0000099106-11-000002.txt : 20110331
0000099106-11-000002.hdr.sgml : 20110331
20110331172619
ACCESSION NUMBER: 0000099106-11-000002
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20101231
FILED AS OF DATE: 20110331
DATE AS OF CHANGE: 20110331
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: TRANS LUX CORP
CENTRAL INDEX KEY: 0000099106
STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990]
IRS NUMBER: 131394750
STATE OF INCORPORATION: DE
FISCAL YEAR END: 1231
FILING VALUES:
FORM TYPE: 10-K
SEC ACT: 1934 Act
SEC FILE NUMBER: 001-02257
FILM NUMBER: 11727710
BUSINESS ADDRESS:
STREET 1: 26 PEARL STREET
CITY: NORWALK
STATE: CT
ZIP: 06850-1647
BUSINESS PHONE: 2038534321
MAIL ADDRESS:
STREET 1: 26 PEARL STREET
CITY: NORWALK
STATE: CT
ZIP: 06850-1647
10-K
1
tlx10k2010.txt
FORM 10-K FOR YEAR ENDED 12/31/2010
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2010
-----------------
Commission file number 1-2257
------
TRANS-LUX CORPORATION
---------------------
(Exact name of Registrant as specified in its charter)
Delaware 13-1394750
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
26 Pearl Street, Norwalk, CT 06850-1647
----------------------------------------
(Address of Registrant's principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 853-4321
--------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
----------------------------- -----------------------------------------
Common Stock, $1.00 par value None
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes No X
--- ---
Indicate by check mark if the Registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes No X
--- ---
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 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. Yes X No
--- ---
CONTINUED
TRANS-LUX CORPORATION
2010 Form 10-K Cover Page Continued
Indicate by check mark whether the Registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T during the
preceding 12 months (or for such shorter period that the Registrant was required
to submit and post such files.) Yes No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
Large accelerated filer Accelerated filer Non-accelerated filer
--- --- ---
Smaller reporting company X
---
Indicate by check mark whether the Registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes No X
--- ---
The aggregate market value of the Registrant's Common Stock held by
non-affiliates of the Registrant based upon the last sale price of the
Registrant's Common Stock reported on the NYSE Amex on June 30, 2010, was
approximately $1,449,000.
The number of shares outstanding of the Registrant's Common Stock, par value
$1.00 per share, on March 30, 2011, was 2,442,923.
DOCUMENTS INCORPORATED BY REFERENCE: None
TRANS-LUX CORPORATION
2010 Form 10-K Annual Report
Table of Contents
PART I
Page
----
ITEM 1. Business 1
ITEM 1A. Risk Factors 5
ITEM 1B. Unresolved Staff Comments 8
ITEM 2. Properties 9
ITEM 3. Legal Proceedings 9
ITEM 4. Removed and Reserved 9
PART II
ITEM 5. Market for the Registrant's Common Equity, Related Stockholder
Matters and Issuer Purchases of Equity Securities 9
ITEM 6. Selected Financial Data 10
ITEM 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations 10
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk 17
ITEM 8. Financial Statements and Supplementary Data 18
ITEM 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure 37
ITEM 9A. Controls and Procedures 37
ITEM 9B. Other Information 38
PART III
ITEM 10. Directors, Executive Officers and Corporate Governance 38
ITEM 11. Executive Compensation 42
ITEM 12. Security Ownership of Certain Beneficial Owners and Management
and Related Stockholder Matters 48
ITEM 13. Certain Relationships and Related Transactions, and Director
Independence 49
ITEM 14. Principal Accounting Fees and Services 49
PART IV
ITEM 15. Exhibits and Financial Statement Schedules 50
Signatures 52
PART I
In light of the unprecedented instability in the financial markets and the
severe slowdown in the overall economy, we do not have adequate liquidity,
including access to the debt and equity capital markets, to operate our business
in the manner in which we have historically operated. As a result, our
short-term business focus has been to preserve our liquidity position. In April
2010, we were successful in negotiating the renewal of the bank Credit
Agreement, the senior lender reduced the monthly principal payments and modified
the maturity of the Credit Agreement to May 1, 2011. In August 2010, the senior
lender further modified the Credit Agreement to reduce the availability under
the revolving loan from $5.0 million to $4.3 million, amended the principal
repayment schedule to defer the next three $50,000 monthly principal payments
until the maturity date and removed the senior debt coverage ratio covenant test
for the June 30, 2010 and September 30, 2010 quarters. The Credit Agreement is
secured by substantially all of our eligible accounts receivable, inventory and
other assets. We cannot provide any assurance that we would have sufficient
cash and liquid assets to fund normal operations during the period of time when
we are required to repay amounts outstanding under the Credit Agreement. Unless
we are successful in obtaining additional liquidity, we believe that we will not
have sufficient cash and liquid assets to fund normal operations for the next 12
months. The Company has not made the December 1, 2009 and December 1, 2010
required sinking fund payments totaling $211,400 on its 9 1/2% Subordinated
debentures due 2012 (the "Debentures") and the June 1, 2010 and December 1, 2010
interest payments totaling $100,400. In addition, the Company did not make the
March 1, 2010 and 2011 and September 1, 2010 interest payments totaling $1.3
million on its 8 1/4% Limited convertible senior subordinated notes due 2012
(the "Notes"). As a result, if the Company is unable to (i) obtain additional
liquidity for working capital, (ii) make the required sinking fund payments on
the Debentures, (iii) make the required interest payments on the Notes and the
Debentures, and (iv) make the required payments under the Credit Agreement when
due, there would be a significant adverse impact on the financial position and
operating results of the Company.
Moreover, because of the uncertainty surrounding our ability to obtain
additional liquidity and the potential of the noteholders and/or trustee to give
notice to the Company of a default on either the Debentures or the Notes, our
independent registered public accounting firm has issued an opinion on our
consolidated financial statements that states that the consolidated financial
statements were prepared assuming we will continue as a going concern, however
the opinion further states that the uncertainty regarding the ability to make
the required sinking fund payments on the Debentures and the interest payments
on the Notes and the Debentures and the potential of the senior lender
accelerating the payments on the Credit Agreement due to an event of default on
the Debentures and the Notes raises substantial doubt about our ability to
continue as a going concern. See Note 2 - Going Concern to the consolidated
financial statements.
ITEM 1. BUSINESS
Unless the context otherwise requires, the term "Company" as used herein refers
to Trans-Lux Corporation and its subsidiaries. The Company is a leading
designer and manufacturer of digital signage display solutions. The essential
elements of these systems are the real-time, programmable electronic information
displays the Company designs, manufactures, distributes and services. These
display systems utilize LED (light emitting diode) technologies. Designed to
meet the digital signage solutions for any size venue's indoor and outdoor
needs, these display products include text, graphic and video displays for stock
and commodity exchanges, financial institutions, college and high school sports
stadiums, schools, casinos, convention centers, corporate applications,
government applications, theatres, retail sites, airports, billboard sites and
numerous other applications. In 2010 the Company started a new business
opportunity in the LED lighting market with energy-saving lighting solutions
that will feature a comprehensive offering of the latest LED lighting
technologies that provide facilities and public infrastructure with "green"
lighting solutions that emit less heat, save energy and enable creative designs.
The Company also owns an income-producing real estate property which has been
placed on the market for sale.
ELECTRONIC INFORMATION DISPLAY PRODUCTS
---------------------------------------
The Company's high performance electronic information displays are used to
communicate messages and information in a variety of indoor and outdoor
applications. The Company's product line encompasses a wide range of
state-of-the-art electronic displays in various size and color configurations.
Most of the Company's display products include hardware components and
sophisticated software. In both the indoor and outdoor markets in which the
Company serves, the Company adapts basic product types and technologies for
specific use in various niche market applications. The Company also operates a
direct service network throughout the United States and parts of Canada, which
performs on-site project management, installation, service and maintenance for
its customers and others.
1
The Company employs a modular engineering design strategy, allowing basic
'building blocks' of electronic modules to be easily combined and configured in
order to meet the broad application requirements of the industries it serves.
This approach ensures product flexibility, reliability, ease of service and
minimum spare parts requirements.
The Company's electronic information display market is comprised of two distinct
segments: the Indoor division and the Outdoor division. Electronic information
displays are used by financial institutions, including brokerage firms, banks,
energy companies, insurance companies and mutual fund companies; sports stadiums
and venues; educational institutions; outdoor advertising companies; corporate
and government communication centers; retail outlets; casinos, race tracks and
other gaming establishments; airports, train stations, bus terminals and other
transportation facilities; movie theatres; health maintenance organizations and
in various other applications.
Indoor Division: The indoor electronic display market is currently dominated by
three categories of users: financial, government/private sector and gaming.
The financial sector, which includes trading floors, exchanges, brokerage firms,
banks, mutual fund companies and energy companies, has long been a user of
electronic information displays due to the need for real-time dissemination of
data. The major stock and commodity exchanges depend on reliable information
displays to post stock and commodity prices, trading volumes, interest rates and
other financial data. Brokerage firms use electronic ticker displays for both
customers and brokers; they have also installed other larger displays to post
major headline news events in their brokerage offices to enable their sales
force to stay up-to-date on events affecting general market conditions and
specific stocks. Banks and other financial institutions also use information
displays to advertise product offerings to consumers. The Indoor division has a
product line of advanced last sale price displays, full color LED tickers and
graphic/video displays.
The government/private sector includes applications found in major corporations,
public utilities and government agencies for the display of real-time, critical
data in command/control centers, data centers, help desks, visitor centers,
lobbies, inbound/outbound telemarketing centers, retail applications to attract
customers and for employee communications. Electronic displays have found
acceptance in applications for the healthcare industry such as outpatient
pharmacies, military hospitals and HMOs to automatically post patient names when
prescriptions are ready for pick up. Theatres use electronic displays to post
current box office and ticket information, directional information and to
promote concession sales. Information displays are consistently used in
airports, bus terminals and train stations to post arrival and departure times
and gate and baggage claim information, all of which help to guide passengers
through these facilities.
The gaming sector includes casinos, Indian gaming establishments and racetracks.
These establishments generally use large information displays to post odds for
race and sporting events and to display timely information such as results,
track conditions, jockey weights, scratches and real-time video. Casinos and
racetracks also use electronic displays throughout their facilities to advertise
to and attract gaming patrons. Equipment for the Indoor display segment
generally has a lead-time of 30 to 120 days depending on the size and type of
equipment ordered and material availability.
Outdoor Division: The outdoor electronic display market is even more diverse
than the Indoor division. Displays are being used by schools, sports stadiums,
sports venues, gas stations, highway departments and outdoor advertisers, such
as digital billboards, attempting to capture the attention of passers-by. The
Outdoor division has a product line of LED message centers, scoreboards and
video displays available in monochrome and full color. The Company has utilized
its strong position in the Indoor display market combined with several
acquisitions to enhance its presence in the Outdoor display market. Outdoor
displays are installed in amusement parks, entertainment facilities, high
schools, college sports stadiums, city park and recreational facilities,
churches, racetracks, military installations, automobile dealerships, banks and
other financial institutions. This division generally sells through dealers and
distributors. Equipment for the Outdoor display segment generally has a
lead-time of 10 to 120 days depending on the size and type of equipment ordered
and material availability.
Sales Order Backlog (excluding leases): The amount of sales order backlog at
December 31, 2010 and 2009 was approximately $3.1 million and $1.6 million,
respectively. The December 31, 2010 backlog is expected to be recognized in
2011. These amounts include only the sale of products; they do not include new
lease orders or renewals of existing lease agreements that may be presently
in-house.
2
ENGINEERING AND PRODUCT DEVELOPMENT
-----------------------------------
The Company's ability to compete and operate successfully depends on its ability
to anticipate and respond to the changing technological and product needs of its
customers, among other factors. For this reason, the Company continually
develops enhancements to its existing product lines and examines and tests new
display technologies.
During 2010, the Company introduced TLVision, a new enriched line of indoor and
outdoor products. This new line of products consists of full color video
products that can be used in a multitude of applications. These applications
range from posting alphanumeric data to the displaying of full HD video. The
actual pixel pitches of the products range from 4 mm for very close distance
viewing and up to 45 mm for very long distance viewing.
During 2010, the Company's Outdoor display division continued to enhance the
wireless scoreboard control that incorporates the newer generation radio
systems. In parallel with the new radio system, the Company continues to update
the MiScore(TM) and MiTime(TM) handheld, simple to operate controllers.
As part of its ongoing development efforts, the Company seeks to package certain
products for specific market segments as well as continually tracking emerging
technologies that can enhance its products. Full color, live video and digital
input technologies continue to be enhanced.
The Company maintains a staff of 9 people who are responsible for product
development and support. The engineering, product enhancement and development
efforts are supplemented by outside independent engineering consulting
organizations, as required. Engineering expense and product enhancement and
development amounted to $1.1 million and $1.5 million in 2010 and 2009,
respectively.
MARKETING AND DISTRIBUTION
--------------------------
The Company markets its indoor and outdoor electronic information display
products in the United States and Canada using a combination of distribution
channels, including 15 direct sales representatives, three telemarketers and a
network of independent dealers and distributors. By working with software
vendors and using the internet to expand the quality and quantity of multimedia
content that can be delivered to our electronic displays, we are able to offer
customers relevant, timely information, content management software and display
hardware in the form of turnkey display communications packages.
The Company employs a number of different marketing techniques to attract new
customers, including direct marketing efforts by its sales force to known and
potential users of information displays; internet marketing; advertising in
industry publications; and exhibiting at approximately 5 domestic and
international trade shows annually.
Internationally, the Company uses a combination of internal sales people and
independent distributors to market its products outside the United States. The
Company has existing relationships with approximately 20 independent
distributors worldwide covering Europe, the Middle East, South America, Africa,
the Far East and Australia. Foreign revenues represented 11% and less than 10%
of total revenues for the years ended 2010 and 2009, respectively.
Headquartered in Norwalk, Connecticut, the Company has sales and service offices
in Des Moines, Iowa and Burlington, Ontario; as well as approximately 19
satellite offices in the United States and Canada.
The Company's equipment is both leased and sold. A significant portion of the
electronic information display revenues is derived from equipment rentals with
current lease terms ranging from 30 days to ten years.
The Company's revenues in 2010 and 2009 did not include any single customer that
accounted for more than 10% of total revenues.
MANUFACTURING AND OPERATIONS
----------------------------
The Company's production facilities are located in Des Moines, Iowa. During
2010, the Company relocated its indoor production facility from Stratford,
Connecticut to Des Moines, Iowa. The production facilities consist principally
of the manufacturing, assembly and testing of display units and related
components. The Company performs most subassembly and final assembly of its
products.
3
All product lines are design engineered by the Company and controlled throughout
the manufacturing process. The Company has the ability to produce very large
sheet metal fabrications, cable assemblies and surface mount and through-hole
designed assemblies. Some of the subassembly processes are outsourced. The
Company's production of many of the subassemblies and final assemblies gives the
Company the control needed for on-time delivery to its customers.
The Company has the ability to rapidly modify its product lines. The Company's
displays are designed with flexibility in mind, enabling the Company to
customize its displays to meet different applications with a minimum of
lead-time. The Company designs certain of its materials to match components
furnished by suppliers. If such suppliers were unable to provide the Company
with those components, the Company would have to contract with other suppliers
to obtain replacement sources. Such replacement might result in engineering
design changes, as well as delays in obtaining such replacement components. The
Company believes it maintains suitable inventory and has contracts providing for
delivery of sufficient quantities of such components to meet its needs. The
Company also believes there presently are other qualified vendors of these
components. The Company does not acquire significant amount of purchases
directly from foreign suppliers, but certain key components such as the LEDs and
LED modules are manufactured by foreign sources. The Company's products are
third-party certified as complying with applicable safety, electromagnetic
emissions and susceptibility requirements worldwide.
SERVICE AND SUPPORT
-------------------
The Company emphasizes the quality and reliability of its products and the
ability of its field service personnel and third-party agents to provide timely
and expert service to the Company's rental equipment and maintenance bases and
other types of customer-owned equipment. The Company believes that the quality
and timeliness of its on-site service personnel are important components in the
Company's ongoing and future success. The Company provides turnkey installation
and support for the products it leases and sells in the United States and
Canada. The Company provides training to end-users and provides ongoing support
to users who have questions regarding operating procedures, equipment problems
or other issues. The Company provides installation and service to those who
purchase and lease equipment. The Company's dealers and distributors offer
support for the products they sell in the market segments they cover.
Personnel based in regional and satellite service locations throughout the
United States and Canada provide high quality and timely on-site service for the
installed rental equipment and maintenance base and other types of
customer-owned equipment. Purchasers or lessees of the Company's larger
products, such as financial exchanges, casinos and sports stadiums, often retain
the Company to provide on-site service through the deployment of a service
technician who is on-site daily for scheduled events. The Company operates its
National Technical Services and Repair Center from its Des Moines, Iowa
facility. Equipment repairs are performed in Des Moines and service technicians
are dispatched nationwide from the Des Moines facility. The Company's field
service is augmented by various service companies in the United States, Canada
and overseas. From time to time the Company uses various third-party service
agents to install, service and/or assist in the service of certain displays for
reasons that include geographic area, size and height of displays.
COMPETITION
-----------
The Company's offers of short and long-term leases to customers and its
nationwide sales, service and installation capabilities are major competitive
advantages in the display business. The Company believes that it is the largest
supplier of large-scale stock, commodity, sports and race book gaming displays
in the United States, as well as one of the larger outdoor electronic display
and service organizations in the country.
The Company competes with a number of competitors, both larger and smaller than
itself, with products based on different forms of technology. There are several
competitors whose current products utilize similar technology to the Company's
and who possess the resources necessary to develop competitive and more
sophisticated products in the future.
LED LIGHTING
------------
In 2010 the Company started a new business opportunity in the LED lighting
market with energy-saving lighting solutions that will feature a comprehensive
offering of the latest LED lighting technologies that provide facilities and
public infrastructure with "green" lighting solutions that emit less heat, save
energy and enable creative designs. LED lighting is a start-up business and has
not yet generated any revenues for the year ended December 31, 2010.
4
REAL ESTATE RENTAL OPERATIONS
-----------------------------
The Company owns an income-producing real estate property located in Santa Fe,
New Mexico, which currently has a 29% occupancy rate. This property has been
placed on the market for sale because it does not directly relate to our core
business. The Company also owns land in Silver City, New Mexico, which has been
placed on the market for sale because it does not directly relate to our core
business.
INTELLECTUAL PROPERTY
---------------------
The Company owns or licenses a number of patents and holds a number of
trademarks for its display equipment and considers such patents, licenses and
trademarks important to its business.
EMPLOYEES
---------
The Company has approximately 150 employees as of March 14, 2011. Approximately
21% of the employees are unionized. The Company believes its employee relations
are good.
ITEM 1A. RISK FACTORS
THERE IS SUBSTANTIAL DOUBT ABOUT OUR ABILITY TO CONTINUE AS A GOING CONCERN
---------------------------------------------------------------------------
Our independent registered public accounting firm has issued an opinion on our
consolidated financial statements that states that the consolidated financial
statements were prepared assuming we will continue as a going concern and
further states that the continuing losses and uncertainty regarding the ability
to make the required sinking fund payments on the Debentures and the interest
payments on the Notes and the Debentures and the potential of the senior lender
accelerating the payments on the Credit Agreement due to an event of default on
the Debentures and the Notes raises substantial doubt about our ability to
continue as a going concern. As a result, if the Company is unable to (i)
obtain additional liquidity for working capital, (ii) make the required sinking
fund payments on its Debentures, (iii) make the required interest payments on
the Notes and the Debentures, and (iv) make the required payments under the
Credit Agreement when due, there would be a significant adverse impact on the
financial position and the operating results of the Company.
THE CURRENT GLOBAL ECONOMIC CRISIS HAS NEGATIVELY IMPACTED OUR BUSINESS
-----------------------------------------------------------------------
The current continuing global economic crisis has adversely affected our
customers, suppliers and other businesses such as ours. As a result, it has had
a variety of negative effects on the Company such as reduction in revenues,
increased costs, lower gross margin percentages, increased allowances for
uncollectible accounts receivable and/or write-offs of accounts receivable.
This economic crisis has also impaired our ability to access credit markets and
finance our operations and could otherwise have material adverse effects on our
business, results of operations, financial condition and cash flows.
OPERATING LOSSES
----------------
The Company has incurred operating losses for the past several years. During
the years 2010 and 2009, the Company incurred losses from continuing operations
of $7.1 million and $8.8 million, respectively, which includes a $1.1 million
restructuring charge and a $456,000 charge to write-off engineering software in
2010 and in 2009, a $2.7 million write-off of a note receivable related to the
former Norwalk, Connecticut facility the Company sold in 2004. The Company is
dependent upon future operating performance to generate sufficient cash flows in
order to continue to run its businesses. Future operating performance is
dependent on general economic conditions, as well as financial, competitive and
other factors beyond our control. As a result, we have experienced a decline in
our sales and lease bases. There can be no assurance that we will be able to
increase our revenue sufficiently to generate the cash required to fund our
current operations.
5
DEFAULT ON INDEBTEDNESS
-----------------------
The Company has $10.1 million of 8 1/4% Limited convertible senior subordinated
notes due 2012 (the "Notes") which are no longer convertible into common shares;
interest is payable semi-annually and the Notes may be redeemed, in whole or in
part, at par. The Company has not remitted the March 1, 2010 and 2011 and
September 1, 2010 semi-annual interest payments of $417,800 each to the trustee.
The non-payments constitute an event of default under the Indenture governing
the Notes and the trustee, by notice to the Company, or the holders of 25% of
the principal amount of the Notes outstanding, by notice to the Company and the
trustee, may declare the outstanding principal plus interest due and payable
immediately. When such notice is received by the Company, no payment shall be
made by the Company to the holders or trustee until the earlier of such
non-payment event of default is cured or waived or 179 days since receipt by the
trustee of notice of such event, unless the holder of Senior Indebtedness has
accelerated the due date thereof. If the holder of Senior Indebtedness
accelerates the due date at any time, then no payment may be made until the
default is cured or waived. At December 31, 2010, the total amount outstanding
under the Notes is classified as Current portion of long-term debt in the
Consolidated Balance Sheets.
The Company has $1.1 million of 9 1/2% Subordinated debentures due 2012 (the
"Debentures") which are due in annual sinking fund payments of $105,700
beginning in 2009, which payments have not been remitted by the Company, with
the remainder due in 2012; interest is payable semi-annually and the Debentures
may be redeemed, in whole or in part, at par. The Company has not remitted the
June 1, 2010 and December 1, 2010 semi-annual interest payments of $50,200 each
to the trustee. The non-payments constitute an event of default under the
Indenture governing the Debentures and the trustee, by notice to the Company, or
the holders of 25% of the principal amount of the Debentures outstanding, by
notice to the Company and the trustee, may declare the outstanding principal
plus interest due and payable immediately. During the continuation of any event
which, with notice or lapse of time or both, would constitute a default under
any agreement under which Senior Indebtedness is issued, if the effect of such
default is to cause, or permit the holder of Senior Indebtedness to become due
prior to its stated maturity, no payment (including any required sinking fund
payments) of principal, premium or interest shall be made on the Debentures
unless and until such default shall have been remedied, if written notice of
such default has been given to the trustee by the Company or the holder of
Senior Indebtedness. The failure to make the sinking fund and interest payments
are events of default under the Credit Agreement since it involves indebtedness
over $500,000 and no payment can be made to such trustee or the holders at this
time as such defaults have not been waived. At December 31, 2010, the total
amount outstanding under the Debentures is classified as Current portion of
long-term debt in the Consolidated Balance Sheets.
In the event that the holders of the Notes or the Debentures or either of the
trustees thereunder declare a default and begin to exercise any of their rights
or remedies in connection with the non-payment defaults, this shall constitute a
separate and distinct event of default and the senior lender may exercise any
and all rights or remedies it may have. The amounts outstanding under the
Credit Agreement are collateralized by all of the Display division assets.
PENSION PLAN WAIVERS FILED
--------------------------
On March 12, 2010 and March 11, 2011, the Company submitted to the Internal
Revenue Service requests for waivers of the 2009 and 2010 minimum funding
standard for its defined benefit plan. The waiver requests were submitted as a
result of the current economic climate and the business hardship that the
Company is currently experiencing. The waivers, if granted, will defer payment
of $285,000 and $559,000 of the minimum funding standard for the 2009 and 2010
plan years, respectively. If the waivers are not granted, the Pension Benefit
Guaranty Corporation and the Internal Revenue Service have various enforcement
remedies that can be implemented to protect the participant's benefits, such as
termination of the plan or a requirement that the Company make the unpaid
contributions. At this time, the Company is hoping to make its required
contributions for the 2011 plan year; however there is no assurance that the
Company will be able to make all payments. The senior lender has waived the
default of non-payment of certain pension plan contributions, but in the event
that any government agency takes any enforcement action or otherwise exercises
any rights or remedies it may have, this shall constitute a separate and
distinct event of default and the senior lender may exercise any and all rights
or remedies it may have under the Credit Agreement.
LEVERAGE
--------
As of December 31, 2010, the Company's total long-term debt (including current
portion) was $18.7 million. We expect we may incur indebtedness in connection
with new rental equipment leases and working capital requirements. Our ability
to
6
satisfy our obligations will be dependent upon our future performance, which is
subject to prevailing economic conditions and financial, business and other
factors, including factors beyond our control. There can be no assurance that
our operating cash flows will be sufficient to meet our long-term debt service
requirements or that we will be able to refinance indebtedness at maturity. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Liquidity and Capital Resources."
RELIANCE ON KEY SUPPLIERS
-------------------------
We design certain of our materials to match components furnished by suppliers.
If such suppliers were unable or unwilling to provide us with those components,
we would have to contract with other suppliers to obtain replacement sources.
In particular, we purchase most of the LEDs and LED module blocks used in our
electronic information displays from three suppliers. We do not have long-term
supply contracts with these suppliers. A change in suppliers of either LED
module blocks or certain other components may result in engineering design
changes, as well as delays in obtaining such replacement components. We believe
there are presently other qualified vendors of these components. Our inability
to obtain sufficient quantities of certain components as required, or to develop
alternative sources at acceptable prices and within a reasonable time, could
result in delays or reductions in product shipments that could have a materially
adverse effect on our business and results of operations.
COMPETITION
-----------
Our electronic information displays compete with a number of competitors, both
larger and smaller than us, and with products based on different forms of
technology. In addition, there are several competitors whose current products
utilize similar technology and who possess the resources to develop competitive
and more sophisticated products in the future. Our success is, to some extent,
dependent upon our ability to anticipate technological changes in the industry
and to successfully identify, obtain, develop and market new products that
satisfy evolving industry requirements. There can be no assurance that
competitors will not market new products which have perceived advantages over
our products or which, because of pricing strategies, render the products
currently sold by us less marketable or would otherwise adversely affect our
operating margins.
NATURE OF LEASING AND MAINTENANCE REVENUES
------------------------------------------
We derive a substantial percentage of our revenues from the leasing of our
electronic information displays, generally pursuant to leases that have an
average term of one to five years. Consequently, our future success is, at a
minimum, dependent on our ability to obtain the renewal of existing leases or to
enter into new leases as existing leases expire. We also derive a significant
percentage of our revenues from maintenance agreements relating to our display
products. The average term of such agreements is generally one to five years.
A portion of the maintenance agreements is cancelable upon 30 days notice.
There can be no assurance that we will be successful in obtaining the renewal of
existing leases or maintenance agreements, obtaining replacement leases or
realizing the value of assets currently under leases that are not renewed. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations - Results of Operations."
EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS AND CONTROL BY EXISTING STOCKHOLDERS
-------------------------------------------------------------------------------
Our Restated Certificate of Incorporation contains certain provisions that could
have the effect of making it more difficult for a third party to acquire us, or
of discouraging a third party from attempting to acquire, control of us. Such
provisions could limit the price that certain investors might be willing to pay
in the future for shares of our Common Stock, thus making it less likely that a
stockholder will receive a premium on any sale of shares. Our Board of
Directors is divided into three classes, each of which serves for a staggered
three-year term, making it more difficult for a third party to gain control of
our Board. Our Restated Certificate of Incorporation also contains a provision
that requires a four-fifths vote on any merger, consolidation or sale of assets
with or to an "Interested Person" or "Acquiring Person."
Additionally, we are authorized to issue 500,000 shares of Preferred Stock
containing such rights, preferences, privileges and restrictions as may be fixed
by our Board of Directors, which may adversely affect the voting power or other
rights of the holders of Common Stock or delay, defer or prevent a change in
control of the Company, or discourage bids for the Common Stock at a premium
over its market price or otherwise adversely affect the market price of the
Common Stock.
7
As of December 31, 2010, 11 stockholders who are executive officers and/or
directors of the Company beneficially own approximately 3.28% of the Common
Stock.
LIMITED TRADING VOLUME AND VOLATILITY OF STOCK PRICE
----------------------------------------------------
Our Common Stock is not widely held and the volume of trading has been
relatively low and sporadic. Accordingly, the Common Stock is subject to
increased price volatility and reduced liquidity. There can be no assurance
that a more active trading market for the Common Stock will develop or be
sustained if it does develop. The limited public float of our Common Stock
could cause the market price for the Common Stock to fluctuate substantially.
In addition, stock markets have experienced wide price and volume fluctuations
in recent periods and these fluctuations often have been unrelated to the
operating performance of the specific companies affected. Any of these factors
could adversely affect the market price of the Common Stock.
NYSE DELISTING
--------------
By letter dated July 2, 2010, the Exchange notified the Company that it was not
in compliance with two of the Exchange's continued listing standards.
Specifically, the Company is not in compliance with Section 1003(a)(iii) of the
Exchange's Company Guide in that it has stockholders' equity at March 31, 2010
of less than $6.0 million and losses from continuing operations and net losses
in its five most recent fiscal years and Section 1003(a)(iv) of the Company
Guide in that it is financially impaired. The Exchange stated in its letter
that in order to maintain its listing, the Company must submit a plan by August
2, 2010 addressing how it intends to regain compliance with Section 1003(a)(iv)
regarding financial impairment by January 4, 2011, and with Section 1003(a)(iii)
regarding stockholder equity and losses within 18 months or January 4, 2012 (the
"Plan").
The Company received a letter dated September 14, 2010 from the NYSE Amex LLC
("Exchange") to strike the Common Stock of the Company from the Exchange by
filing a delisting application with the Securities and Exchange Commission
pursuant to Section 1009(d) of the Exchange's Company Guide. The letter also
notified the Company that it had fallen out of compliance with an additional
continued listing standard. Specifically, the Company is not in compliance with
Section 1003(a)(ii) of the Exchange's Company Guide in that it has stockholders'
equity of less than $4.0 million at June 30, 2010, and losses from continuing
operations and net losses in three of its four most recent fiscal years ended
December 31, 2009.
The Company submitted its Plan of compliance, but the Exchange determined that
the Company did not make a reasonable demonstration in the Plan of its ability
to regain compliance within the time periods given and concluded that it is
appropriate to initiate immediate delisting proceedings at such time. The
Company appealed the determination, but the Exchange upheld its decision and
trading on the NYSE Amex was suspended as of November 17, 2010.
SHARES ELIGIBLE FOR FUTURE SALE
-------------------------------
Future sales of Common Stock in the public market by current stockholders of the
Company could adversely affect the market price for the Common Stock. 80,536
shares of Common Stock may be sold in the public market by executive officers
and directors, subject to the limitations contained in Rule 144 under the
Securities Act of 1933, as amended. Sales of substantial amounts of the shares
of Common Stock in the public market, or even the potential for such sales,
could adversely affect the prevailing market price of our Common Stock. On
December 11, 2009, the stockholders approved an amendment to the Company's
Certificate of Incorporation to provide for the automatic conversion of each
share of Class B Stock into 1.3 shares of Common Stock as provided in a
Settlement Agreement approved by the United States District Court for the
Southern District of New York.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
8
ITEM 2. PROPERTIES
The Company's headquarters and principal executive offices are located in a
leased facility at 26 Pearl Street, Norwalk, Connecticut, which is used for
administration, engineering and sales. The Company relocated the manufacturing
and assembly functions of its indoor display business to its facility in Des
Moines, Iowa. The Company owns a facility in Des Moines, Iowa where its indoor
and outdoor operations are maintained.
In addition, the Company owns an income-producing real estate property in Santa
Fe, New Mexico and land in Silver City, New Mexico. Both of these properties
have been placed on the market for sale because they do not directly relate to
our core business. The Company leases five other premises throughout North
America for use as sales, service and/or administrative operations. The
aggregate rental expense was $395,000 and $629,000 for the years ended December
31, 2010 and 2009, respectively.
ITEM 3. LEGAL PROCEEDINGS
The Company is subject to legal proceedings and claims which arise in the
ordinary course of its business and/or which are covered by insurance that it
believes, individually and in the aggregate, will not have a material adverse
effect on the consolidated financial position or operations of the Company.
ITEM 4. REMOVED AND RESERVED
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
(a) The Company's Common Stock is traded on the OTC under the symbol
"TNLX." Prior to November 17, 2010, the Company's Common Stock was
trade on the NYSE Amex under the symbol "TLX." Sales pries are set
forth in Item 5(d) below.
(b) The Company had approximately 633 holders of record of its Common Stock
as of March 30, 2011.
(c) The Board of Directors did not declare any cash dividends for Common
Stock during 2010 in order to conserve cash and pay down debt.
Management and the Board of Directors will continue to review payment
of quarterly cash dividends.
(d) The following table sets forth the range of Common Stock prices on the
OTC or NYSE Amex.
--------------------------------------------
2010 2009
--------------------------------------------
High Low High Low
--------------------------
First Quarter $1.90 $0.57 $0.90 $0.20
Second Quarter $0.88 $0.40 $2.31 $0.24
Third Quarter $0.86 $0.31 $3.50 $0.78
Fourth Quarter $0.84 $0.10 $1.49 $0.30
--------------------------------------------
(e) The Company did not purchase any of its equity securities during any
month of the fourth fiscal quarter of 2010.
9
ITEM 6. SELECTED FINANCIAL DATA
(a) Not applicable.
(b) Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Overview
Trans-Lux is a leading designer and manufacturer of digital display signage
solutions. The essential elements of these systems are the real-time,
programmable electronic information displays we design, manufacture, distribute
and service. Designed to meet the digital signage solutions for any size
venue's indoor and outdoor needs, these displays are used primarily in
applications for the financial, banking, gaming, corporate, advertising,
transportation, entertainment and sports markets. In 2010 the Company started a
new business opportunity in the LED lighting market with energy-saving lighting
solutions that will feature a comprehensive offering of the latest LED lighting
technologies that provide facilities and public infrastructure with "green"
lighting solutions that emit less heat, save energy and enable creative designs.
The Company also owns and operates an income-producing rental property. The
Company operates in four reportable segments: Indoor display, Outdoor display,
LED lighting and Real estate rental.
The Indoor display segment includes worldwide revenues and related expenses from
the rental, maintenance and sale of indoor displays. This segment includes the
financial, government/private and gaming markets. The Outdoor display segment
includes worldwide revenues and related expenses from the rental, maintenance
and sale of outdoor displays. Included in this segment are catalog sports,
retail and commercial markets. The LED lighting segment will include worldwide
revenues and related expenses from the sale of LED lighting products. The Real
estate rental segment includes the operations of an income-producing real estate
property.
Going Concern
In light of the unprecedented instability in the financial markets and the
severe slowdown in the overall economy, we do not have adequate liquidity,
including access to the debt and equity capital markets, to operate our business
in the manner in which we have historically operated. As a result, our
short-term business focus has been to preserve our liquidity position. In April
2010, we were successful in negotiating the renewal of the bank Credit
Agreement, the senior lender reduced the monthly principal payments and modified
the maturity of the Credit Agreement to May 1, 2011. In August 2010, the senior
lender further modified the Credit Agreement to reduce the availability under
the revolving loan from $5.0 million to $4.3 million, amended the principal
repayment schedule to defer the next three $50,000 monthly principal payments
until the maturity date and removed the senior debt coverage ratio covenant test
for the June 30, 2010 and September 30, 2010 quarters. The Credit Agreement is
secured by substantially all of our eligible accounts receivable, inventory and
other assets. We cannot provide any assurance that we would have sufficient
cash and liquid assets to fund normal operations during the period of time when
we are required to repay amounts outstanding under the Credit Agreement. Unless
we are successful in obtaining additional liquidity, we believe that we will not
have sufficient cash and liquid assets to fund normal operations for the next 12
months. The Company has not made the December 1, 2009 and December 1, 2010
required sinking fund payments totaling $211,400 on its 9 1/2% Subordinated
debentures due 2012 (the "Debentures") and the June 1, 2010 and December 1, 2010
interest payments totaling $100,400. In addition, the Company did not make the
March 1, 2010 and 2011 and September 1, 2010 interest payments totaling $1.3
million on its 8 1/4% Limited convertible senior subordinated notes due 2012
(the "Notes"). As a result, if the Company is unable to (i) obtain additional
liquidity for working capital, (ii) make the required sinking fund payments on
the Debentures, (iii) make the required interest payments on the Notes and the
Debentures, and (iv) make the required payments under the Credit Agreement when
due, there would be a significant adverse impact on the financial position and
operating results of the Company.
Moreover, because of the uncertainty surrounding our ability to obtain
additional liquidity and the potential of the noteholders and/or trustee to give
notice to the Company of a default on either the Debentures or the Notes, our
independent
10
registered public accounting firm has issued an opinion on our consolidated
financial statements that states that the consolidated financial statements were
prepared assuming we will continue as a going concern, however the opinion
further states that the uncertainty regarding the ability to make the required
sinking fund payments on the Debentures and the interest payments on the Notes
and the Debentures and the potential of the senior lender accelerating the
payments on the Credit Agreement due to an event of default on the Debentures
and the Notes raises substantial doubt about our ability to continue as a going
concern. See Note 2 - Going Concern to the consolidated financial statements.
Critical Accounting Policies and Estimates
Management's Discussion and Analysis of Financial Condition and Results of
Operations discusses the Company's consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of these financial statements
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. On an ongoing basis,
management evaluates its estimates and judgments, including those related to
percentage of completion, uncollectible accounts receivable, slow-moving and
obsolete inventories, goodwill and intangible assets, income taxes, warranty
obligations, pension plan obligations, contingencies and litigation. Management
bases its estimates and judgments on historical experience and on various other
factors that are believed to be reasonable under the circumstances, the results
of which form the basis for making judgments about the carrying values of assets
and liabilities that are not readily apparent from other sources. Actual
results may differ from these estimates under different assumptions or
conditions. Management has discussed the development and selection of these
accounting estimates and the related disclosures with the audit committee of the
Board of Directors.
Management believes the following critical accounting policies, among others,
involve its more significant judgments and estimates used in the preparation of
its consolidated financial statements:
Percentage of Completion: The Company recognizes revenue on long-term equipment
sales contracts using the percentage of completion method based on estimated
incurred costs to the estimated total cost for each contract. Should actual
total cost be different from estimated total cost, an addition or a reduction to
cost of sales may be required.
Uncollectible Accounts Receivable: The Company maintains allowances for
uncollectible accounts receivable for estimated losses resulting from the
inability of its customers to make required payments. Should non-payment by
customers differ from the Company's estimates, a revision to increase or
decrease the allowance for uncollectible accounts receivable may be required.
Slow-Moving and Obsolete Inventories: The Company writes down its inventory for
estimated obsolescence equal to the difference between the carrying value of the
inventory and the estimated market value based upon assumptions about future
demand and market conditions. If actual future demand or market conditions are
less favorable than those projected by management, additional inventory write
downs may be required.
Goodwill and Intangible Assets: The Company evaluates goodwill and intangible
assets for possible impairment annually for goodwill and when events or changes
in circumstances indicate that the carrying amount of such assets may not be
recoverable for other intangible assets. The Company uses the income and the
market approach to test for impairment of its goodwill, and considers other
factors including economic trends and our market capitalization relative to net
book value. The Company weighs these approaches by using a 50% factor for the
income approach and a 50% factor for the market approach. Together these two
factors estimate the fair value of the reporting unit. The Company's goodwill
relates to its catalog sports reporting unit. The Company uses a discounted
cash flow model to determine the fair value under the income approach which
contemplates an overall weighted average revenue growth rate of 2.0% to 6.0%.
If the Company were to reduce its revenue projections on the reporting unit by
9.5% within the income approach, the fair value of the reporting unit would be
below carrying value. The gross profit margins used are consistent with
historical margins achieved by the Company during previous years. If there is a
margin decline of 3.0% or more the model would yield results of a fair value
less than carrying amount.
The October 1, 2010 annual review indicated no impairment of goodwill. Goodwill
in our other businesses was not impaired. Changes in the assumptions used could
materially impact our fair value estimates. Assumptions critical to our fair
value
11
estimates are: (i) discount rate used to derive the present value factors used
in determining the fair value of the reporting unit, (ii) projected average
revenue growth rates used in the reporting unit models; and (iii) projected
long-term growth rates used in the derivation of terminal year values. These
and other assumptions are impacted by economic conditions and expectations of
management and will change in the future based on period-specific facts and
circumstances, thereby possibly requiring an impairment charge in the future.
Income Taxes: The Company records a valuation allowance to reduce its deferred
tax assets to the amount that it believes is more likely than not to be
realized. While the Company has considered future taxable income and ongoing
feasible tax planning strategies in assessing the need for the valuation
allowance, in the event the Company were to determine that it would not be able
to realize all or part of its net deferred tax assets in the future, an
adjustment to the deferred tax assets would be charged to income in the period
such determination was made. Likewise, should the Company determine that it
would be able to realize its deferred tax assets in the future in excess of its
net recorded amount, an adjustment to the deferred tax assets would increase
income in the period such determination was made.
Warranty Obligations: The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
Pension Plan Obligations: The Company is required to make estimates and
assumptions to determine the obligation of our pension benefit plan, which
include investment returns and discount rates. During 2010, the Company
recorded an after tax charge in unrecognized pension liability in other
comprehensive loss of $0.4 million and during 2009, the Company recorded an
after tax benefit in unrecognized pension liability in other comprehensive loss
of $1.1 million. Estimates and assumptions are reviewed annually with the
assistance of external actuarial professionals and adjusted as circumstances
change. At December 31, 2010, plan assets were invested 36.1% in guaranteed
investment contracts, 63.2% in equity and index funds, 0.4% in bonds and 0.3% in
money market funds. The investment return assumption takes the asset mix into
consideration. The assumed discount rate reflects the rate at which the pension
benefits could be settled. At December 31, 2010, the weighted average rates
used for the computation of benefit plan liabilities were: investment returns,
8.00% and discount rate, 5.75%. Net periodic cost for 2011 will be based on the
December 31, 2010 valuation. The defined benefit plan periodic cost was
$429,000 in 2010 and $725,000 in 2009. At December 31, 2010, assuming no change
in the other assumptions, a one-percentage point change in investment returns
would affect the net periodic cost by $54,000 and a one-percentage point change
in the discount rate would affect the net periodic cost by $138,000. As of
December 31, 2003, the benefit service under the defined benefit plan had been
frozen and, accordingly, there is no service cost for each of the two years
ended December 31, 2009 and 2010. In March 2010 and 2011, the Company submitted
to the Internal Revenue Service requests for waivers of the 2009 and 2010
minimum funding standard for its defined benefit plan. The waiver requests were
submitted as a result of the current economic climate and the business hardship
that the Company is currently experiencing. The waivers, if granted, will defer
payment of the minimum funding standard for the 2009 and 2010 plan years. The
Company has not remitted $242,000 and $358,000 of payment contributions for 2009
and 2010, respectively. At this time, the Company is hoping to make its
required contributions for the 2011 plan year; however there is no assurance
that we will be able to make all payments.
Results of Operations
2010 Compared to 2009
Total revenues for the year ended December 31, 2010 decreased 14.9% to $24.3
million from $28.5 million for the year ended December 31, 2009, principally due
to decreases in both the Outdoor display and Indoor display sales revenues.
Indoor display revenues decreased $1.2 million or 15.0%. Of this decrease,
Indoor display equipment sales decreased $368,000 or 17.3%, primarily due to a
decrease in sales from the financial services and gaming markets. Indoor
display equipment rentals and maintenance revenues decreased $859,000 or 14.2%,
primarily due to disconnects and non-renewals of equipment on rental on existing
contracts in the financial services market. The financial services market
continues to be negatively impacted by the current investment climate resulting
in consolidation within that industry and the wider use of
12
flat-panel screens for smaller applications. The global recession has
negatively impacted Indoor display sales and rentals and maintenance revenues.
Outdoor display revenues decreased $3.0 million or 14.9%. Of this decrease,
Outdoor display equipment sales decreased $2.6 million or 16.0%, primarily in
the catalog sports market principally due to decreases in state and local
budgets. Outdoor display equipment rentals and maintenance revenues decreased
$370,000 or 9.9%, primarily due to the continued expected revenue decline in the
older Outdoor display equipment rental and maintenance bases acquired in the
early 1990s. The global recession has negatively impacted the Outdoor sales and
rentals and maintenance revenues as well.
LED lighting is a start-up business and has not generated any revenues for the
year ended December 31, 2010.
Real estate rental revenues decreased $14,000 or 5.7%, primarily due to the
termination of a tenant lease in the fourth quarter of 2010.
Total operating loss for the year ended December 31, 2010 increased $1.2 million
to $5.5 million from $4.3 million for the year ended December 31, 2009,
principally due to the decline in revenues, the restructuring costs and the
harge to write-off engineering software.
Indoor display operating loss increased $378,000 to $2.2 million in 2010
compared to $1.8 million in 2009, primarily as a result of the decrease in
revenues and $985,000 of restructuring costs, offset by an $809,000 decrease in
bad debt expense and a $485,000 decrease in depreciation expense. The cost of
Indoor displays represented 94.1% of related revenues in 2010 compared to 90.4%
in 2009. The Company periodically addresses the cost of field service to keep
it in line with revenues from equipment rentals and maintenance, but as rental
and maintenance revenues have declined, it is difficult to reduce the cost of
field service proportionately. Indoor displays cost of equipment rentals and
maintenance decreased $744,000 or 13.0%, primarily due to a $485,000 decrease in
field service costs to maintain the equipment and the decrease in depreciation
expense. Cost of Indoor display equipment rentals and maintenance includes
field service expenses, plant repair costs, maintenance and depreciation.
Indoor display cost of equipment sales decreased $77,000 or 5.3%, primarily due
to the decrease in revenues. Indoor display general and administrative expenses
increased $2,000 or 0.1%, primarily due to the restructuring charge, offset by
the decrease in bad debt expense. The restructuring will result in annual
payroll savings of approximately $1.1 million.
Outdoor display operating income (loss) decreased $1.4 million to a loss of
$59,000 in 2010 compared to income of $1.4 million in 2009, primarily as a
result of the decrease in revenues, the $456,000 charge to write-off engineering
software and $93,000 of restructuring costs, offset by a $233,000 decrease in
bad debt expense, a $71,000 decrease in depreciation expense and a decrease in
certain administrative costs. The cost of Outdoor displays represented 79.9% of
related revenues in 2010 compared to 75.8% in 2009. Outdoor displays cost of
equipment sales decreased $1.3 million or 10.1%, principally due to the decrease
in volume. Outdoor displays cost of equipment rentals and maintenance decreased
$281,000 or 11.6%, primarily due to a $209,000 decrease in field service costs
to maintain the equipment and the decrease in depreciation expense. Outdoor
display general and administrative expenses increased $24,000 or 0.7%, primarily
due to the charge to write-off engineering software, offset by the reduction in
certain administrative costs. Cost of Outdoor display equipment rentals and
maintenance includes field service expenses, plant repair costs, maintenance and
depreciation. The restructuring will result in annual payroll savings of
approximately $0.7 million.
LED lighting operating loss was $202,000 in 2010, primarily due to the start-up
expenses of this new segment.
Real estate rental operating income remained level. The cost of Real estate
rental represented 24.2% of related revenues in 2010 compared to 24.9% in 2009.
Real estate rental general and administrative expenses decreased slightly.
The Write-off of note receivable for 2009 represents a $2.7 million write-off of
a note receivable related to the former Norwalk, Connecticut facility the
Company sold in 2004.
Corporate general and administrative expenses decreased $848,000 or 20.7%. The
2010 corporate general and administrative expenses include a reduction of
$327,000 in the Canadian currency exchange loss. Reductions in audit, insurance
and medical expenses and payroll also contributed to the decrease this year.
The Company continues to monitor and reduce certain overhead costs such as
benefit and medical costs.
13
Net interest expense decreased $102,000 or 6.0%, primarily due to scheduled
payments of long-term debt as well as a reduction in the outstanding balance of
the revolving credit facility for most of 2010 as compared to 2009.
The effective tax (rate) benefit for the years ended December 31, 2010 and 2009
was 0.3% and (0.6%), respectively. Both the 2010 and 2009 tax rates are being
affected by the valuation allowance on the Company's deferred tax assets as a
result of reporting pre-tax losses. The income tax expense relates to the
Company's Canadian subsidiary.
Liquidity and Capital Resources
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. The Company has incurred
significant recurring losses from continuing operations and has a significant
working capital deficiency. The Company incurred a net loss from continuing
operations of $7.1 million in 2010 and has a working capital deficiency of $17.6
million as of December 31, 2010. The 2010 results include a $1.1 million
restructuring charge related to the relocation of the manufacturing of the
indoor display equipment from Connecticut to Iowa as further discussed in Note 3
- Plan of Restructuring, and a $456,000 charge to write-off engineering
software. As further discussed in Note 13 - Long-Term Debt, the Company did not
make the December 1, 2009 and 2010 required sinking fund payments of $105,700
each, and did not make the June 1, 2010 and December 1, 2010 interest payments
of $50,200 each on its 9 1/2% Subordinated debentures (the "Debentures"). In
addition, the Company did not make the March 1, 2010 and 2011 and September 1,
2010 interest payments of $417,800 each on its 8 1/4% Limited convertible senior
subordinated notes (the "Notes"). Under the terms of the indenture agreements
that govern the Debentures and the Notes, the non-payments constitute events of
default; accordingly, the trustees or the holders of 25% of the outstanding
Debentures and Notes have the right to declare the outstanding principal and
interest due and payable immediately. In the event that the Company receives
such notice, the senior lender has the right to demand payment on outstanding
amounts on the Credit Agreement. As such, all outstanding debt has been
classified as Current portion of long-term debt in the Consolidated Balance
Sheets. These matters raise substantial doubt about the Company's ability to
continue as a going concern.
The Company has a bank Credit Agreement, as amended, which provides for a term
loan of $10.0 million, a non-revolving line of credit of up to $6.2 million
(which is no longer available) to finance the redemption of one-half of the 7
1/2% Subordinated Notes due 2006 (which were redeemed in June 2006 and are no
longer outstanding), and a revolving loan of up to $4.3 million, based on
eligible accounts receivable and inventory, at a variable rate of interest of
Prime plus 2.00%, with a floor of 6.00% (6.00% at December 31, 2010), which
matures May 1, 2011. In August 2010, the senior lender modified the Credit
Agreement to reduce the availability under the revolving loan from $5.0 million
to $4.3 million, amended the principal repayment schedule to defer the next
three monthly principal payments of $50,000 each until the maturity date and
removed the senior debt coverage ratio covenant test for the June 30, 2010 and
September 30, 2010 quarters. As of December 31, 2010, the Company has drawn
$4.1 million against the revolving loan facility, of which $0.2 million was
available for additional borrowing. The Credit Agreement requires an annual
facility fee on the unused commitment of 0.25%, and requires compliance with
certain financial covenants, as defined in the Credit Agreement, which include a
loan-to-value ratio of not of not more than 50% and a $1.0 million cap on
capital expenditures. As of December 31, 2010, the Company was in compliance
with the foregoing financial covenants, but was not in compliance with the
senior debt coverage ratio of not less than 1.25 to 1.0 (-0.25 to 1.0 at
December 31, 2010). The Company is in discussion with the senior lender to
waive the non-compliance, but has not been granted as of March 31, 2011. In
addition, the senior lender has waived the default with respect to each of the
Notes and the Debentures, but in the event that the holders of the Notes or the
Debentures or either of the trustees thereunder declare a default and begin to
exercise any of their rights or remedies in connection with the non-payment
defaults, this shall constitute a separate and distinct event of default and the
senior lender may exercise any and all rights or remedies it may have. In
addition, the senior lender has waived the default of non-payment of certain
pension plan contributions, but in the event that any government agency takes
any enforcement action or otherwise exercises any rights or remedies it may
have, this shall constitute a separate and distinct event of default and the
senior lender may exercise any and all rights or remedies it may have. The
amounts outstanding under the Credit Agreement are collateralized by all of the
Display division assets.
On March 1, 2010, the Company refinanced its existing mortgage on its facility
located in Des Moines, Iowa. The refinancing was for $650,000 at a fixed rate
of interest of 6.50% payable in monthly installments, which matures March 1,
2015. The Company used proceeds of $390,000 to settle the prior debt and used
the $260,000 balance for working capital needs.
14
The Company has a $1.8 million mortgage on its real estate rental property
located in Santa Fe, New Mexico at a variable rate of interest of Prime, with a
floor of 6.75%, which was the interest rate in effect at December 31, 2010,
payable in monthly installments, which matures December 12, 2012.
On February 25, 2010, the Company took out a mortgage on the land held for sale
located in Silver City, New Mexico and repaid it on August 27, 2010. The
financing was for $100,000 at a fixed rate of interest of 7.80%, payable in
monthly interest only payments, which was due to mature on February 25, 2012.
The Company has generated cash provided by operating activities from operations
of $1.7 million and $5.0 million for the years ended December 31, 2010 and 2009,
respectively. The Company has implemented several initiatives to improve
operational results and cash flows over future periods, including the closing of
the Stratford, Connecticut indoor display manufacturing facility. The Company
continues to explore ways to reduce operational and overhead costs. The Company
periodically takes steps to reduce the cost to maintain the equipment on rental
and maintenance agreements.
The Company is dependent on future operating performance in order to generate
sufficient cash flows in order to continue to run its businesses. Future
operating performance is dependent on general economic conditions, as well as
financial, competitive and other factors beyond our control. As a result, we
have experienced a decline in our sales and lease and maintenance bases. The
cash flows of the Company are constrained, and in order to more effectively
manage its cash resources in these challenging economic times, the Company has,
from time to time, increased the timetable of its payment of some of its
payables. There can be no assurance that we will meet our anticipated current
and near term cash requirements. The Company's objective in regards to loan
commitments is to obtain additional funds from external sources through equity
or additional debt financing prior to the maturity of the Credit Agreement on
May 1, 2011, and the Company is in discussions with senior lenders and others,
but has no agreements, commitments or understanding from such senior lenders or
others with respect to obtaining any additional funds, and the current global
credit environment has been and continues to be a challenge in accomplishing
these objectives. If the Company is unable to obtain replacement financing
before the maturity of the Credit Agreement on May 1, 2011, the senior lender
has the right to declare all amounts outstanding thereunder due and payable. If
this were to occur, the Company would have difficulties meeting its obligations
in the normal course of business. The Company continually evaluates the need
and availability of long-term capital in order to meet its cash requirements.
Management believes that based on its actions taken, current cash resources and
cash provided by continuing operations it will have difficulty funding
continuing operations and its current obligations over the next twelve months.
The Company has $10.1 million of 8 1/4% Limited convertible senior subordinated
notes due 2012 (the "Notes") which are no longer convertible into common shares;
interest is payable semi-annually and the Notes may be redeemed, in whole or in
part, at par. The Company has not remitted the March 1, 2010 and 2011 and
September 1, 2010 semi-annual interest payments of $417,800 each to the trustee.
The non-payments constitute an event of default under the Indenture governing
the Notes and the trustee, by notice to the Company, or the holders of 25% of
the principal amount of the Notes outstanding, by notice to the Company and the
trustee, may declare the outstanding principal plus interest due and payable
immediately. When such notice is received by the Company, no payment shall be
made by the Company to the holders or trustee until the earlier of such
non-payment event of default is cured or waived or 179 days since receipt by the
trustee of notice of such event, unless the holder of Senior Indebtedness has
accelerated the due date thereof. If the holder of Senior Indebtedness
accelerates the due date at any time, then no payment may be made until the
default is cured or waived.
In addition, the Company has $1.1 million of 9 1/2% Subordinated debentures due
2012 (the "Debentures") which are due in annual sinking fund payments of
$105,700 beginning in 2009, which payments have not been remitted by the
Company, with the remainder due in 2012; interest is payable semi-annually and
the Debentures may be redeemed, in whole or in part, at par. The Company has
not remitted the June 1, 2010 and December 1, 2010 semi-annual interest payments
of $50,200 each to the trustee. The non-payments constitute an event of default
under the Indenture governing the Debentures and the trustee, by notice to the
Company, or the holders of 25% of the principal amount of the Debentures
outstanding, by notice to the Company and the trustee, may declare the
outstanding principal plus interest due and payable immediately. During the
continuation of any event which, with notice or lapse of time or both, would
constitute a default under any agreement under which Senior Indebtedness is
issued, if the effect of such default is to cause, or permit the holder of
Senior Indebtedness to become due prior to its stated maturity, no payment
(including any required sinking fund payments) of principal, premium or interest
shall be made on the Debentures unless and until such default shall have been
remedied, if written notice of such default has been given to the trustee by the
Company or the holder of Senior Indebtedness. The failure to make the sinking
fund and interest payments are events of default under the Credit Agreement
since it involves indebtedness over $500,000 and no payment can be made to such
trustee or the holders at this time as such defaults have has not been waived.
15
In March 2011 and 2010, the Company submitted to the Internal Revenue Service
requests for waiver of the minimum funding standard for its defined benefit
plan. The waiver requests were submitted as a result of the current economic
climate and the current business hardship that the Company is experiencing. The
waivers, if granted, will defer payment of $559,000 and $285,000 of the minimum
funding standard for the 2010 and 2009 plan years, respectively. If the waivers
are not granted, the Pension Benefit Guaranty Corporation and the Internal
Revenue Service have various enforcement remedies they can implement to protect
the participant's benefits; such as termination of the plan and require the
Company to make the unpaid contributions. The senior lender has waived the
default of non-payment of certain pension plan contributions, but in the event
that any government agency takes any enforcement action or otherwise exercises
any rights or remedies it may have, this shall constitute a separate and
distinct event of default and the senior lender may exercise any and all rights
or remedies it may have. At this time, the Company is hoping to make its
required contributions for the 2011 plan year; however there is no assurance
that the Company will be able to make all payments.
Cash and cash equivalents decreased $143,000 in 2010. The decrease was
primarily attributable to the investment in equipment for rental of $1.3
million, the investment in property, plant and equipment of $0.2 million and
scheduled payments of long-term debt of $0.8 million, offset by cash provided by
operating activities of $1.7 million, the net proceeds from mortgage borrowings
of $0.3 million and borrowing on the revolving loan facility of $0.1 million.
The current economic environment has increased the Company's trade receivables
collection cycle, and its allowances for uncollectible accounts receivable, but
collections continues to be favorable.
A fundamental principle of the preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America is
the assumption that an entity will continue in existence as a going concern,
which contemplates continuity of operations and the realization of assets and
settlement of liabilities occurring in the ordinary course of business. This
principle is applicable to all entities except for entities in liquidation or
entities for which liquidation appears imminent. In accordance with this
requirement, the Company has prepared its consolidated financial statements on a
going concern basis. While we have prepared our consolidated financial
statements on a going concern basis, the continuing losses and uncertainty
regarding the ability to make the required sinking fund payments on the
Debentures and the interest payments on the Notes and the potential of the
senior lender accelerating the payments on the Credit Agreement due to an event
of default on the Debentures and the Notes raises substantial doubt about our
ability to continue as a going concern. Therefore, we may not be able to
realize our assets and settle our liabilities in the ordinary course of
business. Our consolidated financial statements included in this annual report
on Form 10-K do not reflect any adjustments that might specifically result from
the outcome of this uncertainty. The Company's independent registered public
accounting firm has issued an opinion on our consolidated financial statements
that includes a description of the Company's going concern issues.
Under various agreements, the Company is obligated to make future cash payments
in fixed amounts. These include payments under the Company's long-term debt
agreements, employment and consulting agreement payments and rent payments
required under operating lease agreements. The Company has both variable and
fixed interest rate debt. Interest payments are projected based on actual
interest payments incurred in 2010 until the underlying debts mature.
The following table summarizes the Company's fixed cash obligations as of
December 31, 2010 over the next five fiscal years:
---------------------------------------------------------------------------------
In thousands 2011 2012 2013 2014 2015
---------------------------------------------------------------------------------
Long-term debt, including interest $18,123 $1,979 $ 89 $ 89 $400
Employment and consulting agreement obligations 550 226 195 195 -
Operating lease payments 290 185 77 - -
---------------------------------
Total $18,963 $2,390 $361 $284 $400
---------------------------------------------------------------------------------
Off-Balance Sheet Arrangements: The Company has no majority-owned subsidiaries
that are not included in the consolidated financial statements nor does it have
any interests in or relationships with any special purpose off-balance sheet
financing entities.
16
Safe Harbor Statement under the Private Securities Reform Act of 1995
The Company may, from time to time, provide estimates as to future performance.
These forward-looking statements will be estimates, and may or may not be
realized by the Company. The Company undertakes no duty to update such forward-
looking statements. Many factors could cause actual results to differ from
these forward-looking statements, including loss of market share through
competition, introduction of competing products by others, pressure on prices
from competition or purchasers of the Company's products, interest rate and
foreign exchange fluctuations, terrorist acts and war.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is subject to interest rate risk on its long-term debt. The Company
manages its exposure to changes in interest rates by the use of variable and
fixed interest rate debt. The fair value of the Company's fixed rate long-term
debt is disclosed in Note 13 to the consolidated financial statements. A
one-percentage point change in interest rates would result in an annual interest
expense fluctuation of approximately $69,000. In addition, the Company is
exposed to foreign currency exchange rate risk mainly as a result of investment
in its Canadian subsidiary. A 10% change in the Canadian dollar relative to the
U.S. dollar would result in a currency exchange expense fluctuation of
approximately $337,000, based on dealer quotes, considering current exchange
rates. The Company does not enter into derivatives for trading or speculative
purposes and did not hold any derivative financial instruments at December 31,
2010.
17
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Statements of Operations
--------------------------------------------------------------------------------------
In thousands, except per share data Years ended December 31 2010 2009
--------------------------------------------------------------------------------------
Revenues:
Equipment rentals and maintenance $ 8,561 $ 9,790
Equipment sales 15,515 18,513
Real estate rentals 231 245
-------------------
Total revenues 24,307 28,548
-------------------
Cost of revenues:
Cost of equipment rentals and maintenance 7,304 8,358
Cost of equipment sales 12,912 14,290
Cost of real estate rentals 56 61
-------------------
Total cost of revenues 20,272 22,709
-------------------
Gross profit from operations 4,035 5,839
General and administrative expenses (8,483) (10,191)
Restructuring costs (1,078) -
-------------------
Operating loss (5,526) (4,352)
Interest expense, net (1,591) (1,693)
Write off note receivable, net - (2,696)
-------------------
Loss from continuing operations before income taxes (7,117) (8,741)
Income tax benefit (expense) 19 (54)
-------------------
Loss from continuing operations (7,098) (8,795)
Income from discontinued operations 62 -
-------------------
Net loss $(7,036) $ (8,795)
===================
Loss per share continuing operations - basic and diluted $ (2.91) $ (3.81)
Earnings per share discontinued operations - basic and diluted 0.02 -
-------------------
Total loss per share - basic and diluted $ (2.89) $ (3.81)
===================
Weighted average common shares outstanding - basic and diluted 2,437 2,311
--------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
18
Consolidated Balance Sheets
--------------------------------------------------------------------------------------
In thousands, except share data December 31 2010 2009
--------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 398 $ 541
Cash in escrow - 403
Receivables, less allowance of $1,326 - 2010 and $1,393 - 2009 2,970 1,743
Unbilled receivables 11 29
Inventories 4,852 5,149
Prepaids and other 531 619
Current assets associated with discontinued operations (Note 4) 1 55
-------------------
Total current assets 8,763 8,539
-------------------
Rental equipment 50,229 58,164
Less accumulated depreciation 30,173 34,015
-------------------
20,056 24,149
-------------------
Property, plant and equipment 6,840 7,206
Less accumulated depreciation 4,571 4,667
-------------------
2,269 2,539
Asset held for sale 920 920
Goodwill 810 810
Other assets 624 926
-------------------
TOTAL ASSETS $ 33,442 $37,883
--------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 2,459 $ 1,410
Accrued liabilities 7,555 5,658
Current portion of long-term debt 16,378 16,990
Liabilities associated with discontinued operations (Note 4) - 487
-------------------
Total current liabilities 26,392 24,545
Long-term debt:
Notes payable 2,335 2,193
Deferred pension liability and other 4,685 3,852
-------------------
Total liabilities 33,412 30,590
-------------------
Stockholders' equity:
Common - $1 par value - 5,500,000 shares authorized,
2,826,424 common shares issued in 2010 and in 2009 2,827 2,827
Additional paid-in-capital 14,279 14,657
Accumulated deficit (12,025) (4,989)
Accumulated other comprehensive loss (1,988) (1,739)
-------------------
3,093 10,756
Less treasury stock - at cost - 383,596 common shares
in 2010 and 433,596 common shares in 2009 3,063 3,463
-------------------
Total stockholders' equity 30 7,293
-------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 33,442 $37,883
--------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
19
Consolidated Statements of Cash Flows
--------------------------------------------------------------------------------------------
In thousands Years ended December 31 2010 2009
--------------------------------------------------------------------------------------------
Cash flows from operating activities
Net loss $(7,036) $(8,795)
Income from discontinued operations 62 -
------------------
Loss from continuing operations (7,098) (8,795)
Adjustment to reconcile loss from continuing operations
to net cash provided by operating activities:
Depreciation and amortization 5,303 5,983
Write-off of note receivable, net - 2,686
Non-cash restructuring costs 480 -
Write-off of engineering software, net 456 -
Amortization of restricted Common Stock 21 -
Changes in operating assets and liabilities:
Receivables (1,209) 2,942
Inventories 297 1,443
Prepaids and other assets 248 1,324
Accounts payable and accrued liabilities 2,822 (1,723)
Deferred pension liability and other 400 1,121
------------------
Net cash provided by operating activities of continuing operations 1,720 4,981
------------------
Cash flows from investing activities
Equipment manufactured for rental (1,264) (2,456)
Purchases of property, plant and equipment (161) (186)
Proceeds from sale of property, plant and equipment - 18
Proceeds from sale of available-for-sale securities - 135
------------------
Net cash used in investing activities of continuing operations (1,425) (2,489)
------------------
Cash flows from financing activities
Payments of long-term debt (1,300) (3,407)
Proceeds from long-term debt 830 -
------------------
Net cash used in financing activities of continuing operations (470) (3,407)
------------------
Cash flows from discontinued operations
Cash provided by operating activities of discontinued operations 32 34
------------------
Net cash provided by discontinued operations 32 34
------------------
Net decrease in cash and cash equivalents (143) (881)
Cash and cash equivalents at beginning of year 541 1,422
------------------
Cash and cash equivalents at end of year $ 398 $ 541
--------------------------------------------------------------------------------------------
Supplemental disclosure of cash flow information:
Interest paid $ 538 $ 1,523
Income taxes paid - 9
--------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
20
Consolidated Statements of Stockholders' Equity
----------------------------------------------------------------------------------------------------------------------------------
Retained Accumulated Total
Add'l Earnings Other Stock-
In thousands, except share data Common Stock Class B Paid-in Treasury (Accumulated Comprehensive holders'
For the two years ended December 31, 2010 Shares Amt Shares Amt Capital Stock Deficit) Income (Loss) Equity
----------------------------------------------------------------------------------------------------------------------------------
Balance January 1, 2009 2,453,591 $2,453 286,814 $ 287 $14,741 $(3,463) $ 3,806 $(3,377) $14,447
Net loss - - - - - - (8,795) - (8,795)
Stock option compensation expense - - - - 3 - - - 3
Exchange Class B Stock for Common Stock 372,833 374 (286,814) (287) (87) - - - -
Other comprehensive income, net of tax:
Unrealized foreign currency translation - - - - - - - 503 503
Change in unrecognized pension cost - - - - - - - 1,135 1,135
------------------------------------------------------------------------------------
Balance December 31, 2009 2,826,424 2,827 - - 14,657 (3,463) (4,989) (1,739) 7,293
Net loss - - - - - - (7,036) - (7,036)
Issuance of restricted Common Stock
(50,000 shares) - - - - (400) 400 - - -
Amortization of restricted Common Stock - - - - 21 - - - 21
Stock option compensation expense - - - - 1 - - - 1
Other comprehensive income (loss), net of tax:
Unrealized foreign currency translation - - - - - - - 184 184
Change in unrecognized pension cost - - - - - - - (433) (433)
------------------------------------------------------------------------------------
Balance December 31, 2010 2,826,424 $2,827 - $ - $14,279 $(3,063) $(12,025) $(1,988) $ 30
----------------------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
Consolidated Statements of Comprehensive Loss
-------------------------------------------------------------------------
In thousands Years ended December 31 2010 2009
-------------------------------------------------------------------------
Net loss $(7,036) $(8,795)
------------------
Other comprehensive (loss) income:
Unrealized foreign currency translation gain 184 503
Change in unrecognized pension costs (433) 1,135
------------------
Total other comprehensive (loss) income, net of tax (249) 1,638
------------------
Comprehensive loss $(7,285) $(7,157)
-------------------------------------------------------------------------
The accompanying notes are an integral part of these consolidated financial statements.
21
Notes To Consolidated Financial Statements
1. Summary of Significant Accounting Policies
Trans-Lux Corporation is a leading manufacturer and supplier of programmable
electronic information displays and owner/operator of a rental property. In
addition, the Company entered the LED lighting business during 2010.
Principles of consolidation: The consolidated financial statements include the
accounts of Trans-Lux Corporation, a Delaware corporation, and all wholly-owned
subsidiaries (the "Company"). Intercompany balances and transactions have been
eliminated in consolidation.
Discontinued operations. On June 26, 2008, the Board of Directors approved the
sale of the assets of the Entertainment Division. As a result of the sale, the
Company has accounted for the Entertainment Division as discontinued operations.
See Note 4 - Discontinued Operations.
Use of estimates: The preparation of financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates. Estimates and assumptions are reviewed periodically and
the effects of revisions are reflected in the financial statements in the period
in which they are determined to be necessary. Estimates are used when
accounting for such items as costs of long-term sales contracts, allowance for
uncollectible accounts, inventory valuation allowances, depreciation and
amortization, intangible assets, income taxes, warranty obligation, benefit
plans, contingencies and litigation.
Cash and cash equivalents: The Company considers all highly liquid investments
with an original maturity of three months or less to be cash equivalents.
Accounts receivable: Receivables are carried at net realizable value. Credit
is extended based on an evaluation of each customer's financial condition;
collateral is generally not required. Reserves for uncollectible accounts
receivable are provided based on historical experience and current trends. The
Company evaluates the adequacy of these reserves regularly.
The following is a summary of the allowance for uncollectible accounts at
December 31:
---------------------------------------------
In thousands 2010 2009
---------------------------------------------
Balance at beginning of year $1,393 $ 926
Provisions 92 1,118
Deductions (159) (651)
---------------
Balance at end of year $1,326 $1,393
---------------------------------------------
Concentrations of credit risk with respect to accounts receivable are limited
due to the large number of customers, the relatively small account balances
within the majority of the Company's customer base and their dispersion across
different businesses.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market value. Valuation allowances for slow moving and obsolete
inventories are provided based on historical experience and demand for servicing
of the displays. The Company evaluates the adequacy of these valuation
allowances regularly.
Rental equipment and property, plant and equipment: Rental equipment and
property, plant and equipment are stated at cost and depreciated over their
respective useful lives using the straight-line method. Leaseholds and
improvements are amortized over the lesser of the useful lives or term of the
lease.
The estimated useful lives are as follows:
------------------------------------------
Years
------------------------------------------
Rental equipment 5 - 15
Buildings and improvements 10 - 40
Machinery, fixtures and equipment 3 - 15
Leaseholds and improvements 5
------------------------------------------
When rental equipment and property, plant and equipment are fully depreciated,
retired or otherwise disposed of, the cost and accumulated depreciation are
eliminated from the accounts.
Asset held for sale: Asset held for sale consists of land located in Silver
City, New Mexico.
Goodwill and intangibles: Goodwill represents the excess of purchase price over
the estimated fair value of net assets acquired. Identifiable intangible assets
are recorded at cost and amortized over their estimated useful life on a
straight line basis and deferred financing costs are amortized over the life of
the related debt of two to three years. Total goodwill is $810,000, of which
$744,000 relates to the Outdoor display segment and $66,000 relates to the
Indoor display segment.
The Company annually evaluates the value of its goodwill on October 1 and
determines if it is impaired by comparing the carrying value of goodwill to its
estimated fair value. Changes in the assumptions used could
22
materially impact the fair value estimates. Assumptions critical to our fair
value estimates are: (i) discount rate used to derive the present value factors
used in determining the fair value of the reporting unit, (ii) projected average
revenue growth rates used in the reporting unit models; and (iii) projected
long-term growth rates used in the derivation of terminal year values. These
and other assumptions are impacted by economic conditions and expectations of
management and will change in the future based on period-specific facts and
circumstances. The Company uses the income and the market approach when testing
for goodwill impairment. The Company weighs these approaches by using a 50%
factor for the income approach and a 50% factor for the market approach.
Together these two factors estimate the fair value of the reporting unit. The
Company's goodwill relates to our catalog sports reporting unit. The Company
uses a discounted cash flow model to determine the fair value under the income
approach which contemplates an overall weighted average revenue growth rate of
2.0% to 6.0%. If the Company were to reduce its revenue projections on the
reporting unit by 9.5% within the income approach, the fair value of the
reporting unit would be below carrying value. The gross profit margins used are
consistent with historical margins achieved by the Company during previous
years. If there is a margin decline of 3.5% or more the model would yield
results of a fair value less than carrying amount. The impairment test for
goodwill is a two-step process. The first step of the goodwill impairment test
compares the fair value of the reporting unit with its carrying amount. If the
carrying amount of the reporting unit exceeds its fair value, a second step is
performed to calculate the implied fair value of the goodwill of the reporting
unit by deducting the fair value of all of the individual assets and liabilities
of the reporting unit from the respective fair values of the reporting unit as a
whole. To the extent the calculated implied fair value of the goodwill is less
than the recorded goodwill, an impairment charge is recorded for the difference.
Fair value is determined using cash flow and other valuation models (generally
Level 3 inputs in the fair value hierarchy). There were no impairments of
goodwill in 2010 and 2009. The Company also evaluates the value of its other
intangible assets by comparing the carrying value with estimated future cash
flows when indicators of possible impairment exist. There were no impairments
of other intangibles in 2010 or 2009.
Impairment or disposal of long-lived assets: The Company evaluates whether
there has been an impairment in its long-lived assets if certain circumstances
indicate that a possible impairment may exist. An impairment in value may exist
when the carrying value of a long-lived asset exceeds its undiscounted cash
flows. If it is determined that an impairment in value has occurred, the
carrying value is written down to its fair value. There were no impairments of
long-lived assets in 2010 or 2009.
Revenue recognition: Revenue from rental of equipment and revenue from
maintenance contracts are recognized during the term of the respective
agreements, which generally run for periods of one month to 10 years. At
December 31, 2010, the future minimum lease payments due to the Company under
operating leases that expire at varying dates through 2018 for its rental
equipment and maintenance contracts, assuming no renewals of existing leases or
any new leases, aggregating $14,273,000 was as follows: $6,454,000 - 2011,
$3,792,000 - 2012, $2,574,000 - 2013, $832,000 - 2014, $426,000 - 2015, $195,000
- thereafter. The Company recognizes revenues on long-term equipment sales
contracts, which require more than three months to complete, using the
percentage of completion method. The Company records unbilled receivables
representing amounts due under these long-term equipment sales contracts, which
have not been billed to the customer. Income is recognized based on the
percentage of incurred costs to the estimated total costs for each contract.
The determination of the estimated total costs is susceptible to change on these
sales contracts. Revenues on equipment sales, other than long-term equipment
sales contracts, are recognized upon shipment when title and risk of loss passes
to the customer. Real estate rentals revenue is recognized monthly on a
straight-line basis during the term of the respective lease agreements.
Warranty obligations: The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required.
Taxes on income: Deferred income tax assets and liabilities are established for
temporary differences between the financial reporting basis and the tax basis of
the Company's assets and liabilities at tax rates expected to be in effect when
such temporary differences are expected to reverse and for operating loss
carryforwards. The temporary differences are primarily attributable to
operating loss carryforwards and depreciation. The Company records a valuation
allowance against net deferred income tax assets if, based upon the available
evidence, it is not more-likely-than-not that the deferred income tax assets
will be realized.
The Company considers whether it is "more-likely-than-not" that a tax position
will be sustained upon examination, including resolution of any related appeals
or litigation processes, based on the technical merits of the position. Once it
is determined that a position meets the more-likely-than-not recognition
threshold, the position is measured to determine the amount of benefit to
23
recognize in the financial statements. The Company's policy is to classify
interest and penalties related to uncertain tax positions in income tax expense.
To date, there have been no interest or penalties charged to the Company in
relation to the underpayment of income taxes. The Company's determinations
regarding uncertain income tax positions may be subject to review and adjustment
at a later date based upon factors including, but not limited to, an ongoing
analysis of tax laws, regulations and interpretations thereof.
Foreign currency: The functional currency of the Company's Canadian business
operation is the Canadian dollar. The assets and liabilities of such operation
are translated into U.S. dollars at the year-end rate of exchange, and the
operating and cash flow statements are converted at the average annual rate of
exchange. The resulting translation adjustment is recorded in Accumulated other
comprehensive loss in the Consolidated Balance Sheets and as a separate item in
the Consolidated Statements of Comprehensive Loss. Gains and losses related to
the settling of transactions not denominated in the functional currency are
recorded as a component of General and administrative expenses in the
Consolidated Statements of Operations.
Share-based compensation plans: The Company measures share-based payments to
employees and directors at the grant date fair value of the instrument. The
fair value is estimated on the date of grant using the Black-Scholes valuation
model, which requires various assumptions including estimating stock price
volatility, expected life of the stock option and risk free interest rate. For
details on the accounting effect of share-based compensation, see Note 17 -
Share-Based Compensation.
Consideration of Subsequent Events: The Company evaluated events and
transactions occurring after December 31, 2010 through the date these
consolidated financial statements were issued, to identify subsequent events
which may need to be recognized or non-recognizable events which would need to
be disclosed. No recognizable events were identified; see Note 21 - Subsequent
Events for non-recognizable events or transactions identified for disclosure.
Recent accounting pronouncements: In January 2010, the Financial Accounting
Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2010-06,
"Fair Value Measurements and Disclosures (Topic 820): Improving Disclosures
about Fair Value Measurements" ("ASC 2010-06"). ASU 2010-06 amends ASC 820-10
and clarifies and provides additional disclosure requirements related to
recurring and non-recurring fair value measurements and employers' disclosures
about postretirement benefit plan assets. ASU 2010-06 was effective for interim
and annual periods beginning after December 15, 2009. The Company has provided
the required benefit plan asset information in Note 16 - Pension Plan.
In December 2010, the FASB issued ASU 2010-28, "Intangibles - Goodwill and Other
(Topic 350): When to Perform Step 2 of the Goodwill Impairment Test for
Reporting Units with Zero or Negative Carrying Amounts ("ASU 2010-28"). ASU
2010-28 provides amendments to Topic 350 to modify Step 1 of the goodwill
impairment test for reporting units with zero or negative carrying amounts to
clarify that, for those reporting units, an entity is required to perform Step 2
of the goodwill impairment test if it is more likely than not that a goodwill
impairment exists. In determining whether it is more likely than not that a
goodwill impairment exists, an entity should consider whether there are any
adverse qualitative factors indicating that an impairment may exist. For public
entities, the amendments in this ASU are effective for fiscal years, and interim
periods within those years, beginning after December 15, 2010. Early adoption
is not permitted. The adoption of ASU 2010-28 is not expected to have an impact
on the Company's consolidated financial statements.
Reclassifications: Certain reclassifications of prior years' amounts have been
made to conform to the current year's presentation.
2. Going Concern
A fundamental principle of the preparation of financial statements in accordance
with accounting principles generally accepted in the United States of America is
the assumption that an entity will continue in existence as a going concern,
which contemplates continuity of operations and the realization of assets and
settlement of liabilities occurring in the ordinary course of business. This
principle is applicable to all entities except for entities in liquidation or
entities for which liquidation appears imminent. In accordance with this
requirement, the Company has prepared its consolidated financial statements on a
going concern basis.
The Company has incurred significant recurring losses from continuing operations
and has a significant working capital deficiency. The Company incurred a net
loss from continuing operations of $7.1 million in 2010 and has a working
capital deficiency of $17.6 million as of December 31, 2010. The 2010 results
include a $1.1 million restructuring charge related to the relocation of the
manufacturing of the indoor display equipment from Connecticut to Iowa as
further discussed in Note 3 - Plan of Restructuring, and a $456,000 charge to
write-off engineering software. As further discussed in Note 13 - Long-Term
Debt, the Company did not make the December 1, 2009 and 2010 required sinking
fund payments of $105,700 each, and did not make the June 1,
24
2010 and December 1, 2010 interest payments of $50,200 each on its 9 1/2%
Subordinated debentures (the "Debentures"). In addition, the Company did not
make the March 1, 2010, September 1, 2010 and March 1, 2011 interest payments of
$417,800 each on its 8 1/4% Limited convertible senior subordinated notes (the
"Notes"). Under the terms of the indenture agreements that govern the
Debentures and the Notes, the non-payments constitute events of default;
accordingly, the trustees or the holders of 25% of the outstanding Debentures
and Notes have the right to declare the outstanding principal and interest due
and payable immediately. In the event that the Company receives such notice,
the senior lender has the right to demand payment on outstanding amounts on the
Credit Agreement. As such, all outstanding debt has been classified as Current
portion of long-term debt in the Consolidated Balance Sheets. These matters
raise substantial doubt about the Company's ability to continue as a going
concern.
In March 2010, the senior lender agreed to extend the maturity date of the
Credit Agreement to May 1, 2011 and extended payment terms on the term portion
of the debt. The senior lender has retained the right to call the Credit
Agreement in the event that the holders of the Debentures or the Notes demand
payment. In August 2010, the senior lender modified the Credit Agreement to
reduce the availability under the revolving loan from $5.0 million to $4.3
million, amended the principal repayment schedule to defer the next three
monthly principal payments of $50,000 each until the maturity date and removed
the senior debt coverage ratio covenant test for the June 30, 2010 and September
30, 2010 periods. The Company also refinanced its mortgage on its Des Moines,
Iowa facility in March 2010, which provided an additional $260,000 for working
capital. The Company continues to be involved in discussions with various
entities to obtain additional debt and/or equity financing including amounts
that could be used to settle the Debentures and the Notes, however there can be
no assurance that the Company will be successful in obtaining such financing and
if it obtains such financing, how the terms of such financing will affect the
Company.
The Company continues to manage a plan to improve operating results. The plan
includes a joint venture agreement with a People's Republic of China company to
establish a cooperative venture limited liability company in the People's
Republic of China to engage in research, engineering, development,
manufacturing, sale and distribution of LED lamps, LED digital signage and LED
lighting or similar products. The Company is pursuing new business
opportunities in the LED lighting market with energy-saving lighting solutions
and supplementing our established digital display and signage businesses with a
highly flexible, cost-efficient and creative means for facilities to enhance
their environments with LED lighting. The Company intends to feature a
comprehensive offering of the latest LED lighting technologies that provide
facilities and public infrastructure with "green" lighting solutions that emit
less heat, save energy and enable creative designs. The Company continues to
seek ways to reduce costs of components used in its products and other expenses
to improve sales margins, and continues to look at ways to lower overhead costs,
such as compensation and benefits. The plan includes partnering with an LED
supplier and offering several new high resolution LED large screen systems.
There can be no assurance that the Company will achieve higher sales, improved
margins or lower costs.
Because the Credit Agreement is secured by substantially all of the Company's
eligible accounts receivable, inventory and other assets, management cannot
provide any assurance that the Company would have sufficient cash and liquid
assets to fund normal operations during the period of time when it is required
to repay amounts outstanding under the Credit Agreement. Further, if the
Company is unable to obtain waivers or cure the defaults on the Debentures and
the Notes, the Debentures and the Notes could be called and be immediately due.
Such notice would trigger a default in the Credit Agreement. If the Credit
Agreement, Debentures and Notes are called, the Company would need to obtain new
financing; there can be no assurance that the Company will be able to do so and,
even if it obtains such financing, how the terms of such financing will affect
the Company. If the debt is called and new financing cannot be arranged, it is
unlikely the Company will be able to continue as a going concern. The
accompanying financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty. See Note 13 - Long-Term Debt for further details.
3. Plan of Restructuring
In the second quarter of 2010, the Company took certain actions to reduce
operating costs. These actions included the elimination of approximately 50
positions from our operations and the closing of our Stratford, Connecticut
manufacturing facility. The 2010 results include a restructuring charge of $1.1
million consisting of employee severance pay, facility closing costs
representing primarily lease termination and asset write-off costs, and other
fees directly related to the restructuring plan. The costs associated with the
restructuring are included in a separate line item, Restructuring costs, in the
Consolidated Statements of Operations. We expect that the majority of these
costs will be paid over the next 12 months.
25
The following table shows the amounts expensed and paid for restructuring costs
that were incurred during 2010 and the remaining accrued balance of
restructuring costs as of December 31, 2010, which is included in Accrued
liabilities in the Consolidated Balance Sheets.
-----------------------------------------------------------------
Payments and Balance
Other December 31,
In thousands Provision Adjustments 2010
-----------------------------------------------------------------
Severance costs (1) $ 310 $310 $ -
Facility closing costs (2) 509 294 215
Other fees 259 165 94
----------------------------------
$1,078 $769 $309
-----------------------------------------------------------------
(1) Represents salaries for employees separated from the Company.
(2) Represents costs associated with the closing of the Stratford, Connecticut
facility (primarily lease termination costs) and leasehold improvement and
equipment write-offs.
The following table shows by reportable segment, the restructuring costs
incurred during 2010 and the remaining accrued balance of restructuring costs as
of December 31, 2010.
-----------------------------------------------------------------
Payments and Balance
Other December 31,
In thousands Provision Adjustments 2010
-----------------------------------------------------------------
Indoor display $ 985 $676 $309
Outdoor display 93 93 -
----------------------------------
$1,078 $769 $309
-----------------------------------------------------------------
4. Discontinued Operations
On June 26, 2008, the Board of Directors approved the sale of substantially all
of the assets of the Entertainment Division, which was consummated on July 15,
2008 for a purchase price of $24.5 million, of which $7.4 million was paid in
cash, $0.4 million in escrow and $16.7 million of debt was assumed by the
purchaser, including $0.3 million of debt of the joint venture, MetroLux
Theatres. Of the $0.4 million cash in escrow, $0.1 million was released to the
buyer and $0.3 million was released to the Company. The escrow settlement
resulted in a $62,000 gain which is in a separate line item, Income from
discontinued operations, in the Consolidated Statements of Operations. The
buyer assumed the operating results effective as of June 27, 2008. The Company
has accounted for the Entertainment Division as discontinued operations.
5. Fair Value
The Company carries its money market funds and cash surrender value of life
insurance related to its deferred compensation arrangements at fair value. The
fair value of these instruments is determined using a three-tier fair value
hierarchy. Based on this hierarchy, the Company determined the fair value of
its money market funds using quoted market prices, a Level 1 or an observable
input, and the cash surrender value of life insurance, a Level 2 based on
observable inputs primarily from the counter party. The Company's money market
funds and the cash surrender value of life insurance had carrying amounts of
$5,000 and $71,000 at December 31, 2010, respectively, and $24,000 and $79,000
at December 31, 2009, respectively. The carrying amounts of cash equivalents,
accounts receivable and accounts payable approximate fair value due to the short
maturities of these items. The fair value of the Company's Notes and
Debentures, using observable inputs, was $1.2 million and $0.1 million at
December 31, 2010, respectively, and $4.9 million and $0.6 million at December
31, 2009, respectively. The fair value of the Company's remaining long-term
debt approximates its carrying value of $7.5 million and $8.0 million at
December 31, 2010 and December 31, 2009, respectively.
6. Inventories
Inventories consist of the following:
---------------------------------
In thousands 2010 2009
---------------------------------
Raw materials $3,948 $4,597
Work-in-progress 152 142
Finished goods 752 410
---------------
$4,852 $5,149
---------------------------------
7. Rental Equipment
Rental equipment consist of the following:
-------------------------------------------------
In thousands 2010 2009
-------------------------------------------------
Indoor rental equipment $34,740 $40,739
Outdoor rental equipment 15,489 17,425
-----------------
50,229 58,164
Less accumulated depreciation 30,173 34,015
-----------------
Net rental equipment $20,056 $24,149
-------------------------------------------------
All the rental equipment is pledged as collateral under the Company's credit
facility.
8. Property, Plant and Equipment
Property, plant and equipment consist of the following:
---------------------------------------------------
In thousands 2010 2009
---------------------------------------------------
Land, buildings and improvements $2,843 $2,832
Machinery, fixtures and equipment 3,885 4,088
Leaseholds and improvements 112 286
---------------
6,840 7,206
Less accumulated depreciation 4,571 4,667
---------------
Net property, plant and equipment $2,269 $2,539
---------------------------------------------------
26
Land, buildings and equipment having a net book value of $2.2 million and $2.3
million at December 31, 2010 and 2009, respectively, are pledged as collateral
under various mortgage and other financing agreements.
9. Other Assets
Other assets consist of the following:
--------------------------------------------------------------
In thousands 2010 2009
--------------------------------------------------------------
Spare parts $295 $450
Deferred financing costs, net of accumulated
amortization of $495 - 2010 and $943 - 2009 201 291
Prepaids 76 86
Deposits and other 52 99
-----------
$624 $926
--------------------------------------------------------------
Deferred financing costs relate to the issuance of the Notes, the Debentures,
mortgages and other financing agreements and are being amortized over the terms
of the respective agreements.
10. Other Receivable
The Company had a $2.6 million note receivable that was due June 2008, relating
to the sale/leaseback of the Company's former Norwalk, Connecticut facility in
2004. The receivable was secured by a purchase money mortgage subordinated to a
$3.5 million first mortgage in favor of the purchaser's bank. The purchaser had
defaulted on this payment and the Company pursued legal remedies. After the
negative results of a foreclosure by sale by the first mortgagee, the Company
wrote off this note receivable and related expense for a total of $2.7 million
in 2009.
11. Taxes on Income
The components of income tax benefit (expense) are as follows:
-----------------------------------------
In thousands 2010 2009
-----------------------------------------
Current:
Federal $ 51 $ -
State and local - -
Foreign (32) (54)
-----------
19 (54)
-----------
Deferred:
Federal - -
State and local - -
-----------
- -
-----------
Income tax benefit (expense) $ 19 $(54)
-----------------------------------------
Loss from continuing operations before income taxes from the United States is
$6.9 million and $8.0 million for the years ended December 31, 2010 and 2009,
respectively. Loss from continuing operations before income taxes from Canada
is $0.2 million and $0.7 million for the years ended December 31, 2010 and 2009,
respectively.
Income tax benefits for continuing operations differed from the expected federal
statutory rate of 34.0% as follows:
----------------------------------------------------------
2010 2009
----------------------------------------------------------
Statutory federal income tax rate 34.0% 34.0%
State income taxes, net of federal benefit 3.8 3.6
Federal tax credit refund (0.7) -
Foreign income taxed at different rates (1.5) (3.2)
Deferred tax asset valuation allowance (35.2) (34.3)
Other (0.1) (0.7)
-------------
Effective income tax rate 0.3% (0.6%)
----------------------------------------------------------
Deferred income taxes reflect the net tax effect of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred income tax assets and liabilities are as follows:
----------------------------------------------------
In thousands 2010 2009
----------------------------------------------------
Deferred income tax asset:
Tax credit carryforwards $ 983 $ 1,034
Operating loss carryforwards 11,200 9,981
Net pension costs 2,550 2,099
Allowance for bad debts 434 482
Accruals 307 1,083
Other 211 27
Valuation allowance (10,524) (7,690)
-------------------
5,161 7,016
Deferred income tax liability:
Depreciation 4,765 6,583
Other 396 433
-------------------
5,161 7,016
-------------------
Net deferred income taxes $ - $ -
----------------------------------------------------
Tax credit carryforwards primarily relate to federal alternative minimum taxes
of $0.9 million paid by the Company, which may be carried forward indefinitely
and applied against regular federal taxes. Operating tax loss carryforwards
primarily relate to U.S. federal net operating loss carryforwards of
approximately $27.9 million, which begin to expire in 2019.
A valuation allowance has been established for the amount of deferred income tax
assets as management has concluded that it is more-likely-than-not that the
benefits from such assets will not be realized.
The Company's policy is to classify interest and penalties related to uncertain
tax positions in income tax expense. The Company does not have any material
uncertain tax
27
positions in 2010 and 2009. The Company does not believe that the liability for
uncertain tax positions will change significantly in 2011.
The Company is subject to U.S. federal income tax as well as income tax in
multiple state and local jurisdictions and Canadian federal and provincial
income tax. Currently, no federal or state or provincial income tax returns are
under examination. The tax years 2006 through 2009 remain open to examination
by the major taxing jurisdictions and the 2005 tax year remains open to
examination by some state and local taxing jurisdictions to which the Company is
subject.
12. Accrued Liabilities
Accrued liabilities consist of the following:
-------------------------------------------------------------------
In thousands 2010 2009
-------------------------------------------------------------------
Deferred revenues $1,979 $1,375
Interest payable 1,259 332
Compensation and employee benefits 1,188 1,207
Taxes payable 561 529
Restructuring costs 309 -
Warranty obligations 291 389
Current portion of pension liability (see Note 16) 84 80
Other 1,884 1,746
---------------
$7,555 $5,658
-------------------------------------------------------------------
Warranty obligations: The Company provides for the estimated cost of product
warranties at the time revenue is recognized. While the Company engages in
product quality programs and processes, including evaluating the quality of the
component suppliers, the warranty obligation is affected by product failure
rates. Should actual product failure rates differ from the Company's estimates,
revisions to increase or decrease the estimated warranty liability may be
required. A summary of the warranty liabilities for each of the two years ended
December 31, 2010 is as follows:
-------------------------------------------
In thousands 2010 2009
-------------------------------------------
Balance at beginning of year $ 389 $ 489
Provisions 16 42
Deductions (114) (142)
-------------
Balance at end of year $ 291 $ 389
-------------------------------------------
13. Long-Term Debt
Long-term debt consists of the following:
---------------------------------------------------------
In thousands 2010 2009
---------------------------------------------------------
8 1/4% Limited convertible senior
subordinated notes due 2012 $10,129 $10,129
9 1/2% Subordinated debentures
due 2012 1,057 1,057
Term loan - bank secured, due in
monthly installments through 2011 971 1,652
Revolving loan - bank secured 4,100 4,020
Real estate mortgages - secured, due
in monthly installments through 2012 2,444 2,285
Other 12 40
-----------------
18,713 19,183
Less portion due within one year 16,378 16,990
-----------------
Long-term debt $ 2,335 $ 2,193
---------------------------------------------------------
Payments of long-term debt due for the next five years are:
------------------------------------------------
In thousands 2011 2012 2013 2014 2015
------------------------------------------------
$16,378 $1,823 $57 $61 $394
------------------------------------------------
The Company has $10.1 million of 8 1/4% Limited convertible senior subordinated
notes due 2012 (the "Notes") which are no longer convertible into common shares;
interest is payable semi-annually and the Notes may be redeemed, in whole or in
part, at par. The Company has not remitted the March 1, 2010 and 2011 and
September 1, 2010 semi-annual interest payments of $417,800 each to the trustee.
The non-payments constitute an event of default under the Indenture governing
the Notes and the trustee, by notice to the Company, or the holders of 25% of
the principal amount of the Notes outstanding, by notice to the Company and the
trustee, may declare the outstanding principal plus interest due and payable
immediately. When such notice is received by the Company, no payment shall be
made by the Company to the holders or trustee until the earlier of such
non-payment event of default is cured or waived or 179 days since receipt by the
trustee of notice of such event, unless the holder of Senior Indebtedness has
accelerated the due date thereof. If the holder of Senior Indebtedness
accelerates the due date at any time, then no payment may be made until the
default is cured or waived. At December 31, 2010, the total amount outstanding
under the Notes is classified as Current portion of long-term debt in the
Consolidated Balance Sheets.
The Company has $1.1 million of 9 1/2% Subordinated debentures due 2012 (the
"Debentures") which are due in annual sinking fund payments of $105,700
beginning in 2009, which payments have not been remitted by the Company, with
the remainder due in 2012; interest is payable semi-annually and the Debentures
may be
28
redeemed, in whole or in part, at par. The Company has not remitted the June 1,
2010 and December 1, 2010 semi-annual interest payments of $50,200 each to the
trustee. The non-payments constitute an event of default under the Indenture
governing the Debentures and the trustee, by notice to the Company, or the
holders of 25% of the principal amount of the Debentures outstanding, by notice
to the Company and the trustee, may declare the outstanding principal plus
interest due and payable immediately. During the continuation of any event
which, with notice or lapse of time or both, would constitute a default under
any agreement under which Senior Indebtedness is issued, if the effect of such
default is to cause, or permit the holder of Senior Indebtedness to become due
prior to its stated maturity, no payment (including any required sinking fund
payments) of principal, premium or interest shall be made on the Debentures
unless and until such default shall have been remedied, if written notice of
such default has been given to the trustee by the Company or the holder of
Senior Indebtedness. The failure to make the sinking fund and interest payments
are events of default under the Credit Agreement since it involves indebtedness
over $500,000 and no payment can be made to such trustee or the holders at this
time as such defaults have not been waived. At December 31, 2010, the total
amount outstanding under the Debentures is classified as Current portion of
long-term debt in the Consolidated Balance Sheets.
The Company has a bank Credit Agreement, as amended, which provides for a term
loan of $10.0 million, a non-revolving line of credit of up to $6.2 million
(which is no longer available) to finance the redemption of one-half of the 7
1/2% Subordinated Notes due 2006 (which were redeemed in June 2006 and are no
longer outstanding), and a revolving loan of up to $4.3 million, based on
eligible accounts receivable and inventory, at a variable rate of interest of
Prime plus 2.00%, with a floor of 6.00% (6.00% at December 31, 2010), which
matures May 1, 2011. In August 2010, the senior lender modified the Credit
Agreement to reduce the availability under the revolving loan from $5.0 million
to $4.3 million, amended the principal repayment schedule to defer the next
three monthly principal payments of $50,000 each until the maturity date and
removed the senior debt coverage ratio covenant test for the June 30, 2010 and
September 30, 2010 periods. As of December 31, 2010, the Company has drawn $4.1
million against the revolving loan facility, of which $0.2 million was available
for additional borrowing. The Credit Agreement requires an annual facility fee
on the unused commitment of 0.25%, and requires compliance with certain
financial covenants, as defined in the Credit Agreement, which include a
loan-to-value ratio of not of not more than 50% and a $1.0 million cap on
capital expenditures. As of December 31, 2010, the Company was in compliance
with the foregoing financial covenants, but was not in compliance with the
senior debt coverage ratio of not less than 1.25 to 1.0 (-0.25 to 1.0 at
December 31, 2010). The Company is in discussion with the senior lender to
waive the non-compliance, but has not been granted as of March 31, 2011. In
addition, the senior lender has waived the defaults on the Notes and the
Debentures, but in the event that the holders of the Notes or the Debentures or
trustees declare a default and begin to exercise any of their rights or remedies
in connection with the non-payment defaults, this shall constitute a separate
and distinct event of default and the senior lender may exercise any and all
rights or remedies it may have. In addition, the senior lender has waived the
default of non-payment of certain pension plan contributions, but in the event
that any government agency takes any enforcement action or otherwise exercises
any rights or remedies it may have, this shall constitute a separate and
distinct event of default and the senior lender may exercise any and all rights
or remedies it may have. The amounts outstanding under the Credit Agreement are
collateralized by all of the Display division assets.
On March 1, 2010, the Company refinanced it existing mortgage on its facility
located in Des Moines, Iowa. The refinancing was for $650,000 at a fixed rate
of interest of 6.50% payable in monthly installments, which matures March 1,
2015 and requires a compensating balance of $200,000. The Company used proceeds
of $390,000 to settle the prior debt and used the $260,000 balance for working
capital needs.
The Company has a $1.8 million mortgage on its real estate rental property
located in Santa Fe, New Mexico at a variable rate of interest of Prime, with a
floor of 6.75%, which was the interest rate in effect at December 31, 2010,
payable in monthly installments, which matures December 12, 2012.
On February 25, 2010, the Company took out a mortgage on the land held for sale
located in Silver City, New Mexico and repaid it on August 27, 2010. The
financing was for $100,000 at a fixed rate of interest of 7.80%, payable in
monthly interest only payments, which was due to mature on February 25, 2012.
14. Stockholders' Equity
During 2010 and 2009, the Board of Directors did not declare any quarterly cash
dividends on the Company's Common Stock or on the Company's retired Class B
Stock in order to preserve cash and pay down debt. Each share of Class B Stock
was convertible at any time into one share of Common Stock and had ten votes per
share, as compared to Common Stock, which has one vote per share but receives a
10% higher dividend. On December 11, 2009, the stockholders approved an
amendment to the Corporation's Certificate of Incorporation to provide for
29
the automatic conversion of each share of Class B Stock into 1.3 shares of
Common Stock as provided in a Settlement Agreement approved by the United States
District Court for the Southern District of New York, and accordingly no Class B
Stock is outstanding at December 31, 2009 and 2010.
The Company also has 0.5 million shares of authorized and unissued capital stock
designated as Preferred Stock, $1.00 par value.
Shares of Common Stock reserved for future issuance in connection with
convertible securities and stock option plans were 23,000 and 26,000 at December
31, 2010 and 2009, respectively.
On February 16, 2010, the Board granted Mr. J.M. Allain, the Company's new
President and Chief Executive Officer, 50,000 shares of restricted Common Stock
from treasury shares which vest 50% after one year and the remaining 50% after
two years. The Company is recording stock compensation expense over the vesting
period and as of December 31, 2010 recorded $21,000 of stock compensation
expense.
Accumulated other comprehensive loss is comprised of $983,000 and $800,000 of
unrealized foreign currency translation gain at December 31, 2010 and 2009,
respectively, and $2,971,000 and $2,539,000 of unrecognized pension costs
at December 31, 2010 and 2009, respectively.
15. Engineering Development
Engineering development expense was $670,000 and $122,000 for the years ended
2010 and 2009, respectively, which are included in general and administrative
expenses in the Consolidated Statements of Operations. The 2010 engineering
development expense includes a $456,000 charge to write-off engineering software
in the second quarter.
16. Pension Plan
All eligible salaried employees of Trans-Lux Corporation and certain of its
subsidiaries are covered by a non-contributory defined benefit pension plan.
Pension benefits vest after five years of service and are based on years of
service and final average salary. The Company's general funding policy is to
contribute at least the required minimum amounts sufficient to satisfy
regulatory funding standards, but not more than the maximum tax-deductible
amount. As of December 31, 2003, the benefit service under the pension plan had
been frozen and, accordingly, there is no service cost for each of the two years
ended December 31, 2010. On April 30, 2009, the compensation increments were
frozen, and accordingly, no additional benefits are being accrued under the
plan. As a result, during 2009 the plan incurred a curtailment charge of
$53,000. In addition, due to lump-sum benefit payments, the plan also incurred
a settlement charge of $250,000 during 2009.
For 2010 and 2009, the accrued benefit obligation of the plan exceeded the fair
value of plan assets, due primarily to the plan's investment performance. The
Company's pension obligations for this plan exceeded plan assets by $4.6 million
at December 31, 2010.
The Company employs a total return investment approach whereby a mix of equities
and fixed income investments are used to maximize the long-term return of plan
assets for a prudent level of risk. The intent of this strategy is to minimize
plan expenses by outperforming plan liabilities over the long run. Risk
tolerance is established through careful consideration of plan liabilities, plan
funded status and corporate financial condition. The portfolio contains a
diversified blend of equity and fixed income investments. Investment risk is
measured and monitored on an ongoing basis through annual liability
measurements, periodic asset/liability studies and quarterly investment
portfolio reviews.
At December 31, 2010 and 2009, the Company's pension plan weighted average asset
allocations by asset category are as follows:
----------------------------------------------
2010 2009
----------------------------------------------
Guaranteed investment contracts 36.1% 40.4%
Equity and index funds 63.2 49.1
Bonds 0.4 1.9
Money market funds 0.3 8.6
-------------
100.0% 100.0%
----------------------------------------------
Bonds include $18,000 and $102,000 of the Company's Debentures for 2010 and
2009, respectively.
The pension plan asset information included below is presented at fair value.
ASC 820 establishes a framework for measuring fair value and required
disclosures about assets and liabilities measured at fair value. The fair value
of these assets are determined using a three-tier fair value hierarchy. Based
on this hierarchy, the Company determined the fair value of its money market
funds, equity and index funds using quoted market prices, a Level 1 or an
observable input, the guaranteed investment contracts and bonds, a Level 2 based
on observable inputs and quoted prices in markets that are not active. The
Company does not have any Level 3 pension assets, in which such valuation would
be based on unobservable measurements and management's estimates.
30
The following table presents the pension plan assets by level within the fair
value hierarchy as of December 31, 2010:
------------------------------------------------------------------
In thousands Level 1 Level 2 Level 3 Total
------------------------------------------------------------------
Guaranteed investment contracts $ - $1,908 $ - $1,908
Equity and index funds 3,344 - - 3,344
Bonds - 18 - 18
Money market funds 17 - - 17
--------------------------------
$3,361 $1,926 $ - $5,287
------------------------------------------------------------------
The funded status of the plan as of December 31, 2010 and 2009 is as follows:
--------------------------------------------------------------------
In thousands 2010 2009
--------------------------------------------------------------------
Change in benefit obligation:
Projected benefit obligation at beginning of year $ 9,252 $ 9,905
Interest cost 539 571
Settlement/curtailment charges - (416)
Actuarial loss 662 159
Benefits paid (541) (967)
-----------------
Projected benefit obligation at end of year 9,912 9,252
-----------------
Change in plan assets:
Fair value of plan assets at beginning of year 5,441 5,430
Actual return on plan assets 340 725
Company contributions 47 253
Benefits paid (541) (967)
-----------------
Fair value of plan assets at end of year 5,287 5,441
-----------------
Funded status (underfunded) $(4,625) $(3,811)
=================
Amounts recognized in other
accumulated comprehensive loss:
Net actuarial loss $ 4,456 $ 4,023
Unrecognized prior service cost - -
-----------------
$ 4,456 $ 4,023
=================
Weighted average assumptions as of December 31:
Discount rate:
Components of cost 5.75% 6.25%
Benefit obligations 6.00% 6.00%
Expected return on plan assets 8.00% 8.00%
Rate of compensation increase N/A N/A
--------------------------------------------------------------------
The Company determines the long-term rate of return for plan assets by studying
historical markets and the long-term relationships between equity securities and
fixed income securities, with the widely-accepted capital market principal that
assets with higher volatility generate higher returns over the long run. The
8.0% expected long-term rate of return on plan assets is determined based on
long-term historical performance of plan assets, current asset allocation and
projected long-term rates of return.
In 2011, the Company expects to amortize $347,000 of actuarial losses to pension
expense. The accumulated benefit obligation at December 31, 2010 and 2009 was
$9.9 million and $9.3 million, respectively. The minimum required contribution
for 2011 is expected to be $84,000, which is included in Accrued liabilities in
the Consolidated Balance Sheets. The long-term pension liability is $4.5
million and is included in Deferred pension liability and other in the
Consolidated Balance Sheets. In March 2011 and 2010, the Company submitted to
the Internal Revenue Service requests for waivers of the minimum funding
standard for its defined benefit plan. The waiver requests were submitted as a
result of the current economic climate and the current business hardship that
the Company is experiencing. The waivers, if granted, will defer payment of
$559,000 and $285,000 of the minimum funding standard for the 2010 and 2009 plan
years, respectively. If the waivers are not granted, the Pension Benefit
Guaranty Corporation and the Internal Revenue Service have various enforcement
remedies they can implement to protect the participant's benefits; such as
termination of the plan and require the Company to make the unpaid
contributions. The senior lender has waived the default of non-payment of
certain pension plan contributions, but in the event that any government agency
takes any enforcement action or otherwise exercises any rights or remedies it
may have, this shall constitute a separate and distinct event of default and the
senior lender may exercise any and all rights or remedies it may have. At this
time, the Company is hoping to make its required contributions for the 2011 plan
year; however there is no assurance that the Company will be able to make all
payments.
Expected projected benefit payments due for the next five years are:
--------------------------------------------
In thousands 2011 2012 2013 2014 2015
--------------------------------------------
$931 $564 $396 $598 $644
--------------------------------------------
The following table presents the components of the net periodic pension cost for
the two years ended December 31, 2010:
--------------------------------------------------
In thousands 2010 2009
--------------------------------------------------
Interest cost $ 539 $ 571
Expected return on plan assets (416) (428)
Amortization of prior service cost - 6
Amortization of net actuarial loss 306 273
Settlement/curtailment charges - 303
-------------
Net periodic pension cost $ 429 $ 725
--------------------------------------------------
31
The following table presents the change in unrecognized pension costs recorded
in other comprehensive loss as of December 31, 2010 and 2009:
----------------------------------------------
In thousands 2010 2009
----------------------------------------------
Balance at beginning of year $4,023 $5,158
Net actuarial loss (gain) 738 (553)
Recognized loss (305) (273)
Settlement charge - (250)
Curtailment charge - (53)
Recognized prior service cost - (6)
---------------
Balance at end of year $4,456 $4,023
----------------------------------------------
31
In addition, the Company provided unfunded supplemental retirement benefits for
the retired, former Chief Executive Officer. During 2009 the Company accrued
$0.5 million for such benefits. The Company does not offer any post-retirement
benefits other than the pension and supplemental retirement benefits described
herein.
17. Share-Based Compensation
The Company accounts for all share-based payments to employees and directors,
including grants of employee stock options, at fair value and expenses the
benefit in the Consolidated Statements of Operations over the service period
(generally the vesting period). The fair value of each stock option granted is
estimated on the date of grant using the Black-Scholes pricing valuation model,
which requires various assumptions including estimating stock price volatility,
expected life of the stock option and risk free interest rate. The Company
applies an estimated forfeiture rate in calculating the period expense. The
Company has not experienced any forfeitures that would need to be taken into
consideration in its calculations.
The Company has three stock option plans. Under the 1995 Stock Option Plan,
125,000 shares of Common Stock were authorized for grant to key employees.
Under the Non-Employee Director Stock Option Plan, 30,000 shares of Common Stock
were authorized for grant. Under the Non-Statutory Stock Option Agreement,
10,000 shares of Common Stock were authorized and issued to the former Chairman
of the Board.
Changes in the stock option plans are as follows:
--------------------------------------------------------------------
Weighted
Average
Number of Shares Exercise
Authorized Granted Available Price
--------------------------------------------------------------------
Balance January 1, 2009 44,000 33,500 10,500 $5.22
Expired (5,000) (11,500) 6,500 5.18
Granted - 4,000 (4,000) 0.91
---------------------------
Balance December 31, 2009 39,000 26,000 13,000 4.57
Expired - (3,000) 3,000 5.03
Granted - - - -
---------------------------
Balance December 31, 2010 39,000 23,000 16,000 4.51
--------------------------------------------------------------------
Under the 1995 Stock Option Plan, option prices must be at least 100% of the
market value of the Common Stock at time of grant. No option may be exercised
prior to one year after date of grant. Exercise periods are for ten years from
date of grant and terminate at a stipulated period of time after an employee's
termination of employment. At December 31, 2010, options for 7,500 shares with
exercise prices ranging from $6.10 to $7.00 per share were outstanding, all of
which were exercisable. During 2010, no options were exercised, granted or
expired. During 2009, no options were exercised or granted, and options for
5,000 shares expired. No additional options can be granted under the 1995 Plan.
Under the Non-Employee Director Stock Option Plan, option prices must be at
least 100% of the market value of the Common Stock at time of grant. No option
may be exercised prior to one year after date of grant and the optionee must be
a director of the Company at time of exercise, except in certain cases as
permitted by the Compensation Committee. Exercise periods are for six years
from date of grant and terminate at a stipulated period of time after an
optionee ceases to be a director. At December 31, 2010, options for 5,500
shares with exercise prices ranging from $0.65 to $6.25 per share were
outstanding, all of which were exercisable. During 2010, no options were
granted, and options for 3,000 shares expired; no options were exercised.
During 2009, options for 4,000 shares were granted with exercise prices ranging
from $0.65 to $1.10 per share, and options for 6,500 shares expired; no options
were exercised.
Under the Non-Statutory Stock Option Agreement for the former Chairman of the
Board, the option price must be at least 100% of the market value of the Common
Stock at time of grant and the exercise period is for 10 years from date of
grant. At December 31, 2010, the options for 10,000 shares with an exercise
price of $4.025 were
32
outstanding and exercisable. During 2010 and 2009, no options were exercised,
granted or expired.
The following tables summarize information about stock options outstanding at
December 31, 2010:
---------------------------------------------------------------
Weighted
Average Weighted
Range of Remaining Average Aggregate
Exercise Number Contractual Exercise Intrinsic
Prices Outstanding Life Price Value
---------------------------------------------------------------
$0.65 - $1.99 3,500 4.7 $0.88 -
2.00 - 5.99 11,000 1.0 4.01 -
6.00 - 6.99 3,500 1.3 6.14 -
7.00 - 7.99 5,000 3.3 7.00 -
------ -------
23,000 2.1 4.51 -
---------------------------------------------------------------
---------------------------------------------------------------
Weighted
Range of Average Aggregate
Exercise Number Exercise Intrinsic
Prices Exercisable Price Value
---------------------------------------------------------------
$0.65 - $1.99 3,500 $0.88 -
2.00 - 5.99 11,000 4.01 -
6.00 - 6.99 3,500 6.14 -
7.00 - 7.99 5,000 7.00 -
------ -------
23,000 4.51 -
---------------------------------------------------------------
All outstanding option prices are substantially over the current market price.
As of December 31, 2010, there was no unrecognized compensation cost related to
non-vested options granted under the Plans.
No options were granted in 2010. The estimated fair value of options granted
during 2009 was $0.56 per share. The fair value of options granted under the
Company's stock option plans during 2009 was estimated on dates of grant using
the Black-Scholes model with the following weighted average assumptions used:
----------------------------------------------
2009
----------------------------------------------
Dividend yield -
Expected volatility 120.94%
Risk free interest rate 4.56%
Expected lives of option grants (years) 4.0
----------------------------------------------
18. Loss Per Common Share
Basic loss per common share is computed by dividing net loss by the weighted
average number of common shares outstanding for the period. In years when the
Company reports net income, diluted per common share amounts are calculated by
adjusting net income by the weighted average number of common shares
outstanding, adjusted for shares that would be assumed outstanding after
convertible debt conversion and stock options vested under the treasury stock
method. At December 31, 2010 and 2009, there were outstanding stock options to
purchase 23,000 and 22,500 shares of Common Stock, respectively, which were
excluded from the calculation of diluted loss per share because their impact
would have been anti-dilutive.
19. Commitments and Contingencies
Commitments: The Company has employment agreements with certain executive
officers, which expire at various dates through February 2012, and a consulting
agreement with a private consulting company owned by the family of a certain
former board member who is a former officer of the Company and performed the
consulting services on behalf of the consulting company, which expires December
2014. At December 31, 2010, the aggregate commitment for future salaries and
consulting fees, excluding bonuses, was approximately $1.2 million. Contractual
salaries/consulting expense was $939,000 and $1.1 million for the years ended
December 31, 2010 and 2009, respectively.
Contingencies: The Company is subject to legal proceedings and claims which
arise in the ordinary course of its business and/or which are covered by
insurance that it believes individually and in the aggregate will not have a
material adverse effect on the consolidated financial position or operations of
the Company.
Operating leases: Certain premises are occupied under operating leases that
expire at varying dates through 2013. Certain of these leases provide for the
payment of real estate taxes and other occupancy costs. Future minimum lease
payments due under operating leases at December 31, 2010 aggregating $552,000
are as follows: $290,000 - 2011, $185,000 - 2012, $77,000 - 2013, $0 - 2014, $0
- 2015. Rent expense was $395,000 and $629,000 for the years ended December 31,
2010 and 2009, respectively.
20. Business Segment Data
Operating segments are based on the Company's business components about which
separate financial information is available, and are evaluated regularly by the
Company's chief operating decision makers in deciding how to allocate resources
and in assessing performance.
The Company evaluates segment performance and allocates resources based upon
operating income. The Company's operations are managed in four reportable
business segments. The Display Division comprises two operating segments:
Indoor display and Outdoor display. Both design, produce, lease, sell and
service large-scale, multi-color, real-time electronic information displays.
Both operating segments are conducted on a global basis, primarily through
operations in the United States. The Company also has operations in Canada.
The Indoor display and Outdoor display segments are differentiated
33
primarily by the customers they serve. The new LED lighting segment intends to
sell energy-saving lighting solutions that provide facilities and public
infrastructure with "green" lighting solutions that emit less heat, save energy
and enable creative designs. The Real estate rental segment owns and operates
an income-producing property. Segment operating (loss) income is shown after
cost of revenues and sales, general and administrative expenses directly
associated with the segment. Corporate general and administrative items relate
to costs that are not directly identifiable with a segment. There are no
intersegment sales.
Foreign revenues represent 11% of the Company's revenues and are presented in
the following table. The foreign operation does not manufacture its own
equipment; the domestic operation provides the equipment that the foreign
operation leases or sells. The foreign operation operates similarly to the
domestic operation and has similar profit margins. Foreign assets are
immaterial.
33
Information about the Company's continuing operations in its four business
segments as of December 31, 2010 and 2009 and for the two years ended December
31, 2010 is as follows:
----------------------------------------------------------------
In thousands 2010 2009
----------------------------------------------------------------
Revenues:
Indoor display $ 6,937 $ 8,163
Outdoor display 17,139 20,140
LED lighting - -
Real estate rental 231 245
-----------------
Total revenues $24,307 $28,548
-----------------
Operating (loss) income:
Indoor display $(2,185) $(1,807)
Outdoor display (59) 1,384
LED lighting (202) -
Real estate rental 165 164
Corporate general and administrative expenses (3,245) (4,093)
-----------------
Total operating loss (5,526) (4,352)
Interest expense, net (1,591) (1,693)
Write-off of note receivable, net - (2,696)
-----------------
Loss from continuing operations
before income taxes (7,117) (8,741)
Income tax benefit (expense) 19 (54)
-----------------
Net loss from continuing operations $(7,098) $(8,795)
----------------------------------------------------------------
Assets:
Indoor display $15,708 $18,204
Outdoor display 15,566 16,889
LED lighting - -
Real estate rental 1,769 1,791
Discontinued operations 1 55
-----------------
Total identifiable assets 33,044 36,939
General corporate 398 944
-----------------
Total assets $33,442 $37,883
-----------------
Depreciation and amortization:
Indoor display $ 3,846 $ 4,365
Outdoor display 1,286 1,359
LED lighting - -
Real estate rental 43 49
General corporate 128 210
-----------------
Total depreciation and amortization $ 5,303 $ 5,983
-----------------
Capital expenditures:
Indoor display $ 1,046 $ 1,667
Outdoor display 368 968
LED lighting - -
Real estate rental - 7
General corporate 11 -
-----------------
Total capital expenditures $ 1,425 $ 2,642
----------------------------------------------------------------
Geographic revenues:
United States $21,578 $26,412
Canada 1,769 1,456
Elsewhere 960 680
-----------------
Total Revenues $24,307 $28,548
----------------------------------------------------------------
21. Subsequent Events
The Company has not remitted the March 1, 2011 semi-annual interest payment on
the Notes to the trustee. See Note 13 - Long-Term Debt.
Subsequent to the end of the year, the Company submitted to the Internal Revenue
Service a request for waiver of the minimum funding standard for its defined
benefit plan. See Note 16 - Pension Plan.
34
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Trans-Lux Corporation
Norwalk, Connecticut
We have audited the accompanying consolidated balance sheet of Trans-Lux
Corporation as of December 31, 2010 and the related consolidated statement of
operations, comprehensive loss, stockholders' equity, and cash flows for the
year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly, we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides 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 Trans-Lux
Corporation at December 31, 2010, and the results of its operations and its cash
flows for the year ended December 31, 2010, in conformity with accounting
principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
and has a significant working capital deficiency that raise substantial doubt
about its ability to continue as a going concern. Further, the Company is in
default of the indenture agreements governing its outstanding 9 1/2%
Subordinated debentures due 2012 (the "Debentures") and its 8 1/4% Limited
convertible senior subordinated notes due 2012 (the "Notes") so that the
trustees or holders of 25% of the outstanding Debentures and Notes have the
right to demand payment immediately. Management's plans in regard to these
matters are also described in Note 2. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ BDO USA, LLP
Melville, NY
March 31, 2011
35
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Trans-Lux Corporation
We have audited the accompanying consolidated balance sheet of Trans-Lux
Corporation and subsidiaries (the "Company") as of December 31, 2009, and the
related consolidated statements of operations, comprehensive loss, stockholders'
equity, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we were engaged to perform, an audit of the Company's
internal controls over financial reporting. An audit includes consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Company's internal control
over financial reporting. Accordingly, we express no such opinion. An audit
also includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit provides 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 the Company as of
December 31, 2009, and the results of its operations and its cash flows for the
year then ended in conformity with accounting principles generally accepted in
the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to
the consolidated financial statements, the Company has incurred significant
recurring losses from continuing operations and has a significant working
capital deficiency. In 2009, the Company had a loss from continuing operations
of $8.8 million and has a working capital deficiency of $16.0 million as of
December 31, 2009. Further, the Company is in default of the indenture
agreements governing its outstanding 9 1/2% Subordinated debentures (the
"Debentures") and its 8 1/4% Limited convertible senior subordinated notes (the
"Notes") so that the trustees or holders of 25% of the outstanding Debentures
and Notes have the right to demand payment immediately. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management's plans in regard to these matters are also described in Note 2. The
financial statements do not include any adjustments relating to the
recoverability and classification of asset carrying amounts or the amounts and
classification of liabilities that may result from the outcome of this
uncertainty.
/s/ UHY LLP
Hartford, Connecticut
April 15, 2010
36
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures. As of the end of
the period covered by this Annual Report, we carried out an
evaluation, under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief Financial
Officer (its principal executive officer and principal financial
officer), of the effectiveness of the design and operation of our
disclosure controls and procedures (as defined in the Securities
Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)). Our Chief
Executive Officer and Chief Financial Officer have concluded that our
disclosure controls and procedures are effective to ensure that
information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized
and reported within the time periods specified in the rules and forms
of the Securities and Exchange Commission and that such information is
accumulated and communicated to our management (including our Chief
Executive Officer and Chief Financial Officer) to allow timely
decisions regarding required disclosures. Based on such evaluation,
our Chief Executive Officer and Chief Financial Officer have concluded
these disclosure controls are effective as of December 31, 2010.
(b) Changes in internal control over financial reporting. There has been
no change in the Company's internal control over financial reporting
that occurred in the fourth fiscal quarter that has materially
affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
(c) Management's Report on Internal Control Over Financial Reporting. The
management of the Company is responsible for establishing and
maintaining adequate internal control over financial reporting for the
Company as defined in Rule 13a-15(f) under the Securities Exchange Act
of 1934. A company's internal control over financial reporting is a
process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with accounting
principles generally accepted in the United States of America. A
company's internal control over financial reporting includes policies
and procedures that (1) pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the transactions and
dispositions of the assets of the Company; (2) provide reasonable
assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and
that receipts and expenditures of the Company are being made only in
accordance with authorizations of management and directors of the
Company; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorized acquisition, use or disposition of
the Company's assets that could have a material effect on the
financial statements. Our internal control system was designed to
provide reasonable assurance to our management and Board of Directors
regarding the preparation and fair presentation of published financial
statements. Because of its inherent limitations, internal control
over financial reporting may not prevent or detect misstatements.
Projections of any evaluation of effectiveness to future periods are
subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate. This annual report does not
include an attestation report of the Company's registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by the Company's
registered public accounting firm pursuant to the Securities and
Exchange Commission that permit the Company to provide only
management's report in this annual report.
The Company's management assessed its internal control over financial
reporting as of December 31, 2010 using the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission
(COSO). Management, including the Company's Chief Executive Officer
and its Chief Financial Officer, based on their evaluation of the
Company's internal control over financial reporting (as defined in
Securities Exchange Act Rule 13a-15(f)), have concluded that the
Company's internal control over financial reporting was effective as
of December 31, 2010.
37
ITEM 9B. OTHER INFORMATION
All information required to be reported in a report on Form 8-K during the
fourth quarter covered by this Form 10-K has been reported.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The directors of the Company and their ages are as follows:
-------------------------------
Name Age
-------------------------------
Glenn J. Angiolillo 57
Jean Firstenberg + 75
Howard S. Modlin 79
Michael R. Mulcahy 62
George W. Schiele 79
Angela D. Toppi 55
Salvatore J. Zizza + 65
-------------------------------
+ Member of the Audit Committee
Directors:
Glenn J. Angiolillo has served as a director since 2009 when he was elected an
independent director. Mr. Angiolillo is currently President of GJA Corp., a
consulting and advisory firm specializing in wealth management since 1998; a
Director of LICT Corp., formerly known as Lynch Interactive Corp.; Director of
NYMagic, Inc.; and a Director of Gaylord Entertainment Co. Previously, Mr.
Angiolillo was a partner and member of the Management Committee in the law firm
of Cummings & Lockwood where he concentrated in the areas of corporate law,
mergers and acquisitions and banking and finance. Mr. Angiolillo was elected a
director in accordance with a Settlement Agreement approved by the United States
District Court for the Southern District of New York described in the Company's
proxy statement for the December 11, 2009 Annual Meeting of Stockholders. Mr.
Angiolillo's experience and service to other boards of directors allows him to
make valuable contributions to the Board.
Jean Firstenberg has served as a director since 1989 when she was elected an
independent director. Ms. Firstenberg is President Emerita and a member of the
Board of Trustees of the American Film Institute. She was President and Chief
Executive Officer of the American Film Institute from 1980 to 2007. She is
Chair of the Citizen's Stamp Advisory Committee; a member of the Board of
Trustees of Women's Sports Foundation; and was formerly a Trustee of Boston
University. As President and Chief Executive Officer of the American Film
Institute for 27 years, Ms. Firstenberg brings valuable insight into the
operational requirements and strategic planning process of a company. In
addition, Ms. Firstenberg's more than 20 years of experience as a Director of
Trans-Lux and her prior role as Chairperson of the Audit Committee gives her a
deep understanding of the Company and its operations.
Howard S. Modlin has served as a director since 1975 and is an attorney and
President of the firm Weisman Celler Spett & Modlin, P.C.; and Chairman and
Chief Executive Officer of General DataComm Industries, Inc. Previously, Mr.
Modlin was a Director of Fedders Corporation. Mr. Modlin's extensive legal
background and role as Chairman and Chief Executive Officer of General DataComm
Industries brings valuable insight into the operational requirements and
strategic planning process of a company. In addition, Mr. Modlin's extensive
experience and his more than 35 years of service on the Board make him a
valuable Director. In addition, Mr. Modlin also serves as Chairman of the
Compensation Committee.
Michael R. Mulcahy has served as a director since 2002 and was the President
and Chief Executive Officer of Trans-Lux Corporation until his retirement on
December 31, 2009. He was formerly Co-Chief Executive Officer of Trans-Lux
Corporation. Mr. Mulcahy spent over 42 years employed at Trans-Lux and was
involved with numerous organization changes, including those initiated while he
was President and Chief Executive Officer, which gives him a deep knowledge
38
and insight of the Company. His service as both a Director and in management
makes him well qualified to serve as a Director.
George W. Schiele has served as a director since 2009 when he was elected an
independent director. In September 2010, Mr. Schiele was elected by the Board
to serve as Chairman of the Board (a non-executive position) of Trans-Lux
Corporation. Mr. Schiele is currently President of George W. Schiele, Inc., a
holding company; President and Trustee of LAL Family Partners LP; President and
Trustee of 4003 Corporation; a Director of Connecticut Innovations, Inc. and
Chairman of its Investment Committee; and a Director and Executive Board member
of The Yankee Institute. Mr. Schiele was elected in accordance with a
Settlement Agreement approved by the United States District Court for the
Southern District of New York described in the Company's proxy statement for the
December 11, 2009 Annual Meeting of Stockholders. Mr. Schiele's experience and
service to other boards of directors allows him to make valuable contributions
to the Board.
Angela D. Toppi has served as a director since 2009 and has been Executive Vice
President, Treasurer, Secretary and Chief Financial Officer of Trans-Lux
Corporation for the past nine years. Ms. Toppi's extensive leadership
experience at Trans-Lux for over 24 years of service and involvement with
numerous restructuring and organizational transactions gives her a deep
understanding of the Company. Ms. Toppi is a Certified Public Accountant. As
Chief Financial Officer, Ms. Toppi provides valuable insight to the Board.
Salvatore J. Zizza has served as a director since 2009 when he was elected an
independent director. In September 2010, Mr. Zizza was elected by the Board to
serve as Vice Chairman of the Board (a non-executive position) of Trans-Lux
Corporation. Mr. Zizza is currently the Chairman of Zizza & Co. Ltd.;
Chairman of Metropolitan Paper Recycling; Chairman of Bethlehem Advanced
Materials; a Director of Hollis-Eden Pharmaceuticals; and a Director of several
of the Gabelli open and closed-end funds, including The Gabelli Equity Trust,
The Gabelli Asset Fund, The Gabelli Growth Fund, The Gabelli Convertible and
Income Securities Fund, The Gabelli Utility Trust Fund, The Gabelli Global
Multimedia Trust, The Gabelli Equity Series Fund, The Gabelli Dividend and
Income Trust, The Gabelli Gold Fund, The Gabelli International Growth Fund, The
Gabelli Global Gold & Natural Resources Fund, and the GAMCO Westwood Funds.
Previously, Mr. Zizza was a Director of Earl Scheib, Inc. Mr. Zizza was
elected in accordance with a Settlement Agreement approved by the United States
District Court for the Southern District of New York described in the Company's
proxy statement for the December 11, 2009 Annual Meeting of Stockholders. Mr.
Zizza's extensive experience and service to numerous other boards of directors
allows him to provide valuable contributions to the Board. In addition, Mr.
Zizza also serves as Chairman of the Audit Committee.
Meetings of the Board of Directors and Certain Committees:
During 2010, the Board of Directors held 11 meetings. All directors attended
75% or more of such meetings and of the meetings of the committees of which they
were members. The Company does not have a formal policy regarding directors'
attendance at annual stockholders meetings. Nevertheless, the Company strongly
encourages and prefers that directors attend regular and special Board meetings
as well as the annual meeting of stockholders in person, although attendance by
teleconference is considered acceptable. The Company recognizes that attendance
of the Board members at all meetings may not be possible, and excuses absences
for good cause.
Non-employee directors are due to receive an annual fee of $2,800, as well as
$800 for each meeting of the Board attended ($400 for telephonic meetings),
while employee directors are due to receive an annual fee of $1,360 and $320 for
each meeting of the Board attended ($160 for telephonic meetings). Mr. Gene
Jankowski, the former Chairman, received an annual fee of $1,600 as Chairman of
the Board, Mr. Angiolillo, the former interim Chairman of the Board, received
a fee of $15,000 and Mr. Victor Liss, the former Vice Chairman, received an
annual fee of $200 as Vice Chairman of the Board. Fees for members of the Board
and Committees are determined annually by the entire Board of Directors based on
review of compensation paid by other similar size companies, the amounts
currently paid by the Company, the overall policy for determining compensation
paid to officers and employees of the Company and the general financial
condition of the Company. During 2010, the Board has deferred payment of their
fees.
Corporate Governance Policies and Procedures
The Board of Directors has adopted a Code of Business Conduct and Ethics
Guidelines that applies specifically to Board Members and Executive Officers.
The Code is designed to promote compliance with applicable laws and regulations,
and to
39
promote honest and ethical conduct, including full, fair, accurate and timely
disclosure in reports and communications with the public. The Code is available
for viewing on the Company's website at www.trans-lux.com. Any amendments to,
or waivers from, the Code of Business Conduct and Ethics Guidelines will be
posted on the website. In addition, the Board of Directors adopted a Whistle
Blowing policy, which provides procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting, internal
accounting controls and auditing matters, as well as the confidential, anonymous
submission of concerns regarding questionable accounting or auditing practices.
The Company maintains the same requirements as NYSE Amex listed company's for
director independence The company's Board of Directors must consist of a
majority of independent directors as defined in Section 803A of such NYSE Amex
Company Guide, unless the company is considered a Smaller Reporting Company as
defined in Securities Exchange Act of 1934 ("Exchange Act") Rules. In
accordance with the NYSE Amex Company Guide, Section 801(h), the Company is
presently considered a Smaller Reporting Company, and therefore, is only
required to maintain a board of directors consisting of at least 50% independent
directors.
Corporate Leadership Structure
Two separate individuals serve as the Company's Chairman of the Board and Chief
Executive Officer. The Chairman is not an executive officer. He provides
leadership to the Board in the fulfillment of his responsibilities in presiding
over Board meetings. He also presides over meetings of the stockholders. The
Chief Executive Officer, who is not currently a director, is responsible for
directing the operational activities of the Company.
Risk Management
Our Board and Audit Committee are actively involved in risk management. Both
the Board and Audit Committee regularly review the financial position of the
Company and operations of the Company and other relevant information, especially
cash management and risks associated with the Company's financial position and
operations.
Communication with the Board of Directors
Security holders are permitted to communicate with the members of the Board by
forwarding written communications to the Company's Corporate Secretary at the
Company's headquarters in Norwalk, Connecticut. The Corporate Secretary will
present all communications, as received and without screening, to the Board at
its next regularly scheduled meeting.
Committees of the Board of Directors
The Board of Directors has appointed a Compensation Committee, an Audit
Committee and a Nominating Committee.
Compensation Committee
The members of the Compensation Committee of the Board of Directors are Messrs.
Angiolillo, Modlin and Schiele and Ms. Firstenberg. The Compensation Committee
reviews compensation and other benefits. The Compensation Committee held one
meeting in 2010. None of the members of the Compensation Committee are or have
been an officer or employee of the Company. The Compensation Committee does not
have a charter. There are no compensation committee interlock relationships
with respect to the Company. Members of said Committee receive a fee of $320
for each meeting of the Committee they attend and the Chairman, Mr. Modlin,
receives an annual fee of $1,600.
Audit Committee
The members of the Audit Committee of the Board of Directors are Mr. Zizza and
Ms. Firstenberg. Mr. Modlin served in an ex officio capacity until February
10, 2010, and resigned in order to comply with NYSE Amex Company Guide
requirements. Each of the directors are considered "independent" as defined by
the NYSE Amex Company Guide. The Committee operates under a formal written
charter approved by the Committee and adopted by the Board of Directors. The
Board of Directors has determined that Mr. Zizza meets the definition of "audit
committee financial expert" set forth in Item 407 of Regulation S-K, as
promulgated by the Securities and Exchange Commission ("SEC"). The Audit
Committee held 6 meetings in 2010. The responsibilities of the Audit Committee
include the appointment of the auditors, review of the audit function and
40
material aspects thereof with the Company's independent auditors, and compliance
with Company policies and applicable laws and regulations. Members of said
Committee receive a fee of $400 for each meeting of the Committee they attend
and the Chairman, Mr. Zizza, receives an annual fee of $2,400 and $100 for each
quarterly telephonic meeting with the independent auditors.
Nominating Committee
The Company's Nominating Committee was established at the December 11, 2009
meeting of the Board of Directors in accordance with the NYSE Amex Company Guide
requirements. Previously the Company was considered a controlled company, and
therefore, was not required to have a nominating committee. A written charter
for the Nominating Committee has been adopted. The Committee recommends for
consideration by the Board of Directors, Nominees for election of directors at
the Company's Annual Meeting. Except as qualified below in connection with the
settlement of a lawsuit, director nominees are considered on the basis of, among
other things, experience, expertise, skills, knowledge, integrity, understanding
the Company's business and willingness to devote time and effort to Board
responsibilities. The Committee does not have a separate policy regarding
diversity of the Board. Three of the directors, Glenn J. Angiolillo, George W.
Schiele and Salvatore J. Zizza (the "Gamco Nominees") were elected in
accordance with a Settlement Agreement approved by the United States District
Court for the Southern District of New York described in the Company's proxy
statement for the December 11, 2009 Annual Meeting of Stockholders. If any of
them or their replacements is unwilling or unable to serve as a director prior
to the 2012 Annual Meeting of Stockholders, the Company, consistent with duties
and obligations under Delaware law, shall use its best efforts to replace said
director with a nominee suggested by the Gabelli parties, consisting of Gabelli
Funds, LLC, Gamco Asset Management, Inc., Gabelli Cap Growth Fund, Gabelli
Global Multimedia Trust, Inc., Gabelli Dividend and Income Trust and Gabelli
Convertible Fund.
The members of the Nominating Committee of the Board of Directors are Messrs.
Angiolillo, Schiele and Zizza and Ms. Firstenberg, each of whom is independent
in accordance with the NYSE Amex Company Guide requirements. The Nominating
Committee is responsible for identifying, researching and nominating directors
for election by our stockholders and selecting nominees to fill vacancies on our
Board of Directors or a committee of the Board. The Nominating Committee was
established on December 11, 2009. During 2010, the Nominating Committee met
twice to discuss, among other things, nominating the directors for election by
our stockholders at our annual meeting.
Corporate Governance Committee
The Board of Directors has not established a corporate governance committee.
The Board of Directors acts as the corporate governance committee.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
The Company's executive officers and directors are required under Section 16(a)
of the Securities Exchange Act of 1934 to file reports of ownership and changes
in ownership with the SEC. Copies of those reports must also be furnished to
the Company. Based solely on a review of the copies of reports furnished to the
Company for the year ended December 31, 2010, the Company's executive officers
and directors have complied with the Section 16(a) filing requirements.
Executive Officers
The following executive officers were elected by the Board of Directors for the
ensuing year and until their respective successors are elected:
----------------------------------------------------------------
Name Office Age
----------------------------------------------------------------
Jean-Marc Allain President and Chief Executive Officer 41
Angela D. Toppi Executive Vice President, Treasurer, 55
Secretary and Chief Financial Officer
Al L. Miller Executive Vice President 65
Karl P. Hirschauer Senior Vice President 65
Thomas F. Mahoney Senior Vice President 63
----------------------------------------------------------------
41
Mr. Allain became the President and CEO of Trans-Lux Corporation on February
16, 2010. Mr. Allain served as President of Panasonic Solutions Company from
July 2008 through October 2009; Vice President of Duos Technologies from August
2007 through June 2008; General Manager of Netversant Solutions from October
2004 through June 2005; and Vice President of Adesta, LLC from May 2002 through
September 2004. Mr. Allain has familiarity with the operational requirements
of complex organizations and has experience dealing with reorganizations and
turnarounds. Messrs. Miller, Hirschauer, Mahoney and Ms. Toppi have each been
associated in an executive capacity with the Company for more than five years.
The information required by Items 405, 406 and 407 of Regulation S-K is
incorporated herein by reference to the Sections entitled "Compliance with
Section 16(a) of the Securities Exchange Act of 1934," "Code of Ethics" and
"Corporate Governance" in the Company's Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
Compensation of Executive Officers
Compensation Discussion and Analysis: All matters concerning executive
compensation for the Chief Executive Officer and other executive officers are
considered by the Company's Compensation Committee. The following paragraphs
discuss the principles underlying our executive compensation decisions and the
most important factors relevant to an analysis of these decisions. It provides
qualitative information regarding the manner and context in which compensation
is awarded to and earned by our executive officers and places in perspective the
data presented in the tables and other quantitative information that follows
this section.
Our compensation of executives is designed to attract, as needed, individuals
with the skills necessary for us to achieve our business plan, to reward those
individuals fairly over time, and to retain those individuals who continue to
perform at or above our expectations, without incurring risk-taking incentives
that are reasonable likely to have a material adverse effect on the Company.
Our executives' compensation has three primary components - base salary, a
yearly cash incentive bonus and stock option/restricted stock awards.
Base Salary. We fix the base salary of each of our executives at a level we
believe enables us to hire and retain individuals in a competitive environment
and rewards satisfactory individual performance and a satisfactory level of
contribution to our overall business goals. We also take into account the base
salaries paid by similarly sized companies and the base salaries of other
companies with which we believe we compete for talent. To this end, we
subscribe to certain executive compensation surveys and other databases and
review them when making a crucial executive hiring decision and annually or at
the end of the term of the employment agreement when we review executive
compensation.
Cash Incentive Bonus. We designed the cash incentive bonuses for each of our
executives to focus the executive on achieving key financial and/or operational
objectives within a yearly time horizon, as described in more detail below.
Stock Options/Restricted Stock. We use stock options or restricted stock awards
when employment agreements are entered into and/or to reward long-term
performance; these options are intended to produce value for each executive if
the Company's performance is outstanding and if the executive has an extended
tenure and are also based on availability of options.
We view the three primary components of our executive compensation as related
but distinct. Although we review total compensation, we do not believe that
significant compensation derived from one component of compensation should
negate or reduce compensation from other components. We determine the
appropriate level for each compensation component based in part, but not
exclusively, on our view of internal equity and consistency, individual
performance and other information we deem relevant, such as the survey data
referred to above. We believe that salary and cash incentive bonuses are
primary considerations and that stock options are secondary considerations.
Except as described below, we have not adopted any formal or informal policies
or guidelines for allocating compensation between long-term and currently paid
out compensation, between cash and non-cash compensation, or among different
forms of compensation. This is due to the small size of our executive team and
the need to tailor each executive's award to attract and retain that executive.
42
In addition to the three primary components of compensation described above, we
provide our executives with benefits that are generally available to our
salaried employees. These benefits include health and medical benefits,
flexible spending plans and life insurance. We also provide our executive
officers with severance and certain additional benefits in the event of a change
of control of the Company, as described in more detail below. However, for the
first time the Company, as an inducement to Mr. Allain to enter into an
employment contract, granted him 50,000 restricted shares of Common Stock, of
which 50% vested on February 16, 2010 and the remaining 50% will vest on
February 16, 2011, provided Mr. Allain is employed by the Company on that date.
We account for the equity compensation expense for our employees under FASB
Accounting Standards Codification Topic 718, which requires us to estimate and
record an expense for each award of equity compensation over the service period
of the award. Accounting rules also require us to record cash compensation as
an expense at the time the obligation is accrued. No stock options were awarded
during 2010 to any employees, and therefore, the Company did not record any
related compensation expense. There are no stock option plans currently in
effect providing for the grant of new options to employees.
Cash Incentive Bonuses. Yearly cash incentive bonuses for our executives are
established as part of their respective individual employment agreements. Each
of these employment agreements provides that the executive will receive a cash
incentive bonus determined in the discretion of our Board of Directors, based
upon the financial performance of the Company. These criteria are established
by the Compensation Committee and approved by the full Board of Directors at the
time the individual employment agreement is entered into and includes specific
objectives relating to the achievement of operational and/or financial results.
Based on the results of the Company, no cash incentive bonuses were paid for the
year ended December 31, 2010.
Severance and Change in Control Benefits. Each of our executives has a
provision in his/her employment agreement providing for certain severance
benefits in the event of termination without cause. The severance provisions
are described below in the section entitled "Employment Agreements."
In addition to the severance benefits, Ms. Toppi's employment agreement
provides for a "Change in Control of Employer" provision, entitling her to
terminate the agreement on 75 days prior written notice and receive a lump sum
payment, grossed up for taxes if subject to Section 4999 of the Internal Revenue
Code of 1986 if such payment is deemed to be an "excess parachute payment" under
Section 280G of the Internal Revenue Code of 1986, and the option of extending
her agreement for three (3) years at her then current salary subject to the
cost-of-living adjustment if such Change in Control is approved.
Supplemental Executive Retirement Agreement. Former President and Chief
Executive Officer Michael R. Mulcahy retired on December 31, 2009. In
accordance with his agreement, Mr. Mulcahy was due a Supplemental Executive
Retirement Payment ("SERP"). The SERP benefit payment was due on July 1, 2010
in the
amount of $353,009 plus tax effect of approximately $169,967, but was not paid.
Other Benefits. Our executives are eligible to participate in all of our
employee benefit plans, such as medical, group life and disability insurance,
pension plan and our 401(k) plan, in each case on the same basis as our other
employees.
Compensation Consultants. The Company has not engaged the services of any
outside compensation consultant for 2010.
Compensation Committee Report
The Compensation Committee has reviewed and discussed the foregoing Compensation
Discussion and Analysis with management and, based on such review and
discussions, the Compensation Committee has recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this Form
10-K.
This report is submitted by the Compensation Committee. Its members are:
Howard S. Modlin, Chairman
Glenn J. Angiolillo
Jean Firstenberg
George W. Schiele
43
The following table provides certain summary information for the last fiscal
year of the Company concerning compensation paid or accrued by the Company and
its subsidiaries to or on behalf of the Company's Chief Executive Officer, Chief
Financial Officer and other Named Executive Officers of the Company for 2010.
Summary Compensation Table
Annual Compensation
---------------------------------------------------------------------------------------------------------------------
Change in
Pension
Value of
Nonqualified
Non-Equity Deferred
Stock Option Incentive Plan Compensation All Other
Name and Salary Bonus Awards Awards Compensation Earnings Compensation
Principal Position Year ($) ($) ($) ($) ($) ($) ($)(1) Total ($)
---------------------------------------------------------------------------------------------------------------------
J.M. Allain.............. 2010 215,145 - 48,500 - - - 15,240 278,885
President and Chief 2009 - - - - - - - -
Executive Officer
Angela D. Toppi.......... 2010 173,535 - - - - - 3,863 177,398
Executive Vice President, 2009 174,839 - - - - - 3,132 177,971
Treasurer, Secretary and
Chief Financial Officer
Al L. Miller............. 2010 136,631 16,884 - - - - 766 154,281
Executive Vice President 2009 140,997 25,713 - - - - 1,224 167,934
of Manufacturing
Thomas F. Mahoney........ 2010 129,002 26,840 - - - - 198 156,040
Senior Vice President 2009 132,370 40,135 - - - - 776 173,281
of Sales
Karl P. Hirschauer....... 2010 144,447 - - - - - 1,597 146,044
Senior Vice President 2009 151,282 - - - - - 1,111 152,393
of Engineering
---------------------------------------------------------------------------------------------------------------------
(1) See "All Other Compensation" below for further details.
All Other Compensation
During 2010, "All Other Compensation" consisted of director and/or trustee fees,
insurance premiums and other items. The following is a table of amounts per
named individual:
----------------------------------------------------------------------------
Director and/or Insurance Total
Trustee Fees Premiums Other All Other
Name ($) ($) ($)(1) Compensation ($)
----------------------------------------------------------------------------
J.M. Allain............ - 240 15,000 15,240
Angela D. Toppi........ 1,360 2,503 - 3,863
Al L. Miller........... - 689 77 766
Thomas F. Mahoney...... - 198 - 198
Karl P. Hirschauer..... - 1,463 134 1,597
----------------------------------------------------------------------------
(1) Other consists of personal use of company vehicle or vehicle allowance.
During 2009, the named executives agreed to a voluntary reduction in their
salary for the remaining ten months and for 2010.
Retirement Plan
The Company made a cash contribution of $47,000 during 2010, which is less than
the minimum required contribution, to the Company's retirement plan for all
eligible employees and the individuals listed in the Summary Compensation Table.
The Company has filed requests for waivers of the 2009 and 2010 minimum funding
standard as permitted under 412(d) of the Internal Revenue Code and section 303
of the Employee Retirement Income Security Act of 1974.
The Company's retirement plan covers all salaried employees over age 21 with at
least one year of service who are not covered by a collective bargaining
agreement to which the Company is a party. Retirement benefits are based on the
final
44
average salary for the highest five of the ten years preceding retirement. For
example, estimated annual retirement benefits payable at normal retirement date,
which normally is age 65, is approximately $15,000 for an individual with ten
years of credited service and with a final average salary of $100,000; and
approximately $120,000 for an individual with 40 years of credited service and
with a final average salary of $200,000. Currently, $245,000 is the legislated
annual cap on determining the final average salary and $195,000 is the maximum
legislated annual benefit payable from a qualified pension plan.
As of January 1, 2011, Messrs. Hirschauer, Mahoney and Miller and Ms. Toppi
had 31, 35, 33 and 16 years of credited service, respectively. As of December
31, 2003, the benefit service under the pension plan had been frozen, and,
accordingly, no further years of credited service have been allowed, and as of
April 30, 2009, the benefit under the pension plan has been frozen, and,
accordingly, there is no further increase in benefit being accrued. The normal
annual retirement benefit for Messrs. Hirschauer, Mahoney and Miller and Ms.
Toppi is approximately $45,000, $67,000, $46,000 and $36,000, respectively.
Supplemental Executive Retirement Agreement
Former President and Chief Executive Officer Michael R. Mulcahy retired on
December 31, 2009. In accordance with his agreement, Mr. Mulcahy was due a
Supplemental Executive Retirement Payment ("SERP"). The SERP benefit payment
was due on July 1, 2010 in the amount of $353,009 plus tax effect of
approximately $169,967, but was not paid.
Employment Agreements
The Company executed an employment agreement with Jean-Marc (J.M.) Allain on
February 16, 2010 for a term expiring on February 16, 2012. Mr. Allain was
appointed as President and Chief Executive Officer of the Company at that time.
The agreement provides for compensation at the annual rate of $250,000 through
February 16, 2012. Mr. Allain is entitled to receive a one-time bonus of
$50,000 in the event that the cash flow of the Company, before financing
activities and sale of real estate, exceeds $2.5 million for 2010 or 2011,
during the term of the employment agreement. Payment of such bonus shall be
made only once, if earned, within 120 days after the end of the period earned.
In addition, Mr. Allain is entitled to receive up to 50,000 shares of
restricted Common Stock of the Company upon achieving specified levels of
Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA"),
excluding (i) sales of real estate and (ii) the amount by which (x) any item or
items of unusual or extraordinary gain in the aggregate exceeds 20% of the
Company's net book value as at the end of the immediate preceding fiscal year or
(y) any items of unusual or extraordinary loss in the aggregate exceeds 20% of
the Company's net book value as at the end of the immediate preceding calendar
year, in each case in (x) and (y) above as determined by accounting principles
generally accepted in the United States of America, and items of gain and loss
shall not be netted against each other for purpose of the above 20% calculation.
Mr. Allain will receive 10,000 shares of restricted stock if EBITDA equals $4.6
million for 2010 or 2011, and for each $200,000 increase in EBITDA over $4.6
million, Mr. Allain will receive an additional 10,000 shares of restricted
stock, not to exceed 50,000 shares of restricted stock in the aggregate.
Delivery of such restricted shares shall be made within 120 days after the end
of the period earned. Also, Mr. Allain executed, concurrently with his
employment agreement, a restricted stock agreement, awarding him 50,000 shares
of restricted stock. The restricted stock vests at the rate of 50% on February
16, 2011 and the remaining 50% on February 16, 2012, provided Mr. Allain is
employed by the Company on the respective vesting dates. His employment
agreement provides that if consistent with duties and obligations under Delaware
law, the Company will recommend his nomination to the Board as and when a seat
becomes available. If Mr. Allain's employment is terminated for any reason, he
is entitled to four months salary as severance pay, and he has agreed to
immediately resign as a director.
The Company has an employment agreement with Ms. Angela D. Toppi that expired
and is now on a 30-day basis, which provides for compensation at the annual rate
of $200,000. The agreement provides that if Ms. Toppi is disabled, the Company
will pay to her 50% of the salary she is entitled to receive for the duration of
the disability during the term, but in no event less than eighteen (18) months.
In the event Ms. Toppi dies during the term of said agreement, the Company
shall pay to her beneficiary death benefits in an amount equal to 50% of her
then annual salary for the immediate preceding fiscal year for the duration of
the term, but in no event less than eighteen (18) months. The Company will
reimburse Ms. Toppi up to $2,500 per annum for the cost of long-term disability
insurance and life insurance. The agreement further provides for severance pay
equal to 100% of her base salary in effect at time of termination of employment
for a period of one (1) year if the Company continues a non-compete clause. The
agreement also contains a "Change in Control of Employer" provision, entitling
Ms. Toppi to terminate the agreement on 75 days prior written notice and
receive a lump sum payment of 2.9 times her salary level then in effect, grossed
up for taxes if subject to Section 4999 of the Internal Revenue Code of 1986 if
such
45
payment is deemed to be an "excess parachute payment" under Section 280G of the
Internal Revenue Code of 1986. Ms. Toppi also has the option of extending her
agreement for three (3) years through March 31, 2012 at her then current salary
subject to the cost-of-living adjustment if such Change in Control is approved
as provided above. The agreement also provides for supplemental retirement
benefits in the absence of the Pension Plan in the event of a Change in Control.
The Company has an employment agreement with Mr. Al L. Miller that expired and
is now on a 30-day basis, which provides for compensation at the annual rate of
$161,500. Mr. Miller is entitled to receive a performance bonus and sales
override target amount of earnings of $45,000 per annum. Mr. Miller is also
entitled to receive as a profit participation 1/2 of 1% of the Company's pre-tax
consolidated earnings if earnings exceed $500,000, with a maximum of $40,000 for
any fiscal year. Such pre-tax consolidated earnings shall not include any
defined extraordinary or unusual items of gain or loss as determined by
accounting principles generally accepted in the United States of America to the
extent such item exceeds 20% of net book value. The agreement provides that if
Mr. Miller is disabled, the Company will pay to him 40% of the salary he is
entitled to receive for the duration of the disability during the term, but in
no event less than ninety (90) days. In the event Mr. Miller dies during the
term of said agreement, the Company shall pay to his beneficiary death benefits
in an amount equal to 40% of his then annual salary for the immediate preceding
fiscal year for the duration of the term.
The Corporation has an employment agreement with Mr. Thomas F. Mahoney that
expired and is now on a 30-day basis, which provides for compensation at the
annual rate of $152,000. Mr. Mahoney is entitled to receive a performance
bonus and sales override target amount of earnings of $50,000 per annum. Mr.
Mahoney is also entitled to receive as a profit participation 1/2 of 1% of the
Corporation's pre-tax consolidated earnings if earnings exceed $500,000, with a
maximum of $20,000 for any fiscal year. Such pre-tax consolidated earnings
shall not include any defined extraordinary or unusual items of gain or loss as
determined by accounting principles generally accepted in the United States of
America to the extent such item exceeds 20% of net book value. The agreement
provides that if Mr. Mahoney is disabled, the Corporation will pay to him 35%
of the salary he is entitled to receive for the duration of the disability
during the term. In the event Mr. Mahoney dies during the term of said
agreement, the Corporation shall pay to his beneficiary death benefits in an
amount equal to 35% of his then annual salary for the immediate preceding fiscal
year for the duration of the term, or eighteen (18) months, whichever is less.
The Corporation has an employment agreement with Mr. Karl P. Hirschauer that
expired and is now on a 30-day basis, which provides for compensation at the
annual rate of $175,500. Mr. Hirschauer is entitled to receive as a profit
participation 3/8% of 1% of the Corporation's pre-tax consolidated earnings if
earnings exceed $500,000, with a maximum of $20,000 for any fiscal year. Such
pre-tax consolidated earnings shall not include any defined extraordinary or
unusual items of gain or loss as determined by accounting principles generally
accepted in the United States of America to the extent such item exceeds 20% of
net book value. The agreement provides that if Mr. Hirschauer is disabled, the
Corporation will pay to him 35% of the salary he is entitled to receive for the
duration of the disability during the term. In the event Mr. Hirschauer dies
during the term of said agreement, the Corporation shall pay to his beneficiary
death benefits in an amount equal to 35% of his then annual salary for the
immediate preceding fiscal year for the duration of the term, but in no event
less than eighteen (18) months.
The foregoing is a summary of the agreements and reference is made to the
agreements, each of which has been filed with the SEC, for the full terms
thereof.
During 2010, the named executives and other executives agreed to a voluntary
reduction in their salary for the entire year; during 2009, agreed to a
voluntary reduction in their salary for ten months; during 2008 and 2007, agreed
to defer their increases for nine months; during 2006, agreed to defer their
increases for six months; and during 2005, 2004 and 2003, agreed to defer their
increases for three months.
Director Compensation
Non-Employee Director Stock Option Plan: The Board of Directors has previously
established a Non-Employee Director Stock Option Plan, which as amended, covers
a maximum of 30,000 shares for grant. Options are for a period of six years
from date of grant, are granted at fair market value on date of grant, may be
exercised at any time after one year from date of grant while a director and are
based on years of service, with a minimum of 500 stock options for each
director, an additional 500 stock options based on five or more years of
service, another 500 stock options based on 10 or more years of service and
46
an additional 1,000 stock options based on 20 or more years of service.
Additional stock options are granted upon the expiration or exercise of any such
option, which is no earlier than four years after date of grant, in an amount
equal to such exercised or expired options.
Compensation of Directors
The following table represents director compensation for 2010.
---------------------------------------------------------------------------------------------------
Nonqualified
Non-Equity Deferred
Fees Stock Option Incentive Plan Compensation All Other
Earned Awards Awards Compensation Earnings Compensation Total
Name ($) ($) ($) ($) ($) ($)(1) ($)
---------------------------------------------------------------------------------------------------
Glenn J. Angiolillo... 22,920 - - - - - 22,920
Jean Firstenberg...... 8,240 - - - - - 8,240
Gene Jankowski........ 6,040 - - - - - 6,040
Victor Liss........... 5,000 - - - - - 5,000
Howard S. Modlin...... 9,840 - - - - - 9,840
Michael R. Mulcahy.... 2,960 - - - - 14,792 17,752
George W. Schiele..... 9,840 - - - - - 9,840
Angela D. Toppi....... 3,680 - - - - - 3,680
Salvatore J. Zizza.... 10,500 - - - - - 10,500
---------------------------------------------------------------------------------------------------
(1) All other compensation consists of medical insurance premiums paid.
Stock Option Plans and Stock Options
The Company had an incentive stock option plan, which provided for the grant of
incentive stock options at fair market value on date of grant. The plan has
expired and no further options may be granted. Options outstanding are
exercisable during the period one to 10 years after date of grant and while the
holder is in the employ of the Company and survive the termination of the plan.
The Company has a Non-Employee Director Stock Option Plan, which provides for
the grant of incentive stock options at fair market value on date of grant,
pursuant to which the option set forth below was granted. Options outstanding
are exercisable during the period one to six years after date of grant and while
a director. There were no stock options granted in fiscal 2010 to the named
executive officers or the management consultant and no stock options were
exercised in fiscal 2010.
The following table sets forth information as to the named executive officers
with respect to unexercised options and equity incentive plan awards as of the
end of the fiscal year.
Outstanding Equity Awards at Fiscal Year-End
------------------------------------------------------------------------------------------------------------------------------
Equity
Incentive Equity
Plan Incentive Plan Equity Incentive
Awards: Market Awards: Plan Awards:
Number of Number of Value of Number of Market or
Number of Securities Shares or Shares of Unearned Payout Value of
Securities Underlying Units of Units of Shares, Units or Unearned Shares,
Underlying Unexercised Option Stock that Stock that Other Rights Units or
Unexercised Unearned Exercise Option have not have not that have not other Rights that
Options Options Price Expiration Vested Vested Vested have not Vested
Name # # $ Date # $ # $
------------------------------------------------------------------------------------------------------------------------------
Angela D. Toppi 5,000 - $7.00 03/24/14 - - - -
Thomas F. Mahoney 2,500 - $6.10 06/27/12 - - - -
------------------------------------------------------------------------------------------------------------------------------
47
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth information as of March 30, 2011 (or such other
date specified) with respect to the beneficial ownership of the Company's Common
Stock or shares acquirable within 60 days of such date by (i) each person known
by the Company to own more than 5% of the Company's Common Stock and who is
deemed to be such beneficial owner of the Company's Common Stock under Rule
13d-3(a)(ii); (ii) each person who is a director of the Company; (iii) each
named executive in the Summary Compensation Table; and (iv) all persons as a
group who are executive officers and directors of the Company, and as to the
percentage of outstanding shares held by them on that date.
---------------------------------------------------------------------------------------
Number of Shares
Beneficially Percent
Name, Status and Mailing Address Owned of Class
---------------------------------------------------------------------------------------
5% Stockholders:
---------------
Richard Brandt................................................. 181,063 (1) 7.38%
2209 Miguel Chavez Road Bldg A
Santa Fe, NM 87505
Gabelli Funds, LLC............................................. 429,500 (2) 17.58%
One Corporate Center
Rye, NY 10580-1434
Non-Employee Directors:
Glenn J. Angiolillo............................................ 600 (3) *
Jean Firstenberg............................................... 1,920 (4) *
Howard S. Modlin............................................... 13,873 (5) *
Michael R. Mulcahy............................................. 3,303 *
George W. Schiele.............................................. 500 (3) *
Salvatore J. Zizza (6)......................................... 500 (3) *
Named Executive Officers:
J.M. Allain.................................................... 50,000 (7) 2.05%
Karl P. Hirschauer............................................. 629 *
Thomas F. Mahoney.............................................. 2,600 (8) *
Al L. Miller................................................... 611 *
Angela D. Toppi................................................ 6,000 (9) *
All directors and executive officers as a group (11 persons)... 80,536 (10) 3.28%
---------------------------------------------------------------------------------------
* Represents less than 1% of total number of outstanding shares.
(1) The amount includes 10,000 shares of Common Stock acquirable upon exercise of
stock options. The amount excludes 54,690 shares owned by Matthew Brandt and
55,564 shares owned by Thomas Brandt, sons of Mr. R. Brandt, former officers and
directors of the Company.
(2) Based on Schedule 13D, Amendment No. 84 dated March 2, 2011 by Mario J. Gabelli,
GGCP, Inc., Gabelli Funds, LLC, Teton Advisors, Inc., Gamco Investors, Inc. and
Gamco Asset Management Inc., which companies are parent holding companies and/or
registered investment advisers. All securities are held as agent for the account
of various investment company fund accounts managed by such reporting person.
Except under certain conditions, Gabelli Funds, LLC has sole voting power and sole
dispositive power over such shares.
(3) The amount includes 500 shares of Common Stock acquirable upon exercise of stock
options.
(4) The amount includes 1,500 shares of Common Stock acquirable upon exercise of stock
options.
(5) The amount includes 7,719 shares of Common Stock owned by Mr. Modlin's immediate
family or held in trust for Mr. Modlin's immediate family and 2,500 shares of
Common Stock acquirable upon exercise of stock options.
(6) Mr. Zizza disclaims any interest in the share set forth in footnote 2 above.
(7) The amount represents 50,000 shares of restricted stock granted on February 16,
2010 and vested 50% on the one-year anniversary date of grant and 50% will vest on
the two-year anniversary date of grant, provided Mr. Allain is employed by the
Company on those dates.
(8) The amount includes 2,500 shares of Common Stock acquirable upon exercise of stock
options.
(9) The amount includes 5,000 shares of Common Stock acquirable upon exercise of stock
options.
(10) The amount includes 13,000 shares of Common Stock set forth in footnotes above
which members of the group have the right to acquire by exercise of stock options
(including director stock options).
48
Equity Compensation Plan Information
-------------------------------------------------------------------------------------------------------
Securities Weighted Securities
to be issued average available for
December 31, 2010 upon exercise exercise price future issuance
-------------------------------------------------------------------------------------------------------
Equity compensation plans approved by stockholders 13,000 $4.88 16,000
Equity compensation plans not approved by stockholders 10,000 4.03 -
------ ------
Total 23,000 4.57 16,000
-------------------------------------------------------------------------------------------------------
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Certain Transactions
During the year 2010, $105,000 in fees for legal services rendered was paid by
the Company to the law firm of which Mr. Modlin, a director of the Company, is
the president.
Independence of Non-Employee Directors
A director is considered independent under NYSE Amex Company Guide if the Board
of Directors determines that the director does not have any direct or indirect
material relationship with the Company. Mr. Mulcahy is a former employee of
the Company and Ms. Toppi is an employee of the Company and, therefore, have
been determined by the Board to fall outside the definition of "independent
director." Messrs. Angiolillo, Modlin, Schiele and Zizza and Ms. Firstenberg
are non-employee directors of the Company. Mr. Modlin is not considered
independent due to the legal services rendered by the law firm of which Mr.
Modlin is the president. The Board of Directors has determined that Messrs.
Angiolillo, Schiele and Zizza and Ms. Firstenberg are "independent directors"
within the meaning of the rules of the NYSE Amex Company Guide, since they had
no relationship with the Company other than their status and payment as
non-employee directors, and as stockholders. The Board of Directors has
determined that Mr. Zizza and Ms. Firstenberg are independent under the SEC's
audit committee independence standards.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
BDO USA, LLP ("BDO") have served as our independent registered public accounting
firm since May 17, 2010, when the Audit Committee of the Company's Board of
Directors approved their engagement to audit the Company's financial statements
for the fiscal year ended December 31, 2010. The Audit Committee of the Board
of Directors has appointed BDO as our independent registered public accounting
firm for the year ending December 31, 2011. The proposal to appoint BDO as the
independent registered public accounting firm will be approved if, at the Annual
Meeting at which a quorum is present, the votes cast in favor of the proposal
exceed the votes cast opposing the proposal.
The Audit Committee is not aware of any disagreements between management and BDO
regarding accounting principles and their application or otherwise.
Change in Auditors: As previously reported in Form 8-K dated April 19, 2010, on
April 16, 2010, UHY LLP ("UHY") merged its New England practice into Marcum,
LLP. As a result of the merger, UHY declined reappointment as our independent
registered public accountant firm for the fiscal year ending December 31, 2010.
As previously reported in Form 8-K dated May 20, 2010, on May 17, 2010, the
Audit Committee of the Board of Directors of the Registrant retained BDO as the
Registrant's independent registered public accounting firm for the fiscal year
ending December 31, 2010 to replace UHY as the Registrant's independent
registered public accounting firm. There were no disagreements with UHY on any
matter of accounting principles and their application or otherwise.
Audit Committee Pre-Approval of Independent Auditor Services: All audit
services provided by BDO for 2010 and by UHY for 2009 were approved by the Audit
Committee in advance of the work being performed.
49
Audit Fees: BDO audit fees were $155,000 in 2010. BDO audit fees include fees
associated with the annual audit of the Company's financial statements and the
reviews of the Company's quarterly reports on Form 10-Q. UHY audit fees were
$229,000 in 2009. UHY audit fees in 2009 include fees associated with the
annual audit of the Company's financial statements and the reviews of the
Company's quarterly reports on Form 10-Q.
Audit-Related Fees: There were no audit-related services in 2010 and 2009.
Tax Fees: Neither BDO nor UHY provided any tax services.
All Other Fees: Neither BDO nor UHY provided any non-audit services.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as part of this report:
1 Consolidated Financial Statements of Trans-Lux Corporation:
Consolidated Statements of Operations for the Years Ended
December 31, 2010 and 2009
Consolidated Balance Sheets as of December 31, 2010 and 2009
Consolidated Statements of Cash Flows for the Years Ended
December 31, 2010 and 2009
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 2010 and 2009
Consolidated Statements of Comprehensive Loss for the Years
Ended December 31, 2010 and 2009
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
2 Financial Statement Schedules: Not applicable.
3 Exhibits:
3(a) Form of Restated Certificate of Incorporation of the
Registrant (incorporated by reference to Exhibit 3.1 of
Registration No. 333-15481).
(b) By-Laws of the Registrant (incorporated by reference to
Exhibit 3(b) of Form 10-K for the year ended December 31,
2001). Amendment dated December 11, 2009 (incorporated by
reference to Exhibit 3(b) of Form 10-K for the year ended
December 31, 2009).
4(a) Indenture dated as of December 1, 1994 (form of said indenture
is incorporated by reference to Exhibit 6 of Schedule 13E-4
Amendment No. 2 dated December 23, 1994).
(b) Indenture dated as of March 1, 2004 (form of said indenture is
incorporated by reference to Exhibit 12(d) of Schedule TO
dated March 2, 2004).
10.1 Form of Indemnity Agreement - Directors (form of said
agreement is incorporated by reference to Exhibit 10.1 of
Registration No. 333-15481).
10.2 Form of Indemnity Agreement - Officers (form of said agreement
is incorporated by reference to Exhibit 10.2 of Registration
No. 333-15481).
10.3 Amended and Restated Pension Plan dated January 1, 2011, filed
herewith.
10.4 Supplemental Executive Retirement Plan with Michael R.
Mulcahy dated January 1, 2009 (incorporated by reference to
Exhibit 10.1 of Form 8-K dated January 6, 2009).
50
10.5(a) 1989 Non-Employee Director Stock Option Plan, as amended
(incorporated by reference to Exhibit 10.4(a) of Form 10-K for
the year ended December 31, 1999).
(b) 1995 Stock Option Plan, as amended (incorporated by
reference to Proxy Statement dated April 7, 2000).
10.6 Amended and Restated Commercial Loan and Security Agreement
with People's Bank dated December 23, 2004 (incorporated by
reference to Exhibit 10(a) of Form 8-K filed December 28,
2004). Amendment No. 1 dated as of December 31, 2005
(incorporated by reference to Exhibit 10.2 of Form 10-Q for
the quarter ended March 31, 2006). Letter amendments dated as
of September 30, 2006 and December 31, 2006 (incorporated by
reference to Exhibit 10.5 of Form 10-K for the year ended
December 31, 2006). Amendment No. 5 dated August 9, 2007
(incorporated by reference to Exhibit 10.1 of Form 10-Q for
the quarter ended June 30, 2007). Amendment No. 9 dated July
15, 2008 (incorporated by reference to Exhibit 10.1 of Form
10-Q for the quarter ended June 30, 2008). Amendment No. 13
dated September 4, 2009 and Amendment No. 14 dated April 2,
2010, (incorporated by reference to Exhibit 10.6 of Form 10-K
for the year ended December 31, 2009). Amendment No. 15
dated as of August 1, 2010 (incorporated by reference to
Exhibit 10.1 of Form 10-Q for the quarter ended June 30,
2010).
10.7 Consulting Agreement with Moving Images, LLC dated as of
December 1, 2004 and termination letter with Richard Brandt
(incorporated by reference to Exhibit 10.6 of Form 10-K for
the year ended December 31, 2004). Amendment dated December
7, 2005 (incorporated by reference to Exhibit 10.6 of Form
10-K for the year ended December 31, 2005). Amendment dated
as of March 28, 2007 (incorporated by reference to Exhibit
10.1 of Form 10-Q for the quarter ended March 31, 2007).
Amendment dated December 31, 2008 (incorporated by reference
to Exhibit 10.4 of Form 8-K dated January 6, 2009).
10.8 Employment Agreement with Jean-Marc Allain dated February 16,
2010 (incorporated by reference to Exhibit 10.1 of Form 8-K
dated February 18, 2010).
10.9 Restricted Stock Agreement with Jean-Marc Allain dated
February 16, 2010 (incorporated by reference to Exhibit 10.2
of Form 8-K dated February 18, 2010).
10.10 Employment Agreement with Angela D. Toppi dated as of April 1,
2005 (incorporated by reference to Exhibit 10.9 of Form 10-K
for the year ended December 31, 2004).
10.11 Employment Agreement with Karl Hirschauer dated as of April 1,
2008 (incorporated by reference to Exhibit 10.1 of Form 10-Q
for the quarter ended March 31, 2008).
10.12 Employment Agreement with Thomas F. Mahoney dated as of June
1, 2002 (incorporated by reference to Exhibit 10(a) of Form
10-Q for the quarter ended June 30, 2002).
21 List of Subsidiaries, filed herewith.
31.1 Certification of Jean-Marc Allain, President and Chief
Executive Officer, pursuant to Rule 13a-14(a) and 15d-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley Act
of 2002, filed herewith.
31.2 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to Rule 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002, filed herewith.
32.1 Certification of Jean-Marc Allain, President and Chief
Executive Officer, pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, filed herewith.
51
32.2 Certification of Angela D. Toppi, Executive Vice President and
Chief Financial Officer, pursuant to 18 U.S.C. Section 1350,
as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002, filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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:
TRANS-LUX CORPORATION
by: /s/ Angela D. Toppi
-----------------------------
Angela D. Toppi
Executive Vice President and
Chief Financial Officer
By: /s/ Todd Dupee
-----------------------------
Todd Dupee
Vice President and Controller
Dated: March 31, 2011
52
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated:
/s/ George W. Schiele March 31, 2011
-----------------------------------------------
George W. Schiele, Chairman of the Board
/s/ Glenn J. Angiolillo March 31, 2011
-----------------------------------------------
Glenn J. Angiolillo, Director
/s/ Jean Firstenberg March 31, 2011
-----------------------------------------------
Jean Firstenberg, Director
March 31, 2011
-----------------------------------------------
Howard S. Modlin, Director
/s/ Michael R. Mulcahy March 31, 2011
-----------------------------------------------
Michael R. Mulcahy, Director
/s/ Angela D. Toppi March 31, 2011
-----------------------------------------------
Angela D. Toppi, Executive Vice President,
Chief Financial Officer, Secretary and Director
/s/ Salvatore J. Zizza March 31, 2011
-----------------------------------------------
Salvatore J. Zizza, Vice Chairman of the Board
53
EX-10
2
pension.txt
PENSION PLAN AMENDED AND RESTATED EFFECTIVE 1/1/11
EXHIBIT 10.3
RETIREMENT PENSION PLAN
FOR EMPLOYEES OF
TRANS-LUX CORPORATION
AND
CERTAIN OF ITS SUBSIDIARIES
AND/OR AFFILIATES
Effective January 1, 1945
As Amended and
Restated Effective
January 1, 2011
(Most recent determination letter
dated June 28, 2002)
INDEX
INTRODUCTION..................................................1-2
SECTION I: DEFINITIONS..................................3-20
SECTION II: ELIGIBILITY.................................21-23
SECTION III: RETIREMENT DATES............................24-25
SECTION IV: RETIREMENT BENEFITS.........................26-33
SECTION V: NORMAL FORM OF BENEFIT AT RETIREMENT........34-37
SECTION VI: OPTIONAL FORM OF BENEFITS...................38-42
SECTION VII: DEATH BENEFITS..............................43-47
SECTION VIII: CONTRIBUTIONS...............................48-49
SECTION IX: TERMINATION OF SERVICE......................50-54
SECTION X: DISABILITY..................................55-56
SECTION XI: TIME OF COMMENCEMENT OF PAYMENT.............57-69
SECTION XII: REEMPLOYMENT................................70-71
SECTION XIII: LIMITATION OF ASSIGNMENT....................72-74
SECTION XIV: LIMITATION OF RIGHTS OF EMPLOYEE...............75
SECTION XV: AMENDMENT TO OR TERMINATION OF THE PLAN.....76-81
SECTION XVI: GOVERNMENTAL RESTRICTIONS...................82-87
SECTION XVII: ADMINISTRATION OF THE PLAN..................88-94
SECTION XVIII: TRUST AGREEMENT................................95
SECTION XIX: TOP HEAVY PROVISIONS.......................96-106
SECTION XX: MISCELLANEOUS.............................107-109
APPENDIX A: OPTION FACTORS............................110-111
INTRODUCTION
------------
Pursuant to a resolution of the Board of Directors of each of the
participating corporations (defined in Section I as the "Company"), the
Retirement Pension Plan for the benefit of the eligible employees of each
participating corporation was adopted effective as of January 1, 1945. The Plan
was amended and restated in its entirety effective as of January 1, 1976. The
Plan was again amended and restated effective January 1, 1985 to conform to the
applicable provisions of the Tax Equity Act of 1984, the Retirement Equity Act
of 1984 and, furthermore, to incorporate amendments generally effective January
1, 1984 with respect to the Tax Equity and Fiscal Responsibility Act. The Plan
was again amended and restated for the primary purpose of conformance to the Tax
Reform Act of 1986 and other applicable legislation and was subsequently amended
to comply with changes required to comply with the Uruguay Round Agreements Act,
the Uniformed Services Employment and Reemployment Rights Act of 1994, the Small
Business Job Protection Act of 1996 and the Taxpayer Relief Act of 1997. The
Plan was again amended and restated effective January 1, 2001 to comply with
applicable legal requirements, including the Economic Growth and Tax Relief
Reconciliation Act of 2001. The Plan is amended and restated effective January
1, 2011 to incorporate amendments since the last
restatement and to make other changes deemed necessary by the Board of
Directors. This amendment and restatement of the Plan is effective January 1,
2011 except as may otherwise be provided in the Plan. The Plan as amended and
restated shall apply to Employees who have one Hour of Service on and after
January 1,2011. The rights of those Employees who have retired, died or
terminated employment shall be governed by the Plan in existence on the date of
retirement, death, or termination of employment and shall not be changed by
virtue of this Plan as amended or restated unless specifically provided for
herein.
2
SECTION I
---------
DEFINITIONS
-----------
The following words and phrases shall be defined as stated below, unless a
different meaning is clearly indicated by the context.
1.1 "Accrued Benefit" means the annual amount of a Member's retirement benefit
under the normal form of payment provided in Section 5.2 hereof and payable
as of the Member's Normal Retirement Date or as of the date the Member
otherwise ceases to be an Employee, whichever is applicable. A Member's
Accrued Benefit shall be computed in accordance with Section 4.1 hereof
based on the Member's Salary at the time of computation and his expected
years of Credited Service at the date of calculation; provided, however,
that the Member's Credited Service for periods commencing after December 31,
2003 shall not be taken into account and a Member's Salary after April 30,
2009 shall not be taken into account. A Member's Accrued Benefit shall not
be reduced on account of any increase in the Member's age or service.
1.2 "Act" means the Employee Retirement Income Security Act of 1974 and any
amendments thereto.
1.3 "Actuarial Equivalent," when used with reference to any form of benefit,
means a form of benefit which has the same value
3
as the referenced benefit, based on the actuarial factors set forth in
Appendix A hereof.
1.4 "Actuary" means a person who is enrolled by the Joint Board for the
Enrollment of Actuaries established under the Act and engaged by the Pension
Committee on behalf of the Members.
1.5 "Adjustment Factor" means the cost-of-living adjustment factor prescribed by
the Secretary of the Treasury under Section 415(d) of the Code for Plan
Years beginning after December 31, 1987, applied to such items and in such
manner as the Secretary shall prescribe.
1.6 "Affiliated Employer" shall mean the Company and any corporation which is a
member of a controlled group of corporations (as defined in Section 414(b)
of the Code) which includes the Company; any trade or business (whether or
not incorporated) which is under common control (as defined in Section
414(c) of the Code) with the Company; any organization (whether or not
incorporated) which is a member of an affiliated service group (as defined
in Section 414(m) of the Code) which includes the Company; and any other
entity required to be aggregated with the Company pursuant to regulations
under Section 414(o) of the Code.
1.7 "Approved Leave of Absence" means an unpaid leave of absence granted by the
Company for such reason as the Pension
4
Committee may determine by rules applied in a non-discriminatory manner to
persons in similar circumstances.
1.8 "Beneficiary" means any person (including a Contingent Annuitant),
designated by the Member to receive any death benefits which may be payable
under the Plan in the event of the Member's death. Such Beneficiary
designation is subject to the spousal consent requirements of Section 5.1.
1.9 "Board" means the Board of Directors of Trans-Lux Corporation.
1.10 "Code" means the Internal Revenue Code of 1986 as now in effect or as
hereafter amended. All citations to sections of the Code are to such
sections as they may from time to time be amended or renumbered.
1.11 "Company" means Trans-Lux Corporation and any subsidiary or Affiliated
Employer as shall adopt the Plan by resolution of their respective Boards
of Directors under the terms and conditions set forth by the Board.
1.12 "Contingent Annuitant" means a person designated by a Member, who has
elected a Joint and Survivorship Annuity option under Section 6.1(b)
hereof, to receive any death benefit payable under such option.
Designation of a Contingent Annuitant is subject to the spousal consent
requirements of Section 5.1.
1.13 "Credited Service" means for an Employee who first completes an Hour of
Service after January 1, 1986, the years of service
5
rendered by an Employee to the Company commencing on the first of the month
coincident with or next following the completion of one Year of Eligibility
Service and ending on his Deferred, Normal, or Earlier Retirement Date,
date of death, or other termination of employment. In the year of a
Member's Deferred, Normal or Earlier Retirement Date, date of death or
other termination of employment, such Member shall accrue Credited Service
at the rate of 1/12th of a year for each month during which he is credited
with at least one Hour of Service for the performance of duties.
For an Employee who first performs an Hour of Service prior to January
1, 1986, Credited Service shall begin on the earlier of a) January 1st
nearest to the completion of one Year of Eligibility Service or b) the
first of the month coincident with or next following the completion of one
Year of Eligibility Service.
Notwithstanding anything in this Section 1.13 to the contrary, all
periods of service in the uniformed services of the United States (as
defined in Section 4303(13) and 4303(16) of the Uniformed Services
Employment and Reemployment Rights Act of 1994) shall be included in the
Employee's Credited Service if he returns to employment with the Company or
an
6
Affiliated Employer having applied to return while his reemployment rights
were protected by law.
1.14 "Employee" means any person employed on a salaried basis, including an
officer or director who is otherwise regularly employed in the service of
the Company, who received earnings from the Company other than a pension,
severance pay, retainer, or fee under contract. Effective January 1, 1996,
"Employee" shall also include salaried employees of Integrated Systems
Engineering, Inc. as well as full-time salaried employees of the theater
executive office and theater managers. The term "Employee" shall include
"leased employees" (as defined in Section 414(n)(2) of the Code) for
purposes of Section 410 of the Code but such employees shall not be
eligible for participation in the Plan. Notwithstanding anything to the
contrary in this Section, "Employee" does not include any person not deemed
by the Company to be a common law employee of the Company in accordance
with the Company's standard practice and does not include any person
covered by a collective bargaining agreement to which the Company is a
party unless such agreement specifically provides for participation in the
Plan. In addition, any person classified as an independent contractor or
consultant by the Company shall, during such
7
period, be excluded from the definition of Employee, regardless of such
person's reclassification for such period by the Internal Revenue Service
for tax withholding purposes. "Employee" may, however, include the
employee of another company whose assets the Company may acquire and the
Board admits to membership in the Plan on such terms and conditions as it
may in its discretion decide, provided that it shall act in a uniform and
non-discriminatory manner.
The Chairman of the Board shall not be eligible to participate in the
Plan and immediately upon his election as Chairman shall cease to be a
member of the Plan.
1.15 "Final Average Salary" means the average of a Member's Salaries during the
60 highest months within the final 120 months of service preceding his
Normal, Deferred or Earlier Retirement Date (whichever is applicable),
death, or other severance of employment; provided, however, that if such
Member has less than 60 months of Salaries as of the applicable date, his
average salary for the actual period of service prior to such applicable
date shall be used. Notwithstanding anything in the Plan to the contrary,
a Member's Salary for periods after April 30, 2009 shall be disregarded for
purposes of determining his Final Average Salary.
8
1.16 "Highly Compensated Employee" means any employee of the Company or an
Affiliated Employer (whether or not eligible for membership in the Plan)
who
(i) was a five percent owner (as defined in Section 416(i) of the Code) for
such Plan Year or the Prior Plan Year, or
(ii) for the preceding Plan Year received "statutory compensation" in
excess of $80,000, and was among the highest 20 percent of employees
for the preceding Plan Year when ranked by "statutory compensation"
paid for that year excluding, for purposes of determining the number of
such employees, such employees as the Pension Committee may determine
on a consistent basis pursuant to Section 414(q) of the Code. The
$80,000 dollar amount in the preceding sentence shall be adjusted from
time to time for cost of living in accordance with Section 414(q) of
the Code.
Notwithstanding the foregoing, employees who are nonresident aliens and
who receive no earned income from the Company or an Affiliated Employer
which constitutes income from sources within the United States shall be
disregarded for all purposes of this Section.
9
The Company's top-paid group election as described above, shall be used
consistently in determining Highly-Compensated Employees for determination
years of all employee benefit plans of the Company and Affiliated Employers
for which Section 414(q) of the Code applies (other than a multi-employer
plan) that begin with or within the same calendar year, until such election
is changed by Plan amendment in accordance with IRS requirements.
Notwithstanding the foregoing, the consistency provision in the preceding
sentence shall not apply for the Plan Year beginning in 1997, and for the
Plan Years beginning in 1998 and 1999, shall apply only with respect to all
qualified retirement plans (other than a multi-employer plan) of the
Company and Affiliated Employers.
The provisions of this Section shall be further subject to such
additional requirements as shall be described in Section 414(q) of the Code
and its applicable regulations, which shall override any aspects of this
Section inconsistent therewith.
For purposes of this Section, "statutory compensation" means the wages,
salaries, and other amounts paid in respect of an employee for service
actually rendered to the Company or an Affiliated Employer, including by
way of example, overtime, bonuses and commissions, but excluding deferred
compensation,
10
stock plans, and other distributions which receive special tax benefits
under the Code. Any employee's statutory compensation shall be determined
prior to any reduction under a cash or deferred arrangement which meets the
requirements of Section 401(k) of the Code or any reductions pursuant to a
cafeteria plan under Section 125 of the Code. Statutory compensation shall
also include amounts required to be recognized under the provisions of U.S.
Treasury Department regulation 1.415(c)-2(e).
1.17 "Hour of Service" means:
(a) each hour for which an Employee is paid or entitled to payment for the
performance of duties for an Affiliated Employer;
(b) each hour for which an Employee is paid or entitled to payment by an
Affiliated Employer prior to his termination of employment with the
Affiliated Employer, up to a maximum of 501 hours for any single
continuous period on account of a period of time during which no duties
are performed due to vacation, holiday, illness, incapacity, (including
disability), layoff, jury duty, military duty, or leave of absence.
Notwithstanding the preceding sentence, the Employee will not be
credited with the Hours of Service if no duties are
11
performed and payment is made or due under a plan maintained solely for
the purpose of complying with the applicable workers compensation or
unemployment compensation or disability insurance laws and Hours of
Service will not be credited for payment which solely reimburses an
Employee for medical or medically related expenses incurred by the
Employee;
(c) each hour for which back pay, irrespective of mitigation of damages, is
either awarded or agreed to by an Affiliated Employer, provided,
however, that no more than 501 Hours of Service will be credited for
payments of back pay to the extent that such back pay is awarded or
agreed to for a period during which an Employee did not or would not
have performed duties. Hours of Service shall be computed and credited
in accordance with paragraphs (b) and (c) of Section 2530.200b-2 of the
Department of Labor Regulations which are herein incorporated by
reference. Such hours of Service shall be credited under either
subparagraphs (a), (b), and (c) of this definition 1.17.
Hours of Service shall include all periods of an Employee's service in the
services of the United States (as defined in Sections 4303(13) and 4303(16)
of the Uniformed Services
12
Employment and Reemployment Rights Act of 1994) if the Employee returns to
employment with the Company or an Affiliated Company having applied to
return while his reemployment rights were protected by law.
1.18 "Member" means any Employee participating in the Plan in accordance with
Section II hereof.
1.19 "One Year Break in Service" means a Plan Year during which an Employee or
Member shall not have accumulated more than 500 Hours of Service.
For Plan Years commencing on or after January 1, 1985, solely for
purposes of determining whether a Break in Service has occurred, an
Employee will be granted Hours of Service, which otherwise would normally
not have been credited up to a maximum of 501 Hours of Service for absences
due to pregnancy, birth or adoption of a child or caring for a child
following birth or adoption, provided the Employee furnishes the Pension
Committee with such timely information as the Committee shall require that
such absence from service is the result of the reasons specified under this
paragraph. For purposes of the preceding sentence, Hours of Service shall
be credited in the Year of Eligibility Service or year of Vesting Service
(whichever is applicable) in which such absence occurs if such crediting of
Hours of Service would prevent a Break in
13
Service. In each other case, such Hours of Service will be credited in the
subsequent Year of Eligibility Service or year of Vesting Service.
Commencing August 5, 1993, solely for the purpose of determining whether a
Break in Service has occurred, an Employee will be granted Hours of Service
for a period of leave on or after such date granted pursuant to the Family
and Medical Leave Act of 1993 and its regulations for the birth, adoption,
or placement of a child, to care for a spouse or an immediate family member
with a serious illness, or for the employee's own illness.
Effective October 13, 1996, a Break in Service shall not be deemed to
have occurred if the Employee is absent because of service in the uniformed
services of the United States (as defined in Sections 4303(13) and 4303(16)
of the Uniformed Services Employment and Reemployment Rights Act of 1994)
and he returns to employment with the Company or an Affiliated Employer
having applied to return while his reemployment rights were protected by
law.
1.20 "Pension Committee" means the committee which shall direct the general
administration of the Plan in accordance with Section XVII hereof.
14
1.21 "Plan" means the Retirement Pension Plan for Employees of Trans-Lux
Corporation and certain of its subsidiaries and affiliates.
1.22 "Plan Year" means the consecutive 12-month period commencing on January 1
of each year.
1.23 "Qualified Domestic Relations Order" means a judgement, decree, or order
which relates to the provision of child support, alimony payments, or
marital property rights of a Spouse, former spouse, child or other
dependent of a Member made pursuant to a State domestic relations order.
Such Qualified Domestic Relations Order must specify the name and address
of the Member and alternate payee, the amount or percentage (or a
determination thereof) of the Member's benefit to be paid to the alternate
payee, the number of payments (or periods) to which the order applies and
that the order applies to the Plan.
1.24 "Qualified Joint and Survivor Annuity" means the benefit payable at
retirement for the life of the Member with payments continuing after his
death to, and for the life of, his Spouse in an amount equal to half of the
amount of the benefits payable during the joint lives of the Member and his
Spouse and which is the Actuarial Equivalent of a benefit payable for the
life of the Member.
15
1.25 "PBGC" means the Pension Benefit Guaranty Corporation.
1.26 "Reemployment Commencement Date" means the date on which an Employee
completes his first Hour of Service following his last One Year Break in
Service.
1.27 "Retirement Commencement Date" means the first day of the first period for
which a Member's retirement benefits are paid as an annuity or in any other
form, regardless of the actual date of payment.
1.28 "Retirement Date" means a Member's Normal, Earlier or Deferred Retirement
Date as set forth in Section III.
1.29 "Salary" means the basic compensation, excluding overtime, bonuses, and
commissions, paid to an Employee of the Company. Salary shall also include
amounts elected by the Employee and deferred through a salary reduction
feature of a qualified profit sharing plan meeting the requirements of Code
Section 401(k). Effective January 1, 1989, Salary for any purpose under
the Plan shall be limited to $200,000 in any Plan Year multiplied by the
Adjustment Factor, for Plan Years beginning in 1990, and each Plan Year
thereafter.
Salary for any prior Plan Year that is taken into account in
determining benefits in a current Plan Year shall be subject to the
applicable Salary limitation of the prior Plan Year. For this purpose,
Salary for Plan Years beginning
16
before January 1, 1990, shall be deemed to be limited to $200,000.
Notwithstanding the above, effective for years beginning on and after
January 1, 1994, the Salary taken into account under the Plan shall not
exceed $150,000 as adjusted by the Adjustment Factor in $10,000 increments
rounded down to the nearest $10,000 in accordance with Code Sections
401(a)(17) and 415(d). The limitation of this paragraph shall not operate
so as to reduce a Member's Accrued Benefit to an amount which is less than
such Member's Accrued Benefit determined on December 31, 1993 without
regard to this provision and, further provided that a Member's Salary
earned prior to January l, l994 shall continue to be adjusted in accordance
with this Section 1.28 as if the $200,000 limitation, and any adjustments
thereto, continued to apply.
The annual Salary of each Member taken into account in determining
benefit accruals in any Plan Year beginning after December 31, 2001, shall
not exceed $200,000. Salary means the amount determined in accordance with
the first paragraph of this Section for the Plan Year or such other
consecutive 12-month period over which Salary is otherwise determined under
the Plan (the determination period). For purposes of determining benefit
accruals in a Plan Year beginning after
17
December 31, 200l, Salary for any prior determination period shall be
limited to $200,000.
Solely to the extent it does not violate the provisions of Section 415
of the Code or any other provision of applicable law, the salary to be used
for determining the Accrued Benefit earned by such an Employee during his
years in the uniformed services of the United States shall be the salary
the Employee would have received but for his service in the uniformed
services of the United States or, if the Pension Committee determines that
such rate cannot be determined with reasonable certainty, the Employee's
average rate of compensation during the 12-month period (or his entire
period of employment, if less) immediately preceding the Employee's service
in the uniformed services of the United States. Notwithstanding anything
in the Plan to the contrary, a Member's Salary for periods after April 30,
2009 shall be disregarded for purposes of determining the Member's Final
Average Salary under Section 1.15 and for determining his Accrued Benefit
under Section 1.1 and Section IV of this Plan.
1.30 "Spouse" means the legally married husband or wife of a Member. In certain
circumstances the Committee shall determine the designation of a Spouse.
18
1.31 "Social Security Covered Compensation" means, for a Plan Year, the average
(without indexing) of the taxable wage bases in effect for each calendar
year during the 35-year period ending on the last day of the calendar year
in which the Member attains Social Security Retirement Age. In determining
a Member's covered compensation for a Plan Year, the taxable wage base for
the current Plan Year and any subsequent Plan Year shall be assumed to be
the same as the taxable wage base in effect as of the beginning of the Plan
Year for which the determination is being made. A Member's covered
compensation for a Plan Year after the 35-year period is the Member's
covered compensation for the Plan Year during which the Member attained
Social Security Retirement Age. A Member's covered compensation before the
35-year period is the taxable wage base in effect as of the beginning of
the Plan Year. A Member's covered compensation shall automatically be
adjusted for each Plan Year.
1.32 "Social Security Retirement Age" means the age used as the retirement age
for the Member under Section 216(l) of the Social Security Act, except that
such section shall be applied without regard to the age increase factor,
and as if the early retirement age under Section 216(i)(2) of such Act were
age 62.
19
1.33 "Terminated Vested Participant" means a Member who has terminated
employment with an Affiliated Employer for reasons other than death or
retirement, at any time after he has attained a non-forfeitable interest in
his Accrued Benefit in accordance with Section 9.2 or Section 9.3,
whichever is applicable.
1.34 "Trust Agreement" means the agreement providing for the Trust Fund.
1.35 "Trustee" means the trustee under the Trust Agreement or any successor
trustee.
1.36 "Trust Fund" or "Fund" means the fund established under a Trust Agreement
by contributions made by the Company.
1.37 "Vesting Service" means the period of service of an Employee with an
Affiliated Employer, as determined under Section 9.4 hereof, recognized for
purposes of determining eligibility for a nonforfeitable benefit under
Section IX of the Plan.
1.38 "Year of Eligibility Service" means the completion of 1,000 Hours of
Service in an eligibility computation period. The eligibility computation
period is the 12 consecutive month period commencing on the date the
Employee first performs an Hour of Service for an Affiliated Employer and
each anniversary thereof.
20
SECTION II
----------
ELIGIBILITY
-----------
2.1 Each Member of the Plan as of December 31, 1975 shall continue to be a
Member of the Plan on January 1, 1976.
2.2 Each Employee on and after January 1, 1976 and prior to January 1, 1985
shall become a Member on the January 1 nearest the date on which he
completes one Year of Eligibility Service and attains age 25.
2.3 Each other Employee on and after January 1, 1985, shall become a Member on
the January 1 nearest the date on which he completes one Year of Eligibility
Service and attains age 21.
2.4 A Member, who ceases to be an Employee, due to his becoming covered under
another pension or retirement plan established pursuant to a collective
bargaining agreement to which the Company is a party, will be deemed to
continue as a Member of this Plan with respect to his Accrued Benefit as of
the date of such coverage. No Credited Service shall be earned during the
period of such coverage. Upon becoming once again an Employee, he shall
resume Plan participation as of the date he again becomes an Employee. If
such a Member receives credit for service under a plan established pursuant
to such collective bargaining agreement, which service is also Credited
Service under this Plan, his Accrued Benefit based on
21
such Credited Service under this Plan shall be reduced by the Actuarial
Equivalent of the benefit for such service under such other plan.
2.5 An Employee who incurs a One Year Break in Service prior to January 1, 1985
and who is not entitled to a nonforfeitable benefit pursuant to Section 9.2
shall be admitted or readmitted to membership on his Reemployment
Commencement Date and prior Years of Eligibility Service shall be restored
on such date provided that the number of consecutive One Year Breaks in
Service does not equal or exceed his aggregate Years of Eligibility Service
accrued prior to such One Year Break in Service and is not disregarded as a
result of a previous One Year Break in Service, and further provided that,
the Employee has satisfied the minimum age and service requirements of this
Plan.
An Employee who (i) is not entitled to a nonforfeitable benefit
pursuant to Sections 3.1, 9.2, or 9.3 and (ii) incurs a One Year Break in
Service on or after January 1, 1985, shall be admitted or readmitted to
membership on his Reemployment Commencement Date provided such Employee has
met the minimum age and service requirements of this Section II. Prior
Years of Eligibility Service, not previously disregarded as a result of a
previous One Year Break in Service, shall be restored as
22
of the Reemployment Commencement Date provided the consecutive number of One
Year Breaks in Service does not equal or exceed the greater of:
(a) the aggregate number of Years of Eligibility Service completed prior to
the One Year Break in Service; or
(b) 5 years.
For purposes of this section 2.5 a One Year Break in Service is a Year of
Eligibility Service in which an Employee shall not have accumulated more
than 500 Hours of Service.
An Employee entitled to a nonforfeitable benefit shall be restored to
membership upon his Reemployment Commencement Date.
Any other Employee, upon reemployment, shall be considered a new
Employee and shall be required to satisfy the minimum age and service
requirements of this Section II without regard to service prior to a One
Year Break in Service or employment termination.
23
SECTION III
-----------
RETIREMENT DATES
----------------
3.1 Normal Retirement Date
----------------------
The Normal Retirement Date for a Member who has completed one Hour of
Service on or after January 1, 1988 shall be the first day of the month
coinciding with or next following his Normal Retirement Age which shall be
the later of his 65th birthday or the fifth anniversary of the date on which
he became a Plan Member.
A Member shall be fully (100%) vested in his Accrued Benefit upon
attainment of Normal Retirement Age.
3.2 Earlier Retirement Date
-----------------------
Any Member who was such on December 31, 1982, may elect an Earlier
Retirement Date which may be the first day of any month not more than ten
years prior to his Normal Retirement Date. Any Member who became a Member
on or after January 1, 1983, may elect an Earlier Retirement Date which may
be the first day of any month which is not more than ten years prior to the
Member's Normal Retirement Date, provided that such Member has completed ten
years of Credited Service on the Earlier Retirement Date. Effective January
1, 1988, a Member may elect an Earlier Retirement Date which shall be the
first
24
day of any month following the attainment of age 55 and completion of 10
Years of Credited Service.
3.3 Deferred Retirement Date
------------------------
A Member who continues employment after Normal Retirement Date may elect to
commence payments under the Plan on the first day of any month on or after
the attainment of his Normal Retirement Date or defer commencement of
payment until the earlier of the first of the month following termination of
employment or the April 1 following the calendar year of his attainment of
age 70-1/2. In the event a benefit commences under this Section 3.3 prior
to the Member's actual retirement date, the benefit accrued under Section
4.1 at the end of each Plan Year, beginning on and after the date in which
the Participant attains Normal Retirement Date, shall be reduced by the
Actuarial Equivalent of the benefit payments received in such Plan Year. In
no event shall the reduction provided in the preceding sentence reduce
additional accrual in any Plan Year below zero.
25
SECTION IV
----------
RETIREMENT BENEFITS
-------------------
4.1 At Normal or Deferred Retirement Date
-------------------------------------
Effective on and after January 1, 1989, solely for Members who have
completed an Hour of Service on or after such date, the annual amount of
retirement benefit commencing on or after Normal Retirement shall be equal
to: (i) 1% of Final Average Salary plus (ii) .5% of Final Average Salary in
excess of Social Security Covered Compensation, multiplied by years (or
fractions thereof) of Credited Service.
Notwithstanding the above, in determining the amount of a Member's
retirement benefit under this paragraph,
(a) Such benefit shall not be less than the benefit the Member would have
been entitled to receive under (b) or (c) of this Section 4.1
determined on the date so specified;
(b) Effective on and after January 1, 1983, and prior to January 1, 1989,
for Members who had not attained Normal Retirement Date as of January
1, 1983, the annual amount of retirement benefit commencing at Normal
Retirement Date to such Member who retires on or after Normal
Retirement Date shall be equal to (i) 1-
26
1/2% of Final Average Salary determined on December 31, 1988, and
without regard to the annual limitation on Salary for years prior to
January 1, 1990, (as defined in Section 1.28), (ii) less 1-1/4% for
Primary Social Security Benefit, multiplied by the years (and fractions
thereof) of his Credited Service determined on December 31, 1988. For
purposes of this subsection (b), Primary Social Security Benefit means
an amount equal to the annual old-age primary insurance benefit under
the Social Security Act in effect at the Member's Social Security
Retirement Age or other date of termination of his employment with the
Company, if earlier; provided, however, that if a Member (i) elects to
retire on an Earlier Retirement Date prior to his Social Security
Retirement Age, or (ii) his employment by the Company is otherwise
terminated prior to his Social Security Retirement Age, his Primary
Social Security Benefit shall be determined by projecting to Social
Security Retirement Age his annual Compensation as of this Early
Retirement Date or the date of his last employment, as the case may be,
assuming that there shall be no change in the social security wage base
or social security benefit schedule caused by the
27
automatic provision with respect to the cost of living under the Social
Security Act.
The amount of Primary Social Security Benefit shall be estimated
based on actual salary in all years for which records are available
while an Employee of the Company, and a salary discount assumption
applied to Annual Earnings in the year of the last recorded salary and
each year prior thereto until age 22, which shall be a level percentage
of 6% per year. In the event that within 180 days, beginning on the
date which is the later of the date the Member separates from service
or the date the Member is notified of the benefit amount, the Member
supplies accurate documentation of the Member's actual salary history
as determined by the Social Security Administration, the benefit to
which the Member is entitled shall be adjusted based on any differences
which shall occur.
(c) The benefit of a Member, who was such on December 31, 1982, shall not
be less than the Accrued Benefit to which he was entitled under the
provisions of the Plan as in effect on December 31, 1982. The benefit
payable under the form of payment elected by such a Member shall not be
less than benefit payable under the same
28
form of payment based on the Accrued Benefit as of December 31, 1982.
(d) On and after May 11, 1981, solely for purposes of determining the
annual amount of retirement benefit commencing at Normal Retirement
Date for a Member who was a member in the Pension Plan for Employees of
Canadian Trans-Lux Corporation Limited (the "Canadian Plan"), the
Normal Retirement Benefit shall be determined in accordance with this
Section 4.1 based on years of Credited Service while a Member of the
Plan and Credited Service while a member of the Canadian Plan, but only
if such service under the Canadian Plan would qualify as Credited
Service under the Plan if such service were performed while a Member of
the Plan, reduced by the amount of benefit such individual is entitled
to receive under the Canadian Plan. Such reduction shall not reduce
the amount such Member is entitled to receive under this Plan to an
amount less than zero.
(e) On and after January 1, 1996, solely for purposes of determining the
annual amount of retirement benefit commencing at Normal Retirement
Date for a Member who was an employee of Integrated Systems
Engineering,
29
Inc., as well as full-time salaried employees of the theatre executive
office and theatre managers, the Normal Retirement Benefit shall be
determined in accordance with this Section 4.1 based on years of
Credited Service completed after January 1, 1996.
4.2 At Earlier Retirement Date
--------------------------
The annual retirement benefit, commencing at Earlier Retirement Date to a
Member who retires on an Earlier Retirement Date, shall be equal to the
Actuarial Equivalent (as set forth in Appendix A) of the Accrued Benefit he
would have received commencing at Normal Retirement Date, as computed in
accordance with Section 4.1 hereof. Notwithstanding the foregoing, a
Participant may elect to defer the commencement of benefits until the date
the Member would have attained Normal Retirement Date, in which case the
benefit shall equal the Member's Accrued Benefit.
4.3 Maximum Benefits
----------------
(a) The following provisions of this Section reflecting the increased
limitations of Section 415(b) of the Code effective on and after
January 1, 2002 shall apply to all current and former Members (with
benefits limited by Section 415(b) of the Code) who have an Accrued
Benefit under the Plan immediately prior to January 1,
30
2002 (other than an Accrued Benefit resulting from a benefit increase
solely as a result of the increases in limitations under Section
415(b)).
(b) Notwithstanding any other provision of the Plan, the annual benefit to
which a Member is entitled under the Plan shall not, in any calendar
year, which shall be the limitation year, be in an amount which would
exceed the applicable limitations under Section 415 of the Code and
regulations thereof, which are hereby incorporated by reference. If
the benefit payable under the Plan would (but for this Section) exceed
the limitations of Section 415 of the Code by reason of a benefit
payable under another defined benefit plan aggregated with this Plan
under Code Section 415(f), the benefit under this Plan shall be reduced
only after all reductions have been made under such other plan. As of
January 1 of each calendar year commencing on or after January 1, 2002,
the dollar limitation as determined by the Commissioner of Internal
Revenue for that calendar year shall become effective as the maximum
permissible dollar amount of benefit payable under the Plan during the
limitation year ending within
31
that calendar year including benefits payable to Members who retired
prior to that limitation year.
(c) The term "compensation" for purposes of applying the applicable
limitations under Section 415 of the Code with respect to any Member
shall mean compensation from the company or any Affiliated Employer as
defined in U.S. Treasury Department regulations 1.415(c)-2(d)(4)(i.e.,
information required to be reported under sections 6041, 6051, and 6052
of the Code ("W-2 Pay") plus amounts that would be included in wages
but for an election under Section 125(a), 132(f)(4), 402(e)(3),
402(h)(1)(B), 402(k), or 457(b) of the Code). The term "compensation"
shall also include amounts required to be recognized under the
provisions of U.S. Treasury Department regulation 1.415(c)-2(e) and
amounts permitted to be recognized under the provisions of U.S.
Treasury Department regulation 1.415(c)-2(e)(2)."
4.4 Limit on Credited Service
-------------------------
Notwithstanding anything in the Plan to the contrary, a Member's Credited
Service for periods on and after January 1, 2004 shall be disregarded for
all purposes of this Section IV.
32
4.5 Accruals After Benefit Commencement
-----------------------------------
Notwithstanding anything in this Plan to the contrary, the Salary of a
Member who has elected to have his benefit commence under this Plan after
attaining his Normal Retirement Age but before he terminates his employment
with the Company and all Affiliated Employers shall be disregarded for all
purposes of this Section IV. However, a Member whose benefit is required to
commence in accordance with the provisions of Section 11.1 of the Plan shall
not be treated as having elected to have his benefits commence for purposes
of this Section.
4.6 HEART Act
---------
For years beginning after December 31, 2008:
(a) an individual receiving a differential wage payment as defined by Code
Section 3401(h)(2) is treated as an employee of the employer making the
payment;
(b) the differential wage payment is treated as compensation for purposes
of Code Section 415(c)(3) and Treasury Regulation 1.415(c)-2; and
(c) the Plan is not treated as failing to meet the requirements of a
provision described in Code Section 414(u)(1)(c) by reason of any
contribution or benefit which is based on the differential wage
payment.
33
SECTION V
---------
NORMAL FORM OF BENEFIT AT RETIREMENT
------------------------------------
5.1 Subject to the provisions of Section 11.2, effective on and after August 23,
1984, the normal form of payment of retirement benefits for a Member who is
married on his Retirement Commencement Date shall be the Qualified Joint and
Survivor Annuity. No sooner than 30 days nor later than 90 days prior to a
Member Retirement Commencement Date, the Committee shall provide the Member
with written explanation of (a) the terms and conditions of the Qualified
Joint and Survivor Annuity, (b) the Member's right to revoke and reelect the
Qualified Joint and Survivor Annuity, (c) the rights of the Member's Spouse
to consent to any revocation of the Qualified Joint and Survivor Annuity,
(d) effective on and after August 22, 1988, a general description of the
eligibility conditions and other material features of any optional form of
benefit and sufficient additional information to explain the relative values
of the optional forms of benefit under the Plan, and (e) effective January
1, 2007, a description of the Participant's right to defer receipt of a
distribution and the consequences of failing to defer receipt of a
34
distribution. An election to waive the Qualified Joint and Survivor Annuity
must be made within the 90-day period commencing prior to the Member's
Retirement Commencement Date. An election to waive the Qualified Joint and
Survivor Annuity shall only be effective if the Member's Spouse consents in
writing to such election. Spousal consent must acknowledge the effect of
such election, specify the alternate form of payment selected, designate the
alternate beneficiary who is eligible to receive the benefits under the
Plan, if any, and be witnessed by a Plan representative or a notary public.
If such Member effectively elects not to receive his retirement benefits in
the form of a Qualified Joint and Survivor Annuity, then the Member may
elect to receive payment of such retirement benefit in the form of a life
annuity as provided in Section 5.2 below, or in any optional form of payment
provided in Section 6.1. A Spouse's consent to waive any benefits hereunder
shall only be effective with respect to such Spouse. An alternate
beneficiary or form of payment consented to by a Spouse in lieu of the form
of benefit payable under this Section 5.1 may not be changed unless such
change is to the Qualified Joint and Survivor Annuity or the Spouse again
consents in writing to such change. In
35
the event a Spouse is legally incompetent to give consent, the legal
guardian of the Spouse may give consent.
Former Members of the Plan who completed one Hour of Service after September
1, 1974, and separated from service prior to January 1, 1976, and who have
not commenced benefits under this Plan, as of August 23, 1984, may elect or
revoke the Qualified Joint and Survivor Annuity according to the provisions
of the Plan in effect on August 22, 1984.
5.2 Subject to the provisions of Section 11.2, if a Member has no Spouse, his
Spouse cannot be located, the Member is legally separated from or has been
abandoned by said Spouse (within the meaning of local law) and the Member
has a court order to such effect, or the Member is otherwise exempt from the
requirements of Section 5.1 pursuant to regulations issued by the Secretary
of the Treasury, the normal form of payment of his retirement benefits shall
be a monthly life annuity terminating with the last payment preceding his
death. A Member who meets the requirements of this Section 5.2 shall be
eligible to reject the normal form of payment and elect an optional form of
benefit in the same manner and within the same time period prescribed
36
in Section 5.1, except that spousal consent shall not be required.
37
SECTION VI
----------
OPTIONAL FORM OF BENEFITS
-------------------------
6.1 In lieu of normal form of payment provided under Section 5.1 or Section 5.2
(provided a Member who is married to a Spouse has obtained his Spouse's
consent as required by Section 5.1), a Member may elect an optional form of
benefit described in this Section 6.1. Any optional form shall be the
Actuarial Equivalent of the normal form provided in Section 5.2.
(a) Ten Year Certain and Life: An actuarially reduced monthly life annuity
payable to the Member at his Retirement Commencement Date and
terminating with the last payment preceding his death, provided that
not less than 120 monthly payments shall be made to him and his
Beneficiary.
(b) Joint and Survivorship Annuity: An actuarially reduced monthly life
annuity payable to the Member at his Retirement Commencement Date and
providing for the continuation of such reduced retirement benefit in an
amount equal to 100%, 75%, 66-2/3% or 50% of such reduced retirement
benefit, to the Contingent Annuitant for as long as the Contingent
Annuitant
38
lives. Under this option, the amount of reduction in the retirement
benefit depends upon the age of the Member and the Contingent Annuitant
at the date the benefit is to commence and the amount of the continuing
payment elected as stated in Appendix A.
(c) Social Security Offset: A Member who retires prior to his Social
Security Retirement Age may elect a retirement benefit, which is the
Actuarial Equivalent of the retirement benefit such Member would
receive as if Social Security Benefits had commenced as of his date of
retirement, so that at the time such Member's old-age benefit under
Title II of the Social Security Act actually becomes payable, he will
receive a reduced amount from the Plan, and the amount of benefits such
Member shall receive both before and after such Social Security benefit
commences shall be approximately equal.
(d) Lump Sum Option: A Member may elect a lump sum form of payment, which
is the Actuarial Equivalent determined in accordance with Section
11.2(b) and Appendix A of the retirement benefit otherwise payable to
him. Distributions of lump sum amounts shall be permitted at any date
which is prior to the Member's
39
Normal Retirement Date only upon the consent of the Member if such Lump
Sum amount exceeds $3500, effective through December 31, 1997, and
$5,000 on and after January 1, 1998, as determined under Section
11.2(b). Payment of a lump sum amount under this section (d) shall
represent a complete discharge of the Plan's liability to such Member.
(e) Two Year Certain Option: Effective for distributions made on or after
April 1, 2002, a Member may elect a two-year certain form of payment.
The first payment shall be equal to one-half the Actuarial Equivalent
lump sum value of the retirement benefit otherwise payable to the
Member at his Retirement Commencement Date. The second payment shall
be paid on the first anniversary of his Retirement Commencement Date
and shall be equal to one-half the Actuarial Equivalent lump sum value
of the retirement benefit otherwise payable to him at his Retirement
Commencement Date increased with interest for the one-year period at
the IRS Interest Rate determined under Appendix A at his Retirement
Commencement Date. For purposes of this Section 6.1(e), Actuarial
Equivalent shall be
40
determined in accordance with Section 11.2(b) and Appendix A.
6.2 The optional benefits, as provided in Section 6.1, are subject to the
following limitations and restrictions:
With respect to all optional retirement benefits provided hereunder,
the Member may elect any one of the options at least 90 days prior to
Deferred, Normal or Earlier Retirement Date and shall be effective on the
Participant's Deferred, Normal or Earlier Retirement Date, by written notice
delivered to the Pension Committee and shall be effective on the date of the
Retirement Commencement Date.
No optional form under Section 6.1 of the Plan shall be payable over a
period exceeding one of the following:
(a) the life of a Member or the joint lives of a Member and his Spouse, or
designated Beneficiary, as the case may be; or
(b) the life expectancy of the Member or joint life expectancy of a Member,
his Spouse or designated Beneficiary, as the case may be. Life
expectancy shall be determined according to Code regulation 1.72-9.
41
Any payments to a Contingent Annuitant or Beneficiary, who is not the
Spouse of the Member, shall be subject to the limitation that the present
value of payments to the Member, calculated as of the appropriate retirement
date, must exceed 50% of the then present value of the total payments to be
made to the Member and his Beneficiary.
6.3 Prior to the distribution of any benefit payable hereunder, if the present
value of such benefit is in excess of $3,500 through December 31, 1997 and
$5,000 on and after January 1, 1998, then such benefit shall not be
distributed before the Member's Normal Retirement date unless the Member
and, if applicable, the Member's Spouse, consent in writing thereto, except
that if such benefit is payable as a Qualified Joint and Survivor Annuity
and is immediately distributable, written consent to the distribution shall
not be required.
42
SECTION VII
-----------
DEATH BENEFITS
--------------
7.1 Pre-Retirement Spouse's Benefit
-------------------------------
(a) If a Member dies in the active service of the Employer after having
satisfied the requirements for Earlier Retirement Date, but prior to
his Normal Retirement Date, and is survived by a Spouse, such Spouse
shall be entitled to receive a monthly benefit for life commencing on
the first day of the month following the date of death of the Member
except that if the present value (as determined under Section 11.2) of
the benefit payable to the Spouse is $3,500 or less though December 31,
1997 or $5,000 or less on and after January 1, 1998, such amount shall
be payable under Section 11.2. The annual amount of such benefit shall
be the greater of the benefit provided in Section (b) or, on and after
August 23, 1984, the benefit provided in Section (c).
(b) If the surviving Spouse is not more than five years younger than the
deceased Member, the benefit shall be 50% of the deceased Member's
Accrued Benefit,
43
computed as if such Member had retired on the day before he died.
If the surviving Spouse is more than five years younger than the
deceased Member, the benefit shall be computed as in the preceding
paragraph and such amount shall be reduced by (i) and, if applicable,
(ii) below:
(i) 1% for each full year in excess of five years up to a maximum of
twenty-five years that the Spouse is younger than the Member; and
(ii) 2% for each full year in excess of twenty-five years that the
Spouse is younger than the Member.
(c) Effective on and after August 23, 1984, in the event of the death of a
Member with a Spouse, who is entitled to receive benefits in accordance
with Section 9.2 or 9.3 (whichever is applicable) and who has not
commenced benefits under the Plan, a survivor annuity shall be payable
to his Spouse for such Spouse's lifetime, with monthly payments
commencing on the first day of the month coincident with or next
following the later of (i) the date of the Member's death, or (ii) the
date the Member would have attained age 55 if he had completed 10 Years
of Credited Service as of his date
44
of death, unless the Spouse elects to defer such payment until the date
the Member would have attained Normal Retirement Date, or in any other
case, the date the Member would have attained age 65. Notwithstanding
the preceding sentence, if the present value (determined under Section
11.2) of the survivor annuity is less than $3,500 effective through
December 31, 1997 or $5,000 on and after January 1, 1998, then the
benefit shall automatically be distributed in a single cash payment as
provided under Section 11.2. The survivor annuity shall be equal to
Member's Accrued Benefit payable as a Qualified Joint and Survivor
Annuity determined as follows:
(i) In the case of a Member who has attained Earliest Retirement Age as
of his death, such Qualified Joint and Survivor Annuity shall be
determined as if the Member had retired on the date of death and
Section 4.2 of the Plan applied.
(ii) In the case of a Member who had not attained Earliest Retirement
Age as of his date of death, such Qualified Joint and Survivor
Annuity shall be determined as if the Member had:
45
(A) separated from service on his date of death or termination of
employment whichever is earlier; and
(B) survived until Earliest Retirement Age and Section 4.2 of the
Plan applied, and;
(C) died on the day following his Earliest Retirement Age.
For the purposes of this section, "Earliest Retirement Age" shall mean
age 55 if a Member had completed 10 Years of Credited Service as of his date
of death or separation from service, whichever occurs first, or in any other
case, age 65.
A former Member who has one Hour of Service on and after January 1,
1976, who has separated from service prior to August 23, 1984, and who has a
vested benefit in accordance with Section 9.2 as of his date of termination,
shall have this Section 7.1(c) apply upon the occasion of his death provided
such former Member had not commenced payment of his vested benefit under the
Plan as of August 23, 1984.
(d) Applicable Provisions on Death - If either (i) a Spouse's benefit shall
have become payable under the provisions of Section 7.1(b) or (c) or
(ii) the benefit shall have become effective under the provisions of
Section V or
46
Section VI, the death benefit, if any, shall be that provided by such
applicable section.
7.2 Military Service
----------------
In the case of the death occurring on or after January 1, 2007, if a
Participant dies while performing qualified military service (as defined in
Code Section 414(u)), the Participant's Beneficiary is entitled to any
additional benefits (other than benefit accruals relating to the period of
qualified military service) provided under the Plan as if the Participant
had resumed employment and then terminated employment on account of death.
Moreover, the Plan will credit the Participant's qualified military service
as service for vesting purposes, as though the Participant had resumed
employment under the Uniformed Services Employment and Reemployment Rights
Act immediately prior to the Participant's death.
47
SECTION VIII
------------
CONTRIBUTIONS
-------------
8.1 The Company, in accordance with the requirements of Code Section 412, shall
make contributions to the Trustee as are actuarially necessary to provide
the retirement benefits under the Plan. Contributions shall be made
conditioned upon their deductibility under Code Section 404. Any
contribution which is made under this Section 8.1 which is determined by an
Actuary to be non-deductible under Code Section 404 shall be returned to the
Employer within the next following one-year period, provided the Actuary
certifies to the non-deductibility of such contribution under Section 404 of
the Code. No contributions will be required of Members.
8.2 The Company reserves the right to reduce, suspend, or discontinue its
contributions for any reason at any time, provided that it shall be
impossible, at any time prior to the satisfaction of all liabilities with
respect to all Members, Spouses, Contingent Annuitants, and Beneficiaries
under the Plan, for any part of the Trust Fund to revert to the Company, or
to be used for, or diverted to, any purpose other than their exclusive
benefit. Any assets remaining in the Trust upon a Plan termination or a
discontinuance of contributions
48
to the Plan, after satisfaction of liabilities with respect to all Members,
Spouses, Contingent Annuitants and Beneficiaries under the Plam, shall
revert to the Company.
49
SECTION IX
----------
TERMINATION OF SERVICE
----------------------
9.1 Before 10 Years of Vesting Service
----------------------------------
(a) A Member whose service with the Company is terminated prior to January
1, 1989, for reasons other than total and permanent disability and
before his Normal or Earlier Retirement Date and before completing at
least 10 years of Vesting Service shall not be entitled to any benefits
under the Plan.
(b) Any forfeitures arising as a result of this Section 9.1 shall be used
to reduce the Company's cost under the Plan.
9.2 With 10 or More Years of Vesting Service
----------------------------------------
(a) A Member, whose service with the Company is terminated after December
31, 1975, but before January 1, 1989, and before his Normal or Earlier
Retirement Date, having completed at least 10 years of Vesting Service,
shall be entitled to his Accrued Benefit as of his date of such
termination with benefits commencing at his Normal Retirement Date.
(b) A Member, who is entitled to a retirement benefit under subparagraph
(a) above, may elect to receive his
50
retirement benefit commencing at an Earlier Retirement Date which shall
be the first day of any specified month subsequent to the date of his
election. In such event,the retirement benefit then payable shall be
equal to the Actuarial Equivalent of the Accrued Benefit which he was
entitled to receive at his Normal Retirement Date.
9.3 Provisions effective on and after January 1, 1989
-------------------------------------------------
(a) A Member whose service with the Employer is terminated for reasons
other than total and permanent disability and before his Normal or
Earlier Retirement Date and before completing at least 5 years of
Vesting Service shall not be entitled to any benefits under the Plan.
Any forfeitures arising as a result of this Section (a) shall be used
to reduce the Company's cost under the Plan.
(b) A Member, whose service with the Employer is terminated before his
Normal or Earlier Retirement Date, having completed at least 5 years of
Vesting Service shall be entitled to his Accrued Benefit as of the date
of such termination with benefits commencing at his Normal Retirement
Date.
51
(c) A Member, who is entitled to a retirement benefit under subparagraph
(b) above, may elect to receive his retirement benefit commencing at an
Earlier Retirement Date provided the Member has satisfied the
provisions of Section 3.2, which shall be the first day of any
specified month subsequent to the date of his election. In such event,
the retirement benefit then payable shall be equal to the Actuarial
Equivalent of the Accrued Benefit which he was entitled to receive at
his Normal Retirement Date.
9.4 Vesting service
---------------
(a) Service Prior to January 1, 1976
--------------------------------
Vesting Service for Plan Years beginning prior to January 1, 1976,
shall be equal to the continuous service recognized under the
provisions of the Plan as in effect prior to January 1, 1976.
(b) Service on and after January 1, 1976
------------------------------------
The computation period for the determination of Vesting Service on and
after January 1, 1976 shall be the Plan Year. An Employee shall accrue
one year of Vesting Service for each Plan Year in which he completed
1,000 Hours of Service. If an Employee has a One Year Break in Service
(commencing on or after January 1, 1976) and
52
is later reemployed, his period of Vesting Service prior to his
Reemployment Commencement Date shall be restored, provided such
Employee completes a Year of Eligibility Service and further provided
that, if such Employee was not vested in accordance with Section 9.2(a)
or 9.3(b) at the time his One Year Break in Service commenced, the
period of his Vesting Service prior to such occurrence shall not be
taken into account if the number of consecutive One Year Breaks in
Service equals or exceeds the greater of a) his aggregate years of
Vesting Service accrued before such One Year Break in Service, or b) on
and after January 1, 1985, five years.
(c) An employee who became a Member on or after January 1, 1985, shall not
accrue Vesting Service for services rendered prior to the Plan Year in
which the Employee's 18th birthday occurs.
(d) Solely for determining the nonforfeitability of any benefit under the
Plan, former Members who terminated employment with the Company for
immediate employment with a Gulf & Western entity (hereinafter called
the "Corporation") because of the sale of certain subsidiaries and
divisions to the Corporation on July
53
25, 1986, shall continue to accrue Vesting Service under this Plan for
so long as they are employed by the Corporation provided such service
conforms to the requirements of Vesting Service set forth in Section
1.36 as if such Vesting Service was performed for the Company, and
further provided that the Corporation provides such timely information
as may be required to determine Vesting Service with respect to such
former Members.
The above paragraph shall not be construed as establishing or
continuing any contract of employment between the Company and former
Members.
54
SECTION X
---------
DISABILITY
----------
10.1 In the event a Member is determined by the Pension Committee to be totally
and permanently disabled according to Section 10.2 and has attained age 45
and completed at least 15 years of Vesting Service, he shall be entitled to
a disability benefit as defined in Section 10.3.
10.2 The Pension Committee shall determine that a Participant is totally and
permanently disabled if the Participant is in receipt of a Social Security
disability benefit.
10.3 The disability benefit shall be equal to the Member's Accrued Benefit at
the date of disability. Such benefit shall be reduced for immediate
payment according to the Actuarial Equivalent early retirement factors of
the Plan. However, if an Employee is below age 55, the Actuarial
Equivalent reduction factor used for immediate payment will not be less
than the factor that would be used as if the Employee was age 55.
10.4 Disability benefits shall be payable in the same manner and form as set
forth in Section V, unless the Member, and if applicable, the Member's
Spouse, consent in accordance with
55
Section 5.1 to receive an optional form of benefit under Section VI.
56
SECTION XI
----------
TIME OF COMMENCEMENT OF PAYMENT
-------------------------------
11.1 Commencement of Payment
-----------------------
Unless a Member elects otherwise, the payment to him of his retirement
benefit shall begin not later than the 60th day after the close of the Plan
Year in which occurs the later of:
(a) the Member's Normal Retirement Date, or
(b) the fifth anniversary of the Member's participation in the Plan, or
(c) the date the Member terminates his service with the Company.
In no event, however, shall a retirement benefit becoming payable under
this Plan commence later than the April 1 following the calendar year in
which the Member attains age 70-1/2.
In the event a Member's benefit otherwise required to commence on the
Member's Normal Retirement Date is delayed because the Pension Committee is
unable to locate the Member or for any other reason, the Pension Committee
shall commence payment within 90 days after the date the Member is located.
Unless the Member elects an optional form of payment in accordance with the
provisions of Section 6.1, payment shall
57
be in the normal (automatic) form as set forth in Section V applicable to
the Member of his Annuity Starting Date. The benefit payable to the Member
as of his Annuity Starting Date shall be in the amount that would have been
payable to the Member if payments had commenced on the Member's Normal
Retirement Date ("retroactive Annuity Starting Date") in the form elected
by the member under the provisions of Section 5.1, 5.2 or 6.1, as
applicable; plus one lump sum payment equal to the sum of the monthly
payments the Member would have received during the period beginning on his
Normal Retirement Date and ending with the month preceding his Annuity
Starting Date, together with interest at the rate of 6.5 percent per annum,
compounded annually. The amount of the monthly payments shall be
determined as of the Member's Normal Retirement Date on the basis of the
single life annuity form of payment. The lump sum shall be paid on or as
soon as practicable following the date the Member's Pension commences.
11.2 Payment of Lump Sum Benefits
----------------------------
Notwithstanding any other provision of the Plan, a Member's benefit shall
be payable in a lump sum payment as follows:
(i) If the present value of the Member's benefit amounts to $1,000 or less
as of his Retirement Commencement Date, a lump sum payment equal to
58
the present value of the benefit shall be made in lieu of all benefits.
(ii) If the present value of the Member's benefit exceeds $1,000 but does
not exceed $5,000, the only form of payment he may elect is a lump sum
payment. He may elect to receive the lump sum payment as soon as
practicable following his termination of employment or as of the first
day of any later month that precedes his Normal Retirement Date.
Spousal consent to the Member's election of the lump sum is not
required.
The present value of the member's benefit and amount of a lump sum payment
payable under this paragraph shall be determined by using the IRS Mortality
Table and the IRS Interest Rate in Appendix A and, in the case of a lump
sum benefit payable prior to a Member's Normal Retirement Date, shall be of
equivalent value to the benefit which would otherwise have been provided
commencing at the Member's Normal Retirement Date. In the event the
present value of a Member's benefit exceeds $1,000 upon an initial
determination as to its present value, the present value of the benefit
shall be redetermined annually as of the first day of each subsequent Plan
Year. The lump sum payment shall be made as soon as practicable
59
following the determination that the amount qualifies for distribution
under this paragraph.
11.3 No portion of the Member's Accrued Benefit may commence to be distributed
under the Plan prior to the Member's Normal Retirement Date unless:
(a) the Member and such Member's Spouse, if applicable, consents in writing
to such distribution within the 90-day period prior to the Retirement
Commencement Date; or
(b) the benefit is provided in accordance with Section 5.1 or 5.2.
Notwithstanding the foregoing, no consent shall be required if the
Member's Accrued Benefit determined in accordance with Section 11.2 is
less than $3,500 for Plan Years ending on or before December 31, 1977
or $5,000 for Plan Years ending on or after January 1, 1998.
Notwithstanding anything in the Plan to the contrary, after having
received any required written explanation of his benefits, a Member may
(with any applicable spousal consent) affirmatively elect to have his
benefit commence sooner than 30 days following his receipt of the
written explanation, provided all of the following requirements are
met:
60
(i) the Pension Committee clearly informs the Member that he has a
period of at least 30 days after receiving the notice to decide
when to have his benefits begin and, if applicable, to choose a
particular optional form of payment;
(ii) the Member affirmatively elects a date for his benefits to begin
and, if applicable, an optional form of payment, after receiving
the written explanation;
(iii) the member is permitted to revoke his election until the later of
his Retirement Commencement Date or seven days following the day he
received the written explanation; and
(iv) payment does not commence less than seven days following the day
after the written explanation is received by the Member.
11.4 Distribution Requirements
-------------------------
Notwithstanding any other provision of this Plan, all distributions from
this Plan shall conform to Section 401(a)(9) of the Code, U.S. Treasury
Department Regulation Sections 1.401(a)(9)-2 through 1.401(a)(9)-9, and the
incidental death benefit requirements of Section 401(a)(9)(G)
61
of the Code. Further, such regulations shall override any plan provision
that is inconsistent with Section 401(a)(9) of the Code. If a Member dies
after the Pension payments have commenced, any payments continuing on to
his spouse or Beneficiary shall be distributed at least as rapidly as under
the method of distribution being used as of the member's date of death.
All distributions shall be subject to the following rules:
(a) Any additional benefits accruing to a Member in a calendar year will be
distributed beginning with the first payment interval ending in the
calendar year immediately following the calendar year in which such
amount accrues.
(b) If the Member's benefit is being distributed in the form of a joint and
survivor annuity for the joint lives of the Member and a non-spouse
beneficiary, annuity payments to be made on or after the Member's
required beginning date to the designated beneficiary after the
Member's death must not at any time exceed the applicable percentage of
the annuity payment for such period that would have been payable to the
Member using the table set forth in Q&A2 of Section 1.401(a)(9)-6T of
62
the U.S. Treasury Department regulations. If the form of distribution
combines a joint and survivor annuity for the joint lives of the Member
and a non-spouse beneficiary and a period certain annuity, the
requirement in the preceding sentence will apply to annuity payments to
be made to the designated beneficiary after the expiration of the
period certain. If the Annuity Starting Date precedes the year in
which the Member reaches age 70, in determining the applicable
percentage, the Member/Beneficiary age difference is reduced by the
number of years that the Member is younger than 70.
(c) If the Member's benefit is being distributed in the form of a period
certain and life annuity option, the period certain may not exceed the
applicable distribution period for the Member under the Uniform
Lifetime Table set forth in Section 1.401(a)(9)-9 of the Treasury
regulations for the calendar year that contains the Annuity Starting
Date. If the Annuity Starting Date precedes the year in which the
Member reaches age 70, the applicable distribution period for the
Member is the distribution period for age 70 under the Uniform Lifetime
Table set forth in Section 1.401(a)(9)-9 of the
63
Treasury regulations plus the excess of 70 over the age of the Member
as of the Member's birthday in the year that contains the Annuity
Starting Date.
(d) For purposes of this Section, the following definitions apply:
(i) Designated Beneficiary. The individual who is designated as the
beneficiary under Section 401(a)(9)of the Code and Section
1.401(a)(9)-4 of the Treasury regulations.
(ii) Distribution calendar year. A calendar year for which a minimum
distribution is required. For distributions beginning before the
Member's death, the first distribution calendar year is the
calendar year immediately preceding the calendar year which
contains the Member's required beginning date.
(iii) Life expectancy. Life expectancy as computed using the Single
Life Table in Section 1.401(a)(9)-9, Q&A1 of the Treasury
Regulations.
(iv) Required beginning date. The date specified in Section 11.1.
64
11.5 Direct Rollover Distribution
----------------------------
(a) Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a distributee's election under this Section, a
distribute may elect, at the time and in the manner prescribed by the
Pension Committee, to have any portion of an eligible rollover
distribution paid directly to an eligible retirement plan specified by
the distributee in a direct rollover.
(b) The following definitions apply to the terms used in this Section 11.5:
(i) "Eligible rollover distribution" means any distribution of all or
any portion of the balance to the credit of the distributee, except
that an eligible rollover distribution does not include:
(A) any distribution that is one of a series of substantially equal
periodic payments (not less frequently than annually) made for
the life (or life expectancy) of the distributee or the joint
lives (or joint life expectancies) of the distributee and the
distributee's designated beneficiary, or for a specified period
of ten years or more; and
65
(B) any distribution to the extent such distribution is required
under Section 401(a)(9) of the Code.
(ii) "Eligible retirement plan" means any of the following types of
plans that accept the distributee's eligible rollover distribution:
(A) a qualified plan described in Section 401(a) of the Code;
(B) an annuity plan described in Section 403(a) of the Code;
(C) an individual retirement account or individual retirement
annuity described in Section 408(a) or 408(b) of the Code,
respectively;
(D) an annuity contract described in Section 403(b) of the Code;
(E) an eligible plan under Section 457(b) of the Code which is
maintained by a state, political subdivision of a state, or any
agency or instrumentality of a state or political subdivision
of a state and which agrees to separately account for amounts
66
transferred into such plan from this Plan; and
(F) effective January 1, 2008, a Roth IRA described in Section 408A
of the Code.
(iii) "Distributee" means an employee or former employee, an employee's
or former employee's surviving spouse, and an employee's or former
employee's spouse or former spouse who is an alternate payee under
a qualified domestic relations order as defined in Section 414(p)
of the Code with respect to the interest of such alternate payee);
and
(iv) "Direct Rollover means a payment by the Plan to the eligible
retirement plan specified by the distributee.
(c) Effective for distributions made after December 31, 2009, the term
"Distributee" also includes a Participant's nonspouse beneficiary
designated pursuant to the terms of the Plan. In the case of a
nonspouse beneficiary, a direct rollover may be made only to an
individual retirement account or annuity described in Section 408(a) or
Section 408(b) of the Code ("IRA") that is established on behalf of the
designated
67
beneficiary and that will be treated as an inherited IRA pursuant to
the provisions of Section 402(c)(11) of the Code. Also, in this case,
the determination of any required minimum distribution under Section
401(a)(9) of the Internal Revenue Code that is ineligible for rollover
shall be made in accordance with IRS Notice 2007-7, or any applicable
successor guidance issued by the IRS.
(d) The Member shall be required to represent the Pension Committee that
any recipient plan is (or is intended to be) an eligible retirement
plan and to provide any other reasonable information the Pension
Committee shall require (including the name, address and account
numbers with respect to a recipient plan).
(e) A Member failing to elect the rollover option under this Section 11.5
prior to a Retirement Commencement Date shall be deemed not to have
elected a rollover option.
(f) The Pension Committee may adopt any reasonable procedures to accomplish
the direct rollover, as a trustee to trustee transfer, including
distribution in the form of a restricted check payable to a fund or a
trustee for the benefit of the Member.
68
(g) Amounts eligible for direct rollover may be distributed to a maximum of
three recipient plans.
(h) A Member shall be permitted to divide a distribution in the form of a
percentage or dollar amount to be rolled over to a recipient plan and
the remainder to be received currently by the Member.
69
SECTION XII
-----------
REEMPLOYMENT
------------
12.1 If any retired Member is reemployed by the Company prior to his Normal
Retirement Date, his retirement benefit payments, if any, shall cease; any
election of an optional benefit in effect thereunder shall become void and
the provisions of Section 5.1 hereof shall again become effective. Any
Credited Service to which he was entitled when he retired shall be restored
to him, and upon subsequent retirement, his retirement benefits shall be
redetermined based on his Salary and Credited Service before and after the
period of prior retirement reduced by the Actuarial Equivalent of the
benefits previously received, if any. Such reduction shall not reduce the
benefit payable to the Member to an amount which is less than the benefit
payable to the Member prior to the Member's reemployment.
12.2 If any Member, who received or is receiving a disability benefit under
Section X hereof, is reemployed by the Company prior to his Normal
Retirement Date, any disability benefit payments he was receiving shall
cease and the provisions of Section 5.1 hereof shall again become
effective. Any Vesting Service and Credited Service to which he was
entitled when he
70
became disabled shall be restored to him, and upon subsequent retirement or
termination of service his benefit shall be redetermined based on his
Salary and Credited Service before and after his disability, reduced by the
Actuarial Equivalent of the benefits previously received, if any.
12.3 If a former Member who terminated service after he had earned a vested
interest under Section 9.2(a) or Section 9.3(b) is reemployed he shall
thereupon again become a Member of the Plan. Any Credited Service to which
he was entitled shall be restored to him and upon subsequent retirement or
termination of service his benefit shall be based on his Salary and
Credited Service before and after his initial termination of service
reduced by the Actuarial Equivalent of the benefits previously received, if
any.
12.4 If a former Employee who terminated service in accordance with Section 9.1
or Section 9.3(a) is reemployed, his entitlement to membership and his
prior Vesting Service shall be determined as provided in Section 2.5 and
9.4(a) and (b). Any Credited Service recognized for the period of Vesting
Service restored pursuant to said Section shall also be restored to him.
71
SECTION XIII
------------
LIMITATION OF ASSIGNMENT
------------------------
The benefits payable hereunder to any Member, Spouse, Beneficiary, or
Contingent Annuitant, if any, shall not be assigned, commuted, anticipated,
alienated, sold, transferred, pledged, encumbered or charged, and shall not be
subject by attachment or otherwise to the claims of any creditors of the Member,
Spouse, Beneficiary or Contingent Annuitant.
Notwithstanding the above, the Committee shall direct the Trustees to comply
with a Qualified Domestic Relations Order provided such order does not require a
form of benefit not otherwise provided under the Plan, or require increased
benefits, or require the payment of benefits to an Alternate Payee (as described
below) which are required to be paid to another Alternate Payee under a previous
Qualified Domestic Relations Order. Payments in compliance with a Qualified
Domestic Relations Order may commence, in the case of a Member who has not
separated from service no earlier than the first day of the month coincident
with or next following the date the Member attains "Earliest Retirement Age" as
defined in Section 414(p) of the Code, based on the Actuarial Equivalent of the
Member's Accrued Benefit on the date payments are to begin.
72
For purposes of this Section an Alternate Payee shall mean a Spouse, former
Spouse, child or dependent of the Member who is recognized by a domestic
relations order as having the right to receive all or a portion of, the benefits
payable under the Plan to the Member.
The Pension Committee shall notify each Member and any Alternate Payee of
its receipt of any domestic relations order, the Plan procedures for determining
the qualified statute of such order, and the procedures for the administration
of such distributions.
If the present value of any series of payments meeting the criteria set
forth for Qualified Domestic Relations Orders amounts to $5,000 or less, an
Actuarial Equivalent lump sum payment, determined in the manner described in
Section 5.1, shall be made in lieu of the series of payments.
Notwithstanding the first paragraph of this Section, a Member's benefits
under the Plan shall be offset by the amount the Member is required to pay to
the Plan under the circumstances set forth in Section 401(a)(13)(C) of the Code.
Except as otherwise provided in this Section, no part of the corpus or
income of the funds of the Plan shall be used for, or diverted to, purposes
other than for the exclusive benefit of Members and other persons entitled to
benefits under the Plan and
73
paying Plan expenses not otherwise paid by the Company, before the satisfaction
of all liabilities with respect to them. No person shall have any interest in
or right to any part of the earnings of the funds of the Plan or any right in,
or to, any part of the assets held under the Plan, except as and to the extent
expressly provided in the Plan.
74
SECTION XIV
-----------
LIMITATION OF RIGHTS OF THE EMPLOYEE
------------------------------------
This Plan is a voluntary program on the part of the Company and shall not be
deemed to constitute a contract between an Employer and any Member or to be a
consideration for, or inducement of, employment for any Employee or Member.
Nothing contained in the Plan shall be deemed to give a) a Member the right to
be retained in the service of an Employer or to interfere with the right of an
Employer to discharge or retire the Member, or b) any Member, Spouse, or
Beneficiary any right or claim to any payment under the Plan, except as such
payment may be provided for under the terms of the Plan and then only to the
extent that assets are available in the hands of the Trustee for the making of
such payment.
75
SECTION XV
----------
AMENDMENT TO OR TERMINATION OF THE PLAN
---------------------------------------
15.1 Amendment
---------
(a) The Board reserves the right to amend the Plan at any time to any
extent that it may, in its sole and complete discretion, deem
advisable, including any amendment deemed necessary to ensure initial
qualification or continued qualification of the Plan under the Code or
any other applicable Federal or State laws.
(b) No such amendment shall increase the duties or responsibilities of the
Trustee without its written consent thereto.
(c) No such amendment shall have the effect of diverting any part of the
principal or income of the Trust Fund for purposes other than the
exclusive benefit of its Members and their Spouses, Contingent
Annuitants and any other designated Beneficiaries, prior to the
satisfaction of all liabilities under the Plan.
(d) Except to the maximum extent permitted or required by the Code or any
other applicable section of the law
76
and the regulations issued thereunder, no amendment or modification
shall be made which would:
(i) retroactively impair any rights to any benefit under the Plan which
any Member, Beneficiary, Spouse or other eligible survivor would
otherwise have been entitled to as of the date of such amendment,
(ii) permit the elimination or reduction of a subsidy or an early
retirement benefit (as defined in Code regulations) prior to the
effective date of such amendment, or
(iii) permit the elimination of an optional form of benefit with
respect to benefits attributable to Vesting Service prior to the
effective date of such amendment. In the case of a retirement type
subsidy, this subsection (iii) shall apply only with respect to a
Member who satisfies (either prior to or subsequent to the
effective date of the amendment) preamendment conditions for such
subsidy. Notwithstanding the preceding, the Accrued Benefit of a
Member, early retirement benefit, retirement-type subsidy, or
optional form of benefit may be
77
reduced to the extent permitted under Section 412(c)(8) of the Code
(as it read before the first day of the 2008 Plan Year), Section
412(d)(2) of the code (as it reads for Plan Years beginning on and
after January 1, 2008), or to the extent permitted under the
Sections 1.411(d)-(3) and 1.411(d)-(4) of the U.S. Treasury
Department regulations.
15.2 Termination
-----------
The Company reserves the right to terminate the Plan in whole or in part at
any time by action of its Board of Directors. Upon complete or partial
termination of the Plan, the nonforfeitable benefits of each Member (or, in
the event of a partial termination, each Member affected by such partial
termination) shall become nonforfeitable as of the date of such
termination. In the event of such termination, after providing for the
expenses of the Plan, the assets of the Plan applicable to Members affected
by such termination shall be used and applied for the satisfaction of all
liabilities under the Plan in the manner prescribed by Section 4044 of the
Act (or corresponding provision of any subsequent applicable law in effect
at the time). The Pension Committee may direct that
78
benefits may be provided by the purchase of annuities, by continuing the
Fund in existence and making provision thereunder for the payment of
retirement benefits or by immediate distribution from the Fund. If, upon
satisfaction of all benefit liabilities under the Plan with respect to
Members, former Members, their Spouses and Beneficiaries, there is a
balance remaining in the Fund, such balance shall be returned to the
Company.
15.3 Amendment Following Change in Control
-------------------------------------
Notwithstanding the provisions of Subsection 15.1(a), the Board of
Directors shall have the right to amend or terminate the Plan at any time;
provided, however, that for a period of three years following a "change in
control" (as such term is defined in Section 15.4), the provisions of the
Plan may not be amended if any amendment would adversely affect the rights,
expectancies or benefits of any Member, Spouse or other designated
Beneficiary provided by the Plan as in effect immediately prior to the
Change in Control.
15.4 Termination Following Change in Control
---------------------------------------
Notwithstanding the preceding provisions of this Section or any other
provision of this Plan, in the event this Plan is terminated within three
years following a "change in
79
control" (as hereinafter defined), the assets of the Plan shall be applied
in accordance with the preceding provisions of this Section 15.2 to satisfy
all liabilities to retired Members, Members, Spouses, Contingent Annuitants
and Beneficiaries. If, after satisfaction of such liabilities, there are
assets remaining in the Plan, such assets shall be applied on a pro rata
basis to increase the benefits to Members who are in active service of the
Company on the date of such termination; provided, however, that if any
portion of an allocation of such assets, when added to any other payments
to any individual who is a "disqualified individual," as such term is
defined in Section 280G(c) of the Code, would result in the imposition of
an excise tax pursuant to Section 4999 of the Code (as determined by the
Trustee), then such allocation shall be reduced until either no portion of
the allocation would result in the imposition of such excise tax or such
allocation is reduced to zero. For purposes hereof, a "change in control"
shall mean:
(a) the acquisition by any corporation, person, or business entity of more
than 20% of the then outstanding voting stock of the Company, other
than through a transaction consented to by the Board of Directors of
the Company prior
80
to such acquisition of more than 20% of such then outstanding voting
stock, and which consent of the Board of Directors of the Company is
contained in a resolution of such Board adopted on a date which is both
prior to such acquisition and subsequent to January 1, 1986, or
(b) the purchase of shares of voting stock of the Company pursuant to a
tender offer or exchange offer which is opposed by a majority of the
members then serving on the Company's Board of Directors.
Notwithstanding, the provisions of Section 15.1(a) hereof, the
foregoing provisions of this paragraph may not be amended, following a
"change in control", without the written consent of a majority, in both
number and interest, of the Members who are in active service with the
Company on the date of such amendment.
81
SECTION XVI
-----------
GOVERNMENTAL RESTRICTIONS
-------------------------
16.1 Limitation Concerning Highly Compensated Employees or Highly Compensated
------------------------------------------------------------------------
Former Employees
----------------
(a) The provisions of this Section shall apply (i) in the event the Plan is
terminated, to any Member who is a highly compensated employee or
highly compensated former employee (as those terms are defined in
Section 414(q) of the Code) of the Company or an Affiliated Employer
and (ii) in any other event, to any Member who is one of the 25 highly
compensated employees or highly compensated former employees of the
Company or Affiliated Employer with the greatest compensation in any
Plan Year. The amount of the annual payments to any one of the Members
to whom this Section applies shall not be greater than an amount equal
to the annual payments that would be made on behalf of the Member
during the year under a single life annuity that is the Actuarial
Equivalent to the sum of the Member's Accrued Benefit and the Member's
other benefits under the Plan.
82
(b) If, (i) after payment of Accrued Benefits or other benefits to any one
of the Members to whom this Section applies, the value of Plan assets
equals or exceeds 110 percent of the value of current liabilities (as
that term is defined in Section 412(l)(7) of the Code) of the Plan,
(ii) the value of the Accrued Benefit and other benefits of any one of
the Members to whom this Section applies is less than one percent of
the value of current liabilities of the Plan, or (iii) the value of the
benefits payable to a Member to whom this Section applies does not
exceed the amount described in Section 411(a)(11)(A) of the Code, the
provisions of paragraph (a) above will not be applicable to the payment
of benefits to such Member.
(c) If any Member to whom this Section applies elects to receive a lump sum
payment in lieu of his Pension and the provisions of paragraph (b)
above are not met with respect to such Member, the Member shall be
entitled to receive his benefit in full provided he shall agree to
repay to the Plan any portion of the lump sum payment which would be
restricted by operation of the provisions of paragraph (a) and shall
provide adequate security to guarantee that repayment.
83
(d) Notwithstanding paragraph (a) of this Section, in the event the Plan is
terminated, the restriction of this Section shall not be applicable if
the benefit payable to any highly compensated employee and any highly
compensated former employee is limited to a benefit that is
nondiscriminatory under Section 401(a)(4) of the Code.
(e) If it should subsequently be determined by statute, court decision
acquiesced in by the Commissioner of Internal Revenue, or ruling by the
Commissioner of Internal Revenue that the provisions of this Section
are no longer necessary to qualify the Plan under the Code, this
Section shall be ineffective without the necessity of further amendment
to the Plan.
16.2 Limitations Based on Funded Status of the Plan
----------------------------------------------
Notwithstanding any provision of the Plan to the contrary, the following
provisions shall apply as required by Section 436(d) of the Code effective
for Plan Years beginning on or after January 1, 2008:
(a) In no event shall a Member be entitled to receive an unpredictable
contingent event benefit under the Plan during any period the payment
of such benefit is
84
restricted under the provisions of Section 436(b) of the Code.
(b) In the event the Plan's adjusted funding target attainment percentage
for a Plan Year is less than 60 percent, benefit accruals shall cease
during the period benefit accruals are restricted under the provisions
of Section 436(e) of the Code.
(c) In the event the Plan's adjusted funding target attainment percentage
for a Plan Year falls below the threshold defined under Section
436(d)(1) and/or (3) of the Code, the Trustee shall, as directed by the
Company, cease payment of any prohibited payment during the period
specified in, and to the extent necessary to comply with the provisions
of Section 436(d) of the Code.
(d) In no event shall a prohibited payment be paid during any period the
Company is a debtor in a case under Title 11, United States Code, or
similar federal or state law, to the extent necessary to comply with
the provisions of Section 436(d)(2) of the Code.
(e) In no event shall an amendment that has the effect of increasing
liabilities of the Plan by reason of increases in benefits,
establishment of new benefits,
85
changing the rate of benefit accrual, or changing the rate at which
benefits become nonforfeitable become effective during the period such
amendment would violate the provisions of Section 436(c) of the Code.
(f) For purposes of this Section, the following terms shall have the
following meanings:
i. "Funding target attainment percentage" has the same meaning given
such terms by Section 430(d)(2) of the Code.
ii. "Adjusted funding target attainment percentage" means the funding
target attainment percentage that is determined under subparagraph
(i) above increase by each of the amounts under Section
430(d)(2)(A) and (B) of the Code by the aggregate amount of
purchases of annuities for employees other than highly compensated
employees (as defined in Section 414(q) of the Code) that were made
by the Plan during the preceding two years.
iii. "Unpredictable contingent event benefit" means any benefit
payable solely by reason of:
(A) a plant shutdown (or similar event, as determined by the
Secretary of the
86
Treasury); or
(B) any event other than the attainment of any age, performance of
any service, receipt or derivation of any compensation, or
occurrence of death or disability.
iv. "Prohibited payment" means:
(A) any payment in excess of the monthly amount payable as a single
life annuity (plus any social security supplements described in
the last sentence of Section 411(a)(9) of the Code) to any
Member of Beneficiary whose Retirement Commencement Date occurs
during any period a limitation under subparagraph (b) or (d)
above is in effect;
(B) any payment for the purchase of an irrevocable commitment from
an insurer to pay benefits; or
(C) any other payment specified by the Secretary of the Treasury by
regulations.
87
SECTION XVII
------------
ADMINISTRATION OF THE PLAN
--------------------------
17.1 The general administration of the Plan shall be placed in a Pension
Committee consisting of not less than three nor more than nine persons who
shall be appointed, from time to time, by the Board to serve at the
pleasure of said Board. The members of the Pension Committee shall
collectively be the Plan Administrator and Named Fiduciary, as such terms
are defined under the Act.
17.2 Any person appointed as a member of the Pension Committee shall signify his
acceptance in writing to the Board. Any member of the Pension Committee
may resign by delivering his written resignation to the Board and such
resignation shall become effective upon delivery or any later date
specified therein.
17.3 The members of the Pension Committee will serve without compensation for
services as such, but the Company on an equitable basis shall pay or
reimburse the Pension Committee for all expenses reasonably incurred by the
Pension Committee and shall indemnify the Pension Committee and each member
thereof against all loss, liability and expense occasioned by any act or
omission to act taken or determined upon by it, or
88
him, except any such act or omission which is due to willful misconduct,
fraud or lack of good faith.
17.4 A majority of the members of the Pension Committee, at the time in office,
may do any act which this Plan authorizes or requires the Pension Committee
to do, and the action of such majority of the members expressed from time
to time by a vote at a meeting, or in writing without a meeting, shall
constitute the action of the Pension Committee and shall have the same
effect for all the members at the time in office. The Pension Committee
may, by a writing signed by a majority of its members, delegate to any one
member of the Pension Committee the authority to give certified notice in
writing of any action taken by the Pension Committee and may assign
specific duties and responsibilities to one or more of its members.
17.5 Subject to the limitations of the Plan, the Pension Committee shall
establish rules for the administration of the Plan and the transaction of
its business. The determination of the Pension Committee as to any
questions involving the general administration of the Plan or the proper
interpretation of any of its provisions shall be conclusive.
17.6 The Pension Committee's determination, as to which Employees are eligible
to be Members and of a Member's period of
89
Credited Service and Salary, shall be conclusive. Any discretionary
actions to be taken under this Plan by the Pension Committee with respect
to the classification of Members or benefits shall be uniform in their
nature and applicable to all Members similarly situated and shall be taken
with care, skill, prudence and diligence that a prudent man acting in a
like capacity under circumstances similar to those then prevailing would
use. The Pension Committee shall have complete and discretionary authority
to determine eligibility for benefits, the amount of benefits and to
otherwise interpret and administer the provisions of the Plan. The Pension
Committee may appoint accountants, attorneys, Actuaries or other agents as
it may deem necessary or advisable in order to properly administer and
implement the Plan, and may delegate to such appointees appropriate
ministerial duties consistent with their background and experience, to the
extent that such duties are properly delegable under the Act. The Pension
Committee shall not be liable for any act or omission of such accountant,
attorney, Actuary, or other agent in carrying out their delegated
responsibilities provided that the Pension Committee does not fail to
conduct itself in the manner described above with respect to such
designation of agents and allocation of
90
duties, and provided further, that the Pension Committee does not
(i) knowingly participate in or knowingly undertake to conceal an act or
omission of such agent, knowing that such act or omission is
inconsistent with the requirements of the Plan and of the Act, or
(ii) through a failure to comply with the prudent action described above
enable such agent to commit such an improper act or omission, or
(iii) have knowledge of such improper act or omission on the part of such
agent, and yet fail to make reasonable efforts under the circumstances
to remedy such improper act or omission.
17.7 The Pension Committee shall keep in convenient form such data as may be
necessary for actuarial valuations with respect to the operation and
administration of the Plan and may
(a) adopt standards for use in all actuarial calculations required in
connection with the Plan;
(b) establish the rate of contribution required to maintain the Plan; and
(c) advise the Company of the rate so established.
The Pension Committee shall submit annually to the Board a report showing,
in reasonable summary, the financial condition
91
of the Trust Fund and giving a brief account of the operations of the Plan
for the past year, and any further information which the Board may require.
17.8 The members of the Pension Committee, and the Company and its officers and
directors shall be entitled to rely upon all tables, valuations,
certificates and reports made by any Actuary or accountant so selected, and
upon all opinions given by any legal counsel so selected, and the members
of the Pension Committee shall be fully protected with respect to any
actions taken or suffered by them in good faith in reliance upon such
Actuary, accountant, or counsel, and all action so taken or suffered shall
be conclusive upon each of them and upon all Members, retired Members,
Spouses, Contingent Annuitants and Beneficiaries.
17.9 The Pension Committee shall make all reports and give all notices with
respect to the Plan and the administration thereof which may be required
under the provisions of the Code or of the Act and the regulations
promulgated thereunder.
17.10 Denial of Claims Procedure
--------------------------
Any application for benefits by a Member, his Spouse, or other designated
Beneficiary, submitted to the Pension Committee on appropriate form shall
constitute a claim. In any instance where such claim is denied in whole
or in part by the Pension
92
Committee, their decision shall be submitted in writing to the Member,
Spouse, or Beneficiary, within 90 days following receipt of such claim,
unless special circumstances require additional time, which may be up to
an additional 90 days provided the claimant is notified within the initial
90-day period, setting forth the following:
(a) basis for denial of claim;
(b) plan provision on which denial is based;
(c) description of any additional information required of the Member, his
Spouse, or other Beneficiary;
(d) an explanation of why such information is necessary; and
(e) an explanation of the procedures for reviewing claims under the Plan.
Upon receipt of denial of a claim by the Member, Spouse, Contingent
Annuitant, or Beneficiary, an appeal requesting further review may be
submitted to the Pension Committee within 60 days following receipt of
such denial. Upon receipt of a request for review, the Pension Committee
will meet and render a decision within 60 days following the receipt of an
appeal unless special circumstances exist which may permit an extension of
time, in which case a decision shall be made as soon as possible after the
60-day period, but may in no event be extended beyond 120 days following
receipt of appeal. The
93
Pension Committee's ultimate decision shall be submitted to the Member,
Spouse, or Beneficiary in writing, setting forth the specific reasons for
the decision and specific references to the provisions of the Plan on
which the decision is based.
17.11 Facility of Payment
-------------------
If the Pension Committee shall find that a Member or other person entitled
to a benefit is unable to care for his affairs because of illness or
accident or because he is a minor, the Pension Committee may direct that
any benefit due him, unless claim shall have been made for the benefit by
a duly appointed legal representative, be paid to his spouse, a child, a
parent or other blood relative, or to a person with whom he resides. Any
payment so made shall be a complete discharge of the liabilities of the
Plan for that benefit.
Furthermore, if the Pension Committee receives on behalf of a Member a
power of attorney with respect to such Member valid under state law, the
Pension Committee shall comply with the instructions of the named attorney
to the extent that the Pension Committee would comply with such
instructions if given by the Member and such instructions are consistent
with the power of attorney.
94
SECTION XVIII
-------------
TRUST AGREEMENT
---------------
18.1 As a part of this Plan the Company has entered into a Trust Agreement under
which the Trustee shall receive the contribution of the Company under this
Plan to the Trust Fund on behalf of the Members and shall hold, invest and
distribute such fund in accordance with the terms and provisions of the
Plan and the Trust Agreement.
18.2 The Company intends that this shall be a permanent Plan for the exclusive
benefit of its Members and expects to contribute to the Trust Fund the
amounts which will provide in full the benefits payable under the Plan.
The Company may rely upon the estimates made by the Pension Committee of
the amount of contributions needed to fund the Plan in accordance with the
requirements of Section 412 of the Code. Neither the Company, the Pension
Committee, nor the Trustee shall be liable under the Plan if the Trust Fund
should be insufficient to provide for the payment of such benefits. Such
benefits are to be payable from the Trust Fund only and to the extent that
such Trust Fund shall suffice therefore.
95
SECTION XIX
-----------
TOP HEAVY PROVISIONS
--------------------
19.1 Definitions
-----------
The following words and phrases in this Section XIX shall have the
following meanings, unless the context clearly indicates otherwise.
(a) Key Employee - Members, retired and former Members, Spouses,
Beneficiaries and Contingent Annuitants who during the current Plan
Year or any of the four preceding Plan Years are considered "Key
Employees" under Code Section 416(i) and regulations issued thereunder.
(b) Participant - A Member or former Member of a plan included within the
aggregation group set forth in Section 19.2. On and after January 1,
1985, the term "Participant" shall not include an individual who has
not performed services for the Company within a five-year period ending
on a Determination Date.
(c) Determination Date - December 31, 1983, and each subsequent December
31st thereafter.
(d) Top Heavy Year - Any Plan Year in which the Plan is determined to be
Top Heavy under subsection 19.2.
96
(e) Effective Date - January 1, 1984.
19.2 Top-Heavy Plan Defined
----------------------
(a) Plan Aggregation
All defined benefit plans and defined contribution plans maintained by
the Company or an Affiliated Employer shall be aggregated (Aggregate
Group of Plans) for purposes of this Section 19.2 as if all Employees
included in the Aggregate Group were Employees of the Company. The
Required Aggregation Group of the Company includes each plan of the
Aggregate Group in which a Key Employee participates and each other
plan of the Company which enables any plan in which a Key Employee
participates to meet the requirements of Section 401(a)(4) or 410 of
the Code. The Permissive Aggregation Group shall consist of plans of
the Aggregate Group that are in a Required Aggregation Group plus one
or more plans that are not part of a Required Aggregation Group, but
that satisfy the requirements of Sections 401(a)(4) and 410 of the Code
when considered together with a Required Aggregation Group. The
Company shall determine on each Determination Date as to whether the
Required
97
Aggregation Group or Permissive Aggregation Group is to be applied to
Top Heavy determination.
(b) Determination of Top Heavy
This Plan shall be a Top Heavy Plan with respect to any Plan Year
starting on or after the Effective Date of this Section XIX only if on
the Determination Date applicable to such Plan Year the sum of:
(i) The present value of Accrued Benefits for Key Employees, as
determined under the provisions of this Section applicable to
Defined Benefit Plans for all such plans included within the
Required Aggregation Group or the Permissive Aggregation Group, and
(ii) The aggregate of the account balances of Key Employees (as
adjusted under the provisions of this Article applicable to Defined
Contribution Plans), under all such plans included within the
Required Aggregation Group or the permissive Aggregation Group;
exceeds 60% of a similar sum determined for all Participants in
such Required or Permissive Aggregation Groups.
(c) Adjustments to the Present Value of Accrued Benefits for Defined
Benefit Plans.
98
For any defined benefit plan included within the Required or
Permissive Aggregation Group, the present value of Accrued Benefits of
any Participant shall be increased to reflect any distribution from the
Plan with respect to such Participant during the five-year period
ending on the Determination Date.
Solely for purposes of determining if the Plan, or any other plan
included in a Required Aggregation Group of which this Plan is a part,
is top heavy (within the meaning of Section 416(g) of the Code) the
Accrued Benefit of an Employee other than a Key Employee shall be
determined under the method, if any, that uniformly applies for accrual
purposes under all Plans maintained by the Employer, or if there is no
such method, as if such benefit accrued not more rapidly than the
slowest accrual rate permitted under the fractional accrual rate of
Code Section 411(1)(c).
(d) Adjustment to the Value of Account Balance for Defined Contribution
Plans.
For any defined contribution plan included within the Aggregate
Group, the total Account Balances shall be increased to reflect the
value of any distributions made to a Participant by the Plan during the
five-year
99
period ending on the Determination Date and reduced to eliminate the
value of any rollover contributions included in such participant's
Account Balances made after December 31, 1983, provided such rollover
contribution is initiated by the Participant and not made from an
Aggregate Group Plan. In addition, Account Balances of participants
shall be reduced by the portion of such balances attributable to
qualified voluntary employee contributions made pursuant to Section 219
of the Internal Revenue Code.
(e) Adjustment for Prior Key Employees.
Employee in prior Plan Years who is not a Key Employee with respect to a current
Plan Year shall be excluded entirely in computing the percentage in Section
19.2.
(f) Present value of Accrued Benefits for Defined Benefit Plans shall be
determined, for the purposes of Section 19.2(2)(a), according to the
1984 - UP Mortality Table and a 7-1/2% interest rate.
19.3 Minimum Benefit
---------------
For any Top Heavy Plan Year, the following provisions will apply.
100
(a) Notwithstanding the provisions of Section 4.1, for each non-Key
Employee covered under this Plan and a defined contribution plan, if
the Company maintains a defined contribution plan and, if minimum
benefits as defined by Code Section 416(c) and subsequent IRS
regulations are provided such that the requirements of Code Section
416(f) are satisfied for such Plan Year, then no minimum benefits will
be provided under this Plan for that Plan Year.
(b) If the conditions under paragraph (a) above are not met with respect to
any Plan Year during which the Plan is a Top Heavy Plan, the Accrued
Benefit, derived from Company contributions, of a Member who is not a
Key Employee shall not be less than 2% of such Member's Average
Compensation multiplied by his Years of Service (not to exceed ten
years).
(c) For purposes of this Section, the following definitions are applicable:
(i) Years of Service shall be the Member's Years of Vesting Service,
except that the following Years of Vesting Service shall be
disregarded:
(A) Any Plan Year during which the Plan was not a Top Heavy Plan;
and
101
(B) Any Plan Year beginning before 1984.
(ii) Average Compensation shall be the Member's Compensation from the
Company during that period of five consecutive Top Heavy Plan Years
(or actual Top Heavy Plan Years, if less than five) which produce
the highest average.
(iii) Accrued Benefit shall be an annual benefit payable in the form of
a single life annuity (with no ancillary benefits) and beginning at
Normal Retirement Date.
19.4 Vesting
-------
(a) An active Member in a Top Heavy Plan shall have a nonforfeitable
interest in his Accrued Benefit derived from Company contributions as
provided under the following schedule:
Years of Nonforfeitable
Vesting Service Percentage
--------------- --------------
Less than 2 0%
2 20%
3 40%
4 60%
5 or more 100%
Accrued Benefit, for the purposes of this subsection, shall include
that portion of Accrued Benefits which the Member earned during all
prior Plan Years, whether or not
102
the Plan was a Top Heavy Plan during such prior Plan Years.
(b) If a Member has completed fewer than three Years of Vesting Service on
or before the last day of the most recent Plan Year for which the Plan
was a Top Heavy Plan, the vesting provisions of Section 19.4(a) shall
continue to be applicable to the portion of his Accrued Benefit
determined as of the last day of the Plan Year in which the Plan was a
Top Heavy Plan, and Section 9.2(a) shall again be applicable with
respect to the remaining portion of his Accrued Benefit; provided,
however, that in no event shall the vested percentage of such remaining
portion be less than the percentage determined under the above as of
the last day of the most recent Plan Year for which the Plan was a Top
Heavy Plan.
19.5 Notwithstanding anything in this Section XIX to the contrary, the following
provisions shall apply for Plan Years beginning on or after January 1,
2002, for purposes of determining whether the Plan is Top Heavy and whether
it satisfies the minimum benefit requirements of Section 416(c) of the
Code.
(a) Key employee. Key employee means any employee or former employee
(including any deceased employee) who at any time during the Plan Year
that includes the
103
determination date was an officer of the Company having annual
compensation greater than $130,000 (as adjusted under Section 416(i)(1)
of the Code for Plan Years beginning after December 31, 2002), a
5-percent owner of the Company, or a 1-percent owner of the Company
having annual compensation of more than $150,000. For this purpose,
annual compensation means compensation within the meaning of Section
415(c)(3) of the Code. The determination of who is a Key Employee will
be made in accordance with Section 416(i)(1) of the Code and the
applicable regulations and other guidance of general applicability
issued thereunder.
(b) Determination of present values and amounts. This Subsection (b) shall
apply for purposes of determining the present values of Employee's
accrued benefits as of the determination date.
(i) Distributions during year ending on the determination date. The
present values of an Employee's accrued benefit of the
determination date shall be increased by the distributions made
with respect to the Employee under the Plan and any plan aggregated
with the Plan under Section
104
416(g)(2) of the Code during the 1-year period ending on the
determination date. The preceding sentence shall also apply to
distributions under a terminated plan which, had it not been
terminated, would have been aggregated with the Plan under Section
416(g)(2)(A)(i) of the Code. In the case of a distribution made
for a reason other than separation from service, death, or
disability, this provision shall be applied by substituting "5-year
period" for "1-year period."
(ii) Employees not performing services during year ending on the
determination date. The accrued benefit of any individual who has
not performed services for the Company during the 1-year period
ending on the determination date shall not be taken into account.
(c) Minimum benefits.
(i) Matching contributions. For purposes of satisfying the minimum
benefit requirements of Section 416(c)(1) of the Code and the Plan,
in determining years of service with the Company, any service with
the Company shall be disregarded to the extent such service occurs
during a Plan Year
105
when the Plan benefits (within the meaning of Section 410(b) of the
Code) no Key Employee or former Key Employee.
106
SECTION XX
----------
MISCELLANEOUS
-------------
20.1 Effect of Plan Merger
---------------------
In the event of a merger or consolidation of the Plan with any other plan
or a transfer of assets or liabilities of the Plan to any other plan or a
transfer of assets or liabilities of any other plan to the Plan, each
Member (if the Plan or the plan to which assets or liabilities have been
transferred then terminated) shall be entitled to receive a benefit
immediately after the merger, consolidation or transfer which is equal to
or greater than the benefit he would have been entitled to receive
immediately before the merger, consolidation or transfer if the Plan or the
plan from which the transfer to the Plan was made had been terminated. No
transfer of assets or liabilities shall be made from the Plan to another
plan which does not have a provision similar to this Section 20.1.
Notwithstanding the preceding provisions of Section 20.1 or any other
provision of this Plan, in the event of any such merger, consolidation or
transfer of assets or liabilities which is effected within three years
following a "change in control" (as defined in Section 15.4), the accrued
benefit of each Member who is in active service of the Company
107
on the date of such merger, consolidation or transfer of assets or
liabilities, other than any person who is a "disqualified individual," as
such term is defined in Section 280G(c) of the Code, shall be increased in
accordance with the provisions of Section 15.2 such that any excess, as of
the date of any such transaction, of the fair market value of the assets of
the Plan over the present value of accrued benefits hereunder (determined
as if the Plan had terminated immediately prior to such transaction) is
exhausted. Notwithstanding the provisions of Section 15.1(a) hereof, the
foregoing provisions of this paragraph may not be amended, following a
"change in control", without the written consent of a majority, in both
number and interest, of the Members who are in active service with the
Company on the date of such amendment.
20.2 Construction
------------
This Plan shall be administered, construed and enforced according to the
Act and, to the extent not preempted by the Act, the laws of the State of
New York.
108
The foregoing constitutes the Retirement Pension Plan, as amended,
restated and adopted by Trans-Lux Corporation for its employees and the
employees of its designated subsidiaries, effective January 1, 2011.
IN WITNESS WHEREOF, the proper officer of Trans-Lux Corporation has caused
this Plan to be executed this 28th day of January, 2011.
---- -------
TRANS-LUX CORPORATION
/s/ Angela D. Toppi
------------------------
Executive Vice President
ATTEST: /s/ Witness
----------------
109
APPENDIX A
Option Factors
--------------
The following option factors shall be used in determining actuarial equivalency:
(a) IRS Interest Rate means, with respect to determining the amount of a
benefit with a Retirement Commencement Date on or after January 1,
2008, the interest rate prescribed under Section 417(e)(3)(C) of the
Code (as it reads effective on and after the first day of the 2008 Plan
Year) as in effect the second full calendar month preceding the
applicable Stability Period.
"IRS Mortality Table" means, with respect to determining the amount of
a benefit with a Retirement Commencement Date on or after January 1,
2008, the mortality table prescribed under Section 417(e)(3)(b) of the
Code (as it reads effective on and after the first day of the 2008 Plan
Year).
"Stability Period" means the calendar year in which the Retirement
Commencement Date for a distribution occurs.
(b) Early Retirement Factors are based on the following table (factors are
interpolated to reflect an
110
employee's attained age expressed in years and completed months).
AGE EARLY RETIREMENT FACTOR
--- -----------------------
65 1.00
64 .94
63 .88
62 .82
61 .76
60 .70
59 .67
58 .64
57 .61
56 .58
55 .55
(c) All options approved by the Pension Committee, including the qualified
joint and survivor annuity, the 100%, 75%, 66-2/3%, and 50% joint and
survivor annuities, 10-year certain annuity and Social Security
leveling option are based on an interest rate of 6.5%, compounded
annually, and the 94 Group Annuity Reserve mortality table projected to
2002, scale AA, as prescribed by Revenue Ruling 2001-62.
111
EX-21
3
tlxex21.txt
SUBSIDIARIES OF THE COMPANY
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
A. As of December 31, 2010 the following are subsidiaries more than 50% owned
(included in the consolidated financial statements):
Jurisdiction of Percentage
Name Incorporation Owned
------------------------------------------ --------------- ----------
Trans-Lux Canada Ltd. Canada 100%
Trans-Lux Commercial Corporation Utah 100
Trans-Lux Display Corporation Delaware 100
Trans-Lux Experience Corporation New York 100
Trans-Lux Energy Corporation Connecticut 100
Trans-Lux Midwest Corporation Iowa 100
Trans-Lux Seaport Corporation New York 100
Trans-Lux Service Corporation New York 100
Trans-Lux Investment Corporation Delaware 100
Trans-Lux Multi-Media Corporation Connecticut 100
Trans-Lux Real Estate Corporation (1) Texas 100
Trans-Lux Montezuma Corporation (2) New Mexico 100
Trans-Lux Movie Operations Corporation (1) Texas 100
Trans-Lux Loveland Corporation (3) Colorado 100
Trans-Lux Southwest Corporation (3) New Mexico 100
(1) Wholly-owned subsidiary of Trans-Lux Multi-Media Corporation.
(2) Wholly-owned subsidiary of Trans-Lux Real Estate Corporation.
(3) Wholly-owned subsidiary of Trans-Lux Movie Operations Corporation.
EX-31.1
4
tlxex311.txt
CERTIFICATION - J.M. ALLAIN
EXHIBIT 31.1
TRANS-LUX CORPORATION
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Jean-Marc Allain, certify that:
1. I have reviewed this annual report on Form 10-K of Trans-Lux Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Jean-Marc Allain
-------------------------------------
Date: March 31, 2011 Jean-Marc Allain
President and Chief Executive Officer
EX-31.2
5
tlxex312.txt
CERTIFICATION - A. TOPPI
EXHIBIT 31.2
TRANS-LUX CORPORATION
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER
PURSUANT TO RULE 13a-14(a) UNDER THE EXCHANGE ACT
I, Angela D. Toppi, certify that:
1. I have reviewed this annual report on Form 10-K of Trans-Lux Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial
information included in this report, fairly present in all material respects
the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over
financial reporting (as defined in Exchange Act Rules 13a-15(f) and
15d-15(f)) for the registrant and have:
a) designed such disclosure controls and procedures, or caused such
disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the
registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the
period in which this report is being prepared;
b) designed such internal control over financial reporting, or caused
such internal control over financial reporting to be designed under
our supervision, to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally
accepted accounting principles;
c) evaluated the effectiveness of the registrant's disclosure controls
and procedures and presented in this report our conclusions about
the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such
evaluation; and
d) disclosed in this report any change in the registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our
most recent evaluation of internal control over financial reporting, to the
registrant's auditors and the audit committee of the registrant's board of
directors (or persons performing the equivalent functions):
a) all significant deficiencies and material weaknesses in the design
or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant's ability to
record, process, summarize and report financial information; and
b) any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal control over financial reporting.
/s/ Angela D. Toppi
-------------------------------------
Date: March 31, 2011 Angela D. Toppi
Executive Vice President and
Chief Financial Officer
EX-32.1
6
tlxex321.txt
CERTIFICATION, SEC 906 - J.M. ALLAIN
EXHIBIT 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of section 1350, chapter 63 of title 18, United States Code), I,
Jean-Marc Allain, President and Chief Executive Officer of Trans-Lux Corporation
(the "Registrant"), do hereby certify, to the best of my knowledge that:
(1) The Registrant's Annual Report on Form 10-K for the year ended
December 31, 2010 being filed with the Securities and Exchange Commission (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
This Certification accompanies this Form 10-K as an exhibit, but shall not
be deemed as having been filed for purposes of Section 18 of the Securities
Exchange Act of 1934 or as a separate disclosure document of the Registrant or
the certifying officer.
/s/ Jean-Marc Allain
-------------------------------------
Date: March 31, 2011 Jean-Marc Allain
President and Chief Executive Officer
EX-32.2
7
tlxex322.txt
CERTIFICATION, SEC 906 - A. TOPPI
EXHIBIT 32.2
CERTIFICATION OF CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a)
and (b) of section 1350, chapter 63 of title 18, United States Code), I, Angela
D. Toppi, Executive Vice President and Chief Financial Officer of Trans-Lux
Corporation (the "Registrant"), do hereby certify, to the best of my knowledge
that:
(1) The Registrant's Annual Report on Form 10-K for the year ended
December 31, 2010 being filed with the Securities and Exchange Commission (the
"Report") fully complies with the requirements of Section 13(a) or 15(d) of the
Securities Exchange Act of 1934, as amended; and
(2) The information contained in the Report fairly presents, in all material
respects, the financial condition and results of operations of the Registrant.
This Certification accompanies this Form 10-K as an exhibit, but shall not
be deemed as having been filed for purposes of Section 18 of the Securities
Exchange Act of 1934 or as a separate disclosure document of the Registrant or
the certifying officer.
/s/ Angela D. Toppi
--------------------------------
Date: March 31, 2011 Angela D. Toppi
Executive Vice President and
Chief Financial Officer