As filed with the Securities and Exchange Commission on January 4, 1999
Registration No. 333-_____
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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THERMWOOD CORPORATION
(Exact name of registrant as specified in its charter)
Indiana 3550
(State or other jurisdiction of (Primary Standard Industrial
incorporation or organization) Classification Code Number)
35-1169185
(I.R.S. Employer
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) 747-0300
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. [ ]
<PAGE>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
Title Of Each Proposed Proposed
Class Of Maximum Maximum
Securities Amount Offering Aggregate Amount Of
To Be To Be Price Offering Registration
Registered Registered Per Debenture (1) Price(1) Fee
- --------------------------------------------------------------------------------
12% Subordinated
Debentures $13,351,978(2) 100% $7,678,211(3) $2,265.07
- --------------------------------------------------------------------------------
(1) Estimated solely for purposes of calculating the registration fee
pursuant to Rule 457(f).
(2) Represents the principal amount of the maximum number of Debentures
offered in exchange for: (i) 1,183,309 Shares; (ii) 60,600 of the Company's
outstanding options; and (iii) 22,600 Shares (representing the number of Shares
into which the Company's existing convertible debentures can convert). The
aggregate principal amount of the Debentures was computed by adding X and Y,
where X equals the maximum number of Shares that the Company can acquire in the
Exchange Offer from the exchange of Shares (including Shares issuable upon
exchange of existing convertible debentures) multiplied by $11.00, and Y equals
60,600 multiplied by the following formula: (11-B)/11 where B equals the average
exercise price of the 60,600 options.
(3) Pursuant to Rules 457(f) and 457(c), calculated by multiplying the
1,266,509 Shares (which consists of the maximum number of currently issued
Shares that can be exchanged, the Shares issuable upon conversion of existing
convertible debentures and the Shares issuable upon exercise of the 60,600
options) by the average of the high and low prices reported on the American
Stock Exchange on December 28, 1998.
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>
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 SECURITIES AND EXCHANGE COMMISSION 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 January 4, 1999
THERMWOOD CORPORATION
Offer to Exchange 12% 15 Year Subordinated Debentures For All of our
Outstanding Shares of Common Stock Other than those Shares owned by two of our
major Shareholders
The following terms apply to the 12% 15 Year Subordinated Debentures
(the "Debentures") we are offering:
Principal Amount of Debenture The principal amount of the Debenture that you
will receive will be equal to $11.00 times the
number of Shares that you tender.
Annual Interest Rate 12% simple interest.
Payment of Interest Interest will be paid quarterly in cash.
Maturity Fifteen years after the Debentures have been
issued.
Redemption by Holder We will redeem up to $50,000 total value of the
Debentures of the estate of any Holder upon
notice of the Holder's death. This right of
redemption may only be exercised by the estate
of the original Holder. It does not pass to
any other transferee.
Redemption by Us We can redeem the Debentures for $15.00 per
Debenture during the second year after their
issuance. During each subsequent year, the
redemption price will decrease by $0.30 per
Debenture. We cannot redeem the Debentures
during the first year after they have been
issued. We must provide the Holder with written
notice of our intention to redeem the
Debentures at least 30 days before we redeem
the Debentures.
Subordination The Debentures will be second in right of
repayment (i.e., subordinated) 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 prior
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, transfer of the Debentures
may be restricted by state securities laws if
our securities are delisted from the American
Stock Exchange and the Pacific Stock Exchange
and we terminate our status as an issuer
required to file reports under the Federal
securities laws
If you transfer your Debentures, the right in
the Debentures to redemption upon death of the
initial Holder will terminate.
<PAGE>
We are offering to acquire all of our Common Shares owned by Shareholders
other than the 251,400 Shares owned by Kenneth and Linda Susnjara, two of our
major Shareholders. We will issue Debentures in the aggregate principal amount
equal to $11.00 times the number of Common Shares that we acquire. We will
acquire all Shares tendered by Shareholders regardless of how many or how few
Shares are tendered. In addition, we will negotiate with each Holder of our
Qualified and Non-Qualified options (other than Kenneth and Linda Susnjara) and
offer him or her the right to exchange his or her options for Debentures. The
principal amount of Debentures that we will issue in exchange for the options
will equal $11.00 minus the per Share exercise price of the options, multiplied
by the number of Shares that would have been issuable upon exercise of the
options.
For more complete details on the Exchange Offer, see "Exchange Offer."
Our offer to acquire the Shares will expire at 5:00 P.M., New York City
time, on _________, 1999. We may extend the offering period. For more details on
the Exchange Offer see "Exchange Offer."
CONSIDER CAREFULLY THE RISK FACTORS BEGINNING ON PAGE 6 OF THIS
PROSPECTUS. Among other risks involved in exchanging your Common Shares for
Debentures, the Debentures are unsecured obligations which are subordinated to
our Senior Debt.
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. 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 SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE DEBENTURES OR THE EXCHANGE OFFER,
DETERMINED THE FAIRNESS OR MERITS OF THE EXCHANGE OFFER NOR DETERMINED THAT THIS
PROSPECTUS IS ACCURATE OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
Dirks & Company, Inc. ("Dirks") 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 other than Debentures issued to
Shareholders whose total holdings are more than 10% of the Company's outstanding
Common Stock.
There is no public trading market for these debt securities. We
anticipate, but cannot assure, that the Debentures will be tradable in the
over-the-counter market. We do not intend to list the Debentures on any stock
exchange. Our Common Shares are traded on the American and Pacific Stock
Exchanges under the symbol "THM." On December 22, 1998, the closing price for
these Shares, as reported on the American Stock Exchange, was $6.125 per Share.
If we are successful in repurchasing all or a significant portion of the Common
Shares, we intend to delist the Common Shares from these stock exchanges.
The Solicitation Agent for the Offer is
Dirks & Company, Inc.
The date of this Prospectus is ___________________, 1999
<PAGE>
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission (the "SEC") a
registration statement on Form S-4 (the "Registration Statement") with respect
to the 12% Subordinated Debentures due 2014 (the "Debentures"). This Prospectus,
which is a part of the Registration Statement, omits certain information
included in the Registration Statement. Information omitted from this
Prospectus, but contained in the Registration Statement, may be inspected and
copied at the SEC's Public Reference Room at Room 1024, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549. You may obtain information on the
operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You
may also obtain information about the Company from the following regional
offices of the SEC: Northwestern Atrium Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661; and 7 World Trade Center, 13th Floor, New York,
New York 10048. Copies of such material can be obtained by mail from the Public
Reference Section of the SEC at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 at prescribed rates. You may obtain our electronic
filings filed through the SEC's Electronic Data Gathering, Analysis and
Retrieval system ("EDGAR") through the SEC's home page on the Internet at
http://www.sec.gov. We file annual, quarterly, and special reports, proxy
statements, and other information with the SEC.
1
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some information from this Prospectus. It may
not contain all of the information that is important to you. To understand the
Offering fully, you should read the entire Prospectus carefully, including the
"Risk Factors" and the Consolidated Financial Statements and Notes thereto
before you decide whether to exchange your Shares for Debentures. References in
this Prospectus to "Thermwood," "the Company," "we," "us," and "our" refer to
Thermwood Corporation and its subsidiaries. References to "Shares" and "Common
Shares" refer to Shares of our Common Stock. On January 5, 1998 the Company
effected a one-for-five reverse stock split of its Shares, and all related Share
and per Share information has been adjusted to give retroactive effect to this
split except where text indicates otherwise.
The statements, other than statements of historical facts included in
this Prospectus, including statements set forth under the "Summary," "Risk
Factors," "Special Factors," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," and "Business" regarding the Company's
future financial position, business strategy, projected costs and plans and
objectives of management for future operations, are forward-looking statements.
In addition, forward-looking statements generally can be identified by the use
of forward-looking terminology such as "may," "will," "expect," "intend,"
"estimate," "anticipate," "believe" or other similar words. You are cautioned
not to place undue reliance on these forward-looking statements, which speak
only as of the date of this Prospectus. Except as required by law, we are not
obligated to publicly release any revisions to these forward-looking statements
to reflect events or circumstances after the date of this Prospectus or to
reflect the occurrence of unanticipated events. Important factors that could
cause actual results to differ materially from our expectations (the "Cautionary
Statements") are disclosed under "Risk Factors" and elsewhere in this
Prospectus. All subsequent written and oral forward-looking statements
attributable to the Company, or persons acting on its behalf, are expressly
qualified in their entirety by the Cautionary Statements.
Our Business
We are a manufacturer of computer-based systems and equipment for the
woodworking and plastics industries. We develop, produce, market and service:
- -- computer-controlled (CNC) routing machines that perform high speed machining,
trimming and routing functions on wood, plastic and certain non-ferrous metals;
- -- wood carving computer controlled routing systems;
- -- 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 CNC 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.
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.
The Exchange Offer
The Offer: We are offering to acquire all of our Shares owned by
Shareholders other than the 251,400 Shares owned jointly by the Holders of the
largest block of stocks. We will issue Debentures to each tendering Shareholder
in the principal amount of $11.00 times the number of Shares that we acquire
from such Shareholder. We will acquire all Shares tendered by Shareholders
regardless of how many or how few Shares are tendered. Our offer to acquire the
Shares will expire at 5:00 P.M., New York City time, on ____________, 1999. We
may extend the offering. In addition, during this period, we will negotiate with
each Holder of our Qualified and Non-Qualified options (other than Kenneth and
Linda Susnjara) and offer him or her the right to exchange his or her options
for Debentures. The principal amount of Debentures that we will issue in
exchange for the options will equal $11.00 minus the per Share exercise price of
the options, multiplied by the number of Shares that would have been issuable
upon exercise of the options. See "Exchange Offer."
2
<PAGE>
Procedures for Tendering Shares: If you wish to accept the Exchange
Offer, you must complete, sign and date the Letter of Transmittal or transmit an
Agent's Message (as defined in "The Exchange Offer -- Procedures for Tendering -
Book-Entry Transfer") in connection with a book-entry transfer, in accordance
with the instructions contained in the Letter of Transmittal, and deliver such
Letter of Transmittal or such Agent's Message, together with the Shares and any
other required documentation to the exchange agent (the "Exchange Agent") at its
address set forth herein. See "Exchange Offer - Procedures for Tendering."
Special Procedures for Beneficial Owners: If your Shares are registered
in the name of a broker, dealer, commercial bank, trust company or other nominee
and you wish to tender your Shares, you should contact such registered Holder
promptly and instruct it to tender the Shares on your behalf. If you wish to
tender on your own behalf, you must, prior to completing and executing the
Letter of Transmittal and delivering your Shares, either make appropriate
arrangements to register ownership of the Shares in your name or obtain a
properly completed Stock Power from the registered Holder. The transfer of
registered ownership may take considerable time. See "Exchange Offer --
Procedures for Tendering."
Guaranteed Delivery Procedures: If you wish to tender your Shares but
your Shares are not entirely available or you cannot deliver your Shares, the
Letter of Transmittal or any other documents required by the Letter of
Transmittal to the Exchange Agent prior to the Expiration Date or you cannot
complete the procedure for book-entry transfer on a timely basis, you must
tender your Shares according to the guaranteed delivery procedures set forth in
"Exchange Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights: You may withdraw your tenders at any time prior to
5:00 P.M., New York City time, on the Expiration Date. See "Exchange Offer --
Withdrawal of Tenders."
Acceptance of Shares and Delivery of Debentures: We will accept for
exchange any and all Shares which are properly tendered in the Exchange Offer
prior to 5:00 P.M., New York City time, on the Expiration Date and not
withdrawn. The Debentures issued pursuant to the Exchange Offer will be
delivered promptly following the Expiration Date.
The Exchange Agent: American Stock Transfer and Trust Company is
serving as Exchange Agent in connection with the Exchange Offer. See "Exchange
Offer -- Exchange Agent."
Tax Consequences: Your exchange of Common Stock for Debentures should
be treated as a redemption of the Shares for Federal income tax purposes.
Depending upon the facts of your situation, you may realize a taxable gain on
the Exchange. 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. See "Federal Income Tax Consequences."
Intention of Affiliates: Kenneth J. and Linda S. Susnjara, two of the
Company's principal Shareholders, do not intend to exchange their Shares or
their Qualified and Non-Qualified options and, accordingly, will continue to be
Shareholders after completion of the Exchange Offer. Pursuant to an arrangement
with Mr. Susnjara, Edgar Mulzer, the other principal Shareholder of the Company,
and Peter N. Lalos and Lee Ray Olinger, two Directors of the Company that own
Shares, have agreed that they will exchange all of their Shares for Debentures
if at least 95% of the approximately 963,307 currently issued and outstanding
Shares owned by non-affiliates are tendered and exchanged in the Exchange
Offering. All of the other Executive Officers intend to exchange their Shares
and their options for Debentures. The primary purpose for the structure of the
Exchange Offer is to maximize the number of Shares owned by Kenneth and Linda
Susnjara after the Exchange Offer. If 95% of the Shares owned by non-affiliates
and all of the Shares owned by Messrs. Mulzer, Lalos and Olinger are exchanged,
the Shares owned by Kenneth and Linda Susnjara would represent approximately 84%
of the then issued and outstanding Shares.
For more details on the Exchange Offer, including the procedure for
exchanging your Shares for Debentures, see "Exchange Offer."
3
<PAGE>
Description of the Terms of the Debentures
Principal Amount of Debenture The principal amount of the Debenture that
you will receive will be equal to $11.00
times the number of Shares that you tender.
Annual Interest Rate 12% simple interest.
Payment of Interest We will pay interest quarterly in cash on
January 1, April 1, September 1 and
December 1 of each year, commencing
April 1, 1999.
Maturity The Debentures will mature fifteen years
after they have been issued.
Redemption by Holder We will redeem up to $50,000 total value
of the Debentures of any Holder upon
notice of the Holder's death. This right
of redemption may only be exercised by the
original Holder. It does not pass to any
transferee.
Redemption by Us We can redeem the Debentures for $15.00
per Debenture during the second year after
their issuance. During each subsequent
year, the redemption price will decrease
by $0.30 per Debenture. We cannot redeem
the Debentures during the first year after
they have been issued. We must provide the
Holder with written notice of our
intention to redeem the Debentures at
least 30 days before we redeem the
Debentures.
Subordination The Debentures will be second in right of
repayment (i.e., subordinated) 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, transfer of the
Debentures may be restricted by state
securities laws if our securities are
delisted from the American Stock Exchange
and the Pacific Stock Exchange and we
terminate our status as an issuer required
to file reports under the Federal
securities laws. In addition, the right
to redemption upon death of the initial
Holder will terminate.
4
<PAGE>
Summary Consolidated Financial Data
(in thousands except per Share data)
Our consolidated financial information set forth below should be read
in conjunction 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: (i) the exchange of Shares for
Debentures; (ii) settlement of certain outstanding options; and (iii) exchange
of Shares issuable upon conversion of convertible debentures outstanding, as if
these events 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 "Special Factors -- Financial Effect of the Exchange
Offer."
<TABLE>
<CAPTION>
Statements of Operations Data: Quarter ended October 31 Year ended July 31,
-------------------------- ----------------------------------------------------------
Proforma Proforma
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 $ 21,940 $ 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 (124) 218 355 208 1,318 1,236 2,334 2,350 136
Net earnings (124) 218 355 208 1,318 1,236 2,334 2,350 208
Earnings before interest,
income taxes, depreciation
and amortization 437 572 688 2,631 2,766 2,469 1,589 2,022 922
======= ====== ======= ======== ======== ======= ======= ======= ======
Earnings per Share:
Basic $ (0.48) $ 0.15 $ 0.22 $ 0.85 $ 0.89 $ 0.70 $ 1.63 $ 1.92 $ ---
Diluted $ (0.48) $ 0.15 $ 0.21 $ 0.83 $ 0.86 $ 0.69 $ 1.45 $ 1.49 $ ---
======= ====== ======= ======== ======== ======= ======= ======= ======
Weighted average number
of Shares:
Basic 258 1,441 1,409 245 1,425 1,349 1,231 1,030 1,030
Diluted 262 1,481 1,535 249 1,517 1,446 1,437 1,451 1,030
Cash dividends declared
per Common Share --- --- --- --- --- --- --- --- ---
Balance Sheet Data: October 31 July 31,
-------------------------- ----------------------------------------------------------
Proforma Proforma
1998 1998 1997 1998 1998 1997 1996 1995 1994
------- ------ ------- -------- -------- ------- ------- ------- ------
Total assets $12,283 $12,083 $11,325 $ 11,524 $ 11,324 $11,273 $ 8,766 $ 7,527 $5,418
Working capital 5,368 5,568 5,324 5,125 5,324 5,080 3,791 2,811 1,706
Long-term obligations 9,723 2,302 2,367 9,764 2,367 285 709 1,870 1,862
Shareholders'equity (1,190) 6,231 5,948 (1,449) 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."
5
<PAGE>
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 Adverse Effects If You Remain a Shareholder
If you choose to remain a Shareholder of the Company and, as a result
of the Exchange Offer, the number of Common Shareholders drops below 300, the
following events most likely will occur:
- -- Lack of Public Information. We intend to terminate the registration of our
Common Stock under the Securities Exchange Act of 1934 (the "1934 Act"). As
a result of such termination, we will no longer be required to file certain
disclosure documents (e.g., proxy statements) with the SEC. Although we
will be required to continue to file certain reports (annual, quarterly and
current reports) until the number of Debenture Holders drops below 300,
less information will be available than if we had a class of securities
registered under the 1934 Act. Specifically, we would no longer be required
to file proxy materials and affiliates would no longer be required to file
any individual reports.
- -- Lack of a Trading Market. We will no longer meet the requirements for
listing on the American Stock Exchange ("AMEX") or the Pacific Stock
Exchange ("PSEX") and we intend to delist our Shares of Common Stock. The
termination of our 1934 Act registration and our delisting from AMEX and
PSEX will cause the public trading market for our Shares to disappear.
- -- Ongoing Expenses Related to the Debentures. We will incur additional
expense regardless of the number of Shareholders that remain after the
Exchange Offer. 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.
- -- Additional Debt With a Priority of Repayment Upon Liquidation. 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.
Risks Related to Acquisition of Debentures
If you decide to exchange your Shares for Debentures, you should
consider the following factors:
- -- Subordination of Debt Represented by the Debentures. The Debentures will be
second in right of repayment (i.e., subordinated) to all of our Senior
Debt. There is no limitation on the amount of Senior Debt we can incur.
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. In addition, any indebtedness
of our subsidiaries, other than the Senior Debt, will have rights upon
liquidation or dissolution of the particular subsidiary prior to payment
being made to the Holders of the Debentures. As of November 30, 1998, such
Senior Debt and subsidiary debts aggregated $2,196,320. As a result, there
is no guarantee of repayment of the Debentures in the event of our
liquidation. See "Description of The Debentures and the Indenture."
- -- Absence of Sinking Fund/No Security. The Debentures are not secured by any
of our assets. In addition, we do not contribute funds on a regular basis
to a separate account called a sinking fund to repay the Debentures upon
maturity. Since no funds are set aside periodically for the repayment of
the Debentures over their term, Holders of the Debentures must rely on our
revenues from operations and other sources for repayment. See "Description
of The Debentures and the Indenture."
- -- Limitation on Right to Pursue Remedies. The Debentures will be issued under
an Indenture which governs the terms of the Debentures. 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 thereunder. See "Description of The
Debentures and the Indenture; Events of Default, Notice and Waiver.
6
<PAGE>
- -- Lack Of Public Market For The Debentures; Trading at a Discount. The
Debentures will constitute a new class of securities with no established
trading market. 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 Act"), the Exchange
Act and NASD rules, and will be limited during the Exchange Offer.
Accordingly, we cannot assure you that an active public or other market
will develop for the Debentures. This means that 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.
- -- The Debentures most likely will trade at a discount from their principal
amount if a public trading market develops for the Debentures. The discount
will be due, among other factors, to (i) the fact that the Debentures are
subordinated, unsecured and have a 15 year term and (ii) our industry and
financial condition. In addition, 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. See the next Risk Factor.
- -- Possible Restrictions On Resale Of The Debentures. If we delist our
securities from the AMEX and the PSEX and we terminate our status as an
issuer required to file reports under the Federal securities laws, the
securities laws of certain jurisdictions may prohibit you from offering or
reselling your Debentures unless the Debentures have been registered or
qualified for sale in such jurisdictions or an exemption from registration
or qualification is available and the requirements of such exemption have
been satisfied. We do not intend to register or qualify the resale of the
Debentures under the Securities Act or in any such jurisdictions if our
securities are delisted from the AMEX and the PSEX .
- -- Possible Taxable Event Without Receipt of Funds To Pay Taxes. Your exchange
of Shares for Debentures should be treated as a redemption for Federal
income tax purposes. Depending upon the facts of your situation, you may
realize a taxable gain on the exchange. 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. See "Federal Income Tax
Consequences."
- -- Loss of Shareholder Status. If you tender all of your Shares, you no longer
will have any equity interest in the Company and, therefore, you will not
participate in the Company's future potential earnings or growth.
Risks Related to Our Business
- -- Fluctuation in Operating Results. We have historically experienced
fluctuations in our operating results arising from, among other things,
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. There is no
assurance that these fluctuations will not continue in which event our
business could be adversely affected.
- -- Risks of International Market Factors. 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. There are serious risks in
marketing products in foreign countries. These include, among others, the
difficulty of administering business abroad, exposure to currency
fluctuations and devaluations or restrictions on money supplies, foreign
and domestic export laws and regulations, taxation, tariffs, import quotas
and restrictions, shipping interruptions, and other economic and political
events totally beyond our control. In addition, our ability to prevent the
unauthorized use of our technology in foreign countries may be difficult.
7
<PAGE>
- -- Dependence on Dealer Network. We market our products primarily through a
number of dealers. Because of that, we are substantially dependent upon our
agreements with these third parties, as well as their viability and
financial stability, to generate sales. Because the 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 business 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 while 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. See "Business --
Marketing" and "Certain Transactions."
- -- Dependence on Major Product. We are significantly dependent upon sales of
our CNC router systems. In fiscal 1998, CNC router systems sales
represented approximately 79.5% of our sales. If our sales of CNC router
systems were to decrease significantly, our operations and revenues would
be materially and adversely affected.
- -- Dependence on and Intense Competition for Key Personnel. 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. See
"Management -- Executive Compensation." 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. See
"Management -- Information About Management."
- -- Competition. 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. See "Business -- Competition."
- -- Rapid Technological Change and Risk of Obsolescence. Automated industrial
equipment is subject to rapid and often unexpected technological changes.
Our ability to market our products will depend in large part upon our
anticipating and adapting to such changes. If we fail to respond to
technological advances, our products may become obsolete. Furthermore, even
if we meet such technological advances, there is no assurance that our
products will continue to be competitive. See "Business -- Industry
Background, -- Products, -- Research and Development and -- Patents, Trade
Secrets and Trademarks."
- -- Possible Product Liability Which Could Be Significant. The risk of
accidents involving automated industrial equipment is significant. Physical
damage to industrial property and workers can be extensive and serious when
such machinery malfunctions or is improperly operated. We, as a
manufacturer of this equipment, may be subject to claims if our products
should malfunction. Although we have not been subject to significant claims
in the past and we maintain insurance covering liability up to a general
aggregate limit of $5,000,000, which we believe is adequate to cover these
risks, no assurance can be given that if claims are asserted, such coverage
will be adequate to satisfy any liability that we may sustain. Such claims
could include personal injury and punitive damages. In addition, in the
event that we should lose our insurance, there is no assurance that we will
be able to obtain new coverage at acceptable costs, if at all. If we fail
to maintain product liability insurance coverage, it could have a
materially adverse affect on our business. We have maintained liability
insurance for over 15 years for annual periods commencing on the first day
of May each year.
- -- Patents and Proprietary Rights. 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."
8
<PAGE>
- -- Year 2000 Compliance. 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, 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.
We know of one mission-critical system, the inventory shop floor
control software, that is not Year 2000 compliant. 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 the second
quarter of fiscal 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 upgrade by the end of the second quarter of fiscal
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 current software vendors would be unable to deliver upgrades, At
that point, we would look to alternative vendors. We have not established a
formal contingency plan should we fail to become Year 2000 compliant. We
will continue, however, to evaluate our status and will plan additional
activity as it appears warranted.
9
<PAGE>
CAPITALIZATION
The following table sets forth (i) our capitalization as of October 31,
1998, and(ii) such capitalization adjusted to give pro forma effect to the
exchange of Shares for Debentures, settlement of certain outstanding options,
and exchange of shares issuable upon conversion of convertible debentures
outstanding as of October 31, 1998. The information set forth below should be
read in conjunction with the "Summary Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our consolidated financial statements and the notes thereto
included elsewhere in this Prospectus.
At October 31, 1998
-------------------------------------------
Actual As Adjusted
------------------- ---------------------
(in thousands)
Note payable to bank $ 2,196 2,196
Bonds payable, net 106 7,527
-------- --------
Total long-term liabilities 2,302 9,723
-------- --------
Shareholders' equity (deficit):
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 3,272
Accumulated deficit (4,540) (4,462)
Subscriptions receivable (35) -
--------- --------
Total shareholders' equity (deficit) 6,231 (1,190)
--------- --------
Total capitalization $ 8,533 8,533
========= ========
10
<PAGE>
MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's 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 the Company's fiscal years ended
July 31, 1998 and July 31, 1997, and for the interim periods indicated:
Period Low Sales Price High Sales Price
------ --------------- ----------------
1999
Second Quarter
(through December __, 1998) $ _.__ $ _._ _
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
As of December 11, 1998, there were approximately 279 Holders of record
of the Common Stock inclusive of those brokerage firms and/or clearing houses
holding the Company's securities for their clientele (with each such brokerage
house and/or clearing house being considered as one Holder). However, based on
the results of a brokers' search conducted with regard to the Company's 1998
annual shareholders meeting, the number of beneficial Holders is approximately
2,000. As of December 22, 1998, there were 1,444,709 Shares outstanding .
On December 22, 1998, the closing price for these Shares, as reported
on the AMEX, was $6.125 per Share.
11
<PAGE>
SPECIAL FACTORS
Purpose And Effect Of The Exchange Offer
Commencing in March 1998, we explored the possibility of effecting a
reverse stock split (the "Reverse Stock Split") of our Common Stock (initially
at a ratio of 38,000-to-1, subsequently reduced to 37,000-to-1) and, in
connection therewith, repurchase our stock with cash, in order to (i) eliminate
the cost of maintaining small Shareholder accounts, (ii) permit small
Shareholders to receive a fair price for their Shares without having to pay
brokerage commissions, (iii) determine a set monetary value for the Shares of
most lost Shareholders, whose interests may eventually have to be turned over to
the states under abandoned property laws, and (iv) relieve us and our affiliates
of the administrative burden and cost and competitive disadvantages associated
with filing reports and otherwise complying with the requirements of 1934 Act
registration. We believe that we derive no benefit from the continued
registration of the Common Stock under the 1934 Act and that the monetary
expense and burden to us of continued registration and the threat of a hostile
acquisition of the Company while it is publicly traded significantly outweigh
any material benefit that we or our Shareholders may receive as a result of such
registration. We entered into negotiations with a bank (the "Bank") to provide
the financing for the repurchase of our Common Stock (the "Cash Repurchase
Plan").
We determined to proceed with the Reverse Stock Split and Cash
Repurchase Plan in August 1998 and filed the requisite disclosure documents
(proxy materials and Schedule 13E-3 Transactional Statement) with the SEC in
September 1998. However, in October 1998, the Bank determined not to proceed
with us. As a result, in October 1998, we stopped our plans to proceed with the
Reverse Stock Split and Cash Repurchase Plan and began exploring the possibility
of conducting this Exchange Offer as a viable alternative.
We still believe that the disadvantages to being a public company
outweigh any advantages. We have no current intention to raise capital through
sales of equity securities in a public offering in the future or to acquire
other business entities using stock as the consideration for any such
acquisition. Accordingly, we are not likely to make use of any advantage (for
raising capital, effecting acquisitions or other purposes) that the Company's
status as a reporting company may offer.
We incur direct and indirect costs associated with compliance with the
SEC filing and reporting requirements imposed on public companies. The direct
costs approximate $260,000 annually. We incur substantial indirect costs as a
result of, among other things, the executive time expended to prepare and review
such filings. This expended time is substantial in relation to our resources,
because we have relatively few executive personnel. In light of our size and
resources, we do not believe such costs are justified.
In addition, to our knowledge, none of our competitors are publicly
held. We suffer a competitive disadvantage from being required to disclose
certain information that privately held companies do not disclose.
Moreover, because of our status as a publicly-traded company with
numerous small Shareholders, we believe that our business strategy could be
interfered with by a hostile takeover or similar acquisition that we believe
might not be in the best interests of our Shareholders or our employees.
Our current long-term plans are to remain independent. We believe that
it is in our best interests to continue our current operations, marketing
strategy, development plans and management structure and not to merge with or
sell to another person or entity. Obligations imposed on management of public
companies may eventually prevent us from remaining independent if we become the
subject of a hostile takeover bid.
We have determined that the Exchange Offer is a viable alternative to
the aborted Reverse Stock Split and Cash Repurchase Plan. The Exchange Offer may
not be sufficient to reduce the number of our Shareholders below 300 and, even
if it does, we would still be required to file certain reports (annual,
quarterly and current reports) until the number of Debenture Holders drops below
300. However, we believe that the more Common Stock that is exchanged, the
lesser the chance of a hostile takeover.
12
<PAGE>
Fairness of the Exchange Offer
Goelzer & Co. Inc. ("Goelzer"), the investment banking firm engaged by
us to provide its opinion with respect to the fairness from a financial point of
view of the aborted Reverse Stock Split, estimated the reasonable intrinsic
value for the Shares on a minority basis to be $10.22 per Share. We estimate
that the present value of the Debentures is approximately $6.20 per Debenture.
Although the present value of the Debentures is significantly less than the
estimated reasonable intrinsic value of the Shares on a minority basis, we
believe that the fair market value of the Shares in light of the relative
illiquidity of that market is comparable to the calculated present value of the
Debentures and that the Exchange Offer, taken as a whole, is fair to our
Shareholders (see "Factors Considered By the Board" below). -
We note however, that we did not retain Goelzer or any other
independent party to estimate the current value of the Debentures or opine as to
the fairness of the Exchange Offer. Accordingly, it is conceivable that an
independent party might not determine that the Exchange Offer is fair.
Shareholders should take this into consideration when deciding whether or not to
exchange their Shares for Debentures.
We have considered, among other things:
(i) the analysis and opinion of Goelzer concerning the aborted
Reverse Stock Split (see "Opinion of Goelzer");
(ii) the historical public trading prices of the Shares and the
illiquidity of the Shares in the public trading market place;
(iii)each of the director's knowledge of and familiarity with our
business prospects, financial condition and current business
strategy;
(iv) information with respect to our financial condition, results of
operations, assets, liabilities, business and prospects, and
current industry, economic and market conditions; and
(v) the future cost savings and competitive advantages that will
inure to our benefit and the benefit of our continuing
Shareholders as a result of the eventual deregistration of our
Common Stock under the 1934 Act.
We appointed a Special Committee to engage an independent appraiser to
assist in evaluating the fairness of the Reverse Stock Split. The Special
Committee was composed of two outside directors, Lee Ray Olinger and Peter N.
Lalos, neither of whom would have continued to be Shareholders after the Reverse
Stock Split and Cash Repurchase Plan. The Special Committee and Goelzer
independently considered the fairness of the Reverse Stock Split to Shareholders
receiving only cash in lieu of the issuance of fractional Shares. The Special
Committee unanimously approved the Reverse Stock Split and recommended it for
consideration by the full Board.
After the Reverse Stock Split and Cash Repurchase Plan was aborted, the
Special Committee met and determined that an Exchange Offer was a viable
alternative even though it would not produce all of the results anticipated from
the Reverse Stock Split and Cash Repurchase Plan. The use of long-term
debentures solved the problem of obtaining financing from external sources and
the Committee determined that the added expense of servicing the Debentures was
within our means and did not outweigh the possible benefits to us from the
Exchange Offer.
The Special Committee determined that updating of the Goelzer valuation
report for the Exchange Offer would not be required because:
(1) the Goelzer report provided a valuation of the Company regardless
of whether the Reverse Stock Split was consummated;
(2) the Goelzer report was completed in August 1998, and Goelzer had
internal unaudited fiscal 1998 year end numbers which did not
vary materially from the numbers in the audited financial
statements recently filed as part of our annual report on Form
10-K, except that operating income was approximately $200,000
less than anticipated in the internal numbers (the Board took
this decrease into account when determining the fairness of the
Exchange Offer);
13
<PAGE>
(3) unlike the Reverse Stock Split, the Exchange Offer does not
require Shareholders to cash in their Shares; Shareholders, given
the facts, can make their own determination as to the fairness of
the Exchange Offer in determining whether or not to exchange
their Shares for Debentures.
The Company did not retain Goelzer or any other independent party to
estimate the current value of the Debentures or opine as to the fairness of the
Exchange Offer. The Company will carry the Debentures in its consolidated
financial statements at a discounted amount to represent their present value,
assuming a 22% effective yield. The effective yield of 22% is an estimate of the
interest rate that the Company would have to pay if it sought to borrow the
aggregate principal amount of the Debentures from other sources. This discounted
amount will represent approximately $6.20 per Debenture.
All of the members (including all of the non-employee members) of the
Company's Board of Directors approved the Exchange Offer. For all of the reasons
discussed above neither the Board of Directors nor the Special Committee deemed
it necessary to retain an unaffiliated representative to act solely on behalf of
unaffiliated Shareholders with regard to structuring the Exchange Offer. The two
members of the Special Committee have indicated that they will exchange their
Shares for Debentures only if at least 95% of the currently 963,307 issued and
outstanding Shares owned by non-affiliates are tendered and exchanged in the
Exchange Offering (see "Conduct of the Company's Business After the Exchange
Offer" below).
Factors Considered by the Board. Part of the Board's purpose in
engaging Goelzer was to obtain an independent estimate of the fair value of our
Common Stock on a going concern basis. The Board has given weight to the views
of Goelzer which are based, in part, on its discounted cash flow analysis,
market comparables analysis, payback analysis, benchmark or ratio analysis and
leveraged recapitalization analysis, all of which the Board believes are
probative of fair going concern value. See "Opinion of Goelzer."
In conjunction with the opinion of Goelzer, the Board gave considerable
weight to the current market prices of our stock, insofar as open market prices
are presumptively an accurate determination of the fair value of any stock. The
Board took into account the following (1998) market statistics provided by the
AMEX and PSEX:
AMEX
Trading Prices Share Volume
-------------------------------------------- ------------------
Approx.
Average
Month Open High Low Close Average Per Month Daily
- --------- ---- ---- --- ----- ------- --------- -------
January 2 9 1/4 1 13/16 8 13/16 $8.35 85,500 4,275
February 8 11/16 9 1/4 8 5/8 9 $8.96 59,200 3,116
March 9 9 8 8 $8.46 78,700 3,748
April 7 1/8 8 1/8 7 1/2 7 9/16 $7.68 31,200 1,560
May 7 5/8 8 7 1/2 7 3/4 $7.73 39,500 2,195
June 8 10 1/2 8 8 13/16 $9.66 185,100 8,814
July 8 13/16 9 1/16 8 3/8 8 3/8 $8.72 32,900 1,732
August 8 5/8 10 3/4 8 3/8 9 3/4 $9.71 107,000 5,095
September 9 5/8 10 9 5/8 9 13/16 $9.82 50,800 2,540
October 10 10 5 7/8 6 1/16 $7.62 105,500 6,205
November 6 1/16 8 1/8 5 7/8 7 7/16 $6.94 90,200 4,750
14
<PAGE>
PSEX
Trading Prices Share Volume
------------------------------------ ------------------
Approx.
Average
Month Open High Low Close Per Month Daily
- --------- ---- ---- --- ----- --------- -------
January 1 7/8 9 1/4 1 7/8 8 1/2 6,784 340
February 8 5/8 9 1/8 8 5/8 9 1/8 5,232 276
March 9 9 8 8 9,225 420
April 8 8 7 1/2 7 9/16 5,780 263
May 7 5/8 7 3/4 7 1/2 7 9/16 1,840 88
June 9 1/8 10 3/8 8 13/16 8 13/16 19,081 868
July 0 0 0 0 190 9
August 8 5/8 10 3/8 8 3/8 9 3/4 9,980 475
September 9 5/8 10 9 5/8 10 1,450 69
October 8 3/4 8 3/4 6 1/4 6 1/4 1,180 54
November 6 1/16 7 1/2 6 1/16 7 5/16 12,466 623
In addition, although we anticipate that our financial statements will
reflect that the Debentures have an estimated present value of $6.20, as
discounted, the Debentures provide for a 22% rate of return (12% rate of return
without discount) compared to the Shares which provide no current rate of
return. In this regard, the Company has never declared dividends on the Shares.
The Board gave no material weight in determining the fairness of the
transaction to the book value of Common Stock or the liquidation value of our
assets. Based on our audited balance sheet at July 31, 1998 and our unaudited
balance sheet at October 31, 1998, the book value of the Shares would be only
$4.16 and $4.31 per Share, respectively. The Board believes we are more valuable
as a going concern.
In addition to the factors enumerated by Goelzer, the Board considered
our business, our current business strategy and our prospects, and current
industry, economic and market conditions. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations." In addition, the
Board noted that, to its knowledge, none of our competitors are publicly held,
and that we suffer a competitive disadvantage from being required to disclose
certain information that privately held companies do not disclose. Furthermore,
there exists the threat of a hostile takeover while we are publicly traded. We
believe that the more Shares exchanged, the lesser the threat of a hostile
takeover.
Because of its expertise and independence, the Board has placed
particular weight on the Goelzer valuation report. However, after considering
the factors discussed above and, in particular, the historical market price and
illiquidity of the Shares in the public market place, management believes that
the terms of the Exchange Offer are fair to exchanging Shareholders.
Opinion of Goelzer
The Special Committee originally engaged Goelzer to determine a range
of fair value of the Common Stock, and, depending on the price determined by the
Board, to render an opinion on the fairness of the price to be paid to
liquidating Holders in the Reverse Stock Split and Cash Repurchase Plan. We
imposed no limitations on Goelzer with respect to the scope of its investigation
of us, the preparation of its valuation report or its opinion as to the fairness
of the amount of consideration to be paid to Shareholders in the Reverse Stock
Split. Goelzer has not been asked to determine the fairness of the Debentures as
consideration for the Common Stock in the Exchange Offer.
15
<PAGE>
In connection with rendering its fairness opinion and valuation report,
Goelzer conducted extensive due diligence which included the following
activities:
(i) Conducted detailed interviews with our management concerning our history
and operating record, the nature of the markets served, competitive
situation, financial condition, recent performance and current outlook;
(ii) Inspected our corporate offices and manufacturing facilities in Dale,
Indiana;
(iii)Analyzed trading data and market capitalization of our Common Stock for a
period of five years as provided by Bloomberg Analytics;
(iv) Analyzed our financial statements and studied our filings under the 1934
Act including the Form 10-K and annual reports for the five full fiscal
years ended July 31, 1997, as well as the latest available Form 10-Q for
the quarter ended April 30, 1998;
(v) Conducted a search using Bloomberg Analytics for publicly traded companies
which could be used as reasonable comparables in determining our fair
value. Goelzer searched for companies with similar operations and for
companies which are affected by similar economic variables, such as
furniture manufacturers;
(vi) Conducted a search for merger and acquisition transactions involving
privately held corporations within the woodworking, plastics manufacturing
and furniture manufacturing industries using a proprietary database
consisting of nearly 3,000 transactions;
(vii)Reviewed studies for both premiums paid in acquisitions of control as well
as studies on the lack of marketability for privately held and thinly
traded public securities;
(viii) Performed other studies, analyses and investigations as deemed
appropriate, including discounted cash flow analysis, market comparables
analysis, payback analysis, benchmark or ratio analysis and leveraged
recapitalization analysis, as outlined below.
The following discussion describes the methodologies utilized by
Goelzer and, where applicable, updates factual information relied upon by
Goelzer in its report and opinion.
Goelzer utilized a number of methodologies in determining a range of
fair value. First, Goelzer completed a discounted cash flow ("DCF") analysis of
us and then independently performed a market comparable analysis. The market
comparable analysis supported the results of the discounted cash flow analysis.
Goelzer also completed a payback analysis and a benchmark analysis in which
Goelzer scrutinized the various valuation multiples derived by the DCF analysis.
Goelzer is familiar with the multiples being paid for companies of a comparable
size with similar general characteristics to us since Goelzer has been engaged
in numerous merger and acquisition advisory roles over the last two years, as
well as dating back to 1969. Finally, Goelzer analyzed a leveraged
recapitalization scenario to ensure all options to the Shareholders were
considered.
The DCF analysis used projections deemed to be reasonable by us and
scrutinized by Goelzer. Revenue was projected to increase by 10% per year
through year 2004 and by 3% per year thereafter. Material, labor and other costs
of goods sold were projected to be 59% of revenue based on historical data.
Depreciation was calculated based on historical data and projected capital
expenditures. Operating expenses were estimated to increase by 9% per year, 10%
less than revenue growth has been historically. The effective tax rate was
projected at 39%. Based on our focus on keeping less work-in-process and
finished goods inventory and more raw materials inventory and reducing the time
period from purchase order to delivery, working capital assumptions included 30
days outstanding for receivables, 140 days of inventory and 36 days outstanding
for payables. Capital expenditures were estimated to be between $300,000 and
$400,000 annually. The discount factor used by Goelzer in its DCF analysis was
15.28%.
This analysis produced a point estimate of intrinsic value of $10.22
per Share. The $10.22 per Share point estimate of intrinsic value represents a
24% premium over fair market value per Share of $8.25 on August 7, 1998, the
date used by Goelzer in its DCF analysis. The high and low price for the Shares,
as reported on AMEX, on August 17, 1998, the last trading day before the
announcement of the Reverse Stock Split were both $8.25 as well. However, the
high and low price for the Shares, as reported on AMEX, on November 5, 1998, the
day prior to the announcement that the Company would be conducting this Exchange
Offer were $8.12 and $6.25. This represents a decrease in the high and low
prices for the Shares compared to prices as of August 7, 1998 of 1.6% and 24.2%,
respectively.
16
<PAGE>
As noted previously, Goelzer searched for reasonably comparable
publicly traded companies. Specifically, Goelzer searched for woodworking and
plastic tool companies and smaller wood furniture manufacturing companies. While
no single company was ideally comparable, the ultimate sample group of five
companies was sufficiently comparable to gain insight into how the public
markets were pricing small machinery and furniture manufacturing companies. The
five comparable companies were (i) Shopsmith, Inc., a manufacturer and marketer
of power woodworking tools primarily for the home workshop, (ii)
Devlieg-Bullard, Inc., a diversified industrial business specializing in
manufacturing tooling, servicing, upgrading, automating and re manufacturing
precision-engineered machine tools and power tools, (iii) DMI Furniture, Inc., a
manufacturer and marketer of residential and commercial office wood furniture,
(iv) Flexsteel Industries, Inc., a manufacturer and marketer of wood and
upholstered furniture for the recreational vehicle market, and (v) Pulaski
Furniture Corporation, a manufacturer of mahogany bedroom and dining room
furniture. The multiples analyzed by Goelzer in its comparison of us were price
earnings ("PE") and total invested capital to earnings before interest, taxes,
depreciation and amortization ("TIC/EBITDA"). Total invested capital is defined
as equity market capitalization plus negotiated third party debt. At $10.22 per
Share, the mean of the sample companies' PE ratio was within 5% of ours.
Furthermore, the mean of the sample companies' TIC/EBITDA ratio was within 3% of
ours at a price of $10.22 per Share.
Goelzer also found a direct correlation between market capitalization
and price multiples. In general, Goelzer found those companies with larger
market capitalizations to have higher price multiples. Goelzer believes this
correlation is at least partially due to liquidity factors.
As mentioned previously, Goelzer also conducted a search for reasonably
comparable transactions involving privately held companies. While numerous
transactions in industries similar to ours were examined, none were deemed to be
sufficiently comparable for a variety of reasons including lack of
profitability, lack of growth or dissimilar size.
To further verify the reasonableness of the DCF analysis, a cash flow
payback analysis was conducted. At a price of $10.22, a willing buyer could
expect to recoup his or her investment in approximately seven years. The
majority of investors who consider payback look for a return within five to
eight years, depending on the size of the company, the stability of historical
earnings and the amount of risk involved in the cash flow projections. All else
equal, the longer the payback, the higher the value. Considering our diversified
customer base, recent earnings growth and competitive position within our
markets, a payback at the upper end of this range is appropriate. A payback of
seven years further confirms the reasonableness of the DCF analysis.
In addition to the payback analysis, Goelzer conducted a benchmark
analysis, also known as a ratio analysis. Of the ratios included in the
benchmark analysis, Goelzer considers TIC/EBITDA to be the most appropriate
ratio for the purpose of comparison because it most accurately reflects
operating cash flow. In the majority of corporate equity transactions Goelzer
has encountered involving companies the size of us, the price of the transaction
before any minority or lack of marketability discount has occurred in the range
of 3.0x to 7.0x TIC/EBITDA. Our DCF analysis produced a TIC/EBITDA of 5.6x.
Again, considering our competitive position and recent growth, our TIC/EBITDA
should be in the middle to upper end of the benchmark range. At 5.6x, the
benchmark analysis further confirms the reasonableness of the DCF analysis.
A leveraged recapitalization scenario was also considered in an effort
to ensure all options to the Shareholders had been considered. In a leveraged
recapitalization, the Company would borrow heavily to pay the Shareholders a
special one-time dividend. After such a transaction, the Company would be much
riskier from a financial perspective than it was with a more conservative
capital structure. The point estimate of value for this scenario was $9.41 per
Share.
Finally, Goelzer was engaged to analyze us on a minority basis;
however, Goelzer studied control premiums paid in the public markets in an
effort to be completely thorough. Specifically, Goelzer relied on the most
recent study available, Control Premiums and Strategic Mergers by George P.
Roach. The article was published in the June 1998 Business Valuation Review. In
this study, the author studied 1446 mergers or acquisitions between January 1992
and November 1997. Specifically, he analyzed the control premium in relation to
the acquired company's stock price five days before the announcement of the
acquisition ("Five Day Premium") and thirty days before the premium ("Thirty Day
Premium"). The study also segmented the acquisitions by year and standard
industrial code. Overall, the median Thirty Day Premium for all transactions was
35.7% and the Five Day Premium median was 27.0%. In general, the Five Day
Premiums were smaller because news of the pending transaction became available
in the market. From an average trading price of $8.25, the five and thirty day
control premiums indicate a range of value for control of the Company's stock
between $10.65 and $11.20. The average trading price for the five day period
prior to November 5, 1998 was approximately $6.36, 23% less than the $8.25 price
used by Goelzer.
17
<PAGE>
In conclusion, all of the due diligence and all of the analysis and
methodologies supported $10.22 as a reasonable point estimate of intrinsic value
for our Common Stock on a minority basis. Goelzer did not assign relative
weights to the various analyses. Goelzer's valuation analysis indicated that a
price in excess of $10.22 per Share would constitute a fair price in the
contemplated Reverse Stock Split and Cash Repurchase Plan.
A copy of Goelzer's fairness opinion, dated September 2, 1998, is
included as Exhibit B to our Proxy Statement concerning the aborted Reverse
Stock Split filed with the SEC on October 9, 1998. A copy of Goelzer's valuation
report to our Board of Directors, dated August 20, 1998, has been filed as an
exhibit to our prior Schedule 13E-3 filed by us with the SEC on September 4,
1998. Copies will be made available for inspection and copying at our principal
executive offices during regular business hours by any interested Shareholder or
his or her representative who has been so designated in writing. The summary set
forth above does not purport to be a complete description of Goelzer's written
analysis.
For its services, including rendering its opinion, we paid a fee of
$28,000.
Neither Goelzer nor, to the best knowledge of Goelzer, any affiliate of
Goelzer has had any material relationship in the past five years with us or any
of our affiliates, nor is any material relationship contemplated.
Effect on Common Stock, Stock Options and Convertible Debentures
We have a Non-Qualified Stock Option Plan, an Incentive Stock Option
Plan and Convertible Debentures (convertible into Shares). Issuance of the
Debentures will have the following effects on the Holders of Shares and the
Holders of Shares issuable upon exercise of the options or conversion of the
Convertible Debentures:
- -- Lack of Public Information. We may terminate the registration of our Shares
under the 1934 Act. As a result of such termination, we will no longer be
required to file certain disclosure documents (e.g., proxy statements) with
the SEC. Although we will be required to continue to file certain reports
(annual, quarterly and current reports) until the number of Debenture
Holders drops below 300, less information will be available than if we
continued to have a class of securities registered under the 1934 Act.
Specifically, we would no longer be required to file proxy materials and
affiliates would no longer be required to file any individual reports.
- -- Lack of a Trading Market. We no longer will meet the requirements for
listing on the American Stock Exchange ("AMEX") or the Pacific Stock
Exchange ("PSEX") and we intend to delist our Shares. The termination of
our 1934 Act registration and our delisting from AMEX and PSEX will cause
the public trading market for the Company's stock to disappear.
- -- Ongoing Expenses Related to the Debentures. We will incur additional
expenses regardless of the number of Shareholders that remain after the
Exchange Offer. 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.
- -- Additional Debt With a Priority of Repayment Upon Liquidation. In the event
that we were to liquidate, the Holders of the Debentures would be entitled
to receive out of the proceeds of the liquidation, the principal and
accrued interest on the Debentures before Shareholders would receive
anything.
As part of this Exchange Offer, we will negotiate with each Holder of
our Qualified and Non-Qualified options (other than Kenneth and Linda Susnjara)
and offer him or her the right to exchange his or her options for Debentures.
The principal amount of Debentures issuable in exchange for the options will
equal $11.00 minus the per Share exercise price of the options, multiplied by
the number of Shares that would have been issuable upon exercise of the options.
See "Risk Factors - Possible Adverse Effects if You Remain a
Shareholder."
18
<PAGE>
Conduct of the Company's Business After the Exchange Offer
The Company expects its business and operations to continue as they are
currently being conducted and, except as disclosed below, the Exchange Offer is
not anticipated to have any effect upon the conduct of such business. All
persons exchanging their Common Shares will no longer have any equity interest
in, and will not be Shareholders of, the Company and therefore will not
participate in its future potential or earnings and growth.
Kenneth J. and Linda S. Susnjara, two of the Company's principal
Shareholders, do not intend to exchange their Shares or their Qualified and
Non-Qualified options and, accordingly, will continue to be Shareholders after
completion of the Exchange Offer. Pursuant to an arrangement with Mr. Susnjara,
Edgar Mulzer, the other principal Shareholder of the Company, and Peter N. Lalos
and Lee Ray Olinger, two Directors of the Company that own Shares, have agreed
that they will exchange all of their Shares for Debentures if at least 95% of
the approximately 963,307 currently issued and outstanding Shares owned by
non-affiliates are tendered and exchanged in the Exchange Offering. All of the
other Executive Officers intend to exchange their Shares and their options for
Debentures. The primary purpose for structuring the foregoing parameters is to
maximize the number of Shares owned by Kenneth and Linda Susnjara after the
Exchange Offer. If 95% of the Shares owned by non-affiliates and all of the
Shares owned by Messrs. Mulzer, Lalos and Olinger are exchanged, the Shares
owned by Kenneth and Linda Susnjara would represent approximately 84% of the
then issued and outstanding Shares.
Ultimately, the Company's plan is to become a privately held company.
To this end, if and when a sufficient number of Shares are exchanged to drop the
number of Shareholders below 300, the Company intends to terminate the
registration of the Shares under the 1934 Act and the Company's securities will
no longer be listed on AMEX or PSEX. In addition, because the Common Stock will
no longer be publicly held, the Company will be relieved of the obligation to
comply with the proxy rules of Regulation 14A under Section 14 of the 1934 Act,
and its officers and directors and Shareholders owning more than 10% of the
Common Stock will be relieved of the stock ownership reporting requirements and
"short swing" trading restrictions under Section 16 of the 1934 Act. However,
the Company will be required to continue to file certain reports (annual,
quarterly and periodic reports) under the 1934 Act until such time as the number
of Debenture Holders drops below 300. At that time, the Company will cease
filing information with the SEC ("Go Private"). Among other things, the effect
of this change will be a savings to the Company in not having to comply with the
requirements of the 1934 Act.
If and when the Company Goes Private, it expects that it will elect (if
it qualifies) to have special tax treatment as an S corporation under the
Internal Revenue Code of 1986 (the "Code"). In order to meet the requirements to
qualify as an S corporation, the Company would also need to dissolve its foreign
subsidiary, Thermwood (Europe) Limited, into the Company. If the Company elects
to be taxed as an S corporation, it expects that it will eliminate the payment
of income taxes on its earnings. However, the Company's earnings will be taxed
directly to its Shareholders whether or not such earnings are distributed. S
corporation election will also result in restrictions on the number and types of
persons to whom Shareholders can sell or transfer their Shares.
The Company has never declared a dividend. As an S corporation, the
Company anticipates that it will change its dividend policy. The Company would
declare annual cash dividends to its Shareholders in such amounts as the Board
of Directors of the Company determines to be appropriate which are expected to
be at least equal to the amount of taxes the Shareholders will be required to
pay on the Company's income.
Management has discussed establishing an employee bonus plan after it
Goes Private which would pay cash bonuses to officers, directors and key
employees in order to increase their incentive to work for the Company and to
attract and retain capable personnel. Management has not considered the details
of such a plan at this time and no written plan has been adopted. Payment of
cash bonuses would most likely affect the Company's earnings.
Finally, the Company anticipates that, after it Goes Private, it will
reduce the size of its Board of Directors, over time, to three directors.
Over the last several years, the Company has engaged in preliminary
discussions with various competitors regarding the prospect of a merger or
acquisition or entering into a joint venture or manufacturing arrangement. As
recently as August 1998, the Company was approached by a representative of an
investment banking firm representing a competitor who expressed an interest in
discussing a merger, acquisition or other business arrangement. All such
discussions were terminated at the preliminary stage and management does not
consider them material. Currently, management does not have an interest in any
such proposals. Although management is not currently in negotiations with
respect to any proposed merger or similar transaction, there is always a
possibility that the Company may enter into such an arrangement in the future
and the remaining Shareholders of the Company may receive payment for Shares in
any such merger or similar transaction greater than the current value of the
Debentures.
19
<PAGE>
Other than as described above, neither the Company nor its management
has any current plans or proposals to effect any extraordinary corporate
transaction, such as a merger, reorganization or liquidation; to sell or
transfer any material amount of its assets; to change its Board of Directors or
management; to change materially its indebtedness or capitalization; or
otherwise to effect any material change in its corporate structure or business.
Financial Effect of the Exchange Offer
The following pro forma financial information presents the effect on
the Company's 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.
The unaudited pro forma balance sheets are not necessarily indicative
of what the Company's financial position would have been if the Exchange Offer
had been effected on the dates indicated, or will be in the future. The
information shown in the unaudited pro forma statements of operations is not
necessarily indicative of the results of future operations.
20
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET - PRO FORMA (UNAUDITED)
July 31, 1998
(In thousands, except ratios and per share data)
Historical Adjustments Pro Forma
---------- ----------- ---------
ASSETS
Current assets $ 8,334 -- 8,334
Net property and equipment 2,647 -- 2,647
Other assets 343 200 (a) 543
------- ------ -------
Total assets $11,324 200 11,524
======= ====== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 3,009 200 (a) 3,209
Long-term liabilities 2,367 7,397 (b) 9,764
------- ------ -------
5,376 7,597 12,973
Shareholders' equity 5,948 (7,397)(c) (1,449)
------- ------ -------
Total liabilities and
shareholders' equity $11,324 200 11,524
======= ====== =======
Book value per share $ 4.16 (5.76)
Ratio of earnings to fixed charges 9.73 1.22
See "Explanation Of Pro Forma Adjustments" below.
21
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED CONDENSED BALANCE SHEET - PRO FORMA (UNAUDITED)
October 31, 1998
(In thousands, except ratios and per share data)
Historical Adjustments Pro Forma
---------- ----------- ---------
ASSETS
Current assets $ 9,118 - 9,118
Net property and equipment 2,626 - 2,626
Other assets 339 200 (a) 539
------- ------ ------
Total assets $12,083 200 12,283
======= ====== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities $ 3,550 200 (a) 3,750
Long-term liabilities 2,302 7,421 (b) 9,723
------- ------ ------
5,852 7,621 13,473
Shareholders' equity 6,231 (7,421)(c) (1,190)
------- ------ ------
Total liabilities and
Shareholders' equity $12,083 200 12,283
======= ====== ======
Book value per share $ 4.31 (4.55)
Ratio of earnings to fixed charges 8.03 .71
See "Explanation Of Pro Forma Adjustments" below.
22
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS - PRO FORMA (UNAUDITED)
For the year ended July 31, 1998
(In thousands, except per share data)
Historical Adjustments Pro Forma
---------- ----------- ---------
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 6,413 135 (d) 6,548
------- ------- -------
Operating income 2,429 (135) 2,294
------- ------- -------
Other income (expense):
Interest expense (232) (1,627)(e) (1,859)
Other (31) - (31)
------- ------- -------
Other expense, net (263) (1,627) (1,890)
------- ------- -------
Earnings before income taxes 2,166 (1,762) 404
Income taxes (848) 652 (f) (196)
------- ------- -------
Net earnings $ 1,318 (1,110) 208
======= ======= =======
Weighted average number of shares:
Basic 1,425 (1,180) 245 (g)
Diluted 1,517 (1,267) 249 (g)
Earnings per share:
Basic $ 0.89 .85
Diluted 0.86 .83
See "Explanation Of Pro Forma Adjustments" below.
23
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENT OF OPERATIONS - PRO FORMA (UNAUDITED)
For the three-months ended October 31, 1998
(In thousands, except per share data)
Historical Adjustments Pro Forma
---------- ----------- ---------
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 1,928 135 (d) 2,063
------- ------ ------
Operating income 461 (135) 326
------- ------ ------
Other income (expense):
Interest expense (57) (408) (e) (465)
Other 6 - 6
------- ------ ------
Other expense, net (51) (408) (459)
------- ------ ------
Earnings before income taxes 410 (543) (133)
Income taxes (192) 201 (f) 9
------- ------ ------
Net earnings 218 (342) (124)
======= ====== ======
Weighted average number of shares:
Basic 1,441 (1,183) 258 (g)
Diluted 1,481 (1,219) 262 (g)
Earnings per share:
Basic $ 0.15 (.48)
Diluted 0.15 (.48)
See "Explanation Of Pro Forma Adjustments" below.
24
<PAGE>
EXPLANATION OF PRO FORMA ADJUSTMENTS
(Unaudited)
(Dollars in thousands, except share and per share data)
(a) Increase in other assets and current liabilities relating to solicitation
agent, accounting and legal fees ($200,000) 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, and determined as follows:
October 31, 1998 July 31, 1998
---------------- -------------
Debenture issued:
In settlement of stock options $ 240 $ 240
Upon conversion of bonds payable 132 212
Upon exchange of outstanding common shares 12,980 12,941
------- -------
13,352 13,393
Reduction in bonds payable upon conversion
to common shares (106) (171)
------- -------
13,246 13,222
Less:discount (5,825) (5,825)
------- -------
$ 7,421 $ 7,397
======= =======
(c) Decrease in shareholders' equity as a result of exchange of Common Stock
for Debentures and settlement of stock options.
(d) Increase in compensation expense as a result of the issuance of Debentures
in settlement of the options to purchase 40,600 shares of Common Stock
under the Incentive Stock Option Plan at an average exercise price of
$7.748 per share and options to purchase 20,000 shares of Common Stock
under the Non-qualified Stock Option Plan at an exercise price of $5.625
per share. The increase in compensation expense represents the excess of
the $6.20 discounted value per Debenture over the exercise price of the
option being settled.
(e) 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%.
(f) Decrease in income taxes (37% effective rate) based on pro forma
adjustments to earnings before income taxes.
(g) Total weighted average number of shares (in thousands) utilized in
calculating historical and pro forma earnings per share were determined as
follows:
25
<PAGE>
<TABLE>
<CAPTION>
Year ended July 31, 1998 Three-months ended October 31, 1998
------------------------------------------ ----------------------------------------
Historical Pro Forma Historical Pro Forma
------------------- ---------------- ---------------- ----------------
Basic Diluted Basic Diluted Basic Diluted Basic Diluted
------ ------- ----- ------- ----- ------- ----- -------
Weighted average shares:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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 - - (1,180) (1,180) - - (1,183) (1,183)
------ ------ ------ ------ ------ ------ ------ ------
Adjusted 1,425 1,425 245 245 1,441 1,441 258 258
Incremental shares from assumed:
Exercise of dilutive
stock options - 56 - 4 - 17 - 4
Conversion of convertible bonds - 36 - - - 23 - -
------ ------ ------ ------ ------ ------ ------ ------
Total weighted average shares 1,425 1,517 245 249 1,441 1,481 258 262
====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
26
<PAGE>
EXCHANGE OFFER
Terms Of The Exchange Offer
The terms and the conditions of the Exchange Offer are set forth in
this Prospectus and in the Letter of Transmittal. Pursuant to these terms and
conditions, we will accept any and all Shares validly tendered and not withdrawn
prior to 5:00 P.M., New York City time, on the Expiration Date. As of the date
of this Prospectus, there were 1,444,709 Shares issued and outstanding. We will
issue to each tendering Shareholder one Debenture in the principal amount at
maturity equal to $11.00 times the number of Shares tendered by such Shareholder
and accepted by us. Holders may tender some or all of their Shares pursuant to
the Exchange Offer.
The terms of the Debentures are described below in "Description of The
Debentures And The Indenture."
Holders of the Shares do not have any appraisal or dissenters' rights
under Indiana law or the Indenture (the agreement between the Company 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.
The Company intends to conduct the Exchange Offer in accordance with
the applicable requirements of the 1934 Act and the rules and regulations of the
SEC.
All Shares received by the Company in the Exchange Offer will be
retired and returned to the status of authorized but unissued shares.
We will have accepted validly tendered Shares when we have given oral
(promptly confirmed in writing) or written acceptance notice to the Exchange
Agent. The Exchange Agent will act as agent for the tendering Holders for the
purpose of receiving the Debentures from the Company.
If any tendered Shares are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Shares will be returned, without
expense, to the tendering Holder as promptly as practicable after the Expiration
Date.
Holders who tender Shares in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Shares pursuant
to the Exchange Offer. The Company will pay all charges and expenses, other than
certain applicable taxes, in connection with the Exchange Offer. See "-- Fees
and Expenses."
Expiration Date; Extensions; Amendments
The term "Expiration Date" means 5:00 P.M., New York City time, on
____________ __, 1999, unless we, in our sole discretion, extend the Exchange
Offer. If we extend the Exchange Offer, the term "Expiration Date" will mean the
latest date and time to which the Exchange Offer is extended.
To extend the Exchange Offer, we will notify the Exchange Agent of any
extension by oral (promptly confirmed in writing) or written notice and we will
make a public announcement of the extension prior to 9:00 a.m., New York City
time, on the next business day after the previously scheduled expiration date
unless otherwise required by applicable law or regulation.
We reserve the right, in our reasonable discretion:
(i) to delay accepting any Shares, to extend the Exchange Offer or,
if any of the conditions set forth below under "Conditions"
exist, to terminate the Exchange Offer, by giving oral or written
notice of such delay, extension or termination to the Exchange
Agent, or
(ii) to amend the terms of the Exchange Offer in any manner.
27
<PAGE>
Any such delay in acceptance, extension, termination or amendment will
be followed as promptly as practicable by a public announcement thereof. If we
amend the Exchange Offer in a manner that we believe constitutes a material
change, we will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered holders, and we will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner of disclosure to the
registered Holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Without limiting the manner in which we may choose to make a public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, we shall have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by making a timely release
to 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 of Shares must complete, sign and date
the Letter of Transmittal, or a facsimile thereof, have the signatures thereon
guaranteed if required by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such facsimile, together with the Shares
(or a confirmation of an appropriate book-entry transfer into the Exchange
Agent's account at DTC as described below) and any other required documents, to
the Exchange Agent prior to 5:00 P.M., New York City time, on the Expiration
Date. To be tendered effectively, the Shares (or a timely confirmation of a
book-entry transfer of such Shares into the Exchange Agent's account at DTC as
described below), Letter of Transmittal and other required documents must be
received by the Exchange Agent at the address set forth below under "Exchange
Agent" prior to 5:00 P.M., New York City time, on the Expiration Date. The
tender by a Holder will constitute an agreement between such Holder and us in
accordance with the terms and subject to the conditions set forth in this
Prospectus and in the Letter of Transmittal.
Book-Entry Transfers. The Exchange Agent has established an account
with respect to the Shares at DTC, and any financial institution which is a
participant in DTC may make book-entry delivery of the Shares by causing DTC to
transfer such Shares into the Exchange Agent's account in accordance with DTC's
procedure for such transfer. Although delivery of Shares may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or manually-signed facsimile thereof), properly completed and
validly executed with any required signature guarantees, or an Agent's Message
in lieu of the Letter of Transmittal, and any other required documents, must in
any case be transmitted to and received by 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," or the guaranteed delivery procedure
described below must be complied with. The confirmation of book-entry transfer
of Shares into the Exchange Agent's Account at DTC as described above is
referred to herein as a "Book-Entry Confirmation." Delivery of documents to DTC
in accordance with its procedures does not constitute delivery to the Exchange
Agent. All references in this Prospectus to deposit or delivery of Shares shall
be deemed to include DTC's book-entry delivery method.
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Exchange Agent and forming a part of a Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering Shares stating (i) the aggregate number of Shares
which have been tendered by such participant, (ii) that such participant has
received and agrees to be bound by the terms of the Letter of Transmittal and
(iii) that the Company may enforce such agreement against the participant.
THE METHOD OF DELIVERY OF SHARES AND THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT, INCLUDING DELIVERY THROUGH DTC,
IS AT THE ELECTION AND RISK OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS
RECOMMENDED THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IF SHARES
ARE SENT BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO LETTER OF
TRANSMITTAL OR SHARES SHOULD BE SENT TO THE COMPANY.
Holders may request their respective brokers, dealers, commercial
banks, trust companies or nominees to effect the above transactions for such
Holders.
28
<PAGE>
Any beneficial owner whose Shares are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Holder promptly and instruct such
registered Holder to tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's own behalf, such owner must,
prior to completing and executing the Letter of Transmittal and delivering such
owner's Shares, either make appropriate arrangements to register ownership of
the Shares in such owner's name or obtain a properly completed stock power from
the registered Holder. The transfer of registered ownership may take
considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Shares tendered pursuant thereto are tendered :
(i) by a registered Holder who has not completed the box entitled
"Special Issuance Instructions" or "Special Delivery
Instructions" on the Letter of Transmittal; or
(ii) for the account of an Eligible Institution.
In the event that signatures on a Letter of Transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the 1934 Act (an
"Eligible Institution").
If the Letter of Transmittal, any Stock powers or other document
required by the Letter of Transmittal 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 to so act must be submitted with
the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Shares will be determined by us
in our sole discretion, which determination will be final and binding. We
reserve the absolute right to reject any and all 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. Unless waived, any
defects or irregularities in connection with tenders of Shares must be cured
within such time as we shall determine. 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. 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 Holders (or, in the case of Shares delivered
by book-entry transfer within DTC, will be credited to the account maintained
within DTC by the participant in DTC which delivered such Shares), 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 purchase or
make offers for any Shares that remain outstanding subsequent to the Expiration
Date or, as set forth below under "Conditions," to terminate the Exchange Offer
and, 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.
Procedure For Option Holders. Holders of the Company's outstanding
options (other than Kenneth and Linda Susnjara) who choose to exchange their
options for Debentures must complete, sign and date the Option Holder Letter of
Transmittal, or a facsimile thereof and mail or otherwise deliver such Letter of
Transmittal or such facsimile, together with the Options and any other required
documents, to the Exchange Agent prior to 5:00 P.M., New York City time, on the
Expiration Date. To be tendered effectively, the Options Letter of Transmittal
and other required documents must be received by the Exchange Agent at the
address set forth below under "Exchange Agent" prior to 5:00 P.M., New York City
time, on the Expiration Date. The tender by an Option Holder will constitute an
agreement between such Holder and us in accordance with the terms and subject to
the conditions set forth in this Prospectus and in the Option Holder Letter of
Transmittal.
29
<PAGE>
Acceptance of Shares; Delivery of Debentures
Upon satisfaction or waiver of all the conditions to the Exchange
Offer, the Company will, promptly after the Expiration Date, accept all Shares
properly tendered and will promptly thereafter issue the Debentures. See
"--Conditions." For purposes of the Exchange Offer, the Company shall be deemed
to have accepted the Shares tendered for exchange when, as and it the Company
has given oral or written notice thereof the Exchange Agent, with written
confirmation of any oral notice to be given promptly thereafter. The Exchange
Agent will act as agent for the tendering Holders of the Shares for the purposes
of receiving the Debentures from the Company and delivering them to such
Holders.
Guaranteed Delivery Procedures
Holders who wish to tender their Shares and:
(i) whose Shares are not immediately available; or
(ii) who cannot deliver their Shares (or a confirmation of book-entry
transfer of Shares into the Exchange Agent's account at DTC), the
Letter of Transmittal or any other required documents to the
Exchange Agent prior to the Expiration Date; or
(iii)who cannot complete the procedure for book-entry transfer on a
timely basis, may effect a tender if:
(a) the tender is made by or through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives
from such Eligible Institution a properly completed and duly
executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery) setting forth the name
and address of the Holder of such Shares and the principal
amount of Shares tendered, stating that the tender is being
made thereby and guaranteeing that, within three AMEX
trading days after the Expiration Date, a duly executed
Letter of Transmittal (or facsimile thereof) together with
the Shares (or a confirmation of book-entry transfer of such
Shares into the Exchange Agent's account at DTC), and any
other documents required by the Letter of Transmittal and
the instructions thereto, will be deposited by such Eligible
Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal
(or facsimile thereof), and all tendered Shares in proper
form for transfer (or a confirmation of book-entry transfer
of such Shares into the Exchange Agent's account at DTC) 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 the
guaranteed delivery procedures set forth above.
Withdrawal Of Tenders
Except as otherwise provided herein, tenders of Shares may be withdrawn
at any time prior to 5:00 P.M., New York City time, on the Expiration Date.
To withdraw a tender of Shares in the Exchange Offer, the Exchange
Agent must receive a written or facsimile transmission notice of withdrawal at
its address set forth herein prior to 5:00 P.M.. New York City time, on the
Expiration Date. Any such notice of withdrawal must:
(i) specify the name of the person having deposited the Shares to be
withdrawn (the "Depositor");
30
<PAGE>
(ii) identify the Shares to be withdrawn (including the certificate
number or numbers and principal amount of such Shares);
(iii)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 with respect to the Shares register
the transfer of such Shares into the name of the person
withdrawing the tender; and
(iv) 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
DTC to be credited with the withdrawn Shares.
All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding on all parties. Any
Shares so withdrawn will be deemed not to have been validly tendered for
purposes of the Exchange Offer and no Debentures will be issued with respect
thereto unless the Shares so withdrawn are validly retendered. Properly
withdrawn Shares may be retendered by following one of the procedures described
above under "-- Procedures for Tendering" at any time prior to the Expiration
Date.
Any Shares which are tendered but which are not accepted due to
withdrawal, rejection of tender or termination of the Exchange Offer will be
returned as soon as practicable to the Holder thereof without cost to such
Holder (or, in the case of Shares tendered by book-entry transfer into the
Exchange Agent's account at the Book-Entry Transfer Facility pursuant to the
book-entry transfer procedures described above, such Shares will be credited to
an account maintained with such Book-Entry Transfer Facility for the Shares).
Conditions
Notwithstanding any other term of the Exchange Offer, the Company shall
not be required to accept for exchange, or exchange Debentures for, any Shares,
and may terminate the Exchange Offer as provided herein before the acceptance of
such Shares, if:
(a) any action or proceeding is instituted or threatened in any court or by or
before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Company, might materially impair the ability
of the Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company, or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of its subsidiaries has
occurred which, in the reasonable judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in the reasonable judgment of the Company, might materially impair
the ability of the Company to proceed with the Exchange Offer or materially
impair the contemplated benefits of the Exchange Offer to the Company; or
(d) there shall have occurred (i) any general suspension of trading in, or
general limitation on prices for, securities on the AMEX, (ii) 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 the
Company or (iii) 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
(e) any governmental approval has not been obtained, which approval the Company
shall in its reasonable judgment deem necessary, for the consummation of
the Exchange Offer as contemplated hereby.
31
<PAGE>
The foregoing conditions are for the sole benefit of the Company and
may be asserted by the Company regardless of the circumstances giving rise to
any such condition or may be waived by the Company in whole or in part at any
time and from time to time in its reasonable discretion. The failure by the
Company at any time to exercise any of the foregoing rights shall not be deemed
a waiver of 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 the Company determines in its sole reasonable judgment that any of
the conditions are not satisfied, the Company may:
(i) refuse to accept any Shares and return all tendered Shares to the
tendering Holders thereof (or, in the case of Shares delivered by
book-entry transfer within DTC, credit such Shares to the account
maintained within DTC by the participant in DTC which delivered
such Shares);
(ii) 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
(iii)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,
the Company will promptly disclose such waiver by means of a prospectus
supplement that will be distributed to the registered Holders of its Common
Stock, and the Company 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 has been appointed as
Exchange Agent for the Exchange Offer. All executed Letters of Transmittal and
Notices of Guaranteed Delivery should be directed to the Exchange Agent at the
address set forth below. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed 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.
Fees And Expenses
The Company will bear the expenses of soliciting tenders. The principal
solicitation is being made by Dirks, the Solicitation Agent. 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 other than Debentures issued to
Shareholders whose total holdings are more than 10% of the Company's outstanding
Common Stock.
32
<PAGE>
The Company also will pay the Exchange Agent reasonable and customary
fees for services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith.
The Company will pay the cash expenses to be incurred in connection
with the Exchange Offer. Such expenses include brokerage (solicitation)
commissions, fees and expenses of the Exchange Agent and Trustee, accounting and
legal fees and printing costs, among others.
The Company will pay all transfer taxes, if any, applicable to the
exchange of Shares pursuant to the Exchange Offer. If, however, Debentures or
Shares for principal amounts not tendered or accepted for exchange are to be
registered, or are to be issued in the name of, or delivered to, any person
other than the registered Holder, or if tendered Shares are registered in the
name of any person other than the person signing the Letter of Transmittal, or
if a transfer tax is imposed for any reason other than the exchange of Shares
pursuant to the Exchange Offer, then the amount of any such 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 with the Letter of Transmittal, the amount
of such transfer taxes will be billed directly to such tendering Holder.
The Company estimates that it will incur the following costs in
connection with the Exchange Offer:
Filing fees $ ______
Legal fees ______
Accounting fees ______
Transfer and exchange agent fees ______
Trustee fees ______
Fees for valuation ______
Printing and mailing costs ______
Exchange solicitation costs ______
Total $ ______
Final costs of the transaction may be more or less than these
estimates. The Company plans to fund these costs from its cash reserves, cash
from operations and its line of credit. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources." -
Accounting Treatment
The Debentures will be recorded 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. The costs incurred in connection with the
issuance of the Debentures will be amortized over the term of the Debentures.
33
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following table summarizes certain historical consolidated
financial data which has been derived from the Company's 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 the Company's 1-for-5 reverse
stock split which took effect on January 5, 1998. For additional information,
see "Consolidated Financial Statements of the Company," commencing on page F-1.
The pro forma financial information illustrates the effect of: (i) the exchange
of Shares for Debentures; (ii) settlement of certain outstanding options; and
(iii) exchange of Shares issuable upon conversion of convertible debentures
outstanding, as if these events 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 "Special Factors -- Financial Effect
of the Exchange Offer."
<TABLE>
<CAPTION>
Selected Statement of Quarter ended October 31, Fiscal Year Ended July 31,
Operations Data: -------------------------- ----------------------------------------------------------
(in thousands except Proforma Proforma
per share date) 1998 1998 1997 1998 1998 1997 1996 1995 1994
------- ------ ------- -------- -------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Sales, less commissions $ 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
Eamings before income taxes (133) 410 558 404 2,166 2,055 1,174 1,140 136
Earnings from continuing
operations (124) 218 355 208 1,318 1,236 2,334 2,350 136
Net earnings (124) 218 355 208 1,318 1,236 2,334 2,350 208
Earnings before interest
income taxes, deprecation
and amortization $ 437 $ 572 $ 688 $ 2,631 $ 2,766 $ 2,469 $ 1,589 $ 2,022 $ 922
======= ====== ======= ======== ======== ======= ======= ======= ======
Earnings per share:
Basic $ (0.48) $ 0.15 $ 0.22 $ 0.85 $ 0.89 $ 0.70 $ 1.63 $ 1.92 $ ---
Diluted $ (0.48) $ 0.15 0.21 $ 0.83 $ 0.68 $ 0.69 $ 1.45 $ 1.49 $ ---
======= ====== ======= ======== ======== ======= ======= ======= ======
Weighted average number
of shares:
Basic 258 1,441 1,409 245 1,425 1,349 1,231 1,030 1,030
Diluted 262 1,481 1,535 249 1,517 1,446 1,437 1,451 1,030
Cash dividends declared
per common share --- --- --- --- --- --- --- --- ---
October 31, July 31,
Selected Balance Sheet Data: -------------------------- ----------------------------------------------------------
(in thousands except Proforma Proforma
per share date) 1998 1998 1997 1998 1998 1997 1996 1995 1994
------- ------- ------- -------- -------- ------- ------- ------- ------
Total assets $12,283 $12,083 $11,434 $ 11,524 $ 11,325 $11,273 $ 8,766 $ 7,527 $5,418
Working capital 5,368 5,568 5,454 5,125 5,324 5,080 3,791 2,811 1,706
Long-term obligations 9,723 2,302 2,750 9,764 2,367 285 709 1,870 1,862
Shareholders' equity (deficit) (1,190) 6,231 4,950 (1,449) 5,948 7,087 6,275 3,437 1,456
Book value per share $ (4.55) $ 4.31 $ 3.49 $ (5.76) $ 4.16 $ 5.06 $ 4.80 $ 3.37 $ 1.41
Ratio of eamings to
fixed charges 0.71 8.03 20.61 1.22 10.16 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."
34
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following information is intended to assist you in understanding
and evaluating the financial condition and results of operations of the Company
for the years ended July 31, 1998 and 1997, and the three month periods ended
October 31, 1998 and 1997. The information in this section should be read in
conjunction with the Company's Consolidated Financial Statements and the
accompanying Notes thereto and the "Selected Consolidated Financial Data."
Results of Operation
Quarter ended October 31, 1998 Compared to Quarter ended October 31, 1997
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. This increase was due primarily to increased
orders and shipments of product. Cost of sales as a percentage of net sales was
57.52%, approximately the same as for the quarter ended October 31, 1997.
Research and development, marketing, administrative and general
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, administrative and general expenses were 34% of net sales for the
quarter ended October 31, 1998 compared to 31% for the same period of fiscal
1998. Expenses for the first quarter of fiscal 1999 were at a higher level as a
percentage of sales as a result of increased European expenses, marketing
expenses and salary increases. Legal and professional fees were also higher due
to the attempted reverse stock split.
Interest expense in the first quarter of fiscal year 1999 was $56,921,
an increase of approximately $31,000 from the first quarter of fiscal 1998. This
increase in interest expense is due to interest on a $2,500,000 loan which was
entered into by the Company in October 1997.
Earnings from continuing operations before income taxes in the first
quarter of fiscal year 1999 were $410,721 compared to $557,665 in the first
quarter of fiscal year 1998, or 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 first quarter of fiscal 1998.
Fiscal Year ended July 31, 1998 Compared to Fiscal Year ended July 31, 1997
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 1998 (the first full year of European operations) were $1,734,716 or
approximately 8% of total gross sales. Machine sales consisted of $20,199,191 or
81% of total gross sales. Technical services were $4,657,784, or 19% of total
gross sales. Backlog decreased from $4,080,000 at July 31, 1997 to $3,029,000 at
July 31, 1998. Management attributes the decreased level of orders at July 31,
1998 to a slowdown in capital purchasing because of a slower economy. Also,
traditionally sales are slower before the International Woodworking Fair, a
furniture industry trade show, which was held in August 1998.
Gross profit for fiscal year 1998 was $8,841,623. The percentage of
current year gross profit to net sales increased from 38.84% in fiscal year 1997
to 40.48% in fiscal year 1998. Gross profit for the European operations for
fiscal year 1998 was $695,121 compared to $374,021 for fiscal 1997. The
percentage of current year gross European profit to net sales increased from
36.12% in fiscal year 1997 to 40.07% 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 the Company. 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.
35
<PAGE>
Research and development, marketing, administrative and general
expenses were $6,413,160 in fiscal year 1998, compared to $4,794,563 in fiscal
year 1997. Research and development expenditures aggregating $314,000 in fiscal
year1998 compared to $216,000 in fiscal year 1997 are included in the foregoing
amounts. The major portion of the increased research and development, marketing
and administrative and general expenses from 1997 to 1998 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 1998 compared to $570,000, or
approximately 12% of total expenses in fiscal year 1997. A portion of the
increased European expense was approximately $100,000 due to the operations of
an office in Vienna which management closed in September 1998. An approximate
$650,000 increase in wages and benefits (due to additional personnel and salary
increases) and an approximate $300,000 increase in advertising and marketing
efforts also contributed to the higher level of expenses.
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 a bank. The Company used a major portion of the proceeds from this
line of credit to repurchase Preferred Stock in the amount of $2,546,320.
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
The Company has income tax net operating loss carryforwards of
approximately $529,000, which expire in the years 2008 and 2009. It also has
other tax credits of lesser value which appear in Note I of Notes to Financial
Statements.
Liquidity and Capital Resources
At October 31, 1998 the Company's 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.
The Company 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, the Company had positive cash flow of $149,981. Net
earnings of $218,695 plus depreciation and amortization of $103,570 contributed
to the positive cash flow for the quarter. Cash used by operating activities
during this quarter increased by $373,098 in accounts receivable and $271,803 in
inventories.
During the 1998 fiscal year, the Company's 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. Management
anticipates 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 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.
36
<PAGE>
During fiscal 1998, cash flows from financing activities included
$43,255 for dividend payments on Preferred Stock and redemption of $2,546,320 of
Preferred Stock. A line of credit in the amount of $3,500,000 was established at
a bank (see below). At July 31, 1998 and October 31, 1998, approximately
$2,196,320 had been utilized primarily for the redemption of the Preferred
Stock.
The Company has a one-year $3,500,000 revolving secured line of credit
(the "line") with DuBois County Bank that expired in October 1998, but has been
extended through January 1, 2002. The outstanding balance on the 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, 2002. Management anticipates, but cannot assure, that, at
the end of the term, the Company and Bank will enter into a new line and
transfer any outstanding loan balance to the new line. The line is secured by
the Company's assets. In the event of a default, as defined in the line, the
Bank has the right to accelerate payments under the line and possess and sell
the collateral. Events of default under the line include: (i) failure of the
Company to make any payments under the line when due; (ii) failure of the
Company to comply with conditions in the line; (iii) false or misleading
representations by the Company in the line; (iv) the insolvency of the Company
or certain other events related to insolvency or bankruptcy; and (v) materially
adverse changes in the Company's financial condition. As of November 30, 1998,
the Company's outstanding principal balance under the line was approximately
$2,196,320.
Effects of the Exchange Offer
Assuming Shareholders exchange 1,183,309 Shares for approximately
$13,016,400 aggregate principal amount of Debentures, the Company exchanges
60,600 of its outstanding options for approximately $239,539 aggregate principal
amount of Debentures and Holders of the Company's existing convertible
debentures convert their debentures into 22,600 Shares and then exchange these
Shares for approximately $233,550 aggregate principal amount of Debentures, on a
pro forma basis as of October 31, 1998, the Company would realize increases in
current and long-term liabilities of approximately $200,000 and $7,421,000,
respectively, due to the increase in interest expense resulting from the
issuance of the Debentures, using 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 $7,313,000 and the per share book value would decrease from $4.31
per share to approximately $(4.14) per share. Interest expense for the quarter
ended October 31, 1998 would increase by approximately $402,000 and net earnings
would decrease by approximately $261,000.
Recent Accounting Pronouncements
In June of 1997, the Financial Accounting Standards Board (FASB) issued
Statements of Financial Accounting Standards, No. 130, Reporting Comprehensive
Income, (FAS 130), and No. 131, Disclosures About Segments of an Enterprise and
Related Information, (FAS 131), 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, (FAS 132), 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, the Company adopted FAS 130, FAS 131 and FAS 132;
however, the adoption has not had a material effect on the consolidated
financial statements.
Year 2000 Issues.
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.
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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, 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.
We know of one mission-critical system, the inventory shop floor
control software, that is not Year 2000 compliant. 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 the second quarter of fiscal 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 upgrade by the end of the
second quarter of fiscal 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 current software vendors would be unable to deliver upgrades, At that point,
we would look to alternative vendors. We have not established a formal
contingency plan should we fail to become Year 2000 compliant. We will continue,
however, to evaluate our status and will plan additional activity as it appears
warranted.
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BUSINESS
General
The Company manufactures computer-based systems and equipment for the
woodworking and plastics industries. It has developed and produces, markets and
services the following systems and equipment: (i) computer-controlled (CNC)
routing machines that perform high speed machining, trimming and routing
functions on wood, plastic and certain non-ferrous metals; (ii) wood carving
computer controlled routing systems; and (iii) products that support the above
machines including programming software and hardware, training tapes, tooling,
fixtures and other consumable items.
The Company's industrial products perform certain production functions
or automate specific tasks accomplished in factories. These products are used in
a variety of manufacturing operations. For instance, the CNC 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 the Company, 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
CNC Routers
The Company's CNC Routers are high-speed computer controlled, fully
automatic machining centers. These centers are designed to perform a variety of
tasks such as routing and shaping wood parts, trimming of three dimensional
plastic parts, machining of aluminum honeycomb, drilling and high speed
machining of aluminum both vertically and horizontally, mortising (i.e., cutting
square holes in furniture), and sawing and squaring (i.e., 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.
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These systems utilize the Company's 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 the Company markets six standard CNC 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 CNC 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 CNC router systems were
approximately 79% of total sales of the Company in fiscal year 1998.
Robotics Systems
During fiscal year 1996 the Company 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 machine sales for the 1998 fiscal
year.
Probe
During year ended July 31, 1996 the Company introduced a new five-axis
probe system which significantly reduces the time required to program machining
of three-dimensional plastic parts. The Company has obtained patents involving
the technology underlying this new probe system. This product is also being
offered for use on machines built by the Company's competitors, provided their
control system is upgraded to the Company's 91000 SuperControl. The probe sells
for approximately $15,000.
Tooling
During fiscal year 1997 the Company introduced new tooling for its
woodworking line of CNC 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 in fiscal year 1998 were approximately $570,000. Management
hopes that these new offerings will allow the Company machines to penetrate new
markets, however, no assurance to this effect can be given.
SuperControl Systems
The Company designs and manufactures its own CNC systems that it uses
for sale with its own automated industrial equipment. It currently manufactures
version 91000 of the SuperControl CNC system. The SuperControl CNC system
operates the various movements of the equipment in response to programs
developed by the operator.
Marketing
The market for CNC routers can be divided into a large number of
applications in a variety of industries. The Company seeks to produce industrial
products that address specific applications in a variety of industries. It also
attempts 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.
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The Company's systems are currently designed to operate at higher
quality and reliability levels than earlier versions of these products. In
addition, the Company strives to support these systems with improved technical
services and assistance. Although the Company's marketing strategy has involved
emphasis on small to medium-sized companies, the Company has also received
orders from larger companies.
The Company generally sells its products through the assistance of
dealer networks established throughout North America and Europe. Dealers assist
the Company in making sales and are paid on a commission basis for this service.
Commissions generally range from 15% to 20% of the Company's published retail
prices. As of November 30 31, 1998 the Company had 14 authorized dealers
marketing its industrial products. The Company usually requires 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 the
Company's product lines. However, some market and sell products to more than one
industry and sell both the CNC router systems and the Company's line of Wood
Carving Routers.
One dealer, Automation Associates Incorporated, accounted for
approximately 21% of the Company's sales for the fiscal year ended July 31,
1998. See "Certain Transactions" for information relating to the Company's
agreement with Automation Associates Incorporated, a corporation owned by the
Company's president and his wife who is also an officer and director. This
dealer sold to 39 different customers, none of which accounted for 10% or more
of the Company's sales in the fiscal year ended July 31, 1998. Automation
Associates Incorporated sold to seven customers for a total of 13% of the
Company's sales during the first quarter of fiscal 1999.
One other dealer, CNC Automation, accounted for approximately 11% of
the Company's business during the 1998 fiscal year. This dealer sold to 19
different customers, none of which accounted for 10% or more of the Company's
sales in the fiscal year ended July 31, 1998. No other dealer accounted for 10%
or more of the Company's business for the fiscal year. The loss of any large
dealer could have a materially adverse effect on the Company's business. Three
dealers accounted for more than 10% each of the Company's sales during the
quarter ended October 31, 1998. CNC Automation accounted for 15% of the
Company's business during this quarter while Index, Inc. and Programmed
Productivity, Inc. each accounted for 16% of the Company's sales. CNC sold seven
machines, Index sold five and PPI sold eight machines during this time.
The Company has a wholly-owned subsidiary, Carolina CNC, Inc., a North
Carolina corporation, which conducts sales in the southeastern region of the
United States.
The Company also has a wholly-owned subsidiary, Thermwood (Europe)
Limited, a United Kingdom company, which operates a sales offices in England for
conducting sales to the European Community. During the 1998 fiscal year, the
Company had an operating loss of $356,644 in connection with its European
operations. Neither of the foreign sales offices generated a profit. The Company
had an office in Vienna which it closed in September 1998. Sales of machines and
services in fiscal year 1998 were approximately $1,735,000, or 8% of total
sales.
Typically, the Company seeks to develop sales leads through advertising
in trade magazines and product exhibitions at selected trade shows. The Company
then furnishes such leads to dealers in the geographic area where the potential
customer is located. It also supplies 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. The Company assists its dealers by providing
training for them and their customers. The Company encourages trainees and
potential customers to visit its manufacturing facilities where it maintains
areas and machinery to demonstrate the operation and use of its products.
Technical Services
Management believes that providing extensive and ongoing technical
services to customers is essential for the success of small and medium-sized
companies. Accordingly, the Company offers a variety of technical services
through its 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 the Company's 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 the Company's equipment.
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The Technical Services Division offers customers an Advanced Support
Program for the Company's CNC routers. Under this program, in exchange for a
monthly fee, customers receive an ongoing labor warranty (customer pays travel
and expenses), a 20% discount on spare parts and upgrades, an ongoing material
warranty on control system components and annual software updates. As of
October, 1998 there were 18 customers participating in this program. The Company
has incurred no significant expenses or problems in servicing its products.
Product Development
Much of the Company's product development effort during the last two
years has been directed toward development of a variety of cutting and machining
heads for use on the CNC router line of equipment. This development is
continuing in an effort to broaden the capability of the equipment and thus
increase market size for these products. In addition, the Company has an ongoing
program to reduce the manufacturing costs of its products and pass these
reductions on to customers in the form of price decreases.
The Company has completed efforts to add the capability of performing
three-dimensional woodcarving to its entire CNC router line. The resulting
system produces carved wood components at a three to ten times faster production
rate than the Company's previously marketed carving robot product. Management is
now offering these new capabilities and expects sales of these new products to
replace sales of the current two-dimensional carving robot product. For the
fiscal year ended July 31, 1996, the two-dimensional carving robot accounted for
approximately $182,000 or 1% of machine sales while sales of the
three-dimensional carving robot in fiscal year ended July 31, 1998 amounted to
approximately $540,000 or 3% of machine sales. There were no sales of the
two-dimensional robot in fiscal years ended July 31, 1997 or 1998. Sales of the
three-dimensional carving robot amounted to approximately $333,000 or 7% of
machine sales during the first quarter of fiscal 1999.
Development efforts have been continuing on the 91000 SuperControl that
is an updated version of the CNC control systems formerly used on the Company's
equipment. The basic system development is complete and this control is
currently being sold and shipped on the Company's equipment. Current efforts are
being directed toward adding certain high-end features and capabilities.
Some of the high-end features being added to the 91000 SuperControl
include: a service guide and manual and a Searchmode, maintenance videos and a
service clock for improved guidance in customer maintenance. In addition, the
Company is adding a VHS player and a close up camera to permit customers to
record their set up and operations. The Company is developing a 12' Model 53
because of increased popularity of 12' stock.
In the first quarter of fiscal 1999, the Company added a 4 foot by 8
foot table version of its Model 40 CNC router. The Model 40 is a low cost
system. The new table size offers customers that require a longer table a lower
cost alternative to either the Company's Model 53 or certain competitive
machines. The Company also added a single 5 foot by 10 foot table version of its
Model 42 as a lower cost alternative to the standard dual 5 foot by 5 foot table
machine.
At a trade show in August 1998, the Company introduced the woodworking
industry to the concept of manufacturing an entire piece of furniture using a
single machine. Although this concept generated strong interest, the Company has
yet to sell a system for this application. Management believes that it may
require several years for this concept to become accepted, if ever.
Customers
Although the Company has sold its industrial products to large
corporations (i.e., companies with annual sales approximating or exceeding $1
billion), its primary customer base is composed of small to medium-sized
manufacturers (i.e., companies with annual sales ranging from approximately $10
million to approximately $500 million) located throughout the United States. No
customer accounted for more than 10% of the Company's sales in the fiscal year
ended July 31, 1998 or the first quarter of fiscal 1999.
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The Company generally requires 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.
The Company offers its 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, the Company also offers an Advanced
Support Program for its products. The Company also provides training and
installation services. See "Technical Services" above.
Backlog
As of July 31, 1998, the Company's backlog was approximately $3,029,000
compared with a backlog of $4,080,000 as of July 31, 1997. Substantially all of
this backlog will be 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 management believes 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,
the Company has 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, the Company's backlog as of any particular date may not
be indicative of actual revenues for any subsequent period.
Manufacturing and Production
The Company maintains its manufacturing facilities in Dale, Indiana.
See "Property and Facilities" below. It manufactures its products on a batch
rather than a continuous flow or conventional production line basis. Except for
demonstration models, the Company does not generally 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.
The Company designs, develops and engineers all of its industrial
products. Components contained in these products are either purchased from
outside suppliers or fabricated by Company personnel. The Company fabricates
such components as computer-based electronic control systems and the steel
structure of the CNC router systems. Where possible, the Company utilizes its
CNC router systems and 91000 Control systems operating conventional metalworking
machine tools to fabricate components.
During fiscal year 1997 the Company purchased two used pieces of
equipment which it retrofitted with the 91000 Control system for use in
fabricating components which were previously custom made for the Company. These
purchases saved the Company approximately $250,000 during fiscal year 1998 in
labor and material costs.
Raw materials are purchased from third party sources. Most raw
materials and components, including those that are custom made for the Company,
are either purchased or available from several sources. One supplier accounted
for approximately 19% of total components purchased by the Company 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. 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 CNC 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 the Company.
The Company's 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 management's opinion that the market cannot support all of
them. Management believes, however, that the ability of the Company to offer
products that perform a variety of functions and sell at low prices provides the
Company with a competitive advantage.
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Competition in CNC routers is based upon real and perceived differences
in equipment features, price, performance, reliability, service, marketing,
financial strength and product development capability. The Company may be at a
competitive disadvantage with those manufacturers that offer a broader line of
equipment or related supplies.
Research and Development
The Company plans to continue its research and development efforts
primarily directed toward the improvement of existing products, development of
new products or product enhancements and reduction in manufacturing costs. The
Company utilizes a variety of sources in its 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 the Company's
current development efforts.
For the fiscal years ended July 31, 1998 and 1997, the Company spent
$314,000 and $216,000, respectively, for research and development. There was no
customer-sponsored research and development during the 1998 fiscal year.
Management believes that expenditures need to be increased for the Company to
maintain a competitive position in the immediate future. However, the Company
may eventually be at a competitive disadvantage with respect to firms that spend
significantly more on research and development efforts than it does. During the
quarters ended October 31, 1998 and 1997, the Company spent $155,627 and
$81,060, respectively. The increase was primarily due to salaries and benefits
of research and development personnel.
Patents, Trade Secrets and Trademarks
The Company currently holds 26 domestic patents and has applications
pending in the United States for 14 additional patents. There is no assurance
that any additional patents will be granted. Management does not believe that
major reliance can be placed on patents for the protection of its products
although patent protection for the Company's newly developed products is
increasing.
The Company relies primarily upon trade secret laws, internal
non-disclosure safeguards and restrictions incorporated into its dealership,
sales, employment and other agreements to protect its proprietary property and
information. In addition, the Company has proprietary rights arrangements with
its employees that provide for the disclosure and assignment by the employee to
the Company of any discovery, invention or improvement relating to its business.
While management is unaware of any breach of the Company's security, competitors
may develop similar products outside the protection of any measures that the
Company takes. In addition, policing unauthorized use of the Company's
technology, particularly in foreign countries, may be difficult. The Company has
been unsuccessful in prosecuting two claims in the United States for what it
believed were prospective unauthorized use of proprietary rights. The Company
has not been involved in any claims concerning patent infringement.
The Company markets its products under various trademarks, including
THERMWOOD, CARTESIAN 5, 91000 SUPERCONTROL, ROUTER ART and PANEL-CAD. It has
three trademark registrations and one application for registration in the United
States. The Company also has two foreign trademark registrations and
applications for seven foreign registrations.
Employees
As of December 1, 1998, the Company had approximately 145 full time
employees, of whom 82 were engaged in manufacturing, 14 in marketing, 14 in
administration, ten in engineering, seven in research and development, and 18 in
technical services. None of the Company's employees is a member of any union or
collective bargaining organization. The Company considers its relationship with
its employees to be satisfactory.
Designing and manufacturing the Company's industrial equipment requires
substantial technical capabilities in many varied disciplines, ranging from
mechanics and computer sciences to mathematics. Although management believes
that the capability and experience of the Company's technical staff compare
favorably with other similar manufacturers, there is no assurance that the
Company can retain existing employees or attract and hire the type of skilled
employees it may need in the future.
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Properties
The Company's 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 the Company. In November
1993 the Company 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 the Company's Series A Preferred Stock. In fiscal year
1998, the Company 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 the Company. 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. Management believes that these facilities are in good condition and
adequately satisfy the Company's current requirements. See "Certain
Transactions."
Legal Proceedings
There are no known pending or threatened litigation, claims or
assessments which management believes could have a material effect on the
Company.
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WHERE YOU CAN FIND MORE INFORMATION
We filed a Registration Statement on Form S-4 (together with all
exhibits and schedules thereto, the "Registration Statement") 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 the Company, 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 such 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. In the event that the numbers of our
Shareholders and Debenture Holders each drops below 300 in a fiscal year (which
ends each July 31), we will not be required to continue to file this
information.
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 (http://www.sec.gov).
Our Shares are traded on the American and Pacific Stock Exchanges under
the symbol "THM."
We will provide, at no cost, to each person to whom this Prospectus is
delivered, upon written or oral request, copies of any or all 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.
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MANAGEMENT
Information About Management
Current Management of the Company is as follows:
Name Age Position
- ----- --- --------
Kenneth J. Susnjara (1) 51 Chairman of the Board, President and Director
Linda S. Susnjara (1) 49 Secretary and Director
Michael P. Hardesty 44 Vice President of Engineering
Rebecca F. Fuller 48 Treasurer
David J. Hildenbrand 41 Vice President of Sales
Richard Kasten 46 Vice President of Technical Services
Donald L. Uebelhor 41 Vice-President of Manufacturing
Peter N. Lalos (2) 64 Director
Edgar Mulzer (2) 80 Director
Lee Ray Olinger (2) 71 Director
- -----------------------
(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 Shareholders
of the Company 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 the Company in 1969 and has been a director
since inception and Chairman, President and Chief Executive Officer since 1971.
He also served as Treasurer prior to March 1979 and again from October 1983 to
June 1985. He has devoted his full time to the Company's business except for a
brief period in 1985 when he acted as a distributor for the Company. See
"Certain Transactions."
Mrs. Susnjara has been a director of the Company since 1985 and
Secretary since 1989. She is and has been since 1985 the President of Automation
Associates Incorporated, a dealer of the Company's industrial products. See
"Certain Transactions." Mrs. Susnjara is not active in the Company's business.
Mr. Hardesty has been the Company's Vice President of Engineering since
August 1988. He joined the Company in 1975 and was employed first as a project
engineer, then project manager and then general manager until July 1980 when he
was promoted to Vice President of Operations. He served in that capacity until
May 1985 when he became Vice President of the Machining Products Division, a
position he held until assuming his current position in 1988.
Mrs. Fuller joined the Company in 1981 and was promoted to accounting
manager in 1983 and controller in 1985. She assumed her current position as
Treasurer in July 1993.
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Mr. Hildenbrand became a Vice President of the Company in August, 1988.
Previously, the Company had employed him in various technician and sales manager
positions since 1977. He has also been a director of Thermwood Europe Ltd., the
Company's wholly owned subsidiary, since July 1996.
Mr. Uebelhor became Vice-President of Manufacturing in August 1997.
Previously, he had been the Company's Production Manager since 1993.
Mr. Kasten became a Vice President in December 1993. Previously, the
Company 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 the Company from September 1981 until December 1989 and
as a director from April 1981 until July 1986. He was reelected to the Board of
Directors in December 1989.
Mr. Mulzer was Chairman of the Board of the Dale State Bank, a
commercial bank in Dale, Indiana, from 1970 through 1993. He is currently
retired. He became a director of the Company in September 1974 and has served
continuously in that capacity to the present. See "Certain Transactions" for
information relating to loan and lease transactions between the Company 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 the Chief Executive Officer
and to each of the executive officers of the Company whose total fiscal 1998
remuneration exceeded $100,000 and to all officers of the Company as a group.
Summary Compensation Table
Annual compensation
------------------------------------
Other annual
Compensation
Name and principal position Year Salary Bonus (1)
- --------------------------- ---- -------- -------- ------------
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
- -----------------------
(1) Other annual compensation represents directors' fees paid to Mr. Susnjara.
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Stock options for an additional 4,000 Shares were issued to an officer
of the Company under the Qualified Stock Option Plan in fiscal year 1998. At
December 1, 1998, the exercise prices of some of the unexercised options were
less than the market price of the Company's 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 the Company's Common Stock
under the Company's
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 the pre-tax profits of the Company as set forth below. See
"Profit Sharing Plan" below.
Certain other officers may be entitled to participate in the Company's
profit sharing plan. See "Profit Sharing Plan" below.
Profit Sharing Plan.
In 1985, the Company 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 the Company's Employee Incentive Stock Option Qualified Plan (the
"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 the Company. 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 the Company, he has the right to exercise his
accrued options within 30 days after such termination. However, the Company 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 the Company's Shares on the date the
option is granted. However, options granted to persons owning more than 10% of
the voting Shares of the Company 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
(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) shall not exceed $100,000. Options must be
granted within ten years from the effective date of this Qualified Plan.
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<PAGE>
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 the number
of Shares issuable thereunder and reducing the exercise price of such options,
under certain conditions. The life term of the Qualified Plan extends to
December 3, 2000, or on such earlier date as the Board of Directors may
determine. Any option outstanding at the termination date will remain
outstanding at the termination date until it expires or is exercised in full,
whichever occurs first.
Between December 1991 and August 1997, the Company granted ten year
options to acquire 50,600 Shares of the Company's Common Stock at exercisable
prices ranging from $5.00 to $10.66 under the Qualified Plan to 20 employees of
the Company. All of these options are exercisable as of the date hereof.
Non-Qualified Stock Option Plan.
Under the Company's Non-qualified Stock Option Plan ("NSO Plan"),
options to purchase a maximum of 70,000 Shares of its Common Stock may be
granted to officers, directors, and other key employees.
The NSO 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 the Company's consent or his employment or tenure is terminated by
the Company without cause, he generally has the right to exercise his accrued
options within 30 days 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, his
estate or heirs have one year to exercise his accrued options.
The Committee may grant an optionee the right to surrender all or a
portion of his accrued options to the Company 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 the Company's employ for at least one year from the
date of its grant. Under the NSO 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 present 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 the Company will not be entitled to any deduction at that
time. When an optionee exercises his option, ordinary income will be realized by
him, measured by the excess of the fair market value of the Shares over the
price paid for the Shares. The Company 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 option for a cash or common stock payment, he will
realize ordinary income in the amount of cash or fair market value of stock
received. The Company 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 the Company's
Common Stock at exercisable prices between $5.63 and $10.00 per Share have been
granted under the NSO Plan to four directors and officers of the Company,.
Currently, all of these options are exercisable.
Other options
There are options to purchase an additional 120,000 Shares held by the
President of the Company. These option extends through October 18, 2005 and
permits the purchase of 60,000 Shares at $15.00 per Share and 60,000 at $30.00
per Share.
Effect of Exchange Offer on outstanding Options
As part of this Exchange Offer, the Company will offer each Holders of
Company Qualified and Non-Qualified options the right to exchange his or her
options for Debentures. The principal amount of Debentures issuable in exchange
for the options will equal $11.00 minus the per Share exercise price of the
options, multiplied by the number of Shares that would have been issuable upon
exercise of the options.
50
<PAGE>
PRINCIPAL SHAREHOLDERS AND STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth certain information regarding the
Company's Common Stock, including Shares underlying the convertible debentures
and exercisable Common Stock options owned as of December 22, 1998 by (i) each
person known by the Company to own beneficially more than 5% of its outstanding
Common Stock, (ii) each director, and (iii) all officers and directors as a
group. Management believes that all of the following Shareholders, other than
Mr. and Mrs. Susnjara, will tender their Shares for exchange. If all other
Shareholders tender their Shares, Mr. and Mrs. Susnjara would be the only
remaining Shareholders of the Company.
Percentage of
Names and Addresses Shares Beneficially Total Outstanding
Of Beneficial Owners Owned(1)(2) Shares Owned
- ----------------------------- ------------------- -----------------
Kenneth J. Susnjara (3,4)
And Linda Susnjara 411,420 (5) 25.8%(5)
Edgar Mulzer
401 10th Street
Tell City, Indiana 47586 218,052 (6) 15.0%(6)
Peter N. Lalos
14312 Darnstown Road
Gaithersburg, Maryland 20878 22,000 (7) 1.5%(7)
Lee Ray Olinger
C/o First Bank of Huntingburg
4th and Main Street
Huntingburg, IN 47542 400 *
Rebecca F. Fuller (3) 2,600 (8) *
Michael P. Hardesty (3) 8,400 (9) *
David J. Hildenbrand (3) 6,600 (10) *
Richard Kasten (3) 950 *
Donald L. Uebelhor (3) 6,000 (11) *
All Officers and Directors
As a Group (10 persons) 676,422 (12) 41.3%(12)
- ------------------
* Less than one percent.
(1) Except as indicated in footnote 4, all Shares are beneficially owned and
the sole voting and investment power is held by the person indicated.
(2) Based upon 1,444,709 Shares issued and outstanding as of December 1, 1998.
(3) The address of these Shareholders is care of the Company, Old Buffaloville
Road, PO. Box 436, Dale, Indiana 47523.
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<PAGE>
(4) These Shares are owned jointly by Mr. and Mrs. Susnjara. Accordingly, each
may each be deemed to be a beneficial owner of the Company's securities
owned by the other because of their marital relationship.
(5) Includes (i) 10,000 Shares issuable upon the exercise of options granted to
Mr. Susnjara under the Company's Non-Qualified Stock Option Plan; (ii)
10,000 Shares issuable upon the exercise of options granted to him under
the Company's Qualified Stock Option Plan and (iii) 120,000 Shares issuable
upon the exercise of other options granted to him. Also includes 10,000
Shares issuable upon the exercise of options granted to Mrs. Susnjara under
the Company's Non-Qualified Stock Option Plan.
(6) Includes 10,000 Shares issuable upon the exercise of options granted to Mr.
Mulzer under the Company's Non-Qualified Stock Option Plan.
(7) Includes (i) an aggregate of 4,000 Shares issuable upon conversion of
convertible debentures owned by Mr. Lalos; and (ii) 10,000 Shares issuable
upon the exercise of options granted to Mr. Lalos under the Company's
Non-Qualified Stock Option Plan.
(8) Includes 2,000 Shares issuable upon the exercise of options granted to Ms.
Fuller under the Company's Qualified Stock Option Plan.
(9) Includes 8,000 Shares issuable upon the exercise of options granted to Mr.
Hardesty under the Company's Qualified Stock Option Plan.
(10) Includes 5,400 Shares issuable upon the exercise of options granted to Mr.
Hildenbrand under the Company's Qualified Stock Option Plan.
(11) Includes 5,600 Shares issuable upon the exercise of options granted to Mr.
Uebelhor under the Company's Qualified Stock Option Plan.
(12) Includes Shares issuable to all persons listed in the table upon exercise
of options granted under the Company's Qualified and Non-Qualified Stock
Option Plans and upon conversion of convertible debentures as discussed in
footnotes five through 11 above.
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<PAGE>
CERTAIN TRANSACTIONS
In February 1987, the Company purchased its premises from an
independent third party for $1,000,636 and simultaneously resold it to Mr.
Mulzer, a director and principal shareholder of the Company for $1,800,000. At
the same time the Company 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 the Company to pay all maintenance,
taxes, assessments, insurance premiums and utilities incurred in connection with
the operation of the premises. Pursuant to a related agreement, the Company had
an option to repurchase the premises from Mr. Mulzer, exercisable through 2006,
at prices descending on an annual basis from $1,786,781 in 1987 to $240,000 in
the last year of the option.
On November 18, 1993, this lease payment obligation in the amount of
$1,608,629, together with accrued interest in the amount of $122,491 was
converted to Preferred Stock. Upon the issuance of the Preferred Stock, the
Company no longer had any lease payments. The liability for all accrued and
future lease payments was converted to Preferred Stock.
On November 18, 1993, Mr. Mulzer converted debt owed to him by the
Company in the aggregate of $3,437,120 to an aggregate of 1,000,000 Shares of
Preferred Stock. The Holder of the 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 fifteen 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. The
Company 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. The Preferred Stock was fully redeemed in October 1997 and no
further dividends will be paid.
On October 7, 1997, the Company entered into an agreement for a $3.5
million line of credit with a bank. The Company used the proceeds from this
credit line to repurchase the Preferred Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
Mr. and Mrs. Susnjara are the owners of Automation Associates
Incorporated ("AAI"), a dealer of the Company's industrial products. The
distribution agreement between the Company and AAI contains the same terms and
conditions as the Company's agreements with its other dealers. The Company sold
no products to AAI during fiscal year 1998, but paid AAI $627,816 in commissions
during the year for assisting in effecting sales of approximately $3,800,000.
This amount represents approximately 21% of the Company's gross sales for fiscal
year 1998. AAI also leases space from the Company at what management believes is
a fair market rate. Rental payments were $2,400 during the 1998 fiscal year.
Lalos & Keegan, a law firm in which Mr. Lalos is the senior partner,
accrued fees of $95,000, $77,000, $103,000, for the fiscal years 1998, 1997, and
1996, respectively. As of October 31, 1998, all of these fees have been paid.
Management believes that the terms of the transactions between the
Company and its affiliated parties as described in this section are as fair as
those which the Company would have obtained if these transactions had been
effected with independent third parties. Each transaction was approved by a
majority of the disinterested directors. In the future, all such transactions
will continue to be approved by a majority of the disinterested directors.
53
<PAGE>
The Company has not purchased any Shares of Common Stock since August
1, 1996. Since August 1, 1996, Edgar Mulzer purchased on the open market
340Shares 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 Shares of
the Company effected by such individuals since August 1, 1996.
To our knowledge, neither the Company nor any of its affiliates,
directors or executive officers has purchased or sold any Common Stock in the
last sixty days.
54
<PAGE>
DESCRIPTION OF THE DEBENTURES AND THE INDENTURE
General
The Debentures will be issued under an indenture (the "Indenture") to
be dated as of ____, 1999, between the Company and the American Stock Transfer
and Trust Company (the "Trustee"). A copy of the Indenture is filed as an
exhibit to the Registration Statement of which this Prospectus is a part. See
"Where You Can Find More Information." The following summaries of what
management believes are all of the material provisions of the Indenture and the
Debentures do not purport to be complete and are subject to and qualified in
their entirety by reference to all of the provisions of the Indenture, including
the definitions therein of certain terms and those terms made a part thereof by
the Trust Indenture Act of 1939. Whenever particular provisions or defined terms
of the Indenture are referred to, such provisions or defined terms are
incorporated herein by reference.
Principal Amount of Debenture. Each Debenture has a principal amount
equal to $11.00 times the number of Shares tendered by a Shareholder.
Interest. The Debentures bear simple interest from the date of their
delivery at the rate of 12% per annum. Interest is payable quarterly on January
1, April 1, September 1 and December 1 of each year, commencing April 1, 1999.
Maturity. The Debentures mature fifteen years after the date of their issuance.
Redemption by Holder. Up to a maximum of $50,000 in principal amount
and accrued interest thereon of the Debentures owned by any Holder may be
redeemed at the election of the Holder's estate following his/her death. The
right of redemption is limited to the estate of the initial Holder. No
subsequent Debenture Holder will have 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 held, the election will not
apply.
Redemption by the Company. The Company can redeem the Debentures for
$15.00 per Debenture during the second year after their issuance. During each
subsequent year, the redemption price will decrease by $0.30 per Debenture. The
Debentures are not redeemable within the first year after they have been issued.
The Company is required to provide the Holder with written notice of its
intention to redeem the Debentures at least 30 days before the Debentures are
redeemed.
Form and Denominations/Transfers. The Debentures will be issued only in
fully registered form in denominations of $11.00 or an integral multiple
thereof. The Debentures are exchangeable and transfers thereof will be
registrable without charge therefor, but the Company may require payment of a
sum sufficient to cover tax or other governmental charge payable in connection
therewith.
Interest Withholding. With respect to those investors who do not provide the
Company with a fully executed Form W-8 or Form W-9, as the case may be, the
Company will withhold 31% of any interest paid. Otherwise, no interest will be
withheld, except on the Debentures held by foreign business entities. It is the
Company's policy that no sale will be made to anyone refusing to provide a fully
executed Form W-8 or Form W-9.
Place and Method of Payment. Principal and interest on the Debentures
will be payable at the offices or agencies of the Company maintained for such
purposes in the Borough of Manhattan, City and State of New York, initially to
American Stock Transfer and Trust Company, 40 Wall Street, New York, New York
10005, provided that payment of interest may be made at the option of the
Company by check mailed to the address of the person entitled thereto as it
appears in the Debenture register.
Subordination of Debentures. The payment of the principal of (and
premiums, if any) and interest on the Debentures will be subordinated in right
of payment to the extent set forth in the Indenture to the prior payment in full
of the principal of (and premiums, if any) and interest on all Senior Debt of
the Company. Senior Debt is defined to include indebtedness for money borrowed
outstanding on the day of execution of the Indenture or thereafter, created for
money borrowed from 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 debt is not senior in
right of payment to the Debentures. At December 1, 1998, Senior Debt aggregated
$2,316,280. The Company expects from time to time to make additional borrowings
which will constitute Senior Debt.
55
<PAGE>
The Company is not limited in the amount of additional indebtedness,
including Senior Debt, which it can create, incur, assume or guarantee.
Accordingly, the Debenture Holders are not protected against highly leveraged or
other transactions involving the Company that may adversely affect them.
Upon any payment or distribution of the Company's assets to creditors
on any dissolution, winding up, total or partial liquidation, reorganization or
readjustment of the Company, whether voluntary or involuntary, or bankruptcy,
insolvency, receivership or other proceedings all principal of (and premiums, if
any) and interest due upon all Senior Debt must be paid in full before the
Debenture Holders or the Trustee are entitled to receive or retain any assets so
paid or distributed in respect of the Debentures. The Debentures and the
existing convertible debentures rank equally with regard to distributions.
Modification of the Indenture. With the consent of the Holders of not less than
a majority in principal amount of outstanding Debentures, the Company and the
Trustee may enter into an indenture or indentures supplemental to the Indenture
for the purpose of adding any provisions to or changing in any manner or
eliminating any provisions of the Indenture or modifying in any manner the
rights of the Debenture Holders under the Indenture, provided that no such
supplemental indenture shall, without the consent of the Debenture Holders
affected:
(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) reduce the above stated percentage of outstanding Debentures;
(g) alter the provisions of the Indenture related to amending the
Indenture so as to adversely affect the rights of Holders; or
(h) alter the provisions of the Indenture so as to adversely affect
the subordination of the Debentures to Senior Debt.
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.
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.
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.
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<PAGE>
Events of Default, Notice and Waiver. Events of Default are defined in
the Indenture as being:
(a) a default for 45 days in payment of any interest installment when
due, and default in payment of principal (or premium, if any)
when due;
(b) a default for 60 days after written notice to the Company by the
Trustee or by the Holders of at least 25% in principal amount of
the outstanding Debentures in the performance of any other
covenant of the Company in the Indenture; and
(c) certain events of bankruptcy, insolvency and reorganization of
the Company. If an Event of Default shall occur and be
continuing, either the Trustee or the Holders of 25% in principal
amount of the outstanding Debentures may declare the principal of
all of the Debentures to be due and payable.
The Indenture provides that if an Event of Default occurs and is
continuing and is known to the Trustee, the Trustee must mail to each Holder of
the Debentures 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 of the Debentures. In addition, the
Company is required to deliver to the Trustee, within 120 days after the end of
each fiscal year, a certificate indicating whether the signers thereof know of
any Event of Default that occurred during the previous year.
The Holders of a majority in principal amount of the outstanding
Debentures may 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. The right of a Debenture Holder to institute a
proceeding with respect to the Indenture is subject to certain conditions
precedent, including the provision of notice and indemnification for the
Trustee. The Holders of a majority in principal amount of the outstanding
Debentures may, on behalf of the Debenture Holders, waive any past default and
its consequences under the Indenture, except a default in the payment of the
principal of (or premium, if any) or interest on any Debenture.
The Trustee. American Stock Transfer and Trust Company will be the
Trustee under the Indenture. The Trustee is the transfer agent and registrar for
the Common Stock. The Indenture contains certain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases, or to realize on certain property received in respect
of any such claim as security or otherwise. 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 or resign.
No Personal Liability of Directors, Officers, Employees and
Shareholders. No director, officer, employee, incorporator or shareholder of the
Company, as such, shall have any liability for any obligations of the Company
under the Debentures, the Indenture or for any claim based on, in respect to, or
by reason of, such obligations or their creation. Each Holder of the Debentures
waives and releases all such liability. The waiver and release are part of the
consideration for issuance of the Debentures. Such waiver may not be effective
to waive liabilities under the Federal securities laws and 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 the Company issued 12% subordinated convertible debentures due
February 25, 2003. The terms of the convertible debentures are substantially the
same as those of the Debentures, except that the convertible debentures are
convertible into Shares at the rate of one Share per $5.00 principal amount of
convertible debentures. As of December 1, 1998, there was 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.
57
<PAGE>
DESCRIPTION OF SECURITIES
The following statements are brief summaries of certain provisions of
the Company's Articles of Incorporation, By-Laws and other documents. These
summaries are qualified in their entirety by reference to documents filed as
exhibits to the Registration Statement.
Common Stock
Description of General Terms
The Company is 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 the assets of the Company 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 the Company. In such event, the
Holders of the remaining Shares will not be able to elect any of the Directors.
Reserved Shares
As of December 1, 1998, the Company has reserved up to (i) 22,600
Shares of Common Stock for issuance upon conversion of the previously issued
Convertible Debentures; (ii) 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; (iii) 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 (iv) 120,000 Shares for issuance
upon exercise of options granted to Mr. Susnjara, all of which are currently
exercisable.
Preferred Stock
The Company is 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 the Company as a means of resisting
a change of control of the Company and, therefore, could be considered an
"anti-takeover" device. The Company's 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 ("Chapter 43") is
intended to discourage abusive hostile tender offers for control of an Indiana
corporation. Because the Company's Common Stock is registered under Section 12
of the Exchange Act, the Company is 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.
58
<PAGE>
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. The Company has 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
The Company has never paid any dividends on its Common Stock. The
current policy of the Board of Directors is to retain earnings, if any, to
finance the operation of the Company's business. Accordingly, it is anticipated
that no cash dividends will be paid to the Holders of the Common Stock in the
foreseeable future.
If and when the Company Goes Private, it expects that it will elect (if
it qualifies) to have special tax treatment as an S corporation under the Code.
As an S corporation, the Company anticipates that it will change its dividend
policy. The Company would declare annual cash dividends to its Shareholders in
such amounts as the Board of Directors of the Company determines to be
appropriate which are expected to be at least equal to the amount of taxes the
Shareholders will be required to pay on the Company's income. See "Special
Factors -- Conduct Of The Company's Business After The Exchange Offer."
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.
59
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
The Exchange Of Stock For Debentures Is A Redemption
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. Accordingly, the acquisition by
the Company of its Common Stock in exchange for its Debentures should be treated
as a redemption for Federal income tax purposes.
Taxation Of A Redemption Transaction
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 full
payment in exchange for the stock (i.e., as a sale transaction). In the usual
case in which the stock was held as a capital asset on the date of the exchange,
then the provisions relating to capital gains and losses will apply.
If none of the four tests are satisfied the redemption will be treated
as a distribution which is a dividend to the extent of the Company's 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.
The four tests for exchange treatment are contained in section 302(b)
and are not mutually exclusive -- it is possible to satisfy one or more
simultaneously. Moreover, the tests must be applied 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 exchange 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 receive exchange
treatment 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 Internal
Revenue Service (the "Service") upon which taxpayers can rely.
The major Supreme Court case interpreting whether a distribution is
essentially equivalent to a dividend is U.S. v. Davis, 397 U.S. 301 reh'g
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."
Although the application of this rule depends on the facts and
circumstances of each case, the Service will issue advance private rulings on
this issue. However, 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 Service or
the courts that there has been a "meaningful" reduction in his stock ownership.
Under the substantially disproportionate redemption rule, redemption
will receive exchange treatment if three conditions are satisfied:
(1) The Shareholder's percentage ownership of the outstanding voting
stock is reduced immediately after the redemption to less than
80% of his percentage interest in the stock of the corporation
which the Shareholder owned immediately before the transaction;
60
<PAGE>
(2) The Shareholder's percentage ownership of the outstanding common
stock (both voting and non-voting) is reduced to less than 80
percent of such percentage ownership before the redemption. This
test is applied immediately before and immediately after the
redemption; and
(3) The Shareholder owns, 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.
Complete Termination Of Shareholder's Interest
Under a third principle, a redemption will be treated as an exchange
"if the redemption is in complete redemption of all of the stock of the
corporation owned by the Shareholder. Under this safe haven category, all the
stock in the corporation which the Shareholder owns must be redeemed (i.e.,
sold).
Recognition Of Income
Ordinarily, under the general rule of section 1001(b) of the Code,
where the redemption qualifies for exchange treatment, the amount received for
the stock is equal to the fair market value of the Debenture, rather than its
principal (face) amount. This general rule applies to both corporate and
non-corporate Shareholders. A different measurement of amount realized applies,
according to the Service, 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 or principal amount (rather than at its fair market value). This
rule applies to determine an accrual method Shareholder's gain or loss on a
redemption of stock where the redemption qualifies for exchange treatment. The
distribution by the Company of its debt obligation in part or full payment of
the redemption price is not eligible for installment sale reporting because the
corporation's stock is publicly traded.
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 instances, certain other
information) to the Exchange Agent (as defined below) 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.
61
<PAGE>
PLAN OF DISTRIBUTION
Each broker-dealer that receives Debentures for its own account
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. The Company has agreed that for a period of 90 days
after the Expiration Date, it will make this Prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any such
resales.
The Company 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 in the over-the-counter market, in
negotiated transactions, through the writing of options on the Debentures or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or 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" within the meaning of the Securities Act and 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 by acknowledging that it will deliver and
by delivering a Prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
For a period of 90 days after the Expiration Date, the Company 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.
The Company has agreed to pay all expenses incident to the Exchange
Offer other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Debentures (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 -- Lack Of Public Market For The Debentures; Trading at a
Discount."
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 the Company.
EXPERTS
The Consolidated Financial Statements of the Company 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 Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
62
<PAGE>
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-15
Condensed Consolidated Statements of Operations --
Three Months ended October 31, 1998 and 1997 (Unaudited) F-16
Condensed Consolidated Statements Of Cash Flows -- F-17
Three Months ended October 31 1998 and 1997 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited) F-18
63
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors
Thermwood Corporation:
We have audited the accompanying consolidated balance sheets of
Thermwood Corporation and 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>
THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS
July 31
---------------------------------
1998 1997
------------ -------------
Assets
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
=========== ============
F-2
<PAGE>
THERMWOOD CORPORATION
CONSOLIDATED BALANCE SHEETS, (continued)
July 31
---------------------------------
1998 1997
------------ -------------
Liabilities and Shareholders' Equity
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
============ ============
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
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>
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>
THERMWOOD CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended July 31
----------------------------------------------------------
1998 1997 1996
---------------- ----------------- ---------------
Cash Flows From Operating Activities:
<S> <C> <C> <C>
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>
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 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.
F-7
<PAGE>
Property and Equipment:
Property and equipment are recorded at cost for assets purchased and at
the present value of minimum lease payments for assets acquired under capital
leases. Depreciation and amortization are computed by the straight-line method
over the estimated useful lives of the assets, as shown below:
Buildings and improvements 10 to 30 years
Equipment 3 to 10 years
Depreciation expense for 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
---------- ---------- ---------- ---------- ---------- ----------
Earnings:
<S> <C> <C> <C> <C> <C> <C>
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.
F-8
<PAGE>
NOTE B -- INVENTORIES:
Inventories at July 31 consist of:
1998 1997
------------- -------------
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
============= =============
NOTE C -- LEASES :
The Company had leased its production facilities and certain equipment,
primarily from related parties. Amounts included in property and equipment at
July 31, 1997 relating to capital leases are as follows:
Land $ 73,260
Building and improvements 1,171,778
Furniture and equipment 266,929
------------
1,511,967
Less accumulated amortization (799,558)
------------
$ 712,409
============
Included in Land, Building and Improvements above are assets with a net
book value of $533,928 at July 31, 1997, leased from a director of the Company
under a capital lease expiring in February, 2007. During fiscal year 1994, the
obligation under this lease was converted to Preferred Stock (Note H). The
Company had the option to purchase the assets under this lease at any time for a
purchase price of $1,608,629 less the aggregate amount paid to the director
under the lease and for the redemption of the Series A Preferred Stock. The
Preferred Stock was fully redeemed during fiscal year 1998 enabling the Company
to take clear title to the land and building.
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:
Years ending July 31:
1999 $118,700
2000 118,700
2001 118,700
2002 1,200
2003 1,200
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.
F-9
<PAGE>
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.
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:
1998 1997 1996
---------- ---------- ----------
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
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.
F-10
<PAGE>
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.
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 Price Shares Exercise Price Shares Exercise 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 G). 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 fifteen 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.
F-11
<PAGE>
NOTE H -- RELATED PARTY TRANSACTIONS:
Director and shareholder - The Company leased land, building and
improvements from a director/shareholder and a leasing company owned by this
director. 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. 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. This transaction enabled the
Company to take clear title to land and building and improvements.
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.
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>
F-12
<PAGE>
The tax effects of significant temporary differences represented by
deferred tax assets and deferred tax liabilities at July 31 are as follows:
1998 1997
--------- ----------
Deferred tax assets attributable to:
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
========= ==========
At July 31, 1998, the Company had the following carryforwards for tax purposes:
Net operating loss carryforwards expiring in 2008 - 2009 $529,000
General business credits expiring in 1998 - 2001 $ 14,000
The amount of such loss carryforwards and other credits available for
utilization in any future year could be limited in the event of a change in
ownership as defined by income tax laws. 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.
F-13
<PAGE>
NOTE J -- ADDITIONAL INFORMATION:
Other accrued liabilities at July 31 consist of:
1998 1997
---------- ----------
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
========== ==========
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-14
<PAGE>
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
October 31 July 31
1998 1998
----------- -----------
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
=========== ===========
See notes to condensed consolidated financial statements.
F-15
<PAGE>
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
October 31
----------------------------
1998 1997
---------- ----------
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
See notes to condensed consolidated financial statements.
F-16
<PAGE>
THERMWOOD CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
October 31
---------------------------
1998 1997
--------- ----------
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
========== ==========
See notes to condensed consolidated financial statements.
F-17
<PAGE>
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.
October 31 July 31
1998 1998
---------- ----------
Components of inventory:
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
========== ==========
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-18
<PAGE>
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
---------- ---------- ---------- ----------
Earnings:
<S> <C> <C> <C> <C>
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-19
<PAGE>
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
Item Page
Available Information............................... 1
Prospectus Summary.................................. 2
Summary Consolidated
Financial Data................................. 5
Risk Factors........................................ 6
Capitalization...................................... 10
Market for Company's Common
Equity and Related Shareholder
Matters......................................... 11
Special Factors..................................... 12
Exchange Offer...................................... 26
Selected Consolidated
Financial Data................................. 33
Management's Discussion and
Analysis Of Financial
Condition and Results
Of Operations.................................... 34
Business............................................ 38
Where You Can Find More
Information..................................... 45
Management.......................................... 46
Principal Shareholders and
Ownership Of Management......................... 50
Certain Transactions................................ 52
Description of the Debenture
And the Indenture.............................. 53
Description of Securities........................... 56
Federal Income
Tax Consequences.............................. 58
Plan of Distribution................................ 60
Legal Matters....................................... 60
Experts............................................. 60
Index to Financial Statements....................... 61
THERMWOOD CORPORATION
$13,351,978
12% Subordinated Debentures
Due 2014
PROSPECTUS
The Solicitation Agent
For the Offer is
Dirks & Company, Inc
____________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers.
Chapter 37 of the Indiana Business Corporation Law provides for
indemnification by an Indiana corporation of an individual made a party to a
proceeding because the individual was or is a director or officer of that
corporation if:
(1) the individual's conduct was in good faith; and
(2) the individual reasonably believed:
(A) in the case of conduct in the individual's official capacity
with the corporation, that the individual's conduct was in
the corporation's best interest; and
(B) in all other cases, that the individual's conduct was at
least not opposed to the corporation's best interest; and
(3) in the case of any criminal proceeding, the individual either:
(A) had reasonable cause to believe that the individual's
conduct was lawful; or
(B) had no reasonable cause to believe that the individual's
conduct was unlawful.
The Company maintains insurance to cover the Company's directors and
executive officers for liabilities which may be incurred by the Company's
directors and executive officers in the performance of their duties.
Item 21. Exhibits and Financial Statement Schedules.
1 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 Indenture with American Stock Transfer and Trust Company concerning the 12%
Debentures Due 2014.
5.1 Opinion Re legality. *
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.*
II-1
<PAGE>
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 Lease Agreement between Edgar Mulzer, as lessor, and the Registrant, as
lessee, dated February 13, 1987.*
10.14 Land Contract between Edgar Mulzer and the Registrant dated February 13,
1987.*
10.15 Lease Agreement between the Huntingburg Townhouses, Inc. and the
Registrant dated March 27, 1989.*
10.16 Lease Agreements between the Huntingburg Townhouses, Inc. and the
Registrant dated December 18, 1990.*
10.17 Agreement between the Registrant and Edgar Mulzer dated October 23, 1992
relating to a Premises Lease.*
10.18 Agreement between the Registrant and Huntingburg Townhouses, Inc. dated
October 23, 1992 relating to certain equipment leases.*
10.19 Agreement between the Registrant and King Radio Corporation dated January
29, 1993.*
II-2
<PAGE>
21.1 List of Subsidiaries of the Company.*
22.1 Consent of Barry Feiner, Esq. (files as part of Exhibit 5.1).
22.2 Consent of KPMG Peat Marwick 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.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Option Holder Letter of Transmittal.
99.3 Exchange Agreement with American Stock Transfer.
- ------------------------------------------------
* 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-2.
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
II-3
<PAGE>
(iii)To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement;
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at the time shall be deemed to be the initial
bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment any of
the securities being registered which remain unsold at the termination of
the offering;
(4) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrants pursuant to the provisions described under Item 20 or
otherwise, the registrants have been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the registrants of expenses incurred or paid by
a director, officer or controlling person of the registrants in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrants will, unless in the opinion of their
counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will
be governed by the final adjudication of such issue; and
(5) To respond to requests for information that is incorporated by reference
into the prospectus pursuant to Item 4, 10(b), 11 or 13 of this form,
within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means.
This includes information contained in documents filed subsequent to the
effective date of the registration statement through the date of responding
to the request.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant has duly caused this 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 December 29, 1998.
THERMWOOD CORPORATION
Date: December 29, 1998 /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
registration statement has been signed by the following persons on behalf of the
Company and in the capacities and on the dates indicated.
Date: December 29, 1998 /s/ Kenneth J. Susnjara
-------------------------------------------------
Kenneth J. Susnjara, Chairman of the Board
and President (Principal Executive Officer)
Date: December 29, 1998 /s/ Rebecca F. Fuller
-------------------------------------------------
Rebecca F. Fuller, Treasurer (Principal Financial
and Accounting Officer)
Date: December 29, 1998 /s/ Linda S. Susnjara
-------------------------------------------------
Linda S. Susnjara, Secretary and Director
Date: December 29, 1998 /s/ Peter N. Lalos
-------------------------------------------------
Peter N. Lalos, Director
Date: December 29, 1998 /s/ Edgar Mulzer
-------------------------------------------------
Edgar Mulzer, Director
Date: December 29, 1998 /s/ Lee Ray Olinger
-------------------------------------------------
Lee Ray Olinger, Director
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints KENNETH J. SUSNJARA, with full power to
act alone, as his or her true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and any
subsequent registration statement filed by the Registrant pursuant to Rule
462(b) of the Securities Act, and to file the same, with all exhibits thereto,
and other documents in connection therewith, with the SEC, granting unto said
attorney-in-fact and agent, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he or she might or could do in person,
hereby ratifying and confirming all that said attorney-in-fact and agent, or his
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
SIGNATURE TITLE DATE
/s/ Peter N. Lalos Director December 29, 1998
- -------------------
Peter N. Lalos
/s/ Edgar Mulzer Director December 29, 1998
- -------------------
Edgar Mulzer
/s/ Lee Ray Olinger Director December 29, 1998
- -------------------
Lee Ray Olinger
II-5
EXHIBIT 1
SOLICITATION AGENT AGREEMENT
<PAGE>
SOLICITATION AGENT AGREEMENT
January __, 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 all of its outstanding shares ("Shares") of Common Stock other
than certain Shares owned by two major Shareholders. 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- ______) 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 Prospectus.
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
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 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.
1
<PAGE>
(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 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,
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. If the Solicitation Agent
withdraws for any reason other than those described above, the Solicitation
Agent will be entitled to reimbursement for its expenses through the date of
such withdrawal or termination, but shall not be entitled to receive any fee for
services performed hereunder.
2
<PAGE>
(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.
(g) The Company represents and warrants to the Solicitation Agent
that it has or, at the time, the Company purchases Shares under the Offer to
Exchange, will have, sufficient funds to enable the Company to pay and the
Company hereby agrees that it will pay promptly, in accordance with the terms
and conditions of the Offer to Exchange and this Agreement, the consideration
(and related costs) for Shares which the Company has offered, and which the
Company may be required, to pay under the Offer to Exchange, and the fees and
expenses payable hereunder.
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, mailing and publishing of all
Offer to Exchange Material, (ii) all fees and expenses of the Exchange Agent,
(iii) all advertising charges in connection with the Offer to Exchange,
including those of any public relations firm or other person or entity rendering
services in connection therewith, (iv) all fees, if any, payable to dealers
(including 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 and (v) all other
reasonable fees and expenses incurred by the Solicitation Agent in connection
with the Offer to Exchange or otherwise in connection with the Offer to Exchange
or otherwise in connection with the performance of the Solicitation Agent's
services hereunder (including fees and disbursements of the Solicitation Agent's
legal counsel). All payments to be made by the Company pursuant to this Section
2 shall be made promptly against delivery to the Company of statements therefor
which are itemized in reasonable detail. The Company shall be liable for the
foregoing payments whether or not the Offer to Exchange is commenced, withdrawn,
terminated or canceled prior to the purchase of any Shares or whether the
Company or any of its affiliates acquires any Shares pursuant to the Offer to
Exchange or whether the Solicitation Agent withdraws pursuant to Section 1
hereof. 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 obligation to
indemnify an indemnified party are set forth in Section 6 hereof.
3
<PAGE>
3. Certain Representations and Warranties by the Company.
The Company represents and warrants 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 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 and (y) general principles of equity.
(c) As of the date hereof, the Company has full corporate power and
authority to take and will have duly taken all necessary corporate action to
authorize any borrowings or financings related to the Offer to Exchange.
(d) 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.
(e) The Debentures have been duly authorized and, when issued, will be
validly issued, fully-paid and non-assessable; the holders thereof will not be
subject to personal liability under the Company's Articles of Incorporation or
Bylaws or the laws of the State of Indiana solely by reason of being such
holders; such securities are not and will not be subject to the preemptive
rights of any holder of any security of the Company.
(f) The Offer to Exchange complies or will comply in all material
respects with the applicable provisions of the Securities Exchange Act of 1934,
as amended, 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. In connection with the Offer to Exchange, the Company has complied,
and will continue to comply, with the applicable provisions of the Exchange Act.
4
<PAGE>
(g) 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 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.
(h) The Offer to Exchange (including any related borrowings or
financings by the Company or any of its subsidiaries or affiliates), 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 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.
(i) The Offer to Exchange (including any related borrowings or
financings by the Company or any of its subsidiaries or affiliates), 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.
5
<PAGE>
(j) 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 with respect to the making or consummation of the Offer to Exchange
(including the obtaining or use of funds to purchase Shares pursuant thereto) 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.
(k) 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.
(l) 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, as amended, and the rules and regulations promulgated by
the Commission thereunder.
(m) 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 on 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 and Warranties by the Solicitation Agent.
The Solicitation Agent represents and warrants to the Company that:
(a) During the period of the Offer to Exchange, none of the
Solicitation Agent nor any of its affiliates shall effect any transactions in
the Shares for the purpose of creating actual, or apparent, active trading in,
or raising or depressing the price of, the Shares.
5. Conditions of Obligation.
The obligation to act as Solicitation Agent hereunder shall at all
times be subject, in its 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.
6
<PAGE>
(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 Securities Exchange Act of 1934, as amended or
Section 15 of the Securities Act of 1933, as amended, from and against any and
all claims, damages, losses, liabilities, costs or expenses (including
attorneys' fees) to which the Solicitation Agent may become subject by reason of
or in connection with (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 in the Offer to Exchange Material or the
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading and (v) any
other event or transaction contemplated by any of the foregoing; provided,
however, the Solicitation Agent shall not be indemnified for any claims,
damages, losses, liabilities, costs or expenses (i) relating to an untrue
statement of a material fact or omission to state a material fact if such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to the Solicitation Agent
expressly for use in the offer to exchange material and (ii) to the extent, but
only to the extent, caused by the willful misconduct or gross negligence of the
Solicitation Agent.
(b) The Company agrees to assume the defense of any action against the
Solicitation Agent based upon allegations of any such loss, claim, damage,
liability or action, including the retaining of counsel satisfactory to the
Solicitation Agent and the payment of counsel fees and all other expenses
relating to such defense; provided, however, that the Solicitation Agent may
retain separate counsel in any such action and may participate in the defense
thereof at the expense of the Solicitation Agent unless such retaining of
separate counsel has been specifically authorized by the Company; and provided
further, that if the Solicitation Agent shall have been advised by counsel that
there may be legal defenses available to the Solicitation Agent which are
different from or additional to those available to the Company, then the Company
shall not have the right to assume the defense of the action on behalf of such
Solicitation Agent, and in such event the said fees and expenses of the
Solicitation Agent in defending such action shall be borne by the Company. The
indemnity agreement contained in Section 7(a) hereof will be in addition to any
liability which the Company may otherwise have.
Promptly after receipt by any indemnified party under this Agreement
of notice of the commencement of any action, suit or proceeding, such party
will, if a claim in respect thereof is to be made against the Company, notify
the Company of the commencement thereof, but the omission to notify the Company
will not relieve the Company from any liability which it may have to the
indemnified party.
7
<PAGE>
(c) In order to provide for just and equitable contribution in any
case in which (a) the Solicitation Agent (or any person who controls the
Solicitation Agent within the meaning of Section 15 of the Securities Act of
1933, as amended or Section 20 of the Securities Exchange Act of 1934, as
amended) would otherwise be entitled to indemnification pursuant to Section 7(a)
hereof 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 Section 7(a) provides for
indemnification in such case or (b) contribution may be required on the part of
the Solicitation Agent or any such controlling person in circumstances for which
indemnification is provided under Section 7(a); in each such case, the Company
and the Solicitation Agent shall contribute to the amount paid as a result of
such losses, claims, expenses, damages or liabilities (or actions in respect
thereof) (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.
Promptly after receipt by any party to this Agreement 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 of the commencement
thereof, but the omission to notify the Contributing Party will not relieve it
from any liability which it may have to any other party. In case any such
action, suit or proceeding is brought against any party, and such party notifies
a Contributing Party of the commencement thereof, the Contributing Party will be
entitled to participate therein with the notifying party and any other
Contributing Party similarly notified.
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.
8
<PAGE>
(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.
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 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.
(d) 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., and shall be governed
by and construed in accordance with the laws of the State of New York. 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.
9
<PAGE>
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:
10
<PAGE>
EXHIBIT A
<PAGE>
EXHIBIT B
December __, 1998
Dirks & Company, Inc.
As Solicitation Agent
520 Madison Avenue, 10th Floor
New York, New York 10022
Ladies and Gentlemen:
We have acted as counsel to the 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 all of its
outstanding Shares ("Shares") of common stock other than certain Shares owned by
two major Shareholders.
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 (said documents are
collectively referred to as the "Offer to Exchange Material").
In connection therewith, we have examined the Offer to Exchange
Material, a signed copy of the agreement dated ___________, 1998, 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 we
have deemed appropriate for the purpose of this opinion.
We have not undertaken any independent review or investigation of the
foregoing facts. In our examination, we have assumed the genuineness of all
signatures, the authenticity of all documents submitted to us as originals, the
conformity to originals of all documents submitted to us as photocopies and the
authenticity of the originals of such photocopies. We have also 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 us are true and correct.
Based upon such examination and in reliance thereon and having regard
for legal considerations which we deem relevant, we are 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 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 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.
1
<PAGE>
(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, (ii) the purchase by the Company of Shares
pursuant to the Offer to Exchange, and (iii) 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 and (y) general principles of equity. As of the date
hereof, the Company has full corporate power and authority to
take and will have duly taken all necessary corporate action to
authorize any borrowings or financings related to the Offer to
Exchange.
(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 validly issued, fully-paid and non-assessable; the holders
thereof will not be subject to personal liability under the
Company's Articles of Incorporation or Bylaws or the laws of the
State of Indiana solely by reason of being such holders; such
securities are not and will not be subject to the preemptive
rights of any holder of any security of the Company.
(v) The Offer to Exchange complies or will comply in all material
respects with the applicable provisions of the Securities
Exchange Act of 1934, as amended, 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. In connection
with the Offer to Exchange, the Company has complied, and will
continue to comply, with the applicable provisions of the
Exchange Act.
2
<PAGE>
(vi) The Offer to Exchange (including any related borrowings or
financings by the Company or any of its subsidiaries or
affiliates), 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 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.
(vii)The Offer to Exchange (including any related borrowings or
financings by the Company or any of its subsidiaries or
affiliates), 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.
3
<PAGE>
(viii) 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 with respect to the making or consummation of the
Offer to Exchange (including the obtaining or use of funds to
purchase Shares pursuant thereto) 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) 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.
(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, as amended,
and the rules and regulations promulgated by the Commission
thereunder.
The opinions herein are further subject to the following limitations
and qualifications:
(a) We express no opinion as to matters of law in jurisdictions other
than the State of Indiana and the federal laws of the United States.
(b) We express no opinion insofar as to compliance with applicable
anti-fraud statutes, rules or regulations of state, and federal law.
(c) We 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.
We are 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 we have
independently verified the accuracy, completeness or fairness of any such
statements. In our capacity as counsel to the Company, however, we 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 our participation in the above-mentioned conferences and in
reliance thereon and on the records, documents, certificates and opinions herein
mentioned above, we advise you that, during the course of our representation of
the Company as counsel on this matter, no information came to the attention of
the attorneys in our firm rendering legal services in connection with such
representation which caused us 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.
4
<PAGE>
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 our 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 we assume no
obligation to update or supplement this opinion to reflect any facts or
circumstances which may hereafter come to our attention or any changes in law
which may hereafter occur.
Very truly yours,
5
EXHIBIT 4.4
THERMWOOD CORPORATION
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
TRUSTEE
INDENTURE
<PAGE>
THERMWOOD CORPORATION
AND
AMERICAN STOCK TRANSFER AND TRUST COMPANY
TRUSTEE
INDENTURE
Dated as of December __, 1998
$13,351,978
12% Subordinated Debentures due 2014
<PAGE>
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.
2
<PAGE>
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
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
3
<PAGE>
TABLE OF CONTENTS
(Continued)
Article Section Heading Page
V SUCCESSORS
5.01 When Company May Merge, etc. 9
VI DEFAULTS AND REMEDIES
6.01 Events of Default 10
6.02 Acceleration
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 15
7.06 Reports by Trustee to Holders 15
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
4
<PAGE>
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
EXHIBIT A - FORM OF SECURITY
5
<PAGE>
INDENTURE dated as of December __, 1998 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.
1
<PAGE>
"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.
Term Defined in Section
------ -------------------
"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
Section 1.03. Rules of Construction.
Unless the context otherwise requires (i) a term has the meaning assigned to it;
(ii) an accounting term not otherwise defined has the meaning assigned to it in
accordance with generally accepted accounting principles; (iii) "or" is not
exclusive; (iv) words in the singular include the plural, and in the plural
include the singular; and (v) provisions apply to successive events and
transactions.
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ARTICLE II
THE SECURITIES
Section 2.01. Form and Dating.
The Securities shall be in the form of Exhibit A, which is part of this
Indenture. The Securities may have notations, legends or endorsements required
by law, stock exchange rule or usage. Each Security shall be dated the date of
its authentication.
Section 2.02. Execution and Authentication.
(a) Two Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be reproduced on the Securities.
If an Officer whose signature is on a Security no longer holds that office at
the time the Security is authenticated, the Security shall be valid
nevertheless.
(b) A Security shall not be valid until authenticated by the manual signature of
the Trustee. The signature shall be conclusive evidence that the Security has
been authenticated under this Indenture. The Trustee shall authenticate
Securities for original issue in the aggregate principal amount stated in
paragraph 4 of Exhibit A upon a written order of the Company signed by two
officers. The aggregate principal amount of Securities outstanding at any time
may not exceed that amount except as provided in Section 2.07. The Trustee may
appoint an authenticating agent acceptable to the Company to authenticate
Securities. An authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company or an Affiliate.
Section 2.03. Registrar 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.
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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 Security
is held by a bona fide purchaser. If Securities are considered paid under
Section 4.01, they cease to be outstanding and interest on them ceases to
accrue. A Security does not cease to be outstanding because the Company or an
Affiliate holds the Security.
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Section 2.09. Treasury Securities.
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or an Affiliate shall be disregarded, except that for the
purposes of determining whether the Trustee shall be protected in relying on any
such direction, waiver or consent, only Securities which the Trustee knows are
so owned shall be so disregarded.
Section 2.10. Temporary Securities.
Until definitive Securities are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Securities. Temporary Securities shall
be substantially in the form of definitive Securities but may have variations
that the Company considers appropriate for temporary Securities. Without
unreasonable delay, the Company shall prepare and the Trustee shall authenticate
definitive Securities in exchange for temporary Securities.
Section 2.11. Cancellation.
The Company at any time may deliver Securities to the Trustee for cancellation.
The Registrar 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 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.
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ARTICLE III
REDEMPTION
Section 3.01. Notices to Trustee.
If the Company wants to redeem Securities pursuant to Paragraph 5 of the
Securities, it shall notify the Trustee of the redemption date and the principal
amount of Securities to be redeemed at least 50 days before the redemption date.
Section 3.02. Selection of Securities to be Redeemed.
If less than all the Securities are to be redeemed, the Trustee shall select the
Securities to be redeemed pro rata or by lot. The Trustee shall make the
selection not more than 75 days before the redemption date from Securities
outstanding not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,100. 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.
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Section 3.06. Securities Redeemed in Part.
Upon surrender of a Security that is redeemed in part, the Trustee shall
authenticate for the Holder a new Security equal in principal amount to the
unredeemed portion of the Security surrendered.
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.
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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 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.
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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 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.
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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
been cured or waived except nonpayment of principal or interest that has become
due solely because of the acceleration.
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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.
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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.
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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.
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.
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(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 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.
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(b) The Company shall indemnify the Trustee against any loss or liability
incurred by it. The Trustee shall notify the Company promptly of any claim for
which it may seek indemnity and the Company shall defend the claim. The Trustee
may have separate counsel but the fees and expenses of such counsel shall be
borne by the Trustee unless the Company shall not have promptly employed counsel
to assume the defense of the claim, in which event such fees and expenses shall
be borne by the Company. The Company shall have the right, in its sole
discretion, to satisfy or settle any claim for which indemnification has been
sought and is available hereunder as long as such satisfaction or settlement is
at no cost to the Trustee. The Company need not pay for any settlement made
without its consent or reimburse any expense or indemnify against any loss or
liability incurred by the Trustee through negligence or bad faith.
(c) To secure the Company's payment obligations in this Section, the Trustee
shall have a lien prior to the Securities on all money or property held or
collected by the Trustee, except that held in trust to pay principal and
interest on particular Securities. When the Trustee incurs expenses or renders
services after an Event of Default specified in clauses 6.01 (a) (iv) or (v)
occurs, the expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
Section 7.08. Replacement of Trustee.
(a) A resignation or removal of the Trustee and appointment of a successor
Trustee shall become effective only upon the successor Trustee's acceptance of
appointment as provided in this Section. The Trustee may resign by so notifying
the Company. The Holders of a majority in principal amount of the Securities may
remove the Trustee by so notifying the Trustee and the Company. The Company may
remove the Trustee if (i) the Trustee fails to comply with Section 7.10; (ii)
the Trustee is adjudged a bankrupt or an insolvent; (iii) a receiver or public
officer takes charge of the Trustee or its property; or (iv) the Trustee becomes
incapable of acting.
(b) If the Trustee resigns or is removed or if a vacancy exists in the office of
Trustee for any reason, the Company shall promptly appoint a successor Trustee.
Within one year after the successor Trustee takes office, the Holders of a
majority in principal amount of the Securities may appoint a successor Trustee
to replace the successor Trustee appointed by the Company.
(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.
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(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.
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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.
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ATICLE 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.
(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.
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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.
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.
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(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.
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Section 11.04. Default on Senior Debt.
The Company may not pay principal or interest on the Securities and may not
acquire any Securities for cash or property other than capital stock of the
Company if (i) a default on Senior Debt occurs and is continuing that permits
holders of Senior Debt to accelerate its maturity, and (ii) the default is the
subject of judicial proceedings or the Company receives a notice of the default
from a person who may give it pursuant to Section 11.12. The Company may resume
payments on the Securities and may require them when (A) the default is cured or
waived, or (B) 120 days pass after the notice is given if the default is not the
subject of judicial proceedings, if this Article XI otherwise permits the
payment or acquisition at that time.
Section 11.05. Acceleration of Securities.
If payment of the Securities is accelerated because of an Event of Default, the
Company shall promptly notify holders of Senior Debt of the acceleration. The
Company may pay the Securities when 120 days pass after the acceleration occurs
if this Article XI permits the payment at that time.
Section 11.06. When Distribution Must be Paid over.
If a distribution is made to Holders that because of this Article XI should not
have been made to them, the Holders who receive the distribution shall hold it
in trust for holders of Senior Debt and pay it over to them as their interests
may appear.
Section 11.07. Notice by Company.
The Company shall promptly notify the Trustee and the Paying Agent of any facts
known to the Company that would cause a payment of principal or interest on the
Securities to violate this Article XI.
Section 11.08. Subrogation.
After all Senior Debt is paid in full and until the Securities are paid in full,
Holders shall be subrogated to the rights of holders of Senior Debt to receive
distributions applicable to Senior Debt. A distribution made under this Article
XI to holders of Senior Debt which otherwise would have been made to Holders is
not, as between the Company and Holders, a payment by the Company on Senior
Debt.
Section 11.09. Relative Rights.
This Article XI defines the relative rights of Holders and holders of Senior
Debt. Nothing in this Indenture shall (i) impair, as between the Company and the
Holders, the obligation of the Company, which is absolute and unconditional, to
pay principal and interest on the Securities in accordance with their terms;
(ii) affect the relative rights of Holders and creditors of the Company other
than holders of Senior Debt; or (iii) prevent the Trustee or any Holder from
exercising its available remedies upon a Default, subject to the rights of
holders of Senior Debt to receive distributions otherwise payable to holders. If
the Company fails because of this Article XI to pay principal or interest on a
Security on the due date, the failure is still a Default.
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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.
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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>
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.
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.
24
<PAGE>
SIGNATURES
Dated: _____________ THERMWOOD CORPORATION
------------------------------
Kenneth J. Susnjara, President
Attest:
- ----------------------------
Linda S. Susnjara, Secretary [SEAL]
Dated:__________________ AMERICAN STOCK TRANSFER AND
TRUST COMPANY
By _________________________
Attest:
________________________
25
<PAGE>
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]
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<PAGE>
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 April 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
December __, 1998 ("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 $13,351,978 in aggregate principal amount.
5. Redemption. On or after _____, 1999, 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:
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12 Month Period
After The Issuance Per Debenture
Of the Debentures Redemption Price
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
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 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.
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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 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.
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<PAGE>
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.
5
<PAGE>
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)
6
[Letterhead of KPMG Peat Marwick LLP]
Consent of KPMG Peat Marwick LLP
The Board of Directors
Thermwood Corporation:
We consent to the use of our reports included herein and to the reference of our
firm under the heading "Eperts" in the prospectus.
KPMG Peat Marwick LLP
Indianapolis, Indiana
December 28, 1998
EXHIBIT 25.1
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM T-1
STATEMENT OF ELIGIBILITY AND QUALIFICATION
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
------------------
AMERICAN STOCK TRANSFER & TRUST COMPANY
(Exact name of trustee as specified in its charter)
New York 13-3439945
(State of incorporation (I.R.S. employer
if not a national bank) identification No.)
40 Wall Street 10005
New York, New York (Zip Code)
(Address of trustee's
principal executive offices)
------------------
Thermwood Corporation
(Exact name of obligor as specified in its charter)
Indiana 35-1169185
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
Old BuffaloVille Road
PO Box 436
Dale, Indiana 47523
(Address of principal executive (Zip Code)
offices)
------------------
12% Subordinated Debentures Due 2014
(Title of the Indenture Securities)
<PAGE>
GENERAL
1. General Information.
Furnish the following information as to the trustee:
Name and address of each examining or supervising authority to
which it is subject.
New York State Banking Department, Albany, New York
b. Whether it is authorized to exercise corporate trust powers.
The Trustee is authorized to exercise corporate trust powers.
2. Affiliations with Obligor and Underwriters.
If the obligor or any underwriter for the obligor is an
affiliate of the trustee, describe each such affiliation.
None.
3. Voting Securities of the Trustee.
Furnish the following information as to each class of voting
securities of the trustee:
As of December 14, 1998
-----------------------------------------------------------------
COL. A COL. B
-----------------------------------------------------------------
Title of Class Amount Outstanding
-----------------------------------------------------------------
Common Shares - par value $600 per share. 1,000 shares
4. Trusteeships under Other Indentures.
American Stock Transfer & Trust Company is Trustee under that certain
Indenture dated as of February 3, 1993 in terms of which the Obligor
issued rank equally with the securities currently being issued.
2
<PAGE>
5. Interlocking Directorates and Similar Relationships with the
Obligor or Underwriters.
None.
6. Voting Securities of the Trustee Owned by the Obligor or its
Officials.
None.
7. Voting Securities of the Trustee Owned by Underwriters or their
Officials.
None.
8. Securities of the Obligor Owned or Held by the Trustee.
None.
9. Securities of Underwriters Owned or Held by the Trustee.
None.
10. Ownership or Holdings by the Trustee of Voting Securities of
Certain Affiliates or Security Holders of the Obligor.
None.
11. Ownership or Holdings by the Trustee of any Securities of a
Person Owning 50 Percent or More of the Voting Securities of
the Obligor.
None.
12. Indebtedness of the Obligor to the Trustee.
None.
13. Defaults by the Obligor.
None.
14. Affiliations with the Underwriters.
None.
15. Foreign Trustee.
Not applicable.
3
<PAGE>
16. List of Exhibits.
T-1.1 - A copy of the Organization Certificate of American
Stock Transfer & Trust Company, as amended to date
including authority to commence business and
exercise trust powers was filed in connection with
the Registration Statement of Live Entertainment, Inc.,
File No. 33-54654, and is incorporated herein by reference.
T-1.4 - A copy of the By-Laws of American Stock Transfer
& Trust Company, as amended to date was filed in connection
with the Registration Statement of Live Entertainment, Inc.,
File No. 33-54654, and is incorporated herein by reference.
T-1.6 - The consent of the Trustee required by Section 312(b) of the
Trust Indenture Act of 1939. Exhibit A.
T-1.7 - A copy of the latest report of condition of the
Trustee published pursuant to law or the
requirements of its supervising or examining
authority. - Exhibit B.
--------------------------------
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
Trustee, American Stock Transfer & Trust Company, a corporation organized and
existing under the laws of the State of New York, has duly caused this statement
of eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of New York, and State of New York,
on the 15th day of December, 1998.
AMERICAN STOCK TRANSFER
& TRUST COMPANY
Trustee
By: /s/Herb Lemmur
---------------
Vice President
4
<PAGE>
EXHIBIT A
Securities and Exchange Commission
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321 (b) of the Trust Indenture Act of
1939, and subject to the limitations therein contained, American Stock Transfer
& Trust Company hereby consents that reports of examinations of said corporation
by Federal, State, Territorial or District authorities may be furnished by such
authorities to you upon request therefor.
Very truly yours,
AMERICAN STOCK TRANSFER
& TRUST COMPANY
By: /s/ Herb Lemmur
---------------
Vice President
5
<PAGE>
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 Wall St.
New York, NY 10005
EXHIBIT B
Consolidated Report of Condition and Income for a Bank with Domestic Offices
only and Total Assets of less than $100 Million Report at Close of Business on
June 30, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
Schedule RC - Balance Sheet
Dollar Amouts in Thousands
ASSETS
1. Cash and balances due from depository institutions: 345
a. Noninterest-bearing balances and currency and coin
b. Interest-bearing balances
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A) 6,478
b. Available-for-sale securities (from Schedule RC-B, column D)
3. Federal funds sold and securities purchased under agreements
to resell
4. Loans and lease financing receivables:
a. Loans and leases, net of unearned income (from Schedule RC-C)
b. LESS: Allowance for loan and lease losses
c. LESS: Allocated transfer risk reserve
d. Loans and leases, net of unearned income, allowance, and
reserve (item 4.a minus 4.b and 4.c
5. Trading assets
6. Premises and fixed assets (including capitalized leases) 4,066
7. Other real estate owned (from Schedule RC-M)
8. Investments in unconsolidated subsidiaries and associated companies
(from Schedule RC-M)
9. Customers' liability to this bank on acceptances outstanding
10. Intangible assets (from Schedule RC-M)
11. Other asssets (from Schedule RC-F) 7,638
12. a. Total assets (sum of items 1 through 11) 18,527
b. Losses deferred pursuant to 12 U.S.C. 1823 (j)
c Total assets and losses deferred pursuant to
12 U.S.C. 1823 (j)(sum of items 12.a and 12.b) 18,527
6
<PAGE>
Schedule RC - Continued
Dollar Amounts in Thousands
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C
from Schedule RC-E)
(1) Noninterest-bearing
(2) Interest-bearing
b. In foreign offices, Edge and Agreement subsidiaries,
and IBFs
(1) Noninterest-bearing
(2) Interest-bearing
14. Federal funds purchased and securities sold under agreements
to repurchase
15. a. Demand notes issued to the U.S. Treasury
b. Trading liabilities
16. Other borrowed money (includes mortgage indebtedness and
obligations under capitalized leases):
a. With a remaining maturity of one year or less
b. With a remaining maturity of more than one year
through three years
c. With a remaining maturity of more than three years
17. Not applicable
18. Bank's liability on acceptances executed and outstanding
19. Subordinated notes and debentures
20. Other liabilities (from Schedule RC-G) 3,076
21. Total liabilities (sum of items 13 through 20) 3,076
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus
24. Common stock 600
25. Surplus (exclude all surplus related to preferred stock) 9,290
26. a. Undivided profits and capital reserves 5,561
b. Net unrealized holding gains (losses) on
available-for-sale securities
27. Cumulative foreign currency translation adjustments
28. a. Total equity capital (sum of items 23 through 27) 15,451
b. Losses deferred pursuant to 12 U.S.C. 1823(j)
c. Total equity capital and losses deferred pursuant to
12 U.S.C. 1823(j) (sum of items 28.a and 28.b) 15,451
29. Total liabilities, equity capital, and losses deferred
pursuant to 12 U.S.C.. 1823 (j) (sum of items 21 and 28.c) 18,527
7
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1998
<PERIOD-END> JUL-31-1998
<CASH> 115,937
<SECURITIES> 0
<RECEIVABLES> 1,693,826
<ALLOWANCES> 20,000
<INVENTORY> 5,359,182
<CURRENT-ASSETS> 8,334,154
<PP&E> 5,188,482
<DEPRECIATION> 2,540,992
<TOTAL-ASSETS> 11,324,666
<CURRENT-LIABILITIES> 3,009,696
<BONDS> 170,550
0
0
<COMMON> 10,742,636
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 5,948,100
<SALES> 21,839,529
<TOTAL-REVENUES> 21,839,529
<CGS> 12,997,906
<TOTAL-COSTS> 12,997,906
<OTHER-EXPENSES> 6,413,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 231,747
<INCOME-PRETAX> 2,165,886
<INCOME-TAX> 848,000
<INCOME-CONTINUING> 1,317,886
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,317,886
<EPS-PRIMARY> .89
<EPS-DILUTED> .86
</TABLE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
<PAGE>
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ____ __,
1999 UNLESS EXTENDED OR TERMINATED (THE "EXPIRATION DATE").
LETTER OF TRANSMITTAL
THERMWOOD CORPORATION
OFFER TO EXCHANGE
UP TO $13,351,978 AGGREGATE PRINCIPAL AMOUNT OF ITS
12% SUBORDINATED DEBENTURES DUE 2014
FOR ALL OF ITS OUTSTANDING SHARES OF COMMON STOCK, NO PAR VALUE,
OTHER THAN SHARES OWNED BY KENNETH AND LINDA SUSNJARA
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.
- --------------------------------------------------------------------------------
DESCRIPTION OF SHARES TENDERED
- --------------------------------------------------------------------------------
Name(s) and Address(es) | Certificate(s) Tendered
of Registered Holder(s) | (Attach Additional Signed List if Necessary)
- -------------------------------------------------------------------------------
| | |
| | Total Number |
| | of Shares Represented | Number of
| Certificate | by Certificate(s) |Shares Tendered**
| Number(s)* | |
------------------------------------------------------
| | |
| | |
------------------------------------------------------
| | |
| | |
------------------------------------------------------
| | |
| | |
------------------------------------------------------
| | |
| | |
------------------------------------------------------
| | |
| | |
------------------------------------------------------
| | |
| | |
- --------------------------------------------------------------------------------
* 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>
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 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) receiving 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.
2
<PAGE>
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 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.
3
<PAGE>
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
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 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 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 (i)
complete the box entitled "Method of Delivery" by checking one of the three
boxes therein and supplying the appropriate information, (ii) complete the box
entitled "Description of Shares," (iii) 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, (iv) sign this Letter of Transmittal by completing the box
entitled "Please Sign Here," (v) if appropriate, check and complete the boxes
relating to the "Special Issuance Instructions" and "Special Delivery
Instructions" and (vi) 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.
4
<PAGE>
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.
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.
5
<PAGE>
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.)
6
<PAGE>
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:
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
7
<PAGE>
[ ] 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: ___________________________________________________________
<PAGE>
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)
9
<PAGE>
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)
10
<PAGE>
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 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
11
<PAGE>
(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.
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.
12
<PAGE>
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 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.
13
<PAGE>
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.
14
<PAGE>
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.
15
<PAGE>
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
IDENTIFICATION NUMBER AND Item 2 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
16
<PAGE>
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:_____________________
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<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN -- The Taxpayer Identification Number for most individuals is their
social security number. Refer to the following chart to determine the
appropriate number:
GIVE THE SOCIAL SECURITY OR
FOR THIS TYPE OF ACCOUNT: EMPLOYER IDENTIFICATION NUMBER OF:
1. Individual The individual
2. Two or more individuals (joint account) The actual owner of the
account or, if combined
funds, the first individual
on the account(1)
3. Custodian account of a minor (Uniform
Gift to Minors Act) The minor(2)
4.a. Revocable savings trust (grantor is
also trustee) The grantor-trustee(1)
So-called trust account that is not a
legal or valid trust under State law The actual owner(1)
5. Sole proprietorship The owner(3)
6. A valid trust, estate or pension trust
Legal entity(4)
7. Corporate The corporation
8. Association, club, religious, charitable,
educational or other tax
exempt
organization The organization
9. Partnership The partnership
10. A broker or registered nominee The broker or nominee
11. Account with the Department of The public entity
Agriculture
- -----------------------
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or "doing
business as" name. You may use either your Social Security number or your
employer identification number.
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
1
<PAGE>
B. EXEMPT PAYEES -- The following lists exempt payees. If you are exempt, you
must nonetheless complete the form and provide your TIN in order to establish
that you are exempt. Check the box in Part II of the form, sign and date the
form.
For this purpose, Exempt Payees include: (1) a corporation; (2) an organization
exempt from tax under section 501(a), or an individual retirement plan (IRA) or
a custodial account under section 403(b)(7); (3) the United States or any of its
agencies or instrumentalities; (4) a state, the District of Columbia, a
possession of the United States, or any of their political subdivisions or
instrumentalities; (5) a foreign government or any of its political
subdivisions, agencies or instrumentalities; (6) an international organization
or any of its agencies or instrumentalities; (7) a foreign central bank of
issue; (8) a dealer in securities or commodities required to register in the
U.S. or a possession of the U.S.; (9) a real estate investment trust; (10) an
entity or person registered at all times during the tax year under the
Investment Company Act of 1940; (11) a common trust fund operated by a bank
under section 584(a); and (12) a financial institution.
C. OBTAINING A NUMBER -- If you do not have a taxpayer identification number or
you do not know your number, obtain Form SS-5, application for a Social Security
Number, or Form SS-4, Application for Employer Identification Number, at the
local office of the Social Security Administration or the Internal Revenue
Service and apply for a number.
D. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers who
must report the payments to the IRS. The IRS uses the numbers for identification
purposes.
Payers must be given the numbers whether or not payees are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividend and
certain other payments to a payee who does not furnish a taxpayer identification
number. Certain penalties may also apply.
E. PENALTIES --
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
(2) Failure to Report Certain Dividend and Interest Payments. If you fail to
include any portion of an includable payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
2
EXHIBIT 99.2
OPTION HOLDER
LETTER OF TRANSMITTAL
<PAGE>
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ____ __,
1999 UNLESS EXTENDED OR TERMINATED (THE "EXPIRATION DATE").
OPTION HOLDER
LETTER OF TRANSMITTAL
THERMWOOD CORPORATION
OFFER TO EXCHANGE
12% SUBORDINATED DEBENTURES DUE 2014
FOR QUALIFIED AND NON-QUALIFIED OPTIONS
TO PURCHASE SHARES OF COMMON STOCK, NO PAR VALUE,
OTHER THAN OPTIONS OWNED BY KENNETH OR LINDA SUSNJARA
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:
40 Wall Street
New York, New York 10005
(If by Mail, Registered or Certified Mail Recommended)
For Information Call: (718) 921-8200
DELIVERY OF THIS LETTER OF TRANSMITTAL (THE "LETTER OF TRANSMITTAL") TO AN
ADDRESS OTHER THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID TENDER OF THE
THERMWOOD CORPORATION QUALIFIED OR NON-QUALIFIED OPTIONS (COLLECTIVELY, THE
"OPTIONS").
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS LETTER OF
TRANSMITTAL IS COMPLETED AND SIGNED.
- -------------------------------------------------------------------------------
DESCRIPTION OF OPTIONS TENDERED
- -------------------------------------------------------------------------------
Name(s) and Address(es) | Option Agreement(s) Tendered
of Registered Holder(s) | (Attach Additional Signed List if Necessary)
- -------------------------------------------------------------------------------
| | |
| | Total Number |
| Per Share |of Options Represented | Number of
| Exercise | by Option Agreement | Options
| Price | | Tendered**
------------------------------------------------------
| | |
| | |
------------------------------------------------------
| | |
| | |
------------------------------------------------------
| | |
| | |
------------------------------------------------------------------------------
* Please indicate in this column the number of Options you wish to tender. If
nothing is indicated in this column, the total number of Options evidenced by
each Option Agreement delivered with this Letter of Transmittal will be deemed
to have been tendered.
- --------------------------------------------------------------------------------
<PAGE>
All capitalized terms used herein and not defined herein shall have the meaning
ascribed to them in the Prospectus (as defined below).
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") upon the terms and subject to
the conditions set forth in the Exchange Offer for each Option to purchase one
share of the Company's Common Stock pursuant to the Company's Qualified and
Non-Qualified Stock Option Plans tendered to the Company in the Exchange Offer,
12% Subordinated Debentures due 2014 (the "Debentures") in the principal amount
equal to $11.00 minus the per Share exercise price of the Options, multiplied by
the number of Shares that would have been issuable upon exercise of the options.
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the Options indicated above. Subject
to, and effective upon, the acceptance for exchange of the Options 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 Options.
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 Options with full power of
substitution to (i) present such Options for transfer of ownership on the books
of the Company; (ii) receive all benefits and otherwise exercise all rights of
beneficial ownership of such Options; and (iii) receive Debentures on behalf of
the undersigned and deliver 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, Option
Agreements 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.
2
<PAGE>
The undersigned represents and warrants that it has full power and authority to
tender, exchange, assign and transfer the Options tendered hereby and to acquire
Debentures issuable upon the exchange of such tendered Options, and that, when
the same are accepted for exchange, the Company will acquire good and
unencumbered title to the tendered Options, free and clear of all 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 Options tendered hereby.
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 Options tendered hereby and, in such event, the Options
not exchanged will be returned to the undersigned at the address shown above.
The undersigned understands that tenders of the Options pursuant to any one of
the procedures described under "The Exchange Offer -- Procedures for Tendering -
Procedure For Option Holders" 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 Options 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 delivery and surrender of the Options is
not effective, and the risk of loss of the Options does not pass to the Exchange
Agent, until receipt by the Exchange Agent of this Letter of Transmittal. All
questions as to form of all documents and the validity (including time of
receipt) and acceptance of tenders and withdrawals of Options 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 Options not tendered or
not accepted for exchange be issued in the name(s) of the undersigned and that
Debentures be issued in the name(s) of the undersigned. Similarly, unless
otherwise indicated herein in the box entitled "Special Delivery Instructions,"
the undersigned hereby requests that any Options 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 Options from the name of the registered
Holder(s) thereof if the Company does not accept for exchange any of such
Options so tendered.
In order to properly complete this Letter of Transmittal, a Holder must (i)
deliver his or her original Option Agreement; (ii) complete the box entitled
"Description of Options Tendered;" (iii) sign this Letter of Transmittal by
completing the box entitled "Please Sign Here," (v) if appropriate, check and
complete the boxes relating to the "Special Issuance Instructions" and "Special
Delivery Instructions" and (vi) 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.
THE EXCHANGE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS OF OPTIONS 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.
3
<PAGE>
PLEASE SIGN BELOW
OPTION AGREEMENTS TENDERED MUST BE DELIVERED HEREWITH.
This Letter of Transmittal must be signed by the Holder(s) of Options exactly as
their name(s) appear(s) on option agreement(s). 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.
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
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 2, 3 and 4)
To be completed ONLY if Options 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 [ ] Options
[ ] Debentures
(check as applicable)
Name _________________________________________________________________________
(Please Print)
Address________________________________________________________________________
(Include Zip Code)
____________________________________________________________
(Tax Identification or Social Security Number)
(SEE SUBSTITUTE FORM W-9 HEREIN)
4
<PAGE>
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 and 7)
To be completed ONLY if Options 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 Options Tendered" within this Letter
of Transmittal.
Issue [ ] Options
[ ] Debentures
(check as applicable)
Name___________________________________________________________________________
(Please Print)
Address________________________________________________________________________
(Include Zip Code)
5
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL FORMING PART
OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND OPTION AGREEMENTS; WITHDRAWAL
OF TENDERS.
To tender Options in the Exchange Offer, physical delivery of Option Agreements,
as well as a properly completed and duly executed copy or manually signed
facsimile of this Letter of Transmittal 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
Options 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, OPTION AGREEMENTS AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER TENDERING OPTIONS. 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 OPTIONS WILL BE ACCEPTED.
Except as otherwise provided below, the delivery will be made when actually
received by the Exchange Agent. THIS LETTER OF TRANSMITTAL, OPTION AGREEMENTS
AND ANY OTHER REQUIRED DOCUMENTS SHOULD BE SENT ONLY TO THE EXCHANGE AGENT, NOT
TO THE COMPANY.
Options 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 Options must comply with the requirements set
forth in the Prospectus under the caption "The Exchange Offer -- Withdrawal of
Tenders."
2. PARTIAL TENDERS.
If less than the all of the Options evidenced by a submitted Option Agreement is
tendered, the tendering Holder must fill in the number tendered in the last
column of the box entitled "Description of Options Tendered" herein. All of the
Options represented by the Option Agreements delivered to the Exchange Agent
will be deemed to have been tendered, unless otherwise indicated. All Options
not tendered or not accepted for exchange will be sent to the Holder unless
otherwise provided in the "Special Issuance Instructions" or "Special Delivery
Instructions" boxes of this Letter of Transmittal.
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL.
If this Letter of Transmittal is signed by the Holder(s) of the Options tendered
hereby the signature(s) must correspond with the name(s) as written on the face
of the Option Agreement(s) without alteration, enlargement or any change
whatsoever.
If any of the Options tendered hereby are registered in the name of two or more
Holders, all such Holders must sign this Letter of Transmittal.
If this Letter of Transmittal or any Option Agreements 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.
6
<PAGE>
4. SPECIAL ISSUANCE AND SPECIAL DELIVERY INSTRUCTIONS.
Tendering Holders should indicate in the applicable box or boxes the name and
address to which Options 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.
5. 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 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.
6. 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 Options will be
determined by the Company, in its sole discretion which determination shall be
final and binding. ALTERNATIVE, CONDITIONAL OR CONTINGENT TENDERS OF OPTIONS
WILL NOT BE CONSIDERED VALID. The Company reserves the absolute right to reject
any and all tenders of Options 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 Options. 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 Options must be cured within such time as the Company determines, unless
waived by the Company. Tenders of Options 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 Options 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 Options, or incur any liability to Holders for
failure to give any such notice.
7. WAIVER OF CONDITIONS.
The Company reserves the right, in its reasonable discretion, to amend or waive
any of the conditions to the Exchange Offer.
8. MUTILATED, LOST, STOLEN OR DESTROYED OPTION AGREEMENTS.
Any Holder whose Option Agreements 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.
9. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES.
Questions relating to the procedure for tendering Options and requests for
assistance, this Letter of Transmittal or other documents may be directed to the
Exchange Agent, whose address and telephone number appear on the cover of this
Letter of Transmittal.
7
<PAGE>
IMPORTANT TAX INFORMATION
Under Federal income tax laws, a Holder who tenders Options 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 Options 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 Options 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
Options 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.
8
<PAGE>
PAYOR'S NAME: THERMWOOD CORPORATION.
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
IDENTIFICATION NUMBER AND Item 2 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).
9
<PAGE>
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
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:_____________________
10
<PAGE>
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
A. TIN -- The Taxpayer Identification Number for most individuals is their
social security number. Refer to the following chart to determine the
appropriate number:
GIVE THE SOCIAL SECURITY OR
FOR THIS TYPE OF ACCOUNT: EMPLOYER IDENTIFICATION NUMBER OF:
1. Individual The individual
2. Two or more individuals (joint account) The actual owner of the
account or, if combined
funds, the first
individual on the account(1)
3. Custodian account of a minor (Uniform
Gift to Minors Act) The minor(2)
4.a.Revocable savings trust (grantor is
also trustee) The grantor-trustee(1)
So-called trust account that is not a
legal or valid trust under State law The actual owner(1)
5. Sole proprietorship The owner(3)
6. A valid trust, estate or pension trust Legal entity(4)
7. Corporate The corporation
8. Association, club, religious, charitable,
educational or other tax exempt
organization The organization
9. Partnership The partnership
10. A broker or registered nominee The broker or nominee
11. Account with the Department of
Agriculture The public entity
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's name and social security
number.
(3) Show the individual's name. You may also enter your business name or "doing
business as" name. You may use either your Social Security number or your
employer identification number.
(4) List first and circle the name of the legal trust, estate or pension trust.
NOTE: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
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B. EXEMPT PAYEES -- The following lists exempt payees. If you are exempt, you
must nonetheless complete the form and provide your TIN in order to establish
that you are exempt. Check the box in Part II of the form, sign and date the
form.
For this purpose, Exempt Payees include: (1) a corporation; (2) an organization
exempt from tax under section 501(a), or an individual retirement plan (IRA) or
a custodial account under section 403(b)(7); (3) the United States or any of its
agencies or instrumentalities; (4) a state, the District of Columbia, a
possession of the United States, or any of their political subdivisions or
instrumentalities; (5) a foreign government or any of its political
subdivisions, agencies or instrumentalities; (6) an international organization
or any of its agencies or instrumentalities; (7) a foreign central bank of
issue; (8) a dealer in securities or commodities required to register in the
U.S. or a possession of the U.S.; (9) a real estate investment trust; (10) an
entity or person registered at all times during the tax year under the
Investment Company Act of 1940; (11) a common trust fund operated by a bank
under section 584(a); and (12) a financial institution.
C. OBTAINING A NUMBER -- If you do not have a taxpayer identification number or
you do not know your number, obtain Form SS-5, application for a Social Security
Number, or Form SS-4, Application for Employer Identification Number, at the
local office of the Social Security Administration or the Internal Revenue
Service and apply for a number.
D. PRIVACY ACT NOTICE -- Section 6109 requires most recipients of dividend,
interest or other payments to give taxpayer identification numbers to payers who
must report the payments to the IRS. The IRS uses the numbers for identification
purposes.
Payers must be given the numbers whether or not payees are required to file tax
returns. Payers must generally withhold 31% of taxable interest, dividend and
certain other payments to a payee who does not furnish a taxpayer identification
number. Certain penalties may also apply.
E. PENALTIES --
(1) Penalty for Failure to Furnish Taxpayer Identification Number. If you fail
to furnish your taxpayer identification number to a payer, you are subject to a
penalty of $50 for each such failure unless your failure is due to reasonable
cause and not to willful neglect.
2) Failure to Report Certain Dividend and Interest Payments. If you fail to
include any portion of an includable payment for interest, dividends, or
patronage dividends in gross income, such failure will be treated as being due
to negligence and will be subject to a penalty of 5% on any portion of an
under-payment attributable to that failure unless there is clear and convincing
evidence to the contrary.
(3) Civil Penalty for False Information with Respect to Withholding. If you make
a false statement with no reasonable basis which results in no imposition of
backup withholding, you are subject to a penalty of $500.
(4) Criminal Penalty for Falsifying Information. Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
2
EXHIBIT 99.3
EXCHANGE AGENT AGREEMENT
<PAGE>
_______________ __, 199_
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
Shareholders' Shares 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 __________
__, 199_, 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 January _, 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.
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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 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).
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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. 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 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.
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<PAGE>
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 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;
(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;
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(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 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.
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<PAGE>
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 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.
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<PAGE>
(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
with a copy to:
Barry B. Feiner, Esquire
190 Willis Avenue
Mineola, New York 11501
Fax No. (516) 747-0300
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
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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:
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