<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended SEPTEMBER 30, 1996
Commission file number: 0-25620
A.S.V., INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1459569
- ------------------------------ ----------------------------------
State or other jurisdiction of I.R.S. Employer Identification No.
incorporation of organization
840 LILY LANE
P.O. BOX 5160
GRAND RAPIDS, MN 55744 (218) 327-3434
- -------------------------------------- -----------------------------
Address of principal executive offices Registrant's telephone number
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. [X] Yes [_] No
At September 30, 1996, 3,203,406 shares of registrant's $.01 par value
Common Stock were outstanding.
Transitional Small Business Issuer Format [_] Yes [X] No
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, December 31,
1996 1995
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents............................ $ 404,051 $ 437,727
Marketable security.................................. 50,000 50,000
Accounts receivable, net............................. 1,326,203 737,323
Inventories.......................................... 4,440,692 3,685,975
Prepaid expenses and other........................... 126,043 62,224
---------- ----------
Total current assets................................ 6,346,989 4,973,249
Property and equipment, net........................... 1,401,976 1,348,966
---------- ----------
Total Assets........................................ $7,748,965 $6,322,215
========== ==========
</TABLE>
LIABILITIES AND SHAREHEHOLDERS' EQUITY
<TABLE>
<CAPTION>
CURRENT LIABILITIES
<S> <C> <C>
Current portion of long-term liabilities............. $ 12,804 $ 21,638
Accounts payable..................................... 857,795 179,382
Accrued expenses:
Compensation........................................ 64,997 70,220
Taxes, other than income............................ 74,247 21,182
Other............................................... 101,500 66,163
Income taxes payable................................. 54,191 229,591
---------- ----------
Total current liabilities........................... 1,165,534 588,176
---------- ----------
LONG-TERM LIABILITIES, less current portion........... 681,925 656,297
---------- ----------
SHAREHOLDERS' EQUITY
Capital stock, $.01 par value:
Preferred stock, 5,000,000 shares authorized;
no shares outstanding.............................. - -
Common stock, 15,000,000 shares authorized;
3,203,406 shares issued and outstanding in 1996;
3,175,906 shares issued and outstanding in 1995.... 32,034 31,759
Additional paid-in capital........................... 5,149,792 4,929,504
Retained earnings.................................... 719,680 116,479
---------- ----------
5,901,506 5,077,742
---------- ----------
Total Liabilities and Shareholders' Equity $7,748,965 $6,322,215
========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------ -------------------------
1996 1995 1996 1995
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales.............................. $3,308,766 $2,187,756 $8,652,737 $5,893,272
Cost of goods sold..................... 2,541,859 1,680,870 6,690,520 4,642,622
---------- ---------- ---------- ----------
Gross profit.......................... 766,907 506,886 1,962,217 1,250,650
---------- ---------- ---------- ----------
Operating expenses:
Selling, general and administrative... 314,149 257,424 905,429 742,592
Research and development.............. 69,180 28,449 142,893 50,622
---------- ---------- ---------- ----------
383,329 285,873 1,048,322 793,214
---------- ---------- ---------- ----------
Operating income...................... 383,578 221,013 913,895 457,436
---------- ---------- ---------- ----------
Other income (expense)
Interest expense...................... (11,970) (12,485) (35,719) (24,098)
Other, net............................ 72,436 8,327 95,025 26,717
---------- ---------- ---------- ----------
60,466 (4,158) 59,306 2,619
---------- ---------- ---------- ----------
Income before income taxes............ 444,044 216,855 973,201 460,055
Provision for income taxes............. 168,900 80,000 370,000 170,000
---------- ---------- ---------- ----------
NET INCOME............................ $ 275,144 $ 136,855 $ 603,201 $ 290,055
========== ========== ========== ==========
Net income per common share............ $.08 $.04 $.17 $.09
========== ========== ========== ==========
Weighted average number of common and
common equivalent shares outstanding.. 3,505,054 3,369,198 3,459,138 3,312,265
========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
A.S.V., INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income.......................................... $ 603,201 $ 290,055
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation....................................... 83,700 61,985
Interest accrued on capital lease obligation....... 34,200 18,550
Income tax benefit from stock options exercised.... 155,000 -
Changes in assets and liabilities:
Accounts receivable.................................. (588,880) (285,417)
Inventories.......................................... (754,717) (736,485)
Prepaid expenses and other........................... (63,819) 65,511
Accounts payable..................................... 678,413 364,549
Accrued expenses..................................... 83,179 129,611
Income taxes payable................................. (175,400) 137,500
--------- ---------
Net cash provided by operating activities............ 54,877 45,859
--------- ---------
Cash flows from investing activities:
Purchase of property and equipment.................. (136,710) (332,505)
Redemption of marketable security................... - 811,282
Purchase of marketable security..................... - (792,547)
--------- --------
Net cash used in investing activities................ (136,710) (313,770)
--------- ---------
Cash flows from financing activities:
Exercise of stock options........................... 65,563 15,000
Principal payments on long-term liabilities......... (17,406) (70,214)
--------- --------
Net cash provided by (used in) financing activities.. 48,157 (55,214)
--------- ---------
Net decrease in cash and cash equivalents............ (33,676) (323,125)
Cash and cash equivalents at beginning of period..... 437,727 457,980
--------- ---------
Cash and cash equivalents at end of period........... $ 404,051 $ 134,855
========= =========
</TABLE>
See notes to consolidated financial statements.
<PAGE>
A.S.V., INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996
(UNAUDITED)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INTERIM FINANCIAL INFORMATION
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, they do not include all of the footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of normal, recurring
adjustments) considered necessary for a fair presentation have been included.
Results for the interim periods are not necessarily indicative of the results
for an entire year.
RECLASSIFICATIONS
Certain 1995 amounts have been reclassified to be consistent with the 1996
presentation, with no effect on shareholders' equity or net income.
NOTE 2. PRIVATE PLACEMENT OFFERING
In October 1996, the Company completed a private placement offering consisting
of $5,000,000 of convertible debentures. The debentures carry interest at
6 1/2% payable quarterly, are non-callable by the Company until October 2001 and
mature October 2006. The debentures are convertible at any time into the
Company's common stock at $16.50 per share.
NOTE 3. PLANT EXPANSION AND FINANCING COMMITMENT
In October 1996, the Company announced it received approval for a financing
package for the expansion of its manufacturing facility in Grand Rapids,
Minnesota. The Iron Range Resource and Rehabilitation Board, together with
several other participating agencies, have agreed to provide loans totaling
approximately $1,800,000 to the Company for its plant expansion. The Company
will be required to provide approximately $200,000 for the expansion. Terms of
the loan package have not been finalized, but it is anticipated to contain a
term of approximately 20 years with a composite interest rate of 6-8%.
The Company anticipates beginning the expansion project in Fall 1996, with an
estimated completion date of Spring to Summer 1997.
<PAGE>
ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain Statements of Earnings data
as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1996 1995 1996 1995
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Net sales............................ 100.0% 100.0% 100.0% 100.0%
Cost of goods sold................... 76.8 76.8 77.3 78.8
Gross profit......................... 23.2 23.2 22.7 21.2
Selling, general and administrative.. 9.5 11.8 10.5 12.6
Operating income..................... 11.6 10.1 10.6 7.8
Net income........................... 8.3 6.3 7.0 4.9
</TABLE>
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
Net Sales. Net sales for the three months ended September 30, 1996
increased 51%, or approximately $1,121,000, to approximately $3,309,000 compared
with the three month period ended September 30, 1995. The increase was due to
increased sales of the Company's Posi-Track vehicle and related accessories,
increased sales of parts, used equipment and other items, offset in part by
reduced sales of Track Trucks and related accessories. Third quarter 1996 Posi-
Track related sales increased approximately $1,032,000 due to increased demand
and the increased number of Posi-Track dealers. Track Truck related sales
decreased approximately $201,000 in third quarter 1996 compared with third
quarter 1995. This decrease is primarily due to the Company completing a
$265,000 Track Truck sale to a Russian customer in third quarter 1995 which was
not expected to, and did not, repeat in 1996. Sales of parts, used equipment
and other items increased approximately $290,000 for the three month period
ended September 30, 1996 compared with the same period in 1995. This increase
resulted mainly from an increase in the sale of used equipment which had been
taken in on trade and an increase in the sale of service parts, as the number of
vehicles in the field has increased.
Gross Profit. Gross profit for the three months ended September 30,
1996 increased to approximately $767,000, compared with $507,000 in 1995, a
result of increased sales volume in 1996. The gross profit percentage remained
constant at 23.2% of net sales for third quarter 1996 and 1995. The increased
efficiencies in the Posi-Track manufacturing process offset the effect of fewer
Track Truck sales which are typically not sold through the Company's dealer
network.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses, as a percentage of net sales, decreased from 11.8% of
net sales in third quarter 1995 to 9.5% of net sales in third quarter 1996. The
dollar level of these expenses increased from approximately $257,000 in 1995 to
$314,000 in 1996. The dollar increase is due to additional sales and
administrative personnel being added to support greater sales and the costs
related to increased marketing efforts. The decreased percentage of selling,
general and administrative expenses is due to the Company closely managing its
costs as sales increase.
Research and Development. Research and development expenses increased
from $28,000 in third quarter 1995 to approximately $69,000 in third quarter
1996. The increase is due mainly to the Company devoting more of its resources
to product enhancements and development.
Other Income (Expense). Other income increased from approximately
$8,000 in third quarter 1995 to approximately $72,000 in 1996. This increase
was primarily due to the Company receiving $50,000 which represents the first
distribution of grant monies under its agreement with the State of Minnesota as
a result of attaining certain increased employment levels.
<PAGE>
Net Income. Net income for the third quarter of 1996 was
approximately $275,000, compared with approximately $137,000 for the third
quarter of 1995. The increase in 1996 resulted primarily from additional gross
profit on increased sales and increased non-operating income, offset in part by
increased operating costs and income taxes.
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995.
Net Sales. Net sales for the nine months ended September 30, 1996
increased 47%, or approximately $2,759,000, to approximately $8,653,000. The
increase was due to the increased sales of the Company's Posi-Track vehicle,
increases in parts, used equipment and other sales, offset by decreased Track
Truck sales. Posi-Track related sales increased 57% due to the increased demand
and increased dealer locations in 1996. Track Truck related sales decreased
approximately $226,000 due primarily to the 1995 Track Truck sale to a Russian
customer discussed above. Sales of parts, used equipment and other items
increased approximately 62% from 1995. This increase is due to increased parts
sales as there are a greater number of machines in service in 1996 and an
increase in the sale of used equipment.
Gross Profit. Gross profit increased for the nine months ended
September 30, 1996 to approximately $1,962,000, or 22.7% of net sales, from
$1,251,000, or 21.2% of net sales, for the nine months ended September 30, 1995.
The increased gross profit was due to increased sales while the increased gross
profit percentage was due to the increased volume providing for greater
efficiencies in the purchasing and manufacturing processes. Also, the Company
has occupied its larger manufacturing facility for all of 1996, as compared with
5 months in 1995, contributing to these efficiencies.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased from approximately $743,000 for the nine
months ended September 30, 1995 to approximately $905,000 for the nine months
ended September 30, 1996. As a percentage of net sales, these expenses
decreased from 12.6% in 1995 to 10.5% in 1996. The increased expenses are due to
the following: increased sales and marketing costs, primarily advertising and
travel costs; increased costs for administrative personnel hired to support the
Company's increased activity; and the costs associated with occupying the
Company's new facility. The decreased percentage of selling, general and
administrative expenses is due to the increased sales volume in 1996.
Research and Development. Research and development expenses increased
from approximately $51,000 for the nine months ended September 30, 1995 to
approximately $143,000 for the nine months ended September 30, 1996. The
increase was primarily due to funds being available to invest in this area. The
expenses have focused primarily on improvements to the Company's existing
product line.
Other Income (Expense). Interest expense increased from approximately
$24,000 for the nine months ended September 30, 1995 to approximately $36,000
for the same period in 1996 due to the required capitalization of the lease for
the Company's leased manufacturing facility. Other income increased to
approximately $95,000 in 1996 from approximately $27,000 in 1995 due primarily
to the receipt of the grant money as discussed above. In addition, the Company
recorded gains on the sale of its former research and development facility and
several pieces of equipment.
Net Income. Net income for the nine months ended September 30, 1996
increased to approximately $603,000 from approximately $290,000 for 1995. The
increase was due to increased sales, increased gross profit and increased non-
operating income, offset in part by increased operating expenses, interest
expense and income taxes.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had working capital of
approximately $5,181,000, compared with approximately $4,385,000 at December 31,
1995. Accounts receivable increased approximately $589,000, due primarily to
shipments occurring at the end of September. Inventory increased approximately
$755,000, due primarily to an increase in raw materials and purchased parts to
accommodate anticipated future production levels. Prepaid expenses and other
current assets increased approximately $64,000 due to the timing of certain
payments. Current liabilities increased approximately $577,000, due to
increases in accounts payable and accrued expenses as a result of increased
production levels, offset in part by a decrease in income taxes payable. The
Company is making estimated income tax payments based upon a higher taxable
income figure in 1996 as compared with 1995.
<PAGE>
In October 1996, the Company completed a $5 million private placement
offering of convertible debentures with an investor group. The debentures are
convertible at any time into common stock at $16.50 per share. Interest at 6.5%
per annum is payable quarterly. The debentures are non-callable for five years
and mature in October 2006. The Company intends to use approximately $1,000,000
of the proceeds to purchase capital equipment necessary for the expansion of its
manufacturing and office facilities at its Grand Rapids, Minnesota location.
The remaining proceeds will be used for working capital. Initially, working
capital will be used to finance an increase in the Company's sales and marketing
efforts through increased advertising, pursuing new dealer relationships, and
compensating sales personnel. If the Company's sales and marketing efforts
generate additional sales, the Company anticipates that additional amounts of
working capital will be used to purchase additional inventory and to finance
higher levels of accounts receivable associated with the higher level of sales.
Pending utilization of the proceeds, the Company plans to invest such proceeds
in short-term, investment grade securities or other short-term debt instruments.
In October 1996, the Company announced it received approval for a
financing package for the expansion of its manufacturing facility in Grand
Rapids, Minnesota. The Iron Range Resource and Rehabilitation Board, together
with several other participating agencies, have agreed to provide loans
totaling approximately $1,800,000 to the Company for its plant expansion. The
Company will be required to provide approximately $200,000 for the expansion.
Terms of the loan package have not been finalized, but it is anticipated to
contain a term of approximately 20 years with a composite interest rate of 6-8%.
The Company anticipates beginning the expansion project in Fall 1996, with an
estimated completion date of Spring to Summer 1997. The Company also
anticipates it will need to hire up to an additional 100 employees to meet
projected demand for its products, the majority of whom will be in the
production area. Management believes the local work force is sufficient to hire
the additional employees.
In second quarter 1996, the Company received an order in excess of
$3,000,000 from one of its dealers for Posi-Tracks to be delivered throughout
1996. Based upon the Company's current order and production levels, it does not
appear the Company will be able to deliver the units remaining under this order
in the balance of 1996. Management believes the remaining units will be
delivered in 1997. Management does not foresee any material financial impact
to the Company as a result of this matter.
The Company believes its existing cash and marketable securities,
together with those funds generated by its private placement, cash expected to
be provided by operations and available credit lines and financing commitments
will satisfy the Company's projected working capital needs and other cash
requirements at least through the end of September 1997.
In order to maintain its competitive advantage over other
manufacturers of similar products, the Company believes it will increase the
level of spending on research and development activities. It is expected the
main thrust of these activities will be directed towards improvements of and
variations on existing products.
The statements set forth above under 'Liquidity and Capital Resources'
which are not historical facts are forward-looking statements and involve risks
and uncertainties, many of which are outside the Company's control and,
accordingly, actual results may differ materially. Factors that might cause
such a difference include, but are not limited to, lack of market acceptance of
existing products, inability to attract new dealers for the Company's products,
unexpected delays in obtaining raw materials, unexpected delays in expanding its
plant capacity, unexpected additional expenses or operating losses or the
activities of competitors. Any forward-looking statements provided from time-
to-time by the Company represents only management's then-best current estimate
of future results or trends.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None
ITEM 2. CHANGES IN SECURITIES
None
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
Exhibit
Number Description
- ------ -----------
3.1 Second Restated Articles of Incorporation of the Company (a)
3.2 Bylaws of the Company (a)
4.1 Specimen form of the Company's Common Stock Certificate (a)
4.2 1987 Stock Option Plan (a)
4.3 1994 Long-Term Incentive and Stock Option Plan (a)
4.4 Form of Warrant issued to Summit Investment Corporation (b)
4.5 Form of Debenture issued October 1996
10.1 Development Agreement dated July 14, 1994 among the Iron Range
Resources and Rehabilitation Board ("IRRRB"), the Grand Rapids Economic
Development Authority ("EDA") and the Company (b)
10.2 Lease and Option Agreement dated July 14, 1994 between the
EDA and the Company (b)
10.3 Option Agreement dated July 14, 1994 between the EDA and
the Company (b)
10.4 Grant Contract dated July 14, 1994 between the Company and
the IRRRB (b)
10.5 Letter Credit Agreement dated June 15, 1994 between the
Security State Bank of Hibbing and the Company (a)
10.6 Form of Shareholder Note (a)
10.7 Contract for Deed dated October 1, 1990 between Gary D.
Lemke and the Company (a)
10.8 Distributorship Termination Agreement dated June 30, 1994
between the Company and James Fields (a)
10.9 Employment Agreement dated October 17, 1994 between the
Company and Thomas R. Karges (c)
16 Letter of Virden & Johnson, Ltd. regarding change in
certifying accountants (a)
22 List of Subsidiaries (a)
<PAGE>
27 Financial Data Schedule
- ----------------------------
(a) Incorporated by reference to the Company's Registration Statement on
Form SB-2 (File No. 33-61284C) filed July 7, 1994.
(b) Incorporated by reference to the Company's Post-Effective Amendment No.
1 to Registration Statement on Form SB-2 (File No. 33-61284C) filed
August 3, 1994.
(c) Incorporated by reference to the Company's Quarterly Report on Form 10-
QSB for the quarter ended September 30, 1994 (File No. 33-61284C) filed
November 11, 1994.
(B) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the quarter ended September 30, 1996.
- --------------------------------------------------------------------------------
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
A.S.V., INC.
Dated: November 14, 1996 By /s/ Gary Lemke
--------------------------------------------
Gary Lemke
President
Dated: November 14, 1996 By /s/ Thomas R. Karges
--------------------------------------------
Thomas R. Karges
Chief Financial Officer
(principal financial and accounting officer)
<PAGE>
EXHIBIT INDEX
EXHIBIT METHOD OF FILING
- ------- ---------------------------
4.5 Form of Debenture issued October 1996..... Filed herewith electronically
27 Financial Data Schedule................... Filed herewith electronically
<PAGE>
Exhibit 4.5
A.S.V., INC.
___% CONVERTIBLE DEBENTURE
DUE OCTOBER 15, 2006
NO.: ____________ $_______________
THE SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED
WITHOUT (I) AN OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF SUCH SECURITIES
THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT REGISTRATION OR QUALIFICATION
UNDER THE FEDERAL SECURITIES ACT OF 1933 AND APPLICABLE STATE SECURITIES LAWS;
OR (II) SUCH REGISTRATION OR QUALIFICATION.
A.S.V., Inc., a corporation duly organized and existing under the laws of
the State of Minnesota (hereinafter called the "Company"), for value received
hereby promises to pay to ___- - - - - - - - - s p e c i m e n - - - - - - - -
or registered assigns, at the principal office of the Company in Grand Rapids,
Minnesota, the principal sum of ___- - - - - - - - - s p e c i m e n - - - - -
DOLLARS ($ - - - - - s p e c i m e n - - - - - ) on October 15, 2006, and to pay
simple interest on the unpaid principal balance hereof, from October 3, 1996
until payment in full, at the rate of ___% per annum, payable quarterly on
January 15, April 15, July 15 and October 15 in each year, commencing January
15, 1997.
So long as any portion of this debenture remains outstanding and unpaid,
the Company will comply with the following provisions to which this debenture is
subject and by which it is governed:
1. Series.
This debenture is one of a series of identical convertible debentures
issued or to be issued by the Company pursuant to authorization of the Company's
Board of Directors. The debentures in such series shall collectively be referred
to herein as the "Debentures." The Debentures are limited in aggregate principal
amount to $5,000,000, except as provided in Section 16 of this Debenture. The
Debentures do not limit other subordinated debt which may be incurred by the
Company, whether secured or unsecured.
2. Interest.
The Company promises to pay interest on the principal amount of this
Debenture at the rate per annum shown above. The Company will pay interest
quarterly on January 15, April 15, July 15 and October 15 of each year. Interest
on the Debentures will accrue from the most recent date to which interest has
been paid or duly provided for, or, if no interest has been paid, from October
3, 1996. Interest will be computed on the basis of a 360-day year of twelve 30-
day months.
3. Method of Payment.
The Company will pay interest on the Debentures (except defaulted interest)
to the persons who are registered holders of Debentures at the close of business
on January 1, April 1, July 1 and October 1 next preceding the interest payment
date. Holders must surrender Debentures 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 payment of public and
private debts. However, the Company may pay principal and interest by check
payable in such money. It may mail an interest check to a holder's registered
address.
A-1
<PAGE>
4. Paying Agent, Registrar and Conversion Agent.
The Company shall maintain or cause to be maintained an office or agency in
Grand Rapids, Minnesota, where Debentures may be presented for registration of
transfer or for exchange ("Registrar"), an office or agency where Debentures may
be presented for payment ("Paying Agent") and an office or agency where
Debentures may be presented for conversion ("Conversion Agent"). Initially, the
Company will act as Paying Agent, Registrar and Conversion Agent. The Company
may appoint any other Paying Agent, Registrar, Conversion Agent or co-registrar
without notice.
5. Redemption at Option of Company.
From and after October 15, 2001, the Company may redeem for cash all of the
Debentures at any time or some of them from time to time. Debentures shall be
redeemed at par plus accrued and unpaid interest to the redemption date.
6. Notice of Redemption or Redemption Event.
Notice of redemption pursuant to Section 5 will be mailed by first-class
mail at least 30 days but not more than 60 days before the redemption date to
each holder of Debentures to be redeemed at his/her/its registered address. The
Notice shall identify the Debentures to be redeemed and shall state: (1) the
redemption date; (2) the redemption price (3) the name and address of the Paying
Agent and Conversion Agent; (4) that Debentures called for redemption may be
converted at any time before the close of business on the redemption date, and
that the right to convert shall terminate at the close of business on such date
(provided, that no default by the Company in the payment of the redemption price
(including any accrued and unpaid interest) shall have occurred and be
continuing); (5) that holders who want to convert Debentures must satisfy the
requirements of Section 7 hereof; (6) that Debentures called for redemption must
be surrendered to the Paying Agent to collect the redemption price; and (7) that
interest on Debentures called for redemption ceases to accrue on and after the
redemption date. The Company may select for redemption portions of the principal
of Debentures but portions selected shall be in amounts of $1,000 or whole
multiples of $1,000. Upon surrender of a Debenture redeemed in part, the Company
shall authenticate for the holder a new Debenture in aggregate principal amount
equal to the unredeemed portion of the Debenture surrendered. On and after the
redemption date interest ceases to accrue on Debentures or portions of them
called for redemption. If less than all the Debentures are to be redeemed
pursuant to Section 5 hereof, the Company shall select the Debentures to be
redeemed in such manner as the Company shall deem fair and appropriate in its
discretion.
Once notice of any redemption by the Company is mailed, Debentures which
the Company calls for redemption shall become due and payable on the redemption
date at the applicable redemption price, unless surrendered for conversion prior
to such date. Upon surrender to the Paying Agent, such Debentures shall be paid
at par plus accrued and unpaid interest to the redemption date (if the
redemption date is other than an interest payment date).
7. Conversion.
(a) Conversion Privilege. A holder of a Debenture may convert it into
shares of common stock of the Company, $.01 par value (the "Common Stock") at
any time, unless such Debenture has been redeemed. If the Debenture is called
for redemption, such holder may convert it at any time before the close of
business on the redemption date. The conversion price is $________ per share,
subject to adjustment in certain events described below. Whenever the conversion
price is adjusted, notice of the adjustment will be mailed promptly by the
Company to each holder of Debentures at the holder's registered address. To
determine the number of shares issuable upon conversion of a Debenture, divide
the principal amount to be converted by the conversion price in effect on the
conversion date. No
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<PAGE>
fractional shares will be issued by the Company, and in lieu thereof, an
adjustment in cash will be made based on the current market price of the
Company's Common Stock on the last trading date prior to the date of conversion.
(b) Conversion Procedure. To convert a Debenture a holder must (1) complete
and sign the conversion notice on the back of the Debenture, (2) surrender the
Debenture to a Conversion Agent, (3) furnish appropriate endorsements and
transfer documents if required by the Registrar or Conversion Agent, and (4) pay
any documentary, stamp or similar issue or transfer tax which is due because the
shares are issued in a name other than that of the holder of the Debenture. The
date on which the holder satisfies all such requirements is the conversion date.
A holder may convert a portion of a Debenture if the portion is $1,000 or a
whole multiple of $1,000.
No adjustments in respect of interest or dividends shall be made upon the
conversion of any Debenture or Debentures; provided, however, that if a
Debenture or any portion thereof shall be converted subsequent to the record
date preceding an interest payment date but prior to such interest payment date,
the registered holder of such Debenture at the close of business on such record
date shall be entitled to receive the interest payable on such Debenture on such
interest payment date notwithstanding the conversion thereof.
If a holder converts more than one Debenture at the same time, the number
of full shares issuable upon the conversion shall be based on the total
principal amount of the Debentures converted.
Upon surrender of a Debenture that is converted in part, the Company shall
authenticate for the holder a new Debenture equal in principal amount to the
unconverted portion of the Debenture surrendered. The Company may require the
holder of a Debenture so exchanged to pay a sum sufficient to cover any tax or
other governmental charge that may be imposed in connection with such exchange.
If the last day on which a Debenture may be converted is a Legal Holiday
(as defined below) in a place where a Conversion Agent is located, the Debenture
may be surrendered to that Conversion Agent on the next succeeding day that is
not a Legal Holiday.
(c) Company to Provide Stock. The Company at all times shall reserve out of
its authorized but unissued Common Stock enough shares of Common Stock free of
preemptive rights to permit the conversion of the Debentures. If the Company
shall issue any securities or make any change in its capital structure which
would change the number of shares into which the Debentures are convertible as
herein provided, the Company shall at the same time also make proper provision
so that thereafter there shall be a sufficient number of shares of Common Stock
authorized and reserved, free of preemptive rights, for conversion of the
outstanding Debentures on the new basis.
All shares of Common Stock which may be issued upon conversion of the
Debentures shall, upon issuance thereof and upon conversion of Debentures in
accordance with the terms of the Debentures, be fully paid and nonassessable.
(d) Adjustment for Change in Capital Stock. If the Company:
(1) pays a dividend or makes a distribution on its
Common Stock in shares of its capital stock;
(2) subdivides its outstanding shares of Common Stock
into a greater number of shares;
(3) combines its outstanding shares of Common Stock into
a smaller number of shares; or
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<PAGE>
(4) issues by reclassification of its Common Stock any
shares of its capital stock;
then in each such case the conversion privilege and the conversion price in
effect immediately before such action shall be adjusted so that the holder of a
Debenture thereafter converted may receive the number and kind of shares of
capital stock of the Company which it would have owned or have been entitled to
receive immediately following such action if it had converted the Debenture
immediately before the record date (or, if there is no record date, the
effective date) for such action.
The adjustment shall become effective immediately after the record date
(or, if there is no record date, the effective date) in the case of a dividend
or distribution and immediately after the effective date in the case of a
subdivision, combination or reclassification.
If after an adjustment a holder of a Debenture upon conversion of it shall
be entitled to receive securities or property other than Common Stock, the
number or amount of such securities or property receivable upon conversion shall
thereafter be subject to adjustments on terms comparable to those applicable to
Common Stock in this Section 7.
(e) Adjustment for Rights Issue. If the Company issues any rights or
warrants to all holders of its Common Stock entitling them to subscribe for or
purchase shares of Common Stock at a price per share less than the Current
Market Price (as defined below) on the record date relating to such
distribution, the conversion price shall be adjusted in accordance with the
following formula:
O + N x P
-----
M
C/1/ = Cx ---------
O + N
where
C/1/ = the adjusted conversion price.
C = the current conversion price.
O = the number of shares of Common Stock outstanding on
the record date.
N = the number of additional shares of Common Stock offered.
P = the offering price per share of the additional shares.
M = the Current Market Price per share of Common Stock
on the record date.
The adjustment shall become effective immediately after the record date for
the determination of stock holders entitled to receive the rights or warrants.
Except as hereinafter provided, no further adjustments in the conversion
price shall be made upon the actual issue of shares of Common Stock upon
exercise of such rights or warrants. If all of the shares of Common Stock
subject to such rights or warrants have not been issued when such rights or
warrants expire, then the conversion price shall promptly be readjusted to the
conversion price which would be in effect had the adjustment upon the issuance
of such rights or warrants been made on the basis of the actual number of shares
of Common Stock issued upon the exercise of such rights or warrants.
(f) Adjustment for Other Distributions. If the Company, by dividend or
otherwise, distributes to all holders of its Common Stock evidences of its
indebtedness or assets (including securities, but excluding any rights or
warrants to purchase securities of the Company referred to in
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<PAGE>
Section 7(e), any dividend or distribution paid in cash out of the retained
earnings of the Company and any dividend or distribution referred to in Section
7(d)), the conversion price shall be adjusted in accordance with the formula:
M-F
C/1/ = C x -------
M
where
C/1/ = the adjusted conversion price.
C = the current conversion price.
M = the Current Market Price per share of Common Stock on the
record date mentioned below.
F = the amount of such cash dividend and/or the fair market
value on the record date of the assets, securities,
rights or warrants to be distributed divided by the
number of shares of Common Stock outstanding on the
record date. The Board of Directors of the Company shall
determine the fair market value.
The adjustment shall become effective immediately after the record date for
the determination of stockholders entitled to receive the dividend or other
distribution.
(g) Current Market Price. For purposes of paragraphs (e) and (f) of this
Section, the "Current Market Price" per share of Common Stock on any date is the
average of the Quoted Prices (defined below) of the Common Stock for 30
consecutive trading days commencing 45 trading days before such date.
"Quoted Price" means the last reported sales price regular way or, in case
no sale takes place on such day, the average of the closing bid and asked
prices, regular way on such day, in either case as reported on the New York
Stock Exchange Composite Tape, or, if the Common Stock is not listed or admitted
to trading on such Exchange, on the principal national securities exchange on
which the Common Stock is listed or admitted to trading, or, if not listed or
admitted to trading on any national securities exchange, on the Nasdaq Stock
Market, or, if not admitted for quotation on the Nasdaq Stock Market, the
average of the high bid and low asked prices on such day as reported by the
National Association of Securities Dealers, Inc. through Nasdaq Small Cap
Market, or, if the National Association of Securities Dealers, Inc. through
Nasdaq Small Cap Market shall not have reported any bid and asked prices for the
Common Stock on such day, the average of the bid and asked prices for such day
as furnished by any New York Stock Exchange member firm selected from time to
time by the Company for such purpose, or, if no such bid and asked prices can be
obtained from any such firm, the fair market value of one share of the Common
Stock on such day as determined in good faith by the Board of Directors of the
Company.
(h) When Adjustments May be Deferred. No adjustment in the conversion price
need be made unless the adjustment would require an increase or decrease of at
least 1% in the conversion price. Any adjustments that are not made shall be
carried forward and taken into account in any subsequent adjustment.
(i) When No Adjustment Required. No adjustment need be made for a
transaction referred to in paragraphs (d), (e) and (f), if Debentureholders are
to participate in the transaction on a basis and with notice that the Board of
Directors determines to be fair to the holders of the Debentures and
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<PAGE>
appropriate in light of the basis and notice on which holders of Common Stock
participate in the transaction.
No adjustment need be made for sales of Common Stock pursuant to a plan for
reinvestment of dividends or interest, provided that the purchase price in any
such sale is at least equal to the fair market value of the Common Stock at the
time of such purchase, or pursuant to any plan adopted by the Company for the
benefit of its employees and/or consultants.
No adjustment need be made for a change in the par value of the Common
Stock not involving a subdivision or combination.
If the Debentures become convertible solely into cash, no adjustment need
be made thereafter. Interest will not accrue on the cash.
(j) Notice of Adjustment; Notice of Certain Transactions. Whenever the
conversion price is adjusted, the Company shall promptly mail to
Debentureholders a notice of the adjustment.
If:
(1) the Company takes any action that would require an adjustment in
the conversion price pursuant to Sections 7(d), (e) or (f) and if
the Company does not let Debentureholders participate pursuant to
Section 7(i); or
(2) there is a liquidation or dissolution of the Company;
the Company shall mail to Debentureholders a notice stating the proposed record
date for a distribution or effective date of a reclassification, consolidation,
merger, transfer, liquidation or dissolution. The Company shall mail the notice
at least 30 days before such date. Failure to mail the notice or defect in it
shall not affect the validity of the transaction.
(k) Conversion upon Certain Company Events. In the case of any
consolidation or merger of the Company with any other corporation (other than a
wholly owned subsidiary of the Company), or in the case of a sale or transfer of
all or substantially all of the assets of the Company, or in the case of any
share exchange pursuant to which all of the outstanding Common Shares are
converted into other securities or property, the Company shall make appropriate
provision so that the holders of the Debentures then outstanding will have the
right thereafter to convert such Debentures into the kind and amount of shares
of stock and other securities and property receivable upon such consolidation,
merger, sale, transfer or share exchange by a holder of the number of shares of
Common Shares into which such Debentures might have been converted immediately
prior to the effective date of such consolidation, merger, sale, transfer or
share exchange.
8. Seniority of Debentures.
The Company shall not incur any Indebtedness (as defined below) superior or
pari passu in right of payment to the Debentures. "Indebtedness" means
indebtedness of the Company for money borrowed or in respect of letters of
credit issued for its own account, whether outstanding on the date of execution
of this Debenture or thereafter created, incurred or assumed; guarantees by the
Company of indebtedness for money borrowed by, or payment or performance
obligations due from, any person, whether outstanding on the date of execution
of this Debenture or
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<PAGE>
thereafter created, incurred or assumed; purchase money indebtedness evidenced
by notes, lease-purchase agreements, purchase contracts or agreements, or
similar instruments for the payment of which the Company is responsible or
liable, by guarantees or otherwise, whether outstanding on the date of execution
of this Debenture or thereafter created, incurred or assumed; obligations of the
Company under any agreement to lease, or lease of any real or personal property
which are required to be capitalized in accordance with generally accepted
accounting principles, whether outstanding on the date of execution of this
Debenture or thereafter created, incurred or assumed; and any modifications,
renewals, extensions and refundings of any such indebtedness, guarantees or
obligations. "Indebtedness" shall not include trade payables of the Company.
9. Denominations, Transfer, Exchange.
The Debentures are issuable in registered form without coupons in
denominations of $1,000 and integral multiples of $1,000. A Debentureholder, by
acceptance of a Debenture, agrees to give written notice to the Company before
transferring such Debenture or transferring any shares of Common Stock issuable
upon conversion thereof of holder's intentions as to such proposed transfer and
the circumstances thereof. Upon receipt by the Company of an opinion from
counsel satisfactory to the Company that the proposed transfer of this Debenture
or disposition of such stock may be effected without registration or
qualification under the Securities Act of 1933, as amended, or any applicable
state securities law or regulation, the Company, as promptly as practicable,
shall notify such holder that such transfer or disposition may be made, provided
that an appropriate restrictive legend in substantially the form set forth on
the face of this Debenture shall be endorsed on the certificate for such
Debenture or shares to be transferred.
Subject to the foregoing paragraph, this Debenture and all rights hereunder
are transferable, in whole or in part, at the office of the Registrar by the
registered holder hereof in person or by duly authorized attorney, upon
surrender of this Debenture properly endorsed to any person or entity who
represents in writing that they are acquiring the Debenture for investment and
without any view to the sale or other distribution thereof.
This Debenture is exchangeable upon its surrender to the Registrar by the
holder for new Debentures of like tenor representing in the aggregate the right
to receive the payments of principal and interest and to exercise the conversion
rights set forth in this Debenture.
The Registrar may require a Debentureholder, among other things, to furnish
appropriate endorsements and transfer documents and to pay any taxes and fees
required by law or permitted by this Debenture. The Registrar need not transfer
or exchange any Debenture or a portion of a Debenture selected for redemption
pursuant to Section 5. Also, it need not transfer or exchange any Debentures
for a period of 15 days before the mailing of a redemption notice pursuant to
Section 5.
10. Persons Deemed Owners.
The registered holder of a Debenture may be treated as the owner of it for
all purposes.
11. Amendments, Supplements and Waivers.
Subject to certain exceptions, the Debentures may be amended or
supplemented with the consent of the holders of at least 66-2/3% in aggregate
principal amount of the Debentures then outstanding, and any past default or
noncompliance with any provision may be waived with the consent of the holders
of 66-2/3% in aggregate principal amount of the Debentures then outstanding.
Without the consent of each Debentureholder affected, no amendment, supplement
or waiver may reduce the rate of or extend the time for payment of interest on
any Debenture, reduce the principal of or the premium, if any, payable upon the
redemption of or extend the fixed maturity of any Debenture, waive a default in
the payment of the principal of or interest on any Debenture, make any debenture
payable in any currency other than that stated herein or make any change or
waive a failure to perform that adversely affects the right to convert any
Debenture. After any amendment, supplement or waiver
A-7
<PAGE>
becomes effective, the Company shall mail to the Debentureholders a notice
briefly describing the same.
12. Successor Entity.
The Company shall not consolidate or merge into, or transfer all or
substantially all of its assets to, another entity unless the successor entity
assumes all the obligations of the Company under the Debentures and immediately
after the transaction no Event of Default has occurred and is continuing. When a
successor entity assumes all the obligations of the Company under the
Debentures, the Company will be released from those obligations.
13. Defaults and Remedies.
"Default" means any event which is, or after notice or passage of time, or
both, would be, an Event of Default.
An "Event of Default" occurs if:
(a) the Company defaults in the payment of interest on any Debenture
when the same becomes due and payable, and the Default continues for a
period of 30 days;
(b) the Company defaults in the payment of the principal of any
Debenture when the same becomes due and payable at maturity, upon
redemption or otherwise;
(c) the Company fails to comply with any of its other agreements in
the Debentures, and the Default continues for sixty days;
(d) the Company pursuant to or within the meaning of any Bankruptcy
Law (as defined below):
(i) commences a voluntary case,
(ii) consents to the entry of an order for relief against it in an
involuntary case,
(iii) consents to the appointment of a Custodian (as defined below) of
it or for all or substantially all of its property, or
(iv) makes a general assignment for the benefit of its creditors; or
(e) a court of competent jurisdiction enters an order or decree
under any Bankruptcy Law that:
(i) is for relief against the Company in an involuntary case,
(ii) appoints a Custodian of the Company or for all or substantially
all of its property, or
(iii) orders the liquidation of the Company,
and the order or decree remains unstayed and in effect for 60 days.
A-8
<PAGE>
The term "Bankruptcy Law" means Title 11, 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.
If an Event of Default occurs and is continuing, the principal of and
interest on all the Debentures shall become and be immediately due and payable
without any declaration or other act on the part of any Debentureholder.
Subject to Section 11, the holders of a 66-2/3% in principal amount of the
Debentures outstanding may waive an existing Default or Event of Default and its
consequences, except a failure to perform that adversely affects the right to
convert any Debenture. When a Default or Event of Default is waived, it is
cured and ceases.
14. Reports to Debentureholders.
The Company shall mail to each Debentureholder at the address shown on the
register, 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
Securities and Exchange Commission may by rules and regulations prescribe) which
the Company is required to file with the Securities and Exchange Commission
pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934, as
amended (other than any statement filed pursuant to Section 13(d) or (g) of such
Act), within 30 days after it files them with the Securities and Exchange
Commission.
15. 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 Debentures
or for any claim based on, in respect of or by reason of, such obligations or
their creation. Each Debentureholder by accepting a Debenture waives and
releases all such liability. The waiver and release are part of the
consideration for the issue of Debentures.
16. Replacement Securities.
If the holder of a Debenture claims that the Debenture has been lost,
destroyed or wrongfully taken, the Company shall issue a replacement Debenture
if the reasonable requirements of the Company are met. If required, an
indemnity bond must be sufficient in the judgment of the Company to protect the
Company and its agents from any loss which any of them may suffer if a Debenture
is replaced. The Company may charge for its reasonable expenses in replacing a
Debenture.
17. Limited Registration Rights.
The holder of this Debenture, which is convertible into shares of Common
Stock of the Company, is entitled to the following registration rights with
respect to the shares receivable upon its conversion (such shares received upon
conversion being referred to in this Section 17 as the "Shares").
If at any time during the period commencing on the date of execution of
this Debenture and ending on October 15, 2006, the Company proposes to register
any of its securities under the Securities Act of 1933 (the "Act"), it shall
give to the holder of this Debenture written notice of its intention in that
regard and use its best efforts to effect the registration under such Act, if
such registration is permissible, of such number of Shares as may be specified
by written notice from the holder of this Debenture delivered to the Company
within 20 days after such notice is given (which notice shall be deemed to have
been given upon the deposit thereof, in first class or express U.S. mail,
postage prepaid, addressed to the holder of this Debenture, at the holder's
registered address); provided, however, that
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<PAGE>
(i) the Company shall not be required to give such notice with respect to, or to
include such Shares in, any such registration which is not to be made on Form S-
3 under the Act (or any other form then appropriate for the registration of
shares of Common Stock) or is primarily (A) a registration of a stock option
plan or other employee benefit plan or of securities issued or issuable pursuant
to any such plan, or (B) a registration of securities proposed to be issued in
exchange for securities or assets of, or in connection with a merger or
consolidation with, another corporation; (ii) the Company shall not be required
to give such notice with respect to, or to include such Shares in, any such
registration which (A) is pursuant to the due and proper exercise of a demand
registration right granted by the Company and (B) covers no securities other
than the securities which are the subject of such exercise; (iii) the Company
shall not be required to give such notice with respect to, or to include such
Shares in, any post-effective amendment to a registration statement in effect
prior to the date hereof; (iv) the Company may, in its sole discretion, withdraw
any such registration statement and abandon the proposed offering in which the
holder of this debenture had requested to participate; (v) if the offering to
which the registration statement relates is to be distributed by or through an
underwriter, the holder of this Debenture shall agree, as a condition to the
inclusion of the Shares in such registration, to sell the Shares through such
underwriter on the same terms and conditions as the underwriter agrees to sell
securities on behalf of the Company and not to sell, transfer, pledge, assign or
otherwise dispose of any Shares not sold by the holder in such offering for such
period (up to 180 days after the effective date of the registration statement)
as may be required by the underwriter; and (vi) if the offering to which the
registration statement relates is to be distributed by or through an underwriter
and a greater number of securities is offered for participation in the proposed
underwriting than, in the opinion of the Company's underwriter, can be
accommodated without adversely affecting the proposed underwriting, the Company
may elect to reduce pro rata, in accordance with the number of Shares proposed
to be sold by each holder (including the holder of this Debenture) requesting
the registration thereof, the amount of Shares proposed to be offered for
registration for the accounts of all persons other than the Company to a number
deemed satisfactory by the Company's underwriter. The costs and expenses of any
such offering, including, but not limited to, legal fees, special audit fees,
printing expenses, filing fees, fees and expenses relating to qualifications
under state securities or blue sky laws and premiums for insurance, if any,
incurred by the Company in connection with any registration made pursuant to
this Section 17 shall be borne entirely by the Company; provided, however, that
any persons participating in such registration shall bear his or her own
underwriting discounts and commissions and the fees and expenses of his or her
own counsel or accountants in connection with such registration.
If, at any time during the period from and after the date of execution of
this Debenture to October 15, 2006, the Company receives a request for
registration from a holder of the Debentures, the Company shall use its best
efforts promptly to cause an appropriate registration statement covering the
Shares issued or to be issued upon the conversion of the Debentures to be filed
with the Securities and Exchange Commission and shall use its best efforts to
cause any such registration statement to become effective under the Act as soon
as reasonably practicable thereafter. The Company shall cause such registration
statement to remain effective until all shares subject to the registration have
been sold in accordance with the terms thereof or until all shares issued or to
be issued upon conversion of the Debentures are able to be sold to the public
pursuant to Rule 144, without regard to the trading volume of the Company's
Common Stock, in a single three-month period.
If at any time that the Company is required to file a registration
statement hereunder, or any such registration statement is effective, the Board
of Directors of the Company determines, in good faith, that a sale of Common
Stock pursuant to the registration statement would require disclosure of
material information which the Company has a bona fide business purpose for
preserving as confidential, the Company shall not be required to file such
registration statement, or may suspend the effectiveness of an effective
registration statement, during the time such restriction is advisable; provided,
however, that the delay in filing of such registration statement or the
suspension of effectiveness of such registration statement shall not exceed a
period of 120 consecutive days. In the event the effectiveness of a
registration statement is suspended, the time that the Company is required
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<PAGE>
to keep such registration statement effective shall be extended by the number of
days the effectiveness of such registration statement was suspended.
In the event of any registration of Shares pursuant to this Section 17, the
Company shall indemnify the holders of the Shares being registered, their
officers and directors and each person, if any, who controls such holders within
the meaning of Section 15 of the Act, against all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus (and as
amended or supplemented) or any preliminary prospectus or any offering circular,
relating to such registration, or caused by any omission or alleged omission to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances under which they
are made, unless such statement or omission was made in reliance upon and in
conformity with information furnished in writing to the Company by the holder of
this debenture expressly for use therein. The obligations of the Company to
register any of its securities in accordance with the foregoing shall be subject
to the condition that the holder shall agree in writing to indemnify the
Company, its officers and directors, and each person, if any, who controls the
Company within the meaning of Section 15 of the Act, and each person, if any,
who controls such underwriter with respect to losses, claims, damages and
liabilities caused by any untrue statement or omission made in reliance upon and
in conformity with information furnished in writing by the holder to the Company
expressly for use in such registration statement, prospectus or offering
circular.
Upon the exercise of registration rights pursuant to this Section 17, the
holder of this Debenture agrees to supply the Company with such information as
may be required by the Company to register or qualify the Shares as described in
this Section 17.
The registration rights granted to the holder of this Debenture pursuant to
this Section 17 shall also be for the benefit of, and enforceable by, any
subsequent holder of the Shares, whether or not any express assignment of such
rights to any such subsequent holder is made.
18. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday, a legal holiday 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
during the intervening period.
19. Governing Law.
The laws of the State of Minnesota shall govern this Debenture.
20. Abbreviations.
Customary abbreviations may be used in the name of the Debentureholder 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).
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be signed and
delivered by one of its duly authorized officers.
DATED: , 1996
--------
A.S.V., INC.
AS ISSUER
By:
--------------------------------------
Its:
-----------------------------------
ATTEST:
By:
--------------------------------------
Its:
-----------------------------------
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<PAGE>
[Form of Assignment]
For Value Received, I or we assign and transfer this Debenture to:
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Insert social security or other identifying number of assignee)
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
(Print or type name, address and zip code of assignee)
and irrevocably appoint
--------------------------------------------------------
agent to transfer this Debenture on the books of the Company. The Agent may
substitute another to act for him.
Dated: Signed:
-------- ----------------------------
- -------------------------------------------------------------------------------
(Sign exactly as name appears on the other side of this Debenture)
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<PAGE>
[Form of Conversion Notice]
To: A.S.V., Inc.
The undersigned holder of this Debenture hereby irrevocably exercises the
option to convert this Debenture, or the portion hereof (which is $1,000 or a
whole multiple thereof) below designated, into shares of Common Stock of A.S.V.,
Inc. in accordance with the terms of the this Debenture and directs that such
shares of Common Stock deliverable upon conversion, together with any check in
payment for fractional shares and any Debenture(s) representing any unconverted
principal amount hereof, be issued and delivered to the registered holder hereof
unless a different name has been indicated below. If shares are to be delivered
registered in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto.
Dated:
--------
------------------------------------------
Signature
Fill in for registration of shares of Common Stock and Debentures if to be
issued otherwise than to the registered holder.
------------------------------------------
Social Security or Other Taxpayer
Identifying Number
- -----------------------------------
(Name)
- -----------------------------------
(Street Address)
- -----------------------------------
(City, State and Zip Code)
(Please print name and address)
Principal Amount to be Converted
(in a whole multiple of $1,000 if less than
all)
$
--------------------
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from the
consolidated balance sheets and statements of earnings found on pages 2 and 3 of
the Company's Form 10-QSB for the year to date, and is qualified in its entirety
by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<CASH> 404,051
<SECURITIES> 50,000
<RECEIVABLES> 1,356,203
<ALLOWANCES> 30,000
<INVENTORY> 4,440,692
<CURRENT-ASSETS> 6,346,989
<PP&E> 1,919,933
<DEPRECIATION> 517,957
<TOTAL-ASSETS> 7,748,965
<CURRENT-LIABILITIES> 1,165,534
<BONDS> 681,925
<COMMON> 32,034
0
0
<OTHER-SE> 5,869,472
<TOTAL-LIABILITY-AND-EQUITY> 7,748,965
<SALES> 8,652,737
<TOTAL-REVENUES> 8,652,737
<CGS> 6,690,520
<TOTAL-COSTS> 6,690,520
<OTHER-EXPENSES> 1,048,322
<LOSS-PROVISION> 10,000
<INTEREST-EXPENSE> 35,719
<INCOME-PRETAX> 973,201
<INCOME-TAX> 370,000
<INCOME-CONTINUING> 603,201
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 603,201
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
