<PAGE> 1
As filed with the Securities and Exchange Commission on March 1, 1999
Registration No. 333-70073
------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------------
THERMWOOD CORPORATION
---------------------
(Exact name of registrant as specified in its charter)
Indiana 3550 35-1169185
- ------------------------------- ---------------------------- ----------------
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
Number)
THERMWOOD CORPORATION
Old Buffaloville Road
P.O. Box 436
Dale, Indiana 47523
(812) 937-4476
--------------
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
Kenneth J. Susnjara
Chairman of the Board and President
THERMWOOD CORPORATION
Old Buffaloville Road
P.O. Box 436
Dale, Indiana 47523
(812) 937-4476
--------------
(Name, address, including zip code, and telephone
number, including area code, of agent for service)
Copies to:
Barry B. Feiner, Esquire
190 Willis Avenue
Mineola, New York 11501
(516) 873-8426
Approximate date of commencement of proposed sale to the public: As soon
as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. |_|
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration number of the earlier effective
registration number for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier, effective registration statement
for the same offering. |_|
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Securities and Exchange Commission, acting
pursuant to said Section 8(a), may determine.
<PAGE> 2
The information contained in this prospectus is not complete and may be
changed. We may not sell these securities until the registration statement filed
with the SEC or any applicable state securities commission becomes effective.
This prospectus is not an offer to sell these securities and it is not an offer
to buy these securities in any state where the offer or sale is not permitted.
Subject to Completion, Dated March __, 1999
THERMWOOD CORPORATION
is offering to issue up to $8,250,000 12% junior debentures due 2014
in exchange for up to 750,000 shares of its outstanding common stock
at an exchange rate of $11.00 face amount of debenture for every share exchanged
Terms of the Exchange Offer
o We are offering to exchange your shares for debentures.
o The exchange offer expires at 5:00 P.M., New York time on April 15, 1999,
unless extended.
o We will accept tenders for up to 750,000 shares.
o You may withdraw your tender of shares at any time prior to the expiration
of this exchange offer.
o We will exchange up to 750,000 shares that are validly tendered and not
validly withdrawn. If we receive tenders for more than 750,000 shares, we
will pro-rate the number of tendered shares that we will exchange from
each tendering shareholder.
o We will not receive any proceeds from the exchange offer.
o Depending upon the facts of your situation, you may realize a taxable gain
on the exchange for U.S. federal income tax purposes. This means that you
may owe taxes on the exchange even though you will not have received cash
in the exchange to pay such taxes.
Investing in the debentures issued in exchange for your common shares involves
certain risks. Consider carefully the risk factors beginning on page 5 of this
prospectus.
We are not offering to sell or asking you to buy anything in any jurisdiction
where doing so would be against the law.
Neither the SEC nor any state securities commission has approved or disapproved
the debentures or the exchange offer or passed upon the adequacy or accuracy of
the prospectus. Any representation to the contrary is a criminal offense.
Dirks & Company, Inc. will assist us in soliciting shareholders to exchange
their shares for debentures. Dirks will receive a fee of $100,000 plus a
solicitation fee equal to 2% of the face value of all debentures issued in the
exchange offer. However, Dirks will not receive a fee for debentures issued to
shareholders whose total holdings are more than 10% of our outstanding common
stock.
There is no public trading market for the debentures. We anticipate, but we
cannot assure you, that the debentures will be tradable in the over-the-counter
market.
The date of this prospectus is March __, 1999
<PAGE> 3
HOW TO OBTAIN COPIES OF DOCUMENTS THAT ARE SUMMARIZED IN THIS PROSPECTUS
We filed a registration statement on Form S-4 with the SEC with respect to
the registration of the debentures offered by this prospectus. This prospectus
does not contain all of the information set forth in the registration statement
and the exhibits thereto.
We will provide upon request at no cost to each person to whom this
prospectus is delivered copies of any of the information included in the
registration statement which is not included in this prospectus. Requests should
be directed to Rebecca Fuller, Treasurer, at:
THERMWOOD CORPORATION
Old Buffaloville Road
P.O. Box 436
Dale, Indiana 47523
Telephone: (812) 937-4476.
To receive these documents in a timely manner, you should request that we
send you the information no later than five business days before you make your
decision to accept or reject the exchange offer.
-1-
<PAGE> 4
PROSPECTUS SUMMARY
This summary highlights some information from this prospectus. It may not
contain all of the information that is important to you. The prospectus contains
information on the exchange offer, the terms of the debentures, risk factors,
our business and our financial data. We encourage you to read the entire
prospectus carefully before you decide whether to exchange your shares for
debentures. On January 5, 1998, we effected a one-for-five reverse stock split
of our shares, and all related share and per share information has been adjusted
to give retroactive effect to this split, except where the text indicates
otherwise.
Our Business
We are a manufacturer of computer-based systems and equipment for the
woodworking and plastics industries. We develop, produce, market and service:
o computer-controlled routing machines that perform high speed
machining, trimming and routing functions on wood, plastic and
certain non-ferrous metals;
o wood carving computer controlled routing systems;
o products that support the above machines, including programming
software and hardware, training tapes, tooling, fixtures and other
consumable items.
Our industrial products perform certain production functions or automate
specific tasks accomplished in factories. These products are used in a variety
of manufacturing operations. For instance, the computer-controlled routing
machines are primarily employed to cut or machine materials such as wood,
plastic and non-ferrous metal into final shape. The wood carving computer
controlled routing systems carve wood components such as chair legs and bed
posts used in furniture manufacturing.
The Exchange Offer
o We will issue debentures to each tendering shareholder in the face
amount of $11.00 times the number of shares that we acquire from
such shareholder.
o We will acquire all shares tendered unless we receive valid tenders
for more than 750,000 shares. If we receive tenders for more than
750,000 shares, we will pro-rate the number of tendered shares that
we will exchange from each tendering shareholder.
o Our offer to acquire the shares will expire at 5:00 P. M., New York
City time, on April 15, 1999. We may extend the offering.
You should read the discussion under the heading "Exchange Offer" for
additional information about the exchange offer, including:
o how to tender your shares;
o guaranteed delivery procedures;
o withdrawal rights; and
o other matters related to the exchange offer.
You should read the discussion under the heading "Federal Income Tax
Consequences" for additional information about tax consequences of the exchange
offer.
Intentions of Affiliates
All of our executive officers and directors have indicated that they do
not intend to tender their shares for exchange because each is dedicated to
Thermwood and none of these individuals has a need for the interest payments
from the debentures.
Edgar Mulzer, a director and major shareholder of Thermwood who is not
active in our management, has given Thermwood an option to purchase his 209,000
shares at a price of $15.00 per share. We can exercise this option
-2-
<PAGE> 5
at any time after January 1, 2002 and before January 1, 2004. The Company paid
Mr. Mulzer $5,000 for this option. We have secured this option to further our
plans to assure that control of Thermwood remains with Kenneth and Linda
Susnjara.
Description of the Terms of the Debentures
Face Amount of Debenture ... $11.00 times the number of shares that you tender.
Annual Interest Rate ....... 12% simple interest.
Payment of Interest ........ Quarterly in cash on January 1, April 1, July 1 and
October 1 of each year, commencing July 1, 1999.
Maturity ................... 15 years after they have been issued.
Redemption by Holder ....... Up to $50,000 total value of the debentures of any
holder upon notice of the holder's death and
redemption election by his or her estate. This
right of redemption may only be exercised by the
estate of the original holder. It does not pass to
any transferee.
Redemption by Us ........... We can redeem the debentures for $15.00 for every
$11.00 in face amount of the debentures during the
second year after their issuance. During each
subsequent year, the redemption price will decrease
by $0.30 for every $11.00 in face amount of the
debentures.
Ranking .................... Second in right of repayment to all of our senior
debt and the debt of our subsidiaries. Senior debt
is any indebtedness incurred in connection with
borrowings by us, including our subsidiaries, from
a bank, trust company, insurance company or from
any other institutional lender, whether or not such
indebtedness is specifically designated as being
senior debt. If we were to become insolvent, such
senior debt would have a priority of right to
repayment in connection with our liquidation. The
outstanding convertible debentures and the
debentures rank equally for purposes of repayment.
Transferability ............ There are no transfer restrictions on the
debentures. However, the right to redemption upon
death of the initial holder will terminate on
transfer.
You should read the discussion under the heading "Description of the
Debentures and The Indenture" for additional information about the terms of the
debentures.
Our Principal Offices
Our principal executive office is located at Old Buffaloville Road, P.O.
Box 436, Dale, Indiana 47523. The telephone number at this address is (812)
937-4476.
-3-
<PAGE> 6
Summary Consolidated Financial Data
Our consolidated financial information set forth below should be read
together with the more detailed Consolidated Financial Statements, including the
Notes thereto, "Selected Consolidated Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this prospectus.
The pro forma financial information illustrates the effect of the exchange
of 750,000 shares for debentures as if this had occurred as of the dates and for
the periods listed in the following tables. For more detailed information on the
pro forma effects of these events, see the pro forma financial information and
the "Explanation of Pro Forma Adjustments" in "Exchange Offer -- Financial
Effect of the Exchange Offer."
<TABLE>
<CAPTION>
Statements of Operations Data: Quarter ended October 31 Year ended July 31,
(in thousands except per share data) unaudited unaudited
Pro Forma Pro Forma
1998 1998 1997 1998 1998 1997 1996 1995 1994
----------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 5,625 $ 5,625 $ 4,805 $21,840 $21,840 $17,779 $12,636 $12,314 $ 9,985
Gross profit 2,389 2,389 2,043 8,842 8,842 6,906 4,925 4,786 3,579
Earnings from continuing
operations 57 218 355 673 1,318 1,236 2,334 2,350 136
Net earnings 57 218 355 673 1,318 1,236 2,334 2,350 208
============================ ===========================================================
Earnings per share:
Basic $ 0.08 $ 0.15 $ 0.22 $ 0.93 $ 0.89 $ 0.70 $ 1.63 $ 1.92 $ --
Diluted 0.08 0.15 0.21 0.86 0.86 0.69 1.45 1.49 --
============================ ===========================================================
Weighted average number of shares:
Basic 691 1,441 1,409 675 1,425 1,349 1,231 1,030 1,030
Diluted 730 1,481 1,535 767 1,517 1,446 1,437 1,451 1,030
Cash dividends declared
per common share -- -- -- -- -- -- -- -- --
<CAPTION>
Balance Sheet Data: October 31, July 31,
(in thousands) unaudited unaudited
Pro Forma Pro Forma
1998 1998 1997 1998 1998 1997 1996 1995 1994
----------------------------- -----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets $12,563 $12,083 $11,434 $11,804 $11,324 $11,273 $8,766 $7,527 $5,418
Working capital 5,088 5,568 5,454 4,845 5,324 5,080 3,791 2,811 1,706
Long-term obligations 6,953 2,302 2,750 7,018 2,367 285 709 1,870 1,862
Shareholders' equity 1,580 6,231 4,950 1,297 5,948 7,087 6,275 3,437 1,456
</TABLE>
For a discussion of the tax consequences of exchanging shares for
debentures, see "Federal Income Tax Consequences."
-4-
<PAGE> 7
RISK FACTORS
Before you invest in our debentures, you should be aware that there are
various risks, including those described below. You should consider carefully
these risk factors together with all of the other information included in this
prospectus before you decide to exchange your shares for debentures.
Possible Risks Related To The Exchange Offer And The Issuance Of The Debentures
Decrease In Funds Available For Business Operations Due To Added Financial
Burden Of Paying Interest And Principal On The Debentures. We will be required
to make quarterly interest payments on the debentures issued pursuant to the
exchange offer, redeem debentures when an initial holder dies and, eventually,
payoff or refinance the debentures when they become due in 15 years. This added
financial burden will:
(a) decrease liquidity;
(b) either decrease profits or increase losses; and
(c) divert funds that would otherwise be available for our business.
The Debt Created By The Debentures Must Be Paid Prior To Any Distributions To
Shareholders Upon Liquidation Thereby Decreasing The Amount Of Funds Available
To Distribute To Shareholders. In the event that we were to liquidate, the
holders of the debentures would be entitled to receive the principal and accrued
interest on the debentures out of the proceeds of the liquidation before
shareholders would receive anything. As a result, we might not have sufficient
funds to pay shareholders after paying what is due to debenture holders.
It Will Be More Difficult For Other Shareholders To Remove The Current Board And
Management. Current Management May Be Able To Make All Corporate Decisions
Without The Consent Of Other Shareholders And Prevent Hostile Takeovers. Current
management owns approximately 33% of our outstanding shares. This provides them
with significant influence over Thermwood's operations and actions. If we
acquire 750,000 shares in the exchange offer, Kenneth and Linda Susnjara and
Edgar Mulzer would own approximately 67.5% of our outstanding stock. Since they
would then own a majority of our stock:
o It would be extremely difficult for other shareholders to remove our
current board of directors and management;
o they would be able to make virtually all corporate decisions without the
consent of other shareholders; and
o they would be able to prevent hostile takeovers.
Additional Expenses Related To Litigation. A lawsuit is currently pending which
seeks to:
(a) enjoin the consummation of the exchange offer; or
(b) in the event the exchange offer is consummated, recover compensatory
damages.
See "Business--Legal Proceedings" later in this prospectus for a more detailed
explanation of the litigation. While it is impossible to predict the course or
outcome of this lawsuit, we could incur expenses associated with the lawsuit
which could have a significant adverse effect on our earnings.
Risks Related to Acquisition of Debentures
If you decide to acquire debentures in exchange for your shares, you should
consider the following factors:
Since The Debentures Are Not Secured And Rank Below Most Of Our Other Debts And
The Debts Of Our Subsidiaries, Our Assets May Be Insufficient To Pay Amounts Due
On The Debentures. If any of the following events occur, our assets may not be
sufficient to pay amounts due on any of the debentures:
(a) we or some of our subsidiaries enter into bankruptcy, liquidation,
reorganization, or some other winding-up transaction;
(b) we default in payment under our credit line or other senior debt; or
(c) there is an acceleration of any indebtedness under our credit line
or other senior debt.
This risk is due to the fact that
(a) the debentures will be unsecured obligations of Thermwood, while our
credit line is secured by all of our assets;
(b) our senior debt and any indebtedness of our subsidiaries, upon
liquidation or dissolution of the particular subsidiary, have a
right to be repayed prior to any payment under the debentures; and
(c) we and our subsidiaries may incur other senior debt, which may be
substantial in amount, including secured indebtedness.
-5-
<PAGE> 8
Senior debt is any indebtedness incurred in connection with borrowings by
us, including our subsidiaries, from a bank, trust company, insurance company,
or from any other institutional lender, whether or not such indebtedness is
specifically designated as being senior debt. As of February 15, 1999, such
senior debt and subsidiary debts aggregated $2,196,320.
Your Right To Pursue Remedies For Default Under The Debentures Or The Indenture
Will Be Limited. The debentures will be issued under an indenture which governs
the terms of the debentures. As a debenture holder, your right to pursue any
remedy due to our breach of the terms of the debentures or the indenture are
expressly limited by the terms of the indenture. The indenture provides, among
other things, that in the event we should commit a default, unless the holders
of 25% of the principal amount of the debentures elect to declare a default, no
individual debenture holder will have the right to pursue his remedies against
us. We suggest that you read the disclosure under the heading "Description of
The Debentures and the Indenture; Events of Default, Notice and Waiver" for more
information on limitations of remedies.
There Is No Public Market For The Debentures. If One Develops, It May Not Be
Liquid. The debentures will constitute a new class of securities with no
established trading market. If a trading market does not develop or is not
maintained, you may experience difficulty in reselling the debentures or you may
be unable to sell them at all. If a market for the debentures develops, any such
market may be discontinued at any time. We do not intend to list the debentures
on the AMEX, the PSEX or any other national securities exchange. We understand
that Dirks currently intends to make a market in the debentures. However, they
are not obligated to do so. If Dirks does make a market in the debentures, it
may discontinue such activities at any time without notice. In addition, Dirks'
ability to conduct market-making activity will be subject to the limits imposed
by the Securities Act of 1933, the Securities Exchange Act of 1934 and NASD
rules, and will be limited during the exchange offer.
The Debentures Most Likely Will Trade At A Discount From Their Face Amount If A
Public Trading Market Develops For The Debentures. If a public trading market
develops for the debentures, the debentures most likely will trade below their
face value because, among other factors:
(a) the debentures are second in right of repayment, unsecured and have
a 15 year term; and
(b) our industry and financial condition.
Future trading prices of the debentures will depend on many factors,
including among other things, prevailing interest rates, our financial condition
and results of operations, and the market for similar notes.
Possible Taxable Event Without Receipt Of Funds To Pay Taxes. Depending upon the
facts of your situation, you may realize a taxable gain on your acquisition of
debentures in exchange for your shares. This means that, as a result of the
exchange, you may owe taxes on the transaction even though you will not have
received cash in the transaction to pay such taxes. We suggest that you read the
disclosure under the heading "Federal Income Tax Consequences " for more
information on the possible tax effects to you under the exchange offer.
Loss Of Shareholder Status. If you tender all of your shares, you no longer will
have any equity interest in Thermwood and, therefore, you will not participate
in Thermwood's future potential earnings or growth or receive future dividend
payments, if any.
Risks Related to Our Business
Adverse Effect On Our Business From Fluctuating Operating Results. We have
historically experienced fluctuations in our operating results and our operating
results may change materially in the future. Fluctuations arise from a variety
of factors, including changes in economic conditions, the market and
competition. If we or our competitors should introduce new products or develop
enhancements to existing products, this could also affect these fluctuations. We
cannot assurance you that these fluctuations will not continue in a manner that
adversely affects our business.
Risks To Our Results Of Operations Created By Our Over Seas Operations. There
are serious risks in marketing products in foreign countries, some or all of
which could adversely affect our results of operations. These include, among
others:
o the difficulty of administering business abroad;
o exposure to currency fluctuations and devaluations or restrictions
on money supplies;
o foreign and domestic export laws and regulations;
o taxation;
o tariffs;
o import quotas and restrictions;
o shipping interruptions; and
o other economic and political events totally beyond our control.
-6-
<PAGE> 9
Approximately 20% of our sales during the 1998 fiscal year were made
outside of the United States and we estimate that such non-domestic sales were
approximately 5% during the first three months of our current fiscal year. We do
not engage in hedging activities to offset our exposure to currency fluctuations
and devaluations. In addition, we may be unable to prevent the unauthorized use
of our technology in foreign countries.
We Are Dependence On A Network Of Dealers For Our Sales. The Loss Of Major
Dealers Would Adversely Affect Our Sales And Results Of Operations. We market
our products primarily through a number of dealers. We are substantially
dependent upon our agreements with these third parties, as well as their
viability and financial stability, to generate sales. Because our agreements are
not exclusive, the dealers are permitted to sell products that compete with our
products. If we were to lose any of our major dealers, in the absence of similar
replacement arrangements, our sales and our results of operations could be
materially adversely affected. We made approximately 21% of our sales during our
fiscal year ended July 31, 1998 through a dealer owned by our president and his
wife, and 11% of our sales through another dealer. For the first quarter of
fiscal 1999, the sales made through the dealership owned by the president and
his wife amounted to 13% of sales, two other dealers sold 16% and another sold
15%. There were no other dealers who sold more than 10% of machinery sales
during the first quarter. We suggest that you read the disclosure under the
headings "Business -- Marketing" and "Certain Relationships and Related
Transactions" for more information on our arrangements with dealers, including
those owned and operated by our affiliates.
Material Decrease In Sales Of One Product Would Adversely Affect Our Business
And Results Of Operations. We are significantly dependent upon sales of our
computer-controlled router systems. In fiscal year 1998, computer-controlled
router systems sales represented approximately 79.5% of our sales. If our sales
of computer-controlled router systems were to decrease significantly, our
business and results of operations would be materially and adversely affected.
Loss Of Our Chief Executive Officer Or Other Key Employees Would Adversely
Affect Our Business. Kenneth J. Susnjara, our President and Chief Executive and
Operating Officer, is primarily responsible for the conduct of our business. If
we should lose his services, there can be no assurance that we could obtain a
qualified replacement. We do not have an employment agreement with Mr. Susnjara.
Our future success also depends in large part on the continued service of our
key management, manufacturing and marketing personnel and on our ability to
attract and retain qualified employees. The competition for such personnel is
intense and the loss of key employees could have a materially adverse impact on
our business.
Our Inability To Compete With Our Competitors Would Adversely Affect Our
Business And Results Of Operations. There are many manufacturers of automated
machining systems in the United States and abroad, particularly in Japan and
Europe. Our primary competitors in the high speed machining market are a number
of major domestic, Japanese and European firms such as Shoda Iron Works, Heian,
Shinks Machinery Works, Accurouter, Motionmaster and Komo Machine. A number of
these manufacturers are larger, better financed and have more resources than we
do. Furthermore, the number of companies offering routing equipment has
increased and it is our opinion that the market cannot support all of them.
Although we believe that only a limited number of companies currently offer
multiple task equipment of the type marketed by us, other companies with
significantly greater financial resources and product recognition could enter
this market, in which event our ability to compete could be materially adversely
affected.
Disputes Over Our Patents and Proprietary Rights Could Adversely Affect Our
Business. Although we own a number of patents on our products, we rely primarily
on trade secret laws to protect our technologies, innovations and other
proprietary property. There can be no assurance that we can establish trade
secrets, that secrecy obligations in effect for our employees, distributors,
suppliers and customers will be honored or that others will not independently
develop similar or superior technology. To the extent that key employees or
other third parties apply technological information independently developed by
them or by others to our products, disputes may arise as to the proprietary
rights to such information which may not be resolved in our favor. There is no
assurance that our products will not infringe patents or other rights owned by
others, licenses to which may not be available on commercially reasonable terms
to us, if at all. Moreover, there can be no assurance that we will have the
financial or other resources necessary to enforce or defend a patent
infringement or proprietary rights violation which may be protracted as well as
costly. In addition, if our products are deemed to infringe upon the patents or
proprietary rights of others, we could, under certain circumstances, become
liable for damages, which could also have a materially adverse effect on us. We
have not been involved in any claims concerning patent infringement. See
"Business -- Patents, Trade Secrets and Trademarks."
Failure To Adequately Prepare Our Computers And Software To Be Year 2000
Compliant Could Disrupt Our Business And Materially And Adversely Affect Our
Operations. Many currently installed computer systems and software products use
two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to track inventory, issue purchase orders, write checks or engage in
similar normal business activities.
During the fiscal year ended July 31, 1998, we began a risk evaluation of
potential Year 2000 issues and formed a Year 2000 Committee which consists of
the Chief Executive Officer, Vice-President of Engineering, Information Systems
Manager and two other employees. The committee's purpose is to assess all risks,
analyze current
-7-
<PAGE> 10
systems, including all information technology and non-information technology
systems, coordinate upgrades and replacements and report the current and
projected status of all known Year 2000 compliance issues.
During the assessment phase, we identified computer-related systems and
software vendors with potential Year 2000 problems. In the first quarter of
fiscal 1999, we began corresponding with the vendors that had not supplied Year
2000 statements, requesting the Year 2000 compliance status of their products.
Responses received to date from vendors have not indicated any Year 2000
problems. We know of alternative vendors should our current vendors fail to
perform due to Year 2000 problems; however, use of some of these vendors would
be inconvenient and could be costly. Moreover, we have not contacted these
alternate vendors to determine whether they are Year 2000 compliant.
As a precaution, we plan to stock up additional inventory from our
non-U.S. vendors prior to the beginning of the year 2000.
We know of one mission-critical system, the inventory shop floor control
software, that is not Year 2000 compliant. This software tracks incoming orders,
inventory levels, material requirements planning, shop floor control, labor
tracking, shipping and administrative an financial tracking functions. Although,
this system has a Year 2000 certified replacement product, implementation of
this replacement product would require us to re-input all current data. As a
result, we have decided to purchase a different system that is Year 2000
compliant and, in our judgment, superior to the current system we are using. We
anticipate that the new system will arrive during March 1999, at which time we
will begin to input current data. We are currently installing upgrades to the
non-mission critical systems and should complete the upgrades by the beginning
of July 1999.
We estimate that the replacement or remedial costs for our Year 2000
compliance issues will be less than $150,000 and will consist of software and
hardware upgrades that include new features which are combined with Year 2000
corrections. These costs will be expensed as incurred or capitalized and
depreciated, as appropriate.
We have tested the machine control systems and related computer software,
which we sell and we believe that such equipment is Year 2000 compliant.
We estimate that the worst case Year 2000 issue scenario would occur if
the new inventory shop floor control software is not Year 2000 compliant. At
that point, we would look to alternative vendors. We believe that there are a
number of alternate vendors that claim to have year 2000 compliant software. In
the event that we are unable to integrate year 2000 compliant software from any
of these vendors, we would be forced to hire additional staff and return to
manual methods of tracking inventory and purchasing raw materials. We believe
that we could implement this contingency plan within a short period of time.
However, until such time as this contingency plan took effect, our ability to
manufacture might be materially disrupted. In addition, during the time that we
were required to operate under this plan, our results of operations would be
adversely affected primarily due to the resulting
o increased administrative expense; and
o higher raw materials inventory levels that would be needed to assure
that we have sufficient raw materials to avoid disruption of
production.
-8-
<PAGE> 11
CAPITALIZATION
The following table sets forth:
o our capitalization as of October 31, 1998; and
o such capitalization adjusted to give pro forma effect to the
exchange of 750,000 shares for debentures.
You should read the information set forth below together with the
information contained in the "Summary Consolidated Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" sections and our consolidated financial statements.
<TABLE>
<CAPTION>
At October 31, 1998
Unaudited
------------------------
Actual As adjusted
-------- -----------
(in thousands)
<S> <C> <C>
Note payable to bank $ 2,196 2,196
Bonds payable, net 106 4,757
-------- -------
Total long-term liabilities 2,302 6,953
-------- -------
Shareholders' equity
Common stock, no par value, 4,000,000 shares authorized,
1,444,709 shares issued and outstanding (actual)
261,400 shares issued and outstanding (as adjusted) 10,806 6,155
Accumulated deficit (4,540) (4,540)
Subscriptions receivable (35) (35)
-------- -------
Total shareholders' equity 6,231 1,580
-------- -------
Total capitalization $ 8,533 $ 8,533
======== =======
</TABLE>
-9-
<PAGE> 12
MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock has been traded on the American Stock Exchange since 1989
and on the Pacific Stock Exchange since 1987. The following table sets forth the
high and low per share sales prices for the common stock as reported on the
American Stock Exchange for our fiscal years ended July 31, 1998 and July 31,
1997, and for the interim periods indicated:
<TABLE>
<CAPTION>
PERIOD LOW SALES PRICE HIGH SALES PRICE
------ --------------- ----------------
<S> <C> <C> <C>
1999
Second Quarter $5.625 $ 8.125
First Quarter $6.06 $10.38
1998
Fourth Quarter $7.50 $10.06
Third Quarter $7.50 $ 9.12
Second Quarter $9.05 $13.10
First Quarter $9.70 $14.05
1997
Fourth Quarter $7.50 $10.00
Third Quarter $7.50 $10.00
Second Quarter $6.90 $10.60
First Quarter $9.70 $11.90
</TABLE>
As of February 15, 1999, there were approximately 268 holders of record of
our common stock which includes brokerage firms and/or clearing houses holding
our shares for their clientele. Although each of these brokerage houses and/or
clearing houses hold the shares for a number of their clients, each such firm is
considered as only one holder. However, based on the results of a brokers'
search conducted for our 1998 annual shareholders meeting, the number of
beneficial holders was approximately 2,000 at that time. As of February 15,
1999, there were 1,444,709 shares outstanding.
On February 23, 1999, the closing price for these shares, as reported on
the AMEX, was $6.0625 per share.
-10-
<PAGE> 13
EXCHANGE OFFER
The terms and conditions of the exchange offer are set forth in this
prospectus and in the letter of transmittal. The letter of transmittal is the
document that you must complete and deliver to us if you decide to tender your
shares for exchange. It also tells you how to exchange your shares for
debentures. You are encouraged to review the letter of transmittal that you
received with this prospectus for more detailed information. If you did not
receive a copy of the letter of transmittal, you should request one from us by
following the instructions set forth under the heading "Where You Can Find More
Information."
How Many Shares We Will Accept and Debentures We Will Issue
We will accept up to 750,000 shares that are validly tendered and not
withdrawn prior to 5:00 P.M., New York City time, on the expiration date. If we
receive tenders for more than 750,000 shares, we will pro-rate the number of
tendered shares that we will exchange from each tendering shareholder. However,
before we prorate the tendered shares, we may accept tenders for shares from
shareholders who own less than 100 shares and who have tendered all of their
shares.
If you tender your shares and we accept your tender, we will issue to you
a debenture in the face amount equal to $11.00 times the number of shares that
we accept. You may tender some or all of your shares. You are encouraged to
review the section entitled "Description of The Debentures And The Indenture"
for more detailed information about the terms of the debentures.
We will retire all of the shares that we receive in the exchange offer.
This means that the shares no longer will be issued or outstanding.
We will pay all charges and expenses, other than certain applicable taxes,
in connection with the exchange offer. You will not be required to pay brokerage
commissions or fees with respect to your exchange of shares.
When the Exchange Offer Will Expire and How We Can Extend or Amend the Exchange
Offer
The exchange offer will expire at 5:00 P.M., New York City time, on April
15, 1999, unless we extend it. If we extend the exchange offer, we will notify
the exchange agent and we will make a public announcement of the extension. The
announcement will be made prior to 9:00 A.M., New York City time, on the next
business day after the previously scheduled expiration date, unless another time
and date are required by applicable law or regulation.
We can, in our reasonable discretion:
o terminate the exchange offer if any of the conditions set forth
below under "Conditions" exist; or
o amend the terms of the exchange offer in any manner.
In either event, we will promptly publicly announce that we have taken
such action. If we amend the exchange offer in a manner that we believe
constitutes a material change, we promptly will disclose such amendment in a
supplement to this prospectus that we will distribute to you. We also will
extend the exchange offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner in which we disclose it to
you, if the exchange offer would otherwise expire during such five to ten
business day period.
We anticipate that we will make any required public announcement through
the Dow Jones News Service.
Procedures For Tendering
Only a holder of shares may tender such shares in the exchange offer. To
tender in the exchange offer, a holder must complete the letter of transmittal
as instructed in the letter and deliver to the exchange agent prior to 5:00
P.M., New York City time, on the expiration date, at one of its addresses set
forth below under "Exchange Agent" all of the following:
o Completed letter of transmittal or an agent's message;
o the shares or confirmation of a book-entry transfer; and
o any other required documents.
Book-Entry Transfers. If your shares are held at a financial institution
that participates in Depository Trust Company, you may deliver the shares by
book-entry transfer. The exchange agent has established an account for the
-11-
<PAGE> 14
shares at Depository Trust Company. Any financial institution which is a
participant in Depository Trust Company may make book-entry delivery of the
shares by
o causing Depository Trust Company to transfer such shares into the
exchange agent's account; or
o following the guaranteed delivery procedure described below.
Delivery of documents to Depository Trust Company without transfer to the
exchange agent by one of the above means does not constitute valid delivery to
the exchange agent.
Agent's Message. The term agent's message means a message transmitted by
Depository Trust Company to the exchange agent which is received by the exchange
agent and which states that Depository Trust Company has received an express
acknowledgment from one of its participants tendering shares stating:
o the aggregate number of shares which have been tendered by such
participant;
o that such participant has received and agrees to be bound by the
terms of the letter of transmittal; and
o that Thermwood may enforce such agreement against the participant.
The agent's message is a part of a book-entry confirmation.
The method of delivery of shares and the letter of transmittal and all
other required documents to the exchange agent, including delivery through
Depository Trust Company, is at the election and risk of the holder. We
recommend that you use an overnight or hand delivery service instead of delivery
by mail. If you send your shares by mail, we suggest that you send them by
registered mail with return receipt requested, properly insured. In all cases,
you should allow sufficient time to assure delivery to the exchange agent before
the expiration date. No letter of transmittal or shares should be sent to us.
If your shares are registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and you wish to tender them, you should
contact the registered holder promptly and instruct it to tender the shares on
your behalf. If you decide to tender your shares on your own behalf, you must
make appropriate arrangements to register ownership of the shares in your name
or obtain a properly completed stock power from the registered holder. You must
do this before completing and delivering the letter of transmittal, the shares
and any other required documents. The transfer of registered ownership may take
considerable time.
Your Signature May Be Required To Be Guaranteed. Signatures on a letter of
transmittal or a notice of withdrawal of tender must be guaranteed by an
eligible institution, except as described below. An eligible institution is:
o a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc.;
o a commercial bank or trust company having an office or correspondent
in the United States; or
o an eligible guarantor institution as that term is defined under the
Exchange Act.
Your signature need not be guaranteed if your shares are tendered :
(a) by a registered holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery Instructions"
on the letter of transmittal; or
(b) for the account of an eligible institution.
If a trustee or other person acting in a fiduciary or representative
capacity signs the letter of transmittal or any stock powers or other document
required by the letter of transmittal, such person must
o indicate the capacity in which it is signing; and
o provide proper evidence satisfactory to us of its authority to so
act with regard to the letter of transmittal.
We will determine, in our sole discretion, all questions as to the
validity, form, eligibility, including time of receipt, acceptance and
withdrawal of tendered shares. Our determination is final and binding. We
reserve the absolute right to reject any shares not properly tendered or any
shares our acceptance of which would, in the opinion of our counsel, be
unlawful. We also reserve the right to waive any defects, irregularities or
conditions of tender as to particular shares. Our interpretation of the terms
and conditions of the exchange offer, including the instructions in the letter
of transmittal, will be final and binding on all parties.
You must cure any defects or irregularities in connection with tenders of
shares within such time as we shall determine, unless we waive such defect.
Although we intend to notify holders of defects or irregularities with respect
to tenders of shares, neither we, the exchange agent nor any other person shall
incur any liability for failure to give such notification. Tenders of shares
will not be deemed to have been made until such defects or irregularities have
been cured or waived.
-12-
<PAGE> 15
Any shares received by the exchange agent that are not properly tendered
and as to which the defects or irregularities have not been cured or waived,
will be returned by the exchange agent to the tendering holder, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
expiration date.
In addition, we reserve the right in our sole discretion to:
(a) terminate the exchange offer as set forth below under "Conditions;"
and
(b) to the extent permitted by applicable law, purchase shares in the
open market, in privately negotiated transactions or otherwise. The
terms of any such purchases or offers could differ from the terms of
the exchange offer.
Acceptance of Shares and Delivery of Debentures
All conditions to the exchange offer must be satisfied or waived prior to
the expiration date. After the expiration date, we will accept all shares
properly tendered and, thereafter, we will issue the debentures. We shall be
deemed to have accepted the shares tendered for exchange when we notify the
exchange agent of our acceptance. The exchange agent will act as agent for the
tendering holders of the shares for the purpose of receiving the debentures from
us. The exchange agent will deliver the debentures to the tendering
shareholders.
Guaranteed Delivery Procedures
If you wish to tender your shares but:
o your shares are not immediately available;
o you cannot deliver your shares or a confirmation of book-entry
transfer, the letter of transmittal or any other required documents
to the exchange agent prior to the expiration date; or
o you cannot complete the procedure for book-entry transfer on a
timely basis,
you may effect a tender if:
(a) the tender is made by or through an eligible institution as that
term is defined above in "Your Signature May Be Required To Be
Guaranteed;"
(b) prior to the expiration date, the exchange agent receives from the
eligible institution a properly completed and duly executed notice
of guaranteed delivery
o stating the name and address of the holder of such
shares;
o stating the principal amount of shares tendered;
o stating that the tender is being made thereby; and
o guaranteeing that, within three AMEX trading days after
the expiration date, a duly executed letter of
transmittal together with the shares or a confirmation
of book-entry transfer of such shares, and any other
documents required by the letter of transmittal will be
deposited by the eligible institution with the exchange
agent; and
(c) such properly completed and executed letter of transmittal, and all
tendered shares in proper form for transfer, or a confirmation of
book-entry transfer of such shares, and all other documents required
by the letter of transmittal are received by the exchange agent
within three AMEX trading days after the expiration date.
Upon request to the exchange agent, a notice of guaranteed delivery will
be sent to holders who wish to tender their shares according to these guaranteed
delivery procedures.
Withdrawal Of Tenders
You may withdraw your tender of shares at any time prior to 5:00 P.M., New
York City time, on the expiration date, except as otherwise provided herein.
To withdraw a tender of shares in the exchange offer, the exchange agent
must receive a written or facsimile notice of withdrawal at its address set
forth below under "--Exchange Agent" prior to 5:00 P.M., New York City time, on
the expiration date.
-13-
<PAGE> 16
Any notice of withdrawal must:
o specify the name of the person having deposited the shares to be
withdrawn;
o identify the shares to be withdrawn, including the certificate
number(s) and amount of such shares;
o be signed by the holder of such shares in the same manner as the
original signature on the letter of transmittal by which such shares
were tendered, including any required signature guarantees, or be
accompanied by documents of transfer sufficient to have the exchange
agent register the transfer of such shares back into the name of the
person withdrawing the tender; and
o specify the name in which any such shares are to be registered, if
different from that of the depositor. If the shares have been
delivered pursuant to the book-entry procedure set forth above under
"-- Procedures for Tendering," any notice of withdrawal must specify
the name and number of the participant's account at Depository Trust
Company to be credited with the withdrawn shares.
We will determine, in our sole discretion, all questions as to the
validity, form and eligibility, including time of receipt, of such notices. Our
determination is final and binding. If you withdraw your shares, they will be
deemed not to have been validly tendered for purposes of the exchange offer and
no debentures will be issued with respect to that tender unless you validly
retender the shares that you withdrew. You may retender properly withdrawn
shares by following one of the procedures described above under "--Procedures
for Tendering" at any time prior to the expiration date.
The exchange agent will return to you any shares which you tendered but
which we did not accept due to withdrawal, rejection of tender or termination of
the exchange offer, as soon as practicable without cost to you. However, in the
case of shares tendered by book-entry transfer, such shares will be credited to
an account maintained with Depository Trust Company for the shares.
Conditions
Regardless of any other term of the exchange offer, we shall not be
required to accept for exchange, or exchange debentures for, any shares, and we
may terminate the exchange offer before the expiration date, if:
(a) any action or proceeding is instituted or threatened with respect to
the exchange offer which, in our reasonable judgment,
o might materially impair our ability to proceed with the
exchange offer; or
o might materially impair the contemplated benefits of the
exchange offer to us;
(b) any material adverse development has occurred in any existing action
or proceeding with respect to us or any of our subsidiaries;
(c) any change, or any development involving a prospective change, in
our business or financial affairs, including those of any of our
subsidiaries, has occurred which, in our reasonable judgment, might
materially impair our ability to proceed with the exchange offer or
materially impair the contemplated benefits of the exchange offer to
us;
(d) any law, statute, rule or regulation is proposed, adopted or
enacted, which, in our reasonable judgment, might materially impair
our ability to proceed with the exchange offer or materially impair
the contemplated benefits of the exchange offer to us;
(e) there shall have occurred
o any general suspension of trading in, or general
limitation on prices for, securities on the AMEX;
o a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States or
any limitation by any governmental agency or authority
that adversely affects the extension of credit to us; or
o a commencement of war, armed hostilities or other
similar international calamity directly or indirectly
involving the United States;
or, in the event that any of the foregoing exists at the time of
commencement of the exchange offer, a material acceleration or
worsening thereof; or
-14-
<PAGE> 17
(f) we have not obtained any governmental approval which we believe, in
our reasonable judgment, is necessary for the consummation of the
exchange offer as contemplated in this prospectus.
The foregoing conditions are for our sole benefit and we may assert them
or waive them regardless of the circumstances giving rise to any such condition.
If we fail at any time to exercise any of the foregoing rights, we shall not be
deemed to have waived such right and each such right shall be deemed an ongoing
right which may be asserted at any time and from time to time.
If we determine, in our sole reasonable judgment, that any of the
conditions are not satisfied, we may:
(a) refuse to accept any shares and return all tendered shares to the
tendering holders or, in the case of shares delivered by book-entry
transfer, credit such shares to the account maintained within
Depository Trust Company by the participant in Depository Trust
Company which delivered such shares;
(b) extend the exchange offer and retain all shares tendered prior to
the expiration of the exchange offer subject, however, to the rights
of holders thereof to withdraw such tenders of shares (see
"--Withdrawal of Tenders" above); or
(c) waive such unsatisfied conditions with respect to the exchange offer
and accept all properly tendered shares which have not been
withdrawn.
If such waiver constitutes a material change to the exchange offer, we
will disclose such waiver promptly by means of a supplement to this prospectus
that will be distributed to you, and we will extend the exchange offer for a
period of five to ten business days, depending upon the significance of the
waiver and the manner of disclosure to the registered holders of common stock,
if the exchange offer would otherwise expire during such five to ten business
day period.
Exchange Agent
American Stock Transfer and Trust Company is the exchange agent for the
exchange offer. You should direct all executed letters of transmittal and
notices of guaranteed delivery to the exchange agent at the address set forth
below. If you have questions or you need
o assistance,
o additional copies of this prospectus or of the letter of
transmittal, or
o notices of guaranteed delivery,
you should direct such requests to the exchange agent as follows:
American Stock Transfer and Trust Company, Exchange Agent
By Mail, Hand or Overnight Courier: Facsimile Transmission Number
----------------------------------- -----------------------------
40 Wall Street (eligible institutions only):
New York, New York 10005 (718) 234-5001
To Confirm Facsimile
(If by Mail, Registered or or for Information Call
Certified Mail Recommended) (718) 921-8200
Delivery of a the letter of transmittal and/or other requisite documents
to an address other than as set forth above does not constitute a valid
delivery.
Your Rights Under Indiana Law
You do not have any appraisal or dissenters' rights under Indiana law or
the indenture, the agreement between Thermwood and the trustee, in connection
with the exchange offer. Generally, appraisal or dissenters' rights are
statutory rights that require a corporation to pay shareholders who do not
consent to certain major corporate transactions, the fair value of their shares.
-15-
<PAGE> 18
Why We Are Making The Exchange Offer
I. To Preserve Control By Current Management And Prevent Hostile Takeover.
We are conducting the exchange offer to prevent the possibility of a
hostile takeover and preserve current management's control over our operations.
We believe that our ability to generate profits year after year is directly
related to:
1. Kenneth Susnjara's direct management of our operations and his
knowledge of our industry including his view of future markets;
2. our management incentive program which compensates managerial
employees primarily as a function of our results of operations; and
3. our management structure which is less structured and more
participatory than that of most other public companies.
We further believe that a change in executive management as a result of a
hostile takeover would jeopardize these managerial techniques and our on-going
profitability.
II. To Provide Our Shareholders With An Alternate Form Of Investment.
We also are conducting the exchange offer to provide our shareholders with
an alternate form of investment in Thermwood. We have not declared any dividends
on our common stock and we have no current intention of declaring any such
dividends. The debentures offer a consistent long-term rate of return.
Our Prior Attempt To Purchase All Common Stock That Was Not Owned By Major
Shareholders
In March 1998, we began to explore methods for consolidating control of
Thermwood and preventing hostile takeovers. In September 1998, we sought to
repurchase all of our common shares that were not owned by our major affiliates
by effecting a reverse stock split of our common stock at a high enough ratio to
require all but a few shareholders to return there shares to us for cash. This
would have forced all but a select few major shareholders to return their shares
to Thermwood. It also would have resulted in our becoming a private company,
with no public market for our common shares and no requirement to prepare or
file annual reports or other disclosure documents with the SEC.
We negotiated with LaSalle Bank to provide the financing for the
repurchase of our common stock. However, the bank began to add additional
substantive requirements to the loan that were not acceptable to us. We are not
sure why, but we believe that it was consistent with a tightening up of the
credit market for this type of loan at the time. As a result, we did not go
forward with the forced repurchase of our common stock and we began exploring
other strategies for effecting our goals.
Why We Believe That the Exchange Offer Is A Viable Means For Meeting Our
Objectives
We commenced this exchange offer because we believe that it is a viable
alternative to the stock repurchase by reverse stock split. Originally, we were
going to attempt to exchange all of the outstanding common stock that was not
owned by Kenneth and Linda Susnjara and Mr. Mulzer, another major shareholder.
However, we changed the terms of the exchange offer to limit the number of
shares that we will acquire to 750,000 or less. Limiting the number of shares
that we purchase for debentures adds the following dimensions to the exchange
offer:
1. Preservation of a Public Market For Our Common Stock. The exchange
offer should not result in the delisting of our common stock from
the American or Pacific Stock Exchanges or the total cessation of a
public market for our common stock, thereby retaining a market for
those shareholders who decide not to tender their shares.
2. Increased Per Share Earnings Assuming Continued Profitability.
Following the completion of the exchange offer, there will be fewer
outstanding shares. Assuming that we continue to generate profits,
this reduction in outstanding shares will increase earnings per
share and, possibly, the market value of such shares.
3. Lower Debt Service On The Debentures. The issuance of fewer
debentures means that the amount of debt service on the debentures
will be less than would have been incurred under our original
exchange offer. Lower debt service will increase liquidity and
increase profits or decrease losses.
-16-
<PAGE> 19
Financial Effect of the Exchange Offer
The following pro forma financial information presents the effect on our
historical financial position and results of operations assuming completion of
the exchange offer. The unaudited pro forma balance sheets reflect the
transaction as if it occurred on the condensed balance sheet dates. The
unaudited pro forma statements of operations reflect the transaction as if it
occurred at the beginning of the periods presented.
You should be aware that the unaudited pro forma balance sheets are not
necessarily indicative of what our financial position would have been if the
exchange offer had been effected on the dates indicated, or will be in the
future. You should not infer that the information shown in the unaudited pro
forma statements of operations is indicative of the results of future
operations.
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET - PRO FORMA (UNAUDITED)
July 31, 1998
(In thousands, except ratios and per share data)
<TABLE>
<CAPTION>
Historical Adjustments Proforma
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current assets $ 8,334 -- 8,334
Net property and equipment 2,647 -- 2,647
Other assets 343 480(a) 823
------- ------- -------
Total assets $11,324 480 11,804
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 3,009 480(a) 3,489
Long-term liabilities 2,367 4,651(b) 7,018
------- ------- -------
5,376 5,131 10,507
Shareholders' equity 5,948 (4,651)(c) 1,297
------- ------- -------
Total liabilities and shareholders' equity $11,324 480 11,804
======= ======= =======
Book value per share $ 4.16 1.90
Ratio of earnings to fixed charges 10.16 1.91
</TABLE>
-17-
<PAGE> 20
CONDENSED CONSOLIDATED BALANCE SHEET - PRO FORMA (UNAUDITED)
October 31, 1998
(In thousands, except ratios and per share data)
<TABLE>
<CAPTION>
Historical Adjustments Proforma
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
Current assets $ 9,118 -- 9,118
Net property and equipment 2,626 -- 2,626
Other assets 339 480(a) 819
------- ------- -------
Total assets $12,083 480 12,563
======= ======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 3,550 480(a) 4,030
Long-term liabilities 2,302 4,651(b) 6,953
------- ------- -------
5,852 5,131 10,983
Shareholders' equity 6,231 (4,651)(c) 1,580
------- ------- -------
Total liabilities and shareholders' equity $12,083 480 12,563
======= ======= =======
Book value per share $ 4.31 2.27
Ratio of earnings to fixed charges 8.03 1.49
</TABLE>
-18-
<PAGE> 21
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -
PRO FORMA (UNAUDITED
For the year ended July 31, 1998
(In thousands, except per share data)
<TABLE>
<CAPTION>
Historical Adjustments Proforma
---------- ----------- --------
<S> <C> <C> <C>
Net sales $ 21,840 -- 21,840
Cost of sales 12,998 -- 12,998
-------- -------- --------
Gross profit 8,842 -- 8,842
Research and development, marketing,
administrative and general expenses 6,413 -- 6,413
-------- -------- --------
Operating income 2,429 -- 2,429
-------- -------- --------
Other income (expense):
Interest expense (232) (1,023)(d) (1,255)
Other (31) -- (31)
-------- -------- --------
Other expense, net (263) (1,023) (1,286)
-------- -------- --------
Earnings before income taxes 2,166 (1,023) 1,143
Income taxes (848) 379(e) (469)
-------- -------- --------
Net earnings $ 1,318 (645) 673
======== ======== ========
Weighted average number of shares:
Basic 1,425 (750) 675(f)
Diluted 1,517 (750) 767(f)
Earnings per share:
Basic $ 0.89 0.93
Diluted 0.86 0.86
</TABLE>
-19-
<PAGE> 22
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS -
PRO FORMA (UNAUDITED)
For the three-months ended October 31, 1998
(In thousands, except per share data)
Historical Adjustments Proforma
Net sales $ 5,625 -- 5,625
Cost of sales 3,236 -- 3,236
------- ------- -------
Gross profit 2,389 -- 2,389
Research and development, marketing,
administrative and general expenses 1,928 -- 1,928
------- ------- -------
Operating income 461 -- 461
------- ------- -------
Other income (expense):
Interest expense (57) (256)(d) (313)
Other 6 -- 6
------- ------- -------
Other expense, net (51) (256) (307)
------- ------- -------
Earnings before income taxes 410 (256) 154
Income taxes (192) 95(e) (97)
------- ------- -------
Net earnings $ 218 (161) 57
======= ======= =======
Weighted average number of shares:
Basic $ 1,441 (750) 691(f)
Diluted 1,481 (751) 730(f)
Earnings per share:
Basic $ 0.15 0.08
Diluted 0.15 0.08
-20-
<PAGE> 23
EXPLANATION OF PRO FORMA ADJUSTMENTS
(Unaudited)
(Dollars and shares in thousands)
(a) Increase in other assets and current liabilities relating to solicitation
agent, accounting and legal fees ($480) incurred in connection with the
issuance of debentures.
(b) Increase in long-term liabilities as a result of the issuance of 12%
debentures, discounted using an effective rate of 22%, and related
issuance costs, determined as follows:
October 31, 1998 July 31, 1998
---------------- -------------
Debentures issued upon exchange
of outstanding common shares $ 8,250 8,250
Less: discount (3,599) (3,599)
======= ======
$ 4,651 4,651
======= ======
(c) Decrease in shareholders' equity as a result of exchange of common stock
for debentures.
(d) Increase in interest expense resulting from the issuance of the debentures
with a stated interest rate of 12%, discounted using an effective interest
rate of 22%,determined as follows:
October 31, 1998 July 31, 1998
--------------------- -----------------
Bonds payable, net $4,651 $4,651
Effective interest rate 22% 22%
------ ------
$1,023 $1,023
Portion of year 25% 100%
====== ======
Adjustment to interest expense $ 256 $1,023
====== ======
(e) Decrease in income taxes (37% effective rate) based on pro forma
adjustments to earnings before income taxes.
(f) A reconciliation of the numerator and denominator for the basic and
diluted historical and pro forma earnings per share calculation follows: :
-21-
<PAGE> 24
<TABLE>
<CAPTION>
Year ended July 31, 1998 Three-months ended October 31, 1998
Historical Proforma Historical Proforma
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
------- ------- ------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Earnings:
Net earnings $ 1,318 $ 1,318 $ 673 $ 673 $ 218 $ 218 $ 57 $ 57
Less preferred stock dividends (43) (43) (43) (43) -- -- -- --
Add interest expense on
convertible bonds payable -- 47 -- 47 -- 4 -- 4
Add amortization of bond
discount and issuance costs -- 5 -- 5 -- 1 -- 1
Income tax effects of earnings
adjustments -- (19) -- (19) -- (2) -- (2)
------- ------- ------- ------- ------ ------- ------- -------
Total earnings $ 1,275 $ 1,308 $ 630 $ 663 $ 218 $ 221 $ 57 $ 60
======= ======= ======= ======= ====== ======= ======= =======
Weighted average shares:
Outstanding 1,425 1,425 1,425 1,425 1,441 1,441 1,441 1,441
Less pro forma shares retired
in connection with the exchange -- -- (750) (750) -- -- (750) (750)
------- ------- ------- ------- ------ ------- ------- -------
Adjusted 1,425 1,425 675 675 1,441 1,441 691 691
Incremental shares from assumed:
Exercise of dilutive stock options -- 56 -- 56 -- 17 -- 17
Conversion of convertible bonds -- 36 -- 36 -- 23 -- 23
------- ------- ------- ------- ------ ------- ------- -------
Total weighted average shares 1,425 1,517 675 767 1,441 1,481 691 730
======= ======= ======= ======= ====== ======= ======= =======
</TABLE>
Accounting Treatment
We will record the debentures at face value, discounted using an
appropriate market rate of interest, with a corresponding decrease in
shareholders' equity. Accordingly, no gain or loss will be recognized in
connection with the transaction. We will amortize the costs incurred in
connection with the issuance of the debentures over the term of the debentures.
How Outstanding Options Will be Treated in The Exchange Offer
The exchange offer will have no effect on our Qualified and Non-Qualified
options.
-22-
<PAGE> 25
FEDERAL INCOME TAX CONSEQUENCES
The Exchange Of Stock For Debentures Is A Redemption And Is A Taxable Event
The following summary of the Federal income tax consequences to a
shareholder who exchanges his shares for debentures is taken from the opinion of
Richard Reichler, Esq., our special tax counsel, and does not restate the
opinion in its entirety. A copy of the opinion is filed as an exhibit to the
registration statement of which this prospectus is a part. To obtain a copy of
the opinion see "Where You Can Find More Information."
General
In general, the acquisition of our common stock in exchange for debentures
is a redemption of those shares for Federal income tax purposes. Section 317(b)
of the Code defines the phrase "redemption of stock" as a corporate acquisition
of "its stock from a shareholder in exchange for property, whether or not the
stock acquired is cancelled, retired, or held as treasury stock." The definition
of property includes everything other than stock or stock rights in the
redeeming corporation and includes our debentures. If the redemption terminates
the shareholders interest or causes a meaningful reduction in that interest
(this is discussed in greater detail below), the exchange will be treated in the
same manner as a sale of the stock; which is a taxable event. In the usual case,
the shareholder's proceeds in computing his or her tax on the exchange will be
the market value of the debentures received (see "--Recognition of Income"
below) and the shareholder will recognize capital gain or loss depending on the
difference between his or her basis in the stock surrendered and the amount of
the proceeds. As we discuss in "Exchange Offer -- Accounting Treatment" and
"Risk Factors; Risks Related to Acquisition of Debentures -- The Debentures Most
Likely Will Trade At A Discount From Their Face Amount If A Public Trading
Market Develops For The Debentures," we believe that the market value of the
debentures will be well below the face amount of the debentures and that, in the
usual case, such value should be used in determining the proceeds of the
redemption. If the shareholder recognizes a gain, he or she will owe taxes on
the exchange even though he or she will not receive cash from the exchange to
pay these taxes.
How A Redemption Transaction Will Be Taxed
How the Internal Revenue Service will treat the exchange for each
shareholder will depend upon the facts which are specific to that shareholder's
circumstances. The exchange will be treated as either a distribution in exchange
for stock or a dividend.
I. Treatment As A Distribution In Exchange For Stock. Section 302(a) of the Code
provides that, if a redemption satisfies any one of four tests, the redemption
will be treated as a distribution in exchange for the stock, i.e., as a sale
transaction. As discussed in more detail below, if you exchange more than 80% of
your Thermwood shares, your exchange will be treated as a distribution in
exchange for stock. In the usual case in which the stock was held as a capital
asset on the date of the exchange, the provisions relating to capital gains and
losses will apply.
The four tests for distribution in exchange for stock treatment are
contained in section 302(b) of the Code and are not mutually exclusive -- it is
possible to satisfy one or more simultaneously. Moreover, the tests must be
applied separately with respect to each shareholder, so that it is possible that
a redemption will qualify as a sale or exchange as to certain shareholders, but
not others. Those redemptions which qualify for distribution in exchange for
stock treatment are as follows, with each test referring to the redemption's
effect on a specific shareholder.
(1) redemptions that are not essentially equivalent to a dividend;
(2) redemptions that are substantially disproportionate;
(3) redemptions that completely terminate the shareholder's equity
interest in the corporation; and
(4) redemptions from non-corporate shareholders in a partial
liquidation.
The determination as to whether a redemption will be treated as a
distribution in exchange for stock requires an analysis of the facts and
circumstances of each particular case. However, based on the facts in the
proposed transaction, the redemption will not be a partial liquidation. With
respect to the remaining three tests, a number of safe havens have been
established by the courts and the IRS upon which taxpayers can rely.
Essentially Equivalent To A Dividend Test. The major Supreme Court case
interpreting whether a distribution is essentially equivalent to a dividend is
U.S. v. Davis, 397 U.S. 301 rehearing denied. In that case, the Court stated
that the basic test is whether the redemption results in "a meaningful reduction
of the shareholder's proportionate interest in the corporation." No guidelines
were furnished as to when a reduction in interest is meaningful. The only
requirement under this rule is that enough of a reduction in the shareholder's
stock ownership occur so that his rights and his influence as a shareholder are
reduced sufficiently to persuade the IRS or the courts that there has been a
meaningful reduction in his stock ownership. Clearly, if you exchange all or
substantially all of your stock, your exchange will not be deemed to be
equivalent to a dividend and will be treated as a distribution in exchange for
stock.
-23-
<PAGE> 26
Substantially Disproportionate Test. Under the substantially
disproportionate redemption rule, a redemption will be treated as an amount in
exchange for the stock you surrender if three conditions are satisfied:
(1) Your percentage ownership of our outstanding voting stock is reduced
immediately after the redemption to less than 80% of your percentage
interest in our stock immediately before the transaction;
(2) Your percentage ownership of our outstanding common stock (both
voting and non-voting) is reduced to less than 80 percent of your
percentage ownership before the redemption. This test is applied
immediately before and immediately after the redemption; and
(3) You own, immediately after the redemption, less than 50 percent of
the total combined voting power of all classes of stock entitled to
vote.
In making the determination as to whether the ownership percentages are
satisfied, certain attribution rules are applicable. However, the requirements
of this rule are mechanical. If the specific percentage reduction is achieved by
a particular shareholder, that shareholder will receive exchange treatment,
regardless of the tax treatment accorded any other shareholder. We have no
outstanding non-voting stock. Accordingly, if you exchange more than 80% of your
stock, your exchange will be treated as a distribution in exchange for stock.
Complete Termination Of Shareholder's Interest. A redemption will be treated as
a distribution in exchange for stock "if the redemption is in complete
redemption of all of the stock of the corporation owned by the shareholder."
Under this test, all of your Thermwood stock must be exchanged.
II. Treatment As A Dividend. If none of the four tests are satisfied, the
redemption will be treated as a distribution which is a dividend to the extent
of our earnings and profits with any excess amount treated first as a return of
capital and to the extent that any portion of the distribution which is not a
dividend exceeds the shareholder's basis in the stock, as gain from the sale or
exchange of property.
Recognition of Income
Ordinarily, under the general rule of section 1001(b) of the Code, where
the redemption qualifies as a distribution in exchange for stock, the amount
received for the stock is equal to the fair market value of the debenture,
rather than its face amount. This general rule applies to both corporate and
non-corporate shareholders. A different measurement of amount realized applies,
according to the IRS, to shareholders, individual or corporate, using the
accrual method of accounting. Accrual method taxpayers who sell property and
receive a debt obligation of the acquirer must take the obligation into account
at its face amount rather than at its fair market value. This rule also applies
to determine an accrual method shareholder's gain or loss on a redemption of
stock where the redemption qualifies for distribution in exchange for stock
treatment.
Our distribution of the debentures in part or full payment of the
redemption price is not eligible for installment sale reporting because our
stock is publicly traded. Accordingly, shareholders will be required to report
any income from the exchange prior to the receipt of payments of the principal
of the debentures.
Capital Gain and Alternative Minimum Tax
As provided in Section 1001 of the Code, gain or loss will be recognized
by a shareholder in an amount equal to the difference between the amount
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 shareholder, 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 redemption.
Long-term capital gain for non corporate 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 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 non-resident 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
-24-
<PAGE> 27
instances, certain other information, to the exchange agent in connection with
the exchange to avoid backup withholding requirements that might otherwise
apply. The letter of transmittal will require each shareholder to deliver such
information. 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
tax advisors.
-25-
<PAGE> 28
DESCRIPTION OF THE DEBENTURES AND THE INDENTURE
General
The debentures will be issued under an indenture to be dated as of March
__, 1999, between Thermwood and American Stock Transfer and Trust Company as
trustee. The terms of the debentures include those stated in the indenture and
those made part of the indenture by reference to the Trust Indenture Act of
1939. The following summary of material provisions of the indenture and the
debentures does not restate those documents in their entirety. A copy of the
indenture, which includes the debenture, is filed as an exhibit to the
registration statement of which this prospectus is a part. To obtain a copy of
the indenture see "Where You Can Find More Information."
Face Amount of Debenture
The face amount of each debenture will equal $11.00 times the number of
shares that we acquire from the tendering shareholder.
Quarterly Payment of Interest and Payment of Principal at Maturity
We will pay interest on the debentures from the date of their delivery at
the rate of 12% per annum. We will make interest payments quarterly on January
1, April 1, July 1 and October 1 of each year, commencing July 1, 1999.
We will repay the face amount of the debentures 15 years after the date of
their issuance, unless the debentures are redeemed prior to their maturity.
We will make all payments of principal and interest on the debentures at
the offices of the trustee in New York City located at 40 Wall Street, New York,
New York 10005. However, we may pay interest by check mailed to the holder at
the holder's address listed with the trustee in the debenture register.
We will not withhold interest payments from any investor who provides us
with the proper withholding form, either Form W-8 or W-9. If an investor does
not provide us with such a form, we will withhold 31% of any interest paid. It
is our policy that no sale will be made to anyone refusing to provide a fully
executed Form W-8 or Form W-9.
Repayment of Debentures Before Maturity
Redemption by Holder's Estate. Upon the death of a debenture holder, the
holder's estate may require us to repay a maximum of $50,000 in face amount of
and accrued interest on the debentures owned by the deceased holder. This right
to require repayment is known as a right of redemption. This right of redemption
is limited to the estate of the initial holder. If a holder transfers the
debentures, the subsequent holder of the debentures is not entitled to this
right of redemption. If spouses are joint record owners of debentures, the
election to redeem will apply when either record owner dies. In other cases of
debentures jointly held, the election will not apply.
Redemption by Us. We can redeem the debentures at a price of $15.00 for every
$11.00 of face value of the debentures during the second year after their
issuance. By way of illustration, if you own a debenture with a face amount of
$110,000, we can redeem your debenture for $150,000 ($110,000 divided by $11.00
multiplied by $15.00). During each subsequent year, the price at which we can
redeem the debentures will decrease as follows:
<TABLE>
<CAPTION>
12 Month Period Redemption Price
After The Issuance Per $11.00 of Face
Of the Debentures Amount of Debenture
----------------- -------------------
<S> <C>
Third $14.70
Fourth $14.40
Fifth $14.10
Sixth $13.80
Seventh $13.50
Eight $13.20
Ninth $12.90
Tenth $12.60
Eleventh $12.30
Twelfth $12.00
Thirteenth $11.70
Fourteenth $11.40
Fifteenth $11.10
</TABLE>
-26-
<PAGE> 29
We may not redeem the debentures within the first year after they have
been issued. If we decide to redeem the debentures, we are required to provide
the holder with written notice of such intention at least 30 days before we
redeem the debentures.
If we redeem less than all of the outstanding debentures, the trustee will
determine which debentures will be redeemed either by pro rating or choosing by
lot.
Ranking of Debentures
The debentures rank below our senior debt and rank equal with our existing
convertible debentures. This means that we are required to make payments of
principal, premiums, if any, and interest on our senior debt before we make such
payments on the debentures. Senior debt includes indebtedness for money that we
borrowed that is outstanding on the day that we execute the indenture and money
that we borrow after we execute the indenture, where we borrow the funds from
banks or other traditional long-term institutional lenders such as insurance
companies and pension funds. Such debts will rank below the debentures only if
the note or other document that creates the debt provides that such debt is not
senior in right of payment to the debentures. At February 15, 1999, senior debt
aggregated $2,196,320.
We expect that from time to time we will borrow additional funds that will
rank senior to the debentures. We are not limited in the amount of additional
indebtedness that we can borrow. The more that we borrow, the greater our debt
service. If we are unable to meet our debt service and we are required to pay or
distribute our assets to creditors due to our dissolution, winding up of
affairs, liquidation, bankruptcy or other similar event, we will be required to
make all payments due upon all senior debt before we can make payments to the
debenture holders or the trustee.
Modification of the Indenture
With the consent of the holders of not less than a majority in principal
amount of outstanding debentures, Thermwood and the trustee may modify the
indenture by :
o adding, changing or eliminating any provisions of the indenture; or
o modifying the rights of the debenture holders under the indenture.
However, no modification may be made without the consent of the debenture
holders affected to:
(a) reduce the amount of debentures whose holders must consent to an
amendment;
(b) reduce the rate of or change the time for payment of interest on any
debenture;
(c) reduce the principal of or change the fixed maturity of any
debenture;
(d) make any debenture payable in money other than that stated in the
debenture;
(e) make any change in the provisions related to waiving past defaults,
receiving payments under the debentures or bringing suit to enforce
such payments;
(f) alter the manner in which the indenture may be amended in such a way
that it adversely affects the rights of holders; or
(g) alter the provisions of the indenture so as to adversely affect the
junior ranking of the debentures to senior debt.
Thermwood and the trustee do not require the consent of any holders to amend the
indenture to:
o fix any ambiguity, omission, defect or inconsistency;
o provide for the assumption by a successor corporation of our
obligations under the indenture;
o add guarantees to the debentures;
o secure the debentures;
o add to our covenants for the benefit of the holders of the
debentures or to surrender any right or power conferred upon us;
-27-
<PAGE> 30
o make any other change that does not adversely affect the rights of
any holder of the debentures; or
o comply with any requirement of the SEC in connection with the
qualification of the indenture under the Trust Indenture Act.
We are required to mail to all holders a notice briefly describing any
amendment to the indenture promptly after the amendment is effected. However,
our failure to give such notice to all holders or any defect in such notice will
not impair the validity of the amendment.
Events of Default, Notice and Waiver
Each of the following constitutes an event of default under the indenture:
o If we fail to pay interest within 45 days of any interest due date
or fail to pay the principal or any premium when due;
o If we fail to comply with any other obligation in the indenture and
such failure continues for at least 60 days after we have received
written notice of such failure from the trustee or the holders of at
least 25% in face amount of the outstanding debentures;
o If we become subject to certain events of bankruptcy, insolvency or
reorganization.
If the trustee knows that an event of default has occurred and has not
been rectified, it is required to mail to each debenture holder a notice of the
event of default within 90 days after it occurs. However, except for an event of
default in the payment of principal or accrued interest on any debenture, the
trustee need not send such notice if and for as long as a committee of its trust
officers determines that withholding notice is not against the interest of the
debenture holders.
We are required to deliver to the trustee, within 120 days after the end
of each fiscal year, a certificate indicating whether we know of any event of
default that has occurred during the previous year.
If an event of default occurs and has not been rectified, either the
trustee or the holders of 25% of the face amount of the outstanding debentures,
by giving us notice, may declare the principal and any accrued interest on the
principal of all of the debentures to be due and payable.
Holders of at least a majority of the face amount of all outstanding
debentures may:
o rescind any acceleration of payment due to an event of default
provided that all existing events of default have been cured or
waived; and
o direct the time, method and place of conducting any proceeding for
any remedy available to the trustee, or exercising any power of
trust conferred on the trustee.
A holder may bring an action to collect any interest or principal under
the debenture that has come due but not been paid. A holder's right to institute
a proceeding with respect to any other matter under the indenture is limited. A
debenture holder may institute such a proceeding only if:
o he notifies the trustee in writing of a continuing event of default;
o holders of at least 25% in face amount of the outstanding debentures
deliver a written request to the trustee to pursue a remedy;
o one or more holders provide the trustee with indemnification that
the trustee deems satisfactory against any loss, liability or
expense;
o the trustee fails to comply with the request to institute
proceedings within 60 days of receiving the request; and
o the trustee does not receive written instructions that are
inconsistent with the request from the holders of at least a
majority in face amount of the outstanding debentures during the 60
day period.
-28-
<PAGE> 31
Covenants of Thermwood
In the indenture, we agree to abide by certain covenants while the
debentures are outstanding. These covenants include our obligation to:
o pay all interest and principal when due;
o deliver to the trustee copies of all of our filings with the SEC;
o certify in writing to the trustee within 120 days after the end of
each fiscal year whether we were in default under the indenture and,
if so, the status of such default and our efforts to correct it;
o not declare or pay any cash dividend on outstanding stock or
purchase or otherwise acquire any of our stock during any period in
which an event of default exists; and
o refrain from entering into certain transactions with our affiliates,
unless our board of directors determines in good faith that the
terms of such transactions are at least as good as we could have
obtained had we entered into such transactions with non-affiliated
persons.
The Trustee
American Stock Transfer and Trust Company will be the trustee under the
indenture. The trustee is the transfer agent and registrar for our common stock.
The trustee will be permitted to engage in other transactions; provided,
however, if it acquires any conflicting interest it must either eliminate such
conflict within 90 days, apply to the SEC for permission to continue as trustee
or resign.
No Personal Liability Of Directors, Officers, Employees And Shareholders
None of our directors, officers, employees or shareholders, acting in such
capacities, shall have any liability for any of our obligations under the
indenture or the debenture. Each debenture holder waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the debentures. Such waiver might not be effective to waive liabilities under
the Federal securities laws because it is the view of the SEC that such a waiver
is against public policy.
Governing Law
The indenture provides that it and the debentures will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
Outstanding Convertible Debentures
In 1993 Thermwood issued 12% junior convertible debentures due February
25, 2003. The terms of the convertible debentures are substantially the same as
those of the debentures offered in this exchange offer, except that the
convertible debentures are convertible into shares at the rate of one share for
$5.00 principal amount of convertible debentures. As of February 15, 1999, there
were an aggregate of $113,000 principal amount of convertible debentures issued
and outstanding.
The convertible debentures rank equally with the debentures for purposes
of distributions.
-29-
<PAGE> 32
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain historical consolidated financial
data which has been derived from our unaudited condensed consolidated financial
statements for the quarters ended October 31, 1998 and 1997 and the audited
consolidated financial statements for each of the years in the five-year period
ended July 31, 1998. Per share numbers and weighted average number of shares
have been adjusted to reflect our 1-for-5 reverse stock split which took effect
on January 5, 1998. For additional information, see "Consolidated Financial
Statements of Thermwood," commencing on page F-1. The pro forma financial
information illustrates the effect of the exchange of 750,000 shares for
debentures as if this had occurred as of the dates and for the periods listed in
the following tables.
For more detailed information on the pro forma effect of the exchange
offer, see the pro forma financial information and the "Explanation Of Pro Forma
Adjustments" in "Exchange Offer -- Financial Effect of the Exchange Offer."
<TABLE>
<CAPTION>
Selected Statement of Operations Data: Quarter ended October 31, Fiscal Year ended July 31,
(in thousands except per share data) Unaudited Unaudited
Pro Forma Pro Forma
1998 1998 1997 1998 1998 1997 1996 1995 1994
--------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales $ 5,625 $ 5,625 $ 4,805 $21,840 $21,840 $17,779 $12,636 $12,314 $ 9,985
Gross profit $ 2,389 2,389 2,043 8,842 8,842 6,906 4,925 4,786 3,579
Earnings before income taxes 154 410 558 1,143 2,166 2,055 1,174 1,140 136
Earnings from continuing
operations 57 218 355 673 1,318 1,236 2,334 2,350 136
Net earnings 57 218 355 673 1,318 1,236 2,334 2,350 208
=========================== =======================================================
Earnings per share:
Basic $ 0.08 $ 0.15 $ 0.22 $ 0.93 $ 0.89 $ 0.70 $ 1.63 $ 1.92 $ --
Diluted 0.08 0.15 0.21 0.86 0.86 0.69 1.45 1.49 --
=========================== =======================================================
Weighted average number of shares:
Basic 691 1,441 1,409 675 1,425 1,349 1,231 1,030 1,030
Diluted 730 1,481 1,535 767 1,517 1,446 1,437 1,451 1,030
Cash dividends declared
per common share -- -- -- -- -- -- -- -- --
<CAPTION>
Selected Balance Sheet Data: October 31, July 31,
(in thousands except per share data) Unaudited Unaudited
Pro Forma Pro Forma
1998 1998 1997 1998 1998 1997 1996 1995 1994
--------------------------- -------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total assets $12,563 $12,083 $11,434 $11,804 $11,324 $11,273 $ 8,766 $ 7,527 $ 5,418
Working capital 5,088 5,568 5,454 4,845 5,324 5,080 3,791 2,811 1,706
Long-term obligations 6,953 2,302 2,750 7,018 2,367 285 709 1,870 1,862
Shareholders' equity 1,580 6,231 4,950 1,297 5,948 7,087 6,275 3,437 1,456
Book value per share $ 2.27 $ 4.31 $ 3.49 $ 1.90 $ 4.16 $ 5.06 $ 4.80 $ 3.37 $ 1.41
Ratio of earnings to fixed charges 1.49 8.03 20.61 1.91 9.73 24.14 9.44 4.53 1.30
</TABLE>
For a discussion of the tax consequences of exchanging shares for
debentures, see " Federal Income Tax Consequences."
-30-
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In this section, we explain the financial condition and results of
operations of Thermwood and its subsidiaries for the years ended July 31, 1998
and 1997, and for the three month periods ended October 31, 1998 and 1997. As
you read this section, you may find it helpful to refer to our Consolidated
Financial Statements at the end of this prospectus and the information contained
is the section entitled "Selected Consolidated Financial Data."
Forward-Looking Statements
Certain information contained in this prospectus, including information
about:
o our future financial position;
o our business strategy;
o our projected costs and plans;
o objectives of management for future operations; and
o anticipated effects of the exchange offer,
are forward-looking statements. Important factors that could cause actual
results to differ materially from our expectations are disclosed under "Risk
Factors" and elsewhere in this prospectus.
Results of Operation
In this section, we discuss our earnings for the periods indicated and the
factors affecting them that resulted in changes from one period to the other.
Quarter ended October 31, 1998 Compared to Quarter ended October 31, 1997
Sales
Revenues during these periods consisted of:
<TABLE>
<CAPTION>
Source 1998 1997
------ ---- ----
<S> <C> <C>
Machine Sales 79.1% 83.3%
Technical Sales 20.9% 16.7%
</TABLE>
Net sales for the quarter ended October 31, 1998 were $5,625,222, an
increase of 17% over the quarter ended October 31, 1997. Gross profit for the
quarter ended October 31, 1998 was $2,389,388, an increase of 17% over the
quarter ended October 31, 1997. These increases were due primarily to increased
orders and shipments of product. Backlog decreased from approximately $3,200,000
at October 31, 1997 to $2,521,000 at October 31, 1998. During the quarter ended
October 31, 1998, cost of sales as a percentage of net sales was 57.5%,
approximately the same as for the quarter ended October 31, 1997.
Research And Development, Marketing, General And Administrative Expenses
Research and development, marketing, general and administrative expenses
were $1,928,098 during the quarter ended October 31, 1998 compared with
$1,468,373 during the quarter ended October 31, 1997. These expenses were the
primary reason for the reduced operating profit of $461,290 compared to $574,479
for the same period in fiscal year 1998. The 31% increase in these expenses
resulted in a 20% decrease in operating profit. Research and development,
marketing, general and administrative expenses were 34% of net sales for the
quarter ended October 31, 1998 compared to 31% for the same period of fiscal
year 1998.
These expenses were composed of the following:
<TABLE>
<CAPTION>
Percentage
Expense of Increase
------- -----------
<S> <C>
European Operations 35%
Research and Development 16%
Marketing 41%
General and Administrative 8%
</TABLE>
-31-
<PAGE> 34
European Operations. Expenses related to European operations were $341,000in the
quarter ended October 31, 1998 compared to $182,000 in the quarter ended October
31, 1997. This $159,000 increase was due primarily to increased marketing
efforts and the hiring of additional personnel.
Research and Development Expenses. Research and development expenses were
$156,000 in the quarter ended October 31, 1998 compared to $81,000 in the
quarter ended October 31, 1997. This $75,000 increase was due primarily to
increased salaries and benefits and the purchase of experimental parts and
supplies.
Marketing Expenses. Marketing expenses were $739,000 in the quarter ended
October 31, 1998 compared to $550,000 in the quarter ended October 31, 1997.
This $189,000 increase was due primarily to trade show expenses and advertising
costs.
General and Administrative Expenses. General and Administrative expenses were
$692,000 in the quarter ended October 31, 1998 compared to $655,000 in the
quarter ended October 31, 1997. This $37,000 increase was due primarily to
increased legal and professional fees incurred by us with regard to the
attempted reverse stock split.
Interest Expense
Interest expense in the quarter ended October 31, 1998 was $56,921, an
increase of approximately $31,000 from the quarter ended October 31, 1997. This
increase was due to interest on a $3.5 million line of credit from DuBois County
Bank. We used a major portion of the proceeds from this line of credit to
repurchase preferred stock in the amount of $2,546,320 from Edgar Mulzer, a
director and principal shareholder of Thermwood. The credit line is discussed in
more detail below in "Liquidity and Capital Resources" and the transactions with
Mr. Mulzer are discussed in more detail below in "Certain Relationships and
Related Transactions--Transactions with Edgar Mulzer."
Operating Income
Earnings from continuing operations before income taxes in the quarter
ended October 31, 1998 were $410,721 compared to $557,665 in the quarter ended
October 31, 1997, a decrease of approximately 26%. Federal income taxes were
accrued in the amount of $192,026. Accrued taxes lowered earnings to a net of
$218,695 compared to $355,039 in the quarter ended October 31, 1997.
Fiscal Year ended July 31, 1998 Compared to Fiscal Year ended July 31, 1997
Sales
Revenues during these periods consisted of:
<TABLE>
<CAPTION>
Source 1998 1997
------ ---- ----
<S> <C> <C>
Machine Sales 81.3% 81.8%
Technical Sales 18.7% 18.2%
</TABLE>
Net sales for fiscal year 1998 were $21,839,529, an increase of 23% from
fiscal year 1997. This increase was due primarily to increased orders and
shipments of product and a full year of European sales. European sales for
fiscal year 1998, the first full year of European operations, were $1,734,716 or
approximately 8% of total gross sales. Backlog decreased approximately 25.8%
from $4,080,000 at July 31, 1997 to $3,029,000 at July 31, 1998 due to a
reduction in orders. Management attributes the decreased level of orders at July
31, 1998 to a slowdown in capital purchasing because of a slower economy.
Gross profit for fiscal year 1998 was $8,841,623. The percentage of
current year gross profit to net sales increased from 38.8% in fiscal year 1997
to 40.5% in fiscal year 1998. Gross profit for the European operations for
fiscal year 1998 was $695,121 compared to $374,021 for fiscal year 1997. The
percentage of current year gross European profit to net sales increased from
36.1% in fiscal year 1997 to 40.1% in fiscal year 1998. For fiscal year 1998,
gross profit was positively affected by the continued use of more efficient
production methods, including in-house fabrication of components previously
purchased outside Thermwood. Improved efficiency also was attributed to an
addition to the production facility of approximately 20,000 square feet,
allowing better production flows, methods and processes including the purchasing
and storage of larger quantities of steel for fabrication at the Dale facility.
Research And Development, Marketing, General And Administrative Expenses
Research and development, marketing and general and administrative
expenses were $6,413,160 in fiscal year 1998, compared to $4,794,563 in fiscal
year 1997, an increase of approximately 33.8%.
-32-
<PAGE> 35
These expenses were composed of the following:
<TABLE>
<CAPTION>
Percentage
Expense of Increase
------- -----------
<S> <C>
European Operations 29.8%
Research and Development 6.2%
Marketing 15.0%
General and Administrative 49.0%
</TABLE>
European Operations. A major portion of increased expenses was attributable to
European operations which commenced in fiscal year 1997. These expenses amounted
to $1,052,000, or 16% of total expenses in fiscal year 1998 compared to
$570,000, or approximately 12% of total expenses in fiscal year 1997.
Approximately $100,000 of the European expense was due to the operations of an
office in Vienna which management closed in September 1998.
Research and Development Expenses. Research and development expenses were
$314,000 in fiscal year 1998 compared to $216,000 in fiscal year 1997. This
$98,000 increase was due primarily to increased salaries and benefits and
experimental parts and supplies.
Marketing Expenses. Marketing expenses were $1,443,910 in fiscal year 1998
compared to $1,200,910 in fiscal year 1997. Almost 49% of this $243,000 increase
was due to expenses related to our printing of ads, brochures and catalogs.
Approximately 23% of the increase was due to increased advertising expenses and
the balance of the increase was split primarily between increased telephone and
show expenses.
Administrative Expenses. Administrative expenses were $3,603,250 in fiscal year
1998 compared to $2,807,653 in fiscal year 1997. Approximately 61.4%of this
$796,000 increase was due to increases in personnel, salaries, bonuses and
related benefits and taxes.
Interest Expense
Interest expense for fiscal year 1998 was $231,747, an increase of
$156,061 from 1997. This increase is due to interest on a $3.5 million line of
credit from DuBois County Bank. We used a major portion of the proceeds from
this line of credit to repurchase preferred stock in the amount of $2,546,320.
This credit line is discussed in more detail below in "Liquidity and Capital
Resources."
Operating Income
Operating income for fiscal year 1998 was $2,428,463 compared to operating
income of $2,111,353 in 1997. The increase in operating income in 1998 over 1997
resulted primarily from increased sales. The European operations had an
operating loss of $356,644 for fiscal year 1998 compared to $195,971 for 1997.
Fiscal year 1998 net earnings were $1,317,886, compared to net earnings of
$1,235,824 in 1997. Income tax expense for fiscal year 1998 was $848,000
compared to $819,000 for fiscal year 1997.
We have income tax net operating loss carryforwards of approximately
$529,000, which expire in the years 2008 and 2009. In addition, we have other
tax credits of lesser value which appear in Note I to our Consolidated Financial
Statements.
Liquidity and Capital Resources
At October 31, 1998, our working capital was $5,567,615, as compared to
$5,324,458 at July 31, 1998 and $5,080,310 at July 31, 1997. The increase in
working capital from July 31, 1998 to October 31, 1998 was due to cash generated
from operations. Backlog at October 31, 1998 was approximately $2,521,000 or
$500,000 lower than the $3,029,000 backlog at July 31, 1998.
At July 31, 1998, inventories had increased approximately $800,000 as
compared to July 31, 1997, due to increased in-house processing of components;
however, accounts receivable decreased from July 31, 1997 primarily due to lower
sales in July 1998 compared to July 1997. Cash also decreased approximately
$400,000 and was used primarily to pay accounts payable and other liabilities.
We had a positive cash flow from operating activities for the 1998 fiscal
year in the amount of $1,222,952. Net earnings of $1,317,886, along with the add
back of other non-cash expenses such as depreciation and amortization of
$368,261, and a decrease in accounts receivable contributed to a positive cash
flow for the 1998 year. However, an increase in inventories and payments of
accounts payable and other liabilities used cash resources. During the first
quarter of 1999, we had positive cash flow of $149,981. Net earnings of $218,695
plus depreciation and amortization
-33-
<PAGE> 36
of $103,570 contributed to the positive cash flow for the quarter. Cash used by
operating activities during this quarter increased by $373,098 for increases in
accounts receivable and $271,803 for increases in inventories.
During the 1998 fiscal year, our investing activities consisted primarily
of a 20,000 square foot addition to the production area and additional machinery
purchased to increase efficiency and capacity. Expenditures for fixed assets
during the first quarter of fiscal 1999 consisted of normal replacements and
purchases of labor-saving equipment for production. We anticipate that
expenditures for the remainder of the 1999 fiscal year will be consistent with
expenditures during the first quarter of fiscal 1999.
Shareholders' equity increased from $5,948,100 at July 31, 1998 to
$6,230,910 at October 31, 1998. A total of 13,600 shares of common stock at a
price of $5.00 per share were converted from the outstanding convertible
debentures during the quarter ended October 31, 1998 for an increase to
shareholders' equity in the amount of $63,758, net of discount and issuance
costs. During fiscal years 1998 and 1997, respectively, a total of 24,000 and
92,400 shares at a price of $5 per share were converted from the outstanding
convertible debentures to increase shareholders' equity by $108,351 and
$408,881, net of discount and issuance costs.
During fiscal year 1998, cash flows from financing activities included
$43,255 for dividend payments on preferred stock and redemption of $2,546,320 of
preferred stock.
We have a $3,500,000 revolving secured line of credit with DuBois County
Bank that expires on January 1, 2000. We entered into this line of credit in
October 1997 and used proceeds from this line to redeem our preferred stock from
Edgar Mulzer. For a description of this transaction, see "Certain Relationships
and Related Transactions- Transactions with Edgar Mulzer." The outstanding
balance on this credit line bears interest at a variable rate equal to the money
market prime index. Interest is payable monthly. Principal and all unpaid and
accrued interest is due and payable on January 1, 2000. We anticipate, but
cannot assure, that, at the end of the term, we will enter into a new credit
line with the bank and transfer any outstanding loan balance to the new credit
line. The credit line is secured by our assets. In the event of a default, as
defined in the credit line, the bank has the right to accelerate payments under
the credit line and take possession and sell the collateral. Events of default
under the credit line include:
o our failure to make any payments under the line when due;
o our failure to comply with conditions in the line;
o false or misleading representations by us in the line;
o our insolvency or certain other events related to insolvency or
bankruptcy; and
o materially adverse changes in our financial condition.
As of February 15, 1999, our outstanding principal balance under the credit line
was approximately $2,196,320.
Assessment of the Adequacy Of Our Capital Resources
If sales and backlog continue at the present rate, there could be
significant decreases in working capital over the next 12 months. Although we
are in the process of completing our financial statements for the second quarter
of fiscal year 1999, we have noticed a general slow down. We cannot predict
whether this slow down will continue. At January 1, 1999, inventory had
decreased by approximately $400,000 from July 31, 1998. However, accounts
payable had increased by approximately $400,000, primarily due to slower
payments made on accounts. While this results in an $800,000 increase to cash
flow, there is an $800,000 decrease in working capital. Additional interest as a
result of the issuance of the debentures would result in an extra $156,000, net
of 37% tax rate, decrease in cash flow and working capital per quarter -
$600,000 per year.
We believe that we will be able to meet our cash flow requirements,
including debt service on the debentures, if our operations continue at current
levels. However, in the event that there is a downturn in our business, we
believe that we will be able to meet our needs by taking one or more of the
following measures:
o decreasing the amount of funds allocated to research and
development;
o cutting back on our European operations; or
o lowering management compensation in accordance with our bonus
compensation program, pursuant to which a major component of
management compensation is directly a function of how well we do.
If one or more of these measures was insufficient, we would seek to borrow
additional funds or raise capital through the sale of additional equity or debt
securities.
Effects of the Exchange Offer
Assuming we acquire 750,000 shares and issue approximately $8,250,000
aggregate face amount of debentures, on a pro forma basis as of October 31,
1998, we would realize increases in current liabilities of approximately
$480,000 and in long-term liabilities of approximately $4,651,000, due to the
issuance of the
-34-
<PAGE> 37
debentures. This estimate assumes a discounted effective interest rate of 22%
rather than the stated 12% interest rate and the related increase in accrued
expenses, net of income taxes. Shareholders' equity would decrease by
approximately $4,651,000 and the per share book value would decrease from $4.31
per share to approximately $2.27 per share. Interest expense for the quarter
ended October 31, 1998 would increase by approximately $256,000 and net earnings
would decrease by approximately $161,000.
Recent Accounting Pronouncements
In June of 1997, the Financial Accounting Standards Board issued
Statements of Financial Accounting Standards, No. 130, Reporting Comprehensive
Income, and No. 131, Disclosures About Segments of an Enterprise and Related
Information, effective for years beginning after December 15, 1997. In February
1998, FASB issued Statement of Financial Accounting Standards, No. 132,
Employers' Disclosures about Pensions and Other Postretirement Benefits,
effective for years beginning after December 15, 1997. FAS 130 establishes
standards for reporting and display of comprehensive income and its components
in a full set of general-purpose financial statements. FAS 131 establishes
standards for reporting information about operating segments and the methods by
which such segments were determined. FAS 132 establishes standards for reporting
disclosures about pensions and postretirement benefit plans.
In August 1998, we adopted FAS 130, FAS 131 and FAS 132; however, the
adoption has not had a material effect on our consolidated financial statements.
Year 2000 Issues.
Our failure to adequately prepare our computers and software to be year
2000 compliant could disrupt our business and materially and adversely affect
our operations. Many currently installed computer systems and software products
use two digits rather than four to define the applicable year. In other words,
date-sensitive software may recognize a date using "00" as the year 1900 rather
than the year 2000. This could result in system failures or miscalculations
causing disruptions of operations, including, among other things, a temporary
inability to track inventory, issue purchase orders, write checks or engage in
similar normal business activities.
During the fiscal year ended July 31, 1998, we began a risk evaluation of
potential Year 2000 issues and formed a Year 2000 Committee which consists of
the Chief Executive Officer, Vice-President of Engineering, Information Systems
Manager and two other employees. The committee's purpose is to assess all risks,
analyze current systems, including all information technology and
non-information technology systems, coordinate upgrades and replacements and
report the current and projected status of all known Year 2000 compliance
issues.
During the assessment phase, we identified computer-related systems and
software vendors with potential Year 2000 problems. In the first quarter of
fiscal 1999, we began corresponding with the vendors that had not supplied Year
2000 statements, requesting the Year 2000 compliance status of their products.
Responses received to date from vendors have not indicated any Year 2000
problems. We know of alternative vendors should our current vendors fail to
perform due to Year 2000 problems; however, use of some of these vendors would
be inconvenient and could be costly. Moreover, we have not contacted these
alternate vendors to determine whether they are Year 2000 compliant.
As a precaution, we plan to stock up additional inventory from our
non-U.S. vendors prior to the beginning of the year 2000.
We know of one mission-critical system, the inventory shop floor control
software, that is not Year 2000 compliant. This software tracks incoming orders,
inventory levels, material requirements planning, shop floor control, labor
tracking, shipping and administrative an financial tracking functions. Although,
this system has a Year 2000 certified replacement product, implementation of
this replacement product would require us to re-input all current data. As a
result, we have decided to purchase a different system that is Year 2000
compliant and, in our judgment, superior to the current system we are using. We
anticipate that the new system will arrive during March 1999, at which time we
will begin to input current data. We are currently installing upgrades to the
non-mission critical systems and should complete the upgrades by the beginning
of July 1999.
We estimate that the replacement or remedial costs for our Year 2000
compliance issues will be less than $150,000 and will consist of software and
hardware upgrades that include new features which are combined with Year 2000
corrections. These costs will be expensed as incurred or capitalized and
depreciated, as appropriate.
We have tested the machine control systems and related computer software,
which we sell and we believe that such equipment is Year 2000 compliant.
We estimate that the worst case Year 2000 issue scenario would occur if
the new inventory shop floor control software is not Year 2000 compliant. At
that point, we would look to alternative vendors. We believe that there are a
number of alternate vendors that claim to have year 2000 compliant software. In
the event that we are unable to
-35-
<PAGE> 38
integrate year 2000 compliant software from any of these vendors, we would be
forced to hire additional staff and return to manual methods of tracking
inventory and purchasing raw materials. We believe that we could implement this
contingency plan within a short period of time. However, until such time as this
contingency plan took effect, our ability to manufacture might be materially
disrupted. In addition, during the time that we were required to operate under
this plan, our results of operations would be adversely affected primarily due
to the resulting
O increased administrative expense, and
O higher raw materials inventory levels that would be needed to assure
that we have sufficient raw materials to avoid disruption of
production.
-36-
<PAGE> 39
BUSINESS
General
We manufacture computer-based systems and equipment for the woodworking
and plastics industries. We have developed and produce, market and service the
following systems and equipment:
O computer-controlled routing machines that perform high speed
machining, trimming and routing functions on wood, plastic and
certain non-ferrous metals;
O wood carving computer controlled routing systems; and
O products that support the above machines including programming
software and hardware, training tapes, tooling, fixtures and other
consumable items.
Our industrial products perform certain production functions or automate
specific tasks accomplished in factories. These products are used in a variety
of manufacturing operations. For instance, the computer-controlled routing
machines are primarily employed to cut or machine materials such as wood,
plastic and non-ferrous metal into final shape. The wood carving computer
controlled routing systems carve wood components such as chair legs and bed
posts used in furniture manufacturing.
Industry Background
Flexible Automation
Prior to the availability of microprocessor-based machinery control
systems, there were only two alternatives to automating the industrial process:
a manual operation using humans to manipulate tools; or hard automation
employing dedicated automatic machinery. High initial cost and limited
flexibility have made hard automation suitable only for applications involving
large volumes of identical parts. Smaller volumes of parts were traditionally
produced by using human labor, hand tools or machine tools operated manually.
In today's marketplace, competitive pressures demand a greater variety of
products. Due to demographic and economic factors, neither hard automation nor
manual labor appears to be a feasible means of meeting this manufacturing
requirement.
The gap between hard automation and manual labor is currently being filled
by a variety of flexible automation equipment. This equipment is often better
suited to small and medium volumes of parts and is usually designed to perform a
number of tasks utilizing the same computer-controlled machine.
Flexible automation equipment is manufactured in a variety of forms and
addresses a number of applications. Specific markets have developed for certain
classes of equipment with a number of vendors offering products in each of these
niche markets. Many vendors, including Thermwood, build products that service
several of the markets.
Flexible automation equipment is more economically feasible during times
when increased production capacity is required or when older, obsolete or
otherwise less competitive equipment is being replaced. Accordingly, demand for
this equipment usually increases during periods of economic growth and decreases
during periods of economic recession.
Products
Computer-Controlled Routers
Our computer-controlled routers are high-speed computer controlled, fully
automatic machining centers. These centers are designed to perform a variety of
tasks such as
O routing and shaping wood parts,
O trimming of three dimensional plastic parts,
O machining of aluminum honeycomb,
O drilling and high speed machining of aluminum both vertically and
horizontally,
O mortising, which is cutting square holes in furniture, and
O sawing and squaring, which is cutting inside square corners.
They generally operate over larger table areas and at higher speeds than do
conventional machine tools but cannot machine the heavy materials and large
cross sections that standard metalworking machine tools are capable of doing.
-37-
<PAGE> 40
These systems utilize our proprietary SuperControl system and consist of
one or more high speed cutting, drilling or machining heads and related tooling
which move around a table under computer control to perform programmed
operations. There are two basic types of systems; one where the table is fixed
and the cutting heads move both left and right and back and forth, and the other
where the table moves back and forth and the cutting heads move only left and
right. Both systems permit the heads to reach all points on the table. Cutting
is accomplished by metal bits, drills and blades. Additional motions or axes,
which permit the head to both pivot and rotate, can be installed, thereby making
three-dimensional cuts. Multiple and varying cutting and drilling heads can be
added, allowing a number of different machining operations to be accomplished in
a single cycle or multiple parts to be machined simultaneously.
Currently we market six standard computer-controlled router systems of
varying sizes and capabilities that are generally offered as standard designs.
Because a number of table sizes, configurations, tooling and other options are
available, most of these designs are combinations of standard components rather
than totally new designs.
The computer-controlled router systems are utilized principally in the
woodworking, plastics, boating and automotive industries. Current prices to end
users range from approximately $39,000 to over $200,000 per system. The average
price of a standard system is approximately $100,000. Sales of the
computer-controlled router systems were approximately 79% of our total net sales
in fiscal year 1998.
Robotics Systems
During fiscal year 1996, we developed a wood carving routing system which
has replaced the older Wood Carving Robot. The new system uses automatic tracers
to create the carving program, eliminating the need for an experienced wood
carver. In addition, the new system is faster and automatically changes tools.
The old system required manual changing and adjustment of tools. Retail prices
for the wood carving router are approximately $150,000. Sales of the new system
were approximately 3% of total net sales for the 1998 fiscal year.
Probe
During fiscal year ended July 31, 1996, we introduced a new five-axis
probe system which significantly reduces the time required to program machining
of three-dimensional plastic parts. We have obtained patents involving the
technology underlying this new probe system. This product is also being offered
for use on machines built by our competitors, provided their control systems are
upgraded to our 91000 SuperControl. The probe sells for approximately $15,000.
During fiscal 1998, we sold 63 probe units, most of which were sold in a package
of products rather than as a separate item. The average sales price for a probe
is $15,000. If the probes had been sold separately, probe sales would have
totaled approximately $945,000, or 4% of net sales.
Tooling
During fiscal year 1997, we introduced new tooling for our woodworking
line of computer-controlled routers. This new tooling includes a low-cost
piggyback router and a low-cost 8-position turret. These products are priced at
approximately $5,000 for the piggyback router and $12,000 for the turret. Sales
of these products, inclusive of tooling sold in a package of products, in fiscal
year 1998 were approximately $570,000 or 2.6% of net sales. We hope that these
new offerings will allow our machines to penetrate new markets, however, no
assurance to this effect can be given.
SuperControl Systems
We design and manufacture our own computer-controlled systems that we use
for sale with our own automated industrial equipment. We currently manufacture
and sell version 91000 of the SuperControl computer-controlled system. The
SuperControl computer-controlled system operates the various movements of the
equipment in response to programs developed by the operator.
Marketing
The market for computer-controlled routers can be divided into a large
number of applications in a variety of industries. We seek to produce industrial
products that address specific applications in a variety of industries. We also
attempt to provide standard systems that require little or no engineering input
from the end user. These 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.
Our systems are currently designed to operate at higher quality and
reliability levels than earlier versions of these products. In addition, we
strive to support these systems with improved technical services and assistance.
Although our marketing strategy has involved emphasis on small to medium-sized
companies, we also have received orders from larger companies.
-38-
<PAGE> 41
We generally sell our products through the assistance of dealer networks
established throughout North America and Europe. Dealers assist us in making
sales and are paid on a commission basis for this service. Commissions generally
range from 15% to 20% of our published retail prices. As of February 15, 1999 we
had 14 authorized dealers marketing our industrial products. We usually require
each dealer to execute a non-exclusive written agreement. A dealer is required
to sell one machine within each six-month period in order to retain its
dealership. Most dealers concentrate their sales efforts in specific
geographical areas and in particular industries such as woodworking or plastics,
and sell only one of our product lines. However, some market and sell products
to more than one industry and sell both the computer-controlled router systems
and our line of wood carving routers.
One dealer, Automation Associates Incorporated, accounted for
approximately 21% of our sales for the fiscal year ended July 31, 1998. See
"Certain Relationships and Related Transactions" for information relating to our
agreement with Automation Associates Incorporated, a corporation owned by
Kenneth and Linda Susnjara, two of our executive officers, directors and
principal shareholders. This dealer sold to 39 different customers, none of
which accounted for 10% or more of our sales in the fiscal year ended July 31,
1998. Automation Associates Incorporated sold to seven customers for a total of
13% of our sales during the first quarter of fiscal 1999.
One other dealer, CNC Automation, accounted for approximately 11% of our
business during the 1998 fiscal year. This dealer sold to 19 different
customers, none of which accounted for 10% or more of our sales in the fiscal
year ended July 31, 1998. No other dealer accounted for 10% or more of our
business for the fiscal year. The loss of any large dealer could have a
materially adverse effect on our business. Three dealers accounted for more than
10% each of our sales during the quarter ended October 31, 1998. CNC Automation
accounted for 15% of our business during this quarter while Index, Inc. and
Programmed Productivity, Inc. each accounted for 16% of our sales. CNC
Automation sold seven machines, Index sold five and Programmed Productivity sold
eight machines during this time.
We have a wholly-owned subsidiary, Carolina CNC, Inc., a North Carolina
corporation, which conducts sales in the southeastern region of the United
States.
We also have a wholly-owned subsidiary, Thermwood (Europe) Limited, a
United Kingdom company, which operates a sales office in England for conducting
sales to the European Community. We had an office in Vienna which we closed in
September 1998. During the 1998 fiscal year, we had an operating loss of
$356,644 in connection with our European operations. Neither of the foreign
sales offices generated a profit. Sales of machines and services in fiscal year
1998 were approximately $1,735,000, or 8% of total sales.
Typically, we seek to develop sales leads through advertising in trade
magazines and product exhibitions at selected trade shows. We then furnish such
leads to dealers in the geographic area where the potential customer is located.
We also supply the dealers with promotional materials and sales aids, including
product literature, a dealer's manual, news letters, press releases and
advertising, technical briefs, sales incentive programs and video tapes of
product demonstrations. We assist our dealers by providing training for them and
their customers. We encourage trainees and potential customers to visit our
manufacturing facilities where we maintain areas and machinery to demonstrate
the operation and use of our products.
Technical Services
We believe that providing extensive and ongoing technical services to
customers is essential for the success of small and medium-sized companies.
Accordingly, we offer a variety of technical services through our Technical
Services Division. These services include training, installation assistance,
preventive maintenance and upgrading and enhancement of installed products as
technology advances. Technical services are marketed to current customers as
well as to companies that purchase our equipment in the used market. Sales and
service by the Technical Services Division in fiscal year 1998 and the first
quarter of fiscal year 1999 accounted for approximately 19% and 21%,
respectively, of total sales. A toll-free service line is maintained for the use
of all owners of our equipment.
The Technical Services Division offers customers an Advanced Support
Program for our computer-controlled routers. Under this program, in exchange for
a monthly fee, customers receive an ongoing labor warranty, a 20% discount on
spare parts and upgrades, an ongoing material warranty on control system
components and annual software updates. As of February 15, 1999, there were 16
customers participating in this program. We have incurred no significant
expenses or problems in servicing our products.
Product Development
Much of our product development effort during the last two years has been
directed toward developing a variety of cutting and machining heads for use on
our computer-controlled router line of equipment. Cutting and machining heads
are rotating motors that drive different types of tools, bits and blades that
machine and cut the products. By broadening the capability of the equipment, we
-39-
<PAGE> 42
hope to increase the size of our market. In addition, we have an ongoing program
to reduce the manufacturing costs of or products and pass these reductions on to
customers in the form of price decreases.
Our entire computer-controlled router line now has the capability of
performing three-dimensional woodcarving. The resulting system produces carved
wood components at a three to ten times faster production rate than our
previously marketed carving robot product. Sales of the three-dimensional
carving robot in fiscal year ended July 31, 1998 amounted to approximately
$540,000 or 3% of machine sales. Sales of the three-dimensional carving robot
amounted to approximately $333,000 or 7% of machine sales during the first
quarter of fiscal 1999.
We have continued development on our 91000 SuperControl, an updated
version of the computer-controlled control systems formerly used on our
equipment. We have completed the basic system development and are now selling
and shipping this control on our equipment. Current efforts are being directed
toward adding certain high-end features and capabilities, including:
O a service guide, which keeps track of the operation of the machines
and notifies the user when maintenance is required;
O manual with a searchmode which allows the user to quickly find
information on any subject;
O maintenance videos; and
O a VHS player and a close up camera to permit customers to record
their set up and operations.
In the first quarter of fiscal 1999, we added a 4 foot by 8 foot table
version of our Model 40 computer-controlled router. The Model 40 is a single
moving table, low cost system. The new table size offers customers that require
a longer table a lower cost alternative to either our Model 53, a single fixed
table computer-controlled router, or certain competitive machines. We also added
a single 5 foot by 10 foot table version of our Model 42 router, which normally
has two five foot by five foot tables.
We are conducting ongoing research to improve the speed at which the
machines operate and the qualify of the products that it makes.
At a trade show in August 1998, we introduced the woodworking industry to
the concept of manufacturing an entire piece of furniture using a single
machine. Although this concept generated strong interest, we have yet to sell a
system for this application . We believe that it may require several years for
this concept to become accepted, if ever.
Customers
Although we have sold our industrial products to large corporations which
have annual sales approximating or exceeding $1 billion, our primary customer
base is composed of small to medium-sized manufacturers that have annual sales
ranging from approximately $10 million to approximately $500 million located
throughout the United States. No customer accounted for more than 10% of our
sales in the fiscal year ended July 31, 1998 or the first quarter of fiscal
1999.
We generally require a purchaser of industrial products to pay 30% of the
sales price when placing the order, an additional 40% prior to shipment and the
balance within 30 days after date of invoice. Charges for technical services and
spare parts are due within 30 days after billing.
We offer our customers a limited warranty of one year for parts and labor.
Under the warranty, the customer must pay travel costs and expenses for labor.
As described above, we also offers an Advanced Support Program for our products.
We also provide training and installation services. See "--Technical Services"
above.
Backlog
As of July 31, 1998, our backlog was approximately $3,029,000 compared
with a backlog of $4,080,000 as of July 31, 1997. Substantially all of this
backlog was manufactured and delivered prior to January 31, 1999. Backlog at
October 31, 1998 was $2,521,000, a decrease of approximately $500,000 from July
31, 1998.
Backlog figures generally include only written orders from customers which
we believe are firm and will be shipped within eight to 12 weeks. Approximately
90% of the backlog is covered by down payments from customers ranging from 25%
to 30%. On orders where down payments have not been required, we have obtained
irrevocable letters of credit for payment upon proof of shipment.
Because of the possibility of customer changes in delivery schedules or
cancellation of orders, our backlog as of any particular date may not be
indicative of actual revenues for any subsequent period.
-40-
<PAGE> 43
Manufacturing and Production
We maintain our manufacturing facilities in Dale, Indiana. See "--Property
and Facilities" below. We manufacture our products on a batch rather than a
continuous flow or conventional production line basis. Except for demonstration
models, we generally do not manufacture products without a purchase order
although, in order to expedite the manufacturing process, certain basic parts of
machines may be fabricated before purchase orders are received. The major
portion of inventory is purchased to satisfy specific customer orders with the
balance acquired from one to four months in advance of projected orders.
We design, develop and engineer all of our industrial products. Components
contained in these products are either purchased from outside suppliers or
fabricated by our personnel. We fabricate such components as computer-based
electronic control systems and the steel structure of the computer-controlled
router systems. Where possible, we utilize our computer-controlled router
systems and 91000 Control systems operating conventional metalworking machine
tools to fabricate components.
During fiscal year 1997, we purchased two used pieces of equipment which
we retrofitted with the 91000 Control system for use in fabricating components
which were previously custom made for us. These purchases saved us approximately
$250,000 during fiscal year 1998 in labor and material costs.
We purchase raw materials from third party sources. Most raw materials and
components, including those that are custom made for us, are either purchased or
available from several sources. One supplier accounted for approximately 19% of
total components purchased by us for the fiscal year ended July 31, 1998. The
materials purchased from this supplier are available from several other sources.
There has been no material change during the first quarter of fiscal year 1999.
The raw materials purchased from the above mentioned supplier are expected to
continue at approximately the same rate for the 1999 fiscal year, and purchases
made during the first quarter were consistent with the 1998 numbers.
Competition
There are many manufacturers of computer-controlled routers in the United
States and abroad, particularly in Japan and Europe. A number of these
manufacturers are larger, better financed and have more resources than
Thermwood.
Our primary competitors in the high speed machining market include a
number of major domestic, Japanese and European firms such as Shoda Iron Works,
Heian, Shinks Machinery Works, Accurouter, Motionmaster and Komo Machine. In
addition, there are a large number of companies offering routing equipment, and
it is our opinion that the market cannot support all of them. We believe,
however, that our ability to offer products that perform a variety of functions
and sell at low prices provides us with a competitive advantage.
Competition in computer-controlled routers is based upon real and
perceived differences in equipment features, price, performance, reliability,
service, marketing, financial strength and product development capability. We
may be at a competitive disadvantage with those manufacturers that offer a
broader line of equipment or related supplies.
Research and Development
We plan to continue our research and development efforts primarily
directed toward the improvement of existing products, development of new
products or product enhancements and reduction in manufacturing costs. We
utilize a variety of sources in our research and development efforts, including
employees, vendor-engineering staffs, contract employees who are retained solely
for specific projects, consultants and independent design firms. See "--Product
Development" above for information relating to our current development efforts.
We have spent the following amounts on research and development during the
periods indicated:
<TABLE>
<S> <C>
Fiscal ended July 31, 1998 $314,000
Fiscal ended July 31, 1997 $216,000
Quarter ended October 31, 1998 $155,676
Quarter ended October 31, 1997 $ 81,060
</TABLE>
There was no customer-sponsored research and development during the 1998
fiscal year. We believe that expenditures need to be increased for us to
maintain a competitive position in the immediate future. To this end, research
and development expenditures increased by approximately 45% from fiscal year
1997 to fiscal year 1998, and by approximately 92% from the first quarter of
fiscal year 1998 to the first quarter of fiscal year 1999. However, we
eventually may be at a competitive disadvantage with respect to firms that spend
significantly more on research and development efforts than we do.
-41-
<PAGE> 44
Patents, Trade Secrets and Trademarks
We currently hold 25 domestic patents which expire at various times
between 2000 and 2016 and have applications pending in the United States for 14
additional patents. There is no assurance that any additional patents will be
granted. We do not believe that major reliance can be placed on patents for the
protection of our products although patent protection for our newly developed
products is increasing. Similarly, we do not believe that the loss of our
patents would have a materially adverse effect on our business.
We rely primarily upon trade secret laws, internal non-disclosure
safeguards and restrictions incorporated into our dealership, sales, employment
and other agreements to protect our proprietary property and information. In
addition, we have proprietary rights arrangements with our employees that
provide for the disclosure and assignment by any of our employees of any
discovery, invention or improvement relating to our business. While we are
unaware of any breach of our security, competitors may develop similar products
outside the protection of any measures that we take. In addition, policing
unauthorized use of our technology, particularly in foreign countries, may be
difficult. We have been unsuccessful in prosecuting two claims in the United
States for what we believed were prospective unauthorized use of proprietary
rights. We have not been involved in any claims concerning patent infringement.
We market our products under various trademarks, including THERMWOOD,
CARTESIAN 5, 91000 SUPERCONTROL, ROUTER ART and PANEL-CAD. We have three
trademark registrations and one application for registration in the United
States. We also have two foreign trademark registrations and applications for
seven foreign registrations.
Employees
As of February 15, 1999, we had approximately 139 full time employees, of
whom 76 were engaged in manufacturing, 16 in marketing, 14 in administration,
ten in engineering, seven in research and development, and 16 in technical
services. None of our employees is a member of any union or collective
bargaining organization. We consider our relationship with our employees to be
satisfactory.
Designing and manufacturing our industrial equipment requires substantial
technical capabilities in many varied disciplines, ranging from mechanics and
computer sciences to mathematics. Although we believe that the capability and
experience of our technical staff compare favorably with other similar
manufacturers, there is no assurance that we can retain existing employees or
attract and hire the type of skilled employees we may need in the future.
Properties
Our manufacturing facilities and executive offices are located in a
100,000 square foot building in Dale, Indiana which had been leased from Edgar
Mulzer, a director and major shareholder of Thermwood. In November 1993, we
entered into an agreement with Mr. Mulzer to convert the obligation under the
lease, as well as other long-term debt amounts owed to Mr. Mulzer, into shares
of our series A preferred stock. In fiscal year 1998, we repurchased the
preferred stock with proceeds from a line of credit from a bank resulting in
transfer of ownership of the land and building to Thermwood. This line of credit
also made it possible to increase the original approximately 75,000 square feet
of the building to the current 100,000 square feet. We believe that these
facilities are in good condition and adequately satisfy our current
requirements. See "Certain Relationships and Related Transactions."
Legal Proceedings
On January 21, 1999, one of our shareholders filed a class action lawsuit
against Thermwood and its directors. The suit seeks to enjoin the consummation
of the exchange offer or, alternatively, in the event the exchange offer is
consummated, to recover compensatory damages. The complaint alleges that the
original terms of our exchange offer, which included a plan to eventually delist
our shares from the American and Pacific Stock Exchanges are unfair to the
shareholders and that the directors of Thermwood have violated their fiduciary
duty in the course of pursuing those transactions. We plan vigorously to defend
the action and to proceed with the exchange offer. However, if we determine that
the proceeding might materially impair our ability to proceed with the exchange
offer or materially impair the contemplated benefits of the exchange offer to
us, then we may terminate the exchange offer. It is impossible at this time for
us to predict the outcome of this pending litigation or its impact on our
operations or financial condition.
-42-
<PAGE> 45
WHERE YOU CAN FIND MORE INFORMATION
We filed a registration statement on Form S-4 with the SEC, with respect
to the registration of the debentures offered by this prospectus. This
prospectus does not contain all of the information set forth in such
registration statement and the exhibits thereto. For further information
pertaining to Thermwood, the exchange offer, the debentures offered by this
prospectus and related matters, you should review the registration statement,
including the exhibits filed as a part thereof. Each statement in this
prospectus referring to a document filed as an exhibit to the registration
statement is qualified by reference to the exhibit for a complete statement of
its terms and conditions.
We file annual, quarterly, and special reports, proxy statements, and
other information with the SEC. You may read and copy any reports, statements
and other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the operations of the Public Reference Room. Our SEC
filings are also available on the SEC's Internet site which is
http://www.sec.gov.
You should rely only on the information contained in this prospectus or
that we have referred you to. We have not authorized anyone to provide you with
information that is different. We are not offering to sell or asking you to buy
anything other than the debentures.
The information in this prospectus is accurate as of the date on the front
cover. You should not assume that the information contained in this prospectus
is accurate as of any other date.
-43-
<PAGE> 46
MANAGEMENT
Information About Management
Current Management of Thermwood is as follows:
<TABLE>
<CAPTION>
Name Age Position
<S> <C> <C>
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 L. Uebelhor 41 Vice-President of Manufacturing
Peter N. Lalos(2) 64 Director
Edgar Mulzer(2) 80 Director
Lee Ray Olinger(2) 71 Director
</TABLE>
- ----------
(1) Mr. and Mrs. Susnjara are husband and wife.
(2) Member of the Incentive Stock Option Committee, Non-Qualified Stock Option
Committee, Audit Committee, Nominating Committee and Compensation Committee of
the Board of Directors.
All directors hold office until the next annual meeting of our
shareholders or until their successors have been elected and qualified. Officers
serve at the discretion of the Board of Directors. Each director receives
compensation in the amount of $1,000 plus $100 for each $100,000 in profit for
the previous quarter for attending each of the four directors' meetings and is
reimbursed for all related expenses.
Mr. Susnjara co-founded Thermwood 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 Thermwood's business except for a brief
period in 1985 when he acted as a distributor for Thermwood. See "Certain
Relationships and Related Transactions."
Mrs. Susnjara has been a director of Thermwood since 1985 and Secretary
since 1989. She is and has been since 1985 the President of Automation
Associates Incorporated, a dealer of our industrial products. See "Certain
Relationships and Related Transactions." Mrs. Susnjara is not active in
Thermwood's business.
Mr. Hardesty has been our Vice President of Engineering since August 1988.
He joined us 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.
Mrs. Fuller joined us 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 Thermwood in August, 1988.
Previously, we had employed him in various technician and sales manager
positions since 1977. He has also been a director of Thermwood Europe Ltd., one
of our wholly owned subsidiaries, since July 1996.
Mr. Uebelhor became Vice-President of Manufacturing in August 1997.
Previously, he had been our Production Manager since 1993.
-44-
<PAGE> 47
Mr. Kasten became a Vice President in December 1993. Previously, we had
employed him as a manager of applications since 1990.
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 Thermwood 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. He is currently retired. He
became a director of Thermwood in September 1974 and has served continuously in
that capacity to the present. See "Certain Relationships and Related
Transactions" for information relating to loan and lease transactions between us
and Mr. Mulzer and his affiliates.
Mr. Olinger has been a director since December 1989. He has been a
director of the First Bank of Huntingburg, a commercial bank in Huntingburg,
Indiana since 1949 and Chairman of the bank since 1986.
Executive Compensation
The following table sets forth the annual remuneration paid during the
fiscal years ended July 31, 1998, 1997 and 1996 to our Chief Executive Officer
and to each of our executive officers whose total fiscal year 1998 remuneration
exceeded $100,000 and to all of our officers as a group.
Summary Compensation Table
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Annual compensation
----------------------------------
Other annual
Name and principal position Year Salary Bonus Compensation
(1)
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Kenneth J. Susnjara, 1998 $108,000 $146,664 $6,400
Chairman of the Board, 1997 63,000 83,242 3,700
President and Director 1996 63,000 94,739 2,000
Michael Hardesty, 1998 48,000 100,565 --
Vice-President Engineering 1997 48,000 102,165 --
1996 48,000 58,269 --
David Hildenbrand 1998 45,000 122,239 --
Vice-President Sales 1997 45,000 116,779 --
1996 45,000 56,818 --
Rebecca Fuller, Treasurer 1998 40,000 86,199 --
1997 40,000 87,570
- ------------------------------------------------------------------------
</TABLE>
(1) Other annual compensation represents directors' fees paid to Mr. Susnjara.
Stock options for an additional 4,000 shares were issued to an officer of
Thermwood under the Qualified Stock Option Plan in fiscal year 1998. At February
15, 1999, the exercise prices of some of the unexercised options were less than
the market price of our common stock. On September 6, 1994, registration
statements on Form S-8 were filed with the SEC under the Securities Act in
connection with the registration of shares of our common stock under our
Employee Incentive Stock Option Plan and Non-Qualified Stock Option Plan.
In 1985 the Board of Directors appointed Mr. Susnjara to the position of
President and Chief Executive Officer. In this position, he is to receive a
bonus based on our pre-tax profits as set forth below. See "--Profit Sharing
Plan" below.
Certain other officers may be entitled to participate in Thermwood's
profit sharing plan. See "--Profit Sharing Plan" below.
-45-
<PAGE> 48
Profit Sharing Plan.
In 1985, we instituted a management profit sharing plan. This plan has
been operative since fiscal 1987, and was continued in an amended form for
fiscal year 1998. Covered under the plan are the Chairman of its Board of
Directors, the President, Vice President of Engineering, Vice President of
Sales, Vice President of Technical Services, the Treasurer and various
departmental managers.
Under the plan, the Chairman is entitled to 5% of corporate operating
income. The Vice President of Sales and Vice President of Technical Services
each are entitled to 5% of the divisional operating income. The Vice-President
of Manufacturing and the Treasurer are each entitled to receive 2% and 3%,
respectively, of the corporate operating income. Any divisional losses are to be
subtracted from these amounts so that the total bonus paid does not exceed 25%
of operating income.
Department managers are entitled to various bonuses based upon
productivity of their departments. Payments due under the plan accrue for each
six-month period and are thereafter paid in six monthly installments. Vesting of
rights under the plan requires eligible participants to be continually employed
through the payment dates. Divisional losses of the fiscal year must be recouped
in the succeeding year, or years, in order to be eligible for profit sharing
earnings in the succeeding year(s).
Incentive Stock Option Plan.
Under our Employee Incentive Stock Option Qualified Plan, options to
purchase a maximum of 80,000 shares of its common stock may be granted to
officers and other key employees of Thermwood. Options granted under the
Qualified Plan are intended to qualify as incentive stock options as defined in
Section 422A of the Code.
The Qualified Plan is administered by the Board of Directors and a
Committee currently consisting of three members of the Board which determines
which persons are to receive options, the number of shares that may be purchased
under each option and the exercise price. In the event an optionee voluntarily
terminates his employment with us, he has the right to exercise his accrued
options within 30 days after such termination. However, we may redeem any
accrued options held by each optionee by paying him the difference between the
option price and the then fair market value. If an optionee's employment is
involuntarily terminated, other than because of death, his/her right to exercise
accrued options expires on such termination. Upon death, his/her estate or heirs
have one year to exercise his/her accrued options. The maximum term of any
option is ten years and the option price per share may not be less than the fair
market value of Thermwood's shares on the date the option is granted. However,
options granted to persons owning more than 10% of our voting shares may not
have a term in excess of five years and the option price per share may not be
less than 110% of fair market value at the date the option is granted.
The aggregate fair market value of the shares of common stock, which is
determined at the time the options are granted, with respect to which incentive
stock options are exercisable for the first time by such optionee during any
calendar year under all such plans may not exceed $100,000. Options must be
granted within ten years from the effective date of the Qualified Plan.
Options granted under the Qualified Plan are not transferable other than
by will or the laws of descent and distribution. Options granted under the
Qualified Plan are protected by anti-dilution provisions increasing or
decreasing the number of shares issuable thereunder and reducing or increasing
the exercise price of such options, under certain conditions. The life term of
the Qualified Plan extends to December 3, 2000, or such earlier date as the
Board of Directors may determine. Any option outstanding at the termination date
will remain outstanding thereafter until it expires or is exercised in full,
whichever occurs first.
Between December 1991 and August 1997, we granted ten year options to
acquire 50,600 shares of our common stock at exercisable prices ranging from
$5.00 to $10.66 under the Qualified Plan to 20 of our employees. All of these
options are exercisable as of the date hereof.
Non-Qualified Stock Option Plan.
Under our Non-qualified Stock Option Plan , options to purchase a maximum
of 70,000 shares of our common stock may be granted to officers, directors, and
other key employees.
The Non-qualified Stock Option Plan is administered by the Board of
Directors and a committee of three members of the Board which determines which
persons are to receive such options, the number of shares that may be purchased
under the option, the exercise prices, the time and manner of exercise and other
related matters.
In the event an optionee voluntarily terminates his employment or tenure
with our consent or his employment or tenure is terminated by us without cause,
he generally has the right to exercise his accrued options within 30 days
-46-
<PAGE> 49
after such termination unless the Committee elects other time periods. In all
other cases of termination of the optionee's employment or tenure other than
death, said options shall cease immediately. Upon death, the optionee's estate
or heirs have one year to exercise his or her accrued options.
The Committee may grant an optionee the right to surrender all or a
portion of his or her accrued options to us and receive from it the difference
between the option price and the then fair market value. Options become
exercisable in 25% installments each year beginning in the second year through
the fifth year. Options are generally not transferable and are conditioned upon
the optionee remaining in our employ for at least one year from the date of its
grant. Under the Non-qualified Stock Option Plan, no option may be granted after
January 1, 2005 and the exercise price of such options may not be less than the
then fair market value. It is within the Committee's discretion to grant
anti-dilution provisions to each optionee. Under current Federal income tax law,
an employee, officer or director who is granted an option will not have any
income upon the grant of an option and we will not be entitled to any deduction
at that time. When an optionee exercises his or her option, ordinary income will
be realized by him or her, measured by the excess of the fair market value of
the shares over the price paid for the shares. We will be entitled to a
deduction equal to the amount of income realized by the holder of the option. If
the optionee surrenders all or part of his or her option for a cash or common
stock payment, he or she will realize ordinary income in the amount of cash or
fair market value of stock received. We will be entitled to a deduction equal to
the amount of income realized by the optionee.
Options to acquire an aggregate of 40,000 shares of our common stock at
exercisable prices between $5.63 and $10.00 per share have been granted under
the Non-qualified Stock Option Plan to four of our directors and officers.
Currently, all of these options are exercisable.
Other Options
There are options to purchase an additional 120,000 shares held by our
President. These option extend through October 18, 2005 and permit the purchase
of 60,000 shares at $15.00 per share and 60,000 shares at $30.00 per share.
Effect of Exchange Offer on Outstanding Options
The exchange offer will have no effect on our Qualified and Non-Qualified
options.
-47-
<PAGE> 50
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding our common
stock ownership, including shares issuable upon conversion of outstanding
debentures and upon exercise of options owned as of February 15, 1999 by
(a) each person known by us to own beneficially more than 5% of our
outstanding common stock,
(b) each director, and
(c) all officers and directors as a group.
Percentages before tender are based upon 1,444,709 shares issued and
outstanding as of February 15, 1999. Percentages after tender assume that we
received 750,000 shares in the exchange offer. We do not know how many shares
actually will be tendered. Accordingly, percentages after tender may differ.
Except as set forth in footnote 2, the person indicated in the table
beneficially owns all of the shares listed and has the sole voting and
investment power with regard to such shares.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Percentage of Total
Percentage of Total Shares Owned Outstanding Shares
Outstanding Shares Including Those Owned Including Such
Owned Underlying Underlying Shares
Exercisable Options
Names and Addresses Before After and Convertible Before After
Of Beneficial Owners Shares Owned Tender Tender Debentures Tender Tender
- -------------------- ------------ ------ ------ ---------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Kenneth J. Susnjara
And Linda Susnjara(1) 261,420(2) 18.1% 37.6% 411,420(2) 25.8% 48.7%
Edgar Mulzer
401 10th Street
Tell City, Indiana 47586 208,052(3) 14.4% 29.9% 218,052 15.0% 30.9%
Peter N. Lalos
14312 Darnstown Rd
Gaithersburg, MD 20878 8,000 * 1.2% 22,000 1.5% 3.1%
Lee Ray Olinger
C/o First Bank of
Huntingburg
4th and Main Street
Huntingburg, IN 47542 400 * * 400 * *
Rebecca F. Fuller(1) 600 * * 2,600 * *
Michael P. Hardesty(1) 400 * * 8,400 * *
David J. Hildenbrand(1) 1,200 * * 6,600 * *
Richard Kasten(1) 950 * * 950 * *
Donald L. Uebelhor(1) 400 * * 6,000 * *
- -------------------------------------------------------------------------------------------------------------------
All Officers and Directors 481,422 33.3% 69.3% 676,422 41.3% 76.0%
As a Group (10 persons)
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
* Less than one percent.
(1) The address of these shareholders is care of Thermwood, Old Buffaloville
Road, PO. Box 436, Dale, Indiana 47523.
-48-
<PAGE> 51
(2) These shares are owned jointly by Mr. and Mrs. Susnjara who are husband and
wife. Accordingly, each may be deemed to be a beneficial owner of the securities
owned by the other.
(3) Mr. Mulzer has given us an option to purchase all of these shares during the
two year period commencing on January 1, 2002. Please read the information under
the heading "Certain Relationships and Related Transactions" for an illustration
of how exercise of that option would affect ownership and control of Thermwood.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Transactions With Edgar Mulzer
On February 4, 1999, Edgar Mulzer, a director and major shareholder of
Thermwood who is not active in our management, gave us an option to purchase his
209,000 shares at a price of $15.00 per share. We can exercise this option at
any time after January 1, 2002 and before January 1, 2004. We paid Mr. Mulzer
$5,000 for this option. We have secured this option to further our plans to
assure that control of Thermwood remains with Kenneth and Linda Susnjara. The
following chart illustrates our ownership, assuming that
o we acquire 750,000 shares in this exchange offer;
o None of the 210,600 outstanding options to purchase common stock,
including options held by the Susnjaras to purchase up to 150,000
shares, are exercised; and
o None of the outstanding debentures which are convertible into an
aggregate of 22,600 shares are converted:
Percentage of Ownership of Our Voting Stock
<TABLE>
<CAPTION>
Before Exercise After Exercise
Shareholder of Mulzer Option of Mulzer Option
----------- ---------------- ----------------
<S> <C> <C>
Kenneth and
Linda Susnjara 37.6% 53.7%
Edgar Mulzer 29.9% -0-
All Other Shareholders 32.5% 46.3%
</TABLE>
In February 1987, we purchased our premises from an independent third
party for $1,000,636 and simultaneously resold it to Mr. Mulzer for $1,800,000.
At the same time, we leased the premises back from Mr. Mulzer for a 20-year
period at a monthly rental of $19,353 or approximately $232,000 on an annual
basis.
The lease agreement, which was treated as a capitalized lease for
financial reporting purposes, also obligated us to pay all maintenance, taxes,
assessments, insurance premiums and utilities incurred in connection with the
operation of the premises. Pursuant to a related agreement, we had an option to
repurchase the premises from Mr. Mulzer, exercisable through February 2007, at
prices descending on an annual basis from $1,786,781 in 1987 to $240,000 in the
last year of the option.
In November 1993, an aggregate of $3,437,120 of debt, including the lease
payment obligation in the amount of $1,608,629, together with accrued interest
in the amount of $122,491, owed to him by us was converted into an aggregate of
1,000,000 shares of preferred stock. We acquired the right to title to our
premises upon this conversion and acquired title in October 1997.
The holder of the preferred stock was entitled to receive cumulative cash
dividends out of our net profits at the rate of thirty-four cents ($0.34) per
share per annum, payable monthly in equal installments within the first 15 days
of each month for the preceding month as directed by our Board of Directors. We
had the right in its sole discretion to redeem the stock at any time at $3.40
per share. We redeemed 738,000 and 162,000 shares of the preferred stock for a
total of $2,546,320 and $550,800 during fiscal years 1998 and 1997,
respectively. Dividends were paid in the amount of $43,255 and $285,204 for the
fiscal years 1998 and 1997, respectively. The balance of the shares had been
previously repurchased.
We redeemed all of the preferred stock in October 1997 and no further
dividends will be paid. We redeemed the stock with proceeds from a $3.5 million
line of credit with DuBois County Bank. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
-49-
<PAGE> 52
Transactions with the Susnjaras
Mr. and Mrs. Susnjara are the owners of Automation Associates Incorporated,
a dealer of our industrial products. The distribution agreement between us and
Automated Associates contains the same terms and conditions as our agreements
with our other dealers. We sold no products to Automated Associates during
fiscal year 1998, but paid Automated Associates $627,816 in commissions during
the year for assisting in effecting sales of approximately $3,800,000. This
amount represents approximately 19% of our gross machine sales for fiscal year
1998. Automated Associates also leases space from us at what we believe is a
fair market rate. Rental payments were $2,400 during the 1998 fiscal year.
Transactions with Peter Lalos
Lalos & Keegan, a law firm in which Mr. Lalos is the senior partner,
accrued fees of $95,000, $77,000 and $103,000, for the fiscal years 1998, 1997,
and 1996, respectively. All of these fees have been paid.
We believe that the terms of the transactions between us and our
affiliated parties as described in this section are as fair as those which we
would have obtained if these transactions had been effected with independent
third parties. Each transaction was approved by a majority of our disinterested
directors. In the future, all such transactions will continue to be approved by
a majority of our disinterested directors.
Recent Stock Transactions By Affiliates
We have not purchased any shares of our common stock since August 1, 1996.
Since August 1, 1996, Edgar Mulzer purchased on the open market 340 shares at
$7.81 per share and 2,000 shares at $7.20 per share in December 1996. Since
August 1, 1996, Mr. and Mrs. Susnjara purchased on the open market 400 shares at
$7.625 per share on May 1, 1998, 400 shares at $7.625 per share on May 4, 1998,
and 600 shares at $7.625 per share on May 5, 1998. In addition, Mr. and Mrs.
Susnjara converted debentures into 10,000 shares of common stock on September 2,
1998. Peter Lalos purchased 620 shares at $7.80 and 40 shares at $8.80 per share
in May 1997 and 200 shares at $12.35 per share and 140 shares at $12.40 per
share in November 1997. These are the only transactions in our shares effected
by such individuals since August 1, 1996.
To our knowledge, neither Thermwood nor any of its affiliates, directors
or executive officers has purchased or sold any common stock in the last sixty
days.
DESCRIPTION OF SECURITIES
The following statements are brief summaries of certain provisions of our
Articles of Incorporation, By-Laws and other documents. Copies of these
corporate documents are incorporated by reference as exhibits to the
registration statement of which this prospectus is a part. To obtain copies of
these documents see "Where You Can Find More Information." These summaries are
qualified in their entirety by reference to documents filed as exhibits to the
registration statement.
Common Stock
Description of General Terms
We are authorized to issue 4,000,000 shares of common stock, no par value,
of which 1,444,709 shares are currently issued and outstanding. Holders of
common stock are entitled to receive dividends when, as and if declared by the
Board of Directors out of funds legally available therefor. They have no
preemptive or other rights to subscribe for additional shares and the common
stock has no redemption, sinking fund or conversion provisions. Each share of
common stock is entitled to one vote on any matter submitted to the holders
thereof and to equal rights in our assets upon liquidation subject to the prior
rights on liquidation of creditors and any preferred stock holders. The
outstanding shares of common stock are fully paid and non-assessable.
The shares of common stock have non-cumulative voting rights, which means
that the holders of more than 50% of the shares voting for the election of
Directors can elect all of the Directors of Thermwood. In such event, the
holders of the remaining shares will not be able to elect any of the Directors.
-50-
<PAGE> 53
Reserved Shares
As of February 15, 1999, we have reserved up to:
(a) 22,600 shares of common stock for issuance upon conversion of the
previously issued convertible debentures;
(b) 80,000 shares for issuance under the Qualified Stock Option Plan of
which options to purchase 50,600 shares have been granted and are
currently exercisable;
(c) 70,000 shares for issuance under the Non-Qualified Stock Option Plan
of which options to purchase 40,000 shares have been granted and are
currently exercisable; and
(d) 120,000 shares for issuance upon exercise of options granted to Mr.
Susnjara, all of which are currently exercisable.
Preferred Stock
We are authorized to issue an aggregate of 2,000,000 shares of non-voting
preferred stock, no par value. There are currently no shares of preferred stock
outstanding. The preferred stock may be issued in series from time to time with
such designations, rights, preferences and limitations, including but not
limited to dividend rates and conversion features, as the Board of Directors may
determine. Accordingly, preferred stock may be issued having dividend and
liquidation preferences over the common stock without the consent of the common
stockholders. In addition, the ability of the Board to issue preferred stock
also could be used by us as a means of resisting a change of control of
Thermwood and, therefore, could be considered an anti-takeover device. Our Board
of Directors has no current plans to issue any preferred stock.
Corporate Law Anti Takeover Provisions
Chapter 43 of the Indiana Business Corporation Law is intended to
discourage abusive hostile tender offers for control of an Indiana corporation.
Because our common stock is registered under Section 12 of the Exchange Act, we
are subject to Chapter 43.
Chapter 43 provides that an Indiana corporation may not engage in any of a
broad range of business combinations with a person, or affiliate of such person,
who is an interested shareholder for a period of five years from the date that
such person became an interested shareholder and that such transactions must
satisfy certain other criteria, unless the transaction resulting in a person
becoming an interested shareholder, or the business combination, is approved by
the board of directors of the corporation before the person becomes an
interested shareholder. Under Chapter 43, an interested shareholder is defined
as any person that is:
(i) the owner of 10% or more of the outstanding voting stock of the
corporation; or
(ii) an affiliate or associate of the corporation who was the owner,
directly or indirectly, of 10% or more of the outstanding voting
stock of the corporation at any time within the five-year period
immediately prior to the date on which it is sought to be determined
whether such person is an interested shareholder.
Chapter 43 is not applicable to transactions involving shareholders who
became interested shareholders prior to 1986, when this law became effective.
A corporation may, at its option, exclude itself from the coverage of
Chapter 43 by amending its articles of incorporation by action of a majority of
its shareholders unaffiliated with the interested shareholder to exempt the
corporation from coverage, provided that such charter amendment shall not become
effective until 18 months after the date that it is adopted. We have not adopted
such a charter amendment.
The foregoing provisions could discourage or make more difficult a merger
or other type of corporate reorganization, whether or not such transactions are
favored by management, even if they could be favorable to the interests of the
shareholders.
Dividend Policy
We have never paid any dividends on our common stock. The current policy
of the Board of Directors is to retain earnings, if any, to finance the
operation of our business. Accordingly, we do not anticipate that we will pay
cash dividends to the holders of our common stock in the foreseeable future.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is American Stock
Transfer and Trust Company, 40 Wall Street, New York, New York 10005.
-51-
<PAGE> 54
PLAN OF DISTRIBUTION
Each broker-dealer that receives debentures for its own account in
exchange for shares pursuant to the exchange offer must acknowledge that it will
deliver a prospectus in connection with any resale of such debentures. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of debentures received in exchange
for shares where such shares were acquired as a result of market-making
activities or other trading activities. We have agreed that for a period of 90
days after the expiration date, we will make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resales.
We will not receive any proceeds from any sale of debentures by
broker-dealers or any other holder of debentures. Debentures received by
broker-dealers for their own account pursuant to the exchange offer may be sold
from time to time in one or more transactions:
O in the over-the-counter market;
O in negotiated transactions;
O through the writing of options on the debentures; or
O a combination of such methods.
The debentures may be resold, at:
O market prices prevailing at the time of resale;
O prices related to such prevailing market prices; or
0 negotiated prices.
Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such
debentures.
Any broker-dealer that resells debentures that were received by it for its
own account pursuant to the exchange offer and any broker or dealer that
participates in a distribution of such debentures may be deemed to be an
underwriter as that term is defined under the Securities Act. In addition, any
profit on any such resale of debentures and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation under
the Securities Act. The letter of transmittal states that a broker-dealer, by
acknowledging that it will deliver and by delivering a prospectus, will not be
deemed to admit that it is an underwriter within the meaning of the Securities
Act.
We will promptly send additional copies of this prospectus and any
amendment or supplement to this prospectus to any broker-dealer that requests
such documents in the letter of transmittal for a period of 90 days after the
expiration date.
We have agreed to pay all expenses incident to the exchange offer other
than commissions or concessions of any brokers or dealers and we will indemnify
debenture holders, including any broker-dealer, against certain liabilities,
including liabilities under the Securities Act.
Following the exchange offer, Dirks intends to make a market in the
debentures. There can be no assurance, however, that Dirks will make a market,
or for any period of time continue to make a market, in the debentures. See
"Risk Factors -- Risks Related to Acquisition of Debentures; There Is No Public
Market For The Debentures. If One Develops, It May Not Be Liquid."
LEGAL MATTERS
Barry Feiner, Esq., 190 Willis Avenue, Mineola, New York 11501, will
deliver an opinion stating that the debentures when issued as contemplated by
this prospectus will be validly issued and binding obligations of Thermwood.
Richard Reichler, Esq., 190 Willis Avenue, Mineola, New York 11501, will deliver
an opinion as to the Federal income tax consequences of the exchange offer to
shareholders.
EXPERTS
The Consolidated Financial Statements of Thermwood and subsidiaries as of
July 31, 1998 and 1997 and for each of the years in the three year period ended
July 31, 1998 have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
-52-
<PAGE> 55
- --------------------------------------------------------------------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF THERMWOOD CORPORATION AND SUBSIDIARIES
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Report of KPMG Peat Marwick LLP F-1
- --------------------------------------------------------------------------------
Consolidated Balance Sheets -- July 31 1998 and July 31, 1997 F-2
- --------------------------------------------------------------------------------
Consolidated Statements of Operations -- Years ended July 31, 1998,
1997 and 1996 F-4
- --------------------------------------------------------------------------------
Consolidated Statements of Shareholders' Equity -- Years ended
July 31, 1998, 1997 and 1996 F-5
- --------------------------------------------------------------------------------
Consolidated Statements of Cash Flows -- Years ended July 31, 1998,
1997 and 1996 F-6
- --------------------------------------------------------------------------------
Notes to Consolidated Financial Statements F-7
- --------------------------------------------------------------------------------
Condensed Consolidated Balance Sheets -- October 31, 1998 and
July 31, 1998 (Unaudited) F-14
- --------------------------------------------------------------------------------
Condensed Consolidated Statements of Operations --
Three Months ended October 31, 1998
and 1997 (Unaudited) F-15
- --------------------------------------------------------------------------------
Condensed Consolidated Statements Of Cash Flows --
Three Months ended October 31 1998
and 1997 (Unaudited) F-16
- --------------------------------------------------------------------------------
Notes to Condensed Consolidated Financial Statements (Unaudited) F-17
- --------------------------------------------------------------------------------
-53-
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Thermwood Corporation:
We have audited the accompanying consolidated balance sheets of Thermwood
Corporation and subsidiaries as of July 31, 1998 and 1997, 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, 1998. 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 and subsidiaries as of July 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the years in the three-year
period ended July 31, 1998, in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
Indianapolis, Indiana
September 4, 1998
F-1
<PAGE> 57
THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31
----------------------------
1998 1997
------------ ------------
Assets
- --------------------------------------------
<S> <C> <C>
Current Assets
Cash $ 115,937 $ 512,480
Accounts receivable, less allowance for
doubtful accounts of $20,000 for
1998 and $25,000 for 1997 1,673,826 1,802,569
Inventories 5,359,182 4,618,001
Deferred income taxes 694,000 1,676,000
Prepaid expenses 491,209 372,287
------------ -----------
Total Current Assets 8,334,154 8,981,337
------------ -----------
Property and Equipment
Land 73,260 73,260
Buildings and improvements 1,977,659 1,352,059
Furniture and equipment 3,131,306 2,768,255
Construction in progress 6,257 6,257
Less accumulated depreciation (2,540,992) (2,375,826)
------------ -----------
Net Property and Equipment 2,647,490 1,824,005
------------ -----------
Other Assets
Patents, trademarks and other 139,933 133,026
Bond issuance costs less accumulated
amortization 4,089 8,665
Deferred income taxes 199,000 326,000
------------ -----------
Total Other Assets 343,022 467,691
------------ -----------
Total Assets $ 11,324,666 $11,273,033
============ ===========
</TABLE>
F-2
<PAGE> 58
THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS (continued)
<TABLE>
<CAPTION>
July 31
--------------------------
1998 1997
----------- -----------
Liabilities and Shareholders' Equity
- --------------------------------------------------
<S> <C> <C>
Current Liabilities
Accounts payable $ 1,136,896 $ 1,375,005
Accrued compensation and payroll taxes 498,224 582,652
Customer deposits 816,315 907,110
Other accrued liabilities 552,066 1,028,505
Current portion of capital lease obligations 6,195 7,755
----------- -----------
Total Current Liabilities 3,009,696 3,901,027
----------- -----------
Long-Term Liabilities, Less Current Portion
Capital lease obligations -- 5,918
Note payable to bank 2,196,320 --
Bonds payable, net of unamortized discount of
$10,450 for 1998 and $22,225 for 1997 170,550 278,775
----------- -----------
Total Long-Term Liabilities 2,366,870 284,693
----------- -----------
Shareholders' Equity
Preferred stock, no par value, 2,000,000 shares
authorized, 1,000,000 shares issued and
738,000 shares outstanding for 1997 -- 2,546,320
Common stock, no par value, 4,000,000 shares
authorized, 1,431,109 and 1,400,109 shares
issued and outstanding for 1998
and 1997, respectively 10,742,636 10,599,285
Accumulated deficit (4,758,911) (6,033,542)
----------- -----------
5,983,725 7,112,063
Less subscriptions receivable (35,625) (24,750)
----------- -----------
Total Shareholders' Equity 5,948,100 7,087,313
----------- -----------
Total Liabilities and Shareholders' Equity $11,324,666 $11,273,033
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 59
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended July 31
----------------------------------------------
1998 1997 1996
------------ ------------ ------------
<S> <C> <C> <C>
Sales
Machine sales $ 20,199,191 $ 16,420,313 $ 10,966,096
Technical services 4,657,784 3,660,548 3,298,567
- ----------------------------------------------------------- ------------ ------------
24,856,975 20,080,861 14,264,663
Less commissions 3,017,446 2,301,446 1,628,172
------------ ------------ ------------
Net Sales 21,839,529 17,779,415 12,636,491
------------ ------------ ------------
Cost of Sales
Machines 9,981,401 8,841,911 5,577,272
Technical services 3,016,505 2,031,588 2,133,866
------------ ------------ ------------
Total Cost of Sales 12,997,906 10,873,499 7,711,138
------------ ------------ ------------
Gross Profit 8,841,623 6,905,916 4,925,353
Research and development, marketing,
administrative and general expenses 6,413,160 4,794,563 3,638,536
------------ ------------ ------------
Operating income 2,428,463 2,111,353 1,286,817
------------ ------------ ------------
Other income (expense):
Interest expense - related party -- -- (889)
Interest expense - other (231,747) (75,686) (117,710)
Other (30,830) 19,157 6,210
------------ ------------ ------------
Other expense, net (262,577) (56,529) (112,389)
------------ ------------ ------------
Earnings before income taxes 2,165,886 2,054,824 1,174,428
Income tax (expense) benefit (848,000) (819,000) 1,160,000
------------ ------------ ------------
Net earnings $ 1,317,886 $ 1,235,824 $ 2,334,428
============ ============ ============
Earnings applicable to common shareholders $ 1,274,631 $ 950,620 $ 2,004,373
============ ============ ============
Earnings per share:
Basic $0.89 $0.70 $1.63
===== ===== =====
Diluted $0.86 $0.69 $1.45
===== ===== =====
Weighted average number of shares:
Basic 1,424,676 1,349,143 1,231,146
Diluted 1,516,748 1,446,198 1,436,820
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 60
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------- ----------------------------------------
Subscriptions Accumulated
Shares Amount Shares Amount Receivable (Deficit)
--------- ----------- --------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balances at July 31, 1995 1,000,000 $ 3,437,120 1,029,909 $ 8,988,897 $ -- ($8,988,535)
Preferred dividends paid -- -- -- -- -- (330,055)
Redemption of preferred stock (100,000) (340,000) -- -- -- --
Conversion of 12% debentures, net
of related bond issuance costs
and unamortized discount -- -- 261,400 1,115,507 -- --
Exercise of qualified stock options -- -- 10,400 56,000 (28,125) --
Exercise of other stock options -- -- 6,000 30,000 -- --
Net earnings -- -- -- -- -- 2,334,428
--------- ----------- --------- ----------- ----------- -----------
Balances at July 31, 1996 900,000 $ 3,097,120 1,307,709 $10,190,404 ($ 28,125) ($6,984,162)
Subscriptions received -- -- -- -- 3,375 --
Preferred dividends paid -- -- -- -- -- (285,204)
Redemption of preferred stock (162,000) (550,800) -- -- -- --
Conversion of 12% debentures, net
Of related bond issuance costs and
Unamortized discount -- -- 92,400 408,881 -- --
Net earnings -- -- -- -- -- 1,235,824
--------- ----------- --------- ----------- ----------- -----------
Balances at July 31, 1997 738,000 $ 2,546,320 1,400,109 $10,599,285 ($ 24,750) ($6,033,542)
Preferred dividends paid -- -- -- -- -- (43,255)
Redemption of preferred stock (738,000) (2,546,320) -- -- -- --
Conversion of 12% debentures, net
of related bond issuance costs
and unamortized discount -- -- 24,000 108,351 -- --
Exercise of qualified stock options -- -- 1,000 5,000 -- --
Exercise of other stock options -- -- 6,000 30,000 (30,000) --
Subscriptions received -- -- -- -- 19,125 --
Net earnings -- -- -- -- -- 1,317,886
--------- ----------- --------- ----------- ----------- -----------
Balances at July 31, 1998 -- $ -- 1,431,109 $10,742,636 ($35,625) ($4,758,911)
========= =========== ========= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 61
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended July 31
----------------------------------------
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net earnings $1,317,886 $1,235,824 $2,334,428
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 368,261 338,274 295,510
Provision for inventories 68,000 -- 21,012
Loss (gain) on disposal of equipment 48,936 -- (15,625)
Deferred income taxes 1,109,000 412,000 (1,178,000)
Changes in operating assets and liabilities:
Accounts receivable 128,743 (990,029) 369,060
Inventories (809,181) (1,288,664) (341,402)
Prepaid expenses and other assets (118,922) (32,864) 41,151
Accounts payable and other accrued expenses (798,976) 1,704,136 (263,205)
Customer deposits (90,795) 413,101 (148,350)
---------- ---------- ----------
Net cash provided by operating activities 1,222,952 1,791,778 1,114,579
---------- ---------- ----------
Cash Flows From Investing Activities:
Proceeds from sale of equipment -- -- 40,000
Purchases of patents, property and equipment (1,242,887) (457,599) (502,350)
---------- ---------- ----------
Net cash used by investing activities (1,242,887) (457,599) (462,350)
---------- ---------- ----------
Cash Flows From Financing Activities:
Principal payments on lease obligations (7,478) (8,065) (31,598)
Redemption of preferred stock (2,546,320) (550,800) (340,000)
Payment of dividends on preferred stock (43,255) (285,204) (330,055)
Note payable to bank 2,196,320 -- --
Proceeds from subscriptions receivable 19,125 3,375 --
Proceeds from exercise of stock options 5,000 -- 57,875
---------- ---------- ----------
Net cash used by financing activities (376,608) (840,694) (643,778)
---------- ---------- ----------
Increase (decrease) in cash (396,543) 493,485 8,451
Cash at beginning of year 512,480 18,995 10,544
---------- ---------- ----------
Cash at end of year $ 115,937 $ 512,480 $ 18,995
========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 62
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 subsidiaries, Thermwood Europe Limited, a
United Kingdom company, CNC Carolina, Inc., a dealer in North Carolina, and
Thermwood Capital Corporation, a leasing company. CNC Carolina, Inc. and
Thermwood Capital Corporation were established in 1998. The term "Company"
refers to the consolidated operations of Thermwood Corporation and its
subsidiaries.
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. Two dealers accounted for
approximately 32% of the Company's business; however, no customer accounted for
more than 10% of the Company's sales in fiscal years 1998, 1997 or 1996. The
loss of any large dealer could have a material 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 1998 amounted to approximately 18.7% of total gross
sales. There was no revenue generated in 1998 by Thermwood Capital Corporation.
The Company's machining systems are utilized principally in the
woodworking, plastics, boating and automotive industries. The Company is not
dependent upon a single supplier or only a few suppliers.
Principles of Consolidation:
All significant inter-company 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.
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. Technical services revenues are recognized when the services are
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.
Research and Development:
Research and development costs are expensed as incurred. Expenditures for
research and development were approximately $314,000, $216,000 and $284,000
during 1998, 1997 and 1996, respectively.
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. The carrying value of property and equipment is assessed when factors
indicating an impairment are present. If an impairment is present, the assets
are reported at the lower of carrying value of fair value. Depreciation and
amortization are computed by the straight-line method over the estimated useful
lives of the assets, as shown below:
F-7
<PAGE> 63
<TABLE>
<S> <C>
Buildings and improvements 10 to 30 years
Equipment 3 to 10 years
</TABLE>
Depreciation expense for 1998, 1997 and 1996 was $345,890, $304,716 and
$256,290, 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, 1998 and 1997,
substantially all of the deposits had no incurred work-in-process cost.
Earnings Per Share:
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 128 "Earnings per Share,"
which requires companies to present basic and diluted earnings per share. A
reconciliation of the numerator and denominator for the basic and diluted
earnings per share calculation follows:
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- --------------------------- ---------------------------
Basic Diluted Basic Diluted Basic Diluted
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Earnings:
Net earnings $1,317,886 $1,317,886 $1,235,824 $1,235,824 $2,334,428 $2,334,428
Less preferred stock dividends (43,255) (43,255) (285,204) (285,204) (330,055) (330,055)
Add interest expense on
convertible bonds payable -- 47,180 -- 62,580 -- 98,436
Add amortization of bond
discount and issuance costs -- 4,701 -- 13,120 -- 30,583
Income tax effects of earnings
adjustments -- (19,196) -- (28,009) -- (44,037)
----------- ----------- ----------- ----------- ----------- -----------
Total earnings $1,274,631 $1,307,316 $950,620 $998,311 $2,004,373 $2,079,355
=========== =========== =========== =========== =========== ===========
Weighted average number of shares:
Common shares outstanding 1,424,676 1,424,676 1,349,143 1,349,143 1,231,146 1,231,146
Incremental shares related to
dilutive stock options -- 55,872 -- 36,255 -- 53,075
Incremental shares related to
convertible bonds -- 36,200 -- 60,200 -- 152,600
----------- ----------- ----------- ----------- ----------- -----------
Total weighted average
number of shares 1,424,676 1,516,748 1,349,143 1,446,198 1,231,146 1,436,820
=========== =========== =========== =========== =========== ===========
Earnings per share $0.89 $0.86 $0.70 $0.69 $1.63 $1.45
=========== =========== =========== =========== =========== ===========
</TABLE>
Income Taxes:
Deferred tax assets and liabilities are recognized for the future 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.
NOTE B -- INVENTORIES:
Inventories at July 31 consist of:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Finished goods $ 651,398 $ 644,477
Work-in-process 1,541,258 1,171,484
Raw materials 3,166,526 2,802,040
---------- ----------
$5,359,182 $4,618,001
========== ==========
</TABLE>
F-8
<PAGE> 64
NOTE C -- LEASES :
The Company leases certain office equipment under long-term operating
leases. Future minimum lease payments as of July 31, 1998 for operating leases
are as follows:
<TABLE>
<CAPTION>
Years ending July 31:
<S> <C>
1999 $118,700
2000 118,700
2001 118,700
2002 1,200
2003 1,200
</TABLE>
Total operating lease expense for 1998, 1997 and 1996 was $118,670,
$44,390 and $18,130 respectively.
NOTE D - NOTES PAYABLE TO BANK
During 1998, the Company obtained a $3,500,000 line of credit with a bank.
At July 31, 1998 $2,196,320 was outstanding under the line of credit. The line
of credit bears interest payable monthly at the bank's money market prime rate
plus .5% (9.0% at July 31, 1998). The line is secured by the tangible assets of
the Company and expires in October 1998. Management expects to renew the line
under terms similar to the existing agreement.
NOTE E - 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.
These 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, 1998 and 1997, holders tendered $120,000
and $462,000 of the debentures for conversion into 24,000 and 92,400 common
shares, respectively.
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-9
<PAGE> 65
NOTE F -- COMMON STOCK OPTIONS:
The Company has both a qualified and a non qualified 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:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net Earnings
As Reported $1,317,886 $1,235,824 $2,334,428
Pro Forma 1,308,962 1,214,168 1,985,024
Basic Earnings Per Share
As Reported $0.89 $0.70 $1.63
Pro Forma 0.89 0.69 1.34
Diluted Earnings Per Share
As Reported 0.86 0.69 1.45
Pro Forma 0.86 0.68 1.20
</TABLE>
The effects of applying FAS 123 in this pro forma disclosure are not
indicative of future amounts. 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 1998, 1997 and 1996: no dividend
yield for all years; expected volatility of 35 percent, 56 percent and 72
percent for 1998, 1997 and 1996, respectively; risk-free interest rates of 4.7
percent, 6.2 percent and 6.6 percent for 1998, 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 50,600 of the shares have been granted,
4,000 of which were granted during fiscal year 1998. None of these options were
exercised during fiscal year 1998. As of July 31, 1998, options for 50,600
shares were exercisable. These options must be exercised within ten years of the
grant date.
The non qualified 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, 1998.
Other options to purchase 140,000 shares have been granted by the Board of
Directors, 124,000 of which were outstanding and exercisable as of July 31,
1998. An option to purchase 120,000 of these shares was granted to the President
of the Company. The option extends through October 18, 1998 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 granted to an employee at $5.00 per share was
exercised in 1998. 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. At July 31, 1998, the options were exercisable; however,
in August 1998, the Company and the option holder agreed to terminate the option
agreement in exchange for a cash payment to the option holder of $10,250. During
fiscal year 1997 options for 10,000 shares were granted to another public
relations firm. These options expired in February, 1998.
F-10
<PAGE> 66
A summary of common stock options for the years ended July 31 follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------------- ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Shares Exercise Shares Exercise
Price Price Price
------- ------ ------- ------ ------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at
beginning of year 226,600 $15.90 211,600 $15.95 207,000 $24.25
Granted 4,000 10.63 15,000 14.75 151,000 19.30
Canceled/expired 10,000 9.38 -- -- 130,000 35.05
Exercised 6,000 5.00 -- -- 16,400 6.85
------- ------ ------- ------ ------- ------
Outstanding at end of year 214,600 $ 9.15 226,600 $15.90 211,600 $15.95
======= ====== ======= ====== ======= ======
Exercisable at end of year 214,600 226,600 211,600
======= ======= =======
Weighted average fair value of
options granted during the year $ 3.66 $ 6.90 $ 3.75
====== ====== ======
</TABLE>
NOTE G -- SHAREHOLDERS' EQUITY:
On January 5, 1998, the Company completed a one for five reverse split of
its common stock. All common share and per share information in the consolidated
financial statements has been adjusted to reflect the reverse split on a
retroactive basis.
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 shares were outstanding at July 31, 1997. All of
these shares were issued to a director/shareholder in a conversion of debt
transaction (Note H). The holder of Series A Preferred Stock was 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 15 days of each month for the preceding month as
directed by the Board of Directors of the Company. The Company had the right in
its sole discretion to redeem the stock at any time at $3.40 per share. During
fiscal years 1998 and 1997, the Company redeemed 738,000 and 162,000 shares for
$2,546,320 and $550,800, respectively. In the event of the liquidation of the
Company, the holders of the Series A Preferred Stock were 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 H -- RELATED PARTY TRANSACTIONS:
Director and shareholder - The Company leased land, building and
improvements under a capital lease from a director/shareholder and a leasing
company owned by this director with an original 20 year term through February
2007. 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. Upon conversion, the Company acquired
the right to clear title to the property and, in October 1997, title was
transferred. The net book value of these leased assets was $533,928 at July 31,
1997.
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.
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 $94,954, $76,699 and $103,180 for 1998, 1997 and
1996, respectively. The Company had accounts payable of $31,515 and $14,462 at
July 31, 1998 and 1997, respectively, relating to such legal services.
F-11
<PAGE> 67
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 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 $2,400, $6,800 and $7,200 for 1998,
1997 and 1996, respectively. Sales commissions of $627,816, $447,667 and
$349,584 were paid to the dealership during 1998, 1997, and 1996, respectively,
for assisting in effecting sales.
NOTE I -- INCOME TAXES:
The provisions for income taxes for the years ended July 31 consist of:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Federal:
Current (expense) benefit $ 308,000 $ (407,000) $ (18,000)
Deferred (expense) benefit (1,019,000) (379,000) 1,082,000
---------- ----------- -----------
(711,000) (786,000) 1,064,000
---------- ----------- -----------
State:
Current expense (47,000) -- --
Deferred (expense) benefit (90,000) (33,000) 96,000
---------- ----------- -----------
(137,000) (33,000) 96,000
---------- ----------- -----------
Total income tax (expense) benefit $ (848,000) $ (819,000) $ 1,160,000
========== =========== ===========
</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>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
Net earnings before income taxes $2,165,886 $ 2,054,824 $ 1,174,428
========== =========== ===========
Expected income tax expense $ (801,000) $ (760,000) $ (435,000)
Utilization of net operating loss carryforwards -- -- 119,000
Reduction in deferred tax asset valuation allowance -- -- 1,480,000
Effect of non-deductible items (19,000) (14,000) (11,000)
Other (28,000) (45,000) 7,000
---------- ----------- -----------
Total actual income tax (expense) benefit $ (848,000) $ (819,000) $ 1,160,000
========== =========== ===========
</TABLE>
The tax effects of significant temporary differences represented by
deferred tax assets and deferred tax liabilities at July 31 are as follows:
<TABLE>
<CAPTION>
Deferred tax assets attributable to: 1998 1997
----------- -----------
<S> <C> <C>
Property and equipment $ 185,000 $ --
Inventory valuation 245,000 246,000
Warranty reserves 79,000 73,000
Net operating loss carryforwards 351,000 1,812,000
Other 33,000 3,000
----------- -----------
Deferred tax assets 893,000 2,134,000
----------- -----------
Deferred tax liability attributable to:
Property and equipment -- 132,000
----------- -----------
Net deferred tax assets $ 893,000 $ 2,002,000
=========== ===========
</TABLE>
F-12
<PAGE> 68
At July 31, 1998, the Company had the following carryforwards for tax purposes:
<TABLE>
<S> <C>
Net operating loss carryforwards expiring in 2008 - 2009 $529,000
General business credits expiring in 1998 - 2001 $ 14,000
</TABLE>
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. Based upon the level of historical
taxable income and anticipated future taxable income, management believes it is
more likely than not that the Company will realize the benefits of the net
deferred tax assets.
NOTE J -- ADDITIONAL INFORMATION:
Other accrued liabilities at July 31 consist of:
<TABLE>
<CAPTION>
1998 1997
-------- ----------
<S> <C> <C>
Property taxes $ 79,282 $ 66,138
Income taxes 14,002 387,000
Accrued warranties 212,339 196,777
Other 246,443 378,590
-------- ----------
$552,066 $1,028,505
======== ==========
</TABLE>
Cash Flow Information:
The Company paid cash for interest in the amount of $200,319, $69,739 and
$146,810 during 1998, 1997 and 1996, respectively. The Company paid cash for
income taxes in the amount of $77,024, $30,000 and $9,000 during 1998, 1997 and
1996, respectively.
Non-cash Investing and Financing Activities:
During 1998 and 1997, bonds with face values of $120,000 and $462,000,
respectively, were converted to 24,000 and 92,400 shares of common stock.
NOTE K -- PENSION AND PROFIT SHARING PLAN:
The Company has a deferred income 40l(k) savings plan for its employees.
The Company makes a matching contribution of 25% of employees' contributions up
to 5% of their annual salaries and an additional match of 10% of their
contributions between 6% and 8% of employees' salaries.
Pension expense for 1998, 1997 and 1996 amounted to $48,759, $35,840 and
$19,274, respectively. The Company also has a management profit sharing plan.
Profit sharing expense amounted to $603,978, $647,407 and $384,390 for 1998,
1997 and 1996, respectively.
F-13
<PAGE> 69
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
October 31 July 31
1998 1998
----------- -----------
<S> <C> <C>
ASSETS
Current Assets
Cash $184,111 $115,937
Accounts receivable 2,046,924 1,673,826
Inventories 5,630,985 5,359,182
Deferred income taxes 694,000 694,000
Prepaid expenses 561,520 491,209
----------- -----------
Total Current Assets 9,117,540 8,334,154
----------- -----------
Property and Equipment (net of accumulated depreciation) 2,626,376 2,647,490
----------- -----------
Other Assets
Patents, trademarks and other 137,721 139,933
Bond issuance costs net of accumulated amortization 2,677 4,089
Deferred income taxes 199,000 199,000
----------- -----------
Total Other Assets 339,398 343,022
----------- -----------
Total Assets $12,083,314 $11,324,666
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable 1,613,400 1,136,896
Accrued liabilities 1,007,301 1,050,290
Customer deposits 924,591 816,315
Current portion of long-term liabilities 4,632 6,195
----------- -----------
Total Current Liabilities 3,549,925 3,009,696
----------- -----------
Long-term Liabilities - less current portion
Note payable to bank 2,196,320 2,196,320
Bonds payable, net of unamortized discount 106,159 170,550
----------- -----------
Total Long-term Liabilities 2,302,479 2,366,870
----------- -----------
Shareholders' Equity
Common stock, no par value, 4,000,000 shares authorized
1,444,709 and 1,431,109 shares issued and outstanding at
October 31, 1998 and July 31, 1998, respectively 10,806,394 10,742,636
Accumulated deficit (4,539,859) (4,758,911)
----------- -----------
6,266,535 5,983,725
Less subscriptions receivable (35,625) (35,625)
----------- -----------
Total Shareholders' Equity 6,230,910 5,948,100
----------- -----------
Total Liabilities and Shareholders' Equity $12,083,314 $11,324,666
=========== ===========
</TABLE>
See notes to condensed consolidated financial statements.
F-14
<PAGE> 70
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31
---------------------------
1998 1997
----------- -----------
<S> <C> <C>
SALES
Machine sales $5,097,403 $3,800,378
Technical sales 1,349,210 1,736,344
----------- -----------
6,446,613 5,536,722
Less commissions 821,391 732,027
----------- -----------
NET SALES 5,625,222 4,804,695
----------- -----------
COST OF SALES
Machine sales 2,618,678 2,032,923
Technical sales 617,156 728,920
----------- -----------
3,235,834 2,761,843
GROSS PROFIT 2,389,388 2,042,852
RESEARCH AND DEVELOPMENT, MARKETING,
ADMINISTRATIVE AND GENERAL EXPENSES 1,928,098 1,468,373
----------- -----------
OPERATING PROFIT 461,290 574,479
Interest expense (56,921) (25,445)
Other income (expense) 6,352 8,631
----------- -----------
Net other income (expense) (50,569) (16,814)
----------- -----------
EARNINGS BEFORE INCOME TAXES 410,721 557,665
Income taxes 192,026 202,626
----------- -----------
NET EARNINGS $218,695 $355,039
=========== ===========
Earnings per share:
Basic $ 0.15 $ 0.22
Diluted $ 0.15 $ 0.21
Weighted average number of shares:
Basic 1,440,976 1,408,909
Diluted 1,481,327 1,535,474
</TABLE>
See notes to condensed consolidated financial statements.
F-15
<PAGE> 71
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
October 31
-----------------------
1998 1997
-------- ----------
<S> <C> <C>
Cash Flows From Operating Activities:
Net earnings $218,695 $355,039
Adjustments to reconcile net earnings to net cash
provided by operating activities:
Depreciation and amortization 103,570 103,619
Amortization of bond discount 1,137 2,601
Changes in operating assets and liabilities:
Accounts receivable (373,098) (121,480)
Inventories (271,803) (249,689)
Prepaid expenses and other assets (70,311) (12,078)
Accounts payable and other accrued expenses 433,515 (50,925)
Customer deposits 108,276 (108,625)
-------- ----------
Net cash provided (used) by operating activities 149,981 (81,538)
-------- ----------
Cash Flows From Investing Activities:
Purchases of property and equipment (80,244) (60,492)
-------- ----------
Net cash used by investing activities (80,244) (60,492)
-------- ----------
Cash Flows From Financing Activities:
Principal payments on notes payable, lease
obligations and long-term debt (1,563) (13,673)
Note payable to bank -- 2,546,320
Redemption of preferred stock -- (2,546,320)
Payment of dividends on preferred stock -- (42,190)
Payment received for subscriptions receivable -- 21,550
-------- ----------
Net cash used by financing activities (1,563) (34,313)
-------- ----------
Decrease in cash 68,174 (176,343)
Cash, beginning of period 115,937 512,480
-------- ----------
Cash, end of period $184,111 $336,137
======== ==========
ADDITIONAL INFORMATION:
Interest paid $ 54,588 $ 8,970
======== ==========
Conversion of bonds payable, net of unamortized discount $ 64,391 $ 82,000
======== ==========
Subscriptions receivable for common stock issued $ -- $ 3,200
======== ==========
</TABLE>
See notes to condensed consolidated financial statements.
F-16
<PAGE> 72
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:
Note A - Basis of Presentation
The unaudited condensed consolidated financial statements 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 management, 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 consolidated financial statements included elsewhere herein for
the year ended July 31, 1998.
Operating results for the interim periods are not necessarily indicative of the
results that may be expected for the year ending July 31, 1999.
Note B - Inventories
Inventories are priced at the lower of cost (first-in, first-out method) or
market.
<TABLE>
<CAPTION>
October 31 July 31
Components of inventories: 1998 1998
-------------------------------
<S> <C> <C>
Raw material $3,246,166 $3,166,526
Work in process 1,593,059 1,541,258
Finished goods 791,760 651,398
-------------------------------
Total $5,630,985 $5,359,182
===============================
</TABLE>
Note C - Reclassifications
Certain amounts presented in the prior year condensed consolidated financial
statements have been reclassified to conform to the current year presentation.
F-17
<PAGE> 73
Note D - Earnings per Share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128 "Earnings per Share," which
requires companies to present basic and diluted earnings per share. A
reconciliation of the numerator and denominator for the basic and diluted
earnings per share calculation follows:
<TABLE>
<CAPTION>
Three Months Ended October 31
--------------------------------------------------
1998 1997
---------------------- -----------------------
Basic Diluted Basic Diluted
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Earnings:
Net earnings $218,695 $218,695 $355,039 $355,039
Less preferred stock dividend -- -- (43,255) (43,255)
Add interest expense on convertible bonds payable -- 3,840 -- 7,500
Add amortization of bond discount and issuance costs -- 1,495 -- 7,286
Income tax effects of earnings adjustments -- (2,134) -- (5,471)
--------- --------- --------- ---------
Total earnings $218,695 $221,896 $311,784 $321,099
========= ========= ========= =========
Weighted average shares outstanding 1,440,976 1,440,976 1,408,909 1,408,909
Incremental shares from assumed:
Exercise of diluted stock options -- 17,751 -- 82,765
Conversion of convertible bonds -- 22,600 -- 43,800
--------- --------- --------- ---------
Total weighted average shares 1,440,976 1,481,327 1,408,909 1,535,474
========= ========= ========= =========
Earnings per share $0.15 $0.15 $0.22 $0.21
========= ========= ========= =========
</TABLE>
F-18
<PAGE> 74
================================================================================
You should rely only on the information contained in this prospectus. We have
authorized no one to provide you with different information. You should not
assume that the information in this prospectus is accurate as of any date other
than the date on the front of the prospectus. We are not making an offer of
these debentures in any location where the offer is not permitted.
TABLE OF CONTENTS
Page
----
How To Obtain Copies of Documents
That Are Summarized In
This Prospectus ..........................................................1
Prospectus Summary ............................................................2
Summary Consolidated
Financial Data ...........................................................4
Risk Factors ..................................................................5
Capitalization ................................................................9
Market for Company's Common
Equity and Related Shareholder
Matters ..................................................................10
Exchange Offer ...............................................................11
Federal Income
Tax Consequences .......................................................23
Description of the Debenture
And the Indenture .......................................................26
Selected Consolidated
Financial Data...........................................................30
Management's Discussion and
Analysis Of Financial
Condition and Results
Of Operations .............................................................31
Business .....................................................................37
Where You Can Find
More Information .........................................................43
Management ...................................................................44
Principal Shareholders and
Ownership Of Management ..................................................48
Certain Relationships and
Related Transactions .....................................................49
Description of Securities ....................................................50
Plan of Distribution .........................................................52
Legal Matters ................................................................52
Experts ......................................................................52
Financial Statements ........................................................F-1
================================================================================
================================================================================
THERMWOOD
CORPORATION
$8,250,000
12% Junior Debentures
Due 2014
PROSPECTUS
The Solicitation Agent
For the Offer is
Dirks & Company, Inc
March __, 1999
================================================================================
<PAGE> 75
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 21. Exhibits and Financial Statement Schedules.
1 Revised Proposed Solicitation Agent Agreement with Dirks &
Company, Inc.
3.1 Articles of Incorporation of Registrant, as amended through
December 15, 1993. (1)
3.2 Amendment to Articles of Incorporation of Registrant dated
December 16, 1993. (1)
3.3 Restated and amended By-Laws of Registrant as amended through
October 21, 1992. (1)
4.1 12% Convertible Debenture Due February 25, 2003. (1)
4.2 Indenture with American Stock Transfer and Trust Company
concerning the 12% Convertible Debentures Due February 25,
2003.(1)
4.3 12% Debenture Due 2014 (contained in Exhibit 4.4).*
4.4 Revised Indenture with American Stock Transfer and Trust Company
concerning the 12% Debentures Due 2014.
5.1 Opinion Re legality.
8.1 Opinion Re tax matters.**
10.1 DuBois County Bank $3,500,000 credit documents.
10.2 Form of Amended Authorized Dealer Agreement between the Registrant
and its dealers.
10.3 Form of Amended Distributor Sales Agreement between the Registrant
and its distributors.
10.4 Copy of Dealer/Distribution Agreement between the Registrant and
Automation Associates, Inc. dated May 21, 1985.
10.5 Form of quotation and Purchase Agreement between the Registrant
and its customers.
10.6 Form of Extended Parts Warranty Agreement Terms and Conditions
between the Registrant and its customers.
10.7 Form of quotation and Lease Agreement between the Registrant and
its lessees.
10.8 Registrant's Qualified Incentive Stock Option Plan. (2)
10.9 Registrant's Non-Qualified Stock Option Plan. (2)
10.10 Lease Agreement between the Registrant and Edgar Mulzer dated
February 13, 1987.
10.11 Letter from Edgar Mulzer to the Registrant offering to purchase
premises dated February 6, 1987.
10.12 Letter from the Registrant to Edgar Mulzer accepting such offer
dated February 13, 1987.
10.13 Land Contract between Edgar Mulzer and the Registrant dated
February 13, 1987.
10.14 Lease Agreement between the Huntingburg Townhouses, Inc. and the
Registrant dated March 27, 1989.
10.15 Lease Agreements between the Huntingburg Townhouses, Inc. and the
Registrant dated December 18, 1990.
10.16 Agreement between the Registrant and Edgar Mulzer dated October
23, 1992 relating to the Premises Lease.
10.17 Agreement between the Registrant and Huntingburg Townhouses, Inc.
dated October 23, 1992 relating to certain equipment leases.
10.18 Agreement between Registrant and Edgar Mulzer dated November 18,
1993 related to conversion of debt and lease obligation to
preferred stock.
10.19 Thermwood Option to Purchase Edgar Mulzer's shares.
21.1 List of Subsidiaries of Thermwood.
23.1 Consent of Barry Feiner, Esq. (files as part of Exhibit 5.1).
23.2 Consent of Richard Reichler, Esq. (files as part of Exhibit 8.1).
23.3 Consent of KPMG LLP.
24.1 Power of Attorney (included after signature page).
25.1 Statement of Eligibility of Trustee on Form T-1 related to the
Debentures.*
II-1
<PAGE> 76
27.1 Financial Data Schedule.*
99.1 Revised Form of Letter of Transmittal.
99.2 Intentionally left blank.
99.3 Revised Exchange Agreement with American Stock Transfer.
- ----------
* Previously filed.
** To be filed by amendment.
(1) Previously filed as an Exhibit to the Registrant's Registration Statement
on Form SB-2, SEC file No. 33-54756 filed with the SEC on or about
November 20, 1992, as amended, and incorporated by this reference herein.
(2) Previously filed as an exhibit to the Registrant's prior Schedule 13E-3
filed with the SEC on September 4, 1998, and incorporated herein by this
reference.
(3) Previously filed as an Exhibit to the Registrant's Form 10-K for the
fiscal year ended July 31, 1998, SEC file No. 0-12195, filed with the SEC
on October 29, 1998, and incorporated by this reference herein.
Exhibit numbers correspond to the exhibits required by Item 601 of
Regulation S-B for a Registration Statement on Form S-4.
II-2
<PAGE> 77
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
has duly caused this amendment no. 1 to the registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of Dale
and the State of Indiana on February 25, 1999.
THERMWOOD CORPORATION
Date: February 25, 1999 /s/ Kenneth J. Susnjara
------------------------------------------
Kenneth J. Susnjara, Chairman of the Board
and President (Principle Executive Officer)
Pursuant to the requirements of the Securities Act of 1933, this
amendment no. 1 to the registration statement has been signed by the following
persons on behalf of Thermwood and in the capacities and on the dates indicated.
Date: February 25, 1999 /s/ Kenneth J. Susnjara
-------------------------------------------
Kenneth J. Susnjara, Chairman of the Board
and President (Principal Executive Officer)
Date: February 25, 1999 /s/ Rebecca F. Fuller
-------------------------------------------
Rebecca F. Fuller, Treasurer (Principal
Financial and Accounting Officer)
Date: February 25, 1999 /s/ Linda S. Susnjara
-------------------------------------------
Linda S. Susnjara, Secretary and Director
Date: February 25, 1999 *
-------------------------------------------
Peter N. Lalos, Director
Date: February 25, 1999 *
-------------------------------------------
Edgar Mulzer, Director
Date: February 25, 1999 *
-------------------------------------------
Lee Ray Olinger, Director
* By: /s/ Kenneth J. Susnjara
-------------------------------------
Kenneth J. Susnjara
Attorney-in-Fact, pursuant to the
Power of attorney previously filed as
Part of this registration statement.
II-3
<PAGE> 1
SOLICITATION AGENT AGREEMENT
February __, 1999
Dirks & Company, Inc.
As Solicitation Agent
520 Madison Avenue, 10th Floor
New York, New York 10022
Ladies and Gentlemen:
Thermwood Corporation, an Indiana corporation (the "Company") plans to
make an offer to exchange (the "Offer to Exchange") 12% 15-year Subordinated
Debentures ("Debentures"), which will be issued pursuant to an indenture (the
"Indenture") for up to 750,000 of its outstanding shares ("Shares") of Common
Stock. The Offer to Exchange will be on the terms and subject to the conditions
set forth in the Registration Statement, as amended (File No. 333-70073) on Form
S-4 and the Letter of Transmittal (including the attachments thereto) attached
hereto as Exhibit A.
The Company hereby appoints Dirks & Company, Inc. as Solicitation Agent
(the "Solicitation Agent") in connection with the Offer to Exchange and
authorizes the Solicitation Agent to act on its behalf in accordance with this
agreement (the "Agreement") and the terms of the Prospectus, which Prospectus
has been approved by the Company and which the Solicitation Agent is authorized
to use in connection with the solicitation of tenders. The Solicitation Agent
agrees, in accordance with its customary practice, to perform those services in
connection with the Offer to Exchange as are customarily performed by investment
banks in connection with offers to exchange of a like nature, including, but not
limited to, using reasonable efforts to solicit tenders of Shares and
communicating generally regarding the Offer to Exchange with brokers, dealers,
trust companies and other holders of the Shares. In such capacity, the
Solicitation Agent shall act as an independent contractor, and its duties
arising out of its engagement pursuant to this Agreement shall be owed solely to
the Company. The Solicitation Agent agrees to furnish no written material to
holders in connection with the Offer to Exchange other than the Offer to
Exchange Materials (as defined below in paragraph 1(d)).
1. Solicitation of Tenders.
(a) The Solicitation Agent will use its best efforts to solicit tenders
of Shares pursuant to the Offer to Exchange. The Solicitation Agent shall have
no liability to the Company hereunder or for any act or omission on the part of
any securities broker or dealer, commercial bank or trust company, other than
the Solicitation Agent, which may solicit tenders hereunder except to the extent
any losses are finally judicially determined to have resulted from the gross
negligence or willful misconduct of the Solicitation Agent. In soliciting or
obtaining tenders of Shares, no dealer, bank or trust company is to be deemed to
be acting as the Solicitation Agent's agent or the agent of the Company or any
of its affiliates, and the Solicitation Agent is not to be deemed the agent of
any dealer, bank or trust company or the agent or fiduciary of the Company
<PAGE> 2
or any of it affiliates, equity holders, creditors or of any other person. In
soliciting or obtaining tenders of Shares, the Solicitation Agent shall not be
and shall not be deemed for any purpose to act as a partner or joint venturer of
or a member of a syndicate or group with the Company or any of its affiliates in
connection with the Offer to Exchange, any purchase of the Shares, or otherwise,
and neither the Company nor any of its affiliates shall be deemed to act as the
Solicitation Agent's agent.
(b) The Company authorizes the Solicitation Agent to communicate with
American Stock Transfer & Trust Company in its capacity as exchange agent (the
"Exchange Agent") with respect to matters relating to the Offer to Exchange. The
Company has instructed the Exchange Agent to advise the Solicitation Agent at
least daily as to the number of Shares that have been tendered pursuant to the
Offer to Exchange, and as to such other matters in connection with the Offer to
Exchange as the Solicitation Agent may request.
(c) The Company will promptly inform the Solicitation Agent of any
events known to the Company that might require any material change in the
Prospectus. The Company will promptly inform the Solicitation Agent of any
litigation or administrative action known to the Company with respect to the
Offer to Exchange.
(d) The Company agrees to furnish the Solicitation Agent, at the
Company's expense, with as many copies as the Solicitation Agent may reasonably
request of the Registration Statement, Prospectus, the Letter of Transmittal,
all statements and other documents filed or to be filed with the Securities and
Exchange Commission (the "Commission") or any other federal, state, local or
foreign governmental or regulatory authorities or any court (each an "Other
Agency" and collectively, the "Other Agencies") and any amendments or
supplements to any such statements and documents (the definitive forms of all of
the foregoing materials are hereinafter collectively referred to as the "Offer
to Exchange Material") to be used by the Company in connection with the Offer to
Exchange, and the Solicitation Agent is authorized to use copies of the Offer to
Exchange Material in connection with the Offer to Exchange. The Offer to
Exchange Material has been or will be prepared and approved by, and is the sole
responsibility of, the Company.
(e) The Company agrees that no Offer to Exchange Material will be used
in connection with the Offer to Exchange or filed with the Commission or any
Other Agency with respect to the Offer to Exchange without first submitting
copies thereof to the Solicitation Agent, giving the Solicitation Agent
reasonable opportunity to comment thereon and giving reasonable consideration to
Solicitation Agent's comments, if any, with respect thereto. In the event that
the Company uses or permits the use of any Offer to Exchange Material in
connection with the Offer to Exchange or files any such material with the
Commission or any Other Agency without the Solicitation Agent's prior approval,
which approval the Solicitation Agent will not unreasonably withhold, then the
Solicitation Agent shall be entitled to withdraw as Solicitation Agent in
connection with the Offer to Exchange without any liability or penalty to the
Solicitation Agent or indemnified party, and the Solicitation Agent shall remain
entitled to the indemnification provided in Section 6 hereof and to receive the
payment of all fees and expenses payable under this Agreement which have accrued
to the date of such withdrawal as Solicitation Agent.
2
<PAGE> 3
(f) The Company agrees to furnish to the Solicitation Agent, to the
extent the same is available to the Company, the names and addresses of, and
number of Shares held by, the registered holders and beneficial owners of Shares
or interests therein as of a recent date. The Solicitation Agent will use such
information only in connection with the Offer to Exchange and will not furnish
such information to any other person except in connection with the Offer to
Exchange.
2. Compensation and Expenses.
(a) The Company shall pay to the Solicitation Agent, as compensation
for its services as Solicitation Agent, a fee of $100,000 plus a solicitation
fee equal to 2% of the face value of the Debentures issued through the Offer to
Exchange, other than Debentures issued to Shareholders whose total personal
holdings are more than 10% of the Company's outstanding stock.
(b) In addition to the Solicitation Agent's compensation for the
Solicitation Agent's services hereunder pursuant to Section 2 hereof, The
Company agrees to pay directly, or reimburse the Solicitation Agent, as the case
may be, for (i) all reasonable expenses incurred by the Solicitation Agent
relating to the preparation, printing, filing and mailing of all Offer to
Exchange Material, (ii) all fees and expenses of the Exchange Agent, and (iii)
all fees, if any, payable to dealers (excluding the Solicitation Agent), and
banks and trust companies as reimbursement for their customary mailing and
handling expenses incurred in forwarding the Offer to Exchange Material to their
customers.
(c) The Solicitation Agent shall be entitled to reasonable and customary
accountable expenses, which shall not exceed $25,000. Such expenses may be
prepaid by the Company, in the Company's sole discretion. The Solicitation Agent
shall be responsible for all other reasonable fees and expenses incurred by it
in connection with the Offer to Exchange or otherwise in connection with the
performance of its services hereunder (including fees and disbursements of its
legal counsel).
(d) All payments to be made by the Company pursuant to subparagraphs
(a) and (b) of this Section 2 shall be made as follows: $50,000 shall be paid
upon the signing of the Agreement and the balance shall be paid at closing of
the Offer to Exchange. If the Offer to Exchange is not consummated for any
reason other than due to the fault of the Solicitation Agent, the Solicitation
Agent will be entitled only to its reasonable accountable expenses, which shall
not exceed $25,000. If the Offer to Exchange is not consummated due to the fault
of the Solicitation Agent, the Solicitation Agent shall not be entitled to any
reimbursement or compensation. The provisions of this Section 2 are intended to
govern the payment of expenses and fees described in this Section 2 and the
Company's and the Solicitation Agent's obligation to indemnify an indemnified
party are set forth in Section 6 hereof.
3. Certain Representations, Warranties and Covenants by the Company.
The Company represents, warrants and/or covenants to the Solicitation
Agent that:
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and is
duly qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its
3
<PAGE> 4
businesses or the ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or to be in good
standing, considering all such cases in the aggregate, would not have a material
adverse effect on the business, properties, financial position or results of
operations of the Company and all of its subsidiaries and affiliates taken as a
whole.
(b) The Company has full corporate power and authority to take and has
duly taken all necessary corporate action to authorize (i) the Offer to Exchange
and (ii) the purchase by the Company of Shares pursuant to the Offer to
Exchange. The execution, delivery and performance of this Agreement has been,
and when executed and delivered by the Company and the relevant Trustee, the
Indenture will be, duly executed and delivered on behalf of the Company, and,
assuming due authorization, execution and delivery of each of the Indenture and
this Agreement by each of the other parties thereto is, or in the case of the
Indenture will be, a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except that the
enforceability hereof may be limited by (x) bankruptcy, insolvency,
reorganization, moratorium and other laws now or hereafter in effect relating to
creditors' rights generally, (y) general principles of equity and (z) that the
indemnification provisions hereof may be held to be violative of public policy.
(c) All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission or preemptive rights with respect thereto
and are not subject to personal liability solely by reason of being
securityholders; and none of such securities was issued in violation of the
preemptive rights of any holders of any security of the Company.
(d) The Debentures have been duly authorized and, when issued in
accordance with their terms, will be valid and binding obligations of the
Company, enforceable against the Company in accordance with their terms and the
terms of the Indenture, except that the enforceability thereof may be limited by
(x) bankruptcy, insolvency, reorganization, moratorium and other laws now or
hereafter in effect relating to creditors' rights generally and (y) general
principles of equity.
(e) The Offer to Exchange complies or will comply in all material
respects with the applicable provisions of the Securities Act of 1933, and the
rules and regulations promulgated by the Commission thereunder (collectively,
the "Securities Act") and the Securities Exchange Act of 1934, and the rules and
regulations promulgated by the Commission thereunder (collectively, the
"Exchange Act"). The Offer to Exchange Material does not and will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances under which they are made, not misleading;
provided, however, that no representation is made with respect to any statements
contained in, or any matter omitted from the Offer to Exchange Material in
reliance upon and in conformity with information furnished or confirmed in
writing by the Solicitation Agent to the Company expressly for use therein.
(f) The Company will file, if required, any and all necessary
amendments or supplements to the documents, if any, filed with the Commission or
Other Agency relating to the
4
<PAGE> 5
Offer to Exchange and will promptly furnish to the Solicitation Agent true and
complete copies of each such amendment and supplement upon the filing thereof.
(g) The Offer to Exchange, the purchase by the Company of Shares
pursuant to the Offer to Exchange, and the execution, delivery and performance
of each of the Indenture and this Agreement by the Company, comply and will
comply in all material respects with all applicable requirements of federal,
state, local and foreign law, including, without limitation, any applicable
regulations of the Commission and Other Agencies, and all applicable judgments,
orders or decrees; and, except as provided below in the last sentence of this
subparagraph g, no consent, authorization, approval, order, exemption,
registration, qualification or other action of, or filing with or notice to, the
Commission or any Other Agency is required in connection with the execution,
delivery and performance of each of the Indenture and this Agreement by the
Company, and, the making or consummation by the Company of the Offer to Exchange
or the consummation of the other transactions contemplated by this Agreement or
the Offer to Exchange, except where the failure to obtain or make such consent,
authorization, approval, order, exemption, registration, qualification or other
action or filing or notification would not materially adversely affect the
ability of the Company, to execute, deliver and perform each of the Indenture
and this Agreement or to commence and consummate the Offer to Exchange in
accordance with its terms. All such required consents, authorizations,
approvals, orders, exemptions, registrations, qualifications and other actions
of and filings with and notices to the Commission and the Other Agencies will
have been obtained, taken or made, as the case may be, and all statutory or
regulatory waiting periods will have elapsed, prior to the purchase of the
Shares pursuant to the Offer to Exchange.
(h) The Offer to Exchange, the purchase of Shares by the Company
pursuant to the Offer to Exchange, and the execution, delivery and performance
of each of the Indenture and this Agreement by the Company, do not and will not
(i) conflict with or result in a violation of any of the provisions of the
certificate of incorporation or by-laws (or similar organizational documents) of
the Company, (ii) conflict with or violate in any material respect any law,
rule, regulation, order, judgment or decree applicable to the Company, or any of
its subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is or may be bound or (iii) result in a breach of any of the
material terms or provisions of, or constitute a default (with or without due
notice and/or lapse of time) under, any loan or credit agreement, indenture,
mortgage, note or other agreement or instrument to which the Company or any of
its subsidiaries is a party or by which any of them or any of their respective
properties or assets is or may be bound.
(i) Except as expressly disclosed in the Offer to Exchange Material, no
stop order, restraining order or denial of an application for approval has been
issued and no investigation, proceeding or litigation has commenced or, to the
best of the Company's knowledge, threatened before the Commission or any other
Agency or Court with respect to the making or consummation of the Offer to
Exchange or the consummation of the other transactions contemplated by this
Agreement or the Offer to Exchange or with respect to the ownership of Shares by
the Company or any of its subsidiaries or affiliates.
5
<PAGE> 6
(j) The Company has no knowledge of any material fact or information
concerning the Company or any of its subsidiaries, or the operations, assets,
condition (financial or otherwise) or prospects of the Company or any of its
subsidiaries, which is required to be made generally available to the public and
which has not been, or is not being, or will not be, made generally available to
the public through the Offer to Exchange Material or otherwise.
(k) The Company is not, nor will it be as a result of the purchase by
the Company of Shares that it may become obligated to purchase pursuant to the
terms of the Offer to Exchange, an "investment company" under the Investment
Company Act of 1940 and the rules and regulations promulgated by the Commission
thereunder.
(l) Each of the representations and warranties set forth in this
Agreement will be true and correct on and as of the date on which the Offer to
Exchange is commenced and as of the date any Offer to Exchange Material is first
distributed to holders of Shares and on and as of the date on which any Shares
are purchased and payments for Shares are made pursuant of the Offer to Exchange
Material.
4. Certain Representations, Warranties and Covenants by the
Solicitation Agent.
The Solicitation Agent represents, warrants and/or covenants to the
Company that:
(a) The Solicitation Agent is a corporation duly organized and validly
existing under the laws of the state of its incorporation; the execution and
delivery by the Solicitation Agent of this Agreement and the consummation of the
transactions herein contemplated will not result in any violation of, or be in
conflict with, or constitute a default under, any agreement or instrument to
which the Solicitation Agent is a party or by which the Solicitation Agent or
its properties are bound, or any judgment, decree, order or, to the Solicitation
Agent's knowledge, any statute, rule or regulation applicable to the
Solicitation Agent. The Solicitation Agent has full corporate power and
authority to take and has duly taken all necessary corporate action to enter
into this Agreement and perform its obligations hereunder. This Agreement, when
executed and delivered by the Solicitation Agent, will constitute the legal,
valid and binding obligation of the Solicitation Agent, enforceable in
accordance with its terms, except to the extent that (i) the enforceability
hereof may be limited by bankruptcy, insolvency, reorganization, moratorium or
similar laws from time to time in effect and affecting the rights of creditors
generally, (ii) the enforceability hereof is subject to general principles of
equity, or (iii) the indemnification provisions hereof may be held to be
violative of public policy.
(b) The Solicitation Agent will deliver to each purchaser, prior to any
submission by such person of a written offer to exchange Shares for Debentures,
a copy of the Offering Materials, as it may have been most recently amended or
supplemented by the Company.
(c) During the period of the Offer to Exchange, none of the
Solicitation Agent nor any of its affiliates, officers, directors, employees or
agents shall effect any transactions in the Shares for the purpose of creating
actual, or apparent, active trading in, or raising or
6
<PAGE> 7
depressing the price of, the Shares and each of the foregoing persons shall
comply with Regulation M promulgated under the Exchange Act.
(d) The Solicitation Agent will not take any action which it reasonably
believes would cause the Offer to Exchange to violate the provisions of the
Securities Act or the Exchange Act.
(e) The Solicitation Agent is a member of the National Association of
Securities Dealers, Inc. and is a broker-dealer registered as such under the
Exchange Act and under the securities laws of the States in which the
Solicitation Agent will solicit the Offer to Exchange.
5. Conditions of Obligation.
The obligation to act as Solicitation Agent hereunder shall at all
times be subject, in its reasonable discretion, to the conditions that:
(a) All representations, warranties and other statements of the Company
contained herein are now, and at all times during the Offer to Exchange will be,
true and correct in all material respects.
(b) The Company at all times during the Offer to Exchange shall have
performed all of its material obligations hereunder and theretofore required to
have been performed.
(c) Legal counsel to the Company acceptable to the Solicitation Agent
shall have furnished to the Solicitation Agent, concurrently with the execution
of this Agreement, an opinion, dated the date hereof, substantially in the form
of Exhibit B hereto.
6. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Solicitation
Agent and any person, if any, who controls the Solicitation Agent within the
meaning of Section 20 of the Exchange Act or Section 15 of the Securities Act,
from and against any and all claims, damages, losses, liabilities, costs or
expenses (including reasonable attorneys' fees) to which the Solicitation Agent
may become subject by reason of or in connection with claims, damages, losses,
liabilities, costs or expenses that arise out of or are based upon (i) the Offer
to Exchange (ii) the execution and delivery of this Agreement or the
performance, or failure to perform, by the Solicitation Agent of its obligations
hereunder, (iii) any breach by the Company of any warranty, covenant, term or
condition in, or the occurrence of any default under, this Agreement or the
Indenture and (iv) any untrue statement or alleged untrue statement of a
material fact contained in the Offer to Exchange Materials, or arising out of or
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading; provided, however, that the indemnity agreement contained in this
subsection (a) shall not apply to amounts paid in settlement
7
<PAGE> 8
of any such claims or litigation if such settlement is effected without the
consent of the Company, nor shall it apply to the Solicitation Agent or any
person controlling the Solicitation Agent in respect of any such claims, losses,
liabilities, costs or expenses arising out of, or based upon, any such untrue
statement or alleged untrue statement, or any such omission or alleged omission,
if such statement or omission was made in reliance upon and in conformity with
information furnished in writing to the Company by the Solicitation Agent, or on
its behalf, specifically for use in connection with the preparation of the Offer
to Exchange Materials.
(b) Notwithstanding the provisions of paragraph 1(a) herein, the
Solicitation Agent agrees, in the same manner and to the same extent as set
forth in subsection (a) above, to indemnify and hold harmless the Company, each
of the directors and officers who have signed the Registration Statement and
each person, if any, who controls the Company within the meaning of Section 20
of the Exchange Act or Section 15 of the Act, with respect to any statement in
or omission from the Offer to Exchange Material, if such statement or omission
was made in reliance upon and in conformity with written information furnished
in writing to the Company by the Solicitation Agent, or on its behalf,
specifically for use in connection with the preparation of the Offer to Exchange
Material. The Solicitation Agent shall not be liable for amounts paid in
settlement of any such claim or litigation if such settlement was effected
without its consent.
(c) Each indemnified party shall give reasonably prompt notice to each
indemnifying party of any claim asserted against it and of any action commenced
against it in respect of which indemnity may be sought hereunder. The omission
to so notify an indemnifying party shall relieve such party of its obligation to
indemnify pursuant to this Agreement, but failure to so notify an indemnifying
party shall not relieve it from any liability which it may have incurred
otherwise than on account of this indemnity agreement. In case any such action
is brought against any indemnified party, and it notifies the indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate in, and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, subject to
the provisions herein stated, with counsel reasonably satisfactory to such
indemnified party, and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 6 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation. The indemnified party shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the fees and expenses of such counsel shall be at the expense of the
indemnifying party if: (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party; or (ii) the defendants in any
such action include both the indemnified and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be a conflict
between the positions of the indemnifying party and the indemnified party in
conducting the defense of any such action or that there may be legal defenses
available to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such indemnified party or parties), it being understood, however,
that the indemnifying party shall not, in connection with any one such action or
separate but substantially similar or related
8
<PAGE> 9
actions in the same jurisdiction arising out of the same general allegations or
circumstances, be liable for the reasonable fees and expenses of more than one
separate firm of attorneys for the indemnified party which firm shall be
designated in writing by the indemnified party.
(d) The respective indemnity agreements between the Solicitation Agent
and the Company contained in subsections (a) and (b) above, and the
representations and warranties of the Company and the Solicitation Agent set
forth in Sections 3 and 4 hereof or elsewhere in this Agreement, shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Solicitation Agent or by or on behalf of any controlling
person of the Solicitation Agent or the Company or any such officer or director
or any controlling person of the Company, and shall survive completion of the
Offer to Exchange. Any successor of the Company, or of the Solicitation Agent,
or of any controlling person of the Solicitation Agent or the Company, as the
case may be, shall be entitled to the benefit of such respective indemnity
agreements.
(e) In order to provide for just and equitable contribution in any case
in which: (i) any person entitled to indemnification under this Section 6 makes
claim for indemnification pursuant hereto but it is judicially determined (by
the entry of a final judgment or decree by a court of competent jurisdiction and
the expiration of time to appeal or the denial of the last right of appeal) that
such indemnification may not be enforced in such case notwithstanding the fact
that this Section 6 provides for indemnification in such case; or (ii)
contribution may be required on the part of any such person in circumstances for
which indemnification is provided under this Section 6, then, and in each such
case, the Company and the Solicitation Agent shall contribute to the aggregate
losses, claims, damages, expenses or liabilities to which they may be subject
(A) in such proportion as is appropriate to reflect the relative benefits
received by each of the contributing parties on the one hand, and the party to
be indemnified on the other hand, from the Offer to Exchange or (B) if the
allocation provided by clause (A) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties on the one hand and the party to be indemnified on the
other hand in connection with statements or omissions that resulted in such
losses, claims, damages, liabilities or expenses, as well as any other relevant
equitable considerations; provided, however, that, in any such case (x) the
Solicitation Agent shall not be required to contribute any amount in excess of
the compensation paid to the Solicitation Agent pursuant to Section 2 hereof,
and (y) no person guilty of a fraudulent misrepresentation shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
Within twenty days after receipt by any party to this Agreement (or its
representative) of notice of the commencement of any action, suit or proceeding,
such party will, if a claim for contribution in respect thereof is to be made
against another party (the "contributing party"), notify the contributing party,
in writing, of the commencement thereof, but the omission so to notify the
contributing party will not relieve it from any liability which it may have to
any other party other than for contribution hereunder. In case any such action,
suit or proceeding is brought against any party, and such party so notifies a
contributing party or his or its representative of the commencement thereof
within the aforesaid twenty days, the contributing party will be entitled to
participate therein with the notifying party and any other contributing party
similarly notified. Any such contributing party shall not be liable to any party
seeking contribution on account of any settlement of any claim, action or
proceeding effected by such party seeking contribution without
9
<PAGE> 10
the written consent of such contributing party. The contribution provisions
contained in this Section 6 are in addition to any other rights or remedies
which either party hereto may have with respect to the other or hereunder.
7. Miscellaneous.
(a) The Company shall advise the Solicitation Agent promptly of the
occurrence of any event which, in the Company's judgment, could cause the
Company to withdraw, rescind or modify the Offer to Exchange.
(b) This Agreement is made solely for the benefit of the Solicitation
Agent and the Company and their respective successors, assigns, and legal
representatives, and no other person shall acquire or have any right under or by
virtue of this Agreement.
(c) Except as otherwise expressly provided in this agreement, whenever
notice is required by the provisions of this agreement to be given to (i) the
Company, such notice shall be in writing addressed to the Company, at its office
at Old Buffaloville Road, P.O. Box 436, Dale, Indiana 47523, Attention: Kenneth
J. Susnjara; and (ii) the Solicitation Agent, such notice shall be in writing
addressed to the Solicitation Agent, at Dirks & Company, Inc., 520 Madison
Avenue, New York, NY 10022, Attention: Robert Goss. Any notice required or
permitted to be given hereunder shall be given in writing and shall be deemed
effective when deposited in the United States mail, postage prepaid, or when
received if delivered personally or by facsimile confirmed transmission.
(d) This Agreement shall be governed by and construed in all respects
under the laws of the State of New York, without reference to its conflict of
laws, rules or principles. Any suit, action, proceeding or litigation arising
out of or relating to this Agreement shall be brought and prosecuted in such
federal or state court or courts located within the State of New York as
provided by law. The parties hereby irrevocably and unconditionally consent to
the jurisdiction of each such court or courts located within the State of New
York, County of New York and to service of process by registered or certified
mail, return receipt requested, or by any other manner provided by applicable
law, and hereby irrevocably and unconditionally waive any right to claim that
any suit, action, proceeding or litigation so commenced has been commenced in an
inconvenient forum.
(e) This Agreement contains the entire understanding of the parties
with respect to Dirks & Company, Inc. acting as Solicitation Agent of the Offer
to Exchange, superseding all prior agreements, understandings and negotiations
with respect to such activities by Dirks & Company, Inc.
(f) This Agreement may be executed in any number of separate
counterparts, each of which shall be an original, but all such counterparts
shall together constitute one and the same agreement.
10
<PAGE> 11
Please sign and return to us a duplicate of this letter, whereupon it
will become a binding agreement.
Very truly yours,
THERMWOOD CORPORATION
By:
------------------------------
Kenneth J. Susnjara
President
The undersigned hereby confirms that the foregoing letter, as of the date
thereof, correctly sets forth the agreement between the Company and the
undersigned.
DIRKS & COMPANY, INC.
By:
-------------------------------
Name:
Title:
11
<PAGE> 12
EXHIBIT A
<PAGE> 13
EXHIBIT B
February __, 1999
Dirks & Company, Inc.
As Solicitation Agent
520 Madison Avenue, 10th Floor
New York, New York 10022
Ladies and Gentlemen:
I have acted as counsel to Thermwood Corporation (the "Company"), in
connection with the Offer (the "Offer to Exchange") to exchange 12% 15-year
Subordinated Debentures ("Debentures"), which have been issued pursuant to a
certain indenture dated ____________ (the "Indenture"), for up to 750,000 of its
outstanding Shares ("Shares") of common stock.
Such Offer to Exchange and was made on the terms and subject to the
conditions set forth in those certain documents which are attached as Exhibit A
to the Solicitation Agent Agreement referred to below (such documents are
collectively referred to as the "Offer to Exchange Material").
In connection therewith, I have examined the Offer to Exchange
Material, a signed copy of the agreement dated ___________, 1999, between the
Company and you providing for your services as Solicitation Agent for the Offer
to Exchange (the "Solicitation Agent Agreement") and such other documents as I
have deemed appropriate for the purpose of this opinion.
I have not undertaken any independent review or investigation of the
foregoing facts. In my examination, I have assumed the genuineness of all
signatures, the authenticity of all documents submitted to me as originals, the
conformity to originals of all documents submitted to me as photocopies and the
authenticity of the originals of such photocopies. I also have assumed, with
your consent and without undertaking, or having any duty to undertake any
independent investigation, that the representations, warranties, statements and
information as to factual matters made in the agreements and documents mentioned
above or otherwise furnished to me are true and correct.
Based upon such examination and in reliance thereon and having regard
for legal considerations which I deem relevant, I am of the following opinion:
(i) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its
incorporation and is duly qualified to transact business and is in good
standing in each jurisdiction in which
<PAGE> 14
the conduct of its businesses or the ownership or leasing of property
requires such qualification, except to the extent that the failure to
be so qualified or to be in good standing, considering all such cases
in the aggregate, would not have a materially adverse effect on the
business, properties, financial position or results of operations of
the Company and all of its subsidiaries and affiliates taken as a
whole.
(ii) The Company has full corporate power and authority to take and has
duly taken all necessary corporate action to authorize (i) the Offer to
Exchange, and (ii) the purchase by the Company of Shares pursuant to
the Offer to Exchange. The execution, delivery and performance of this
Agreement has been, and when executed and delivered by the Company and
the relevant Trustee, the Indenture will be, duly executed and
delivered on behalf of the Company, and, assuming due authorization,
execution and delivery of each of the Indenture and this Agreement by
each of the other parties thereto is, or in the case of the Indenture
will be, a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except
that the enforceability hereof may be limited by (x) bankruptcy,
insolvency, reorganization, moratorium and other laws now or hereafter
in effect relating to creditors' rights generally (y) general
principles of equity and (z) that the indemnification provisions hereof
may be held to be violative of public policy.
(iii) All issued and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid and
non-assessable; the holders thereof have no rights of rescission or
preemptive rights with respect thereto and are not subject to personal
liability solely by reason of being securityholders; and none of such
securities was issued in violation of the preemptive rights of any
holders of any security of the Company.
(iv) The Debentures have been duly authorized and, when issued, will be
valid and binding obligations of the Company, enforceable against the
Company in accordance with their terms and the terms of the Indenture,
except that the enforceability thereof may be limited by (x)
bankruptcy, insolvency, reorganization, moratorium and other laws now
or hereafter in effect relating to creditors' rights generally and (y)
general principles of equity.
(v) The Offer to Exchange complies or will comply in all material
respects with the applicable registration provisions of the Securities
Act of 1933, and the rules and regulations promulgated by the
Commission thereunder.
(vi) To the best of counsel's knowledge, the Offer to Exchange, the
purchase by the Company of Shares pursuant to the Offer to Exchange,
and the execution, delivery and performance of each of the Indenture
and this Agreement by the Company, comply and will comply in all
material respects with all applicable requirements of federal, state
and local law, including, without limitation, any applicable
regulations of the Commission and Other Agencies, and all applicable
<PAGE> 15
judgments, orders or decrees; and no consent, authorization, approval,
order, exemption, registration, qualification or other action of, or
filing with or notice to, the Commission or any Other Agency is
required (other than has already been obtained or taken, as the case
may be) in connection with the execution, delivery and performance of
each of the Indenture and this Agreement by the Company, and, the
making or consummation by the Company of the Offer to Exchange or the
consummation of the other transactions contemplated by this Agreement
or the Offer to Exchange, except where the failure to obtain or make
such consent, authorization, approval, order, exemption, registration,
qualification or other action or filing or notification would not
materially adversely affect the ability of the Company, to execute,
deliver and perform each of the Indenture and this Agreement or to
commence and consummate the Offer to Exchange in accordance with its
terms.
(vii) The Offer to Exchange, the purchase of Shares by the Company pursuant
to the Offer to Exchange, and the execution, delivery and performance
of each of the Indenture and this Agreement by the Company, do not and
will not (i) conflict with or result in a violation of any of the
provisions of the certificate of incorporation or by-laws (or similar
organizational documents) of the Company, (ii) to the best of counsel's
knowledge, conflict with or violate in any material respect any law,
rule, regulation, order, judgment or decree applicable to the Company,
or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is or may be bound or (iii) to the
best of counsel's knowledge, result in a breach of any of the material
terms or provisions of, or constitute a default (with or without due
notice and/or lapse of time) under, any loan or credit agreement,
indenture, mortgage, note or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which any of them
or any of their respective properties or assets is or may be bound.
(viii) Except as expressly disclosed in the Offer to Exchange Material,
counsel has no knowledge that a stop order, restraining order or denial
of an application for approval has been issued or that an
investigation, proceeding or litigation has commenced or threatened
before the Commission or any Other Agency with respect to the making or
consummation of the Offer to Exchange or the consummation of the other
transactions contemplated by this Agreement or the Offer to Exchange or
with respect to the ownership of Shares by the Company or any of its
subsidiaries or affiliates.
(ix) I have no knowledge of any material fact or information concerning the
Company or any of its subsidiaries, or the operations, assets,
condition (financial or otherwise) or prospects of the Company or any
of its subsidiaries, which is required to be made generally available
to the public and which has not been, or is not being, or will not be,
made generally available to the public through the Offer to Exchange
Material or otherwise.
<PAGE> 16
(x) The Company is not, nor will it be as a result of the purchase by the
Company of Shares that it may become obligated to purchase pursuant to
the terms of the Offer to Exchange, an "investment company" under the
Investment Company Act of 1940, and the rules and regulations
promulgated by the Commission thereunder.
The opinions herein are further subject to the following limitations
and qualifications:
(a) I am a member of the bar of the State of New York and the I express
no opinion as to matters of law in jurisdictions other than the State of Indiana
(for which I have relied on an opinion of Indiana counsel and the federal
securities laws of the United States.
(b) I express no opinion insofar as to compliance with applicable
anti-fraud statutes, rules or regulations of state, and federal law.
(c) I have assumed, without investigation, there was and will be no
misrepresentation, omission, fraud, duress, undue influence, bad faith or deceit
in connection with the Offer to Exchange.
I am not passing upon and do not assume any responsibility for the
accuracy, completeness or fairness of any of the statements contained in the
Registration Statement and Prospectus and make no representation that I have
independently verified the accuracy, completeness or fairness of any such
statements. In my capacity as special securities counsel to the Company,
however, I had conferences and teleconferences with the Company and
representatives of the Solicitation Agent and others, during which conferences
and teleconferences the contents of the Registration Statement and Prospectus
and related matters were discussed. Based on my participation in the
above-mentioned conferences and in reliance thereon and on the records,
documents, certificates and opinions herein mentioned above, I advise you that,
during the course of my representation of the Company as counsel on this matter,
no information came to my attention in connection with such representation which
caused me to believe that the Offer to Exchange Material at its date and as of
the date of this opinion contained or contains any untrue statements of a
material fact or omitted or omits to state any material fact required to be
stated therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
This opinion is intended for your use and neither this opinion nor any
part hereof may be delivered to, used or relied upon by any other person or
entity, without my prior written consent except this opinion may be relied upon
by Orrick, Herrington & Sutcliffe LLP.
This opinion is given as of the date hereof and I assume no obligation
to update or supplement this opinion to reflect any facts or circumstances which
may hereafter come to my attention or any changes in law which may hereafter
occur.
Very truly yours,
Barry B. Feiner, Esq.
<PAGE> 1
EXHIBIT 4.4
Revised Indenture With American Stock Transfer And
Trust Company Concerning The 12% Debentures Due 2014
THERMWOOD CORPORATION
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
TRUSTEE
INDENTURE
DATED AS OF MARCH __, 1999
$8,250,000
12% SUBORDINATED DEBENTURES DUE 2014
<PAGE> 2
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
310(a)(1).............................. 7.10
(a)(2).............................. 7.10; 12.09
(a)(3).............................. N.A.
(a)(4).............................. N.A.
(b) .............................. 7.08; 7.10
(c) .............................. N.A.
311(a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312(a) .............................. 2.05
(b) .............................. 12.02
(c) .............................. 12.02
313(a) .............................. 7.06
(b)(1).............................. N.A.
(b)(2).............................. 7.06
(c) .............................. 12.01
(d) .............................. 7.06
314(a) .............................. 4.02; 4.03; 12.01
(b) .............................. N.A.
(c)(1).............................. 12.03
(c)(2).............................. 12.03
(c)(3).............................. N.A.
(d) .............................. N.A.
(e) .............................. 12.04
(f) .............................. 4.03
315(a) .............................. 7.01
(b) .............................. 7.05; 12.01
(c) .............................. 7.01
(d) .............................. 7.01
(e) .............................. 6.11
316(a)
(last sentence) ........................ 2.09
(a)(1)(A) ........................ 6.05
(a)(1)(B) ........................ 6.04
(a)(2) ........................ N.A.
(b) ........................ 6.07
317(a)(1) ........................ 6.08
(a)(2) ........................ 6.09
(b) ........................ 2.04
318(a) ......................... 12.11
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be
part of the Indenture.
<PAGE> 3
TABLE OF CONTENTS
ARTICLE SECTION HEADING PAGE
- ------- ------- ------- ----
I DEFINITIONS AND RULES
OF CONSTRUCTION
1.01 Definitions 1
1.02 Other Definitions 2
1.03 Rules of Construction 2
II THE SECURITIES
2.01 Form and Dating 3
2.02 Execution and Authentication 3
2.03 Registrar and Paying Agent 3
2.04 Paying Agent to Hold Money in Trust 4
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
2.13 CUSIP Numbers 5
III REDEMPTION
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
3.07 Redemption By Holder's Estate 7
IV COVENANTS
4.01 Payment of Securities 8
4.02 SEC Reports 8
4.03 Compliance Certificate 8
4.04 Limitation on Dividends; and
Stock Purchase 8
4.05 Certain Transactions With a
Parent and its Affiliates 9
<PAGE> 4
TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
ARTICLE SECTION HEADING PAGE
- ------- ------- ------- ----
<S> <C> <C> <C>
V SUCCESSORS
5.01 When Company May Merge, etc. 9
VI DEFAULTS AND REMEDIES
6.01 Events of Default 10
6.02 Acceleration 10
6.03 Other Remedies 11
6.04 Waiver of Past Defaults 11
6.05 Control by Majority 11
6.06 Limitation on Suits 11
6.07 Rights of Holders to Receive Payment 12
6.08 Collection Suit by Trustee 12
6.09 Trustee May File Proofs of Claim 12
6.10 Priorities 12
6.11 Undertaking for Costs 12
VII TRUSTEE
7.01 Duties of Trustee 13
7.02 Rights of Trustee 14
7.03 Individual Rights of Trustee 14
7.04 Trustee's Disclaimer 14
7.05 Notice of Defaults 14
7.06 Reports by Trustee to Holders 14
7.07 Compensation and Indemnity 15
7.08 Replacement of Trustee 15
7.09 Successor Trustee by Merger, etc. 16
7.10 Eligibility; Disqualification 16
7.11 Preferential Collection of
Claims Against Company 16
VIII DISCHARGE OF INDENTURE
8.01 Termination of Company's Obligations 17
8.02 Application of Trust Money 17
8.03 Repayment to Company 17
IX AMENDMENTS
9.01 Without Consent of Holders 18
9.02 With Consent of Holders 18
</TABLE>
<PAGE> 5
TABLE OF CONTENTS
(Continued)
ARTICLE SECTION HEADING PAGE
- ------- ------- ------- ----
9.03 Revocation and Effect of Consents 19
9.04 Notation on or Exchange of Securities 19
9.05 Trustee Protected 19
X INTENTIONALLY LEFT BLANK
XI SUBORDINATION
11.01 Agreement to Subordinate 19
11.02 Certain Definitions 19
11.03 Liquidation, Dissolution, Bankruptcy 20
11.04 Default on Senior Debt 21
11.05 Acceleration of Securities 21
11.06 When Distribution Must be Paid Over 21
11.07 Notice by Company 21
11.08 Subrogation 21
11.09 Relative Rights 21
11.10 Subordination May Not Be Impaired 22
by Company
11.11 Distribution or Notice to Representative 22
11.12 Rights of Trustee and Paying Agent 22
XII MISCELLANEOUS
12.01 Notices 22
12.02 Communications by Holders with
Other Holders 23
12.03 Certificate and Opinion as to
Conditions Precedent 23
12.04 Statements Required in Certificate
or Opinion 23
12.05 Rules by Trustee and Agents 23
12.06 Legal Holidays` 23
12.07 No Recourse Against Others 23
12.08 Duplicate Originals 24
12.09 Miscellaneous 24
12.10 Governing Law 24
12.11 Trust Indenture Act Controls 25
SIGNATURES 25
<PAGE> 6
EXHIBIT A - FORM OF SECURITY
<PAGE> 7
INDENTURE dated as of March __, 1999 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% Subordinated
Debentures due 2014 (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 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.
"Issue Date" means the date on which the Securities are originally issued.
"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.
<PAGE> 8
"Securities" means the Securities described above issued under this
Indenture.
"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.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the Issue Date.
"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.
<TABLE>
<CAPTION>
Term Defined in Section
---- -------------------
<S> <C>
"Bankruptcy Law" 6.01
"Custodian 6.01
"Event of Default 6.01
"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
</TABLE>
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.
2
<PAGE> 9
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 and Paying Agent.
The Company shall maintain an office or agency where Securities may be presented
for registration of transfer or for exchange (the "Registrar") and an office or
agency where Securities may be presented for payment (the "Paying 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 and one or more
additional paying agents. 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 or Paying Agent, the Trustee shall act as such.
3
<PAGE> 10
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 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-registrar 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 or 3.06.
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
4
<PAGE> 11
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.
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 and Paying Agent shall forward to the Trustee any Securities
surrendered to them for registration of transfer, exchange or payment. The
Trustee shall cancel all Securities surrendered for registration of transfer,
exchange, payment 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.
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.
SECTION 2.13. CUSIP Numbers.
The Company in issuing the Securities may use "CUSIP" numbers (if then generally
in use) and, if so, the Trustee shall use "CUSIP" numbers in notices of
redemption as a convenience to Holders; provided, however, that any such notice
may state that no representation is made as to the correctness of such numbers
either as printed on the Securities or as contained in any notice of a
redemption and that reliance may be placed
5
<PAGE> 12
only on the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
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 $1,100. Securities and portions of them it selects shall be in
amounts of $11.00 or integral multiples of $11.00. 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 name and address of
the Paying Agent; (iii) that Securities called for redemption must be
surrendered to the Paying Agent to collect the redemption price; and (iv) 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.
6
<PAGE> 13
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.
Section 3.07. Redemption By Holder's Estate.
Upon the death of a Holder of a Security, the estate of such Holder may require
the Company to redeem up to a maximum of $50,000 total value of the Securities
owned by such Holder, by delivering to the Company an irrevocable election (a
"Death Redemption Election") requiring the Company to make such redemption. The
redemption price to be paid will be the principal amount of the Security, plus
interest accrued and not previously paid, to the date of redemption. If the
redemption price would be greater than $50,000 in the aggregate, the Company
only shall be required to redeem such number of Securities that, when taken
together with the amount of accrued but unpaid interest thereon, shall equal
$50,000. In the event a Security is held jointly by two or more Persons, the
Company shall not be required to redeem such Security until each joint holder of
such Security has died. Notwithstanding the foregoing sentence, if a Security is
held jointly by a husband and wife, such Security shall be subject to the
elective redemption provisions of this Section 3.07 upon the death of either
spouse. Notwithstanding any of the foregoing, this right of redemption is
limited to the estate of the initial Holder (the Holder who purchased the
Security directly from the Company). No subsequent Security holder will have
this right of redemption.
Upon receipt of a Redemption Election, the Company shall designate the
Redemption Date for such Security, which Redemption Date shall be no more than
thirty days after the Company's receipt of the Redemption Election, and shall
pay the Redemption Price to the estate of the Holder in accordance with the
provisions set forth in this Article III.
No interest shall accrue on any Security to be redeemed under this Section 3.07
for any period of time after the Redemption Date for such Security and after the
Company has tendered the Redemption Price to the Estate of the Holder or to the
Paying Agent, which ever the Company chooses in its sole discretion.
7
<PAGE> 14
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 stating that in the course
of the performance by the signers of their duties as Officers of the Company
they would normally have knowledge of any Default and whether or not the signers
know of any Default that occurred during such period. If they do, the
certificate shall describe the Default, its status and what action the Company
is taking or proposes to take with respect thereto. The Certificate need not
comply with Section 12.04. See Section 12.09. The Company also shall comply with
TIA Section 314(a)(4).
Section 4.04. Limitation on Dividends and Stock Purchase.
(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.
(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
8
<PAGE> 15
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 to, 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.
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
9
<PAGE> 16
Securities and this Indenture; 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 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
10
<PAGE> 17
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.
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; (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.
11
<PAGE> 18
Section 6.07. Rights of Holders to Receive Payment.
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.
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.
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 it as
Trustee, a court in its discretion may require the filing by any party litigant
in the suit of an undertaking to pay the costs of the suit, and the court in its
discretion may assess reasonable costs, including reasonable attorneys' fees,
against any party litigant in the suit, having due regard to the merits and good
faith of the claims or defenses made by the party litigant. 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.
12
<PAGE> 19
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 shall not be liable for interest on any money received by it
except as the Trustee may agree with the Company.
(f) Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to expend or risk
its own funds or otherwise incur financial liability in the performance of any
of its duties hereunder or in the exercise of any of its rights or powers, if it
shall have reasonable grounds to believe that repayment of such funds or
adequate indemnity against such risk or liability is not reasonably assured to
it.
(h) Every provision of this Indenture relating to the conduct or affecting the
liability of or affording protection to the Trustee shall be subject to the
provisions of this Section and to the provisions of the TIA.
13
<PAGE> 20
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 an Event of Default as defined in Section 6.01 occurs and is continuing and
is known to the Trustee, the Trustee must mail to each Holder notice of the
Event of Default within 90 days after it occurs. Except in the case of an Event
of Default in the payment of principal of or interest on any Debenture, the
Trustee may withhold notice if and so long as a committee of its trust officers
determines that withholding notice is not opposed to the interest of the
Holders.
Section 7.06. Reports by Trustee to Holders.
To the extent required by the TIA, within 60 days after the reporting date
stated in Section 12.09, the Trustee shall mail to Holders a brief report dated
as of such reporting date that complies with TIA " 313(a). The Trustee also
shall comply with TIA Section 313(b).
A copy of each report at the time of its mailing to Holders shall be filed with
the SEC and each stock exchange (if any) on which the Securities are listed. The
Company agrees
14
<PAGE> 21
to notify promptly the Trustee whenever the Securities become listed on any
stock exchange and of any delisting thereof.
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
15
<PAGE> 22
Securities may appoint a successor Trustee to replace the successor Trustee
appointed by the Company.
(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 l0% 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.
The Trustee shall at all times satisfy the requirements of TIA Section 310(a).
The Trustee shall have a combined capital and surplus of at least $10,000,000 as
set forth in its most recent published annual report of condition. The Trustee
shall comply with TIA Section 310(b); provided, however, that there shall be
excluded from the operation of TIA Section 310(b)(1) any indenture or indentures
under which other securities or certificates of interest or participation in
other securities of the Company are outstanding if the requirements for such
exclusion set forth in TIA Section 310(b)(1) are met.
Section 7.11. Preferential Collection of Claims Against Company.
The Trustee shall comply with TIA Section 311(a), excluding any creditor
relationship listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
16
<PAGE> 23
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. 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,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.
17
<PAGE> 24
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 Section 5.01, or (iii) make any change that does not adversely
affect the right of any Holder.
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 a majority 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; or(vi) 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) Without the consent of any holder of the Debentures, the Company
and the Trustee may amend the Indenture to cure any ambiguity, omission, defect
or inconsistency, to provide for the assumption by a successor corporation of
the obligations of the Company under the Indenture, to provide for
uncertificated Debentures in addition to or in place of certificated Debentures
(provided that the uncertificated Debentures are issued in registered form for
purposes of Section 163(f) of the Code, or in a manner such that the
uncertificated Debentures are described in Section 163(f)(2)(B) of the Code), to
add guarantees with respect to the Debentures, to secure the Debentures, to add
to the covenants of the Company for the benefit of the holders of the Debentures
or to surrender any right or power conferred upon the Company, to make any
change that does not adversely affect the rights of any holder of the Debentures
or to comply with any requirement of the SEC in connection with the
qualification of the Indenture under the Trust Indenture Act.
18
<PAGE> 25
(d) The consent of the holders of the Debentures is not necessary under the
Indenture to approve the particular form of any proposed amendment. It is
sufficient if such consent approves the substance of the proposed amendment.
(e) After an amendment under the Indenture becomes effective, the Company is
required to mail to holders of the Debentures a notice briefly describing such
amendment. However, the failure to give such notice to all holders of the
Debentures, or any defect therein, will not impair or affect the validity of 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.
19
<PAGE> 26
ARTICLE X
INTENTIONALLY LEFT BLANK
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 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) the Company's
outstanding 12% Convertible Debentures due February 2003 (which rank equally
with the Securities covered by this Indenture) covered by the indenture between
the Company and American Stock Transfer And Trust Company dated February 3,
1993; (ii) any Indebtedness of the Company to any subsidiary for money borrowed
or advanced from such Subsidiary and (iii) 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.
20
<PAGE> 27
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 of Senior Debt; or (iii) prevent the Trustee or
21
<PAGE> 28
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 12.09. 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.
22
<PAGE> 29
Section 12.02. Communications by Holders with Other Holders.
Holders may communicate pursuant to TIA " 312(b) with other Holders with respect
to their rights under this Indenture or the Securities. The Company, the
Trustee, the Registrar and anyone else shall have the protection of TIA
"312(c)."
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 and Paying Agent may make reasonable rules and set reasonable
requirements for its functions.
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.
23
<PAGE> 30
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 and Registrar. (c) The
first certificate pursuant to Section 4.03 shall be for the fiscal year ending
on July 31, 1999.
(d) The reporting date for Section 7.06 is November 15 of each year.
The first reporting date is November 15, 1999.
(e) The Trustee, and any successor Trustee, shall always have a
combined capital and surplus of at least $10,000,000as 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
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.
This Indenture and the Securities will be governed by, and construed in
accordance with, the laws of the State of New York without giving effect to
applicable principles of conflicts of law to the extent that the application of
the law of another jurisdiction would be required thereby.
24
<PAGE> 31
Section 12.11. Trust Indenture Act Controls.
If any provision of this Indenture limits, qualifies or conflicts with another
provision which is required to be included in this Indenture by the TIA, the
required provision shall control.
SIGNATURES
Dated:________________ THERMWOOD CORPORATION
By
----------------------------------------
Kenneth J. Susnjara, President
Attest:
Linda S. Susnjara, Secretary [SEAL]
Dated:________________ AMERICAN STOCK TRANSFER AND
TRUST COMPANY
By
----------------------------------------
Attest:
- -----------------------
25
<PAGE> 32
EXHIBIT A
No: ___ $
----------------
THERMWOOD CORPORATION, an Indiana corporation, promises to pay
to_____________________________or registered assigns, the principal
of________________________Dollars on_______________________, 2014.
12% Subordinated Debenture due 2014
Interest Payment Dates: January 1, April 1, July 1 and October 1
Record Dates : December 15, March 15, June 15 and September 15
Dated:_________________________
Authenticated
AMERICAN STOCK TRANSFER THERMWOOD CORPORATION
AND TRUST COMPANY
By By
-------------------- ------------------------
Authorized Officer Authorized Officer
[SEAL]
<PAGE> 33
THERMWOOD CORPORATION
12% SUBORDINATED DEBENTURE DUE , 2014
1. Interest. Thermwood Corporation (the "Company"), an Indiana corporation,
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest quarterly on January 1,
April 1, July 1 and October 1 of each year commencing July 1, 1999. Interest on
the Securities will accrue from the most recent date to which interest has been
paid or, if no interest has been paid, from the day of delivery of the
Debentures. Interest will be computed on the basis of a 360-day year of twelve
30 day months.
2. Method of Payment. The Company will pay interest on the Securities (except
defaulted interest) to the persons who are registered holders of Securities (the
"Holders") at the close of business on the 15th day of the month next preceding
the interest payment date even though Securities are canceled after the record
date and on or before the interest payment date. Holders must surrender
Securities to a Paying Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the time of payment
is legal tender for the payment of public and private debts. However, the
Company may pay principal and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address.
3. Paying Agent and Registrar. Initially, American Stock Transfer and Trust
Company (the "Trustee"), will act as Paying Agent and Registrar. The Company may
change any Paying Agent, Registrar or co-registrar without notice. The Company
may act as Paying Agent, Registrar or co-registrar.
4. Indenture. The Company issued the Securities under an Indenture dated as of
March __, 1999 ("Indenture") between the Company and the Trustee. The terms of
the Securities include those stated in the Indenture and those made part of the
Indenture by reference to the Trust Indenture Act of 1939 (15 U.S.C. Sections
77aaa-77bbbb) as in effect on the date of the Indenture (the "Act"). Terms
defined in the Indenture and not defined herein have the meanings ascribed
thereto in the Indenture. The Securities are subject to all such terms, and
Holders are referred to the Indenture and the Act for a statement of those
terms. The Securities are unsecured general obligations of the Company limited
to $8,250,000 in aggregate principal amount.
5. Redemption. On or after _____, 2000, the first anniversary of the issuance of
the Debentures, and from time to time thereafter, the Company may redeem all or
part of the Securities from time to time at the following rates during the
following periods, plus accrued interest to the redemption date:
<PAGE> 34
12 Month Period Redemption Price
After The Issuance Per $11.00 of Face
Of the Debentures Amount of Debenture
----------------- -------------------
Second $15.00
Third $14.70
Fourth $14.40
Fifth $14.10
Sixth $13.80
Seventh $13.50
Eight $13.20
Ninth $12.90
Tenth $12.60
Eleventh $12.30
Twelfth $12.00
Thirteenth $11.70
Fourteenth $11.40
Fifteenth $11.10
By way of illustration, a debenture in the face amount of $110,000 could be
redeemed during the second year for $150,000 ($110,000 divided by $11.00
multiplied by $15.00).
6. Notice of Redemption. Notice of redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in denominations
larger than $1,000 may be redeemed in part but only in whole multiples of
$100.00. On and after the redemption date interest ceases to accrue on
Securities or portions of them called for redemption.
7. INTENTIONALLY LEFT BLANK.
8. Subordination. The Securities are subordinated to Senior Debt, which is 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) the Company's outstanding 12% Convertible Debentures due February
2003 (which rank equally with this Debenture) covered by the indenture between
the Company and American Stock Transfer And Trust Company dated February 3,
1993; (ii) any Indebtedness of the Company to any Subsidiary for money borrowed
or advanced from such Subsidiary and (iii) any Indebtedness representing the
redemption price of any preferred stock. "Indebtedness," as applied to any
entity
<PAGE> 35
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 such
entity 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
that such indebtedness would appear as a liability upon a balance sheet of such
entity prepared on a consolidated basis in accordance with generally accepted
accounting principles. To the extent provided in the Indenture, Senior Debt must
be paid before the Securities may be paid. The Company agrees to the
subordination and authorizes the Trustee to give it effect.
9. Denomination, Transfer and Exchange. The Securities are in registered form
without coupons in denominations of $11.00 and whole multiples of $11.00. The
transfer of Securities may be registered and Securities may be exchanged as
provided in the Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements and transfer documents and to pay
any taxes and fees required by law or permitted by the Indenture. The Registrar
need not exchange or register the transfer of any Securities for a period of 15
days before a selection of Securities to be redeemed.
10. Persons Deemed Owners. The registered holder of a Security may be treated as
its owner for all purposes.
11. Amendments and Waivers. Subject to certain exceptions, the Indenture or the
Securities may be amended with the consent of the Holders of at least a majority
in principal amount of the Securities. Without the consent of any Holder, the
Indenture or the Securities may be amended to cure any ambiguity, defect or
inconsistency, to provide for assumption of Company obligations to Holders, to
comply with any requirement of the SEC in connection with qualifying the
Indenture under the Act or to make any change that does not adversely affect the
rights of any Holders.
12. Defaults and Remedies. Each of the following occurrences constitutes an
Event of Default: (i) failure by the Company to pay interest on the Securities
for more than 45 days after the due date thereof; (ii) failure by the Company to
pay principal when due; (iii) failure by the Company for 60 days after notice to
comply with any of its other agreements in the Indenture or the Securities; and
(iv) certain events of bankruptcy or insolvency. If an Event of Default occurs
and is continuing, the Trustee or the Holder of at least 25% in principal amount
of the Securities may declare all of the Securities to be due and payable
immediately. Holders may not enforce the Indenture or the Securities except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Securities. Subject to certain
limitations, Holders of a majority in principal amount of the Securities may
direct the Trustee in its exercise of any trust power. The Trustee may withhold
from Holders notice of any continuing default (except a default in the payment
of principal or interest) if it determines that withholding notice is in their
interest. The Company must furnish an annual compliance certificate to the
Trustee.
13. Trustee Dealings with the Company. Subject to certain limitations imposed by
the Act, American Stock Transfer and Trust Company, the Trustee under the
Indenture, in its individual or
<PAGE> 36
any other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with the
Company or its Affiliates, as if it were not Trustee.
14. No Recourse Against Others. A director, officer, employee or stockholder, as
such, of the Company shall not have any liability for any obligations of the
Company under the Securities or the Indenture or for any claim based thereon, in
respect of or by reason of such obligations or their creation. Each Holder by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the Securities.
15. Authentication. This Security shall not be valid until authenticated by the
manual signature of the Trustee or an authenticating agent appointed by the
Trustee.
16. Abbreviations. Customary abbreviations may be used in the name of a Holder
or an assignee, such as: TEN COM ("tenants in common"), TEN ENT ("tenants by the
entireties"), JT TEN ("joint tenants with right of survivorship and not as
tenants in common"), CUST ("Custodian"), and U/G/M/A ("Uniform Gifts to Minors
Act").
The Company will furnish to any Holder upon written request and without charge a
copy of the Indenture, which has in it the text of this Security in larger type.
Requests may be made to: Secretary, Thermwood Corporation, P.O. Box 436, Old
Buffaloville Road, Dale, Indiana 47523.
17. Cusip Numbers. The Company has caused CUSIP numbers to be printed on the
Securities and has directed the Trustee to use CUSIP numbers in notices of
redemption as a convenience to Securityholders. No representation is made as to
the accuracy of such numbers either as printed on the Securities or as contained
in any notice of redemption and reliance may be placed only on the other
identification numbers placed thereon.
<PAGE> 37
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Insert assignee's Soc. Sec. or Tax I.D. No.)
____________________________________________
____________________________________________
____________________________________________
____________________________________________
(Print or type assignee's name, address
and zip code)
and irrevocably appoint___________________________agent to transfer this
Security on the books of the Company. This agent may substitute another to act
for him.
__________________________________________________
Date:_______________________ Your Signature________________________
(Sign your name exactly as it appears on
the other side of this Security)
<PAGE> 1
EXHIBIT 5.1
Opinion Re Legality
February 26, 1999
Thermwood Corporation
Old Buffaloville Road
P.O. Box 436
Dale, Indiana 47523
Re: Thermwood Corporation -- Registration Statement on Form S-4
Ladies and Gentlemen:
I have acted as your counsel in connection with the preparation and
filing of the above-referenced Registration Statement on Form S-4 (Registration
No. 333-70073), as amended by Amendment No. 1 thereto (the "Registration
Statement"), pursuant to the Securities Act of 1933 (the "Act"), in respect of
the 12% Subordinated debentures due 2014 (the "Debentures"), to be offered in
exchange for up to 750,000 shares of your outstanding common stock, no par value
(the "Shares"). The Debentures will be issued pursuant to an indenture (the
"Indenture"), to be dated as of the effective date of the Registration
Statement, between Thermwood Corporation (the "Company") and American Stock
Transfer and Trust Company, as trustee.
I have participated in the Registration Statement and have reviewed
originals or copies certified or otherwise identified to my satisfaction of such
documents and records of the Company and such other instruments and other
certificates of public officials, officers and representatives of the Company
and such other persons, and I have made such investigations of law, as I have
deemed appropriate as a basis for the opinions expressed below.
Based on the foregoing, and subject to the further assumptions and
qualifications set forth below, it is my opinion that when the Debentures, in
the form filed as an exhibit to the Registration Statement, have been duly
executed and authenticated in accordance with the Indenture, and duly issue and
delivered by the Company in exchange for up to 750,000 Shares pursuant to the
terms of the Exchange Agreement in the
<PAGE> 2
form filed as an exhibit to the Registration Statement, the Debentures will be
legal, valid, binding and enforceable obligations of the Company, entitled to
the benefits of the Indenture, subject to applicable bankruptcy, insolvency and
similar laws affecting creditors' rights generally and to general principles of
equity.
The foregoing opinion is limited to the law of the State of New York.
I hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the reference to me under the heading "Legal
Matters" in the Prospectus included in the Registration Statement. In giving
such consent, I do not thereby admit that I am an "expert" within the meaning of
the Act or the rules and regulations of the Securities and Exchange Commission
issued thereunder with respect to any part of the Registration Statement,
including this exhibit.
Very truly yours,
/S/Barry Feiner
Barry Feiner, Esq.
<PAGE> 1
EXHIBIT 10.1
DuBois County Bank $3,500,000 Credit Documents
PROMISSORY NOTE
<TABLE>
<CAPTION>
Principal Loan Date Maturity Loan No. Call Collateral Account Officer
- -------------- ---- -------- -------- ---- ---------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
$3,500,000.00 01-01-99 01-01-2000 805485470 220 71 THERMW70 004
</TABLE>
References in the shaded area are for Lender's use only and do not limit The
applicability of this document to any particular loan or item.
Borrower: THERMWOOD CORPORATION (TIN: 351169185) Lender: DUBOIS COUNTY BANK
PO BOX 436,904 BUFFALOVILLE RD ONE DCB PLAZA
DALE, IN 47523 P.O. BOX 550
JASPER, IN 47547-0550
Principal Amount: $3,500,000.00 Initial Rate: 8.250%
Date of Note: January 1, 1999
PROMISE TO PAY. THERMWOOD CORPORATION ("Borrower") promises to pay to DUBOIS
COUNTY BANK ("Lender"), or order, in lawful money of the United States of
America, the principal amount of Three Million Five Hundred Thousand & 00/100
Dollars ($3,500,000.00) or so much as may be outstanding, together with interest
on the unpaid outstanding principal balance of each advance. Interest shall be
calculated from the date of each advance until repayment of each advance. The
interest rate will not increase above 12.000%.
PAYMENT. Borrower will pay this loan in one payment of all outstanding principal
plus all accrued unpaid interest on January 1, 2000. In addition, Borrower will
pay regular monthly payments of accrued unpaid interest beginning February 1,
1999, and all subsequent interest payments are due on the same day of each month
after that. The annual interest rate for this Note is computed on a 365/360
basis; that is, by applying the ratio of the annual interest rate over a year of
360 days, multiplied by the outstanding principal balance, multiplied by the
actual number of days the principal balance is outstanding.. Borrower will pay
Lender at Lender's address shown above or at such other place as Lender may
designate in writing. Unless otherwise agreed or required by applicable law,
payments will be applied first to any unpaid collection costs and any late
charges, then to any unpaid interest, and any remaining amount to principal.
VARIABLE INTEREST RATE. The interest rate on this Note is subject to change from
time to time based on changes in an independent index which is the MONEY MARKET
PRIME (the "Index"). The Index is not necessarily the lowest rate charged by
Lender on its loans. If the Index becomes unavailable during the term of this
loan, Lender may designate a substitute index after notice to Borrower. Lender
will tell Borrower the current Index rate upon Borrower's request. Borrower
understands that Lender may make loans based on other rates as well. The
interest rate change will not occur more often than each QUARTER. The initial
rate is based on the Index as of January 1, 1999 which was 7.750% per annum. The
interest rate to be applied to the unpaid principal balance of this Note will be
at a rate of 0.500 percentage points over the Index, adjusted if necessary for
the
<PAGE> 2
minimum and maximum rate limitations described below, resulting in an initial
rate of 8.250% per annum. Notwithstanding any other provision of this Note, the
variable interest rate or rates provided for in this Note will be subject to the
following minimum and maximum rates. NOTICE: Under no circumstances will the
interest rate on this Note be less than 6.000% per annum or more than (except
for any higher default rate shown below) the lesser of 12.000% per annum or the
maximum rate allowed by applicable law.
PREPAYMENT; MINIMUM INTEREST CHARGE. In any event, even upon full prepayment of
this Note, Borrower understands that Lender is entitled to a minimum interest
charge of $33.00. Other than Borrower's obligation to pay any minimum interest
charge, Borrower may pay all or a portion of the amount owed earlier than it is
due. Early payments will not, unless agreed to by Lender in writing, relieve
Borrower of Borrower's obligation to continue to make payments of accrued unpaid
interest. Rather, they will reduce the principal balance due.
LATE CHARGE. If a payment is 5 days or more late, Borrower will be charged
5.000% of the regularly scheduled payment or $25.00, whichever is greater.
DEFAULT. Borrower will be in default if any of the following happens: (a)
Borrower fails to make any payment when due. (b) Borrower breaks any promise
Borrower has made to Lender, or Borrower fails to comply with or to perform when
due any other term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or loan Borrower
has with Lender. (c) Any representation or statement made or furnished to Lender
by Borrower or on Borrower's behalf is false or misleading in any material
respect either now or at the time made or furnished. (d) Borrower becomes
insolvent, a receiver is appointed for any part of Borrower's property, Borrower
makes an assignment for the benefit of creditors, or any proceeding is commenced
either by Borrower or against Borrower under any bankruptcy or insolvency laws.
(e) Any creditor tries to take any of Borrower's property on or in which Lender
has a lien or security interest. This includes a garnishment of any of
Borrower's accounts with Lender. (f) Any guarantor dies or any of the other
events described in this default section occurs with respect to any guarantor of
this Note. (g) A material adverse change occurs in Borrower's financial
condition, or Lender believes the prospect of payment or performance of the
Indebtedness is impaired. (h) Lender in good faith deems itself insecure.
If any default, other than a default in payment, is curable and if Borrower has
not been given a notice of a breach of the same provision of this Note within
the preceding twelve (12) months, it may be cured (and no event of default will
have occurred) if Borrower, after receiving written notice from Lender demanding
cure of such default: (a) cures the default within fifteen (15) days; or (b) if
the cure requires more than fifteen (15) days, immediately initiates steps which
Lender deems in Lender's sole discretion to be sufficient to cure the default
and thereafter continues and completes all reasonable and necessary steps
sufficient to produce compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire unpaid principal
balance on this Note and all accrued unpaid interest immediately due, without
notice, and then Borrower will pay that amount. Upon default, including failure
to pay upon final maturity, Lender, at its option, may
<PAGE> 3
also, if permitted under applicable law, increase the variable interest rate on
this Note to 18.000% per annum. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone else to help
collect this Note if Borrower does not pay. Borrower also will pay Lender that
amount. This includes, subject to any limits under applicable law, Lender's
attorneys' fees and Lender's legal expenses whether or not there is a lawsuit,
including attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or injunction),
appeals, and any anticipated post- judgment collection services. If not
prohibited by applicable law, Borrower also will pay any court costs, in
addition to all other sums provided by law. This Note will be repaid under all
circumstances without relief from any Indiana or other valuation and
appraisement laws. This Note has been delivered to Lender and accepted by Lender
in the State of Indiana. If there is a lawsuit, Borrower agrees upon Lender's
request to submit to the jurisdiction of the courts of DUBOIS County, the State
of Indiana. Lender and Borrower hereby waive the right to any jury trial in any
action, proceeding, or counterclaim brought by either Lender or Borrower against
the other. This Note shall be governed by and construed In accordance with the
laws of the State of Indiana.
RIGHT OF SETOFF. Borrower grants to Lender a contractual security interest in,
and hereby assigns, conveys, delivers, pledges, and transfers to Lender all
Borrower's right, title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including without limitation
all accounts held jointly with someone else and all accounts Borrower may open
in the future, excluding however all IRA and Keogh accounts, and all trust
accounts for which the grant of a security interest would be prohibited by law.
Borrower authorizes Lender, to the extent permitted by applicable law, to charge
or setoff all sums owing on this Note against any and all such accounts, and, at
Lender's option, to administratively freeze all such accounts to allow Lender to
protect Lender's charge and setoff rights provided on this paragraph.
COLLATERAL. This Note is secured by R/E MTG DATED 10/7/97; S/A DATED 10/7/97
(ACCTS, EQUIP, INV, FIXTURES).
LINE OF CREDIT. This Note evidences a revolving line of credit. Advances under
this Note may be requested orally by Borrower or by an authorized person. Lender
may, but need not, require that all oral requests be confirmed in writing. All
communications, instructions, or directions by telephone or otherwise to Lender
are to be directed to Lender's office shown above. The following party or
parties are authorized to request advances under the line of credit until Lender
receives from Borrower at Lender's address shown above written notice of
revocation of their authority: KENNETH J. SUSNJARA, PRESIDENT; LINDA S.
SUSNJARA, SECRETARY; and REBECCA F. FULLER, TREASURER. Borrower agrees to be
liable for all sums either: (a) advanced in accordance with the instructions of
an authorized person or (b) credited to any of Borrower's accounts with Lender.
The unpaid principal balance owing on this Note at any time may be evidenced by
endorsements on this Note or by Lender's internal records, including daily
computer print-outs. Lender will have no obligation to advance funds under this
Note if: (a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has with Lender, including
any agreement made in connection with the signing of this Note; (b) Borrower or
any guarantor ceases doing business or is insolvent; (c) any guarantor seeks,
claims or
<PAGE> 4
otherwise attempts to limit, modify or revoke such guarantor's guarantee of this
Note or any other loan with Lender; (d) Borrower has applied funds provided
pursuant to this Note for purposes other than those authorized by Lender; or (e)
Lender in good faith deems itself insecure under this Note or any other
agreement between Lender and Borrower.
ADDITIONAL TERMS.___________.
ADDITIONAL TERMS. So long as borrower or lender has any obligations under this
agreement to the other, borrower agrees to provide at lender's request,
financial statements acceptable to the lender.
01-01-1999 PROMISSORY NOTE
Page 2
Loan No 805485470 (Continued)
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its rights or
remedies under this Note without losing them. Borrower and any other person who
signs, guarantees or endorses this Note, to the extent allowed by law, waive
presentment, demand for payment, protest and notice of dishonor. Upon any change
in the terms of this Note, and unless otherwise expressly stated in writing, no
party who signs this Note, whether as maker, guarantor, accommodation maker or
endorser, shall be released from liability. All such parties agree that Lender
may renew or extend (repeatedly and for any length of time) this loan, or
release any party or guarantor or collateral; or impair, fail to realize upon or
perfect Lender's security interest in the collateral; and take any other action
deemed necessary by Lender without the consent of or notice to anyone. All such
parties also agree that Lender may modify this loan without the consent of or
notice to anyone other than the party with whom the modification is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF
THIS NOTE, INCLUDING THE VARIABLE INTEREST RATE PROVISIONS. BORROWER AGREES TO
THE TERMS OF THE NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
BORROWER:
THERMWOOD CORPORATION
By /s/Kenneth J. Susnjara By: /s/Linda S. Susnjara
--------------------------------- --------------------------------
KENNETH J. SUSNJARA, PRESIDENT LINDA S. SUSNJARA, SECRETARY
LENDER:
DUBOIS COUNTY BANK
By: s/
-------------------------
Authorized Officer
<PAGE> 1
EXHIBIT 10.2
Form Of Amended Authorized Dealer Agreement
Between The Registrant And Its Dealers
THERMWOOD CORPORATION AUTHORIZED DEALER AGREEMENT
MACHINING PRODUCTS DIVISION
This agreement entered into by and between Thermwood Corporation, and Indiana
Corporation, and the undersigned, hereinafter referred to as the Dealer.
WITNESSETH THAT:
WHEREAS, Thermwood is engaged in the design, development, engineering,
manufacturing and marketing of certain machinery products, hereinafter referred
to as Thermwood Products; and
WHEREAS, Dealer is engaged in the sale of certain industrial equipment to
certain end use purchasers, hereinafter referred to as the Dealer's Customers;
and
WHEREAS, Thermwood and Dealer are desirous of entering into an agreement whereby
Dealer would sell Thermwood Products and Technical Services, as herein defined
to Dealer's Customers, under the following terms and conditions.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree to as follows:
1. Dealer shall be responsible for the promotion and consummation of the sale,
to Dealer's Customers, of the products offered by the Machining Products
Division and Technical Services Division of Thermwood at prices and terms
specified in the Authorized Dealer Manual.
2. Dealer shall complete and forward to Thermwood a Customer Designation
Certificate, a copy of which is attached hereto and made a part hereof.
3. Dealer shall provide to Thermwood documentation as specified in the
authorized Dealer Manual as a legal purchase order from the Dealer's Customer to
Thermwood.
4. In the event the efforts exerted by Dealer pursuant to
<PAGE> 2
the provisions of Paragraphs 1,2 and 3 hereof results in the sale of Thermwood
Products to one or more of the Dealer's Customers, Thermwood shall pay to Dealer
the commission amount as stated within the Authorized Dealer Manual.
5. The payment of commissions pursuant to paragraph 4 above shall be conditioned
on the following:
a) A Customer Designation Certificate has been forwarded to Thermwood
registering Dealer's Customer and such Customer Designation Certificate has
been accepted by Thermwood according to the procedures detailed in the
Authorized Dealer Manual.
b) Such Customer Designation Certificate shall be in full force and effect at
the time the order from Dealer's Customer is received by Thermwood.
c) Dealer's Customer has paid to Thermwood the full amounts of Thermwood
invoices covering the products and services sold.
6. The Dealer is not an agent or representative of Thermwood and the Dealer may
not bind Thermwood with respect to any third party in any manner whatsoever.
7. Thermwood shall supply Dealer with an Authorized Dealer Manual, which
contains information concerning policies, procedures, products, prices,
commission rates and payment schedules, terms, warranties and other business
related matters. Dealer agrees to operate within the dictates of the Authorized
Dealer Manual. Thermwood retains the right to change or modify the Authorized
Dealer Manual upon written notice from Thermwood to Dealer of said changes.
8. This agreement shall continue in full force and effect for a period of one
year and shall be renewed automatically thereafter for successive individual
periods of one year at which time either party hereto may terminate this
agreement by giving at least 90 days written notice of termination. This
agreement shall be governed by the laws of the State of Indiana.
9. The effective date of this agreement is__________________
<PAGE> 3
IN WITNESS WHEREOF, the Dealer has caused his hand and seal to be affixed
hereunto or has caused this agreement to be signed by its proper officer or
director hereunto duly authorized, and Thermwood has caused this agreement to be
signed by its proper officer or director hereunto duly authorized.
Dealer Name:________________________________________
Dealer Signature:___________________________________
THERMWOOD CORPORATION
By:_________________________________________________
<PAGE> 1
EXHIBIT 10.3
Form Of Amended Distributor Sales Agreement
Between The Registrant And Its Distributors
THERMWOOD CORPORATION
AUTHORIZED DISTRIBUTOR AGREEMENT
MACHINING PRODUCTS DIVISION
This agreement entered into by and between Thermwood Corporation, an Indiana
Corporation, and the undersigned, hereinafter referred to as the Distributor.
WITNESSETH THAT:
WHEREAS, Thermwood is engaged in the design, development, engineering,
manufacturing and marketing of certain machinery products, hereinafter refereed
to as Thermwood Products; and WHEREAS, Distributor is engaged in the sale of
certain industrial equipment to certain end use purchasers, hereinafter referred
to as the Distributor's Customers; and
WHEREAS, Thermwood and Distributor are desirous of entering into an agreement
whereby Thermwood would sell to Distributor and Distributor would purchase from
Thermwood said Products and Technical Services for resale by Distributor to
Distributor's Customers under the following terms and conditions.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree to as follows:
1. SALE AND PURCHASE - Thermwood shall sell to Distributor and Distributor shall
purchase from Thermwood those products set forth in the Authorized Dealer Manual
as being offered by the Machining Products Division and Technical Services
Division of Thermwood Corporation. The sale of said Products by Thermwood to
Distributor shall be subject to the "Terms and Conditions of Sale" and
"warranties" as set forth in the Authorized Dealer Manual unless otherwise
agreed to in writing by both Distributor and Thermwood. The acceptance by
Thermwood of Distributor's purchase order shall not constitute Thermwood's
agreement to any terms and conditions in Distributor's purchase order that are
in conflict with this Agreement unless such conflicting terms and conditions are
specifically agreed to by Thermwood in Thermwood's written notification to
distributor of acceptance of the purchase order.
<PAGE> 2
2. PRICES - The retail sales price of Thermwood Products is set forth in the
Authorized Dealer Manual. The Distributor may purchase Products from Thermwood
at a price equal to the retail sales price less twenty (20) percent. If the
Distributor purchases a Cartesian 5 machining system and utilizes it for
demonstrations to customers, Distributor may purchase Products from Thermwood at
a price equal to the retail sales price less twenty (20%) percent.
Distributor shall be responsible for and pay the cost of drayage, rigging,
delivery and insurance of Products from the FOB point, Thermwood's manufacturing
site, to the installation site. Such payment shall be due upon presentation of
invoice by Thermwood. In the event that the delivery date is delayed by
Distributor (as, for example but not limited to, delays in preparation of or
deficiencies in the installation site), Distributor shall pay Thermwood interest
at the highest legal rate on the unpaid part of the Purchase Price of Products
for each day of said delay.
The prices shown in the Authorized Dealer Manual do not include applicable taxes
resulting from any sale under this Agreement. All taxes or other levies (except
taxes upon income to Thermwood) resulting from any sale under this Agreement,
including but not limited to advalorem, property, sale, use or other taxes which
may be payable or collectable not or in the future by Thermwood as a result of
the sale, delivery, installation or maintenance of Products, shall be billed to
and paid by Distributor upon presentation of suitable documentation from
Thermwood.
Thermwood reserves the right at any time upon written notice to change it prices
applicable to any or all of the Products within the scope of this Agreement. Any
such price change shall not operate to alter any price set forth in any purchase
order tendered by Distributor and accepted by Thermwood or any pending bid made
or approved by Thermwood.
3. TERMS OF PAYMENT - The terms of payment for Products are set forth in the
Authorized Dealer Manual. Non-Payment when due of any part of the Purchase Price
or any costs hereunder shall entitle Thermwood to take possession of Products
without further notice to Distributor and without prejudice to Thermwood's
rights under this Agreement. Distributor agrees to allow Thermwood free and
unencumbered access to Products for the purpose of removing said products until
the Purchase
<PAGE> 3
Price and all costs hereunder have been paid to Thermwood. Thermwood may pursue
alternate or additional and cumulative remedies provided by law.
4. DELIVERY - Delivery of any product is understood to take place at the point
in time when the Product is placed in possession of Distributor's forwarding
agent at the relevant FOB point. If the forwarding agent is selected by
Thermwood, such agent shall act as an agent of Distributor.
Distributor assumes all responsibility for ordered Products from the point of
delivery of the Products; no loss or damage from any cause during the period
between such delivery and Distributor settlement therefore, in full, shall
relieve Distributor from any obligation hereunder.
Notice of claims for shortage in shipment under this agreement must be given
within fifteen (15) days after receipt of the shipment.
5. DELAYS - Delivery dates are estimates only and Thermwood shall not be liable
to Distributor or others for any damages or expense caused by any delay in
delivery of Products by Thermwood under this Agreement. Where such delay is due
to causes beyond Thermwood's control, delivery dates will be extended.
6. TITLE TO EQUIPMENT - Title to Products shall pass to Distributor upon
delivery in accordance with the provisions set forth in 4. above. Thermwood
shall retain a security interest in Products until complete payment is made by
Distributor.
7. PRODUCT MODIFICATIONS AND CHANGES Thermwood reserves the right at any time
and without notice to effect modifications in the construction of products and
to add improvement to products covered by this Agreement. Thermwood reserves the
right to discontinue the manufacture of any model or to make changes in the
design of Products covered by this Agreement, whether or not orders therefore
have been previously accepted or approved.
9. PATENT INFRINGEMENT INDEMNIFICATION - Thermwood shall
indemnify Distributor and hold Distributor harmless from any loss incurred as a
result of any suit brought against Distributor for infringement of any U.S.
patent as a result of the sale by Distributor of Products, on the conditions
that: a) Distributor promptly notifies Thermwood of any claim of infringement
asserted against Distributor, b) Distributor fully cooperates with and assists
Thermwood in any defense undertaken by Thermwood in response to such claim,
including any litigation
<PAGE> 4
in which such claim is asserted, and any settlement thereof. Thermwood shall not
be liable for any patent infringement or claim thereof based upon use of the
Product in combination with other equipment not supplied by Thermwood or based
upon use of the Product in other than those uses recommended by Thermwood.
10. ALTERED PRODUCTS LIABILITY Distributor and/or its Customer shall indemnify
Thermwood and hold Thermwood harmless from all loss, damage, costs and expenses,
of whatever nature, including attorney's fees, arising from or in any way
connected with any injury to person or damage to property resulting from
unauthorized modification or alteration of Products, or from the negligence or
willful misconduct of Distributor and/or any of its Customers in the possession
or use, including demonstration or display, of Products.
11. CONFIDENTIAL INFORMATION Distributor shall take appropriate action to
maintain in confidence all confidential information of Thermwood made available
to Distributor. Upon expiration or termination of this Agreement, Distributor
shall discontinue and subsequently refrain from any appropriation of said
confidential information to the use or benefit of Distributor or any other party
not a party to this Agreement, and shall deliver and/or cause to be delivered to
Thermwood all documentation embodying said confidential information in the
custody, possession or control of Distributor.
12. DURATION OF AGREEMENT - This Agreement shall succeed and replace any and all
previous agreements between the parties and shall continue to full force and
effect for a period of one (1) year. Agreement shall then be renewed
automatically for successive individual periods of one (1) year unless
terminated by either party with ninety- (90) days written notice.
13. RELATIONSHIP OF THE PARTIES Neither party hereto shall be deemed to be an
agent or other representative of the other party hereto and nothing in this
Agreement shall be construed or interpreted to confer any authority of either
party hereto to bind the other party hereto with respect to any third party in
any manner whatsoever.
14. JURISDICTION - This Agreement shall be governed for all purposes by the
substantive laws of the State of Indiana.
15. WAIVER OF RIGHTS - No waiver of a right or default hereunder by either party
shall be deemed a continuing waiver or a waiver of any other right or default
hereunder by such party.
<PAGE> 5
16. BINDING EFFECT - This Agreement and each and every covenant, term and
condition thereof shall be binding upon and ensure to the benefit of the parties
hereto and their respective successors and assignees.
17. ASSIGNABILITY - This Agreement and any rights or duties hereunder shall not
be assignable or transferable directly or indirectly by either party, except to
its successor in business.
18. ENTIRETY OF CONTRACT - This Agreement embodies the entire agreement between
the parties hereto and may be waived, amended
or supplemented only in writing executed by Thermwood and Distributor.
19. GOVERNING LAW - This Agreement and any changes, amendments or additions
hereunder shall be interpreted under the laws of the State of Indiana.
20. NOTICE - All notices for the purpose of this agreement shall be deemed to be
properly served when in writing and sent by first-class registered or certified
mail, postage prepaid, to the other party at their respective headquarter
addresses.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their duly authorized representatives this__________day of
__________,19_____.
DISTRIBUTOR______________________________
By_______________________________________
Title____________________________________
THERMWOOD CORPORATION
By _______________________________________
Title____________________________________
<PAGE> 1
EXHIBIT 10.4
Dealer/Distribution Agreement Between The Registrant
And Automation Associates, Inc. Dated May 21, 1985
THERMWOOD CORPORATION
AUTHORIZED DEALER AGREEMENT
MACHINING PRODUCTS DIVISION
This agreement entered into by and between Thermwood Corporation, and Indiana
Corporation, and the undersigned, hereinafter referred to as the Dealer.
WITNESSETH THAT:
WHEREAS, Thermwood is engaged in the design, development, engineering,
manufacturing and marketing of certain machinery products, hereinafter referred
to as Thermwood Products; and
WHEREAS, Dealer is engaged in the sale of certain industrial equipment to
certain end use purchasers, hereinafter referred to as the Dealer's Customers;
and
WHEREAS, Thermwood and Dealer are desirous of entering into an agreement whereby
Dealer would sell Thermwood Products and Technical Services, as herein defined
to Dealer's Customers, under the following terms and conditions.
NOW THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the parties hereto agree to as follows:
1. Dealer shall be responsible for the promotion and consummation of the sale,
to Dealer's Customers, of the products offered by the Machining Products
Division and Technical Services Division of Thermwood at prices and terms
specified in the Authorized Dealer Manual.
2. Dealer shall complete and forward to Thermwood a Customer Designation
Certificate, a copy of which is attached hereto and made a part hereof.
3. Dealer shall provide to Thermwood documentation as specified in the
authorized Dealer Manual as a legal purchase order from the Dealer's Customer to
Thermwood.
4. In the event the efforts exerted by Dealer pursuant to the
<PAGE> 2
provisions of Paragraphs 1,2 and 3 hereof results in the sale of Thermwood
Products to one or more of the Dealer's Customers, Thermwood shall pay to Dealer
the commission amount as stated within the Authorized Dealer Manual.
5. The payment of commissions pursuant to paragraph 4 above shall be conditioned
on the following:
a) A Customer Designation Certificate has been forwarded to Thermwood
registering Dealer's Customer and such Customer Designation Certificate
has been accepted by Thermwood according to the procedures detailed in the
Authorized Dealer Manual.
b) Such Customer Designation Certificate shall be in full force and effect at
the time the order from Dealer's Customer is received by Thermwood.
c) Dealer's Customer has paid to Thermwood the full amounts of Thermwood
invoices covering the products and services sold.
6. The Dealer is not an agent or representative of Thermwood and the Dealer may
not bind Thermwood with respect to any third party in any manner whatsoever.
7. Thermwood shall supply Dealer with an Authorized Dealer Manual, which
contains information concerning policies, procedures, products, prices,
commission rates and payment schedules, terms, warranties and other business
related matters. Dealer agrees to operate within the dictates of the Authorized
Dealer Manual. Thermwood retains the right to change or modify the Authorized
Dealer Manual upon written notice from Thermwood to Dealer of said changes.
8. This agreement shall continue in full force and effect for a period of one
year and shall be renewed automatically thereafter for successive individual
periods of one year at which time either party hereto may terminate this
agreement by giving at least 90 days written notice of termination. This
agreement shall be governed by the laws of the State of Indiana.
9. The effective date of this agreement is May 21, 1985.
IN WITNESS WHEREOF, the Dealer has caused his hand and seal to be affixed
hereunto or has caused this agreement to be signed by its proper officer or
director hereunto duly authorized, and Thermwood has caused this agreement to be
signed by its proper officer or director hereunto duly authorized.
<PAGE> 3
Dealer Name: Automation Associates
Dealer Signature: /s/ Linda Susnjara
THERMWOOD CORPORATION
By: /s/ David Hildenbrand
<PAGE> 1
EXHIBIT 10.5
Form Of Quotation And Purchase Agreement Between The Registrant And Its
Customers
Model 40 - Quotation Number ((Quote)) - ((Customer))
THERMWOOD CORPORATION
QUOTATION NUMBER ((Quote))
((Date))
Submitted To:
((Customer))
((Address))
((City)), ((State)) ((Zip))
Submitted By:
Thermwood Corporation
P.O. Box 436
904 Buffaloville Road
Dale, Indiana 47523
-------------------------------------
This quotation is valid for 90 days from the submission date
Q U O T A T I O N
============================================================
=
Thermwood Model 40, CNC Router equipped with a 48" x 96" table
DESCRIPTION
1.1. The Model 40 is a moving table, fixed gantry, heavy- duty router. It is
designed to rout, shape, bore and drill low profile materials such as
hardwoods, softwoods, fiberboard (MDF), particleboard, plastics and
aluminum.
1.2.The ways on all axes are precision ground, hardened ways with precision
bearings.
1.3.The machine base structure has steel mounting pads, each equipped with
leveling bolts.
1.4.The gantry construction consists of a heavy steel weldment of structural
steel tubing and plates with internal steel bracing.
<PAGE> 2
1.5. High performance closed loop AC Servo Siemens drives equipped on all axes.
Maximum machine feed speeds up to 1200 inches per minute.
1.6. The worktable is a 48" wide by 96" deep, composite, which provides a stiff,
stable work surface. The table is fly cut to provide a precision work
surface.
1.7. The motor spindle unit consists of a 10 HP motor and a heavy-duty spindle.
The spindle unit operates at 15,000 RPM and accepts up to a 3/4" collet.
2.0 CONTROL SYSTEM - 91000 SuperControl
2.1. The 91000 SuperControl is feature rich, high performance CNC control system
configured to perform 3 axis simultaneous motions. It is a multi-processor,
full multi-tasking control operating under the OS-2 operating system. It
features a high level of hardware integration, extensive use of reliable
surface mount technology and a built in upgrade path for future technology.
2.2. The control is equipped with a 14" full color monitor, a 85 key, 101
emulation QWERTY keyboard, a 3.2 Gigabyte hard disk drive for program and
system storage, one 3 1/2", 1.4 Mb floppy disk drive, a serial port for
hand held programmer interface, an infinitely variable 0 to 120% feed rate
override rotary knob control and operator controls for start, stop, axis
jog +, axis jog , block step +, block stop - and feed hold.
2.3. The control uses a "Windows type" operator interface offering the operator
choices for program and machine operation display, pop up windows for event
and information display, pop up windows for data input, and the ability to
operate the machine in the background while doing other tasks on the
control.
2.4. The control provides AT bus expansion slots and is compatible with most
Local Area Networks (LANs) as well as a variety of peripheral computer
devices.
3.0 SINGLE SOURCE RESPONSIBILITY
3.1. Thermwood is a one-stop supplier for CNC equipment. We offer you a total
system, which includes a CNC control designed for your system and not
adapted from another application. This is a subtle difference but can make
a
<PAGE> 3
tremendous difference in the operation of your machine. This single source
responsibility is one of the key reasons why Thermwood is a leading
manufacturer of CNC computer controlled routers.
4.0 SUPERIOR QUALITY
4.1. Thermwood products are quality controlled through the entire manufacturing
process. The quality is controlled from 100% incoming inspection of
purchased parts to the final formal check out and runoff prior to shipment.
Each machine performance is checked and verified using the most advanced
laser measurement system. A certification of the machine calibration goes
with each machine. All of this insures that your machine is the finest
quality available.
Thermwood Model 40, CNC Router
- Programmable and controlled three-axis motion
- High performance AC Brushless Servo Drive System with
feed speeds to 1200 inches/minute
- 6" vertical motion (Z axis)
- Series 91000 SuperControl
- Solid-state memory and control system, fully diagnostic.
- 3.2 Gigabyte hard disk system for program and system storage
- 3-1/2", 1.4 floppy disk drive
- 14" color monitor
- 85 key, 101 key emulation keyboard
- EIA 274D programming
- Feedrate over ride
- Feed hold
- Menu driven programming
- 480 Volt, 60 Hz, 3 Phase power input (220 volt optional)
- Training at Thermwood's training facility (5 days). Customer is
responsible for travel and lodging.
- Thermwood's one year limited parts warranty. (See detail copy of the
warranty for other limitations)
WORK TABLE:
- 96 inch deep by 48 inch wide moving table with a composite surface. The
table moves front to back and is equipped with a single port for vacuum
hold down.
TOOLING:
- One (1) Thermwood Extended Duty Spindle Motor, 15,000 RPM at 10 HP,
mounted to independent programmable Z axis with 6 inches of travel. Air
requirements, 90-100 PSI, 5 CFM.
<PAGE> 4
Includes 1/2" and 3/4" collets and covernut.
MACHINE PRICE: $______
Installation assistance by factory personnel. Includes one year labor warranty.
Customer is responsible for travel costs. $______
Travel expenses for installation assistance.
OPTIONS AVAILABLE:
Portable Hand Held Programming Unit equipped with keyboard and hand wheel/pulse
generator. Provides full programming, lines, arcs, speed control, and editing.
Programming features can be performed at the control system. $____
Machine wired for 208 Volt, 3 Phase, 60 HZ
$-----
Machine wired for 220 Volt, 3 Phase, 60 HZ
$------
TERMS:
30% with the order
40% due one week prior to ship
30% net 30 days from invoice date
FOB: Dale, IN
SHIPMENT: 8 to 10 weeks from receipt of order and deposit
NOTE: Shipment date is based on Thermwood's backlog on the date of the
quotation. Delivery time may be adjusted at the time of actual order acceptance
due to changes in the backlog.
<PAGE> 1
EXHIBIT 10.6
Form Of Extended Parts Warranty Agreement Terms And
Conditions Between The Registrant And Its Customers
THERMWOOD CORPORATION
TERMS AND CONDITIONS OF SALES
The following terms and conditions shall apply to the offer for sale set forth
on the attached Quotation.
1. Payment. The Purchaser shall pay the Purchase Price for the Products
set forth in the Quotation. Purchasers with approved credit shall pay according
to the following schedule. Machinery and other equipment:
30% with Purchase Order
40% due one week prior to ship
30% within thirty (30) days of date of invoice
Software products and services:
100% with Purchase Order
Payment for customized equipment and for Purchasers whose credit has not
been approved shall be as set forth in the attached Quotation.
The Purchase Price shown on the Quotation does not include applicable
taxes or other levies resulting from this transaction. All taxes and other
levies resulting from this transaction (except for taxes on income to
Thermwood), including but not limited to advalorem, property, sale, use or other
taxes which may be payable or collectable now or in the future by Thermwood as a
result of the sale, delivery, installation, use or maintenance of the Products
shall be invoiced to and paid by the Purchaser upon presentation of
documentation by Thermwood.
2. Delivery. All Products are sold F.O.B. Thermwood's plant facilities,
Dale, Indiana U.S.A. Purchaser shall be responsible for and shall pay the cost
of rigging and delivery and insurance of the Products from the F.O.B. point of
the installation or user site. If requested, Thermwood will arrange for delivery
of the products to the installation or use side and the Purchase shall be
invoiced for the cost thereof. Delivery dates are estimates only and Thermwood
shall not be responsible for delays for delivering the Product. In the event the
<PAGE> 2
delivery date of the Products is delayed by the Purchaser, the Purchaser shall
pay Thermwood reasonable storage charges plus interest at the highest level rate
on the unpaid balance of the purchase price of the Products for each day of
delay.
3. Title. Title to Products shall pass to Purchaser upon
delivery thereof F.O.B., Thermwood's plant facility, Dale, Indiana, U.S.A.
Thermwood, however, shall retain a security interest in the Products until
complete payment is made by the purchaser. Non-payment of the full purchase
price or any other costs provided for hereunder when due shall entitle Thermwood
to enter upon the premises of the Purchaser and take possession of the Products
without further notice to the Purchaser and without prejudice to Thermwood's
rights hereunder, Purchaser hereby consents to such repossession and shall
indemnify Thermwood and hold Thermwood harmless from any and all loss, damages,
costs and expenses whatsoever. Thermwood furthermore may pursue any alternative
or additional and cumulative remedies provided by law.
4. Installation and Start-up. The purchaser shall be responsible for the
preparation of the installation site for the Products, the unloading and
locating of the Products and the installation and availability of all required
utilities. Upon purchase of the installation assistance option, Thermwood will
provide authorized Personnel to supervise and/or conduct the utility connection
and start-up of the products. With this option a Thermwood representative will
be available for maximum of three (3) days to provide such service. Additional
start-up service is available at Thermwood's quoted or published rates.
5. Personnel Training. Purchaser shall be allowed to designate two persons
to attend a regularly scheduled training class covering the Products. Such
training class is conducted at the Thermwood Training Center located at
Thermwood's plant facility in Dale, Indiana, U.S.A. The Purchase shall be
responsible for the travel and accommodation expenses of such persons.
6. Software License. Thermwood grants to the Purchaser the right to use any
Thermwood software program (Program) provided separately or as part of a machine
product on a single machine, the right to make a single copy of the Program for
back-up purposes is support of the Purchaser's use of the Program on a single
machine. The Purchaser shall not use, copy, modify or transfer the Program or
any copy thereof, in whole or in part, except as expressly provided herein, and
shall reproduce and
<PAGE> 3
include the copyright notice as set forth on the Program package on the single
cop of the Program. This License also shall be terminated automatically upon a
breach of any of the terms and conditions hereof. Upon termination of this
License because of a breach hereof, Purchaser shall destroy the Program together
with any copies thereof in any form. The License is personal to Purchaser and
shall not be sub licensed, assigned or transferred.
7. Product Alteration. In the event Purchaser shall alter or
modify the Products without the approval and authorization of Thermwood first
obtained in writing, the warranty provided for in Paragraph 8 hereof shall be
null and void and of no effect. Furthermore, Purchaser shall indemnify Thermwood
and shall hold Thermwood harmless from any and all loss, damage, costs and
expenses whatsoever, including attorney's fees, arising from or in any manner
connected with any injury to person or damage to property resulting from any
such unauthorized alteration or modification of the products, or from the
negligence or willful misconduct of the Purchaser, its employees or its
representatives in the possession, operation or other use, including but not
limited to the demonstration or display, of the Products.
8. Limited Liability. Thermwood warrants that every Product
shall be free from defects in material and workmanship for the time period
specified in the Quotation, commencing on the date of delivery of the Product.
During the warranty period, Thermwood shall furnish Purchaser with a repair or
replacement part for any part proving to be defective in material or
workmanship, at no charge, for installation by the purchaser. For replacement of
part, other than a simple plug-in replacement, the customer may request that a
Thermwood technician perform the work. During the warranty period there will be
no charge for the technical labor; however, the customer is required to pay
actual travel expenses. Throughout the warranty period the purchaser is
responsible for returning the defective part, prepaid, to Thermwood. Thermwood
shall not be responsible for any work performed, materials furnished or repairs
made by others unless agreed upon by Thermwood in writing. Thermwood reserves
the right to supervise or perform any repair or replacement work required to
assure the proper operation of the Product under this limited warranty.
The limited warranty shall not apply to and therefore excludes (a) parts
or materials which are normally changed or replaced during the normal operation
of the Product, (b) parts
<PAGE> 4
damaged by misuse, neglect or improper installation or operation and (c) service
labor and expenses when no defect in material or workmanship is found.
This limited warranty shall be null and void and of no effect if (a) after
the Product has been delivered, installation and start-up is conducted in the
absence of authorized Thermwood personnel, (b) routine maintenance of the
Product as described in the Owner's Manual is not performed or (c) normal
reasonable care is not taken in the operation of the Product. Thermwood is not
exempt from its own negligence.
There are no warranties which extend beyond the limited warranty as
expressed herein. In no event shall Thermwood be liable to the purchaser or any
other party for any damages including lost profits, lost savings or other
incidental or consequential damages arising out of the use of or the inability
to use the product even if Thermwood or any of its authorized dealers or
distributors has been advised of the possibility of such damages or any claim of
any other party.
ALL OTHER WARRANTIES OF ANY KIND, EITHER EXPRESSED OR IMPLIED, INCLUDING
BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE ARE EXCLUDED.
<PAGE> 1
EXHIBIT 10.7
Form Of Quotation And Lease Agreement
Between The Registrant And Its Lessees
LEASE AGREEMENT
This Agreement of Lease and Rental, entered into on this _______, by
and between _______ an Indiana corporation, (hereinafter known as Lessor) and
________________________ corporation (hereinafter known as Lessee) have agreed
in consideration of the promises contained herein,
WITNESSETH:
1. The Lessor hereby leases and rents unto the lessee and the Lessee
hereby leases and rents from the Lessor, upon the terms and conditions,
covenants and considerations and considerations hereinafter set forth certain
equipment and personal property of the Lessor more fully described as follows:
One (1)
Serial Number
2. Title to said leased property shall at all times remain in the
Lessor's name and Lessee shall enjoy only the beneficial use thereof as set
forth herein, so long as the Lease Agreement remains in full force and effect.
Lessee may take possession of the leased property upon the execution of this
agreement.
3. As rental for the use of the above described equipment, the Lessee
shall pay to the Lessor a monthly rental of ________, the first of which said
rentals shall be payable on the ___________ and shall continue with a like
payment on the 25th day of each and every month thereafter for a period of five
years. At the end of the term of this lease, Lessee may purchase the leased
property for the fair market value.
4. Lessee shall at the cost and expense of the Lessee, cause the leased
equipment to be insured in a good and reliable insurance company for the
protection and benefit of the Lessor, with the Lessor named in said insurance
policy as an additional insured. The Lessee shall forthwith provide the Lessor
with due proof of Lessee's compliance with said insurance requirements set forth
above. In addition, the terms of the insurance policy insuring the leased
equipment shall allow the Lessor at least
<PAGE> 2
ten (10) days notice of the Lessee's default on said insurance policy premiums,
prior to the cancellation of said insurance coverage, and the Lessor have the
right during the ten (10) day notice period to, at its discretion, to pay the
insurance premium. Said payment of an insurance premium by the Lessor shall
constitute default by the Lessee in the terms of this contract.
5. The Lessee may use said leased equipment for the
following purposes and in the following manner:
In normal course of Lessee's business of manufacturing.
6. Lessee shall keep and maintain the leased equipment in a reasonable
state of repair at all times, comparable to it's present condition, and to
purchase at the cost and expense of Lessee any repairs and maintenance
necessary.
7. The operators of said equipment shall be the employees, agents and
servants of the Lessee alone and shall in no manner be under the direction,
control or in the employ of the Lessor. As concerns the operation of said
equipment, Lessee shall be deemed as an independent contractor and not an agent,
employee or servant of the Lessor, nor under the direction or control of the
Lessor in any manner.
8. So long as this agreement shall remain in effect, the Lessee shall
pay all taxes assessed against the leased property by the Sate of Indiana, the
United States of America, or any political sub-division thereof.
9. THE LESSOR MAKES NO WARRANTIES, EXPRESSED OR IMPLIED ABOUT THE
CONDITION OF THE LEASED EQUIPMENT. FURTHER, THE LESSOR EXPRESSLY DISCLAIMS ANY
IMPLIED WARRANTIES FOR MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
10. Lessee covenants and agrees to hold the Lessor safe, free and
harmless from any and all costs, damages, charges or other liability of any kind
or character whatsoever arising out of or from the operation of said leased
equipment under this lease agreement.
11. Lessee convenants and agrees to provide competent and experienced
operators of said equipment and upon termination of this agreement for any
reason, to forthwith return and redeliver said leased equipment and property to
the Lessor in as good condition as when Lessee received the same, ordinary wear
and tear excepted.
<PAGE> 3
12. Lessee shall not transfer, sell or assign this lease agreement or any
interest therein to any person or entity without first having obtained the
written consent of the Lessor.
13. In the event of the failure, neglect or refusal of the Lessee to pay
said monthly rentals at the times and in the form and manner provided herein or
to fully or faithfully perform all and singularly the obligations, duties and
agreements to be kept and performed by said Lessee, the Lessor may at it's
option forthwith cancel, terminate and rescind this lease agreement, without
notice or process, and with relief from all appraisement laws. In which event
all right to possession and use of the equipment by Lessee shall cease and
terminate and the Lessor shall be permitted to take immediate and complete
possession of the equipment. Further, the Lessor shall be entitled: (1) to
retain all rents and additional sums paid by the lessee, as well as resale
proceeds, refunds or other funds received by the Lessor on account of this
lease, and (2) may, but shall not be required to, re-let all or part of the
equipment above described as Lessor shall elect or may, but shall not be
required to sell the equipment at public or private sale either for case or
credit, with relief from all appraisement laws, and (3) shall be entitled to
recover from Lessee all rents and additional sums accrued by Lessor under this
lease and unpaid prior to Lessors retaking possession of the equipment, and as
partial damages for breach, a sum equal to the total unpaid rental which would
have accrued for the balance of the term of this lease less only the net
proceeds of such re-letting or sale, and (4) shall be entitled to recover from
the Lessee any and all damages which Lessor, shall sustain by reason of any such
default, failure or breach by the Lessee to together with reasonable sum for
attorney's fees or expense as shall be expended or incurred in the seizure,
rental, storage, transportation, re-letting, or sale of such equipment, and
enforcement of any right, privilege hereunder, collection of any sums due
hereunder or any consultation or action in such connection. The remedies herein
provided in favor of the Lessor shall not be deemed exclusive, but shall be
cumulative and shall be in addition to all other remedies in the Lessor's favor,
existing in law, equity or bankruptcy.
14. Unless terminated in the manner set forth above, this lease agreement
shall continue in full force and effect until one party shall give to the other
party hereto thirty (30) days written notice of such termination. For this
purpose, the serving of such notice by registered or certified mail addressed to
the party on which such notice is being served at the address
<PAGE> 4
designed heretofore, shall be deemed adequate and sufficient.
15. That in the event of termination, cancellation, or otherwise the
ending of this lease the Lessor shall be entitled, and in addition to all his
other remedies, law, equity, or bankruptcy to the immediate possession of the
leased property.
16. That this lease agreement shall be governed by all proposes by the
substantive laws of the Sate of Indiana.
17. The Lessee and Lessor agree in the event of dispute, or default on
this lease agreement the Courts of the State of Indiana shall have jurisdiction
over the Lessor and Lessee to resolve any questions arising hereunder.
18. The Failure of either party to insist upon strict performance of
any of the provisions of this agreement shall not be construed as a waiver of
any subsequent default of the same or similar nature.
19. The Lessor and the Lessee hereby acknowledge that no
representations of any kind have been made to him or her as in inducement to
enter into this agreement other than the representations set forth herein, and
this agreement constitutes all of the terms of the contract between said
parties. The terms of this agreement may be waived, amended or supplemented only
in writing, executed with the same formality as this lease.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals
on the date first above written.
"LESSOR"
by:_____________________________
ATTEST:
---------------------------
"LESSEE"
Thermwood Corporation, PO Box 436, Dale, Indiana 47523-0436
By:____________________________
ATTEST:
---------------------------
<PAGE> 5
STATE OF INDIANA)
) SS:
COUNTY OF SPENCER)
Before me, the undersigned, a Notary Public in and for said county,
this ______ day of ____________, 199_, personally appeared Lessor,
_______________ by its president ___________________ and its
secretary/treasurer, ________________ and acknowledged the execution of the
foregoing instrument.
Witness my hand and notarial seal.
____________________________
My commission expires:
NOTARY PUBLIC
Resident of Spencer County, IN
___________________________
STATE OF INDIANA)
) SS
COUNTY OF SPENCER)
Before me, the undersigned, a Notary Public in and for said county,
this ______ day of ______________, 199_, personally appeared Lessee, Thermwood
Corporation by its president Kenneth Susnjara and its treasurer, Rebecca Fuller
and acknowledged the execution of the foregoing instrument.
Witness my hand and notarial seal.
___________________________
My commission expires:
NOTARY PUBLIC
Resident of _____ County
<PAGE> 1
EXHIBIT 10.10
Lease Agreement Between The Registrant
And Edgar Mulzer Dated February 13, 1987
LEASE AGREEMENT
THIS LEASE AGREEMENT is made and entered into effective as of the 13th day of
February, 1987 (alternatively referred to as the "Commencement Date" or the
"Effective Date"), at Dale, Indiana, by and between Edgar Mulzer, an individual
residing, in Tell City, Indiana (hereinafter referred to as "Lessor") and
THERMWOOD CORPORATION, an Indiana corporation having its principal place of
business in Dale, Spencer County, Indiana, (hereinafter referred to as
"lessee").
For and in consideration of the rents, covenants, and agreements hereinafter set
forth and agreed to be kept and performed by Lessee, its successors and assigns,
Lessor does hereby agree to deliver and lease to Lessee that certain industrial
plant and surrounding rounds and parking area (hereinafter referred to as the
"Premises") located upon land owned by Lessor in Spencer County, Indiana, a
legal description of which is attached hereto as Exhibit A and incorporated
herein by reference (such land and the aforementioned improvements thereon being
hereinafter collectively referred to as the "Property").
TO HAVE AND TO HOLD unto Lessee for a term of twenty (20) years, commencing on
the Effective Date hereof, upon the mutual promises, terms, and conditions
hereinbelow set forth, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Lessor and Lessee do
hereby agree as follows:
1. BASE RENT: Lessee promises, covenants, and agrees to pay Lessor as rent
for the lease term hereinbelow specified Four Million, Six Hundred Forty Four
Thousand, Eight Hundred Forty Seven and 20/100 Dollars ($4,644,847.20), which
aggregate rent will be paid Lessor in Two Hundred Forty (240) equal monthly
installments of Nineteen Thousand, Three Hundred Fifty Three and 53/100 Dollars
($19,353.53), due on or before the first day of each lease period. The term of
this Lease Agreement will commence on the Effective Date and terminate
automatically on the preceding calendar day-in February 2007. Lessor represents,
covenants, and warrants that it is the owner in fee simple absolute of the
Property and that Lessee, upon paying the rent herein reserved and upon
performing all of the material terms and conditions of this Lease Agreement,
will at all times during
<PAGE> 2
the term herein demised peacefully and quietly have, hold, and enjoy the
Property.
2. NET LEASE: This Lease is (deemed and construed to be a "true net lease" and,
except as otherwise herein expressly provided, Lessee will pay all rents due
hereunder free from any charges, assessments, impositions, expenses or
deductions of any kind or nature whatsoever connected with the Property, all of
which Lessee covenants to pay on or before the due date thereof. Nothing
contained herein will be construed to require profits taxes of Lessor, or any
surtax imposed upon Lessor, or its predecessors or successors in title, or any
legal representative, successor or assign thereof, or any of them. Lessee will
not have any obligation to pay any interest or amortization upon any mortgage or
mortgages secured by the Premises or the Property.
3. TAXES: Except as hereinabove expressly provided, Lessee hereby covenants and
agrees to pay, as additional rent, all taxes, assessments, and other charges or
levies of any kind, nature or name whatsoever, imposed upon or charges against
the Property or the Premises, including any and all taxes or assessments due for
any period commencing on or after the Effective Date but not extending beyond
the term of this Lease Agreement. Lessee agrees to pay all such taxes and
assessments at least seven (7) days prior to the time that such payment would be
delinquent. Lessee further covenants and agrees that upon Lessor's written
request therefor, Lessee will deliver to Lessor receipts reflecting Lessee's
payment of any and all such taxes, assessments or charges within a reasonable
period after each such payment is made. Lessee will have the right and
privilege, in its own name or the name of Lessor, to contest, or apply or sue
for a change in, the amount of any such taxes, assessments, or charges;
provided, however, that Lessee will first either pay, under protest, such amount
or satisfactorily assure Lessor, by bond, security or otherwise, that in the
event Lessee is unsuccessful in pursuing such contest, application or suit to
reduce taxes, such taxes will be paid by Lessee.
4. INSURANCE: For and during the term of this Lease
Agreement, Lessee, at its sole cost and expense, will provide and keep in effect
such public liability insurance as will fully protect Lessor and lessee against
any and all liability for property damage, personal injury or death occurring on
or pertaining in any way to the Premises or the Property. Such liability
insurance coverage will be in amounts equal to or exceeding Three Hundred
Thousand and 00/100 Dollars ($300,000.00) per claimant, Five Hundred Thousand
and 00/100
<PAGE> 3
Dollars ($500,000.00) per occurrence, and Fifty Thousand and 00/100 Dollars
($50,000.00) in property damage. In addition, Lessee will provide fire and
extended coverage insurance upon the Premises, insuring same against loss or
damage by fire, wind, or any other natural or other cause (the risk of the
occurrence of which is commonly insurable) included within the term of "extended
coverage" and additional extended coverage" as may now or hereafter during the
term of this Lease Agreement be available, in an amount at least equal to eighty
per cent (80%) of the full insurable value of the Premises; provided, however,
that in no event will the amount of such insurance be less than One Million,
Eight Hundred Thousand and 00/100 Dollars ($1,800,000.00). All such policies of
insurance hereinabove required will be carried by solvent insurance companies
authorized and licensed to do business in the State of Indiana; reasonably
approved by Lessor; and will insure the respective interest of Lessor and
Lessee, as such interests are reflected in this Lease Agreement and a Land
Contract of even date herewith entered into by and between Lessor and Lessee.
Any and all such policies will provide that loss, if any payable thereunder,
will be payable to Lessor or Lessee, as their interests may therein appear, and
such policies of insurance will be held and retained by Lessee and the coverage
provided thereunder will be certified by Lessee to Lessor.
5. FIRE AND OTHER CASUALTY: Lessee will assume all Risk of fire and any and
all other casualty or damage of any kind or nature to the Premises. If the
Premises or any portion thereof are damaged or destroyed by fire or other
casualty Lessee will, with all deliberate speed and reasonable diligence,
replace, repair or restore, as the case may be, the Premises to substantially
the same condition prior to the occurrence of such casualty. All proceeds of
said insurance, if and when received by the parties, will be first used to
restore the Premises to its preexisting condition prior to the occurrence of the
damage. In the event of any such damage or destruction Lessee's obligation to
pay rent hereunder will abate until the Premises are fully restored. Such rent
abatement will be determined on a per diem and net rentable square footage
basis, respectively, by the extent to which, in Lessee's reasonable judgment,
the Premises are not suitable for Lessee's use, and Lessee will be entitled to
receive a pro rata refund of any advance rent already paid or reduction in rent
due, as the case may be, for the appropriate period.
6. ACCEPTANCE OF PREMISES: Lessee's acceptance of Lessor's
<PAGE> 4
delivery of possession of the Premises on the Commencement Date constitutes (a)
Lessee's waiver of its right to examine the Premises, and (b) Lessee's
acceptance of the Premises in its then existing condition.
7. ASSIGNMENT AND SUBLEASING: Lessee may not assign,
sublet, mortgage, pledge or otherwise encumber this Lease, or voluntarily
assign, transfer or sublet this Lease to a new Lessee by merger, stock transfer
or otherwise, without the written consent thereto of Lessor, which written
consent will not be unreasonable withheld. Lessee further agrees that should
Lessee sublet any part of the Premises or assign this Lease Agreement with
Lessor's written consent thereto, such assignment or subletting will not,
without Lessor's express written consent thereto, release Lessee from fulfilling
the terms and obligations of this Lease Agreement, in which case Lessee will
remain fully responsible and obligated under the terms and provisions of this
Lease Agreement and will remain and be fully responsible to Lessor for the
conduct and activities of any assignee or subtenant of Lessee, all as in
accordance with the terms and conditions of any written agreement of sublease or
assignment to which Lessor has consented in writing, unless otherwise therein
specified.
8. UTILITIES: Lessee agrees to pay for all heat, water,
gas, electricity, telephone and any and all other utility and service charges
incurred or used by Lessee upon or with respect to the Premises.
9. MAINTENANCE: Lessee, at its sole cost and expense, will,
during the term of this Lease Agreement, put and keep the Premises in good order
and condition. Lessor will have no further obligation of any kind or nature for
maintaining the Premises or any part thereof, including any obligation to detect
and cure any latent or patent defect or pre-existing condition, the risk of
which is expressly assumed by Lessee. Lessee will not suffer any waste or damage
to or upon the Premises or any part thereof and will neither use or occupy nor
permit the use of occupancy of-the Premises or any part thereof for any illegal
or unlawful purpose or in any hazardous manner. Lessee will at all times and at
its own expense keep the sidewalks, curbs, and areas in front of and adjacent to
the Premises in good condition and repair, and clean from rubbish, ice, and
snow, and will not encumber or obstruct same or allow same to be encumbered or
obstructed in any way or manner. Lessee will not injure or disfigure the
Premises or permit the Premises to be injured or disfigured in any way. In
addition to the foregoing maintenance obligations, Lessee will assume and pay
any and all assessments
<PAGE> 5
for streets, sidewalks, curbs, gutters, and sewers levied and assessed by any
governmental body against the Premises to the extend same relate to the term of
this Lease Agreement.
10. PAYMENT OF LESSEE'S OBLIGATIONS: If Lessee defaults in making any
payment required by this Lease Agreement, or in the performance of any term,
covenant or condition hereof imposes upon Lessee which involves Lessee's
expenditure of money, Lessor, at his own option and election, may, but is not
obligated to, (i) make such payment, or (ii) acting on behalf of Lessee, expend
such money as may be necessary to substitute Lessee's performance and fulfill
Lessee's obligations in such instance. Any and all sums so expended by Lessor,
with interest thereon at the rate of eight percent (8%) per annum from the date
of such expenditure, will be deemed additional rent, in addition the basic rent
hereinabove specified in Paragraph 1 of this Lease Agreement, and will be repaid
by Lessee upon Lessor's demand. No such payment or expenditure by Lessor will be
deemed a waiver of Lessee's default, and will not affect any other remedy of
Lessor by reason of such default.
11. TRADE FIXTURES: Lessor agrees that Lessee may install any and all
fixtures and equipment within and upon the Premises which Lessee in its sole
discretion deems necessary or appropriate for the conduct and operation of
Lessee's exclusive personal property and may be removed by Lessee at any time on
or before the termination of this Lease Agreement; provided; however, that if
the removal of such trade fixtures causes any damage to the Premises or to the
freehold interest of Lessor, Lessee will be obligated to either repair any such
damage and restore the Premises to the same condition prior to the installation
of such trade fixtures, or to reasonably compensate Lessor for any such damage.
12. NO LIENS: Lessee covenants and agrees to promptly pay the just claims and
demands for services performed and for any materials furnished and used in the
construction or alteration of improvements upon said real estate or in the
construction of additions, or the making of improvements and repairs thereto,
made at the request or upon the direction of, or on behalf of, Lessee
(hereinafter "Lessee's work"). Lessee covenants and agrees to indemnify,
protect, and hold harmless Lessor from any and all claims or demands in respect
of any liens upon the Property, and any and all claims or demands upon the
Premises, arising out of or in connection with Lessee's work, including claims
in connection with personal injuries of or property
<PAGE> 6
damage to third persons.
13. PUBLIC LIABILITY: Lessor will not be liable to Lessee or any other person,
including the guests, customers, agents or employees of Lessee, for any damage
to their person or property from any defect known or unknown in the
construction, condition, or maintenance of the Premises. Lessee further agrees
that it will protect and hold harmless Lessor from any and all claims for
personal injury or property damage by reason of the use, occupancy, and
maintenance of the Premises, including any and all public liability to Lessee's
guests, customers, agents or employees.
14. INSPECTION OF PREMISES: Lessee hereby agrees that Lessor may enter upon the
Premises at all reasonable times for the purpose of inspecting same and, upon
Lessee's failure to properly maintain the Premises, to make such repairs as may
be necessary in Lessor's discretion.
15. LESSOR'S LIEN: All sums of money, including any and all payments of rent due
and payable by virtue of the terms hereof, will be paid without relief from
valuation or appraisement laws, with nine and one-half per cent (9-1/2%)
interest from maturity, plus reasonable attorneys' fees; provided, however, that
Lessor will have a lien upon the Premises and upon any and all structures and/or
improvements errected or installed on the on the Property following the
Effective Date, for the payment in full of all rent due under this Lease
Agreement and for the full performance of all terms and conditions thereof.
16. CONDEMNATION: In the event the Property is, in whole or substantial part
including the Premises, acquired by, or in lieu of the exercise of, eminent
domain for any public or quasipublic use or purpose, or if as a result of such a
taking the Property is so substantially reduced in size or usefulness to Lessee
as to render the Premises, in Lessee's reasonable judgment, to be no longer
tenantable by Lessee for the uses and purposes for which Lessee has entered into
this Lease Agreement, this Lease Agreement will, at Lessee's sole option,
discretion, and election, terminate as of the date on which the acquirer or
condemnor will be entitled to take possession of all or such portion of the
Property. If less that the whole of the Property will be so acquired and the
remainder of the Premises is, in Lessee's sole discretion, tenantable for
Lessee's uses and purposes, this Lease Agreement will remain in force, provided
that the base rent hereinabove specified will be reduced proportionately to
reflect the diminished remaining value of the portion of the Premises not
acquired or condemned. Any award for
<PAGE> 7
the value of that portion of the Property so acquired, including the value of
any trade fixtures taken and the value of the leasehold interest, will belong to
Lessor. In either event hereinabove provided for, Lessee will have the right to
awards from or claims against the condemnor for the taking of any of Lessee's
property, including the unamortized value or other ownership interest in any
leasehold improvements made or trade fixtures installed by Lessee, Lessee's
moving expenses, and appropriate compensation for interruption of Lessee's
business.
17. INSOLVENCY: It is hereby expressly agreed that in the
event Lessee, its assignees, or sublessees, become insolvent, or make any
assignment for the benefit of its creditors, or in the event that a suit is
filed against Lessee (or such person, firm or corporation taking from Lessee)
seeking the appointment of a receiver or trustee of a court of bankruptcy, or a
state or a federal court is appointed to take charge of Lessee's business and
property, then, and in any of these events, the term of this Lease Agreement
will, at Lessor's option, cease and terminate, and Lessor will thereupon be
entitled to immediate possession of the Premises and the Property.
18. DEFAULT: In the event that (i) Lessee fails to pay any installment of
rent within sixty (60) days from the time said installment of rent is due, or
that (ii) Lessee continues for thirty (30) days after the date on which written
notice thereof mailed to Lessee in accordance with the notice provisions of this
Lease Agreement, to violate any of the other terms, conditions or covenants
herein contained, then Lessor, upon five (5) days written notice delivered to
Lessee, will have the right to enter and repossess the Premises and the
Property, and dispossess Lessee therefrom, including Lessee's employees, quests,
agents, and invitees, and remove any and all personal property therefrom and
store same without liability for safekeeping. In the event of such reentry and
repossession by Lessor, Lessee hereby waives any other notice prescribed by law
or otherwise required to vacate the Premises, and thereupon Lessor will be
relieved of any liability under this Lease Agreement and will have the right to
re-lease or re-rent the premises to Lessor's best advantage. The rentals by
Lessor from any re-letting of the Premises will first be applied to any and all
expenses incurred by or on behalf of Landlord in securing possession of, and
making such incidental or necessary repairs or alterations to, the Premises or
any other ordinary expenses or commissions incurred in connection with such
reletting. The balance of any remaining rent will then be applied to any and all
amounts then due from Lessee under this Lease Agreement.
<PAGE> 8
Lessee will be liable to Lessor for any unpaid balance or deficiency remaining
due Lessor under the terms of this Lease Agreement.
19. SUBSEQUENT IMPROVEMENTS: No improvements, structural
changes or alterations to, or remodeling of, the Premises will be made by Lessee
without first receiving Lessor's written consent thereto, which consent will not
be unreasonably withheld.
20. CARE OF PREMISES: Lessee agrees (a) to use and occupy the Premises in a
proper and careful manner, (b) to neither commit nor permit the commission of
waste thereon, and (c) to at all times hereunder keep the Premises free from all
rubbish and debris.
21. SHORT-FORM LEASE: Lessor and Lessee agree to execute and deliver for
recordation in Spencer County, Indiana, such shortform lease as may be
appropriate under the laws of the State of Indiana to reflect the terms of this
Lease Agreement.
22. NOTICES: All notices hereunder will be sent or delivered (i) to Lessor,
at 401 Tenth Street, Tell City, Indiana, which is also Lessor's address for the
receipt and payment of all rent due hereunder; and (ii) to Lessee c/o Kenneth J.
Susnjara, President, at the Premises, located on Buffaloville Road, Dale,
Indiana, and to Lessee's General Counsel, Peter N. Lalos, Esquires, at Lalos,
Keegan & Kaye, 900 17th Street, N.W., Suite 900, Washington, D.C. 20006. Any
notice required by or in accordance with this Lease Agreement will be deemed
duly given to the party entitled thereto if handdelivered to such party or sent
by certified mail, return receipt requested, to the address indicated above for
such party. Any such address may be changed at any time by notice to the other
party in accordance with the notice provisions set forth herein.
23. NON-WAIVER: Lessor will not be considered to have waived any of its
rights, covenants or conditions under this Lease Agreement unless evidenced by
Lessor's written waiver; provided,.however, that Lessor's failure to terminate
this Lease Agreement, or. to demand re-possession of the Premises and Lessee's
removal therefrom by reason of any breach or default by Lessee, will not be
deemed a waiver of, or act as an estoppel against, Lessor's right to terminate
this Lease Agreement or to demand to secure possession by reason of any further,
future or continuing breach or default by Lessee which remains uncured.
24. LITIGATION: Lessee agrees and covenants that in case
<PAGE> 9
Lessor will, without fault, be made party to any litigation commenced by or
against Lessee (other than any litigation commenced by Lessee against Lessor in
connection with the enforcement of this Lease Agreement or the Land Contract),
Lessee will pay all costs and reasonable attorneys' fees incurred by or imposes
upon Lessor by or in connection with such litigation. The foregoing
notwithstanding, Lessee further agrees to pay all costs and reasonable
attorneys' fees which may be incurred or paid by Lessor in successfully
enforcing any of the covenants, terms or conditions of this Lease Agreement,
which costs and attorneys' fees when paid by Lessor will become additional rent
due on the next day rent is due and payable after such payment or payments,
together with interest at nine and one-half per cent (91/2%) per annum from the
day of payment and will be collected as other rent specifically herein reserved;
provided, however, that in the event that Lessor is unsuccessful in such efforts
to enforce any covenant, term or condition of this Lease Agreement, Lessor will
reimburse Lessee for Lessee's costs and attorneys' fees reasonable incurred in
the defense of such action.
25. ASSIGNMENT OF RENTAL PAYMENTS: Lessor reserves the right to make
assignment of the rental payments due hereunder at any and all times during the
term of this Lease and Lessee hereby agrees, upon receipt of written notice of
any and all such assignments, to make the monthly rental payments provided for
herein to Lessor's designee.
26. ASSIGNMENT OF BUILDING WARRANTIES: Lessor acknowledges that Lessee is the
rightful assignee and holder of all building warranties in connection with the
Premises, and that Lessee is entitled to pursue any and all causes of action in
connection therewith. Lessor further agrees to assist Lessee in the enforcement,
at Lessee's sole expense, of such building warranties.
27. PARTIES BOUND: All references to the parties to this Lease Agreement, and
all covenants, terms, conditions, and agreements of the parties to this Lease
Agreement, are deemed and construed to apply to and be binding upon the parties
themselves, and their respective successors and assigns, except as is herein
expressly stated to the contrary, as if each and every one were, in each case,
fully named herein.
28. RENTAL INSURANCE: During the full term of this Lease
Agreement Lessee, at its sole cost and expense, and for the mutual benefit of
Lessor and Lessee, will carry and maintain
<PAGE> 10
rent insurance protecting Lessee against loss of rent or rental value due to
fire, including extended coverage endorsement, in an amount equal to the annual
rent for the Premises plus the estimated amount of real estate taxes payable by
Lessee. Such policy or policies will provide by endorsement that any loss will
be payable to Lessor and Lessee as their respective interests may appear.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seals and
executed this Lease Agreement in duplicate, each of which will be deemed to be
an original, as of the Effective Date.
LESSEE:
Attest: THERMWOOD CORPORATION,
an Indiana Corporation
/s/ Peter N. Lalos /s/ Kenneth J. Susnjara
- ------------------------- ------------------------------
Peter N. Lalos, Secretary Kenneth J. Susnjara, President
LESSOR:
/s/ Paul A. Knust /s/ Edgar Mulzer
- ------------------------- ------------------------------
Edgar Mulzer
STATE OF INDIANA
) SS:
COUNTY OF SPENCER
Before me, the undersigned, a Notary Public in and for said County and
State, came Edgar Mulzer, an individual residing in Tell City, Indiana, who
acknowledged the execution of the foregoing LEASE AGREEMENT as his free and
voluntary act for the uses and purposes therein set forth.
WITNESS my hand and Notarial Seal this 13TH day of February, 1987
/s/ Edna Albin
--------------
Notary Public
My Commission Expires:
March 15, 1988
STATE OF INDIANA )
) SS:
COUNTY OF SPENCER
Before me, the undersigned, a Notary Public in and for said County and State,
came THERMWOOD CORPORATION, an Indiana corporation, by KENNETH J. SUSNJARA, its
President, and by PETER
<PAGE> 11
N. LALOS, its Secretary, respectively, for and on behalf of said Corporation,
which acknowledged the execution of the foregoing LEASE AGREEMENT and the
affixing hereto of the corporate seal of said Corporation, for the uses and
purposes therein set forth. WITNESS my hand and Notarial Seal this 13th day of
February, 1987.
/s/ Edna Albin
- ---------------
Notary Public
My Commission Expires:
March 15, 1988
EXHIBIT A
The following described real estate located in Spencer County, in the State of
Indiana, to-wit:
A part of the Southeast Quarter of the Northwest Quarter of
Section 20, Township 4 South, Range 5 West, Spencer Country, Indiana, described
as follows: Beginning at a corner stone at the Southwest corner of said
quarter-quarter section; thence North 0 degrees 10 minutes East 659.0 feet to an
iron pin; thence South 88 degrees 30 minutes East 677.7 feet along an existing
fence line to an iron pine in the center of the DaleBuffaloville Road; thence
South 1 degree 30 minutes East 390.0 feet along the center of said road to an
iron pin; thence South 16 degrees 35 minutes East 262.8 feet along the center of
said road to an iron pin on the South line of said quarter-quarter section;
thence North 90 degrees 00 minutes West 764.0 feet along the South line of said
quarter-quarter section to the point of beginning and containing 10.45 Acres,
more or less.
The above tract is subject to county road right-of-way along the East side
thereof.
Plus, the following described real estate located in Spencer County, in the
State of Indiana, to-wit:
A part of the northeast quarter of the southwest quarter of Section 20,
Township 4 south, Range 5 west, Spencer County, Indiana, described as follows:
Beginning at a corner stone at the northwest corner of said quarter
quarter section; thence north 90 degrees 00 minutes ease
<PAGE> 12
422.09 feet to an iron pipe; thence south 0 degrees 17 minutes west 516.00 feet
to the west line of said quarter quarter section; thence north along said west
line of the quarter quarter section 516 feet to the point of beginning,
containing 5.00 acres, more or less. Subject to all easements and right-of-way.
<PAGE> 1
EXHIBIT 10.11
Letter From Edgar Mulzer To The Registrant Offering
To Purchase Premises Dated February 6, 1987
February 6, 1987
The Board of Directors
Thermwood Corporation Post Office Box 436 Dale, Indiana 47523
Dear Sirs and Madam:
I hereby offer to purchase the land and building described in the
enclosed proposed lease agreement and land contract for a total purchase price
of One Million and Eight Hundred Thousand Dollars ($1,800,0000.00) in cash, on
the condition that the Thermwood Corporation agrees to lease such land and
building under the terms and conditions set forth in the enclosed lease
agreement.
On the condition that such purchase offer is accepted and consummated and such
lease agreement is entered into, I further offer to resell such land and
building to the Thermwood Corporation under the terms and conditions set forth
in the enclosed land contract.
If the aforementioned offers are accepted, please so advise in writing and
further advise of a proposed closing time and place for settlement. I suggest
that settlement be held at 1:00 p.m. on Friday, February 13, 1987 at your
offices in Dale, Indiana.
Very truly yours,
/s/ Edgar Mulzer
Edgar Mulzer
EM:cfg
Enclosures
<PAGE> 1
EXHIBIT 10.12
Letter From The Registrant To Edgar Mulzer
Accepting Such Offer Dated February 13, 1987
February 13, 1987
Mr. Edgar Mulzer
401 Tenth Street
Tell City, Indiana 47586
Dear Edgar:
The offer as set forth in your letter of February 6, 1987 is accepted by the
Thermwood Corporation.
Your proposed closing time and place are acceptable and we will attend
to all arrangements for settlement.
Very truly yours,
/s/ Kenneth J. Susnjara
------------------------
Kenneth J. Susnjara
KJS:rah
<PAGE> 1
EXHIBIT 10.13
Land Contract Between Edgar Mulzer And
The Registrant Dated February 13, 1987
LAND CONTRACT
THIS LAND CONTRACT is made and entered into effective
as of the 13th day of February, 1987 (the "Effective Date"), at Dale, Indiana,
by and between Edgar Mulzer, an individual residing in Tell City, Indiana,
(hereinafter referred to as "Vendor"), and THERMWOOD CORPORATION, an Indiana
corporation, having its principal place of business in Dale, Spencer County,
Indiana (hereinafter referred to as "Purchaser").
WITNESSETH, That:
WHEREAS, on the Effective Date Vendor and Purchaser entered into and
executed a Lease Agreement covering a certain manufacturing plant facility and
surrounding grounds and parking areas (therein and hereinafter referred to as
the "Premises") upon land owned by Vendor in Dale, Indiana (which land,
including the Premises, is therein and hereinafter referred to as the
"Property"), a copy of which Lease Agreement is attached hereto as Exhibit A and
made a part hereof; and
WHEREAS, Purchaser may, during the term of the Lease Agreement, desire
to purchase the Property, including the Premises, and Vendor is willing to
bargain and convey same to Purchaser, all in accordance with the terms and
conditions of the Lease Agreement and this Land Contract;
NOW, THEREFORE, upon these premises, the mutual covenants and promises
of the parties herein contained, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Vendor and Purchaser
do hereby agree as follows:
1. PURCHASE PRICE: So long as Purchaser is not then
in default to any obligation under the Lease Agreement (provided Purchaser has
been given both proper notice of and an opportunity to cure such default),
Purchaser shall have the right to purchase the Property, including the Premises,
at any time by payment to Vendor at Closing, to be held in accordance with the
provisions therefor set forth elsewhere herein, of the Purchase Price determined
as follows:
<PAGE> 2
<TABLE>
<CAPTION>
DISCOUNTED DISCOUNTED TOTAL
LEASE BUILDING OPTION PURCHASE
YEAR VALUE + PRICE = PRICE
<S> <C> <C> <C>
1 $ 1,775,781.00 $ 12,000.00 $ 1,786,781.00
2 1,748,590.00 24,000.00 1,771,590.00
3 1,718,064.00 36,000.00 1,753,064.00
4 1,683,794.00 48,000.00 1,730,794.00
5 1,645,320.00 60,000.00 1,704,320.00
6 1,602,125.00 72,000.00 1,673,125.00
7 1,553,632.00 84,000.00 1,626,632.00
8 1,499,190.00 96,000.00 1,594,190.00
9 1,438,070.00 108,000.00 1,545,070.00
10 1,369,453.00 120,000.00 1,488,453.00
11 1,292,418.00 132,000.00 1,423,418.00
12 1,205,933.00 144,000.00 1,348,033.00
13 1,108,833.00 156,000.00 1,263,838.00
14 999,833.00 168,000.00 1,166,833.00
15 877,456.30 180,000.00 1,056,456.00
16 740,067.50 192,000.00 931,067.50
17 585,825.10 204,000.00 788,825.10
18 412,661.60 216,000.00 627,661.60
19 218,256.00 228,000.00 445,256.00
20 - 0 - 240,000.00 240,000.00
</TABLE>
*/ Each Lease Year represents a 365-day period under the Lease Agreement, the
first such Lease Year commencing on the Effective Date of the Lease Agreement.
**/ The Purchase Price reflects the price at which Purchaser may acquire the
Property during each Lease Year.
2. EXERCISE OF PURCHASE OPTION: To exercise its
purchase option hereunder, Purchaser shall give Vendor written notice of
Purchaser's intention to purchase the Property at the specified Purchase Price,
at which time this Land Contract shall become a contract of purchase, binding
the Purchaser to purchase and the Vendor to sell the Property upon the terms and
conditions contained herein and in Purchaser's notice. Thereupon, Vendor shall
immediately order and upon receipt thereof deliver to Purchaser a full and
complete abstract of title to the Property, which title abstract shall be
extended to a date not earlier than the date on which Vendor received the
aforementioned purchase notice.
3. CLOSING: Except as otherwise provided in Paragraph 4,
<PAGE> 3
Closing shall be held not later than fifteen (15) days following the date on
which Vendor delivers to Purchaser the aforesaid title abstract. Vendor agrees
to convey the Property to Purchaser by Warranty Deed, free and clear of any
liens or encumbrances, except those for which Purchaser is responsible under the
terms of the Lease Agreement, and subject only to all legal highways,
rights of-way, easements, and other restrictions of record.
4. DEFECTS IN VENDOR'S TITLE: In the event Purchaser's counsel requires
as a condition of purchase, that specified defects in Vendor's title to the
Property be cured as a prerequisite to Closing, Vendor shall have sixty (60)
days to cure or comply with said requirements, or, at Vendor's option and sole
expense, to furnish to Purchaser at Closing a title insurance policy in form and
coverage acceptable to Purchaser's counsel and without restriction or
qualification as to the defects noticed to Vendor by said counsel.
5. NOTICES: All notices hereunder shall be sent or delivered to Vendor
at 401 Tenth Street, Tell City, Indiana 47586, and to Purchaser, at the
Premises, located on Buffaloville Road, Dale, Indiana, and to Purchaser's
General Counsel, Peter N. Lalos, Esquire, at Lalos, Keegan & Kaye, 900 17th
street, N.W., Suite 900, Washington, D.C. 20006. Any notice required by or in
accordance with this Land Contract will be deemed duly given to the party
entitled thereto if handdelivered to such party or sent by certified mail,
return receipt requested, to the appropriate address indicated above for such
party. Any such address may be changed at any time by notice to the other party
in accordance with the notice provisions set forth herein.
6. ASSIGNMENT: Purchaser may not assign its rights hereunder without
the prior written consent of Vendor, which consent shall not be unreasonably
withheld. However, upon Vendor's consent, in his sole discretion, to the
assignment by Purchaser of Purchaser's rights and obligations under the Lease
Agreement, Vendor shall be deemed also to have consented to the assignment of
this Land Contract.
7. BINDING AGREEMENT: This Land Contract shall be binding upon any
successors in title or interest to Vendor, and the covenants herein contained
shall run with the Property.
IN WITNESS WHEREOF, the parties hereto have, as of the Effective Date, hereunto
set their hands and seals as their free act and deed and executed this Land
Contract in duplicate, each of which
<PAGE> 4
is deemed an original.
PURCHASER:
Attest: THERMWOOD CORPORATION,
an Indiana corporation
/s/ Peter N. Lalos By/s/Kenneth J. Susnjara
Peter N. Lalos, Secretary Kenneth J. Susnjara,President
WITNESS VENDOR:
/s/ Paul A. Knust /s/ Edgar Mulzer
Edgar Mulzer
STATE OF INDIANA )
)SS:
COUNTY OF SPENCER)
Before me, the undersigned, a Notary Public in and for said County and
State, came Edgar Mulzer, an individual residing in Tell City, Indiana, who
acknowledged the execution of the foregoing LAND CONTRACT as his free and
voluntary act for the uses and purposes therein set forth.
WITNESS my hand and Notarial Seal this 13th day of February, 1987.
/s/Edna Albin
--------------
Notary Public
My Commission Expires:
March 15, 1988
STATE OF INDIANA )
) SS:
COUNTY OF SPENCER )
Before me, the undersigned, a Notary Public in and for said County and
State, came THERMWOOD CORPORATION, an Indiana corporation, by KENNETH J.
SUSNJARA, its President, and by PETER N. LALOS, its Secretary, respectively, for
and on behalf of said Corporation, which acknowledged the execution of the
foregoing LAND CONTRACT and the affixing hereto of the corporate seal of said
Corporation, as the free and voluntary act of said Corporation, for the uses and
purposes therein set forth.
<PAGE> 5
WITNESS my hand and Notarial Seal this 13th day of February, 1987.
/s/Edna Albin
---------------
Notary Public
My Commission Expires:
March 15, 1988
<PAGE> 1
EXHIBIT 10.14
Lease Agreement Between The Huntingburg Townhouses, Inc.
And The Registrant Dated March 27, 1989
LEASE AGREEMENT
THIS AGREEMENT of Lease and Rental, entered into on this the 27th day of
March, 1989 by and between Huntingburg Townhouses, Inc. an Indiana Corporation,
hereafter called Lessor and Thermwood Corporation of Dale, Indiana, hereafter
called Lessee, WITNESSETH:
1. The lessor hereby leases and rents unto the Lessee and the Lessee
hereby leases and rents of and from the Lessor, upon the terms, conditions,
covenants and considerations hereafter set forth, certain equipment and personal
property of the Lessor more fully described as follows: Financial and Accounting
services Wing per attached Exhibit A Office Remodeling and Furniture per
attached Exhibit B.
2. Title to said leased property shall at all times remain in the Lessor
and the Lessee shall enjoy only the beneficial user thereof as set forth herein,
so long as the Lease Agreement remains in full force and effect. Lessee may take
possession of the leased property upon the execution of this agreement.
3. As rental for the use of the above described equipment and property,
the lessee shall pay to the Lessor a monthly rental of $5,226.74, the first of
which said rentals shall be payable on the 27th day of April, and shall continue
with a like payment on the 27th day of each and every month hereafter for a
period of two years. At the end of the primary term of the lease, lessee may
purchase the leased property for $1.00 or continue the lease for an additional
one year term for a rental payment of $5,226.74.
4. Lessee shall, at the cost and expense of Lessee, cause the leased
equipment and properties to be insured in a good and reliable insurance company
for the protection and benefit of Lessor. The lessee shall forthwith provide the
Lessor with due proof of Lessee's compliance with said insurance requirements
above set forth.
5. The Lessee may use said leased properties and equipment for the
following purposes and in the following manner: in the normal course of Lessee's
business of
<PAGE> 2
manufacturing.
6. Lessee shall keep and maintain the leased equipment in a reasonable
state of repair at all times, comparable to its present condition, to purchase
at the cost and expense of Lessee any licenses that may be required for the
privilege of operating said equipment by the State of Indiana or the United
States of America. Salaries and wages of the operators of said equipment shall
be paid solely by Lessee.
7. The operators of said equipment shall be the employees, agents-and
servants of the Lessee alone and shall in no manner be under the direction,
control or in the emply of the Lesssor, and as concerns the operation of said
equipment the Lessee shall be deemed as independent contractor and not an agent,
servant or employee of the Lessor, nor under its direction or control in any
manner concerning the operation of said leased properties.
8. So long as this agreement shall remain in effect, the Lessee shall pay
all taxes assessed against the leased property by the State of Indiana, the
United States of America or any political sub-division thereof, including, but
not by way of limitation all Municipal use tax and all other taxes that may be
imposed in the premises concerning the use and operation of said equipment and
property.
9. The Lessee covenants and agrees to hold the Lessor herein safe, free
and harmless from any and all costs, damages, charges or other liability of any
kind or character whatever, arising from the operation of said leased equipment
under this lease agreement.
10. Lessee covenants and agrees to provide competent and experienced
operators for the operation of said equipment and upon a termination of this
agreement for any reason, to forthwith return and redeliver said leased
equipment and property to the Lessor in as good condition as when Lessee
received the same, ordinary wear and tear expected.
11. Lessee shall not transfer, sell or assign this lease agreement or any
interest therein, to any person without first having obtained the consent of the
Lessor in writing to such transfer, sale or assignment.
12. In event of the failure, neglect or refusal of the Lessee to pay said
monthly rentals at the time and in the form
<PAGE> 3
and manner provided herein or to fully and faithfully perform, all and singular
the obligations, duties and agreements to be kept and performed by said Lessee,
the Lessor may, at its option forthwith cancel, terminate and rescind this lease
agreement, without any notice or process previously had or obtained in which
event all right to possession and user by Lessee of the leased equipment and
property shall automatically cease and terminate and the Lessor shall be
permitted to immediate and complete possession of the same free and discharge
from said lease agreement.
Unless terminated in the manner set forth above, this lease agreement shall
continue in full force and effect until one party shall give to the other party
hereto a thirty (30) day written notice of such termination. For this purpose
the serving of such notice by registered or certified mail addressed to the
party on which such notice is being served at the address designated heretofore,
shall be deemed adequate and sufficient. IN WITNESS WHEREOF the parties have
hereunto set there hands and seals on this the_________day of___________.
ATTEST:
Bill H. Bradley, Secretary-Treasurer.
HUNTINGBURG TOWNHOUSES, INC., LESSOR
By:
---------------------------------
Edgar Mulzer, President
ATTEST: THERMWOOD CORPORATION, LESSEE
/s/ Mark Brown /s/Kenneth Susnjara,
- --------------------- --------------------
Mark Brown, Treasurer President
ACKNOWLEDGEMENT
STATE OF INDIANA
SS:
COUNTY OF SPENCER
Before me, the undersigned, a Notary Public, within and for said County and
State, on this the 27TH day of March, 1989. personally appeared the above and
within named Kenneth Susnjara
<PAGE> 4
and Mark Brown, the President and Treasurer respectively of Thermwood
Corporation, Lessee in the foregoing Lease Agreement, and each acknowledged the
execution of the above foregoing and within Agreement to be their free and
voluntary act and deed, for the uses and purposes therein expressed.
Witness my hand and notarial seal.
/s/ Edna Nix
------------------
Edna Nix
Notary Public
a resident of Spencer County, Indiana
My commission will expire:
March 15, 1992
<PAGE> 1
EXHIBIT 10.15
Lease Agreements Between The Huntingburg Townhouses, Inc.
And The Registrant Dated December 18, 1990
LEASE AGREEMENT
THIS AGREEMENT of Lease and Rental, entered into on this the 18th day of
December, 1990 by and between Huntingburg Townhouses, Inc. an Indiana
Corporation, hereafter called Lessor and Thermwood Corporation of Dale, Indiana,
hereafter called Lessee, WITNESSETH:
1. The Lessor hereby leases and rents unto the Lessee and the Lessee
hereby leases and rents of and from the Lessor, upon the terms, conditions,
covenants and considerations hereafter set forth, certain equipment and personal
property of the Lessor more fully described as follows:
New Thermwood CNC Panel Processing Machine, S/N PPM002081490SD9 with
Thermwood 9100 CNC Control
2. Title to said leased property shall at all times remain in the
Lessor and the Lessee shall enjoy only the beneficial user thereof as set forth
herein, so long as the Lease Agreement remains in full force and effect. Lessee
may take possession of the leased property upon the execution of this agreement.
3. As rental for the use of the above described equipment and property,
the Lessee shall pay to the Lessor a monthly rental of $3,911.67 the first of
which said rentals shall be payable on the 18th day of January, 1991 and shall
continue with a like payment on the 18th day of each and every month hereafter
for a period of sixty (60) months. At the end of the primary term of the lease,
Lessee may purchase the leased property for $1.00 or continue the lease for an
additional one year term for a rental payment of $3,911.67.
4. Lessee shall, at the cost and expense of Lessee, cause the leased
equipment and properties to be insured in a good and reliable insurance company
for the protection and benefit of Lessor. The Lessee shall forthwith provide the
Lessor with due proof of Lessee's compliance with said insurance requirements
above set forth.
5. The Lessee may use said leased properties and equipment for the
following purposes and in the following
<PAGE> 2
manner: in the normal course of Lessee's business of manufacturing.
6. Lessee shall keep and maintain the leased equipment in a reasonable
state of repair at all times, comparable to its present condition, to purchase
at the cost and expense of Lessee any licenses that may be required for the
privilege of operating said equipment by the State of Indiana or the United
States of America. Salaries and wages of the operators of said equipment shall
be paid solely by Lessee.
7. The operators of said equipment shall be
the employees, agents and servants of the Lessee alone and shall in no manner be
under the direction, control or in the employ of the Lessor, and as concerns the
operation of said equipment the Lessee shall be deemed as independent contractor
and not an agent, servant or employee of the Lessor, nor under its direction or
control in any manner concerning the operation of said leased properties.
8. So long as this agreement shall remain in effect, the Lessee shall
pay all taxes assessed against the leased property by the State of Indiana, the
United States of America or any political sub-division thereof, including, but
not by way of limitation all Municipal use tax and all other taxes that may be
imposed in the premises concerning the use and operation of said equipment and
property.
9. The Lessee covenants and agrees to hold the Lessor herein safe,
free and harmless from any and all costs, damages, charges or other liability of
any kind or character whatever, arising from the operation of said leased
equipment under this lease agreement.
10. Lessee covenants and agrees to provide competent and experienced
operators for the operation of said equipment and upon a termination of this
agreement for any reason, to forthwith return and redeliver said leased
equipment and property to the Lessor in as good condition as when Lessee
received the same, ordinary wear and tear expected.
11. Lessee shall not transfer, sell or assign this lease agreement or
any interest therein, to any person without first having obtained the consent of
the Lessor in writing to such transfer, sale or assignment.
12. In event of the failure, neglect or refusal of the
<PAGE> 3
Lessee to pay said monthly rentals at the time and in the form and manner
provided herein or to fully and faithfully perform, all and singular the
obligations, duties and agreements to be kept and performed by said Lessee, the
Lessor may, at its option forthwith cancel, terminate and rescind this lease
agreement, without any notice or process previously had or obtained in which
event all right to possession and user by Lessee of the leased equipment and
property shall automatically cease and terminate and the Lessor shall be
permitted to take immediate and complete possession of the same free and
discharged from said lease agreement.
Unless terminated in the manner set forth above, this lease agreement
shall continue in full force and effect until one party shall give to the other
party hereto a thirty (30) day written notice of such termination. For this
purpose the serving of such notice by registered or certified mail addressed to
the party on which such notice is being served at the address designated
heretofore, shall be deemed adequate and sufficient.
IN WITNESS WHEREOF the parties have hereunto set there hands and seals on this
the 18th day of December, 1990.
ATTEST: HUNTINGBURG TOWNHOUSES, INC., LESSOR
/s/Bill H. Bradley By: /s/ Edgar Mulzer
- --------------------- -------------------
Bill H. Bradley, Edgar Mulzer,
Secretary-Treasurer President
ATTEST:
THERMWOOD CORPORATION, LESSEE
/s/ Mark Brown /s/ Kenneth Susnjara
- --------------------- ---------------------------
Mark Brown, Treasurer Kenneth Susnjara, President
<PAGE> 4
LEASE AGREEMENT
THIS AGREEMENT of Lease and Rental, entered into on this the 18th day of
December, 1990 by and between Huntingburg Townhouses, Inc. an Indiana
Corporation, hereafter called Lessor and Thermwood Corporation of Dale, Indiana,
hereafter called Lessee,
WITNESSETH:
1. The Lessor hereby leases and rents unto the Lessee
and the Lessee hereby leases and rents of and from the Lessor, upon the terms,
conditions, covenants and considerations hereafter set forth, certain equipment
and personal property of the Lessor more fully described as follows:
Reconditioned CNC Monarch Mill, Model #VMC100, S/N 751026
with Thermwood 9100 CNC Control
2. Title to said leased property shall at all times remain in the Lessor and the
Lessee shall enjoy only the beneficial user thereof as set forth herein, so long
as the Lease Agreement remains in full force and effect. Lessee may take
possession of the leased property upon the execution of this agreement.
3. As rental for the use of the above described equipment and property, the
Lessee shall pay to the Lessor a monthly rental of $1,495.64, the first of which
said rentals shall be payable on the 18th day of January, 1991 and shall
continue with a like payment on the 18th day of each and every month hereafter
for a period of sixty (60) months. At the end of the primary term of the lease,
Lessee may purchase the leased property for $1.00 or continue the lease for an
additional one year term for a rental payment of $1,495.64.
4. Lessee shall, at the cost and expense of Lessee, cause the leased equipment
and properties to be insured in a good and reliable insurance company for the
protection and benefit of Lessor. The Lessee shall forthwith provide the Lessor
with due proof of Lessee's compliance with said insurance requirements above set
forth.
5. The Lessee may use said leased properties and equipment for the following
purposes and in the following manner: in the normal course of Lessee's business
of manufacturing.
<PAGE> 5
6. Lessee shall keep and maintain the leased equipment in a reasonable state of
repair at all times, comparable to its present condition, to purchase at the
cost and expense of Lessee any licenses that may be required for the privilege
of operating said equipment by the State of Indiana or the United States of
America. Salaries and wages of the operators of said equipment shall be paid
solely by Lessee.
7. The operators of said equipment shall be the employees, agents and servants
of the Lessee alone and shall in no manner be under the direction, control or in
the employ of the Lessor, and as concerns the operation of said equipment the
Lessee shall be deemed as independent contractor and not an agent, servant or
employee of the Lessor, nor under its direction or control in any manner
concerning the operation of said leased properties.
8. So long as this agreement shall remain in effect, the Lessee shall pay all
taxes assessed against the leased property by the State of Indiana, the United
States of America or any political subdivision thereof, including, but not by
way of limitation all Municipal use tax and all other taxes that may be imposed
in the premises concerning the use and operation of said equipment and property.
9. The Lessee covenants and agrees to hold the Lessor herein safe, free and
harmless from any and all costs, damages, charges or other liability of any kind
or character whatever, arising from the operation of said leased equipment under
this lease agreement.
10. Lessee covenants and agrees to provide competent and experienced operators
for the operation of said equipment and upon a termination of this agreement for
any reason, to forthwith return and redeliver said leased equipment and property
to the Lessor in as good condition as when Lessee received the same, ordinary
wear and tear expected.
11. Lessee shall not transfer, sell or assign this lease agreement or any
interest therein, to any person without first having obtained the consent of the
Lessor in writing to such transfer, sale or assignment.
12. In event of the failure, neglect or refusal of the Lessee to pay said
monthly rentals at the time and in the form and manner provided herein or to
fully and faithfully perform, all and singular the obligations, duties and
agreements to be kept and performed by said Lessee, the Lessor may, at its
option
<PAGE> 6
forthwith cancel, terminate and rescind this lease agreement, without any
notice or process previously had or obtained in which event all right to
possession and user by Lessee of the leased equipment and property shall
automatically cease and terminate and the Lessor shall be permitted to take
immediate and complete possession of the same free and discharged from said
lease agreement.
Unless terminated in the manner set forth above, this lease agreement
shall continue in full force and effect until one party shall give to the other
party hereto a thirty (30) day written notice of such termination. For this
purpose the serving of such notice by registered or certified mail addressed to
the party on which such notice is being served at the address designated
heretofore, shall be deemed adequate and sufficient.
IN WITNESS WHEREOF the parties have hereunto set there hands and seals
on this the 18th day of December, 1990.
ATTEST: HUNTINGBURG TOWNHOUSES, INC., LESSOR
/s/ Bill H. Bradley By: /s/ Edgar Mulzer
- --------------------- ----------------------
Bill H. Bradley, Edgar Mulzer,
Secretary-Treasurer President
ATTEST THERMWOOD CORPORATION, LESSEE
/s/ Mark Brown /s/ Kenneth Susnjara
- --------------------- ----------------------
Mark Brown, Treasurer Kenneth Susnjara, President
<PAGE> 1
EXHIBIT 10.16
Agreement Between The Registrant And Edgar Mulzer
Dated October 23, 1992 Relating To The Premises Lease
October 23, 1992
Edgar Mulzer
401 10th Street
Tell City, Indiana 47586
Re: Lease Agreement dated February 13, 1987 between Edgar
Mulzer and Thermwood Corporation relating to the premises
located in Spencer County, Indiana (the "Premises Lease")
Dear Mr. Mulzer:
Thermwood Corporation (the "Company") is currently in default (the "Default") of
the above captioned Premises Lease in that is obligated to make monthly payments
in the amount of $19,353.53 and has failed to make such payments since November
1991. Accordingly, as of the date hereof, the Company owes back rent in the
aggregate amount of $212,888.83 (the "Arrearage").
In order to induce the Company to enter into an agreement to effect a public
financing (the "Public Financing") and in consideration for the other actions to
be taken by the Company as set forth below, you agree to waive the Default in
accordance with the following terms and conditions:
1. You herewith waive the Default and modify the Premises Lease so that the
Arrearage will be due and payable as set forth in paragraph 2 below and no
monthly rental payments thereunder will be due until January 1, 1993. Rental
payments which would have been due under the Premises Lease for the months of
November and December 1992 shall be added to the Arrearage and paid as set forth
below.
2. The Company agrees that upon the earlier of the closing of the Public
Financing or August 1, 1993, it will pay to you one half of the Arrearage. The
Company will pay the balance of the Arrearage, commencing on August 1, 1993 or
the first day of the month after the closing of the Public Financing, as the
case may be, at the rate of one monthly rental payment per month.
<PAGE> 2
Letter to Edgar Mulzer
dated October 23, 1992
Please acknowledge your acceptance of this Agreement by signing a copy hereof in
the appropriate space below and returning it to the Company.
Very truly yours,
THERMWOOD CORPORATION
by /s/ Kenneth J. Susnjara
------------------------------
Kenneth J. Susnjara, President
Acknowledged and Accepted
/s/ Edgar Mulzer
- ------------------
Edgar Mulzer
<PAGE> 1
EXHIBIT 10.17
Agreement Between The Registrant And
Huntingburg Townhouses, Inc.
Dated October 23, 1992
Relating To Certain Equipment Leases
October 23, 1992
Edgar Mulzer
401 10th Street
Tell City, Indiana 47586
Re: Loan Agreement dated March 26, 1986 as
modified in March 1991 (the "Loan Agreement")
Dear Mr. Mulzer:
Thermwood Corporation (the "Company") is currently in default (the "Default") of
the above captioned Loan Agreement in that it has failed to make the last nine
monthly payments, each in the amount of $5,373.48, as provided therein.
Accordingly, the aggregate overdue amount (the "Arrearage") under the Loan
Agreement is $48,361.32.
In order to induce the Company to enter into an agreement to effect a public
financing (the "Public Financing") and in consideration for the other actions to
be taken by the Company as set forth below, you agree to waive the Default in
accordance with the following terms and conditions:
1. You herewith waive the Default and modify the Loan Agreement so that the
Arrearage will be due and payable as set forth in paragraph 2 below and no
monthly payments thereunder will be due until January 1, 1993. Payments which
would have been due under the Loan Agreement for the months of November and
December 1992 shall be added to the Arrearage and paid as set forth below.
2. The Company agrees that upon the earlier of the closing of the Public
Financing or August 1, 1993, it will pay to you one half of the Arrearage. The
Company will pay the balance of the Arrearage, commencing on August 1, 1993 or
the first day of the month after the closing of the Public Financing, as the
case may be, at the rate of one monthly payment per month.
Please acknowledge your acceptance of this Agreement by signing a copy hereof in
the appropriate space below and returning it to
<PAGE> 2
the Company.
Very truly yours,
THERMWOOD CORPORATION
By /s/ Kenneth J. Susnjara
----------------------------------
Kenneth J. Susnjara, President
Acknowledged and Accepted
/s/ Edgar Mulzer
----------------------------------
Edgar Mulzer, President
<PAGE> 3
EXHIBIT 10.19
Thermwood Option To Purchase Edgar Mulzer's Shares
OPTION AGREEMENT
This agreement, entered into this 4th day of February, 1999, 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 209,000 shares of the presently
outstanding shares of the common stock of Thermwood, hereinafter referred to as
Common Stock; and
WHEREAS, Thermwood is desirous of obtaining from Mulzer the right,
privilege and option to purchase said 209,000 shares of Common Stock 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 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 209,000 shares of Common Stock of Thermwood owned
by Mulzer at a purchase price of Fifteen Dollars ($15.00) per share of said
common stock, exercisable at any time after January 1, 2002 and before January
1, 2004, as to any number of or all such shares.
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.
<PAGE> 4
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 herinbefore 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 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 Common Stock presently registered in his name in
the corporate records of Thermwood, (b) said presently owned shares of Common
Stock are not and shall not be encumbered in any manner.
5. Upon the signing of this agreement, Mulzer shall cause any
certificate or certificates representing said shares of Common Stock subject to
this right, privilege and option to bear the legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO TERMS AND
CONDITIONS OF THAT CERTAIN AGREEMENT BY AND BETWEEN THE THERMWOOD
CORPORATION AND EDGAR MULZER DATED FEBRUARY 4th, 1999.
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 Common Stock of Thermwood by reason of any stock
dividend, split up, recapitalization, liquidation or the like.
7. Mulzer shall retain all rights as a shareholder with respect to said
shares of 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.
<PAGE> 5
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/ RS /s/ Edgar Mulzer
-------------------- -----------------------
Edgar Mulzer
<PAGE> 1
EXHIBIT 10.18
AGREEMENT
This agreement, made and entered into this 18th day of November, 1993, by
and between Edgar C. Mulzer, an individual residing in Tell City, Indiana,
hereinafter referred to as Mulzer; and the Thermwood Corporation, an Indiana
corporation having its principal place of business in Dale, Indiana,
hereinafter referred to as Thermwood,
WITNESSETH THAT:
WHEREAS, on or about the 13th day of February, 1987, Mulzer and Thermwood
entered into a certain lease agreement, a copy of which is attached hereto and
made a part hereof, designated Exhibit A, hereinafter referred to as the Lease
Agreement, with respect to which, as of the effective date of this agreement,
Thermwood has been in arrears in lease payments in the amount of $122,491.36
and is obligated to future lease payments in the amount of $1,608,628.95, for
an aggregate lease payment obligation in the amount of $1,731,120.31,
hereinafter referred to as the Lease Obligation; and
WHEREAS, on or about the 1st day of July, 1990, Thermwood executed and
delivered to Mulzer a certain promissory note in the amount of $250,000.00, a
copy of which is attached hereto and made a part hereof, designated Exhibit B,
with respect to which, as of the effective date of this agreement, Thermwood
has been in arrears in interest payments in the amount of $13,970.92 and is
obligated to future principal payments in the amount of $169,218.06, for an
aggregate principal and interest payment obligation in the amount of
$183,188.98, hereinafter referred to as the 1990 Promissory Note
<PAGE> 2
Obligation; and
WHEREAS, on or about the 25th day of September, 1992, Thermwood executed
and delivered to the Dale State Bank of Dale, Indiana, a certain promissory
note in the amount of $1,500,000.00, a copy of which is attached hereto and
made a part hereof, designated Exhibit C, the entire right, title and interest
to and in which was sold, transferred and assigned to Mulzer on the 10th day of
June, 1993 and with respect to which, as of the effective date of this
agreement, Thermwood has been in arrears in interest payments in the amount of
$23,010.63 and is obligated to future principal payments in the amount of
$1,499,800.00, for an aggregate principal and interest payment obligation in the
amount of $1,522,810.63, hereinafter referred to as the 1992 Promissory Note
Obligation, and
WHEREAS, the parties hereto are desirous of entering into a restructuring
arrangement providing for the forgiveness by Mulzer of said Lease Obligation,
1990 Promissory Note Obligation and 1992 Promissory Note Obligation of
Thermwood in the total amount of $3,437,119.92, hereinafter collectively
referred to as the Total Thermwood Obligation, in consideration of the issuance
and grant by Thermwood to Mulzer of certain securities of Thermwood, under the
following terms and conditions.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Forgiveness of Thermwood Obligations. Mulzer shall and hereby does
release, remise and forever discharge Thermwood from
<PAGE> 3
said Total Thermwood obligation, in the total amount of $3,437,119.92, as of
the effective date of this agreement. All other terms and conditions of said
Lease Agreement shall remain in full force and effect.
2. ISSUANCE OF SECURITIES. In consideration of the release, remise and
discharge provided for in Paragraph 1 hereof, within Ten (10) days of the
effective date of this agreement, Thermwood shall issue and grant to Mulzer One
Million (1,000,000) shares of Series A Preferred Stock of Thermwood, the
rights, preferences and restrictions of which are set forth in a resolution of
the Board of Directors of Thermwood duly held on November 18, 1993, a certified
copy of which is attached hereto and made a part hereof, designated Exhibit D.
3. REPRESENTATIONS AND WARRANTIES OF THERMWOOD. Thermwood hereby
represents and warrants to Mulzer as follows:
a) Thermwood is a corporation duly organized and existing under the laws
of the state of Indiana and is in good standing under such laws;
b) Thermwood has requisite corporate power to own the properties owned
by it and to conduct business as being conducted by it;
c) Thermwood has all requisite power to enter into this agreement and to
carry out and perform its obligations under the terms of this agreement;
d) all corporate action on the part of Thermwood, its directors and
shareholders necessary for the authorization, execution, delivery and
performance by Thermwood of this agreement
<PAGE> 4
and the consummation of the transactions contemplated therein, and for the
authorization, issuance and delivery of said shares of Series A Preferred Stock
of Thermwood has been taken as of the effective date of this agreement;
e) this agreement is a valid and binding obligation of Thermwood and
enforceable in accordance with its terms, subject to applicable bankruptcy,
insolvency, reorganization and other laws of general application;
f) the execution, delivery and performance by Thermwood of this agreement
and compliance therewith, and the issuance and delivery of said shares of
Series A Preferred Stock of Thermwood will not result in any violation of and
will not conflict with or result in a breach of any of the terms of or
constitute a default under any provision of any state or federal law to which
Thermwood is subject, Thermwood's articles of incorporation, as amended, or
by-laws, as amended, or any mortgage, indenture, agreement, instrument,
judgment, decree, order, rule or regulation or other restriction to which
Thermwood is a party or by which it is bound, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of Thermwood pursuant to any such term;
g) no present shareholder of Thermwood has any preemptive rights or
right of first refusal by reason of the issuance of the shares of said Series A
Preferred Stock of Thermwood;
h) said shares of Series A Preferred Stock of Thermwood when issued in
compliance with the provisions of this agreement will be validly issued, fully
paid and nonassessable, and will be free of
<PAGE> 5
any liens or encumbrances except as herein provided;
i) no consent, approval, qualification, order or authorization of, or
filing with any governmental authority, including the Securities Commissioner
of the state of Indiana, is required in connection with the Company's
execution, delivery or performance of this agreement, or the issuance or
delivery of said shares of Series A Preferred Stock of Thermwood, or the
consummation of any other transaction contemplated on the part of Thermwood
hereby; and
j) subject in part to the truth and accuracy of Mulzer's representations
as set forth in this agreement, the issuance and delivery of said shares of
Series A Preferred Stock of Thermwood as contemplated by this agreement are
exempt from the registration requirements of the Securities Act of 1933,
hereinafter referred to as the Securities Act.
4. Representations and Warranties of Mulzer. Mulzer represents and
warrants to Thermwood as follows:
a) Mulzer is experienced in the evaluating and investing in high
technology companies such as Thermwood;
b) Mulzer is acquiring said shares of Series A Preferred Stock of
Thermwood hereunder for investment for his own account and not with the view to,
or for resale in connection with, any distribution thereof, and Mulzer
understands that said shares of Series A Preferred Stock of Thermwood as
provided hereunder have not been registered under the Securities Act by reason
of specified exemption from the registration provisions of the Securities Act,
which depends upon, among other things, the bona fide nature of
<PAGE> 6
Mulzer's investment intent as expressed herein;
c) Mulzer acknowledges that said shares of Series A Preferred Stock of
Thermwood issued and delivered under this agreement must be held indefinitely
unless they are subsequently registered under the Securities Act or any
exemption from such registration is available, and Mulzer has been advised or
is aware of the provisions of Rule 144 promulgated under the Securities Act
which permits limited resale of shares purchased in a private placement subject
to the satisfaction of certain conditions and that such rule may not become
available for resale of such shares; and
d) Mulzer, who is a director of Thermwood, has received, reviewed and
signed in his capacity as a director, all of Thermwood's filings with the
Securities and Exchange Commission, including but not limited to SEC Form 10-K
for the fiscal year ending July 31, 1993, has had an opportunity to discuss
Thermwood's business, management and financial affairs with Thermwood's
management, has had an opportunity to review all other documents and things
necessary to make an informed decision and is aware, among other things, of the
tenuous financial condition of Thermwood.
5. Restrictions on Transferability. The shares of Series A Preferred
Stock of Thermwood issued and delivered pursuant to this agreement shall not be
transferable except as provided for under this agreement, and Mulzer shall
cause any proposed transferee of such securities to agree to receive and hold
such securities subject to the provisions and upon the conditions specified in
this
<PAGE> 7
agreement.
6. Restrictive Legend. Each certificate representing said shares of Series
A Preferred Stock of Thermwood, unless otherwise permitted or unless the
securities evidenced by such certificate shall have been registered under the
Securities Act, shall be stamped or otherwise imprinted with a legend in the
following form, in addition to any legend required under any applicable state
securities law:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
OR ANY STATE SECURITIES LAW. THEY MAY NOT BE SOLD OR OFFERED FOR SALE IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED.
Upon request of a holder of record of such certificate, Thermwood shall remove
the foregoing legend from the certificate or issue to such holder a new
certificate therefor free of any transfer legend, if, with such request,
Thermwood shall have received either the opinion referred to in sub-section (a)
of Paragraph 7 hereof or the "No Action" letter referred to in sub-section (b)
of Paragraph 7 hereof to the effect that any transfer by such holder of the
securities evidenced by such certificate will not violate the Securities Act
and applicable state security laws.
7. Notice of Proposed Transfers. Prior to any proposed transfer of any
securities issued and delivered by Thermwood under this agreement, unless such
securities have been registered pursuant to the Securities Act, the holder
thereof shall give written notice of such holder's intention to effect such
transfer.
<PAGE> 8
Each such notice shall describe the manner and circumstances of the proposed
transfer in sufficient detail, and except in transactions in compliance with
Rule 144, shall be accompanied by either (a) a written opinion of legal counsel
who shall be reasonably satisfactory to Thermwood, addressed to Thermwood and
reasonably satisfactory in form and substance to Thermwood's counsel, to the
effect that the proposed transfer of the securities may be effected without
registration under the Securities act, or (b) a "No Action" letter from the
Securities and Exchange Commission to the effect that the distribution of such
securities without registration will not result in a recommendation by the staff
of the Securities and Exchange Commission that action be taken with respect
thereto, whereupon the holder of such securities shall be entitled to transfer
such securities in accordance with the terms of the notice delivered by the
holder to Thermwood. Each certificate evidencing the securities transferred as
hereinabove provided shall bear the appropriate restrictive legend as set forth
in Paragraph 6 hereof, except that such certificate shall not bear such
restrictive legend if the opinion of counsel or a "No Action" letter referred to
above is to the further effect that such legend is not required in order to
establish compliance with any provisions of the Securities Act.
8. Finders Fee or Brokerage Commission. Each party hereto represents and
warrants to the other that no finders fee or brokerage commission is payable
with respect to any transaction contemplated by this agreement.
9. Notice. All notices and other communications require or permitted
hereunder shall be in writing and shall be mailed by
<PAGE> 9
first class, postage pre-paid, or delivered either by hand or by messenger, at
the following addresses:
As to Mulzer:
Edgar C. Mulzer
401 10th Street
Tell City, Indiana 47586
As to Thermwood:
Kenneth J. Susnjara, President
Thermwood Corporation
P.O. Box 436
Dale, Indiana 47523
10. Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall enure to the benefit of and be binding upon the
heirs, successors and assigns of the parties hereto.
11. Entire Agreement. Except as otherwise provided for herein, this
agreement and the other documents delivered pursuant thereto constitute the
full and entire understanding and agreement between the parties hereto with
regard to the subjects hereof and thereof. Neither this agreement or any term
hereof may be amended, waived, discharged or terminated, except by a written
instrument signed by the parties hereto.
12. Governing Law. This agreement shall be interpreted under and governed
by the laws of the state of Indiana.
13. Counterparts. This agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
14. Effective Date. The effective date of this agreement shall be the 1st
day of December, 1993.
<PAGE> 10
IN WITNESS WHEREOF, Mulzer has caused this agreement to be signed and
sealed and Thermwood has caused this agreement to be signed by its proper
officers hereunto duly authorized on the date hereinabove set forth.
WITNESS:
/s/ illegible /s/ Edgar C. Mulzer
- -------------------------- ---------------------------------------
Edgar C. Mulzer
Attest: Thermwood Corporation
/s/ illegible /s/ Kenneth J. Susnjara
- -------------------------- ---------------------------------------
Kenneth J. Susnjara, President
<PAGE> 1
EXHIBIT 10.19
Thermwood Option To Purchase Edgar Mulzer's Shares
OPTION AGREEMENT
This agreement, entered into this 4th day of February, 1999, 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 209,000 shares of the presently
outstanding shares of the common stock of Thermwood, hereinafter referred to as
Common Stock; and
WHEREAS, Thermwood is desirous of obtaining from Mulzer the right,
privilege and option to purchase said 209,000 shares of Common Stock 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 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 209,000 shares of Common Stock of Thermwood owned
by Mulzer at a purchase price of Fifteen Dollars ($15.00) per share of said
common stock, exercisable at any time after January 1, 2002 and before January
1, 2004, as to any number of or all such shares.
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.
<PAGE> 1
EXHIBIT 21.1
List Of Subsidiaries Of The Company
The following entities are wholly-owned subsidiaries of Thermwood Corporation:
Carolina CNC, Inc., a North Carolina corporation.
Thermwood Europe Ltd., a United Kingdom limited liability company.
Thermwood Capital Corporation, an Indiana corporation.
<PAGE> 1
KPMG
2400 First Indiana Plaza
135 North Pennsylvania Street
Indianapolis, IN 46200-2452
CONSENT OF KPMG LLP
THe Board of Directors
Thermwood Corporation:
We consent to the use of our report included herein and to the reference or our
firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
Indianapolis, Indiana
February 26, 1999
<PAGE> 1
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON APRIL 15,
1999 UNLESS EXTENDED OR TERMINATED (THE "EXPIRATION DATE").
- --------------------------------------------------------------------------------
LETTER OF TRANSMITTAL
THERMWOOD CORPORATION
OFFER TO EXCHANGE
UP TO $8,250,000 AGGREGATE PRINCIPAL AMOUNT OF ITS 12% SUBORDINATED DEBENTURES
DUE 2014 FOR UP TO 750,000 SHARES OF ITS OUTSTANDING COMMON STOCK, NO PAR VALUE
PURSUANT TO THE PROSPECTUS DATED _________ __, 1999
The Exchange Agent for the Exchange Offer is:
AMERICAN STOCK TRANSFER AND TRUST COMPANY
By Mail, Hand or Overnight Courier: Facsimile Transmission Number
40 Wall Street (Eligible Institutions only):
New York, New York 10005 (718) 234-5001
(If by Mail, Registered or To Confirm Facsimile
Certified Mail Recommended) or for Information Call:
(718) 921-8200
DELIVERY OF THIS LETTER OF TRANSMITTAL (THE "LETTER OF TRANSMITTAL") TO AN
ADDRESS, OR TRANSMISSION VIA FACSIMILE TO A NUMBER, OTHER THAN AS SET FORTH
ABOVE, WILL NOT CONSTITUTE A VALID TENDER OF THE THERMWOOD CORPORATION SHARES OF
COMMON STOCK, NO PAR VALUE (THE "SHARES").
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED AND SIGNED.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- ---------------------------------------------------------------------------------------------------------
Certificate(s) Tendered
Name(s) and Address(es) of Registered Holder(s) (Attach Additional Signed List if Necessary)
- ---------------------------------------------------------------------------------------------------------
Total Number
Certificate of Shares Represented Number of
Number(s)* by Certificate(s) Shares Tendered**
-------------------------------------------------------
<S> <C> <C> <C>
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
-------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
* Please indicate in this column the certificate number(s) for each
certificate representing Shares you desire to tender. If nothing is
indicated in this column, the total number of Shares evidenced by all
certificates submitted with this Letter of Transmittal will be deemed to
have been tendered.
** Please indicate in this column the number of Shares you wish to tender. If
nothing is indicated in this column, the total number of Shares evidenced
by each certificate delivered with this Letter of Transmittal will be
deemed to have been tendered.
- --------------------------------------------------------------------------------
-1-
<PAGE> 2
All capitalized terms used herein and not defined herein shall have the meaning
ascribed to them in the Prospectus (as defined below).
This Letter of Transmittal is to be used by registered holders of Shares
("Holders") if: (i) certificates representing Shares are to be physically
delivered to the Exchange Agent by such Holders; (ii) tender of Shares is to be
made by book-entry transfer to the Exchange Agent's account at The Depository
Trust Company ("DTC" or the "Book-Entry Transfer Facility") pursuant to the
procedures set forth in the Prospectus, dated , 1999 (as the same may be amended
from time to time, the "Prospectus") under the caption "The Exchange Offer --
Procedures For Tendering -- Book-Entry Transfers" by any financial institution
that is a participant in DTC and whose name appears on a security position
listing as the owner of Shares or (iii) delivery of Shares is to be made
according to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer -- Guaranteed Delivery Procedures," and,
in each case, instructions are not being transmitted through the DTC.
Automated Tender Program. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER
FACILITY IN ACCORDANCE WITH SUCH BOOK-ENTRY TRANSFER FACILITY'S PROCEDURES DOES
NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
Ladies and Gentlemen:
By execution hereof, the undersigned acknowledges receipt of the Prospectus,
dated __, 1999 (as the same may be amended from time to time, the "Prospectus"),
of Thermwood Corporation, an Indiana corporation (the "Company"), and this
Letter of Transmittal and the instructions hereto, which together constitute the
Company's offer to exchange (the "Exchange Offer") for each Share tendered to
the Company in the Exchange Offer $11.00 principal amount of its 12%
Subordinated Debentures due 2014 (the "Debentures"), upon the terms and subject
to the conditions set forth in the Exchange Offer.
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the Shares indicated above. Subject
to, and effective upon, the acceptance for exchange of the Shares tendered
herewith, the undersigned hereby exchanges, assigns and transfers to, or upon
the order of, the Company all right, title and interest in and to such Shares.
The undersigned hereby irrevocably constitutes and appoints (the "power of
attorney") the Exchange Agent as the true and lawful agent and attorney-in-fact
of the undersigned (with full knowledge that the Exchange Agent also acts as the
agent of the Company) with respect to such Shares with full power of
substitution to (i) present such Shares and all evidences of transfer and
authenticity to, or transfer ownership of, such Shares on the account books
maintained by the Book-Entry Transfer Facility to, or upon the order of, the
Company; (ii) present such Shares for
-2-
<PAGE> 3
transfer of ownership on the books of the Company; (iii) receive all benefits
and otherwise exercise all rights of beneficial ownership of such Shares; and
(iv) receive Debentures on behalf of the undersigned and delivering the
Debentures to the undersigned or pursuant to the instructions of the undersigned
as directed herein, all in accordance with the terms and conditions of the
Exchange Offer as described in the Prospectus.
The undersigned further authorizes and directs the Exchange Agent (i) to
determine, in its sole and absolute discretion, whether and the time and times
when, the purpose for and manner in which, any power conferred herein shall be
exercised and the conditions, provisions and covenants of any instrument or
document which may be executed by the Exchange Agent pursuant hereto and (ii) to
do all things and perform all acts pursuant to the terms of this Exchange Offer
as it may, in its sole and absolute discretion, deem appropriate, including,
without limitation, to execute and deliver all certificates, receipts,
instruments, letters of transmittal and other documents and papers required,
contemplated by, or deemed by it appropriate in connection with this Exchange
Offer to the Company, or to any other person as the Exchange Agent in its sole
and absolute discretion, shall deem necessary.
The undersigned grants the power of attorney to the Exchange Agent subject to
and in consideration of the interests of the Company and Dirks & Company, Inc.
(the "Solicitation Agent") and acknowledges that the power of attorney is an
agency coupled with an interest and is irrevocable and not subject to
termination by the undersigned or by operation of law, whether by the death or
incapacity of the undersigned (or either or any of them) or by the occurrence of
any other event or events (including, without limitation, the termination of any
trust or estate for which the undersigned is acting as a fiduciary or
fiduciaries or the dissolution or liquidation of any corporation or
partnership), and the obligations of the undersigned pursuant to the Exchange
Offer are similarly not subject to termination and shall remain in full force
and effect during the period of the Exchange Offer and, to the extent provided
in the terms of the Exchange Offer, after such period. If the undersigned should
die or become incapacitated, if any such trust or estate should be terminated,
if any corporation or partnership should be dissolved or liquidated, or if any
other such event should occur, before the completion of the transactions
contemplated by the Exchange Offer and this Letter of Transmittal, certificates
representing the Shares to be exchanged by the undersigned shall be delivered by
the Exchange Agent on behalf of the undersigned in accordance with the terms and
conditions of the Exchange Offer and this Letter of Transmittal, and actions
taken by the Exchange Agent pursuant to this Letter of Transmittal shall be as
valid as if such death or incapacity, termination, dissolution, liquidation or
other event had not occurred, regardless of whether or not the Exchange Agent,
the Company, the Solicitation Agent, or any one of them, shall have received
notice of such death, incapacity, termination, dissolution, liquidation or other
event. Barry Feiner, Esq., counsel to the Company, has authority to instruct the
Exchange Agent on irregularities or discrepancies in Letters of Transmittal and
accompanying documents and the Exchange Agent is entitled to rely in good faith
on the advice of any such person in taking actions pursuant to such
instructions.
The undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Shares tendered hereby and to acquire
Debentures issuable upon the exchange of such tendered Shares, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Shares, free and clear of all
-3-
<PAGE> 4
liens, restrictions, charges and encumbrances and not subject to any adverse
claim or right. The undersigned also warrants that it will, upon request,
execute and deliver any additional documents deemed by the Exchange Agent or the
Company to be necessary or desirable to complete the exchange, assignment and
transfer of the Shares tendered hereby or transfer ownership of such Shares on
the account books maintained by the Book-Entry Transfer Facility.
The Exchange Offer is subject to certain conditions as set forth in the
Prospectus under the caption "The Exchange Offer -- Conditions." The undersigned
recognizes that as a result of these conditions (which may be waived by the
Company, in whole or in part, in the reasonable discretion of the Company), as
more particularly set forth in the Prospectus, the Company may not be required
to exchange any of the Shares tendered hereby and, in such event, the Shares not
exchanged will be returned to the undersigned at the address shown above.
The undersigned, if the undersigned is a beneficial holder, represents (or, if
the undersigned is a broker, dealer, commercial bank, trust company or other
nominee, represents) that it has received representations from the beneficial
owners of the Shares (the "Beneficial Owner") stating that, if the Holder is a
broker-dealer that acquired Shares as a result of market-making activities or
other trading activities, it will deliver a Prospectus in connection with any
resale of Debentures acquired in the Exchange Offer (but by so acknowledging and
by delivering a Prospectus, the undersigned will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act).
EACH BROKER-DEALER WHO ACQUIRED SHARES FOR ITS OWN ACCOUNT AS A RESULT OF
MARKET-MAKING ACTIVITIES OR OTHER TRADING ACTIVITIES (A "PARTICIPATING
BROKER-DEALER"), BY TENDERING SUCH SHARES AND EXECUTING THIS LETTER OF
TRANSMITTAL, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE
OCCURRENCE OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT
CONTAINED OR INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL
RESPECT OR WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT
NECESSARY IN ORDER TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE
THEREIN, IN LIGHT OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT
MISLEADING, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF DEBENTURES
PURSUANT TO THE PROSPECTUS UNTIL THE COMPANY HAS AMENDED OR SUPPLEMENTED THE
PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAS FURNISHED COPIES OF
THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR THE
COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE DEBENTURES MAY BE RESUMED, AS THE
CASE MAY BE.
EACH PARTICIPATING BROKER-DEALER SHOULD CHECK THE BOX HEREIN UNDER THE CAPTION
"FOR PARTICIPATING BROKER-DEALERS ONLY" IN ORDER TO RECEIVE ADDITIONAL COPIES OF
THE PROSPECTUS, AND ANY AMENDMENTS AND SUPPLEMENTS THERETO, FOR USE IN
CONNECTION WITH RESALES OF THE DEBENTURES, AS WELL AS ANY NOTICES FROM THE
-4-
<PAGE> 5
COMPANY TO SUSPEND AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS SHARES AND
EXECUTING THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER AGREES TO
USE ITS REASONABLE BEST EFFORTS TO NOTIFY THE COMPANY OR THE EXCHANGE AGENT WHEN
IT HAS SOLD ALL OF ITS DEBENTURES. IF NO PARTICIPATING BROKER-DEALERS CHECK SUCH
BOX, OR IF ALL PARTICIPATING BROKER-DEALERS WHO HAVE CHECKED SUCH BOX
SUBSEQUENTLY NOTIFY THE COMPANY OR THE EXCHANGE AGENT THAT ALL THEIR DEBENTURES
HAVE BEEN SOLD, THE COMPANY WILL NOT BE REQUIRED TO MAINTAIN THE EFFECTIVENESS
OF THE EXCHANGE OFFER REGISTRATION STATEMENT OR TO UPDATE THE PROSPECTUS AND
WILL NOT PROVIDE ANY HOLDERS WITH ANY NOTICES TO SUSPEND OR RESUME USE OF THE
PROSPECTUS.
The undersigned understands that tenders of the Shares pursuant to any one of
the procedures described under "The Exchange Offer -- Procedures for Tendering"
in the Prospectus and in the instructions hereto will constitute a binding
agreement between the undersigned and the Company in accordance with the terms
and subject to the conditions of the Exchange Offer. All authority herein
conferred or agreed to be conferred by this Letter of Transmittal and every
obligation of the undersigned hereunder shall be binding upon the heirs, legal
representatives, successors and assigns, executors, administrators and trustees
in bankruptcy of the undersigned and shall survive the death or incapacity of
the undersigned. Tendered Shares may be withdrawn at any time prior to 5:00 p.m.
on the Expiration Date in accordance with the terms of the Exchange Offer.
The undersigned understands that the Company will accept up to a maximum of
750,000 shares and that if tenders for more than 750,000 shares are received by
the Company, the Company, after purchasing shares from Odd Lot Owners, will pro
rate the number of Shares that it will acquire.
The undersigned understands and acknowledges that the Company reserves the right
in its sole discretion to purchase or make offers for any Shares that remain
outstanding subsequent to the Expiration Date in the open market, in privately
negotiated transactions, through subsequent exchange offers or otherwise. The
terms of any such purchases or offers could differ from the terms of the
Exchange Offer.
The undersigned understands that the delivery and surrender of the Shares is not
effective, and the risk of loss of the Shares does not pass to the Exchange
Agent, until receipt by the Exchange Agent of this Letter of Transmittal, or a
manually signed facsimile hereof, properly completed and duly executed, with any
required signature guarantees, together with all accompanying evidences of
authority and any other required documents in form satisfactory to the Company.
All questions as to form of all documents and the validity (including time of
receipt) and acceptance of tenders and withdrawals of Shares will be determined
by the Company, in its sole discretion, which determination shall be final and
binding.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions," the undersigned hereby requests that any Shares not tendered or
not accepted for exchange be issued
-5-
<PAGE> 6
in the name(s) of the undersigned and that Debentures be issued in the name(s)
of the undersigned (or, in the case of Shares delivered by book-entry transfer,
by credit to the account at the Book-Entry Transfer Facility). Similarly, unless
otherwise indicated herein in the box entitled "Special Delivery Instructions,"
the undersigned hereby requests that any Shares not tendered or not accepted for
exchange and Debentures be delivered to the undersigned at the address(es) shown
above. The undersigned recognizes that the Company has no obligation pursuant to
the "Special Issuance Instructions" box or "Special Delivery Instructions" box
to transfer any Shares from the name of the registered Holder(s) thereof if the
Company does not accept for exchange any of such Shares so tendered.
In order to properly complete this Letter of Transmittal, a Holder must:
1. complete the box entitled "Method of Delivery" by checking one of the
three boxes therein and supplying the appropriate information;
2. complete the box entitled "Description of Shares;"
3. if such Holder is a Participating Broker-Dealer and wishes to receive
additional copies of the Prospectus for delivery in connection with
resales of Debentures (as defined below), check the applicable box;
4. sign this Letter of Transmittal by completing the box entitled "Please
Sign Here;"
5. if appropriate, check and complete the boxes relating to the "Special
Issuance Instructions" and "Special Delivery Instructions;" and
6. complete the Substitute Form W-9.
Each Holder should carefully read the detailed Instructions below prior to the
completing this Letter of Transmittal. See "The Exchange Offer -- Procedures For
Tendering" in the Prospectus.
Holders of Shares that are tendering by book-entry transfer to the Exchange
Agent's account at DTC can execute the tender through the Automated Tender
Program ("ATOP"), for which the transaction will be eligible. DTC participants
that are accepting the Exchange Offer should transmit their acceptance to DTC,
which will edit and verify the acceptance and execute a book-entry delivery to
the Exchange Agent's account at DTC. DTC will then send an Agent's message to
the Exchange Agent for its acceptance. Delivery of the Agent's Message by DTC
will satisfy the terms of the Exchange Offer as to execution and delivery of a
Letter of Transmittal by the participant identified in the Agent's Message. DTC
participants may also accept the Exchange Offer by submitting a Notice of
Guaranteed Delivery through ATOP.
If Holders desire to tender Shares pursuant to the Exchange Offer and (i)
certificates representing such Shares are not lost but are not immediately
available, (ii) time will not permit this Letter of Transmittal, certificates
representing such Holder's Shares and all other required documents to reach the
Exchange Agent prior to the Expiration Date or (iii) the procedures for
book-entry transfer cannot be completed prior to the Expiration Date, such
Holders may effect a tender of such Shares in accordance with the guaranteed
delivery procedures set forth in the Prospectus under the caption "The Exchange
Offer -- Guaranteed Delivery Procedures." See Instruction 2 below.
-6-
<PAGE> 7
A Holder having Shares registered in the name of a broker, dealer, commercial
bank, trust company or other nominee must contract such broker, dealer,
commercial bank, trust company or other nominee if they desire to accept the
Exchange Offer with respect to the Shares so registered.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF SHARES BE ACCEPTED
FROM OR ON BEHALF OF) HOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OR
ACCEPTANCE OF THE EXCHANGE OFFER WOULD NOT BE IN COMPLIANCE WITH THE LAWS OF
SUCH JURISDICTION.
Your bank or broker can assist you in completing this form. The instructions
included with this Letter of Transmittal must be followed. Questions and
requests for assistance or for additional copies of the Prospectus, this Letter
of Transmittal and the Notice of Guaranteed Delivery may be directed to the
Exchange Agent, whose address and telephone number appear on the front cover of
this Letter of Transmittal. See Instruction 11 below.
-7-
<PAGE> 8
METHOD OF DELIVERY
[ ] CHECK HERE IF CERTIFICATES FOR TENDERED SHARES ARE BEING DELIVERED
HEREWITH.
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH A BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE THE FOLLOWING:
Name of Tendering Institution:______________________________________
Account Number: ________________ Transaction Code Number: __________
[ ] CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT PURSUANT TO
INSTRUCTION 2 BELOW AND COMPLETE THE FOLLOWING:
Name of Registered Holder(s): ______________________________________
Window ticket No. (if any): __________________________________
Date of Execution of Notice of Guaranteed Delivery: __________
Name of Eligible Institution that Guaranteed Delivery: _____________
If Delivered by Book-Entry Transfer (yes or no): ___________________
Account Number: ________________ Transaction Code Number: __________
FOR PARTICIPATING BROKER-DEALERS ONLY
[ ] CHECK HERE AND PROVIDE THE INFORMATION REQUESTED BELOW IF YOU ARE A
PARTICIPATING BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL COPIES OF
THE PROSPECTUS AND, DURING THE NINE-MONTH PERIOD FOLLOWING THE
CONSUMMATION OF THE EXCHANGE OFFER, 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO, AS WELL AS ANY NOTICES FROM THE COMPANY TO SUSPEND
AND RESUME USE OF THE PROSPECTUS. BY TENDERING ITS SHARES AND EXECUTING
THIS LETTER OF TRANSMITTAL, EACH PARTICIPATING BROKER-DEALER AGREES TO USE
ITS REASONABLE BEST EFFORTS TO NOTIFY THE COMPANY OR THE EXCHANGE AGENT
WHEN IT HAS SOLD ALL OF ITS DEBENTURES. (IF NO PARTICIPATING
BROKER-DEALERS CHECK THIS BOX, OR IF ALL PARTICIPATING BROKER-DEALERS WHO
HAVE CHECKED THIS BOX SUBSEQUENTLY NOTIFY THE COMPANY OR THE EXCHANGE
AGENT THAT ALL THEIR DEBENTURES HAVE BEEN SOLD, THE COMPANY WILL NOT BE
REQUIRED TO MAINTAIN THE EFFECTIVENESS OF THE EXCHANGE OFFER REGISTRATION
STATEMENT OR TO UPDATE THE PROSPECTUS AND WILL NOT PROVIDE ANY NOTICES TO
ANY HOLDERS TO SUSPEND OR RESUME USE OF THE PROSPECTUS.)
PROVIDE THE NAME OF THE INDIVIDUAL WHO SHOULD RECEIVE, ON BEHALF OF THE HOLDER,
ADDITIONAL COPIES OF THE PROSPECTUS, AND AMENDMENTS AND SUPPLEMENTS THERETO, AND
ANY NOTICES TO SUSPEND AND RESUME USE OF THE PROSPECTUS:
-8-
<PAGE> 9
NAME:__________________________________________________________________________
ADDRESS:_______________________________________________________________________
TELEPHONE NO.:_________________________________________________________________
FACSIMILE NO.:_________________________________________________________________
PLEASE SIGN BELOW
(TO BE COMPLETED BY ALL HOLDERS OF SHARES REGARDLESS OF WHETHER SHARES ARE BEING
PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the Holder(s) of Shares exactly as
their name(s) appear(s) on certificate(s) for Shares or, if delivered by a
participant in the Book-Entry Transfer Facility, exactly as such participant's
name appears on a security position listing as the owner of Shares, or by
person(s) authorized to become Holder(s) by endorsements and documents
transmitted with this Letter of Transmittal. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer or other person
acting in a fiduciary or representative capacity, such person must set forth his
or her full title below under "Capacity" and submit evidence satisfactory to the
Company of such person's authority to so act. See Instruction 4 below.
If the signature appearing below is not of the record holder(s) of the Shares,
then the record holder(s) must sign a valid Stock power.
X ________________________________________________________________________
X ________________________________________________________________________
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY
DATE: ____________________________________________________________________
NAME: ____________________________________________________________________
CAPACITY: ________________________________________________________________
ADDRESS: _________________________________________________________________
_________________________________________________________
(INCLUDING ZIP CODE)
AREA CODE AND TELEPHONE NO.: _____________________________________________
PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN
-9-
<PAGE> 10
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE SHARES FOR ITS OWN
ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER TRADING ACTIVITIES AND WISH
TO RECEIVE ADDITIONAL COPIES OF THE PROSPECTUS AND COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
NAME: ______________________________________________________________
ADDRESS: ___________________________________________________________
-10-
<PAGE> 11
MEDALLION SIGNATURE GUARANTEE (SEE INSTRUCTION 4 BELOW)
(CERTAIN SIGNATURES MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION)
____________________________________________________
NAME OF ELIGIBLE INSTITUTION GUARANTEEING SIGNATURES
________________________________________________________________________________
ADDRESS (INCLUDING ZIP CODE) AND TELEPHONE NUMBER (INCLUDING AREA CODE) OF FIRM
AUTHORIZED SIGNATURE:______________________________________________________
PRINTED NAME:________________________________________________________________
TITLE:__________________________________________________________________________
DATE:__________________________________________________________________________
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3, 4, 5 and 7)
To be completed ONLY if Shares not tendered or not accepted for exchange are to
be issued in the name of, or Debentures are to be issued in the name of, someone
other than the person or persons whose signature(s) appear(s) within this Letter
of Transmittal.
Issue [ ] Shares
[ ] Debentures
(check as applicable)
Name __________________________________________________________________________
(Please Print)
Address________________________________________________________________________
(Include Zip Code)
______________________________________________
(Tax Identification or Social Security Number)
(SEE SUBSTITUTE FORM W-9 HEREIN)
Credit Shares not tendered or not exchanged by book-entry transfer to the
Book-Entry Transfer Facility account set below:
______________________________________________________
(Book-Entry Transfer Facility Account Number)
Credit Debentures to the Book-Entry Transfer Facility account set below:
______________________________________________________
(Book-Entry Transfer Facility Account Number)
-11-
<PAGE> 12
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 4 AND 9)
To be completed ONLY if Shares not tendered or not accepted for exchange or
Debentures are to be sent to someone other than the persons whose signature(s)
appear(s) within this Letter of Transmittal or to an address different from that
shown in the box entitled "Description of Shares" within this Letter of
Transmittal.
Issue [ ] Shares
[ ] Debentures
(check as applicable)
Name___________________________________________________________________________
(Please Print)
Address_________________________________________________________________________
(Include Zip Code)
-12-
<PAGE> 13
ODD LOTS
(See Instruction 12)
To be completed ONLY if Shares are being tendered by or on behalf of a person
who owned beneficially, as of the close of business on March __, 1999, an
aggregate of fewer than 100 shares, and who continues to own all of such Shares
beneficially as of the Expiration Date.
The undersigned either (check one box)
|_| Was the beneficial owner, as of the close of business on March
__, 1999 of an aggregate of fewer than 100 Shares, all of
which are being tendered, or
|_| Is a broker, dealer, commercial bank, trust company or other
nominee which:
(a) is tendering for the beneficial owners thereof, Shares with
respect to which it is the record owner, and
(b) believes, based on representations made to it by such
beneficial owners, that each such person was the beneficial
owner, as of the close of business on March __, 1999 of an
aggregate of fewer than 100 Shares and is tendering all such
Shares.
<PAGE> 14
INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART
OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND CERTIFICATES FOR SHARES OR
BOOK-ENTRY CONFIRMATION; WITHDRAWAL OF TENDERS.
To tender Shares in the Exchange Offer, physical delivery of certificates for
Shares or confirmation of a book-entry transfer into the Exchange Agent's
account with a Book-Entry Transfer Facility of Shares tendered electronically,
as well as a properly completed and duly executed copy or manually signed
facsimile of this Letter of Transmittal, or in the case of a book-entry
transfer, an Agent's Message, and any other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m. New York time on the Expiration Date. Tenders of
Shares in the Exchange Offer may be made prior to the Expiration Date in the
manner described in the preceding sentence and otherwise in compliance with this
Letter of Transmittal.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, CERTIFICATES FOR SHARES
AND ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT, INCLUDING DELIVERY
THROUGH DTC AND ANY ACCEPTANCE OF AN AGENT'S MESSAGE TRANSMITTED THROUGH ATOP,
IS AT THE ELECTION AND RISK OF THE HOLDER TENDERING SHARES. IF SUCH DELIVERY IS
MADE BY MAIL, IT IS SUGGESTED THAT THE HOLDER USE PROPERLY INSURED, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED AND THAT SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE TIMELY DELIVERY. NO ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF
SHARES WILL BE ACCEPTED. Except as otherwise provided below, the delivery will
be made when actually received by the Exchange Agent. THIS LETTER OF
TRANSMITTAL, CERTIFICATES FOR THE SHARES AND ANY OTHER REQUIRED DOCUMENTS SHOULD
BE SENT ONLY TO THE EXCHANGE AGENT, NOT TO THE COMPANY OR DTC.
Shares tendered pursuant to the Exchange Offer may be withdrawn at any time
prior to 5:00 p.m. New York time on the Expiration Date. In order to be valid,
notice of withdrawal of tendered Shares must comply with the requirements set
forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of
Tenders."
2. GUARANTEED DELIVERY PROCEDURES.
If Holders desire to tender Shares pursuant to the Exchange Offer and (i)
certificates representing such Shares are not lost but are not immediately
available, (ii) time will not permit this Letter of Transmittal, certificates
representing such Holder's Shares and all other required documents to reach the
Exchange Agent prior to the Expiration Date or (iii) the procedures for
book-entry transfer cannot be completed prior to the Expiration Date, such
Holders may effect a tender of Shares in accordance with the guaranteed delivery
procedures set forth in the Prospectus under the caption "The Exchange Offer --
Guaranteed Delivery Procedures."
Pursuant to the guaranteed delivery procedures:
(i) such tender must be made by or through an Eligible Institution;
(ii) prior to the Expiration Date, the Exchange Agent must have received
from such Eligible Institution at one of the addresses set forth on the cover of
this Letter of Transmittal a properly completed
-14-
<PAGE> 15
and validly executed Notice of Guaranteed Delivery (by manually signed facsimile
transmission, mail or hand delivery) in substantially the form provided with the
Exchange Agent, setting forth the name(s) and address(es) of the registered
Holder(s) and the Shares being tendered and stating that the tender is being
made thereby and guaranteeing that, within three American Stock Exchange
("AMEX") trading days from the Expiration Date, the Letter of Transmittal (or a
manually signed facsimile thereof) properly completed and duly executed, or, in
the case of a book-entry transfer an Agent's Message together with certificates
representing the Shares (or confirmation of book-entry transfer of such Shares
into the Exchange Agent's account at a Book-Entry Transfer Facility), and any
other documents required by this Letter of Transmittal and the instructions
thereto, will be deposited by such Eligible Institution with the Exchange Agent;
and
(iii) this Letter of Transmittal (or a manually signed facsimile thereof),
properly completed and validly executed with any required signature guarantees,
or, in the case of a book-entry transfer, an Agent's Message, together with
certificates for all Shares in proper form for transfer (or a Book-Entry
Confirmation with respect to all tendered Shares), and any other required
documents must be received by the Exchange Agent within three AMEX trading days
after the Expiration Date.
3. PARTIAL TENDERS.
If less than the all of the Shares evidenced by a submitted certificate is
tendered, the tendering Holder must fill in the number tendered in the last
column of the box entitled "Description of Shares" herein. All of the Shares
represented by the certificates delivered to the Exchange Agent will be deemed
to have been tendered, unless otherwise indicated. All Shares not tendered or
not accepted for exchange will be sent (or, if tendered by book-entry transfer,
returned by credit to the account at the Book-Entry Transfer Facility designated
herein) to the Holder unless otherwise provided in the "Special Issuance
Instructions" or "Special Delivery Instructions" boxes of this Letter of
Transmittal.
4. SIGNATURES ON THIS LETTER OF TRANSMITTAL, STOCK POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES.
If this Letter of Transmittal is signed by the Holder(s) of the Shares tendered
hereby the signature(s) must correspond with the name(s) as written on the face
of the certificate(s) without alteration, enlargement or any change whatsoever.
If this Letter of Transmittal is signed by a participant in one of the
Book-Entry Transfer Facilities whose name is shown as the owner of the Shares
tendered hereby, the signature must correspond with the name shown on the
security position listing as the owner of the Shares.
If any of the Shares tendered hereby are registered in the name of two or more
Holders, all such Holders must sign this Letter of Transmittal.
If any tendered Shares are registered in client names on several certificates,
it will be necessary to complete, sign and submit as many separate copies of
this Letter of Transmittal and any necessary accompanying documents as there are
different names in which certificates are held.
If this Letter of Transmittal or any certificates for Shares or Stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority so
to act must be submitted with this Letter of Transmittal.
-15-
<PAGE> 16
IF THIS LETTER OF TRANSMITTAL IS EXECUTED BY A PERSON OR ENTITY WHO IS NOT THE
REGISTERED HOLDER, THEN THE REGISTERED HOLDER MUST SIGN A VALID STOCK POWER WITH
THE SIGNATURE OF SUCH REGISTERED HOLDER GUARANTEED BY A PARTICIPANT IN A
RECOGNIZED MEDALLION SIGNATURE PROGRAM (A "MEDALLION SIGNATURE GUARANTOR").
No signature guarantee is required if (i) this Letter of Transmittal is signed
by the registered Holder(s) of the Shares tendered herewith (or by a participant
in one of the Book-Entry Transfer Facilities whose name appears on a security
position listing as the owner of Shares) and certificates for Debentures or for
any Shares not tendered or not accepted for exchange are to be issued directly
to such Holder(s) or, if tendered by a participant in one of the Book-Entry
Transfer Facilities, any Shares not tendered or not accepted for exchange are to
be credited to such participant's account at such Book-Entry Transfer Facility
and neither the "Special Issuance Instructions" box nor the "Special Delivery
Instructions" box of this Letter of Transmittal has been completed or (ii) such
Shares are tendered for the account of an Eligible Institution.
IN ALL OTHER CASES ALL SIGNATURES ON LETTERS OF TRANSMITTAL ACCOMPANYING SHARES
MUST BE GUARANTEED BY A MEDALLION SIGNATURE GUARANTOR. In all such other cases
(including if this Letter of Transmittal is not signed by the Holder), the
Holder must either properly endorse the certificates for Shares tendered or
transmit a separate, properly completed Stock power with this Letter of
Transmittal (in either case, executed exactly as the name(s) of the registered
Holder(s) appear(s) on such Shares, and, with respect to a participant in a
Book-Entry Transfer Facility whose name appears on a security position listing
as the owner of Shares, exactly as the name(s) of the participant(s) appear(s)
on such security position listing), with the signature on the endorsement or
Stock power guaranteed by a Medallion Signature Guarantor, unless such
certificates or Stock powers are executed by an Eligible Institution.
Endorsements on certificates for Shares and signatures on Stock powers provided
in accordance with this Instruction 4 by registered Holders not executing this
Letter of Transmittal must be guaranteed by a Medallion Signature Guarantor.
5. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS.
Tendering Holders should indicate in the applicable box or boxes the name and
address to which Shares not tendered or not accepted for exchange or
certificates for Debentures, if applicable, are to be issued or sent, if
different from the name and address of the Holder signing this Letter of
Transmittal. In the case of payment to a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
6. TAXPAYER IDENTIFICATION NUMBER.
Each tendering Holder is required to provide the Exchange Agent with the
Holder's social security or Federal employer identification number, on
Substitute Form W-9 which is provided under "Important Tax Information" below,
or alternatively to establish another basis for exemption from backup
withholding. A Holder must cross out Item (2) in the Certification box in Part
III of Substitute Form W-9 if such Holder is subject to backup withholding.
Failure to provide the information on the form may subject such Holder to 31%
Federal backup withholding tax on any payment made to the Holder with respect to
the Exchange Offer. The appropriate box in Part I of Substitute Form W-9 should
be checked if the tendering or consenting Holder has not been issued a Taxpayer
Identification Number ("TIN") and has either applied for a TIN or intends to
apply for a TIN in the near future. If the box in Part I of Substitute Form W-9
is checked, the Holder
-16-
<PAGE> 17
should also sign the attached Certification of Awaiting Taxpayer Identification
Number. If the Exchange Agent is not provided with a TIN within 60 days
thereafter, the Exchange Agent will withhold 31% on all such payments of the
Debentures until a TIN is provided to the Exchange Agent.
7. TRANSFER TAXES.
The Company will pay all transfer taxes applicable to the exchange and transfer
of Shares pursuant to the Exchange Offer, except if (i) deliveries of
certificates for Shares not tendered or not accepted for exchange are registered
or issued in the name of any person other than the Holder of Shares tendered
thereby, (ii) tendered certificates are registered in the name of any person
other than the person signing this Letter of Transmittal or (iii) a transfer tax
is imposed for any reason other than the exchange of Shares pursuant to the
Exchange Offer, in which case the amount of any transfer taxes (whether imposed
on the registered Holder or any other persons) will be payable by the tendering
Holder. If satisfactory evidence of payment of such taxes or exemption therefrom
is not submitted herewith the amount of taxes will be billed directly to such
tendering Holder.
8. IRREGULARITIES.
All questions as to the form of all documents and the validity (including time
of receipt) and acceptance of all tenders and withdrawals of Shares will be
determined by the Company, in its sole discretion which determination shall be
final and binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF SHARES WILL
NOT BE CONSIDERED VALID. The Company reserves the absolute right to reject any
and all tenders of Shares that are not in proper form or the acceptance of
which, in the Company's opinion, would be unlawful. The Company also reserves
the right to waive any defects, irregularities or conditions of tender as to
particular Shares. The Company's interpretations of the terms and conditions of
the Exchange Offer (including the instructions in this Letter of Transmittal)
will be final and binding. Any defect or irregularity in connection with tenders
of Shares must be cured within such time as the Company determines, unless
waived by the Company. Tenders of Shares shall not be deemed to have been made
until all defects or irregularities have been waived by the Company or cured. A
defective tender (which defect is not waived by the Company or cured by the
Holder) will not constitute a valid tender of Shares and will not entitle the
Holder to Debentures. None of the Company, the Exchange Agent or any other
person will be under any duty to give notice of any defect or irregularity in
any tender or withdrawal of any Shares, or incur any liability to Holders for
failure to give any such notice.
9. WAIVER OF CONDITIONS.
The Company reserves the right, in its reasonable discretion, to amend or waive
any of the conditions to the Exchange Offer.
10. MUTILATED, LOST, STOLEN OR DESTROYED CERTIFICATES FOR SHARES.
Any Holder whose certificates for Shares have been mutilated, lost, stolen or
destroyed should write to or telephone the Exchange Agent (who is also the
Company's transfer agent) at the address or telephone number set forth on the
cover of this Letter of Transmittal for the Exchange Agent.
11. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering Shares and requests for
assistance or additional copies of the Prospectus, this Letter of Transmittal,
the Notice of Guaranteed Delivery or other documents may be directed to the
Exchange Agent, whose address and telephone number appear on the cover of this
Letter of Transmittal.
-17-
<PAGE> 18
12. ODD LOTS.
If the Company purchase less than all Shares tendered before the Expiration Date
because more than 750,000 Shares are tendered, the Shares purchased first will
consist of shares tendered by any stockholder who owned beneficially, as of the
close of business on March __, 1999 and continues to own beneficially as of the
Expiration Date, an aggregate of fewer than 100 Shares and who tenders all of
his or her Shares. This preference will not be available unless the box
captioned "Odd Lots" on page 13 is completed.
-18-
<PAGE> 19
IMPORTANT TAX INFORMATION
Under Federal income tax laws, a Holder who tenders Shares prior to receipt of
the Debentures is required to provide the Exchange Agent with such Holder's
correct TIN on the Substitute Form W-9 below or otherwise establish a basis for
exemption from backup withholding. If such Holder is an individual, the TIN is
his or her social security number. If the Exchange Agent is not provided with
the correct TIN, a $50 penalty may be imposed by the Internal Revenue Service
("IRS") and payments, including any Debentures, made to such Holder with respect
to Shares exchanged pursuant to the Exchange Offer may be subject to backup
withholding.
Certain Holders (including among others, all corporations and certain foreign
persons) are not subject to these backup withholding and reporting requirements.
Exempt Holders should indicate their exempt status on the Substitute Form W-9. A
foreign person may qualify as an exempt recipient by submitting to the Exchange
Agent a properly completed IRS Form W-8 signed under penalties of perjury,
attesting to that Holder's exempt status. A Form W-8 can be obtained from the
Exchange Agent. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
Holders are urged to consult their own tax advisors to determine whether they
are exempt.
If backup withholding applies, the Exchange Agent is required to withhold 31% of
any payments made to the Holder or other payee. Backup withholding is not an
additional Federal income tax. Rather, the Federal income tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained from the IRS.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments, including any Debentures, made with
respect to Shares exchanged pursuant to the Exchange Offer, the Holder is
required to provide the Exchange Agent with (i) the Holder's correct TIN by
completing the form below, certifying that the TIN provided on the Substitute
Form W-9 is correct (or that such Holder is awaiting a TIN) and that (A) such
Holder is exempt from backup withholding, (B) the Holder has not been notified
by the IRS that the Holder is subject to backup withholding as a result of
failure to report all interest or dividends or (C) the IRS has notified the
Holder that the Holder is no longer subject to backup withholding, and (ii) if
applicable, an adequate basis for exemption.
WHAT NUMBER TO GIVE THE EXCHANGE AGENT
The Holder is required to give the Exchange Agent the TIN (e.g., social security
number or employer identification number) of the registered Holder. If the
Shares are held in more than one name or are held not in the name of the actual
owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
PAYOR'S NAME: THERMWOOD CORPORATION.
-19-
<PAGE> 20
PAYEE INFORMATION (Please print or type):
Individual or business name (if joint account list first and circle the name of
person or entity whose number You furnish in Part 1 below):
_____________________________________________
Check appropriate box:
SUBSTITUTE [ ] Individual/Sole Proprietor
FORM W-9 [ ] Corporation [ ] Partnership [ ] Other
DEPARTMENT OF THE
TREASURY ________________________________________________
INTERNAL REVENUE SERVICE Address
________________________________________________
City, State and Zip Code
PART I TAXPAYER IDENTIFICATION NUMBER ("TIN"):
Enter your TIN in the box at right. For individuals this is your social security
number; for other entities it is your employer identification number. Refer to
the chart in Item A on page 1 of the Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9 (the "Guidelines") for further
clarification. If you do not have a TIN, see instructions on how to obtain a TIN
in Item C on page 2 of the Guidelines, check the appropriate box below
indicating that you have applied for a TIN and, in addition to the Part III
Certification, sign the attached Certification of Awaiting Taxpayer
Identification Number.
Social security number: _____________________________________________
Employer identification number: _____________________________________________
APPLIED FOR TIN [ ]
PART II PAYEES EXEMPT FROM BACKUP WITHHOLDING:
Check box. (See Item B on page 2 of the Guidelines for further clarification.
Even if you are exempt from backup withholding, you should still complete and
sign the certification below):
Exempt [ ]
REQUEST FOR TAXPAYER CERTIFICATION: You must cross out Item 2
IDENTIFICATION NUMBER AND below if you have been notified by the
CERTIFICATION Internal Revenue Service (the "IRS")
that you are currently subject to backup
withholding because of underreporting
interest or dividends on your tax return
(See page 2 of the Guidelines for
further clarification).
Under penalties of perjury, I certify that:
1. The number shown on this form is my correct taxpayer identification number
(or I am waiting for a number to be issued to me) and
-20-
<PAGE> 21
2. I am not subject to backup withholding because: (a) I am exempt from backup
withholding, (b) I have not been notified by the IRS that I am subject to backup
withholding as a result of a failure to report all interest or dividends or (c)
the IRS has notified me that I am no longer subject to backup withholding.
Signature:___________________________________
Date:________________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN
BACKUP WITHHOLDING OF 31% OF ANY PAYMENT MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED "GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9" FOR ADDITIONAL DETAILS. YOU MUST
COMPLETE THE FOLLOWING CERTIFICATION IF YOU CHECKED THE BOX "APPLIED FOR TIN" IN
PART I OF SUBSTITUTE FORM W-9 CERTIFICATION OF AWAITING TAXPAYER IDENTIFICATION
NUMBER.
I certify, under penalties of perjury, that a TIN has not been issued to me, and
either (a) I have mailed or delivered an application to receive a TIN to the
appropriate IRS Service Center or Social Security Administration Office or (b) I
intend to mail or deliver an application in the near future. I understand that I
must provide a TIN to the payor within 60 days of submitting this Substitute
Form W-9 and that if I do not provide a TIN to the payor within 60 days, the
payor is required to withhold 31% of all reportable payments thereafter to me
until I furnish the payor with a TIN.
Signature:_________________________________________ Date:_____________________
-21-
<PAGE> 1
EXHIBIT 99.3
Revised Exchange Agreement With American Stock Transfer and Trust Company
March __, 1999
EXCHANGE AGENT AGREEMENT
American Stock Transfer and Trust Company
Trust Department
40 Wall Street
New York, New York 10005
Ladies and Gentlemen:
Thermwood Corporation, an Indiana corporation (the "Company"), proposes
to make an offer (the "Exchange Offer") to the holders (the "Shareholders") of
its shares of Common Stock, no par value (the "Shares"), to exchange up to
750,000 Shares held by Shareholders for 12% Subordinated Debentures due 2014
(the "Debentures"), which Debentures have been registered under the Securities
Act of 1933.
The terms and conditions of the Exchange Offer as currently
contemplated are set forth in a Prospectus (the "Prospectus") dated __________
__, 1999, distributed to record holders of the Shares on or about such date.
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to them in the Prospectus.
The Company hereby appoints American Stock Transfer and Trust Company
to act as exchange agent (the "Exchange Agent") in connection with the Exchange
Offer. References hereinafter to "you" shall refer to American Stock Transfer
and Trust Company.
The Exchange Offer is expected to be commenced by the Company on or
about March _, 1999. The Letter of Transmittal accompanying the Prospectus is to
be used by the holders of the Shares to accept the Exchange Offer and contains
certain instructions with respect to (i) the delivery of certificates for Shares
tendered in connection therewith, (ii) the book entry transfer of Shares to the
Exchange Agent's account at The Depository Trust Company (the "Book-Entry
Transfer Facility"), and (iii) other matters relating to the Exchange Offer.
The Exchange Offer shall expire at 5:00 p.m., New York City time, on
__________ __, 1999 or on such later date or time to which the Company may
extend the Exchange Offer (the "Expiration Date"). Subject to the terms and
conditions set forth in the Prospectus, the Company expressly reserves the right
to extend the Exchange Offer from time to time by giving oral (to be confirmed
in writing) or written notice to you no later than 1:00 p.m., New York City
time, on the business day following the previously scheduled Expiration Date.
<PAGE> 2
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Shares not theretofore
accepted for exchange, upon the occurrence of any failure of the conditions of
the Exchange Offer specified in the Prospectus. The Company will give oral (to
be confirmed in writing) or written notice of any amendment, termination or
nonacceptance of Shares to you as promptly as practicable.
In carrying out your duties as Exchange Agent, you are to act in
accordance with the following instructions:
1. You will perform such duties and only such duties as are
specifically set forth herein and in the Letter of Transmittal.
2. You will establish an account with respect to the Shares at the
Book-Entry Transfer Facility for purposes of the Exchange Offer within two
business days after the date of this Agreement, and any financial institution
that is a participant in the Book-Entry Transfer Facility's systems may make
book-entry delivery of the Shares by causing the Book-Entry Transfer Facility to
transfer such Shares into your account in accordance with the Book-Entry
Transfer Facility's procedure for such transfer. You are not required to collect
Letters of Transmittal from persons tendering Notes through the Book-Entry
Transfer Facility.
3. You are to examine each of the Letters of Transmittal, certificates
for Shares (or confirmations of book-entry transfers into your account at the
Book-Entry Transfer Facility) and any Agent's Message or other documents
delivered or mailed to you by or for holders of the Shares to ascertain whether
(i) the Letters of Transmittal and any such other documents are executed and
properly completed in accordance with instructions set forth therein and (ii)
the Shares have otherwise been properly tendered. In each case where the Letter
of Transmittal or any other document has been improperly completed or executed
or any of the certificates for Shares are not in proper form for transfer or
some other irregularity in connection with the acceptance of the Exchange Offer
exists, you will endeavor to inform the presenters of the need for fulfillment
of all requirements and to take any other action as may be necessary or
advisable to cause such irregularity to be corrected.
4. With the approval of Kenneth J. Susnjara or any other person
designated in writing by the Company (a "Designated Officer") (such approval, if
given orally, to be confirmed in writing) or any other party designated by any
such Designated Officer in writing, you are authorized to waive any
irregularities in connection with any tender of Shares pursuant to the Exchange
Offer.
5. Tenders of Shares may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange Offer -
Procedures for Tendering," and Shares shall be considered properly tendered to
you only when tendered in accordance with the procedures set forth therein.
Notwithstanding the provisions of
2
<PAGE> 3
this paragraph 5, Shares that the Designated Officer of the Company shall
approve as having been properly tendered shall be considered to be properly
tendered (such approval, if given orally, shall be confirmed in writing).
6. You shall advise the Company with respect to any Shares delivered
subsequent to the Expiration Date and accept the Company's instructions (if
given orally, to be confirmed in writing) with respect to the disposition of
such Shares.
7. You shall accept tenders:
(a) in cases where the Shares are registered in two or more names only if signed
by all named holders;
(b) in cases where the signing person (as indicated on the Letter of
Transmittal) is acting in a fiduciary or a representative capacity only when
proper evidence of such person's authority to so act is submitted; and
(c) from persons other than the registered holder of Shares provided that
customary transfer requirements, including payment of any applicable transfer
taxes, are fulfilled.
You shall accept partial tenders of Shares where so indicated and as
permitted in the Letter of Transmittal and deliver certificates for Shares to
the Transfer Agent for split-up and return any untendered Shares to the holder
(or to such other person as may be designated in the Letter of Transmittal) as
promptly as practicable after expiration or termination of the Exchange Offer.
8. Upon satisfaction or waiver of all the conditions to the Exchange
Offer, the Company will notify you (such notice, if given orally, to be
confirmed in writing) of the Company's acceptance, promptly after the Expiration
Date, of all Shares properly tendered and you, on behalf of the Company, will
exchange such Shares for Debentures and will deliver such Shares as directed by
the Company. Notwithstanding the foregoing, if tenders for more than 750,000
shares are received, we will accept only 750,000 Shares and the number of Shares
that we accept for tender and that you shall exchange for Debentures shall be
pro rated between all tendering Shareholders in proportion to the number of
Shares that they tender. However, before the number of Shares accepted for
tender shall be pro rated, we may notify you that we will accept tenders for
Shares from Shareholders who own less than 100 shares and who have tendered all
of their shares. Delivery of Debentures will be made on behalf of the Company by
you at the rate of $11.00 principal amount of Debentures for each Share tendered
promptly after notice (such notices, if given orally, to be confirmed in
writing) of acceptance of said Shares by the Company; provided, however, that in
all cases Shares tendered pursuant to the Exchange Offer will be exchanged only
after timely receipt by you of certificates for such Shares (or confirmation of
book-entry transfer into your account at the Book-Entry Transfer Facility), a
properly completed and duly executed Letter of Transmittal (or facsimile
thereof) with any required signature guarantees (or an
3
<PAGE> 4
Agent's Message in lieu thereof) and any other required documents. You shall
issue Debentures only in denominations of $11.00 or in any integral multiple in
excess thereof
9. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and upon the conditions set forth in the Prospectus and the
Letter of Transmittal, Shares tendered pursuant to the Exchange Offer may be
withdrawn at any time on or prior to the Expiration Date.
10. The Company shall not be required to exchange any Shares tendered
if any of the conditions set forth in the Exchange Offer are not met. Notice of
any decision by the Company not to exchange any Shares tendered shall be given
(such notice, if given orally, shall be confirmed in writing) by the Company to
you.
11. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Shares tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus, including but
not limited to receipt of tenders for more than 750,000 Shares, or otherwise,
you shall as soon as practicable after the expiration or termination of the
Exchange Offer return those certificates for unaccepted Shares (or effect the
appropriate book-entry transfer of the unaccepted Shares), together with any
related required documents and the Letter of Transmittal relating thereto that
are in your possession, to the persons who deposited them.
12. All certificates for reissued Shares, unaccepted Shares or
Debentures shall be forwarded at the Company's expense by (a) first-class mail,
return receipt requested, under a blanket surety bond protecting you and the
Company from loss or liability arising out of the nonreceipt or nondelivery of
such certificates or (b) registered mail insured separately for the replacement
value of each of such certificates.
13. You are not authorized to pay or offer to pay any concessions,
commissions or solicitation fees to any broker, dealer, bank or other persons or
to engage or utilize any person to solicit tenders, except as we may direct.
14. As Exchange Agent hereunder, you:
(a) will be regarded as making no representations and having no responsibilities
as to the validity, sufficiency, value or genuineness of any of the certificates
or the Shares represented thereby deposited with you pursuant to the Exchange
Offer, and will not be required to and will make no representation as to the
validity, sufficiency, value or genuineness of the Exchange Offer including
without limitation the Prospectus, the Letter of Transmittal or the instructions
related thereto;
(b) shall not be obligated to take any action hereunder that might in your
reasonable judgment involve any expense or liability, unless you shall have been
furnished with reasonable indemnity satisfactory to you;
4
<PAGE> 5
(c) may conclusively rely on and shall be fully protected in acting in good
faith in reliance upon any certificate, instrument, opinion, notice, letter,
facsimile or other document or security delivered to you and reasonably believed
by you to be genuine and to have been signed by the proper party or parties;
(d) may conclusively act upon any tender, statement, request, agreement or other
instrument whatsoever not only as to its due execution and validity and
effectiveness of its provisions, but also as to the truth and accuracy of any
information contained therein that you shall in good faith reasonably believe to
be genuine or to have been signed or represented by a proper person or persons;
(e) may conclusively rely on and shall be fully protected in acting upon written
or oral instructions from any Designated Officer of the Company with respect to
the Exchange Offer;
(f) shall not advise any person tendering Shares pursuant to the Exchange Offer
as to the wisdom of making such tender or as to the market value or decline or
appreciation in market value of any Shares; and
(g) may consult with your counsel with respect to any questions relating to your
duties and responsibilities, and the advice or written opinion of such counsel
shall be full and complete authorization and protection in respect of any action
taken, suffered or omitted by you hereunder in good faith and in accordance with
such advice or written opinion of such counsel.
15. You shall take such action as may from time to time be requested by
any Designated Officer of the Company (and such other action as you may
reasonably deem appropriate) to furnish copies of the Prospectus, the Letter of
Transmittal and the Notice of Guaranteed Delivery, or such other forms as may be
approved from time to time by the Company, to all persons requesting such
documents and to accept and comply with telephone requests for information
relating to the Exchange Offer, provided that such information shall relate only
to the procedures for accepting (or withdrawing from) the Exchange Offer. The
Company shall furnish you with copies of such documents at your request.
16. You shall advise by facsimile transmission or telephone, and
promptly thereafter confirm in writing to Kenneth J. Susnjara, President, and
such other person or persons as the Company may request, daily (and more
frequently during the week immediately preceding the Expiration Date, if
reasonably requested) up to and including the Expiration Date, as to the number
of Shares that have been tendered pursuant to the Exchange Offer and the items
received by you pursuant to this Agreement, separately reporting and giving
cumulative totals as to items properly received and items improperly received
and items covered by Notices of Guaranteed Delivery. In addition, you will also
inform, and cooperate in making available to, the Company or any such other
person or persons as the Company reasonably requests from time to time prior to
the Expiration
5
<PAGE> 6
Date of such other information as they or such person or persons reasonably
request. Such cooperation shall include, without limitation, the granting by you
to the Company and such person or persons as the Company may reasonably request
of access to those persons on your staff who are responsible for receiving
tenders, in order to ensure that immediately prior to the Expiration Date the
Company shall have received information in sufficient detail to enable it to
decide whether to extend the Exchange Offer.
17. Letters of Transmittal and Notices of Guaranteed Delivery shall be
stamped by you as to the date and the time of receipt thereof and shall be
preserved by you for a period of time at least equal to the period of time you
preserve other records pertaining to the transfer of securities. You shall
dispose of unused Letters of Transmittal and other surplus materials by
returning them to the Company at the address set forth below for notices.
18. For services rendered as Exchange Agent hereunder, you shall be
entitled to compensation of ____________ Dollars ($_______) and reimbursement of
reasonable out-of-pocket expenses incurred in connection with the Exchange
Offer.
19. You hereby acknowledge receipt of the Prospectus and the Letter of
Transmittal and further acknowledge that you have examined each of them to the
extent necessary to perform your duties hereunder. Any inconsistency between
this Agreement, on the one hand, and the Prospectus and the Letter of
Transmittal (as they may be amended from time to time), on the other hand, shall
be resolved in favor of the latter two documents, except with respect to the
rights, duties, liabilities and indemnification of you as Exchange Agent, which
shall be controlled by this Agreement.
20. (a) The Company agrees to indemnify and hold you harmless in your
capacity as Exchange Agent hereunder against any liability, cost, tax (other
than any income tax), claim or expense, including reasonable attorneys' fees and
disbursements, arising out of or in connection with any action taken or omitted
to be taken by the Exchange Agent in connection with its acceptance or
performance of it duties under the Agreement and the documents related thereto,
including without limitation, any act, omission, delay or refusal made by you in
reasonable reliance upon any signature, endorsement, assignment, certificate,
order, request, notice, instruction or other instrument or document reasonably
believed by you to be valid, genuine and sufficient and in accepting any tender
or effecting any transfer of Shares reasonably believed by you in good faith to
be authorized, and in delaying or refusing in good faith to accept any tenders
or effect any transfer of Shares; provided, however, that the Company shall not
be liable for indemnification or otherwise for any loss, liability, cost or
expense to the extent arising out of your negligence, willful breach of this
Agreement, willful misconduct or bad faith. You shall notify the Company in
writing of the assertion of any claim against you; provided however, that your
failure so to notify shall not excuse the Company from its obligations hereunder
except to the extent such failure to notify shall prejudice or cause damage to
the Company. The Company shall be entitled to participate at its own expense in
the defense of any such claim or other action, and, if the Company so elects,
shall assume the defense of any suit brought to enforce any such claim. In the
event that the
6
<PAGE> 7
Company shall assume the defense of any such suit, it shall not be liable for
the fees and expenses of any additional counsel thereafter retained by you so
long as the Company shall retain counsel reasonably satisfactory to you to
defend such suit. You shall not compromise or settle any such action or claim
without the consent of the Company, provided that the Company shall not be
entitled to assume the defense of any action if representation of the parties by
the same legal counsel would, in the reasonable opinion of counsel for the
Exchange Agent, be inappropriate due to actual or potential conflicting
interests between the parties. This indemnification shall survive the release,
discharge, termination and/or satisfaction of this Agreement.
(b) You agree that, without the prior written consent of the Company (which
consent shall not be unreasonably withheld), you will not settle, compromise or
consent to the entry of judgment in any pending or threatened claim, action, or
proceeding in respect of which indemnification could be sought in accordance
with the indemnification provisions of this Agreement (whether or not you or the
Company or any of its controlling persons is an actual or potential party to
such claim, action or proceeding), unless such settlement, compromise or consent
includes an unconditional release of the Company and controlling persons from
all liability arising out of such claim, action or proceeding.
21. This Agreement and your appointment as Exchange Agent hereunder
shall be construed and enforced in accordance with the laws of the State of New
York applicable to agreements made and to be performed entirely within such
state, and without regard to conflicts of law principles, and shall inure to the
benefit of, and the obligations created hereby shall be binding upon, the
successors and assigns of each of the parties hereto.
22. All communications, including notices, required or permitted to be
given hereunder shall be in writing and shall be deemed to have been duly given
if (i) delivered personally with receipt acknowledged, (ii) sent by registered
or certified mail, return receipt requested, (iii) transmitted by facsimile
(which shall be confirmed by telephone and by a writing sent by registered or
certified mail on the business day that such facsimile is sent), or (iv) sent by
recognized overnight courier for next business day delivery, addressed to the
parties at the addresses or facsimile numbers as any party shall hereafter
specify by communication to the other parties in the manner provided herein:
If to the Company:
THERMWOOD CORPORATION
Old Buffaloville Road
P.O. Box 436
Dale, Indiana 47523
Fax No.: (812) 937-2956
Attn: Kenneth J. Susnjara
Chairman of the Board and President
7
<PAGE> 8
with a copy to:
Barry B. Feiner, Esquire
190 Willis Avenue
Mineola, New York 11501
Fax No. (516) 873-8426
If to the Exchange Agent:
American Stock Transfer and Trust Company
Trust Department
40 Wall Street
New York, New York 10005
Fax No. (718) 921-8334
23. This Agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original and all of which taken together shall
constitute one and the same agreement.
24. In case any provision of this Agreement shall be invalid, illegal
or unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
25. Unless terminated earlier by the parties hereto, this Agreement
shall terminate 90 days following the Expiration Date. Notwithstanding the
foregoing, paragraph 18 and 20 and any outstanding obligation of the Exchange
Agent shall survive the termination of this Agreement.
Please acknowledge receipt of this Agreement and confirm the
arrangements herein provided by signing and returning the enclosed copy.
THERMWOOD CORPORATION
By: ________________________________
Kenneth J. Susnjara
Chairman of the Board and President
Accepted as of the date first above written:
AMERICAN STOCK TRANSFER AND TRUST, AS EXCHANGE AGENT
By: ___________________________
Name:
Title:
8
