
(beginning with the August 15 following the date of this Indenture) as of which
such circumstances exist. The Trustee also shall comply with the remaining
provisions of TIA ss. 313.
The Company shall notify the Trustee if the Notes become listed on any
stock exchange or other recognized trading market.
If and to the extent required by the TIA, the Trustee shall, upon the
written request of any Holder of Notes, but subject to any applicable laws and
contractual limitations, provide to such Holder copies of any reports,
certificates, opinions or other materials of any kind or nature required to be
delivered to the Trustee under this Indenture, or otherwise delivered by or on
behalf of the Company to the Trustee.
Section 7.07 Compensation and Indemnity.
The Company shall pay to the Trustee from time to time reasonable
compensation, as agreed upon from time to time. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an express trust. The
Company shall reimburse the Trustee upon request for all reasonable
disbursements, expenses and advances incurred or made by it in any such
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capacity. Such expenses shall include the reasonable compensation, disbursements
and expenses of the Trustee's agents and counsel and all agents and other
persons not regularly in its employ.
The Company shall indemnify the Trustee (in its capacities as Trustee
hereunder), and each predecessor Trustee and their respective officers,
employees and agents for, and hold each of them harmless against, any loss,
liability or expense of whatsoever kind incurred by each of them arising out of
or in connection with the administration of this trust and its duties hereunder.
In connection with any defense of such a claim, the Trustee may have separate
counsel and the Company shall pay the reasonable fees and expenses of such
counsel. The Company need not reimburse any expense or indemnify against any
loss or liability incurred by the Trustee or any predecessor Trustee through the
gross negligence or willful misconduct of such Trustee or each such predecessor
Trustee.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a lien (legal and equitable) prior to the Notes on all money
or property held or collected by the Trustee, in its capacity as Trustee, or
otherwise distributable to Noteholders except money, Notes or property held in
trust to pay particular Notes, and the Notes are hereby subordinated to such
prior claim.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional Indebtedness hereunder and shall survive the satisfaction and
discharge of this Indenture and any termination under any bankruptcy law.
When the Trustee incurs expenses or renders services after an Event of
Default specified in Section 6.01 (d) or (e) occurs, the expenses and the
compensation for the services are intended to constitute expenses of
administration under any Bankruptcy Law.
Section 7.08 Replacement of Trustee.
No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Section shall become effective until the
acceptance of appointment by the successor Trustee in accordance with this
Section 7.08.
The Trustee (in its capacities as Trustee hereunder) may resign by so
notifying the Company in writing. The Holders of a majority in principal amount
of the Notes Outstanding may remove the Trustee by so notifying the Trustee in
writing and may appoint a successor Trustee with the Company's consent. The
Company may remove the Trustee (in its capacities as Trustee hereunder) if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged a bankrupt or an insolvent;
(c) a receiver or other public officer takes charge of the
Trustee or its property; or
(d) the Trustee becomes incapable of acting.
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If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall promptly appoint a successor
Trustee. Within one year after the successor Trustee takes office, the Holders
of a majority in principal amount of the Notes Outstanding may appoint a
successor Trustee to replace the successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the resignation
or removal of the retiring Trustee shall become effective, and the successor
Trustee shall have all the rights, powers and duties of the Trustee under this
Indenture. A successor Trustee shall mail notice of its succession to each
Noteholder.
If a successor Trustee does not take office within sixty (60) days
after the retiring Trustee resigns or is removed, the retiring Trustee, the
Company or the Holders of at least ten percent (10%) in principal amount of the
Notes Outstanding may petition any court of competent jurisdiction for the
appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Noteholder may
petition any court of competent jurisdiction for the removal of the Trustee and
the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee which shall retain its claim pursuant to Section
7.07.
Section 7.09 Successor Trustee by Merger, etc.
If the Trustee consolidates with, merges or converts into, or transfers
all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
Section 7.10 Eligibility; Disqualification.
This Indenture shall always have a Trustee who satisfies the
requirements of TIA ss. 310(a)(1). The Trustee shall have a combined capital and
surplus of at least $50,000,000 as set forth in its most recent, published
annual report of condition. The Trustee shall comply with TIA ss. 310(b);
provided, however, that there shall be excluded from the operation of TIA ss.
310(b)(1) any indenture or indentures under which other securities, or
certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA ss.
310(b)(1) are met.
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Section 7.11 Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA ss. 311(a), excluding any creditor
relationship listed in TIA ss. 311(b). A Trustee who has resigned or been
removed shall be subject to TIA ss. 311(a) to the extent indicated.
Section 7.12 Investment of Funds by the Trustee.
(a) The Trustee, upon the written request of the Company,
shall invest in U.S. Government Obligations all or a portion of the
cash deposited with it by the Company. The Trustee will apply the
proceeds deposited with it by the Company pursuant to any applicable
offer to repurchase to the purchase of Notes tendered pursuant to the
Company's offer to repurchase and, after purchasing the Notes tendered,
will, so long as there exists no Event of Default, promptly return to
the Company any excess money or U.S. Government Obligations the Trustee
holds as a result of the Company's deposit. The Trustee shall not be
liable for the diminution in value of any investment made upon written
request of the Company pursuant to this Section 7.12 or Section 8.04.
(b) Except as otherwise provided in Section 7.12(a) or Section
8.04, the Trustee shall have no obligation to invest funds deposited
with it in its capacity as Trustee.
ARTICLE 8.
DISCHARGE OF INDENTURE
Section 8.01 Termination of Company's Obligations.
(a) The Company may terminate its obligations under the Notes
and this Indenture, except those obligations referred to in the second
succeeding paragraph, if all Notes previously authenticated and
delivered (other than destroyed, lost or stolen Notes which have been
replaced or paid or Notes for whose payment money or securities have
theretofore been held in trust and thereafter repaid to the Company, as
provided in Section 8.03) have been delivered to the Trustee for
cancellation and the Company has paid all sums payable by it hereunder.
(b) The Company may terminate all its obligations under the
Indenture except those obligations referred to in the immediately
succeeding paragraph if the Company has irrevocably deposited or caused
to be deposited with the Trustee or a Paying Agent, under the terms of
an irrevocable trust agreement in form and substance satisfactory to
the Trustee and any such Paying Agent, as trust funds in trust solely
for the benefit of the Holders for that purpose, cash or U.S.
Government Obligations (or a combination of Cash and U.S. Government
Obligations) maturing as to principal and interest in such amounts and
at such times as are sufficient without consideration of any
reinvestment of such interest, to pay Principal Amount at Maturity in
cash on the Notes Outstanding, provided that the Trustee or such Paying
Agent shall have been irrevocably instructed to apply such money or the
proceeds of such U.S. Government Obligations to the payment of said
Notes. The Company
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may make an irrevocable deposit pursuant to this Section 8.01 only if
at such time the Company shall have delivered to the Trustee and any
such Paying Agent an Officer's Certificate, stating that all conditions
precedent to the defeasance of the Notes under this Section 8.01 have
been complied with.
Notwithstanding the foregoing paragraph, the Company's obligations in
Sections 2.01, 2.02, 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 4.01, 4.02, 7.07, 7.08,
8.03, and 8.04 shall survive until the Notes are no longer Outstanding.
Thereafter, the Company's obligations in Sections 7.07 and 8.03 shall survive
the satisfaction and discharge of this Indenture and the other Note Documents.
Further, no Event of Default with respect to the Notes shall have occurred and
be continuing on the date of such deposit in the preceding paragraph and the
defeasance shall not result in a breach or violation of, or constitute a default
under, this Indenture or any other material agreement to which the Company is a
party or which it is bound.
After any such irrevocable deposit covering all Notes Outstanding and
payment of all obligations of the Company accrued under Section 7.07, the
Trustee upon request shall acknowledge in writing the discharge of the Company's
obligations under the Notes and this Indenture except for those surviving
obligations specified above.
Section 8.02 Application of Trust Money.
The Trustee or Paying Agent shall hold in trust money or U.S.
Government Obligations deposited with it pursuant to Section 8.01, and shall
apply the deposited money and the money from U.S. Government Obligations in
accordance with this Indenture to the payment of the Notes. The obligations of
the Trustee and Paying Agent under this Section 8.02 shall survive,
notwithstanding any termination or discharge of the Company's obligations
pursuant to Section 8.01, until all Notes are paid in full.
Section 8.03 Repayment to Company.
Subject to Section 8.01, the Trustee and the Paying Agent shall
promptly pay to the Company upon request any excess money held by them only in
their capacities as Trustee or Paying Agent, respectively at any time. The
Trustee and the Paying Agent shall pay to the Company any money held by them for
the payment of Notes that remains unclaimed for two (2) years; provided,
however, that the Trustee or such Paying Agent before making any payment shall
at the expense of the Company cause to be published once in a newspaper of
general circulation in the Atlanta, Georgia or mail to each Holder entitled to
such money, notice that such money remains unclaimed and that, after a date
specified therein which shall be at least thirty (30) days from the date of such
publication or mailing, any unclaimed balance of such money then remaining will
be repaid to the Company. After payment to the Company, Noteholders entitled to
money must look to the Company for payment as general creditors unless an
applicable abandoned property law designates another person.
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Section 8.04 Reinstatement.
If the Trustee or Paying Agent is unable to apply any money or U.S.
Government Obligations in accordance with Section 8.01 by reason of any legal
proceeding or by reason of any order or judgment of any court or governmental
authority enjoining, restraining or otherwise prohibiting such application, the
Company's obligations under this Indenture and the Notes shall be revived and
reinstated as though no deposit had occurred pursuant to Section 8.01 until such
time as the Trustee or Paying Agent is permitted to apply all such money or U.S.
Government Obligations and the proceeds of the investment thereof in accordance
with Section 8.01. In such event, the Trustee will invest all such money or the
proceeds from U.S. Government Obligations at the Company's request in other U.S.
Government Obligations and, upon written notice from the Company, so long as no
Event of Default, return to the Company any money or U.S. Government Obligations
deposited with the Trustee pursuant to Section 8.01. If the Company has made any
payment of interest on or principal of any Notes because of the reinstatement of
its obligations, the Company shall be subrogated to the rights of the Holders of
such Notes to receive such payment from the money or U.S. Government Obligations
held by the Trustee or Paying Agent.
ARTICLE 9.
AMENDMENTS, SUPPLEMENTS AND WAIVERS
Section 9.01 Without Consent of Holders.
The Company and the Trustee may amend or supplement this Indenture or
the Notes without notice to or consent of any Noteholder:
(a) to cure any ambiguity, defect or inconsistency;
(b) to comply with Article 5;
(c) to provide for uncertificated Notes in addition to or in
place of certificated Notes;
(d) to comply with any requirements of the SEC in connection
with the qualification of this Indenture under the TIA;
(e) to make any change required by a final order of the
Bankruptcy Court after notice and hearing; or
(f) to make any other change that does not materially
adversely affect the rights of any Noteholder.
Section 9.02 With Consent of Holders.
Subject to Section 6.07, the Company (by resolution of its Board of
Directors if required) and the Trustee may amend or supplement this Indenture or
the Notes without notice to any Noteholder but with the written consent of the
Holders of at least a majority in principal amount of the Notes Outstanding.
Subject to Sections 6.04, 6.05 and 6.07, the Holders of a majority in principal
amount
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of the Notes Outstanding may authorize the Trustee to, and the Trustee, subject
to Section 9.06, shall waive compliance by the Company with any provision of
this Indenture or the Notes without notice to any Noteholder. However, without
the consent of each Noteholder affected, an amendment, supplement or waiver,
including a waiver pursuant to Section 6.04, may not:
(a) reduce the 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 Original Issue Discount on any Note;
(c) reduce the Principal Amount at Maturity or Issue Price of,
or change the fixed maturity of, any Note;
(d) waive a default in the payment of any Note; or
(e) make any other changes in Sections 6.04, 6.07 or the third
sentence of this Section 9.02.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby the
amendment, supplement or waiver. Any failure of the Company to mail such notice,
or any defect therein, shall not, however in any way impair or affect the
validity of any such amendment, supplement or waiver.
Section 9.03 Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the Notes shall
comply with the TIA as then in effect.
Section 9.04 Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a
Holder is a continuing consent by the Holder and every subsequent Holder of a
Note or portion of a Note that evidences the same debt as the consenting
Holder's Note, even if notation of the consent is not made on any Note. However,
any such Holder or subsequent Holder may revoke the consent as to his Note or
portion of a Note. Such revocation shall be effective only if the Trustee
receives the notice of revocation before the date the amendment, supplement or
waiver becomes effective.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least thirty (30) days prior
to the first date of solicitation of such consent, or if later,
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the date of the most recent list of the Holders of the Notes furnished to the
Trustee. If a record date is fixed, then notwithstanding the immediately
preceding paragraph, those Persons who were Holders at such record date (or
their duly designated proxies), and only those Persons (or their duly designated
proxies), shall be entitled to consent to such amendment, supplement or waiver
or to revoke any consent previously given, whether or not such Persons continue
to be Holders after such record date. No such consent shall be valid or
effective for more than ninety (90) days after such record date.
After an amendment, supplement or waiver becomes effective, it shall
bind every Noteholder, unless it makes a change described in any of clauses (a)
through (e) of Section 9.02. In that case the amendment, supplement or waiver
shall bind each Holder of a Note who has consented to it and every subsequent
Holder of a Note or portion of a Note that evidences the same debt as the
consenting Holder's Note; provided, however, except as aforesaid any such action
taken by the Holder of any Note relating to any impairment of the right to
receive payment on the Note when due and payable shall be conclusive and binding
upon such Holder and upon all future Holders of such Note and of any Notes
issues in exchange or substitution therefor, only if a notation with regard
thereto is made upon such Note.
Section 9.05 Notation on or Exchange of Notes.
If an amendment, supplement or waiver changes the terms of a Note, the
Trustee may require the Holder of the Note to deliver it to the Trustee. The
Trustee may place an appropriate notation on the Note about the changed terms
and return it to the Holder. Alternatively, if the Company or the Trustee so
determines, the Company in exchange for the Note shall issue and the Trustee
shall authenticate a new Note that reflects the changed terms.
Section 9.06 Trustee to Sign Amendments, etc.
The Trustee shall be entitled to receive, and shall be fully protected
in relying upon, an Officer's Certificate and an Opinion of Counsel stating that
the execution of any amendment, supplement or waiver authorized pursuant to this
Article 9 has been duly authorized by the Company and is authorized or permitted
by this Indenture. The Trustee may, but shall not be obligated to, execute any
such amendment, supplement or waiver which affects the Trustee's own rights,
duties or immunities under this Indenture or otherwise.
Section 9.07 Effect of Supplement and/or Amendment to Indenture.
Upon the execution of any supplemental indenture pursuant to the
provisions hereof, this Indenture shall be and be deemed to be modified and
amended in accordance therewith and the respective rights, limitations of
rights, obligations, duties and immunities under this Indenture of the Trustee,
the Company and the Holders of Notes shall thereafter be determined, exercised
and enforced hereunder subject in all respects to such modifications and
amendments, and all terms and conditions of any such supplemental indenture
shall be and be deemed to be part of the terms and conditions of this Indenture
for any and all purposes.
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ARTICLE 10.
SUBORDINATION
Section 10.01 Notes Subordinated to Senior Indebtedness.
The Company and each Holder of a Note, by his acceptance thereof, agree
that (a) the payment of the Issue Price, accrued Original Issue Discount,
Principal Amount at Maturity and interest thereon with respect to each and all
the Notes and (b) any other payment in respect of the Notes, including on
account of the acquisition or redemption of Notes by the Company, is
subordinated, to the extent and in the manner provided in this Article 10, to
the prior payment in full of all Senior Indebtedness of the Company, whether
outstanding at the date of this Indenture or thereafter created, incurred,
assumed or guaranteed, and that these subordination provisions are for the
benefit of the holders of Senior Indebtedness.
This Article 10 shall constitute a continuing offer to all Persons who,
in reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and any one or
more of them may enforce such provisions.
Section 10.02 No Payment on Notes in Certain Circumstances.
(a) No payment shall be made by the Company on account of the
Issue Price, accrued Original Issue Discount, Principal Amount at
Maturity or interest thereon or to acquire any of such Notes for cash
or property (other than for Junior Securities or equity securities of
the Company), or on account of any redemption provisions of such Notes,
in the event of default on any Senior Indebtedness of the Company (as
defined in the instrument(s) creating such Senior Indebtedness), unless
and until such default has been cured or waived or otherwise has ceased
to exist.
(b) In furtherance of the provisions of Section 10.01, in the
event that, notwithstanding the foregoing provisions of this Section
10.02, any payment or distribution of assets of the Company (other than
Junior Securities and equity securities of the Company) shall be
received by the Trustee or the Holders of Notes of any series at a time
when such payment or distribution was prohibited by the provisions of
this Section 10.02, then, unless such payment or distribution is no
longer prohibited by this Section 10.02, such payment or distribution
(subject to the provisions of Section 10.06 shall be received and held
in trust by the Trustee or such Holder or Paying Agent for the benefit
of the holders of Senior Indebtedness of the Company, and shall be paid
or delivered by the Trustee or such Holders or such Paying Agent, as
the case may be, to the holders of Senior Indebtedness of the Company
remaining unpaid or unprovided for or their representative or
representatives, or to the trustee or trustees under any indenture
pursuant to which any instruments evidencing such Senior Indebtedness
of the Company may have been issued, ratably, accordingly to the
aggregate amounts remaining unpaid on account of such Senior
Indebtedness of the Company held or represented by each, for
application to the payment of all Senior
39
<PAGE> 45
Indebtedness in full after giving effect to all concurrent payments and
distributions to or for the holders of such Senior Indebtedness.
Section 10.03 Notes Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization.
Upon any distribution of assets of the Company or upon any dissolution,
winding up, total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, in bankruptcy, insolvency, receivership or
similar proceeding or upon assignment for the benefit of creditors:
(a) the holders of all Senior Indebtedness of the Company
shall first be entitled to receive payments in full before the Holders
of Notes are entitled to receive any payment on account of the Issue
Price, accrued Original Issue Discount, Principal Amount at Maturity,
the principal of, premium (if any) or interest on or any of the
foregoing with respect to such Notes (other than Junior Securities and
equity securities of the Company); and
(b) any payment or distribution of assets of the Company of
any kind or character, whether in cash, property or securities (other
than Junior Securities and equity securities of the Company), to which
the Holders of Notes or the Trustee on behalf of such Holders would be
entitled, except for the provisions of this Article 10, shall be paid
by the liquidating trustee or agent or other Person making such a
payment or distribution directly to the holders of such Senior
Indebtedness or their representative, ratably according to the
respective amounts of Senior Indebtedness held or represented by each,
to the extent necessary to make payment in full of all such Senior
Indebtedness remaining unpaid after giving effect to all concurrent
payments and distributions to the holders of such Senior Indebtedness.
Section 10.04 Obligations of the Company Unconditional.
Nothing contained in this Article 10 or elsewhere in this Indenture or
in the Notes is intended to or shall impair, as between the Company and the
Holders of the Notes, the obligation of the Company, which is absolute and
unconditional, to pay to such Holders in accordance with the terms of the Notes,
or is intended to or shall affect the relative rights of such Holders and
creditors of the Company other than the holders of the Senior Indebtedness, nor
shall anything herein or therein prevent the Trustee or any Holder from
exercising all remedies otherwise permitted by applicable law upon default under
this Indenture, subject to the rights, if any, under this Article 10, of the
holders of Senior Indebtedness in respect of cash, property or securities of the
Company received upon the exercise of any such remedy. Notwithstanding anything
to the contrary in this Article 10 or elsewhere in this Indenture or in the
Notes, upon any distribution of assets of the Company referred to in this
Article 10, the Trustee, subject to the provisions of Sections 7.01 and 7.02,
and the Holders of the Notes shall be entitled to rely upon any order or decree
made by any court of competent jurisdiction in which such dissolution, winding
up, liquidation or reorganization proceedings are pending, or a certificate of
the liquidating trustee or agent or other Person making any distribution to the
Trustee or to such Holders for the purpose of ascertaining the Persons entitled
to participate in such distribution, the holders of the Senior Indebtedness and
other Indebtedness of
40
<PAGE> 46
the Company, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
10 so long as such court has been appraised of the provisions of, or the order,
decree or certificate makes reference to, the provisions of this Article 10.
Section 10.05 Trustee Entitled to Assume Payments Not Prohibited in
Absence of Notice.
The Trustee shall not at any time be charged with knowledge of the
existence of any facts that would prohibit the making of any payment to or by
the Trustee unless and until a responsible officer of the Trustee or any Paying
Agent shall have received, no later than two Business Days prior to such
payment, written notice thereof from the Company or from one or more holders of
Senior Indebtedness or from any representative therefor and, prior to the
receipt of any such written notice, the Trustee, subject to the provisions of
Sections 7.01 and 7.02, shall be entitled in all respects conclusively to assume
that no such fact exists.
Section 10.06 Application by Trustee of Amounts Deposited With It.
Amounts deposited in trust with the Trustee pursuant to and in
accordance with Section 2.05 shall be for the sole benefit of Holders of the
Notes, and shall not be subject to the subordination provisions of this Article
10. Otherwise, any deposit of assets with the Trustee or the Paying Agent
(whether or not in trust) for the payment with respect to any Notes shall be
subject to the provisions of Sections 10.01, 10.02 and 10.03; provided that if
prior to two Business Days preceding the date on which by the terms of this
Indenture any such assets may become distributable for any purpose (including
without limitation, the payment with respect to any Note), the Trustee or such
Paying Agent shall not have received with respect to such assets the written
notice provided for in Section 10.05, then the Trustee or such Paying Agent
shall have full power and authority to receive such assets and to apply the same
to the purpose for which they were received, and shall not be affected by any
notice to the contrary that may be received by it on or after such date; and
provided further that nothing contained in this Article 10 shall prevent the
Company from making, or the Trustee from receiving or applying, any payment in
connection with the redemption of Notes if the first publication of notice of
such redemption (whether by mail or otherwise in accordance with this Indenture)
has been made, and the Trustee has received such payment from the Company, prior
to the occurrence of any of the contingencies specified in Section 10.02 or
10.03.
Section 10.07 Subordination Rights Not Impaired by Acts or Omissions of
the Company or Holders of Senior Indebtedness.
No right of any present or future holders of any Senior Indebtedness to
enforce subordination provisions contained in this Article 10 shall at any time
in any way be prejudiced or impaired by any act or failure to act on the part of
the Company or by any act or failure to act, in good faith, by any such holder,
or by any noncompliance by the Company with the terms of this Indenture,
regardless of any knowledge thereof that any such holder may have or be
otherwise charged with. The holders of Senior Indebtedness may extend, renew,
modify or amend the terms of the Senior Indebtedness or any security therefor
and release, sell or exchange such security and otherwise deal freely with
41
<PAGE> 47
the Company, all without affecting the liabilities and obligations of the
parties to this Indenture or the Holders of the Notes.
Section 10.08 Trustee to Effectuate Subordination of Securities.
Each Holder of a Note by his acceptance thereof 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
this Article 10 and to protect the rights of the Holders of the Notes pursuant
to this 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 the approved.
Section 10.09 Right of Trustee to Hold Senior Indebtedness.
The Trustee in its individual capacity shall be entitled to all of the
rights set forth in this Article 10 in respect of any Senior Indebtedness at any
time held by it to the same extent as any other holder of Senior Indebtedness,
and nothing in this Indenture shall be construed to deprive the Trustee of any
of its rights as such holder.
Section 10.10 Article 10 Not to Prevent Events of Default.
The failure to make a payment on account of the Notes by reason of any
provision of this Article 10 shall not be construed as preventing the occurrence
of a Default or an Event of Default or in any way prevent the Holders of the
Notes from exercising any right hereunder other than the right to receive
payment on the Notes.
Section 10.11 No Fiduciary Duty of Trustee to Holders of Senior
Indebtedness.
The Trustee shall not be deemed to owe any fiduciary duty to the
holders of Senior Indebtedness, and shall not be liable to any such holders
(other than for its willful misconduct or gross negligence) if it shall in good
faith mistakenly pay over or distribute to the Holders of the Notes or the
Company or any other Person, cash, property or securities to which any holders
of Senior Indebtedness shall be entitled by virtue of this Article 10 or
otherwise. Nothing in this Section 10.11 shall affect the obligation of any
other such Person to hold such payment for the benefit of, and to pay such
payment over to, the holders of Senior Indebtedness or their representative.
Section 10.12 Article Applicable to Paying Agent.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article 10 shall in such case (unless the context shall
otherwise require) be construed as extending to and including such Paying Agent
within its meaning as fully for all intents and purposes as if such Paying Agent
were
42
<PAGE> 48
named in this Article in addition to or in place of the Trustee; provided,
however, that this Section 10.12 shall not apply to the Company or any Affiliate
of the Company if it or such Affiliate acts as Paying Agent.
ARTICLE 11.
MISCELLANEOUS
Section 11.01 Trust Indenture Act Controls.
If and to the extent that any provision of this Indenture limits,
qualifies, or conflicts with the duties imposed by Sections 310 to 317,
inclusive, of the TIA, such imposed duties shall control.
Section 11.02 Notices.
Any notice or communication shall be sufficiently given if in writing
and delivered in person or when mailed by first-class mail addressed as follows:
if to the Company:
KRUG International Corp.
900 Circle 75 Parkway, Suite 1300
Atlanta, Georgia 30339
Attention: President
Fax: (770) 933-7010
with copies to:
Smith, Gambrell & Russell, LLP
Suite 3100, Promenade II
1230 Peachtree Street, N.E.
Atlanta, Georgia 30309-3592
Attention: Howard E. Turner, Esq.
Fax: (404) 685-6894
if to the Trustee:
U.S. Bank Trust, National Association
3384 Peachtree Road, N.E.
Suite 900
Atlanta, Georgia 30326
Attention: Corporate Trust Division
Fax: (404) 365-7946
Phone: (404) 965-7221
with a copy to:
43
<PAGE> 49
Powell Goldstein Frazier & Murphy, LLP
191 Peachtree St., Suite 1600
Atlanta, GA 30303
Att: Gregory H. Worthy
The Company or the Trustee by notice to the others may designate
additional or different addresses for subsequent notices or communications.
Any notice or communication mailed to a Noteholder shall be mailed to
him or her by first-class mail, postage prepaid, at his or her address as it
appears on the Register and shall be sufficiently given to him or her if so
mailed within the time prescribed.
Failure to mail a notice or communication to a Noteholder or any defect
in it shall not affect its sufficiency with respect to other Noteholders. Except
for a notice to the Trustee or to the Company, which is deemed given only when
received, if a notice or communication is mailed in the maker provided above, it
is duly given, whether or not the addressee receives it.
Section 11.03 Communications By Holders With Other Holders.
Noteholders may communicate pursuant to TIA ss. 312(b) with other
Noteholders with respect to their rights under this Indenture. The Company, the
Trustee, the Registrar and any other person shall have the protection of TIA
ss.312(c).
Section 11.04 Certificate as to Conditions Precedent.
Upon any Request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee an
Officer's Certificate and an Opinion of Counsel each stating that, in the
opinion of the signers, all conditions precedent, if any, provided for in this
Indenture relating to the proposed action have been complied with, provided,
that in the case of any such application or Request as to which the furnishing
of an Officer's Certificate or Opinion of Counsel is specifically required by
any provision of this Indenture or the Note Document relating to such particular
application or Request, no additional certificate or opinion, as the case may
be, need be furnished.
Section 11.05 Statements Required In Certificate or Opinion.
Each certificate or opinion provided for and delivered to the Trustee
with respect to compliance with a condition or covenant provided for in this
Indenture shall include: (a) a statement that the Person signing such
certificate or opinion has read such condition or covenant and the definitions
herein or therein relating thereto; (b) a brief statement as to the nature and
scope of the examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based; (c) a statement that, in the
opinion of such Person, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or not such
condition or covenant has been complied with; and (d) a statement as to whether
or not in the opinion of such Person, such condition or covenant has been
complied with.
44
<PAGE> 50
Any certificate or opinion of an Officer or an engineer, insurance
broker, accountant or other expert may be based, insofar as it relates to legal
matters, upon a certificate or opinion of or upon representations by counsel,
unless such officer, engineer, insurance broker, accountant or other expert
knows that the certificate or opinion or representations with respect to the
matters upon which his opinion may be based as aforesaid are erroneous, or in
the exercise of reasonable care should have known that the same were erroneous.
Any certificate or Opinion of Counsel may be based, insofar as it
relates to factual matters, upon the certificate or opinion of or
representations by an officer or officers of the Company stating that the
information with respect to such factual matters is in possession of the
Company, unless such counsel knows that the certificate or opinion or
representations with respect to the matters upon which his opinion may be based
as aforesaid are erroneous and insofar as it relates to legal matters in a
jurisdiction or area of law beyond the expertise of such counsel, such counsel
may rely upon the opinion of counsel qualified in such other jurisdiction or
area of law.
Wherever in this Indenture in connection with any application,
certificate or report to the Trustee it is provided that the Company shall
deliver any document as a condition of the granting of such application or as
evidence of the Company's compliance with any term hereof, it is intended that
the truth and accuracy at the time of the granting of such application or at the
effective date of such certificate or report, as the case may be, of the facts
and opinions stated in such document shall in each such case be a condition
precedent to the right of the Company to have such application granted or to the
sufficiency of such certificate or report. Nevertheless, in the case of any such
application, certificate or report, any document required by any provision of
this Indenture to be delivered to the Trustee as a condition of the granting of
such application or as evidence of such compliance may be received by the
Trustee or collateral agent as conclusive evidence of any statement therein
contained and shall be full warrant, authority and protection to the Trustee or
collateral agent acting in good faith thereon.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Whenever any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements or opinions or other
instruments under this Indenture such person may, but need not, consolidate such
instruments into one.
Section 11.06 Rules By Trustee, Paying Agent, Registrar.
The Trustee may make reasonable rules for action by or at a meeting of
Noteholders. The Paying Agent or Registrar may make reasonable rules for its
functions.
45
<PAGE> 51
Section 11.07 Payment Dates.
If a payment date is not a Business Day, payment may be made at the
designated place on the next succeeding day that is a Business Day with the same
effect as if such payment was made on the original payment date.
Section 11.08 Governing Law.
The laws of the State of New York shall govern this Indenture and the
Notes without regard to principles of conflict of laws.
Section 11.09 No Adverse Interpretation of Other Agreements.
This Indenture may not be used to interpret any indenture, loan or debt
agreement of the Company or any of its Subsidiaries which is unrelated to this
Indenture or the Notes. Any such indenture, loan or debt agreement may not be
used to interpret this Indenture or the Note Documents.
Section 11.10 No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
shall not have any liability for any obligations of the Company under the Notes
or the Indenture or for any claim based on, in respect of or by reason of such
obligations or their creation. Each Noteholder by accepting a Note waives and
releases all such liability.
Section 11.11 Provisions of Indenture for the Sole Benefit of Parties,
Noteholders and Certain holders of Senior Indebtedness.
Nothing in this Indenture or the Notes, expressed or implied, shall
give or be construed to give to any Person, firm or corporation, other than the
parties hereto, their successors, the Holders of the Notes and certain holders
of Senior Indebtedness (who hold Senior Indebtedness that explicitly provides in
the instrument creating the same that such holders may rely on this Indenture),
any legal or equitable right, remedy or claim under this Indenture or under any
covenant or provision herein contained, all such covenants and provisions being
for the sole benefit of the parties hereto and their successors and of the
Holders of the Notes.
Section 11.12 Successors.
All agreements of the Company in this Indenture and the Notes shall
bind its successor. All agreements of the Trustee in this Indenture shall bind
its successor.
Section 11.13 Duplicate Originals and Counterparts.
The parties may sign any number of copies of this Indenture. Each
signed copy shall be an original, but all of them together represent the same
agreement. This Indenture may be executed, acknowledged and delivered in any
number of counterparts, each of such counterparts constituting an original but
all together only one agreement.
46
<PAGE> 52
Section 11.14 Severability.
In case any provision in this Indenture or in the Notes shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby,
and a Holder shall have no claim therefor against any party hereto.
Section 11.15 Effect of Headings.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
Upon the execution of any supplemental indenture pursuant to the
provisions hereof, this Indenture shall be deemed to be modified and amended in
accordance therewith and the respective rights, limitations of rights,
obligations, duties and immunities under this Indenture of the Trustee, the
Company and the Holders of the Notes shall thereafter be determined, exercised
and enforced hereunder subject in all respects to such modifications and
amendments.
SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed, all as of the date first written above.
By:
-------------------------------------
Name: Robert M. Thornton, Jr.
Title: Chief Executive Officer
U.S. BANK TRUST, NATIONAL ASSOCIATION,
as TRUSTEE
By:
-----------------------------------------
Title:
----------------------------------
47
<PAGE> 1
EXHIBIT 99.T3E-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
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<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
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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
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<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,
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<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
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<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.
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<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.
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<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.
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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.
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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.
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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
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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.
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<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
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<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.
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<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.
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<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.
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<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.
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<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.
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<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
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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
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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.
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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.
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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
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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
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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.
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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.
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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.
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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
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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
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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.
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<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
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<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.
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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
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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
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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
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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.
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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.
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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).
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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
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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
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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
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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.
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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.
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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.
