SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Rule 13e-3 Transaction Statement
(Pursuant to Section 13(e) of the Securities Exchange Act
of 1934 and Rule 13e-3 thereunder)
Thermwood Corporation
(Name of the Issuer)
Thermwood Corporation
(Name of Person(s) Filing Statement)
Common Stock, without par value
(Title of Class of Securities)
883672107
(CUSIP Number of Class of Securities)
Claudia V. Swhier, Esq.
BARNES & THORNBURG
11 South Meridian Street
Indianapolis, IN 46204
Telephone Number: (317) 231-7231
(Name, Address and Telephone Number of Person Authorized to
Receive Notices and Communications on Behalf of
Person(s) Filing Statement)
This statement is filed in connection with (check the appropriate box):
a.[x] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b.[ ] The filing of a registration statement under the Securities Act of
1933.
c.[ ] A tender offer.
d.[ ] None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: [X]
Calculation of Filing Fee
Transaction Amount of filing fee
valuation
$10,968,166 $2,193.63
1. Price to be paid for an estimated 997,106 shares for which cash is to
be paid in lieu of fractional shares.
[ ] Check box if any part of the fee is offset as provided by Rule 0-11(a)(2)
and identify the filing with which the offsetting fee was previously paid.
Identify the previous filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: N/A
Form or Registration No.:
Filing Party:
Date Filed:
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<PAGE>
Pursuant to General Instruction F to Schedule 13e-3, Thermwood
Corporation hereby incorporates by reference its preliminary Proxy Statement
with respect to a Special Meeting of its Shareholders being filed with the
Commission simultaneously herewith. The preliminary Proxy Statement is attached
as Exhibit (d)(1). References in the following Cross Reference Sheet and
itemized responses in this Transaction Statement refer to portions of the
preliminary Proxy Statement incorporated in answer thereto.
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item No. Location in Proxy Statement
<S> <C> <C>
1. Issuer and Class of Security Subject SUMMARY--The Special Meeting;--Purpose of
to the Transaction the Special Meeting; Voting; GENERAL--
Voting; Vote Required; MARKET FOR THE
COMMON STOCK; DIVIDENDS
2. Identity and Background SUMMARY; MANAGEMENT OF THE COMPANY
3. Past Contacts, Transactions or SPECIAL FACTORS--Conduct of the Company's
Negotiations Business After the Reverse Stock Split
4. Terms of the Transaction SUMMARY; GENERAL; SPECIAL FACTORS
5. Plans or Proposals of the Issuer or SPECIAL FACTORS--Conduct of the Company's
Affiliate Business After the Reverse Stock Split
6. Source and Amounts of Funds or SUMMARY--Financing of the Reverse Stock
Other Consideration Split; FINANCING OF THE REVERSE
STOCK SPLIT; EXPENSES
7. Purpose(s), Alternatives, Reasons SUMMARY; SPECIAL FACTORS--Background
and Effects of the Proposed Reverse Stock Split;
--Reasons for the Proposed
Reverse Stock Split; --Recommendation
of the Board of Directors;
Fairness of the Reverse Stock Split;
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF
MANAGEMENT
8. Fairness of the Transaction SPECIAL FACTORS--Recommendation of the
Board of Directors; Fairness of the Reverse
Stock Split
9. Reports, Opinions, Appraisals and SPECIAL FACTORS-- Recommendation of the
Certain Negotiations Board of Directors; Fairness of the Reverse
Stock Split;--Opinion of Goelzer; Exhibit B
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
10. Interest in Securities of the Issuer PRINCIPAL SHAREHOLDERS AND STOCK
OWNERSHIP OF MANAGEMENT;
MARKET FOR THE COMMON STOCK;
DIVIDENDS--Transactions in Common Stock
11. Contracts, Arrangements or SPECIAL FACTORS--Arrangements with Respect
Understandings with Respect to Issuer's Common Stock, Stock Options
to the Issuer's Securities and Convertible Debentures
12. Present Intention and Recommenda- GENERAL--Voting; Vote Required; SPECIAL
tion of Certain Persons with FACTORS--Recommendation of the Board of
Regard to the Transaction Directors; Fairness of the Reverse Stock Split
13. Other Provisions of the Transaction SPECIAL FACTORS--Appraisal Rights
14. Financial Information SPECIAL FACTORS--Financial Effect of the
Reverse Stock Split; CONSOLIDATED
FINANCIAL STATEMENTS OF THE
COMPANY; SELECTED HISTORICAL
FINANCIAL DATA
15. Persons and Assets Employed, EXPENSES; GENERAL--Voting; Vote Required
Retained or Utilized
16. Additional Information Proxy Statement
17. Material to be Filed as Exhibits Not applicable
</TABLE>
<PAGE>
Item 1. Issuer and Class of Security Subject to the Transaction.
(a) Notice of Special Meeting; SUMMARY--The Special Meeting;
SUMMARY--Purpose
of the Special Meeting
(b) Notice of Special Meeting; SUMMARY--Voting; GENERAL--Voting,
Vote Required
(c) MARKET FOR THE COMMON STOCK; DIVIDENDS--Market Information
(d) MARKET FOR THE COMMON STOCK; DIVIDENDS--Dividends
(e) Not Applicable
(f) Not Applicable
Item 2. Identity and Background.
(a)-(d), (g) Thermwood Corporation, the issuer of the Common Stock, is filing
this Statement. See also SUMMARY; MANAGEMENT OF THE COMPANY
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<PAGE>
(e),(f) During the past 5 years no person with respect to whom this
Item requires information to be furnished has been convicted
in a criminal proceeding (excluding traffic violations or
similar misdemeanors), nor been a party to any proceeding of a
judicial or administrative body of competent jurisdiction, nor
subject to a judgment, decree or final order of the type
required to be disclosed by this Item.
Item 3. Past Contacts, Transactions or Negotiations.
(a) Not applicable
(b) SPECIAL FACTORS--Conduct of the Company's Business After the
Reverse Stock Split
Item 4. Terms of the Transaction.
Notice of Special Meeting; SUMMARY; GENERAL; SPECIAL
FACTORS--Effect of Reverse Stock Split on
Affiliates;--Recommendation of the Board of Directors;
Fairness of the Reverse Stock Split; --Arrangements with
Respect to Issuer's Common Stock, Stock Options and
Convertible Debentures; --Conduct of the Company's Business
After the Reverse Stock Split; --Federal Income Tax
Consequences; --Fin- ancial Effect of the Reverse Stock
Split;--Exchange of Certificates and Payment for Fractional
Shares of New Common Stock
Item 5. Plans or Proposals of the Issuer or Affiliate.
SPECIAL FACTORS--Conduct of the Company's Business After the
Reverse Stock Split.
Item 6. Source and Amounts of Funds or Other Consideration.
(a),(c),(d) SUMMARY--Financing of the Reverse Stock Split; FINANCING OF
THE REVERSE STOCK SPLIT
(b) EXPENSES
Item 7. Purpose(s), Alternatives, Reasons and Effects.
(a) SUMMARY--Reasons for the Reverse Stock Split; SPECIAL
FACTORS--Reasons for the Reverse Stock Split
(b) SPECIAL FACTORS--Background of the Proposed Reverse Stock
Split; --Recommendation of the Board of Directors; Fairness of
the Reverse Stock Split--Alternatives
(c) SPECIAL FACTORS--Background of the Proposed Reverse Stock
Split; --Reasons for the Reverse Stock Split;--Recommendation
of the Board of Directors; Fairness of the Reverse Stock Split
(d) SUMMARY; SPECIAL FACTORS; PRINCIPAL SHAREHOLDERS AND STOCK
OWNERSHIP OF MANAGEMENT
-4-
<PAGE>
Item 8. Fairness of the Transaction.
(a)-(e) SPECIAL FACTORS--Recommendation of the Board of Directors; Fairness of
the Reverse Stock Split
(f) Not applicable
Item 9. Reports, Opinions, Appraisals and Certain Negotiations.
(a)-(c) SPECIAL FACTORS--Recommendation of the Board of Directors; Fairness of
the Reverse Stock Split; --Opinion of Goelzer & Co., Inc.; Exhibit B
Item 10. Interest in Securities of the Issuer.
(a) PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
(b) MARKET FOR THE COMMON STOCK; DIVIDENDS--Transactions in Common Stock
Item 11. Contracts, Arrangements or Understandings with Respect to the Issuer's
Securities.
SPECIAL FACTORS--Arrangements with Respect to Issuer's Common Stock,
Stock Options and Convertible Debentures
Item 12. Present Intention and Recommendation of Certain Persons with Regard to
the Transaction.
(a) GENERAL--Voting; Vote Required
(b) SPECIAL FACTORS--Recommendation of the Board of Directors; Fairness of
the Reverse Stock Split
Item 13. Other Provisions of the Transactions.
(a) SPECIAL FACTORS--Appraisal Rights
(b) Not applicable
(c) Not applicable
Item 14. Financial Information.
(a) CONSOLIDATED FINANCIAL STATEMENTS; SELECTED HISTORICAL FINANCIAL
DATA
(b) SPECIAL FACTORS--Financial Effect of the Reverse Stock Split
Item 15. Persons and Assets Employed, Retained or Utilized.
(a) EXPENSES
-5-
<PAGE>
(b) GENERAL--Voting; Vote Required
Item 16. Additional Information.
The Proxy Statement
Item 17. Material to be Filed as Exhibits.
(a) Loan Agreement*
(b) (1) Draft Opinion of Goelzer & Co., Inc. (See Exhibit B to
Preliminary Proxy Statement filed as Exhbit (d)(1))
(2) Report of Goelzer & Co., Inc. dated August 20, 1998
(c) (1) Incentive Stock Option Plan
(2) Restated Non-Qualified Stock Option Plan
(3) Resolutions of Compensation Committee
(4) Indenture dated as of February 3, 1993, between Thermwood
Corporation and American Stock Transfer and Trust Company,
Trustee, relating to 12% Convertible Subordinated Debentures
due February 25, 2003, and resolutions relating to effect of
reverse stock split on those debentures
(5) Option Agreement dated as of February 22, 1996, between
Thermwood Corporation and R. Jerry Falkner, and resolutions
relating to termination of same
(6) Option Agreement dated as of September 3, 1998, between
Thermwood Corporation and Edgar Mulzer
(7) Option Agreement dated as of May 22, 1996, between Thermwood
Corporation and Kenneth J. Susnjara, and resolutions relating
to termination of same
(d) (1) Preliminary Proxy Statement
(e) See SPECIAL FACTORS--Appraisal Rights in Preliminary Proxy Statement
filed as Exhibit (d)(i)
(f) Not applicable
- --------
*To be filed by Amendment
-6-
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
September 2, 1998
------------------------------------
(Date)
/s/ Kenneth J. Susnjara
------------------------------------
(Signature)
President
------------------------------------
(Name and Title)
Kenneth J. Susnjara, President
<PAGE>
Exhibit (b)(2)
VALUATION REPORT
FOR
Thermwood Corporation
CONTEMPLATED TRANSACTION
AS OF
August, 1998
<PAGE>
TABLE OF CONTENTS
A. Valuation Report
B. Historical Financial Statements
C. Current Capital Structure - DCF Analysis
D. Public Company Comparable Analysis
E. Private Company Comparable Analysis
F. Payback Analysis
G. Benchmark Analysis
H. Leveraged Recapitalization - Residual Cash Flow
Analysis with Debt Repaid to $5.0 Million
I. Control Premium Study
J. Appraiser's Qualifications
<PAGE>
August 20, 1998
Special Committee of the Board of Directors
Thermwood Corporation
Attn: Peter N. Lalos
P.O. Box 436
Old Buffaloville Road
Dale, IN 47523
Members of the Special Committee of the Board:
You have requested that Goelzer & Co., Inc. ("Goelzer") determine a
point estimate of fair value for the common stock of Thermwood Corporation
("Thermwood" or the "Company") to be used by the Board for considering a
proposed reverse stock split transaction. Furthermore, Goelzer was engaged to
opine as to the fairness of the resulting transaction approved by the Board of
Directors. It is Goelzer's understanding the opinion will be used solely for the
purpose of executing the reverse stock split transaction and will otherwise not
be published used or disclosed in any manner or for any other purpose without
Goelzer's prior written consent.
Among its other activities in the investment banking and financial
advisory fields, Goelzer has specialized during the last three decades as an
appraiser of the fair value of publicly held and thinly traded public companies
as well as privately-owned businesses and their securities. Goelzer has also
provided expert witness testimony and related valuation services on numerous
occasions for corporate, estate and other purposes. A detailed resume of the
services provided by Goelzer in the foregoing areas is in Section J.
In connection with rendering its fairness opinion and valuation report,
Goelzer conducted extensive due diligence which included the following
activities:
(i) Conducted detailed interviews with Thermwood's management
concerning the Company's history and operating record, the nature of the markets
served, competitive situation, financial condition, recent performance and
current outlook;
(ii) Inspected the Company's corporate offices and manufacturing
facilities in Dale, Indiana;
(iii) Analyzed trading data and market capitalization of Thermwood's
common stock for a period of five years as provided by Bloomberg Analytics;
(iv) Analyzed the Company's financial statements and studied
Thermwood's filings under the Securities Exchange Act of 1934 including the Form
10-K and annual reports for the last five full years, as well as the latest
available 10-Q for the quarter ending April 30, 1998;
(v) Conducted a search using Bloomberg Analytics for publicly traded
companies which could be used as reasonable comparables in determining a point
estimate of fair value of Thermwood. Goelzer searched for companies with similar
operations and for companies which are affected by similar economic variables,
such as furniture manufacturers;
(vi) Conducted a search for merger and acquisition transactions
involving privately held corporations within the woodworking, plastics
manufacturing and furniture manufacturing industries using a proprietary
database consisting of nearly 3,000 transactions;
(vii) Reviewed studies for both premiums paid in acquisitions of
control as well as studies on the lack of marketability for privately held and
thinly traded public securities;
(viii) Performed other studies, analyses and investigations as deemed
appropriate.
In preparing this valuation, Goelzer has relied upon the accuracy and
completeness of the financial and other information furnished to us by the
Company and its professional advisors and has not attempted independently to
verify such information. Neither has Goelzer made or caused to be made any
independent evaluation or appraisal of any assets of the Company. Further,
Goelzer's opinion specifically excludes the impact on value from any unstated
environmental or asbestos liabilities. Nothing has come to Goelzer's attention
during the course of this engagement which would lead Goelzer to believe that
any of the information, facts or materials upon which Goelzer relied is
incorrect in any material respect or that it was unreasonable for Goelzer to
utilize and rely upon such information, facts or materials. Finally, Goelzer's
opinion is based on economic, monetary and market conditions existing as of the
valuation date.
DEFINITION OF FAIR VALUE
As defined by Indiana law, fair value means the value of the shares
immediately before the effectuation of the corporate action, excluding any
appreciation or depreciation in anticipation of the corporate action unless
exclusion would be inequitable.
VALUATION RATIONALE
Several common valuation techniques may be used to render an opinion of
the fair value of a corporation. Goelzer has reviewed several of these methods
to determine which best reflect the fair value of the common stock of Thermwood.
Discounted or Capitalized Future Earnings, Cash Flow and Dividend Methods
The discounted future earnings and discounted cash flow methods are
common valuation techniques and are theoretically sound. The value of an ongoing
business is the present value of its expected future cash flows available to
shareholders. The procedure for determining value using these methods involves
estimating future earnings or cash flow and discounting each to the present
using an estimated cost of equity or cost of capital depending on the particular
method. This procedure is also known as earnings and cash flow capitalization.
Although the discount methods are technically correct and simple in theoretical
execution, in practice they can be quite complex.
In those cases where a sample of reasonably comparable publicly traded
companies exist, a study of how the market participants are capitalizing
earnings and cash flow results in one of the truest estimates of value. The
capitalization of earnings and cash flows in the public markets are usually
expressed inversely as a multiple of earnings (the price/earnings ratio) or cash
flow. An appropriate multiple can best be determined by analyzing a sample of
companies engaged in the same or similar lines of business whose shares are
actively traded in a free and open market, where the market establishes these
multiples based upon all available public information. The economic, industry
and some company factors influencing the multiple of comparable companies would
be very similar to those of the subject company. Therefore, using multiples of
comparable companies adjusted for material company-specific factors is in many
cases the best way to minimize subjectivity in the valuation.
Methods in this category are, in the majority of situations, the most
appropriate methods for valuing a business that is not a financial or natural
resource company.
Adjusted Book Value
The adjusted book value approach to valuation involves attempting to
establish a going concern fair market value of the assets less the liabilities
of an enterprise. Any method relying on historical book value, which is simply
an accounting presentation of accumulated historical earnings that have not been
paid out in the form of dividends or otherwise disposed of, does not reflect
fair market value, except by pure coincidence. Consequently, while book value is
a common benchmark used in determining value, it should be used cautiously when
valuing an ongoing, non-financial business.
Liquidation Value
Liquidation value is often used as a valuation floor, in that the value
derived from this analysis is assumed to be that value which could be realized,
after tax and liquidation expense, if the assets were to be separated from the
business and sold in the open market. Under certain circumstances, the value of
a company's future cash flow may be less than the liquidation value of its
assets and cannot reasonably be expected to improve for the foreseeable future.
VALUATION DETERMINATION
The Discounted Cash Flow ("DCF") method supported by the market
comparable method is deemed to be the most reasonable approach to determine
value for Thermwood. The cash flow projections upon which the determination of
value is based were prepared by Goelzer based upon Thermwood's historical
performance and extensive discussions with management, and utilize underlying
management assumptions that Goelzer deemed to be reasonable. In an independently
conducted market comparable analysis, five companies existed with operations and
business conditions similar enough to aid in the determination of the point
estimate of fair value. A payback analysis and a benchmark analysis were also
conducted as a reasonableness check for the conclusions derived from the DCF and
market comparable methods.
A leveraged recapitalization scenario was also considered in an effort
to ensure all options to the shareholders had been considered. In a leveraged
recapitalization, the company borrows heavily to pay the shareholders a special
one time cash dividend.
DCF ANALYSIS
The DCF analysis of Thermwood was completed on what is termed a "free
cash flow" basis. The results of the DCF are included in Section C. In short,
future cash flows available to both creditors and equity investors are
projected. The present value of those cash flows is then calculated by
discounting them to the present at the weighted average cost of capital
("WACC"). The WACC is a simple weighted average of the costs of the various
components of a company's capital, in this case, the cost of Thermwood's debt
and the cost of its equity. The value of debt is then subtracted from the
present value of the cash flows to arrive at the equity value of the operating
company. Non-operating assets are then added, net of any tax effects, and
non-operating liabilities are subtracted net of taxes, to arrive at an equity
value of the enterprise.
The WACC can best be determined through a build-up approach. The WACC,
also stated as the required return on total capital, is based on the expected
returns of other investments with comparable levels of risk. As of the valuation
date, an investor could buy a long-term treasury bond and receive a guaranteed
yield-to-maturity of 5.65%. Drawing on the most recent research and data
available from Ibbotson Associates, a noted financial statistics firm based in
Chicago, an appropriate compound return premium over the long-term treasury rate
that investors in diversified portfolios of small public companies have achieved
historically and should reasonably require in the long run is approximately
5.00%. It is therefore reasonable to assume that, as of the valuation date, the
required equity rate of return on a portfolio of small company stocks would be
around 10.65%. It is then appropriate to analyze whether an additional return
premium or discount should be built into the required rate of return based on
the level of risk associated with the subject company compared to the "average"
company in the Ibbotson study. One must address the added risk inherent in
Thermwood based upon its smaller size and competitive position within the
markets served. It should be noted that the Ibbotson data is based on the
smallest decile, in terms of market capitalization, of all companies traded on
the New York Stock Exchange. Using this definition, the average small company
Ibbotson analyzed has a market capitalization of approximately $100.0 million,
which is much larger than Thermwood. Thermwood's recent revenue and earnings
growth, and market share achieved, must also be considered. Considering all
relevant factors, an additional company-specific risk premium of 7.00%
adequately compensates an investor for assuming the additional risk inherent in
an investment in the common stock of Thermwood. Therefore, the cost of equity
for Thermwood is estimated to be 17.65%, as summarized below. Over the last two
years, as well as dating back to 1969, Goelzer has been engaged in numerous
merger and acquisition advisory roles involving private equity funds purchasing
both minority and controlling interests in companies of similar size and with
similar general characteristics as Thermwood. In these transactions, the private
equity funds required returns of 25% or more, well above the 17.65% estimated
for Thermwood.
The second step in determining the WACC is to determine the Company's
cost of debt. Goelzer, as financial advisor to many privately-held and small
publicly-traded companies over the years, has sought and arranged commercial
bank financing for companies comparable to Thermwood in size, competitive
position, financial condition and operating history. Through this experience,
and based on the terms of the debt described in the financial statements,
Thermwood's fixed cost of debt is determined to be approximately 9.5%, creating
an after-tax cost of debt of 5.80% given Thermwood's effective tax rate of 39%.
Having estimated the Company's cost of equity and cost of debt, the
third step in determining the WACC is to determine a sustainable capital
structure. In the case of Thermwood, the company has a conservative capital
structure, historically. A minority shareholder would have virtually no say in
trying to change this financing policy. Thus, Goelzer performed the DCF analysis
using the existing capital structure of 80% equity and 20% debt. Applying these
assumptions yields a WACC of 15.28%, as summarized below:
WEIGHTED AVERAGE COST OF CAPITAL CALCULATION
Cost of Equity Calculation:
Risk Free Rate (8/7/98) 5.65%
(30-Year US Government Bond Yield)
Historical Small Stock Premium 5.00%
(Based on data from Ibbotson Associates)
Company Specific Risk Premium 7.00%
-----
Cost of Equity 17.65%
Cost of Debt Calculation:
Before-Tax Cost of Debt 9.50%
Tax Rate 39%
After-Tax Cost of Debt: 5.80%
Weighted Average Cost of Equity @ 80% 14.12%
Weighted Average Cost of Debt @ 20% 1.16%
-----
Weighted Average Cost of Capital 15.28%
DCF Assumptions
The assumptions underlying the cash flow projections for Thermwood are
summarized in Section C. Total revenue for fiscal 1998 was projected based on
management's consolidated internal financial statements before year-end
adjustments by the Company's auditors. Revenue through the year 2004 is
projected to grow 10% and subsequent years are expected to grow 3% annually,
in-line with inflation. Over the last several years, Thermwood has taken
significant domestic market share in a consolidating industry. Further market
share gains will be difficult as the remaining competitors are all strong
companies with competitive product lines. In the near future, Thermwood is
expected to grow in-line with projected industry growth rates of approximately
10%. In the long run, the Company is expected to grow in-line with the long term
rate of inflation of 3.0%. International sales of Thermwood's products does not
look overly promising as the Company's recently opened European sales offices
are still losing money. Total European operations contributed only 7.0% of sales
in 1997 and management indicated the Vienna sales office will be closed in the
near future. All European sales will be consolidated to the sales office in
Great Britain.
Gross margins before depreciation are estimated to remain near the
historically stable level of 59%. Material is consistently the largest portion
of cost of goods sold, ranging between 37% and 40% of total revenue. The Company
has all non-union employees and direct labor has consistently averaged 4.0% of
total revenue. Total manufacturing overhead, without depreciation, has increased
in recent years since the Company has made capacity additions to accommodate the
increased sales levels. Depreciation attributable to cost of goods sold is
expected to plateau at $300,000 over the next several years from recent
investments in plant capacity. By 2003, depreciation within cost of goods sold
is expected to decrease to $250,000 as capital expenditures decrease from the
recent levels.
Operating expenses are projected to grow 9.0% annually over the
projected period and 3.0% thereafter. Total operating expenses have historically
grown at a pace slightly below revenue growth. The vast majority of operating
expenses are salaries for research & design, sales & marketing and
administrative personnel. Other major controllable operating expense items
include advertising, travel and trade show expenses. Depreciation associated
with operating expenses such as office equipment is expected to remain at
$100,000 annually. As operating expenses grow at a moderately slower pace than
total revenues, Thermwood will continue to realize scale economies on fixed
expenses. As a percent of sales, income from operations is projected to grow
from 11.5% in 1999 to 13.5% in 2004. Other income and expenses from scrap and
various miscellaneous items is projected to continue near historical levels of
approximately $10,000 annually.
Capital expenditures, primarily for equipment, tooling, computer
purchases and maintenance are estimated to be between $300,000 and $400,000
annually. An average annual capital spending level of $350,000 was used
throughout the projected period. Since capital expenditure levels are projected
to remain flat, total depreciation is projected to be higher than capital
expenditures in the first few years of the projected period as the majority of
the capacity expansion is depreciated. After 2003, capital expenditures and
depreciation are projected to offset. Working capital accounts are expected to
continue to approach levels exemplified by recent operations under the new
manufacturing strategy. Management is focused on keeping less work-in-process
and finished goods inventory and more raw materials inventory. Management is
attempting to reduce the time period from purchase order to delivery, thus more
raw material will be needed so that production of a particular item can begin
immediately. Working capital assumptions used for the discounted cash flow
analysis were 30 days outstanding for receivables, 140 days of inventory and 36
days outstanding for payables.
The free cash flows discounted back to the present at the WACC are
contained in Section C. These cash flow projections were completed on a fully
taxed basis, assuming a combined tax rate of 39%. The Company's tax loss
carryforwards will be completed at the end of 1998 and Thermwood will be fully
taxed starting in 1999.
The value of the operating company based on the noted assumptions was
$17,411,000 as of the valuation date. Finally, outstanding debt of $2,887,000
was subtracted to arrive at a value of $14,523,000 for the equity value of the
operating company as of the valuation date.
Value of Operating Company $ 17,411,000
Less: Outstanding Debt ($ 2,887,000)
-------------
Equity Value of the Operating Company $ 14,523,000
To arrive at the public minority value in this instance, the value of
non-operating assets must be added. The amount of cash required to operate a
business obviously varies from company to company and even more so by industry
and nature of business. As a guideline, industry studies help determine an
appropriate benchmark level. Robert Morris Associates ("RMA"), in its 1997
Annual Statement Studies, publishes detailed financial data by standard
industrial classification. Based upon information compiled by RMA regarding
industrial equipment manufacturers, cash as a percent of total assets averaged
8.0% for industry participants with sales greater than $25.0 million annually.
As of the valuation date, Thermwood had cash balances of only 0.9% of total
assets. The Company also had no other type of non-operating asset as of the
valuation date. Thus, non-operating assets as of August, 1998 were $0.
Equity Value of Operating Company $14,523,000
Value of Non-Operating Assets $ 0
-----------
Equity Value on a Public Minority Basis $14,523,000
Note: This value is the equity value for Thermwood on a minority share basis,
since the Ibbotson data is based on historical returns of minority equity
positions in public companies.
As of the valuation date there were 1,421,087 Thermwood common shares
outstanding. At $14,523,000 for the equity value on a public minority basis, the
point estimate price per share as determined by the DCF method is $10.22.
MARKET COMPARABLE ANALYSIS
As noted previously, Goelzer searched for reasonably comparable
publicly traded companies. The results of the publicly-traded comparable
analysis are included in Section D. Specifically, Goelzer searched for
woodworking and plastic tool companies and smaller wood furniture manufacturing
companies. While no single company was ideally comparable, the ultimate sample
group of five companies was sufficiently comparable to gain insight into how the
public markets were pricing small machinery and furniture manufacturing
companies. The five companies in the sample group are: (i) Shopsmith, Inc. - a
manufacturer and marketer of power woodworking tools primarily for the home
workshop; (ii) Devlieg-Bullard, Inc. - a diversified industrial business
specializing in manufacturing tooling, servicing, upgrading, automating and
remanufacturing precision-engineered machine tools and power tools; (iii) DMI
Furniture, Inc. - a manufacturer and marketer of residential and commercial
office wood furniture; (iv) Flexsteel Industries, Inc. - a manufacturer and
marketer of wood and upholstered furniture for the recreational vehicle market;
(v) Pulaski Furniture Corporation - a manufacturer of wooden mahogany bedroom
and dining room furniture. More information on these companies is also included
in Section D.
The mean of the sample companies' twelve month trailing price/earnings
("PE") ratio was within 5% of Thermwood's at a price of $10.22 per share.
Thermwood's PE ratio was 9.48x while the mean of the sample companies was 9.07x.
Furthermore, the mean of the sample companies' total invested capital to
earnings before interest taxes depreciation and amortization ("TIC/EBITDA")
ratio was within 3% of Thermwood's at $10.22 per share. Total invested capital
is defined as equity market capitalization plus negotiated third party debt, and
is the same as the previously discussed value of the operating company of
$17,411,000. EBITDA is operating income with the non-cash expenses of
depreciation and amortization added back. Goelzer considers TIC/EBITDA to be a
very appropriate ratio for the purpose of comparison because it most accurately
reflects multiples of operating cash flow without effects of financing.
Thermwood's TIC/EBITDA ratio was 5.57x while the mean of the sample companies
was 5.44x. Goelzer also found a direct correlation between market capitalization
and price multiples. In general, Goelzer found those companies with larger
market capitalizations to have higher price multiples. Goelzer believes this
correlation is at least partially due to liquidity factors.
As mentioned previously, Goelzer also conducted a search for reasonably
comparable transactions involving privately held companies. While numerous
transactions in similar industries to Thermwood's were examined, none were
deemed to be sufficiently comparable for a variety of reasons, including lack of
profitability, lack of growth or dissimilar size. The most comparable
transactions Goelzer discovered are include in Section E.
PAYBACK ANALYSIS
To further verify the reasonableness of Thermwood's operating equity
value as derived above, a cash flow payback analysis was conducted. The results
of this analysis are included in Section F. At a price of $14,523,000, a willing
buyer could expect to recoup his or her investment in approximately seven years.
Based on Goelzer's experience, the majority of investors in small companies look
to recoup the respective investment within five to eight years, depending on the
size of the company, the stability of historical earnings and the amount of risk
involved in the cash flow projections. All else equal, the longer the payback,
the higher the value. Considering Thermwood's diversified customer base, recent
earnings growth and competitive position within its markets, a payback at the
upper end of this range is appropriate. A payback of seven years further
confirms the reasonableness of the point estimate of fair value produced by the
DCF and market comparable analyses.
BENCHMARK ANALYSIS
In addition to the payback analysis, Goelzer conducted a benchmark
analysis, also known as a ratio analysis. This analysis is included in Section
G. In the majority of corporate transactions Goelzer has encountered involving
companies the size of Thermwood, the price of the transaction before any lack of
marketability discount has occurred in the range of 3.0x to 7.0x TIC/EBITDA. The
DCF analysis produced a TIC/EBITDA of 5.6x. Again, considering Thermwood's
competitive position and recent growth, Thermwood's's TIC/EBITDA should be in
the middle to upper end of the benchmark range. At 5.6x, the benchmark analysis
further confirms the reasonableness of the DCF and market comparable analyses.
LEVERAGED RECAPITALIZATION SCENARIO
In addition to all of the above analysis, a leveraged recapitalization
scenario was also considered in an effort to ensure all options to the
shareholders had been considered. Results of this scenario are summarized in
Section H. As mentioned previously, the company borrows heavily to pay the
shareholders a special one time cash dividend in a leveraged recapitalization.
After such a transaction, the company would be much riskier from a financial
perspective than it was with a more conservative capital structure. This added
risk is taken into consideration by increasing the cost of equity.
For this scenario, Goelzer assumed the Company would immediately borrow
$10.0 million and pay a special cash dividend of $7.04 per share. All operating
assumptions used in the DCF were utilized for this scenarios as well. Goelzer
assumed the new debt plus the existing debt of $2,887,000 would be paid down to
$5,000,000 over a seven year time period. Goelzer discounted the cash flows
available to shareholders after interest and principal payments at a 25% cost of
equity, a rate on the conservative end of returns investors in this type of
structure require. The point estimate of fair value for this scenario was $9.41
per share.
CONTROL STUDY
Goelzer was engaged to analyze Thermwood on a minority basis; however,
Goelzer studied control premiums paid in the public markets in an effort to be
completely thorough. Specifically, Goelzer relied on the most recent study
available, Control Premiums and Strategic Mergers by George P. Roach. The
article was published in the June, 1998 Business Valuation Review and is
Included in Section I. In this study, the author studied 1,446 mergers or
acquisitions between January, 1992 and November of 1997. Specifically, he
analyzed the control premium in relation to the acquired company's stock price
five days before the announcement of the acquisition ("Five Day Premium") and
thirty days before the premium ("Thirty Day Premium"). The study also segmented
the acquisitions by year and SIC code. Overall, the median thirty day premium
for all transactions was 35.7% and the five day premium median was 27.0%. In
general, the five day premiums were smaller because news of the pending
transaction became available in the market. From an average trading price of
$8.25, the five and thirty day control premiums indicate a range of value for
control of Thermwood's stock between $10.65 and $11.20.
CONCLUSION
In conclusion, all of the due diligence and all of the analyses and
methodologies supported $10.22 as a reasonable point estimate of fair value for
the common stock of Thermwood on a minority basis.
Respectfully submitted,
GOELZER & CO., INC.
<PAGE>
<TABLE>
<CAPTION>
Thermwood Corporation
COMPARATIVE BALANCE SHEETS
CONSOLIDATED
(Figures in
thousands,
except per share amounts Year Ended July 31
and ratios) 6/30/98 1997 1996 1995 1994 1993
Assets:
Current Assets
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cash $124 1% $512 5% $19 0% $11 0% $10 0% $26 0%
Accounts Receivable 3,487 24% 1,803 16% 813 9% 1,182 16% 681 13% 1,311 19%
Inventories 6,227 44% 4,618 41% 3,329 38% 3,009 40% 2,844 52% 2,838 41%
Deferred Income 1,676 12% 1,676 15% 1,073 12% 454 6% 0 0% 0 0%
Taxes
Prepaid Expenses 280 2% 372 3% 339 4% 375 5% 271 5% 317 5%
Total Current Assets 11,793 82% 8,981 80% 5,573 64% 5,030 67% 3,806 70% 4,492 65%
Patents, Trademarks, and Other 124 1% 133 1% 132 2% 124 2% 99 2% 95 1%
Bond Issuance Costs 4 0% 9 0% 28 0% 88 1% 102 2% 115 2%
Deferred Income 326 2% 326 3% 1,341 15% 782 10% 0 0% 0 0%
Taxes
Total Other Assets 454 3% 468 4% 1,501 17% 994 13% 201 4% 210 3%
Property, Plant & Equip. 4,752 33% 4,200 37% 3,808 43% 3,436 46% 3,099 57% 3,712 54%
Accumulated Depreciation (2,704) (19%) (2,376) (21%) (2,116) (24%) (1,933) (26%) (1,689) (31%) (1,486) (21%)
Net Property, Plant & Equipment 2,048 14% 1,824 16% 1,693 19% 1,503 20% 1,410 26% 2,226 32%
Total Assets 14,295 100% 11,273 100% 8,766 100% 7,527 100% 5,418 100% 6,928 100%
Liabilities & Stockholders'
Equity:
Current Liabilities
Accounts Payable 1,476 10% 1,375 12% 695 8% 793 11% 929 17% 1,466 21%
Current Portion of Long-term Debt 0 0% 0 0% 0 0% 0 0% 0 0% 75 1%
Current Portion of Capital Lease 16 0% 8 0% 6 0% 32 0% 71 1% 143 2%
Obligations
Accrued Liabilities 321 2% 1,029 9% 238 3% 373 5% 474 9% 912 13%
Accrued Income & Payroll Taxes 1,837 13% 583 5% 349 4% 380 5% 258 5% 140 2%
Customer Deposits 1,715 12% 907 8% 494 6% 642 9% 369 7% 466 7%
Total Current 5,366 38% 3,901 35% 1,782 20% 2,219 29% 2,100 39% 3,201 46%
Liabilities
Capital Lease Obligations 5 0% 6 0% 15 0% 22 0% 27 1% 1,654 24%
Note Payable to Bank 2,696 19% 0 0% 0 0% 0 0% 0 0% 2,237 32%
Bonds Payable, net of unamortized 170 1% 279 2% 693 8% 1,849 25% 1,834 34% 1,820 26%
discount
Total Liabilities 8,237 58% 4,186 37% 2,491 28% 4,090 54% 3,962 73% 8,912 129%
Shareholder's Equity
Preferred Stock 0 0% 2,546 23% 3,097 35% 3,437 46% 3,437 63% 0 0%
Common Stock 10,736 75% 10,599 94% 10,190 116% 8,989 119% 8,989 166% 8,989 130%
Accumulated Deficit (4,645) (32%) (6,034) (54%) (6,984) (80%) (8,989) (119%) (10,970) (202%)(10,974) (158%)
Less Subscriptions Receivable (33) (0%) (25) (0%) (28) (0%) 0 0% 0 0% 0 0%
Total Equity 6,058 42% 7,087 63% 6,275 72% 3,437 46% 1,456 27% (1,985) (29%)
Total Liabilities & 14,295 100% 11,273 100% 8,766 100% 7,527 100% 5,418 100% 6,928 100%
Equity
Net Working Capital 6,428 45% 5,080 45% 3,791 43% 2,811 37% 1,706 31% 1,291 19%
------------------------------------------- -------- --------- ---------
------------------------------------------------------------------------------------------------
NWC as a % of sales 32% 29% 30% 23% 17% 12%
</TABLE>
<PAGE>
Compound Weighted
Growth Average
Rate Balance
1998-1993 1998-1993
Assets:
Current Assets
Cash 37% 165 2%
Accounts Receivable 22% 1,876 18%
Inventories 17% 4,349 42%
Deferred Income 1,147 11%
Taxes
Prepaid Expenses (2%) 328 3%
Total Current Assets 21% 7,864 76%
Patents, Trademarks, and Other 6% 124 1%
Bond Issuance Costs (48%) 36 0%
Deferred Income 538 5%
Taxes
Total Other Assets 17% 698 7%
Property, Plant & Equip. 5% 4,046 39%
Accumulated Depreciation 13% (2,249) (22%)
Net Property, Plant & Equipment (2%) 1,797 17%
Total Assets 16% 10,359 100%
Liabilities & Stockholders'
Equity:
Current Liabilities
Accounts Payable 0% 1,153 11%
Current Portion of Long-term Debt (100%) 4 0%
Current Portion of Capital Lease (36%) 26 0%
Obligations
Accrued Liabilities (19%) 524 5%
Accrued Income & Payroll Taxes 67% 816 8%
Customer Deposits 30% 949 9%
Total Current 11% 3,471 34%
Liabilities
Capital Lease Obligations (69%) 90 1%
Note Payable to Bank 4% 877 8%
Bonds Payable, net of unamortized (38%) 773 7%
discount
Total Liabilities (2%) 5,210 50%
Shareholder's Equity
Preferred Stock
Common Stock 4% 10,100 98%
Accumulated Deficit (16%) (6,945) (67%)
Less Subscriptions Receivable (21) (0)
Total Equity 5,149 50%
Total Liabilities & 16% 10,359 100%
Equity
Net Working Capital 38% 4,394 42%
-------
---------- ----------------
NWC as a % of sales simple 24%
avg.
---------- ----------------
<PAGE>
Thermwood Corporation
COMPARATIVE STATEMENT OF INCOME & EXPENSE
CONSOLIDATED
<TABLE>
<CAPTION>
(Figures in
thousands,
except per share amounts Year Ended July 31
and ratios) 6/30/98 1997 1996 1995 1994 1993
Annualized
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales $21,853 $20,032 100% $17,779 100% $12,636 100% $12,314 100% $9,985 100% $10,825 100%
Cost of Goods Sold 11,536 58% 10,535 59% 7,416 59% 7,199 58% 6,114 61% 8,389 77%
Depreciation 274 1% 338 2% 296 2% 329 3% 293 3% 263 2%
Gross Profit 8,222 41% 6,906 39% 4,925 39% 4,786 39% 3,579 36% 2,173 20%
R&D, Marketing, Admin. & General 5,630 28% 4,795 27% 3,639 29% 3,316 27% 3,036 30% 2,960 27%
Depreciation 98 0% 0 0% 0 0% 0 0% 0 0% 0 0%
Total Operating Expenses 5,728 29% 4,795 27% 3,639 29% 3,316 27% 3,037 30% 2,960 27%
Income from 2,494 12% 2,111 12% 1,287 10% 1,470 12% 542 5% (787) (7%)
Operations
Interest Income/(Expense) (192) (1%) (76) (0%) (119) (1%) (295) (2%) (421) (4%) (595) (5%)
Other 0 0% 19 0% 6 0% (36) (0%) 15 0% (12) (0%)
Income/(Expense)
Income Before Taxes 2,302 11% 2,055 12% 1,174 9% 1,140 9% 136 1% (1,394) (13%)
Corporate Taxes/(Benefits) 869 4% 819 5% (1,160) (9%) (1,210) (10%) 0 0% 0 0%
Tax Rate 38% 40% (99%) (106%) 0% 0%
Net Income $1,432 7% $1,236 7% $2,334 18% $2,350 19% $136 1% ($1,394) (13%)
-------------------------------------------------------------------------- ---------
NI + Depreciation & Amortization $1,804 9% $1,574 9% $2,630 21% $2,679 22% $429 4% ($1,131) (10%)
------------------------------------------------------------------------------------------------
CAPEX 505 3% 338 2% 296 2% 329 3% 155 2% 188 2%
</TABLE>
<PAGE>
Compound Weighted
Growth Average
Rate Balance
1998-1994 1998-1994
Net Sales 19% 16,253 100%
Cost of Goods Sold 17% 9,505 58%
Depreciation (2%) 304 2%
Gross Profit 23% 6,444 40%
R&D, Marketing, Admin. & General 17% 4,528 28%
Depreciation 381% 33 0%
Total Operating Expenses 17% 4,560 28%
Income from 46% 1,884 12%
Operations
Interest Income/(Expense) (18%) (175) (1%)
Other (100%) 3 0%
Income/(Expense)
Income Before Taxes 103% 1,711 11%
Corporate Taxes/(Benefits)
Tax Rate
Net Income 80% 1,596 10%
---------- ----------------
NI + Depreciation & Amortization 43% 1,933 12%
---------- ----------------
CAPEX 34% 372 2%
<PAGE>
<TABLE>
<CAPTION>
Thermwood Corporation
RATIO ANALYSIS
CONSOLIDATED
35976 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Liquidity
<S> <C> <C> <C> <C> <C>
Current(AVG) 2.24 2.56 2.65 2.05 1.57
Current(EOY) 2.20 2.30 3.13 2.27 1.81 1.40
Quick(AVG) 0.64 0.55 0.51 0.44 0.38
Quick(EOY) 0.67 0.59 0.47 0.54 0.33 0.42
- ----------------------------------------------------------------------------------------------------------------------------------
Capitalization
Debt/Equity 48% 4% 11% 55% 133%
Assets/Equity 1.95 1.50 1.68 2.65 -23.33
- ----------------------------------------------------------------------------------------------------------------------------------
Interest coverage 12.99 27.90 10.85 4.99 1.29 -1.32
- ---------------------------------------------------------------------------------------------------------------------------------
Efficiency
Receivable Days Out 48.2 26.8 28.8 27.6 36.4
Inventory Days Out 171.6 137.7 156.0 148.4 169.6
Payables Days Out 45.1 35.9 36.6 43.6 71.5
Return on Average 11% 12% 29% 36% 2%
Assets
- ---------------------------------------------------------------------------------------------------------------------------------
Profitability/Dupont Analysis (Strategic Profit
Model)
Gross Margin 41.0% 38.8% 39.0% 38.9% 35.8% 20.1%
Operating Margin 12.4% 11.9% 10.2% 11.9% 5.4% (7.3%)
Profit Before Tax 11.5% 11.6% 9.3% 9.3% 1.4% (12.9%)
Net Margin 7.2% 7.0% 18.5% 19.1% 1.4% (12.9%)
X
Asset Utilization 1.6 1.8 1.6 1.9 1.6
=
ROA 11.2% 12.3% 28.7% 36.3% 2.2%
X
Leverage 1.9 1.5 1.7 2.6 -23.3
=
ROE 21.8% 18.5% 48.1% 96.0% (51.4%)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
[graphs omitted]
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Total $8,912 $3,962 $4,090 $2,491 $4,186 8,237
Liabilities
Owners' Equity ($1,985)$1,456 $3,437 $6,275 $7,087 6,058
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Net Revenues $10,825 $9,985 $12,314$12,636 $17,779$20,032
Gross Margins 20% 36% 39% 39% 39% 41%
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Operating ($787) $542 $1,470 $1,287 $2,111 2,494
Income
Operating (7%) 5% 12% 10% 12% 12%
Margins
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Debt $5,929 $1,933 $1,902 $715 $292 $2,887
Interest -1.32 1.29 4.99 10.85 27.90 12.99
Coverage
1993 1994 1995 1996 1997 1998
---- ---- ---- ---- ---- ----
Net Income ($1,394) $136 $2,350 $2,334 $1,236 $1,432
Dep. & Amort. $263 $293 $329 $296 $338 $372
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
ROE (51%) 96% 48% 18% 22%
ROA 2% 36% 29% 12% 11%
<PAGE>
Thermwood Corporation
Revenue and Expense Breakdown
<TABLE>
<CAPTION>
Historical
1998 1997 1996 1995
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Machine $16,420 92.4% $10,966 86.8% $11,043 89.7%
Sales
Technical Services $3,661 20.6% $3,299 26.1% $2,786 22.6%
Less Commissions (2,301) (13%) (1,628) (13%) (1,514) (12%)
Total Sales $20,032 100% $17,779 100% $12,636 100% $12,314 100%
Cost of
Sales
Material 7,403 41.6% 4,774 37.8% 4,536 36.8%
Direct Labor 711 4.0% 501 4.0% 527 4.3%
Overhead 2,066 11.6% 1,363 10.8% 1,437 11.7%
Other Overhead * 693 3.9% 1,074 8.5% 1,028 8.3%
Total COGS 11,810 59.0% 10,873 61.2% 7,711 61.0% 7,528 61.1%
Gross Profit 8,222 41.0% 6,906 38.8% 4,925 39.0% 4,786 38.9%
</TABLE>
* Note: Other overhead not based on labor hours such as scrap, freight-in and
depreciation.
<PAGE>
Thermwood Corporation
Revenue and Expense Breakdown
<TABLE>
<CAPTION>
ADMINISTRATIVE AND GENERAL EXPENSES
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Adinistrative Dept. 1,713 8.6% 1,395 7.8%
Allocation
Production Dept. 15 0.1% 19 0.1%
Allocation
R&D Allocation 243 1.2% 192 1.1%
Sales Support Allocation 341 1.7% 193 1.1%
Salaries 1,093 5.5% 747 4.2%
Bonuses 735 3.7% 587 3.3%
Payroll 79 0.4% 61 0.3%
Taxes
Payroll Insurance 50 0.3% 29 0.2%
Personnel Expense 1 0.0% 3 0.0%
Dues & Publications 6 0.0% 8 0.0%
Travel 130 0.6% 97 0.5%
Expense
Travel Expense - Meals 74 0.4% 62 0.4%
Show Expense 228 1.1% 205 1.2%
Dealer Promotion 105 0.5% 61 0.3%
Advertising 288 1.4% 245 1.4%
Purchased Services 7 0.0% 12 0.1%
Utilities 71 0.4% 8 0.0%
Insurance, 57 0.3% 42 0.2%
rent
Legal & Professional 10 0.1% 14 0.1%
Depreciation 28 0.1% 0 0.0%
Vienna Expense 68 0.3% 0 0.0%
Supplies 144 0.7% 164 0.9%
Freight Expense 196 1.0% 81 0.5%
Miscellaneous 45 0.2% 8 0.0% 0.0% 0.0%
=================================================================================================================================
TOTAL G&A 5,728 28.6% 4,232 23.8% 3,639 28.8% 3,316 26.9%
Income From Operations 2,494 12.4% 2,674 15.0% 1,287 10.2% 1,470 11.9%
Other Income/(Loss) (192) (1.0%) (57) (0.3%) (112) (0.9%) (331) (2.7%)
Income Before Taxes 2,302 11.5% 2,617 14.7% 1,174 9.3% 1,140 9.3%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Thermwood Corporation
($000) Annualized Current Capital Structure - Discounted Cash Flow Analysis
Historical Year Ended July 31
-------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003 2004 Terminal
-------- -------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net Sales (1) $ 21,853 $ 24,039 $ 26,443 $ 29,087 $ 31,995 $ 35,195 $ 38,715 $ 39,876
Cost of Sales (2) $ 12,585 14,183 15,601 17,161 18,877 20,765 22,842 23,527
Depreciation $ 299 $ 300 $ 300 $ 280 $ 260 $ 250 $ 250 $ 250
(3)
Gross $ 8,970 $ 9,556 $ 10,541 $ 11,646 $ 12,858 $ 14,180 $ 15,623 $ 16,099
Profit
Gross Margin (3) 41.0% 39.8% 39.9% 40.0% 40.2% 40.3% 40.4% 40.4%
R&D, General & Administrative (4) $ 6,142 6,695 7,298 7,954 8,670 9,451 10,301 10,610
Depreciation & Amortization $ 107 100 100 100 100 100 100 100
Total Operating Expenses 6,249 6,795 7,398 8,054 8,770 9,551 10,401 10,710
Operating Expenses/Revenue 28.6% 28.3% 28.0% 27.7% 27.4% 27.1% 26.9% 26.9%
Income from Operations 2,721 2,761 3,144 3,591 4,088 4,629 5,222 5,389
Operating Margin 12.4% 11.5% 11.9% 12.3% 12.8% 13.2% 13.5% 13.5%
Interest Income/(Expense) (209) 0 0 0 0 0 0 0
Other Income/(Expense) (5) $ 0 10 10 11 11 11 12 12
Earnings Before Taxes 2,511 2,771 3,154 3,602 4,099 4,641 5,233 5,401
Margin % 11.5% 11.5% 11.9% 12.4% 12.8% 13.2% 13.5% 13.5%
Income Taxes (6) 979 1,081 1,230 1,405 1,599 1,810 2,041 2,106
Net Income 1,532 1,690 1,924 2,197 2,500 2,831 3,192 3,294
Depreciation 406 400 400 380 360 350 350 350
Change in NWC (7) (3,192) (59) (232) (354) (721) (798) (882) (291)
Operating Cash Flow (1,255) 2,031 2,092 2,223 2,139 2,383 2,661 3,354
Req'd Capital Expenditures (8) (338) (350) (350) (350) (350) (350) (350) (350)
Free Cash Flows (1,593) 1,681 1,742 1,873 1,789 2,033 2,311 3,004
</TABLE>
- ----------------------------------------------------------------------
Present Value of Operating Company $17,411 Value per Share
Less: Outstanding Debt (9) ($2,887) $10.22
Add: Non-Operating Assets (10) $0
Equity Value Prior to Discount $14,523
- ----------------------------------------------------------------------
<PAGE>
NOTES
1. Revenue through 2004 projected to increase by 10.0%, 3.0% growth
thereafter.
2. Material, Labor and other COGS projected to be 59% of revenue based on
historical.
3. Depreciation calculated from historical and projected CAPEX.
4. Operating expenses estimated to grow 9% annually, 10% less than revenue
growth as seen historically.
5. Continuing other income from scrap and other miscellaneous items.
6. Taxes applied at 39%.
7. Working capital levels projected on new manfg. strategy. (A/R= 30 days,
Inv.=140 days, A/P = 36 days)
8. Capital expenditures estimated to be between $300-$400k annually.
9. Oustanding debt as of 7/31/1998.
10. No non-operating assets as of the valuation date.
<PAGE>
Thermwood Corporation
Weighted Average Cost of Capital
Assumptions:
Equity Rate:
Treasury Long Bond (8/7/98) = 5.65%
Ibbottson Small Stock Premium = 5.00%
Required Small Company Portfolio Return = 10.65%
Company-Specific Risk Premium = 7.00%
Required Rate of Return (Cost of Equity) = 17.65%
Debt Rate:
Cost of Debt Before Taxes = 9.50%
After-Tax Cost of Debt = 5.80%
Equity % Debt %
80% 20% =
Weighted Cost of Equity = 14.12%
Weighted After-Tax Cost of Debt = 1.16%
Weighted Average Cost of Capital = 15.28%
<PAGE>
Thermwood Corporation
Public Company Comparable Summary
July, 1998
--------------------------------
Net
Company Margin ROA ROE
--------------------------------
Shopsmith 8.3% 22.3% 34.2%
Devlieg-Bullard Neg. Neg. Neg.
DMI Furniture 3.4% 5.4% 14.6%
Flexsteel 3.0% 6.8% 19.8%
Pulaski Furniture 2.7% 4.3% 8.4%
- --------------------------------------------------------------------------------
Comparable Mean 4.3% 9.7% 19.2%
High 8.3% 22.3% 34.2%
Low 2.7% 4.3% 8.4%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Thermwood Corporation 7.0% 12.0% 23.3%
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Discount/(Premium) to comparable mean (62%) (23%) (21%)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the twelve months ending July, 1998
--------------------------------------------------------------------------------------------
Price Price/ Price/ Est. TIC TIC/ TIC/ Sales
Company (1) Sales Book PE PE (2) EBIT EBITDA Growth
--------------------------------------------------------------------------------------------
millions
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Shopsmith $5.1 0.28 0.99 3.34 N/A $5.1 3.79 3.32 2%
Devlieg-Bullard $22.0 0.18 0.92 Neg. N/A $62.3 13.79 5.26 15%
DMI Furniture $10.7 0.18 0.74 5.27 10.89 $25.6 6.16 4.86 (4%)
Flexsteel $81.8 0.35 1.04 11.78 11.79 $84.1 9.53 6.41 6%
Pulaski Furniture $71.6 0.43 1.30 15.90 13.79 $111.3 11.47 7.33 0%
- -----------------------------------------------------------------------------------------------------------------------------------
Comparable Mean $38 0.28 1.00 9.07 12.16 $57.7 8.95 5.44 4%
High $82 0.43 1.30 15.90 13.79 $111.3 13.79 7.33 15%
Low $5 0.18 0.74 3.34 10.89 $5.1 3.79 3.32 (4%)
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Thermwood Corporation $14.5 0.66 2.40 9.48 8.59 $17.4 6.40 5.57 19%
- -----------------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------------
Discount/(Premium) to comparable mean (135%) (141%) (4%) 29% 28% (2%) (335%)
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Thermwood Corporation
Public Company Comparable Analysis
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Jun-98 Jun-97 Jun-96 Jun-95 CAGR W. AVG
Shopsmith (SHOP)
In ($MM)
<S> <C> <C> <C> <C> <C> <C>
Sales 18 19 18 18 2% 18.30
Gross Margin 55.3% 54.9% 53.1% 47.7% 5% 54.0%
Operating Income 1.3 1.7 1.4 1.6 (5%) 1.48
Operating Margin 7.3% 8.9% 8.1% 9.0% (7%) 8.1%
Net Income 1.5 1.8 1.6 1.6 (1%) 1.64
Net-Margin 8.3% 9.7% 9.2% 8.9% (3%) 8.9%
x
Asset turnover 2.70 3.79 4.67 4.82 (17%) 3.64
=
ROA 22% 37% 43% 43% (20%) 33%
x
Leverage 1.53 1.39 2.56 -2.29
=
ROE 34% 51% 110% (98%)
TRAILING
EPS (before XO $0.58 $0.58 $0.68 $0.82 $0.61 (2%) 0.66
items)
DPS $0.00 $0.00 $0.00 $0.00
CFPS $0.83 $0.40 $0.28 $0.39 28% 0.55
(in millions)
Shares Outstanding 2.62 2.66 2.66 2.69 (1%) 2.65
Outstanding Debt 0 0
Market Cap. @ Valuation $5 $5
Date Price
Debt/Market Cap. 0% 0%
Book Value $5
EBITDA 1.5 1.9 1.6 1.8 (6%) 1.69
- -----------------------------------------------------------
8/7/98 Price $1.94
P/E 3.34 P/CF 2.33
2 yr. SA P/E 3.08 2 yr. SA P/CF 3.15
2 yr. WA P/E 3.16 2 yr. WA P/CF 2.82
3 yr. SA P/E 2.79 3 yr. SA P/CF 3.85
3 yr. WA P/E 2.97 3 yr. WA P/CF 3.26
4 yr. SA P/E 2.88 4 yr. SA P/CF 4.08
4 yr. WA P/E 2.93 4 yr. WA P/CF 3.54
- --------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Jul-98 Jul-97 Jul-96 Jul-95 CAGR W. AVG
Devlieg-Bullard (DVLG)
In ($MM)
<S> <C> <C> <C> <C> <C> <C>
Sales 120 131 113 78 15% 117.69
Gross Margin 24.9% 26.8% 27.8% 28.3% (4%) 26.4%
Operating Income 4.5 11.8 8.3 5.2 (5%) 7.52
Operating Margin 3.8% 9.0% 7.3% 6.7% (17%) 6.3%
Net Income (0) 4 3 1 1.70
Net-Margin (0.3%) 3.0% 2.4% 1.8% 1.4%
x
Asset turnover 0.99 1.08 1.22 1.33 (9%) 1.10
=
ROA (0%) 3% 3% 2% 2%
x
Leverage 4.87 5.10 4.41 3.10 16% 4.67
=
ROE (2%) 16% 13% 7% 8%
TRAILING
EPS (before XO ($0.05) ($0.03) $0.26 $0.16 $0.11 0.11
items)
DPS $0.00 $0.00 $0.00 $0.00
CFPS ($0.29) $0.21 $0.29 $0.10 0.02
(in millions)
Shares Outstanding 12.34 15.18 12.25 13.26 (2%) 13.26
Outstanding Debt $40 $37
Market Cap. @ valuation $22 $27
date price
Debt/Market Cap. 184% 138%
Book Value $24
EBITDA 11.9 16.3 12.9 8.0 14% 13.00
- -----------------------------------------------------------
8/7/98 Price $1.78
P/E -59.38 P/CF -6.14
2 yr. SA P/E 15.49 2 yr. SA P/CF -44.53
2 yr. WA P/E 26.72 2 yr. WA P/CF -14.44
3 yr. SA P/E 13.70 3 yr. SA P/CF 25.45
3 yr. WA P/E 18.11 3 yr. WA P/CF -66.80
4 yr. SA P/E 14.25 4 yr. SA P/CF 22.98
4 yr. WA P/E 16.34 4 yr. WA P/CF 118.75
- -----------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Aug-98 Aug-97 Aug-96 Aug-95 CAGR W. AVG
DMI Furniture (DMIF)
In ($MM)
<S> <C> <C> <C> <C> <C> <C>
Sales 60 56 56 68 (4%) 59.01
Gross Margin 22.6% 23.3% 19.1% 17.4% 9% 21.6%
Operating Income 4.2 4.6 2.8 3.2 9% 3.90
Operating Margin 6.9% 8.1% 5.0% 4.7% 13% 6.6%
Net Income 2.0 2.4 0.4 0.8 36% 1.69
Net-Margin 3.4% 4.3% 0.7% 1.2% 41% 2.9%
x
Asset turnover 1.61 1.69 1.59 1.73 (2%) 1.64
=
ROA 5% 7% 1% 2% 38% 5%
x
Leverage 2.70 2.74 3.21 3.80 (11%) 293%
=
ROE 15% 20% 4% 8% 23% 13%
TRAILING
EPS (before XO $0.39 $0.39 $0.40 $0.07 $0.14 40% 0.30
items)
DPS $0.00 $0.00 $0.00 $0.00
CFPS ($0.39) $0.00 $1.49 $0.04 0.15
(in millions)
Shares Outstanding 3.17 6.01 5.71 5.71 (18%) 4.78
Outstanding Debt 15 14
Market Cap. @ Valuation $11 $20
Date Price
Debt/Market Cap. 139% 67%
Book Value $15
EBITDA 5.3 5.6 3.8 4.2 8% 4.95
- --------------------------------------------------------------------------------------------------------
8/7/98 Price $3.38
P/E 8.65 P/CF -8.65
2 yr. SA P/E 8.54 2 yr. SA P/CF -17.31
2 yr. WA P/E 8.58 2 yr. WA P/CF -12.98
3 yr. SA P/E 11.77 3 yr. SA P/CF 9.20
3 yr. WA P/E 9.93 3 yr. WA P/CF 63.28
4 yr. SA P/E 13.50 4 yr. SA P/CF 11.84
4 yr. WA P/E 11.10 4 yr. WA P/CF 23.12
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Jun-98 Jun-97 Jun-96 Jun-95 CAGR W. AVG
Flexsteel (FLXS)
In ($MM)
<S> <C> <C> <C> <C> <C> <C>
Sales 234 205 208 195 6% 216.15
Gross Margin 21.1% 15.6% 22.5% 15.9% 10% 19.2%
Operating Income 8.8 8.0 6.4 7.5 5% 7.95
Operating Margin 3.8% 3.9% 3.1% 3.8% (1%) 3.7%
Net Income 6.9 6.1 4.5 5.2 10% 6.01
Net-Margin 3.0% 3.0% 2.2% 2.7% 4% 2.8%
x
Asset turnover 2.28 2.10 2.17 2.04 4% 2.18
=
ROA 7% 6% 5% 5% 7% 6%
x
Leverage 2.92 1.31 1.30 1.32 30% 1.95
=
ROE 20% 8% 6% 7% 40% 12%
TRAILING
EPS (before XO $0.99 $0.99 $0.86 $0.63 $0.73 11% 0.85
items)
DPS $0.48 $0.48 $0.48 $0.48
CFPS $1.65 $1.87 $0.92 $1.62 1% 1.57
(in millions)
Shares Outstanding 6.96 7.02 7.17 7.18 (1%) 7.04
Outstanding Debt $2 $3
Market Cap. @ valuation $82 $82
date price
Debt/Market Cap. 3% 3%
Book Value $79
EBITDA 13.1 13.1 11.0 10.2 9% 12.40
- --------------------------------------------------------------------------------------------------------
8/7/98 Price $11.75
P/E 11.87 P/CF 7.12
2 yr. SA P/E 12.70 2 yr. SA P/CF 6.68
2 yr. WA P/E 12.41 2 yr. WA P/CF 6.82
3 yr. SA P/E 14.21 3 yr. SA P/CF 7.94
3 yr. WA P/E 13.25 3 yr. WA P/CF 7.34
4 yr. SA P/E 14.64 4 yr. SA P/CF 7.76
4 yr. WA P/E 13.77 4 yr. WA P/CF 7.50
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
Jun-98 Jun-97 Jun-96 Jun-95 CAGR W. AVG
Pulaski Furniture (PLFC)
In ($MM)
<S> <C> <C> <C> <C> <C> <C>
Sales 166 161 169 166 (0%) 165.25
Gross Margin 20.8% 16.1% 20.0% 17.6% 6% 18.9%
Operating Income 9.7 0.0 8.3 5.7 19% 6.12
Operating Margin 5.8% 0.0% 4.9% 3.4% 19% 3.7%
Net Income 5 (2) 4 3 18% 2.44
Net-Margin 2.7% (1.0%) 2.5% 1.6% 18% 1.4%
x
Asset turnover 1.60 0.08 1.51 1.50 2% 1.12
=
ROA 4% (0%) 4% 2% 21% 3%
x
Leverage 1.94 2.04 2.05 2.08 (2%) 2.00
=
ROE 8% (0%) 8% 5% 18% 5%
TRAILING
EPS (before XO $1.62 $1.62 ($0.58) $1.50 $0.95 19% 0.87
items)
DPS $0.68 $0.67 $0.63 $0.59
CFPS $4.80 ($0.03) $4.98 ($0.41) #NUM! 2.87
(in millions)
Shares Outstanding 2.82 2.81 2.81 2.86 (0%) 2.82
Outstanding Debt $40 $46
Market Cap. @ valuation $72 $71
date price
Debt/Market Cap. 56% 64%
Book Value $55
EBITDA 15.2 5.1 13.5 11.0 11% 11.39
- --------------------------------------------------------------------------------------------------------
8/7/98 Price 25 3/8
P/E 15.66 P/CF 5.29
2 yr. SA P/E 48.80 2 yr. SA P/CF 10.64
2 yr. WA P/E 28.62 2 yr. WA P/CF 7.95
3 yr. SA P/E 29.97 3 yr. SA P/CF 7.81
3 yr. WA P/E 29.28 3 yr. WA P/CF 7.88
4 yr. SA P/E 29.08 4 yr. SA P/CF 10.87
4 yr. WA P/E 29.20 4 yr. WA P/CF 8.85
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
The following were provided in paper format only by Bloomberg L.P.
Shopsmith Inc. Equity Description
Shopsmith Inc. Equity Bar Chart
Devlieg-Bullard, Inc. Description
Devlieg-Bullard, Inc. Bar Chart
DMI Furniture, Inc. Description
DMI Furniture, Inc. Bar Chart
Flex Steel Industries, Inc. Description
Flex Steel Industries, Inc. Bar Chart
Pulaski Furniture Corporation Description
Pulaski Furniture Corporation Bar Chart
<PAGE>
Thermwood Corporation
Private Company Comparable Analysis
Conclusion: No private company transactions were found
to be sufficiently comparable to base a valuation conclusion.
The transaction summaries on the following pages of this
section are the deals examined which were deemed to be closest to
a reasonable comparable.
[Examined deals deemed to be close have been omitted.]
<PAGE>
Thermwood Corporation
Payback Analysis
Equity Value Under Current Capital Structure
$14,523
------------------------------------------
Free Cash After Tax Residual Cumulative
Flow Interest Cash Flow Cash Flow Payback
1998 $1,681 ($167) $1,848 $1,848
1999 $1,742 ($176) $1,918 $3,766
2000 $1,873 ($184) $2,058 $5,824
2001 $1,789 ($194) $1,983 $7,807
2002 $2,033 ($203) $2,236 $10,043
2003 $2,311 ($214) $2,524 $12,567
2004 $3,004 ($224) $3,228 $15,795 Year 7
------------------------------------------
<PAGE>
Thermwood Corporation
Benchmark Analysis Under Current Capital Structure
<TABLE>
<CAPTION>
1998
Price (1) Price/ Price/ Price/ TIC (3) TIC/ TIC/
(000's) Sales Book (2) PE 1999EE (000's) EBIT EBITDA
------------------------------------------------- ----------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$14,523 0.66x 2.40x 9.48x 8.59x $17,411 6.40x 5.57x
</TABLE>
(1) Price defined as value of equity as determined by discounted cash flow.
(2) Book value as of 7/31/98.
(3) TIC is Total Invested Capital. Present value of free cash flows as
determined by discounted cash flow.
<PAGE>
Control Premiums and Strategic Mergers
by George P. Roach
It has been asserted recently that control premiums have disappeared
from the present equity markets, that only strategic mergers offer any
significant control premiums today. After having examined a database of 1446
transactions between 1992 and 1997, I have found no support for this theory.
Control premiums have varied within a fairly narrow range for the last six years
with no discernible trend and no distinction between the level of control
premiums for strategic and non- strategic mergers although it does appear that
strategic mergers as a percentage of all mergers have declined substantially in
the last six years. The statistics also show no significant differences in
control premiums for any of the specific years. There is also no significant
difference between the median values for value or control premiums when the
acquiring company and acquisition have different or the same primary SIC codes
except that there may be a slight premium for circumstances in which the two
companies are not in the exact same primary SIC codes but are very close to each
other. Finally there are some significant distinctions between the valuation
measures and control premiums by industry classification of the acquisition.
The Data
This database includes 1446 mergers or acquisitions between January of
1992 to November 1997. The data includes the names of the buyers and sellers,
their primary four digit SIC code and calculated data for the acquisition price
to earnings ratio ("P/E"), price book ratio ("P/B"), price to revenue ("P/R"),
the ratio of total invested capital to earnings before income tax and
depreciation and amortization ("TIC/EBITDA"), the control premium in relation to
the acquired's stock price five days before the announcement of the acquisition
("Five Day Premium") and the control premium in relation to the acquired's stock
price thirty days before the announcement of the acquisition ("Thirty Day
Premium").
A preliminary review of the data shows some data points that are
meaningless and inappropriate for the study but to avoid any subjective bias (my
deletions may not agree with those of someone else) I have chosen to deal with
all the raw data unabridged and unadjusted. As a result, average figures will
not be meaningful in this study and my conclusions will be based on median
values. Meaningless averages means that the standard deviations would be
similarly biased so that the test for significant differences will be done
crudely by eye.
Data Sorted by SIC Code of the Acquisition
Exhibit I summarizes the data by the year of acquisition. I perceive no
distinctions to be made in any of the measures for any particular year. No one
year appears distinct nor is there an apparent trend in either direction. Given
the consistent rise in the market over this period, this would seem to indicate
that there is no correlation between the absolute level of the market and
control premiums or valuation measures. As a side note, it is interesting to
note that while the P/E remains relatively steady, the P/R ratio rises
dramatically over the period. Given the stability of the other value
-1-
<PAGE>
measures, this may be possibly explained because companies with lower earnings
margins have been acquired in the recent years.
Exhibit II summarizes the data by the four digit SIC Code of the
acquisition and shows the most distinctions of any of the three exhibits. P/E
ratios are about the same except that the P/E for the financial sector is fairly
low and that for the 7000 segment of the service industries is fairly high.
Price to book ratios were low for mining and very high for agriculture;
communication and transportation may also be significantly high. Price to
revenue ratios were distinctly low for agriculture and wholesale/retail and
maybe high for the 7000 segment of the services industry. Control premiums
appear indistinct except those for agriculture appears low and high for the 7000
segment of the services industry. Exhibit III lists a cross tabulation of the
number of mergers by SIC Code grouping by year. There does not appear to be any
pronounced pattern; all groups have maintained about the same share of the
annual number of mergers for the last six years.
Exhibit IV summarizes the data by the absolute difference in four digit
SIC Codes of the acquirer and the acquisition. The data appear to belie the
theory that strategic mergers, mergers in which the two companies have the same
primary SIC Code, provide larger control premiums. The only distinction that may
be found is that the valuation measures and control premiums are higher for the
category in which the two companies do not have the same SIC Code bu the
difference is small less than ten absolute digits. Perhaps acquirers are willing
to pay more for a supplementary product line that is similar but still a little
different. On the other hand, it is questionable whether the assignment of some
SIC Codes is so exacting that a difference in a couple digits is significant at
all. Otherwise, the difference is not so large as to demand an explanation if
one exists.
The cross tabulation in Exhibit V that shows that strategic mergers
have declined from about 53% of the total number of mergers to 32% in six years.
Despite this change in mix, control premiums have remained fairly steady.
Perhaps this contradiction, more than any other data, best refutes the theory
that control premiums have declined for non-strategic mergers.
Exhibit VI is a check to ensure that the form of payment does not
influence the purchase price or control premium. It shows that there is no
distinct difference between the valuation measures or control premiums whether
the acquisition is made for stock, cash or a combination of the two. The data
for this exhibit were drawn from only the strategic mergers. Similar results
were obtained when the data were restricted only to mergers and acquisitions for
banks, using only one four digit SIC Code.
-2-
<PAGE>
Review of Control Premiums Exhibit I
Sorted by Year of Acquisition
<TABLE>
<CAPTION>
Observations P/E P/Book Value P/Revenue TIC/EBITDA 5 Day Premium 30 Day Premium
<S> <C> <C> <C> <C> <C>
1992 60 21.06 N/A 0.53 N/A 23.4% 32.3%
1993 120 17.56 N/A 0.66 N/A 31.5% 36.1%
1994 201 20.42 N/A 0.69 N/A 26.2% 33.5%
1995 279 19.15 3.75 1.23 11.40 2.1% 39.2%
1996 414 23.51 2.87 1.39 9.42 23.9% 31.1%
1997 372 23.87 2.84 1.84 9.09 28.0% 37.8%
All Years 1446 22.17 2.97 1.33 9.42 27.0% 35.7%
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
Review of Control Premiums Exhibit II
Sorted by SIC Code of the Acquisition
Observations P/E P/Book Value P/Revenue TIC/EBITDA 5 Day Premium 30 Day Premium
SIC Codes
<C> <C> <C> <C> <C> <C> <C> <C>
1-999 6 23.48 17.44 0.96 11.02 14.3% 3.25
1001-1999 66 26.04 2.16 2.06 9.64 24.6% 34.7%
2001-2999 121 22.77 3.91 1.28 9.42 24.2% 30.7
3001-3999 273 26.46 3.82 1.12 12.13 29.1% 39.5%
4001-4999 114 25.36 4.71 1.96 12.65 26.3% 34.3%
5001-5999 105 23.53 2.61 0.44 11.19 27.0% 31.4%
6001-6999 496 18.26 2.06 1.35 5.91 25.6% 34.0%
7001-7999 155 37.38 4.61 2.00 15.09 30.0% 46.1%
8001-8999 110 27.21 4.26 1.33 12.26 27.2% 36.2%
All Codes 1445 22.17 2.97 1.33 9.42 27.0% 35.7%
</TABLE>
-4-
<PAGE>
Review of Control Premiums Exhibit III
Cross Tabulation of Observations
Year of Acquisition and SIC Code
1992 1993 1994 1995 1996 1997 Total
SIC Codes
1-999 3 0 0 1 1 1 6
1001-1999 3 6 10 13 16 18 66
2001-2999 6 10 20 26 33 26 121
3001-3999 10 23 43 49 76 72 273
4001-4999 6 6 15 32 25 30 114
5001-5999 4 7 11 25 32 26 105
6001-6999 17 49 71 84 153 122 496
7001-7999 6 9 17 29 47 47 155
8001-8999 5 10 14 20 31 30 110
Total 60 120 201 279 414 372 1446
SIC Codes
1-999 5.0% 0.0% 0.0% 0.4% 0.2% 0.3% 0.4%
1001-1999 5.0% 5.0% 5.0% 4.7% 3.9% 4.8% 4.6%
2001-2999 10.0% 8.3% 10.0% 9.3% 8.0% 7.0% 8.4%
3001-3999 16.7% 19.2% 21.4% 17.6% 18.4% 19.4% 18.9%
4001-4999 10.0% 5.0% 7.5% 11.5% 6.0% 8.1% 7.9%
5001-5999 6.7% 5.8% 5.5% 9.0% 7.7% 7.0% 7.3%
-5-
<PAGE>
<TABLE>
<CAPTION>
<C> <C> <C> <C> <C> <C> <C> <C>
6001-6999 28.3% 40.8% 35.3% 30.1% 37.0% 32.8% 34.3%
7001-7999 10.0% 7.5% 8.5% 10.4% 11.4% 12.6% 10.7%
8001-8999 8.3% 8.3% 7.0% 7.2% 7.5% 8.1% 7.6%
Total 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
Review of Control Premiums Exhibit IV
Sorted by Differences in Four Digit SIC Codes
Of Acquirer and Acquisition
Observations P/E P/Book Value P/Revenue TIC/EBITDA 5 Day Premium 30 Day Premium
Medians
<S> <C> <C> <C> <C> <C> <C> <C>
Difference of 0 600 20.98 2.60 1.28 8.96 25.7% 33.3%
Difference of 1 - 9 142 25.13 3.25 2.04 9.81 32.5% 42.6%
Difference of 10 - 48 184 2014 2.51 1.13 7.58 25.0% 34.3%
Difference of > 50 520 23.86 3.36 1.25 10.37 27.7% 37.0%
All Observations 1446 22.17 2.97 1.33 9.42 27.0% 35.7%
Averages
Difference of 0 600 35.09 40.07 5.42 17.45 37.2% 44.0%
Difference of 0 - 9 142 52.88 4.34 2.99 17.67 41.0% 51.7%
Difference of 10 - 48 184 39.72 4.23 2.39 8.90 37.1% 43.5%
Difference of
greater than 50 520 41.22 21.52 4.09 35.82 50.8% 51.5%
</TABLE>
-7-
<PAGE>
Review of Control Premiums Exhibit VI
Comparison of Control Premiums By Form of Payment
Where Both Companies Have Some Primary SIC Code
<TABLE>
<CAPTION>
Observations P/E P/Book Value P/Revenue TIC/EBITDA 5 Day Premium 30 Day Premium
<S> <C> <C> <C> <C> <C> <C> <C>
Cash 141 21.15 2.45 0.72 0.52 25.7% 34.3%
Combination of Cash and Stock 95 18.77 1.88 1.10 9.46 28.2% 33.6%
Stock 302 21.26 3.01 1.65 8.32 26.7% 33.5%
Unknown 58 22.08 1.40 1.00 6.99 20.6% 31.3%
Combined Group 596 20.98 2.60 1.28 8.96 25.7% 33.3%
</TABLE>
-8-
<PAGE>
Goelzer & Co., Inc.,
Goelzer & Co., Inc.'s principals have been providing investment banking,
business valuation, financial advisory and related services since its inception
in 1969. Our reputation for quality and integrity has established us as a
leading provider of valuation services and financial opinions.
The firm performs its specialized services for a broad range of clients. These
clients include entities such as corporations and partnerships that operate in a
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expert witness in the U.S. Tax, U.S. District and other relevant courts. The
firm has been retained by private counsel, bank trust departments, accounting
firms, financial/estate planners, and business owners and officers. Goelzer has
also been hired by the Regional Counsel and Appellate Division of the Internal
Revenue Service.
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Goelzer has been involved in investment banking activities including structuring
transactions, selling businesses and raising capital since the founding of the
firm. Goelzer also acts as financial advisor to numerous established Employee
Stock Ownership Plans ("ESOP's") as well as ESOP's-in-formation.
A large proportion of business valuations are conducted to address legal matters
and are in conjunction with corporate finance transactions. When objective
expertise is required to solve a business valuation issue, Goelzer & Co., Inc.,
has the experience. Our valuation professionals have been called upon to provide
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areas covered include, but are not limited to, the following:
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An impartial, unbiased opinion is often essential in cases requiring a
subjective value judgment. Goelzer & Co., Inc., goes to great lengths to ensure
confidentiality and maintain an objective posture in addressing the needs of
clients.
<PAGE>
SERVICES
Goelzer & Co., Inc., has provided a wide variety of investment banking, business
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For over thirty years, Goelzer & Co., Inc.,'s principals have provided valuation
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advisory services to the business community for over a century. The expertise
acquired by our professionals over the years has proven invaluable in numerous
cases where subjective judgment and experience have played a key role in the
valuation process.
Goelzer & Co., Inc., has the demonstrated ability to get to the heart of an
issue, organize the challenge into a readily understandable report and offer
answers and solutions based on solid analytical skills gained through many years
of experience.
Don W. Goelzer, President and Founder of Goelzer & Co., Inc., has worked in the
securities industry for over forty years. Prior to founding Goelzer & Co., Inc.,
in 1969, Mr. Goelzer was Vice President and Head of the Trading Department which
he created at City Securities Corporation in Indianapolis. In this capacity, Mr.
Goelzer became well versed in all aspects of investment banking, including
structuring, pricing and underwriting various municipal obligations, corporate
equity and debt issues and private placements of equity and debt issues. Mr.
Goelzer has conducted and overseen hundreds of valuation engagements since
founding the firm and has provided expert witness testimony in numerous cases
over the past two decades. Mr. Goelzer served as a member of the District 8
Committee of the National Association of Securities Dealers, Inc., and is a past
President and member of the Board of Directors of the Indianapolis Bond Club.
Mr. Goelzer is also a member of the National Security Traders Association and
founder and past director of the Indianapolis Security Traders Association and a
member of the Indianapolis Society of Financial Analysts and the Association for
Investment Management and Research.
Mr. Goelzer is a graduate of the Indiana University School of Business where he
continues to play an active role in alumni affairs in various capacities.
George G. Cassiere, CFA, Managing Director, joined Goelzer from Eli Lilly and
Co. where he was a treasury professional holding corporate finance
responsibilities. Mr. Cassiere entered Goelzer in 1993 as a Vice President and
has since been promoted to Managing Director. Mr. Cassiere has either led, or
been actively involved in, several hundred engagements and has been asked to
testify in court or in depositions on several occasions since joining the firm.
In the Eli Lilly treasury position, Mr. Cassiere completed numerous valuations
in conjunction with stock repurchases, acquisitions and divestitures. He was
integrally involved in the issuance of over $1 billion in various debt
instruments and played a key role in design and implementation of an interest
rate management process during his tenure at Lilly. Mr. Cassiere was a key
member of the Treasury/Pension team that structured a $200 million leveraged
ESOP expansion in 1991. In addition to working for Lilly, Mr. Cassiere was an
investment banker for First Fidelity Mortgage Corporation, specializing in
private placements. In this capacity, Mr. Cassiere worked closely with
institutional investors finding and arranging placements to fit the needs of the
respective portfolios. Part of these placement activities included determining
the value of real estate related to privately held companies.
Mr. Cassiere was published in the March 1996 and June 1994 issues of Business
Valuation Review and the May 1994 issue of Indiana Business Magazine and has
been invited to speak by the Indiana Continuing Legal Education Foundation, The
Estate Planning Council of Indianapolis, University of Virginia, Butler
University and other professional organizations. Mr. Cassiere is a member of the
Association for Investment Management Research (AIMR), the American Society of
Appraisers (ASA), the ESOP Association, and was named to the Finance Committee
of the National ESOP Association in 1997. In 1998, Mr. Cassiere and was selected
as one of "40 Under Forty" by the Indianapolis Business Journal.
Mr. Cassiere holds an MBA degree with emphasis in Finance from the University of
Virginia and graduated with honors from Florida State University with a BS
degree in Finance.
Brett D. McKamey, CFA, Managing Director, has been providing business valuations
and corporate advisory services since joining the firm in January 1990. Mr.
McKamey is a Chartered Financial Analyst (CFA) and member of the Association for
Investment Management and Research (AIMR) and the Indianapolis Financial
Analysts Society.
Prior to his tenure with Goelzer, Mr. McKamey served as a Financial Consultant
with Shearson Lehman and as a Funding Specialist at InterFirst Bank, Dallas, and
London, England. In these positions he provided financial consulting and
investment advisory services and was responsible for performing detailed
financial analyses on domestic and international borrowers. Mr. McKamey also
developed computer programs to monitor cash flows and perform cost-benefit
analyses. In addition he played a key role in the development of a Loan
Syndication Group at InterFirst Bank-London, England and was actively involved
in the structure and sale of loan participations from InterFirst's London
Offices. Mr. McKamey has either led or been actively involved in dozens of
engagements since joining Goelzer in 1990.
Mr. McKamey is a graduate of Brebeuf Prepatory School in Indianapolis and
graduated cum laude from Indiana University School of Business with a degree in
Finance.
Julian A. Kiser, Senior Vice President, has been actively engaged in the
securities and valuation business since 1937. Prior to joining Goelzer & Co.,
Inc., in 1981, Mr. Kiser served as Chairman of the Board of Kiser, Cohn &
Shumaker, Inc., an Indianapolis-based investment banking firm that was merged
with Goelzer & Co., Inc., During his tenure with Kiser, Cohn & Shumaker, Mr.
Kiser worked in many facets of the investment banking business including
securities analysis and research, originating and managing corporate
underwritings, merger and acquisition negotiations and business valuations. Mr.
Kiser has also provided expert witness testimony on several occasions. Mr. Kiser
is a member and past President of the Indianapolis Society of Financial
Analysts, past member of the District 8 Committee of the NASD and past member
and Vice Chairman of the Board of Governors of the NASD.
Mr. Kiser graduated Phi Beta Kappa from the University of Chicago School of
Business in 1937.
Andy L. Beasley, Vice President, joined Goelzer in February 1997 from Cummins
Engine Company where he was a Business Analysis Manager. Mr. Beasley conducts
Goelzer's business valuations and is integrally involved in all investment
banking engagements.
At Cummins, Mr. Beasley held various corporate finance responsibilities. He
performed business valuations for mergers, acquisitions and divestitures, led
financial negotiations and designed the capital structure for two international
joint ventures. He also performed capital budgeting analysis, managed capital
expenditures in excess of $100 million and played a key role in strategic
planning for Cummins Power Generation business unit.
Mr. Beasley holds an MBA degree in Finance from Indiana University and a BS
degree in Mechanical Engineering from Purdue University. Prior to graduate
school in Bloomington, Andy worked for Eli Lilly and Company as a project
engineer and analyst for major capital spending projects. He is a member of the
Association for Investment Management and Research and is a CFA candidate.
Dan M. Rosio, Financial Analyst, joined Goelzer in May 1997. Mr. Rosio holds an
MBA from Butler University, July 1993; a BS degree from the School of Management
at Purdue University, December 1991; and is a member of the American Society of
Appraisers (ASA).
Prior to joining Goelzer, Mr. Rosio served the Indiana Department of Education
as the Fiscal Policy Analyst for the Superintendent of Public Instruction, and
also served as a Budget Analyst for the Governor's fiscal management office, the
State Budget Agency. During the 1997 Indiana General Assembly legislative
session, Dan helped design and implement a new school funding distribution
formula to promote greater equity in local school funding.
While attending Butler, Dan worked as a business valuation intern at Goelzer. He
also completed internships with NBD Bank in the investment and trust divisions
in 1991 and 1993 during his undergraduate studies. Mr. Rosio's primary
responsibilities with Goelzer include construction and evaluation of financial
models, financial statement analysis, forecasting, and due diligence relating to
business valuations. Since joining Goelzer, Dan has completed work on over 50
valuations.
Frederick S. Cuthbert, II, Vice President, has been involved in the investment
securities industry since 1964. Prior to joining Goelzer & Co., Inc., in 1989,
Mr. Cuthbert served as Vice President of Collett & Co., Inc., the highly
regarded Indianapolis-based investment banking firm which managed the initial
public stock offerings of Eli Lilly and Co., Ball Corporation, L.S. Ayres &
Company, and Hook Drugs. While at Collett & Co., Inc., Mr. Cuthbert served as
portfolio manager, securities analyst and business appraiser. For several years
he worked closely with the Appellate Division of the IRS and served as an expert
witness for the Department of Justice. Mr. Cuthbert earned his B.A. degree from
Vanderbilt University in 1963 and his MBA from Butler University in 1973.
Mr. Cuthbert is a member of the Indianapolis Bond Club and the Indianapolis
Security Traders Association.
Neal A. Smith, CFA, Investment Officer, also performs business valuations at
Goelzer. As a member of Goelzer Investment Management's Investment Policy
Committee, he serves as a research analyst covering both equity and fixed-income
securities. Mr. Smith's work in this capacity enhances his knowledge and skills
used in the valuation process. Prior to joining Goelzer, Neal was an associate
of Martin Capital Management, an Elkhart-based investment advisory firm with
$250 million under management. As one of four investment professionals at that
firm, he specialized in the valuation of publicly traded businesses, served as
the lead investment trader and actively managed individual portfolios as well as
institutional investment accounts. Mr. Smith began his financial career as a
Personal Trust Portfolio Manager at Citizens National Bank of Evansville in June
1987 where he managed personal trust accounts valued at $90 million. In
addition, he was responsible for the portfolio management of three bond funds
for personal trust accounts, representing over $25 million of the bank's nine
common trust funds total. Mr. Smith has over ten years of valuation, trust and
investment management experience.
Born and raised in Muncie, Neal ranked second in the class of 1982 at Muncie
Northside High School. He majored in Finance at the University of Notre Dame and
received his B.A. degree in Business Administration in 1986. Concentrating in
Accountancy and Finance, Neal earned his M.B.A. from the University of Notre
Dame Graduate School of Business, graduating with honors in 1987.
Robert M. Stutz II, Financial Analyst, joined Goelzer in the summer of 1996 as
an intern. Mr. Stutz holds a B.S. in Finance from Butler University, May, 1997.
Prior to working with Goelzer, he completed a four hundred hour internship with
Merrill Lynch. Mr. Stutz's primary responsibilities with Goelzer include
construction and evaluation of financial models, financial statements analysis,
forecasting, and due diligence relating to business valuations. Rob joined the
firm full time in July 1997. Mr. Stutz's has been involved in over 50 valuation
projects since 1996.
<PAGE>
REPRESENTATIVE CLIENTS & INDUSTRIES SERVED
o GSC Industries, August 1998
Parts Manufacturer Arranging financing for recapitalization.
o Accurate Castings, Inc. August 1998
Metal Casting Operations Providing
valuation and merger and acquisition advice.
o Mount Trucking, August 1998
Trucking Operations Acting as corporate
finance advisor to owner.
o Whallon Industries, August 1998
OEM Manufacturer Hired as exclusive
agent in conjunction with the sale of
100% of the common equity.
o Bryan Steam Corp., August 1998
Boiler Manufacturer Engaged as
management's representative to
complete buyout of company with an entity
supported by management.
o Thermwood, August 1998
Fairness Opinion
Completed fairness opinion
in conjunction with recapitalization.
o VitaChlor Corporation, August 1998
Corporate Estate
Completing an opinion of
fair market value on a minority share basis.
o Perkins Specialized Transportation, Inc., August 1998
Specialty Trucking Operator
Delivered opinion of fair market
value of company and rendered additional
corporate finance advice.
o Delaware Machine & Tool Co., June 1998
Tool and Die Manufacturer
Acting as financial advisor to
ESOP in formation, including providing a
valuation of shares offered for sale to the ESOP.
o B&B Tool & Die, June 1998
Tool and Die Manufacturer
Acting as financial advisor to
ESOP in formation, including providing a
valuation of shares offered for sale to the ESOP.
o Campbell Family Limited Partnership I & II, August 1998
Family Limited Partnership Rendering an
opinion of fair market value.
o Farmers & Merchants Bancorp, August 1998
Corporate Estate
Rendered an opinion of fair market
value of a block of shares for
Estate of Mrs. Merlyn L. Cook.
o John F. Goss Law Firm, August 1998
Corporate Estate
Delivered opinion of fair
market value for estate purposes.
o Laughner Brothers, Inc., August 1998
Cafeteria Operators
ESOP Update
o Marten Family Limited Partnership, August 1998
Family Limited Partnership
Rendered opinion of certain Partnership interests.
o Helen L. Muehlenbein Family Limited Partnership,
August 1998
Family Limited Partnership Rendered opinion of
certain Partnership interests.
o RACO, Inc., August 1998
Telecommunications
Equipment Contractors
ESOP Update
o Reese Central Wholesale, Inc., August 1998
Wholesale Distributor
ESOP Update
o Roesch Family Limited Partnership, August 1998
Family Limited Partnership
Rendered opinion of certain Partnership interests.
o Jim Ross & Son, Inc., August 1998
Excavator and Industrial Plant Maintenance
Rendered an opinion of certain common shares
for internal purposes.
o Lafayette Bancorporation, August 1998
Financial Institution
Rendered an opinion of certain
common shares held by Estates of George Delong
and Mary McQueen.
o Bevcher, August 1998
Family Limited Partnership
Provided opinion of fair market
value of equity interests held by
decedent John E. Scott.
o Staton Family Limited Partnership, August 1998
Family Limited Partnership
Rendered opinion of certain Partnership interests.
o Weaver Popcorn Company, August 1998
Popcorn Production/Sales Valued
non-voting common equity shares.
o Wilco Corporation, August 1998
Electronic Components Manufacturer
ESOP Update
o Hensley Family Associates L.P., August 1998
Family Limited Partnership
Rendered opinion of certain Partnership interests.
o Engineered Medical Systems, Inc., August 1998
Medical Device Manufacturer
Completed valuation of common equity on a minority basis.
o Guyer, The Mover, Inc. July 1998
Moving Contractors
Provided consulting services to shareholder.
o Haase Farms, Inc. and Knightstown Elevator, July 1998
Farming and Elevator Operations
Delivered opinion of fair market value of certain common shares.
o Justus Rental Property, July 1998 Real Estate Valued common equity on
minority share basis.
o PRO Plastics Equipment, Inc., July 1998 Manufacturer's Representative
Rendered corporate finance advice for internal purposes.
o Yosemite (Mallory), July 1998
Corporate Estate
Valued common equity held by the estate of Paul W. Sindlinger.
o Tank Industry Consultants, Inc., July 1998
Industrial Container Manufacturer
ESOP Update
o The Printing Company, Inc., July 1998
Printing/Mailing Consultants
ESOP Update
o Square Deal Engineered Tooling, July 1998
Tool & Die Manufacturer
ESOP Update
<PAGE>
o Market Share, Inc., June 1998
Financial Services
Updated previous valuation of certain common shares in the Company's Employee
Stock Ownership Plan (ESOP).
o Bovard Funeral Home, L.P., June 1998
Funeral Services
Rendered opinion of fair market value of limited partnership units for gifting
purposes.
o General Devices Co., Inc., June 1998
Electronic Equipment Enclosure Manufacturing
Rendered an opinion of the fair market value of the common stock on a per share
minority basis.
o Columbus Container Illinois, Inc.,/Columbus Trucking Co., June 1998 Corrugated
Cardboard Manufacturers/Distributors Rendered an opinion of the fair market
value of certain common stock.
o Rebecca A. Livingstone Estate, June 1998
Real Estate Partnership
Rendered an opinion of fair market value of common shares of J.C. Halstead Farm,
Inc., for federal estate tax purposes.
o Huntington Bancorp (joint venture) Check Exchange System Company, May 1998
Financial Services/Computer Software Provided corporate finance and valuation
consulting services.
o Achieve Health Care, May 1998
Health Care Information Systems
Rendered an opinion of the fair market value of a minority interest of the
common stock.
o Foley Hardwoods, Inc., May 1998
Sawmill and Lumber Producer
Updated the appraisal of the fair market value of the common stock held in the
Employee Stock Ownership Trust.
o Didier Corp., May 1998
Rendered opinion of fair market value of common equity on minority and control
basis.
o Boyce Limited Partnership, May 1998
Real Estate
Rendered an opinion as to the fair market value of certain limited partnership
interests.
o MicroMetl, May 1998
HVAC Manufacturer
Rendered an opinion of the fair market value, on a minority basis, of the
outstanding common equity for estate planning purposes.
o Romar Christian Book Store, Inc., April 1998
Retailer
Appraised the fair market value of the common shares in conjunction with a
contemplated transaction.
o Madeira Partners LP, April 1998
Limited Partnership
Rendered an opinion of fair market value of certain limited partnership units
for federal estate tax purposes.
o Tank Industry Consultants, Inc., April 1998
Engineering Consultants
Updated an opinion of the fair market value of common shares held by the
Employee Stock Ownership Plan ("ESOP").
o Roth Family Limited Partnership I and II, April 1998
Financial Partnership
Rendered an opinion as to the fair market value of certain limited partnership
interests for federal and state tax purposes.
o Skelton Family Limited Partnership, April 1998
Limited Partnership
Rendered an opinion as to the fair market value of the Nevada limited
partnership interests for estate tax purposes.
o Waddell Battery, April 1998
Distributor
Acted as financial advisor to ESOP and provided an opinion of the fair market
value of certain common shares offered for sale to the ESOP.
o Culpepper Family Limited Partnership, April 1998
Limited Partnership
Rendered an opinion as to the fair market value of certain limited partnership
interests.
o Corydon Corp.; Daviess County Lodging Corp.; and, Batesville Inn, Inc., April
1998 Hotel/Motel Facilities Determined the fair market value, on a minority
basis, of the common equity of the Companies for a potential
merger transaction.
o Johnston Family Limited Partnership, April 1998
Limited Partnership
Rendered an opinion as to the fair market value of certain limited partnership
units.
o WMM Farms Family Limited Partnership, April 1998
Real Estate Partnership
Rendered an opinion of fair market value of certain limited partnership units
for the purpose of establishing the value for federal and state tax purposes.
o St. Elmo's Steak House, April 1998
Restaurant
Rendered services in support of mediation.
o Early Family Limited Partnership, April 1998
Financial Partnership
Rendered an opinion of fair market value of certain family limited partnership
units for federal estate tax purposes.
o Hartford Concrete, April 1998
Manufacturer, Precast Concrete
Updated our opinion previously rendered for Employee Stock Ownership Plan (ESOP)
transaction.
o Sydor Family Limited Partnership, April 1998
Limited Partnership
Rendered an opinion of fair market value of certain family limited partnership
units to be used for federal estate tax purposes.
o Haislup Family Limited Partnership, April 1998
Limited Partnership
Rendered an opinion of fair market value of certain limited partnership units
solely for the purpose of establishing the value for federal gift tax purposes.
o Flanner & Buchanan, Inc., March 1998
Funeral Home Services
Rendered an opinion of the fair market value of common equity for federal and
state tax purposes.
o Lawrence W. Inlow Estate, March 1998
Personal Estate
Opined as to the reasonableness of valuation conclusions of the aggregate
position in Conseco common equity, and options equivalents held at the date of
death.
o Home News Enterprises, March 1998
Printing/Publishing/Distribution
Rendered an opinion of the fair market value, on a minority basis, of certain
limited liability company ("LLC") units, for internal and tax purposes.
o Rayanna Corporation, March 1998
Printing/Publishing/Distribution
Rendered an opinion as to the fair market value of certain common equity shares,
for internal and tax purposes.
o Square Deal Engineered Tooling, March 1998
Specialty Engineering Designer and Producer
Rendered an opinion of the fair market value of common equity in conjunction
with the formation of a Company Employee Stock Ownership Plan.
o Hahn Systems Inc., February 1998 -
Building Construction Distributor
Rendered an opinion of the fair market value of the common stock.
o Performance Solutions Inc., February 1998
Engineering Services
Determined the fair market value of a limited liability company to be
established.
o Kerman Carpet Company, Inc., February 1998
Retail Sales
Determined the value of certain common shares of Kerman Carpet Company, Inc.,
and Benny's Carpet and Remnant Mart, Inc.
o Miller Veneers, Inc., February 1998
Manufacturer, Veneer Products
Provided an opinion of fair market value of common non-voting equity for gifting
purposes.
o Wilson Farm Limited Partnership, February 1998
Real Estate Partnership
Rendered an opinion as to the fair market value of certain limited partnership
units.
o Standard Die Supply, Inc., February 1998
Tool & Die
Rendered an opinion of fair market value of certain common shares for the
purpose of establishing the value for federal estate tax purposes.
o Wilds Family Limited Partnership, January 1998
Financial Partnership
Rendered an opinion as to the fair market value of a limited partnership
interest for establishing the value for federal and state tax purposes.
o Data Processing Services, Inc., January 1998
Computer Software Development
Rendered an opinion of the fair market value in conjunction with a contemplated
shareholder transaction and federal and state tax purposes.
o Service Supply, January 1998
Fastener Distributor
Determined the fair market value of the common stock on a control basis in
support of acquisition negotiations.
o Garnet Limited Partnership, January 1998
Limited Partnership
Rendered an opinion as to the fair market value of a 1% limited partnership
(formed under the laws of the state of Nevada) interest, for the purpose of
establishing the value of said interests for federal and state tax purposes.
o KDI, January 1998
Parts Manufacturer
Determined the fair market value of certain common shares of the Company,
predicated on the terms set forth in a shareholders agreement, for use in
conjunction with the purchase of certain shares under this agreement.
o Horner Limited Partnership, December 1997
Limited Partnership
Rendered an opinion as to the fair market value of a block of 24 limited
partnership units owned by Mary Maxine Horner as of the date of her death, for
the purpose of settling her estate.
o Andi, Inc., December 1997
McDonald's Restaurant Franchise Entity
Determined the fair market value of certain common shares of the Company for a
potential sales transaction.
o Kellerman Land Corp., December 1997
Real Estate
Determined the minority and non-marketability discounts for certain shares for
gifting purposes.
o Richard L. Buck Estate, December 1997
Automotive Mold Manufacturer
Rendered an opinion of the fair market value of the outstanding common equity of
Quality Gage Co., Inc., owned by Richard L. Buck.
o Raikos Limited Partnership, December 1997
Limited Partnership
Determined the fair market value of certain limited partnership units for
gifting purposes.
o Schmoll Development, December 1997
Real Estate
Rendered an opinion of the fair market value of certain limited partnership
units and also rendered a valuation of all of the General Partnership units for
the purpose of establishing the value of said units for federal, state and local
tax purposes.
o Estate of Ernest Rathz, November 1997 -
Rendered an opinion of fair market value of certain common shares of Melaun
Industries, Inc., held at the date of death, for federal estate tax purposes.
o Icon, November 1997
Trade Show Display Manufacturer
Determined the fair market value of the common equity in support of merger
negotiations.
o Electronic Bookshelf Inc., November 1997
Educational Software Developer
Rendered an opinion of intrinsic value of the Company's common equity.
o Callon Family Limited Partnership, November 1997
Limited Partnership
Rendered an opinion as to the fair market value of Nevada limited partnership
("LP") interest for estate and gift tax purposes.
o Acorn Distributors, Inc., November 1997 Food Service Distributors Determined
the fair market value of the common stock.
o Heartland Steel, Inc., November 1997
Steel Services
Rendered an opinion of fair market value of a ten percent block of common stock
to be used in conjunction with a Code Sec. 83b election.
o Security Group, November 1997
Lock & Safety System Manufacturer
Rendered an opinion of the fair market value of the common stock for the purpose
of a recapitalization.
o NHOJ's Partnership, L.P., October 1997
Rendered an opinion as to the fair market value of a 1% limited partnership
interest in NHOJ's Partnership, L.P., for the purpose of establishing the value
of NHOJ units for gifting purposes.
o Vermette, October 1997
Materials Handling Equipment Manufacturer
Opined as to the fair market value of the Class B Non-Voting Common shares owned
by the company's Employees' Stock Ownership Plan & Trust.
o Zimmer Paper Products, Inc., October 1997
Manufacturer
Opined as to fair market value for a block of privately-held, common equity
shares donated to the University of Chicago through a charitable remainder trust
and an additional block of shares to the Central Indiana Community Foundation
also through a charitable remainder trust. o Sursa Family Limited Partnership,
October, 1997 Limited Partnership Rendered an opinion as to the fair market
value of certain limited partnership interest for gifting purposes.
o Paul E. Muehlenbein Family Limited Partnership, September 1997 Limited
Partnership Rendered an opinion of fair market value of certain limited
partnership units.
o Young Realty Company, L.P., September 1997
Real Estate Limited Partnership
Rendered an opinion as to the fair market value of certain limited partnership
interests for gifting purposes.
o RACO, Inc., September 1997
Communications Contractor
Rendered an opinion of the fair market value of, unlisted and closely held,
common shares of equity held in trust by the Employee Stock Ownership Plan
("ESOP") as of the valuation date.
o Haase Farms/Knightstown Elevators, August 1997
Grain Elevator/Farm
Analyzed the intrinsic value of an equity position in Knightstown Elevator, Inc.
and Haase Farms, Inc. in
conjunction with certain litigation matters.
o Bryan Steam Corporation, August 1997
Manufacturer, Steam Boilers
Analyzed the intrinsic value of an equity position of certain shareholders, to
be used with certain shareholder and corporate decisions.
o Market Share, Inc., August 1997
Financial Services
Appraised the fair market value of 100% of the issued and outstanding common
stock owned by the Employee Stock Ownership Plan and Trust.
o Carter-Lee Lumber, Inc., August 1997
Lumber Supply Company
Rendered an opinion of fair market value on certain minority shares of common
stock.
o Whallon Machinery, Inc., August 1997
Manufacturer of OEM equipment
Acting as ESOP financial advisor and providing opinion of fair market value for
the equity in connection with an ESOP transaction.
o Consolidated Products, Inc., (Steak `n Shake), August 1997 Restaurant Holding
Company Providing valuation services in conjunction with intellectual property
rights.
o Bo-Witt Products, Inc., August 1997
Fiber Glass/Plastic Producer
Providing an opinion of fair market value of certain minority shares of common
stock for gifting purposes.
o Paine Investments, L.P., August 1997
Limited Partnership
Determining the fair market value of certain limited partnership interests for
gifting purposes.
o Baldwin & Lyons, August 1997
Insurance Provider for Trucking Industry
Providing valuation consulting services to senior management.
o Bryan Steam Corporation, August 1997
Commercial and Industrial Boilers
Acting as corporate finance advisor to board of directors.
o Hofmeister Jewelers, August 1997
Diamond and Jewelry Retailer
Providing fair market value appraisal of certain common shares of stock.
o Silver Towne, August 1997
Specialty Silver Coin Producer and Various Novelty Products Appraised the fair
market value of certain limited partnership units.
o Square Deal Tool & Die, Inc., July 1997
Specialty Engineering Designer and Producer
Acted as corporate finance advisor including providing business valuation, in
conjunction with ESOP formation and capital structure decisions.
o Hartford Concrete Products, July 1997
Manufacturer, Precast Concrete
Valuation update for the Employee Stock Ownership Plan.
o Haverhill Properties, L.P., July 1997
Limited Partnership
Rendered an opinion as to the fair market value of a limited partnership
interest held by the estate of Harold W. Mutz in the Partnership and his equity
interest in Capital Investment Corporation, for the purpose of establishing the
value of said interests for a federal estate tax settlement.
o Morgan Foods, Inc., July 1997
Food Processor
Appraised the fair market value of common stock for certain corporate
transactions.
o Laughner Brothers, Inc., July 1997
Cafeteria Style Restaurants
Provided an opinion of fair market value for ESOP contribution.
o Hill Floral Products, Inc., June 1997
Decorative Flower Producer and Supplier
Provided valuation of certain shares of common stock as well as partnership
interests.
o Central Indiana Hardware Co., Inc., June 1997
Commercial Building Material Wholesaler
Provided an opinion of fair market value for minority ESOP shares.
o Indy Connection Limousine Co., Inc., June 1997
Luxury Limousine Service Company
Acted as corporate finance advisor, including providing equity valuation.
o Haislup Family Limited Partnership, June 1997
Marketable Securities Partnership
Provided an opinion of fair market value of certain partnership interests.
o Meck Company FLP, June 1997
Limited Partnership
Rendered an opinion of fair market value for certain limited partnership
interests for federal and estate gift tax purposes.
o Wheaton Van Lines, Inc., June 1997
Service (Moving and Storage)
Annual valuation update of ESOP shares.
o Hawksnest Partners Limited Partnership, May 1997
Real Estate and Marketable Securities Partnership
Provided an opinion of the fair market value of certain shares of common stock.
o Raven Lining Systems, May 1997
Industrial Coatings and Structural Linings
Appraised the fair market value of certain shares of common stock.
o Estate of William H. Long, May 1997
Personal Estate
Determined the fair market value of various partnership interests.
o Wood-Mizer Products, Inc., May 1997
Sawmill Manufacturer
Acted as valuation consultant in merger transaction.
o Warner Supply, Inc., May 1997
Pipe Supply Company
Appraised the fair market value of certain shares of common stock.
o The Printing Company, April 1997
Specialty Printing and Graphic Designer
Provided valuation and financial advisory services to ESOP-in-formation.
o Westlane Shopping Center, April 1997
Retail Shopping Center
Offered an opinion of fair market value of certain general partnership
interests.
o Shelburn Family Limited Partnership, March 1997
Real Estate Partnership
Offered an opinion of fair market value for certain partnership interests.
o Tank Industry Consultants, February 1997
Engineering Consultants
Providing valuation and financial advisory services to ESOP-in-formation.
o Superior Carpets, Inc., February 1997
Carpet Installation
Providing corporate financial advisory services and an opinion of fair market
value for common shares of the company in connection with an ESOP transaction.
o Warrington Family Limited Partnership, February 1997
Real Estate Partnership
Rendering an opinion of fair market value for certain partnership interests.
o Mitchel and Scott, February 1997
Automotive Parts Manufacturer
Appraising the fair market value of certain shares of common stock.
o Gregg Appliances, Inc., (H.H. Gregg) February 1997
Consumer Appliance Retailer
Rendering an opinion of fair market value of certain shares of common stock.
o Weaver Popcorn Company, Inc., February 1997
Popcorn Producer
Providing an opinion of fair market value for certain non-voting shares for
internal purposes.
o Market Share, Inc., February 1997
Financial Services
Appraising the fair market value of certain shares for ESOP contribution.
o Curtis Publishing, Inc., February 1997
Publishing and Licensing Firm
Providing valuation services in conjunction with intellectual property rights on
certain Saturday Evening Post art.
o Goodwin Funeral Home, Inc., January 1997
Funeral Home Operator
Rendered an opinion of fair market value on certain non-voting shares.
o V. R. Myers Pump and Supply, Inc., January 1997
Building Supply Distributor
Provided an opinion of the fair market value of certain shares of the common
stock.
o Nationwide Apartment Supply, Inc., January 1997 Specialty Distributor
Appraised fair market value for the purpose of sale of business.
o EnviroSolve, January 1997
Waste Disposal
Provided general corporate financial advice.
o Quest Environmental Resource Company, January 1997
Asbestos Abatement Equipment Distributor
Advised owners on corporate finance matters in conjunction with transaction.
o Kenneth Hornbrook, December 1996 Calculated present value of future pension
benefits.
o Vermette Machine Co., December 1996
Materials Handling Equipment Manufacturer
Provided annual update of fair market value of certain outstanding shares.
o Reynolds Farm Limited Partnership, December 1996 Real Estate Limited
Partnership Appraised the fair market value of certain partnership interests.
o Szynal Family Limited Partnership, December 1996 Real Estate Limited
Partnership Appraised the fair market value of certain partnership interests.
o Applied Technology, Inc., December 1996
Hazardous Waste Disposal
Provided an opinion of fair market value and corporate finance advice in
conjunction with a contemplated corporate transaction.
o Steel Dynamics Holdings, Inc., November 1996
Mini Mill Operator
Completed relative value analysis of common stock with certain rights to common
stock without those rights.
o R H Properties, November 1996
Real Estate Limited Liability Company
Provided an opinion of fair market value of certain partnership interests held
by related entity.
.o Med-Care Accounts Service, Inc., November 1996
Collection and Billing Service
Appraised the fair market value of certain non-voting shares of the companies
common stock.
o Reese Central Wholesale, Inc., October 1996
Building Material Distributor
Acted as financial advisor to ESOP-in-formation including providing opinion of
fair market value on certain shares offered for sale to the ESOP.
o Grady Brothers, Inc., October 1996
Asphalt Paving Contractor
Appraised the fair market value of certain minority shares.
o Paladin Family L. P., October 1996
Limited Partnership
Provided the fair market value of certain partnership interests.
o Didier Family L.P., October 1996
Limited Partnership
Opined to the value of certain partnership units.
o Estridge Companies, Inc., September 1996 Custom Home Builder Appraised shares
in conjunction with a proposed ESOP.
o Hamble Family L.P., October 1996
Real Estate Limited Partnership
Provided the fair market value of certain partnership interests.
o Engineered Cooling Systems, Inc., September 1996
Manufacturer, Industrial Automotive Parts
Provided an opinion for the fair market value of the company for certain
minority shares.
o Two Gaits Development Company, L.P., September 1996
Real Estate Development Partnership
Determined the fair market value of the partnership on a minority basis.
o Hulen Family Limited Partnership, September 1996
Financial Partnership
Provided valuation and financial advisory services to partnership.
o Ice-Levett Limited Partnership, September 1996
Financial Partnership
Appraised the fair market value of certain fractional partnership interests.
o Vitco, Inc., September 1996
Manufacturer, Enameled Fixtures
Provided an opinion of fair market value on a control basis.
o VitaChlor Corp., (Australian Gold) September 1996
Manufacturer, Consumer Products
Appraised fair market value of the company in conjunction with a shareholder
transaction.
o Akron Realty, L.P., September 1996
Real Estate Partnership
Provided an opinion of fair market value for the company's partnership units.
o Lafayette Road Properties, L.P., September 1996
Real Estate Partnership
Provided an opinion of fair market value for the company's partnership units.
o Mid-State Chemical & Supply, Inc., September 1996
Manufacturer, Industrial Chemicals
Appraised the fair market value of the company on a minority basis.
o PAC-VAN, Inc., September 1996
Leasing Company
Investigated sources of capital for expansion.
o Aqua Systems, Inc., September 1996
Purified Water Producer
Determined the fair market value of the company on a minority basis.
o Foley Hardwoods, Inc., December 1996
Sawmill and Lumber Producer
Provided valuation services and acting as corporate financial advisor to the
ESOP-in-formation.
o LAHAOZMA, L.P., August 1996
Real Estate Partnership
Appraised the fair market value of certain fractional partnership interests.
o Fendrich Industries, Inc., August 1996
Textile Producer
Provided opinion of fair market value for certain minority shares.
o Mann Realty Co., July 1996
Real Estate Partnership
Provided an opinion of fair market value for the company's partnership units.
o Henderson Family L.P., June 1996
Financial Partnership
Provided an opinion of fair market value of the partnership's underlying
financial assets.
o Capital Environmental Services, Inc., June 1996
Environmental Services
Reviewed certain financial information in connection with a contemplated
transaction.
o Raco, Inc., May 1996
Telephone Cable Contractor
Appraised the fair market value of distributions made to the company's ESOP.
o Horner Partners L.P., April 1996
Financia Partnership
Provided an opinion of fair market value for the partnership's underlying
financial assets.
o Red Gold, Inc., April 1996
Food Processing
Provided valuation consulting services to corporate officers.
o Hamblen Gage Corp., April 1996
Manufacturer, Special Machinery
Determined the fair market value of certain equity interests.
o Carlisle Retailers, Inc., April 1996
Apparel Retailing
Provided business valuation and corporate finance consulting services to Board
of Directors.
o Wheaton Van Lines, Inc., April 1996 Service (Moving & Storage) Updated annual
valuation of ESOP shares.
o CWMV, Ltd., April 1996
Real Estate Partnership
Determined the fair market value of certain LP units.
o Jackson Control Co., April 1996
Industrial Distributor
Determined the fair market value of certain equity interests.
o Dotlich, Inc., April 1996
Crane Operator
Arranged financing for contemplated transaction.
o Hartford Concrete, April 1996
Manufacturer, Precast Concrete
Acted as financial advisor to an ESOP-in-formation. Responsibilities include
providing independent valuation and consulting on raising capital.
o Bedroom One of Indiana, Inc., April 1996 Furniture Retailer Acted as financial
advisor to majority shareholder.
o Stouts R.V. Sales, Inc., April 1996
RV Dealer & Service
Rendered an opinion of the current fair market value of the company.
o John E. Fisher & Associates, PC, April 1996
Land Surveying & Consulting
Determined the fair market value of certain equity interests.
o Foley Hardwoods, Inc., April 1996
Sawmill Operator
Valued company with consideration for control and acting as financial advisor to
an ESOP-in-formation.
o McBroom Electric Company, April 1996
Service & Repair
Rendered an opinion of fair market value for certain block of equity and acting
as financial advisor on a contemplated transaction.
o DesignTek Architects, March 1996
Architecture
Provided financial advice and assisted in raising capital for corporate
transaction.
o H&H Bookbinding Co., Inc., March 1996
Bookbinding
Determined the fair market value of certain equity interests.
o G&G Metal Spinners, Inc., March 1996
Metal Fabricators
Provided an opinion of the fair market value of certain equity interests.
o Margaret Young L. P., March 1996
Limited Partnership
Rendered an opinion of the fair market value of certain LP units.
o Weight Watchers of Central Indiana, Inc., March 1996 Weight Loss Clinic
Advised majority shareholder on certain valuation issues.
o Spring Creek Travel Plaza. Inc., February 1996
Restaurant & Service Station
Determined the fair market value of certain equity interests.
o Waddell Battery Co., February 1996
Distributor
Provided an opinion of value and acted as advisor in conjunction with an ESOP
established in March 1996.
o Paint & Assembly Corp., February 1996 Automotive Assembly Provided corporate
finance advice to owners.
o Zimmer Paper Products, Inc., February 1996
Manufacturer, Wrappers and Labels
Determined the fair market value of the company on a control basis.
o Estate of Herbert J. Backer, January 1996
Real Estate Partnerships
Determined the fair market value of various GP and LP interests.
o Solso Family FLP, January 1996
Real Estate Partnership
Determined the fair market value of certain LP units.
o First Financial Corporation, December 1995
Bank Holding Company
Determined the value of certain shares of restricted stock.
o Electric Steel Castings Co., December 1995
Foundry
Provided an opinion of fair market value with consideration for control. Advised
majority shareholder with respect to structuring and raising capital for a
certain transaction.
o Marsh Supermarkets, Inc., October 1995
Grocery Retailer
Determined the fair market value of certain equity interests.
o VitaChlor, Inc., (Australian Gold), October 1995 Manufacturer, Consumer
Products Provided corporate finance advice on certain transaction.
o Butler Fairman & Seufert, Inc., August 1995
Engineering
Determined the fair market value of certain equity interests.
o Bedroom One of Indiana, Inc., August 1995
Furniture Retailer
Appraised the fair market value of the company's common stock on a control
basis.
o Mr. David A. King, August 1995
Determined the present value of certain pension benefits.
o Carroll Kahn L.P. and Carroll Kahn Properties, L.P., August 1995 Real Estate
Partnerships Determined the fair market value of certain partnership interests.
o Dotlich, Inc., July 1995
Crane Operator
Determined the fair market value of certain equity interests.
o Auburn Medical and Industrial Clinic, LLC, July 1995 Health Care Appraised the
fair market value of certain equity interests.
o St. Charles vs. Prudential Securities, May 1995
Provided expert witness testimony as to value of partnership interest.
o Davis Homes LLC, May 1995
Home Builder
Valued certain shares on a minority basis.
o Carlisle Retailers, Inc., March 1995
Apparel Retailer
Rendered an opinion of the current fair market value of the company on a control
basis.
o New Energy Corporation of Indiana, February 1995
Ethanol Producer
Determined a range of fair market value of an inter-company debt obligation.
o Pace Setter Bank of Montpelier, February 1995
Commercial Bank
Rendered an opinion of enterprise value on a minority and control basis.
o Standard Management Corp., February 1995 Insurance Valued certain convertible
preferred shares of stock.
o Pritchett Berg Family Limited Partnership, February 1995
Real Estate Partnership
Rendered opinion of fair market value of certain units of the Limited
Partnership.
o Kellerman Land Corp., February 1995
Agriculture
Determined minority and non-marketability discounts for certain minority shares.
o Curry-Miller Veneers, Inc., January 1995
Manufacturer
Rendered opinion of fair market value of certain minority shares.
o Wood-Mizer Products, Inc., January 1995 Manufacturer Valued certain shares on
a minority basis.
o Wilco Corporation, January 1995
Manufacturer
Valued certain shares of common stock and acted as financial advisor to a
leveraged ESOP formed in September 1995 Aided in the structure of a new class of
equity.
o Wheaton Van Lines, Inc., January 1995
Service (Moving & Storage)
Appraised certain common shares owned by the company ESOP.
o Engineering & Testing Services, Inc., December 1994 Engineering Valued certain
shares in conjunction with proposed ESOP.
o Steel Dynamics, Inc., December 1994
Mini Mill Operator
Completed relative value analysis of common stock with certain rights to common
stock without those rights.
o Swallen's, Inc., December 1994
Retailer
Provided fairness opinion of certain transaction to Board of Directors and
Trustees of the ESOP.
o Manufacturers Products, Inc., November 1994 Manufacturer and Distributor
Valued shares of proposed merged corporation.
o Hartford Concrete Products, Inc., November 1994 Manufacturer Provided
corporate finance advice to owner.
o Harcourt Outlines, Inc., October 1994
Manufacturer
Valued certain minority shares.
o Carter Cartage, Co., Inc., September 1994
Trucking & Transport
Appraised certain minority shares.
o Wabash Electrical Supply Corp., August 1994
Distributor
Rendered opinion of fair market value of certain shares held by the company
ESOP.
o Commonwealth Engineers, August 1994
Engineering
Valued certain shares of the company in connection with a proposed ESOP.
o Whitmer Vend-O-Mat, August 1994
Laundromat Operator
Rendered opinion of value of certain ESOP shares.
o Consolidated Products, Inc., (Steak & Shake), July 1994 Restaurants Valued
restricted shares issued under non-employees stock ownership plans.
o LaCloche II, Limited Partnership, July 1994 Financial Partnership Appraised
certain limited partnership interests.
o Steel Slitting Co., Inc., June 1994
Metal Working
Valued certain minority shares.
o MCM Studios, Inc., June 1994 Cosmetics Rendered opinion of enterprise value.
Indiana Hardwood Specialists, Inc., June 1994
Wood Product Producer
Rendered an opinion, on a minority share basis, of the fair market enterprise
value.
o Maxon Corporation, April 1994
Manufacturer, Industrial Pumps and Valves
Advised the company on certain financial matters relating to their common stock.
o Nor-Cote International, Inc., March 1994 Ink Producer Appraised certain
minority shares of the company.
o Dura-Builders, Inc., February 1994 Home Builders Appraised company and control
value.
o Mid-State Chemical & Supply Corp., January 1994
Distributor
Rendered an opinion of enterprise value on a minority discount basis.
<PAGE>
A REPRESENTATIVE LIST OF THE ENTITIES FOR WHICH GOELZER
COMPLETED ENGAGEMENTS PRIOR TO 1994 ARE AS FOLLOWS:
o Circle Fabrics, Inc., December 1993
o National Wine and Spirits Corp., December 1993
o Leland Roberts Construction, Co., Inc., & Roberts Pipeline Construction, Inc.,
November 1993
o Vermette Machinery Co., Inc., November 1993
o Compucom Communications Corp., October 1993
o Willis Family Partnership, October 1993
o Security Group, Inc., October 1993
o Dalton Asphalt Corp., September 1993
o Grady Brothers, Inc., September 1993
o Independent Stationers, Inc., September 1993
o Weaver Popcorn Co., Inc., August 1993
o Dugdale Communications, Inc., & related companies, July 1993
o H. C. Schumacher Machine Co., Inc., May 1993
o Cerden & Sons Mfg., Inc., April 1993
o FPC Consultants, Inc., April 1993
o Neff Engineering Co., Inc., March 1993
o Transcraft Corporation, March 1993
o Wood-Mizer Products, Inc., January 1993
o Western Tar Products Corp., January 1993
o The Curtis Publishing Co., Inc., January 1993
o Metalcraft Manufacturing Co., Inc., December 1992.
o Electro-Spec Inc., November 1992.
o Vermette Machine, October 1992.
o Tebbe Farm, October 1992.
o American Concrete Co., Inc., October 1992.
o Dalton Asphalt Corp., September 1992.
o Grady Brothers, Inc., September 1992.
o Weight Watchers of Central Indiana, Inc., September 1992.
o Kokomo Gas & Fuel Co., September 1992.
o Transcraft Corp., September 1992.
o The Curtis Publishing Co., Inc., July 1992.
o CPS Liquidating, Inc., June 1992.
o Dependable Machine Co., Inc., April 1992.
o Porter, Inc., March 1992.
o Engineered Cooling Systems, Inc., January 1992.
o E. H. Hughes Company, January 1992.
o CAPSCO PALLM Systems, Inc., January 1992.
o Engineered Cooling Systems, Inc., December 1991.
o Rogers Markets, Inc., November 1991.
o E. H. Hughes Company, August 1991.
o Vermette Machine, July 1991.
o CAPSCO PALLM Systems, Inc., June 1991.
o Dugdale Beef Co., Inc., June 1991.
o Richmond Gas Corp., June 1991.
o Indiana Gas & Chemical Corp., June 1991.
o Electro Spec, Inc., April 1991.
o Sovereign Group, Inc., March 1991.
o General Devices, December 1990.
o Consolidated Products, Inc., Indianapolis, IN, November 1990.
o Delaware Machinery and Tool Co., September 1990.
o Dalton Asphalt Corp., September 1990.
o Grady Brothers, Inc., September 1990.
o The Finish Line, Inc., August 1990.
o Somerset Group, Inc., August 1990.
o Noble Romans, Inc., Indianapolis, IN, August 1990.
o Steel Slitting Co., Inc., July 1990.
o H dr K Co., May 1990.
o Larry Robertson Assoc., Inc., May 1990.
o Zimmer Paper Products, Inc., April 1990.
o National Enterprises, January 1990.
o Ed Grace Co., Inc., January 1990.
o Ermco, Inc., January 1990.
o Standard Die Supply, Inc., December 1989.
o Corporation for Innovation Development, October 1989.
o Corporation for Innovation Development, September 1989.
o Salin Bancshares of North Central Indiana, Inc., and Logansport Bancorp, Inc.,
July 1989.
o Vermette Machine Co., Inc., October 1989.
o Dalton Asphalt Corporation, August 1989.
o Grady Brothers, Inc., August 1989.
o Vonnegut Industrial Products, Inc., August 1989.
o E.H. Hughes Co., Inc., July 1989.
o National Mutual Life Insurance Co., May 1989.
o Vonnegut Industrial Products, Inc., May 1989.
o Klipsch Corporation, February 1989.
o Sovereign Group, Inc., December 1988.
o Vermette Machine Co., Inc., December 1988.
o Pratt Printing Co., Inc., November 1988.
o Bowes Seal Fast Corporation, October 1988.
o Cosco, Inc., October 1988.
o Atkomatic Valve Co., Inc., October 1988.
o Dalton Asphalt Corporation, September 1988.
o Grady Brothers, Inc., September 1988.
o J.B. Laughrey, Inc., August 1988.
o Vonnegut Industrial Products, Inc., July 1988.
o Sovereign Group, Inc., April 1988.
o Bowes Industries, Inc., February 1988.
o Vermette Machine Company, Inc., January 1988.
o Pacific Standard Life Insurance Co., Inc., January 1988.
o Bowes Seal Fast Corporation, December 1987.
o Long Electric Co., Inc., December 1987.
o Delaware Machinery and Tool Co., Inc., October 1987.
o Vonnegut Industrial Products, Inc., July 1987.
o Central Newspapers, Inc., June 1987.
o Economation, Inc., March 1987.
o Vermette Machine Company, Inc., February 1987.
o Keystone Distribution, Inc., December 1986.
o Overhead Door Company of Indianapolis, Inc., December 1986.
o Forum Financial Corporation, December 1986.
o Estate of Edna R. Whetsell, October 1986.
o Rock Island Refining Corporation, July 1986.
o Vonnegut Industrial Products, Inc., July 1986.
o Delaware Machinery and Tool Co., Inc., March 1986.
o Vermette Machinery Company, Inc., January 1986.
o Compucom Development Corporation, December 1985.
o Schwartz Paper Company, October 1985.
o Anderson Tool & Engineering Co., Inc., August 1985.
o Atkomatic Valve Company, Inc., June 1985.
o Peoples Loan & Trust Co., Inc., March 1985.
o Economation, Inc., November 1984.
o Wayne Pipe & Supply, Inc., October 1984.
o Geo. L. Paetz & Sons, Inc., September 1984.
o Athletic Department Sporting Goods, September 1984.
o State Plating, Inc., September 1984.
o Keller Manufacturing Company, Inc., September 1984.
o F.C. Tucker Company, Inc., May 1984.
o Schmidt Holding Corporation, April 1984.
o Banks Lumber Co., Inc., February 1984.
o Steak 'n Shake, Inc., - Franklin Corporation, April 1983.
o Continental Chemical Corporation, April 1983.
o Harrison Steel Castings Company, February 1983.
o Kunkle Valve Company, Inc., December 1982.
o Economation, Inc., November 1982.
o The Boone County State Bank, November 1982.
o Vernon Group of Insurance Companies, October 1982.
o Rock Island Refining Corporation, October 1982.
o House of Beverages, Inc., October 1982.
o Cameron Electric, Inc., October 1982.
o BetaMed Pharmaceuticals, Inc., September 1982.
o Hoosier Fence Company, Inc., April 1982.
o Indiana Telephone Corporation, January 1982.
o Sanborn Electric Co., December 1981.
o H & J Industries, Inc., September 1981.
o Wood Design, Inc., - Hoosier Desk Co., November 1981.
o Great Fidelity Life Insurance Co. of Evansville, Indiana, November 1981.
o Franklin Corporation - Steak 'n Shake, Inc., June 1981.
o Aktomatic Valve Company, Inc., September 1981.
o Rock Island Refining Corp., September 1981. (Elmer L. Winkler, et al.,
Docket Nos. 3665-80, 3667-80 vs. Commissioner of Internal Revenue).
o Banks Lumber Co., Inc., June 1981.
o Blue Max Press, Inc., October 1980.
o Chase Capital Management, Inc., vs. Texscan Corp., October 1980.
o Shirley Bros. Company, April 1980.
o Cycle City, Inc., and Wm. R. Dake vs. U.S. Suzuki Motor Corp.,
November 1978 - June 1981.
o Meridian Mutual Insurance Co., February 1979.
o Midwest National Bank, January 1979.
o Peoples Loan & Trust Co., PLaTCO Realty Corporation, December 1978.
o Walker Research, Inc., June 1978.
o The Sixty-Second Street Dairyland, December 1977.
o Harland vs. TWA, U.S. District Court, October 1977.
o Photovest vs. Fotomat, Docket #IP74-7405-C SSD Ind., February 1977.
o The Estate of Ethyl L. Goodrich, Petitioner vs. the Commissioner of
Internal Revenue,
Docket #7762-76, U.S. Tax Court, June 1977.
o Dye Lumber Company, Inc., Monon Lumber Company, Inc., September 1976.
o Diversified Insurers Company, Docket #8931-73, U.S. Tax Court, December 1975.
o Delmar E. Demaree, Sr., vs. the Commissioner of Internal Revenue,
Docket #8773-74,
October 1975.
o All Metal Manufacturing Corporation, October 1975.
o Franklin Corporation, July 1975.
o Phillip Caito, Jr. vs. "Producers Realty Corp." Hancock Circuit Court,
April 1975.
o The Estate of Ethyl M. Goodrich, May 1974.
o The Estate of Pierre F. Goodrich and Liberty Fund, Inc., January 1974.
o Estate of John Bell, Estate of Lauvonnia Bell Sohdo, gifts of John
Bell; Employed by "Chief, Appellate Branch", (Internal Revenue Service,
October 1973.
o The Estate of Ralph H. Tresslar, Robert A. Tresslar, Executor vs.
Commissioner of Internal Revenue, Docket #4184-72, U.S. Tax Court,
June 1973.
o The Estate of Marie M. Russak vs. Commissioner of Internal Revenue,
Docket #511-72,
U.S. Tax Court, June 1973.
<PAGE>
Exhibit (c)(1)
Incentive Stock Option Plan of
THERMWOOD CORPORATION
1. PURPOSE
This Incentive Stock Option Plan (the "PLAN") is intended as an
incentive and to encourage stock ownership by certain officers and key executive
employees of Thermwood Corporation (the "CORPORATION") so that they may acquire
or increase their proprietary interest in the success of the Corporation, and to
encourage them to remain in the employ of the Corporation. It is further
intended that options issued pursuant to this Plan shall constitute qualified
incentive stock options within the meaning ss. 422A of the 1954 Internal Revenue
Code, as amended (the "Code").
2. ADMINISTRATION
The Plan shall be administered by a committee appointed by the Board of
Directors of the Corporation (the "Committee"). The Committee shall consist of
two or more members of the Corporation's Board of Directors. The Board of
Directors may from time to time remove members from, or add members to, the
Committee. Vacancies on the Committee, howsoever caused, shall be filled by the
Board of Directors. The Committee shall select one of its members as Chairman,
and shall hold meetings at such times and places as it may determine. Action by
a majority of the Committee, whether taken at a meeting of the Committee or
approved in writing by a majority of the members of the Committee shall be the
valid acts of the Committee. No director while a member of the Committee shall
be eligible to receive an option under the Plan. The Committee shall from time
to time at its discretion, consult with management of the
<PAGE>
Corporation and make recommendations to the Board of Directors with respect to
the key executive employees who shall be granted options and the amount of stock
to be optioned to each.
The interpretation and construction by the Committee of any provisions
of the Plan or of any option granted under it shall be final unless otherwise
determined by the Board of Directors. No member of the Board of Directors or the
Committee shall be liable for any action or determination made in good faith
with respect to the Plan or any option granted under it.
3. ELIGIBILITY
The persons who shall be eligible to receive options shall be such key
executive employees (including officers, whether or not they are directors) of
the Corporation as the Board of Directors shall select from time to time from
among those nominated by the Committee. An optionee may hold more than one
option, but only on the terms and subject to the restrictions hereafter set
forth. No person shall be eligible to receive an option for a larger number of
shares than is recommended for him by the Committee.
4. STOCK
The stock subject to the options shall be shares of the Corporation's
authorized but unissued or reacquired no par value common stock hereafter
sometimes called Capital Stock. The aggregate number of shares which may be
issued under options shall not exceed 140,000 shares of Capital Stock. The
aggregate number of shares which may be issued pursuant to this Plan shall be
subject to adjustment as provided in Article 5(i) of the Plan.
<PAGE>
In the event that any outstanding option under the Plan for any reason
expires or is terminated, the shares of Capital Stock allocable to the
unexercised portion of such option may again be subjected to an option under the
Plan.
5. TERMS AND CONDITIONS OF OPTIONS
Stock options granted pursuant to the Plan shall be authorized by the
Board of Directors and shall be evidenced by agreements in such form as the
Committee shall from time to time recommend and the Board of Directors shall
from time to time approve, which agreements shall comply with and be subject to
the following terms and conditions:
(a) Optionee's Agreement.
Each optionee shall agree to remain in the employ of and to
render to the Corporation his services for a period of two years from
the date of the option, but such agreement shall not impose upon the
Corporation any obligation to retain the optionee in its employ for any
period.
(b) Number of Shares.
(1) Each option shall state the number of shares to
which it pertains.
(2) No option granted to an optionee during any
calendar year shall exceed the number of shares which, when
multiplied by the fair market value of the stock at the time
the option is granted, would grant to an optionee the right to
acquire Capital Stock of the Corporation having a fair market
value (determined at the time the option is granted) in excess
of such optionee's annual limitation for such calendar year.
(3) An optionee's annual limitation shall equal
$100,000 plus any unused annual limitation carried forward
from the prior three calendar years. The
<PAGE>
amount of annual limitation carry forward from such prior
years shall be fifty (50%) percent of the difference between
the fair market value of the stock (as of the time of the
grant) for which such optionee was granted an option in each
such prior year, if any, and $100,000. Such amount may be
carried forward to each of the three succeeding calendar
years. Any such carry forward shall be applied in a current
year only after the $100,000 annual limitation is exceeded for
that year. Any unused carry forward shall expire if not used
within three years.
(4) For purposes of computing the annual limitation,
the fair market value of Capital Stock of the Corporation
granted under this Plan shall be aggregated with the fair
market value of any other stock of the Corporation granted to
such optionee under this Plan or any other plan or plans
maintained by the Corporation.
(c) Option Price.
Each option shall state the option price, which shall be not
less than 100% of the fair market value of the shares of Capital Stock
of the Corporation on the date of the granting of the option; provided,
however, that if the option is granted to an optionee who, at the time
of the grant, owns (as determined in accordance with ss. 425(d) of the
Code) stock of the Corporation possessing more than 10% of the total
voting power of all classes of stock of the Corporation, then the
option price shall be not less than 110% of the fair market value of
the shares of Capital Stock of the Corporation on the date of the
granting of the option.
During such time as such stock is not listed upon an
established stock exchange the fair market value per share shall be the
mean between dealer "bid" and "ask" prices of
<PAGE>
the Capital Stock in the New York over-the-counter market on the day
the option is granted, as reported by the National Association of
Securities Dealers, Inc. If the stock is listed upon an established
stock exchange or exchanges, such fair market value shall be deemed to
be the highest closing price of the Capital Stock on such stock
exchange or exchanges on the day the option is granted or if no sale of
the Corporation's Capital Stock shall have been made on any stock
exchange on that day, on the next preceding day on which there was a
sale of such stock. If the stock is neither listed on an established
stock exchange nor over-the-counter, the Committee shall determine such
fair market value under the general principles of valuing the stock of
corporations whose shares are not publicly traded. Subject to the
foregoing, the Board of Directors and the Committee in fixing the
option price shall have full authority and discretion and be fully
protected in doing so.
(d) Medium and Time of Payment.
The option price shall be payable in cash, or by check, upon
the exercise of the option; provided, however, the Board of Directors,
in its sole discretion, may accept other forms of payment, including,
but not limited to, Optionee's promissory note, or other stock of the
Corporation then owned by Optionee.
(e) Term and Exercise of Options.
(1) Each option shall specify the dates upon which
such options can be exercised, and shall designate the maximum
number of shares granted by the option that can be exercised
on such dates. To the extent that the maximum number of shares
permitted to be exercised on such date or dates are not so
exercised, such shares may be so exercised at any subsequent
date not later than
<PAGE>
ten (10) years after the option was granted; provided,
however, that no option granted to an optionee who, at the
time of the grant, owns stock of the Corporation (as
determined in accordance with ss. 425(d) of the Code)
possessing more than 10% of the total voting power of all
classes of stock of the Corporation, shall be exercisable more
than five (5) years after such option was granted.
(2) During the lifetime of the optionee, the option
shall be exercisable only by him and shall not be assignable
or transferable by him and no other person shall acquire any
rights herein.
(f) Prior Outstanding Option.
No option (for purposes of this Article 5(f) called New
Option) shall be exercisable while there is outstanding any qualified
incentive stock option (as defined in ss. 422A of the Code) which
incentive stock option was granted, before the granting of the New
Option, to the person to whom the New Option is granted, to purchase
stock in the Corporation or in a corporation which, at the time the New
Option is granted, is a parent or subsidiary corporation (as those
terms are defined in ss. 425 of the Code) of the Corporation, or is a
predecessor corporation of the Corporation or such parent or subsidiary
corporation.
(g) Termination Of Employment Except Death.
(1) In the event that an optionee shall voluntarily
terminate his employment with the Corporation other than as a
result of his death and shall be no longer in its employ,
subject to the condition that no option shall be exercisable
after the expiration of ten (10) years from the date it is
granted (or after the expiration of five (5) years if such
shorter period is applicable), such optionee shall have the
right to exercise the option at any time within 30 days after
such
<PAGE>
termination of employment, but only to the extent his right to
exercise such option had accrued as specified in such option
and had not previously been exercised at the date of his
termination from employment. Whether authorized leaves of
absence or absence for military or governmental service shall
constitute termination of employment, for the purposes of the
Plan, shall be determined by the Committee, which
determination, unless overruled by the Board of Directors,
shall be final and conclusive.
(2) The Board of Directors, at its sole discretion,
may redeem any options of a voluntarily terminated employee
that such voluntarily terminated employee had a right to
exercise at the time of his termination and had not previously
exercised by paying to such voluntarily terminated employee an
amount equal to the difference between the option price and
the then fair market value of the stock, as determined in
accordance with Article 5(c) of the Plan.
(3) In the event that an optionee shall have his
employment with the Corporation involuntarily terminated for
reasons other than his death, any options held by such
employee and not exercised as of the date of such termination
shall be canceled, and no longer exercisable.
(h) Death of Optionee and Transfer of Option.
If the optionee shall die while in the employ of the
Corporation and shall not have fully exercised the option, an option
may be exercised, subject to the condition that no option shall be
exercisable after the expiration of ten (10), years from the date it is
granted, (or after the expiration of five (5) years, if such shorter
period is applicable), at any time within one year after the optionee's
death, by the executors, administrators or
<PAGE>
personal representatives of the optionee or by any person or persons
who shall have acquired the option directly from the optionee by
bequest or inheritance, but only to the extent that the optionee's
right to exercise such option had accrued as specified in the option at
the time of his death and had not previously been exercised.
No option shall be transferable by the optionee otherwise than
by will or the laws of descent and distribution.
(i) Subject to any required action by the stockholders, the number of
shares of Capital Stock covered by each outstanding option, and the
price per share thereof in each such option, shall be proportionately
adjusted for any increase or decrease in the number of issued shares of
Capital Stock of the Corporation resulting from a subdivision or
consolidation of shares or the payment of a stock dividend (but only on
the Capital Stock) or any other increase or decrease in the number of
such shares effected without receipt of consideration by the
Corporation.
Subject to any required action by the stockholders, if the
Corporation shall be the surviving corporation in any merger or
consolidation, each outstanding option shall pertain to and apply to
the securities to which a holder of the number of shares of Capital
Stock subject to the option would have been entitled. A dissolution or
liquidation of the Corporation or a merger or consolidation in which
the Corporation is not the surviving corporation, shall cause each
outstanding option to terminate; provided, however, that each optionee
shall, in such event, have the right immediately prior to such
dissolution or liquidation, or merger or consolidation in which the
Corporation is not the surviving corporation, to exercise his option in
whole or in part without regard to the exercise limitations contained
in the option.
<PAGE>
In the event of a change in the Capital Stock of the
Corporation as presently constituted, which is limited to a change of
all of its authorized shares into the same number of shares with a
stated par value the shares resulting from any such change shall be
deemed to be the Capital Stock within the meaning of the Plan.
To the extent that the foregoing adjustments relate to stock
or securities of the Corporation, such adjustments shall be made by the
Committee, whose determination in that respect shall be final, binding
and conclusive, provided that each option granted pur suant to this
Plan shall not be adjusted in a manner that causes the option to fail
to continue to qualify as an incentive stock option within the meaning
of ss. 422A of the Code.
Except as hereinbefore expressly provided in this Article
5(i), the optionee shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any
stock dividend or any other increase or decrease in the number of
shares of stock of any class or by reason of any dissolution,
liquidation, merger, or consolidation or spin-off of assets or stock of
another corporation, and any issue by the Corporation of shares of
stock of any class, or securities convertible into shares of stock of
any class, shall not affect, and no adjustment by reason thereof shall
be made with respect to, the number or price of shares of Capital Stock
subject to the option.
The grant of an option pursuant to the Plan shall not affect
in any way the right or power of the Corporation to make adjustments,
reclassifications, reorganizations or changes of its capital or
business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or transfer all or any part of its business or
assets.
<PAGE>
(j) Rights as a Stockholder.
An optionee or a transferee of an option shall have no rights
as a stockholder with respect to any shares covered by his option until
the date of the issuance of a stock certificate to him for such shares.
No adjustment shall be made for dividends (ordinary or extraordinary,
whether in case, securities or other property) or distributions or
other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Article 5(i) hereof.
(k) Modification, Extension and Renewal of Options.
Subject to the terms and conditions and within the limitations
of the Plan, the Board of Directors may modify, extend or renew
outstanding options granted under the Plan, or accept the surrender of
outstanding options (to the extent not theretofore exercised) and
authorize the granting of new options in substitution therefor (to the
extent not theretofore exercised). The Board of Directors shall not,
however, modify any outstanding options so as to specify a lower price
or accept the surrender of outstanding options and authorize the
granting of new options in substitution therefor specifying a lower
price. Notwithstanding the foregoing, however, no modification of an
option shall, without the consent of the optionee, alter or impair any
rights or obligations under any option theretofore granted under the
Plan.
(l) Investment Purpose.
Each option under the Plan shall be granted on the condition
that the purchases of stock thereunder shall be for investment
purposes, and not with a view to resale or distribution except that in
the event the stock subject to such option is registered under the
Securities Act of 1933, as amended, or in the event a resale of such
stock without such
<PAGE>
registration would otherwise be permissible, such condition shall be
inoperative if in the opinion of counsel for the Corporation such
condition is not required under the Securities Act of 1933 or any other
applicable law, regulation, or rule of any governmental agency. Each
optionee shall give to the Company an investment letter, in a form
prescribed by the Board of Directors, as a condition precedent to the
issuance of certificates representing shares exercised by such
optionee.
(m) Other Provisions.
The option agreements authorized under the Plan shall contain
such other provisions, including, without limitation, restrictions upon
the exercise of the option, as the Committee and the Board of Directors
of the Corporation shall deem advisable. Any such option agreement
shall contain such limitations and restrictions upon the exercise of
the option, and the amount of such option, as shall be necessary in
order that such option will be an "incentive stock option" as defined
in ss. 422A of the Code or to conform to any change in the law.
6. TERM OF PLAN
Options may be granted pursuant to the Plan from time to time within a
period of ten years from the date the Plan is adopted, or the date the Plan is
approved by the Stockholders, whichever is earlier.
7. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors or as members of the Committee, the members of the Committee shall be
indemnified by the
<PAGE>
Corporation against the reasonable expenses, including attorneys' fees actually
and necessarily incurred in connection with the defense of any action, suit or
proceeding, or in connection with any appeal therein, to which they or any of
them may be a party by reason of any action taken or failure to act under or in
connection with the Plan or any option granted thereunder, and against all
amounts paid by them in settlement thereof (provided such settlement is approved
by independent legal counsel selected by the Corporation) or paid by them in
satisfaction of a judgment in any such action, suit or proceeding, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding that such Committee member is liable for negligence or misconduct in
the performance of his duties; provided that within 60 days after institution of
any such action, suit or proceeding a Committee member shall in writing offer
the Corporation the opportunity at it own expense, to handle and defend the
same.
8. AMENDMENT OF THE PLAN
The Board of Directors of the Corporation may, insofar as permitted by
law, from time to time, with respect to any shares at the time not subject to
options, suspend or discontinue the Plan or revise or amend it in any respect
whatsoever except that, without approval of the stockholders, no such revision
or amendment shall change the number of shares subject to the Plan, change the
designation of the class of employees eligible to receive options, decrease the
price at which options may be granted, remove the administration of the Plan
from the Committee, or render any member of the Committee eligible to receive an
option under the Plan while serving thereon. Furthermore, the Plan may not,
without the approval of the stockholders, be amended in any manner that will
cause options issued under it to fail to meet the requirements of incentive
stock options as defined in ss. 422A of the Code.
<PAGE>
9. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of Capital Stock
pursuant to options will be used for general corporate purposes.
10. NO OBLIGATION TO EXERCISE OPTION
The granting of an option shall impose no obligation upon the optionee
to exercise such option.
11. APPROVAL OF STOCKHOLDERS
The Plan shall not take effect until approved by the holders of a
majority of the outstanding shares of Capital Stock of the Corporation, which
approval must occur within the period beginning twelve months before and ending
twelve months after the date the Plan is adopted by the Board of Directors.
<PAGE>
Exhibit (c)(2)
Restated NON-QUALIFIED STOCK OPTION PLAN OF
THERMWOOD CORPORATION as Amended,
effective December 8, 1994
1. PURPOSE OF PLAN. The purpose of this 1984 Stock Option Plan
(hereinafter called the "Plan") is to further the success of Thermwood
Corporation, an Indiana corporation (hereinafter called the "Company") , by
making available common stock of the Company for purchase by eligible officers
and other key employees of the Company and the directors of the Company and thus
to provide an additional incentive to such employees and directors,
respectively, to continue in the employ of, or providing services to, the
Company and to give them a greater interest as stockholders in the success of
the Company.
2. STOCK SUBJECT TO PLAN. Subject to the provisions of Paragraph 11
hereof, there shall be reserved for issuance or transfer upon the exercise of
options to be granted from time to time under the Plan an aggregate of three
hundred and fifty thousand (350,000) shares of common stock, no par value
(hereinafter called "common stock"), which shares may be in whole or in part, as
the Board of Directors of the Company shall from time to time determine,
authorized and unissued shares of common stock or issued shares of common stock
which shall have been reacquired by the Company. If any option granted under the
Plan shall expire or terminate for any reason without having been exercised in
full, including shares subject to options which are surrendered in whole or in
part pursuant to rights granted under Paragraph 7 hereof (except to the extent
that shares of common stock are paid to the holder of the option upon such
surrender), and unpurchased shares subject thereto shall again be available for
the purposes of the Plan.
3. ADMINISTRATION. The Board of Directors of the Company shall appoint
a committee (hereinafter called the "Committee") to administer the Plan. The
Committee shall consist of not less than three members of the Board of
Directors. The Committee shall have plenary
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<PAGE>
authority in its discretion, but subject to the express provisions of the Plan,
to determine the purchase price of the common stock covered by each option, the
employees and directors to whom, at the time or times which, options shall be
granted, and the number of shares to be subject to each option; to determine
when an option can be exercised and whether in whole or in installments; to
determine whether surrender rights under Paragraph 7 hereof shall be granted to
an employee or director to interpret the Plan; to prescribe, amend, and rescind
rules and regulations relating to it; to determine the terms and provisions (and
amendments thereof) of the respective option agreements (which need not be
identical) , including such terms and provisions (and amendments) as shall be
required in the judgment of the Committee to conform to any change in any law or
regulation applicable thereto; and to make all other determinations deemed
necessary or advisable for the administration of the Plan. The Committee's
determination on the foregoing matters shall be conclusive. The Committee shall
select one of its members as its chairman and shall hold its meetings at such
times and places as it may determine. A majority of its members shall constitute
a quorum. All determination of the Committee shall be made by not less than a
majority of its members. Any decision or determination reduced to writing and
signed by all the members shall be fully as effective as if it had been made by
a majority vote at a meeting duly called and held. The Committee may appoint a
secretary, keep minutes of its meetings and make such rules and regulations for
the conduct of its business as it shall deem advisable.
4. ELIGIBILITY. Option may be granted only to key employees, including
officers, and directors of the Company. A director of the Company, who is not
also a key employee of the Company, will be eligible to receive an option. In
determining the employees and directors to whom options shall be granted and the
number of shares to be covered by each option, the Committee may
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<PAGE>
take into account the nature of the services rendered by the respective
employees and directors, their present and potential contributions to the
Company's success and such other factors as the Committee in its discretion
shall deem relevant. Options may be granted to key employees or directors who
hold or have held options under previous plans. An employee or director who has
been granted an option under the Plan may be granted an additional option or
options under the Plan if the Committee shall so determine.
5. OPTION PRICES. The purchase price of the common stock under each
option shall be determined by the Committee. The purchase price may be less than
the fair market value of the common stock at the time of granting.
6. EXERCISE OF OPTIONS. Unless otherwise provided in the option
agreement, an option granted under the Plan shall become exercisable in
installments as follows: to the extent of 25% of the number of shares originally
covered thereby, at any time after the commencement of the second year of the
term of the option, and, to the extent of an additional 25% of such number of
shares, at any time after the commencement of each of the third, fourth, and
fifth years of the term of the option; and such installments shall be
cumulative. The Committee shall have authority in its discretion to prescribe in
any option agreement that the option may be exercised in different installments
during the term of the option. An option may be exercised at any time or from
time to time during the term of the option as to any or all full shares which
have become purchasable under the provisions of the option, but not at any time
as to less than 25 shares unless the remaining shares which have become so
purchasable are less than 25 shares. The purchase price of the shares shall be
paid in full upon the exercise of the option, and the Company shall not be
required to deliver certificates for such shares until such payment has been
made. The term of each option shall be for
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<PAGE>
such period as the Committee shall determine, but not more than ten years from
the date of granting thereof, or such shorter period as is prescribed in
Paragraphs 9 and 10 hereof. Except as provided in Paragraphs 9 and 10, an option
may not be exercised at any time unless the holder thereof is then an employee
or director of the Company. The holder of an option shall not have any of the
rights of stockholder with respect to the shares subject to option until such
shares shall be issued or transferred to him upon the exercise of his option.
7. SURRENDER RIGHTS. The Committee may include in an option granted
under the Plan at any time prior to the exercise thereof the right to surrender
all or a portion of the option to the extent that the same is then exercisable
and receive in exchange therefor an amount (payable in cash, shares of common
stock valued at the then fair market value, or a combination thereof as
determined by the Committee) equal to the difference between the then fair
market value of the shares issuable upon the exercise of the option or portion
thereof surrendered and the option price payable upon the exercise of the option
or portion thereof surrendered. Such fair market value shall be determined by
the Committee and shall not be more than the mean of the high and low prices of
the common stock as reported with respect to trading on the day on which the
surrender occurs, or on the immediately preceding trading day if such surrender
should occur on a day during which there shall not be reported trading.
8. NONTRANSFERABILITY OF OPTIONS. No option granted under the Plan
shall be transferable other than by will or the laws of descent and
distribution, and an option may be exercised, during the lifetime of the holder
thereof, only by him.
9. TERMINATION OF EMPLOYMENT. In the event of termination of the
employment of an employee, or the termination of the contract of a director, to
whom an option has
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<PAGE>
been granted under the Plan, other than (a) a termination that is either (i) for
cause or (ii) voluntary on the part of the employee or director and without the
written consent of the Company, or (b) a termination by reason of death, the
employee or director may (unless otherwise provided in his option agreement)
exercise his option at any time within three months after such termination of
employment, or such other time as the Committee shall authorize, but in no event
after ten years from the date of granting thereof, to the extent of the number
of shares covered by his option which were purchasable by him at the date of the
termination of his employment. In the event of the termination of employment of
an employee or the contract of a director to whom an option has been granted
under the Plan that is either (i) for cause or (ii) voluntary on the part of the
employee or director and without the written consent of the Company, any option
held by him under the Plan, to the extent not theretofore exercised, shall
forthwith terminate. Options granted under the Plan shall not be affected by any
change of employment of the Company. The option agreement may contain such
provisions as the Committee shall approve with reference to the effect of
approved leaves of absence. Nothing in the Plan or in any option granted
pursuant to the Plan shall confer on any individual any right to continue in the
employ of the Company, or as a director of the Company, or interfere in any way
with the right of the Company to terminate his employment or contract as a
director at any time.
10. DEATH OF HOLDER OF OPTION. In the event of the death of an employee
or director to whom an option has been granted under the Plan while he is
employed by, or a director of, the Company, or within three months after
termination of his employment or directorship, such option (unless it shall have
been previously terminated pursuant to the provisions of Paragraph 9 hereof or
unless otherwise provided in his option agreement) may be exercised (to the
extent of the entire number of shares covered by the option whether or not
purchasable by the employee or the
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<PAGE>
director at the date of his death) by a legatee or legatees of such option under
such person's will, or by his personal representatives or distributees, at any
time within a period of one year after his death, but not after ten years from
the date of granting thereof.
11. ADJUSTMENT UPON CHANGES IN CAPITALIZATION. Notwithstanding any
other provisions of the Plan, each option agreement may contain such provisions
as the Committee shall determine to be appropriate for the adjustment of the
number and class of shares subject to such option and the option price in the
event of changes in the outstanding common stock by reason of any stock
dividend, split-up, recapitalization or liquidation and the like, and, in the
event of any such change in the outstanding common stock, the aggregate number
and class of shares available under the Plan shall by appropriately adjusted by
the Committee, whose determination shall be conclusive.
12. AGREEMENT TO SERVE. Each employee receiving an option shall, as one
of the terms of the option agreement, agree that he will remain in the employ of
the Company for a period of at least one year from the date of the option is
granted to him, and that he will, during such employment, devote his entire
time, energy, and skill to the service of the Company and the promotion of its
interest, subject to vacations, sick leave, and other absences in accordance
with the policies of the Company. Such employment shall (subject to the terms of
any contract between the Company and such employee) be at the pleasure of the
Company and at such compensation as the Company shall determine from time to
time.
13. LOANS TO ASSIST IN EXERCISE OF OPTIONS. If approved by the Board of
Directors, the Company may lend money or guarantee loans by third parties to any
individual to finance the exercise of any option granted under the Plan and to
carry common stock thereby acquired.
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<PAGE>
14. AMENDMENT AND TERMINATION. Unless the Plan shall previously have
been terminated as hereinafter provided, it shall terminate on, and no option
shall be granted thereunder after January 1, 2005. The Plan may be terminated,
modified, or amended by the stockholders of the Company. The Board of Directors
of the Company may terminate the Plan or make such modifications or amendments
thereof as it shall deem advisable, or in order to conform to any change in any
law or regulation applicable thereto; provided, however, that the Board of
Directors may not, without further approval by the holders of a majority of the
outstanding stock of the Company having general voting power, (a) increase the
maximum number of shares as to which options may be granted under the Plan, (b)
change the class of employees eligible to be granted options, (c) increase the
periods during which options may be granted or exercised, or (d) provide for the
administration of the Plan otherwise than by the Committee. No termination,
modification, or amendment of the Plan may, without the consent of the employee
or the director to whom any option shall theretofore have been granted,
adversely affect the rights of such employees or directors under such option.
15. EFFECTIVENESS OF PLAN. The Plan shall become effective upon such
date as (a) it shall have been approved, within 12 months after the date of its
adoption by the Board of Directors, by the vote of the holders of a majority of
all the issued and outstanding shares of stock of the Company entitled to vote
thereon at a meeting thereof duly held and (b) the Committee shall have been
advised by counsel that all other applicable legal requirements have been
complied with. Options may be granted to employees and directors prior to such
date, but the exercisability (or surrender pursuant to Paragraph 7 hereof) of
all such options shall be conditioned upon such approval and advice.
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<PAGE>
16. TIME OF GRANTING OPTIONS. Nothing contained in the Plan or in any
resolution adopted or to be adopted by the Committee, the Board of Directors, or
the stockholders of the Company shall constitute the granting of any option
hereunder. The granting of an option pursuant to the Plan shall take place only
when a written option agreement shall have been duly executed and delivered by
or on behalf of the Company and the individual (or his duly authorized
attorney-in-fact) to whom such option is to be granted.
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<PAGE>
Exhibit (c)(3)
RESOLUTIONS ADOPTED BY THE
COMPENSATION COMMITTEE OF THERMWOOD CORPORATION
RESOLVED, that effective as of the effective date (the "Effective
Date") of the Corporation's 37,000-to-1 reverse stock split ("Reverse Stock
Split") and subject to the effectiveness of the Reverse Stock Split, the holders
of stock options granted under the Corporation's Incentive Stock Option Plan and
the Corporation's Restated Non-Qualified Stock Option Plan (collectively, the
"Plans"), shall become exercisable for cash equal to the product of (i) the
difference between $11.00 and the exercise price of such options immediately
prior to the Effective Date, and (ii) the number of shares of Common Stock,
without par value, of the Corporation subject to such options immediately prior
to the Effective Date;
FURTHER RESOLVED, that, effective as of the Effective Date and subject
to the effectiveness of the Reverse Stock Split, any holder of a stock option
granted under the Plans may receive from the Corporation the cash provided for
in the preceding resolution upon returning to the Corporation for cancellation
the originally executed stock option agreement evidencing such holder's
ownership of such stock option;
FURTHER RESOLVED, that the cash payable to option holders upon return
to the Corporation of the stock option agreements as provided for in the
preceding resolution shall bear no interest;
FURTHER RESOLVED, that the officers of the Corporation be and they
hereby are authorized and directed, for and on behalf of the Corporation, to
execute such other documents and take such other actions as they shall deem
appropriate to carry out the intent of the foregoing resolutions.
<PAGE>
Exhibit (c)(4)
THERMWOOD CORPORATION
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
TRUSTEE
INDENTURE
Dated as of February 3, 1993
$2,070,000
12% Convertible Subordinated Debentures due February 25, 2003
<PAGE>
TABLE OF CONTENTS
ARTICLE HEADING PAGE
I DEFINITIONS AND RULES OF CONSTRUCTION 1
1.01. Definitions 1
1.02. Other Definitions. 2
1.03. Rules of Construction. 2
II THE SECURITIES 3
2.01. Form and Dating 3
2.02. Execution and Authentication 3
2.03. Registrar, Paying Agent and Conversion Agent. 3
2.04. Paying Agent to Hold Money in Trust 3
2.05. Holder Lists. 4
2.06. Transfer and Exchange. 4
2.07. Replacement Securities. 4
2.08. Outstanding Securities. 4
2.09. Treasury Securities. 5
2.10. Temporary Securities. 5
2.11. Cancellation. 5
2.12. Defaulted Interest 5
III REDEMPTION 6
3.01. Notices to Trustee 6
3.02. Selection of Securities to be Redeemed 6
3.03. Notice of Redemption 6
3.04. Effect of Notice of Redemption 6
3.05. Deposit of Redemption Price 6
3.06. Securities Redeemed in Part 7
IV COVENANTS 7
4.01. Payment of Securities 7
4.02. SEC Reports 7
4.03. Compliance Certificate 7
4.04. Limitation on Dividends: Stock Purchase and Senior Debt 7
4.05 Certain Transactions With a Parent and its Affiliates 8
V SUCCESSORS 9
5.01. When Company May Merge, etc 9
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VI DEFAULTS AND REMEDIES 9
6.01. Events of Default 9
6.02. Acceleration 10
6.03. Other Remedies 10
6.04. Waiver of Past Defaults 10
6.05. Control by Majority 10
6.06. Limitation on Suits 10
6.07. Rights of Holders to Receive Payment
or Convert Securities 11
6.08. Collection Suit by Trustee 11
6.09. Trustee May File Proofs of Claim 11
6.10. Priorities 11
6.11. Undertaking for Costs 12
VII TRUSTEE 12
7.01. Duties of Trustee 12
7.02. Rights of Trustee 13
7.03. Individual Rights of Trustee 13
7.04. Trustee's Disclaimer 13
7.05. Notice of Defaults 13
7.06. Reports by Trustee to Holders 13
7.07. Compensation and Indemnity 14
7.08. Replacement of Trustee 14
7.09. Successor Trustee by Merger, etc. 15
7.10. Eligibility Disqualification 15
VIII DISCHARGE OF INDENTURE 15
8.01. Termination of Company's Obligations 15
8.02. Application of Trust Money 16
8.03. Repayment to Company 16
IX AMENDMENTS 16
9.01. Without Consent of Holders 16
9.02. With Consent of Holders 17
9.03. Revocation and Effect of Consents 17
9.04. Notation on or Exchange of Securities 17
9.05. Trustee Protected 17
X CONVERSION 18
10.01. Conversion Privilege 18
10.02. Conversion Procedure 18
10.03. Fractional Shares 18
10.04. Taxes on Conversion 19
10.05. Adjustment for Change in Capital Stock 19
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10.06. Adjustment for Certain Issuances of Common Stock 19
10.07. Subscription Offerings 20
10.08. Other Rights to Acquire Common Stock 20
10.09. Current Market Price 21
10.10. Minimum Adjustment 21
10.11. When Adjustment May Be Deferred 21
10.12. Number of Shares 22
10.13. When No Adjustment Required 22
10.14. Notice of Adjustment 22
10.15. Voluntary Reduction 22
10.16. Notice of Certain Transactions 22
10.17. Reorganization of Company 23
10.18. Company Determination Final 23
10.19. Trustee's Disclaimer 23
XI SUBORDINATION 23
11.01. Agreement to Subordinate 23
11.02. Certain Definitions 24
11.03. Liquidation, Dissolution, Bankruptcy 24
11.04. Default on Senior Debt 25
11.05. Acceleration of Securities 25
11.06. When Distribution Must be Paid Over 25
11.07. Notice by Company 25
11.08. Subrogation 25
11.09. Relative Rights 25
11.10. Subordination May Not be Impaired by Company 26
11.11. Distribution or Notice to Representative 26
11.12. Rights of Trustee and Paying Agent 26
XII MISCELLANEOUS 26
12.01. Notices 26
12.02. Communications by Holders with Other Holders 27
12.03. Certificate and Opinion as to Conditions Precedent 27
12.04. Statements Required in Certificate or Opinion 27
12.05. Rules by Trustee and Agents 27
12.06. Legal Holidays 28
12.07. No Recourse Against Others 28
12.08. Duplicate Originals 28
12.09. Miscellaneous 28
12.10. Governing Law 29
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INDENTURE dated as of February 3, 1993 between THERMWOOD CORPORATION, an Indiana
corporation (the "Company"), and AMERICAN STOCK TRANSFER AND TRUST COMPANY, as
trustee (the "Trustee").
Each party agrees as follows for the benefit of the other party and for the
equal and ratable benefit of the Holders of the Company's 12% Convertible
Subordinated Debentures due 2002 (the "Securities").
ARTICLE I
DEFINITIONS AND RULES OF CONSTRUCTION
Section 1.01. Definitions.
"Affiliate" means any person directly or indirectly controlling or
controlled by or under direct or indirect common control with the Company.
"Agent" means any Registrar, Paying Agent, Conversion Agent or
co-registrar.
"Board of Directors" means the Board of Directors of the Company or any
authorized committee of the Board.
"Company" means the party named as such above until a successor
replaces it and thereafter means the successor.
"Default" means any event which is, or after notice or passage of time
would be, an Event of Default.
"Holder" means a person in whose name a Security is registered.
"Indenture" means this Indenture as amended from time to time.
"Officers' Certificate" means a certificate signed by two Officers. See
Sections 12.03 and 12.04.
"Opinion of Counsel" means a written opinion from legal counsel who is
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee. See Sections 12.03 and 12.04.
"Principal" of a debt security means the principal of the security plus
the premium, if any, on the security.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities described above issued under this
Indenture.
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"Subsidiary" means any entity of which at least a majority of the
capital stock having ordinary voting power for the election of directors or
other governing body of such entity (other than securities having such power
only by reason of the happening of a contingency) shall be owned by the Company
directly or indirectly through one or more of such Subsidiaries.
"Trustee" means the party named as such above until a successor
replaces it and thereafter means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
Section 1.02. Other Definitions.
Term Defined in Section
"Bankruptcy Law" 6.01
"Common Stock" 10.01
"Conversion Agent" 2.03
"Current Market Price" 10.09
"Custodian" 6.01
"Event of Default" 6.01
"Existing Conversion Price" 10.06
"Indebtedness" 11.02
"Legal Holiday" 12.06
"Officer" 12.09
"Paying Agent" 2.03
"Registrar" 2.03
"Representative" 11.02
"Senior Debt" 11.02
"U.S. Government Obligations" 8.01
Section 1.03. Rules of Construction.
Unless the context otherwise requires (i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles; (iii) "or" is not
exclusive; (iv) words in the singular include the plural, and in the plural
include the singular, and (v) provisions apply to successive events and
transactions.
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ARTICLE II
THE SECURITIES
Section 2.01. Form and Dating.
The Securities shall be in the form of Exhibit A, which is part of this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage. Each Security shall be dated the date of
its authentication.
Section 2.02. Execution and Authentication.
(a) Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that office at
the time the Security is authenticated, the Security shall be valid
nevertheless.
(b) A Security shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Security has
been authenticated under this Indenture. The Trustee shall authenticate
Securities for original issue in the aggregate principal amount stated in
paragraph 4 of Exhibit A upon a written order of the Company signed by two
officers. The aggregate principal amount of Securities outstanding at any time
may not exceed that amount except as provided in Section 2.07. The Trustee may
appoint an authenticating agent acceptable to the Company to authenticate
Securities. An authenticating agent may authenticate Securities 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 or an Affiliate.
Section 2.03. Registrar, Paying Agent and Conversion Agent.
The Company shall maintain an office or agency where Securities may be presented
for registration of transfer or for exchange (the "Registrar"), an office or
agency where Securities may be presented for payment (the "Paving Agent") and an
office or agency here Securities may be presented for conversion (the
"Conversion Agent"). The Registrar shall keep a register of the Securities and
of their transfer and exchange. The Company may appoint one or more
co-registrars, one or more additional paying agents and one or more additional
conversion agents. The term "Paying Agent" includes any additional conversion
agent. The Company shall notify the Trustee of the name and address of any Agent
not a party to this Indenture. If the Company fails to maintain a Registrar,
Paying Agent or Conversion Agent, the Trustee shall act as such.
Section 2.04. Paying Agent to Hold Money in Trust.
The Company shall require each Paying Agent other than the Trustee to agree in
writing that the Paying Agent will hold in trust for the benefit of Holders or
the Trustee all money held by the Paying
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Agent for the payment of principal of or interest on the Securities, and will
notify the Trustee of any default by the Company in making any such payment. If
the Company acts as Paying Agent, it shall segregate the money and hold it as a
separate trust fund. The Company at any time may require a Paying Agent to pay
all money held by it to the Trustee. Upon doing so the Paying Agent shall have
no further liability for the money.
Section 2.05. Holder 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 Holders. If the
Trustee is not the Registrar, the Company shall furnish to the Trustee on or
before each interest payment date 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 Holders.
Section 2.06. Transfer and Exchange.
Where Securities are presented to the Registrar or a co-register with a request
to register transfer or to exchange them for an equal principal amount of
Securities the Trustee shall permit the Registrar or co-registrar to register
the transfer or make the exchange if its requirements for such transaction are
met. To permit registrations of transfer and exchanges, the Trustee shall
authenticate Securities at the Registrar's request. The Company may charge a
reasonable fee for any registration of transfer or exchange but not for any
exchange pursuant to Section 2.10, 3.06 or 10.02.
Section 2.07. Replacement Securities.
If the Holder of a Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall authenticate a
replacement Security if the Trustee's requirements are met. If required by the
Trustee or the Company, an indemnity bond must be sufficient in the judgment of
both to protect the Company, the Trustee, any Agent or any authenticating agent
from any loss which any of them may suffer if a Security is replaced. The
Company may charge for its expenses in replacing a Security. Every replacement
Security is an additional obligation of the Company.
Section 2.08. Outstanding Securities.
The Securities outstanding at any time are all the Securities authenticated by
the Trustee except for those canceled by it, those delivered to it for
cancellation and those described in this Section as not outstanding. If a
Security is replaced pursuant to Section 2.07, it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. If Securities are considered paid under
Section 4.01, they cease to be outstanding and interest on them ceases to
accrue. A Security does not cease to be outstanding because the Company or an
Affiliate holds the Security.
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Section 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or an Affiliate shall be disregarded, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities which the Trustee knows are
so owned shall be so disregarded.
Section 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Securities. Temporary Securities shall
be substantially in the form of definitive Securities but may have variations
that the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate
definitive Securities in exchange for temporary Securities.
Section 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for cancellation.
The Registrar, Paying Agent and Conversion Agent shall forward to the Trustee
any Securities surrendered to them for registration of transfer, exchange,
payment or conversion. The Trustee shall cancel all Securities surrendered for
registration of transfer, exchange, payment, conversion or cancellation and
shall dispose of canceled Securities as the Company directs. The Company may not
issue new Securities to replace Securities that it has paid or delivered to the
Trustee for cancellation or that any Holder has converted pursuant to Article X.
Section 2.12. Defaulted Interest.
If the Company defaults in a payment of interest on the Securities, it shall pay
the defaulted interest in any lawful manner. It may pay the defaulted interest,
plus any interest payable on the defaulted interest, to the persons who are
Holders on a subsequent special record date. The Company shall fix the record
date and payment date. At least 15 days before the record date, the Company
shall mail to Holders a notice that states the record date, payment date and
amount of interest to be paid.
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ARTICLE III
REDEMPTION
Section 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to Paragraph 5 of the
Securities, it shall notify the Trustee of the redemption date and the principal
amount of Securities to be redeemed at least 50 days before the redemption date.
Section 3.02. Selection of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot. The Trustee shall make the
selection not more than 75 days before the redemption date from Securities
outstanding not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000. Securities and portions of them it selects shall be in
amounts of $1,000 or integral multiples of $1,000. Provisions of this Indenture
that apply to Securities called for redemption also apply to portions of
Securities called for redemption.
Section 3.03. Notice of Redemption.
At least 30 days but not more than 60 days before a redemption date, the Company
shall mail a notice of redemption to each Holder whose Securities are to be
redeemed. The notice shall identify the Securities to be redeemed and shall
state (i) the redemption date and redemption price; (ii) the conversion price;
(iii) the name and address of the Paying Agent and Conversion Agent ; (iv) that
Securities called for redemption may be converted at any time before the close
of business on the redemption date; (v) that Holders who want to convert
Securities must satisfy the requirements in paragraph 9 of the Securities; (vi)
that Securities called for redemption must be surrendered to the Paying Agent to
collect the redemption price; and (vii) that interest on Securities called for
redemption ceases to accrue on and after the redemption date. At the Company's
request, the Trustee shall give the notice of redemption in the Company's name
and at its expense.
Section 3.04. Effect of Notice of Redemption.
Once notice of redemption is mailed, Securities called for redemption become due
and payable on the redemption date at the redemption price.
Section 3.05. Deposit of Redemption Price.
On or before the redemption date, the Company shall deposit with the Paying
Agent money sufficient to pay the redemption price of and accrued interest on
all Securities to be redeemed on that date. The Paying Agent shall return to the
Company any money not required for that purpose because of conversion of
Securities.
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Section 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee shall
authenticate for the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
ARTICLE IV
COVENANTS
Section 4.01. Payment of Securities.
The Company shall pay the principal of and interest on the Securities on the
dates and in the manner provided in the Securities. Principal and interest shall
be considered paid on the date due if the Paying Agent holds on that date money
sufficient to pay all principal and interest then due. The Company shall pay
interest on overdue principal at the rate borne by the Securities. It shall pay
interest on overdue installments of interest at the same rate to the extent
lawful.
Section 4.02. SEC Reports.
The Company shall file with the Trustee within 15 days after it files them with
the SEC 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 Section 13 or 15(d) of the Securities Exchange Act of 1934.
Section 4.03. Compliance Certificate.
The Company shall deliver to the Trustee within 120 days after the end of each
fiscal year of the Company an Officers' Certificate staring whether or not the
signers know of any Default that occurred during the fiscal year. If they do,
the Certificate shall describe the Default and its status. The Certificate need
not comply with Section 12.04. See Section 12.09.
Section 4.04. Limitation on Dividends: Stock Purchase and Senior Debt.
(a) The Company will not declare or pay any cash dividends on, or make any
distribution to the holders of, any shares of capital stock of the Company,
other than dividends or distributions payable in such capital stock, and neither
the Company nor any Subsidiary will purchase, redeem or otherwise acquire or
retire for value any shares of capital stock of the Company or warrants or
rights to acquire such capital stock if, at the time of such declaration,
payment, distribution, purchase, redemption, other acquisition or retirement, an
Event of Default shall have occurred and be continuing.
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(b) The provisions of this Section 4.04 shall not prevent (i) the payment of any
dividend within 60 days after the date of declaration thereof, if at said date
of declaration such payment complied with the provisions hereof, (ii) the
retirement of any shares of the Company's capital stock in exchange for, or out
of the proceeds of the substantially concurrent sale (other than to a
Subsidiary) of, other shares if its capital stock (other than any preferred
stock which by its terms must be redeemed by the Company prior to the maturity
date of the Securities), and neither such retirement nor the proceeds of any
such sale or exchange shall be included in any computation made under this
Section 4.04.
Section 4.05 Certain Transactions With a Parent and its Affiliates.
\
The Company may not, and it may not permit any Subsidiary, directly or
indirectly, sell (by merger, exchange or otherwise) or lease any property to an
Affiliate, make any investment in, or render any service to an Affiliate, or
purchase (by merger, exchange or otherwise) or borrow any money from, or make
any payment for any service rendered by an Affiliate except (i) any sale or
lease of any property, or the rendering of any service to an Affiliate, or any
purchase or lease of any property, or any payment for any service rendered, or
the making of any agreement to do so, if (A) such transaction is effected in the
ordinary course of business and the Board of Directors determines in good faith
that the terms thereof are at least as favorable to the Company or its
Subsidiary as those which could be, or could reasonably be expected to be,
obtained in a similar transaction with an entity other than any of its
Affiliates or (B) the terms of such transaction are at least as favorable to the
Company or its Subsidiary as those which could be obtained in a similar
transaction with an entity other than any of its Affiliates; (ii) any borrowing
of money, or the making of any agreement to do so, if the Board of Directors
determines in good faith that the terms of such transaction are at least as
favorable to the Company or its Subsidiary as those which could be, or could
reasonably be expected to be, obtained in a similar transaction with an entity
other than any of its Affiliates; (iii) any payment by the Company or any of its
Subsidiaries to any of its officers, directors or employees or agreement to do
so, if the Board of Directors determines in good faith that the amount to be
paid, or to be agreed to be paid, for such service bears a reasonable
relationship to the value of such services to the Company or such Subsidiary; or
(iv) any sale to an Affiliate by the Company or a Subsidiary of any capital
stock or other securities or other obligations of an Affiliate at a cash sale
price not less than the original cost thereof to the Company or such an
Affiliate or Subsidiary, as the same may have been reduced from time to time by
cash dividends or interest payments thereon or payments of principal thereof
received by the Company or such Subsidiary plus interest on such investment, as
the same may have been reduced from time to time at a rate not less than the
rate borne by the Debentures; but in no event less than current fair market
value.
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ARTICLE V
SUCCESSORS
Section 5.01. When Company May Merge, etc.
The Company shall not consolidate with or merge into, or transfer or lease all
or substantially all of its assets to, any person unless (i) the person is a
corporation; (ii) the person assumes by supplemental indenture all the
obligations of the Company under the Securities and this Indenture, except that
it need not assume the obligations of the Company as to conversion of Securities
if pursuant to section 10.17 the Company or another person enters into a
supplemental indenture obligating it to deliver securities, cash or other assets
upon conversion of Securities; and (iii) immediately after the transaction no
Default exists. The surviving, transferee or lessee corporation shall be the
successor Company, but the predecessor Company in the case of a transfer or
lease shall not be released from the obligation to pay the principal of and
interest on the Securities.
ARTICLE VI
DEFAULTS AND REMEDIES
Section 6.01. Events of Default.
(a) An "Event of Default" occurs if (i) the Company Defaults in the payment of
interest on any Security when the same becomes due and payable and the Default
continues for a period of 45 days; (ii) the Company defaults in the payment of
the principal of any Security when the same becomes due and payable at maturity,
upon redemption or otherwise; (iii) the Company fails to comply with any of its
other agreements in the Securities or this Indenture and the Default continues
for the period and after the notice specified below; (iv) the Company pursuant
to or within the meaning of any Bankruptcy Law (A) commences a voluntary case,
(B) consents to the entry of an order for relief against it in an involuntary
case, (C) consents to the appointment of a Custodian of it or for all or
substantially all of its property, or (D) makes a general assignment for the
benefit of its creditors; or (v) a court of competent jurisdiction enters an
order or decree under any Bankruptcy Law that (A) is for relief against the
Company in an involuntary case, (B) appoints a Custodian of the Company or for
all or substantially all of its property, or (C) orders the liquidation of the
Company, and the order or decree remains unstayed and in effect for 60 days.
(b) The term "Bankruptcy Law" means Title II, U.S. Code or any similar Federal
or State law for the relief of debtors. The term "Custodian" means any receiver,
trustee, assignee, liquidator or similar official under any Bankruptcy Law.
(c) A Default under clause 6.01 (a) (iii) above is not an Event of Default until
the Trustee or the Holders of at least 25% in principal amount of the Securities
notify the Company of the Default and
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the Company does not cure the Default within 60 days after receipt of the
notice. The notice must specify the Default, demand that it be remedied and
state that the notice is a "Notice of Default."
Section 6.02. Acceleration.
If an Event of Default occurs and is continuing, the Trustee by notice to the
Company, or the Holders of at least 25% in principal amount of the Securities by
notice to the Company and the Trustee, may declare the principal of and accrued
interest on all the Securities to be due and payable. Upon such declaration the
principal and interest shall be due and payable immediately. The Holders of at
least a majority in principal amount of the Securities by notice to the Trustee
may rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration.
Section 6.03. Other Remedies.
If an Event of Default occurs and is continuing, the Trustee may pursue any
available remedy to collect the payment of principal of or interest on the
Securities or to enforce the performance of any provision of the Securities or
this Indenture. The Trustee may maintain a proceeding even if it does not
possess any of the Securities or does not produce any of them in the proceeding.
A delay or omission by the Trustee or any Holder 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. All remedies are
cumulative to the extent permitted by law.
Section 6.04. Waiver of Past Defaults.
The Holders of at least a majority in principal amount of the Securities by
notice to the Trustee may waive an existing Default and its consequences except
a Default in the payment of the principal of or interest in any Security or a
Default under Article X.
Section 6.05. Control by Majority.
The Holders of at least a majority in principal amount of the Securities may
direct the time, method and place of conducting any proceeding for and remedy
available to the Trustee or exercising any trust or power conferred on it.
However, the Trustee may refuse to follow any direction that conflicts with law
or this Indenture, is unduly prejudicial to the rights of another Holder or
would involve the Trustee in personal liability.
Section 6.06. Limitation on Suits.
(a) A Holder may pursue a remedy with respect to this Indenture or the
Securities only if (i) the Holder gives to the Trustee written notice of a
continuing Event of Default; (ii) the Holders of at least 25% in principal
amount of the Securities make a written request to the Trustee to pursue the
remedy;
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(iii) such Holder or Holders offer to the Trustee indemnity satisfactory to the
Trustee against any loss, liability or expense; (iv) the Trustee does not comply
with the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period the Holders of at least a majority
in principal amount of the Securities do not give the Trustee a direction
inconsistent with the request.
(b) A Holder may not use this Indenture to prejudice the rights of another
Holder or to obtain a preference or priority over another Holder.
Section 6.07. Rights of Holders to Receive Payment or Convert Securities.
(a) Notwithstanding any other provision of this Indenture, the right of any
Holder to receive payment of principal of and interest on his Security, on or
after the respective due dates expressed in the Security, or to bring suit for
the enforcement of any such payment on or after such respective due dates, shall
not be impaired or affected without the consent of the Holder.
(b) Notwithstanding any other provision of this Indenture, the right of any
Holder to bring suit for the enforcement of his right to convert his Security
shall not be impaired or affected without the consent of the Holder.
Section 6.08. Collection Suit by Trustee.
If an Event of Default specified in clauses 6.01 (a) (i) or (ii) above occurs
and is continuing, the Trustee may recover judgment in its own name and as
trustee of an express trust against the Company for the whole amount of
principal and interest remaining unpaid.
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 and the
Holders allowed in any judicial proceedings relative to the Company, its
creditors or its property.
Section 6.10. Priorities.
If the Trustee collects any money pursuant to this Article, it shall pay out the
money in the following order: first to the Trustee for amounts due under Section
7.07; second to holders of Senior Debt to the extent required by Article XI;
third to Holders for amounts due and unpaid on the Securities for principal and
interest, ratably, without preference or priority of any kind, according to the
amounts due and payable on the Securities for principal and interest,
respectively; and fourth to the Company. The Trustee may fix a record date and
payment date for any payment to Holders.
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Section 6.11. Undertaking for Costs.
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 the Trustee,
a condition for the institution of such suit shall be the giving 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
attorney's 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.
This Section does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07 or a suit by Holders of more than 10% in principal
amount of the Securities.
ARTICLE VII
TRUSTEE
Section 7.01. Duties of Trustee.
(a) If an Event of Default has occurred and is continuing, the Trustee shall
exercise its rights and powers and use the same degree of care and skill in
their exercise as a prudent man 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 that are specifically set forth in this Indenture and
no others; and (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 certificates or opinions furnished to the
Trustee and conforming to the requirements of this Indenture; provided however,
that 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 does not limit the effect of Paragraph (b) of this Section; (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; and (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) Every provision of this Indenture that in any way relates to the Trustee is
subject to Paragraphs (a), (b) and (c) of this Section.
(e) The Trustee may refuse to perform any duty or exercise any right or power
unless it receives indemnity satisfactory to it against any loss, liability or
expense.
(f) The Trustee shall not be liable for interest on any money received by it
except as the
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Trustee may agree with the Company. Money held in trust by the Trustee need not
be segregated from other funds except to the extent required by law.
Section 7.02. Rights of Trustee.
(a) The Trustee may rely on any document believed by it to be genuine and to
have been signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require an Officers'
Certificate or an Opinion of Counsel. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on the Certificate or
Opinion.
(c) The Trustee may act through agents and shall not be responsible for the
misconduct or negligence of any agent 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 believes to be authorized or within its rights or powers.
Section 7.03. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may become the owner or
pledgee of Securities and may otherwise deal with the Company or an affiliate
with the same rights it would have if it were not Trustee. Any Agent may do the
same with like rights.
Section 7.04. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or adequacy of this
Indenture or the Securities, it shall not be accountable for the Company's use
of the proceeds from the Securities, and it shall not be responsible for any
statement in the Securities other than its authentication.
Section 7.05. Notice of Defaults.
If a Default occurs and is continuing and if it is known to the Trustee, the
Trustee shall mail to Holders a notice of the Default within 90 days after it
occurs. Except in the case of a Default in payment on any Security, the Trustee
may withhold the notice if and so long as a committee of its Trust Officers in
good faith determines that withholding the notice is in the interests of
Holders.
Section 7.06. Reports by Trustee to Holders.
Within 60 days after the reporting date stated in Section 12.10, the Trustee
shall mail to Holders a brief report dated as of such reporting date that
contains the type of information required by Section
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313 (a) of the Trust Indenture Act of 1939. A copy of each report at the time of
its mailing to Holders shall be filed with each stock exchange on which the
Securities are listed.
Section 7.07. Compensation and Indemnity.
(a) The Company shall pay to the Trustee from time to time reasonable
compensation for its services. 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 out-of-pocket expenses
incurred by it. Such expenses shall include the reasonable compensation and
out-of-pocket expenses of the Trustee's agents and counsel.
(b) The Company shall indemnify the Trustee against any loss or liability
incurred by it. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity and the Company shall defend the claim. The Trustee
may have separate counsel but the fees and expenses of such counsel shall be
borne by the Trustee unless the Company shall not have promptly employed counsel
to assume the defense of the claim, in which event such fees and expenses shall
be borne by the Company. The Company shall have the right, in its sole
discretion, to satisfy or settle any claim for which indemnification has been
sought and is available hereunder as long as such satisfaction or settlement is
at no cost to the Trustee. The Company need not pay for any settlement made
without its consent or reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence or bad faith.
(c) To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities. When the Trustee incurs expenses or renders
services after an Event of Default specified in clauses 6.01 (a) (iv) or (v)
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.
(a) A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section. The Trustee may resign by so notifying
the Company. The Holders of a majority in principal amount of the Securities may
remove the Trustee by so notifying the Trustee and the Company. The Company may
remove the Trustee if (i) the Trustee fails to comply with Section 7.10; (ii)
the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver or public
officer takes charge of the Trustee or its property; or (iv) the Trustee becomes
incapable of acting.
(b) 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 Securities may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
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(c) If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or the
Holders of at least 10% in principal amount of the Securities may petition any
court of competent jurisdiction for the appointment of a successor Trustee.
(d) If the Trustee fails to comply with Section 7.10, any Holder may petition
any court of competent jurisdiction for the removal of the Trustee and the
appointment of a successor Trustee.
(e) A successor Trustee shall deliver a written acceptance of its appointment to
the retiring Trustee and to the Company. Thereupon, 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. The
successor Trustee shall mail a notice of its succession to Holders. The retiring
Trustee shall promptly transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided for in Paragraph 7.07 (c).
Section 7.09. Successor Trustee by Merger, etc..
If the Trustee consolidates, merges or converts into, or transfers all or
substantially all of its corporate trust business to, another corporation, the
successor corporation without any further act shall be the successor Trustee.
Section 7.10. Eligibility Disqualification.
This Indenture shall always have a Trustee who shall at all times be a
corporation organized and doing business under the laws of the United States or
of any State or Territory or of the District of Columbia which is (i) authorized
under such laws to exercise corporate trust powers, and (ii) subject to
supervision or examination by Federal, State, Territorial, or District of
Columbia authority. The Trustee shall always have a combined capital and surplus
as stated in Section 12.10. This Indenture shall never have a Trustee that
directly or indirectly controls or is directly or indirectly controlled by or is
under direct or indirect common control with the Company.
ARTICLE VIII
DISCHARGE OF INDENTURE
Section 8.01. Termination of Company's Obligations.
(a) The Company may terminate all of its obligations under this Indenture if (i)
the Securities mature within one year or all of them are to be called for
redemption within one year under arrangements satisfactory to the Trustee for
giving the notice of redemption; and (ii) the Company irrevocably deposits in
trust with the Trustee money or U.S. Government Obligations sufficient to pay
principal and interest on the Securities to maturity or redemption, as the case
may be. The Company may make the deposit only during the one year period and
only if Article XI permits it.
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However, the Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07,
4.01, 7.07, 7.08 and 8.03, and in Article X, shall survive until the Securities
are no longer outstanding. Thereafter the Company's obligations in Section 7.07
and 8.03 shall survive.
(b) After a deposit the Trustee upon request shall acknowledge in writing the
discharge of the Company's obligations under this Indenture except for those
surviving obligations specified in Paragraph (a) above.
(c) In order to have money available on a payment date to pay principal or
interest on the Securities, the U.S. Government Obligations shall be payable as
to principal or interest on or before such payment date in such amounts as will
provide the necessary money. U.S. Government Obligations shall not be callable
at the issuer's option.
(d) "U.S. Government Obligations" means direct obligations of the United States
of America for the payment of which the full faith and credit of the United
States of America is pledged.
Section 8.02. Application of Trust Money.
The Trustee shall hold in trust money or U.S. Government Obligations deposited
with it pursuant to Section 8.01 above. It shall apply the deposited money and
the money from U.S. Government Obligations through the Paying Agent and in
accordance with this Indenture to the payment of principal and interest on the
Securities. Money and securities so held in trust are not subject to Article XI.
Section 8.03. Repayment to Company.
The Trustee and the Paying Agent shall promptly pay to the Company upon request
any excess money or securities held by them at any time. The Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years. After
payment to the Company, Holders entitled to the money must look to the Company
for payment as general creditors unless an applicable abandoned property law
designates another person.
ARTICLE IX
AMENDMENTS
Section 9.01. Without Consent of Holders.
The Company and the Trustee may amend this Indenture or the Securities without
the consent of any Holder to (i) cure any ambiguity, defect or inconsistency;
(ii) comply with Sections 5.01 and 10.17; or (iii) make any change that does not
adversely affect the right of any Holder.
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Section 9.02. With Consent of Holders.
(a) The Company and the Trustee may amend this Indenture or the Securities with
the written consent of the Holders of at least 66 2/3% in principal amount of
the Securities. However, without the consent of each Holder affected, an
amendment under this Section may not: (i) reduce the amount of Securities whose
Holders must consent to an amendment; (ii) reduce the rate of or change the time
for payment of interest on any Security; (iii) reduce the principal of or change
the fixed maturity of any Security; (iv) make any Security payable in money
other than that stated in the Security; (v) make any change in Sections 6.04 or
6.07 or the second sentence of Section 9.02; (vi) make any change that adversely
affects the right to convert any Security; or (vii) make any change in Article
XI that adversely affects the rights of any Holder.
(b) An amendment under this Section may not make any change that adversely
affects the rights under Article XI of any holder of an issue of Senior Debt
unless the holders of the issue pursuant to its terms consent to the change.
(c) After an amendment under this Section becomes effective, the Company shall
mail to Holders a notice briefly describing the amendment.
Section 9.03. Revocation and Effect of Consents.
Until an amendment or waiver becomes effective, a consent to it by a Holder of a
Security is a continuing consent by the Holder and every subsequent Holder of a
Security or portion of a Security that evidences the same debt as the consenting
Holder's Security, even if notation of the consent is not made on any Security.
However, any such Holder or subsequent Holder may revoke the consent as to his
Security or portion of a Security if the Trustee receives the notice of
revocation before the date the amendment or waiver becomes effective in
accordance with its terms and thereafter binds every Holder.
Section 9.04. Notation on or Exchange of Securities.
The Trustee may place an appropriate notation about an amendment or waiver on
any Security thereafter authenticated. The Company in exchange for all
Securities may issue and the Trustee shall authenticate new Securities that
reflect the amendment or waiver.
Section 9.05. Trustee Protected.
The Trustee need not sign any supplemental indenture that adversely affects its
rights.
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ARTICLE X
CONVERSION
Section 10.01. Conversion Privilege.
A Holder may convert his Security into Common Stock of the Company at any time
during the period stated in Paragraph 7 of the Securities. "Common Stock" means
Common Stock of the Company as it exists on the date this Indenture is
originally signed. The number of shares of Common Stock issuable upon conversion
of a Security shall be determined by dividing the principal amount converted by
the conversion price in effect on the conversion date. The initial conversion
price is stated in Paragraph 7 of the Securities. The conversion price is
subject to adjustment. A Holder may convert a Portion of a Security if the
portion is $ 1,000 or a whole multiple of $1,000. Provisions of this Indenture
that apply to conversion of all of a Security also apply to conversion of a
portion of it.
Section 10.02. Conversion Procedure.
To convert a Security a Holder must satisfy the requirements in Paragraph 7 of
the Securities. The date on which the Holder satisfies all those requirements is
the conversion date. As soon as practical, the Company shall deliver through the
Conversion Agent a certificate for the number of full shares of Common Stock
issuable upon the conversion adjusted to account for any fractional share as
provided in Section 10.03 below. The person in whose name the certificate is
registered shall be treated as a stockholder of record on and after the
conversion date. No payment or adjustment will be made for accrued interest on a
converted Security. If a Holder converts more than one Security at the same
time, the number of full shares issuable upon the conversion shall be based on
the total principal amount of the Securities converted. Upon surrender of a
Security that is converted in part, the Trustee shall authenticate for the
Holder a new Security equal in principal amount to the unconverted portion of
the Security surrendered. If the last day on which a Security may be converted
is a Legal Holiday in a place where a Conversion Agent is located, the Security
may be surrendered to that Conversion Agent on the next succeeding day that is
not a Legal Holiday. The Company shall reserve out of its authorized but
unissued Common Stock or its Common Stock held in treasury enough shares of
Common Stock to permit the conversion of the Securities. All shares of Common
Stock which may be issued upon conversion of the Securities shall be fully paid
and non-assessable. The Company will endeavor to comply with all securities laws
regulating the offer and delivery of shares of Common Stock upon conversion of
Securities and will endeavor to list such shares on each national securities
exchange on which the Common Stock is then listed.
Section 10.03. Fractional Shares.
The Company will not issue a fractional share of Common Stock upon conversion of
a Security. Instead the Company will round any fractional share to the nearest
share so that if the fraction is less than .5 no share shall be issued and if
the fraction is .5 or higher the Company shall issue one full share.
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Section 10.04. Taxes on Conversion.
If a Holder converts his Security, the Company shall pay any documentary, stamp
or similar issue or transfer tax due on the issue of shares of Common Stock upon
the conversion. However, the Holder shall pay any such tax which is due because
the shares are issued in a name other than his.
Section 10.05. Adjustment for Change in Capital Stock.
Except as provided in Section 10.17 if the Company shall (i) declare a dividend
on its outstanding Common Stock in shares of its capital stock, (ii) subdivide
its outstanding Common Stock, (iii) combine its outstanding Common Stock into a
smaller number of shares, or (iv) issue any shares of its capital stock by
reclassification of its Common Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
corporation), then in each such case the conversion privilege and the conversion
price in effect immediately prior to such action shall be adjusted so that the
Holder of a Security thereafter converted may receive the number and kind of
shares which he would have owned immediately following such action if he had
converted the Security immediately prior to such action. Such adjustment shall
be made successively whenever such event shall occur. The adjustment shall
become effective immediately after the record date in the case of a dividend or
distribution and immediately after the effective date in the case of a
subdivision, combination or reclassification. If after an adjustment a Holder
upon conversion of his Security may receive shares of two or more classes of
capital stock of the Company, the Company's Board of Directors shall determine,
in good faith, the allocation of the adjusted conversion price between the
classes of capital stock. After such allocation, the conversion privilege and
conversion price of each class of capital stock shall thereafter be subject to
adjustment on terms comparable to those applicable to Common Stock in this
Article.
Section 10.06. Adjustment for Certain Issuances of Common Stock.
If the Company shall at any time or from time to time issue any shares of Common
Stock (other than shares issued as a dividend or distribution as provided in
Section 10.05 above) for a consideration per share less than the conversion
price in effect on the date of such issue, then, forthwith upon such issue, the
conversion price in effect immediately prior to such action (the "Existing
Conversion Price") shall be reduced by dividing the number of shares so issued
by the total number of shares outstanding after such issuance, multiplying the
quotient by the difference between the Existing Conversion Price and the price
of the shares so issued and subtracting the result from the Existing Conversion
Price. In the case of an issue of additional shares of Common Stock for cash,
the consideration received by the Company therefor shall be deemed to be the net
cash proceeds received for such shares, excluding cash received on account of
accrued interest or accrued dividends and after deducting therefrom any and all
commissions and expenses paid or incurred by the Company for any underwriting
of, or otherwise in connection with, the issue of such shares. The term "issue"
shall be deemed to include the sale or other disposition of shares held in the
Company's treasury. The number of shares outstanding at any given time shall not
include shares in the Company's treasury.
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Section 10.07. Subscription Offerings.
In case the Company shall issue rights, options, or warrants to all holders of
Common Stock entitling them to subscribe for or purchase Common Stock (or
securities convertible into or exchangeable for Common Stock) at a price per
share (or having a conversion price per share, in the case of a security
convertible into or exchangeable for Common Stock) less than the Current Market
Price per share of Common Stock on the record date for the determination of
stockholders entitled to receive such rights, then in each such case the
conversion price shall be adjusted by multiplying conversion price in effect
immediately prior to such record date by a fraction, of which the numerator
shall be the number of shares of Common Stock outstanding on such record date
plus the number of shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so to be offered (or the aggregate
initial conversion price of the convertible securities so to be offered) would
purchase at such Current Market Price and of which the denominator shall be the
number of shares of Common Stock outstanding on such record date plus the number
of additional shares of Common Stock to be offered for subscription or purchase
(or into which the convertible or exchangeable securities so to be offered are
initially convertible or exchangeable). Such adjustment shall become effective
at the close of business on such record date; provided, however, that, to the
extent the shares of Common Stock (or securities convertible into or
exchangeable for shares of Common Stock) are not delivered, the conversion price
shall be readjusted after the expiration of such rights, options, or warrants
(but only as to those Securities which are not converted after such expiration),
to the conversion price which would then be in effect had the adjustments made
upon the issuance of such rights or warrants been made upon the basis of
delivery of only the number of shares of Common Stock (or securities convertible
into or exchangeable for shares of Common Stock) actually issued. In case any
subscription price may be paid in a consideration part or all of which shall be
in a form other than cash, the value of such consideration shall be as
determined in good faith by the Company's Board of Directors. Shares of Common
Stock owned by or held for the account of the Company or any majority-owned
subsidiary shall not be deemed outstanding for the purpose of any such
computation.
Section 10.08. Other Rights to Acquire Common Stock.
In case the Company shall distribute to all holders of Common Stock (including
any such distribution made to the stockholders of the Company in connection with
a consolidation or merger in which the Company is the continuing corporation)
evidences of its indebtedness or assets (other than cash dividends or
distributions and dividends payable in shares of Common Stock), or options or
warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred to in
Section 10.07 above), then in each such case the conversion price shall be
adjusted by multiplying the conversion price in effect immediately prior to the
record date for the determination of stockholders entitled to receive such
distribution by a fraction, of which the numerator shall be the Current Market
Price per share of Common Stock on such record date, less the fair market value
(as determined in good faith by the Company's Board of Directors) of the portion
of the evidences of indebtedness or assets so to be distributed, or of such
subscription rights, options, or warrants or convertible or exchangeable
securities containing the right
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to subscribe for or purchase shares of Common Stock, applicable to one share,
and of which the denominator shall be such Current Market Price per share of
Common Stock. Such adjustment shall be made whenever any such distribution is
made, and shall become effective on the date of such distribution retroactive to
the record date for the determination of stockholders entitled to receive such
distribution.
Section 10.09. Current Market Price.
For the purpose of any computation under Sections 10.07 and 10.08 above, the
"Current Market Price" per share of Common Stock on any date shall be deemed to
be the average of the daily closing prices for the 30 consecutive trading days
commencing 45 trading days before such date. The closing price for each day
shall be the last reported sales price regular way or, in case no such reported
sale takes place on such day, the closing bid price regular way, in either case
on the principal national securities exchange on which the Common Stock is
listed or admitted to trading or, if the Common Stock is not listed or admitted
to trading on any national securities exchange, the highest reported bid price
as furnished by the National Association of Securities Dealers, Inc. through
NASDAQ or similar organization if NASDAQ is no longer reporting such
information, or by the National Daily Quotation Bureau or similar organization
if the Common Stock is not then quoted on an inter-dealer quotation system. If
on any such date the Common Stock is not quoted by any such organization, the
fair value of the Common Stock on such date, as determined by the Company's
Board of Directors, shall be used.
Section 10.10. Minimum Adjustment.
No adjustment in the conversion price shall be required if such adjustment is
less than $0.10; provided, however, that any adjustments which by reason of this
Section 10.10 are not required to be made shall be carried forward and taken
into account in any subsequent adjustment. All calculations under this Article X
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
Section 10.11. When Adjustment May Be Deferred.
In any case in which this Article X shall require that an adjustment in the
conversion price be made effective as of a record date for a specified event, if
a Security shall have been converted after such record date the Company may
elect to defer until the occurrence of such extent issuing to the Holder of such
Security the shares, if any, issuable upon such conversion over and above the
shares, if any, issuable upon such conversion on the basis of the conversion
price in effect prior to such adjustment; provided, however, that the Company
shall deliver to such Holder a due bill or other appropriate instrument
evidencing the Holder's right to receive such additional shares upon the
occurrence of the event requiring such adjustment.
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Section 10.12. Number of Shares.
Upon each adjustment of the conversion price as a result of the calculations
made in Sections 10.05 through 10.08 above, the Securities shall thereafter
evidence the right to purchase, at the adjusted conversion price, that number of
shares (calculated to the nearest thousandth) obtained by dividing (i) the
product obtained by multiplying the number of shares purchasable upon conversion
of the Securities prior to adjustment of the number of shares by the conversion
price in effect prior to adjustment of the conversion price by (ii) the
conversion price in effect after such adjustment of the conversion price.
Section 10.13. When No Adjustment Required.
No adjustment need be made for a transaction referred to in Sections 10.05
through 10.08 if Holders are permitted to participate in the transaction on a
basis no less favorable than any other party and at a level which would preserve
the Holders' percentage equity participation in the Common Stock upon conversion
of the Securities. No adjustment need be made for sales of Common Stock pursuant
to a Company plan for reinvestment of dividends or interest. No adjustment need
be made for a change in the par value or no par value of the Common Stock. If
the Securities become convertible solely into cash, no adjustment need be made
thereafter. Interest will not accrue on the cash.
Section 10.14. Notice of Adjustment.
Whenever the conversion price is adjusted, the Company shall promptly mail to
Holders a notice of the adjustment. The Company shall file with the Trustee a
certificate from the Company's independent public accountants briefly stating
the facts requiring the adjustment and the manner of computing it. The
certificates shall be evidence that the adjustment is correct.
Section 10.15. Voluntary Reduction.
The Company from time to time may reduce the conversion price by any amount for
any period of time if the period is at least 20 days and if the reduction is
irrevocable during the period. Whenever the conversion price is reduced, the
Company shall mail to Holders a notice of the reduction. The Company shall mail
the notice at least 15 days before the date the reduced conversion price takes
effect. The notice shall state the reduced conversion price and the period it
will be in effect. A reduction of the conversion price does not change or adjust
the conversion price otherwise in effect for purposes of Sections 10.05 through
10.08 above.
Section 10.16. Notice of Certain Transactions.
If (i) the Company takes any action that would require an adjustment in the
conversion price pursuant to this Article X; (ii) the Company takes any action
that would require a supplemental indenture pursuant to Section 10.17; or (iii)
there is a liquidation or dissolution of the Company, the Company shall mail to
Holders a notice stating the proposed record date for a distribution or
effective date of
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a reclassification, consolidation, merger, transfer, lease, liquidation or
dissolution. The Company shall mail the notice at least 15 days before such
date. Failure to mail the notice or any defect in it shall not affect the
validity of the transaction.
Section 10.17. Reorganization of Company.
If the Company is a party to a transaction subject to Section 5.01 or a merger
which reclassifies or changes its outstanding Common Stock, the person obligated
to deliver securities, cash or other assets upon conversion of Securities shall
enter into a supplemental indenture. If the issuer of securities deliverable
upon conversion of Securities is an affiliate of the surviving, transferee or
lessee corporation, that issuer shall join in the supplemental indenture. The
supplemental indenture shall provide that the Holder of a Security may convert
it into the kind and amount of securities, cash or other assets which he would
have owned immediately after the consolidation, merger, transfer or lease if he
had converted the Security immediately before the effective date of the
transaction. The supplemental indenture shall provide for adjustments which
shall be as nearly equivalent as may be practical to the adjustments provided
for in this Article X. The successor company shall mail to Holders a notice
briefly describing the supplemental indenture. If this Section applies, Section
10.05 above does not apply.
Section 10.18. Company Determination Final.
Any determination that the Company or the Board of Directors must make pursuant
to this Article X shall be conclusive, absent manifest error.
Section 10.19. Trustee's Disclaimer.
The Trustee has no duty to determine when an adjustment under this Article X
should be made, how it should be made or what it should be. The Trustee has no
duty to determine whether any provisions of a supplemental indenture under
Section 10.17 are correct. The Trustee makes no representation as to the
validity or value of any securities or assets issued upon conversion of
Securities. The Trustee shall not be responsible for the Company's failure to
comply with this Article X. Each Conversion Agent other than the Company shall
have the same protection under this Section 10.19 as the Trustee.
ARTICLE XI
SUBORDINATION
Section 11.01. Agreement to Subordinate.
The Company agrees, and each Holder by accepting a Security agrees, that the
indebtedness evidenced by the Securities is subordinated in right of payment, to
the extent and in the manner
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provided in this Article XI, to the prior payment in full of all Senior Debt,
and that the subordination is for the benefit of the holders of Senior Debt.
Section 11.02. Certain Definitions.
(a) "Indebtedness" means any indebtedness, contingent or otherwise, in
respect of borrowed money (whether or not the recourse of the lender is to the
whole of the assets of the borrower or only to a portion thereof), or evidenced
by bonds, notes, debentures or similar instruments or letters of credit, or
representing the balance deferred and unpaid of the purchase price of any
property or interest therein, except any such balance that constitutes a trade
payable, if and to the extent such indebtedness would appear as a liability upon
a balance sheet of the borrower prepared on a consolidated basis in accordance
with generally accepted accounting principles.
(b) "Representative" means the indenture trustee or other trustee,
agent or representative for an issue of Senior Debt.
(c) "Senior Debt" means the principal of and premium, if any, and
interest (including post-petition interest, if any) on, and any other payment
due pursuant to the terms of instruments creating or evidencing Indebtedness of
the Company outstanding on the date of this Indenture or Indebtedness thereafter
created, incurred, assumed or guaranteed by the Company and all renewals,
extensions and refundings thereof, which is payable to banks or other
traditional long-term institutional lenders such as insurance companies and
pension funds, unless in the instrument creating or evidencing such
Indebtedness, it is provided that such Indebtedness is not senior in right of
payment to the Securities. Notwithstanding the foregoing, Senior Debt with
respect to the Company or any Subsidiary shall not include (i) any Indebtedness
of the Company to any subsidiary for money borrowed or advanced from such
Subsidiary and (ii) any Indebtedness representing the redemption price of any
preferred stock.
(d) A distribution as referred to in this Article XI may consist of
cash, securities or other property.
Section 11.03. Liquidation, Dissolution, Bankruptcy.
Upon any distribution to creditors of the Company in a liquidation or
dissolution of the Company or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to the Company or its property (i)
holders of Senior Debt shall be entitled to receive payment in full in cash of
the principal of and interest to the date of payment on the Senior Debt before
Holders shall be entitled to receive any payment of principal of or interest on
Securities; and (ii) until the Senior Debt is paid in full in cash, any
distribution to which Holders would be entitled but for this Article XI shall be
made to holders of Senior Debt as their interest may appear, except that Holders
may receive securities that are subordinated to Senior Debt to at least the same
extent as the Securities.
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Section 11.04. Default on Senior Debt.
The Company may not pay principal or interest on the Securities and may not
acquire any Securities for cash or property other than capital stock of the
Company if (i) a default on Senior Debt occurs and is continuing that permits
holders of Senior Debt to accelerate its maturity, and (ii) the default is the
subject of judicial proceedings or the Company receives a notice of the default
from a person who may give it pursuant to Section 11.12. The Company may resume
payments on the Securities and may require them when (A) the default is cured or
waived, or (B) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings, if this Article XI otherwise permits the
payment or acquisition at that time.
Section 11.05. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration. The
Company may pay the Securities when 120 days pass after the acceleration occurs
if this Article XI permits the payment at that time.
Section 11.06. When Distribution Must be Paid Over.
If a distribution is made to Holders that because of this Article XI should not
have been made to them, the Holders who receive the distribution shall hold it
in trust for holders of Senior Debt and pay it over to them as their interests
may appear.
Section 11.07. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent of any facts
known to the Company that would cause a payment of principal or interest on the
Securities to violate this Article XI.
Section 11.08. Subrogation.
After all Senior Debt is paid in full and until the Securities are paid in full,
Holders shall be subrogated to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt. A distribution made under this Article
XI to holders of Senior Debt which otherwise would have been made to Holders is
not, as between the Company and Holders, a payment by the Company on Senior
Debt.
Section 11.09. Relative Rights.
This Article XI defines the relative rights of Holders and holders of Senior
Debt. Nothing in this Indenture shall (i) impair, as between the Company and the
Holders, the obligation of the Company, which is absolute and unconditional, to
pay principal and interest on the Securities in accordance with their terms;
(ii) affect the relative rights of Holders and creditors of the Company other
than holders
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of Senior Debt; or (iii) prevent the Trustee or any Holder from exercising its
available remedies upon a Default, subject to the rights of holders of Senior
Debt to receive distributions otherwise payable to Holders. If the Company fails
because of this Article XI to pay principal or interest on a Security on the due
date, the failure is still a Default.
Section 11.10. Subordination May Not be Impaired by Company.
No rights of any holder of Senior Debt to enforce the subordination of the
indebtedness evidenced by the Securities shall be impaired by any act or failure
to act by the Company or by its failure to comply with this Indenture.
Section 11.11. Distribution or Notice to Representative.
Whenever a distribution is to be made or a notice given to holders of Senior
Debt, the distribution may be made and the notice given to their Representative.
Section 11.12. Rights of Trustee and Paying Agent.
The Trustee or Paying agent may continue to make payments on the Securities
until it receives notice satisfactory to it that payments may not be made under
this Article XI. The Company, an Agent, a Representative or a holder of Senior
Debt may give the notice. If an issue of Senior Debt has a Representative, only
the Representative may give the Notice. The Trustee in its individual or any
other capacity may hold Senior Debt with the same rights it would have if it
were not Trustee. Any Agent may do the same with like rights.
ARTICLE XII
MISCELLANEOUS
Section 12.01. Notices.
Any notice or communication by the Company or the Trustee to the other is duly
given if in writing and delivered in person or mailed by first-class mail to the
other's address stated in Section 12.9. The Company or the Trustee by notice to
the other may designate additional or different addresses for subsequent notices
or communications. Any notice or communication to a Holder shall be mailed by
first-class mail to his address shown on the register kept by the Registrar.
Failure to mail a notice or communication to a Holder or any defect in it shall
not affect its sufficiency with respect to other Holders. If a notice or
communication is mailed in the manner provided above within the time prescribed,
it is duly given, whether or not the addressee receives it. If the Company mails
a notice or communication to Holders, it shall mail a copy to the Trustee and
each Agent at the same time.
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<PAGE>
Section 12.02. Communications by Holders with Other Holders.
The Trustee, within five business days after receipt of a written application by
any three or more Holders stating that they desire to communicate with other
Holders with respect to their rights under the Indenture or Securities, and
accompanied by a copy of the form of proxy or other communication which such
applicants propose to transmit, and by reasonable proof that each such applicant
has owned his Securities for a period of at least six months preceding the date
of such application, shall inform such applicants as to the approximate number
of Holders and the approximate cost of mailing to such Holders the form of proxy
or other communication, if any, specified in such application. The Trustee
shall, upon the written request of such applicants, mail to all Holders copies
of the form of proxy or other communication which is specified in such request,
with reasonable promptness after a tender to the Trustee of the material to be
mailed and of payment of the reasonable expenses of such mailing, unless within
five days after such tender, the Trustee shall determine, in good faith, that
such mailing would be contrary to the best interests of the Holders or would be
in violation of applicable law.
Section 12.03. Certificate and Opinion 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 (i) an Officers'
Certificate 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; and (ii) an Opinion of Counsel stating that in
the opinion of such counsel, all such conditions precedent have been complied
with.
Section 12.04. Statements Required in Certificate or Opinion.
Each Certificate or Opinion with respect to compliance with a condition or
covenant provided for in this Indenture shall include (i) a statement that the
person making such Certificate or Opinion has read such covenant or condition;
(ii) 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; (iii) 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 covenant or
condition has been complied with; and (iv) a statement as to whether or not, in
the opinion of such person, such condition or covenant has been complied with.
Section 12.05. Rules by Trustee and Agents.
The Trustee may make reasonable rules for action by or a meeting of Holders. The
Registrar, Paying Agent or Conversion Agent may make reasonable rules and set
reasonable requirements for its functions.
-27-
<PAGE>
Section 12.06. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on which banking institutions
are not required to be open. If a payment date is a Legal Holiday at a place of
payment, payment may be made at that place on the next succeeding day that is
not a Legal Holiday, and no interest shall accrue for the intervening period.
Section 12.07. No Recourse Against Others.
All liability described in the Securities of any director, officer, employee or
stockholder, as such, of the Company is waived and released.
Section 12.08. Duplicate Originals.
The parties may sign any number of copies of this Indenture. One signed copy is
enough to prove this Indenture.
Section 12.09. Miscellaneous.
(a) "Officer" means the President, any Vice-President, the Treasurer or
the Secretary of the Company.
(b) The Trustee shall initially serve as authenticating agent. The
Company initially appoints the Trustee as Paying Agent, Registrar and Conversion
Agent.
(c) The first certificate pursuant to Section 4.03 shall be for the
fiscal year ending on July 31, 1993.
(d) The reporting date for Section 7.06 is November 15 of each year.
The first reporting date is November 15, 1993.
(e) The Trustee, and any successor Trustee, shall always have a
combined capital and surplus of at least $10,000,000 as set forth in its most
recent published annual report of condition.
(f) The Company's address is:
Thermwood Corporation
P.O. Box 435
Old Buffaloville Road
Dale, Indiana 47523
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<PAGE>
The Trustee's address is:
American Stock Transfer and Trust Company
Trust Department
40 Wall Street
New York, New York 10005
Section 12.10. Governing Law.
The laws of the state of New York shall govern this Indenture and the
Securities.
SIGNATURES
Dated: 2/3/93 THERMWOOD CORPORATION
By /s/ Kenneth J. Susnjara
Kenneth J. Susnjara, President
Attest:
/s/ Linda S. Susnjara
Linda S. Susnjara, Secretary [SEAL]
Dated: 2/3/93
AMERICAN STOCK TRANSFER AND
TRUST COMPANY
Attest:
By /s/ signature illegible
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<PAGE>
Exhibit (c)(4)
RESOLVED, that, pursuant to and subject to the effectiveness of the
Reverse Stock Split, pursuant to Section 10.05 of the Indenture dated February
3, 1993, between the Corporation and American Stock Transfer and Trust Company
(the "Indenture") and notwithstanding Section 10.03 of such Indenture, the
conversion privilege with respect to the Corporation's outstanding Convertible
Subordinated Debentures (the "Debentures") shall be adjusted so that, upon the
effective date of the Reverse Stock Split, the holders of Debentures convertible
into fewer than 37,000 shares, including holders whose Debentures would be
convertible into fewer than .5 shares of New Common Stock, will be entitled to
convert such Debentures into the right to receive cash in lieu of fractional
shares, computed on the basis of $11.00 for each share of Old Common Stock which
each such Debenture holder would have received immediately prior to the
effective date of the Reverse Stock Split had he or she converted his or her
Debentures at that time;
FURTHER RESOLVED, that such cash in lieu of fractional shares shall not
bear any interest; and
FURTHER RESOLVED, that the officers of the Corporation be and they
hereby are authorized and directed, for and on behalf of the Corporation, to
execute such documents and provide such notices as are required under the terms
of the Indenture between the Corporation and American Stock Transfer and Trust
Company, as trustee, dated February 3, 1993.
-1-
<PAGE>
Exhibit (c)(5)
OPTION AGREEMENT
This agreement made this 22nd day of February, 1996, by and between the
Thermwood Corporation, an Indiana corporation, having its principal place of
business in Dale, Indiana, hereinafter referred to as Thermwood; and R. Jerry
Falkner, an individual, residing at Trophy Club 1, Skyland Country Club, Crested
Butte, Colorado 81224, hereinafter referred to as Falkner,
WITNESSETH THAT:
WHEREAS, Thermwood has retained Falkner to render certain public
relations services for Thermwood; and
WHEREAS, Falkner has offered to render such services partially in
consideration of the grant by Thermwood to Falkner of an option to purchase a
certain number of shares of the common stock of Thermwood, which offer Thermwood
is willing to accept, under the following terms and conditions.
NOW, THEREFORE, in consideration of Ten Dollars ($10.00), the premises
and mutual covenants herein contained and other good and valuable consideration,
the receipt and sufficiency of which is acknowledged by Falkner, the parties
hereto agree as follows:
1. Thermwood hereby grants to Falkner the right, privilege and option
to purchase twenty thousand (20,000) shares of the common stock of Thermwood at
a price of One Dollar and Sixty-eight and three-quarters Cents ($1.6875) per
share, at any time within an exercise period of ten (10) years commencing with
the date of this agreement as hereinabove set forth.
2. The right, privilege and option provided for in Paragraph 1 hereof
shall be exercised by written notice directed to Thermwood at its principal
place of business, accompanied by a check in payment of the option price for the
number of shares specified and paid for. Upon such exercise, Thermwood shall
cause immediate delivery of such shares to be made provided that if any law or
-1-
<PAGE>
regulation requires Thermwood to take any action with respect to the shares
specified in such notice before issuance thereof, then, the delivery of such
shares shall be extended for the period necessary for Thermwood to take such
action. Any certificate representing any shares issued pursuant to the
provisions of this paragraph shall bear the legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE
SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF 1933 OR
AN OPINION OF COUNSEL TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
unless and until the shares of common stock underlying this option shall have
been the subject of an effective registration statement filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
3. Falkner hereby represents to Thermwood that any shares to be
purchased pursuant to the option provided herein would be acquired for
investment for his own account and not with a view to or for resale in
connection with any distribution of such shares. In making such representation,
Falkner confirms that he does not intend to dispose of all or any part of such
shares unless and until such sale is, in the opinion of Thermwood's legal
counsel, lawful under the Securities Act of 1933, as amended, and the Indiana
Securities Law.
4. Falkner understands that the shares being issued are not presently
eligible for resale under the conditions of Rule 144 promulgated under the
Securities Act of 1933, as amended, and that he may be unable to sell such
shares in the absence of an opinion of Thermwood's legal counsel that
-2-
<PAGE>
registration is not required or advice from the Securities and Exchange
Commission that the Commission will take no action with respect to the proposed
transaction.
5. Falkner hereby consents that, if Thermwood may so desire, Thermwood
may permit the transfer of the shares referred to herein out of Falkner's name
only when a request for transfer is accompanied by an opinion of Thermwood's
legal counsel to the effect that neither the sale nor the proposed transfer
results in a violation of the Securities Act of 1933, as amended, or when the
Securities and Exchange Commission advises in writing that it will take no
action with respect to the proposed sale or disposition, and further consents
that the aforementioned legend to the effect of the foregoing may be placed on
the certificate or certificates delivered to him or any substitute therefor.
6. Falkner acknowledges that in connection with any purchase of the
shares referred to herein, he has been furnished with all information he has
considered necessary and advisable to enable him to form a decision concerning
such purchase, and that he has been urged to consult independent legal and
accounting counsel prior to such purchase and has been advised that all
information reasonably required by such counsel would be furnished to him
promptly.
7. Falkner further represents that he has sufficient knowledge and
experience in financial and business matters, that he is capable of evaluating
the merits and risks of the purchase of the shares referred to herein and that
he is able to bear the economic risk of the purchase of such shares.
8. Falkner further understands that the foregoing representations,
acknowledgments and consents are being relied upon by Thermwood as inducements
to sell the shares referred to herein to Falkner.
9. The number of shares subject to this right, privilege and option and
the option price for such shares shall be proportionally adjusted in the event
of any changes in the outstanding
-3-
<PAGE>
common stock of Thermwood by reason of any stock dividend, split up,
recapitalization or liquidation or the like.
10. Falkner shall have no rights as a shareholder with respect to any
shares available for purchase under the right, privilege and option granted
herein until payment of the prescribed option price and delivery to him of such
shares as herein provided.
11. This agreement shall be binding upon the heirs, executors,
administrators, assignees and successors of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed on the date hereinabove set forth.
ATTEST: THERMWOOD CORPORATION
/s/ Linda Susnjara /s/ Kenneth J. Susnjara
- ------------------------------ ---------------------------------
Secretary President
WITNESS:
/s/ Jerry Falkner
- ------------------------------ ---------------------------------
R. Jerry Falkner
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<PAGE>
Exhibit (c)(5)
RESOLVED, that the Corporation shall be authorized to pay to R. Jerry
Falkner the total of $10,250 (which represents the product of (i) the excess of
cash offered in lieu of fractional shares pursuant to the Reverse Stock Split
($11.00) over the per share exercise price of the option ($8.4375) times (ii)
the number of shares pursuant to such option (4,000)), and that Falkner's option
agreement shall be terminated upon such payment; and
FURTHER RESOLVED, that the officers of the Corporation be and they
hereby are authorized and directed, for and on behalf of the Corporation, to
execute such other documents as are required to carry out the intent of the
foregoing resolution.
-1-
<PAGE>
Exhibit (c)(6)
OPTION AGREEMENT
This agreement, entered into this 3rd day of September, 1998, by and
between the Thermwood Corporation, an Indiana corporation having its principal
place of business at 904 Old Buffaloville Road, Dale, Indiana, hereinafter
referred to as Thermwood; and Edgar Mulzer, an individual residing at 401 Tenth
Street, Tell City, Indiana, hereinafter referred to as Mulzer,
WITNESSETH THAT:
Whereas, Mulzer is the owner of a certain number of shares of the
presently outstanding shares of the common stock of Thermwood, hereinafter
referred to as Old Common Stock; and
WHEREAS, Thermwood contemplates amending its articles of incorporation
and effecting a reverse stock split providing for the conversion of each 37,000
shares of Old Common Stock of Thermwood into one share of new common stock of
Thermwood, hereinafter referred to as New Common Stock and the payment of cash
in lieu of factional shares; and
WHEREAS, following said conversion, Mulzer is expected to be the owner
of five (5) shares of New Common Stock; and
WHEREAS, Thermwood is desirous of obtaining form Mulzer the right,
privilege and option to purchase said 5 shares of New Common Stock to be owned
by Mulzer, which Mulzer is willing to grant, under the following terms and
conditions.
NOW, THEREFORE, for and in consideration of the premise and the mutual
covenants hereinafter set forth, the parties hereto agree as follows:
1. Mulzer hereby grants unto Thermwood, the right, privilege and option
to purchase from Mulzer said 5 shares of New Common Stock of Thermwood to be
issued and owned by Mulzer pursuant to said amendment to the articles of
incorporation of Thermwood and reverse stock split,
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<PAGE>
at a purchase price of Five Hundred Seventy Three Thousand and Five Hundred
Dollars ($573,500.00) per share of said New Common Stock, exercisable at any
time after October 31, 1999 and before November 1, 2003, as to any number of or
all such shares. If the reverse stock split is not consummated on or before
December 31, 1998, this right shall terminate.
2. In consideration of the right, privilege and option set forth in
Paragraph 1 hereof, Thermwood shall pay Mulzer the amount of Five Thousand
Dollars ($5,000.00) upon execution of this agreement.
3. The right, privilege and option provided for in Paragraph 1 hereof
shall be exercised by written notice by Thermwood to Mulzer at the address of
Mulzer as hereinbefore set forth, accompanied by a check in payment of the price
of the number of shares specified and paid for. Upon such exercise, Mulzer shall
cause the certificate or certificates representing the shares of New Common
Stock purchased pursuant to said exercise to be duly endorsed over and delivered
unto Thermwood.
4. Mulzer represents and warrants that (a) he is the sole, true and
rightful owner of the shares of Old Common Stock presently registered in his
name in the corporate records of Thermwood, (b) said presently owned shares of
Old Common Stock are not and shall not be encumbered in any manner, (c) he shall
be the sole, true and rightful owner of the shares of New Common Stock to be
issued to him pursuant to said conversion and (d) said shares of New Common
Stock to be issued pursuant to said conversion shall not be encumbered in any
manner.
5. Upon the conversion of said shares of Old Common Stock into said
shares of New Common Stock, Thermwood shall cause any certificate or
certificates representing said shares of New Common Stock to be issued to Mulzer
pursuant to said conversion, to bear the legend:
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<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE TERMS AND CONDITIONS OF THAT CERTAIN AGREEMENT BY AND
BETWEEN THE THERMWOOD CORPORATION AND EDGAR MULZER
DATED SEPTEMBER 3, 1998.
6. The number of shares subject to this right, privilege and option and
the option price for such shares shall be proportionally adjusted in the event
of any changes in said New Common Stock of Thermwood by reason of any stock
divided, split up, recapitalization, liquidation or the like.
7. Mulzer shall retain all rights as a shareholder with respect to said
shares of New Common Stock available for purchase under the right, privilege and
option granted herein until payment of the prescribed option price and delivery
to Thermwood of such shares as herein provided.
8. This agreement shall be binding upon the heirs, executors,
administrators, assignors and successors of the parties hereto.
9. This agreement shall be governed by and interpreted under the
substantive laws of the State of Indiana.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed on the date hereinabove set forth.
Attest: THERMWOOD CORPORATION
/s/ Linda Susnjara /s/ Kenneth J. Susnjara
- ------------------------------ ---------------------------------
Secretary Kenneth J. Susnjara, President
Witness:
/s/ Edgar Mulzer
- ------------------------------ ---------------------------------
Edgar Mulzer
-3-
<PAGE>
Exhibit (c)(7)
OPTION AGREEMENT
In consideration of services rendered and to be rendered by Kenneth J.
Susnjara, hereinafter referred to as Susnjara, as Chairman of the Board of
Directors and President of the Thermwood Corporation, hereinafter referred to as
Thermwood, as an incentive for Susnjara to continue to exert his best efforts in
promoting the best interests and success of Thermwood, and pursuant to a
resolution of the Board of Directors adopted on this date, Susnjara and
Thermwood agree this 22nd day of May 1996, as follows:
1. Thermwood hereby grants Susnjara the right, privilege and option to
purchase three hundred thousand (300,000) shares of the common stock of
Thermwood, at a purchase price of Three Dollars ($3.00) per share, and the
purchase of an additional three hundred thousand (300,000) shares of the common
stock of Thermwood at a purchase price of Six Dollars ($6.00) per share, on or
before October 18, 2005.
2. The right, privilege and option provided for in Paragraph 1 hereof
shall be exercised by written notice directed to Thermwood at its principal
place of business, accompanied by a check in payment of the option price for the
number of shares specified and paid for. Upon such exercise, Thermwood shall
cause immediate delivery of such shares to be made provided that if any law or
regulation requires Thermwood to take any action with respect to the shares
specified in such notice before issuance thereof, then, the delivery of such
shares shall be extended for the period necessary for Thermwood to take such
action. Any certificate representing any shares issued pursuant to the
provisions of this paragraph shall bear the legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SHARES UNDER THE
SECURITIES
-1-
<PAGE>
ACT OF 1933 OR AN OPINION OF COUNSEL TO THE EFFECT THAT REGISTRATION IS
NOT REQUIRED UNDER THE ACT.
unless and until the shares of common stock underlying this option shall have
been the subject of an effective registration statement filed with the
Securities and Exchange Commission pursuant to the Securities Act of 1933, as
amended.
3. Susnjara hereby represents to Thermwood that any shares to be
purchased pursuant to the option provided herein would be acquired for
investment for his own account and not with a view to or for resale in
connection with any distribution of such shares. In making such representation,
Susnjara confirms that he does not intend to dispose of all or any part of such
shares unless and until such sale is, in the opinion of Thermwood's legal
counsel, lawful under the Securities Act of 1933, as amended, and the Indiana
Securities Law.
4. Susnjara understands that the shares being issued are not presently
eligible for resale under the conditions of Rule 144 promulgated under the
Securities Act of 1933, as amended, and that he may be unable to sell such
shares in the absence of an opinion of Thermwood's legal counsel that
registration is not required or advice from the Securities and Exchange
Commission that the Commission will take no action with respect to the proposed
transaction.
5. Susnjara hereby consents that, if Thermwood may so desire, Thermwood
may permit the transfer of the shares referred to herein out of Susnjara's name
only when a request for transfer is accompanied by an opinion of Thermwood's
legal counsel to the effect that neither the sale nor the proposed transfer
results in a violation of the Securities Act of 1933, as amended, or when the
Securities and Exchange Commission advises in writing that it will take no
action with respect to the
-2-
<PAGE>
proposed sale or disposition, and further consents that the aforementioned
legend to the effect of the foregoing may be placed on the certificate or
certificates delivered to him or any substitute therefor.
6. Susnjara acknowledges that in connection with any purchase of the
shares referred to herein, he has been furnished with all information he has
considered necessary and advisable to enable him to form a decision concerning
such purchase, and that he has been urged to consult independent legal and
accounting counsel prior to such purchase and has been advised that all
information reasonably required by such counsel would be furnished to him
promptly.
7. Susnjara further represents that he has sufficient knowledge and
experience in financial and business matters, that he is capable of evaluating
the merits and risks of the purchase of the shares referred to herein and that
he is able to bear the economic risk of the purchase of such shares.
8. Susnjara further understands that the foregoing representations,
acknowledgments and consents are being relied upon by Thermwood as inducements
to sell the shares referred to herein to Susnjara.
9. The number of shares subject to this right, privilege and option and
the option price for such shares shall be proportionally adjusted in the event
of any changes in the outstanding common stock of Thermwood by reason of any
stock dividend, split up, recapitalization or liquidation or the like.
10. Susnjara shall have no rights as a shareholder with respect to any
shares available for purchase under the right, privilege and option granted
herein until payment of the prescribed option price and delivery to him of such
shares as herein provided.
11. This agreement shall be binding upon the heirs, executors,
administrators, assignees and successors of the parties hereto.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
executed on the date hereinabove set forth.
ATTEST: THERMWOOD CORPORATION
/s/ Linda S. Susnjara /s/ Michael Hardesty
- ------------------------------ ---------------------------------
Director Vice President
WITNESS:
/s/ Rebecca Fuller /s/ Kenneth J. Susnjara
- ------------------------------ ---------------------------------
Kenneth J. Susnjara
-4-
<PAGE>
Exhibit (c)(7)
RESOLUTIONS ADOPTED BY
THE BOARD OF DIRECTORS OF
THERMWOOD CORPORATION
RESOLVED, that if the Amendment is approved and the Reverse Stock Split
is effected, the option agreement with Kenneth J. Susnjara whereby Mr. Susnjara
has the option to purchase 60,000 shares at $15.00 per share and the option
agreement with Mr. Susnjara whereby Mr. Susnjara has the option to purchase
60,000 shares at $30.00 per share shall be terminated effective as of effective
date of the Reverse Stock Split; and
FURTHER RESOLVED, that the officers of the Corporation be and they
hereby are authorized and directed, for and on behalf of the Corporation, to
execute such other documents as are required to carry out the intent of the
foregoing resolution.
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<PAGE>
Exhibit (d)(1)
[Thermwood Letterhead]
Dear Shareholder:
You are invited to attend a Special Meeting of Shareholders (the
"Special Meeting") of Thermwood Corporation, an Indiana corporation (the
"Company"), to be held on October 29, 1998, at 11:00 A.M. local time, at the
Corporate Headquarters located at One Buffaloville Road, Dale, Indiana 47523.
At this meeting you will be asked to consider and vote upon the
following:
(i) an amendment to Article V of the Company's Articles of
Incorporation (the "Amendment") which would effect a 1-for-37,000
reverse split of the Company's Common Stock, without par value (the
"Common Stock"), by reducing the number of authorized shares of Common
Stock from 20,000,000 shares to 540 shares and the number of issued
shares by a similar percentage, and which would also eliminate the
Company's class of Preferred Stock (of which no shares are
outstanding), and
(ii) a cash payment of $11.00 per share of the currently
outstanding Common Stock, in lieu of the issuance of any resulting
fractional shares of Common Stock following the reverse split.
Items (i) and (ii) will be considered one proposal and shall be
referred to herein as the "Reverse Stock Split."
The Proposed Amendment is set forth in Exhibit A to the accompanying
Proxy Statement. If the proposed Amendment is approved and the Reverse Stock
Split is effected, the Company expects to cease the filing of certain reports
with the Securities and Exchange Commission.
Goelzer & Co., Inc. ("Goelzer") has been engaged by the Company in
connection with the proposed Reverse Stock Split to provide its opinion with
respect to the fairness from a financial point of view of the $11.00 cash
payment for fractional shares to be made in the proposed Reverse Stock Split.
Goelzer has rendered an opinion to the effect that the cash consideration to be
received by shareholders in lieu of fractional shares is fair from a financial
point of view. You are urged to read the opinion of Goelzer, which is attached
to the accompanying Proxy Statement as Exhibit B. You are also urged to read
carefully the accompanying Proxy Statement in its entirety, including the
section entitled "Special Factors" for important information concerning the
proposed Reverse Stock Split.
THE BOARD OF DIRECTORS HAS FULLY REVIEWED AND CONSIDERED THE TERMS AND
CONDITIONS OF THE PROPOSED REVERSE STOCK SPLIT AND HAS UNANIMOUSLY DETERMINED
THAT THE PROPOSED REVERSE STOCK SPLIT, TAKEN AS A WHOLE, IS FAIR TO, AND IN THE
BEST INTERESTS OF, THE CORPORATION AND ITS SHAREHOLDERS.
<PAGE>
The proposed Reverse Stock Split will not be consummated unless holders
of more shares vote in favor of the Reverse Stock Split than shares voted
against the Reverse Stock Split. The officers and directors of the Company own
approximately 33.4% of the outstanding shares of Common Stock and have indicated
that each will vote his or her shares in favor of the proposed Reverse Stock
Split. Therefore, the Reverse Stock Split is likely to receive shareholder
approval.
Promptly after consummation of the Reverse Stock Split, if approved, a
Letter of Transmittal will be mailed to all holders of Common Stock of the
Company for use in surrendering their stock certificates. Please do not send in
your stock certificates until you receive your Letter of Transmittal.
Sincerely,
Kenneth J. Susnjara,
Chairman of the Board and President
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION, NOR HAS THE COMMISSION 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.
<PAGE>
[Thermwood Letterhead]
NOTICE OF A SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON OCTOBER 29, 1998
October 5, 1998
To the Shareholders:
PLEASE TAKE NOTICE that a Special Meeting of Shareholders (the "Special
Meeting") of Thermwood Corporation, an Indiana corporation (the "Company"), will
be held on October 29, 1998, at 11:00 a.m. local time, at the Corporate
Headquarters located at One Buffaloville Road, Dale, Indiana 47523, for the
following purposes:
1. To consider and vote upon the following:
(i) an amendment to Article V of the Company's Articles of
Incorporation (the "Amendment") which would effect a 1-for-37,000
reverse split of the Company's Common Stock, without par value (the
"Common Stock"), by reducing the number of authorized shares of Common
Stock from 20,000,000 shares to 540 shares and the number of issued
shares by a similar percentage, and which would also eliminate the
Company's class of Preferred Stock (of which no shares are
outstanding), and
(ii) a cash payment of $11.00 per share of the currently
outstanding Common Stock, in lieu of the issuance of any resulting
fractional shares of Common Stock following the reverse split.
2. To transact such other business pertaining or related to
the foregoing as may properly come before the Special Meeting.
Only holders of shares of Common Stock at the close of business on
September 30, 1998, are entitled to notice of and to vote at the meeting or any
adjournment or postponement thereof.
By authority of the Board of Directors,
Kenneth J. Susnjara,
Chairman of the Board and President
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT IN THE ENCLOSED ENVELOPE, WHICH REQUIRES
NO POSTAGE IF MAILED IN THE UNITED STATES.
<PAGE>
TABLE OF CONTENTS
SUMMARY ...................................................................-1-
The Special Meeting................................................-1-
Purpose of the Special Meeting.....................................-1-
Voting ..........................................................-2-
Reasons for the Reverse Stock Split................................-2-
Potential Detriments of the Reverse Stock Split to Shareholders....-3-
Effect of the Reverse Stock Split on Affiliates....................-3-
Recommendation of the Board of Directors;
Fairness of the Reverse Stock Split...............................-3-
Opinion of Goelzer.................................................-3-
Business of the Company............................................-4-
Conduct of the Company's Business After the Reverse Stock Split....-4-
Federal Income Tax Consequences....................................-4-
Dissenters' Rights of Appraisal....................................-4-
Exchange of Certificates and Payment for Fractional Shares.........-5-
Financing of the Reverse Stock Split...............................-5-
Selected Historical Financial Data of the Company..................-6-
GENERAL ...................................................................-8-
Purpose of the Special Meeting.....................................-8-
Voting, Vote Required..............................................-8-
Amendment of Articles of Incorporation to
Effect the Reverse Stock Split....................................-9-
SPECIAL FACTORS.............................................................-10-
Background of the Proposed Reverse Stock Split.....................-10-
Reasons for the Reverse Stock Split................................-11-
Potential Detriments of the Reverse Stock Split to Shareholders....-13-
Effect of Reverse Stock Split on Affiliates........................-14-
Recommendation of the Board of Directors;
Fairness of the Reverse Stock Split...............................-14-
Opinion of Goelzer.................................................-18-
Business of the Company............................................-21-
Arrangements with Respect to Issuer's Common Stock, Stock Options
and Convertible Debentures................................-23-
Conduct of the Company's Business After the Reverse Stock Split....-25-
Federal Income Tax Consequences....................................-28-
Financial Effect of the Reverse Stock Split........................-30-
Exchange of Certificates and Payment for Fractional Shares
of New Common Stock.......................................-38-
FINANCING OF THE REVERSE STOCK SPLIT........................................-39-
-i-
<PAGE>
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT....................-39-
OTHER INFORMATION...........................................................-42-
DESCRIPTION OF COMMON STOCK.................................................-42-
MANAGEMENT OF THE COMPANY...................................................-42-
SELECTED HISTORICAL FINANCIAL DATA..........................................-45-
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS...................-47-
Fiscal Years Ended July 31, 1997, 1996 and 1995....................-47-
Nine Months Ended April 30, 1998 Compared to Nine Months
Ended April 30, 1997......................................-49-
LITIGATION..................................................................-51-
MARKET FOR THE COMMON STOCK; DIVIDENDS......................................-51-
Market Information.................................................-51-
Transaction in Common Stock........................................-52-
Dividends..........................................................-52-
SHAREHOLDER PROPOSALS.......................................................-52-
INDEPENDENT ACCOUNTANTS.....................................................-53-
ADDITIONAL INFORMATION......................................................-53-
EXPENSES ...................................................................-53-
CONSOLIDATED FINANCIAL STATEMENTS............................................F-1
EXHIBIT A
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION................A-1
EXHIBIT B
OPINION OF GOELZER & CO., INC.......................................B-1
-ii-
<PAGE>
EXHIBIT C
DISSENTERS' RIGHTS STATUTE......................................... C-1
-iii-
<PAGE>
Shareholders Should Read the Entire Proxy Statement
Carefully Prior to Returning Their Proxies
PROXY STATEMENT
FOR
SPECIAL MEETING OF SHAREHOLDERS OF
THERMWOOD CORPORATION
To Be Held October 29, 1998
SUMMARY
The following is a summary of certain information contained in this
Proxy Statement. It is not intended to be a complete explanation of all the
matters covered and much of the information contained in this Proxy Statement is
not covered by this summary. The information contained in this summary is
qualified in all respects by reference to the detailed discussion of these
matters contained elsewhere in this Proxy Statement. Shareholders are urged to
read this Proxy Statement, including the exhibits, in its entirety. The
approximate date on which this Proxy Statement and form of proxy are being sent
to shareholders is October 5, 1998.
The Special Meeting
These proxy materials are furnished in connection with the solicitation
of proxies by the Board of Directors of Thermwood Corporation, an Indiana
corporation (the "Company"), for a special meeting of its shareholders to be
held at 11:00 a.m. on October 29, 1998, at the Corporate Headquarters, located
at One Buffaloville Road, Dale, Indiana 47523, and at any adjournment or
postponement of such meeting (the "Special Meeting").
Purpose of the Special Meeting
At the Special Meeting, the shareholders will consider and vote upon:
(i) an amendment to Article V of the Company's Articles of
Incorporation (the "Amendment") which would effect a 1-for-37,000
reverse split of the Company's Common Stock, without par value (the
"Common Stock"), by reducing the number of authorized shares of Common
Stock from 20,000,000 shares to 540 shares (such new shares of Common
Stock sometimes referred to herein as the "New Common Stock") and the
number of issued shares by a similar percentage, and which would also
eliminate the Company's class of Preferred Stock (of which no shares
are outstanding), and
(ii) a cash payment of $11.00 per share of the currently
outstanding Common Stock, in lieu of the issuance of any resulting
fractional shares of New Common Stock following the reverse split.
-1-
<PAGE>
Items (i) and (ii) will be considered one proposal and shall be
referred to herein as the "Reverse Stock Split." See "General--Amendment of
Articles of Incorporation to Effect the Reverse Stock Split."
Voting
A majority of the votes entitled to be cast, in person or by proxy, is
necessary for a quorum. Approval of the Reverse Stock Split requires that the
number of shares voted in favor of the Reverse Stock Split exceeds the number of
shares voted against the Reverse Stock Split. Only shareholders of record at the
close of business on September 30, 1998 (the "Voting Record Date") will be
entitled to vote at the Special Meeting. On the Voting Record Date, there were
______ shares of Common Stock outstanding, and the Company has no other class of
equity securities outstanding.
The officers and directors of the Company currently own in the
aggregate 481,402 shares of Common Stock (excluding any shares which may be
acquired by them upon the exercise of stock options or conversion of convertible
debentures), which constitutes approximately 33.4% of the outstanding Common
Stock. Each officer or director who owns Common Stock has indicated that he or
she intends to vote in favor of the proposed Reverse Stock Split. See "Principal
Shareholders and Stock Ownership of Management."
Reasons for the Reverse Stock Split
The Board of Directors determined to propose the Reverse Stock Split in
order (i) to eliminate the cost of maintaining small shareholder accounts, (ii)
to permit small shareholders to receive a fair price for their shares without
having to pay brokerage commissions, (iii) to determine a set monetary value of
the shares of most lost shareholders, whose interests may eventually have to be
turned over to the states under abandoned property laws, and (iv) to relieve
itself and its affiliates of the administrative burden and cost and competitive
disadvantages associated with filing reports and otherwise complying with the
requirements of the Securities Exchange Act of 1934, as amended (the "1934
Act"). The Board believes that the Company derives no material benefit from the
continued registration of the Common Stock under the 1934 Act and that the
monetary expense and burden to management of continued registration and the
threat of a hostile acquisition of the Company while it is publicly traded
significantly outweigh any benefit that may be received by the Company or its
shareholders as a result of such registration. The Board of Directors is
proposing the elimination of the class of Preferred Stock, because if the
Reverse Stock Split is effected, the Board of Directors is planning to elect S
corporation status under the Internal Revenue Code of 1986, as amended (the
"Code"), and the Company will not qualify to make such election if it has more
than one class of stock. See "Special Factors--Reasons for the Reverse Stock
Split" and "Special Factors--Conduct of the Company's Business After the Reverse
Stock Split."
-2-
<PAGE>
Potential Detriments of the Reverse Stock Split to Shareholders
Persons owning fewer than 37,000 shares of Common Stock prior to the
Reverse Stock Split will cease to be shareholders of the Company, and thus will
no longer participate in future potential earnings and growth. It is anticipated
that only two shareholders (Kenneth J. Susnjara and Edgar Mulzer) will continue
as shareholders following the Reverse Stock Split. Persons who remain as
shareholders after the Reverse Stock Split will have decreased access to
information concerning the Company and will find it more difficult to sell their
shares. See "Special Factors--Potential Detriments of the Reverse Stock Split."
Effect of the Reverse Stock Split on Affiliates
Two of the Company's affiliates, Kenneth J. Susnjara and Edgar Mulzer,
own approximately 18.1% and 14.4% of the outstanding shares of Common Stock of
the Company (excluding shares subject to stock options held by them). Following
the Reverse Stock Split, it is anticipated that Mr. Susnjara and Mr. Mulzer will
beneficially own, in the aggregate, 100% of the Common Stock of the Company.
Therefore, they will be the only equity holders to participate in the future
earnings of the Company. Furthermore, the Company has an option to purchase the
shares of Common Stock held by Mr. Mulzer at any time during the period
commencing November 1, 1999, and ending on October 31, 2002. See "Special
Factors--Arrangements with respect to Issuer's Common Stock, Stock Options and
Convertible Debentures." Therefore, it is possible that in the future, Mr.
Susnjara will be the only equity holder to participate in the future earnings of
the Company. See "Special Factors-- Effect of the Reverse Stock Split on
Affiliates."
Recommendation of the Board of Directors; Fairness of the Reverse Stock Split
The Board of Directors believes that the cash payment of $11.00 per
share of currently outstanding Common Stock in lieu of the issuance of
fractional shares of Common Stock represents a price that is fair both to the
Company and to its shareholders. See "Special Factors-- Recommendation of the
Board of Directors; Fairness of the Reverse Stock Split," and "Special
Factors--Opinion of Goelzer."
Opinion of Goelzer
Goelzer & Co., Inc. ("Goelzer"), a business valuation firm, was
retained by the Special Committee to assist the Special Committee and the Board
in evaluating the Company for purposes of determining a fair price to be paid in
lieu of the issuance of fractional shares of New Common Stock as part of the
Reverse Stock Split. Goelzer has advised the Special Committee and the Board of
Directors that in its opinion the $11.00 per share cash price to be paid in lieu
of the issuance of fractional shares of New Common Stock pursuant to the Reverse
Stock Split is fair to holders of Common Stock from a financial point of view.
See "Special Factors--Opinion of Goelzer."
-3-
<PAGE>
Business of the Company
The Company manufactures high technology machining systems and sells
its products primarily through the assistance of dealer networks established
throughout the United States and Europe. The Company's machining systems are
utilized principally in the woodworking, plastics and aerospace industries. The
Company also offers a variety of technical services. These services include
training, installation assistance, preventive maintenance and upgrading and
enhancement of installed products as technology advances. Technical services are
marketed to customers who purchase equipment and systems directly from the
Company as well as to companies which purchase the Company's products in the
used market.
Conduct of the Company's Business After the Reverse Stock Split
If the Reverse Stock Split is approved and effected, the Company
intends to terminate the registration of its Common Stock under the 1934 Act.
Thereafter, the Company will cease the filing of periodic reports, proxy
statements and other reports and documents otherwise required to be filed with
the Securities and Exchange Commission (the "Commission"). It is expected that
following the Reverse Stock Split, Kenneth J. Susnjara and Edgar Mulzer will
beneficially own 100% of the outstanding shares of the Company. The Company is
likely to elect S corporation status and reduce the size of its Board of
Directors over time. Apart from those changes, the Company intends to continue
operating in substantially the same manner as it is currently conducting its
business operations. See "Special Factors--Reasons for the Reverse Stock Split,"
and "Special Factors-- Conduct of the Company's Business After the Reverse Stock
Split."
Federal Income Tax Consequences
The receipt of shares of New Common Stock in exchange for presently
outstanding shares of Common Stock will not result in recognition of gain or
loss to the shareholder. The receipt of cash by a shareholder pursuant to the
Reverse Stock Split will be a taxable transaction for federal income tax
purposes. Depending upon the particular circumstances of each shareholder, the
receipt of cash will be treated either as an exchange for property transaction
or as a distribution that will be treated as a dividend to the extent of the
shareholder's ratable share of the Company's undistributed earnings and profits.
See "Special Factors--Federal Income Tax Consequences."
Dissenters' Rights of Appraisal
Although no dissenters' rights are required for the proposed Reverse
Stock Split under the Indiana Business Corporation Law, the Board of Directors
of the Company has adopted a resolution voluntarily granting dissenters' rights
in accordance with Section 23-1-44-8(a)(5) of the Indiana Business Corporation
Law. Any record shareholder entitled to vote on the Amendment may dissent from
the Amendment and obtain payment of the fair value of his or her shares in
accordance with Sections 23-1-44-1 to 20 of the Indiana Business Corporation Law
(the "Dissenters' Rights Statute"). Any shareholder contemplating the exercise
of his or her right to dissent is urged to review carefully
-4-
<PAGE>
the provisions of the Dissenters' Rights Statute reprinted as Exhibit C to this
Proxy Statement. Exhibit C contains a complete description of the rights and
obligations of the Company and any shareholder who desires to exercise
dissenters' rights. EACH STEP MUST BE TAKEN IN STRICT COMPLIANCE WITH THE
APPLICABLE PROVISIONS OF THE DISSENTERS' RIGHTS STATUTE IN ORDER FOR
SHAREHOLDERS TO PERFECT DISSENTERS' RIGHTS. See "Special Factors--Dissenters'
Rights of Appraisal."
Exchange of Certificates and Payment for Fractional Shares
If approved, holders of Common Stock who beneficially own 37,000 shares
or more will receive one share of New Common Stock for each 37,000 shares of
Common Stock owned prior to the Reverse Stock Split. Holders of Common Stock who
do not beneficially own at least 37,000 shares and those whose shares are not an
even multiple of 37,000 shares will receive from the Company, in lieu of the
issuance of certificates for fractional shares of New Common Stock, cash in the
amount of $11.00 per share of Common Stock held prior to the Reverse Stock
Split. Such exchange and/or payment will be made by the Company upon the
physical surrender by shareholders of their share certificates for Common Stock
pursuant to the transmittal instructions to be mailed by the Company to the
shareholders following the approval of the Amendment. For the purpose of the
operation of the Reverse Stock Split (i.e., for determining whether and to what
extent shareholders will receive New Common Stock and/or cash in lieu of
fractional shares), and for no other purpose, the Company will treat the person
who is the underlying beneficial owner of shares held by a nominee as the
shareholder. See "Special Factors--Exchange of Certificates and Payment for
Fractional Shares."
Financing of the Reverse Stock Split
The Board of Directors estimates that the total cost to be incurred by
the Company in the Reverse Stock Split for payment of fractional share interests
and the settlement of outstanding options, including transactional expenses of
approximately $400,000, will be $11,700,000. The Company intends to finance this
transaction by borrowing $14,000,000 from a financial institution based in the
Midwest. See "Financing of the Reverse Stock Split."
-5-
<PAGE>
Selected Historical Financial Data of the Company
The following table summarizes certain historical financial data which
have been derived from the audited consolidated financial statements of the
Company for each of the years in the five-year period ended July 31, 1997 and
the unaudited consolidated financial statements for the nine-month periods ended
April 30, 1998 and 1997. Per share numbers and weighted average number of shares
have been adjusted to reflect the Company's 1-for-5 reverse stock split
effective January 5, 1998. For additional information, see "Financial Statements
of the Company," commencing on page F-1.
<TABLE>
<CAPTION>
Selected Statement of Operations Data (in thousands except per share data)
Nine Months Ended April 30, Fiscal Year Ended July 31,
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Sales, less commissions $ 15,960 $ 12,192 $ 17,779 $ 12,636 $ 12,314 $ 9,985 $ 10,825
Gross profit 6,473 4,764 6,906 4,925 4,786 3,579 2,173
Earnings before income
taxes 1,780 1,417 2,055 1,174 1,140 136 (1,394)
Earnings (loss) from
continuing operations 1,061 866 1,236 2,334 2,350 136 (1,394)
Net earnings (loss) $ 1,061 $ 866 $ 1,236 $ 2,334 $ 2,350 $ 208 $ (1,360)
========== ========= ========= ========= ========= ======== ==========
Net earnings (loss) per share:
Basic $ 0.72 $ 0.49 $ 0.69 $ 1.56 $ 1.91 $ 0.00 $(1.35)
Diluted $ 0.68 $ 0.48 $ 0.69 $ 1.45 $ 1.49 $ 0.00 $(1.35)
Weighted average number of shares:
Basic 1,421 1,327 1,385 1,284 1,037 1,030 1,011
Diluted 1,510 1,429 1,447 1,437 1,451 1,030 1,011
Cash dividends declared
per common share $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
Selected Balance Sheet Data (in thousands except per share data)
April 30, July 31,
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total assets $ 13,427 $ 11,273 $ 8,766 $ 7,527 $ 5,418 $ 6,928
Working capital 5,909 5,080 3,791 2,811 1,706 1,291
Long-term obligations 2,621 285 709 1,870 1,862 5,711
Shareholders' equity
(deficit) 5,687 7,087 6,275 3,437 1,456 (1,985)
Book value per share $ 3.98 $ 5.06 $ 4.80 $ 3.37 $ 1.41 $(2.04)
Ratio of earnings to
fixed charges 11.79 24.14 9.44 4.53 1.30 N/A(1)
</TABLE>
(1) The pretax loss from continuing operations resulted in a fixed charge
coverage deficiency of $1,394,238.
-6-
<PAGE>
Recent Financial Developments
The following tables set forth certain summary financial information for
the Company at July 31, 1998 and July 31, 1997, and for the three and twelve
months ended July 31, 1998 and 1997. Per share information for periods ended
July 31, 1997 has been adjusted to reflect the Company's 1-for-5 reverse stock
split effective January 5, 1998.
<TABLE>
<CAPTION>
Summary Statement of Operations Data (in thousands except per share data)
Fiscal Year Ended Quarter Ended
July 31, July 31,
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales, less commissions $ 21,884 $ 17,779 $ 5,924 $ 6,123
Gross profit 8,993 6,906 2,521 2,662
Earnings before income taxes 2,445 2,055 665 638
Net earnings 1,475 1,236 414 370
Net earnings per share
Basic $ 1.00 $ .69 $ .29 $ .30
Diluted $ .89 $ .69 $ .26 $ .25
</TABLE>
Summary Balance Sheet Data (in thousands)
July 31, July 31,
1998 1997
---- ----
(unaudited)
Total assets $ 11,920 $ 11,273
Shareholders' equity 6,102 7,087
Net sales for fiscal year 1998 increased by $4.1 million or 23% from
fiscal year 1997. However, backlog at July 31, 1998 was approximately $1 million
lower than at July 31, 1997. Management attributes the decreased level of orders
at July 31, 1998 to a slowdown in capital purchasing because of a slower
economy. Also, traditionally sales are slower before the International
Woodworking Fair, a furniture industry trade show, which was held in August.
Sales generally increase a month or two after the show. Gross profit for fiscal
year 1997 was 39% of net sales compared to 41% of net sales for fiscal year
1998. In the current year, gross profit was positively affected by the continued
use of more efficient production methods, including in-house fabrication of
components previously finished outside the Company.
-7-
<PAGE>
GENERAL
Purpose of the Special Meeting
At the Special Meeting, the shareholders will consider and vote upon:
(i) an amendment to Article V of the Company's Articles of
Incorporation which would effect a 1-for-37,000 reverse split of the
Company's Common Stock, by reducing the number of authorized shares of
Common Stock from 20,000,000 shares to 540 shares and the number of
issued shares by a similar percentage, and which would also eliminate
the Company's class of Preferred Stock (of which no shares are
outstanding), and
(ii) a cash payment of $11.00 per share of the currently
outstanding Common Stock, in lieu of the issuance of any resulting
fractional shares of New Common Stock following the reverse split.
The Company does not know of any other matters to come before the
Special Meeting. In the event any such matters properly are raised for
consideration and vote, the proxies will vote such shares in their discretion,
for or against such matters.
The proposed Reverse Stock Split is described in more detail in
subsequent sections of this Proxy Statement.
Voting, Vote Required
The shares covered by each proxy will be voted at the meeting FOR the
approval of the proposed Reverse Stock Split unless the proxies are instructed
to vote otherwise, in which case the proxies will vote the shares as instructed.
Approval of the proposed Reverse Stock Split requires that the number
of shares voted in favor of the Reverse Stock Split exceeds the number of shares
voted against the Reverse Stock Split. Only shareholders of record at the close
of business on the Voting Record Date will be entitled to vote thereon. As of
the close of business on the Voting Record Date, the Company had outstanding
approximately _________ shares of Common Stock, which were held by approximately
______ shareholders of record and 2,300 beneficial owners of such shares. Each
share of Common Stock is entitled to one vote at the Special Meeting on all
matters properly presented at the Special Meeting. A majority of votes entitled
to be cast, in person or by proxy, at the Special Meeting is necessary for a
quorum. In determining whether a quorum is present, shareholders who abstain or
cast broker non- votes will be deemed present at the Special Meeting. The
officers and directors of the Company own in the aggregate 481,402 shares of
Common Stock (excluding any shares which may be acquired by them upon the
exercise of stock options or conversion of convertible debentures), which
constitutes approximately 33.4% of the outstanding Common Stock. Each officer or
director who owns Common Stock has indicated that he intends to vote in favor of
the proposed Reverse Stock Split.
-8-
<PAGE>
The Reverse Stock Split does not require the approval of a majority of
the unaffiliated shareholders or of the majority of the shareholders who will
receive payment of $11.00 per share in lieu of fractional shares. The Board
believes the Reverse Stock Split should and will be favored by non-affiliates
and by those receiving cash in lieu of fractional shares. However, the Company
has not historically attained a high level of participation among its
unaffiliated holders at meetings for which their proxies have been solicited.
Because the likelihood of significant participation in the Special Meeting by
unaffiliated holders of Common Stock is so low, the Board does not believe that
it makes sense to require a majority vote of unaffiliated holders in order for
the Reverse Stock Split to be consummated. Further, the Board anticipates, based
on previous votes taken at annual meetings, that the vote of non-affiliates who
do decide to participate may not be of sufficient size to be meaningful.
Therefore the Board has decided not to condition the approval of the Reverse
Stock Split on approval by unaffiliated holders.
A shareholder giving a proxy may revoke it at any time before it is
exercised by giving written notice thereof to the Secretary of the Company at
the address referred to below, by submitting a duly executed proxy bearing a
later date, or by attending the Special Meeting and giving the Secretary notice
of his or her intention to vote in person.
The Company will pay the costs of soliciting proxies. No amount is to
be paid to any officer or employee of the Company for soliciting proxies. The
Company has engaged Morrow & Co., Inc. to assist in the solicitation of proxies.
The Company has agreed to pay to Morrow & Co., Inc. a fee of $5,000 plus $5.00
per shareholder contacted, for such services, plus reasonable out-of-pocket
expenses.
The mailing address of the principal executive offices of the Company
is P.O. Box 436, One Buffaloville Road, Dale, Indiana 47523.
Amendment of Articles of Incorporation to Effect the Reverse Stock Split
The Board of Directors of the Company has unanimously determined that
it is advisable to amend the Company's Articles of Incorporation to effect a
1-for-37,000 reverse split of the Company's Common Stock, to eliminate the class
of Preferred Stock, and to provide for the cash payment of $11.00 per share of
the currently outstanding Common Stock in lieu of the issuance of any resulting
fractional shares of New Common Stock following the Reverse Stock Split. The
Board has proposed the Amendment and the Reverse Stock Split to the shareholders
for approval at the Special Meeting. The Amendment will reduce the number of
authorized shares of the Company's Common Stock from 20,000,000 shares to 540
shares and the number of issued shares by a similar percentage and eliminate
altogether the class of Preferred Stock (of which no Shares are outstanding).
Following the Reverse Stock Split, based on the Company's shareholder records,
it is anticipated that there will be only two shareholders (Kenneth J. Susnjara
and Edgar Mulzer) holding a total of 12 shares. If the Company's shareholder
records are incomplete or inaccurate and there are presently shareholders other
than Kenneth J. Susnjara and Edgar Mulzer who hold 37,000 or more shares, or if
prior to the effective date of the Reverse Stock Split another person becomes a
shareholder of
-9-
<PAGE>
37,000 or more shares, then the Company is willing to purchase the shares of
such shareholder(s) for the price per share paid to shareholders who receive
cash in lieu of fractional shares, at the request of such shareholder. No other
terms of the Company's Articles of Incorporation will change.
The Amendment is set forth in Exhibit A to this Proxy Statement.
Because the Company intends to deregister its Common Stock under the
1934 Act, the Company has filed a Rule 13e-3 Transaction Statement on Schedule
13E-3 (the "Schedule 13E-3"), of which this Proxy Statement is a part, with the
Commission.
SPECIAL FACTORS
Background of the Proposed Reverse Stock Split
Of the Company's approximately 286 record shareholders, 247 hold 500 or
fewer shares and represent less than 2% of the outstanding Common Stock. This
large number of small shareholder accounts has been an administrative
inconvenience for the Company for many years. The Board and the Company's
management have long held the view that the continued expense and burden of
maintaining so many small shareholder accounts is not cost efficient for a
business the size of the Company. Many of the Company's shareholders have lost
contact, making it impossible for the Company to communicate with them. Some
others' interests are so small that brokerage commissions or administrative
inconvenience deter them from selling shares. The Board also holds the view that
the Company generally derives no material benefit from continued registration
under the 1934 Act, and in certain respects registration under the 1934 Act
places the Company at a competitive disadvantage vis-a-vis its competitors who
are not required to file reports under the 1934 Act. Management has remained a
public corporation in the past to help facilitate a public market for the
shares. That market has not been as active or liquid as management had desired.
The Board decided to consider a Reverse Stock Split as a means to liquidate the
interests of lost shareholders and its many small shareholder accounts at a fair
price and then to deregister under the 1934 Act.
In March, 1998, management began considering a Reverse Stock Split in
detail, as well as other options that could accomplish the Board's objectives.
Among the alternatives, the Board considered both a stock repurchase program and
offering long-term bonds to its shareholders in exchange for shares of Common
Stock. The Board rejected both alternatives because it did not think they would
accomplish all of its goals. In July 1998, Mr. Susnjara, the Company's President
and Chairman of the Board, and Peter N. Lalos, a director of the Company, met to
discuss the potential of pursuing the Reverse Stock Split. Management presented
pertinent considerations and a proposal of a Reverse Stock Split to the Board at
the end of July, 1998. The Board of Directors then appointed a Special Committee
of Directors, composed of Lee Ray Olinger and Peter N. Lalos, to represent the
interests of the shareholders who would receive cash in lieu of the issuance of
fractional shares of New Common Stock in the proposed Reverse Stock Split. That
Committee hired special counsel to assist it in its deliberations on behalf of
the shareholders who would be cashed out in the Reverse
-10-
<PAGE>
Stock Split. On August 6, 1998, the Special Committee of Directors engaged
Goelzer to assist the Special Committee in evaluating the fairness of the
consideration to be given to shareholders who receive cash in lieu of fractional
shares pursuant to the proposed Reverse Stock Split. After its engagement,
representatives of Goelzer visited the Company, discussed the business of the
Company with management, and spoke with the Company's special counsel.
On August 17, 1998, the Board determined to pursue the Reverse Stock
Split at a ratio of 1- for-38,000, subject to receipt of a written report by
Goelzer with respect to the fairness of the transaction to the shareholders who
would receive cash in lieu of fractional shares. Goelzer presented its written
analysis of the Company's value, which is discussed below, and rendered an oral
fairness opinion with respect to the cash consideration which will be paid to
the shareholders to be cashed out in the Reverse Stock Split which was followed
up in writing after the meeting. The Board determined to proceed with the
transaction and to submit the Reverse Stock Split to the shareholders for
approval. The Board set the price of $11.00 per share for payment in lieu of
fractional shares of New Common Stock pursuant to the Reverse Stock Split. See
"Special Factors--Recommendation of the Board of Directors; Fairness of the
Reverse Stock Split," and "Special Factors--Opinion of Goelzer."
On September 2, 1998, the Board met to finalize the terms of the
Reverse Stock Split and to authorize the filing of this Proxy Statement and the
related Schedule 13E-3 with the Commission. The Board also determined to reduce
the reverse split ratio from 38,000-to-1 to 37,000-to-1 in order to minimize the
amount of cash in lieu of fractional shares which would be paid to the two
surviving shareholders.
Reasons for the Reverse Stock Split
The Board of Directors determined to propose the Reverse Stock Split in
order (i) to eliminate the cost of maintaining small shareholder accounts, (ii)
to permit small shareholders to receive a fair price for their shares without
having to pay brokerage commissions, (iii) to determine a set monetary value of
the shares of most lost shareholders, whose interests may eventually have to be
turned over to the states under abandoned property laws, and (iv) to relieve
itself and its affiliates of the administrative burden and cost and competitive
disadvantages associated with filing reports and otherwise complying with the
requirements of 1934 Act registration. The Board believes that the Company
derives no benefit from the continued registration of the Common Stock under the
1934 Act and that the monetary expense and burden to management of continued
registration and the threat of a hostile acquisition of the Company while it is
publicly traded significantly outweigh any material benefit that may be received
by the Company or its shareholders as a result of such registration.
The Company presently has approximately 286 shareholders of record and
approximately 2,300 beneficial owners of such shares. Of the 286 record
shareholders, approximately 247 own 500 or fewer shares. In the aggregate, the
shares held by these small holders comprise less than 2% of the outstanding
Common Stock. The administrative burden and costs to the Company of maintaining
records in respect of these numerous small accounts and the associated cost of
printing and mailing
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information to them is, in the Board's view, excessive given the Company's size.
These expenditures result in no material benefit to the Company. The Reverse
Stock Split will enable the Company to eliminate much of this cost.
Management had determined to remain a public corporation in the past to
help facilitate a public market for the shares. That market has not been as
active or liquid as management had desired. Though the Company has numerous
shareholders, its stock is thinly traded. Many investors decline to purchase
shares having a price as low as that of the Common Stock, and brokerage
commissions inhibit the ability of many of the Company's smallest holders to
liquidate their shares economically. Therefore, small shareholders lack
opportunities to realize the fair value of their shares. Through the Reverse
Stock Split, small holders will have the opportunity to liquidate their
interests without brokerage costs. See "Market for the Common Stock; Dividends."
Of the approximately 20 holders with whom the Company has lost contact,
nearly all hold 100 or fewer shares. The Company will be entitled to retain the
cash proceeds to which such shareholders are entitled in the Reverse Stock Split
until such shareholders deliver to the Company certificates for their shares of
Common Stock and claim such proceeds. Eventually, the Company may be required to
turn the interests of those holders over to the states pursuant to abandoned
property laws. The Board believes it is in the Company's best interests to fix
at a fair price the value of the Company's obligation to lost holders. This will
avoid having the states become equity holders in the Company. Of course, the
Reverse Stock Split will eliminate these small inactive accounts as shareholders
of record.
The Board believes that the disadvantages to being a public company
outweigh any advantages. The Board has no present intention to raise capital
through sales of securities in a public offering in the future or to acquire
other business entities using stock as the consideration for any such
acquisition. Accordingly, the Company is not likely to make use of any advantage
(for raising capital, effecting acquisitions or other purposes) that the
Company's status as a reporting company may offer.
The Company incurs direct and indirect costs associated with compliance
with the Commission filing and reporting requirements imposed on public
companies. The Company incurs direct costs of approximately $260,000 annually.
The Company incurs substantial indirect costs as a result of, among other
things, the executive time expended to prepare and review such filings. Since
the Company has relatively few executive personnel, these indirect costs can be
substantial. In light of the Company's size and resources, the Board does not
believe such costs are justified.
In addition, to the Company's knowledge, none of the Company's
competitors are publicly held. The Company suffers a competitive disadvantage
from being required to disclose certain information that privately held
companies do not disclose.
Moreover, because of its status as a publicly-traded company with
numerous small shareholders, the Company believes that the Company's business
strategy could be interfered with
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by a hostile takeover or similar acquisition that the Board of Directors might
believe is not in the best interests of its shareholders.
Presently management's long-term plans are to remain independent. The
Board believes that it is in the best interests of the Company to continue its
present operations, marketing strategy, development plans and management
structure and not to merge with or sell the Company to another person or entity.
Obligations imposed on management of public companies may eventually prevent the
Company from remaining independent if the Company becomes the subject of a
hostile takeover bid.
The Board has determined that the Reverse Stock Split is the most
expeditious and economical way of liquidating small shareholders and changing
the Company's status from that of a reporting company to that of a more closely
held, non-reporting company. See "Special Factors-- Recommendation of the Board
of Directors; Fairness of the Reverse Stock Split" and "Special Factors--Conduct
of the Company's Business After the Reverse Stock Split."
The Board of Directors is proposing the elimination of the class of
Preferred Stock, because if the Reverse Stock Split is effected, the Board of
Directors is planning to elect S corporation status, and the Company will not
qualify to make such election if it has more than one class of stock. See
"Special Factors--Conduct of the Company's Business After the Reverse Stock
Split."
Potential Detriments of the Reverse Stock Split to Shareholders
Shareholders owning fewer than 37,000 shares immediately prior to the
effective time of the Reverse Stock Split will, after the Reverse Stock Split
takes place, no longer have any equity interest in the Company and therefore
will not participate in its future potential earnings or growth. It is expected
that all beneficial owners, except Kenneth J. Susnjara and Edgar Mulzer, will be
cashed out in the Reverse Stock Split. It will not be possible for cashed out
shareholders to reacquire an equity interest in the Company if they so desire
because the two remaining shareholders will control the Company and transfers by
them of their shares to third parties are not anticipated. See "Special
Factors--Conduct of the Company's Business After the Reverse Stock Split" and
"Special Factors-- Arrangements with Respect to Issuer's Common Stock, Stock
Options or Convertible Debentures."
Potential detriments to Company shareholders who remain as shareholders
if the Reverse Stock Split is effected include decreased access to information
and decreased liquidity. If the Reverse Stock Split is effected, the Company
intends to terminate the registration of its Common Stock under the 1934 Act. As
a result of such termination, the Company will no longer be subject to the
periodic reporting requirements and the proxy rules of the 1934 Act. Although
the Company intends to continue to send audited financial statements to its
remaining shareholders each year, less information will be available than if the
Company continued to be a 1934 Act reporting company. In addition, following the
Reverse Stock Split, the Company will no longer meet the requirements for
listing on the American Stock Exchange ("AMEX") or the Pacific Stock Exchange
("PSEX") and will delist its shares of Common Stock. The termination of the
Company's 1934 Act registration and its
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delisting from AMEX and PSEX will cause the trading market for the Company's
stock, already thin, to disappear. Finally, as a result of the Company's
borrowing funds to pay for the fractional shares and the transactional costs
associated with the Reverse Stock Split, the Company will incur additional
interest expense. See "Special Factors--Financial Effect of the Reverse Stock
Split" and "Special Factors--Conduct of the Company's Business After the Reverse
Stock Split."
Effect of Reverse Stock Split on Affiliates
Kenneth J. Susnjara, the Company's President and Chairman of the Board,
and Edgar Mulzer, a director of the Company, own 261,400 shares and 208,052
shares, respectively (excluding shares subject to stock options held by such
persons). Such shares represent approximately 18.1% and 14.4% of the outstanding
shares of Common Stock of the Company. Since the Reverse Stock Split will cash
out the smaller shareholders, following the Reverse Stock Split, Mr. Susnjara
and Mr. Mulzer are expected to beneficially own 100% of the Common Stock, or
58.33% and 41.67 %, respectively. Therefore, Mr. Susnjara and Mr. Mulzer are
expected to be the only shareholders to participate in any future growth and
earnings of the Company. In addition, the Company and Mr. Mulzer have entered
into an agreement whereby the Company has an option to purchase the shares of
Common Stock held by Mr. Mulzer at any time during the period commencing
November 1, 1999, and ending October 31, 2002. See "Special
Factors--Arrangements with Respect to Issuer's Common Stock, Stock Options and
Convertible Debentures." Therefore, in the future, there exists the possibility
that Mr. Susnjara will be the only remaining equity holder of the Company, and
he alone will benefit from the Company's earnings. See "Principal Shareholders
and Stock Ownership of Management," "Other Information," and "Additional
Information."
If the Company's shareholder records are incomplete or inaccurate and
there are presently shareholders other than Kenneth J. Susnjara and Edgar Mulzer
who hold 37,000 or more shares, or if prior to the effective date of the Reverse
Stock Split another person becomes a shareholder of 37,000 or more shares, then
the Company is willing to purchase the shares of such shareholder(s) for the
price per share paid to shareholders who receive cash in lieu of fractional
shares, at the request of such shareholder.
Recommendation of the Board of Directors; Fairness of the Reverse Stock Split
The Board believes that the Reverse Stock Split, taken as a whole, is
fair to, and in the best interests of, the shareholders of the Company who will
receive cash in lieu of fractional shares, those who will receive shares of New
Common Stock and those who will receive both cash and shares. The Board also
believes that the process by which the transaction is to be approved is fair.
The Board unanimously recommends that the shareholders vote for approval and
adoption of the Amendment and the payment of cash in lieu of fractional shares
as described above. Each member of the Board and each officer of the Company who
owns shares of Common Stock has advised the Company that he intends to vote his
shares in favor of the Reverse Stock Split.
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In determining to recommend the Reverse Stock Split to the
shareholders, all of the members of the Board, including those Board members who
are not employees of the Company and those whose shares will be cashed out in
the Reverse Stock Split, approved the transaction.
In reaching its determination that the Reverse Stock Split, taken as a
whole, is fair to and in the best interests of the shareholders and in reaching
its recommendation that the shareholders vote for approval and adoption of the
Amendment and the payment of cash in lieu of fractional shares, the Board of
Directors considered, among other things (i) the analysis and opinion of Goelzer
including its discounted cash flow analysis, market comparables analysis,
payback analysis, benchmark or ratio analysis and leveraged recapitalization
analysis, see "Special Factors--Opinion of Goelzer," (ii) each of the director's
knowledge of and familiarity with the Company's business prospects, financial
condition and current business strategy, (iii) information with respect to the
financial condition, results of operations, assets, liabilities, business and
prospects of the Company, and current industry, economic and market conditions,
(iv) the opportunity presented by the Reverse Stock Split for shareholders
owning 37,000 or fewer shares to liquidate their holdings without incurring
brokerage costs, particularly given the relatively illiquid market for the
Common Stock, and (v) the future cost savings and competitive advantages that
will inure to the benefit of the Company and its continuing shareholders as a
result of the Company deregistering its Common Stock under the 1934 Act.
The Board appointed a Special Committee to engage an independent
appraiser to assist in evaluating the fairness of the transaction. The Special
Committee was composed of two outside directors, Lee Ray Olinger and Peter N.
Lalos, neither of whom would continue as shareholders after the Reverse Stock
Split. In addition, the Special Committee hired Richard Wetherill, Esq., as
special counsel, to assist the Committee in negotiating the terms of the
transaction and/or preparing a report concerning the fairness of the
transaction. The Special Committee and Goelzer have independently considered the
fairness of the transaction to holders receiving only cash in lieu of the
issuance of fractional shares. The Special Committee unanimously approved the
Reverse Stock Split and recommended it for consideration by the full Board.
Alternatives. Before proposing the Reverse Stock Split, the Board
considered alternative means of achieving its objectives for the Company. The
Board considered a stock repurchase program or offering long-term bonds to its
shareholders in exchange for shares of Common Stock. The Board rejected those
alternatives, because it did not think they would accomplish all of its goals.
As the Company considered scenarios that would enable it to deregister under the
1934 Act, it also gave consideration to a transaction by which it could merge
with a new shell corporation. This would have liquidated small shareholder
accounts in the same way as the Reverse Stock Split enabling the Company to
deregister. A merger transaction would have been more expensive because of
required documentation and regulatory requirements, and would have delayed the
Company's deregistration under the 1934 Act relative to the proposed Reverse
Stock Split. The Board also considered making a cash tender offer to its
shareholders. However, there would be no assurance that many small shareholders
would tender shares. Obviously, shareholders who cannot be located are unlikely
to respond to voluntary tender offers. Therefore, the Board could not justify
the costs associated with
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such an issuer tender offer. For these reasons, the Board has decided that the
Reverse Stock Split is the optimal means to achieve its objectives for the
Company.
Factors Considered by the Board. Part of the Board's purpose in
engaging Goelzer was to obtain an independent estimate of the fair value of the
Company's Common Stock on a going concern basis. The Board has given significant
weight to the views of Goelzer which are based, in part, on its discounted cash
flow analysis, market comparables analysis, payback analysis, benchmark or ratio
analysis and leveraged recapitalization analysis, all of which the Board
believes are probative of fair going concern value. See "Special
Factors--Opinion of Goelzer."
In addition to the factors enumerated by Goelzer, the Board considered
the Company's business, its current business strategy and its prospects, and
current industry, economic and market conditions. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations." In addition, the
Board noted that, to its knowledge, none of the Company's competitors are
publicly held, and that the Company suffers a competitive disadvantage from
being required to disclose certain information that privately held companies do
not disclose. Furthermore, there exists the threat of a hostile takeover of the
Company while it is publicly traded.
Finally, the Board considered the current market prices of the
Company's stock, insofar as open market prices are presumptively an accurate
determination of the fair value of any stock. The Board gave no material weight
in determining the fairness of the transaction to the book value of Company
Stock or the liquidation value of Company assets. The Board believes book and
liquidation value are less probative of the value of a going concern.
Because of its expertise and independence, the Board has placed
particular weight on the opinion of Goelzer. After considering the factors
discussed above and, in particular, the views expressed by Goelzer, the Board
identified the stated consideration for fractional shares in the transaction at
$11.00 per share of outstanding common stock. Goelzer indicated its willingness
to deliver the opinion accompanying this proxy statement to the effect that the
$11.00 price per share is fair to those holders of Common Stock who will receive
only cash in the Reverse Stock Split.
Fairness to Holders Who Currently Hold More Than 37,000 Shares. The
Board believes that the transaction is fair to such remaining holders. In view
of the considerations discussed above, including Goelzer's views on the range of
the fair value of Company Stock, the Board believes that the consideration being
paid for fractional shares is fair to the remaining shareholders for the same
reasons that it is fair to liquidating shareholders. Furthermore, remaining
shareholders will retain interests in the Company and those interests will be
significantly augmented through the liquidation of small holders. It is expected
that following the Reverse Stock Split, Kenneth J. Susnjara and Edgar Mulzer,
who currently own approximately 18.1% and 14.4%, respectively, of the
outstanding shares (excluding shares subject to stock options), will
beneficially own 100% of the Company. Additional benefits will accrue to these
remaining holders in the form of future savings by the Company of the expense of
1934 Act filings and other administrative costs. Future benefits will also
accrue to remaining shareholders in the form of income tax savings if the
Company elects S corporation status.
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See "Special Factors--Conduct of the Company's Business After the Reverse Stock
Split." The Board also believes the price being paid for outstanding stock in
the Reverse Stock Split is fair to the Company and, therefore, fair to those who
will remain shareholders. As discussed above, the Board does not believe that
any benefits to the Company associated with remaining a 1934 Act reporting
company are worth the long-term costs. The use of borrowed funds to effect the
Reverse Stock Split is appropriate in view of the Company's size, its trading
market, its long-term prospects and the other factors described herein. The
Board considers the additional interest expense resulting from the Company's
borrowing of funds to pay for fractional shares and the transactional costs
associated with the Reverse Stock Split to be reasonable to the remaining
shareholders.
If the Reverse Stock Split is approved, the Company plans to terminate
the registration of the Common Stock under the 1934 Act. See "Special
Factors--Conduct of the Company's Business After the Reverse Stock Split." This
action would affect the remaining shareholders of the Company. The Company would
be relieved of the obligation to comply with the proxy rules of Regulation 14A
under Section 14 of the 1934 Act, and its officers and directors and
shareholders owning more than 10% of the Common Stock would be relieved of the
stock ownership reporting requirements and "short swing" trading restrictions
under Section 16 of the 1934 Act. Further, the Company would no longer be
subject to the periodic reporting requirements of the 1934 Act and would cease
filing information with the Commission. The Company does, however, plan to
continue to send audited financial statements to all remaining shareholders each
year. Additionally, the Indiana Business Corporation Law grants each shareholder
the right to review certain books and records of the Company. In addition, the
market for the Common Stock, already thin, will disappear. The Board has
considered the effect of deregistration upon the shareholders who will remain
after the Reverse Stock Split and has decided that the advantages and savings to
the Company of deregistration outweigh the disadvantages to remaining
shareholders.
Moreover, the Board believes the Reverse Stock Split transaction is
being effected in a manner that is fair procedurally to unaffiliated holders.
The transaction is being effected in accordance with all requirements under the
Indiana Business Corporation Law and the Company's Articles of Incorporation and
By-Laws. Over and above the requirements, the Board retained an independent
financial expert, Goelzer, to consider and opine on the price being paid to
liquidating holders. The Board also decided to grant shareholders the right to
exercise dissenters' rights under Section 23-1-44 et seq. of the Indiana
Business Corporation Law, although the Indiana Business Corporation Law does not
require the Company to do so. The Reverse Stock Split will not, however, require
the approval of a majority of unaffiliated shareholders, for reasons discussed
above. See "General--Voting; Vote Required."
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR APPROVAL
OF THE AMENDMENT.
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Opinion of Goelzer
Goelzer was engaged by the Special Committee of Directors to determine
a range of fair value of the Common Stock, and, depending on the price
determined by the Board, to render an opinion on the fairness of the price to be
paid to liquidating holders in the Reverse Stock Split. The Company imposed no
limitations on Goelzer with respect to the scope of its investigation of the
Company, the preparation of its valuation report or its opinion as to the
fairness of the amount of consideration to be paid to holders of fewer than
37,000 shares.
In connection with rendering its fairness opinion and valuation report,
Goelzer conducted extensive due diligence which included the following
activities:
(i) Conducted detailed interviews with the Company's management concerning
the Company's history and operating record, the nature of the markets
served, competitive situation, financial condition, recent performance
and current outlook;
(ii) Inspected the Company's corporate offices and manufacturing facilities
in Dale, Indiana;
(iii) Analyzed trading data and market capitalization of the Company's common
stock for a period of five years as provided by Bloomberg Analytics;
(iv) Analyzed the Company's financial statements and studied the Company's
filings under the 1934 Act including the Form 10-K and annual reports
for the last five full fiscal years, as well as the latest available
10-Q for the quarter ended April 30, 1998;
(v) Conducted a search using Bloomberg Analytics for publicly traded
companies which could be used as reasonable comparables in determining
the fair value of the Company. Goelzer searched for companies with
similar operations and for companies which are affected by similar
economic variables, such as furniture manufacturers;
(vi) Conducted a search for merger and acquisition transactions involving
privately held corporations within the woodworking, plastics
manufacturing and furniture manufacturing industries using a
proprietary database consisting of nearly 3,000 transactions;
(vii) Reviewed studies for both premiums paid in acquisitions of control as
well as studies on the lack of marketability for privately held and
thinly traded public securities;
(viii) Performed other studies, analyses and investigations as deemed
appropriate.
Goelzer utilized a number of methodologies in determining a range of
fair value. First, Goelzer completed a discounted cash flow ("DCF") analysis of
the Company and then independently performed a market comparable analysis. The
market comparable analysis supported the results of
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the discounted cash flow analysis. Goelzer also completed a payback analysis and
a benchmark analysis in which Goelzer scrutinized the various valuation
multiples derived by the DCF analysis. Goelzer is familiar with the multiples
being paid for companies of a comparable size with similar general
characteristics to the Company since Goelzer has been engaged in numerous merger
and acquisition advisory roles over the last two years, as well as dating back
to 1969. Finally, Goelzer analyzed a leveraged recapitalization scenario to
ensure all options to the shareholders were considered.
The DCF analysis used projections deemed to be reasonable by management
and scrutinized by Goelzer. This analysis produced a point estimate of intrinsic
value of $10.22 per share. The $10.22 per share point estimate of intrinsic
value represents a 24% premium over fair market value per share of $8.25, which
is the price shares traded on the day before the contemplated transaction was
announced.
As noted previously, Goelzer searched for reasonably comparable
publicly traded companies. Specifically, Goelzer searched for woodworking and
plastic tool companies and smaller wood furniture manufacturing companies. While
no single company was ideally comparable, the ultimate sample group of five
companies was sufficiently comparable to gain insight into how the public
markets were pricing small machinery and furniture manufacturing companies. At
$10.22 per share, the mean of the sample companies' price/earnings ("PE") ratio
was within 5% of the Company's. Furthermore, the mean of the sample companies'
total invested capital to earnings before interest taxes depreciation and
amortization ("TIC/EBITDA") ratio was within 3% of the Company's at a price of
$10.22 per share. Total invested capital is defined as equity market
capitalization plus negotiated third party debt.
Goelzer also found a direct correlation between market capitalization
and price multiples. In general, Goelzer found those companies with larger
market capitalizations to have higher price multiples. Goelzer believes this
correlation is at least partially due to liquidity factors.
As mentioned previously, Goelzer also conducted a search for reasonably
comparable transactions involving privately held companies. While numerous
transactions in industries similar to the Company's were examined, none were
deemed to be sufficiently comparable for a variety of reasons including lack of
profitability, lack of growth or dissimilar size.
To further verify the reasonableness of the DCF analysis, a cash flow
payback analysis was conducted. At a price of $10.22, a willing buyer could
expect to recoup his or her investment in approximately seven years. The
majority of investors who consider payback look for a return within five to
eight years, depending on the size of the company, the stability of historical
earnings and the amount of risk involved in the cash flow projections. All else
equal, the longer the payback, the higher the value. Considering the Company's
diversified customer base, recent earnings growth and competitive position
within its markets, a payback at the upper end of this range is appropriate. A
payback of seven years further confirms the reasonableness of the DCF analysis.
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In addition to the payback analysis, Goelzer conducted a benchmark
analysis, also known as a ratio analysis. Of the ratios included in the
benchmark analysis, Goelzer considers TIC/EBITDA to be the most appropriate
ratio for the purpose of comparison because it most accurately reflects
operating cash flow. In the majority of corporate equity transactions Goelzer
has encountered involving companies the size of the Company, the price of the
transaction before any minority or lack of marketably discount has occurred in
the range of 3.0x to 7.0x TIC/EBITDA. The Company's DCF analysis produced a
TIC/EBITDA of 5.6x. Again, considering the Company's competitive position and
recent growth, the Company's TIC/EBITDA should be in the middle to upper end of
the benchmark range. At 5.6x, the benchmark analysis further confirms the
reasonableness of the DCF analysis.
A leveraged recapitalization scenario was also considered in an effort
to ensure all options to the shareholders had been considered. In a leveraged
recapitalization, the company borrows heavily to pay the shareholders a special
one-time dividend. After such a transaction, the company would be much riskier
from a financial perspective than it was with a more conservative capital
structure. The point estimate of value for this scenario was $9.41 per share.
Finally, Goelzer was engaged to analyze the Company on a minority
basis; however, Goelzer studied control premiums paid in the public markets in
an effort to be completely thorough. Specifically, Goelzer relied on the most
recent study available, Control Premiums and Strategic Mergers by George P.
Roach. The article was published in the June, 1998 Business Valuation Review. In
this study, the author studied 1446 mergers or acquisitions between January 1992
and November of 1997. Specifically, he analyzed the control premium in relation
to the acquired company's stock price five days before the announcement of the
acquisition ("Five Day Premium") and thirty days before the premium ("Thirty Day
Premium"). The study also segmented the acquisitions by year and SIC code.
Overall, the median Thirty Day Premium for all transactions was 35.7% and the
Five Day Premium median was 27.0%. In general, the Five Day Premiums were
smaller because news of the pending transaction became available in the market.
From an average trading price of $8.25, the five and thirty day control premiums
indicate a range of value for control of the Company's stock between $10.65 and
$11.20.
In conclusion, all of the due diligence and all of the analysis and
methodologies supported $10.22 as a reasonable point estimate of intrinsic value
for the common stock of the Company on a minority basis. Goelzer's valuation
analysis indicated that a price in excess of $10.22 per share would constitute a
fair price in the contemplated Reverse Stock Split.
A copy of Goelzer's fairness opinion is included as Exhibit B to this
Proxy Statement. A copy of Goelzer's valuation report to the Board of Directors
of the Company has been filed as an exhibit to the Schedule 13E-3 filed by the
Company with the Commission. Copies will be made available for inspection and
copying at the principal executive offices of the Company during regular
business hours by any interested shareholder of the Company or his
representative who has been so designated in writing. The summary set forth
above does not purport to be a complete description of Goelzer's written
analysis.
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Goelzer has been providing investment banking, business valuation,
financial advisory and related services for three decades. The firm performs its
specialized services for a broad range of clients. Goelzer has been involved in
investment banking activities including structuring transactions, selling
businesses and raising capital since the founding of the firm.
Prior to engaging Goelzer, on behalf of the Special Committee, Peter N.
Lalos contacted four appraisers. Mr. Lalos interviewed these appraisers to
determine, among other factors, how much experience each appraiser had with
valuing manufacturing businesses of a comparable size and nature to the Company
and the approximate time table required to complete an appraisal. Mr. Lalos also
obtained bids from these appraisers. After receiving the bids and interviewing
the potential appraisers, the Special Committee selected Goelzer, because its
expertise and experience in valuing businesses, including familiarity with
valuing privately held and thinly traded public companies, its willingness to
make a thorough examination of the Company, its location in Indiana, its
reputation for high quality and thorough work, and the cost for such services
made Goelzer the best candidate.
For its services, including rendering its opinion, the Company's
Special Committee of the Board of Directors contracted to pay a fee of between
$20,000 to $25,000 and agreed to reimburse reasonable out-of-pocket expenses.
Neither Goelzer nor, to the best knowledge of Goelzer, any affiliate of
Goelzer has had any material relationship in the past five years with the
Company or any of its affiliates, nor is any material relationship contemplated.
Business of the Company
General. The Company is a manufacturer of computer based systems and
equipment. It designs, develops, produces, markets and services
computer-controlled machine tools that perform high speed machining, trimming,
carving and routing functions. It also markets technical services in conjunction
with the sale and maintenance of its products. These services include training,
installation assistance, preventive maintenance and upgrading and enhancement of
installed products as technology advances. In addition, the Company manufactures
machine control systems and related computer software which it uses primarily in
its automated industrial equipment and has marketed independently on a limited
basis to others.
The Company's industrial products perform certain production functions
or automate specific tasks accomplished in factories. These products are used in
a variety of manufacturing operations principally in the woodworking, plastics
and aerospace industries. The computer-controlled machine systems are primarily
employed to cut or machine materials such as wood, plastic and non-ferrous metal
into final shape. The machine control systems and related software can control
the operation of a variety of industrial machines and machine tools.
The Company sells its products primarily through the assistance of
dealer networks established throughout the United States and Europe. It also has
a wholly-owned subsidiary, Carolina
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CNC, Inc., a North Carolina corporation, which conducts sales in the
southeastern region of the United States. The Company's primary marketing
strategy is to provide machines which combine operations traditionally performed
on several different machines. It attempts to provide complete, pre-engineered,
standard automation systems which require little or no engineering input from
the end user. The Company's systems are designed for easy installation,
programming and use and may be operated and maintained by existing plant
personnel without extensive training or technical background. The Company's
technical services are marketed to customers who purchase equipment and systems
directly from the Company as well as to companies which purchase the Company's
products in the used market.
The Company's overall operations have improved steadily over the last
five years. The Company's operating income for fiscal year 1997 (the latest year
of audited financial statements) was $2.1 million compared to a loss of $780,000
in fiscal 1993, for an overall increase in operating income of $2.9 million.
Over the same period, net sales increased by $7 million or 64%, to $17.8 million
in fiscal 1997.
Management estimates that the current market for computer numerical
controlled ("CNC") routers is approximately $70 million. The Company has
steadily increased its share of that market since 1994, increasing its sales at
a rate of approximately 40% from fiscal 1996 to 1997 and 23% from fiscal 1997 to
1998. For fiscal year 1998, the Company's sales in the CNC router market were
approximately $17 million. While management remains optimistic about its growth
potential, it also recognizes that, given the limited size of the market, growth
may not continue at the same rate in coming years.
Management is also looking for ways in which to expand the market for
CNC routers. The Company is attempting to convince the furniture industry to
replace the traditional factory structure with a structure based on the CNC
router. If the Company is successful in transforming the market from current
practices that have been in place for over 75 years, the Company could recognize
a significant increase in sales. There is, however, no assurance that this
market expansion will take place, and if such an expansion does take place,
other manufacturers of CNC routers would also compete for those sales.
European Operations. The Company has a wholly-owned subsidiary,
Thermwood (Europe) Limited, a United Kingdom company, which presently maintains
sales offices in England and Vienna, Austria for conducting sales to the
European Community. During the 1998 fiscal year, the Company lost $250,000 in
connection with its European operations. Neither of the foreign sales offices is
generating a profit. Therefore, the Company has decided to close the Vienna
office by September 30, 1998.
Recent Business Developments. From August 20 to 23, 1998, Kenneth J.
Susnjara and other representatives of the Company attended the International
Woodworking Fair, a furniture industry trade show held every two years. The
Company's orders generally decrease in the two- to three-month period preceding
this show as customers wait to make purchasing decisions until after the
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<PAGE>
show. Normally order rates increase for approximately six weeks after the show,
which tends to offset the decreased sales immediately prior to the show.
At the International Woodworking Fair, the Company received eight
signed quotes for the sale of its equipment. Each signed quote will be
considered a bona fide order upon receipt of a customer deposit. Normally ten to
fifteen percent of the quotes received at the fair fail to materialize into
orders. Based on the Company's sales performance from prior International
Woodworking Fairs, management believes that the Company's sales generated at the
1998 International Woodworking Fair will be comparable to the sales generated
from the most recent previous fair held in 1996.
At the International Woodworking Fair, Mr. Susnjara presented the
Company's idea for the application of CNC routers as a replacement for the
traditional furniture industry factory structure. Management believes that this
idea created a high level of interest among customers and competitors, but the
Company has not received any orders based on this new application of the
existing equipment. Management does not expect orders for this new application
immediately and estimates that it will take approximately three to five years
for the industry to begin to utilize this technology, if it does so at all.
Also at the recent trade show, several of the Company's competitors
demonstrated CNC routers which operate much faster than the Company's current
equipment. The Company's fastest CNC routers operate in the range of 900 to 1200
inches per minute, while some of its competitors' machines operated in the range
of 2700 to 3000 inches per minute. Management believes that the existence of
these faster machines which compete with the Company's products could adversely
impact the Company's sales in the future.
Forward-Looking Statements. The foregoing discussion and statements
appearing elsewhere in this proxy statement contain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995,
which involve a number of risks and uncertainties. A number of factors could
cause results to differ materially from the plans, objectives, expectations,
estimates and intentions expressed in such forward-looking statements. These
factors include, but are not limited to, continued acceptance of the Company's
products in the marketplace, competitive factors, new products and technological
changes, the Company's dependence on third-party suppliers and other factors set
forth in this document and in the Company's filings with the Securities and
Exchange Commission. These factors should be considered in evaluating any
forward-looking statements, and undue reliance should not be placed on such
statements. The Company does not undertake and specifically disclaims any
obligation to update any forward-looking statements to reflect occurrence of
anticipated or unanticipated events or circumstances after the date of such
statements.
Arrangements with Respect to Issuer's Common Stock, Stock Options and
Convertible Debentures
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<PAGE>
Non-Qualified Stock Option Plan. The Non-Qualified Stock Option Plan of
Thermwood Corporation (the "Non-Qualified Plan") is the Company's non-qualified
stock option plan for officers, key employees and directors of the Company.
Effective as of September 1, 1998, each of Kenneth J. Susnjara, Linda Susnjara,
Edgar Mulzer and Peter N. Lalos held options to purchase 10,000 shares under the
Non-Qualified Plan. The exercise price of such options is $5.625 per share with
respect to Kenneth J. Susnjara, Edgar Mulzer and Peter N. Lalos and $10.00 per
share with respect to Linda Susnjara. Pursuant to the terms of the Non-Qualified
Plan, the number of shares issuable upon exercise of the options and the option
prices may be proportionally adjusted in conjunction with the Reverse Stock
Split. Since the proportional adjustment will result in the payment of cash in
lieu of fractional shares, each optionee under the Non-Qualified Plan will be
entitled to receive a cash payment, without interest, in an amount equal to the
product of (i) the excess, if any, of the cash offered per share of currently
outstanding Common Stock in lieu of fractional shares pursuant to the Reverse
Stock Split over the per share exercise price of the option; times (ii) the
number of shares pursuant to such option. Following the Reverse Stock Split,
such optionees will no longer hold options to acquire the Company's Common
Stock.
Incentive Stock Option Plan. The Company also has a qualified stock
option plan, the Incentive Stock Option Plan of Thermwood Corporation (the
"Incentive Plan"). At September 1, 1998, various officers and key employees held
a total of 50,600 options under the Incentive Plan, all of which were currently
exercisable at a weighted average exercise price of $8.32 per share. Pursuant to
the terms of the Incentive Plan, the number of shares issuable upon exercise of
the options and the option prices may be proportionally adjusted in conjunction
with the Reverse Stock Split. Since the proportional adjustment will result in
the payment of cash in lieu of fractional shares, each optionee under the
Incentive Plan will be entitled to receive a cash payment, without interest, in
an amount equal to the product of (i) the excess, if any, of the cash offered
per share of currently outstanding Common Stock in lieu of fractional shares
pursuant to the Reverse Stock Split over the per share exercise price of the
option; times (ii) the number of shares pursuant to such option. Following the
Reverse Stock Split, such optionees will no longer hold options to acquire the
Company's Common Stock.
Following the Reverse Stock Split, the Company may establish an
employee bonus plan which will pay cash bonuses to employees as rewards and
incentives for their contributions to the Company. See "Special Factors--Conduct
of the Company's Business After the Reverse Stock Split."
Other Options. R. Jerry Falkner, a principal in a former public
relations firm for the Company, held an option to purchase 4,000 shares at
$8.4375 per share pursuant to an Option Agreement dated February 22, 1996. The
Company and Mr. Falkner agreed to terminate the option agreement in
consideration of a cash payment from the Company to Mr. Falkner in an amount
equal to the product of (i) the excess of the cash offered per share of
currently outstanding Common Stock in lieu of fractional shares pursuant to the
Reverse Stock Split over the per share exercise price of the option; times (ii)
the number of shares pursuant to such option. The total payment to Mr. Falkner
of $10,250.00 was made on August 27, 1998, and the option agreement was
terminated.
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<PAGE>
In addition to options under the Incentive Plan, Kenneth J. Susnjara
also holds options to acquire 60,000 shares of Common Stock at an exercise price
of $15 per share and options to acquire 60,000 shares of Common Stock at an
exercise price of $30 per share. If the Amendment is approved, these options
will be canceled as of the effective date of the Reverse Stock Split.
12% Convertible Subordinated Debentures. The Company had outstanding as
of September 1, 1998, 12% Convertible Subordinated Debentures (the "Debentures")
which are convertible into an aggregate of 26,200 shares of Common Stock. The
Debentures are governed by an Indenture between the Company and American Stock
Transfer & Trust Company, as trustee, dated February 3, 1993 (the "Indenture").
Pursuant to the Indenture, the conversion privilege and the conversion price of
the Debentures will be adjusted in conjunction with the Reverse Stock Split so
that each Debenture holder will be entitled to receive upon conversion the
number and kind of shares which he would have received if he had converted the
Debenture immediately prior to the Reverse Stock Split. Since such an adjustment
would result in the right to receive the payment of cash in lieu of fractional
shares, each Debenture holder would be entitled to receive upon conversion,
without interest, cash in the amount of the product of (i) the cash offered per
share of currently outstanding Common Stock in lieu of fractional shares
pursuant to the Reverse Stock Split; times (ii) the number of shares issuable
upon conversion of the Debenture. In the alternative, the Debenture holder may
decide, in its discretion, not to convert the Debenture and such Debenture will
remain an outstanding obligation of the Company, provided, however, that such
Debenture will not be convertible into Common Stock.
Option to Purchase Common Stock from Mr. Mulzer. The Company has
entered into an Option Agreement, dated September 3, 1998, with Edgar Mulzer
whereby the Company has an option to purchase the shares of New Common Stock
owned by Mr. Mulzer for $573,500.00 per share over a period commencing on
November 1, 1999, and ending on October 31, 2002. Since Mr. Mulzer holds such a
significant percentage of the Company's Common Stock, the Company entered into
the Option Agreement to reduce the possibility of the acquisition of the shares,
particularly in the event of Mr. Mulzer's death, by persons or entities whose
purposes or interests may not be in the best interests of the Company, its
business or the shareholders. The price per share offered to Mr. Mulzer is
equivalent to $15.50 per share of Common Stock prior to the Reverse Stock Split.
This option price reflects a premium due to the large block of shares held by
Mr. Mulzer following the Reverse Stock Split and the risk assumed by Mr. Mulzer
of locking in the obligation to sell at a fixed price over a period of several
years. However, no assurances can be made with respect to any projected increase
in the value of the shares over time.
Conduct of the Company's Business After the Reverse Stock Split
The Company expects its business and operations to continue as they are
currently being conducted and, except as disclosed below, the Reverse Stock
Split is not anticipated to have any effect upon the conduct of such business.
If the Reverse Stock Split is consummated, all persons beneficially owning
37,000 or fewer shares at the effective time of the Reverse Stock Split will no
longer have any equity interest in, and will not be shareholders of, the Company
and therefore will
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<PAGE>
not participate in its future potential or earnings and growth. Instead, each
such beneficial owner of Common Stock will have the right to receive $11.00 per
share in cash, without interest.
If the Reverse Stock Split is effected, based on the Company's
shareholder records, it is expected that only Kenneth J. Susnjara and Edgar
Mulzer will remain as shareholders, beneficially owning 100% of the outstanding
Common Stock. Such individuals now own approximately 40.89% of the fully diluted
Common Stock (including shares subject to options). See "Principal Shareholders
and Stock Ownership of Management." If the Company's shareholder records are
incomplete or inaccurate and there are presently shareholders other than Kenneth
J. Susnjara and Edgar Mulzer who hold 37,000 shares or more, or if prior to the
effective date of the Reverse Stock Split another person becomes a shareholder
of 37,000 shares or more, then the Company is willing to purchase the shares of
such shareholder(s) for the price per share paid to shareholders who receive
cash in lieu of fractional shares, at the request of such shareholder.
The Company plans, as a result of the Reverse Stock Split, to become a
privately held company. The registration of the Common Stock under the 1934 Act
will be terminated and the Company will no longer be listed on AMEX or PSEX. In
addition, because the Common Stock will no longer be publicly held, the Company
will be relieved of the obligation to comply with the proxy rules of Regulation
14A under Section 14 of the 1934 Act, and its officers and directors and
shareholders owning more than 10% of the Common Stock will be relieved of the
stock ownership reporting requirements and "short swing" trading restrictions
under Section 16 of the 1934 Act. Further, the Company will no longer be subject
to the periodic reporting requirements of the 1934 Act and will cease filing
information with the Commission. Among other things, the effect of this change
will be a savings to the Company in not having to comply with the requirements
of the 1934 Act.
The Amendment will decrease the number of authorized shares to 540
shares of Common Stock of which approximately 12 shares are expected to be
outstanding. With the exception of the number of authorized shares and the
number of outstanding shares, the terms of the Common Stock before and after the
Reverse Stock Split will remain the same.
The Amendment will also eliminate the class of Preferred Stock. No
shares of Preferred Stock are currently outstanding.
If the Reverse Stock Split is effected, the Company expects that it
will elect to have special tax treatment as an S corporation under the Code. In
order to meet the requirements to qualify as an S corporation, the Company would
also need to dissolve its foreign subsidiary, Thermwood (Europe) Limited, into
the Company. If the Company elects to be taxed as an S corporation, it is
expected to eliminate the payment of income tax on its earnings.
The Company has never declared a dividend. As an S corporation, the
Company expects to change its dividend policy. The Company will declare annual
cash dividends to its shareholders in such amounts as the Board of Directors of
the Company determines to be appropriate which are
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<PAGE>
expected to be at least equal to the amount of taxes the shareholders will be
required to pay on the Company's income.
Management has discussed establishing an employee bonus plan following
the Reverse Stock Split which will pay cash bonuses to officers, directors and
key employees in order to increase their incentive to work for the Company and
to attract and retain capable personnel. Management has not considered the
details of such a plan at this time and no written plan has been adopted.
Finally, the Company anticipates that following the Reverse Stock
Split, the Company will reduce the size of its Board of Directors, over time, to
three directors.
Over the last several years, the Company has engaged in preliminary
discussions with various competitors regarding the prospect of a merger or
acquisition or entering into a joint venture or manufacturing arrangement. As
recently as July, 1998, the Company was approached by a representative of an
investment banking firm representing a competitor who expressed an interest in
discussing a merger, acquisition or other business arrangement. All such
discussions were terminated at the preliminary stage and management does not
consider them material. Management does not presently have an interest in any
such proposals. Although management is not currently in negotiations with
respect to any proposed merger or similar transaction, there is always a
possibility that the Company may enter into such an arrangement in the future
and the remaining shareholders of the Company may receive payment for shares in
any such merger or similar transaction in excess of the $11.00 offered to be
paid to shareholders in lieu of fractional shares pursuant to the proposed
Reverse Stock Split.
Other than as described in this Proxy Statement, neither the Company
nor its management has any current plans or proposals to effect any
extraordinary corporate transaction, such as a merger, reorganization or
liquidation; to sell or transfer any material amount of its assets; to change
its Board of Directors or management; to change materially its indebtedness or
capitalization; or otherwise to effect any material change in its corporate
structure or business.
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<PAGE>
Federal Income Tax Consequences
THE FOLLOWING DISCUSSION SUMMARIZING CERTAIN FEDERAL INCOME TAX
CONSEQUENCES IS BASED ON CURRENT LAW AND IS INCLUDED FOR GENERAL INFORMATION
ONLY. SHAREHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE FEDERAL,
STATE, LOCAL AND FOREIGN TAX EFFECTS OF THE REVERSE STOCK SPLIT IN LIGHT OF
THEIR INDIVIDUAL CIRCUMSTANCES.
Exchange of Currently Outstanding Common Stock Solely for New Common
Stock. A shareholder who receives solely shares of New Common Stock pursuant to
the Reverse Stock Split will recognize no gain or loss under Section 354 of the
Code. The aggregate basis of the shares of New Common Stock received by such
shareholders pursuant to the Reverse Stock Split will be the same as the tax
basis of the currently outstanding Common Stock surrendered in exchange. The
holding period of the New Common Stock received by such shareholder will include
the holding period of the currently outstanding Common Stock surrendered in the
exchange, provided the New Common Stock was held as a capital asset at the time
of the Reverse Stock Split.
Exchange of Currently Outstanding Common Stock for a Combination of
Cash and New Common Stock. A shareholder who receives New Common Stock and cash
pursuant to the Reverse Stock Split will recognize gain (if any), but in an
amount not in excess of the amount of cash received. Such gain will be
recognized in the year in which the New Common Stock and cash are received, or
in the year the New Common Stock or cash is entitled to be received (i.e., at
the time of the Reverse Stock Split). Any recognized gain will be eligible for
capital gain treatment (assuming the shareholder's Common Stock is held as a
capital asset) unless such receipt of cash has the effect of a distribution of a
dividend, as provided in Section 356 of the Code, in which case such gain will
be taxable as ordinary income to the extent of the shareholder's ratable share
of the Company's earnings and profits. The principles applicable under Section
302 of the Code and the United States Supreme Court decision in Clark v.
Commissioner, 109 S.Ct. 1455, 89-1 U.S.T.C. 9230 (1989), will serve as
guidelines in determining whether the receipt of cash has the effect of the
distribution of a dividend under Section 356 of the Code. Under these
principles, the distribution to a shareholder will not be considered to have the
effect of the distribution of a dividend if it is "substantially
disproportionate" with respect to the shareholder or if it is "not essentially
equivalent to a dividend" to the shareholder. For purposes of these tests and
under Clark, the shareholder presumably is treated as if he or she received
solely New Common Stock pursuant to the Reverse Stock Split and then received
cash through a redemption by the Company of a number of such shares having a
value equal to the cash amount.
Under Clark, a distribution will be "substantially disproportionate"
with respect to a shareholder if the shareholder's proportionate interest in the
New Common Stock actually held by the shareholder after the Reverse Stock Split
is less than 80% of what the shareholder's proportionate interest in the Common
Stock would have been if solely Common Stock had been distributed in the Reverse
Stock Split. In applying this test for purposes of Section 356 of the Code, the
constructive
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<PAGE>
ownership rules of Section 318 of the Code (under which shareholders are treated
as holding not only their own shares but also shares held by certain related
persons and entities) are applicable.
Even though a distribution does not satisfy the substantially
disproportionate test discussed above, it still may be "not essentially
equivalent to a dividend" to a shareholder depending upon the shareholder's
particular facts and circumstances. The United States Supreme Court in Davis v.
United States, 397 U.S. 301 (1970), concluded that in order for a distribution
to be considered not essentially equivalent to a dividend, there must be a
"meaningful reduction in the shareholder's proportionate interest." Shareholders
who increase their proportionate interest in the Company as a result of the
Reverse Stock Split will not experience a meaningful reduction in their
proportionate interest in the Company, and therefore will be treated as having
received a distribution of cash essentially equivalent to a dividend. See Rev.
Rul. 78-351, 1978-2 C.B. 148 (holding that fractional share rule of Rev. Rul.
69-34, 1969-1 C.B. 105 does not apply in the case of a reverse stock split under
circumstances substantially identical to these).
A shareholder who receives New Common Stock and cash will receive a
basis in such New Common Stock which will be the same as the basis of the Common
Stock surrendered in the exchange, decreased by the amount of any cash received,
and increased by the amount of any gain recognized on the exchange. The holding
period of the New Common Stock received by such a shareholder will include the
holding period of the Common Stock surrendered in the exchange, provided the New
Common Stock was held as a capital asset as of the time of the Reverse Stock
Split.
Exchange of Common Stock Solely for Cash. In the case of a shareholder
who receives only cash in exchange for all of his or her Common Stock, the cash
will be treated as received by the shareholder as a distribution in redemption
of the shareholder's Common Stock, subject to the provisions and limitations of
Section 302 of the Code. Where, after such distribution, a former shareholder
does not own shares of Common Stock directly or indirectly through the
constructive ownership rules of Section 318(a) of the Code, the redemption will
be treated as a complete termination of interest within the meaning of Section
302(b)(3) of the Code. As provided in Section 1001 of the Code, gain or loss
will be recognized by such shareholders in an amount equal to the difference
between the amount of cash received in the redemption and the adjusted basis of
the Common Stock surrendered. Provided that the Common Stock is a capital asset
in the hands of such shareholders, the gain or loss, if any, will constitute
capital gain or loss. The gain or loss will be long-term capital gain or loss if
the shareholder will have held, or be deemed to have held, his or her Common
Stock for more than one year as of the time of the Reverse Stock Split.
Capital Gain and Alternative Minimum Tax. Long-term capital gain for
noncorporate taxpayers is generally taxed at a maximum rate of 20%. Capital
losses are deductible generally only to the extent of capital gains.
Capital gain and dividends are also included in alternative minimum
taxable income, which may be subject to a special minimum tax at a 26% or 28%
rate (depending on the taxpayer's
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<PAGE>
alternative minimum taxable income) to the extent the minimum tax exceeds
regular tax liabilities. Alternative minimum taxable income is reduced by
various exemption amounts, which are phased out above certain levels.
Special taxation and withholding rules may apply to any shareholder
that is a nonresident alien or a foreign corporation. These rules are beyond the
scope of this discussion and should be discussed with a personal tax advisor.
Shareholders will be required to provide their social security or other taxpayer
identification numbers (or, in some instances, certain other information) to the
Exchange Agent (as defined below) in connection with the Reverse Stock Split to
avoid backup withholding requirements that might otherwise apply. See "Exchange
of Certificates and Payment for Fractional Shares." The letter of transmittal
will require each shareholder to deliver such information when the Common Stock
certificates are surrendered following the effective date of the Amendment.
Failure to provide such information may result in backup withholding.
THE TAX DISCUSSION SET FORTH ABOVE IS INCLUDED FOR GENERAL INFORMATION
ONLY AND DOES NOT REFER TO THE PARTICULAR FACTS AND CIRCUMSTANCES OF ANY
SPECIFIC SHAREHOLDER. SHAREHOLDERS, PARTICULARLY THOSE WHO HAVE ACQUIRED SHARES
OF COMMON STOCK IN COMPENSATION-RELATED TRANSACTIONS, ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS FOR MORE SPECIFIC AND DEFINITIVE ADVICE AS TO THE FEDERAL
INCOME TAX CONSEQUENCES TO THEM OF THE TRANSACTION, AS WELL AS ADVICE AS TO THE
APPLICATION AND EFFECT OF STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
Financial Effect of the Reverse Stock Split
The following pro forma financial information presents the effect on
the Company's historical financial position of the Reverse Stock Split and the
cash payment of $11.00 per share in lieu of the issuance of fractional shares
resulting from the Reverse Stock Split. The unaudited pro forma balance sheets
reflect the transaction as if it occurred on the balance sheet dates. The
unaudited pro forma statements of operations reflect the transaction as if it
occurred at the beginning of the periods presented. The pro forma financial
information assumes that a total of approximately $11,300,000 would be borrowed
to purchase fractional shares and settle outstanding stock options and
approximately $400,000 would be paid for related costs. Excluded from the pro
forma statements of operations are $190,000 and $138,000 of compensation expense
for the year ended July 31, 1997 and the nine-month period ended April 30, 1998,
respectively, incurred in connection with the settlement of the outstanding
common stock options.
The unaudited pro forma balance sheets are not necessarily indicative
of what the Company's financial position would have been if the Reverse Stock
Split had been effected on the dates indicated, or will be in the future. The
information shown in the unaudited pro forma statements of operations is not
necessarily indicative of the results of future operations.
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<PAGE>
The unaudited pro forma financial statements should be read in
conjunction with the historical financial statements and accompanying footnotes
of the Company elsewhere in this Proxy Statement. See "Financial Statements of
the Company" beginning on page F-1.
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THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEET - PROFORMA (UNAUDITED)
July 31, 1997
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
ASSETS
Current Assets
<S> <C> <C>
Cash $ 512 - 512
Accounts receivable, net 1,802 - 1,802
Inventories 4,618 - 4,618
Deferred income taxes 1,676 - 1,676
Prepaid expenses 372 - 372
----------- ------------- -----------
Total Current Assets 8,980 - 8,980
----------- ------------- -----------
Net property and equipment 1,824 - 1,824
----------- ------------- -----------
Other Assets
Patents, trademarks and other 142 250 (a) 382
Deferred income taxes 326 - 326
----------- ------------- -----------
Total Other Assets 468 250 718
----------- ------------- -----------
Total Assets $ 11,272 250 11,522
=========== ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,375 - 1,375
Accrued liabilities 1,225 - 1,225
Accrued income taxes 386 - 386
Customer deposits 907 - 907
Current portion of long-term liabilities 8 2,000 (b) 2,008
----------- ------------- -----------
Total Current Liabilities 3,901 2,000 5,901
----------- ------------- -----------
Long-term Liabilities - less current portion
Capital lease obligations 6 - 6
Note payable to bank - 9,489 (b) 9,489
Bonds payable, net of unamortized discount 279 (279) (c) -
----------- -------------- -----------
Total Long-term Liabilities 285 9,210 9,495
----------- ------------- -----------
Shareholders' Equity
Preferred stock, no par value 2,546 - 2,546
Common stock, no par value 10,599 (7,094) (d) 3,505
Accumulated deficit (6,034) (3,891) (e) (9,925)
----------- ------------- -----------
7,111 (10,985) (3,874)
Less subscriptions receivable (25) 25 (d) -
------------ ------------- -----------
Total Shareholders' Equity (Deficit) 7,086 (10,960) (3,874)
----------- -------------- ------------
Total Liabilities and Shareholders' Equity $ 11,272 250 11,522
=========== ============= ===========
Book Value Per Share $ 5.06 (8.37)
</TABLE>
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THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEET - PROFORMA (UNAUDITED)
April 30, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
ASSETS
Current Assets
<S> <C> <C>
Cash $ 50 - 50
Accounts receivable, net 3,071 - 3,071
Inventories 5,976 - 5,976
Deferred income taxes 1,676 - 1,676
Prepaid expenses 255 - 255
----------- ------------- -----------
Total Current Assets 11,028 - 11,028
----------- ------------- -----------
Net property and equipment 1,943 - 1,943
----------- ------------- -----------
Other Assets
Patents, trademarks and other 130 250 (a) 380
Deferred income taxes 326 - 326
----------- ------------- -----------
Total Other Assets 456 250 706
----------- ------------- -----------
Total Assets $ 13,427 250 13,677
=========== ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable $ 1,514 - 1,514
Accrued liabilities 845 - 845
Accrued income taxes 1,006 - 1,006
Customer deposits 1,736 - 1,736
Current portion of long-term liabilities 17 2,000 (b) 2,017
----------- ------------- -----------
Total Current Liabilities 5,118 2,000 7,118
----------- ------------- -----------
Long-term Liabilities - less current portion
Capital lease obligations 5 - 5
Notes payable to banks 2,446 9,495 (b) 11,941
Bonds payable, net of unamortized discount 170 (170) (c) -
----------- -------------- -----------
Total Long-term Liabilities 2,621 9,325 11,946
----------- ------------- -----------
Shareholders' Equity
Common stock, no par value 10,737 (7,260) (d) 3,477
Accumulated deficit (5,016) (3,848) (e) (8,864)
------------ -------------- ------------
5,721 (11,108) (5,387)
Less subscriptions receivable (33) 33 (d) -
------------ ------------- -----------
Total Shareholders' Equity (Deficit) 5,688 (11,075) (5,387)
----------- -------------- ------------
Total Liabilities and Shareholders' Equity $ 13,427 250 13,677
=========== ============= ===========
Book Value Per Share $ 3.98 (11.63)
</TABLE>
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THERMWOOD CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS - PROFORMA
(UNAUDITED) For the year ended July 31, 1997
(In thousands, except per share data and ratios)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
<S> <C> <C>
Net Sales $ 17,780 - 17,780
Cost of sales 10,874 - 10,874
----------- ------------- -----------
Gross Profit 6,906 - 6,906
Research and development, marketing,
Administrative and general expenses 4,795 - 4,795
----------- ------------- -----------
Operating income 2,111 - 2,111
----------- ------------- -----------
Other income (expense):
Interest expense (76) (693) (f) (769)
Other 19 - 19
----------- ------------- -----------
Other expense, net (57) (693) (750)
----------- ------------- -----------
Earnings before income taxes 2,054 (693) 1,361
Income taxes (819) 277 (g) (542)
------------ ------------- ------------
Net earnings $ 1,235 (416) 819
=========== ============== ===========
Net earnings per share,
Basic $ 0.69 $ 1.29
Diluted $ 0.69 $ 1.29
Ratio of earnings to fixed charges 24.14 2.76
</TABLE>
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THERMWOOD CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS - PROFORMA
(UNAUDITED) For the nine-months ended April 30, 1998
(In thousands, except per share data and ratios)
<TABLE>
<CAPTION>
Historical Adjustments Pro Forma
<S> <C> <C> <C>
Net Sales $ 15,960 - 15,960
Cost of sales 9,487 - 9,487
----------- ------------- -----------
Gross Profit 6,473 - 6,473
Research and development, marketing,
Administrative and general expenses 4,547 - 4,547
----------- ------------- -----------
Operating income 1,926 - 1,926
----------- ------------- -----------
Other income (expense):
Interest expense - other (160) (538) (f) (698)
Other 13 - 13
----------- ------------- -----------
Other expense, net (147) (538) (685)
----------- ------------- -----------
Earnings before income taxes 1,779 (538) 1,241
Income taxes (719) 215 (g) (504)
------------ ------------- ------------
Net earnings $ 1,060 (323) 737
=========== ============== ===========
Net earnings per share,
Basic $ 0.72 $ 1.53
Diluted $ 0.68 $ 1.53
Ratio of earnings to fixed charges 11.79 2.77
</TABLE>
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EXPLANATION OF PRO FORMA ADJUSTMENTS
(Unaudited)
(a) Increase in other assets relating to accounting and legal fees
($250,000) incurred in connection with the issuance of debt.
(b) Increase in notes payable as a result of the purchase and retirement of
fractional shares, settlement of outstanding common stock options net
of income taxes and payment of related transaction and debt issuance
costs.
(c) Decrease in bonds payable as a result of the conversion to common
stock.
(d) Decrease in common stock as a result of the purchase and retirement of
fractional shares.
(e) Increase in accumulated deficit for the excess of the purchase price
over the average issue price of all shares purchased and retired and
the settlement of outstanding stock options, net of related income
taxes.
(f) Increase in interest expense resulting from the additional debt
incurred.
(g) Decrease in income taxes (40% effective rate) based on pro
forma adjustments to earnings before income taxes.
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<PAGE>
Dissenters' Rights of Appraisal
The foregoing is only a general summary of the provisions of the
Dissenters' Rights Statute and should not be considered a comprehensive
description. A copy of the Dissenters' Rights Statute is attached hereto as
Exhibit C as a complete description of the rights and obligations of the Company
and any shareholder who desires to exercise dissenters' rights. EACH STEP MUST
BE TAKEN IN STRICT COMPLIANCE WITH THE APPLICABLE PROVISIONS OF THE DISSENTERS'
RIGHTS STATUTE IN ORDER FOR SHAREHOLDERS TO PERFECT DISSENTERS' RIGHTS.
Although no dissenters' rights are required for the proposed Reverse
Stock Split under the Indiana Business Corporation Law, the Board of Directors
of the Company has adopted a resolution voluntarily granting dissenters' rights
in accordance with Section 23-1-44-8(a)(5) of the Indiana Business Corporation
Law. Any record shareholder entitled to vote on the Amendment may dissent from
the Amendment and obtain payment of the fair value of his or her shares in
accordance with the Dissenters' Rights Statute.
Any shareholder who desires to assert dissenters' rights must (i)
deliver to the Company before the vote is taken written notice of such
shareholder's intent to demand payment for his or her shares of Common Stock if
the proposed Reverse Stock Split is effected; and (ii) not vote his or her
shares of Common Stock in favor of the proposed Reverse Stock Split.
A shareholder of record may assert dissenters' rights as to fewer than
all the shares of Common Stock registered in that shareholder's name only if the
shareholder dissents (in accordance with the provisions of the Dissenters'
Rights Statute) with respect to all the shares of Common Stock beneficially
owned by any one person and notifies the Company in writing of the name and
address of each person on whose behalf the shareholder is asserting dissenters'
rights.
A beneficial owner of shares of Common Stock held by a nominee as the
record shareholder may assert dissenters' rights as to shares of Common Stock
held on such shareholder's behalf only if (i) such beneficial shareholder
submits to the Company the record shareholder's written consent to the dissent
no later than the time the beneficial shareholder asserts dissenters' rights,
and (ii) the beneficial shareholder asserts dissenters' rights (in accordance
with the provisions of the Dissenters' Rights Statute) with respect to all the
beneficial shareholder's shares or those shares over which the beneficial
shareholder has power to direct the vote.
If the Reverse Stock Split is authorized by the shareholders at the
Special Meeting, the Company must deliver a written dissenters' notice to
properly dissenting shareholders within ten days after approval of the Reverse
Stock Split. Such dissenters' notice must (i) state where the payment demand
must be sent and where and when certificates for shares of Common Stock must be
deposited, (ii) supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed Reverse Stock Split and requires that the person acquired beneficial
ownership of the shares before that date, (iii) set a date by which the Company
must receive the payment demand, which date may not be fewer than thirty (30)
nor more
-37-
<PAGE>
than sixty (60) days after the date the dissenters' notice is delivered, and
(iv) be accompanied by a copy of the Dissenters' Rights Statute.
A shareholder who receives a dissenters' notice must (i) demand
payment, (ii) certify whether the shareholder acquired beneficial ownership of
the shares before the date set forth in the dissenters' notice and (iii) deposit
his or her certificates in accordance with the terms of the notice. The
shareholders who demand payment and deposit their shares in accordance with the
terms of the dissenters' notice retain all other rights of a shareholder until
these rights are canceled or modified by the taking of the proposed corporate
action to effect the Reverse Stock Split. Any shareholder who fails to demand
payment or deposit share certificates as required by the dissenters' notice by
the respective dates set forth therein will not be entitled to payment for his
or her shares under the Dissenters' Rights Statute and will be considered to
have voted his or her shares in favor of the Reverse Stock Split.
Once the shareholders' action approving the Reverse Stock Split has
been taken, the Company must pay each dissenting shareholder who properly
complied with the requirements set forth above the amount the Company estimates
to be the fair value of the dissenters' shares. The payment must be accompanied
by (i) the Company's balance sheet as of the fiscal year ending not more than
sixteen (16) months before the date of payment, an income statement for that
year, a statement of changes in shareholders' equity for that year and the
latest available interim financial statements, if any; (ii) a statement of the
Company's estimate of the fair value of the shares; and (iii) a statement of the
dissenters' right to demand payment under the Dissenters' Rights Statute.
However, the Company may elect to withhold such payment from dissenting
shareholders who acquired beneficial ownership of the shares of Common Stock
after the date set forth in the dissenters' notice as the date of the first
announcement to new media or shareholders of the terms of the Reverse Stock
Split (the "Post Announcement Shareholders"). If the Company does elect to
withhold payment from the Post Announcement Shareholders, it must send each Post
Announcement Shareholder an offer to pay the Company's estimate of the fair
value of the shares provided such Post Announcement Shareholders agree to accept
the payment offered in full satisfaction of their dissenters' demands.
A dissenting shareholder may notify the Company in writing of its own
estimate of the fair value of the shares and demand payment of the dissenter's
estimate, less any payment already made to such shareholder. A dissenting
shareholder also may reject the Company's offer and demand payment of the fair
value of the shares if (i) the dissenting shareholder believes that the amount
paid or offered is less than fair value, (ii) the Company fails to make payment
within sixty (60) days after the date set for demanding payment or (iii) the
Company, having failed to take the proposed Reverse Stock Split action, does not
return the deposited stock certificates within sixty (60) days after the date
set for demanding payment. A dissenting shareholder waives the right to demand
payment of such shareholder's estimate unless the shareholder notifies the
Company of the dissenting shareholder's demand for payment within thirty (30)
days after the Company has made or offered payment for the dissenters' shares.
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<PAGE>
If a demand for payment remains unsettled, the Company must commence a
proceeding within sixty (60) days after receiving the payment demand and
petition the proper court to determine the fair value of the shares. If the
Company does not commence the proceeding within such period, it must pay each
dissenting shareholder whose demand remains unsettled the amount demanded. The
state court in which a proceeding must be commenced is the circuit or superior
court of Spencer County, Indiana, where the Company's principal office is
located. Each dissenting shareholder made a party to the proceeding is entitled
to judgment for the amount, if any, by which the court finds the fair value of
the dissenting shareholder's shares, plus interest, exceeds the amount paid by
the Company.
The court in an appraisal proceeding will determine and assess costs
against all parties in such amounts as the court finds equitable. The court may
assess fees and expenses of counsel and experts against either the Company or a
dissenter if the court finds that the party against whom the fees and expenses
are asserted acted arbitrarily, vexatiously, or not in good faith. In addition,
if the court finds that the services of counsel for any dissenter were of
substantial benefit to other dissenters similarly situated and that the fees for
those services should not be assessed against the Company, the court may award
to those counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefitted.
Exchange of Certificates and Payment for Fractional Shares of New Common Stock
If the Reverse Stock Split is approved by the shareholders, the Company
will file Articles of Amendment to its Articles of Incorporation with the
Secretary of State of Indiana. The Reverse Stock Split will become effective on
the date of that filing (the "Effective Date"). American Stock Transfer & Trust
Company has been appointed exchange agent (the "Exchange Agent") to carry out
the exchange of certificates for New Common Stock and/or cash.
As soon as practicable after the Effective Date, the shareholders will
be notified and asked to surrender their certificates representing shares of
Common Stock to the Exchange Agent. Those shareholders beneficially owning
37,000 shares or more will receive in exchange certificates representing shares
of New Common Stock on the basis of one share of New Common Stock for each
37,000 shares of Common Stock held prior to the Reverse Stock Split, and in
cases where a shareholder does not beneficially own a number of shares evenly
divisible by 37,000, cash in the amount of $11.00 per share of the currently
outstanding Common Stock in lieu of receiving fractional shares of New Common
Stock following the Reverse Stock Split. Shareholders owning fewer than 37,000
shares on the Effective Date will receive in exchange a cash payment in the
amount of $11.00 per share.
For the purpose of the operation of the Reverse Stock Split (i.e., for
determining whether and to what extent shareholders will receive New Common
Stock and/or cash in lieu of fractional shares), and for no other purpose, the
Company will treat the person who is the underlying beneficial owner of shares
held by a nominee as the shareholder.
-39-
<PAGE>
If the Reverse Stock Split is effected, any shareholder beneficially
owning fewer than 37,000 shares of the currently outstanding Common Stock will
cease to have any rights with respect to the Common Stock of the Company, except
to be paid in cash, as described in this Proxy Statement. No interest will be
paid or accrued on the cash payable to shareholders after the Reverse Stock
Split is effected.
No service charges will be payable by shareholders in connection with
the exchange of certificates or the payment of cash in lieu of issuing
fractional shares, all expenses of which will be borne by the Company.
FINANCING OF THE REVERSE STOCK SPLIT
The Board estimates that the total cost to the Company of the Reverse
Stock Split for the payment of the fractional share interests and the settlement
of outstanding stock options in the Reverse Stock Split and the estimated
transactional fees and expenses will be approximately $11,300,000 and $400,000,
respectively. The Company intends to finance this transaction by borrowing funds
from a financial institution located in the Midwest. This borrowing will repaid
over time from the Company's working capital.
The Company has engaged SPP Hambro & Co., LLC ("SPP") to act as advisor
to the Corporation in connection with its issuance of approximately $14,000,000
of senior bank debt. The proceeds of the Senior Bank Debt will be used to
consummate the Reverse Stock Split, to refinance existing indebtedness, and for
general corporate purposes. Currently, the Company anticipates that it will
obtain financing from a financial institution for a $6.0 million Revolving
Credit Facility and an $8.0 million Senior Term Loan due 2005. The Company
anticipates drawing down approximately $5.5 million of the Revolving Credit
Facility at closing to provide part of the $2.1 million in funds estimated as
necessary to consummate the Reverse Stock Split. The Company has distributed
Offering Memoranda relating to this financing to a number of financial
institutions, and anticipates receiving a term sheet from one or more of such
institutions relating to this financing by the middle of September, 1998. SPP
will be paid a fee equal to 1.5% of the principal amount of any Senior Debt or
Senior Debt Facilities raised, plus reasonable out-of-pocket costs. This fee is
currently estimated at $210,000.
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth as of September 1, 1998, the number of
shares of Common Stock owned and the percentage of Common Stock owned before and
after the Effective Date of the Reverse Stock Split for each of the following
persons: (i) each person who, to the knowledge of the Company, beneficially owns
more than 5% of the outstanding Common Stock; (ii) each director and executive
officer; and (iii) all officers and directors as a group. Unless otherwise
noted, all addresses are c/o Thermwood Corporation, P.O. Box 436, Buffaloville
Road, Dale, Indiana 47523.
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<PAGE>
<TABLE>
<CAPTION>
Percentage of Percentage of
Shares Total Shares Shares Owned Total Shares
Owned at Owned Prior to Following Owned Following
Names and Addresses September 1, Reverse Stock Reverse Stock Reverse Stock
of Beneficial Owners (1) 1998 Split (11) Split (12) Split (12)
------------------------ ---- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Kenneth J. Susnjara (2) 411,400 (3) 25.86% 7 58.33%
Edgar Mulzer 218,052 (4) 15.03% 5 41.67%
401 10th Street
Tell City, IN 47586
Peter N. Lalos 22,000 (5) * -0- ---
14312 Darnestown Rd.
Gaithersburg, MD 20878
Linda S. Susnjara (2) 411,400 (3) 25.86% 7 ---
Lee Ray Olinger 400 (6) * -0- ---
c/o First Bank of
Huntingburg
4th and Main Street
Huntingburg, IN 47542
Michael P. Hardesty 8,400 (7) * -0- ---
Rebecca F. Fuller 2,600 (8) * -0- ---
David J. Hildenbrand 6,600 (9) * -0- ---
Richard A. Kasten 950 * -0- ---
Donald L. Ubelhor 6,000 (10) * -0- ---
All Officers and Directors 676,402 40.89% 12 100%
as a Group (10 persons)
</TABLE>
* Less than 1%.
(1) Except as otherwise noted, all shares are beneficially owned and the
sole voting and investment power is held by the persons indicated.
(2) Mr. and Mrs. Susnjara may each be deemed to be a beneficial owners of
the Company's securities owned by the other because of their marital
relationship. Accordingly, the shares shown as beneficially owned by
Mr. Susnjara are identical to the shares shown beneficially owned by
Mrs. Susnjara.
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<PAGE>
(3) Includes 10,000 shares of subject to options granted under the
Incentive Plan, 20,000 shares subject to options granted under the
Non-Qualified Plan, and 120,000 shares subject to Stock Option
Agreements with the Company (which options are expected to be canceled
on the Effective Date of the Reverse Stock Split if the Amendment is
approved).
(4) Includes 10,000 shares subject to options granted under the
Non-Qualified Plan.
(5) Includes shares subject to debentures presently convertible into 4,000
shares of Common Stock and 10,000 shares subject to options granted
under the Non-Qualified Plan.
(6) Includes 400 shares held by Mr. Olinger's wife.
(7) Includes 8,000 shares subject to options granted under the Incentive
Plan.
(8) Includes 2,000 shares subject to options granted under the Incentive
Plan.
(9) Includes 5,400 shares subject to options granted under the Incentive
Plan.
(10) Includes 5,600 shares subject to options granted under the Incentive
Plan.
(11) Calculated pursuant to Rule 13d-3(d)(1) promulgated under the 1934 Act,
and based on 1,441,106 shares outstanding as of September 1, 1998.
(12) Based on the Company's review of available shareholder records.
-42-
<PAGE>
OTHER INFORMATION
Family Relationships. Linda S. Susnjara and Kenneth J. Susnjara are
husband and wife. There is no other family relationship among any of the
directors or executive officers of the Company.
Arrangements with AAI. Linda S. Susnjara and Kenneth J. Susnjara are the
owners of Automation Associates Incorporated ("AAI"), a dealer of the Company's
industrial products. The agreement between the Company and AAI contains the same
terms and conditions as do the Company's agreements with its other dealers. The
Company paid AAI $447,667 in commissions during the 1997 fiscal year for
assisting in effecting sales of approximately $2,575,000. This amount represents
approximately 18% of the Company's gross sales for fiscal year 1997. AAI also
leases space from the Company at what management believes is a fair market rate.
Rental payments were $6,400 during the 1997 fiscal year. Management believes
that the terms of the transactions between the Company and AAI are as fair as
those which the Company would have obtained if these transactions had been
effected with independent third parties. These transactions were approved by a
majority of the disinterested directors.
DESCRIPTION OF COMMON STOCK
Each holder of shares of Common Stock is entitled to one vote per share
upon each proposal or matter presented at any meeting of shareholders and is
entitled to receive such dividends, if any, as may be declared from time to time
by the Board of Directors from funds legally available therefor. Upon
liquidation or dissolution of the Company, the holders of shares are entitled to
receive pro rata all assets available for distribution to holders of Common
Stock.
If the Amendment is approved and the Reverse Stock Split takes place, the
terms, rights and preferences of the Common Stock will be unchanged.
MANAGEMENT OF THE COMPANY
The executive officers and directors of the Company are as follows (unless
otherwise indicated, the business address of each of the persons listed below is
at the Company's principal executive officers and each of such persons is a
citizen of the United States of America):
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<PAGE>
Name Age Position
Kenneth J. Susnjara (1) 51 Chairman of the Board, President and Director
Linda S. Susnjara (1) 49 Secretary and Director
Michael P. Hardesty 44 Vice President of Engineering
Rebecca F. Fuller 48 Treasurer
David J. Hildenbrand 41 Vice President of Sales
Richard Kasten 46 Vice President of Technical Services
Donald Ubelhor 41 Vice President of Manufacturing
Peter N. Lalos 64 Director
Edgar Mulzer 80 Director
Lee Ray Olinger 71 Director
- ---------------
(1) Mr. and Mrs. Susnjara are husband and wife.
Mr. Susnjara co-founded the Company in 1969 and has been a director
since inception and Chairman, President and Chief Executive Officer since 1971.
He also served as Treasurer prior to March 1979 and again from October 1983 to
June 1985. He has devoted his full time to the Company's business except for a
brief period in 1985 when he acted as a distributor for the Company. Mr.
Susnjara is the author of a book on industrial robotics entitled A Manager's
Guide to Industrial Robotics and a book on furniture manufacturing titled
Furniture Manufacturing in the New Millennium.
Mrs. Susnjara has been a director of the Company since 1985 and
Secretary since 1989. She is and has been since 1985 the President of AAI, a
dealer of the Company's industrial products. Mrs. Susnjara is not active in the
Company's business.
Mr. Hardesty has been the Company's Vice President of Engineering since
August 1988. He joined the Company in 1975 and was employed first as a project
engineer, then project manager and then general manager until July 1980 when he
was promoted to Vice President of Operations. He served in that capacity until
May 1985 when he became Vice President of the Machining Products Division, a
position he held until assuming his current position in 1988.
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<PAGE>
Mrs. Fuller joined the Company in 1981 and was promoted to accounting
manager in 1983 and controller in 1985. She assumed her current position as
Treasurer in July 1993.
Mr. Hildenbrand became a Vice President of the Company in August, 1988.
Previously, he had been employed by the Company in various technician and sales
manager positions since 1977. He has also been a director of Thermwood (Europe)
Ltd. since July, 1996.
Mr. Kasten became a Vice President in December, 1993. Previously, he
had been employed by the Company as a manager of applications since 1990.
Mr. Ubelhor became Vice President of Manufacturing in August, 1997.
Previously, he had been the Company's Production Manager since 1993.
Mr. Lalos has been engaged in the private practice of law in Washington
D.C. since 1961 and is the senior partner in the law firm of Lalos & Keegan. He
served as Secretary of the Company from September 1981 until December 1989 and
as a director from April 1981 until July 1986. He was reelected to the Board of
Directors in December, 1989.
Mr. Mulzer was Chairman of the Board of The Dale State Bank, a
commercial bank in Dale, Indiana, from 1970 through 1993. Mr. Mulzer is
currently retired. He became a director of the Company in September 1974 and has
served continuously in that capacity to the present.
Mr. Olinger has been a director since December, 1989. He has been a
director since 1949 and Chairman of the Board since 1986 of First Bank of
Huntingburg, a commercial bank in Huntingburg, Indiana.
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<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table summarizes certain historical financial data which
have been derived from the audited consolidated financial statements of the
Company for each of the years in the five-year period ended July 31, 1997 and
the unaudited consolidated financial statements for the nine-month periods ended
April 30, 1998 and 1997. Per share numbers and weighted average number of shares
have been adjusted to reflect the Company's 1-for-5 reverse stock split
effective January 5, 1998. For additional information, see "Financial Statements
of the Company," commencing on page F-1.
<TABLE>
<CAPTION>
Selected Statement of Operations Data (in thousands except per share data)
Nine Months Ended April 30, Fiscal Year Ended July 31,
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Sales, less commissions $ 15,960 $ 12,192 $ 17,779 $ 12,636 $ 12,314 $ 9,985 $ 10,825
Gross profit 6,473 4,764 6,906 4,925 4,786 3,579 2,173
Earnings before income
taxes 1,780 1,417 2,055 1,174 1,140 136 (1,394)
Earnings (loss) from
continuing operations 1,061 866 1,236 2,334 2,350 136 (1,394)
Net earnings (loss) $ 1,061 $ 866 $ 1,236 $ 2,334 $ 2,350 $ 208 $ (1,360)
========== ========= ========= ========= ========= ======== ==========
Net earnings (loss) per share:
Basic $ 0.72 $ 0.49 $ 0.69 $ 1.56 $ 1.91 $ 0.00 $(1.35)
Diluted $ 0.68 $ 0.48 $ 0.69 $ 1.45 $ 1.49 $ 0.00 $(1.35)
Weighted average number of shares:
Basic 1,421 1,327 1,385 1,284 1,037 1,030 1,011
Diluted 1,510 1,429 1,447 1,437 1,451 1,030 1,011
Cash dividends declared
per common share $ 0 $ 0 $ 0 $ 0 $ 0 $ 0 $ 0
</TABLE>
<TABLE>
<CAPTION>
Selected Balance Sheet Data (in thousands except per share data)
April 30, July 31,
1998 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Total assets $ 13,427 $ 11,273 $ 8,766 $ 7,527 $ 5,418 $ 6,928
Working capital 5,909 5,080 3,791 2,811 1,706 1,291
Long-term obligations 2,621 285 709 1,870 1,862 5,711
Shareholders' equity
(deficit) 5,687 7,087 6,275 3,437 1,456 (1,985)
Book value per share $ 3.98 $ 5.06 $ 4.80 $ 3.37 $ 1.41 $(2.04)
Ratio of earnings to
fixed charges 11.79 24.14 9.44 4.53 1.30 N/A(1)
</TABLE>
(1) The pretax loss from continuing operations resulted in a fixed charge
coverage deficiency of $1,394,238.
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<PAGE>
Recent Financial Developments
The following tables set forth certain summary financial information for
the Company at July 31, 1998 and July 31, 1997, and for the three and twelve
months ended July 31, 1998 and 1997. Per share information for periods ended
July 31, 1997 has been adjusted to reflect the Company's 1-for-5 reverse stock
split effective January 5, 1998.
<TABLE>
<CAPTION>
Summary Statement of Operations Data (in thousands except per share data)
Fiscal Year Ended Quarter Ended
July 31, July 31,
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Sales, less commissions $ 21,884 $ 17,779 $ 5,924 $ 6,123
Gross profit 8,993 6,906 2,521 2,662
Earnings before income taxes 2,445 2,055 665 638
Net earnings 1,475 1,236 414 370
Net earnings per share
Basic $ 1.00 $ .69 $ .29 $ .30
Diluted $ .89 $ .69 $ .26 $ .25
</TABLE>
Summary Balance Sheet Data (in thousands)
July 31, July 31,
1998 1997
(unaudited)
Total assets $ 11,920 $ 11,273
Shareholders' equity 6,102 7,087
Net sales for fiscal year 1998 increased by $4.1 million or 23% from
fiscal year 1997. However, backlog at July 31, 1998 was approximately $1 million
lower than at July 31, 1997. Management attributes the decreased level of orders
at July 31, 1998 to a slowdown in capital purchasing because of a slower
economy. Also, traditionally sales are slower before the International
Woodworking Fair, a furniture industry trade show, which was held in August.
Sales generally increase a month or two after the show. Gross profit for fiscal
year 1997 was 39% of net sales compared to 41% of net sales for fiscal year
1998. In the current year, gross profit was positively affected by the continued
use of more efficient production methods, including in-house fabrication of
components previously finished outside the Company.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Fiscal Years Ended July 31, 1997, 1996 and 1995
Results of Operations. Net sales for fiscal year 1997 were $17,779,415,
an increase of 41% from fiscal year 1996, and a 44% increase from fiscal year
1995. European sales for the first year in operation were $1,035,484, or
approximately 6% of total net sales. Machine sales consisted of $16,420,313, or
82% of total gross sales. Technical services were $3,660,548, or 18% of total
gross sales. Backlog increased to $4,080,000 at July 31, 1997 from $1,630,000 at
July 31, 1996. Management attributes the increased level of orders at July 31,
1997 to a better market share because of lower prices and a good market due to
sustained economic growth in the United States.
Gross profit for fiscal year 1997 was $6,905,916, or 38.84% of net
sales. The percentage of current year gross profit to net sales has decreased
slightly from last year's 38.97% and 38.86% for 1995. Gross profit for the
European operations was $374,021, or 36.12% of net European sales. In the
current year, gross profit was positively affected by the continued use of more
efficient production methods, including in-house fabrication of components
previously finished outside the Company. However, the total gross profit was
lower than the two prior years because of the lower gross profit of the European
sales. Management expects the first quarter of fiscal year 1998 to reflect
higher margins due to generally higher margins on newly designed products and
better production efficiency due to a more experienced work force, and improved
manufacturing processes. Although management anticipates that gross profit
percentages from operations should continue to improve during 1998, no assurance
to this effect can be given.
Research and development, marketing, administrative and general
expenses were $4,794,563 in fiscal year 1997, compared to $3,638,536 in 1996 and
$3,315,904 in 1995. Research and development expenditures aggregating $216,000
in 1997, versus $284,000 in 1996 and $246,000 in 1995 are included in the
foregoing amounts. In management's opinion, with its new products and
experienced work force the Company can continue to take advantage of the
favorable economic conditions.
The major portion of the increased research and development, marketing
and administrative and general expenses from 1995 to 1997 was attributable to
European operations which did not exist in fiscal year 1996. These expenses
amounted to $570,000, or approximately 12% of total expenses in fiscal year
1997. Increased wages and benefits and increased advertising and marketing
efforts also contributed to the higher level of expenses.
Interest expense for fiscal year 1997 was $75,686, a decrease of
$42,913 from 1996 and a decrease of $219,239 from 1995. The steady decrease from
prior years is primarily due to the conversion of 12% convertible debentures to
common stock during fiscal years 1997 and 1996.
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<PAGE>
Operating income for fiscal year 1997 was $2,111,353 compared to
operating income of $1,286,817 and $1,470,333 in 1996 and 1995, respectively.
The increase in operating income in 1997 over 1996 resulted primarily from
increased sales. The European operations had an operating loss of $195,971.
Fiscal year 1997 net earnings were $1,235,824, compared to net earnings of
$2,334,428 and $2,349,794 in 1996 and 1995, respectively. Deferred tax benefits
of $1,178,000 and $1,236,000 recognized in 1996 and 1995, respectively,
contributed to increases in those years. This benefit primarily resulted from a
reduction in a deferred tax asset valuation allowance based on management's
expectation that future earnings would more likely than not allow for
realization of deferred tax assets including utilization of net operating loss
carryforwards. As the deferred tax valuation allowance was eliminated prior to
fiscal year 1997, income tax expense was provided on all 1997 earnings. Federal
income tax expense for fiscal year 1997 was $786,000, compared to income tax
benefits of $1,064,000 and $1,110,000 for fiscal years ended July 31, 1996 and
1995, respectively.
The Company has federal income tax net operating loss carryforwards of
approximately $4,896,000 which expire in the years 1998 through 2009. It also
has other tax credits of lesser value which appear in Note I of Notes to
Financial Statements.
Liquidity and Capital Resources. At July 31, 1997 the Company's working
capital was $5,080,310 compared to $3,790,586 at July 31, 1996. This increase
was primarily due to increased sales and accounts receivable. The increase in
accounts receivable was due to increased sales in the fourth quarter.
Inventories also increased, primarily due to in-house processing of components
previously purchased completely fabricated. The increase in inventory levels,
however, also contributed to increased accounts payable.
Management believes that the focus on marketing, sale and manufacture
of standard machines at the lowest possible price has been a major factor in the
increased market share, margins and profitability.
The Company had a positive cash flow from operating activities for the
1997 fiscal year in the amount of $1,791,778. Net earnings of $1,235,824, along
with the add back of other non-cash expenses such as depreciation and
amortization of $338,274, and an increase in accounts payable and customer
deposits contributed to a positive cash flow. However, an increase in
inventories and accounts receivable used cash resources.
During the 1997 fiscal year, the Company's investing activities were
primarily for remodeling engineering and supervisors' offices, replacement of
computer equipment and the retrofitting of production equipment with Thermwood
Controls. Expenditures for fixed assets in the 1998 fiscal year are anticipated
to be for normal replacements and purchases of labor-saving equipment for
production. The Company also has plans for expansion of the production area to
increase efficiency and capacity due to an anticipated increased level of sales.
-49-
<PAGE>
Principal payments on lease obligations during the 1997 fiscal year
were for leased office equipment. Cash flows from financing activities included
$285,204 of dividend payments on preferred stock and redemption of $550,800 of
preferred stock.
Nine Months Ended April 30, 1998 Compared to Nine Months Ended April 30, 1997
Results of Operations. Net sales for the quarter ended April 30, 1998
were $6,101,645 an increase of 38.5% from the third quarter net sales in fiscal
1997 and an increase of 20.7% over the second quarter of fiscal year 1998. Net
sales for the nine months of the current fiscal year were $15,959,851, an
increase of $3,768,187, or 30.9%, from last year's nine-month period.
Gross profit for the current quarter was $2,579,781, an increase of
59.1% from the third quarter last year and an increase of 39.4% from the second
quarter of fiscal year 1998. Gross profit for the nine months needed April 30,
1998 was an increase of $1,709,186, or 35.9%, over the same period of fiscal
year 1997. Gross profit as a percentage of net sales was 42.3% for the third
quarter of fiscal year 1998 compared to 36.8% for the third quarter of 1997 and
36.6% during the second quarter of fiscal year 1998 and increased from 39.1% to
40.6% for the nine-month periods ended April 30, 1997 and 1998, respectively.
The higher gross profit for the third quarter of fiscal 1998 was
reduced by research and development, marketing and administrative and general
and interest costs and other income to result in earnings before income taxes of
$836,283, an improvement of $424,842 over a profit of $411,441 for the same
period in fiscal year 1997. The cost of sales increase of 26.6% from the third
quarter of fiscal year 1997 was due primarily to proportionately higher net
sales for the same period and was actually less proportionately than the 38.5%
sales increase over the same period of fiscal year 1997. Earnings before income
taxes for the nine-month period of fiscal year 1998 were $1,779,578, or a 25.6%
increase over the same period for fiscal year 1997. Cost of sales also increased
27.7% during the nine-month period ending April 30, 1998, again below the 30.9%
increase in sales for the same period.
Research and development, marketing and administrative and general
expense for the third quarter of fiscal year 1998 increased approximately 40.8%
from the third quarter of fiscal year 1997 and increased approximately 38.6% for
the nine-month period ended April 30, 1998, compared to the same period in
fiscal year 1997. The year-to-date increase is due primarily to increases in
salaries and bonuses based upon profitability.
European operations contributed 7% of total sales in fiscal year 1998,
or $1,175,916 compared to 4% of total sales, or $535,112 in fiscal year 1997.
This was a 120% increase in European sales over fiscal year 1997. Research and
development, marketing and administrative and general expenses for the European
operations were approximately 14% of the total for the Company and an increase
of $371,000, or 134% over fiscal year 1997.
-50-
<PAGE>
Interest expense in the third quarter of fiscal year 1998 was $72,810,
an increase of approximately $56,000 over $16,734 for the same quarter last year
and an increase of approximately $11,000 from the second quarter of fiscal year
1998. For the nine-month period ended April 30, 1998 interest expense was
$160,069 compared to $70,030 for the same period of fiscal year 1997, an
increase of approximately $90,000. This higher level of interest is due
primarily to the loan from a bank for the repurchase of the preferred stock and
for expansion of production facilities. Interest on the convertible debentures
for the quarter ended April 30, 1998 was approximately $5,000 compared to
approximately $16,000 for the same period in fiscal year 1997. The remaining
balance of debentures is approximately $170,000, net of unamortized discount, at
April 30, 1998.
The net earnings in the third quarter of fiscal year 1998 were
$491,954, an increase of 94% over the third quarter of fiscal year 1997. For the
nine-month period ended April 30, 1998, net earnings were $1,060,882, a 22.6%
increase over the $865,680 net earnings for the nine-month period ended April
30. Income taxes of $718,696 were accrued for the nine months ended April 30,
1998 compared to $550,901 accrued for the same period in 1997.
Liquidity and Capital Resources. At April 30, 1998, the Company's
working capital was $5,908,730 compared to $5,080,310 at July 31, 1997. This
increase was due primarily to increases in inventory. The Company is now
purchasing bulk quantities of raw materials in order to produce many components,
which were previously purchased already machined, thus increasing
work-in-process inventory. Increased inventories were the result of a slower
turnover rate because of the processing time for work-in-process inventories.
An increase in backlog of approximately $360,000 from the $4,080,000 at
July 31, 1997 contributed to increased raw material and work-in-process
inventories. Increased inventories contributed to the increase in working
capital by approximately $1,360,000. Inventory levels were increased to support
the backlog covering the shorter production period and faster turnaround
demanded by customers.
Backlog increased during the third fiscal quarter ended April 30, 1998
to $4,440,000 compared to approximately $3,800,000 both at the end of the
preceding quarter and also for the quarter ended April 30, 1997. Accounts
receivable also increased approximately $1,300,000 while accounts payable and
customer deposits increased approximately $140,000 and $800,000, respectively,
from July, 1997 due to higher sales levels.
Shareholders' equity decreased from $7,087,313 at July 31, 1997 to
$5,687,096 in the nine month period ended April 30, 1998. A total of 24,000
shares of common stock at a price of $5 per share were issued upon conversion of
12% debentures during the nine months ended April 30, 1998 for an increase to
shareholders' equity in the amount of $106,926, net of discount and issuance
costs. In the first nine months of fiscal 1997, 81,000 shares were added to
common stock at a net amount of $357,980.
-51-
<PAGE>
The Company has repurchased the balance of 738,000 shares of preferred
stock for $2,546,320 for the nine months ended April 30, 1998 and entered into a
line of credit with a bank in the amount $3.5 million. This transaction enabled
the Company to take clear title to its land and building which were connected to
a lease agreement with the related party who held the preferred stock. This then
enabled the Company to proceed with an expansion of its production facilities of
20,000 square feet. For the same period in fiscal year 1997, the Company
redeemed 119,200 shares of the preferred stock at $3.40.
LITIGATION
The Company is not named as a plaintiff in any litigation. The Company
is named as a defendant in one suit relating to a product warranty. Management
is of the opinion that such suit is incidental to the business of the Company
and the ultimate disposition thereof will not have a material adverse effect on
the Company's financial position or results of operations.
MARKET FOR THE COMMON STOCK; DIVIDENDS
Market Information
The Company's Common Stock is traded on AMEX and PSEX. The following
table sets forth the high and low sales prices per share (adjusted to reflect
the Company's 1-for-5 Reverse Stock Split in January, 1998) as reported on AMEX.
High Low
Fiscal 1998: Fourth Quarter $10.06 $7.50
Third Quarter $ 9.12 $7.50
Second Quarter $13.10 $9.05
First Quarter $14.05 $9.70
Fiscal 1997: Fourth Quarter $10.00 $7.50
Third Quarter $10.00 $7.50
Second Quarter $10.60 $6.90
First Quarter $11.90 $9.70
On the Record Date, the high and low sales price per share of Common
Stock was $____.
The Company publicly announced the $11.00 per share price which would
be paid in lieu of fractional shares in the Reverse Stock Split on August 18,
1998. On August 17, 1998, the last trading day before the announcement of the
Reverse Stock Split, the high and low price for shares of Common Stock, as
reported on AMEX, were both $8.25.
-52-
<PAGE>
Transaction in Common Stock
The Company has not purchased any shares of Common Stock during the
last three fiscal years. Neither the Company nor any of its affiliates,
directors or executive officers has purchased or sold any Common Stock in the
last sixty days, except that Kenneth J. Susnjara converted Debentures into
10,000 shares of Common Stock on August 27, 1998.
Dividends
The Company has never paid dividends on its Common Stock. The current
policy of the Board of Directors is to retain earnings, if any, to finance the
operation of the Company's business. If the Reverse Stock Split is effected, the
Company expects to elect S corporation status. After such election, the Board of
Directors expects to declare annual distributions of income or dividends in such
amounts as it deems appropriate. Such distributions are likely to be in amounts
at least equal to the taxes on Company income which the shareholders will be
required to pay.
SHAREHOLDER PROPOSALS
A shareholder proposal which is intended to be presented at the next
annual meeting of shareholders must be received by the Company at its principal
executive offices, whose mailing address is P.O. Box 436, One Buffaloville Road,
Dale, Indiana 47523 no later than September 15, 1998, if it is to be included in
any proxy solicitation material mailed by the Company. In addition, if a
shareholder intends to present a proposal at the next annual meeting without
including the proposal in the proxy materials related to that meeting, and if
the proposal is not received by the Company by October 4, 1998, then the proxies
designated by the Board of Directors for the next annual meeting may vote in
their discretion on any such proposal any shares for which they have been
appointed proxies without mention of such matter in the proxy statement or on
the proxy card for such meeting. If the Company has effected the Reverse Stock
Split and terminated the Registration of the Common Stock under the 1934 Act
prior to its next annual meeting of shareholders, it will no longer be subject
to the proxy solicitation rules in the 1934 Act with respect to that meeting.
-53-
<PAGE>
INDEPENDENT ACCOUNTANTS
Representatives of KPMG Peat Marwick, the Company's independent
accountants for the last and current fiscal year, are not expected to be at the
Special Meeting.
ADDITIONAL INFORMATION
The Company files periodic reports, proxy statements and other
information with the Commission under the 1934 Act relating to its business,
financial condition and other matters. The Company has filed a Schedule 13E-3
with the Commission in connection with the proposed Reverse Stock Split. This
Proxy Statement does not contain all of the information set forth in the
Schedule 13E-3, certain portions of which have been omitted pursuant to the
rules and regulations of the Commission. The Schedule 13E-3, including exhibits
and other filings made by the Company as described above, may be inspected
without charge, and copies may be obtained at prescribed rates, at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549; 75 Park Place, Room 1228, New
York, New York, 10007; Room 1204, Everett McKinley Dirkson Building, 219 South
Dearborn Street, Chicago, Illinois 60604; and Museum Square Building, Suite 500
East, 5757 Wilshire Boulevard, Los Angeles, California, 90036. Copies of such
materials can also be obtained by mail, upon payment of the Commission's
prescribed rates, from the Commission's Public Reference Section at 450 Fifth
Street, N.W., Washington, D.C. 20549. Such materials are also available from the
Commission's Internet site, www.seg.gov. The Schedule 13E-3 is also available
for inspection and copying at the principal executive offices of the Company,
during normal business hours, at One Buffaloville Road, Dale, Indiana 47523.
EXPENSES
The following is an estimate of the costs and expenses incurred or
expected to be incurred by the Company in connection with the Reverse Stock
Split. Amounts shown below exclude the cost of paying for fractional shares
after the Reverse Stock Split is effected. Final costs and expenses of the
transaction may be more or less than the estimates shown below.
Legal fees $ 55,000
Transfer and exchange agent fees 5,000
Fees for valuation 25,000
Printing and mailing costs 15,000
Fees for advisor on financing 210,000
Counsel fees and other expenses of financing 30,000
Proxy solicitation costs 25,000
Commission filing fees 2,200
Accounting fees 30,000
------
Total $ 397,200
-54-
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF THERMWOOD CORPORATION AND SUBSIDIARY
Report of KPMG Peat Marwick LLP F-1
Consolidated Balance Sheets -- July 31 1997 and July 31, 1996 F-2
Consolidated Statements of Operations -- Years ended F-4
July 31, 1997, 1996 and 1995
Consolidated Statements of Shareholders' Equity -- Years ended F-5
July 31, 1997, 1996 and 1995
Consolidated Statements of Cash Flows -- Years ended F-7
July 31, 1997, 1996 and 1995
Notes to Consolidated Financial Statements (fiscal years) F-9
Unaudited Interim Financial Information
- ---------------------------------------
Consolidated Statements of Operations -- F-22
Three and nine months ended April 30, 1998 and 1997
Consolidated Balance Sheets -- April 30, 1998 and July 31, 1997 F-24
Consolidated Statements of Cash Flows -- Nine months F-26
ended April 30, 1998 and 1997
Notes to Consolidated Financial Statements (interim financials) F-28
-55-
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Thermwood Corporation:
We have audited the accompanying consolidated balance sheets of Thermwood
Corporation and subsidiary as of July 31, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows for
each of the years in the three-year period ended July 31, 1997. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Thermwood
Corporation as of July 31, 1997 and 1996, and the results of their operations
and their cash flows for each of the years in the three-year period ended July
31, 1997, in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Indianapolis, Indiana
September 12, 1997, except as to Note L which is as of October 7, 1997, and Note
M which is as of January 5, 1998
F-1
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
July 31
1997 1996
-------------------------------
Assets
Current Assets
Cash $ 512,480 $ 18,995
Accounts receivable, less allowance for
doubtful accounts of $25,000 for 1997
and 1996 1,802,569 812,540
Inventories 4,618,001 3,329,337
Deferred income taxes 1,676,000 1,073,000
Prepaid expenses 372,287 339,015
------------ ------------
Total Current Assets 8,981,337 5,572,887
------------ ------------
Property and Equipment
Land 73,260 73,260
Buildings and improvements 1,352,059 1,235,621
Furniture and equipment 2,768,255 2,331,461
Construction in progress 6,257 168,140
Less accumulated depreciation
and amortization (2,375,826) (2,115,795)
------------ ------------
Net Property and Equipment 1,824,005 1,692,687
------------ ------------
Other Assets
Patents, trademarks and other 133,026 131,899
Bond issuance costs less
accumulated amortization 8,665 27,817
Deferred income taxes 326,000 1,341,000
------------ ------------
Total Other Assets 467,691 1,500,716
------------ ------------
Total Assets $ 11,273,033 $ 8,766,290
============ ============
See accompanying notes to consolidated financial statements.
F-2
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31
1997 1996
--------------------------------
Liabilities and Shareholders' Equity
Current Liabilities
<S> <C> <C>
Accounts payable $ 1,375,005 $ 694,603
Accrued compensation and payroll taxes 582,652 349,136
Customer deposits 907,110 494,009
Other accrued liabilities 1,028,505 238,288
Current portion of capital lease obligations 7,755 6,264
------------ ------------
Total Current Liabilities 3,901,027 1,782,300
------------ ------------
Long-Term Liabilities, Less Current Portion
Capital lease obligations 5,918 15,474
Bonds payable, net of unamortized discount of
$22,225 for 1997 and $69,721 for 1996 278,775 693,279
------------ ------------
Total Long-Term Liabilities 284,693 708,753
------------ ------------
Shareholders' Equity
Preferred stock, no par value,2,000,000shares
authorized,1,000,000shares
issued and 738,000 and 900,000 shares
outstanding for 1997 and 1996, respectively 2,546,320 3,097,120
Common stock, no par value, 4,000,000
shares authorized, 1,400,109 and
1,307,709 shares issued and outstanding
for 1997 and 1996, respectively 10,599,285 10,190,404
Accumulated deficit (6,033,542) (6,984,162)
------------ ------------
7,112,063 6,303,362
Less subscriptions receivable 24,750 28,125
------------ ------------
Total Shareholders' Equity 7,087,313 6,275,237
------------ ------------
Total Liabilities and Shareholder's Equity $ 11,273,033 $ 8,766,290
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended July 31
1997 1996 1995
----------------------------------------------------------
Sales
<S> <C> <C> <C>
Machine sales $ 16,420,313 $ 10,966,096 $ 11,042,793
Technical services 3,660,548 3,298,567 2,785,525
---------------- --------------- ----------------
20,080,861 14,264,663 13,828,318
Less commissions 2,301,446 1,628,172 1,514,047
---------------- --------------- ----------------
Net Sales 17,779,415 12,636,491 12,314,271
Cost of Sales
Machines 8,841,911 5,577,272 5,951,699
Technical services 2,031,588 2,133,866 1,576,335
---------------- --------------- ----------------
Total Cost of Sales 10,873,499 7,711,138 7,528,034
---------------- --------------- ----------------
Gross Profit 6,905,916 4,925,353 4,786,237
Research and development,
marketing, administrative
and general expenses 4,794,563 3,638,536 3,315,904
---------------- --------------- ----------------
Operating income 2,111,353 1,286,817 1,470,333
---------------- --------------- ----------------
Other income (expense):
Interest expense -
related party 0 (889) (7,791)
Interest expense - other (75,686) (117,710) (287,134)
Other 19,157 6,210 (35,614)
---------------- --------------- ----------------
Other expense, net (56,529) (112,389) (330,539)
------------------ ----------------- ----------------
Earnings before income taxes 2,054,824 1,174,428 1,139,794
Income tax (expense) benefit (819,000) 1,160,000 1,210,000
------------------ --------------- ----------------
Net earnings $ 1,235,824 $ 2,334,428 $ 2,349,794
================ =============== ================
Net earnings applicable to
common shareholders $ 950,620 $ 2,004,373 $ 1,981,884
================ =============== ================
Earnings per share
Primary $ 0.69 $ 1.56 $ 1.91
================ ============== ===============
Assuming full dilution $ 0.69 $ 1.45 $ 1.49
================ ============== ===============
Weighted average number of shares:
Primary 1,385,120 1,284,220 1,037,430
Assuming full dilution 1,447,356 1,436,820 1,451,430
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Subscriptions Accumulated
Shares Amount Shares Amount Receivable (Deficit)
------ ------ ------ ------ ---------- ---------
Balances at
<S> <C> <C> <C> <C> <C> <C>
July 31, 1994 1,000,000 $3,437,120 1,029,909 $8,988,897 $ 0 $(10,970,419)
Preferred
dividends paid 0 0 0 0 0 (367,910)
Net earnings ________ _________ ________ _____ _____ 2,349,794
--------------
Balances at
July 31, 1995 1,000,000 $3,437,120 1,029,909 $8,988,897 $ 0 $(8,988,535)
Preferred
dividends paid 0 0 0 0 0 (330,055)
Redemption of
preferred stock (100,000) (340,000) 0 0 0 0
Conversion of
12% debentures,
net of related
bond issuance
costs and unamor-
tized discount 0 0 261,400 1,115,507 0 0
Exercise of
qualified stock
options 0 0 10,400 56,000 (28,125) 0
Exercise of other
stock options 0 0 6,000 30,000 0 0
Net earnings 0 0 0 0 0 $2,334,428
---------- ---------- ----------- ----------- ---------- ----------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(continued)
<TABLE>
<CAPTION>
Preferred Stock Common Stock
Subscriptions Accumulated
Shares Amount Shares Amount Receivable (Deficit)
------ ------ ------ ------ ---------- ---------
Balances at
<S> <C> <C> <C> <C> <C> <C>
July 31, 1996 900,000 $3,097,120 1,307,709 $10,190,404 $ (28,125) $ (6,984,162)
Subscriptions
received 0 0 0 0 3,375 0
Preferred dividends
paid 0 0 0 0 0 (285,204)
Redemption of
preferred stock (162,000) (550,800) 0 0 0 0
Conversion of 12%
debentures, net of
related bond issuance
costs and unamor-
tized discount 0 0 92,400 408,881 0 0
Net earnings 0 0 0 0 0 1,235,824
----------- ----------- ----------- ----------- ----------- ---------
Balances at
July 31, 1997 738,000 $ 2,546,320 1,400,109 $ 10,599,285 $ (24,750) $ (6,033,542)
=========== ============ =========== ============ ============= ================
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended July 31
-----------------------------------------------
1997 1996 1995
----------- ----------- -----------
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net earnings $ 1,235,824 $ 2,334,428 $ 2,349,794
Adjustments to reconcile net
earnings to net cash provided
by operating activities:
Depreciation and amortization 338,274 295,510 329,012
Provision for inventories 0 21,012 80,000
Gain on disposal of equipment 0 (15,625) (1,850)
Deferred income taxes 412,000 (1,178,000) (1,236,000)
Changes in operating assets and
liabilities:
Accounts receivable (990,029) 369,060 (500,252)
Inventories (1,288,664) (341,402) (244,890)
Prepaid expenses and
other assets (32,864) 41,151 (140,219)
Accounts payable and
other accrued expenses 1,704,136 (263,205) (114,974)
Customer deposits 413,101 (148,350) 273,154
----------- ----------- -----------
Net cash provided by
operating activities 1,791,778 1,114,579 793,775
----------- ----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of equipment 0 40,000 1,850
Purchases of patents, property
and equipment (457,599) (502,350) (350,111)
----------- ----------- -----------
Net cash used by
investing activities (457,599) (462,350) (348,261)
----------- ----------- -----------
</TABLE>
F-7
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
<TABLE>
<CAPTION>
Years Ended July 31
-----------------------------------------
1997 1996 1995
--------- --------- ---------
Cash Flows From Financing Activities:
Principal payments on
<S> <C> <C> <C>
lease obligations (8,065) (31,598) (76,767)
Redemption of preferred stock (550,800) (340,000) 0
Payment of dividends on
preferred stock (285,204) (330,055) (367,910)
Proceeds from subscriptions
receivable 3,375 0 0
Proceeds from exercise of
stock options 0 57,875 0
--------- --------- ---------
Need cash used by
financing activities (840,694) (643,778) (444,677)
--------- --------- ---------
Increase in cash 493,485 8,451 837
Cash at beginning of year 18,995 10,544 9,707
--------- --------- ---------
Cash at end of year $ 512,480 $ 18,995 $ 10,544
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
General:
The consolidated financial statements include the accounts of Thermwood
Corporation and its wholly-owned subsidiary, Thermwood Europe Limited, a United
Kingdom company. The term "Company" refers to the consolidated operations of
Thermwood Corporation and its subsidiary.
The Company operates within a single business segment called industrial
automation equipment, and manufactures high technology machining systems. The
Company sells its products primarily through the assistance of dealer networks
established throughout the United States and Europe. Three dealers accounted for
approximately 42% of the Company's business. The loss of any large dealer could
have a materially adverse effect on the Company's business.
The Company also offers a variety of technical services. These services
include training, installation assistance, preventive maintenance and upgrading
and enhancement of installed products as technology advances. The Technical
Services Division also has responsibility for the quality control of the
Company's industrial products during their manufacture. Technical services are
marketed to current customers as well as to companies that purchase Thermwood
equipment in the used market. Sales and service by the Technical Services
Division in fiscal year 1997 amounted to approximately 18% of total sales.
The Company's machining systems are utilized principally in the
woodworking, plastics and boating industries. The Company is not dependent upon
a single supplier or only a few suppliers.
Principles of Consolidation:
All significant intercompany transactions and accounts have been
eliminated in consolidation.
Use of Estimates and Assumptions:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities, and the reported amounts of
revenues and expenses. Actual results could differ from those estimates.
F-9
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Revenues and Warranties:
The manufacturing process may extend over several months and advance
cash deposits are normally required from customers. Sales are recorded when
machines are shipped. Revenues of technical services are recognized when the
service is performed. Estimated costs of product warranties are charged to cost
of sales at the time of sale.
Inventories:
Inventories are stated at the lower of cost (first-in, first-out
method) or market.
Property and Equipment:
Property and equipment are recorded at cost for assets purchased and at
the present value of minimum lease payments for assets acquired under capital
leases. Depreciation and amortization are computed by the straight-line method
over the estimated useful lives of the assets, as shown below:
Buildings and improvements 10 to 30 years
Equipment 3 to 10 years
Depreciation expense for 1997, 1996 and 1995 was $304,716, $256,290 and
$289,339, respectively.
Research and Development:
Research and development costs are expenses as incurred. Expenditures
for research and development were approximately $216,000, $284,000 and $246,000
during 1997, 1996 and 1995, respectively.
Customer Deposits:
Customer deposits are recorded as a current liability with no offset
against costs incurred on work-in-process. As of July 31, 1997, substantially
all of the deposits had no incurred work-in-process cost.
F-10
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE A -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: (continued)
Earnings Per Share:
Primary earnings per common and common equivalent share is based on net
earnings less preferred stock dividend requirements and the weighted average
number of common shares outstanding, adjusted for the incremental shares
attributed to dilutive stock options and warrants using the treasury stock
method.
Earnings per share, assuming full dilution, is determined by dividing
net earnings attributable to common shareholders, plus interest and amortization
expense (net of income taxes) related to convertible debentures, by the sum of
the weighted average number of common shares outstanding and the incremental
shares attributed to dilutive common stock equivalents and the assumed
conversion of the convertible debentures.
Income Taxes:
Deferred tax assets and liabilities are recognized for the future as
tax consequences attributable to differences between the financial statement
amounts for assets and liabilities and their respective tax bases. Deferred tax
assets and liabilities are measured using enacted tax rates which apply to
taxable income in the years in which those temporary differences are expected to
reverse. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in the period the change is enacted. A valuation allowance
is provided when it is more likely than not that some portion or all of net
deferred tax assets will not be realized.
Reclassifications:
Certain amounts presented in prior years' financial statements have
been reclassified to conform to the current year presentation.
NOTE B -- INVENTORIES:
Inventories at July 31 consist of:
1997 1996
---------- ----------
Finished goods $ 644,477 $ 508,910
Work-in-process 1,171,484 903,447
Raw materials 2,802,040 1,916,980
---------- ----------
$4,618,001 $3,329,337
========== ==========
F-11
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C--LEASES:
The Company has leased its production facilities and certain equipment,
primarily from related parties. Amounts included in property and equipment at
July 31 relating to capital leases are as follows:
1997 1996
----------- -----------
Land $ 73,260 $ 73,260
Building and improvements 1,171,778 1,171,778
Furniture and equipment 266,929 266,929
----------- -----------
1,511,967 1,511,967
Less accumulated amortization (799,558) (740,782)
----------- -----------
$ 712,409 $ 771,185
=========== ===========
Included in Land, Building and Improvements above are assets with a net
book value of $533,928 and $696,454 at July 31, 1997 and 1996, respectively,
leased from a director of the Company under a capital lease expiring in
February, 2007. During fiscal year 1994, the obligation under this lease was
converted to Preferred Stock (Note G). The Company has the option to purchase
the assets under this lease at any time for a purchase price of $1,608,629 less
the aggregate amount paid to the director for the redemption of the Series A
Preferred Stock, which payments aggregated $890,800 through July 31, 1997.
Future minimum lease payments as of July 31, 1997 for all leases are as follows:
Years ending July 31: Capital Operating
Leases Leases
1998 $ 8,916 $ 42,108
1999 7,114 42,108
2000 0 42,108
2001 0 42,108
2002 0 1,200
------------ -------------
Total minimum lease payments 16,030 $ 169,632
=============
Less amount representing interest
(principally at 14%) (2,357)
-------------
Present value of net minimum lease
payments $ 13,673
=============
Total operating lease expense for 1997, 1996 and 1995 was $44,390, $18,130 and
$18,315 respectively.
F-12
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D -- BONDS PAYABLE:
In 1993 the Company completed a public offering of 2,070 units totaling
$2,070,000. Each unit consisted of one Convertible Debenture in the principal
amount of $1,000, bearing interest at 12% per year, and 500 Redeemable Warrants.
The bonds were issued at a discount of $254,573 which is being amortized using
the interest method.
The Debentures, which mature in February 2003, are convertible, unless
previously redeemed, into shares of the Company's common stock at a price of
$5.00 per share, subject to anti-dilutive adjustments. Interest is payable
quarterly. The Company may, on 30 days written notice, and with the approval of
the underwriter of the public offering, redeem the Debentures, in whole or in
part, if the closing price of the Company's common stock for the immediately
preceding 30 consecutive trading days equals or exceeds $12.50 per share. The
redemption price will be 105% plus accrued interest through the date of
redemption.
During fiscal year ended July 31, 1997 holders tendered $462,000 of the
debentures for conversion into 92,400 common shares.
Each Warrant entitled the holder to purchase one share of common stock
at a price of $15.00 per share, subject to anti-dilutive adjustments, through
February 1996. The warrants expired on February 21, 1996.
F-13
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E -- COMMON STOCK OPTIONS:
The Company has both a qualified and a nonqualified stock option plan.
The Company applies APB Opinion No. 25, "Accounting for Stock Issued to
Employees" and related Interpretations in accounting for these plans. Had
compensation cost been determined based on the fair value at the grant date for
awards under those plans consistent with the method of Statement of Financial
Accounting Standards No. 123 (FAS 123), the Company's net earnings and earnings
per share would have been reduced to the pro forma amounts indicated below:
1997 1996
------------- -------------
Net Earnings
As Reported $ 1,235,824 $ 2,334,428
Pro Forma 1,214,168 1,985,024
Primary Earnings Per Share
As Reported $ 0.69 $ 1.56
Pro Forma 0.69 1.35
Fully Diluted Earnings Per Share
As Reported 0.69 1.45
Pro Forma 0.69 1.30
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts. The Statement does not apply to awards granted
prior to December 16, 1995. The fair value of each option is estimated on the
date of grant using the Black-Scholes option pricing model with the following
assumptions used for grants in fiscal years 1997 and 1996: no dividend yield for
both years; expected volatility of 56 percent and 72 percent for 1997 and 1996,
respectively, risk-free interest rates of 6.2 percent and 6.6 percent for 1997
and 1996, respectively, expected lives of 10 years for all options except 5
years for options to purchase 120,000 shares granted in 1996.
The Company reserved 80,000 shares of common stock for issuance under
the qualified plan. Options to purchase 57,000 of the shares have been granted,
5,000 of which were granted during fiscal year 1997. None of these options were
exercised during fiscal year 1997. As of July 31, 1997, 46,600 were exercisable.
These options must be exercised within ten years of the grant date.
F-14
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE E -- COMMON STOCK OPTIONS: (continued)
The nonqualified plan provides for the issuance of options to purchase
up to 70,000 shares of common stock of which options to purchase 40,000 shares
were outstanding and exercisable as of July 31, 1997.
Other options to purchase 140,000 shares have been granted by the Board
of Directors, all of which were outstanding and exercisable as of July 31, 1997.
An option to purchase 120,000 of these shares was granted to the President of
the Company. The option extends through October 18, 1997 and permits the
purchase of 60,000 shares at $15.00 per share and 60,000 at $30.00 per share.
A 6,000 share option was granted to an employee at $5.00 per share and
is exercisable through October 1997. Options for an additional 4,000 shares at
$8.4375 per share were granted during fiscal year 1996 to a principal in a
former public relations firm for the Company. The options are currently
exercisable and extend through February, 2006. During fiscal year 1997 options
for 10,000 shares were granted to another public relations firm. These options
are exercisable as of July 31, 1997, 5,000 of which are exercisable at $12.50
per share and 5,000 at $25.00 per share and expire 30 days after termination of
the service agreement between the Company and the firm.
A summary of common stock options for the years ended July 31 follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ------------------ -------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
Outstanding at
<S> <C> <C> <C> <C> <C> <C>
beginning of year 211,600 $ 15.95 207,000 $ 24.25 208,950 $ 24.25
Granted 15,000 $ 14.75 151,000 $ 19.30 0 0
Canceled/expired 0 0 130,000 $ 35.05 1,950 $ 8.15
Exercised 0 0 16,400 $ 6.85 0 0
------------ ------- ----------- ------- ----------- -------
Outstanding at end
of year 226,600 $ 15.90 211,600 $ 15.95 207,000 $ 24.25
============ ======= ======= ======== ======= =======
Exercisable at end of year 226,600 211,600 207,000
============ ======= =======
Weighted average fair value of
options granted during the year $6.90 $3.75 $ --
===== ===== =====
</TABLE>
F-15
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE F -- SHAREHOLDERS' EQUITY:
The Company is authorized to issue 2,000,000 shares of non-voting preferred
stock, no par value Series A Preferred Stock, of which 1,000,000 shares were
issued and 738,000 and 900,000 shares were outstanding at July 31, 1997 and
1996, respectively. All of these shares were issued to a director/shareholder in
a conversion of debt transaction (Note G). The holders of Series A Preferred
Stock are entitled to receive cumulative cash dividends out of the net profits
of the Company at the rate of thirty-four cents ($0.34) per share per annum,
payable monthly in equal installments within the first fifteen days of each
month for the preceding month as directed by the Board of Directors of the
Company. The Company has the right in its sole discretion to redeem the stock at
any time at $3.40 per share. During fiscal years 1997 and 1996, 162,000 and
100,000 shares were redeemed by the Company for $550,800 and $340,000,
respectively. In the event of the liquidation of the Company, the holders of the
Series A Preferred Stock are entitled to receive $3.40 per share plus any unpaid
cumulative and current dividends before payment to holders of shares of the
Company's common stock.
NOTE G -- RELATED PARTY TRANSACTIONS:
Director and shareholder - The Company leased land, building and
improvements from a director/shareholder and a leasing company owned by this
director. The net book value of these leased assets was $533,928 and $696,454 at
July 31, 1997 and 1996, respectively. On November 18, 1993, the Company entered
into an agreement with the director/shareholder, whereby approximately $3.4
million in long-term debt (including amounts due under capital leases) was
converted to 1,000,000 shares of the Company's Series A Preferred Stock.
Director and shareholder - A director and shareholder is a partner in the
law firm retained as the Company's outside counsel. Total expenses for legal
services from the firm were $76,699, $103,180 and $93,929 for 1997, 1996 The
Company had accounts payable of $14,462 at July 31, 1997 relating to such legal
services.
President and secretary - The president and secretary of the Company who are
husband and wife and are also directors of the Company, are the owners of a
dealership which leases office space from and sells equipment for the Company.
The Company primarily sells its machines directly to the purchaser within this
dealer's region; however, sales may also be made directly to the dealer who in
turn sells the machines to the purchaser. The agreement between the Company and
the dealer is a standard agreement similar to other dealer agreements entered
into by the Company.
Rent income from the dealership was $6,800, $7,200 and $7,200 for 1997, 1996
and 1995, respectively. Sales commissions of $447,667, $349,584 and $578,298
were paid to the dealership during 1997, 1996, and 1995, respectively, for
assisting in effecting sales.
F-16
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I--INCOME TAXES:
The provisions for income taxes for the years ended July 31 consist of:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
Federal:
<S> <C> <C> <C>
Currently payable $ (407,000) $ (18,000) $ (26,000)
Deferred (expense) benefit (379,000) 1,082,000 1,136,000
----------- ----------- -----------
(786,000) 1,064,000 1,110,000
----------- ----------- -----------
State:
Currently payable 0 0 0
Deferred (expense) benefit (33,000) 96,000 100,000
----------- ----------- -----------
(33,000) 96,000 100,000
----------- ----------- -----------
Total income tax (expense) benefit $ (819,000) $ 1,160,000 $ 1,210,000
=========== =========== ===========
</TABLE>
A reconciliation of expected income taxes using an effective combined state and
federal income tax rate of 37% and actual income taxes for the years ended July
31, follows:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net earnings before income taxes $ 2,054,824 $ 1,174,428 $ 1,139,794
=========== =========== ===========
Expected income tax expense $ (760,000) $ (435,000) $ (422,000)
Utilization of net operating
loss carryforwards 0 119,000 474,000
Reduction in deferred tax asset
valuation allowance 0 1,480,000 1,163,000
Effect of non-deductible items:
Meals and entertainment (14,000) (11,000) (9,000)
Other (45,000) 7,000 4,000
----------- ----------- -----------
Total actual income tax
(expense) benefit $ (819,000) $ 1,160,000 $ 1,210,000
=========== =========== ===========
</TABLE>
F-17
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE I -- INCOME TAXES: (continued)
The tax effects of significant temporary differences represented by deferred tax
assets and deferred tax liabilities at July 31 are as follows:
Deferred tax assets: 1997 1996
---------- ----------
Inventory valuation $ 246,000 $ 248,000
Warranty reserves 73,000 42,000
Net operating loss carryforwards 1,812,000 2,224,000
Other 3,000 90,000
---------- ----------
Deferred tax assets 2,134,000 2,604,000
---------- ----------
Deferred tax liability:
Property and equipment 132,000 190,000
---------- ----------
Net deferred tax assets $2,002,000 $2,414,000
========== ==========
During the fourth quarter of the fiscal year 1996, management adjusted
the deferred tax asset valuation allowance based on its assessment as to the
likelihood that future earnings would be sufficient to realize deferred tax
assets, including net operating loss carryforwards.
At July 31, 1997, the Company had the following carryforwards for tax
purposes:
Operating loss carryforwards expiring in 2004 - 2009 $ 4,896,000
General business credits expiring in 1998 - 2001 $ 31,000
The amount of such loss carryforwards and other credits available for
utilization in any future year could be limited in the event of a change in
ownership as defined by income tax laws.
F-18
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE J--ADDITIONAL INFORMATION:
Other accrued liabilities at July 31 consist of:
1997 1996
---------- ----------
Property taxes $ 66,138 $ 43,498
Income taxes 387,000 0
Accrued warranties 196,777 114,992
Other 378,590 79,798
---------- ----------
$1,028,505 $ 238,288
========== ==========
Cash Flow Information:
The Company paid cash for interest in the amount of $69,739, $146,810
and $280,123 during 1997, 1996 and 1995, respectively. The Company paid cash for
income taxes in the amount of $30,000, $9,000 and $35,000 during 1997, 1996 and
1995, respectively.
Non-cash Investing and Financing Activities:
During 1995 the Company entered into a lease for office equipment with
an unrelated party and incurred a capital lease obligation of $31,929. During
1997 and 1996, bonds with face values of $462,000 and $1,307,000, respectively,
were converted to 92,4,000 and 261,400 shares of common stock.
NOTE K -- PENSION AND PROFIT SHARING PLAN:
The Company has a deferred income 401(k) savings plan for its
employees. The Company matches 25% of employee contributions up to 3% of each
employee's wages. Pension expense for 1997, 1996 and 1995 amounted to $35,840,
$19,274 and $18,588, respectively. The Company also has a management profit
sharing plan. Profit sharing expense amounted to $647,407, $384,390 and $423,037
for 1997, 1996 and 1995, respectively.
F-19
<PAGE>
THERMWOOD CORPORATION AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE L -- SUBSEQUENT EVENTS:
On October 7, 1997, the Company entered into a line of credit with a
bank in the amount of $3.5 million. The balance of preferred stock in the amount
of $2,546,320 was repurchased from the shareholder. This transaction enabled the
Company to take clear title to its land and building. An expansion of 20,000
square feet to the production facilities was started and is expected to be
completed in January, 1998. Management estimates the total cost of the expansion
will be approximately $500,000.
NOTE M -- REVERSE STOCK SPLIT
On December 18, 1997, the Board of Directors approved a 1-for-5 reverse
stock split of the Company's common shares effective January 5, 1998. One new
common share was issued for every five common shares held by shareholders of
record on January 5, 1998. All common share and per share amounts in the
accompanying financial statements have been restated to reflect the effects of
the 1-for-5 reverse stock split.
F-20
<PAGE>
The financial statements which follow are unaudited.
F-21
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
April 30 April 30
------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------ --------------- ---------------
Sales
<S> <C> <C> <C> <C>
Machine sales $ 5,170,143 $ 4,141,185 $ 14,637,831 $ 11,293,060
Technical sales 1,671,128 801,924 3,530,726 2,487,394
-------------- -------------- --------------- ----------------
6,841,271 4,943,109 18,168,557 13,780,454
Less commissions 739,626 538,708 2,208,706 1,588,790
-------------- -------------- --------------- ----------------
Net Sales 6,101,645 4,404,401 15,959,851 12,191,664
Cost of Sales
Machine sales 2,781,647 2,313,540 7,676,162 6,088,214
Technical sales 740,217 469,146 1,810,972 1,339,919
-------------- -------------- --------------- ----------------
Total Cost of Sales 3,521,864 2,782,686 9,487,134 7,428,133
-------------- -------------- --------------- ----------------
Gross Profit 2,579,781 1,621,715 6,472,717 4,763,531
Research and development,
marketing, administrative
and general expenses 1,682,931 1,195,179 4,546,551 3,280,230
-------------- -------------- --------------- ----------------
Operating income 896,850 426,536 1,926,166 1,483,301
-------------- -------------- --------------- ----------------
Other income(expense):
Interest expense (72,810) (16,734) (160,069) (70,030)
Other 12,243 1,639 13,481 3,310
-------------- -------------- --------------- ----------------
Other expense, net (60,567) (15,095) (146,588) (66,720)
-------------- -------------- --------------- ----------------
Earnings before income taxes 836,283 411,441 1,779,578 1,416,581
Income tax expense 344,329 157,847 718,696 550,901
-------------- -------------- --------------- ----------------
Net earnings $ 491,954 $ 253,594 $ 1,060,882 $ 865,680
============== ============== =============== ================
</TABLE>
F-22
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF
OPERATIONS
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
April 30 April 30
------------------------------- -------------------------------
1998 1997 1998 1997
------------- ------------ --------------- -------------
Net earnings applicable to common:
shareholders:
Earnings per common and common equivalent share:
<S> <C> <C> <C> <C>
Basic $ 0.34 $ 0.13 $ 0.72 $ 0.47
Diluted 0.32 0.13 0.68 0.47
Weighted average number of shares
Basic 1,430,109 1,387,509 1,421,087 1,387,509
Diluted 1,519,434 1,477,164 1,510,412 1,477,164
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
April 30 July 31
1998 1997
ASSETS
Current Assets
<S> <C> <C>
Cash $ 50,198 $ 512,480
Accounts receivable 3,071,235 1,802,569
Inventories 5,975,490 4,618,001
Deferred income taxes 1,676,000 1,676,000
Prepaid expenses 254,762 372,287
------------------- -----------------
Total Current Assets 11,027,685 8,981,337
------------------- -----------------
Property and Equipment (Net of Accumulated
Depreciation) 1,942,932 1,824,005
------------------- -----------------
Other Assets
Patents, trademarks and other 130,283 141,691
Deferred income taxes 326,000 326,000
------------------- -----------------
Total Other Assets 456,283 467,691
------------------- -----------------
Total Assets $ 13,426,900 $ 11,273,033
=================== =================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 1,514,143 1,375,005
Accrued liabilities 845,492 1,225,157
Accrued income taxes 1,006,414 386,000
Customer deposits 1,735,724 907,110
Current portion of long-term liabilities 17,182 7,755
------------------- -----------------
Total Current Liabilities 5,118,955 3,901,027
------------------- -----------------
Long-term Liabilities - less current portion
Capital lease obligations 4,684 5,918
Note payable to bank 2,446,320 0
Bonds payable, net of unamortized discount 169,845 278,775
------------------- -----------------
Total Long-term Liabilities 2,620,849 284,693
------------------- -----------------
</TABLE>
F-24
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
<TABLE>
<CAPTION>
April 30 July 31
1998 1997
<S> <C> <C>
Shareholders' Equity
Preferred Stock, no par value, 2,000,000 shares
authorized, 1,000,000 shares issued and 738,000
shares outstanding at July 31, 1997 --- 2,546,320
Common stock, no par value, 20,000,000 shares
authorized, 1,388,709 shares in 1997 and
1,430,109 shares in 1998 issued and outstanding 10,736,211 10,599,285
Accumulated deficit (5,015,915) (6,033,542)
------------------- ------------------
5,720,296 7,112,063
Less subscriptions receivable 33,200 24,750
------------------- -----------------
Total Shareholders' Equity 5,687,096 7,087,313
------------------- -----------------
Total Liabilities and Shareholders' Equity $ 13,426,900 $ 11,273,033
=================== =================
</TABLE>
See accompanying notes to consolidated financial statements.
F-25
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended April 30
1998 1997
Cash Flows From Operating Activities:
<S> <C> <C>
Net earnings $ 1,060,882 $ 865,680
Adjustments to reconcile net earnings to net cash
Provided by operating activities:
Depreciation and amortization 278,612 223,405
Changes in operating assets and liabilities:
Accounts receivable (1,268,666) (487,874)
Inventories (1,357,489) (1,188,664)
Prepaid expenses and other assets 117,525 525,357
Accounts payable 139,138 404,550
Accrued liabilities 240,748 181,939
Customer deposits 828,614 387,698
--------------- --------------
Net cash provided by operating activities 39,364 912,091
--------------- --------------
Cash Flows From Investing Activities:
Purchases of patents, property and equipment (378,706) (275,046)
Net cash used by investing activities (378,706) (275,046)
Cash Flows from Financing Activities:
Principal payments on notes payable (100,000) 0
Principal payments on lease obligations (1,234) (4,615)
Note payable at bank 2,546,320 ---
Payment of dividends on preferred stock (43,256) (219,112)
Redemption of preferred stock (2,546,320) (405,280)
Proceeds from subscriptions receivable 21,550 3,375
--------------- ---------------
Net cash used by financing activities (122,940) (625,632)
---------------- ----------------
Increase (decrease) in cash (462,282) 11,413
Cash at beginning of period 512,480 18,995
--------------- ---------------
Cash at end of period $ 50,198 $ 30,408
=============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-26
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(continued)
<TABLE>
<CAPTION>
Nine Months Ended April 30
1998 1997
ADDITIONAL INFORMATION:
<S> <C> <C>
Interest paid $ 146,083 $ 70,030
=============== ==============
Conversion of bonds payable, net of unamortized
discount $ 120,000 $ 357,980
=============== ==============
Subscriptions receivable for common stock issued $ 33,200 $ 0
=============== ==============
</TABLE>
See accompanying notes to consolidated financial statements.
F-27
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS:
Note A - Basis of Presentation
The unaudited condensed financial statements have been prepared in
accordance with the instructions to Form 10-Q and, therefore, do not include all
information and footnotes required by generally accepted accounting principles
for complete financial statements. The statements have not been examined by
independent accountants but include, in the opinion of the Company, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the condensed financial position and the results of operations for the
periods presented. These financial statements should be read in conjunction with
the Company's financial statements included on Form 10-K for the year ended July
31, 1997 and Forms 10-Q for the quarters ended April 30, 1998 and 1997.
Operating results for the interim periods are not necessarily
indicative of the results that may be expected for the year ended July 31, 1998.
Note B - Inventories
Inventories are priced at the lower of cost (first-in, first-out
method) or market.
April 30 July 31
1998 1997
Components of Inventory:
Raw material $ 3,104,938 $ 2,802,040
Work in process 2,436,370 1,171,284
Finished goods 434,182 644,477
----------------- -----------------
Total $ 5,975,490 $ 4,618,001
================= =================
Note C - Reclassifications
Certain amounts presented in the prior year condensed financial
statements have been reclassified to conform to the current year presentation.
Note D - Earnings per Share
Effective January 31, 1998, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting
Standard No. 128, Earnings Per Share (FAS 128). FAS 128 specifies the
computation, presentation, and disclosure requirements for earnings per share
for public entities. Adoption of this standard did not have a material impact on
the Company's earnings per share in 1998 or 1997.
Earnings per share for the three-month and nine-month periods ended April 30,
1998 and 1997 were determined as follows:
F-28
<PAGE>
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
April 30 April 30
------------------------------- ---------------------------------
1998 1997 1998 1997
------------- ------------ --------------- ---------------
INCOME
<S> <C> <C> <C> <C>
Net earnings $ 491,954 $ 253,594 $ 1,060,882 $ 865,680
Less preferred stock dividends 0 69,662 43,256 219,112
-------------- -------------- --------------- ----------------
Basic earnings available to
common shareholders 491,954 183,932 1,017,626 646,568
Interest and amortization related to
Convertible debt, net of taxes 4,445 9,866 13,336 41,618
-------------- -------------- --------------- ----------------
Diluted earnings available related
to common shareholders $ 496,399 $ 193,798 $ 1,030,962 $ 688,186
============== ============== =============== ================
SHARES
Weighted average shares
- Basic 1,430,109 1,387,509 1,421,087 1,327,265
Convertible bonds 36,200 60,200 36,200 60,200
Dilutive common stock options 56,120 41,347 56,120 41,347
-------------- -------------- --------------- ----------------
Weighted average shares
- Diluted 1,522,429 1,489,056 1,513,407 1,428,812
============== ============== =============== ================
Basic earnings per share $ 0.34 $ 0.13 $ 0.72 $ 0.49
Diluted earnings per share $ 0.33 $ 0.13 $ 0.68 $ 0.48
</TABLE>
F-29
<PAGE>
EXHIBIT A
AMENDMENT TO THE COMPANY'S ARTICLES OF INCORPORATION
ARTICLE V
Shares
Section 1. Number. The total number of shares which the Corporation has
authority to issue is 540 shares, without par value.
Section 2. Terms. The capital stock of the Corporation shall consist of
540 shares of common stock, without par value. The common stock of the
Corporation shall be of one class and each share of common stock shall be
entitled to one (1) vote at all meetings of the shareholders of the Corporation.
The Corporation, in the discretion and upon resolution of the Board of
Directors, may at any time and from time to time issue and dispose of any of the
authorized and unissued shares of stock of the Corporation and may create
optional rights to purchase or subscribe for shares of stock of the Corporation.
Such stock may be issued and disposed of for such kind and amount of
consideration and to such persons, firms and corporations, and such optional
rights may be created, and warrants or other evidence of such rights issued, on
such terms, at such prices and in such manner as may be determined by resolution
adopted by the Board of Directors, subject to any provisions of law then
applicable. The Corporation, in the discretion and upon resolution of the Board
of Directors, may at any time and from time to time repurchase any of the
securities of the Corporation. Such securities may be repurchased for such kind
and amount of consideration and from such persons, firms and corporations, on
such terms and conditions, at such prices and in such manner as may be
determined by the Board of Directors, subject to any provisions of law then
applicable.
A-1
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EXHIBIT B
OPINION OF GOELZER & CO., INC.
September 2, 1998
Board of Directors
Thermwood Corporation
Attn: Peter N. Lalos
P.O. Box 436
Old Buffaloville Road
Dale, Indiana 47523
Dear Members of the Board:
You have requested Goelzer's opinion as to the fairness, from a financial
point of view, of the terms of the 1-for-37,000 reverse split of the common
stock of Thermwood Corporation ("Thermwood" or the "Company"). The terms of the
transaction are set forth in the Proxy Statement ("Proxy"). In summary, minority
shareholders which will hold less than one share of common stock after the split
will receive a cash payment of $11.00 per share of the currently outstanding
common stock, in lieu of the issuance of any resulting fractional shares of new
common stock following the reverse split.
While Goelzer has provided valuation analysis to the Board of Directors
regarding the range of fair value, the final determination of such matters was
made by the Board of Directors of Thermwood. Goelzer has not rendered any
investment banking or other services to the Company in the past. For the purpose
of this opinion, Goelzer has undertaken analyses, investigations and interviews
deemed necessary and relevant. In the course of such activities Goelzer has
among other things:
1. Reviewed the Proxy Statement;
2. Conducted detailed interviews with Thermwood's management
concerning the Company's history and operating record, the
nature of the markets served, competitive situation, financial
condition, recent performance and current outlook;
3. Inspected Thermwood's corporate offices and manufacturing
facilities in Dale, Indiana;
4. Analyzed trading data and market capitalization of Thermwood's
common stock for a period of five years as provided by
Bloomberg Analytics;
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5. Analyzed the Company's financial statements and studied
Thermwood's filings under the Securities Exchange Act of 1934
including the Form 10-K and annual reports for the last five
full years, as well as the latest available 10-Q for the
quarter ending April 30, 1998;
6. Conducted a search using Bloomberg Analytic for publicly
traded companies which could be used as reasonable comparables
in determining the fair value of Thermwood. Goelzer searched
for companies with similar operations and for companies which
are affected by similar economic variables, such as furniture
manufacturers;
7. Conducted a search for merger and acquisition transactions
involving privately held corporations within the woodworking,
plastics manufacturing and furniture manufacturing industries
using a proprietary database consisting of nearly 3,000
transactions;
8. Reviewed studies for both premiums paid in acquisitions of
control as well as studies on the lack of marketability for
privately held and thinly traded public securities;
9. Performed such other studies, analyses and investigations as
deemed appropriate.
In rendering this opinion Goelzer has relied on the accuracy and
completeness of the information furnished and has not attempted to independently
verify such information nor has Goelzer made or caused to be made any
independent evaluation of the assets of Thermwood.
Based upon the foregoing, it is our opinion that the reverse split is
fair, from a financial point of view, to the shareholders of Thermwood.
Respectfully submitted,
/s/ Goelzer & Co., Inc.
Goelzer & Co., Inc.
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EXHIBIT C
DISSENTERS' RIGHTS STATUTE
TITLE 23. BUSINESS AND OTHER ASSOCIATIONS
ARTICLE 1. BUSINESS CORPORATIONS - TYPES
CHAPTER 44. DISSENTERS' RIGHTS
ss. 23-1-44-1. "Corporation" defined
As used in this chapter, "corporation" means the issuer of the shares held
by a dissenter before the corporate action, or the surviving or acquiring
corporation by merger or share exchange of that issuer.
ss. 23-1-44-2. "Dissenter" defined
As used in this chapter, "dissenter" means a shareholder who is entitled
to dissent from corporate action under section 8 [IC 23-1-44-8] of this chapter
and who exercises that right when and in the manner required by sections 10
through 18 [IC 23-1-44-10 through IC 23-1- 44-18] of this chapter.
ss. 23-1-44-3. "Fair value" defined
As used in this chapter, "fair value," with respect to a dissenter's
shares means the value of the shares immediately before the effectuation of the
corporate action to which the dissenter objects, excluding any appreciation or
depreciation in anticipation of the corporate action unless exclusion would be
inequitable.
ss. 23-1-44-4. "Interest" defined
As used in this chapter, "interest" means interest from the effective date
of the corporate action until the date of payment, at the average rate currently
paid by the corporation on its principal bank loans or, if none, it a rate that
is fair and equitable under all the circumstances.
ss. 23-1-44-5. "Record shareholder" defined
As used in this chapter, "record shareholder" means the person in whose
name shares are registered in the records of a corporation or the beneficial
owner of shares to the extent that treatment as a record shareholder is provided
under a recognition procedure or a disclosure procedure established under IC
23-1-30-4.
ss. 23-1-44-6. "Beneficial shareholder" defined
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As used in this chapter, "beneficial shareholder" means the person who is
a beneficial owner of shares held by a nominee as the record shareholder.
ss. 23-1-44-7. "Shareholder" defined
As used in this chapter, "shareholder" means the record shareholder or the
beneficial shareholder.
ss. 23-1-44-8. Shareholder dissent
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of the shareholder's shares in the event of, any of the following
corporate actions:
(1) Consummation of a plan of merger to which the corporation is a
party if:
(A) Shareholder approval is required for the merger by IC
23-1-40-3 or the articles of incorporation; and
(B) The shareholder is entitled to vote on the merger.
(2) Consummation of a plan of share exchange to which the corporation
is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan.
(3) Consummation of a sale or exchange of all, or substantially all, of
the property of the corporation other than in the usual and regular course
of business, if the shareholder is entitled to vote on the sale or
exchange, including a sale in dissolution, but not including a sale
pursuant to court order or a sale for cash pursuant to a plan by which all
or substantially all of the net proceeds of the sale will be distributed
to the shareholders within one (1) year after the date of sale.
(4) The approval of a control share acquisition under IC 23-1-42.
(5) Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board
of directors provides that voting or nonvoting shareholders an entitled to
dissent and obtain payment for their shares.
(b) This section does not apply to the holders of shares of any class or
series if, on the date fixed to determine the shareholders entitled to receive
notice of and vote at the meeting of shareholders at which the merger, plan of
share exchange, or sale or exchange of property is to be acted on, the shares of
that class or series were:
(1) Registered on a United States securities exchange insists under
the Exchange Act (as defined in IC 23-1-43-9); or
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(2) Traded on the National Association of Securities Dealers, Inc.
Automated Quotations System Over-the-Counter Markets -- National Market
Issues or a similar market.
(c) A shareholder:
(1) Who is entitled to dissent and obtain payment for the
shareholder's shares under this chapter; or
(2) Who would be so entitled to dissent and obtain payment but for the
provisions of subsection (b); may not challenge the corporate action
creating (or that, but for the provisions of subsection (b), would have
created) the shareholder's entitlement.
ss. 23-1-44-9. Beneficial shareholder dissent
(a) A record shareholder may assert dissenters' rights as to fewer than
all the shares registered in the shareholder's name only if the shareholder
dissents with respect to all shares beneficially owned by any one (1) person and
notifies the corporation in writing of the name and address of each person on
whose behalf the shareholder asserts dissenters' rights. The rights of a partial
dissenter under this subsection are determined as if the shares as to which the
shareholder dissents and the shareholder's other shares were registered in the
names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to
shares held on the shareholder's behalf only if:
(1) The beneficial shareholder submits to the corporation the record
shareholder's written consent to the dissent not later than the time the
beneficial shareholder asserts dissenters' rights; and
(2) The beneficial shareholder does so with respect to all the
beneficial shareholder's shares or those shares over which the beneficial
shareholder has power to direct the vote.
ss. 23-1-44-10. Notice of dissenters' rights preceding shareholder vote
(a) If proposed corporate action creating dissenters' rights under section
8 [IC 23- 1-44-8] of this chapter is submitted to a vote at a shareholders'
meeting, the meeting notice must state that shareholders are or may be entitled
to assert dissenters' rights under this chapter.
(b) If corporate action creating dissenters' rights under section 8 of
this chapter is taken without a vote of shareholders, the corporation shall
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken and send them the dissenters' notice described in section
12 [IC 23-1-44-12] of this chapter.
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ss. 23-1-44-11. Notice of intent to dissent
(a) If proposed corporate action creating dissenters' rights under section
8 [IC 23- 1-44-8] of this chapter is submitted to a vote at a shareholders'
meeting, a shareholder who wishes to assert dissenters' rights:
(1) Must deliver to the corporation before the vote is taken written
notice of the shareholder's intent to demand payment for the shareholder's
shares if the proposed action is effectuated; and
(2) Must not vote the shareholder's shares in favor of the proposed
action.
(b) A shareholder who does not satisfy the requirements of subsection (a)
is not entitled to payment for the shareholder's shares under this chapter.
ss. 23-1-44-12. Notice of dissenters' rights following action creating rights
(a) If proposed corporate action creating dissenters' rights under section
8 [IC 23- 1-44-8] of this chapter is authorized at a shareholders' meeting, the
corporation shall deliver a written dissenters' notice to all shareholders who
satisfied the requirements of section 11 [IC 23-1-44-11] of this chapter.
(b) The dissenters' notice must be sent no later than ten (10) days after
approval by the shareholders, or if corporate action is taken without approval
by the shareholders, then ten (10) days after the corporate action was taken.
The dissenters' notice must:
(1) State where the payment demand must be sent and where and when
certificates for certificated shares must be deposited;
(2) Inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(3) Supply a form for demanding payment that includes the date of the
first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person asserting
dissenters' rights certify whether or not the person acquired beneficial
ownership of the shares before that date;
(4) Set a date by which the corporation must receive the payment
demand, which date may not be fewer than thirty (30) nor more than sixty
(60) days after the date the subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this chapter.
ss. 23-1-44-13. Demand for payment by dissenter
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(a) A shareholder sent a dissenters' notice described in IC 23-1-42-11 or
in section 12 [IC 23-1-44-12] of this chapter must demand payment, certify
whether the shareholder acquired beneficial ownership of the shares before the
date required to be set forth in the dissenter's notice under section 12(b)(3)
[IC 23-1-44-12(b)(3)] of this chapter, and deposit the shareholder's
certificates in accordance with the terms of the notice.
(b) The shareholder who demands payment and deposits the shareholder's
shares under subsection (a) retains all other rights of a shareholder until
these rights are cancelled or modified by the taking of the proposed corporate
action.
(c) A shareholder who does not demand payment or deposit the shareholder's
share certificates where required, each by the date set in the dissenters'
notice, is not entitled to payment for the shareholders shares under this
chapter and is considered, for purposes of this article, to have voted the
shareholder's shares in favor of the proposed corporate action.
ss. 23-1-44-14. Transfer of shares restricted after demand for payment
(a) The corporation may restrict the transfer of uncertificated shares
from the date of the demand for their payment is received until the proposed
corporate action is taken or the restrictions released under section 16 [IC
23-1-44-16] of this chapter.
(b) The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder until these
rights are cancelled or modified by the taking of the proposed corporate action.
ss. 23-1-44-15. Payment to dissenter
(a) Except as provided in section 17 [IC 23-1-44-17] of this chapter, as
soon as the proposed corporate action is taken, or, if the transaction did not
need shareholder approval and has been completed, upon receipt of a payment
demand, the corporation shall pay each dissenter who complied with section 13
[IC 23-144-13] of this chapter the amount the corporation estimates to be the
fair value of the dissenter's shares.
(b) The payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen (16) months before the date of payment, an
income statement for that year, a statement of changes in shareholders'
equity for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares; and
(3) A statement of the dissenter's right to demand payment under
section 18 [IC 23-1-44-18] of this chapter.
ss. 23-1-44-16. Return of shares and release of restrictions
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(a) If the corporation does not take the proposed action within sixty (60)
days after the date set for demanding payment and depositing share certificates,
the corporation shall return the deposited certificates and release the transfer
restrictions imposed on uncertificated shares.
(b) If after returning deposited certificates and releasing transfer
restrictions, the corporation takes the proposed action, it must send a new
dissenters' notice under section 12 [IC 23-1-44-12] of this chapter and repeat
the payment demand procedure.
ss. 23-1-44-17. Offer of fair value for shares obtained after first announcement
(a) A corporation may elect to withhold payment required by section 15 [IC
23-1- 44-15] of this chapter from a dissenter unless the dissenter was the
beneficial owner of the shares before the date set forth in the dissenters'
notice as the date of the first announcement to news media or to shareholders of
the terms of the proposed corporate action.
(b) To the extent the corporation elects to withhold payment under
subsection (a), after taking the proposed corporate action, it shall estimate
the fair value of the shares and shall pay this amount to each dissenter who
agrees to accept it in full satisfaction of the dissenter's demand. The
corporation shall send with its offer a statement of its estimate of the fair
value of the shares and a statement of the dissenter's right to demand payment
under section 18 [IC 23-1-44-18] of this chapter.
ss. 23-1-44-18. Dissenter demand for fair value under certain conditions
(a) A dissenter may notify the corporation in writing of the dissenter's
own estimate of the fair value of the dissenter's shares and demand payment of
the dissenter's estimate (less any payment under section 15 [IC 23-1-44-15] of
this chapter), or reject the corporation's offer under section 17 [IC
23-1-44-17] of this chapter and demand payment of the fair value of the
dissenter's shares, if:
(1) The dissenter believes that the amount paid under section 15 of
this chapter or offered under section 17 of this chapter is less than the
fair value of the dissenter's shares;
(2) The corporation fails to make payment under section 15 of this
chapter within sixty (60) days after the date set for demanding payment;
or
(3) The corporation, having failed to take the proposed action, does
not return the deposited certificates or release the transfer restrictions
imposed on uncertificated shares within sixty (60) days after the date set
for demanding payment.
(b) A dissenter waives the right to demand payment under this section
unless the dissenter notifies the corporation of the dissenter's demand in
writing under subsection (a) within thirty (30) days after the corporation made
or offered payment for the dissenter's shares.
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ss. 23-1-44-19. Effect of failure to pay demand -- Commencement of judicial
appraisal proceeding
(a) If a demand for payment under IC 23-1-42-11 or under section 18 [IC
23-1- 44-18] of this chapter remains unsettled, the corporation shall commence a
proceeding within sixty (60) days after receiving the payment demand and
petition the court to determine the fair value of the shares. If the corporation
does not commence the proceeding within the sixty (60) day period, it shall pay
each dissenter whose demand remains unsettled the amount demanded.
(b) The corporation shall commence the proceeding in the circuit or
superior court of the county where a corporation's principal office (or, if none
in Indiana, its registered office) is located. If the corporation is a foreign
corporation without a registered office in Indiana, it shall commence the
proceeding in the county in Indiana where the registered office of the domestic
corporation merged with or whose shares were acquired by the foreign corporation
was located.
(c) The corporation shall make all dissenters (whether or not residents of
this state) whose demands remain unsettled parties to the proceeding as in an
action against their shares and all parties must be served with a copy of the
petition. Nonresidents may be served by registered or certified mail or by
publication as provided by law.
(d) The jurisdiction of the court in which the proceeding is commenced
under subsection (b) is plenary and exclusive. The court may appoint one (1) or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them or in any amendment to it. The dissenters are entitled to the
same discovery rights as parties in other civil proceedings.
(e) Each dissenter made a party to the proceeding is entitled to judgment.
(1) For the amount, if any, by which the court finds the fair value of
the dissenter's shares, plus interest, exceeds the amount paid by the
corporation; or
(2) For the fair value, plus accrued interest, of the dissenter's
after-acquired shares for which the corporation elected to withhold
payment under section 17 [IC 23-1-44-17] of this chapter.
ss. 23-1-44-20. Judicial determination and assessment of costs
(a) The court in an appraisal proceeding commenced under section 19 [IC
23-1- 44-19] of this chapter shall determine all costs of the proceeding,
including the reasonable compensation and expenses of appraisers appointed by
the court. The court shall assess the costs against such parties and in such
amounts as the court finds equitable.
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(b) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(1) Against the corporation and in favor of any or all dissenters if
the court finds the corporation did not substantially comply with the
requirements of sections 10 through 18 [IC 23-1-44-10 through IC
23-1-44-18] of this chapter; or
(2) Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this chapter.
(c) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated and that the fees
for those services should not be assessed against the corporation, the court may
award to these counsel reasonable fees to be paid out of the amounts awarded the
dissenters who were benefited.
