-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, KWq1l3Hwx0gCciZD/IJ+3oG1n5naoGBKnhzB/HS9534zsmOGlTyOoz/crgAMg2Fb DLYzeqwr0HjY/qxVmsfuYg== 0000950123-96-006172.txt : 19961106 0000950123-96-006172.hdr.sgml : 19961106 ACCESSION NUMBER: 0000950123-96-006172 CONFORMED SUBMISSION TYPE: S-2 PUBLIC DOCUMENT COUNT: 13 FILED AS OF DATE: 19961104 SROS: AMEX 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: S-2 SEC ACT: 1933 Act SEC FILE NUMBER: 333-15481 FILM NUMBER: 96653970 BUSINESS ADDRESS: STREET 1: 110 RICHARDS AVE CITY: NORWALK STATE: CT ZIP: 06856-5090 BUSINESS PHONE: 2038534321 MAIL ADDRESS: STREET 1: 110 RICHARDS AVENUE CITY: NORWALK STATE: CT ZIP: 06856-5090 S-2 1 FORM S-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 4, 1996 REGISTRATION NO. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ 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.)
------------------------ 110 RICHARDS AVENUE NORWALK, CONNECTICUT 06856-5090 (203) 853-4321 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ HOWARD S. MODLIN, ESQ. WEISMAN CELLER SPETT & MODLIN, P.C., 445 PARK AVENUE NEW YORK, NEW YORK 10022 (212) 371-5400 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH A COPY TO: PAUL JACOBS, ESQ. FULBRIGHT & JAWORSKI L.L.P. 666 FIFTH AVENUE NEW YORK, NEW YORK 10103 (212) 318-3000 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement is declared effective. If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If the Registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11 (a)(1) of this form, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] ------------------------ CALCULATION OF REGISTRATION FEE - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED(1) BE REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE - ----------------------------------------------------------------------------------------------------------------------- % Convertible Subordinated Notes due 2006..................................... $28,750,000 100% $28,750,000 $8,712.12 - ----------------------------------------------------------------------------------------------------------------------- Common Stock, par value $1.00 per share.... (3) -- -- (4) - ----------------------------------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------------------------------
(1) Includes an additional $3,750,000 principal amount of the Notes subject to the over-allotment option granted to the Underwriters. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933. (3) Represents such indeterminate number of shares of Common Stock as shall be issuable upon conversion of the Notes. (4) Pursuant to Rule 457(i), no registration fee is required. ---------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION NOVEMBER 4,1996 $25,000,000 LOGO LOGO % CONVERTIBLE SUBORDINATED NOTES DUE 2006 ------------------------ The Notes offered hereby (the "Offering") will be convertible into Common Stock, $1.00 par value per share (the "Common Stock"), of Trans-Lux Corporation ("Trans-Lux" or the "Company") at any time after 60 days following the date of initial issuance thereof and prior to maturity, unless previously redeemed, at a conversion price of $ per share, subject to adjustment under certain conditions. See "Description of Notes -- Conversion Rights" for a description of events which may cause an adjustment to the conversion price. The Common Stock of the Company is traded on the American Stock Exchange (the "AMEX") under the symbol "TLX." On October 31, 1996, the last reported sale price of the Common Stock on the AMEX was $12.75 per share. See "Price Range of Common Stock and Dividend Policy." Interest on the Notes is payable on June 1 and December 1 of each year, commencing June 1, 1997. The Notes are redeemable, in whole or in part, at the option of the Company at any time on or after December 1, 1999, at the redemption prices set forth herein, plus accrued interest, if any, to the redemption date. If a Repurchase Event (as defined herein) occurs, each Holder of the Notes will have the right, subject to certain conditions and restrictions, to require the Company to repurchase all outstanding Notes, in whole or in part, owned by such holder at 100% of their principal amount plus accrued interest, if any, to the date of repurchase. The Notes are subordinated to all existing and future Senior Indebtedness (as defined herein) of the Company and will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. At September 30, 1996, the Company had approximately $ million of outstanding Senior Indebtedness. The Indenture governing the Notes does not restrict the ability of the Company to incur additional indebtedness, including Senior Indebtedness. See "Description of Notes" for a more complete discussion of the Indenture's provisions. Application will be made for inclusion of the Notes on the AMEX upon notice of issuance. SEE "RISK FACTORS" ON PAGES 7 TO 10 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNTS(2) COMPANY(3) - ----------------------------------------------------------------------------------------------- Per Note................................. $ $ $ - ----------------------------------------------------------------------------------------------- Total(4)................................. $ $ $ - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
(1) Plus accrued interest, if any, from the date of initial issuance. (2) See "Underwriting" for information concerning indemnification of the Underwriters and other matters. (3) Before deducting expenses payable by the Company, estimated to be $ . (4) The Company has granted the Underwriters a 30-day over-allotment option to purchase up to an additional $3,750,000 of the Notes on the same terms and conditions set forth above. If the Underwriters exercise this option in full, the total Price to Public, Underwriting Discounts and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The Notes offered by this Prospectus are offered by the several Underwriters named herein, subject to prior sale, when, as and if delivered to and accepted by them and subject to certain conditions. It is expected that delivery of certificates representing the Notes will be made at the office of Southcoast Capital Corporation, 277 Park Avenue, New York, New York, on or about , 1996. ------------------------ SOUTHCOAST CAPITAL CORPORATION The date of this Prospectus is , 1996. 3 TRANS-LUX TRANS-LUX IS A LEADING SUPPLIER OF LARGE-SCALE, MULTI-COLOR ELECTRONIC INFORMATION DISPLAYS FOR INDOOR AND OUTDOOR USE. 2 4 TRANS-LUX DISPLAYS ARE USED PRIMARILY IN REAL-TIME APPLICATIONS FOR THE FINANCIAL, BANKING, GAMING, CORPORATE, SPORTS AND TRANSPORTATION MARKETS. FINANCIAL Tricolor DataWalls(@) supply traders at Midland Walwyn The Chicago Mercantile Exchange has added to the Capital in Toronto with real-time financial data. number of Trans-Lux panoramic display panels on its trading floor. PictureWall(@) displays, like this one in the Internationally, emerging exchanges call on Trans-Lux reception area of Chase Manhattan Bank's world head- to design and install sophisticated and reliable quarters, combine real-time market data and colorful displays. graphics. GAMING Trans-Lux's bright, easy-to-read displays are used in Foxwoods Resort and Casino, selected Trans-Lux for its casinos such as Bally's Las Vegas new Race and Sports new Race Book. Book. THEATRE At Sony theaters, Trans-Lux lobby displays are tied into the ticketing system to announce screening times and inform moviegoers when a show is sold out.
[The above captions refer to examples of Trans-Lux's electronic displays] 5 TRANS-LUX DISPLAYS ARE USED PRIMARILY IN REAL-TIME APPLICATIONS FOR THE FINANCIAL, BANKING, GAMING, CORPORATE, SPORTS AND TRANSPORTATION MARKETS. OUTDOOR Trans-Lux's recent acquisitions have given the Com- Trans-Lux's outdoor displays are used in a wide array pany a growing presence in the outdoor market such as of applications including college and professional this outdoor display for the Luxor Hotel and Casino in stadiums. Las Vegas. SPORTS TRANSPORTATION Trans-Lux's complete line of sports displays Travelers depend on clear, easy-to- read Trans-Lux incorporate up-to-the-second information, video displays for arrival, departure, and other timely replays and full-color animation enhancing the information. experience for players and fans at athletic events. CORPORATE Trans-Lux network management display systems are used to track the status of data communications networks for cutomers such as GTE.
TRANS-LUX [The above captions refer to examples of Trans-Lux's electronic displays] 6 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus or incorporated herein by reference. Except as otherwise noted, all information in this Prospectus assumes no exercise of the Underwriters' over-allotment option. THE COMPANY The Company is a leading manufacturer, distributor, and servicer of large-scale, real-time electronic information displays for both indoor and outdoor use. These display systems utilize light emitting diode ("LED") and light bulb technologies to display real-time information entered by the user or via a third party information supplier. The Company believes that by providing high quality, reliable display products configured to suit its customers' needs, combined with offering extensive on-site service and maintenance coverage, it has established itself as a leader in the indoor display industry. The Company's display products include data, graphics, and picture displays for stock and commodity exchanges, financial institutions, airports, casinos, sports venues, convention centers, corporate, theatres, retail, and numerous other applications. In addition to the core display business, the Company also operates a small chain of motion picture theatres in the southwestern U.S. In 1995, the Company derived approximately 89% of its revenue from its indoor and outdoor information display business. 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 shape, size and color configurations. Most of the Company's display products include hardware components and sophisticated software. In both the indoor and outdoor markets, 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 U.S. and Canada which performs on-site service and maintenance for its customers, further distinguishing the Company from many of its competitors. In the indoor market, the Company's high performance electronic displays are used to communicate messages in the financial, gaming, transportation, entertainment and retail industries, among others. In the financial industry, the Company's products display news and market information, interest rates, up-to-the-second stock and commodity prices, and other financial product information for stock and commodity exchanges, brokerage firms, banks, mutual fund companies, and other financial institutions. In the gaming industry, the Company's products transmit racing and pari-mutuel betting odds and results, sports scores, statistics, slot machine jackpots and other wagering information. In the transportation industry, the Company's products are used to display arrival and departure information and gate and baggage claim information for airports and other transportation facilities. While the securities and commodities industries continue to represent a significant portion of the Company's customer base, the Company has a strong presence in the gaming industry through its race and sports book displays and also markets its displays to such users as banks, corporations, transportation facilities, the military, racetracks, restaurants, pharmacies, theatres, hotels and convention centers. In the indoor display market the Company's customers include the American Stock Exchange, Charles Schwab & Co. Incorporated, the Chicago Board of Trade ("CBOT"), the Chicago Mercantile Exchange ("CME"), Goldman Sachs & Co., Kaiser Permanente, Merrill Lynch Pierce Fenner & Smith, Inc., MGM Grand, Inc., Mirage Resorts, Inc., the New York Mercantile Exchange, Inc., the New York Stock Exchange, Inc. and Sony Theaters Management Corporation. Over the past four years, the Company has utilized its strong position in the indoor display market combined with several acquisitions to establish a growing presence in the outdoor display market. Trans-Lux outdoor displays are installed in amusement parks, entertainment facilities, professional and college sports stadiums, military installations, bridges and other roadway installations, automobile dealerships, banks and other financial institutions. In the outdoor display market the Company's customers include Auburn University, Pontiac Silverdome, Resorts International, Six Flags Over Georgia, 3 Com Park, and Twin City Federal Financial Corp. 3 7 The Company has made three acquisitions over the past four years in order to establish and enhance its presence in the outdoor market. In August 1992, after first managing the portfolio for approximately 15 months, the Company acquired a portfolio of outdoor electric and electronic equipment displays from American Electronic Displays, L.P. In August 1993, the Company expanded its presence in the outdoor display market by acquiring a portfolio of outdoor lease, maintenance and other contracts from Indicator Maintenance Corporation. In January 1995, the Company acquired all of the capital stock of Integrated Systems Engineering, Inc. ("ISE"), a manufacturer of outdoor electronic displays. The Company's principal executive offices are located at 110 Richards Avenue, Norwalk, Connecticut 06856-5090. The Company's telephone number is (203) 853-4321. THE OFFERING Securities Offered........ $25 million aggregate principal amount of % Convertible Subordinated Notes due 2006 (the "Notes"). Interest Payment Dates.... June 1 and December 1, commencing June 1, 1997. Maturity.................. December 1, 2006. Conversion................ The Notes are convertible into the Company's Common Stock at any time after 60 days following the date of initial issuance thereof and prior to maturity, unless previously redeemed, at a conversion price of $ per share, subject to adjustment under certain conditions. Redemption at Option of Company................. The Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after December 1, 1999, at the redemption prices (expressed as a percentage of the principal amount) set forth below for the 12-month period beginning December 1 of the years indicated: 1999......................................... % 2000......................................... % 2001......................................... % 2002......................................... % 2003......................................... % 2004......................................... %
thereafter and at maturity at 100% of principal, together in the case of any such redemption with accrued interest to the redemption date. Repurchase at Option of Holders................. If a Repurchase Event occurs, each Holder of the Notes will have the right, subject to certain conditions and restrictions, to require the Company to repurchase all outstanding Notes, in whole or in part, owned by such holder at 100% of their principal amount plus accrued interest, if any, to the date of repurchase. If a Repurchase Event were to occur, there is no assurance that the Company would have sufficient funds to pay the repurchase price for all the Notes tendered by the Holders thereof. The Company's ability to make such payments may be limited by its leverage and the terms of its then existing borrowing and other agreements. See "Description of Notes -- Repurchase at Option of Holders Upon a Repurchase Event" for a more complete discussion of the rights of Holders of the Notes upon the occurrence of a Repurchase Event. Subordination............. The Notes are subordinated to all existing and future Senior Indebtedness of the Company and will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. At September 30, 1996, the Company had approximately $ million of outstanding Senior Indebted- 4 8 ness. The Indenture governing the Notes does not restrict the ability of the Company to incur additional indebtedness, including Senior Indebtedness. Use of Proceeds........... The Proceeds of the Offering will be used to finance the Company's expansion program and for general corporate purposes, including the repayment of certain outstanding indebtedness. See "Use of Proceeds." Listing................... Application will be made for inclusion of the Notes on the AMEX upon notice of issuance and the Notes will be listed under the symbol " ." The Common Stock is listed on the AMEX under the symbol "TLX." RISK FACTORS For a discussion of certain material factors that should be considered by prospective purchasers of the Notes, see "Risk Factors." 5 9 SUMMARY CONSOLIDATED FINANCIAL INFORMATION The summary data below has been derived from the audited financial statements, the unaudited financial statements and other records of the Company. The following summary data should be read in conjunction with the financial statements of the Company and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, -------------------------------------------------------- ------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Total revenues........................ $22,133 $24,130 $35,799 $33,742 $37,791 $19,240 $20,624 Operating expenses.................... 14,127 15,299 21,554 19,413 22,406 11,249 12,575 Gross profit from operations.......... 8,006 8,831 14,245 14,329 15,385 7,991 8,049 General and administrative expenses... 7,151 7,384 10,202 11,023 11,494 6,314 6,072 Interest expense, net................. 570 893 2,380(1) 1,242(2) 2,144 996 1,083 Income before income taxes............ 542 741 1,663(1) 2,064(2) 1,839 730 894 Provision for income taxes............ 280 469 1,174(1) 750(2) 773 307 375 Net income............................ 262 272 489(1) 1,314(2) 1,066 423 519 OTHER DATA: EBITDA(3) $ 5,201 $ 6,670 $10,385 $ 9,819 $10,884 $ 5,056 $ 5,521 Ratio of earnings to fixed charges(4).......................... 1.3 1.4 1.6 2.2 1.7 1.6 1.5 Net rental equipment.................. $13,550 $29,995 $29,039 $29,653 $30,778 $29,848 $32,056 Net book value per share.............. $ 14.59 $ 15.35 $ 15.60 $ 16.29 $ 17.08 $ 16.60 $ 17.29
AS OF JUNE 30, 1996 --------------------- AS ACTUAL ADJUSTED(5) ------- ----------- (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents............................................ $ 317 $14,431 Total assets......................................................... 59,767 75,356 Long-term debt, including current portion............................ 27,935 43,524 Stockholders' equity................................................. 21,997 21,997
- --------------- (1) 1993 reflects the impact of an assessment of income taxes and related interest expense incurred resulting from a prior year state income tax audit of approximately $600,000. (2) 1994 reflects the positive impact of a settlement of approximately $360,000 related to the 1993 assessment described in footnote No. 1 above. (3) EBITDA ("Earnings Before Interest, Taxes, Depreciation and Amortization") is used by the Company for the purpose of analyzing its operating performance, leverage and liquidity. Such data is not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net income, as an indicator of the Company's operating performance, or as an alternative to cash flows as a measure of liquidity. (Unaudited) (4) Earnings used in computing the ratio of earnings to fixed charges consist of income before income taxes, fixed charges and extraordinary items. Fixed charges consist of interest expense, including amounts capitalized, and that portion of rent expense which management deems to be attributable to interest costs.(Unaudited) (5) Adjusted to reflect the sale of $25,000,000 of the Notes offered by the Company hereby, the receipt of the estimated net proceeds therefrom and the repayment of certain outstanding indebtedness. See "Use of Proceeds" and "Capitalization." 6 10 RISK FACTORS LEVERAGE As of September 30, 1996 and as adjusted for the issuance of the Notes, the Company's total long-term debt (including current portion) would have been $ million. The Company expects it will incur indebtedness in addition to the Notes in connection with the implementation of its growth strategy. The Indenture governing the Notes does not restrict the ability of the Company or its subsidiaries to incur additional indebtedness, including Senior Indebtedness. Additional indebtedness of the Company may rank senior or pari passu with the Notes in certain circumstances, while additional indebtedness of the Company's subsidiaries will rank effectively senior to the Notes. See "Description of Notes." The Company's ability to satisfy its obligations will be dependent upon its future performance, which is subject to prevailing economic conditions and financial, business and other factors, including factors beyond the Company's control. There can be no assurance that the Company's operating cash flows will be sufficient to meet its debt service requirements or to repay the Notes at maturity or that the Company will be able to refinance the Notes or other indebtedness at maturity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." SUBORDINATION The Notes will be unsecured subordinated obligations of the Company and will be subordinated in right of payment to all present and future Senior Indebtedness and other liabilities of the Company and will be effectively subordinated to all indebtedness of the Company's subsidiaries. In the event of bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The Holders of any indebtedness of the Company's subsidiaries will be entitled to payment of the indebtedness from the assets of the subsidiaries prior to the holders of any general unsecured obligations of the Company, including the Notes. At September 30, 1996, the Company had approximately $ million of outstanding Senior Indebtedness. In the event of a payment default with respect to Senior Indebtedness, no payments may be made on account of the Notes until such default no longer exists with respect to Senior Indebtedness of the Company. See "Description of Notes" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." RISKS RELATED TO A REPURCHASE EVENT Upon the occurrence of a Repurchase Event, each holder of the Notes may require the Company to repurchase all or a portion of such Holder's Notes. If a Repurchase Event were to occur, there can be no assurance that the Company would have sufficient financial resources, or would be able to arrange financing, to pay the repurchase price for all the Notes tendered by holders thereof. In addition, the occurrence of certain Repurchase Events would constitute an event of default under certain of the Company's current debt agreements, and the Company's repurchase of the Notes as a result of the occurrence of a Repurchase Event may be prohibited or limited by, or create an event of default under, the terms of future agreements relating to borrowings of the Company, including agreements relating to Senior Indebtedness. In the event a Repurchase Event occurs at a time when the Company is prohibited from purchasing the Notes, the Company could seek the consent of its lenders to purchase the Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company would remain prohibited from purchasing the Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a further default under certain of the Company's existing debt agreements and may constitute a default under the terms of other indebtedness that the Company may incur from time to time. In such circumstances, the subordination provisions in the Indenture would prohibit payments to the Holders of the Notes. See "Description of Notes -- Repurchase at Option of Holders Upon a Repurchase Event." 7 11 RELIANCE ON KEY SUPPLIERS The Company designs certain of its materials to match components furnished by suppliers. If such suppliers were unable or unwilling to provide the Company with those components, the Company would have to obtain replacement sources. In particular, the Company purchases almost all of the LED module blocks used in its electronic displays from a single supplier. The Company does not have a long-term supply contract with this supplier. 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. The Company's 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 which could have a materially adverse effect on the business and results of operations of the Company. COMPETITION The Company's electronic information displays compete with a number of companies, both larger and smaller than itself, and with products based on different forms of technology. In addition, there are several companies whose current products utilize similar technology and who possess the resources to develop competitive and more sophisticated products in the future. The Company's success is somewhat dependent upon its 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 the Company's products or which, because of pricing strategies, render the products currently sold by the Company less marketable or otherwise adversely affect the Company's operating margins. The Company's motion picture theatres are subject to varying degrees of competition in the geographic areas in which they operate. In some areas, theatres operated by national circuits compete with the Company's theatres. The Company's theatres also face competition from all other forms of entertainment competing for the public's leisure time and disposable income. NATURE OF LEASING AND MAINTENANCE REVENUES The Company derives a substantial percentage of its revenues from the leasing of its electronic information display products, generally pursuant to leases which have an average term of less than three years. Consequently, the Company's future success is at least partly dependent on its ability to obtain the renewal of existing leases or to enter into new leases as existing leases expire. The Company also derives a significant percentage of its revenues from maintenance agreements relating to its display products. The average term of such agreements is generally three to five years. A portion of the maintenance agreements are cancellable upon 30 days notice. There can be no assurance that the Company will be successful in obtaining renewal of existing leases or maintenance agreements, obtaining replacement leases or realizing the value of assets currently under leases that are not renewed. DEPENDENCE ON KEY PERSONNEL The Company believes that its Chairman, Mr. Richard Brandt, and President and Chief Executive Officer, Mr. Victor Liss, play a significant role in the success of the Company and the loss of the services of either could have an adverse effect on the Company. There can be no assurance that the Company would be able to find a suitable replacement for either Mr. Brandt or Mr. Liss. The Company has an employment agreement with Mr. Brandt which expires in 2002 and an employment agreement with Mr. Liss which, if not extended, expires in December 1997. The Company believes that in addition to the above referenced key personnel, there is a core group of executives which also plays a significant role in the success of the Company. See "Executive Compensation and Transactions with Management -- Employment Agreements." EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS AND CONTROL BY EXISTING STOCKHOLDERS The Company's Restated Certificate of Incorporation contains certain provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting 8 12 to acquire control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of the Company's Common Stock, thus making it less likely that a stockholder will receive a premium on any sale of shares. Under the Company's Restated Certificate of Incorporation, the Company has two classes of common stock outstanding, Common Stock and Class B Stock, each with its own rights and preferences. Each share of Class B Stock receives ten votes per share on all matters submitted to a vote of the stockholders versus the one vote received for each share of Common Stock. The Class B Stock is entitled to vote separately as a class on any proposal for the merger, consolidation and certain other significant transactions. See "Description of Capital Stock -- Common Stock" and "Class B Stock." Moreover, the Company's 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 the Company's Board. The Company has also adopted a provision for its Restated Certificate of Incorporation which requires a four-fifths vote on any merger, consolidation or sale of assets with or to an "Interested Person" or "Acquiring Person." Additionally, the Company is authorized to issue 500,000 shares of Preferred Stock containing such rights, preferences, privileges and restrictions as may be fixed by the Company's 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. See "Description of Capital Stock -- Preferred Stock." The Board of Directors of the Company is also authorized to issue 4,000,000 shares of Class A Stock which is identical to the Common Stock but is non-voting and is entitled to a 10% higher dividend than the Common Stock. See "Description of Capital Stock -- Class A Stock." Twelve stockholders, who are executive officers and/or directors of the Company beneficially own approximately 71.5% of the Company's outstanding Class B Stock, 17.8% of all classes and 54.3% of the voting power. As a result, these stockholders collectively will continue to have the ability to elect all of the Company's directors and to veto major transactions for which a stockholder vote is required under Delaware law, including mergers, consolidations and certain other significant transactions. These stockholders could also block tender offers for the Company's Common Stock that could give stockholders of the Company the opportunity to realize a premium over the then prevailing market price for their shares of Common Stock. ABSENCE OF PUBLIC MARKET FOR THE NOTES The Notes are a new issue of securities for which there is currently no public market. Although application will be made to have the Notes approved for inclusion on the AMEX, there is no assurance as to the liquidity of the market for the Notes that may develop, the ability of the holders to sell their Notes or the prices at which holders of the Notes would be able to sell their Notes. If a market for the Notes does develop, the Notes may trade at a discount from their initial public offering price, depending on prevailing interest rates, the market for similar securities, the performance of the Company, the market price of the Company's Common Stock and other factors. There is no assurance that an active trading market will develop or be maintained for the Notes. See "Underwriting." LIMITED TRADING VOLUME AND VOLATILITY OF STOCK PRICE The Company's Common Stock is not widely held and the volume of trading has been low and sporadic. Accordingly, the Common Stock is subject to increased price volatility and reduced liquidity. There can be no assurance a more active trading market for the Common Stock will develop, or be sustained if it does develop. The limited public float of the Company's 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. 9 13 SHARES ELIGIBLE FOR FUTURE SALE Future sales of Common Stock in the public market following the Offering by current stockholders of the Company could adversely affect the market price for the Common Stock. Upon expiration of lock-up agreements with the Underwriters 90 days after the date of this Prospectus (or earlier upon the written consent of Southcoast Capital Corporation ("Southcoast Capital"), a representative of the Underwriters), 225,590 shares of Common Stock (including Class B Stock if converted into equal amounts 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. Following the Offering, 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 the Common Stock. 10 14 USE OF PROCEEDS The net proceeds to the Company (after deducting underwriting discounts and estimated offering expenses) from the sale of the Notes offered hereby are estimated to be approximately $23.5 million ($27.1 million if the Underwriters' over-allotment option is exercised in full). The Company will repay approximately $6.0 million of debt currently outstanding under its revolving credit facility which currently bears interest at the effective rate of 7.49% and has a maturity of June 2003 and will call and retire up to $4.8 million of the Company's 9% Convertible Subordinated Debentures. The Company will call these Debentures within 45 days of the completion of the Offering. The remaining net proceeds will be used to finance the expansion of the Company's leased equipment base, fund product development and marketing efforts aimed at expanding the Company's position in both the indoor and outdoor information display markets and for general working capital purposes. The Company may also use a portion of the net proceeds for acquisitions; however no agreement with respect to any such acquisition currently exists. The Company may also use a portion of the net proceeds for the development of additional theatres. Pending use of the net proceeds for the above purposes, the Company intends to invest such funds in U.S. government securities or other investment-grade securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Common Stock is traded on the AMEX under the symbol "TLX." The following table sets forth the high and low closing sales prices of the Common Stock for the periods indicated, as reported on the AMEX.
PERIOD HIGH LOW --------------------------------------------------------------------- ---- --- 1994 First Quarter...................................................... $ 9 5/8 $ 83/8 Second Quarter..................................................... 10 83/4 Third Quarter...................................................... 10 1/8 75/8 Fourth Quarter..................................................... 9 3/8 71/4 1995 First Quarter...................................................... $10 $ 87/8 Second Quarter..................................................... 9 1/8 7 /16 Third Quarter...................................................... 9 1/4 7 /16 Fourth Quarter..................................................... 9 8 1996 First Quarter...................................................... $ 9 5/8 $ 81/8 Second Quarter..................................................... 16 1/2 85/8 Third Quarter...................................................... 14 7/8 101/2 Fourth Quarter (through October 31, 1996).......................... 13 3/4 123/4
On October 31, 1996, the last reported sale price for the Common Stock on the AMEX was $12.75 per share. As of September 30, 1996, there were 965,002 and 298,882 shares of Common Stock and Class B Stock outstanding and 847 and 68 holders of Common Stock and Class B Stock, respectively. Commencing with the fourth quarter of 1993, the Company's dividend policy has been to pay a regular quarterly dividend of $.035 per share on the Common Stock and $.0315 per share on the Class B Stock. The declaration or payment by the Company of dividends, if any, on its Common Stock and Class B Stock in the future is subject to the discretion of the Board of Directors and will depend on the Company's earnings, financial condition, capital requirements and other relevant factors. The Company's present credit facility restricts the payment of dividends to no more than an aggregate $750,000 per year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 11 15 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of June 30, 1996, and as adjusted to give effect to (i) the consummation of the Offering of the Notes and (ii) the application of the net proceeds therefrom as described in "Use of Proceeds" (assuming no exercise of the Underwriters' over-allotment option). This information should be read in conjunction with Selected Financial Data and the related notes and other financial information included elsewhere in this Prospectus.
AS OF JUNE 30, 1996 -------------------------------- ACTUAL AS ADJUSTED(1) -------- ------------------- (UNAUDITED, DOLLARS IN THOUSANDS) Short-term debt and current portion of long-term debt............ $ 1,811 $ 1,811 ======== ======== Long-term debt: Revolving credit loan.......................................... $ 4,600 $ -- Notes payable.................................................. 15,656 15,656 9% Convertible subordinated debentures......................... 4,811 -- 9 1/2% Subordinated debentures................................. 1,057 1,057 % Convertible subordinated notes............................. -- 25,000 -------- -------- Total long-term debt...................................... $ 26,124 $ 41,713 -------- -------- Stockholders' equity: Preferred, $1.00 par value; 500,000 shares authorized; no shares issued and outstanding............................... -- -- Common, $1.00 par value; 4,000,000 shares authorized; 2,441,517 shares issued and outstanding(2)(4)......................... $ 2,441 $ 2,441 Class B, $1.00 par value; 2,000,000 shares authorized; 298,888 shares issued and outstanding(3)(4)......................... 299 299 Additional paid-in capital..................................... 13,828 13,828 Retained earnings.............................................. 17,320 17,320 Other.......................................................... (70) (70) Less: 1,481,252 treasury shares at cost..................... (11,821) (11,821) -------- -------- Total stockholders' equity................................ 21,997 21,997 -------- -------- Total capitalization................................... $ 48,121 $ 63,710 ======== ========
- --------------- (1) Adjusted to reflect the sale of $25,000,000 of the Notes offered by the Company hereby, the receipt of the estimated net proceeds therefrom and the repayment of certain outstanding indebtedness. See "Use of Proceeds." (2) Excludes 86,500 shares of Common Stock issuable upon exercise of stock options outstanding at June 30, 1996 at exercise prices ranging from $6.31 to $9.69 per share and 378,819 shares upon conversion of the Company's 9% Convertible Subordinated Debentures due 2005 at $12.70 per share. (3) Class B Stock has greater voting power. See "Description of Capital Stock." (4) Subsequent to June 30, 1996, a certificate of amendment was filed to the Company's Restated Certificate of Incorporation increasing the authorized shares of Common Stock to 5,500,000 shares, decreasing the authorized shares of Class B Stock to 1,000,000 shares and authorizing 4,000,000 shares of a new non-voting Class A Stock. See "Description of Capital Stock." 12 16 SELECTED FINANCIAL DATA The following selected financial data of the Company at and for each of the five years ended December 31, 1995 except for Other Data, are derived from and are qualified by reference to the Company's financial statements, some of which are presented herein. The selected financial data for the six months ended June 30, 1995 and 1996 and the balance sheet data as of June 30, 1995 and 1996 are derived from unaudited financial statements of the Company which in management's opinion include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the information set forth therein. The results of operations for the six months ended June 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. This data should be read in conjunction with the financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ----------------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenues: Equipment rentals and maintenance....... $10,494 $13,307 $20,824 $21,652 $21,205 $11,192 $10,923 Equipment sales......................... 2,949 4,040 11,806 8,498 12,364 6,135 7,680 Theatre receipts and other.............. 8,690 6,783 3,169 3,592 4,222 1,913 2,021 ------- ------- ------- ------- ------- ------- ------- Total revenues.................... 22,133 24,130 35,799 33,742 37,791 19,240 20,624 ------- ------- ------- ------- ------- ------- ------- Operating expenses: Cost of equipment rentals and maintenance........................... 5,360 7,069 11,249 11,929 11,358 5,846 5,912 Cost of equipment sales................. 1,587 2,273 7,648 4,620 7,863 3,903 5,032 Cost of theatre receipts and other...... 7,180 5,957 2,657 2,864 3,185 1,500 1,631 ------- ------- ------- ------- ------- ------- ------- Total operating expenses.......... 14,127 15,299 21,554 19,413 22,406 11,249 12,575 ------- ------- ------- ------- ------- ------- ------- Gross profit from operations.............. 8,006 8,831 14,245 14,329 15,385 7,991 8,049 General and administrative expenses....... 7,151 7,384 10,202 11,023 11,494 6,314 6,072 ------- ------- ------- ------- ------- ------- ------- 855 1,447 4,043 3,306 3,891 1,677 1,977 Interest expense, net..................... 570 893 2,380(1) 1,242(2) 2,144 996 1,083 Other income.............................. 257 187 -- -- 92 49 -- ------- ------- ------- ------- ------- ------- ------- Income before income taxes................ 542 741 1,663(1) 2,064(2) 1,839 730 894 ------- ------- ------- ------- ------- ------- ------- Provision for income taxes: Current................................. 95 97 231 407 576 288 303 Deferred................................ 185 372 943 343 197 19 72 ------- ------- ------- ------- ------- ------- ------- 280 469 1,174(1) 750(2) 773 307 375 ------- ------- ------- ------- ------- ------- ------- Net income................................ $ 262 $ 272 $ 489(1) $ 1,314(2) $ 1,066 $ 423 $ 519 ======= ======= ======= ======= ======= ======= ======= PER SHARE DATA: Earnings per share: Primary................................. $ 0.20 $ 0.22 $ 0.39(1) $ 1.04(2) $ 0.85 $ 0.34 $ 0.41 Fully diluted........................... (3) (3) (3) $ 0.94(2) $ 0.81 (3) $ 0.39 Average common and common equivalent shares outstanding: Primary................................. 1,305 1,249 1,249 1,260 1,259 1,260 1,272 Fully diluted........................... (3) (3) (3) 1,943 1,643 (3) 1,664 OTHER DATA: EBITDA(4)............................... $ 5,201 $ 6,670 $10,385 $ 9,819 $10,884 $ 5,056 $ 5,521 Ratio of earnings to fixed charges(5)... 1.3 1.4 1.6 2.2 1.7 1.6 1.5 Net rental equipment.................... $13,550 $29,995 $29,039 $29,653 $30,778 $29,848 $32,056 Net book value per share................ $ 14.59 $ 15.35 $ 15.60 $ 16.29 $ 17.08 $ 16.60 $ 17.29 BALANCE SHEET DATA: Cash and cash equivalents............... $ 1,592 $ 1,180 $ 1,128 $ 2,335 $ 665 $ 598 $ 317 Total assets............................ 35,647 50,826 52,138 53,307 57,460 56,510 59,767 Long-term debt, including current portion............................... 11,648 23,497 23,293 22,353 24,299 24,755 27,935 Retained earnings....................... 15,412 14,514 14,850 15,993 16,888 16,330 17,320 Stockholders' equity.................... 20,062 19,169 19,484 20,524 21,499 20,916 21,997
(Footnotes provided on the following page.) 13 17 - --------------- (1) 1993 reflects the impact of an assessment of income taxes and related interest expense incurred resulting from a prior year state income tax audit of approximately $600,000. (2) 1994 reflects the positive impact of a settlement of approximately $360,000 related to the 1993 assessment described in footnote No. 1 above. (3) Not dilutive. (4) EBITDA is used by the Company for the purpose of analyzing its operating performance, leverage and liquidity. Such data is not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net income, as an indicator of the Company's operating performance, or as an alternative to cash flows as a measure of liquidity. (Unaudited) (5) Earnings used in computing the ratio of earnings to fixed charges consist of income before income taxes, fixed charges and extraordinary items. Fixed charges consist of interest expense, including amounts capitalized, and that portion of rent expense which management deems to be attributable to interest costs. (Unaudited) 14 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's financial statements and the notes thereto included elsewhere in this Prospectus. This Prospectus contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors" as well as those discussed below and elsewhere in this Prospectus. GENERAL The Company is a leading manufacturer, distributor, and servicer of large-scale, real-time electronic information displays for both indoor and outdoor use. These display systems utilize LED and light bulb technologies to display real-time information entered by the user or via a third party information supplier. The Company believes that by producing high quality, reliable display products configured to suit its customers' needs, combined with offering extensive on-site service and maintenance coverage, it has established itself as a leader in the indoor display industry. The Company's display products include data, graphics, and picture displays for stock and commodity exchanges, financial institutions, airports, casinos, sports venues, convention centers, corporate, theatres, retail and numerous other applications. In addition to the core display business, the Company also operates a small chain of motion picture theatres in the southwestern U.S. In 1995, the Company derived approximately 90% of its revenue from its indoor and outdoor information display business. RESULTS OF OPERATIONS SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995 The Company's total revenues for the six months ended June 30, 1996 increased 7.2% to $20.6 million versus $19.2 million for the same period in the previous year. Revenues from equipment rentals and maintenance decreased from $11.2 million in 1995 to $10.9 million in 1996, or 2.4%, primarily due to the expected decline in revenues from the outdoor lease and maintenance base previously acquired, although the decline is at a slower rate than originally anticipated. This decline in revenues was partially offset by an increase in new indoor and outdoor display rentals and maintenance contracts. Revenues from equipment sales increased 25.2%, or $1.5 million, in 1996, primarily due to increased sales of outdoor displays as a result of the acquisition of ISE in January 1995 and a significant sale to the CBOT, which is being recorded on the percentage of completion basis. Revenues from theatre receipts and other increased by $108,000 or 5.6%, which increase was attributed to increased attendance and increased concession sales at the theatres. Cost of equipment rentals and maintenance increased by $66,000 or 1.1%, primarily due to increased installation costs of the outdoor displays. This cost of equipment rentals and maintenance represented 54.1% of related revenues in 1996 compared to 52.2% in 1995. Cost of equipment sales increased by $1.1 million to $5.0 million in 1996 or 28.9%, primarily due to increased sales of outdoor displays and the sale to the CBOT which, due to the size of the order had a lower gross profit margin. The cost of equipment sales represented 65.5% of related revenues in 1996 compared to 63.6% in 1995. The cost of theatre receipts and other increased by $131,000 or 8.7%, which is primarily due to the loss incurred by the theatre joint venture in Loveland, Colorado which is accounted for on an equity basis. The cost of theatre receipts and other represented 80.7% and 78.4% of related revenues in 1996 and 1995, respectively. General and administrative expenses decreased by $242,000 or 3.8%, primarily due to the favorable adjustment of previously accrued expenses and the implementation of certain cost controls. Additional reductions of general and administrative expenses are not anticipated to be realized in future periods. Interest income decreased by $50,000, primarily attributable to reduced investments. Interest expense increased by $37,000 which is due to increased bank borrowing for general corporate purposes on the revolving credit line. The other income of $49,000 in 1995 was largely due to the sale of a theatre property in New Mexico. 15 19 YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 The Company's total revenues for the year ended 1995 increased by 12.0% to $37.8 million in 1995 from $33.7 million in 1994. In January 1995, the Company acquired all the capital stock of ISE, a manufacturer of outdoor electronic displays. Operating results for 1995 include a full twelve months from this acquisition. Revenues from equipment rentals and maintenance decreased $447,000 or 2.1% during 1995, primarily due to the expected decline in revenues from the two acquisitions of outdoor lease and maintenance base portfolios from $11.7 million in 1994 to $10.8 million in 1995. Revenues from equipment sales increased 45.5% during 1995. The increase was largely attributable to the revenues generated from the acquisition of ISE, which contributed $3.6 million in revenues during 1995. Revenues from theatre receipts and other increased $630,000 during 1995, primarily due to the inclusion of a full year of operations at the five-plex theatre in Durango, Colorado which opened in mid-1994. Cost of equipment rentals and maintenance, which includes field service expenses, plant repair costs and depreciation, decreased $571,000 or 4.8% during 1995, to 53.6% of related revenues from 55.1% in 1994. The decrease is primarily attributable to a reduction in field service expenses. The cost of equipment sales as a percentage of related revenue represented 63.6% in 1995 and 54.4% in 1994. The increase in costs is primarily due to the expected lower profit margins generated by ISE. The cost of theatre receipts and other, which includes film rental expenses increased $321,000 or 11.2% during 1995, primarily due to a full year of operations at the five-plex theatre in Durango, Colorado which opened in mid-1994. Cost of theatre receipts and other represented 75.4% of related revenues in 1995 and 79.7% in 1994. General and administrative expenses increased $471,000 or 4.3% from $11.0 million in 1994 to $11.5 million in 1995 primarily due to the acquisition of ISE. General and administrative expenses decreased as a percentage of revenue to 30.4% in 1995, compared to 32.7% in 1994, primarily as a result of economies of scale. Interest income decreased $57,000 during 1995, primarily attributable to reduced investments which were utilized for acquisitions. Interest expense increased by $845,000 during 1995, primarily as a result of the additional debt incurred relative to the acquisition of ISE, in addition to the lower interest expense recorded in 1994 as a result of a settlement of a 1993 assessment of interest resulting from a 1986 state income tax audit. The other income of $92,000 in 1995 is largely due to the sale of a theatre property in New Mexico. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 The Company's total revenues for the year ended 1994 decreased by 5.7% to $33.7 million from $35.8 million in 1993. Revenues from equipment rentals and maintenance increased $828,000 or 4.0% during 1994. The revenue from the acquisition of the lease base portfolio of outdoor displays and maintenance contracts which occurred in August 1993 contributed a full year of revenues. Revenues from equipment sales decreased $3.3 million or 28.0% during 1994, primarily because 1993 included a $4.3 million sale to the CME, the largest sale in the Company's history. Revenues from theatre receipts and other increased by $423,000 in 1994, primarily due to the opening of the theatre in Durango, Colorado in mid-1994. Cost of equipment rentals and maintenance increased $680,000 or 6.0% during 1994, to 55.1% of related revenue from 54.0% in 1993. The increase is primarily attributable to a full year of field service expenses relating to the August 1993 acquisition. The cost of equipment sales decreased $3.0 million or 39.6% in 1994 and represented 54.4% of related revenue compared to 64.8% in 1993, primarily due to the sale to the CME in 1993, which due to the size of the order had a lower gross profit margin. The cost of theatre receipts and other increased $207,000 or 7.8% during 1994. Cost of theatre receipts and other represented 79.7% of related revenue in 1994 compared to 83.8% in 1993, primarily due to lower film rental costs and the opening of the theatre in Durango, Colorado in mid-1994. General and administrative expenses increased by $821,000 or 8.0% during 1994, partially due to the additional expenses incurred in order to maintain the outdoor lease and maintenance base acquired in August 1993. General and administrative expenses increased as a percentage of revenue to 32.7% in 1994 compared to 16 20 28.5% in 1993, which increase was caused by the overall decrease in 1994 total revenues from the 1993 level, which included the sale to the CME. Interest income decreased $19,000 during 1994. Interest expense decreased $1.2 million during 1994. The decrease was primarily due to the settlement of a 1993 assessment of interest resulting from a 1986 state income tax audit, which when assessed in 1993 increased interest expense for that year. INCOME TAXES The effective tax rate was 42.0% in 1996 and 1995, 36.3% in 1994 and 70.6% in 1993. The increase in the effective tax rate for 1995 was due to a settlement of a 1986 state income tax audit in 1994, which lowered the effective tax rate in 1994 and when assessed in 1993 increased the effective tax rate for that year. ACCOUNTING STANDARDS The Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of " in the first quarter of 1996. In accordance with the standard, the Company evaluates the carrying value of its long-lived assets and identifiable intangibles, including goodwill, when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The adoption of the standard did not have any effect on the Company's consolidated financial position or results of operations. The Company also adopted the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" in the first quarter of 1996. As provided for in the standard, the Company continues to apply Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations for employee stock compensation measurement and will disclose the required pro forma information in the 1996 Form 10-K. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's primary sources of liquidity and capital resources have been cash flow from operations and bank borrowings. The Company is operating with a working capital deficit due to the high demand for reinvestment of cash in revenue generating rental equipment due to the increase in the indoor rental base and to a lesser extent the upgrade of the outdoor rental base. The Company believes that cash generated from operations together with the anticipated net proceeds of the Offering will be sufficient to fund its anticipated further cash requirements. Cash and cash equivalents decreased by $1.7 million in 1995 compared to an increase of $1.2 million in 1994 and a decrease of $52,000 in 1993. The decrease in 1995 is primarily attributable to cash utilized to acquire ISE, repayment of its long-term debt and an investment in a theatre joint venture. This was offset by an increase of $1.1 million in deferred revenue and deposits, primarily due to prepayments of annual billings not yet recorded as revenue. During the six months ended June 30, 1996, the Company's cash and cash equivalents decreased by $348,000, primarily attributable to cash utilized for investment in rental equipment, an increase in accounts receivable, which is attributable to the timing of large equipment sales, and a decrease in deferred revenue and deposits, which is primarily due to the timing of recording the revenues versus billings of the sale to the CBOT. Inventories, prepaids and intangibles increased during 1995 primarily due to the acquisition of ISE. Although receivables increased both at December 31, 1995 and June 30, 1996, the Company continues to experience a favorable collection cycle on its trade receivables. The Company entered into a Credit Agreement in August 1995 restructuring $15.6 million of indebtedness and a $4.0 million line of credit with First Union Bank of Connecticut ("First Union Bank"). The line of credit has been increased to $7.0 million during 1996 and will continue to be available until June 1998. The restructuring extended the terms at a variable rate of interest of LIBOR plus 175 basis points. Simultaneously, the Company entered into an interest rate swap for three years at a fixed rate of 7.86% for $15.6 million of notional value to mitigate the risk of the variable interest rate. The loans provide for certain covenants such as net worth, capital expenditures, fixed charge coverage ratio and debt to worth ratio. The 17 21 Company is a guarantor of a $3 million term loan to MetroLux Theatres, the theatre joint venture. The owner of the non-related general partner of the joint venture has guaranteed their pro rata portion of the indebtedness to the Company. RESULTS OF OPERATIONS The following table sets forth unaudited quarterly financial data:
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 - --------------------------------------------------------- -------- ------- ------------ ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 Revenues................................................. $10,033 $10,591 Gross profit............................................. 3,969 4,080 Income before income taxes............................... 427 467 Net income............................................... 248 271 Earnings per share: Primary................................................ $ 0.20 $ 0.21 Fully diluted.......................................... 0.19 0.20 EBITDA(3)................................................ 2,741 2,780 1995 Revenues................................................. $ 9,379 $ 9,861 $9,641 $ 8,910 Gross profit............................................. 3,913 4,078 3,976 3,418 Income before income taxes............................... 340 390 532 577 Net income............................................... 197 226 309 334 Earnings per share: Primary................................................ $ 0.16 $ 0.18 $ 0.24 $ 0.27 Fully diluted.......................................... (1 ) (1) 0.23 0.24 EBITDA(3)................................................ 2,501 2,555 2,905 2,923 1994 Revenues................................................. $ 8,343 $ 8,006 $8,765 $ 8,628 Gross profit............................................. 3,424 3,485 3,534 3,886 Income before income taxes............................... 677 (2) 375 437 575 Net income............................................... 554 (2) 216 241 303 Earnings per share: Primary................................................ $ 0.44 (2) $ 0.17 $ 0.19 $ 0.24 Fully diluted.......................................... 0.34 (2) 0.17 0.18 0.23 EBITDA(3)................................................ 2,285 2,309 2,416 2,809
- --------------- (1) Not dilutive. (2) The first quarter of 1994 reflects the positive impact of a settlement of a 1993 assessment of income taxes and related interest expense incurred resulting from a 1986 state income tax audit of approximately $360,000, $0.29 primary earnings per share and $0.18 fully diluted earnings per share. (3) EBITDA is used by the Company for the purpose of analyzing its operating performance, leverage and liquidity. Such data is not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net income, as an indicator of the Company's operating performance, or as an alternative to cash flows as a measure of liquidity. 18 22 The following table sets forth unaudited selected financial data stated as a percentage of the Company's total revenues:
YEAR ENDED DECEMBER 31, LATEST TWELVE --------------------------- MONTHS ENDING 1993 1994 1995 JUNE 30, 1996 ------ ----- ------ ------------- Revenues: Equipment rentals and maintenance.................. 58.2% 64.2% 56.1% 53.4% Equipment sales.................................... 33.0 25.2 32.7 35.5 Theatre receipts and other......................... 8.8 10.6 11.2 11.1 ------ ------ ------ ------ Total revenues............................. 100.0 100.0 100.0 100.0 ------ ------ ------ ------ Operating expenses: Cost of equipment rentals and maintenance.......... 31.4 35.3 30.1 29.2 Cost of equipment sales............................ 21.4 13.7 20.8 22.9 Cost of theatre receipts and other................. 7.4 8.5 8.4 8.5 ------ ------ ------ ------ Total operating expenses................... 60.2 57.5 59.3 60.7 Income before income taxes........................... 4.6 6.1 4.9 5.1 Net income........................................... 1.4 3.9 2.8 3.0 EBITDA(1)............................................ 29.0 29.1 28.8 29.0
The following table sets forth the gross profit of each of the Company's three revenue categories as a percentage of the revenue generated by that category. Gross margin analysis: Equipment rentals and maintenance.................. 46.0% 44.9% 46.4% 45.4% Equipment sales.................................... 35.2 45.6 36.4 35.4 Theatre receipts and other......................... 16.2 20.3 24.6 23.4 ------ ----- ------ ------ Total gross margin......................... 39.8 42.5 40.7 39.4
- --------------- (1) EBITDA is used by the Company for the purpose of analyzing its operating performance, leverage and liquidity. Such data is not a measure of financial performance under generally accepted accounting principles and should not be considered as an alternative to net income, as an indicator of the Company's operating performance, or as an alternative to cash flows as a measure of liquidity. 19 23 BUSINESS GENERAL The Company is a leading manufacturer, distributor, and servicer of large-scale, real-time electronic information displays for both indoor and outdoor use. These display systems utilize LED and light bulb technologies to display real-time information entered by the user or via a third party information supplier. The Company believes that by providing high quality, reliable display products configured to suit its customers' needs, combined with offering extensive on-site service and maintenance coverage, it has established itself as a leader in the indoor display industry. The Company's display products include data, graphics, and picture displays for stock and commodity exchanges, financial institutions, airports, casinos, sports venues, convention centers, corporate, theatres, retail, and numerous other applications. In addition to the core display business, the Company also operates a small chain of motion picture theatres in the southwestern U.S. In 1995, the Company derived approximately 90% of its revenue from its indoor and outdoor information display business. The Company is a Delaware corporation founded in 1920 as a developer of display products. The Company sold its first large scale moving display product in 1923, based on proprietary rear screen projection technology. The Company's development of rear screen projection technology also led it into the theatre business which at one time represented a significant portion of its revenues. Over the years, the Company has focused on the development and examination of new technologies in the information display industry. In the late 1960s, the Company developed and marketed its first electromechanical display units. These products were actively marketed until 1983 when the Company introduced its first LED-based display systems. 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 shape, size and color configurations. Most of the Company's display products include hardware components and sophisticated software. In both the indoor and outdoor markets, 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 U.S. and Canada which performs on-site service and maintenance for its customers, further distinguishing the Company from many of its competitors. In the indoor market, the Company's high performance electronic displays are used to communicate messages in the financial, gaming, transportation, entertainment and retail industries, among others. In the financial industry, the Company's products display news and market information, interest rates, up-to-the-second stock and commodity prices, and other financial product information for stock and commodity exchanges, brokerage firms, banks, mutual fund companies, and other financial institutions. In the gaming industry, the Company's products transmit racing and pari-mutuel betting odds and results, sports scores, statistics, slot machine jackpots and other wagering information. In the transportation industry, the Company's products are used to display arrival and departure information and gate and baggage claim information for airports and other transportation facilities. While the securities and commodities industries continue to represent a significant portion of the Company's customer base, the Company has a strong presence in the gaming industry through its race and sports book displays and also markets its displays to such users as banks, corporations, transportation facilities, the military, racetracks, restaurants, pharmacies, theatres, hotels and convention centers. In the indoor display market, the Company's customers include the American Stock Exchange, Charles Schwab & Co. Incorporated, the CBOT, the CME, Goldman Sachs & Co., Kaiser Permanente, Merrill Lynch Pierce Fenner & Smith, Inc., MGM Grand, Inc., Mirage Resorts, Inc., the New York Mercantile Exchange, Inc., the New York Stock Exchange, Inc. and Sony Theaters Management Corporation. Over the past four years the Company has utilized its strong position in the indoor display market combined with several acquisitions to establish a growing presence in the outdoor display market. Trans-Lux outdoor displays are installed in amusement parks, entertainment facilities, professional and college sports stadiums, military installations, bridges and other roadway installations, automobile dealerships, banks and other financial institutions. In the outdoor display market, the Company's customers include Auburn 20 24 University, Pontiac Silverdome, Resorts International, Six Flags Over Georgia, 3 Com Park and Twin City Federal Financial Corp. The Company has made three acquisitions over the past four years in order to establish and enhance its presence in the outdoor market. In August 1992, after first managing the portfolio for approximately 15 months, the Company acquired a portfolio of outdoor electric and electronic equipment displays from American Electronic Displays, L.P. In August 1993, the Company expanded its presence in the outdoor display market by acquiring a portfolio of outdoor lease, maintenance and other contracts from Indicator Maintenance Corporation. In January 1995, the Company acquired all of the capital stock of ISE, a manufacturer of outdoor electronic displays. ELECTRONIC INFORMATION DISPLAY MARKET Accessing information in a timely and efficient manner has become increasingly important over the past two decades and has been driven by technological improvements in both the telecommunications and computer industries. Today, access to either specific information or general news events is critical in many aspects of business. As demand for various information displays has spread into an increasingly diverse number of applications, an equally diverse number of display products has emerged, leaving the industry highly fragmented with no single company or group of companies having a dominant share of the entire industry. The electronic information display market can be broken down into two distinct markets: the indoor market and the outdoor market. Electronic information displays are used by financial institutions, including brokerage firms, banks, saving and loans, insurance companies and mutual fund companies; by retail outlets; by casinos, race tracks and other gaming establishments; by outdoor advertising companies; in airports, train stations and bus terminals, and other transportation facilities; on highways and major thoroughfares; and by movie theatres, and in various other applications. The industry is expected to continue to expand as additional applications are added and current applications are increasingly implemented by businesses attempting to increase information flow to current and potential customers. The Indoor Market: The indoor electronic display market is currently dominated by three categories of users: financial, gaming and corporate. The financial market segment, including trading floors, exchanges, brokerage firms and mutual fund companies, has long been a user of electronic information displays due to the need for the 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 information. Brokerage firms have increasingly installed electronic ticker displays for both customers and brokers, and in the last few years have installed larger displays to post major headline news events in their brokerage offices to enable their sales force to stay up-to-date on the events affecting general market conditions and specific stocks. The changing regulatory environment in the financial marketplace has also resulted in the influx of banks and other financial institutions into the brokerage business and has resulted in these institutions increasingly using information displays to advertise product offerings to consumers. The proliferation of gaming establishments including casinos, Indian gaming establishments, and off-track betting parlors, has resulted in the rapid expansion of electronic information displays in the gaming industry. 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 and scratches. Casinos also use electronic displays throughout their facilities to advertise to and attract gaming patrons. This includes using electronic displays in conjunction with slot machines to attract customer attention to potential payoffs and thus increase customer play. The corporate market 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, inbound/outbound telemarketing centers and for employee communications. Electronic displays have found acceptance in applications for the healthcare industry such as out-patient pharmacies, military hospitals and HMOs which desire 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 21 25 promote concession sales. Information displays are consistently used in airports, bus terminals and train stations to post arrival and departure information and gate and baggage claim information, which helps to guide passengers through these facilities. The Outdoor Market: The outdoor electronic display market is even more diverse than the indoor market with displays being used by banks and other financial institutions, gas stations, highway departments, sports stadiums and outdoor advertisers attempting to capture the attention of passers-by. In addition to traditional uses of outdoor electronic displays, the Company believes the outdoor market represents a growth opportunity for participants in the indoor electronic information display industry. The entire "out-of-home" advertising category, such as traditional billboards and roadside displays, has expanded to include displays in shopping centers and malls, airports, stadiums, movie theatres and supermarkets. While most existing outdoor advertisers do not currently utilize either LED or light bulb generated messages, the Company believes a growing number of outdoor advertising mediums are beginning to turn to these higher-end technologies in order to enhance visibility, recognition and impression on the viewer, and to expand the capabilities of the display, which therefore represents a potential growth opportunity for participants in the electronics information display industry. COMPANY STRATEGY The Company's strategy is to leverage its leadership position in the U.S. indoor electronic information display market to expand market share in the global indoor and outdoor display markets. Trans-Lux has a proven track record for providing high quality, innovative information display products in the indoor market. Currently, the Company is the leading provider of electronic information displays to the financial services industry and to the race and sports book segment of the gaming industry, and has a significant presence in the corporate and transportation markets. The Company offers its customers the option of either leasing or purchasing its display products and believes this provides a competitive advantage over most of its competitors who primarily offer their products for sale only. In addition, the Company plans to expand the scope of its service force to include the maintenance of other companies' display products and related electronic equipment. The Company believes that by providing high quality, reliable electronic displays configured to suit their customers' needs, combined with offering extensive on-site service and maintenance coverage and the opportunity to purchase or lease display products, it will be able to continue to expand its market share in the indoor and outdoor display markets. In the indoor market, the Company's growth strategy centers around increased marketing efforts, expanded sales coverage and continued product developments aimed at capitalizing on the Company's presence in its current market segments and expanding into new market segments. Because of the Company's expertise in and close association with certain market segments, such as the financial services industry, it is able to anticipate requirements for new products, product enhancements and new technologies before its competitors. The Company has increased its engineering staff to accommodate the development of new products and enhancements, and will continue to do so as needed. The Company also plans to continue to penetrate new market segments such as call centers, motion picture theatres, outpatient pharmacies and military hospitals through increased direct marketing and sales efforts. Additionally, the Company expects its new progressive meter and controller systems to provide expanded opportunities within the gaming industry. The Company will continue its strategy of developing partnerships with key data suppliers and software vendors in its various market niches, both to add value to the access of the data and to increase product exposure via third party distribution channels. The Company's acquisitions in the outdoor market will be enhanced through focused marketing efforts and expansion of the sales force. The Company will continue to increase its presence in the outdoor market by identifying target segments in which to become a leading supplier. The Company has identified and commenced market development in key outdoor market segments such as sports stadiums and arenas, convention centers, theme parks, shopping malls, automobile dealerships, theatres and highway/transportation applications. 22 26 The Company expects that its recently completed and planned product developments will enhance its outdoor product line and allow it to penetrate new market segments. The capability of displaying live video, offering lower power consumption and other competitive advantages, provides an attractive product offering to targeted market segments and paves the way for entry into the broader advertising market. Development of a 16 shades of gray outdoor display system will enable the Company to capitalize on the growth of its basic message center business across all market segments, which will appeal to customers who want to utilize animation without the added cost of full color. Internationally, the Company anticipates growth in the financial exchange markets, penetration of the international gaming markets for its meter and controller product line and entry into advertising/media applications and other outdoor applications. The Company is currently in the process of expanding its distributor network in key foreign markets. 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 shape, size and color configurations. Most of the Company's display products include hardware components and sophisticated software. In both the indoor and outdoor markets, 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 U.S. and Canada which performs on-site service and maintenance for its customers, further distinguishing the Company from many of its competitors. 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 markets the Company serves. This approach ensures maximum product flexibility, reliability, ease of service and minimum spare parts requirements. Listed below are the Company's major product technologies and a brief description of their features and primary market applications: INDOOR MARKET LED Jet(@): A two line scrolling LED text display which is widely used in financial exchanges, brokerage firms and retail investment centers to post last-sale information on stock trades directly from various exchange sources. LED News Jet(@): A multi-line scrolling LED text display which interfaces directly to real-time news services and information services. The News Jet is used to provide up-to-the-second critical news to the floor traders in financial exchanges, brokerage firms and retail investment centers. DataWall(@): A high speed, line- and character-addressable LED text display which is used in applications that require the posting of frequently changing tabular information, such as indices, stocks, bonds, foreign exchange and news in the financial markets; race and sports odds and results in the gaming market; and arrival and departure information in the transportation market. PictureWall(@): A full-matrix, tricolor LED display that, via custom software, displays any text and/or graphic images that can be shown on a computer monitor. Typical uses for this product include real-time financial data, graphs and charts for exchanges and brokerage firms, and computer-generated data for corporate command centers. OUTDOOR MARKET Time & Temperature Displays: Alternating or full-view models used primarily by banks to build corporate identity and generate public awareness. Message Center Displays: Scrolling message ranging in size from one to three lines used by shopping malls, automobile dealerships and other retail outlets to promote products and services, generate public awareness and inform customers. 23 27 Graphic Displays and Score Boards: Fully populated displays accommodating graphics, animation and video used by stadiums, arenas, convention centers, casinos and other entertainment venues to welcome fans, promote events and advertise products and sponsors. Also used in scoreboards, in conjunction with Message Centers and scoring displays, to show instant replays and animated advertising. MARKETING AND DISTRIBUTION The Company markets its indoor and outdoor electronic information display products primarily through its direct sales force and telemarketers which as of September 30, 1996 consisted of 30 direct sales representatives and 8 telemarketers. The Company divides its domestic sales and marketing efforts into two categories: (i) renewal of existing product leases and product upgrades; and (ii) the sale or lease of display products to new customers. In the indoor market for leased equipment, the Company attempts to maintain an ongoing relationship with its customers to discuss lease renewals. In the outdoor market, sales personnel contact existing and potential customers to discuss the customer's usage or requirements for display equipment. The Company also uses primarily telemarketing personnel to maintain communication with its installed base of lease equipment customers contacting them prior to the expiration of existing leases in order to discuss lease renewal. The Company uses a number of different techniques in order to attract new customers, including direct marketing efforts by its sales force to known or potential users of information displays, advertising in industry publications, and placing exhibits at approximately 20 domestic and international trade shows annually. In the outdoor market, the Company supplements these efforts by using a network of independent distributors who market and sell the products of several manufacturers. The Company intends to use a portion of the proceeds from the Offering to expand its marketing and sales efforts. Internationally, the Company uses a combination of internal sales people and independent distributors to market its products in Europe, South America, Asia and Australia. The Company currently has manufacturing operations, service centers and sales offices in New South Wales, Australia and Ontario, Canada. The Company has existing relationships with approximately 30 independent distributors worldwide covering Europe, South America, Asia and Australia. Historically, international sales have represented less than 15% of the Company's revenues but the Company believes that it is positioned to expand its international sales and that such sales will represent an increasing percentage of the Company's revenues in the future. Headquartered in Norwalk, Connecticut, the Company has major sales and service offices in New York, Chicago, Las Vegas, Torrance, California, Ontario, Canada, Logan, Utah and New South Wales, Australia, as well as 58 satellite offices in the U.S. and Canada. SERVICE AND SUPPORT The Company emphasizes the quality and reliability of its products and the ability of its field service personnel to provide timely and expert service to the Company's installed base. The Company believes that the quality and timeliness of its on-site service personnel are important components in the Company's success. The Company provides turnkey installation and support for the products it leases or sells in the U.S., Canada and Australia as part of the installation. 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 service to customers who lease equipment and offers installation and service to those who purchase equipment. In the markets the Company's distributors cover, the distributors offer support for the products they sell. Personnel based in regional and satellite service locations throughout the U.S., Canada and Australia provide high quality and timely on-site service for the installed equipment base. Purchasers or lessees of the Company's larger products, such as financial exchanges, casinos and sports facilities, often retain the Company to provide on-site service through the deployment of a service technician who is on-site daily or for the scheduled sporting event. The Company also maintains a National Technical Services Center in the Atlanta, Georgia area which performs off-site equipment repairs and dispatches service technicians on a nationwide basis. The Company's field service is augmented by various outdoor service companies in the U.S., Canada and overseas. From time to time the Company uses various third party service agents to install, service 24 28 and/or assist in the service of outdoor displays for reasons that include geographic area and unusual height of displays. ENGINEERING AND PRODUCT DEVELOPMENT The Company's ability to compete and operate successfully depends upon, among other factors, its ability to anticipate and respond to the changing technological and product needs of its customers. As such, the Company continually examines and tests new display technologies and develops enhancements to its existing products in order to meet the current and anticipated future needs of its customers. Product enhancement work continues in both the indoor and outdoor areas. Development of new indoor products includes progressive meter and controller systems for use in the gaming industry; smaller character displays to post more information in a comparably sized area; higher speed processors for faster data access and improved update speed; integration of blue LEDs to provide full color text and graphics displays; a new graphics interface to display more data in higher resolutions; and tricolor news displays providing the ability to color-code and identify "hot" stories. New outdoor product plans include the development of the Spectra Lens System(TM) which will enable the Company to capitalize on full color, full matrix indoor applications, particularly in the sports market. Complete development of the 16 shades of gray Spectra Lens System should encourage the growth of the Company's message center business in all market segments. This product will be targeted to customers who want an animated display at a lower cost than full color. The Company is also currently developing full color LED displays which will have application particularly in the gaming market where entertainment value is important to marketing properties and in the sports market where enhancing the presentation of live action is of central importance. As part of its ongoing development efforts, the Company seeks to package certain products for specific market segments as well as to continually track emerging technologies that can enhance its products. Future technologies under consideration are trending toward full color, live video, and digital input. The Company is currently focused on certain technologies which incorporate these features and which are expected to provide a choice of products for the custom applications the Company's customers demand. The Company maintains a staff of 32 people who are responsible for product development and support in indoor and outdoor markets. The engineering and product enhancement and development efforts are supplemented by outside independent engineering consulting organizations where required. Engineering, product enhancement and development amounted to $1,315,000, $1,497,000 and $2,139,000 in 1993, 1994 and 1995, respectively. MANUFACTURING AND OPERATIONS The Company's production facilities are located in Norwalk, Connecticut, Logan, Utah, Ontario, Canada and New South Wales, Australia and consist principally of the manufacturing, assembly and testing of display units, and related components. The Company performs most subassembly and all final assembly of its products. Equipment orders generally have a lead time of 30 to 90 days depending on the size and type of the equipment, and material availability. All product lines are design engineered by the Company, and controlled throughout the manufacturing process. The Company has the ability to produce printed circuit board fabrications, very large sheet metal fabrications, plastic molded parts, cable assemblies, and surface mount and through hole designed assemblies. The Company produces more than 100,000 board assemblies annually which are tested with the latest state of the art automated test equipment. The Company's production of many of the subassemblies and all of the final assemblies gives the Company the control needed for on-time delivery to its customers. The Company also has the ability to rapidly modify its product lines. The Company's displays are designed with versatility in mind, enabling the Company to customize its displays to meet different application with a minimum of lead time. The Company's automated planning and purchasing department further enables it to secure raw materials in a timely fashion without maintaining excessive inventories. The Company also 25 29 partners with large distributors via volume purchase agreements, giving it the benefit of a third party stocking its components ready for delivery on demand. BACKLOG The amount of sales order backlog was approximately $0.9 million and $2.9 million at August 31, 1995 and 1996, respectively. The August 31, 1996 backlog will be recognized throughout 1996 and 1997. These amounts do not include leases or renewals of leases currently in effect. COMPETITION The Company believes that it is the largest supplier of large-scale electronic display products to the financial services industry and the race and sports book segment of the gaming industry in the U.S., as well as one of the largest outdoor electronic signage service organizations in the country. The Company's offer of short-term leases to customers and its nationwide sales, service and installation capabilities are major competitive advantages in the display business. The Company competes with a number of competitors, both larger and smaller than itself, and with products based on different forms of technology. In addition, there are several companies whose current products utilize similar technology and who possess the resources necessary to develop competitive and more sophisticated products in the future. In the indoor market, competitors vary according to market segment. In the financial market, competitors include Daktronics, Inc., IGG Systems Inc. (exchanges only), Sunrise Systems, Inc., Display Solutions, Inc. and Ferranti Packard Electronics Ltd. Additional low-end competitors include Grandwell Industries Inc., Gamma Technologies, Inc. and Adaptive Micro Systems, Inc. In some corporate market applications the Company competes with other technologies (such as video monitors); in others, Adaptive Micro Systems is a competitor. In the race and sports book segment of the gaming market, competitors include Daktronics and Display Solutions. In the progressive meter and controller segment, the dominant vendor is Mikohn Gaming Corporation; other competitors include Casino Data Systems. Daktronics, INFAX, Inc., and AEG Corporation compete in the transportation market. In the outdoor market, key competitors with direct sales capabilities are Daktronics, White Way Sign, Fairtron Corporation and Display Solutions. Other competitors include local sign companies that distribute other manufacturers' equipment and have limited resources. Internationally, competitors vary according to market and region. Primary competitors include Daktronics, IGG and Giantek Technology Corp. (Taiwan). There are also numerous local and regional competitors. The Company's motion picture theatres are subject to varying degrees of competition in the geographic areas in which they operate. In some areas, theatres operated by national circuits compete with the Company's theatres. The Company's theatres also face competition from all other forms of entertainment competing for the public's leisure time and disposable income. THEATRE OPERATIONS The Company currently operates 29 screens in eight locations in the southwestern U.S. This includes a twelve-plex theatre in Loveland, Colorado which was built in late 1995 through a 50% owned joint venture. The Company's theatre revenues are generated from box office admissions, theatre concessions, theatre rentals and other sales. Theatre revenues are generally seasonal and coincide with the release dates of major films during the summer and holiday seasons. In 1995, the Company derived approximately 9% of its revenues from theatre operations. 26 30 PROPERTIES The Company's headquarters and principal executive offices are located at 110 Richards Avenue, Norwalk, Connecticut. The Company owns the 102,000 square foot facility located at such site, which it also uses for engineering, production and assembly of its indoor displays and outdoor LED display products. The Company owns facilities in Ontario, Canada, Torrance, California and Logan, Utah which it uses for administration, sales and service. The Ontario, Canada and Logan, Utah sites are also used as production and assembly facilities. In addition, the Company owns a facility in Norcross, Georgia which it uses as its National Technical Services Center from which it dispatches the Company's service technicians on a nationwide basis. The Company also leases ten premises throughout North America and in Australia for use as sales, service and/or administrative operations. Additionally, the Company owns the buildings and land in Santa Fe, New Mexico, Taos, New Mexico, and Durango, Colorado which house theatre operations. REGULATION In the U.S. and other countries, various laws and regulations restrict the installation of outdoor signs and information displays. These regulations may impose greater restriction on information displays due to alleged concerns over aesthetics or driver safety if a display is located near a road or highway. The Company's products are tested to safety standards developed by Underwriters Laboratories and Edison Testing Laboratories in the U.S. as well as similar standards in other countries. The Company designs and produces its products in accordance with these standards. The Company's printed circuit board manufacturing operations must also meet various safety related rules and regulations. The Company believes it is in compliance with all applicable governmental laws and regulations. INTELLECTUAL PROPERTY The Company owns or licenses a number of patents and holds a number of trademarks for its communications equipment and theatrical enterprises and considers such patents, trademarks and licenses important to its business. LITIGATION The Company is not involved in any litigation other than in the ordinary course of business, none of which would materially adversely affect the financial position, results of operations or cash flows of the Company in the event of an adverse judgment. EMPLOYEES The Company has approximately 564 employees as of September 30, 1996, of which 431 employees are related to the Company's electronics display business. Less than 1% of the employees are unionized. The Company believes its employee relations are good. 27 31 MANAGEMENT
NAME AGE OFFICE - ----------------------------------- --- ------------------------------------------------ Richard Brandt..................... 68 Chairman of the Board and Director Victor Liss........................ 59 Vice Chairman of the Board, President, Chief Executive Officer and Director Michael R. Mulcahy................. 48 Executive Vice President Frank N. Daniels................... 58 Senior Vice President Karl P. Hirschauer................. 50 Senior Vice President Thomas F. Mahoney.................. 49 Senior Vice President Angela D. Toppi.................... 40 Senior Vice President, Treasurer, Secretary and Chief Financial Officer Steven Baruch...................... 57 Director Jean Firstenberg................... 60 Director Allan Fromme....................... 81 Director Robert Greenes..................... 75 Director Gene Jankowski..................... 62 Director Howard S. Modlin................... 65 Director
Richard Brandt has been a director of the Company since 1954, Chairman of the Board since 1973, President from 1962 to 1980 and Chief Executive Officer from 1974 to 1992. He has been an employee of the Company for over 45 years. He is a director of Presidential Realty Corporation, a real estate company, Vice Chairman and a trustee of the College of Santa Fe, Chairman Emeritus and a trustee of the American Film Institute ("AFI") and a trustee of American Theatre Wing. Mr. Brandt is the brother-in-law of Dr. Allan Fromme. Victor Liss has been a director of the Company since 1988 and an executive officer since 1968. He has been Chief Executive Officer of the Company since December 1992, and Co-Chief Executive Officer between March 1992 and December 1992, responsible for overall operations of the Company, including corporate direction, long range planning and business development. He has been an employee for over 28 years. He is a director of Blue Cross & Blue Shield of Connecticut, Inc., and a trustee of Norwalk Hospital and Norwalk Community Technical College Foundation, Inc. Michael R. Mulcahy was elected Executive Vice President of the Company in charge of sales, marketing and engineering operations in May 1995. He was Senior Vice President between December 1993 and May 1995, and a Vice President between 1989 and December 1993. He has been an employee of the Company for over 29 years. Frank N. Daniels was elected Senior Vice President of the Company in charge of field service and human resources in December 1993 and has been an executive officer since 1984. He has been an employee of the Company for over 33 years. Karl P. Hirschauer was elected Senior Vice President of the Company in charge of engineering and product development in December 1993 and was a Vice President in charge of engineering between 1984 and December 1993. He has been an employee of the Company for over 16 years. Thomas F. Mahoney was elected Senior Vice President of the Company in charge of sales in June 1996. He was a Vice President between 1994 and June 1996 in charge of financial sales and an Assistant Vice President in sales from 1988 to 1994. He has been an employee of the Company for over 28 years. Angela D. Toppi was elected Senior Vice President of the Company in charge of finance in September 1995. Ms. Toppi has served as Secretary since July 1992, Chief Financial Officer since March 1992 and Treasurer since 1988. She has been an employee of the Company for over 10 years. Steven Baruch has been a director of the Company since 1994. During the past five years he has been Executive Vice President of Presidential Realty Corporation, a real estate company. He has been a 28 32 producer of various theatrical productions, among them Driving Miss Daisy, Angels in America, Love Letters and the Broadway revivals of Damn Yankees, Smokey Joe's Cafe and A Funny Thing Happened on the Way to the Forum. Jean Firstenberg has been a director of the Company since 1989 and is Chairperson of its Audit Committee. She is currently Chief Executive Officer of the AFI, has been a director of AFI since 1980 and is a trustee of Boston University. Dr. Allan Fromme has been a director of the Company since 1958. He is a consultant to the Company and Chairman of its Executive Committee. Dr. Fromme is a psychologist and author. Robert Greenes has been a director of the Company since 1971 and is Vice Chairman of its Executive Committee. During the past five years he has been President of Petroconsult, Inc., a petroleum consulting company and President of East Coast Energy Council. He previously was President and Chief Executive Officer of Public Fuel Service Inc., a fuel marketing and distribution company. Gene Jankowski has been a director of the Company since 1994. He has been Chairman of Jankowski Communications System, Inc., a broadcast consulting company, since 1990. He previously was President and Chairman of the CBS Broadcast Group. He is an Adjunct Professor of Telecommunications for Michigan State University, Chairman Emeritus of the AFI, director of The Advertising Educational Foundation and the Silvermine Art Center and advisor to the World Press Freedom Foundation. Howard S. Modlin has been a director of the Company since 1975 and is Chairman of its Compensation Committee. He is an attorney and member of the firm Weisman Celler Spett & Modlin, P.C. which provides legal services to the Company. He is a director of Fedders Corporation and General DataComm Industries, Inc. 29 33 EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT COMPENSATION OF EXECUTIVE OFFICERS The following Summary Compensation Table sets forth all cash and non-cash compensation paid or awarded for the fiscal years ended December 31, 1995, 1994 and 1993 to the Company's four most highly compensated executive officers and the Chairman of the Board whose compensation exceeded $100,000 for the fiscal year ended December 31, 1995. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM -------------------------------------- COMPENSATION NAME AND PRINCIPAL OTHER ANNUAL OPTIONS ALL OTHER POSITION YEAR SALARY($) BONUS($) COMPENSATION($) GRANTED COMPENSATION($)(1) - -------------------------- ---- --------- -------- --------------- ------------ ------------------ Richard Brandt............ 1995 -- 78,618 368,146 -- 57,549 Chairman of the Board, 1994 -- 73,491 363,380 -- 116,535 former Chief and Co-Chief 1993 -- 57,694 349,242 12,500 96,615 Executive Officer(2) Victor Liss............... 1995 228,037 106,230 -- 5,000 1,888 Chief Executive Officer, 1994 196,915 133,753 -- 10,000 1,888 President and Vice Chairman 1993 168,244 67,694 -- 10,000 1,958 Michael R. Mulcahy........ 1995 166,593 21,458 -- 1,500 -- Executive Vice President, 1994 130,261 28,124 -- 3,500 -- former Senior Vice President 1993 129,689 -- -- 500 -- and Vice President of Sales Karl P. Hirschauer........ 1995 98,654 5,000 -- 1,000 -- Senior Vice President, 1994 91,212 6,719 -- 1,000 -- former Vice President 1993 91,859 -- -- 500 -- of Engineering
- --------------- (1) There are no restricted stock awards, stock appreciation rights or deferred long-term incentive payouts. The amounts reflected for Mr. Liss are payments by the Company for split dollar life insurance premiums. (2) The bonuses and other annual compensation for Mr. Brandt constituted consulting fees and other payments under a prior agreement with the Company which was superseded on August 16, 1996 by a new employment agreement. RETIREMENT PLAN AND SUPPLEMENTAL RETIREMENT BENEFITS There was a cash contribution of $98,816 for the individuals listed in the Summary Compensation Table and all other eligible employees to the Company's retirement plan for 1995. The amounts set forth for All Other Compensation include $96,615, $116,535 and $57,549 paid to Mr. Brandt for tax equalization payments in 1993, 1994 and 1995, respectively, under a former consulting agreement primarily resulting from limitations placed on the Plan by the Internal Revenue Code. Under the supplemental retirement arrangement with Mr. Liss, $15,000, $95,475 and $43,723 was accrued but not paid in 1993, 1994 and 1995, respectively. 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. The following table presents estimated retirement benefits payable at normal retirement date, which normally is age 65. The amounts shown include estimated Social Security benefits which would be deducted in calculating benefits payable under such Plan. 30 34
FINAL AVERAGE SALARY ESTIMATED ANNUAL RETIREMENT BENEFITS FOR HIGHEST FIVE OF BASED ON CREDITED SERVICE YEARS THE TEN YEARS ------------------------------------------------- PRECEDING RETIREMENT 10 20 30 35 40 --------------------------------------- ------- ------- ------- -------- -------- $100,000............................... $15,000 $30,000 $45,000 $ 52,500 $ 60,000 125,000............................... 18,750 37,500 56,250 65,625 75,000 150,000............................... 22,500 45,000 67,500 78,750 90,000 200,000(1)............................ 30,000 60,000 90,000 105,000 120,000(2)
As of January 1, 1996, Messrs. Liss, Mulcahy and Hirschauer had 27, 28 and 16 years of credited service, respectively. - --------------- (1) $235,840 is the legislated annual cap on compensation for 1993 and $150,000 is the limit for subsequent years. (2) Maximum legislated annual benefits payable from qualified pension plan. CERTAIN TRANSACTIONS During the year 1995, $265,000 in fees for legal services rendered were paid by the Company to the law firm of which Mr. Modlin, a director of the Company, is a member. A subsidiary of the Company loaned an aggregate of $290,385 during the years 1989 through 1996 (and has agreed to loan an additional $30,000) to Dr. Fromme, Chairman of the Executive Committee, to fully pay the premiums on a $500,000 life insurance policy on his life. The Company has received an assignment of the policy as collateral for their repayment to the extent the proceeds of the policy are in excess of $200,000. The loans plus accrued interest are repayable solely from the proceeds of the policy. Messrs. Matthew Brandt and Thomas Brandt (sons and nephews of Messrs. R. Brandt and Dr. Fromme, respectively) are Vice Presidents of the Company, and each is employed by the Company at an annual salary of $87,500. EMPLOYMENT AGREEMENTS The Company has employment agreements with Messrs. R. Brandt, Liss, Mulcahy and Hirschauer expiring on December 31, 2002, December 31, 1997, May 31, 1998 and December 31, 1996, respectively. The agreements provide for annual compensation of $356,762 (subject to cost of living adjustments) for Mr. Brandt, $205,000 in 1996 and $215,000 in 1997 for Mr. Liss, $145,000 through May 1997 and $155,000 through May 1998 for Mr. Mulcahy, and $100,000 in 1996 for Mr. Hirschauer. Each agreement contains graduated bonus provisions based on the Company's defined pre-tax consolidated earnings, not to exceed $125,000, $150,000, $30,000 and $20,000 in the case of Messrs. R. Brandt, Liss, Mulcahy and Hirschauer, respectively. Each agreement also contains varying disability, death, and, other than Mr. Hirschauer, insurance benefits. In the case of Messrs. R. Brandt and Liss, each of their agreements provide for profit participations of 1 1/2% of the Company's defined pre-tax consolidated earnings. Mr. Mulcahy's agreement also provides for sales override commissions and severance benefits. Messrs. Brandt and Liss have the right to cancel their agreements if, among other things, in the case of Mr. Liss, the Company fails to renegotiate the terms of his agreement (which negotiations are in process) and elect him to his present positions and, in the case of Mr. Brandt, the Company fails to elect him to his present position in which case he has the right to receive the payments for the balance of the term of his agreement, including certain lump sum payments thereof. The foregoing is a summary of the agreements and reference is made to the agreements, each of which has been filed with the Securities and Exchange Commission for the full terms thereof. STOCK OPTION PLANS The Company has two incentive stock option plans adopted by the stockholders in 1992 and 1995 which provide for the grant of incentive stock options to purchase Common Stock (and/or Class A Stock under the 1995 Plan) at fair market value (or 110% of fair market value if the optionee owns more than 10% of the 31 35 Company's outstanding voting securities) on the date of grant. Options outstanding are exercisable during the period one to ten years after the date of grant and 500 and 76,200 shares remain available for issuance under the 1992 and 1995 Plans, respectively. The following two tables set forth certain information with respect to (i) the number of options granted to named executive officers in fiscal 1995 and (ii) the aggregate number and value of options exercisable by the named executive officers at December 31, 1995. Except for Mr. Mulcahy, no other named executive officer exercised any options in fiscal 1995. In 1996, Mr. Liss exercised options to purchase 6,906 shares. OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
POTENTIAL % OF REALIZABLE VALUE TOTAL AT ASSUMED OPTIONS ANNUAL RATES OF NUMBER OF GRANTED STOCK PRICE SECURITIES TO EXERCISE APPRECIATION FOR UNDERLYING EMPLOYEES OR BASE OPTION TERM OPTIONS IN FISCAL PRICE EXPIRATION ------------------ NAME GRANTED(#) YEAR PER SHARE($) DATE 5% ($) 10% ($) - -------------------------- ---------- --------- ------------ ---------- ------ ------- Victor Liss............... 5,000 18.4% 8.125 07/26/05 26,000 65,000 Michael R. Mulcahy........ 1,500 5.5% 8.125 07/26/05 8,000 19,000 Karl P. Hirschauer........ 1,000 3.7% 8.125 07/26/05 5,000 13,000
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTION EXERCISES OPTIONS AT OPTIONS AT ------------------------------ FISCAL YEAR END FISCAL YEAR END($) SHARES --------------- ------------------ ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1) - ---------------------------------- ------------- ------------ --------------- ------------------ Richard Brandt.................... -- -- 12,500/-- 6,250/-- Victor Liss....................... -- -- 28,000/5,000 17,875/-- Michael R. Mulcahy................ 2,000 2,063 4,000/1,500 --/-- Karl P. Hirschauer................ -- -- 2,000/1,000 844/--
- --------------- (1) Market value of underlying securities at fiscal year end, minus the exercise price. MEETINGS OF THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES During 1995, the Board of Directors had five meetings. All directors attended 75% or more of such meetings and of committees of which they were members. Non-employee directors receive an annual fee of $3,500 and $950 for each meeting of the Board attended, while employee directors receive an annual fee of $2,200 and $450 for each meeting attended. The members of the Executive Committee of the Board of Directors are Messrs. R. Brandt, Greenes, Liss, Modlin and Dr. Fromme. The Executive Committee is authorized to exercise the powers of the Board of Directors during the intervals between the meetings of the Board and is from time to time delegated certain authorizations by the Board in matters pertaining to the Company. The Executive Committee did not hold any formal meetings in 1995. Members of said Committee receive a fee of $300 for each meeting of the Committee they attend. Dr. Fromme receives an annual fee of $12,000 as Chairman of the Executive Committee and for other consulting services. Mr. Greenes receives an annual fee of $6,000 as Vice Chairman of the Executive Committee and for other consulting services. The members of the Compensation Committee of the Board of Directors are Messrs. Modlin, Greenes and Jankowski and Ms. Firstenberg. The Compensation Committee reviews compensation and other benefits. 32 36 The Compensation Committee had two meetings in 1995. Members of said Committee receive a fee of $300 for each meeting of the Committee they attend and the Chairman, Mr. Modlin, receives an annual fee of $2,500. The members of the Audit Committee of the Board of Directors are Ms. Firstenberg and Messrs. Baruch, Greenes and Modlin. The Audit Committee reviews the audit function and material aspects thereof with the Company's independent auditors. Such Committee had two meetings in 1995. Members of the Audit Committee receive a fee of $300 for each meeting which they attend and the Chairperson, Ms. Firstenberg, receives an annual fee of $2,500. On June 20, 1989, the Board of Directors established a Non-Employee Director Stock Option Plan as amended, which covers a maximum of 30,000 shares for grant. Options are for a period of six years from the date of the grant, are granted at fair market value on the date of the grant, may be exercised at any time after one year from the date of the grant while a director and are based on years of service, with a minimum of 500 stock options for each director, an additional 500 based on five or more years of service, another 500 based on ten or more years of service and an additional 1,000 based on twenty or more years of service. Additional options are granted upon the expiration or exercise of any such option which is no earlier than four years after the date of the grant, in an amount equal to such exercised or expired options. 33 37 DESCRIPTION OF NOTES The Notes offered hereby are to be issued under an Indenture, to be dated as of November , 1996, between the Company and Continental Stock Transfer & Trust Company, as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summary of certain provisions of the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Indenture, including the definitions therein of certain terms. Wherever a particular Section, Article or defined term is referred to, such Section, Article or defined term refers to the Indenture and is incorporated herein by reference. GENERAL The Notes will be unsecured subordinated obligations of the Company, will be limited to an aggregate principal amount of $25,000,000 (subject to increase in the event of the exercise of the Underwriters' over-allotment option) and will mature on December 1, 2006. The Notes will bear interest at the rate per annum shown on the front cover of this Prospectus from the date of initial issuance, or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semi-annually on June 1 and December 1 of each year, commencing June 1, 1997, to the Person in whose name the Notes (or any predecessor Notes) are registered at the close of business on the Regular Record Date for such interest, which shall be May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Interest on the Notes will be paid on the basis of a 360-day year of twelve 30-day months, based on actual days elapsed. (Section 2.04 and 6.01) Principal of, and premium, if any, and interest on the Notes will be payable, and the transfer of Notes will be registerable, at the office or agency of the Company maintained for such purposes in the Borough of Manhattan, the City of New York. In addition, payment of interest may, at the option of the Company, be made by check mailed to the address of the Person entitled thereto as it appears in the Note Register. (Sections 2.03, 6.01 and 6.02) The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiples thereof. (Section 3.2) No service charge will be made for any registration of transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company is not required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the day fixed for any redemption and ending at the close of business on such Redemption Date or (ii) to register the transfer of or exchange any Notes for redemption in whole or in part, except the unredeemed portion of the Notes being redeemed in part. (Section 2.07) All monies paid by the Company to the Trustee or any Paying Agent for the payment of principal of and premium, if any, and interest on any Note which remains unclaimed for two years after such principal, premium or interest becomes due and payable may be repaid to the Company. Thereafter, the Holder of such Note may, as an unsecured general creditor, look only to the Company for payment thereof. (Section 13.04) The Indenture does not contain any provisions that would provide protection to Holders of the Notes against a sudden and dramatic decline in the credit quality of the Company resulting from any takeover, recapitalization or similar restructuring, except as described below under "Repurchase at Option of Holders Upon a Repurchase Event." CONVERSION RIGHTS The Notes will be convertible into the Common Stock of the Company at any time after 60 days following the date of initial issuance thereof and up to and including the maturity date (subject to prior redemption by the Company on not less than 30 nor more than 60 days' notice) of the principal amount thereof, initially at the Conversion Price stated on the cover page of this Prospectus (subject to adjustment as described below). The right to convert the Notes called for redemption or delivered for repurchase will terminate at the close of business on the last Trading Day prior to the Redemption Date or the Repurchase 34 38 Date, unless the Company defaults in making the payment due upon redemption or repurchase. (Section 5.01) For information as to notices of redemption, see "Optional Redemption." The Conversion Price will be subject to adjustment in certain events, including (i) dividends (and other distributions) payable in Common Stock or any class of capital stock of the Company, (ii) the issuance to all holders of Common Stock of rights, warrants or options entitling them to subscribe for or purchase Common Stock at less than the current market price, (iii) subdivisions or combinations of Common Stock, (iv) distributions to all holders of Common Stock of evidences of indebtedness of the Company, cash or other assets (including securities, but excluding those dividends, rights, warrants, options and distributions referred to above and excluding dividends and distributions paid exclusively in cash), (v) distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in (iv) above or cash distribution upon a merger or consolidation to which the second succeeding paragraph applies) to all holders of Common Stock in an aggregate amount that, combined together with (a) all other such all-cash distributions made within the preceding 12 months in respect to which no adjustment has been made and (b) any cash and the fair market value of other consideration paid or payable in respect of any tender offers by the Company for Common Stock concluding within the preceding 12 months in respect of which no adjustment has been made, exceeds 12.5% of the Company's market capitalization (defined as being the product of the current market price of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such distribution, and (vi) the purchase of Common Stock pursuant to a tender offer made by the Company or any of its subsidiaries which involves an aggregate consideration that together with (a) any cash and the fair market value of any other consideration paid or payable in any other tender offer by the Company or any of its subsidiaries of Common Stock expiring within the 12 months preceding the expiration of such tender offer in respect of which no adjustment has been made and (b) the aggregate amount of any such all-cash distributions referred to in (v) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 12.5% of the Company's market capitalization on the expiration of such tender offer. No adjustment in the Conversion Price shall be required unless such adjustment (plus any adjustments not previously made) would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this sentence are not required to be made shall be carried forward and then taken into account in any subsequent adjustment. (Section 5.04) In addition to the foregoing adjustments, the Company will be permitted to make such reduction in the Conversion Price as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend or distribution of stock or stock rights will not be taxable to the holders of the Common Stock. (Section 5.04) Subject to the rights of Holders of the Notes described below under the "Repurchase at Option of Holders Upon a Repurchase Event," in case of certain consolidations or mergers to which the Company is a party or the transfer of substantially all of the assets of the Company, each Note then outstanding would, without the consent of any Holders of the Notes, become convertible only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger or transfer by a holder of the number of shares of Common Stock into which such Note might have been converted immediately prior to such consolidation, merger or transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares). (Section 5.10) Fractional shares of Common Stock will not be issued upon conversion, but, in lieu thereof, the Company will pay a cash adjustment based upon market price. (Section 5.03) Notes surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date 35 39 to the opening of business on such Interest Payment Date (except the Notes called for redemption on a Redemption Date within such period) must be accompanied by payment of an amount equal to the interest thereon which the registered Holder is to receive. In the case of any Note that has been converted after any Regular Record Date but on or before the next Interest Payment Date, interest whose stated maturity is on such Interest Payment Date will be payable on such Interest Payment Date notwithstanding such conversion, and such interest will be paid to the Holder of such Note on such Regular Record Date. Except as described above, no interest on converted Notes will be payable by the Company on any Interest Payment Date subsequent to the date of conversion. No other payment or adjustment for interest or dividends will be made upon conversion. (Section 5.02) If at any time the Company makes a distribution of property to its stockholders that would be taxable to such stockholders as a dividend for Federal income tax purposes (e.g., distributions of evidence of indebtedness or assets of the Company, but generally not stock dividends or rights to subscribe for Common Stock) and, pursuant to the antidilution provisions of the Indenture, the Conversion Price of the Notes is reduced, such reduction may be deemed to be the payment of a taxable dividend to Holders of the Notes. Holders of the Notes could, therefore, have taxable income as a result of an event pursuant to which they receive no cash or property that could be used to pay the related income tax. SUBORDINATION The payment of the principal of and premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness. Upon any payment or dissolution of assets to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency or similar proceedings of the Company, the holders of all Senior Indebtedness will be first entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the Notes will be entitled to receive any payment in respect of the principal of or premium, if any, or interest on the Notes. No payment or distribution of any assets of the Company shall be made on account of principal of and premium, if any, or interest on the Notes, in the event and during the continuation of (i) any default in the payment of principal of or premium, if any, or interest on any Senior Indebtedness beyond any applicable grace period with respect thereto or (ii) any other event of default with respect to any Senior Indebtedness permitting the holders of such Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise have become due and payable, upon written notice thereof to the Company and the Trustee by any holders of Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) (the "Default Notice"), unless and until such event of default shall have been cured or waived or ceased to exist and such acceleration shall have been rescinded or annulled; provided such payments may not be prevented under clause (ii) above for more than 179 days after an applicable Default Notice has been received by the Trustee unless the Senior Indebtedness in respect of which such event of default exists has been declared due and payable in its entirety, in which case no such payment may be made until such acceleration has been rescinded or annulled or such Senior Indebtedness has been paid in full. No event of default which existed or was continuing on the date of any Default Notice may be made the basis for the giving of a second Default Notice and only one such Default Notice may be given in any 365-day period. (Article Four) By reason of such subordination, in the event of insolvency, creditors of the Company who are not holders of Senior Indebtedness or of the Notes may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the Holders of the Notes. 36 40 "Senior Indebtedness" means, with respect to the Company, any of the following (without duplication): (i) (a) any liability or obligation of the Company for borrowed money (including, without limitation, the payment of principal of and premium, if any, or interest, fees, penalties, expenses, collection expenses, and other obligations in respect thereof, and, to the extent permitted by applicable law, interest accruing after the filing of a petition initiating any proceeding under the Bankruptcy Code whether or not allowed as a claim in such proceeding), whether or not evidenced by bonds, debentures, notes or other written instruments, and any other liability or obligation evidenced by notes, bonds, debentures or similar instruments (other than the Notes) whether or not contingent and whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, (b) any deferred payment obligation of the Company for the payment of the purchase price of property or assets evidenced by a note or similar instrument (excluding any obligation for trade payables or constituting the deferred purchase price of property or assets which is not evidenced by a note or similar instrument and which is unsecured), (c) any obligation of the Company for the payment of rent or other amounts under a lease of property or assets which obligation is required to be classified and accounted for as a capitalized lease on the balance sheet of the Company under generally accepted accounting principles, (d) all obligations of the Company under interest rate and currency swaps, floors, caps, or similar arrangements intended to fix interest rate obligations or currency fluctuation risks, (e) all obligations of the Company evidenced by a letter of credit or any reimbursement obligation of the Company in respect of a letter of credit, (f) all obligations of others secured by a lien to which any of the properties or assets of the Company are subject (including, without limitation, leasehold interests and any intangible property rights), whether or not the obligations secured thereby have been assumed by the Company or shall otherwise be the Company's legal obligation and (g) all obligations of others of the kinds described in the preceding clauses (a), (b), (c), (d) or (e) assumed by or guaranteed by the Company and the obligations of the Company under guarantees of any such obligations; and (ii) any amendments, renewals, extensions, deferrals, modifications, refinancing and refunding of any of the foregoing. "Senior Indebtedness" shall not include: (i) indebtedness that by the terms of the instrument or instruments by which such indebtedness was created or incurred expressly provides that it (a) is junior in right of payment to the Notes or (b) ranks pari passu, in right of payment with the Notes, (ii) any repurchase, redemption or other obligation in respect of Disqualified Capital Stock, (iii) any indebtedness of the Company to any Subsidiary or to any Affiliate of the Company or any of the Subsidiaries, (iv) any indebtedness incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables (which are unsecured) or other current liabilities of the Company (other than for borrowed money) on the books of the Company (other than the current portion of any long-term indebtedness of the Company that but for this clause (iv) would constitute Senior Indebtedness), (v) any indebtedness of or amount owed by the Company to employees for services rendered to the Company, (vi) any liability for Federal, state, local or other taxes owing or owed by the Company and (vii) the Company's 9 1/2% Subordinated Debentures due 2012 and 9.0% Convertible Subordinated Debentures due 2005. (Section 1.01) The Notes will be effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company's subsidiaries. Any right of the Company to receive assets of any such subsidiary upon the liquidation or reorganization of any such subsidiary (and the consequent right of the Holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that subsidiary's creditors, except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. The Indenture does not prohibit or limit the incurrence of additional Senior Indebtedness. At September 30, 1996 , the Company's Senior Indebtedness aggregated approximately $ million, excluding accrued interest. The Company expects from time to time to incur additional indebtedness, including Senior Indebtedness. See Note 9 of "Notes to Consolidated Financial Statements" for a more detailed description of the Company's outstanding indebtedness. The Company's 9% Convertible Subordinated Debentures due 2005 and 9 1/2% Subordinated Debentures due 2012 are not Senior Indebtedness. 37 41 OPTIONAL REDEMPTION The Notes are redeemable at the Company's option, in whole or from time to time in part, upon not less than 30 nor more than 60 days' notice mailed to each Holder of the Notes to be redeemed at such Holder's address appearing in the Note Register, on any date on or after December 1, 1999 and prior to maturity. The Redemption Prices (expressed as a percentage of the principal amount) are as follows for the 12-month period beginning December 1 of the years indicated:
YEAR PERCENTAGE ---------- 1999...................................................... % 2000...................................................... 2001...................................................... 2002...................................................... 2003...................................................... 2004......................................................
thereafter and at maturity at 100% of principal, together in the case of any such redemption with accrued interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). No sinking fund is provided for the Notes. EVENTS OF DEFAULT The following will be Events of Default under the Indenture: (i) failure to pay principal of or premium, if any, on any Note when due, whether or not such payment is prohibited by the subordination provisions of the Indenture; (ii) failure to pay any interest on any Note when due, continued for 30 days, whether or not such payment is prohibited by the subordination provisions of the Indenture; (iii) default in the payment of the Repurchase Price in respect of any Note on the Repurchase Date therefor, whether or not such payment is prohibited by the subordination provisions of the Indenture; (iv) failure to perform or breach of any other covenant of the Company in the Indenture, which continues for 60 days after written notice as provided in the Indenture; and (v) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary. (Section 7.01) Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (Section 8.01) Subject to the Trustee being offered reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Notes will have the right by written instruction to the Trustee, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. (Section 7.05) If an Event of Default shall occur and be continuing, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Notes may accelerate the maturity of all Notes; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of the Outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. (Section 7.02) For information as to waiver of defaults, see "Modification and Waiver" below. 38 42 No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless (i) such Holder shall have previously given to the Trustee written notice of a continuing Event of Default and unless also the Holders of at least 25% in aggregate principal amount of the Outstanding Notes shall have made written request to the Trustee to institute proceedings, (ii) such Holder has offered to the Trustee reasonable indemnity, (iii) the Trustee for 60 days after receipt of such notice has failed to institute any such proceeding and (iv) no direction inconsistent with such request shall have been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Notes. (Section 7.06) However, such limitations do not apply to a suit instituted by a Holder of a Note for enforcement of (a) payment of the principal of and premium, if any, or interest on such Note on or after the respective due dates expressed in such Note, (b) the right to require repurchase of such Note or (c) the right to convert such Note in accordance with the Indenture. (Section 7.07) The Indenture provides that the Company will deliver to the Trustee, within 95 days after the end of each fiscal year, an officers' certificate, stating as to each signer thereof that he or she is familiar with the affairs of the Company and whether or not to his or her knowledge the Company is in default in the performance and observance of any of the Company's obligations under the Indenture and if the Company shall be in default, specifying all such defaults of which he or she has knowledge and the nature and status thereof. (Section 6.04) CONSOLIDATION, MERGER AND SALE OF ASSETS The Company, without the consent of the Holders of any of the Notes under the Indenture, may consolidate with or merge into any other Person or convey, transfer or lease its assets substantially as an entirety to any Person, provided that (i) the successor is a Person organized under the laws of any domestic jurisdiction; (ii) the successor Person, if other than the Company, assumes the Company's obligations on the Notes and under the Indenture; (iii) after giving effect to the transaction no Event of Default, and no event after notice or lapse of time, would become an Event of Default, shall have occurred and be continuing; and (iv) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this covenant and that all conditions precedent herein provided for relating to such transaction have been complied with. (Section 12.01) MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of 66 2/3% in aggregate principal amount of the Outstanding Notes; provided, however, that no such modification or amendment may, without consent of the Holder of each Outstanding Note affected thereby, (i) change the stated maturity of the principal of, or any installment of interest on any Note; (ii) reduce the principal amount of, or the premium or interest on any Note; (iii) change the place of payment where, or currency in which, any Note or any premium or interest thereof is payable; (iv) impair the right to institute suit for the enforcement of any payment on or with respect to any Note; (v) adversely affect the right to convert the Notes; (vi) adversely affect the right to cause the Company to repurchase the Notes; (vii) modify the subordination provisions in a manner adverse to the Holders of the Notes; (viii) reduce the above-stated percentage of Outstanding Notes necessary to modify or amend the Indenture; or (ix) reduce the percentage of aggregate principal amount of Outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults. (Section 11.02) The Holders of a majority in aggregate principal amount of Outstanding Notes may waive compliance by the Company with certain restrictive provisions of the Indenture. (Section 7.04) The Holders of a majority in aggregate principal amount of the Outstanding Notes may waive any past default or right under the Indenture, except (i) a default in payment of principal, premium or interest, (ii) the right of a Holder to redeem or convert the Note or (iii) with respect to any covenant or provision of the Indenture that requires the consent of the Holder of each Outstanding Note affected. (Section 7.04) 39 43 REPURCHASE AT OPTION OF HOLDERS UPON A REPURCHASE EVENT The Indenture provides that if a Repurchase Event occurs after initial issuance of the Notes, each Holder of the Notes shall have the right (which right may not be waived by the Board of Directors or the Trustee) at the Holder's option, to require the Company to repurchase all of such Holder's Notes, or any portion thereof that is an integral multiple of $1,000, on the date (the "Repurchase Date") that is 45 calendar days after the date of the Company Notice (as defined below), for cash at a price equal to 100% of the principal amount of such Notes to be repurchased (the "Repurchase Price"), together with accrued interest to the Repurchase Date. (Section 6.09) Within 30 calendar days after the occurrence of a Repurchase Event, the Company is obligated to mail all Holders of record of the Notes a notice (the "Company Notice") of the occurrence of such Repurchase Event and of the repurchase right arising thereof. The Company must deliver a copy of the Company Notice to the Trustee. To exercise the repurchase right, the Holder of such Note must deliver on or before the fifth day preceding the Repurchase Date irrevocable written notice to the Trustee of the Holder's exercise of such right (except that the right of the Holders to convert such Notes shall continue until the close of business on the last Trading Day preceding the Repurchase Date), together with the Notes with respect to which the right is being exercised, duly endorsed for transfer to the Company. (Section 6.09) A Repurchase Event will be deemed to have occurred at such time after initial issuance of the Notes if: (i) any Person (including any syndicate or group deemed to be a "Person" under Section 13(d)(3)of the Exchange Act), other than the Company, any subsidiary of the Company, any existing Person (including directly or indirectly, the immediate family of any such Person) who currently beneficially owns shares of capital stock with 50% or more of the voting power as described below, or any current or future employee or director benefit plan of the Company or any subsidiary of the Company or any entity holding capital stock of the Company for or pursuant to the terms of such plan, or an underwriter engaged in a firm commitment underwriting in connection with a public offering of capital stock of the Company, is or becomes the beneficial owner, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors; (ii) the Company sells or transfers all or substantially all of the assets of the Company to another Person; (iii) there occurs any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger (a) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock, (b) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock, or (c) a transaction in which the stockholders of the Company immediately prior to such transaction owned, directly or indirectly, immediately following such transaction, at least a majority of the combined voting power of the outstanding voting stock of the Company resulting from the transaction, such stock to be owned by such stockholders in substantially the same proportion as their ownership of the voting stock of the Company immediately prior to such transaction); (iv) a change in the Board of Directors of the Company in which the individuals who constituted the Board of Directors of the Company at the beginning of the 24-month period immediately preceding such change (together with any other director whose election by the Board of Directors of the Company or whose nomination for election by the stockholders of the Company was approved by a vote of at least a majority of the directors then in office either who were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; or 40 44 (v) the Common Stock of the Company is the subject of a "Rule 13e-3 transaction" as defined under the Exchange Act. provided, however, that a Repurchase Event shall not be deemed to have occurred if the closing price per share of the Common Stock for any five Trading Days within the period of ten consecutive Trading Days ending immediately before a Repurchase Event shall equal or exceed 110% of the Conversion Price of such Notes in effect on each such Trading Day. A "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act, as in effect on the date of execution of the Indenture. (Sections 1.01 and 6.09) The right to require the Company to repurchase the Notes as a result of the occurrence of a Repurchase Event could create an event of default under Senior Indebtedness as a result of which any repurchase could, absent a waiver, be blocked by the subordination provisions of the Notes. See "Subordination" above. Failure of the Company to repurchase the Notes when required would result in an Event of Default with respect to the Notes whether or not such repurchase is permitted by the subordination provisions. The Company's ability to pay cash to the Holders of Notes upon a repurchase may be limited by certain financial covenants contained in the Company's credit agreement. Rule 13e-4 under the Exchange Act requires, among other things, the dissemination of certain information to security holders in the event of any issuer tender offer and may apply in the event that the repurchase option becomes available to the Holders of the Notes. The Company will comply with this rule to the extent applicable at that time. (Section 6.09) The repurchase feature of the Notes may in certain circumstances make more difficult or discourage a takeover of the Company and the removal of incumbent management. The foregoing provisions would not necessarily afford Holders of the Notes protection in the event of highly leveraged or other transactions involving the Company that may adversely affect Holders. Except as described above with respect to a Repurchase Event, the Indenture does not contain provisions permitting the Holders of the Notes to require the Company to repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. Subject to the limitation on mergers and consolidations described above, the Company, its management or its subsidiaries could, in the future, enter into certain transactions, including refinancing, certain recapitalizations, acquisitions, the sale of all or substantially all of its assets, the liquidation of the Company or similar transactions, that would not constitute a Repurchase Event under the Indenture, but that would increase the amount of Senior Indebtedness (or any other indebtedness) outstanding at such time or substantially reduce or eliminate the Company's assets. There are no restrictions in the Indenture on the creation of Senior Indebtedness (or any other indebtedness) and, under certain circumstances, the incurrence of significant amounts of additional indebtedness could have an adverse effect on the Company's ability to service its indebtedness, including the Notes. If a Repurchase Event were to occur, there is no assurance that the Company would have sufficient funds to repurchase all Notes tendered by the Holders thereof or to make any principal, premium, if any, or interest payments otherwise required by the Notes. At September 30, 1996, the Company had outstanding approximately $ million principal amount of indebtedness under its existing credit agreement which could be accelerated upon the occurrence of certain change of control events. As noted above, one of the events that constitutes a Repurchase Event under the Indenture is a sale or other transfer of all or substantially all of the assets of the Company. The Indenture will be governed by New York law, and the definition under New York law of "substantially all" of the assets of a corporation varies according to the facts and circumstances of the transaction. Accordingly, if the Company were to engage in a transaction in which it disposed of less than all of its assets, a question of interpretation could arise as to whether such disposition was of "substantially all" of its assets and whether the transaction was a Repurchase Event. 41 45 SATISFACTION AND DISCHARGE The Company may subject to certain conditions, discharge its obligations under the Indenture while the Notes remain outstanding if (i) all outstanding Notes will become due and payable at their scheduled maturity within one year or (ii) all outstanding Notes are scheduled for redemption within one year, and, in either case, the Company has deposited with the Trustee an amount sufficient to pay and discharge all outstanding Notes on the date of their scheduled maturity or the scheduled date of redemption. (Section 13.01) REPORTS In addition to complying with any applicable legal requirements, the Company will deliver to the Holders of record, and to any beneficial owners so requesting, annual reports containing audited consolidated financial statements with a report thereon by the Company's independent public accountants. (Section 8.06) GOVERNING LAW The Indenture and the Notes will be governed by and construed in accordance with the laws of the State of New York. INFORMATION CONCERNING THE TRUSTEE Continental Stock Transfer & Trust Company is the Trustee under the Indenture. A successor Trustee may be appointed in accordance with the terms of the Indenture. The Trustee's duties are set forth in the Trust Indenture Act, as amended (the "Trust Indenture Act"), and in the Indenture. The Trust Indenture Act imposes certain limitations on the right of the Trustee, in the event it becomes a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect to any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; provided, however, it if acquires any conflicting interest within the meaning of Section 310 of the Trust Indenture Act, it must generally either eliminate such conflict or resign. Prior to an Event of Default, the Trustee is responsible to perform only such duties as are specifically set out in the Indenture. In case an Event of Default shall occur (and shall not be cured), the Trust Indenture Act required that the Trustee use the degree of care of a prudent person in the conduct of its own affairs in the exercise of its powers. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the Holders of Notes, unless they shall have offered to the Trustee reasonable security or indemnity. (Section 8.01) The holders of a majority in principal amount of all outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy or power available to the Trustee, provided that such direction does not conflict with any rule of law or with the Indenture, is not prejudicial to the rights of another Holder or the Trustee, and does not involve the Trustee in personal liability. (Sections 7.05 and 8.01) The Trustee is also the trustee for the Company's 9% Convertible Subordinated Debentures due 2005 and 9 1/2% Subordinated Debentures due 2012. 42 46 DESCRIPTION OF CAPITAL STOCK COMMON STOCK The shares of Common Stock are entitled to one vote per share on all matters submitted to stockholders. The holders of Common Stock are entitled to vote separately as a class (as are the shares of Class B Stock) on all matters requiring an amendment to the Company's Certificate of Incorporation, as well as on mergers, consolidations and certain other significant transactions for which stockholder approval is required under Delaware law. Holders of the Common Stock do not have preemptive rights or cumulative voting rights. Dividends on the Common Stock will be paid if, and when declared. The Common Stock is entitled to cash dividends which are 11.1% higher per share than the cash dividends which may be paid on the Class B Stock. Except as otherwise set forth herein the Common Stock and the Class B Stock rank equally. Stock dividends on and stock splits of Common Stock will only be payable or made in shares of Common Stock. In the event of liquidation the Common Stock is entitled to receive the entire net assets of the Company remaining after payment of all debts and other claims of creditors and after the holders of each series of Preferred Stock, if any, have been paid the preferred liquidating distribution on their shares, if any, as fixed by the Board of Directors of the Company. The Common Stock is not convertible into shares of any other equity security of the Company. The Common Stock is freely transferable. As of September 30, 1996, there were 847 holders of record of Common Stock. CLASS B STOCK The shares of Class B Stock are entitled to ten votes per share on all matters submitted to stockholders. They are entitled to vote separately as a class (as are the shares of Common Stock) on all matters requiring an amendment to the Company's Certificate of Incorporation, as well as on mergers, consolidations and certain other significant transactions for which stockholder approval is required under Delaware law. Holders of the Class B Stock do not have preemptive rights or cumulative voting rights. Dividends on the Class B Stock will be paid only as and when dividends on the Common Stock are declared and paid. The Class B Stock is entitled to cash dividends which are 10% lower per share than the cash dividends which may be paid on the Common Stock. Except as otherwise set forth herein the Common Stock and the Class B Stock rank equally. Stock dividends on and stock splits of Class B Stock will only be payable or made in shares of Class B Stock. In the event of liquidation or insolvency, each share of Class B Stock will be entitled, through conversion into Common Stock, to share ratably with the Common Stock in the assets remaining after payment of all debts and other claims of creditors, subject to the rights of any Preferred Stock which may be issued in the future. Holders of Class B Stock may elect at any time to convert any or all of such shares back into shares of Common Stock on a share-for-share basis. In the event that the number of outstanding shares of Class B Stock falls below 5% of the aggregate number of issued and outstanding shares of Common Stock and Class B Stock, or the Board of Directors and a majority of the outstanding shares of Class B Stock approve the conversion of all of the Class B Stock into Common Stock, then immediately upon the occurrence of either event, the shares of the Class B Stock will automatically be converted into shares of Common Stock. In the event of such conversion, certificates formerly representing outstanding shares of Class B Stock will thereafter be deemed to represent a like number of shares of Common Stock. The Class B Stock is not transferable except to certain family members and related entities. As of September 30, 1996 there were 68 holders of Class B Stock. 43 47 CLASS A STOCK Each share of Class A Stock has no voting rights except as otherwise required by law. Under the Delaware General Corporation Law, holders of Class A Stock are entitled to vote on proposals to increase or decrease the number of authorized shares of Class A Stock, change the par value of the Class A Stock or to alter or change the powers, preferences or special rights of the shares of Class A Stock which may affect them adversely. Each outstanding share of Class A Stock is entitled to receive such dividends and other distributions in cash, stock or property as may be declared by the Board of Directors of the Company, provided that, if at any time a cash dividend is paid on the Common Stock, a cash dividend will also be paid on the Class A Stock in an amount 10% higher than the amount per share paid on the Common Stock and 22.2% higher than that paid on the Class B Stock. In no event shall dividends and other distributions be paid on any of the Common Stock, Class A Stock or Class B Stock unless the other such classes of stock also receive dividends subject to the above provisions for the requirement of the respective higher cash dividends for Class A Stock and Common Stock. Dividends or other distributions payable in shares of stock shall be made to holders of Class A Stock in shares of Class A Stock. The Board can authorize a distribution of Class A Stock proportionately to holders of Common Stock, Class A Stock and Class B Stock. In no event will either Common Stock, Class A Stock or Class B Stock be split, divided or combined unless the others are also proportionately split, divided or combined. The Class A Stock will convert into Common Stock only at such time as all of the Class B Stock is converted to Common Stock in accordance with the terms of the Certificate of Incorporation. The Certificate of Incorporation provides that if the number of shares of Class B Stock falls below 5% of the aggregate number of outstanding shares of Common Stock and Class B Stock, or if the Board of Directors and a majority of the outstanding shares of Class B Stock approve, the outstanding shares of Class B Stock will be converted into Common Stock. Consistent with the terms of the Common Stock and Class B Stock, the Class A Stock does not carry any preemptive rights enabling a holder to subscribe for or receive shares of any class of stock of the Company or any other securities convertible into shares of any class of stock of the Company. The Class A Stock is entitled to receive the same consideration per share as the Common Stock and Class B Stock in the event of any liquidation, dissolution or winding-up of the Company. Each holder of Class A Stock is entitled to receive the same per share consideration as the per share consideration, if any, received by any holder of the Common Stock and Class B Stock in a merger or consolidation of the Company. SPECIAL VOTING REQUIREMENTS The Company's Certificate of Incorporation, as presently in effect, contains a required four-fifths vote on mergers, consolidations or a sale of substantially all of the Company's assets with an "Interested Person", i.e. a holder of 10% or more of its common stock. It also contains a "fair price" provision requiring all stockholders to receive equal treatment in the event of a takeover which may be coercive. Such provision may not be amended except by a four-fifths vote of the stockholders and may be considered to have the effect of discouraging tender offers, takeover attempts, acquisitions or business combinations involving the Company. Such provision also requires that business combinations involving the Company and certain "Acquiring Persons" (i.e., a person or entity which directly or indirectly owns or controls at least 5% of the voting stock of the Company) be approved by the holders of four-fifths of the Company's outstanding shares entitled to vote (excluding shares held by the Acquiring Person) unless such business combination either (1) has been authorized by the Board of Directors prior to the time that the Acquiring Person involved in such business combination became an Acquiring Person, or (2) will result in the receipt by the other stockholders of a specified minimum amount and form of payment for their shares. 44 48 PREFERRED STOCK Preferred stock may be issued in one or more series from time to time by action of the Board of Directors. The shares of any series of Preferred Stock may be convertible into Common Stock, may have priority over the Common Stock, Class B Stock and Class A Stock in the payment of dividends and as to the distribution of assets in the event of liquidation, dissolution or winding-up of the Company and may have preferential or other voting rights, in each case, to the extent, if any, determined by the Board of Directors of the Company at the time it creates the series of Preferred Stock. There currently are no shares of Preferred Stock outstanding. DELAWARE ANTI-TAKEOVER LAW Under Section 203 of the Delaware General Corporation Law (the "Delaware anti-takeover law"), certain "business combinations" between a Delaware corporation whose stock is listed on a national securities exchange or held of record by more than 2,000 stockholders, and an "interested stockholder" are prohibited for a three-year period following the date that such stockholder became an interested stockholder, unless (i) the corporation has elected in its certificate of incorporation or bylaws not to be governed by the Delaware anti-takeover law (the Company has not made such an election), (ii) the business combination was approved by the board of directors of the corporation before the other party to the business combination became an interested stockholder, (iii) upon consummation of the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction (excluding voting stock owned by directors who are also officers or held in employee stock plans in which the employees do not have a right to determine confidentially whether to tender or vote stock held by the plan), or (iv) the business combination was approved by the board of directors of the corporation and ratified by 66 2/3% of the voting stock which the interested stockholder did not own. The three year prohibition does not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors. The term "business combination" is defined generally to include mergers or consolidations between a Delaware corporation and an interested stockholder, transactions with an interested stockholder involving the assets or stock of the corporation or its majority-owned subsidiaries and transactions which increase an interested stockholder's percentage ownership of stock. The term "interested stockholder" is defined generally as a stockholder who becomes the beneficial owner of 15% or more of a Delaware corporation's voting stock. The Delaware anti-takeover law could have the effect of delaying, deferring or preventing a change in control of the Company. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation provides that directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, relating to prohibited dividends or distributions or the repurchase or redemption of stock, or (iv) for any transaction from which the director derives an improper personal benefit. The provision does not apply to claims against a director for violations of certain laws, including federal securities law. If the Delaware General Corporation Law is amended to authorize the further elimination or limitation of directors' liability, then the liability of directors of the Company shall automatically be limited to the fullest extent provided by law. The Company's By-laws also contain provisions to indemnify the directors, officers, employees or other agents to the fullest extent permitted by the Delaware General Corporation Law. In addition, the Company has entered into indemnification agreements with its current directors and executive officers. These provisions and agreements may have the practical effect in certain cases of eliminating the ability of stockholders to collect monetary damages from directors. The Company believes that these contractual agreements and the provisions in its Certificate of Incorporation and By-laws are necessary to attract and retain qualified persons as directors and officers. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar of the Common Stock of the Company is Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004. 45 49 UNDERWRITING The Underwriters named below, for whom Southcoast Capital is acting as representative, have severally agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company $25,000,000 principal amount of the Notes. The Underwriting Agreement provides that the obligations of the Underwriters to pay for and accept delivery of the Notes are subject to certain conditions precedent, and that the Underwriters are committed to purchase all of the Notes if they purchase any of the Notes.
PRINCIPAL AMOUNT UNDERWRITER OF NOTES --------------------------------------------------------------------- ---------------- Southcoast Capital Corporation....................................... $
The Underwriters have advised the Company that they propose initially to offer the Notes to the public on the terms set forth on the cover page of this Prospectus. The Underwriters may allow selected dealers a concession of not more than % of the principal amount of the Notes, and the Underwriters may allow, and such dealers may reallow, a discount of not more than % of the principal amount of the Notes to other dealers. The public offering price and the concession and discount to dealers may be changed by the Underwriters after the initial public offering of the Notes. The Notes are offered subject to receipt and acceptance by the Underwriters, and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted the Underwriters an option for 30 days to purchase up to an additional $3,750,000 principal amount of the Notes solely to cover over-allotments, if any, at the same price per Note as the initial principal amount of the Notes to be purchased by the Underwriters. The Underwriting Agreement provides that the Company will indemnify the Underwriters against certain liabilities, including civil liabilities under the Securities Act of 1933, as amended (the "Securities Act"), or will contribute to payments the Underwriters may be required to make in respect thereof. The Notes are a new issue of securities for which there is currently no public market. Application will be made to have the Notes approved for inclusion on the AMEX. However, no assurance can be given as to the liquidity of or trading market for the Notes. Directors and executive officers of the Company, who in the aggregate own approximately 288,590 shares (including options to purchase shares) of Common Stock (including Class B Stock if converted into equal amounts of Common Stock), have agreed not to offer for sale, sell, distribute or otherwise dispose of any shares of Common Stock, or any securities convertible into or warrants to purchase shares of Common Stock, now owed or hereafter acquired for a period of 90 days after the date of this Prospectus without prior written consent of Southcoast Capital. 46 50 LEGAL MATTERS The legality of the Notes and the Common Stock offered hereby and certain other legal matters will be passed upon for the Company by Weisman Celler Spett & Modlin, P.C., New York, New York. Certain legal matters in connection with the offering contemplated hereby will be passed upon for the Underwriters by Fulbright & Jaworski L.L.P., New York, New York. As of June 30, 1996, members of the firm of Weisman Celler Spett & Modlin, P.C. beneficially owned 2,812 shares of the Class B Stock of the Company. Howard S. Modlin, a member of such firm, is a director of the Company. EXPERTS The financial statements as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995 of the Company included and incorporated by reference in this Prospectus from the Company's Annual Report on Form 10-K for the year ended December 31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which is included and incorporated by reference herein, and have been so included and incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 the ("Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional offices located at Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained at prescribed rates by writing the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company at http://www.sec.gov. The Common Stock is listed on the AMEX and reports, proxy statements and other information concerning the Company can be inspected at such Exchange's office located at 86 Trinity Place, New York, New York 10006. This Prospectus forms a part of a registration statement on Form S-2 (herein, together with all exhibits thereto, referred to as the "Registration Statement") filed by the Company with the Commission under the Securities Act of 1933 (the "Securities Act") with respect to the Notes offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. Statements contained herein concerning the provisions of certain documents are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. The Registration Statement and the exhibits thereto can be inspected and copied at the public reference facilities and regional offices referred to above. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by the Company with the Commission pursuant to the Exchange Act (File No. 1-2257), are hereby incorporated by reference in and made a part of this Prospectus: (1) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, (filed April 1, 1996). (2) The Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996 and June 30, 1996, (filed May 14, 1996 and August 14, 1996, respectively). 47 51 Any statement contained in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for the purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a Prospectus is delivered, upon the written or oral request of any such person, a copy of any of or all the documents referred to above which have been or may be incorporated in this Prospectus by reference, other than exhibits to such documents which are not specifically incorporated by reference into such documents. Requests for such copies should be directed to Angela Toppi, Chief Financial Officer, Trans-Lux Corporation, 110 Richards Avenue, Norwalk, Connecticut 06856-5090, telephone number (203) 853-4321. 48 52 TRANS-LUX CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report.......................................................... F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995.......................... F-3 Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995................................................................................ F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995................................................................................ F-5 Notes to Consolidated Financial Statements............................................ F-6 Consolidated Balance Sheets as of December 31, 1995 and June 30, 1996 (Unaudited)..... F-20 Consolidated Statements of Income for the six months ended June 30, 1995 and 1996 (Unaudited)......................................................................... F-21 Consolidated Statements of Cash Flows for the six months ended June 30, 1995 and 1996 (Unaudited)......................................................................... F-22 Notes to Consolidated Financial Statements (Unaudited)................................ F-23
F-1 53 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Trans-Lux Corporation: We have audited the accompanying consolidated balance sheets of Trans-Lux Corporation and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Stamford, Connecticut February 28, 1996 F-2 54 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 1994 1995 ----------- ----------- ASSETS Current assets: Cash and cash equivalents............................................... $ 2,335,000 $ 665,000 Available-for-sale securities........................................... 1,603,000 576,000 Receivables............................................................. 1,403,000 2,403,000 Inventories............................................................. 517,000 1,900,000 Prepaids and other current assets....................................... 104,000 466,000 Current deferred taxes.................................................. 192,000 -- ----------- ----------- Total current assets............................................... 6,154,000 6,010,000 ----------- ----------- Rental equipment.......................................................... 43,807,000 47,043,000 Less accumulated depreciation........................................... 14,154,000 16,265,000 ----------- ----------- 29,653,000 30,778,000 ----------- ----------- Property, plant and equipment............................................. 18,313,000 20,913,000 Less accumulated depreciation and amortization.......................... 5,070,000 5,921,000 ----------- ----------- 13,243,000 14,992,000 Prepaids, intangibles and other........................................... 2,295,000 4,081,000 Maintenance contracts, net................................................ 1,962,000 1,599,000 ----------- ----------- $53,307,000 $57,460,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accruals........................................... $ 5,379,000 $ 4,804,000 Income taxes payable.................................................... 198,000 136,000 Short-term borrowings................................................... -- 500,000 Current portion of long-term debt....................................... 2,660,000 1,804,000 ----------- ----------- Total current liabilities.......................................... 8,237,000 7,244,000 ----------- ----------- Long-term debt: 9% convertible subordinated debentures due 2005......................... 4,874,000 4,874,000 9 1/2% subordinated debentures due 2012................................. 1,057,000 1,057,000 Notes payable........................................................... 13,762,000 16,564,000 ----------- ----------- 19,693,000 22,495,000 Deferred revenue and deposits............................................. 1,550,000 2,621,000 Deferred income taxes..................................................... 3,282,000 3,600,000 Minority interest......................................................... 21,000 1,000 ----------- ----------- Stockholders' equity: Capital stock Preferred -- $1 par value -- 500,000 shares authorized.................. Common -- $1 par value -- 4,000,000 shares authorized 2,435,046 shares issued in 1994 and 2,436,268 in 1995................. 2,435,000 2,436,000 Class B -- $1 par value -- 2,000,000 shares authorized 305,359 shares issued in 1994 and 304,137 in 1995..................... 305,000 304,000 Additional paid-in capital.............................................. 13,809,000 13,806,000 Retained earnings....................................................... 15,993,000 16,888,000 Other................................................................... (107,000) (71,000) ----------- ----------- 32,435,000 33,363,000 Less treasury stock -- at cost -- 1,492,581 shares in 1994 and 1,488,837 in 1995 (excludes additional 305,359 shares held in 1994 and 304,137 in 1995 for conversion of Class B stock)................................... 11,911,000 11,864,000 ----------- ----------- Total stockholders' equity......................................... 20,524,000 21,499,000 ----------- ----------- $53,307,000 $57,460,000 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 55 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ------------------------------------------- 1993 1994 1995 ----------- ----------- ----------- GROSS REVENUES: Equipment rentals and maintenance................. $20,824,000 $21,652,000 $21,205,000 Equipment sales................................... 11,806,000 8,498,000 12,364,000 Theatre receipts and other........................ 3,169,000 3,592,000 4,222,000 ----------- ----------- ----------- 35,799,000 33,742,000 37,791,000 ----------- ----------- ----------- OPERATING EXPENSES: Cost of equipment rentals and maintenance......... 11,249,000 11,929,000 11,358,000 Cost of equipment sales........................... 7,648,000 4,620,000 7,863,000 Cost of theatre receipts and other................ 2,657,000 2,864,000 3,185,000 ----------- ----------- ----------- 21,554,000 19,413,000 22,406,000 ----------- ----------- ----------- GROSS PROFIT FROM OPERATIONS........................ 14,245,000 14,329,000 15,385,000 General and administrative expenses................. 10,202,000 11,023,000 11,494,000 ----------- ----------- ----------- 4,043,000 3,306,000 3,891,000 Interest income..................................... 223,000 204,000 147,000 Interest expense.................................... (2,603,000) (1,446,000) (2,291,000) Other income........................................ -- -- 92,000 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES.......................... 1,663,000 2,064,000 1,839,000 ----------- ----------- ----------- Provision for income taxes: Current........................................... 231,000 407,000 576,000 Deferred.......................................... 943,000 343,000 197,000 ----------- ----------- ----------- 1,174,000 750,000 773,000 ----------- ----------- ----------- NET INCOME.......................................... $ 489,000 $ 1,314,000 $ 1,066,000 =========== =========== =========== Earnings per share: Primary........................................... $ 0.39 $ 1.04 $ 0.85 Fully diluted..................................... * $ 0.94 $ 0.81 Average common and common equivalent shares outstanding: Primary........................................... 1,249,000 1,260,000 1,259,000 Fully diluted..................................... -- 1,943,000 1,643,000
- --------------- * not dilutive The accompanying notes are an integral part of these consolidated financial statements. F-4 56 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------------------- 1993 1994 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.......................................... $ 489,000 $ 1,314,000 $ 1,066,000 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................... 6,342,000 6,513,000 6,901,000 Deferred income taxes............................. 1,022,000 (188,000) 475,000 Current deferred taxes............................ (31,000) 230,000 192,000 Minority interest................................. -- 20,000 (20,000) Changes in operating assets and liabilities: Receivables.................................... 454,000 1,062,000 (595,000) Inventories.................................... 73,000 (3,000) (361,000) Prepaids and other current assets.............. 226,000 42,000 (309,000) Prepaids, intangibles and other................ (256,000) (85,000) (78,000) Accounts payable and accruals.................. 1,409,000 370,000 (1,675,000) Income taxes payable........................... 96,000 (48,000) (62,000) Deferred revenue and deposits.................. (2,315,000) 1,002,000 1,071,000 ----------- ----------- ----------- Net cash provided by operating activities.... 7,509,000 10,229,000 6,605,000 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of rental equipment....................... (2,972,000) (5,276,000) (5,932,000) Purchases of property, plant and equipment.......... (915,000) (3,187,000) (1,749,000) Payments for acquisitions........................... (3,274,000) -- (3,178,000) Proceeds from acquisition note receivable........... -- -- 658,000 Sale of assets...................................... -- 52,000 221,000 Investment in joint venture......................... -- (12,000) (480,000) Purchases of securities............................. (1,110,000) (3,470,000) (494,000) Proceeds from sales of securities................... 1,088,000 3,978,000 1,582,000 ----------- ----------- ----------- Net cash (used in) investing activities...... (7,183,000) (7,915,000) (9,372,000) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt........................ 2,400,000 4,308,000 4,379,000 Repayment of long-term debt......................... (2,604,000) (2,163,000) (3,655,000) Proceeds from short-term borrowings................. -- -- 500,000 Redemption of Company's 9% convertible subordinated debentures........................................ -- (3,080,000) -- Proceeds from exercise of stock options and stock award............................................. -- -- 45,000 Purchase of treasury stock.......................... (21,000) (1,000) (1,000) Cash dividends...................................... (153,000) (171,000) (171,000) ----------- ----------- ----------- Net cash provided by (used in) financing activities................................ (378,000) (1,107,000) 1,097,000 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents....................................... (52,000) 1,207,000 (1,670,000) Cash and cash equivalents at beginning of year...... 1,180,000 1,128,000 2,335,000 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR............ $ 1,128,000 $ 2,335,000 $ 665,000 =========== =========== =========== Interest paid....................................... $ 1,767,000 $ 2,135,000 $ 1,851,000 Interest received................................... 228,000 214,000 176,000 Income taxes paid................................... 140,000 756,000 661,000
The accompanying notes are an integral part of these consolidated financial statements. F-5 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation: The consolidated financial statements include the accounts of Trans-Lux Corporation and its majority-owned subsidiaries (the "Company"). Investment in a 50% owned joint venture, MetroLux Theatres, is reflected under the equity method. Cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Available-for-sale securities: Available-for-sale securities consists of U.S. Treasury Notes and common and preferred stock holdings and are stated at fair value. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market value. Rental equipment and property, plant and equipment: These assets are stated at cost and are being depreciated over their respective useful lives using straight line or 150% declining balance methods. Leaseholds and improvements are amortized over the lesser of the useful life or term of the lease. The estimated useful lives are as follows: Rental equipment...................................................... 5 to 15 years Buildings and improvements............................................ 10 to 45 years Machinery, fixtures and theatre equipment............................. 4 to 15 years Leaseholds and improvements........................................... 2 to 12 years
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. Maintenance contracts: These assets are stated at cost and are being amortized over their economic lives of eight to 15 years using an accelerated method. Rental income from leasing of equipment and revenue from maintenance contracts are recognized as they accrue during the term of the respective agreement. The Company recognizes revenues on certain significant contracts using the percentage of completion method. Income is recognized based on the percentage of incurred costs to the estimated total costs. Taxes on income: Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under this Standard, deferred tax assets and liabilities are determined based on the difference between financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Earnings per share: Primary earnings per share of Common and Class B shares are based on the weighted average number of Common and Class B shares and common stock equivalents outstanding computed by the "treasury stock" method. Fully diluted earnings per share assumes conversion of dilutive convertible debentures and the assumed exercise of all common stock equivalents. Long-lived assets: The Company will adopt the provisions of Statement of Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" in the first quarter of 1996. The anticipated effect of adopting this new standard is not expected to have a material effect on the Company's consolidated financial position or results of operations. Stock-based compensation: The Company will adopt the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123) in the first quarter of 1996. The Company, as provided for in FAS 123, will continue to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" for employees stock compensation measurement, and will disclose the required pro forma effect on net income and earnings per share based on the fair value of the equity instruments awarded. F-6 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities 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. Certain reclassifications have been made to prior years' amounts to conform to the current year's format. 2. AVAILABLE-FOR-SALE SECURITIES Available-for-sale securities are carried at estimated fair values and the unrealized holding losses are excluded from earnings and are reported net of income taxes in a separate component of stockholders' equity until realized. Adjustments of $107,000 and $71,000 were made to equity to reflect the net unrealized losses on available-for-sale securities as of December 31, 1994 and 1995, respectively. Available-for-sale securities consist of the following as of December 31, 1994 and 1995.
1994 1995 ----------------------- ----------------------- FAIR UNREALIZED FAIR UNREALIZED VALUE LOSS VALUE LOSS ---------- -------- -------- ---------- Equity securities..................... $ 610,000 $104,000 $576,000 $ 71,000 U.S. Treasury securities.............. 993,000 3,000 -- -- -------- ------- ---------- -------- $1,603,000 $107,000 $576,000 $ 71,000 ======== ======= ========== ========
3. INVENTORIES Inventories consist of the following:
1994 1995 -------- ---------- Raw materials and spare parts................................ $498,000 $1,191,000 Work-in-process.............................................. -- 181,000 Finished goods............................................... 19,000 528,000 ---------- -------- $517,000 $1,900,000 ========== ========
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
1994 1995 ----------- ----------- Land, buildings and improvements.......................... $13,521,000 $14,767,000 Machinery, fixtures and equipment......................... 3,785,000 5,129,000 Leaseholds and improvements............................... 1,007,000 1,017,000 ----------- ----------- $18,313,000 $20,913,000 =========== ===========
Land, buildings and equipment having a net book value of $8,049,000 and $12,292,000 at December 31, 1994 and 1995, respectively, were pledged as collateral under borrowing agreements. F-7 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PREPAIDS, INTANGIBLES AND OTHER Prepaids, intangibles and other consists of the following:
1994 1995 ---------- ---------- Prepaids and other.......................................... $1,145,000 $1,005,000 Deferred debenture expense.................................. 168,000 206,000 Deferred financing costs.................................... 287,000 480,000 Acquisition costs........................................... 100,000 96,000 Deposits and advances....................................... 89,000 68,000 Long-term note receivable................................... 218,000 -- Patents..................................................... -- 323,000 Goodwill and noncompete agreement........................... -- 1,105,000 Investment in joint ventures................................ 38,000 506,000 Long-term portion of officers' and employees' loans......... 250,000 292,000 ---------- ---------- $2,295,000 $4,081,000 ========== ==========
Deferred debenture expense represents costs attributable to the 9% convertible subordinated debenture issue and the 9 1/2% subordinated debenture issue being amortized over the respective lives of the issues on a straight line basis, and are net of accumulated amortization of $652,000 and $670,000, at December 31, 1994 and 1995, respectively. Deferred financing costs represent costs attributable to financing agreements being amortized over the lives of the agreements on a straight line basis, and are net of accumulated amortization of $182,000 and $349,000 at December 31, 1994 and 1995, respectively. Acquisition costs represent the purchase price attributable to intangibles being amortized over 30 years on a straight line basis, and are net of accumulated amortization of $49,000 and $53,000 at December 31, 1994 and 1995, respectively. Patents represent costs attributable to engineering and design costs of outdoor products being amortized over 14 years on a straight line basis, and is net of accumulated amortization of $64,000 at December 31, 1995. Goodwill and noncompete agreement costs are attributable to the purchase costs associated with the acquisition of ISE in January 1995. (See Note 7 -- Acquisitions.) Goodwill is being amortized over 20 years on a straight line basis, and is net of accumulated amortization of $35,000 at December 31, 1995. The noncompete agreement is being amortized over five years on a straight line basis, the term of the agreement, and is net of accumulated amortization of $96,000 at December 31, 1995. Impairment of intangibles and their associated useful lives are evaluated quarterly based on recoverability of unamortized balances from expected future cash flows on an undiscounted basis. The investment in joint ventures is primarily an investment in MetroLux Theatres, a 12-plex theatre located in Loveland, Colorado. 6. MAINTENANCE CONTRACTS Maintenance contracts represent the present value of contracts the Company has with customers to service their outdoor display equipment, which were acquired during 1993. (See Note 7 -- Acquisitions.) These contracts are being amortized over 15 years, on an accelerated method, which contemplates contract expiration, fall out and non-renewals and are net of accumulated amortization of $686,000 and $1,049,000, at December 31, 1994 and 1995, respectively. 7. ACQUISITIONS During January 1995, the Company acquired all of the capital stock of Integrated Systems Engineering, Inc. (ISE), which manufactures outdoor electronic signs, for a cash purchase price of approximately $2.7 million plus payment of noncompete and consulting fees. The payments for the acquisition are shown in the Consolidated Statements of Cash Flows net of $1.9 million of liabilities assumed. F-8 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The acquisition has been accounted for using the purchase method of accounting. The purchase price has been allocated on the basis of the fair value of the assets acquired and liabilities assumed. Assets include land, building, machinery and equipment, accounts receivable, inventory and patents. The excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill. Pro forma results of operations as if the acquisition had occurred as of January 1, 1995 are not presented, as the amounts are not materially different from those presented. The following pro forma financial information should be read in conjunction with the Company's consolidated financial statements. The pro forma information does not purport to represent what the Company's results of operations or financial position would have been if the acquisition, in fact, had occurred on January 1, 1994, or to project the Company's results of operations or financial position for any future period or at any future date. The results of operations have been included in the Company's consolidated financial statements since the date of acquisition. The pro forma consolidated balance sheet is not presented as the transaction is already reflected in the Company's consolidated balance sheet at December 31, 1995.
1994 ----------- UNAUDITED Gross revenues.......................................................... $38,284,000 ----------- Gross profit from operations............................................ $17,046,000 ----------- Net income.............................................................. $ 1,439,000 ----------- Earnings per share -- primary........................................... $1.14 ----- Earnings per share -- fully diluted..................................... $1.00 -----
During 1993 the Company, through its subsidiary Trans-Lux Sign Corporation, purchased certain assets and liabilities of Indicator Maintenance Corporation for an aggregate cash price of approximately $3.2 million. The assets acquired included a portfolio of leased outdoor electronic signs, a maintenance base and other contracts. The acquisition has been accounted for using the purchase method of accounting. The purchase price has been allocated on the basis of the fair value of the assets which approximates the acquisition cost. The following pro forma financial information should be read in conjunction with the Company's consolidated financial statements. The pro forma information does not purport to represent what the Company's results of operations or financial position would have been if the acquisition, in fact, had occurred on January 1, 1993, or to project the Company's results of operations or financial position for any future period or at any future date. The results of operations have been included in the Company's consolidated financial statements since the date of acquisition.
1993 ----------- UNAUDITED Gross revenues.......................................................... $39,035,000 ----------- Gross profit from operations............................................ $14,752,000 ----------- Net income.............................................................. $ 505,000 ----------- Earnings per share...................................................... $0.40 -----
F-9 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. TAXES ON INCOME The components of income tax expense are as follows:
YEARS ENDED DECEMBER 31, ------------------------------------ 1993 1994 1995 ---------- -------- -------- Current: Federal......................................... $ 76,000 $229,000 $490,000 State........................................... 155,000 150,000 86,000 Foreign......................................... -- 28,000 -- -------- -------- ---------- 231,000 407,000 576,000 -------- -------- ---------- Deferred: Federal......................................... 391,000 311,000 157,000 State........................................... 552,000 -- 40,000 Foreign......................................... -- 32,000 -- -------- -------- ---------- 943,000 343,000 197,000 -------- -------- ---------- Total income tax expense.......................... $1,174,000 $750,000 $773,000 ======== ======== ==========
1994 includes the favorable state tax settlement, which assessment was recorded in 1993. Income taxes provided differed from the expected federal statutory rate of 34% as follows:
1993 1994 1995 ---- ---- ---- Statutory federal income tax rate.............................. 34.0% 34.0% 34.0% State income taxes, net of federal benefit..................... 28.1 8.1 4.5 Benefit of NOL................................................. 7.3 (6.4) -- Other.......................................................... 1.2 0.6 3.5 ---- ---- ---- Effective income tax rate................................. 70.6% 36.3% 42.0% ==== ==== ====
The tax effect of temporary differences giving rise to the Company's deferred tax provision are as follows:
1993 1994 1995 -------- --------- -------- Depreciation and amortization..................... $(96,000) $ 180,000 $ 49,000 Pension actuarial gain............................ 20,000 (30,000) (14,000) Supplemental retirement plan...................... 7,000 (143,000) (15,000) State income taxes................................ 211,000 478,000 27,000 Impact of NOL..................................... 801,000 61,000 191,000 AMT credit........................................ -- (235,000) (25,000) Other............................................. -- 32,000 (16,000) --------- --------- -------- Net deferred tax provision................... $943,000 $ 343,000 $197,000 ========= ========= ========
F-10 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of the items comprising the net deferred tax asset and liability at December 31, 1994 and 1995 in the Company's statement of financial position are as follows:
1994 1995 ---------- ---------- Current asset Deferred tax asset: Operating loss carryforwards........................... $ 192,000 -- Valuation allowance.................................... -- -- ---------- ---------- Net deferred tax asset............................ 192,000 -- ========== ========== Long-term liability Deferred tax asset: Operating loss carryforwards........................... $ 82,000 $ 175,000 Excess financial reporting depreciation and amortization over tax depreciation and amortization......................................... 259,000 331,000 Acquisition costs not deducted for tax purposes........ 84,000 84,000 Net pension cost not deducted for tax purposes......... 36,000 52,000 Supplemental retirement plan costs not deducted for tax purposes............................................. 44,000 61,000 Tax credit carryforwards............................... 337,000 397,000 Unrealized holding losses not deducted for tax purposes............................................. 87,000 58,000 Bad debt expense not deducted for tax purposes......... -- 37,000 Valuation allowance.................................... (402,000) (232,000) ---------- ---------- 527,000 963,000 ---------- ---------- Deferred tax liability: Excess tax depreciation over financial reporting depreciation......................................... 2,715,000 3,328,000 Gain on purchases of Company's 9% debentures not reported for tax purposes............................ 439,000 439,000 Net pension benefit not reported for tax purposes...... 373,000 373,000 Foreign exchange gain not reported for tax purposes.... 32,000 31,000 State income taxes..................................... 250,000 392,000 ---------- ---------- 3,809,000 4,563,000 ---------- ---------- Net deferred tax liability........................ $3,282,000 $3,600,000 ========== ==========
The valuation allowance changed by $170,000 for the year ended December 31, 1995. The valuation allowance has been established for the amount of deferred tax assets which management estimates will more likely than not expire unused. F-11 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. LONG-TERM DEBT Long-term debt consists of the following:
1994 1995 ----------- ----------- 9% convertible subordinated debentures due 2005........... $ 4,874,000 $ 4,874,000 9 1/2% subordinated debentures due 2012................... 1,057,000 1,057,000 Loan and security agreement -- bank, secured, due in quarterly installments through 1998..................... 9,855,000 -- Line of credit and security agreement -- bank, secured.... 2,989,000 -- Note payable -- banks, secured, due in monthly installments through 1998............................... 538,000 -- IRB note payable -- banks, secured, due in quarterly installments through 1997............................... 733,000 -- Term loans -- bank, secured, due in quarterly installments through 2002............................................ -- 15,177,000 Loan payable -- CDA, due in monthly installments through 2002 at 5.0%............................................ -- 517,000 Real estate mortgages -- secured, due in monthly and quarterly installments through 2015..................... 2,206,000 2,597,000 Capital lease obligation, -- secured, due in monthly installments through 1999 at 9.5%....................... 101,000 77,000 ----------- 22,353,000 24,299,000 Less portion due within one year.......................... 2,660,000 1,804,000 ----------- $19,693,000 $22,495,000 ===========
Payments of long-term debt due for the next five years are:
1996 1997 1998 1999 2000 - ---------- ---------- ---------- ---------- ---------- $1,804,000 $1,817,000 $2,660,000 $1,792,000 $2,696,000
During 1985, the Company issued $15 million of 9% convertible subordinated debentures due 2005. These debentures are redeemable at the option of the Company at declining premiums. An annual sinking fund requirement of $1,125,000 was to commence December 1, 1995; however, at its option, the Company is depositing with the Trustee debentures that have been repurchased and receive a credit against such required payments. The debentures are redeemable at the option of the Company at par. The debentures are currently convertible into shares of the Company's Common Stock at a conversion price of $12.70 per share. During 1994, the Company made an Offer to Exchange $1,000 principal amount of its new 9 1/2% subordinated debentures due 2012 ("New Debentures") for each $1,000 principal amount of its 9% convertible subordinated debentures due 2005 ("Old Debentures"). The New Debentures pay an interest rate of 9 1/2%, mature in 2012, are not callable until 1999 and are not convertible into Common Stock. The Company accepted $1,057,000 of Old Debentures in exchange for $1,057,000 of New Debentures. The New Debentures are redeemable at the option of the Company at declining premiums. An annual sinking fund requirement of $105,700 will commence December 1, 2009. Simultaneously with the Offer to Exchange, the Company called for redemption of approximately 39% of the Old Debentures at 101.125% on December 1, 1994 and redeemed $3,080,000 of the Old Debentures. The Company entered into a Line of Credit and Security Agreement for $3,000,000 to finance such redemption. The line of credit was converted to a five-year term note on January 27, 1995 with an interest rate of 9.04% through January 27, 1998 and at prime plus 1/2% thereafter. This loan was part of the restructuring in August 1995. The Company entered into a Credit Agreement with First Fidelity Bank in August 1995 restructuring its indebtedness of $15,581,000 and a $4,000,000 line of credit. The restructuring extends the terms to an average F-12 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of 11 years at a variable rate of interest of LIBOR plus 175 basis points (7.688% at December 31, 1995). Simultaneously, the Company entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. At December 31, 1995, the Company had outstanding two interest rate swap agreements with a commercial bank, having a notional value of $15,177,000. The resulting gain or loss on the swaps is included in interest expense. The agreements effectively change the Company's interest rate exposure on its $7,867,000 floating rate installment note due quarterly through October 2002 to a fixed rate of 7.86% and its $7,310,000 floating rate installment note due quarterly through July 2002 to a fixed rate of 7.86%. The notional value of the interest rate swap agreements are reduced quarterly with the installment payments on the notes and mature July 1, 1998. The aggregate cost to terminate the interest rate swap agreements at December 31, 1995 was $389,000. The Company is subject to credit loss in the event of nonperformance by other parties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties. The $4 million line of credit is at a variable rate of interest of LIBOR plus 200 basis points (7.867% at December 31, 1995) and is available until June 1997. At December 31, 1995, the Company had $3.5 million available under such agreement. The Company has a first mortgage on a four-plex theatre in Taos, New Mexico at an interest rate of prime plus 1% (9.5% at December 31, 1995) with a balloon payment of $837,000 in 1998 and a first mortgage on a five-plex theatre in Durango, Colorado at an interest rate of prime plus 1%, capped at 9% with a balloon payment of $920,000 in 2000. The fair value of the 9% convertible subordinated debentures and the 9 1/2% subordinated debentures are $5,166,000 and $1,046,000, respectively at December 31, 1995. The fair value of the remaining long-term debt approximates the carrying value. The theatrical joint venture, MetroLux Theatres, entered into an agreement to borrow $3,000,000 for the land and construction of the 12-plex theatre located in Loveland, Colorado. The Company is the guarantor of the entire indebtedness. However, the owner of the non-related general partner of the joint venture has guaranteed their prorata portion of the indebtedness to the Company. F-13 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. STOCKHOLDERS' EQUITY Changes in capital stock, additional paid-in capital, treasury stock and retained earnings for the three years ended December 31, 1995 are as follows:
COMMON STOCK CLASS B ADDITIONAL RETAINED ---------------------- ------------------ PAID-IN TREASURY EARNINGS SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK AND OTHER --------- ---------- ------- -------- ----------- ------------ ----------- Balance December 31, 1992.................... 2,420,201 $2,420,000 319,811 $320,000 $13,804,000 $(11,889,000) $14,514,000 Net income................ -- -- -- -- -- -- 489,000 Cash dividends............ -- -- -- -- -- -- (153,000) Common stock acquired (2,311 shares).......... -- -- -- -- -- (21,000) -- Class B conversion to common stock............ 13,264 13,000 (13,264) (13,000) -- -- -- --------- ---------- ------- -------- ----------- ------------ ----------- Balance December 31, 1993.................... 2,433,465 2,433,000 306,547 307,000 13,804,000 (11,910,000) 14,850,000 Net income................ -- -- -- -- -- -- 1,314,000 Cash dividends............ -- -- -- -- -- -- (171,000) 9% debentures conversion.............. 393 1,000 -- -- 5,000 -- -- Unrealized holding losses.................. -- -- -- -- -- -- (107,000) Common stock acquired (131 shares)................. -- -- -- -- -- (1,000) -- Class B conversion to common stock............ 1,188 1,000 (1,188) (2,000) -- -- -- --------- ---------- ------- -------- ----------- ------------ ----------- Balance December 31, 1994.................... 2,435,046 2,435,000 305,359 305,000 13,809,000 (11,911,000) 15,886,000 Net income................ -- -- -- -- -- -- 1,066,000 Cash dividends............ -- -- -- -- -- -- (171,000) Unrealized holding gain... -- -- -- -- -- -- 36,000 Exercise of stock options................. -- -- -- -- (4,000) 40,000 -- Common stock acquired (56 shares)............. -- -- -- -- -- (1,000) -- Common stock award........ -- -- -- -- 1,000 8,000 -- Class B conversion to common stock............ 1,222 1,000 (1,222) (1,000) -- -- -- --------- ---------- ------- -------- ----------- ------------ ----------- Balance December 31, 1995.................... 2,436,268 $2,436,000 304,137 $304,000 $13,806,000 $(11,864,000) $16,817,000 ========= ========== ======= ======== =========== ============ ===========
During 1995, the Board of Directors declared four quarterly cash dividends of $.035 per share on the Company's Common Stock and $.0315 per share on the Company's Class B Stock, which were paid in April, July and October 1995 and January 1996. During 1993 the Board authorized an increase of 17% in the quarterly cash dividends to its current level. Each share of Class B Stock is convertible at any time into one share of Common Stock and has ten votes per share, as compared to Common Stock which has one vote per share but receives a higher dividend. During 1995, the stockholders approved 3 million shares of a new class of capital stock designated Class A Stock, $1.00 par value. The stock will have no voting rights except as required by law and will receive a 10% higher dividend than the Common Stock. A Certificate of Amendment authorizing the Class A shares and adjusting authorized shares of Common Stock to 5.5 million and Class B Stock to 1 million will be filed prior to the first issuance of Class A Stock. No specific issuance of Class A Stock is presently contemplated. At December 31, 1995, shares of Common Stock were reserved for: Conversion of 9% convertible subordinated debentures....................... 782,000 Stock options.............................................................. 124,000
F-14 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. LEASES The Company occupies theatre and other premises under operating leases expiring at varying dates through 2006. Certain of the leases provide for the payment of real estate taxes and other occupancy costs. In addition, the Company has a long-term lease for a telephone system, which is classified as a capital lease. The following is a summary of future minimum lease payments due under capital and operating leases at December 31, 1995:
CAPITAL OPERATING YEAR LEASE LEASES -------------------------------------------------------------- ------- ---------- 1996.......................................................... $30,000 $ 248,000 1997.......................................................... 30,000 188,000 1998.......................................................... 30,000 160,000 1999.......................................................... 7,000 129,000 2000.......................................................... -- 107,000 Thereafter.................................................... -- 668,000 ------- ---------- Total future minimum lease payments........................... $97,000 $1,500,000 ========== Amount representing interest.................................. 20,000 ------- Present value of net minimum lease payments................... 77,000 Current portion............................................... 24,000 ------- Long-term portion............................................. $53,000 =======
Total rent expense for all operating leases amounted to $308,000, $267,000, and $238,000 in 1993, 1994 and 1995, respectively. At December 31, 1995, sublease income of $110,000 is to be received on non-cancelable leases through 2000. 12. ENGINEERING DEVELOPMENT EXPENSE Engineering development expense was $108,000, $238,000 and $172,000 for 1993, 1994 and 1995, respectively. 13. PENSION PLAN All eligible salaried employees of Trans-Lux Corporation and certain of its subsidiaries are covered by a non-contributory pension plan. Pension benefits vest after five years of service and are based on years of service and final average salary. The Company's funding policy is to contribute annually an amount that can be deducted for Federal income tax purposes. Contributions are intended to provide not only for benefits based on service to date, but also for those benefits expected to be earned in the future. F-15 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The funded status of the plan at December 31, 1994 and 1995 are as follows:
1994 1995 ---------- ---------- Fair value of plan assets, invested in insurance company funds..................................................... $3,893,000 $4,172,000 ---------- ---------- Actuarial present value of benefits for service rendered to date: Accumulated benefits based on salaries to date, including vested benefits of $1,902,000 and $2,879,000 for 1994 and 1995, respectively................................. 1,998,000 2,985,000 Additional benefits based on estimated future salary levels................................................. 1,016,000 1,286,000 ---------- ---------- Projected benefit obligation (PBO).......................... 3,014,000 4,271,000 ---------- ---------- Plan assets (less than) in excess of PBO.................... 879,000 (99,000) Unrecognized prior service cost............................. 24,000 22,000 Unrecognized net loss from past experience different from that assumed.............................................. 53,000 952,000 Unrecognized net asset on January 1, 1985 being recognized over 13.38 years.......................................... (132,000) (92,000) ---------- ---------- Prepaid pension cost........................................ $ 824,000 $ 783,000 ========== ==========
The following items are components of the net pension cost for 1995: Present value of benefits earned during the period........................ $273,000 Interest cost on projected benefit obligation............................. 278,000 Actual return on plan assets.............................................. (372,000) Net amortization and deferral............................................. (38,000) -------- Net pension cost.......................................................... $141,000 ========
The weighted average discount rate used in determining the actuarial present value of the PBO was 8.5% in 1994 and 7.5% in 1995. The rate of increase in future compensation levels used in determining the actuarial present value of the PBO was 4.25% in 1994 and 4.0% in 1995. The expected long-term rate of return on assets was 9.5 percent for 1994 and 1995. The Company provides supplemental retirement benefits for the Chief Executive Officer, during 1995, the Company accrued $43,000 for such benefits. At December 31, 1994 and 1995, respectively, the total liability accrued was $110,000 and $153,000. The Company's pension and supplemental pension costs for the years ended December 31, 1993, 1994 and 1995 were $241,000, $226,000 and $183,000, respectively. The Company does not offer any postretirement benefits other than the pension and the supplemental retirement benefits described herein. As of January 1, 1994, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This statement requires the accrual of estimated costs of benefits to former or inactive employees after employment but before retirement. The adoption of this standard did not have a material effect on the Company's consolidated financial statements. The Company did not accrue any liability for such benefits during 1995. 14. STOCK OPTION PLANS The Company has five stock option plans. The 1995 Stock Option Plan and the 1992 Stock Option Plan each reserved 50,000 shares of Common Stock for issue to key employees. Stock Option Plan II terminated, and accordingly, additional shares cannot be granted under such plan, which originally reserved 50,000 shares of Common Stock (before giving effect for stock dividends). The Non-Employee Director Stock Option Plan F-16 68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) reserved 15,000 shares of Common Stock for grant. The Non-Statutory Stock Option Plan Agreement reserved 12,500 shares of Common Stock for issue to the Chairman of the Board. Changes in the stock option plans are as follows:
NUMBER OF SHARES ------------------------------------ AUTHORIZED GRANTED AVAILABLE ---------- ------- --------- Balance December 31, 1992............................ 111,900 95,100 16,800 Additional authorized shares......................... 12,500 -- 12,500 Terminated........................................... (22,500) (42,500) 20,000 Granted.............................................. -- 27,900 (27,900) ------- ------- ------ Balance December 31, 1993............................ 101,900 80,500 21,400 Terminated........................................... (3,500) (8,000) 4,500 Granted.............................................. -- 17,000 (17,000) ------- ------- ------ Balance December 31, 1994............................ 98,400 89,500 8,900 Additional authorized shares......................... 50,000 -- 50,000 Terminated........................................... (19,700) (25,200) 5,500 Granted.............................................. -- 28,200 (28,200) Exercised............................................ (5,000) (5,000) -- ------- ------- ------ Balance December 31, 1995............................ 123,700 87,500 36,200 ======= ======= ======
Under the 1995 Stock Option Plan and the 1992 Stock Option Plan, option prices must be at least 100% of the market value of the Common Stock at the time of the grant. Exercise periods are for ten years from date of the grant (five years if the optionee owns more than 10% of the voting power) and terminate at a stipulated period of time after an employee's termination of employment. At December 31, 1995, under the 1995 Plan, options for 23,800 shares (granted in 1995) with an exercise price of $8.125 per share were outstanding. No shares were exercisable or were exercised during 1995. At December 31, 1995, under the 1992 Plan, options for 48,700 shares (granted in 1992, 1993, 1994 and 1995) with exercise prices ranging from $6.3125 to $9.6875 per share were outstanding, of which 45,300 shares were exercisable. Options for 1,300 shares (granted in 1992) with an exercise price of $6.3125 per share were exercised in 1995. During 1995, options for 1,000 shares expired. No options were exercised during 1993 and 1994. Under Stock Option Plan II, option prices must be at least 100% of the market value of the Common Stock at the time of the grant. Exercise periods are for six years from date of the grant (five years if the optionee owns more than 10% of the voting power) and terminate at a stipulated period of time after an employee's termination of employment. At December 31, 1995, all 19,700 options under the plan have terminated. Options for 2,200 shares (granted in 1989) with an exercise price of $7.625 per share were exercised in 1995. No options were exercised during 1993 and 1994. Under the Non-Employee Director Stock Option Plan, options must be at least 100% of the market value of the Common Stock at the time of the grant. No option may be exercised prior to one year after the date of the grant and the optionee must be a director of the Company at the time of exercise, except in certain cases as permitted by the Compensation Committee. Exercise periods are for six years from date of the grant and options terminate at a stipulated period of time after an optionee ceases to be a director. At December 31, 1995, options for 2,500 shares (granted in 1994 and 1995) with exercise prices ranging from $8.625 to $9.6875 per share were outstanding, all of which were exercisable. During 1995, options for 1,500 shares (granted in 1989) with an option price of $7.4375 per share were exercised. During 1995, options for 4,500 shares expired. No options were exercised during 1993 and 1994. Under the Non-Statutory Stock Option Agreement, the option must be at least 100% of the market value of the Common Stock at the time of the grant. The exercise period is for ten years from the date of the grant. F-17 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1995, an option for 12,500 shares (granted in 1993) with an exercise price of $7.50 per share was outstanding, which is exercisable. No options were exercised during 1993, 1994 and 1995. 15. COMMITMENTS AND CONTINGENCIES The Company has employment/consulting agreements with certain current and former executive officers which expire at various dates through December 2002. The aggregate commitment for future salaries/consulting fees at December 31, 1995, excluding bonuses, is approximately $3,404,000. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material adverse affect on the consolidated financial statements of the Company. 16. BUSINESS SEGMENT DATA The Company's operations have been classified into two business segments. The Communications Division designs, produces, leases, sells and services large-scale, multi-color, real-time electronic information displays for both indoor and outdoor use. The Entertainment and Real Estate Division owns a chain of motion picture theatres in the Southwestern United States and owns real estate used for both corporate and income-producing purposes in the United States and Canada. F-18 70 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information about the Company's operations in its two business segments for the three years ended December 31, 1995 is as follows:
1993 1994 1995 ------------ ------------ ------------ GROSS REVENUE Communications................................. $32,630,000 $30,150,000 $33,569,000 Entertainment and real estate.................. 3,169,000 3,592,000 4,222,000 ------------ ------------ ------------ $35,799,000 $33,742,000 $37,791,000 ============ ============ ============ OPERATING INCOME Communications................................. $13,733,000 $13,601,000 $14,348,000 Entertainment and real estate.................. 512,000 728,000 1,037,000 ------------ ------------ ------------ 14,245,000 14,329,000 15,385,000 Other income..................................... -- -- 92,000 General and administrative expenses.............. (10,202,000) (11,023,000) (11,494,000) Interest expense -- net.......................... (2,380,000) (1,242,000) (2,144,000) ------------ ------------ ------------ Income before taxes.............................. $ 1,663,000 $ 2,064,000 $ 1,839,000 ============ ============ ============ ASSETS Communications................................. $43,743,000 $42,684,000 $49,565,000 Entertainment and real estate.................. 4,955,000 6,685,000 6,654,000 ------------ ------------ ------------ Total identifiable assets........................ 48,698,000 49,369,000 56,219,000 Cash and available-for-sale securities........... 3,440,000 3,938,000 1,241,000 ------------ ------------ ------------ $52,138,000 $53,307,000 $57,460,000 ============ ============ ============ DEPRECIATION AND AMORTIZATION Communications................................. $5,988,000 $5,951,000 $6,403,000 Entertainment and real estate.................. 215,000 264,000 301,000 General corporate.............................. 139,000 298,000 197,000 ------------ ------------ ------------ $6,342,000 $6,513,000 $6,901,000 ============ ============ ============ CAPITAL EXPENDITURES Communications................................. $3,768,000 $6,240,000 $7,461,000 Entertainment and real estate.................. 119,000 2,223,000 220,000 ------------ ------------ ------------ $3,887,000 $8,463,000 $7,681,000 ============ ============ ============
No single customer accounted for 10% or more of total revenues in 1994 and 1995. During 1993, the Company recorded revenues of approximately $4.3 million from a single customer. Foreign revenues were less than 10% of consolidated revenue in 1993 and 1995 and were approximately 15% in 1994. F-19 71 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 ----------- JUNE 30, 1996 ----------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents............................................... $ 665,000 $ 317,000 Available-for-sale securities........................................... 576,000 577,000 Receivables............................................................. 2,403,000 3,764,000 Inventories............................................................. 1,900,000 1,848,000 Prepaids and other current assets....................................... 466,000 365,000 ----------- ----------- Total current assets.................................................. 6,010,000 6,871,000 ----------- ----------- Rental equipment........................................................ 47,043,000 50,813,000 Less accumulated depreciation......................................... 16,265,000 18,757,000 ----------- ----------- 30,778,000 32,056,000 ----------- ----------- Property, plant and equipment........................................... 20,913,000 21,466,000 Less accumulated depreciation and amortization........................ 5,921,000 6,624,000 ----------- ----------- 14,992,000 14,842,000 Prepaids, intangibles and other......................................... 4,081,000 3,733,000 Note receivable, MetroLux Theatre (excludes $94,000 current portion).... -- 831,000 Maintenance contracts, net.............................................. 1,599,000 1,434,000 ----------- ----------- $57,460,000 $59,767,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accruals........................................... $ 4,804,000 $ 5,183,000 Income taxes payable.................................................... 136,000 12,000 Short-term borrowings................................................... 500,000 -- Current portion of long-term debt....................................... 1,804,000 1,811,000 ----------- ----------- Total current liabilities............................................. 7,244,000 7,006,000 ----------- ----------- Long-term debt: 9% convertible subordinated debentures due 2005....................... 4,874,000 4,811,000 9 1/2% subordinated debentures due 2012............................... 1,057,000 1,057,000 Notes payable......................................................... 16,564,000 20,256,000 ----------- ----------- 22,495,000 26,124,000 Deferred revenue and deposits........................................... 2,621,000 1,026,000 Deferred income taxes................................................... 3,600,000 3,613,000 Minority interest....................................................... 1,000 1,000 ----------- ----------- Stockholders' equity: Capital stock Preferred -- $1 par value -- 500,000 shares authorized............. Common -- $1 par value -- 4,000,000 shares authorized 2,436,268 shares issued in 1995 and 2,441,517 in 1996............ 2,436,000 2,441,000 Class B -- $1 par value -- 2,000,000 shares authorized 304,137 shares issued in 1995 and 298,888 in 1996................ 304,000 299,000 Additional paid-in capital............................................ 13,806,000 13,828,000 Retained earnings..................................................... 16,888,000 17,320,000 Other................................................................. (71,000) (70,000) ----------- ----------- 33,363,000 33,818,000 Less treasury stock -- at cost -- 1,488,837 shares in 1995 and 1,481,252 in 1996 (excludes additional 304,137 shares held in 1995 and 298,888 in 1996 for conversion of Class B stock).................................. 11,864,000 11,821,000 ----------- ----------- Total stockholders' equity......................................... 21,499,000 21,997,000 ----------- ----------- $57,460,000 $59,767,000 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-20 72 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
SIX MONTHS ENDED JUNE 30, --------------------------- 1995 1996 ----------- ----------- (UNAUDITED) REVENUES: Equipment rentals and maintenance............................... $11,192,000 $10,923,000 Equipment sales................................................. 6,135,000 7,680,000 Theatre receipts and other...................................... 1,913,000 2,021,000 ----------- ----------- Total revenues............................................... 19,240,000 20,624,000 ----------- ----------- OPERATING EXPENSES: Cost of equipment rentals and maintenance....................... 5,846,000 5,912,000 Cost of equipment sales......................................... 3,903,000 5,032,000 Cost of theatre receipts and other.............................. 1,500,000 1,631,000 ----------- ----------- Total operating expenses..................................... 11,249,000 12,575,000 ----------- ----------- GROSS PROFIT FROM OPERATIONS...................................... 7,991,000 8,049,000 General and administrative expenses............................... 6,314,000 6,072,000 ----------- ----------- 1,677,000 1,977,000 ----------- ----------- Interest income................................................... 93,000 43,000 Interest expense.................................................. (1,089,000) (1,126,000) Other income...................................................... 49,000 -- ----------- ----------- INCOME BEFORE INCOME TAXES........................................ 730,000 894,000 ----------- ----------- Provision for income taxes: Current......................................................... 288,000 303,000 Deferred........................................................ 19,000 72,000 ----------- ----------- 307,000 375,000 ----------- ----------- NET INCOME........................................................ $ 423,000 $ 519,000 =========== =========== Earnings per share: Primary......................................................... $ 0.34 $ 0.41 Fully diluted................................................... * $ 0.39 Average common and common equivalent shares outstanding: Primary......................................................... 1,260,000 1,272,000 Fully diluted................................................... * 1,664,000 Cash dividends per share: Common stock.................................................... $ 0.070 $ 0.070 Class B stock................................................... $ 0.0630 $ 0.0630
- --------------- * not dilutive The accompanying notes are an integral part of these consolidated financial statements. F-21 73 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED JUNE 30, ----------------------------- 1995 1996 ----------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income...................................................... $ 423,000 $ 519,000 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 3,330,000 3,544,000 Net loss of joint venture.................................. -- 78,000 Deferred income taxes...................................... 519,000 13,000 Minority interest.......................................... (8,000) -- Changes in operating assets and liabilities: Receivables.............................................. 280,000 (1,361,000) Inventories.............................................. (185,000) 52,000 Prepaids and other current assets........................ (183,000) 195,000 Prepaids, intangibles and other.......................... 111,000 221,000 Accounts payable and accruals............................ (939,000) 379,000 Income taxes payable..................................... (13,000) (124,000) Deferred revenue and deposits............................ (597,000) (1,595,000) ----------- ----------- Net cash provided by operating activities............. 2,738,000 1,921,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of rental equipment................................... (2,557,000) (3,770,000) Purchases of property, plant and equipment...................... (1,120,000) (553,000) Payments for an acquisition..................................... (3,178,000) -- Proceeds from acquisition note receivable....................... 658,000 -- Sale of assets.................................................. 209,000 -- Investment in joint venture..................................... (687,000) (136,000) Loan to joint venture........................................... -- (941,000) Purchases of securities......................................... (494,000) -- Proceeds from sales of securities............................... 1,088,000 -- ----------- ----------- Net cash (used in) investing activities............... (6,081,000) (5,400,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt.................................... 4,286,000 4,100,000 Repayment of long-term debt..................................... (3,106,000) (901,000) Proceeds from short-term borrowings............................. 500,000 -- Proceeds from loan to joint venture............................. -- 16,000 Proceeds from exercise of stock options......................... 12,000 4,000 Purchase of treasury stock...................................... -- (1,000) Cash dividends.................................................. (86,000) (87,000) ----------- ----------- Net cash provided by financing activities............. 1,606,000 3,131,000 ----------- ----------- Net (decrease) in cash and cash equivalents..................... (1,737,000) (348,000) Cash and cash equivalents at beginning of year.................. 2,335,000 665,000 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 598,000 $ 317,000 =========== =========== Interest paid................................................... $ 900,000 $ 740,000 Interest received............................................... 113,000 61,000 Income taxes paid............................................... 301,000 392,000
The accompanying notes are an integral part of these consolidated financial statements. F-22 74 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Financial information included herein is unaudited, however, such information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the consolidated financial statements for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the full year. It is suggested that the June 30, 1995 and 1996 consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report and Form 10-K for the year ended December 31, 1995. The Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of " in the first quarter of 1996. In accordance with the standard, the Company evaluates the carrying value of its long-lived assets and identifiable intangibles, including goodwill, when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The adoption of the standard did not have any effect on the Company's consolidated financial position or results of operations. The Company adopted the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" in the first quarter of 1996. As provided for in the standard, the Company continues to apply Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations for employee stock compensation measurement and will disclose the required pro forma information in the 1996 Form 10-K. 2. ACCOUNTING FOR INCOME TAXES The provision for income tax expense for the six months ended June 30, 1996 was $375,000 of which $303,000 and $72,000 are current and deferred tax expense, respectively. There was no change in the valuation allowance during the six months ended June 30, 1996. 3. PREPAIDS, INTANGIBLES AND OTHER Prepaid, intangibles and other consists of the following:
DECEMBER 31 JUNE 30 1995 1996 ------------ ---------- Prepaids and other......................................... $1,005,000 $1,113,000 Deferred debenture expense................................. 206,000 197,000 Deferred financing costs................................... 480,000 385,000 Acquisition costs.......................................... 96,000 93,000 Deposits and advances...................................... 68,000 76,000 Patents.................................................... 323,000 291,000 Goodwill and noncompete agreement.......................... 1,105,000 1,037,000 Investment in joint venture................................ 506,000 148,000 Long-term portion of officers' and employees' loans........ 292,000 393,000 ---------- ---------- $4,081,000 $3,733,000 ========== ==========
F-23 75 TRANS-LUX DISPLAYS ARE USED PRIMARILY IN REAL-TIME APPLICATIONS FOR THE FINANCIAL, BANKING, GAMING, CORPORATE, SPORTS AND TRANSPORTATION MARKETS. OUTDOOR Trans-Lux's recent acquisitions have given the Com- Trans-Lux's outdoor displays are used in a wide array pany a growing presence in the outdoor market such as of applications including college and professional this outdoor display for the Luxor Hotel and Casino in stadiums. Las Vegas. SPORTS TRANSPORTATION Trans-Lux's complete line of sports displays Travelers depend on clear, easy-to- read Trans-Lux incorporate up-to-the-second information, video displays for arrival, departure, and other timely replays and full-color animation enhancing the information. experience for players and fans at athletic events. CORPORATE Trans-Lux network management display systems are used to track the status of data communications networks for cutomers such as GTE.
TRANS-LUX [The above captions refer to examples of Trans-Lux's electronic displays] 76 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY OF THE UNDERWRITERS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 7 Use of Proceeds....................... 11 Price Range of Common Stock and Dividend Policy..................... 11 Capitalization........................ 12 Selected Financial Data............... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15 Business.............................. 20 Management............................ 28 Executive Compensation and Transactions with Management........ 30 Description of Notes.................. 34 Description of Capital Stock.......... 43 Underwriting.......................... 46 Legal Matters......................... 47 Experts............................... 47 Available Information................. 47 Incorporation of Certain Documents by Reference........................... 47 Index to Consolidated Financial Statements.......................... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ $25,000,000 LOGO LOGO % CONVERTIBLE SUBORDINATED NOTES DUE 2006 ------------------------ PROSPECTUS ------------------------ SOUTHCOAST CAPITAL CORPORATION , 1996 ------------------------------------------------------ ------------------------------------------------------ 77 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses (other than underwriting discounts) to be incurred payable by the registrant in connection with the issuance and distribution of the shares registered hereby. Other than the SEC registration fee and the NASD filing fee, such expenses are estimates. SEC registration fee...................................................... $ NASD filing fee........................................................... * AMEX listing fee.......................................................... * Printing costs (excluding stock certificates)............................. * Accounting fees and expenses.............................................. * Blue Sky fees and expenses................................................ * Legal fees and expenses................................................... * Miscellaneous expenses.................................................... * -------- Total................................................................... $ * ========
- --------------- * To be provided by amendment. ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145(a) of the General Corporation Law of the State of Delaware provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. Section 145(b) provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under similar standards, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine that despite the adjudication of liability, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the corporation may purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under such Section 145. II-1 78 The Company's By-laws provide that the Company shall indemnify certain persons, including officers, directors, employees and agents, to the fullest extent permitted by Section 145 of the General Corporation Law of the State of Delaware. The Company has also entered into indemnification agreements with its current directors and executive officers. Reference is made to the By-laws and Indemnification Agreement filed with the Commission. The Company's directors and officers are insured against losses arising from any claim against them as such for wrongful acts or omissions, subject to certain limitations. Under Section of the Underwriting Agreement, the underwriters are obligated, under certain circumstances, to indemnify officers, directors and controlling persons of the Company against certain liabilities, including liabilities under the Securities Act. Reference is made to the form of Underwriting Agreement filed as Exhibit I hereto. Under an insurance policy with The Chubb Group of Companies, the directors and certain officers of the Company are indemnified against certain losses arising from certain claims which may be made against such persons, by reason of their being such directors or officers. ITEM 16. EXHIBITS 1 Form of Underwriting Agreement.* 3.1 Form of Restated Certificate of Incorporation of the Company. 3.2 By-laws of the Company. 4.1 Specimen Common Stock Certificate. 4.2 Form of Indenture. 5 Opinion of Weisman Celler Spett & Modlin, P.C. 10.1 Form of Indemnity Agreement -- Directors. 10.2 Form of Indemnity Agreement -- Officers. 10.3 Employment Agreement, dated as of August 16, 1996 between the Company and Richard Brandt. 11 Statement of Computation of Earnings Per Share. 12 Statement of Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Weisman Celler Spett & Modlin, P.C. (contained in Exhibit 5). 24 Powers of Attorney (included on signature page). 25 Statement of Eligibility of Trustee.
- --------------- * To be filed by amendment. ITEM 17. UNDERTAKINGS The Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 15, the II-2 79 Registrant has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. For purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 80 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the fourth day of November, 1996. TRANS-LUX CORPORATION By: ------------------------------------ Victor Liss Vice Chairman, President and Chief Executive Officer POWER OF ATTORNEY KNOWN ALL MEN BY THESE PRESENTS, that each individual whose signature appears below and on the following page constitutes and appoints each of Victor Liss, Howard S. Modlin and Gerald Gordon as his or her true and lawful attorney-in-fact and agent, each acting alone, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Registration Statement, including post-effective amendments, and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto each said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, and hereby ratifies and confirms all that any said attorney-in-fact and agent, each acting alone, or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof. II-4 81 Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. - ------------------------------------- Chairman of the Board November 4, 1996 Richard Brandt Vice Chairman of the Board, November 4, 1996 - ------------------------------------- President and Chief Executive Victor Liss Officer Senior Vice President and Chief November 4, 1996 - ------------------------------------- Financial Officer Angela D. Toppi Chief Accounting Officer November 4, 1996 - ------------------------------------- Robert A. Carroll Director November 4, 1996 - ------------------------------------- Steven Baruch Director November 4, 1996 - ------------------------------------- Jean Firstenberg Director November 4, 1996 - ------------------------------------- Allan Fromme, PhD Director November 4, 1996 - ------------------------------------- Robert Greenes Director November 4, 1996 - ------------------------------------- Gene Jankowski Director November 4, 1996 - ------------------------------------- Howard S. Modlin
II-5 82 TRANS-LUX CORPORATION EXHIBIT INDEX Certain of the exhibits to this registration statement are hereby incorporated by reference, as specified below, to other documents filed with the Commission. Exhibit designations below correspond to the numbers assigned to exhibit classifications in Regulation S-K.
EXHIBIT SEQUENTIAL NO. DESCRIPTIONS PAGE NOS. - ------- --------------------------------------------------------------------------- ---------- 1 Form of Underwriting Agreement*............................................ 3.1 Form of Restated Certificate of Incorporation of the Company............... 3.2 By-laws of the Company..................................................... 4.1 Specimen Common Stock Certificate.......................................... 4.2 Form of Indenture.......................................................... 5 Opinion of Weisman Celler Spett & Modlin, P.C. ............................ 10.1 Form of Indemnity Agreement -- Directors................................... 10.2 Form of Indemnity Agreement -- Officers.................................... 10.3 Employment Agreement, dated as of August 16, 1996 between the Company and Richard Brandt............................................................. 11 Statement of Computation of Earnings Per Share............................. 12 Statement of Computation of Ratio of Earnings to Fixed Charges............. 23.1 Consent of Deloitte & Touche LLP........................................... 23.2 Consent of Weisman Celler Spett & Modlin, P.C. (contained in Exhibit 5).... 24 Powers of Attorney (included on signature page)............................ 25 Statement of Eligibility of Trustee........................................
- --------------- * To be filed by amendment. II-6 EX-3.1 2 RESTATED CERTIFICATE OF INCORPORATION 1 EXHIBIT 3.1. RESTATED CERTIFICATE OF INCORPORATION OF TRANS-LUX CORPORATION It is hereby certified that: 1. The present name of the corporation is TRANS-LUX CORPORATION. The name under which the corporation was originally incorporated is AMERICAN LUX PRODUCTS CORPORATION; and the date of filing the original Certificate of Incorporation with the Secretary of State of the State of Delaware, is the 5th day of February, 1920. 2. The provisions of the Certificate of Incorporation of the corporation, as heretofore amended and/or supplemented, are hereby restated and integrated into the single instrument which is hereinafter set forth, and which is entitled Restated Certificate of Incorporation of TRANS-LUX CORPORATION, without further amendment and without any discrepancy between the provisions of the Certificate of Incorporation as heretofore amended and supplemented and the provisions of the said single instrument hereinafter set forth. 3. The Board of Directors of the corporation has duly adopted this Restated Certificate of Incorporation pursuant to the provisions of Section 245 of the General Corporation Law of the State of Delaware in the form set forth as follows: 2 RESTATED CERTIFICATE OF INCORPORATION OF TRANS-LUX CORPORATION FIRST: The name of this corporation is TRANS-LUX CORPORATION. SECOND: Its principal office in the State of Delaware is to be located at l0l3 Centre Road, in the City of Wilmington, County of New Castle, Delaware, and the name and address of its resident agent is The Prentice-Hall Corporation System, Inc. of l0l3 Centre Road in the City of Wilmington, County of New Castle, Delaware. THIRD: The nature of the business, and the objects and purposes proposed to be transacted, promoted and carried on, are to do any or all of the things herein mentioned, and in any part of the world, as fully and to the same extent as natural persons might or could do, viz: (1) To manufacture, buy, sell, exchange, hire, lease and otherwise deal with and deal in moving picture screens and moving picture supplies of all kinds and descriptions whatsoever, for either moving or stationary pictures. (2) To manufacture, buy, sell, exchange, hire, and lease goods, wares and merchandise, products and articles, substances and things of every kind, nature and description. 2 3 (3) To build, purchase, or otherwise acquire, develop, install, lease, rent, charter, own, manage, operate, use, mortgage, pledge or otherwise encumber, sell, lease, exchange or otherwise handle, deal with or dispose of real property, improved or unimproved, manufacturing plants, stores, warehouses and other buildings, docks, vessels, transportation facilities of every sort, with all equipment and other property, real, personal or mixed, deemed by the corporation to be necessary or advisable for its purposes. (4) To apply for, obtain, register, purchase, lease or otherwise acquire and hold, own, use, operate, introduce, sell, assign, or otherwise dispose of and deal with any and all licenses, easements, trademarks, trade names, brands and distinctive marks, and rights analogous thereto, concessions, copyrights and patent rights, whether issued or applied for or not, and all inventions, improvements, formulae, information, and processes used in connection with or secured under letters patent of the United States or elsewhere or otherwise; and to use, exercise, develop, grant licenses in respect of, or otherwise turn to account, any thereof, and, with a view to the working and development of the same, carry on any lawful business whatsoever, whether manufacturing or otherwise, which the corporation may deem calculated directly or indirectly to accomplish its objects or any of them. (5) To make, purchase, or otherwise acquire, deal in, enter into and perform, contracts of every sort and kind in connection with the business and powers herein stated with any individual, firm, association or corporation (private, public, quasi-public, or municipal) and with the government of the United States, or of any state, territory, colony, or other sub-division or possession thereof, or of any foreign government, state, territory, colony, or other sub-division or possession thereof. 3 4 (6) To acquire, for the purposes herein set forth, the whole or any part of the assets, business, goodwill, inventions, formulae, process, contracts, bills, notes and accounts receivable, rights and property of all kinds, and to undertake and assume the whole or any part of the liabilities of any person, firm, association or corporation within the limits of law, and to pay for the same and/or for any other property, real or personal, which the corporation may acquire, in cash, stock of this corporation of any class or classes, bonds or otherwise; to hold, own, mortgage, pledge, encumber, use, operate, develop, manage, hire, lease, rent, assign, transfer, exchange, trade and deal in and with, sell and convey, or in any manner dispose of, the whole or any part of the property so acquired; to conduct in any lawful manner the whole or any part of any business so acquired and to exercise all the powers necessary or convenient in and about the conduct and management of such business. (7) To purchase, or otherwise acquire, hold, own, sell, guarantee the payment of dividends upon, assign, transfer, deliver, mortgage, pledge or otherwise encumber or dispose of shares of the capital stock, or voting trust certificates or other certificates issued in respect of the shares of the capital stock, of any class, either of this corporation or of other corporations or associations, organized or existing under the laws of the State of Delaware, or of any other state, territory, district, colony or dependency of the United States of America or of any foreign country provided, however, that the corporation shall not use its funds or property for the purchase of shares of its own capital stock when such use would cause any impairment of its capital, to purchase, or otherwise acquire, hold, own, sell, assign, transfer, deliver, endorse, guarantee, protect, and assist in the performance and payment of, mortgage, pledge, or otherwise encumber or dispose of notes, bonds, debentures or other 4 5 securities, obligations or evidences of indebtedness, both principal and interest, or contracts issued, created or entered into by, or any claims against, any person, partnership, firm, corporation or association, organized or existing under the laws of the State of Delaware or of any other state, territory, district, colony, or dependency of the United States of America or of any foreign country; to issue and deliver shares of the capital stock of any class, bonds or other obligations of this corporation in exchange for any stock, voting trust or other certificates, or for any such bonds, notes, debentures, securities, obligations, contracts, evidences of indebtedness or claims; and while the owner or holder of such shares of stock, voting trust or other certificates, bonds, notes, debentures, securities, obligations, contracts, evidences of indebtedness or claims, to possess and exercise in respect thereof any and all of the rights, powers, and privileges of ownership, including the right to vote upon or in respect thereof in person or by proxy provided, however, that the shares of the corporation's capital stock belonging to it shall not be voted upon directly or indirectly, and upon a distribution of the assets or a division of the profits of this corporation, to distribute any such shares of stock, voting trust or other certificates, bonds, notes, debentures, securities, obligations, contracts, evidences of indebtedness or claims, or the proceeds thereof, among the holders of the stock of this corporation in accordance with their respective interests; to aid, in any manner, any corporation, association, person, partnership or firm, the stock, bonds, obligations, voting trust or other certificates, notes, debentures, securities, contracts, evidences of indebtedness or claims of or against which, or any part thereof, are held or are in any manner endorsed or guaranteed by this corporation, or in which this corporation is directly or indirectly interested, and to do any other acts or things for the preservation, protection, improvement or enhancement of the value of any such stocks, certificates, bond, obligations, notes, debentures, securities, contracts, evidences of indebtedness or claims, and to do any acts or things designed for any such purpose. 5 6 (8) To borrow money and to issue, sell or pledge or otherwise encumber bonds, notes, debentures or other evidences of indebtedness of this corporation of any character, to such amount and in such denominations and on such terms as the Board of Directors may determine, subject to the other provisions of this certificate of incorporation, and, to secure the repayment of said money and the performance of the obligation entered into under said bonds, notes, debentures and other evidences of indebtedness and the performance of the covenants, agreements and conditions in any instrument given to secure the same, by pledge, mortgage, deed of trust, assignment in trust, or other encumbrances upon any or all of the property of the corporation, real, personal or mixed, or otherwise, or, if deemed advisable by mortgage of its good will or of some or all of the franchises of the corporation in such manner as may be allowed by law; to draw, make, accept, endorse, take, invest in, purchase or otherwise acquire, hold, own, execute, issue, sell and dispose of, trade and deal in, mortgage, pledge, assign, transfer, and otherwise handle promissory notes, drafts, acceptances, warrants, debentures, checks and other negotiable, non-negotiable, transferable or non-transferable instruments or other evidences of indebtedness, and choses in action. (9) To organize subsidiary corporations and to convey and assign all or any part of its assets to any such subsidiary corporation or corporations in exchange for shares of the capital stock or other securities of such subsidiary corporation or corporations. (10) To carry on the above and any other business and exercise the above powers in any part of the world, and to do any and all things which may seem to the corporation capable of being conveniently carried on or done in connection 6 7 with the objects herein set forth, or any of them, or calculated directly or indirectly to develop the corporation's business, or to enhance the value of the corporation's property or rights not forbidden by the laws of the State of Delaware; and to do all or any of the above things in any part of the world, as principal, agent, contractor, consignee, factor, broker, trustee, or otherwise, and by and through trustees, agents, contractors, consignees, factors, brokers, or otherwise and either alone or in conjunction with other individuals, firms, associations, or corporations. The objects and purposes specified herein shall, except where otherwise expressed, be in no way limited or restricted by reference to or inference from the terms of any other clause or paragraph of this certificate of incorporation. The objects, purposes and powers specified in each of the clauses or paragraphs in this certificate of incorporation shall be regarded as independent objects, purposes and powers. The foregoing shall be construed both as objects, purposes and powers and the enumeration thereof shall not be held to limit or restrict in any manner the lawful powers of this corporation. FOURTH: The aggregate number of shares of stock of all classes which the Corporation shall have authority to issue is 10,000,000, consisting of 5,500,000 shares of Common Stock having a par value of $1.00 per share, 3,000,000 shares of Class A Stock having a par value of $1.00 per share, 1,000,000 shares of Class B Stock having a par value of $1.00 per share, and 500,000 shares of Preferred Stock having a par value of $1.00 per share. 7 8 The powers, preferences and the relative, participating, optional and other rights and the qualifications, limitations and restrictions thereof, of each class of stock, and the express grant of authority to the Board of Directors to fix by resolution the designations and the powers, preferences and rights of each share of Preferred Stock and the qualifications, limitations and restrictions thereof, which are not fixed by this Certificate of Incorporation, are as follows: A. Common Stock, Class A Stock And Class B Stock I. Dividends, etc. Subject to the rights of the holders of Preferred Stock, and subject to any other provisions of this Certificate of Incorporation, as amended from time to time, holders of Common Stock, Class A Stock and Class B Stock shall be entitled to receive such dividends and other distributions in cash, stock or property of the Corporation as may be declared thereon by the Board of Directors from time to time out of assets or funds of the Corporation legally available therefor, provided that in the case of cash dividends, if at any time a cash dividend is paid on the Common Stock, a cash dividend will also be paid on the Class A Stock in an amount per share of Class A Stock equal to 110% of the amount of the cash dividends paid on each share of the Common Stock (rounded up, if necessary to the nearest one-hundredth of a cent) and on Class B Stock in an amount per share of Class B Stock equal to 90% of the amount of the cash dividends paid on each share of the Common Stock (rounded down, if necessary, to the nearest one-hundredth of a cent), and provided that in no event shall dividends and other distributions be paid on any of the Common Stock, Class A Stock and Class B Stock unless the other such classes of stock also receive dividends subject to the above provisions for the requirement of the respective higher cash dividends for Class A Stock and Common Stock, and provided, further, that in the case of dividends or other distributions payable in stock of the Corporation other than 8 9 Preferred Stock, including distributions pursuant to stock splits or divisions of stock of the Corporation other than Preferred Stock, which occur after the initial issuance of shares of Class A Stock and Class B Stock by the Corporation, except as specifically provided herein, only shares of Common Stock shall be distributed with respect to Common Stock, only shares of Class A Stock in an amount per share equal to the amount per share paid with respect to the Common Stock shall be distributed with respect to the Class A Stock and only shares of Class B Stock in an amount per share equal to the amount per share paid with respect to the Common Stock shall be distributed with respect to Class B Stock, except that the Board of Directors may declare a distribution of Class A Stock proportionately to all holders of Common Stock, Class A Stock and Class B Stock, and that, in the case of any combination or reclassification of the Common Stock, the shares of Class A Stock and Class B Stock shall also be combined or reclassified, so that the number of shares of Class A Stock and Class B Stock outstanding immediately following such combination or reclassification shall bear the same relationship to the number of shares of Class A Stock and Class B Stock outstanding immediately prior to such combination or reclassification as the number of shares of Common Stock outstanding immediately following such combination or reclassification bears to the number of shares of Common Stock outstanding immediately prior to such combination or reclassification. II. Voting: (a) At every meeting of the stockholders every holder of Common Stock shall be entitled to one (1) vote in person or by proxy for each share of Common Stock, standing in his name on the transfer books of the Corporation and every holder of Class B Stock shall be entitled to ten (10) votes in person or by proxy for each share of Class B Stock standing in his name on the transfer books of the Corporation subject to the following provisions: 9 10 (i) The holders of the Common Stock, voting separately as a class, shall have the right at each meeting of stockholders with respect to election of directors following the filing of this Certificate of Amendment, to elect such number of directors who, together with all other directors previously elected by the holders of Common Stock (the "Common Stock Directors") and whose terms are not expiring at such meeting, constitute twenty-five percent (25%) of the total number of directors of the entire Board of Directors. Such right to elect directors shall be in accordance with this Certificate of Incorporation and the By-Laws of the Corporation in effect from time to time. The remaining directors of the Board of Directors shall be elected by the holders of Class B Stock voting separately as a class. In the event that twenty-five percent (25%) of the number of directors so fixed at any time is not a whole number, the number of Common Stock Directors shall be rounded up to the nearest whole number. Notwithstanding the foregoing, in no event shall the Common Stock Directors constitute more than twenty-five percent (25%) (or the next highest whole number) of the entire Board of Directors and, in the event that on the record date of any stockholder meeting with respect to the election of directors the number of Common Stock Directors whose terms are not expiring at such stockholder meeting, constitute at least twenty-five percent (25%) of the entire Board of Directors, the holders of Common Stock shall have no vote in the election of directors at such meeting and no Common Stock Directors shall be elected at such meeting. (ii) If on the record date of any stockholder meeting with respect to the election of directors the number of shares of Class B Stock which is issued and outstanding is less than twelve-and-a-half percent (12-l/2%) of the total number of shares of Common Stock and Class B Stock which is issued and outstanding, the holders of the Common Stock shall vote separately as a class to elect twenty-five percent (25%) of the directors to be elected in the manner specified in Paragraph A II 10 11 (a)(i) of this Article FOURTH, and shall also be entitled to vote in the election of the remaining directors to be elected, together with the holders of the Class B Stock, voting, for this purpose as one class, with each share of Common Stock entitled to one (1) vote and each share of Class B Stock entitled to ten (10) votes. (iii) In the event that the continued listing for trading of the Corporation's Common Stock on the American Stock Exchange no longer requires twenty-five percent (25%) of the number of directors to be elected by the holders of the Common Stock in the manner specified in Paragraph A II (a)(i) and (ii) of this Article FOURTH, then such right of the holders of Common Stock to elect twenty-five percent (25%) of the number of directors shall cease and at all elections of directors following such change, the Common Stock and Class B Stock shall vote in the election of directors as one class, with each share of Common Stock entitled to one (1) vote and each share of Class B Stock entitled to ten (10) votes. (iv) The holders of Class A Stock shall not be entitled to vote at any meeting of the stockholders or otherwise, except as may be specifically required by applicable law. (b) The provisions of this Article FOURTH of the Certificate of Incorporation shall not be modified, revised, altered or amended, repealed or rescinded in whole or in part, without the affirmative vote of a voting majority of the shares of the Common Stock and of a voting majority of the shares of the Class B Stock, each voting separately as a class. (c) The Corporation may not effect or consummate: 11 12 (1) any merger or consolidation of the Corporation with or into any other corporation; (2) any sale, lease, exchange or other disposition of all or substantially all of the assets of the Corporation to or with any other person; or (3) any dissolution of the Corporation, unless and until such transaction is authorized by the vote, if any, required by Articles NINTH and TWELFTH of this Certificate of Incorporation and by Delaware law; and unless and until such transaction is authorized by a majority of the voting power of the shares of Common Stock and of Class B Stock entitled to vote, each voting separately as a class, but the foregoing shall not apply to any merger or other transaction described in the preceding subparagraphs (1) and (2) if the other party to the merger or other transaction is a Subsidiary of the Corporation. For purposes of this paragraph (c) a "Subsidiary" is any corporation more than 50% of the voting securities of which are owned directly or indirectly by the Corporation; and a "person" is any individual, partnership, corporation or entity. (d) Following the initial issuance of shares of Class B Stock, the Corporation may not effect the issuance of any additional shares of Class B Stock (except in amounts per share equal to the amount of Common Stock per share paid with respect to the Common Stock in connection with stock splits and stock dividends) unless and until such issuance is authorized by the holders of a majority of the voting power of the shares of Common Stock and by the holders of a majority of the voting power of Class B Stock entitled to vote, each voting separately as a class. 12 13 (e) Every reference in this Certificate of Incorporation to a majority or other proportion of shares of stock shall refer to such majority or other proportion of the votes of such shares of stock. (f) Except as may be otherwise required by law or by this Article FOURTH, the holders of Common Stock and Class B Stock shall vote together as a single class, subject to any voting rights which may be granted to holders of Preferred Stock. III. Transfer. (a) No person holding shares of Class B Stock of record (hereinafter called a "Class B Holder") may transfer, and the Corporation shall not register the transfer of, such shares of Class B Stock, as Class B Stock, whether by sale, assignment, gift, bequest, appointment or otherwise, except to a Permitted Transferee and any attempted transfer of shares not permitted hereunder shall be converted into Common Stock as provided by subsection (d) of this Section III. A Permitted Transferee shall mean, with respect to each person from time to time shown as the record holder of shares of Class B Stock: (i) In the case of a Class B Holder who is a natural person; (A) The spouse of such Class B Holder and any lineal ancestor and descendant of such spouse, any lineal ancestor or descendant of such Class B Holder's parents, including adopted children and any spouse of such lineal descendant or ancestor and such spouse's lineal ancestors and descendants (which ancestors and descendants, their spouses and any lineal ancestors and descendants of such spouse, the 13 14 Class B Holder, and his or her spouse are herein collectively referred to as "Class B Holder's Family Members"); (B) The trustee of a trust (including a voting trust) principally for the benefit of such Class B Holder, such Class B Holder's Family Members and/or one or more of his or her other Permitted Transferees described in each subclause of this clause (i) other than this subclause (B), provided that such trust may also grant a general or special power of appointment to one or more of such Class B Holder's Family Members and may permit trust assets to be used to pay taxes, legacies and other obligations of the trust or of the estates of one or more of such Class B Holder's Family Members payable by reason of the death of any of such Family Members; (C) A corporation if a majority of the beneficial ownership of outstanding capital stock of such corporation which is entitled to vote for the election of directors is owned by, or a partnership if a majority of the beneficial ownership of the partnership is held by, the Class B Holder or his or her Permitted Transferees determined under this clause (i), provided that if by reason of any change in the ownership of such stock or partnership interests, such corporation or partnership would no longer qualify as a Permitted Transferee, all shares of Class B Stock then held by such corporation or partnership shall, upon the election of the Corporation given by written notice to such corporation or partnership, without further act on anyone's part, be converted into shares of Common Stock effective upon the date of the giving of such notice, and stock certificates formerly representing such shares of Class B Stock shall thereupon and thereafter be deemed to represent the like number of shares of Common Stock; and (D) The estate of such Class B Holder. 14 15 (ii) In the case of a Class B Holder holding the shares of Class B Stock in question as trustee pursuant to a trust (other than a trust described in clause (iii) below), "Permitted Transferee" means (A) any person transferring Class B Stock to such trust and (B) any Permitted Transferee of any such transferor determined pursuant to clause (i) above. (iii) In the case of a Class B Holder holding the shares of Class B Stock in question as trustee pursuant to a trust which was irrevocable on the record date (hereinafter in this Section III called the "Record Date") for determining the persons to whom the Class B Stock is first issued by the Corporation, "Permitted Transferee" means (A) any person to whom or for whose benefit principal may be distributed either during or at the end of the term of such trust whether by power of appointment or otherwise and (B) any Permitted Transferee of any such person determined pursuant to clause (i) above. (iv) In the case of a Class B Holder which is a corporation or partnership acquiring record and beneficial ownership of the shares of Class B Stock in question upon its initial issuance by the Corporation, "Permitted Transferee" means (A) any partner of such partnership, or stockholder of such corporation, on the Record Date, (B) any person transferring such shares of Class B Stock to such corporation or partnership, and (C) any Permitted Transferee of any such person, partner, or stockholder referred to in subclauses (A) and (B) of this clause (iv), determined under clause (i) above. (v) In the case of a Class B Holder which is a corporation or partnership (other than a corporation or partnership described in clause (iv) above) holding record 15 16 and beneficial ownership of the shares of Class B Stock in question, "Permitted Transferee" means (A) any person transferring such shares of Class B Stock to such corporation or partnership and (B) any Permitted Transferee of any such transferor determined under clause (i) above. (vi) In the case of a Class B Holder which is the estate of a deceased Class B Holder, or which is the estate of a bankrupt or insolvent Class B Holder, which holds record and beneficial ownership of the shares of Class B Stock in question, "Permitted Transferee" means a Permitted Transferee of such deceased, bankrupt or insolvent Class B Holder as determined pursuant to clause (i), (ii), (iii), (iv) or (v) above, as the case may be. (b) Notwithstanding anything to the contrary set forth herein, any Class B Holder may pledge such Holder's share of Class B Stock to a pledgee pursuant to a bona fide pledge of such shares as collateral security for indebtedness due to the pledgee, provided that such shares shall not be transferred to or registered in the name of the pledgee and shall remain subject to the provisions of this Section III. In the event of foreclosure or other similar action by the pledgee, such pledged shares of Class B Stock may only be transferred to a Permitted Transferee of the pledgor or converted into shares of Common Stock, as the pledgee may elect. (c) For purposes of this Section III: (i) The relationship of any person that is derived by or through legal adoption shall be considered a natural one. 16 17 (ii) Each joint owner of shares of Class B Stock shall be considered a "Class B Holder" of such shares. (iii) A minor for whom shares of Class B Stock are held pursuant to a Uniform Gifts to Minors Act or similar law shall be considered a Class B Holder of such shares. (iv) Unless otherwise specified, the term "person" means both natural persons and legal entities. (v) Without derogating from the election conferred upon the Corporation pursuant to subclause (C) of clause (i) above, each reference to a corporation shall include any successor corporation resulting from merger or consolidation and each reference to a partnership shall include any successor partnership resulting from the death or withdrawal of a partner. (d) Any transfer of shares of Class B Stock not permitted hereunder shall result in the conversion of the transferee's shares of Class B Stock into shares of Common Stock, effective the date on which certificates representing such shares are presented for transfer on the books of the Corporation. The Corporation may, in connection with preparing a list of stockholders entitled to vote at any meeting of stockholders, or as a condition to the transfer or the registration of shares of Class B Stock on the Corporation's books, require the furnishing of such affidavits or other proof as it deems necessary to establish that any person is the beneficial owner of shares of Class B Stock or is a Permitted Transferee. 17 18 (e) At any time when the number of outstanding shares of Class B Stock as reflected on the stock transfer books of the Corporation falls below 5% of the aggregate number of the issued and outstanding shares of the Common Stock and Class B Stock of the Corporation, or the Board of Directors and the holders of a majority of the outstanding shares of Class B Stock approve the conversion of all of the Class B Stock into Common Stock, then, immediately upon the occurrence of either such event, the outstanding shares of Class B Stock shall be converted into shares of Common Stock. In the event of such a conversion, certificates formerly representing outstanding shares of Class B Stock shall thereupon and thereafter be deemed to represent the like number of shares of Common Stock. (f) Shares of Class B Stock shall be registered in the names of the beneficial owners thereof and not in "street" or "nominee" name. For this purpose, a "beneficial owner" of any shares of Class B Stock shall mean a person who, or an entity which, possesses the power, either singly or jointly, to direct the voting or disposition of such shares. The Corporation shall note on the certificates for shares of Class B Stock the restrictions on transfer and registration of transfer imposed by this Section III. IV. Conversion Rights. (a) Subject to the terms and conditions of this Section IV, all outstanding shares of Class A Stock shall be converted into fully paid and nonassessable shares of Common Stock, immediately and without any action on the part of the holder of such stock, in the event the Class B Stock is converted into Common Stock in accordance with the provisions of subsection (e) of Section III of this Article Fourth. Upon conversion, the shares of Common Stock issued shall be subject 18 19 to the same dividends or distributions theretofore declared but not paid or issued on the Class A Stock immediately prior to conversion but the Corporation shall not make any payment or adjustment on account of any dividends or distributions declared but not paid or issued on the Common Stock on such conversion. In the event of such conversion, certificates formerly representing shares of Class A Stock shall thereupon and thereafter be deemed to represent the like number of shares of Common Stock. (b) Subject to the terms and conditions of this Section IV, each share of Class B Stock shall be convertible at any time or from time to time, at the option of the respective holder thereof, at the office of any transfer agent for Class B Stock, and at such other place or places, if any, as the Board of Directors may designate, or, if the Board of Directors shall fail so to designate, at the principal office of the Corporation (attention of the Secretary of the Corporation), into one (1) fully paid and nonassessable share of Common Stock. Upon conversion, the Corporation shall make no payment or adjustment on account of dividends accrued or in arrears on Class B Stock surrendered for conversion or on account of any dividends on the Common Stock issuable on such conversion. Before any holder of Class B Stock shall be entitled to convert the same into Common Stock, he shall surrender the certificate or certificates for such Class B Stock at the office of said transfer agent (or other place as provided above), which certificate or certificates, if the Corporation shall so request, shall be duly endorsed to the Corporation or in blank or accompanied by proper instruments of transfer to the Corporation or in blank) (such endorsements or instruments of transfer to be in form satisfactory to the Corporation), and shall give written notice to the Corporation at said office that he elects so to convert said Class B Stock in accordance with the terms of this Section IV, and shall state in writing therein the name or names in which he wishes the certificate or certificates for Common Stock to be issued. Every such notice of election to convert shall constitute a contract between the holder 19 20 of such Class B Stock and the Corporation, whereby the holder of such Class B Stock shall be deemed to subscribe for the amount of Common Stock which he shall be entitled to receive upon such conversion, and, in satisfaction of such subscription, to deposit the Class B Stock to be converted and to release the Corporation from all liability thereunder, and thereby the Corporation shall be deemed to agree that the surrender of the certificate or certificates therefor and the extinguishment of liability thereon shall constitute full payment of such subscription for Common Stock to be issued upon such conversion. The Corporation will as soon as practicable after such deposit of a certificate or certificates for Class B Stock, accompanied by the written notice and the statement above prescribed, issue and deliver at the office of said transfer agent (or other place as provided above) to the person for whose account such Class B Stock was so surrendered, or to his nominee or nominees, a certificate or certificates for the number of full shares of Common Stock to which he shall be entitled as aforesaid. Subject to the provisions of subsection (d) of this Section IV, such conversion shall be deemed to have been made as of the date of such surrender of the Class B Stock to be converted; and the person or persons entitled to receive the Common Stock issuable upon conversion of such Class B Stock shall be treated for all purposes as the record holder or holders of such Common Stock on such date. (c) The issuance of certificates for shares of Common Stock upon conversion of shares of Class B Stock shall be made without charge for any stamp or other similar tax in respect of such issuance. However, if any such certificate is to be issued in a name other than that of the holder of the share or shares of Class B Stock converted, the person or persons requesting the issuance thereof shall pay to the Corporation the amount of any tax which may be payable in respect of any transfer involved in such issuance or shall establish to the satisfaction of the Corporation that such tax has been paid. 20 21 (d) The Corporation shall not be required to convert Class B Stock and no surrender of Class B Stock shall be effective for that purpose, while the stock transfer books of the Corporation are closed for any purpose; but the surrender of Class B Stock for conversion during any period while such books are so closed shall become effective for conversion immediately upon the reopening of such books, as if the conversion had been made on the date such Class B Stock was surrendered. (e) The Corporation covenants that it will at all times reserve and keep available, solely for the purpose of issue upon conversion of the outstanding shares of Class A Stock and Class B Stock, such number of shares of Common Stock as shall be issuable upon the conversion of all such outstanding shares, provided that nothing contained herein shall be construed to preclude the Corporation from satisfying its obligations in respect of the conversion of the outstanding shares of Class A Stock and Class B Stock by delivery of shares of Common Stock which are held in the treasury of the Corporation. The Corporation covenants that if any shares of Common Stock, required to be reserved for purposes of conversion hereunder, require registration with or approval of any governmental authority under any federal or state law before such shares of Common Stock may be issued upon conversion, the Corporation will use its best efforts to cause such shares to be duly registered or approved, as the case may be. The Corporation will endeavor to list the shares of Common Stock required to be delivered upon conversion prior to such delivery upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery. The Corporation covenants that all shares of Common Stock which shall be issued upon conversion of the shares of Class A Stock and Class B Stock, will, upon issue, be fully paid and nonassessable and not entitled to any preemptive rights. 21 22 V. Liquidation Rights. In the event of any dissolution, liquidation or winding up of the affairs of the Corporation, whether voluntary or involuntary, after payment or provision for payment of the debts and other liabilities of the Corporation, the holders of each series of Preferred Stock shall be entitled to receive, out of the net assets of the Corporation, an amount for each share equal to the amount fixed and determined by the Board of Directors in any resolution or resolutions providing for the issuance of any particular series of Preferred Stock, plus an amount equal to all dividends accrued and unpaid on shares of such series to the date fixed for distribution, and no more, before any of the assets of the Corporation shall be distributed or paid over to the holders of Common Stock. After payment in full of said amounts to the holders of Preferred Stock of all series, the remaining assets and funds of the Corporation shall be divided among and paid ratably to the holders of Common Stock, Class A Stock and Class B Stock (considered for this purpose as one class). If, upon such dissolution, liquidation or winding up, the assets of the Corporation distributable as aforesaid among the holders of Preferred Stock of all series shall be insufficient to permit full payment to them of said preferential amounts, then such assets shall be distributed among such holders, first in the order of their respective preferences, and second, as to such holders who are next entitled to such assets and who rank equally with regard to such assets, ratably in proportion to the respective total amounts which they shall be entitled to receive as provided in this Section V. A merger or consolidation of the Corporation with or into any other corporation or a sale or conveyance of all or any part of the assets of the Corporation (which shall not in fact result in the liquidation of the Corporation and the distribution of assets to stockholders) shall not be deemed to be a voluntary or involuntary liquidation or dissolution or winding up of the Corporation within the meaning of this Section V. 22 23 B. Preferred Stock. The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of this Article FOURTH, to provide for the issuance of the preferred shares in series, and by filing a certificate pursuant to the General Corporation Law of Delaware, to establish the number of shares to be included in each such series, and to fix the designations, relative rights, preferences and limitations of the shares of each such series. The authority of the Board with respect to each series shall include, but not be limited to, determination of the following: (a) The number of shares constituting that series and the distinctive designations of that series; (b) The dividend rate on the shares of that series, whether dividends shall be cumulative and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable and, if so, the terms and conditions of such redemption, including the date or dates upon or after which they shall be redeemable, and the amount per share payable in case of 23 24 redemption, which amount may vary under different conditions and at different redemption dates; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; (h) Any other relative rights, preferences and limitations of that series. Dividends on outstanding preferred shares shall be declared and paid, or set apart for payment, before any dividends shall be declared and paid, or set apart for payment, on the common shares with respect to the dividend period. Any and all such shares issued, and for which the full consideration has been paid or delivered shall be deemed fully paid stock and the holder of such shares shall not be liable for any further call or assessment or any other payment thereon. C. Authorized Shares of Capital Stock. Except as may be provided in the terms and conditions fixed by the Board of Directors for any series of Preferred Stock, and in addition to any other vote that may be required by statute, stock exchange regulations, this Certificate of Incorporation or any amendment hereof, the number of authorized shares of any class or classes of stock of the Corporation may be increased or decreased by the affirmative 24 25 vote of the holders of a majority of the outstanding shares of stock of the Corporation entitled to vote. In the event no shares of Class A Stock are outstanding five years from the date of authorization by the stockholders, the Board of Directors may at any time thereafter retire and thereby eliminate the Class A Stock from the certificate of incorporation and reduce accordingly the number of authorized shares of capital stock of the Corporation. 3. The capital of the Corporation will not be reduced under or by reason of any amendment hereinafter certified. FIFTH: The name and place of residence of each of the original subscribers to the capital stock of the corporation and the number of shares subscribed for by each are as follows:
NUMBER SHARES NAME RESIDENCE COMMON ---- --------- ------------- T. L. Croteau Wilmington, Delaware 4 A. Bruce Wilmington, Delaware 4 S. E. Dill Wilmington, Delaware 2
SIXTH: The corporation is to have perpetual existence. SEVENTH: The private property of the stockholders of the corporation shall not be subject to the payment of corporate debts to any extent whatsoever. EIGHTH: The number of directors of the corporation shall be such number no less than five (5) and no greater than fifteen (15) as shall be fixed by the by- 25 26 laws and may be altered from time to time as may be prescribed in the by-laws. In case of any increase in the number of directors, the additional directors may be elected, as provided in the by-laws, by the Board of Directors, or, at any meeting of the stockholders, by the stockholders entitled to vote thereat. Directors need not be stockholders. Directors shall be divided into three classes, each class to be determined by the directors prior to the election of a particular class. In the event that at any time or from time to time the number of directors is increased, the newly created directorships resulting therefrom shall be filled by a vote of the majority of the directors in office immediately prior to such increase, and directors so elected shall serve until the term of the class to which they are assigned expires. Vacancies in any class of directors shall be filled by the vote of the remaining directors, and directors so elected shall serve until the term of such class expires. At the 1974 Annual Meeting of Stockholders, Class A directors shall be elected to a term of three years, Class B directors to a term of two years, and Class C directors to a term of one year; and at each subsequent annual meeting, the successors to directors whose terms shall expire that year shall be elected to a term of three years. NINTH: (1) Except as set forth in Part (2) of this Article, the affirmative vote of four-fifths (4/5) of the outstanding stock entitled to vote in elections of directors (considered for this purpose as one class) shall be required for: (a) any merger or consolidation to which the corporation, or any of its subsidiaries, and an Interested Person (as hereinafter defined) are parties; 26 27 (b) any sale or other disposition by the corporation, or any of its subsidiaries, of all or substantially all of its assets to an Interested Person; (c) any purchase or other acquisition by the corporation, or any of its subsidiaries, of all or substantially all of the assets of an Interested Person; or (d) any other transaction with an Interested Person which requires the approval of the stockholders of the corporation under the Delaware Corporation Law. (2) The provisions of Part (1) of this Article shall not be applicable to any transaction described therein, if such transaction is approved by resolution of the Board of Directors of the corporation, provided that a majority of the members of the Board of Directors voting for the approval of such transaction were duly elected and acting members of the Board of Directors prior to the later of (i) the date that the person, firm or corporation, or any group thereof, with whom such transaction is proposed, became an Interested Person or (ii) February 26, 1974. (3) As used in this Article, the term "Interested Person" shall mean any person, firm or corporation, or any group thereof, whether acting singly or in concert, which owns of record or beneficially, directly or indirectly, ten (10%) percent or more of any class of voting securities of the corporation. As used in this Article the term "Interested Person" shall include, in addition to an Interested Person, any person directly or indirectly controlling or controlled by the Interested Person, or any person under direct or indirect common control with the Interested Person. 27 28 (4) For purposes of this Article, the Board of Directors shall have the power to determine, on the basis of information known to the Board, if and when there is an Interested Person. Any such determination shall be conclusive and binding for all purposes of this Article. TENTH: In addition to any other vote that may be required by statute, stock exchange regulations, this Certificate of Incorporation or any amendment hereof, or the by-laws of the corporation, the vote of the holders of four-fifths of all classes of stock of the corporation entitled to vote in elections of directors (considered for this purpose as one class) shall be required to amend, alter, change or repeal Article EIGHTH, Article NINTH or this Article TENTH of this Certificate of Incorporation. ELEVENTH: No holder of stock of the corporation of whatsoever class shall have any pre-emptive right of subscription of any shares of any class of the stock of the corporation, at any time issued or sold, or to any obligations convertible into such stock, or any right of subscription to any thereof, other than such, if any, as the Board of Directors in its discretion may determine and any shares of stock, or obligations convertible into such stock, which the Board of Directors may determine to offer for subscription may be offered to any class of stock to the exclusion of the other. The common stock of the corporation without nominal or par value may be issued, from time to time, for such consideration as may be fixed, from time to time, by the Board of Directors of the corporation. In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized: 28 29 To make and alter the by-laws of the corporation subject to the power of the stockholders, at the time entitled to vote, to alter or repeal by-laws made by the Board of Directors; To fix the amount to be reserved as working capital and, subject to the other provisions of this certificate of incorporation, to authorize and cause to be executed mortgages and liens upon the property and franchises of the corporation; If a resolution passed by majority of the whole board so provide, to designate two or more of their number to constitute an executive committee, which committee shall for the time being, to the extent provided in said resolution or in the by-laws of the corporation, have and exercise any or all of the powers of the Board of Directors in the management of the business and affairs of the corporation and have power to authorize the seal of the corporation to be affixed to all papers which may require it; From time to time to determine whether, to what extent, at what times and places and under what conditions and regulations the books and accounts of the corporation, or any of them, other than the stock ledger, shall be open to the inspection of the stockholders; and no stockholder shall have the right to inspect any account or book or document of the corporation, except as conferred by law or authorized by resolution of the directors or of the stockholders. If the by-laws so provide, the stockholders and directors shall have power to hold their meetings, to have an office or offices and to keep the books of the corporation (subject to the provisions of the statutes of the State of Delaware) outside 29 30 of the State of Delaware at such places as may from time to time be designated by them, whether within or without the United States of America. The corporation may in its by-laws confer powers additional to the foregoing upon the directors, in addition to the powers and authority expressly conferred upon them by law. No contract or other transaction between the corporation and any other corporation and no act of the corporation shall in any way be affected or invalidated by the fact that any of the directors of the corporation are pecuniarily or otherwise interested in, or are directors of or officers of, such other corporation; any director individually, or any firm of which any director may be a member, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the corporation, provided that the fact that he or such firm is so interested shall be disclosed or shall have been known to the Board of Directors or a majority thereof; and any director of the corporation who is also a director or officer of such other corporation or who is so interested may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the corporation which shall authorize any such contract or transaction, and may vote thereat to authorize any such contract or transaction, with like force and effect as if he were not such director or officer of such other corporation or not so interested. TWELFTH: The following provisions shall apply in addition to any other affirmative vote required by law or this certificate of incorporation: 30 31 SECTION I CERTAIN BUSINESS COMBINATIONS The affirmative vote of the holders of not less than four-fifths (4/5) of the outstanding shares of Voting Stock (as hereinafter defined) held by stockholders other than the Acquiring Person (as hereinafter defined) with which or by or on whose behalf, directly or indirectly, a Business Combination (as hereinafter defined) is proposed, voting as a single class, shall be required for the approval or authorization of such Business Combination. Notwithstanding the foregoing, the four-fifths voting requirement shall not be applicable if such Business Combination is approved by the corporation's Board of Directors prior to the Acquiring Person becoming such or if the cash or fair market value of the property, securities or other consideration to be received per share by holders of shares of each class of Voting Stock in such Business Combination as of the date of consummation thereof is an amount not less than the higher of (a) the Highest Per Share Price or the Highest Equivalent Price (as these terms are hereinafter defined) paid by such Acquiring Person in acquiring any of its holdings of Voting Stock, and (b) the Fair Market Price (as hereinafter defined) of such class of Voting Stock determined on the date the proposal for such Business Combination was first publicly announced, and such consideration shall be in the same form and of the same kind as the consideration paid by such Acquiring Person in acquiring the shares of Voting Stock already acquired by it. If the Acquiring Person had paid for shares of Voting Stock with varying forms of consideration, the form of consideration to be received by the holders of Voting Stock shall be the form used to acquire the largest number of shares of Voting Stock acquired by such Acquiring Person. 31 32 SECTION II DEFINITIONS For purposes of this Article TWELFTH: 1. Business Combination. The term "Business Combination" shall mean (a) any merger or consolidation of the corporation or a subsidiary of the corporation with or into an Acquiring Person, (b) any sale, lease, exchange, transfer or other disposition, including, without limitation, a mortgage or any other security device, in a single transaction or related series of transactions, of all or any Substantial Part (as hereinafter defined) of the assets either of the corporation (including without limitation any voting securities of a subsidiary) or of a subsidiary of the corporation to an Acquiring Person, (c) any merger or consolidation of an Acquiring Person with or into the corporation or a subsidiary of the corporation, (d) any sale lease, exchange, transfer or other disposition, including without limitation a mortgage or other security device, in a single transaction or related series of transactions, of all or any Substantial Part of the assets of an Acquiring Person to the corporation or a subsidiary of the corporation, (e) the issuance of any securities of the corporation or a subsidiary of the corporation to an Acquiring Person, (f) any recapitalization, merger or consolidation that would have the effect of increasing the voting power of an Acquiring Person, (g) the adoption of any plan or proposal for the liquidation or dissolution of the corporation proposed, directly or indirectly, by or on behalf of an Acquiring Person, (h) any merger or consolidation of the corporation with a subsidiary of the corporation proposed by or on behalf of an Acquiring Person, unless the surviving or consolidated corporation, as the case may be, has a provision in its certificate of incorporation substantially identical to this Article TWELFTH, (i) any agreement, contract or other arrangement providing for any of the transactions described in this definition of 32 33 Business Combination, and (j) any other transaction with an Acquiring Person which requires the approval of the stockholders of the corporation under the General Corporation Law of Delaware. A person who is an Acquiring Person as of (x) the time any definitive agreement relating to a Business Combination is entered into, (y) the record date for the determination of stockholders entitled to notice of and to vote on a Business Combination, or (z) immediately prior to the consummation of a Business Combination, shall be deemed an Acquiring Person for purposes of this definition. 2. Acquiring Person. The term "Acquiring Person" shall mean and include any individual, corporation (other than the corporation), partnership or other person or entity which, together with its Affiliates and Associates (as defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect at March 30, 1984, collectively, and as so in effect, the "Exchange Act"), and with any other individual, corporation (other than the corporation), partnership or other person or entity with which it or they have any agreement, arrangement or understanding with respect to acquiring, holding, voting or disposing of Voting Stock, Beneficially Owns (as defined in Rule 13d-3 of the Exchange Act) in the aggregate 5% or more of the outstanding Voting Stock of the corporation. A person or entity, its Affiliates and Associates and all such other persons or entities with whom they have any such agreement, arrangement or understanding shall be deemed a single Acquiring Person for purposes of this Article TWELFTH. For purposes of this Article, the Board of Directors shall have the power to determine, on the basis of information known to the Board, if and when there is an Acquiring Person. Any such determination shall be conclusive and binding for all purposes of this Article. 3. Substantial Part. The term "Substantial Part" shall mean an amount equal to more than 10% of the fair market value of the total consolidated assets 33 34 of the corporation and its subsidiaries taken as a whole as of the end of its most recent fiscal year ended prior to the time the determination is being made. 4. Rights to Acquire. Without limitation, any share of Voting Stock of the corporation that any Acquiring Person has the right to acquire at any time (notwithstanding that Rule 13d-3 of the Exchange Act deems such shares to be beneficially owned only if such right may be exercised within 60 days) pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed to be Beneficially Owned by the Acquiring Person and to be outstanding for purposes of Paragraph 2 of this Section II. 5. Other Consideration to Be Received. For the purposes of Section I of this Article TWELFTH, the term "Other Consideration to be Received" shall include, without limitation, Common Stock, Preferred Stock or other capital of the corporation retained by its existing stockholders other than the Acquiring Person with which or by or on whose behalf, directly or indirectly, a Business Combination has been proposed or other parties to such Business Combination in the event of a Business Combination in which the corporation is the surviving corporation. 6. Voting Stock. The term "Voting Stock" shall mean all of the outstanding shares of capital stock of the corporation entitled to vote in elections of directors (considered for this purpose as one class), and each reference to a percentage of shares of Voting Stock shall refer to such percentage of the votes entitled to be cast by such shares. 7. Time of Acquisition. An Acquiring Person shall be deemed to have acquired shares of the Voting Stock of the corporation at the time when such 34 35 Acquiring Person became the Beneficial Owner thereof. The price paid by an Acquiring Person for such shares held by a person or entity at the time it became part of such Acquiring Person shall be deemed to be the higher of (a) the price paid upon the acquisition thereof by such person or entity and (b) the market price of the shares in question at the time when such person or entity became part of such Acquiring Person. 8. Highest Per Share Price; Highest Equivalent Price. The terms "Highest Per Share Price" and "Highest Equivalent Price" as used in this Article TWELFTH shall mean the following: If there is only one class of capital stock of the corporation issued and outstanding, the Highest Per Share Price shall mean the highest per share price that can be determined to have been paid at any time by the Acquiring Person by or on whose behalf, directly or indirectly, the Business Combination has been proposed for any share or shares of that class of capital stock. If there is more than one class of capital stock of the corporation issued and outstanding, the Highest Equivalent Price shall mean, with respect to each class and series of capital stock of the corporation, the highest per share price equivalent of the highest price that can be determined to have been paid at any time by such series of capital stock of the corporation. In determining the Highest Per Share Price and Highest Equivalent Price, all purchases by an Acquiring Person shall be taken into account regardless of whether the shares were purchased before or after the Acquiring Person became an Acquiring Person. Also the Highest Per Share Price and the Highest Equivalent Price shall include any brokerage commissions, transfer taxes and soliciting dealers' fees paid by the Acquiring Person with respect to the shares of capital stock of the corporation acquired by the Acquiring Person. The Highest Per Share Price and the Highest Equivalent Price shall be appropriately adjusted to take into account stock dividends, subdivisions, combinations and reclassifications. 35 36 9. Fair Market Price. The term "Fair Market Price" shall mean for any class of Voting Stock the highest closing sale price during the 30-day period immediately preceding the date in question of a share of such class of Voting Stock on the American Stock Exchange, or, if such class of Voting Stock is not listed on such Exchange, on the principal United States securities exchange registered under the Securities Exchange Act of 1934 on which such class of Voting Stock is listed, or, if such class of Voting Stock is not listed on any such exchange, the highest closing bid quotation with respect to a share of such class of Voting Stock during the 30-day period preceding the date in question on the National Association of Securities Dealers, Inc. Automated Quotations System or any system then in use, or if no such quotations are available, the fair market value on the date in question of a share of such stock. SECTION III AMENDMENT The provisions set forth in this Article TWELFTH may not be amended, altered, changed or repealed in any respect unless such action is approved by the affirmative vote of the holders of not less than four-fifths of the outstanding shares of Voting Stock of the corporation at a meeting of the stockholders duly called for the consideration of such amendment, alteration, change or repeal, provided, however, that if such action has been proposed, directly or indirectly, on behalf of an Acquiring Person, it must also be approved by the affirmative vote of the holders of not less than four-fifths of the outstanding shares of Voting Stock held by the stockholders other than such Acquiring Person. 36 37 SECTION IV NON-EXCLUSIVE The provisions set forth in this Article TWELFTH are in addition to the provisions set forth in Article NINTH of this certificate of incorporation. THIRTEENTH: No director shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, provided that the foregoing shall not eliminate or limit the liability of a director (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction for which the director derived an improper personal benefit. The foregoing shall not eliminate or limit the liability of a director for any act or omission occurring prior to the date this Article becomes effective. Signed and attested to on November ___, 1996. _______________________________________ Victor Liss, Vice Chairman of the Board Attest: ________________________ Angela Toppi, Secretary 37 38 RESTATED CERTIFICATE OF INCORPORATION OF TRANS-LUX CORPORATION (UNDER SECTION 245 OF THE DELAWARE GENERAL CORPORATION LAW) WEISMAN CELLER SPETT & MODLIN, P.C. 445 PARK AVENUE, 15TH FLOOR NEW YORK, NEW YORK 10022 EX-3.2 3 BY-LAWS OF THE COMPANY 1 Exhibit 3.2 BY-LAWS of TRANS-LUX CORPORATION As Amended and Effective August l5, l996 OFFICES 1. The Corporation may have an office or offices at such place or places within and/or without the State of Delaware as the Board of Directors may from time to time appoint, or the business of the Corporation may require. SEAL 2. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its organization and the words "Corporate Seal, Delaware," and be in such form as the Board of Directors shall determine. STOCKHOLDERS' MEETINGS 3. All meetings of the stockholders shall be held at the office of the Corporation or such other place as the Board of Directors shall designate in the notice of such meeting. 4. (a) The annual meeting of stockholders shall be held on the last Thursday of April in each year if not a legal holiday and if a legal holiday, then on the next secular day following, or such other date as selected by the Board of Directors, at such hour as the Board of Directors shall fix and designate in the notice of meeting, for the purpose of electing directors, by ballot, and for the transaction of such other business as may properly be brought before the meeting. (b) At any annual meeting of the stockholders, only such business shall be conducted as shall have been brought before the meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation who is entitled to vote with respect thereto and who complies with the notice procedures set forth in this paragraph and applicable law. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given 2 timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered or mailed to and received at the principal executive offices of the Corporation in accordance with Rule 14a-8(3)(i) under the Securities Exchange Act of 1934 or, if the Corporation is not subject to such proxy rule, not less than 30 days prior to the date of the annual meeting. A stockholder's notice to the Secretary shall set forth as to each matter such stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (iii) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder and (iv) any material interest of such stockholder in such business. Notwithstanding anything in these by-laws to the contrary, no business shall be brought before or conducted at an annual meeting except in accordance with the provisions of this paragraph (b). The officer of the Corporation or other person presiding over the annual meeting shall, if the facts so warrant, determine and declare to the meeting that business was not properly brought before the meeting in accordance with the provisions of this paragraph (b) and, if he should so determine, he shall so declare to the meeting and any such business so determined to be not properly brought before the meeting shall not be transacted. (c) Only persons who are nominated in accordance with the procedures set forth in these by-laws shall be eligible for election as directors. Nominations of persons for election to the Board of Directors of the Corporation may be made at a meeting of stockholders at which directors are to be elected only (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at the meeting who complies with the notice procedures set forth in this paragraph (c). Such nominations, other than those made by or at the direction of the Board of Directors, shall be made by timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice shall be delivered or mailed to and received at the principal executive offices of the Corporation not less than 120 days prior to the anniversary date of the immediately preceding annual meeting. Such stockholder's notice shall set forth (i) as to each person whom such stockholder proposes to nominate for election or re-election as a director, (x) whether such nominee is to be elected by the holders of the Common Stock, Class B Stock or both in accordance with the certificate of incorporation and these by-laws, and (y) all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (x) the name and address, as they appear on the Corporation's books, of such stockholder and (y) the class and number of shares of the Corporation's capital stock that are beneficially owned by such stockholder. At the request of the Board of Directors any person nominated by the Board of Directors for election as a director 2 3 shall furnish to the Secretary of the Corporation that information required to be set forth in a stockholder's notice of nomination which pertains to the nominee. No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the provisions of this paragraph (c). The officer of the Corporation or other person presiding at the meeting shall, if the facts so warrant, determine and declare to the meeting that a nomination was not made in accordance with such provisions and, if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. 5. The holders of a majority of the voting power of the stock issued and outstanding, and entitled to vote thereat, present in person, or represented by proxy, shall be requisite and shall constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by law, by the certificate of incorporation or by these by-laws. If, however, such majority shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat, present in person, or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of voting stock shall be present. At such adjourned meeting at which the requisite amount of voting stock shall be represented any business may be transacted which might have been transacted at the meeting as originally notified. 6. At each meeting of the stockholders every stockholder having the right to vote shall be entitled to vote in person, or by proxy appointed by an instrument in writing subscribed by such stockholder and bearing a date not more than three years prior to said meeting, unless said instrument provides for a longer period. All proxies shall be subject to cancellation before any meeting, and any proxy shall be deemed cancelled by a proxy of later date. Each holder of Common Stock shall have one vote and each holder of Class B Stock shall have ten votes for each such share of stock having voting power registered in his name on the books of the Corporation as of the record date set by the Board of Directors. The vote for directors, and, upon the demand of any stockholder, the vote upon any question before the meeting shall be by ballot. All elections shall be had and all questions decided by a plurality vote except where a greater vote or a separate plurality vote of the Common Stock and Class B Stock is required by the certificate of incorporation. 7. There shall be appointed by the Board of Directors at a regular or special meeting of the Board preceding a stockholders' meeting at which an election of directors shall take place, two (2) inspectors of election. If any or all of the inspectors so appointed by the Board of Directors shall refuse to act or fail to attend the stockholders' meeting, then the Chairman of the Board shall at the opening of the stockholders' meeting appoint an inspector or inspectors to fill any vacancy caused by any or all of said inspectors failing to attend or refusing to act. The inspectors 3 4 appointed to act as aforesaid, before entering upon the discharge of their duties, shall be sworn faithfully to execute the duties of inspectors at such meeting, and according to their best ability, and the oath so taken shall be subscribed by them and filed with the Secretary of the Corporation. Inspectors shall receive and take charge of all proxies and ballots and shall decide all questions touching upon the qualification of voters, the validity of proxies and the acceptance and rejection of votes. If a proxy is apparently the act of the stockholder and regular upon its face, the inspectors may accept the same. Inspectors shall make a written certificate of the result of election and file the same with the Secretary of the Corporation. 8. Written notice of the annual meeting shall be mailed to each stockholder entitled to vote thereat at such address as appears on the stock book of the Corporation, at least twenty days prior to the meeting. 9. A complete list of the stockholders entitled to vote at the ensuing elections, arranged in alphabetical order, with the residence of each, and the number of voting shares held by each shall be prepared by the Secretary and filed in the office where the election is to be held, at least ten days before every election, and shall at all times, during the usual hours for business, and during the whole time of said election, be open to the examination of any stockholder. 10. Special meetings of the stockholders, for any purpose, or purposes, unless otherwise prescribed by statute, may be called by the Chairman of the Board and shall be called by the Chairman of the Board or by the Secretary at the request in writing of a majority of the Board of Directors. Such request shall state the purpose or purposes of the proposed meeting. 11. Business transacted at all special meetings shall be confined to the objects stated in the call. 12. Written notice of a special meeting of the stockholders, stating the time and place and object thereof shall be mailed, postage prepaid at least fourteen days before such meeting, to each stockholder entitled to vote thereat, at such address as appears on the books of the Corporation. 13. Independent public auditors of the books of the Corporation and its subsidiaries shall be recommended by the stockholders of the Corporation at each annual meeting and a representative of the auditing firm last chosen shall be requested to attend the annual meeting each year. 4 5 DIRECTORS 14.(a) The Management of all the affairs, property and business of the Corporation shall be vested in a Board of Directors consisting of not less than five, nor more than fifteen persons, the exact number to be fixed from time to time by resolution of a majority of the directors. Directors shall be divided into three classes, the size of each class to be determined by the directors prior to the election of a particular class. At each annual meeting, directors shall be elected for a term of three years to replace those whose terms shall expire or for the remaining term of the class for which such directors have been chosen, as the case may be, and shall hold office until their successors shall be elected and shall qualify. Any vacancies in the Board, or any increase thereof to the maximum number, may be filled by vote of the existing Board of Directors at any time. (b) The holders of the Common Stock, voting separately as a class, shall have the right at each meeting of stockholders with respect to election of directors to elect such number of directors who, together with all other directors previously elected by the holders of Common Stock (the "Common Stock Directors") and whose terms are not expiring at such meeting, constitute twenty-five (25%) of the total number of directors of the entire Board of Directors. Such right to elect directors shall be in accordance with the certificate of incorporation and these by-laws of the Corporation in effect from time to time. The remaining directors of the Board of Directors shall be elected by the holders of Class B Stock voting separately as a class. In the event that twenty-five percent (25%) of the number of directors so fixed at any time is not a whole number, the number of Common Stock Directors shall be rounded up to the nearest whole number. Notwithstanding the foregoing, in no event shall the Common Stock Directors constitute more than twenty-five (25%) (or the next highest whole number) of the entire Board of Directors and, in the event that on the record date of any stockholder meeting with respect to the election of directors the number of Common Stock Directors whose terms are not expiring at such stockholder meeting, constitute at least twenty-five (25%) of the entire Board of Directors, the holders of Common Stock shall have no vote in the election of directors at such meeting and no Common Stock Directors shall be elected at such meeting. (c) If on the record date of any stockholder meeting with respect to the election of directors the number of shares of Class B Stock which is issued and outstanding is less than twelve-and-a-half percent (12-1/2%) of the total number of shares of Common Stock and Class B Stock which is issued and outstanding, the holders of the Common Stock shall vote separately as a class to elect twenty-five percent (25%) of the directors to be elected in the manner specified in paragraph (b), and shall also be entitled to vote in the election of the remaining directors to be elected, together with the holders of the Class B Stock, voting, for this purpose as one class, 5 6 with each share of Common Stock entitled to one (1) vote and each share of Class B Stock entitled to ten (10) votes. (d) In the event that the continued listing for trading of the Corporation's Common Stock on the American Stock Exchange no longer requires twenty-five percent (25%) of the number of directors to be elected by the holders of the Common Stock in the manner specified in Paragraphs (b) and (c), then such right of the holders of Common Stock to elect twenty-five percent (25%) of the number of directors shall cease and at all elections of directors following such change, the Common Stock and Class B Stock shall vote in the election of directors as one class, with each share of Common Stock entitled to one (1) vote and each share of Class B Stock entitled to ten (10) votes. 15. The directors may hold their meetings at such office of the Corporation or such other place as they may from time to time determine. At all meetings of the Board of Directors, a majority of the Board shall constitute a quorum and be empowered to transact any business that may come before it. 16. In addition to the powers and authorities by these by-laws expressly conferred upon them the Board may exercise all such powers of the Corporation, and do all such legal acts and things as are not by statute or by the certificate of incorporation or these by-laws directed or required to be exercised or done by the stockholders. It may make any rules and regulations for the transaction of the Corporation's business and the conduct, powers and duties of its officers and employees, not inconsistent with the statutes or the certificate of incorporation of the Corporation or these by-laws. INDEMNIFICATION OF DIRECTORS AND OFFICERS 17. (a) The Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the Corporation) by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorney's fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his conduct was 6 7 unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. (b) The Corporation shall have power to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable for negligence or misconduct in the performance of his duty to the Corporation unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper. (c) To the extent that a director, officer, employee or agent of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in paragraphs (a) and (b), or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith. (d) Any indemnification under paragraphs (a) and (b) (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances because he has met the applicable standard of conduct set forth in paragraphs (a) and (b). Such determination shall be made (1) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to such action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even if obtainable a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, or (3) by the stockholders. (e) (i) Expenses incurred in defending a civil or criminal action, suit or proceeding may be paid by the Corporation in advance of the final disposition of such action, suit or proceeding as authorized by the Board of Directors in the specific case upon receipt of an undertaking by or on behalf of the officer, employee or agent to 7 8 repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Paragraph 17. (ii) Expenses incurred in defending a civil or criminal action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding upon receipt of an undertaking by or on behalf of the director to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation as authorized in this Paragraph 17. (f) The indemnification provided by this Paragraph 17 shall not be deemed exclusive of any other rights to which those seeking indemnification may be entitled under any by-law, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in another capacity while holding such office, and shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (g) The Corporation shall have power to purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Corporation, or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Paragraph 17. The foregoing rights of indemnification shall not be exclusive of other rights to which such director, officer, employee or agent may be entitled as a matter of law. EXECUTIVE COMMITTEE AND OTHER COMMITTEES 18. The directors may elect from their number an Executive Committee of not less than three nor more than six members, one of whom shall be the Chairman of the Board, which may make its own rules of procedure and shall meet where and as provided by such rules or by a resolution of the directors. A majority shall constitute a quorum and in every case the affirmative vote of a majority of all the members of such committee shall be necessary to adopt any resolution. Vacancies in the membership of such committee may be filled by the Board of Directors at a regular meeting or special meeting called for that purpose. 19. During the interval between the meetings of directors, the Executive Committee shall have and may exercise all powers of the directors in the management of the business and affairs of the Corporation, including powers to authorize the seal of 8 9 the Corporation to be affixed to all papers which may require it in such manner as such committee shall deem best for the interests of the Corporation in all cases in which specific directions shall not have been given by the directors. The Executive Committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. 20. In addition to the Executive Committee, the Board of Directors may designate one or more other committees, each committee to consist of one or more of the directors as elected by the Board of Directors. Such committee shall have such powers and authority as the Board of Directors may provide. Each such committee shall keep regular minutes of its meetings and report the same to the Board of Directors when required. COMPENSATION OF DIRECTORS 21. At the first meeting of the Board of Directors following the annual meeting of stockholders, the directors shall have the power to set fees for their services, and for services on any committee, special or standing. MEETINGS OF THE BOARD 22. Regular meetings of the Board may be held without notice at such time and place as shall from time to time be determined by the Board. 23. Special meetings of the Board may be called by the Chairman of the Board or by the Vice Chairman on five (5) days' notice to each director, either personally or by mail or by telegram; special meetings shall be called by the Chairman of the Board or by the Vice Chairman or Secretary in like manner and on like notice on the written request of any four (4) directors. 24. At all meetings of the Board a majority of the directors shall be necessary and sufficient to constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum, shall be the act of the Board of Directors, except as may be otherwise specifically provided by statute or by the certificate of incorporation or by these by-laws. 9 10 OFFICERS 25. The officers of the Corporation shall be chosen by the directors. There shall be a Chairman of the Board, a Vice Chairman of the Board, a President, Vice-President, or more than one, Secretary and Treasurer. The Secretary and Treasurer may be the same person and the Vice Chairman or any of the Vice-Presidents may hold at the same time the office of Secretary or Treasurer. 26. The Board of Directors may appoint such other officers and agents from their members, or otherwise, as shall be deemed necessary including Assistant Vice Presidents, Assistant Secretaries and Assistant Treasurers who shall hold their offices for such term and shall exercise such powers and perform such duties as shall be determined from time to time by the Board. 27. The salaries of all officers of the Corporation shall be fixed by the Board of Directors. 28. The officers and agents of the Corporation shall hold office until their successors are chosen and qualify in their stead. Any officer or agent elected, or appointed, by the Board may be removed at any time by an affirmative vote of a majority of the whole Board of Directors. CHAIRMAN OF THE BOARD 29. The Chairman of the Board of Directors shall be chosen by the directors from amongst their number and shall preside at all meetings of the stockholders and the Board of Directors. Unless otherwise limited by the Board of Directors, he shall have power to sign and execute all authorized bonds, contracts or other obligations in the name of the Corporation and with the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary may sign all certificates of the shares of the capital stock of the Corporation. He shall be an ex officio member of any and all committees. VICE CHAIRMAN OF THE BOARD 30. The Board of Directors may elect, from amongst their number, a Vice Chairman of the Board of Directors who, in the absence of the Chairman of the Board, shall preside at all meetings of Stockholders and Board of Directors. He shall 10 11 be the chief executive officer of the Corporation and shall have general charge of the business of the Corporation. Unless otherwise limited by the Board of Directors, he shall have power to sign and execute all authorized bonds, contracts or other obligations in the name of the Corporation and with the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary may sign all certificates of shares of the capital stock of the Corporation. The Vice Chairman shall perform such other duties as may be assigned to him by the Board of Directors. THE PRESIDENT 31. The President, in the absence of the Chairman of the Board and Vice Chairman of the Board, shall preside at all meetings of the Stockholders and, if a Director, the Board of Directors. Unless otherwise limited by the Board of Directors, the Chairman of the Board or Vice Chairman of the Board, he shall have power to sign and execute all authorized bonds, contracts or other obligations in the name of the Corporation and with the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary may sign all certificates of the shares of the capital stock of the Corporation. He shall perform such other duties as may be assigned to him by the Board of Directors. VICE-PRESIDENTS 32. Except as otherwise provided by the Board of Directors, in the absence or disability of the Chairman of the Board, the Vice Chairman of the Board and of the President, the Executive Vice President, the Senior Vice Presidents and the other Vice-Presidents in the order in which they shall have been elected at the last election of officers by the Board of Directors shall perform the duties and exercise the powers of the President and shall perform such other duties as the Board of Directors shall prescribe. SECRETARY 33. The Secretary shall attend all sessions of the Board and all meetings of the stockholders, and record all votes and the minutes of all proceedings in a book to be kept for that purpose; and shall perform like duties for the standing committees when required. He shall give, or cause to be given, notice of all meetings of the stockholders and of the Board of Directors, and shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Vice Chairman of the Board or the President, under whose supervision he shall be. He shall be sworn to the faithful discharge of his duty. 11 12 TREASURER 34. (a) The Treasurer shall have the custody of the corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the corporation, and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation, in such depositories as may be designated by the Board of Directors. (b) He shall disburse the funds of the Corporation as may be ordered by the Board, taking proper vouchers for such disbursements, and shall render to the Vice Chairman of the Board and Directors, at the regular meetings of the Board, or whenever they may require it, an account of all his transactions as Treasurer and of the financial condition of the Corporation. 35. He shall give the Corporation a bond if required by the Board of Directors in a sum, and with one or more sureties satisfactory to the Board, for the faithful performance of the duties of his office, and for the restoration to the Corporation, in case of his death, resignation, retirement or removal from office, of all books, papers, vouchers, money and other property of whatever kind in his possession or under his control belonging to the Corporation. VACANCIES 36. If the office of any director, or of any officer or agent, one or more, becomes vacant by reason of death, resignation, retirement, disqualification, removal from office, or otherwise, the directors then in office, although less than a quorum by a majority vote, may choose a successor or successors, who shall hold office for the unexpired term in respect, of which such vacancy occurred. DUTIES OF OFFICERS MAY BE DELEGATED 37. In case of the absence of any officer of the Corporation, or for any other reason that the Board may deem sufficient, the Board may delegate, for the time being, the powers or duties, or any of them, of such officer to any other officer, or to any director; PROVIDED, a majority of the entire Board concur therein. 12 13 STOCK 38. The Board of Directors shall have power to fix from time to time the price at which the authorized shares of common stock of the Corporation may be issued and sold at a price which the Board of Directors in their sole judgment, shall fix and determine, and all shares when issued and sold shall be deemed fully paid and non-assessable. 39. The certificates of stock of the Corporation shall be numbered and shall be entered in the books of the Corporation as they are issued. They shall exhibit the holder's name and number of shares and shall be signed by the Chairman of the Board, the Vice Chairman of the Board or President, and the Treasurer, or an Assistant Treasurer, or the Secretary, or an Assistant Secretary. TRANSFER OF STOCK 40. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate or by attorney, lawfully constituted in writing, and upon surrender of the certificate therefor. REGISTERED STOCKHOLDERS 41. The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder in fact thereof and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, save as expressly provided by the laws of Delaware. LOST CERTIFICATE 42. Any person claiming a certificate of stock to be lost or destroyed shall make an affidavit or affirmation of that fact and advertise the same in such manner as the Board of Directors may require, and shall, if the directors so require, give the Corporation a bond of indemnity, in form and with one or more sureties satisfactory to the Board, in such sum as it may direct whereupon a new certificate may be issued of the same tenor and for the same number of shares as the one alleged to be lost or 13 14 destroyed. No resolution of the Board shall be required with respect to the replacement of 200 or fewer shares where appropriate bond of indemnity is provided. INSPECTION OF BOOKS 43. The directors shall determine from time to time whether, and if allowed, when and under what conditions and regulations the accounts and books of the Corporation (except such as may by statute be specifically open to inspection) or any of them shall be open to the inspection of the stockholders, and the stockholders' rights in this respect are and shall be restricted and limited accordingly. CHECKS 44. All checks or demands for money and notes of the Corporation shall be signed by such officer or officers as the Board of Directors may from time to time designate. FISCAL YEAR 45. The fiscal year shall begin on the first day of each year. DIVIDENDS 46. Dividends upon the capital stock of the Corporation, when earned, may be declared by the Board of Directors at any regular or special meeting. Before payment of any dividend or making any distribution of profits, there may be set aside out of the surplus or net profits of the Corporation, such a sum or sums as the directors from time to time, in their absolute discretion, think proper as a reserve fund to meet contingencies or for equalizing dividends, or for repairing or maintaining any property of the Corporation, or for such other purpose as the directors shall think conducive to the interests of the Corporation. 14 15 NOTICES 47. Whenever under the provisions of these by-laws notice is required to be given to any director, officer or stockholder, it shall not be construed to mean personal notice, but such notice as may be given in writing, by mail, by depositing the same in the post-office or letter-box in a postpaid wrapper, addressed to such stockholder, officer or director at such address as appears on the books of the Corporation, and such notice shall be deemed to be given at the time when the same shall be thus mailed. Any stockholder, director, or officer may waive any notice required to be given under these by-laws. AMENDMENTS 48. The Board of Directors by a vote of the majority of the whole Board may at any meeting make and alter the by-laws for the Corporation. GENDER 49. Words of the masculine gender used herein shall include the feminine and the neuter, and may refer to a corporation. 15 EX-4.1 4 SPECIMEN OF COMMON STOCK CERTIFICATE 1 Exhibit 4.1 TRANS-LUX CORPORATION INCORPORATED UNDER THE LAWS OF THE STATE OF DELAWARE see reverse side for certain definitions _____________________ | cusip 893247 10 6 | _____________________ This certifies that is the owner of full paid and non-assessable shares of the Common Capital Stock of the par value of One Dollar ($1) each of TRANS-LUX CORPORATION transferable on the books of the Corporation by the holder hereof in person or by duly authorized attorney upon surrender of this certificate properly endorsed. This certificate is not valid unless countersigned and registered by the Transfer Agent and Registrar. WITNESS the facsimile seal of the Corporation and the facsimile signatures of its duly authorized officers. DATED: Countersigned and registered: CONTINENTAL STOCK TRANSFER & TRUST COMPANY (a Limited Purpose Trust Company) (Jersey City, N.J. Transfer Agent and Registrar By Authorized Officer /s/ /s/ ------------------------ -------------------------- Secretary Chairman of the Board 2 The following abbreviations, when used in the inscription on the face of this certificate, shall be construed as though they were written out in full according to applicable laws or regulations: TEN COM -as tenants in common TEN ENT -as tenants by the entireties JT TEN -as joint tenants with right of survivorship and not as tenants in common UNIF GIFT MIN ACT-................Custodian................under Uniform Gifts (Cust) (Minor) to Minors Act..................... (State) Additional abbreviations may also be used though not in the above list. FOR VALUE RECEIVED,___________HEREBY SELL, ASSIGN AND TRANSFER UNTO Please insert social security or other Identifying number of assignee _____________________________________ | | ___________________________________________________________________________ ___________________________________________________________________________ _____________________________________________________________________SHARES OF THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY IRREVOCABLY CONSTITUTE AND APPOINT ___________________________________________________________________ATTORNEY TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN NAMED CORPORATION WITH FULL POWER OF SUBSTITUTION IN THE PREMISES DATED______________19__________ NOTICE: The Signature to this assignment must correspond with the name as written upon the face of the Certificate, in every particular, without alteration or enlargement or any change whatever. EX-4.2 5 FORM OF INDENTURE 1 Exhibit 4.1 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TRANS-LUX CORPORATION and CONTINENTAL STOCK TRANSFER & TRUST COMPANY, AS TRUSTEE ------------------ INDENTURE DATED AS OF NOVEMBER __, 1996 ------------------ $25,000,000* ____% CONVERTIBLE SUBORDINATED SECURITIES DUE 2006 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- * Subject to increase up to $28,750,000. 2 CROSS-REFERENCE TABLE
TRUST INDENTURE ACT SECTION SECTION OF INDENTURE - --------------------------- -------------------- 310(a)(1) and (2)............................... 8.10 310(a)(3) and (4)............................... Not applicable 310(b).......................................... 8.08 and 8.10, 15.03 310(c).......................................... Not applicable 311(a) and (b).................................. 8.11 311(c).......................................... Not applicable 312(a).......................................... 2.06 312(b) and (c).................................. 15.07 313(a).......................................... 8.06 313(b)(1)....................................... Not applicable 313(b)(2)....................................... 8.06 313(c).......................................... 8.06 and 15.03 313(d).......................................... 8.06 314(a).......................................... 6.10 and 15.03 314(b).......................................... Not applicable 314(c)(1) and (2)............................... 15.04 314(c)(3)....................................... Not applicable 314(d).......................................... Not applicable 314(e).......................................... 15.04 314(f).......................................... Not applicable 315(a), (c) and (d)............................. 8.01 315(b).......................................... 8.05; 15.03 315(e).......................................... 7.11 316(a)(1)....................................... 7.04 and 7.05 316(a)(2)....................................... Not applicable 316(a) last sentence............................ 9.03 316(b).......................................... 7.07 316(c).......................................... 10.02 317(a).......................................... 7.08 and 7.09 317(b).......................................... 2.05 318(a).......................................... 15.06 - ------------------
This Cross-Reference Table shall not, for any purpose, be deemed to be a part of this Indenture. 3
TABLE OF CONTENTS Page ---- PARTIES..................................................................................................1 RECITALS.................................................................................................1 ARTICLE ONE. DEFINITIONS. SECTION 1.01. Definitions............................................................................. 1 SECTION 1.02. Other Definitions....................................................................... 8 SECTION 1.03. Incorporation by Reference of Trust Indenture Act....................................... 8 SECTION 1.04. Rules of Construction................................................................... 9 ARTICLE TWO. ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF SECURITIES. SECTION 2.01. Dating; Incorporation of Form in Indenture.............................................. 9 SECTION 2.02. Execution and Authentication............................................................ 10 SECTION 2.03. Registrar and Agents.................................................................... 11 SECTION 2.04. Holders to be Treated as Owners; Payment of Interest.................................... 11 SECTION 2.05. Paying Agent to Hold Money in Trust..................................................... 12 SECTION 2.06. Securityholder Lists.................................................................... 12 SECTION 2.07. Transfer and Exchange................................................................... 12 SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Securities......................................... 13 SECTION 2.09. Temporary Securities.................................................................... 14 SECTION 2.10. Cancellation of Securities.............................................................. 14 SECTION 2.11. Benefits of Indenture Provisions........................................................ 14 SECTION 2.12. Defaulted Interest...................................................................... 15 SECTION 2.13. CUSIP Number............................................................................ 15 ARTICLE THREE. REDEMPTION OF SECURITIES SECTION 3.01. Redemption Prices....................................................................... 15 SECTION 3.02. Notice of Redemption; Selection of Securities........................................... 15 SECTION 3.03. Payment of Securities on Redemptions; Deposit of Redemption Price.................................................................. 17
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ARTICLE FOUR. SUBORDINATION OF SECURITIES. SECTION 4.01. Agreement that Securities to Be Subordinate............................................. 18 SECTION 4.02. Liquidation; Dissolution; Bankruptcy.................................................... 19 SECTION 4.03. Company Not to Make Payments with Respect to Securities in Certain Circumstances............................................ 19 SECTION 4.04. Payment Over of Proceeds in Certain Events.............................................. 20 SECTION 4.05. No Waiver of Subordination Provisions................................................... 21 SECTION 4.06. Notice to Trustee of Specified Events; Reliance on Certificate of Liquidating Agent.................................................. 21 SECTION 4.07. Subrogation............................................................................. 21 SECTION 4.08. Obligation to Pay Not Impaired.......................................................... 22 SECTION 4.09. Reliance by Senior Indebtedness on Subordination Provisions........................................................................ 22 SECTION 4.10. Subordination Not to Be Prejudiced by Certain Acts...................................... 22 SECTION 4.11. Trustee Authorized to Effectuate Subordination.......................................... 23 SECTION 4.12. Trustee's Relationship to Senior Indebtedness........................................... 23 SECTION 4.13. Trustee and Paying Agents Not Chargeable with Knowledge Until Notice...................................................................... 23 SECTION 4.14. Article Applicable to Paying Agents..................................................... 24 SECTION 4.15. Trustee's Compensation Not Prejudiced................................................... 24 ARTICLE FIVE. CONVERSION OF SECURITIES. SECTION 5.01. Conversion Privilege; Conversion Price.................................................. 24 SECTION 5.02. Manner of Exercising Conversion Privilege............................................... 24 SECTION 5.03. Fractional Shares....................................................................... 26 SECTION 5.04. Adjustment of Conversion Price.......................................................... 26 SECTION 5.05. Certificate Concerning Adjusted Conversion Price........................................ 30 SECTION 5.06. Notice of Certain Corporate Action...................................................... 30 SECTION 5.07. Company to Provide Stock................................................................ 31 SECTION 5.08. Taxes on Conversions.................................................................... 31 SECTION 5.09. Covenant as to Stock.................................................................... 32 SECTION 5.10. Provision in Case of Consolidation or Merger............................................ 32 SECTION 5.11. Trustee's Disclaimer of Responsibility for Certain Matters.............................. 33 ARTICLE SIX. PARTICULAR COVENANTS OF THE COMPANY. SECTION 6.01. Payment of Principal, Premium and Interest.............................................. 33 SECTION 6.02. Offices for Notices, Payments and Conversions........................................... 33
5 SECTION 6.03. Paying Agents........................................................................... 34 SECTION 6.04. Annual Review Certificate............................................................... 35 SECTION 6.05. Appointment to Fill a Vacancy in Office of Trustee...................................... 35 SECTION 6.06. Further Instruments and Acts............................................................ 35 SECTION 6.07. Payment of Taxes and Assessments........................................................ 35 SECTION 6.08. Maintenance of Corporate Existence...................................................... 36 SECTION 6.09. Repurchase Event........................................................................ 36 SECTION 6.10 SEC Reports............................................................................. 38 ARTICLE SEVEN. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT. SECTION 7.01. Events of Default....................................................................... 38 SECTION 7.02. Acceleration............................................................................ 39 SECTION 7.03. Other Remedies. ....................................................................... 40 SECTION 7.04. Waiver of Defaults and Events of Default. ............................................. 40 SECTION 7.05. Control by Majority..................................................................... 40 SECTION 7.06. Limitation on Suits..................................................................... 41 SECTION 7.07. Rights of Holders to Receive Payment.................................................... 41 SECTION 7.08. Collection Suit by Trustee.............................................................. 41 SECTION 7.09. Trustee May File Proofs of Claim........................................................ 42 SECTION 7.10. Application of Money Collected by Trustee............................................... 42 SECTION 7.11. Undertaking to Pay Costs................................................................ 43 SECTION 7.12. Restoration of Rights and Remedies...................................................... 43 SECTION 7.13. Rights and Remedies Cumulative.......................................................... 43 SECTION 7.14. Delay or Omission Not Waiver............................................................ 43 ARTICLE EIGHT. CONCERNING THE TRUSTEE. SECTION 8.01. Duties of Trustee....................................................................... 44 SECTION 8.02. Rights of Trustee....................................................................... 45 SECTION 8.03. Individual Rights of Trustee............................................................ 45 SECTION 8.04. Trustee's Disclaimer.................................................................... 45 SECTION 8.05. Notice of Defaults...................................................................... 45 SECTION 8.06. Reports by Trustee to Holders........................................................... 46 SECTION 8.07. Compensation and Indemnity.............................................................. 46 SECTION 8.08. Replacement of Trustee.................................................................. 47 SECTION 8.09. Successor Trustee by Merger, etc........................................................ 48 SECTION 8.10. Eligibility; Disqualification........................................................... 48 SECTION 8.11. Preferential Collection of Claims Against Company....................................... 48
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ARTICLE NINE. CONCERNING THE SECURITYHOLDERS. SECTION 9.01. Action by Securityholders............................................................... 48 SECTION 9.02. Proof of Execution by Securityholders, Evidence of Holdings............................. 48 SECTION 9.03. Company-owned Securities Disregarded.................................................... 49 SECTION 9.04. Revocation of Consents, Future Holders Bound............................................ 49 ARTICLE TEN. SECURITYHOLDERS' MEETINGS. SECTION 10.01. Purposes of Meetings................................................................... 49 SECTION 10.02. Call of Meetings by Trustee............................................................ 50 SECTION 10.03. Call of Meetings by Company or Securityholders......................................... 50 SECTION 10.04. Qualifications for Voting.............................................................. 50 SECTION 10.05. Regulations............................................................................ 51 SECTION 10.06. Voting................................................................................. 51 SECTION 10.07. No Delay of Rights by Meeting.......................................................... 52 ARTICLE ELEVEN. SUPPLEMENTAL INDENTURES. SECTION 11.01. Supplemental Indenture Without Consent of Securityholders.................................................................. 52 SECTION 11.02. Supplemental Indentures with Consent of Securityholders................................ 53 SECTION 11.03. Compliance with Trust Indenture Act; Effect of Supplemental Indentures.......................................................... 54 SECTION 11.04. Notation on Securities................................................................. 54 SECTION 11.05. Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee................................................................ 54 ARTICLE TWELVE. CONSOLIDATION, MERGER AND SALE BY THE COMPANY. SECTION 12.01. When Company May Merge, Etc............................................................ 55 SECTION 12.02. Successor Corporation Substituted...................................................... 55 ARTICLE THIRTEEN. SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS. SECTION 13.01. Discharge of Indenture................................................................. 55 SECTION 13.02. Deposited Moneys to Be Held in Trust by Trustee........................................ 56 SECTION 13.03. Paying Agent to Repay Moneys Held...................................................... 56
7 SECTION 13.04. Unclaimed Moneys....................................................................... 56 SECTION 13.05. Reinstatement.......................................................................... 57 ARTICLE FOURTEEN. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS. SECTION 14.01. Indenture and Securities Solely Corporate Obligations.................................. 57 ARTICLE FIFTEEN. MISCELLANEOUS PROVISIONS. SECTION 15.01. Provisions Binding on Company's Successors............................................. 57 SECTION 15.02. Official Acts by Successor Corporation................................................. 57 SECTION 15.03. Notices................................................................................ 58 SECTION 15.04. Evidence of Compliance with Conditions Precedent....................................... 58 SECTION 15.05. Legal Holidays......................................................................... 58 SECTION 15.06. Trust Indenture Act to Control......................................................... 59 SECTION 15.07. Communications by Holders with Other Holders........................................... 59 SECTION 15.08. Governing Law.......................................................................... 59 SECTION 15.09. Table of Contents and Headings......................................................... 59 SECTION 15.10. No Security Interest Created........................................................... 59 SECTION 15.11. Execution in Counterparts.............................................................. 59 EXHIBIT A -- FORM OF SECURITY
8 THIS INDENTURE, dated as of November __, 1996 between TRANS-LUX CORPORATION, a corporation duly organized and existing under the laws of the State of Delaware (the "Company"), and Continental Stock Transfer & Trust Company, as trustee (the "Trustee"). WITNESSETH: WHEREAS, for its lawful corporate purposes, the Company has duly authorized the issue of its ___% Convertible Subordinated Securities Due 2006 (hereinafter sometimes referred to as the "Securities"), in the aggregate principal amount of up to $28,750,000 and, to provide the terms and conditions upon which the Securities are to be authenticated, issued and delivered, the Company has duly authorized the execution of this Indenture; and AND WHEREAS, all acts and things necessary to make the Securities, when executed by the Company and authenticated and delivered by the Trustee or its authorized signatory as in this Indenture provided, and issued, the valid, binding and legal obligations of the Company, and to constitute these presents a valid agreement according to its terms, have been done and performed, and the execution of this Indenture and the issue hereunder of the Securities have in all respects been duly authorized. NOW, THEREFORE, THIS INDENTURE WITNESSETH: That in order to declare the terms and conditions upon which the Securities are, and are to be, authenticated, issued and delivered, and in consideration of the premises, of the purchases and acceptance of the Securities by the Holders thereof and for other good and valuable consideration, the receipt whereof is hereby acknowledged, the Company covenants and agrees with the Trustee for the equal and proportionate benefit of the respective Holders from time to time of the Securities, as follows: ARTICLE ONE. DEFINITIONS. SECTION 1.01. Definitions. The terms in this Section 1.01 (except as herein otherwise expressly provided or unless the context otherwise requires) for all purposes of this Indenture and of any indenture supplemental hereto shall have the respective meanings specified in this Section 1.01. All other terms used in this Indenture which are defined in the TIA, as amended, or which are by reference therein defined in the Securities Act of 1933, as amended (except as herein otherwise expressly provided or unless the context 9 otherwise requires), shall have the meanings assigned to such terms in the TIA and in said Securities Act as in force as of the date of this Indenture. "Affiliate" of any specified person means any other person directly or indirectly controlling or controlled by or under direct or indirect common control with such specified person. For the purposes of this definition, the term "control" when used with respect to any person means the power, directly or indirectly, alone or together with others, to direct or cause the direction of the management and policies of such person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise; and the terms "controlling" and "controlled" have meanings correlative to the foregoing. "Agent" means any registrar, paying agent, conversion agent, co-registrar or agent for service of notices and demands. "Board of Directors" means the Board of Directors of the Company, the executive committee, if any, of such Board of Directors or any committee of such Board of Directors authorized to act on behalf of such Board of Directors with respect to the Indenture. "Business Day" or "Trading Day" means any day on which the banks in New York, New York are not authorized or required to be closed and on which the American Stock Exchange is open for trading and which is not a Saturday or Sunday. "Capital Stock" means, with respect to any person, any and all shares, interests, participations, warrants, options or other equivalents (however designated) of corporate stock or any other equity interest of such person. "Common Stock" includes any stock of any class of the Company which has no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company, and which is not subject to redemption by the Company. However, subject to the provisions of Section 5.10, shares issuable on conversion of Securities shall include only shares of the class designated as Common Stock, par value $1.00 per share, of the Company at the date of this Indenture or shares of any class or classes resulting from any reclassification or reclassifications thereof and which have no preference in respect of dividends or of amounts payable in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company and which are not subject to redemption by the Company. "Company" means Trans-Lux Corporation, a Delaware corporation, and, subject to the terms of the Indenture, shall include its successors and assigns. "corporation" means any corporation, voluntary association, joint stock association, business trust, or similar organization. 2 10 "Corporate Trust Office" means the office of the Trustee at which at any particular time its corporate trust business shall be principally administered, which office at the date of execution of this Indenture is located at 2 Broadway, New York, New York 10004. "Default" means any event which is, or after notice or passage of time or both would be, an Event of Default. "Disqualified Capital Stock" means, with respect to any person, any Capital Stock of such Person that, by its terms (or by the terms of any security into which it is convertible or for which it is exercisable, redeemable or exchangeable), matures, or is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or is redeemable at the option of the holder thereof, in whole or in part, on or prior to the maturity of the Securities. "Event of Default" means any event specified in Section 7.01, continued for the period of time, if any, therein designated. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Indenture" means this instrument as originally executed or, if amended or supplemented as herein provided, as so amended or supplemented. "Independent Public Accountants" means any firm of certified public accountants of recognized national standing which is selected by the Board of Directors and is in fact independent. "Issuance Date" means the date of original issuance of the Securities. "Officer" means the Chairman of the Board, Vice Chairman, the President, any Vice President, the Treasurer, the Secretary or the Chief Financial Officer of the Company. "Officers' Certificate" when used with respect to the Company, shall mean a certificate signed by any two Officers or by an Officer and by any Assistant Treasurer or any Assistant Secretary of the Company. Each such certificate shall include the statements provided for in Section 15.04 if and to the extent required by the provisions of such Section . "Opinion of Counsel" means an opinion in writing, signed by legal counsel who may be an employee of, or of counsel to, the Company or may be other counsel, any such counsel to be reasonably satisfactory to the Trustee. Each such opinion shall include the statements provided for in Section 15.04 if and to the extent required by the provisions of such Section . 3 11 "Outstanding," when used with reference to Securities, shall, subject to the provisions of Section 9.03, mean, as of any particular time, all Securities authenticated and delivered by the Trustee under this Indenture, except (a) Securities theretofore canceled by the Trustee or delivered to the Trustee for cancellation; (b) Securities or the payment or redemption of which moneys in the necessary amounts shall have been deposited in trust with the Trustee or with any Paying Agent (other than the Company), provided that if such Securities are to be redeemed prior to the maturity thereof, notice of such redemption shall have been given as in Article Three provided or provision reasonably satisfactory to the Trustee shall have been made for giving such notice; and (c) Securities in lieu of or in substitution for which other Securities shall have been authenticated and delivered or Securities which have been paid pursuant to the terms of Section 2.08; provided that Holders of Securities which cease to be outstanding by reason of clause (b) alone shall nevertheless be entitled to convert the same or any portion thereof until and including but not after the close of business on the last Business Day prior to the date fixed for redemption. "Person" means any individual, corporation, partnership, joint venture, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Permitted Junior Securities" means any securities provided for by a plan of reorganization or readjustment authorized by a court of competent jurisdiction in a reorganization proceeding in which the rights of holders of Senior Indebtedness are not altered without the consent of such holders, which consent is deemed to have been given if such holders, individually or as a class, approve such plan. "Redemption Date", when used with respect to any Security to be redeemed, means the date fixed for such redemption pursuant to this Indenture. "Redemption Price", when used with respect to any Securities to be redeemed, means the price fixed for such redemption pursuant to this Indenture as set forth in the form of Security annexed hereto as Exhibit A. A "Repurchase Event" shall occur if, after initial issuance of the Securities (i) any Person (including any syndicate or group deemed to be a "Person" under Section 13(d)(3) of the Exchange Act), other than the Company, any Subsidiary, any existing Person 4 12 (including, directly or indirectly, the immediate family (parents, spouse, children, brothers or sisters) of any such Person) who currently beneficially owns shares of the Company's capital stock with 50% or more of the voting power as described below, or any current or future employee or director benefit plan of the Company or any Subsidiary or any entity holding capital stock of the Company for or pursuant to the terms of such plan, or an underwriter engaged in a firm commitment underwriting in connection with a public offering of capital stock of the Company, is or becomes the beneficial owner, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors; (ii) the Company sells or transfers all or substantially all of the assets of the Company to another Person; (iii) there occurs any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger (a) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock, (b) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) or (c) a transaction in which the stockholders of the Company immediately prior to such transaction owned, directly or indirectly, immediately following such transaction, a majority of the combined voting power of the voting capital stock of the corporation resulting from the transaction, such stock to be owned by such stockholders in substantially the same proportion as their ownership of the voting stock of the Company immediately prior to such transaction); (iv) a change in the Board of Directors in which the individuals who constituted the Board of Directors at the beginning of the 24-month period immediately preceding such change (together with any other director whose election by the Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of at least a majority of the directors then in office either who were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; or (v) the Common Stock is the subject of a "Rule 13e-3 transaction" as defined under the Exchange Act. "Responsible Officer," when used with respect to the Trustee, means an officer of the Trustee within the corporate trust department, including any vice president or trust officer of the Trustee and also means, with respect to a particular corporate trust matter, any other officer to whom such corporate trust matter is referred because of his knowledge of and familiarity with the particular subject. "Securities" means the securities that are authenticated and delivered under this Indenture. 5 13 "Securityholder" or "Holder" or other similar terms, means any person in whose name a particular Security shall be registered on the books of the Company kept for that purpose in accordance with the terms hereof. "SEC" means the Securities and Exchange Commission. "Senior Indebtedness" means, with respect to the Company, any of the following (without duplication): (i) (a) any liability or obligation of the Company for borrowed money (including, without limitation, principal, premium, if any, interest, fees, penalties, expenses, collection expenses, and other obligations in respect thereof, and, to the extent permitted by applicable law, interest accruing after the filing of a petition initiating any proceeding under the Bankruptcy Code whether or not allowed as a claim in such proceeding), whether or not evidenced by bonds, debentures, notes or other written instruments, and any other liability or obligation evidenced by notes, bonds, debentures or similar instruments (other than the Securities) whether or not contingent and whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, (b) any deferred payment obligation of the Company for the payment of the purchase price of property or assets evidenced by a note or similar instrument (excluding any obligation for trade payables or constituting the deferred purchase price of property or assets which is not evidenced by a note or similar instrument and which is unsecured), (c) any obligation of the Company for the payment of rent or other amounts under a lease of property or assets which obligation is required to be classified and accounted for as a capitalized lease on the balance sheet of the Company under generally accepted accounting principles, (d) all obligations of the Company under interest rate and currency swaps, floors, caps, or similar arrangements intended to fix interest rate obligations or currency fluctuation risks, (e) all obligations of the Company evidenced by a letter of credit or any reimbursement obligation of the Company in respect of a letter of credit, (f) all obligations of others secured by a lien to which any of the properties or assets of the Company are subject (including, without limitation, leasehold interests and any intangible property rights), whether or not the obligations secured thereby have been assumed by the Company or shall otherwise be the Company's legal obligation and (g) all obligations of others of the kinds described in the preceding clauses (a), (b), (c), or (e) assumed by or guaranteed by the Company and the obligations of the Company under guarantees of any such obligations; and (ii) any amendments, renewals, extensions, deferrals, modifications, refinancing and refunding of any of the foregoing. "Senior Indebtedness" shall not include: (i) indebtedness that by the terms of the instrument or instruments by which such indebtedness was created or incurred expressly provides that it (a) is junior in right of payment to the Securities or (b) ranks pari passu, in right of payment with the Securities, (ii) any repurchase, redemption or other obligation in respect of Disqualified Capital Stock, (iii) any indebtedness of the Company to any Subsidiary or to any Affiliate of the Company or any of the Subsidiaries, (iv) any indebtedness incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables (which are unsecured) or other current liabilities of the Company (other than for borrowed money) on the books 6 14 of the Company (other than the current portion of any long-term indebtedness of the Company that but for this clause (iv) would constitute Senior Indebtedness), (v) any indebtedness of or amount owed by the Company to employees for services rendered to the Company, (vi) any liability for federal, state, local or other taxes owing or owed by the Company and (vii) the Company's 9.5% subordinated debentures due 2012 and 9.0% convertible subordinated debentures due 2005. "Significant Subsidiary" means any Subsidiary that would be a "significant subsidiary" of the Company within the meaning of Rule 1-02(w)(3) under Regulation S-X promulgated by the SEC as in effect on the Issuance Date. "Subsidiary" means a corporation of which more than 50% of the issued and outstanding stock entitled to vote for the election of directors (otherwise than by reason of default in dividends) is at the time owned or controlled, directly or indirectly, by the Company. "Trustee" means Continental Stock Transfer & Trust Company and, subject to the provisions of Article Eight hereof, shall also include its successors and assigns as Trustee hereunder. "TIA" means the Trust Indenture Act of 1939, as amended, as it was in force as of the date of this Indenture, and with respect to each supplemental indenture hereto, as it was in force as of the date of such supplemental indenture. 7 15 SECTION 1.02. Other Definitions.
Term Defined in Section - ---- ------------------ "Bankruptcy Law" 7.01 "Conversion Agent" 2.03 "Company Notice" 6.09 "Current Market Price" 5.04 "Custodian" 7.01 "Event of Default" 7.01 "Interest Payment Date" 2.04 "Non-payment Default" 4.03 "Paying Agent" 2.03 "Payment Blockage Period" 4.03 "Payment Default" 4.03 "Registrar" 2.03 "Regular Record Date" 2.04 "Repurchase Date" 6.09 "Repurchase Price" 6.09 "Senior Representative" 4.03 "Transaction" 12.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act. The following terms used in the TIA to the extent applicable to this Indenture have the following meanings: "Commission" means the SEC. "indenture securities" means the Securities. "indenture security holder" means a Securityholder. "indenture to be qualified" means this Indenture. 8 16 "indenture trustee" or "institutional trustee" means the Trustee. "obligor" on the indenture securities means the Company or any other obligor on the indenture securities. All other terms used in this Indenture that are defined by the TIA, defined by TIA reference to another statute or defined by SEC rule have the meanings assigned to them by such definitions. SECTION 1.04. Rules of Construction. Unless the context otherwise requires: (1) a term has the meaning assigned to it; (2) an accounting term not otherwise defined has the meaning assigned to it in accordance with generally accepted accounting principles in effect on the date hereof; (3) "or" is not exclusive; (4) words in the singular include the plural, and in the plural include the singular; (5) provisions apply to successive events and transactions; and (6) "herein," "hereof" and other words of similar import refer to this Indenture as a whole and not to any particular Article, Section or other subdivision. ARTICLE TWO. ISSUE, DESCRIPTION, EXECUTION, REGISTRATION AND EXCHANGE OF SECURITIES. SECTION 2.01. Dating; Incorporation of Form in Indenture. The Securities and the Trustee's certificate of authentication, with respect thereto, shall be substantially in the form of Exhibit A, which is annexed hereto and which is incorporated in and expressly made a part of this Indenture. The Securities may have notations, legends or endorsements required by law, stock exchange rules, agreements to which the Company is subject, or usage. The Company shall approve the form of the Securities and any notation, legend or endorsement on them. Each Security shall be dated 9 17 the date of its authentication. The terms and provisions contained in the Securities shall constitute, and are expressly made, a part of this Indenture. SECTION 2.02. Execution and Authentication. Two Officers shall sign the Securities for the Company by manual or facsimile signature. If an Officer whose signature is on a Security no longer holds that office at the time the Trustee authenticates the Security, the Security shall nevertheless be valid. A Security shall not be valid until the Trustee manually signs the certificate of authentication on the Security. Such signature shall be conclusive evidence that the Security has been authenticated under this Indenture. The Trustee shall authenticate Securities for original issue in the aggregate principal amount of $25,000,000, and such additional principal amount, if any, as shall be determined pursuant to the next sentence of this Section 2.02, upon the execution of the Indenture and a written order or orders of the Company signed by two Officers or by an Officer and an Assistant Treasurer of the Company. Upon receipt by the Trustee of an Officers' Certificate stating that Southcoast Capital Corporation (the "Underwriter") has elected to purchase from the Company a specified aggregate principal amount of additional Securities, not to exceed $3,750,000 pursuant to Section 2 of the Underwriting Agreement, dated November __, 1996, among the Company and the Underwriters, the Trustee shall authenticate and deliver such specified aggregate principal amount of additional Securities to or upon the written order of the Company signed as provided in the immediately preceding sentence. Such Officers' Certificate may be received by the Trustee no later than __________ __, 1996, and in any event at least two full Business Days prior to the proposed date for delivery of such additional Securities. The aggregate principal amount of Securities outstanding at any time may not exceed that amount except as provided in Section 2.08. The Trustee may appoint an authenticating agent to authenticate Securities. An authenticating agent may authenticate Securities whenever the Trustee may do so. Each reference in this Indenture to authentication by the Trustee includes authentication by such agent. An authenticating agent has the same rights as an Agent to deal with the Company or an Affiliate. The Securities shall be issuable only in registered form without coupons and only in denominations of $1,000 principal amount and any integral multiple thereof. 10 18 SECTION 2.03. Registrar and Agents. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be presented for registration of transfer or for exchange ("Registrar"), an office or agency where Securities may be presented for payment ("Paying Agent"), an office or agency where Securities may be presented for conversion ("Conversion Agent"), and an office or agency where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Registrar shall keep a register of the Securities and of their transfer and exchange. The Company may have one or more co-registrars, one or more additional Paying Agents and one or more additional Conversion Agents. The Company or any Subsidiary may act as Registrar, co-Registrar, Paying Agent and/or Conversion Agent. The term "Paying Agent" includes any additional Paying Agent and the term "Conversion Agent" includes any additional Conversion Agent. The Company shall enter into an appropriate agency agreement with any Registrar, Paying Agent, Conversion Agent or co-registrar not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Agent. The Company shall notify the Trustee of the name and address of any such Agent. If the Company fails to maintain a Registrar or Paying Agent, or fails to give the foregoing notice, the Trustee shall act as such and shall be entitled to appropriate compensation in accordance with Section 8.07. The Company initially appoints the Trustee as a Registrar, a Paying Agent, a Conversion Agent and agent for service of notices and demands. SECTION 2.04. Holders to be Treated as Owners; Payment of Interest. (a) The Company, the Paying Agent, the Registrar, the Trustee and any agent of the Company, the Paying Agent, the Registrar or the Trustee may deem and treat the person in whose name any Security is registered as the absolute owner of such Security for the purpose of receiving payment of or on account of the principal of and, subject to the provisions of this Indenture, interest on such Security and for all other purposes; and neither the Company, the Paying Agent, the Registrar nor the Trustee nor any agent of the Company, the Paying Agent, the Registrar or the Trustee shall be affected by any notice to the contrary. All such payments so made to any such Person, or upon his order, shall be valid, satisfy and discharge the liability for moneys payable upon any Security. (b) The Person in whose name any Security is registered at the close of business on any record date with respect to any interest payment date shall be entitled to receive the interest, if any, payable on such date (an "Interest Payment Date") notwithstanding any transfer or exchange of such Security subsequent to the record date and prior to such Interest Payment Date, except if and to the extent the Company shall default in the payment of the interest due on such Interest Payment Date, in which case such defaulted interest 11 19 shall be paid in accordance with Section 2.12. The term "Regular Record Date" as used with respect to any Interest Payment Date for the Securities shall mean the date specified as such in the terms of the Securities. SECTION 2.05. Paying Agent to Hold Money in Trust. On or prior to each Interest Payment Date or date on which payment of principal of the Securities is required, the Company shall provide immediately available funds to the Trustee acting as Paying Agent or with other Paying Agents upon notice to the Trustee a sum sufficient to pay such principal and interest so becoming due. The Company shall require each Paying Agent other than the Trustee to agree in writing that it will hold in trust for the benefit of Securityholders or the Trustee all money held by the Paying Agent for the payment of principal of or interest on the Securities and to notify the Trustee of any default by the Company (or any other obligor on the Securities) in making any such payment. If the Company or a Subsidiary acts as Paying Agent, it shall on or before each due date of the principal of or interest on any Securities segregate the money and hold it as a separate trust fund. The Company at any time may require a Paying Agent to pay all money held by it to the Trustee and the Trustee may at any time during the continuance of any payment default, upon written request to a Paying Agent, require such Paying Agent to forthwith pay to the Trustee all sums so held in trust by such Paying Agent. Upon doing so, the Paying Agent (other than the Company) shall have no further liability for the money. SECTION 2.06. Securityholder Lists. The Trustee shall preserve in as current a form as is reasonably practicable the most recent list available to it of the names and addresses of the Holders of Securities (the "Note Register"). If the Trustee is not the Registrar, the Company or other obligor, if any, shall furnish to the Trustee at least two Business Days prior to each Regular Record Date and at such other times as the Trustee may request in writing a list in such form and as of such date as the Trustee may reasonably require of the names and addresses of the Holders of Securities. SECTION 2.07. Transfer and Exchange. When Securities are presented to the Registrar or a co-registrar with a request from the Holder of such Securities to register a transfer, the Registrar shall register the transfer as requested. Every Security presented or surrendered for registration of transfer or exchange shall be duly endorsed or be accompanied by a written instrument of transfer in form satisfactory to the Company and the Registrar, duly executed by the Holder thereof or his attorneys duly authorized in writing. At the option of the Holder, Securities may be exchanged for other Securities of any authorized denomination or denominations, of a like aggregate principal amount, upon 12 20 surrender of the Securities to be exchanged at the office or agency maintained for such purpose pursuant to Section 2.03. To permit registrations of transfers and exchanges, the Company shall issue and execute and the Trustee shall authenticate new Securities evidencing such transfer or exchange at the Registrar's request. No service charge shall be made to the Securityholder for any registration of transfer or exchange. The Company may require from the Securityholder payment of a sum sufficient to cover any transfer taxes or other governmental charge that may be imposed in relation to a transfer or exchange, but this provision shall not apply to any exchange pursuant to Section 2.09, 3.03, 5.02, 6.09 or 11.04 (in which events the Company will be responsible for the payment of such taxes). The Registrar shall not be required to exchange or register a transfer of any Security for a period of 15 days immediately preceding the first mailing of notice of redemption of Securities to be redeemed or of any Security selected, called or being called for redemption except, in the case of any Security where public notice has been given that such Security is to be redeemed in part, the portion thereof not to be redeemed. SECTION 2.08. Mutilated, Destroyed, Lost or Stolen Securities. In case any temporary or definitive Security shall become mutilated or be destroyed, lost or stolen, the Company in its discretion may execute, and upon its request the Trustee shall authenticate and deliver, a new Security, bearing a serial number not contemporaneously outstanding, in exchange and substitution for the mutilated Security or in lieu of and in substitution for the Security so destroyed, lost or stolen. In every case, the applicant for a substituted Security shall furnish to the Company and to the Trustee such security or indemnity as may be required by them to save each of them harmless, and in every case of destruction, loss or theft, the applicant shall also furnish to the Company and to the Trustee evidence to their satisfaction of the destruction, loss or theft of such Security and of the ownership thereof. The Trustee shall authenticate any such substituted Security and deliver the same upon the written request or authorization of any Officer of the Company. Upon the issuance of any substituted Security, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses connected therewith. In case any Security which has matured or is about to mature shall have become mutilated or be destroyed, lost or stolen, the Company may, instead of issuing a substitute Security, pay or authorize the payment of same (without surrender thereof except in the case of a mutilated Security) if the applicant for such payment shall furnish the Company, the Trustee and any Paying Agent with such security or indemnity as they may require to save each of them harmless and, in case of destruction, loss or theft, evidence to the satisfaction of the Company and the Trustee of the destruction, loss or theft of such Security and of the ownership thereof. Every substituted Security issued pursuant to the provisions of this Section 2.08 by virtue of the fact that any Security is destroyed, lost or stolen shall constitute an additional 13 21 contractual obligation of the Company, whether or not the destroyed, lost or stolen Security shall be found at any time, and shall be entitled to all the benefits of this Indenture equally and proportionately with any and all other Securities duly issued hereunder. All Securities shall be held and owned upon the express condition that the foregoing provisions are exclusive with respect to the replacement or payment of mutilated, destroyed, lost or stolen Securities and shall preclude any and all other rights or remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement or payment of negotiable instruments or other securities without their surrender. SECTION 2.09. Temporary Securities. Pending the preparation of definitive Securities, the Company may execute and the Trustee shall authenticate and deliver temporary Securities (printed or lithographed). Temporary Securities shall be issuable in any authorized denomination, and substantially in the form of the definitive Securities but with such omissions, insertions and variations as may be appropriate for temporary Securities, all as may be determined by the Company. Every such temporary Security shall be authenticated upon the same conditions and in substantially the same manner, and with the same effect, as the definitive Securities. Without unreasonable delay the Company will execute and deliver to the Trustee definitive Securities and thereupon any or all temporary Securities may be surrendered in exchange therefor, at the office or agency to be maintained by the Company pursuant to Section 2.03, and the Trustee shall authenticate and deliver in exchange for such temporary Securities an equal aggregate principal amount of definitive Securities. Such exchange shall be made by the Company at its own expense and without any charge therefor. Until so exchanged, the temporary Securities shall in all respects be entitled to the same benefits under this Indenture as definitive Securities authenticated and delivered hereunder. SECTION 2.10. Cancellation of Securities. All Securities surrendered for the purpose of payment, redemption, conversion, exchange or transfer shall, if surrendered to the Company or any Paying or Conversion Agent, be delivered to the Trustee for cancellation, or if surrendered to the Trustee, shall be canceled by it, and no Securities shall be issued in lieu thereof except as expressly permitted by any of the provisions of this Indenture. The Trustee shall destroy canceled Securities and deliver its certificate of destruction to the Company. If the Company shall acquire any of the Securities, such acquisition shall not operate as a redemption or satisfaction of the indebtedness represented by such Securities unless and until the same are delivered to the Trustee for cancellation. SECTION 2.11. Benefits of Indenture Provisions. Nothing in this Indenture or in the Securities expressed or implied, shall give or be construed to give any person, firm or corporation, other than the parties hereto, any Paying Agent, any Conversion Agent and the Holders of Securities and, to the extent provided in Article Four, the holders of Senior Indebtedness, any legal or equitable right, remedy or claim under or in respect of this Indenture, or under any covenant, condition or provision herein contained; all the covenants, conditions or provisions contained in this Indenture or in the Securities being for 14 22 the sole benefit of the parties hereto, any Paying Agent, any Conversion Agent and the Holders of the Securities and, to the extent provided in Article Four, the holders of Senior Indebtedness. SECTION 2.12. Defaulted Interest. If the Company defaults in a payment of interest on the Securities, it shall pay the defaulted interest (to the extent lawful) to the Persons who are Securityholders on a subsequent special record date. After the deposit by the Company with the Trustee of money sufficient to pay such defaulted interest, the Trustee shall fix a special record date and payment date. Each such special record date shall be not less than 10 days prior to such payment date. At least 15 days before the special record date, the Company shall mail to each Securityholder a notice that states the special record date, the payment date and the amount of defaulted interest, and interest payable on such defaulted interest, if any, to be paid. The Company may pay defaulted interest in any other lawful manner if, after prior notice to the Trustee, such payment shall be deemed practicable by the Trustee. SECTION 2.13. CUSIP Number. The Company may use a "CUSIP" number when issuing the Securities and, if so, the Trustee may use the CUSIP number in notices of redemption or exchange as a convenience to Securityholders; provided that any such notice may state that no representation is made as to the correctness or accuracy of the CUSIP number printed in the notice or on the Securities, and that reliance may be placed only on the other identification numbers printed on the Securities. ARTICLE THREE. REDEMPTION OF SECURITIES SECTION 3.01. Redemption Prices. The Company may, at its option, redeem all or from time to time any part of the Securities, on any date on or after December 1, 1999 and prior to maturity, upon notice as set forth in Section 3.02 and at the redemption prices (expressed in percentages of the principal amount) set forth in the form of Security herein, together with accrued interest to the date fixed for redemption (but installments of interest whose stated maturity is on or prior to the date fixed for redemption shall continue to be payable to the Holders of record on the Regular Record Date). Portions of such redemption prices in excess of 100% of the principal amount are sometimes herein referred to as the "premium" payable upon such redemption. SECTION 3.02. Notice of Redemption; Selection of Securities. Whenever the Company redeems Securities pursuant to this Article Three, it shall notify the Trustee of the 15 23 date fixed for redemption and the principal amount of Securities to be redeemed. The notice shall be accompanied by an Officers' Certificate stating that the redemption complies with the provisions of this Indenture. The Company shall give each such notice at least 30 but not more than 60 days before the date fixed for redemption or such other period as the Company and the Trustee may agree. In case the Company shall desire to exercise its right to redeem all or, as the case may be, any part of the Securities in accordance with the right reserved so to do, notice of such redemption shall be given to the Holders of the Securities to be redeemed as hereinafter provided in this Section 3.02, such notice to be given by the Company or, at the Company's direction, by the Trustee in the name and at the expense of the Company. If the notice is to be given by the Trustee, the Company shall provide the Trustee with the information required in this Section 3.02. Notice of redemption shall be given by mailing to Holders of Securities to be redeemed in whole or in part a notice of such redemption by first class mail, postage prepaid, not less than 20 nor more than 65 days prior to the date fixed for redemption, to their last addresses as they shall appear upon the registry book. Any notice which is mailed in the manner herein provided shall be conclusively presumed to have been duly given, whether or not the Holder receives the notice. In any case, failure to duly give notice by mail, or any defect in the notice, to the Holder of any Security designated for redemption as a whole or in part shall not affect the validity of the proceedings for the redemption of such Security or any other Security. The notice shall identify the Securities to be redeemed and shall state: (1) the Redemption Date; (2) the Redemption Price; (3) the then current Conversion Price; (4) the name and address of the Paying Agent and the Conversion Agent; (5) that Securities called for redemption must be surrendered to the Paying Agent to collect the Redemption Price; (6) that, unless the Company defaults in paying the Redemption Price, interest on Securities called for redemption ceases to accrue on and after the Redemption Date; (7) that the right to convert the Securities as provided in Article Five shall terminate at the close of business on the last Trading Day prior to the 16 24 Redemption Date (except that a Security which the Company is required to purchase pursuant to Section 6.09 hereof shall be convertible until the close of business on the last Trading Day prior to the Repurchase Date); (8) if any Security is being redeemed in part, the portion of the principal amount of such Security to be redeemed and the bond number of such Security and that, after the Redemption Date, upon surrender of such Security, a new Security or Securities in principal amount equal to the unredeemed portion thereof will be issued; (9) that Holders who want to convert Securities must satisfy the requirements in paragraph 8 of the Securities; (10) the CUSIP number, if any, of the Securities; and (11) the consequences to a Holder, if any, of converting a Security (or portion of a Security) prior to the next Interest Payment Date if the Redemption Date with respect to such Security occurs on or after such Interest Payment Date. At the Company's request, the Trustee shall give the notice of redemption in the Company's name and at the Company's expense. If a CUSIP number is listed in such notice or printed on the Security, the notice may state that no representation is made as to the correctness or accuracy of such CUSIP number. If less than all of the Securities are to be redeemed, the Company shall give the Trustee written notice, at least 45 days (or such shorter period as may be acceptable to the Trustee) prior to the date fixed for redemption, as to the aggregate principal amount of the Securities to be redeemed, and thereupon the Trustee shall select, in such manner as it shall deem appropriate and fair (so long as such method is not prohibited by the rules of any securities exchange or market in which the Securities are then listed or quoted) from outstanding Securities, a principal amount of Securities equal to such aggregate principal amount of Securities to be redeemed and shall thereafter promptly notify the Company in writing of the Securities so to be redeemed and, if any such Securities are to be redeemed in part, the portions thereof to be redeemed. SECTION 3.03. Payment of Securities on Redemptions; Deposit of Redemption Price. If notice of redemption shall have been given as provided in Section 3.02, such Securities or portions of Securities shall, unless theretofore converted into Common Stock pursuant to the terms hereof, become due and payable on the date fixed for redemption and at the place stated in such notice at the applicable Redemption Price and premium, if any, together with accrued and unpaid interest to the date fixed for redemption, and on and after such date fixed for redemption, unless the Company shall default in the payment of the Redemption Price, interest on the Securities so called for redemption shall cease to accrue. Moneys in 17 25 the amount necessary for each redemption referred to in Section 3.01 shall be deposited with the Paying Agent by the Company on or prior to the date fixed for redemption. On presentation and surrender of such Securities at the place of payment specified in such notice, such Securities or the specified portions thereof shall (subject to the provisions of Article Four) be paid and redeemed at the applicable Redemption Price, together with accrued and unpaid interest thereon to the date fixed for redemption. Installments of interest whose stated maturity is on or prior to the date fixed for redemption shall continue to be payable to the Holders of such Securities on the relevant regular or special record dates according to their terms and the provisions of Section 2.03 of this Indenture. Upon presentation of any Security redeemed in part only, the Company shall execute and the Trustee shall authenticate and deliver, at the expense of the Company, a new Security or Securities of authorized denominations in aggregate principal amount equal to the unredeemed portion of the Security so presented. The Company's obligation to deposit with the Paying Agent moneys in the amount necessary for the redemption of particular Securities or portions thereof called for redemption shall be reduced automatically by the amount of such moneys attributable to any of such called Securities or portions thereof which shall have been converted prior to the date such moneys are required to be deposited with the Paying Agent. Any moneys which shall have been deposited with the Paying Agent for redemption of Securities and which are not required for that purpose by reason of conversion of such Securities shall be repaid to the Company. The Paying Agent may in each case require evidence reasonably satisfactory to it of such conversion. ARTICLE FOUR. SUBORDINATION OF SECURITIES. SECTION 4.01. Agreement that Securities to Be Subordinate. The Trustee acknowledges, the Company covenants and agrees, and each Holder of Securities issued hereunder by his acceptance thereof likewise covenants and agrees, that all payments of principal of, premium, if any, and interest on the Securities and all other monetary claims, including such monetary claims as may result from rights of repurchase or rescission, under or in respect of the Securities shall be subordinated in accordance with the provisions of this Article Four to the prior payment in full in cash of all amounts payable under all Senior Indebtedness of the Company. 18 26 SECTION 4.02. Liquidation; Dissolution; Bankruptcy. Upon any payment or distribution of assets to creditors upon any liquidation, dissolution, winding up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency or similar proceedings of the Company. (a) holders of all Senior Indebtedness then outstanding shall be entitled to receive payment in full in cash of all amounts owing with respect to all Senior Indebtedness before Securityholders shall be entitled to receive any payment on or with respect to the Securities; and (b) until all Senior Indebtedness is paid in full in cash, any distribution to which Securityholders would be entitled but for this Article Four shall be made to holders of Senior Indebtedness as their interests may appear, except that the Securityholders may receive Permitted Junior Securities. The consolidation of the Company with, or the merger of the Company into, another Person or the liquidation or dissolution of the Company following the conveyance or transfer of the properties and assets of the Company substantially as an entirety to another Person upon the terms and conditions set forth in Article Twelve shall not be deemed a liquidation, dissolution, winding up, reorganization, insolvency, receivership or similar proceeding of the Company for the purposes of this Section. SECTION 4.03. Company Not to Make Payments with Respect to Securities in Certain Circumstances. (1) Unless Section 4.02 shall be applicable, upon the occurrence of any default in the payment of any obligation on or with respect to any Senior Indebtedness, whether with respect to scheduled payments or amounts due upon acceleration (a "Payment Default"), then no payment or distribution of any assets of the Company of any kind or character shall be made by the Company on account of principal of or premium, if any, or interest on the Securities or on account of the purchase, redemption or other acquisition of Securities or any of the obligations of the Company under the Securities unless and until such Payment Default shall have been cured or waived or shall have ceased to exist or such Senior Indebtedness shall have been discharged or paid in full, immediately after which the Company shall resume making any and all required payments, including missed payments, in respect of its obligations under the Securities. (2) Unless Section 4.02 shall be applicable, upon (1) the occurrence of any default (other than a Payment Default) relating to Senior Indebtedness which default, pursuant to the instrument governing such Senior Indebtedness, entitles the holders (or a specified portion of holders) of such Senior Indebtedness to accelerate the maturity of such 19 27 Senior Indebtedness (a "Non-payment Default") and (2) receipt by the Trustee and the Company from a holder of such Senior Indebtedness or from the trustee, agent or other representative designated in writing to the Trustee of any class or issue of Senior Indebtedness (the "Senior Representative") of written notice of such occurrence, no payment or distribution of any assets of the Company of any kind or character shall be made by the Company on account of principal of or premium if any, of interest on the Securities or on account of the purchase, redemption or other acquisition of Securities or on account of any of the other obligations of the Company under the Securities for a period (a "Payment Blockage Period") commencing on the date of receipt by the Trustee of such notice unless and until the earlier to occur of the following events (subject to any blockage of payments that may then be in effect under subsection (1) of this Section 4.03) (w) 179 days shall have elapsed since receipt of such written notice by the Trustee (provided such Senior Indebtedness shall theretofore not have been accelerated), (x) such Non-payment Default shall have been cured or waived in the manner required by the instrument relating to such Senior Indebtedness or shall have ceased to exist, (y) such Senior Indebtedness shall have been discharged or paid in full or (z) such Payment Blockage Period shall have been terminated by written notice to the Company or the Trustee from either the Senior Representative initiating such Payment Blockage Period or the holders of the requisite amount of such issue of such Senior Indebtedness, immediately after which, in the case of clause (w), (x), (y) or (z), the Company shall resume making any and all required payments, including missed payments, in respect of its obligations under the Securities. Only one Payment Blockage Period pursuant to such notice may be commenced with respect to the Securities during any period of 365 consecutive days. Successive Payment Blockage Periods based on successive Non-payment Defaults may be commenced; provided that no Nonpayment Default with respect to Senior Indebtedness which existed or was continuing on the date of the commencement of any Payment Blockage Period shall be, or be made, the basis for the commencement of any other Payment Blockage Period with respect to such Senior Indebtedness unless such event of default shall have been cured or waived for a period of not less than 180 consecutive days. Regardless of anything to the contrary herein, nothing shall prevent (a) any payment by the Trustee to the Securityholders of amounts deposited with it pursuant to Article Thirteen or (b) any payment by the Trustee or Paying Agent as permitted by Section 4.13. SECTION 4.04. Payment Over of Proceeds in Certain Events. In the event that any payment or distribution of assets of the Company of any kind or character not permitted by Sections 4.02 or 4.03, whether in cash, property or securities, shall be received by the Trustee or Paying Agent, if any, or the Holders of the Securities before all Senior Indebtedness is paid in full in cash, such payment or distribution shall be received and held in trust for the benefit of the holders of Senior Indebtedness and shall forthwith be paid over or delivered by the Trustee, such Paying Agent or such Holders of the Securities, as the case may be, directly to the holders of Senior Indebtedness (pro rata to each such holder on the basis of the respective amounts of Senior Indebtedness held by such holder) or the Senior 20 28 Representative or the trustee under the indenture or other agreement (if any) pursuant to which Senior Indebtedness may have been issued, for application to the payment of, all Senior Indebtedness remaining unpaid to the extent necessary to pay all obligations in respect of such Senior Indebtedness in full in cash in accordance with its terms, after giving effect to any other concurrent payment or distribution to the holders of such Senior Indebtedness. Both the Trustee and the Paying Agent shall be entitled to presume that any payment or distribution of assets of the Company is not prohibited by Section 4.02 or 4.03 unless a Responsible Officer of the Trustee or the Paying Agent receives notice of a default relating to Senior Indebtedness at least two Business Days before making a payment or distribution of such assets to the Holders. SECTION 4.05. No Waiver of Subordination Provisions. Without notice to or the consent of the Securityholders or the Trustee, the holders of Senior Indebtedness may at any time and from time to time, without impairing or releasing the subordination herein made, change the manner, place or terms of payments, or change or extend the time of payment of or renew or alter the Senior Indebtedness, or amend or supplement in any manner any instrument evidencing the Senior Indebtedness, any agreement pursuant to which the Senior Indebtedness was issued or incurred or any instrument securing or relating to the Senior Indebtedness; release any person liable in any manner for the payment or collection of the Senior Indebtedness; exercise or refrain from exercising any rights in respect of the Senior Indebtedness against the Company or any other person; apply any moneys or other property paid by any person or released in any manner to the Senior Indebtedness; or accept or release any security for the Senior Indebtedness. SECTION 4.06. Notice to Trustee of Specified Events; Reliance on Certificate of Liquidating Agent. The Company shall give prompt written notice to the Trustee and any Paying Agent of any fact known to the Company that would prohibit the making of any payment to or by the Trustee or any Paying Agent in respect of the Securities pursuant to the provisions of this Article. Upon any distribution of assets of the Company or payment by or on behalf of the Company referred to in this Article Four, the Trustee and the Holders of the Securities shall be entitled to rely upon any order or decree of a court of competent jurisdiction in which any proceedings of the nature referred to in Section 4.03 are pending, and the Trustee and the holders of the Securities shall be entitled to rely upon a certificate of the liquidating trustee or agent or other person making any such distribution to the Trustee or to the holders of the Securities for the purpose of ascertaining the persons entitled to participate in such distribution, the holders of Senior Indebtedness and other indebtedness of the Company, the amount thereof or payable thereon, the amount or amounts paid or distributed thereon and all other facts pertinent thereto or to this Article Four. SECTION 4.07. Subrogation. After all Senior Indebtedness is paid in full and until the Securities are paid in full, Securityholders shall be subrogated to the rights of holders of 21 29 Senior Indebtedness to receive distributions applicable to Senior Indebtedness to the extent that distributions otherwise payable to the Securityholders have been applied to the payment of Senior Indebtedness. A distribution made or payment over made under this Article to holders of Senior Indebtedness which otherwise would have been made to Securityholders is not, as between the Company, its creditors other than the holders of Senior Indebtedness and Securityholders, a payment or distribution by the Company on or on account of Senior Indebtedness, it being understood that the provisions of this Article Four are, and are intended, solely for the purpose of defining the relative rights of the Securityholders, on the one hand, and the holders of Senior Indebtedness, on the other hand. SECTION 4.08. Obligation to Pay Not Impaired. Nothing contained in this Article Four or elsewhere in this Indenture, or in the Securities, is intended to or shall alter or impair, as between the Company, its creditors other than the holders of Senior Indebtedness, and the Holders of the Securities, the obligation of the Company, which is absolute and unconditional, to pay to the Holders of the Securities the principal of (and premium, if any) and interest on the Securities at the time and place and at the rate and in the currency therein prescribed, or to affect the relative rights of the Holders of the Securities and creditors of the Company other than the Holders of Senior Indebtedness, nor shall anything herein or therein prevent the Trustee or the Holder of any Security from exercising all remedies otherwise permitted by applicable law upon default under this Indenture, subject to the right, if any, under this Article Four of the holders of the Senior Indebtedness in respect of cash, property or securities of the Company received upon the exercise of any such remedy. SECTION 4.09. Reliance by Senior Indebtedness on Subordination Provisions. Each Holder of a Security by his acceptance thereof acknowledges and agrees that the foregoing subordination provisions are, and are intended to be, an inducement and a consideration to each holder of any Senior Indebtedness (by its original terms or amendment thereof), whether such Senior Indebtedness was created or acquired before or after the issuance of the Securities, to acquire and hold, or to continue to hold, such Senior Indebtedness, and such holder of Senior Indebtedness shall be deemed conclusively to have relied on such subordination provisions in acquiring and continuing to hold, or in holding, such Senior Indebtedness. The subordination provisions in this Article Four may be enforced directly by the holders of Senior Indebtedness. SECTION 4.10. Subordination Not to Be Prejudiced by Certain Acts. No present or future holder of Senior Indebtedness shall be prejudiced in his right to enforce subordination of the indebtedness evidenced by the Securities by any act or failure to act in good faith by any such holder or by noncompliance by the Company with the terms and provisions and covenants herein regardless of any knowledge thereof any such holder may have or otherwise be charged with. 22 30 SECTION 4.11. Trustee Authorized to Effectuate Subordination. Each Holder of Securities by his acceptance thereof authorizes and directs the Trustee on his behalf to take such action as may be necessary or appropriate to acknowledge or effectuate the subordination as provided in this Article Four and appoints the Trustee his attorney-in-fact for any and all such purposes including, in the event of any dissolution, winding up, liquidation or reorganization of the Company (whether in bankruptcy, insolvency or receivership or similar proceedings or upon an assignment for the benefit of creditors or otherwise) tending towards liquidation of the business and assets of the Company, to file a claim for the unpaid balance of its Securities in the form required in said proceedings and to cause said claim to be approved. If the Trustee does not file a proper claim or proof of debt in the form required in such proceeding prior to 30 days before the expiration of the time to file such claim or proof, then the Holders of the Senior Indebtedness shall have the right to file and are hereby authorized to file an appropriate claim or proof for and on behalf of the Holders of said Securities. SECTION 4.12. Trustee's Relationship to Senior Indebtedness. Except for the Trustee's duty to hold cash, properties or securities in trust for the benefit of holders of Senior Indebtedness pursuant to Section 4.04 hereof, subject, however, to the final sentence thereof, the Trustee shall owe no fiduciary duty to the holders of Senior Indebtedness. The Trustee shall be entitled to all rights set forth in this Article Four in respect of any Senior Indebtedness at any time held by it, to the same extent as any other holder of Senior Indebtedness, and nothing in this Indenture shall deprive the Trustee of any of its rights as such holder. SECTION 4.13. Trustee and Paying Agents Not Chargeable with Knowledge Until Notice. Notwithstanding any of the provisions of this Article Four or any other provisions of this Indenture, the Trustee and any Paying Agent shall not at any time be charged with knowledge of the existence of any facts which would prohibit the making of any payment of moneys to or by the Trustee or any Paying Agent, unless and until a Responsible Officer of the Trustee or such Paying Agent, as the case may be, shall have received written notice thereof from the Company or a holder of a Senior Indebtedness, or any trustee thereof, and, prior to the receipt of any such written notice, the Trustee and any other Paying Agent shall be entitled to assume that no such facts exist. If at least two Business Days prior to the date upon which the terms of any such moneys may become payable for any purpose (including, without limitation, the payment of either the principal of or the interest on any Security) a Responsible Officer of the Trustee or Paying Agent, as the case may be, shall not have received with respect to such moneys the notice provided for in this Section 4.13, then, anything contained herein to the contrary notwithstanding, the Trustee shall have full power and authority to receive such moneys and to apply the same to the purpose for which they were received, and shall not be affected by any notice to the contrary which may be received by it on or after the commencement to such two Business Day period. Nothing contained in this Section 4.13 shall limit the right of the holders of Senior Indebtedness to recover payments as contemplated by Section 4.04. 23 31 SECTION 4.14. Article Applicable to Paying Agents. In case at any time any Paying Agent other than the Trustee shall have been appointed by the Company and be then acting hereunder, the term "Trustee" as used in this Article shall in such case (unless the context shall otherwise require) be construed as extending to and including such Paying Agent within its meaning as fully for all intents and purposes as if such Paying Agent were named in this Article in addition to or in place of the Trustee, provided however, that Sections 4.12 and 4.13 shall not apply to the Company if it acts as a Paying Agent. SECTION 4.15. Trustee's Compensation Not Prejudiced. Nothing contained in this Article Four shall affect or subordinate the rights of the Trustee with respect to any fees, expenses or indemnities owing by the Company to the Trustee under this Indenture. ARTICLE FIVE. CONVERSION OF SECURITIES. SECTION 5.01. Conversion Privilege; Conversion Price. A Holder of a Security may convert it into Common Stock at any time during the period stated in paragraph 8 of the Securities. The number of shares issuable upon conversion of a Security is determined as follows: (1) divide the principal amount to be converted by the conversion price (the "Conversion Price") in effect on the conversion date and (2) round the result to the nearest 1/100th of a share. The Company shall deliver to such Holder a check in lieu of any fractional share. The initial Conversion Price is stated in paragraph 8 of the Securities. The Conversion Price is subject to adjustment in accordance with Section 5.04. SECTION 5.02. Manner of Exercising Conversion Privilege. To convert a Security a Holder must satisfy the requirements in paragraph 8 of the Securities. The date on which the Holder satisfies all those requirements is the conversion date. As soon as practicable, the Company shall deliver to the Holder through the Conversion Agent a certificate for the number of full shares of Common Stock issuable upon the conversion and a check in lieu of any fractional share. The person in whose name the certificate is registered shall be treated as a stockholder of record on and after the conversion date. Except as provided below, no adjustment will be made on conversion of a Security for interest accrued thereon or for dividends on shares of Common Stock issued on conversion. If a Security is surrendered for conversion during the period after the close of business on any Regular Record Date for the payment of interest and before the opening of business on the corresponding Interest Payment Date, then (a) notwithstanding such conversion, the interest payable on such Interest Payment Date will be paid by check to the Person in whose name the Security is registered at the close of business on such Regular 24 32 Record Date, and (b) (excluding Securities or portions thereof called for redemption on a Redemption Date occurring after such Regular Record Date and on or prior to the fifth Business Day following such Interest Payment Date), when so surrendered for conversion, the Security shall also be accompanied by payment in New York Clearing House funds or other funds acceptable to the Company of an amount equal to the interest payable on such Interest Payment Date on the principal amount of such Security then being converted; provided however, that if the Company shall default in the payment of said interest, said funds, if any shall be returned to the payor thereof. Securities (or portion of a Security) surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except Securities called for redemption on a Redemption Date within such period) must be accompanied by payment of an amount equal to the interest thereon which the registered Holder is to receive. In the case of any Securities that has been converted after any Regular Record Date but on or before the next Interest Payment Date, interest whose stated maturity is on such Interest Payment Date will be payable on such Interest Payment Date notwithstanding such conversion, and such interest will be paid to the Holder of such Securities on such Regular Record Date. Except as described above, no interest on converted Securities will be payable by the Company on any Interest Payment Date subsequent to the date of conversion. No other payment or adjustment for interest or dividends will be made upon conversion. (Section 5.02) As promptly as practicable after the receipt of such notice and of such payment, if required, and the surrender of such Security as aforesaid, the Company shall issue and deliver, at the office or agency at which such Security is surrendered, to such Holder or on his written order, as specified therein, a certificate or certificates for the number of full shares of Common Stock issuable upon the conversion of such Security (or specified portion thereof) in accordance with the provisions of this Article Five, and cash as provided in Section 5.03 in respect of any fractional share of Common Stock otherwise issuable upon such conversion. Such conversion shall be deemed to have been effected immediately prior to the close of business on the date on which notice, payment, if required, and proper endorsement or transfer, if required, shall have been received by the Company and such Security shall have been surrendered as aforesaid (unless such Holder shall have so surrendered such Security and shall have instructed the Company to effect the conversion on a particular date following such surrender and such Holder shall be entitled to convert such Security on such date in which case such conversion shall be deemed to be effected immediately prior to the close of business on such date) and at such time the rights of the Holder of such Security as such Securityholder shall cease and the person or persons in whose name or names any certificate or certificates for shares of Common Stock shall be issuable upon such conversion shall be deemed to have become the holder or holders of record of the shares represented thereby. In the case of any Security which is converted in part only, upon such conversion the Company shall execute and the Trustee shall authenticate and deliver to or on the order of 25 33 the Holder thereof, at the expense of the Company, a new Security or Securities of authorized denominations in principal amount equal to the unconverted portion of such Security. SECTION 5.03. Fractional Shares. The Company will not issue a fractional share of Common Stock upon conversion of a Security. Instead the Company will deliver its check for the current market value of the fractional share. The current market value of a fraction of a share is determined as follows: (1) multiply the current market price (as defined in Section 5.04) on the Business Day next preceding the date of conversion of a full share by the fraction and (2) round the result to the nearest cent. If more than one Security shall be surrendered for conversion at one time by the same Holder, the number of full shares which shall be issuable upon conversion shall be computed on the basis of the aggregate principal amount of Securities (or specified portions thereof to the extent permitted hereby) so surrendered. SECTION 5.04. Adjustment of Conversion Price. The Conversion Price shall be adjusted from time to time as follows: (a) In case the Company shall hereafter (i) pay a dividend or make a distribution on its Common Stock in shares of Common Stock, (ii) subdivide its outstanding shares of Common Stock into a greater number of shares, (iii) combine its outstanding shares of Common Stock into a smaller number of shares, or (iv) issue by reclassification of its Common Stock any shares of capital stock of the Company, the Conversion Price in effect immediately prior to such action shall be adjusted so that the Holder of any Security thereafter surrendered for conversion shall be entitled to receive the number of shares of Common Stock or other capital stock of the Company which he would have owned immediately following such action had such Security been converted immediately prior thereto. An adjustment made pursuant to this subsection shall become effective immediately after the record date in the case of a dividend or distribution and shall become effective immediately after the effective date in the case of a subdivision, combination or reclassification. If, as a result of an adjustment made pursuant to this subsection (a) the Holder of any Security thereafter surrendered for conversion shall become entitled to receive shares of two or more classes of capital stock or shares of Common Stock and other capital stock of the Company, the Board of Directors (whose determination shall be conclusive and shall be described in an Officers' Certificate filed with the Trustee and with any Conversion Agent) shall determine in good faith the allocation of the adjusted Conversion Price between or among shares of such classes of capital stock or shares of Common Stock and other capital stock. (b) In case the Company shall hereafter issue rights, warrants or options to holders of its outstanding shares of Common Stock generally entitling them to 26 34 subscribe for or purchase shares of Common Stock (or securities convertible into or exchangeable for Common Stock) at a price per share (or having a conversion or exchange price per share) less than the current market price per share (as determined pursuant to subsection (e) of this Section 5.04) of the Common Stock on the record date mentioned below, the Conversion Price shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to such record date by a fraction of which the numerator shall be the number of shares of Common Stock outstanding on such record date plus the number of shares of Common Stock which the aggregate offering price of the total number of shares of Common Stock so offered for subscription or purchase would purchase at such current market price, and of which the denominator shall be the number of shares of Common Stock outstanding on such record date plus the number of additional shares of Common Stock offered for subscription or purchase. Such adjustment shall be made successively whenever any such rights or warrants are distributed, and shall become effective immediately after the record date for the determination of stockholders entitled to receive such rights, warrants or options. If at the end of the period during which such rights or warrants are exercisable not all rights or warrants shall have been exercised, the adjusted Conversion Price shall be immediately readjusted to what it would have been based upon the number of additional shares of Common Stock actually issued (or the number of shares of Common Stock issuable upon conversion of convertible securities or the exchange of exchangeable securities actually issued). (c) In case the Company shall hereafter distribute to holders of its outstanding Common Stock generally evidences of indebtedness, cash or other assets (including securities, but excluding those dividends, rights, warrants, options and distributions referred to above and excluding dividends and distributions paid exclusively in cash), then in each such case the Conversion Price of the shares of Common Stock shall be adjusted so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the date of such distribution by a fraction the numerator of which shall be the current market price per share (determined as provided in subsection (e) of this Section 5.04) of the Common Stock on the record date mentioned below less the then fair market value (as determined by the Board of Directors, whose determination shall be conclusive and shall be described in an Officers' Certificate filed with the Trustee and with any Conversion Agent) of the portion of such evidences of indebtedness or assets (but not cash) so distributed to the holder of one share of Common Stock or of such subscription rights or warrants applicable to one share of Common Stock, and of which the denominator shall be such current market price per share of Common Stock. Such adjustment shall become effective immediately after the record date for the determination of stockholders entitled to receive such distribution. 27 35 In any case in which this subsection (c) is applicable, subsection (b) shall not be applicable. (d) In case the Company shall, (i) by dividend or otherwise, at any time distribute to all holders of its Common Stock cash (excluding any cash portions of distributions referred to in (c) above or cash distribution upon a merger or consolidation to which Section 5.10 applies) in an aggregate amount that, combined together with (a) all other such all-cash distributions made within the preceding 12 months in respect to which no adjustment has been made and (b) any cash and their fair market of other consideration paid or payable in respect of any tender offers by the Company for Common Stock concluding within the preceding 12 months in respect of which no adjustment has been made, exceeds 12.5% of the Company's market capitalization (defined as being the product of the current market price of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such distribution (as determined by the Board of Directors, whose determination shall be described in an Officers' Certificate filed with the Trustee and any Conversion Agent), and or (ii) purchase Common Stock pursuant to a tender offer made by the Company or any of its subsidiaries which involves an aggregate consideration that together with (a) any cash and the fair market value of any other consideration paid or payable in any other tender offer by the Company or any of its subsidiaries of Common Stock expiring within the 12 months preceding the expiration of such tender offer in respect of which no adjustment has been made (as determined by the Board of Directors, whose determination shall be described in an Officers' Certificate filed with the Trustee and any Conversion Agent) and (b) the aggregate amount of any such all-cash distributions referred to in (i) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 12.5% of the Company's market capitalization on the expiration of such tender offer, the Conversion Price shall be reduced so that the same shall equal the price determined by multiplying the Conversion Price in effect immediately prior to the effectiveness of the Conversion Price reduction contemplated by this subsection (d) by a fraction of which the numerator shall be the current market price per share (determined as provided in subsection (e) of this Section 5.04) of the Common Stock on the date of such effectiveness less the amount of cash so distributed applicable to one share of Common Stock and the denominator shall be such current market price per share of the Common Stock (determined as aforesaid), such reduction to become effective immediately prior to the opening of business on the day following the date fixed for the payment of such distribution. (e) For the purpose of any computation under subsections (b), (c) and (d) of this Section 5.04 or under Section 5.03, the "current market price" per share of Common Stock on any record date shall be deemed to be the average of the daily closing prices for the five consecutive trading days immediately preceding the date 28 36 in question. The closing price for each day shall be the last sale price regular way or, in case no such sale takes place on such day, the average of the closing bid and asked prices regular way, in either case on the American Stock Exchange, or, if the shares of Common Stock are not listed or admitted to trading on such Exchange, on the principal national securities exchange on which the shares are listed or admitted to trading, or if they are not listed or admitted to trading on any national securities exchange, on the Nasdaq National Market System (the "NMS") or any comparable system, or if the Common Stock is not quoted on the NMS or a comparable system, the closing bid and asked prices as furnished by any member of the National Association of Securities Dealers, Inc. selected from time to time by the Company for that purpose. (f) In any case in which this Section 5.04 shall require that an adjustment be made immediately following a record date, the Company may elect to defer (but only until five Business Days following the filing by the Company with the Trustee and any Conversion Agent of the certificate of Independent Public Accountants described in Section 5.05) issuing to the Holder of any Security converted after such record date the shares of Common Stock issuable upon such conversion over and above the shares of Common Stock issuable upon such conversion on the basis of the Conversion Price prior to adjustment. (g) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least 1% of such price; provided however, that any adjustments which by reason of this subsection (g) are not required to be made shall be carried forward and taken into account in any subsequent adjustment. All calculations under this Section 5.04 shall be made to the nearest cent or the nearest 1/100th of a share, as the case may be. Anything in this Section 5.04 to the contrary notwithstanding, the Company shall be entitled to make such reductions in the Conversion Price, in addition to those required by this Section 5.04, as it in its discretion shall determine to be advisable in order that any stock dividend, subdivision of shares, distribution of rights to purchase stock or securities, or distribution of securities convertible into or exchangeable for stock hereafter made by the Company to its stockholders shall not be taxable; provided that in no event shall such Conversion Price be less than the par value of the Common Stock at the time such reduction is made. No adjustment to the Conversion Price pursuant to this Indenture shall reduce the Conversion Price below the then existing par value per share of Common Stock. The Company hereby covenants not to take any action to increase the par value per share of the Common Stock. No adjustment in the Conversion Price need be made for rights to purchase shares of Common Stock or issuances of Common Stock pursuant to a Company plan for reinvestment of dividends or interest. 29 37 (h) In the event that at any time as a result of an adjustment made pursuant to subsection (a) of this Section 5.04, the Holder of any Securities thereafter surrendered for conversion shall become entitled to receive any shares of the Company other than shares of Common Stock, thereafter the Conversion Price of such other shares so receivable upon conversion of any Security shall be subject to adjustment from time to time in a manner and on terms as nearly equivalent as practicable to the provisions with respect to Common Stock contained in this Article Five. (i) In addition to the foregoing adjustments, the Company will be permitted to make such reduction in the Conversion Price as it considers to be advisable in order that any event treated for federal income tax purposes as a dividend or distribution of stock or stock rights will not be taxable to the holders of the Common Stock. Any such reduction shall be described in an Officers' Certificate filed with the Trustee and any Conversion Agent. SECTION 5.05. Certificate Concerning Adjusted Conversion Price. Whenever the Conversion Price is adjusted as herein provided, (i) the Company shall promptly file with the Trustee and any Conversion Agent a certificate of a firm of Independent Public Accountants (who may be the regular accountants employed by the Company) setting forth the Conversion Price after such adjustment and setting forth a brief statement of the facts requiring such adjustment and the manner of computing the same, which certificate shall be conclusive evidence of the correctness of such adjustment and (ii) a notice stating that the Conversion Price has been adjusted and setting forth the adjusted Conversion Price shall forthwith be given by the Company to the Securityholders in the same manner provided in Section 15.03. The Trustee and any Conversion Agent shall be under no duty or responsibility with respect to any such certificate or the certificate provided for in Section 5.10 except to exhibit the same from time to time to any Holder of a Security desiring an inspection of such certificate. SECTION 5.06. Notice of Certain Corporate Action. In case: (a) the Company shall take any action which would require an adjustment in the Conversion Price pursuant to Sections 5.04(b), 5.04(c) or 5.04(d); or (b) the Company shall authorize the granting to the holders of its Common Stock of rights or warrants to subscribe for or purchase any shares of stock of any class or of any other rights; or (c) there shall be any capital reorganization or reclassification of the Common Stock (other than a subdivision or combination of the outstanding Common Stock and other than a change in the par value of the Common Stock), or any consolidation or merger to which the Company is a party or any statutory exchange of securities 30 38 with another corporation and for which approval of any stockholders of the Company is required, or any sale or transfer of all or substantially all of the assets of the Company; or (d) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Company; then the Company shall cause to be filed with the Trustee and any Conversion Agent, and shall cause to be given to the Securityholders, in the manner provided in Section 15.03, at least fifteen (15) days prior to the applicable date hereinafter specified, a notice stating (i) the date on which a record is to be taken for the purpose of such distribution or rights, or, if a record is not to be taken, the date as of which the holders of Common Stock of record to be entitled to such distribution or rights is to be determined, or (ii) the date on which such reorganization, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up is expected to become effective, and the date as of which it is expected that holders of Common Stock of record shall be entitled to exchange their shares of Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, sale, transfer, dissolution, liquidation or winding-up. Failure to give such notice or any defect therein shall not affect the legality or validity of the proceedings described in subsection (a), (b), (c) or (d) of this Section 5.06. SECTION 5.07. Company to Provide Stock. The Company will at all times reserve and keep available out of its authorized but unissued Common Stock, for the purpose of effecting conversions of Securities, the full number of shares of Common Stock deliverable upon the conversion of all outstanding Securities. For purposes of this Section 5.07, the number of shares of Common Stock which shall be deliverable upon the conversion of all outstanding Securities shall be computed as if at the time of computation all outstanding Securities were held by a single Holder. The Company will endeavor to list the shares of Common Stock required to be delivered upon conversion of Securities prior to such delivery upon each national securities exchange, if any, upon which the outstanding Common Stock is listed at the time of such delivery. Prior to the delivery of any securities or other property, including cash, which the Company shall be obligated to deliver upon conversion of the Securities, the Company will endeavor to comply with all Federal and State laws and regulations thereunder governing the registration or qualification of such securities with, or any approval of or consent to the delivery thereof by, any governmental authority. SECTION 5.08. Taxes on Conversions. The Company will pay any and all taxes that may be payable in respect of the issue or delivery of shares of Common Stock on 31 39 conversion of Securities pursuant hereto. The Company shall not, however, be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock in a name other than that of the Holder of the Security or Securities to be converted, and no such issue or delivery shall be made unless and until the person requesting such issue has paid to the Company the amount of any such tax, or has established, to the satisfaction of the Company, that such tax has been paid. SECTION 5.09. Covenant as to Stock. The Company covenants that all shares of Common Stock which may be delivered upon conversion of Securities will upon delivery be duly and validly authorized and issued and fully paid and non-assessable, free of all liens and charges imposed by the Company and not subject to any preemptive rights. SECTION 5.10. Provision in Case of Consolidation or Merger. Notwithstanding any other provision herein to the contrary, in case of any consolidation or merger to which the Company is a party (other than a transaction in which the Company is the continuing corporation and which does not result in any reclassification or change of shares of Common Stock issuable upon conversion of the Securities (other than a change in par value, or from par value to no par value, or from no par value to par value, or as a result of a subdivision or combination)), or in case of any sale or conveyance to another entity of the property of the Company as an entirety or substantially as an entirety, or in the case of any statutory exchange of securities with another corporation (including any exchange effected in connection with a merger of a third corporation into the Company), there shall be no adjustments under Section 5.04 but each Security then outstanding would, without the consent of any Holders of Securities, become convertible only into the kind and amount of securities, cash and other property which he would have owned or have been entitled to receive upon such consolidation, merger, statutory exchange, sale or conveyance had such Security been converted immediately prior to the effective date of such consolidation, merger, statutory exchange, sale or conveyance (assuming that as a holder of Common Stock, such Holder failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares) and in any such case, if necessary, appropriate adjustment shall be made in the application of the provisions set forth in this Article Five with respect to the rights and interests thereafter of the Holders of the Securities, to the end that the provisions set forth in this Article Five shall thereafter correspondingly be made applicable, as nearly as may reasonably be, in relation to any shares of stock or other securities or property thereafter deliverable on the conversion of the Securities. Any such adjustments shall be made by and set forth in a supplemental indenture executed by the Company and the Trustee and evidenced by a certificate of a firm of Independent Public Accountants (who may be the regular accountants employed by the Company), to that effect furnished to the Trustee; and any adjustment so approved shall for all purposes hereof conclusively be deemed to be an appropriate adjustment. The above provisions of this Section 5.10 shall similarly apply to successive consolidations, mergers, statutory exchanges, sales or conveyances. 32 40 The Company shall give notice of the execution of such a supplemental indenture to the Holders of Securities in the manner provided in Section 15.03 within 30 days after the execution thereof. SECTION 5.11. Trustee's Disclaimer of Responsibility for Certain Matters. Neither the Trustee nor any Conversion Agent shall at any time be under any duty or responsibility to any Holder of Securities to determine whether any facts exist which may require any adjustment of the Conversion Price, or with respect to the nature or extent of any such adjustment when made, or with respect to the method employed, or herein or in any supplemental indenture proved to be employed, in making the same. Neither the Trustee nor any Conversion Agent shall be accountable with respect to the validity or value (or the kind or amount) of any shares of Common Stock, or of any securities or property, which may at any time be issued or delivered upon the conversion of any Security; and neither the Trustee nor any Conversion Agent makes any representation with respect thereto. Neither the Trustee nor any Conversion Agent shall be responsible for any failure of the Company to issue, transfer or deliver any shares of Common Stock or stock certificates or other securities or property upon the surrender of any Security for the purpose of conversion, or to comply with any of the covenants of the Company, or to fulfill any of the conditions, contained in this Article Five. ARTICLE SIX. PARTICULAR COVENANTS OF THE COMPANY. SECTION 6.01. Payment of Principal, Premium and Interest. The Company covenants and agrees that it will duly and punctually pay or cause to be paid the principal of (premium, if any) and interest on each of the Securities at the time and place and in the manner provided in the Securities. Principal of (and premium, if any) and interest on each of the Securities shall be considered paid on the date due if the Paying Agent (other than the Company, a Subsidiary thereof or any affiliate of any thereof) holds on that date, not later than 11:00 a.m. New York City time, immediately available funds designated for and sufficient to pay the installment. The Company shall pay interest on overdue principal at the rate borne by the Securities; it shall pay interest on overdue installments of interest at the same rate to the extent lawful. SECTION 6.02. Offices for Notices, Payments and Conversions. The Company shall maintain in the Borough of Manhattan, The City of New York, an office or agency where Securities may be surrendered for registration of transfer or exchange or conversion and where notices and demands to or upon the Company in respect of the Securities and this Indenture may be served. The Company shall give prompt written notice to the Trustee of the location, and any change in the location, of such office or agency. If at any time the Company shall fail to maintain any such required office or agency or shall fail to furnish the 33 41 Trustee with the address thereof, such presentations, surrenders, notices and demands may be made or served at the Corporate Trust Office of the Trustee. The Company may also from time to time designate one or more other offices or agencies where the Securities may be presented or surrendered for any or all such purposes and may from time to time rescind such designations; provided however, that no such designation or rescission shall in any manner relieve the Company of its obligation to maintain an office or agency in the Borough of Manhattan, The City of New York for such purposes. The Company will give prompt written notice to the Trustee of any such designation or rescission and of any change in the location of any such other office or agency. The Company hereby designates the Corporate Trust Office of the Trustee as an agency of the Company in accordance with Section 2.03. SECTION 6.03. Paying Agents. (a) Any Paying Agent appointed by the Company other than the Trustee shall be a bank or trust company of the character and with the qualifications set forth in Section 8.10 and the Company covenants and agrees to enter into an appropriate agency agreement with any Registrar or Paying Agent not a party to this Indenture. The agreement shall implement the provisions of this Indenture that relate to such Registrar or Paying Agent. In addition, the Company covenants and agrees to cause such Paying Agent to execute and deliver to the Trustee an instrument in which it shall agree with the Trustee, subject to the provisions of this Section, (1) that such Paying Agent shall hold in trust for the benefit of the Securityholders all sums held by such Paying Agent for the payment of the principal of (or premium, if any) or interest on any of the Securities, (2) that such Paying Agent shall give to the Trustee notice of any failure by the Company (or any other obligor on the Securities) to make any payment of the principal of (or premium, if any) or interest on the Securities when the same shall be due and payable, and (3) at any time during the continuance of such default, upon the written request of the Trustee, forthwith pay to the Trustee all sums so held in trust by such Paying Agent. (b) If the Company shall at any time act as its own Paying Agent, then on or before each due date of the principal of (and premium, if any) or interest on any of the Securities, it will set aside and segregate and hold in trust for the benefit of the Holders of the Securities, a sum sufficient to pay such principal (and premium, if any) or interest so becoming due, and will notify the Trustee of any failure to take such action. (c) Anything in this Section 6.03 to the contrary notwithstanding, the Company may at any time, for the purpose of obtaining the satisfaction and discharge of this Indenture or for any other purpose, pay or cause to be paid to the Trustee all sums held in trust by it or any Paying Agent as required by this Section, such sums to be held by the Trustee upon the terms herein contained. 34 42 (d) Anything in this Section 6.03 to the contrary notwithstanding, the agreement to hold sums in trust as provided in this Section is subject to the provisions of Sections 13.03 and 13.04 hereof. SECTION 6.04. Annual Review Certificate. The Company covenants and agrees to deliver to the Trustee, on or before a date not more than 95 days after the end of each fiscal year of the Company ending after the date hereof, a certificate from its principal executive officer, principal financial officer or principal accounting officer stating that he or she is familiar with the affairs of the Company stating that a review of the activities of the Company and of its Subsidiaries during the preceding fiscal year has been made under the supervision of the signing officers with a view to determining whether the Company has kept, observed, performed and fulfilled its obligations under this Indenture and further stating, as to each such officer signing such certificate, that to the best of his knowledge the Company has kept, observed, performed and fulfilled each and every covenant in this Indenture contained and is not in default in the performance and observance of any of the terms, provisions and conditions hereof (or, if the Company shall be in default, specifying all such defaults and the nature thereof of which he may have knowledge) and that to the best of his knowledge no event has occurred and remains in existence by reason of which payments on account of the principal of (or premium, if any) or interest on the Securities is prohibited. SECTION 6.05. Appointment to Fill a Vacancy in Office of Trustee. The Company, whenever necessary to avoid or fill a vacancy in the office of Trustee, shall appoint, in the manner provided in Section 8.08, a Trustee, so that there shall at all times be a Trustee hereunder. SECTION 6.06. Further Instruments and Acts. The Company shall, upon request of the Trustee, execute and deliver such further instruments and do such further acts as may reasonably be necessary or proper to carry out more effectually the purposes of this Indenture. SECTION 6.07. Payment of Taxes and Assessments. The Company shall, and shall cause each Significant Subsidiary to, pay all taxes, assessments and governmental charges lawfully levied or assessed upon it, its property, or upon any part thereof or upon its income or profits, or any part thereof, before the same shall become delinquent; provided that nothing in this Section 6.07 or elsewhere in this Indenture contained shall require the Company to pay any such tax assessment or governmental charge so long as the applicability or validity thereof shall be contested in good faith; and provided further, that neither the Company nor any Significant Subsidiary shall be required to pay any such taxes, assessments or charges, if in the judgment of the Board of Directors of the Company or such Significant Subsidiary, such payment shall no longer be advantageous to the Company or such Significant Subsidiary in the conduct of its business. 35 43 SECTION 6.08. Maintenance of Corporate Existence. Except as otherwise provided or permitted pursuant to the other provisions of this Indenture, the Company shall maintain its corporate existence and right to carry on business and duly procure all necessary renewals and extensions thereof. SECTION 6.09. Repurchase Event. (a) In the event that a Repurchase Event occurs after initial issuance of the Securities, each Holder of Securities shall have the right (which right may not be waived by the Board of Directors or the Trustee) at the Holder's option, to require the Company to repurchase all of such Holder's Securities or any authorized denomination thereof, on the date (the "Repurchase Date") that is 45 calendar days after the date of the Company Notice (as defined below), at a price equal to 100% of the principal amount of such Securities to be repurchased (the "Repurchase Price"), together with accrued interest to the Repurchase Date in accordance with paragraph (b) of this Section 6.09; provided however, that a Repurchase Event shall not be deemed to have occurred if the closing price per share of the Common Stock for any five Trading Days within the period of ten consecutive Trading Days ending immediately before the Repurchase Event shall equal or exceed 110% of the conversion price of such Securities in effect on each such Trading Day. A "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the SEC under the Exchange Act, as in effect on the date of execution of the Indenture. (b) Within 15 calendar days after a Repurchase Event, the Company shall mail a notice (the "Company Notice") to the Trustee and each Securityholder of record as of the date of the Repurchase Event stating: (1) that a Repurchase Event has occurred and that such Securityholder has the right to require the Company to repurchase all or any authorized denomination of such Securityholder's Securities at the Repurchase Price; (2) the current Conversion Price, the date on which the right to convert such Holder's Securities into Common Stock will expire and the place or places where such Securities may be surrendered for conversion; (3) the Repurchase Date; (4) that Holders electing to have Securities or any authorized denomination thereof purchased will be required (a) to surrender their Securities to the Paying Agent at the address specified in the Company Notice on or before the fifth Business Day preceding the Repurchase Date with the "Option of Holder to Elect Purchase" on the reverse thereof completed and (b) to complete any form of letter of transmittal proposed by the Company and acceptable to the Trustee and the Paying Agent; 36 44 (5) that Securities which have been surrendered to the Paying Agent may be converted into Common Stock only to the extent that the Holder of such Securities withdraws his election to have such Securities purchased in accordance with the terms of this Section 6.09; (6) that any Security not tendered or not accepted for payment will continue to accrue interest; (7) that, unless the Company defaults in paying the Repurchase Price, any Security accepted for payment shall cease to accrue interest after the Repurchase Date; and (8) a description of any other procedure which a Holder must follow to exercise his right to have Securities repurchased. At the Company's request, the Trustee shall give the Company Notice in the Company's name and at the Company's expense, provided however, that the Company shall deliver to the Trustee, at least five days prior to the date upon which the Company Notice must be mailed to Securityholders (unless a shorter time shall be acceptable to the Trustee), an Officers' Certificate setting forth the information to be stated in such notice as provided in this Section 6.09. No failure of the Company to give the Company Notice shall limit any Securityholder's right to exercise the repurchase right herein described. The Trustee shall be under no obligation to ascertain or verify the occurrence of a Repurchase Event or to give notice with respect thereto other than as provided above upon receipt of the written notice of a Repurchase Event from the Company. The Trustee may conclusively presume, in the absence of written notice from the Company to the contrary, that no Repurchase Event has occurred. (c) In the event a repurchase right shall be exercised in accordance with the terms hereof, the Company shall pay or cause to be paid the price payable with respect to the Securities as to which the repurchase right had been exercised in cash to the Securityholder. In the event that a repurchase right is exercised with respect to less than the entire principal amount of a surrendered Security, the Company shall execute and the Trustee shall authenticate for issuance in the name of the Securityholder a Security or Securities in the aggregate principal amount of the unpurchased portion of such surrendered Security. (d) In connection with any repurchase of Securities under this Section 6.09, the Company shall (i) comply with Rule 13e-4 (which term, as used herein, includes any successor provision thereto) under the Exchange Act, if applicable, (ii) file the related Schedule 13e-4 (or any successor schedule, form or report) under the Exchange Act, if applicable, and (iii) otherwise comply with all federal and state securities laws so as to 37 45 permit the rights and obligations under this Section 6.09 to be exercised in the time and in the manner specified in this Section 6.09. SECTION 6.10 SEC Reports. The Company shall file all reports and other information and documents which it is required to file with the SEC pursuant to Section 13 or 15(d) of the Exchange Act, and within 15 days after it files all such reports, information and other documents with the SEC, the Company shall file copies of all such reports, information and other documents with the Trustee. The Company shall cause any quarterly and annual reports which it mails to its stockholders to be mailed to the Holders of the Securities. In the event the Company is at any time no longer subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act, the Company shall prepare, for the first three quarters of each fiscal year, quarterly financial statements substantially equivalent to the financial statements required to be included in a report on Form 10-Q under the Exchange Act. The Company shall also prepare, on an annual basis, complete audited consolidated financial statements, including, but not limited to, a balance sheet, a statement of operations, a statement of cash flows and all appropriate notes. All such financial statements shall be prepared in accordance with generally accepted accounting principles consistently applied, except for changes with which the Company's Independent Public Accountants concur, and except that quarterly statements may be subject to year-end adjustments. The Company shall cause a copy of such financial statements to be filed with the Trustee and mailed to the Holders of the Securities within 60 days after the end of each of the first three quarters of each fiscal year and within 120 days after the close of each fiscal year. The Company shall also comply with the other provisions of TIA Section 314(a). ARTICLE SEVEN. REMEDIES OF THE TRUSTEE AND SECURITYHOLDERS ON EVENT OF DEFAULT. SECTION 7.01. Events of Default. An "Event of Default" occurs if: (a) the Company defaults in the payment of the principal of or premium, if any, of any of the Securities as and when the same shall become due and payable either at maturity, upon redemption (including redemption and purchase pursuant to Section 6.09), by declaration or otherwise, and in each case whether or not such payment is prohibited by the provisions of Article Four; or (b) the Company defaults in the payment of any installment of interest upon any of the Securities as and when the same shall become due and payable and the default continues for a period of 30 days, whether or not such payment is prohibited by the provisions of Article Four; or 38 46 (c) the Company defaults in the payment of the Repurchase Price in respect of any Security on the Repurchase Date therefor, whether or not such payment is prohibited by the subordination provisions of Article Four; or (d) the Company fails to perform or breaches any other covenant or agreement in the Securities or in this Indenture and the default continues for the period and after the notice specified in the last paragraph of this Section 7.01; or (e) there shall have been entered a decree or order under any Bankruptcy Law by a court of competent jurisdiction that (A) is for relief in respect of the Company or any Significant Subsidiary under any Bankruptcy Law, or (B) appoints a Custodian of the Company or such Significant Subsidiary or of any substantial part of the property of the Company or such Significant Subsidiary, as the case may be, or (C) orders the winding-up or liquidation of the affairs of the Company or such Subsidiary, as the case may be, and the continuance of any such decree or order unstayed and in effect for a period of 60 consecutive days; or (f) the Company or any Significant Subsidiary pursuant to or within the meaning of any Bankruptcy Law (A) commences a voluntary case or proceeding with respect to itself, (B) consents to the entry of a judgment, decree or order for relief against it in an involuntary case or proceeding, (C) applies for, consents to or acquiesces in the appointment of or taking possession by a Custodian of the Company or such Significant Subsidiary or for a substantial part of its properties or (D) makes a general assignment for the benefit of its creditors. The term "Bankruptcy Law" means Title 11 of the United States Code, as now constituted or hereafter amended, or any other applicable Federal, state or foreign bankruptcy, insolvency or other similar law. The term "Custodian" means any receiver, liquidator, assignee, trustee, custodian, sequestrator or similar official under any Bankruptcy Law. A Default under clause (c) is not an Event of Default until the Trustee notifies the Company, or the Holders of at least 25% in principal amount of the Securities then outstanding notify the Company and the Trustee, of the Default and the Company does not cure the Default within 60 days after receipt of such notice. The notice must specify the Default, demand that it be remedied and state the notice is a "Notice of Default." When a Default is cured, it ceases. SECTION 7.02. Acceleration. If any Event of Default (other than an Event of Default with respect to the Company specified in Sections 7.01(e) or (f) above) occurs and is continuing, the Trustee by notice to the Company, or the Holders of at least 25% in principal amount of the Securities then outstanding by notice to the Company and the Trustee, may declare to be due and payable immediately the principal amount of the 39 47 Securities plus accrued interest to the date of acceleration. Upon any such declaration, such amount shall be due and payable immediately. If an Event of Default with respect to the Company specified in Sections 7.01(e) or (f) above occurs, all unpaid principal and accrued interest on the Securities then outstanding shall ipso facto become and be immediately due and payable without any declaration or other act on the part of the Trustee or any Securityholder. The Holders of a majority in principal amount of the outstanding Securities by notice to the Trustee may rescind an acceleration and its consequences if (x) all existing Events of Default, other than the non-payment of the principal of the Securities which shall have become due solely by such declaration of acceleration, shall have been cured or waived, (y) to the extent the payment of such interest is lawful, interest on overdue installments of interest and overdue principal which has become due otherwise than by such declaration of acceleration has been paid, and (z) the rescission would not conflict with any judgment or decree of a court of competent jurisdiction. SECTION 7.03. Other Remedies. If an Event of Default occurs and is continuing, the Trustee may pursue any available remedy by proceeding at law or in equity to collect the payment of principal or interest on the Securities or to enforce the performance of any provision of the Securities or this Indenture. The Trustee may maintain a proceeding even if it does not possess any of the Securities or does not produce any of them in the proceeding, and any such proceeding instituted by the Trustee shall be brought in its own name as trustee of an express trust, and any recovery of judgment shall, after provision for the payment of the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, be for the ratable benefit of the Holders of the Securities in respect of which such judgment has been recovered. SECTION 7.04. Waiver of Defaults and Events of Default. Subject only to the provisions of Sections 7.07 and 11.02 hereof, the Holders of a majority in principal amount of the outstanding Securities by written notice to the Trustee may waive an existing Default or Event of Default and its consequences except (a) a Default in payment of principal or interest on any Security as specified in clauses (a) and (b) of Section 7.01, (b) the right of Securityholders to redeem or convert their Securities or (c) in respect of a covenant or provision hereof which under Article Eleven cannot be modified or amended without the consent of the Holder of each outstanding Security affected. When a Default or Event of Default is waived, it is cured and ceases; but no such waiver shall extend to any subsequent or other Default or Event of Default or impair any right consequent thereto. SECTION 7.05. Control by Majority. The Holders of a majority in principal amount of the outstanding Securities may direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on it, including, without limitation, any remedies provided for in Section 7.03. The Trustee may refuse, however, to follow any direction that conflicts with law, the 40 48 Securities or this Indenture, or that the Trustee determines may be unduly prejudicial to the rights of another Securityholder, that may involve the Trustee in personal liability or if the Trustee determines that it does not have adequate indemnification against any loss or expense; provided that the Trustee may take any other action deemed proper by the Trustee which is not inconsistent with such direction. SECTION 7.06. Limitation on Suits. Except as provided in Section 7.07, a Securityholder may not pursue any remedy with respect to this Indenture or the Securities unless: (a) the Holder gives to the Trustee written notice of a continuing Event of Default; (b) the Holders of at least 25% in principal amount of the Securities then outstanding make a written request to the Trustee to pursue the remedy; (c) such Holder or Holders offer to the Trustee reasonable indemnity satisfactory to the Trustee against any loss, liability or expenses; (d) the Trustee does not comply with the request within 60 days after receipt of the notice, request and offer of indemnity; and (e) no direction inconsistent with such written request has been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Securities then outstanding. A Securityholder may not use this Indenture to prejudice the rights of another Securityholder or to obtain a preference or priority over another Securityholder. SECTION 7.07. Rights of Holders to Receive Payment. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to receive payment of the principal of, premium, if any, and interest on the Security, on or after the respective due dates expressed in the Security (including the maturity date, the Redemption Date and the Repurchase Date), or to bring suit for the enforcement of any such payment on or after such respective dates, is absolute and unconditional and shall not be impaired or affected without the consent of the Holder. Notwithstanding any other provision of this Indenture, the right of any Holder of a Security to convert the Security or to bring suit for the enforcement of such right shall not be impaired or affected without the consent of the Holder. SECTION 7.08. Collection Suit by Trustee. If an Event of Default in payment of interest or principal specified in Section 7.01(a) or (b) occurs and is continuing, the Trustee may recover judgment in its own name and as trustee of an express trust against the 41 49 Company or any other obligor on the Securities for the whole amount of unpaid principal and accrued interest remaining unpaid, together with interest on overdue principal and, to the extent that payment of such interest is lawful, interest on overdue installments of interest, in each case at the rate borne by the Securities, and such further amount as shall be sufficient to cover the costs and expenses of collection, including the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel. SECTION 7.09. Trustee May File Proofs of Claim. The Trustee may file such proofs of claim and other papers or documents as may be necessary or advisable in order to have the claims of the Trustee (including any claim for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel) and the Securityholders allowed in any judicial proceedings relative to the Company (or any other obligor upon the Securities), its creditors or its property and shall be entitled and empowered to collect and receive any monies or other property payable or deliverable on any such claims and to distribute the same. Any Custodian in any such judicial proceeding is hereby authorized by each Securityholder to make such payments to the Trustee and, in the event that the Trustee shall consent to the making of such payments directly to the Securityholders, to pay to the Trustee any amount due to it for the reasonable compensation, expenses, disbursements and advances of the Trustee, its agents and counsel, and any other amounts due the Trustee under Section 8.07. Nothing herein contained shall be deemed to authorize the Trustee to authorize or consent to or accept or adopt on behalf of any Securityholder any plan of reorganization, arrangement, adjustment or composition affecting the Securities or the rights of any Holder thereof, or to authorize the Trustee to vote in respect of the claim of any Securityholder in any such proceedings. SECTION 7.10. Application of Money Collected by Trustee. Subject to the provisions of Article Four, any moneys collected by the Trustee or any Paying Agent pursuant to this Article Seven shall be applied in the order following, at the date or dates fixed by the Trustee for the distribution of such moneys, upon presentation of the several Securities, and stamping thereon the payment, if only partially paid, and upon surrender thereof if fully paid: First: To the payment of all amounts due the Trustee under Section 8.07 hereof; Second: To holders of Senior Indebtedness of the Company to the extent required by Article Four hereof; Third: To the Securityholders for amounts owing and unpaid upon the Securities for principal (and premium, if any) and interest, with interest on the overdue principal and premium, if any, and (to the extent that such interest has been 42 50 collected by the Trustee or Paying Agent) on overdue installments of interest at the rate borne by the Securities, ratably, without preference or priority of any kind, according to the amounts due and payable on the Securities for principal (and premium, if any) and interest, respectively; and Fourth: To the Company or as a court of competent jurisdiction may direct. SECTION 7.11. Undertaking to Pay Costs. All parties to this Indenture agree, and each Holder of any Security by his acceptance thereof shall be deemed to have agreed, that any court may in its discretion require, in any suit for the enforcement of any right or remedy under this Indenture, or in any suit against the Trustee for any action taken or omitted by it as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and that such court may in its discretion assess reasonable costs, including reasonably attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; but the provisions of this Section 7.11 shall not apply to any suit instituted by the Trustee, to any suit instituted by any Securityholder, or group of Securityholders, holding in the aggregate more than 10% in aggregate principal amount of the Securities outstanding, or to any suit instituted by any Securityholder for the enforcement of the payment of the principal of (or premium, if any) or interest on any Security against the Company on or after the due date expressed in such Security. SECTION 7.12. Restoration of Rights and Remedies. If the Trustee or any Holder has instituted any proceeding to enforce any right or remedy under this Indenture or any Security and such proceeding has been discontinued or abandoned for any reason, or has been determined adversely to the Trustee or to such Holder, then and in every case, subject to any determination in such proceeding, the Company, the Trustee and the Holders shall be restored severally and respectively to their former positions hereunder and thereafter all rights and remedies of the Trustee and the Holders shall continue as though no such proceeding had been instituted. SECTION 7.13. Rights and Remedies Cumulative. No right or remedy herein conferred upon or reserved to the Trustee or to the Holders is intended to be exclusive of any other right or remedy, and every remedy shall, to the extent permitted by law, be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other appropriate right or remedy. SECTION 7.14. Delay or Omission Not Waiver. No delay or omission of the Trustee or of any Holder of any Security to exercise any right or remedy accruing upon any Event of Default shall impair any such right or remedy or constitute a waiver of any such Event of Default or an acquiescence therein. Every right and remedy given by this Article Seven 43 51 or by law to the Trustee or to the Holders may be exercised from time to time, and as often as may be deemed expedient, by the Trustee or by the Holders, as the case may be. ARTICLE EIGHT. CONCERNING THE TRUSTEE. SECTION 8.01. Duties of Trustee. (1) If an Event of Default has occurred and is continuing, the Trustee shall exercise its rights and powers vested in it by this Indenture and use the same degree of care and skill in their exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. (2) Except during the continuance of an Event of Default: (a) The Trustee need perform only those duties that are specifically set forth in this Indenture and no others. (b) In the absence of bad faith on its part, the Trustee may conclusively rely, as to the truth of the statements and the correctness of the opinions expressed therein, upon certificates or opinions furnished to the Trustee and conforming to the requirements of this Indenture. The Trustee, however, shall examine the certificates and opinions to determine whether or not they conform to the requirements of this Indenture. (c) The Trustee may not be relieved from liability for its own negligent action, its own negligent failure to act, or its own willful misconduct, except that: (1) This paragraph does not limit the effect of paragraph (b) of this Section 8.01. (2) The Trustee shall not be liable for any error in judgment made in good faith by a Responsible Officer of the Trustee, unless it is proved that the Trustee was negligent in ascertaining the pertinent facts. (3) The Trustee shall not be liable with respect to any action it takes or omits to take in good faith in accordance with a direction received by it pursuant to Section 7.05. (d) Every provision of this Indenture that in any way relates to the Trustee is subject to paragraphs (a), (b) and (c) of this Section 8.01. 44 52 (e) The Trustee may refuse to perform any duty or exercise any right or power unless it receives indemnity reasonably satisfactory to it against any loss, liability or expense. (f) The Trustee shall not be liable for interest on any money received by it except as the Trustee may agree with the Company. Money held in trust by the Trustee need not be segregated from other funds except to the extent required by law. SECTION 8.02. Rights of Trustee. Subject to Section 8.01: (1) The Trustee may rely on any document believed by it to be genuine and to have been signed or presented by the proper person. The Trustee need not investigate any fact or matter stated in the document. (2) Before the Trustee acts or refrains from acting, it may require an Officers' Certificate or an Opinion of Counsel, which shall conform to Section 15.04. The Trustee shall not be liable for any action it takes or omits to take in good faith in reliance on such Certificate or Opinion. (3) The Trustee may act through Agents and shall not be responsible for the misconduct or negligence of any Agent appointed with due care. (4) The Trustee shall not be liable for any action it takes or omits to take in good faith which it believes to be authorized or within its rights or powers. SECTION 8.03. Individual Rights of Trustee. The Trustee in its individual or any other capacity may become the owner or pledgee of Securities and may otherwise deal with the Company or its Affiliates with the same rights it would have if it were not Trustee. Any Agent may do the same with like rights. The Trustee, however, is subject to Sections 8.10 and 8.11. SECTION 8.04. Trustee's Disclaimer. The Trustee makes no representation as to the validity or adequacy of this Indenture or the Securities, it shall not be accountable for the Company's use of the proceeds from the Securities, and it shall not be responsible for any statement in the Securities other than its certificate of authentication or in any document used in the sale of the Securities other than any statement in writing provided by the Trustee for use in such document. SECTION 8.05. Notice of Defaults. If a Default occurs and is continuing and if it is known to the Trustee, the Trustee shall mail to each Securityholder notice of the Default within 90 days after it occurs. Except in the case of a Default in payment of principal of or 45 53 interest on any Security, the Trustee may withhold the notice if and so long as it in good faith determines that withholding the notice is in the interests of Securityholders. SECTION 8.06. Reports by Trustee to Holders. If such report is required by TIA Section 313, within 60 days after each May 15 beginning with May 15, 1997, the Trustee shall mail to each Securityholder a brief report dated as of such May 15 that complies with TIA Section 313(a). The Trustee also shall comply with TIA Section 313(b) and Section 313(c). A copy of each report at the time of its mailing to Securityholders shall be filed with the SEC and each national securities exchange on which the Securities are listed. The Company agrees to notify the Trustee whenever the Securities become listed on any national securities exchange. SECTION 8.07. Compensation and Indemnity. The Company shall pay to the Trustee from time to time reasonable compensation for its services (which compensation shall not be limited by any provision of law in regard to the compensation of a trustee of an express trust). The Company shall reimburse the Trustee upon request for all reasonable disbursements, expenses and advances incurred or made by it. Such expenses may include the reasonable compensation, disbursements and expenses of the Trustee's agents and counsel. Subject to the provisions of the following paragraph, the Company shall indemnify the Trustee for, and hold it harmless against, any loss or liability incurred by it in connection with its duties under this Indenture. The Trustee shall notify the Company promptly of any claim asserted against the Trustee for which it may seek indemnity and the Company may elect by written notice to the Trustee, and with the consent of the Trustee, to assume the defense of any such claim at the Company's expense with counsel reasonably satisfactory to the Trustee. If the Trustee shall not consent to the Company's assumption of the defense, the Company agrees to pay the reasonable costs and expenses of counsel retained to represent the Trustee. The Company need not reimburse the Trustee for any expense or indemnify it against any loss or liability incurred by it through its negligence or bad faith. The Company shall not be liable for any settlement of any claim or action effected without the Company's consent, which consent shall not be unreasonably withheld or delayed. To secure the Company's payment obligations in this Section 8.07, the Trustee shall have a lien prior to the Securities on all money or property held or collected by the Trustee, except that held in trust to pay principal and interest on particular Securities. When the Trustee incurs expenses or renders services after an Event of Default specified in Sections 7.01(e) or (f) hereof occurs, the expenses and the compensation for the 46 54 services (including the reasonable fees and expenses of its agents and counsel) are intended to constitute expenses of administration under any Bankruptcy Law. SECTION 8.08. Replacement of Trustee. A resignation or removal of the Trustee and appointment of a successor Trustee shall become effective only upon the successor Trustee's acceptance of appointment as provided in this Section 8.08. The Trustee may resign by so notifying the Company. The Holders of a majority in principal amount of the Securities then outstanding may remove the Trustee by so notifying the Trustee and may appoint a successor Trustee with the Company's written consent. The Company may remove the Trustee if: (a) the Trustee fails to comply with Section 8.10; (b) the Trustee is adjudged a bankrupt or an insolvent; (c) a receiver or other public officer takes charge of the Trustee or its property; or (d) the Trustee becomes incapable of acting. If the Trustee resigns or is removed or if a vacancy exists in the office of Trustee for any reason, the Company shall promptly appoint a successor Trustee. Within one year after the successor Trustee takes office, the Holders of a majority in principal amount of the Securities may appoint a successor Trustee to replace the successor Trustee appointed by the Company, and if a successor Trustee is not appointed within such period, the Holders shall no longer be permitted to appoint a successor Trustee to replace such successor Trustee appointed by the Company. If a successor Trustee does not take office within 60 days after the retiring Trustee resigns or is removed, the retiring Trustee, the Company or the Holders of at least 10% in principal amount of the Securities then outstanding may petition any court of competent jurisdiction for the appointment of a successor Trustee. If the Trustee fails to comply with Section 8.10, any Securityholder may petition any court of competent jurisdiction for the removal of the Trustee and the appointment of a successor Trustee. A successor Trustee shall deliver a written acceptance of its appointment to the retiring Trustee and to the Company. Immediately after that, the retiring Trustee shall, upon payment of its charges, transfer all property held by it as Trustee to the successor Trustee, subject to the lien provided for in Section 8.07, the resignation or removal of the retiring Trustee shall become effective, and the successor Trustee shall have all the rights, powers 47 55 and duties of the Trustee under this Indenture. A successor Trustee shall mail notice of its succession to each Securityholder. SECTION 8.09. Successor Trustee by Merger, etc. If the Trustee consolidates with, merges or converts into, or transfers all or substantially all of its corporate trust assets to, another corporation, the successor corporation without any further act shall be the successor Trustee. SECTION 8.10. Eligibility; Disqualification. This Indenture shall always have a Trustee who satisfies the requirements of TIA Section 310(a)(1). The Trustee shall have a combined capital and surplus of at least $1,000,000 as set forth in its most recent published annual report of condition. The Trustee shall comply with TIA Section 310(b). SECTION 8.11. Preferential Collection of Claims Against Company. The Trustee is subject to and shall comply with TIA Section 311(a), excluding any creditor relationship listed in TIA Section 311(b). A Trustee who has resigned or been removed shall be subject to TIA Section 311(a) to the extent indicated therein. ARTICLE NINE. CONCERNING THE SECURITYHOLDERS. SECTION 9.01. Action by Securityholders. Whenever in this Indenture it is provided that the Holders of a specified percentage in aggregate principal amount of the Securities may take any action (including the making of any demand or request, the giving of any notice, consent or waiver or the taking of any other action), the fact that at the time of taking any such action the Holders of such specified percentage have joined therein may be evidenced (a) by any instrument or any number of instruments of similar tenor executed by Securityholders in person or by agent or proxy appointed in writing, or (b) by the record of the Holders of Securities voting in favor thereof at any meeting of Securityholders duly called and held in accordance with the provisions of Article Ten, or (c) by a combination of such instrument or instruments and any such record of such a meeting of Securityholders. SECTION 9.02. Proof of Execution by Securityholders, Evidence of Holdings. Subject to the provisions of Sections 8.01 and 10.05, proof of the execution of any instrument by a Securityholder or his agent or proxy and proof of the holding by any person of any of the Securities shall be sufficient for any purpose of this Indenture if made in the following manner: (a) The fact and date of the execution by any such person of any instrument may be proved in any reasonable manner acceptable to the Trustee. 48 56 (b) The ownership of Securities shall be proved by the register of such Securities or by a certificate of the Security Registrar. The record of any Securityholders' meeting shall be proved in the manner provided in Section 10.06. The Trustee may require such additional proof of any matter referred to in this Section 9.02 as it shall deem necessary. SECTION 9.03. Company-owned Securities Disregarded. In determining whether the Holders of the requisite aggregate principal amount of Securities have concurred in any direction or consent under this Indenture, Securities which are owned by the Company or any other obligor on the Securities or by any Affiliate of the Company or such obligor shall be disregarded and deemed not to be outstanding for the purpose of any such determination, provided that for the purposes of determining whether the Trustee shall be protected in relying on any such direction or consent only Securities which the Trustee knows are so owned shall be so disregarded. SECTION 9.04. Revocation of Consents, Future Holders Bound. At any time prior to but not after the evidencing to the Trustee, as provided in Section 9.01, of the taking of any action by the Holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action, any Holder of a Security which is included in the Securities the Holders of which have consented to such action may, by filing written notice with the Trustee at its office and upon proof of holding as provided in Section 9.02, revoke such action as far as concerns such Security. Except as aforesaid any such action taken by the Holder of any Security shall be conclusive and binding upon such Holder and upon all future Holders and owners of such Security, irrespective of whether or not any notation in regard thereto is made upon such Security or any Security issued in exchange or substitution therefor. Any action taken by the Holders of the percentage in aggregate principal amount of the Securities specified in this Indenture in connection with such action shall be conclusively binding upon the Company, the Trustee and the Holders of all the Securities. ARTICLE TEN. SECURITYHOLDERS' MEETINGS. SECTION 10.01. Purposes of Meetings. A meeting of Securityholders may be called at any time and from time to time pursuant to the provisions of this Article Ten for any of the following purposes: 49 57 (1) to give any notice to the Company or to the Trustee, or to give any directions to the Trustee, or to consent to the waiving of any default hereunder and its consequences, or to take any other action authorized to be taken by Securityholders pursuant to any of the provisions of Article Seven; (2) to remove the Trustee and nominate a successor trustee pursuant to the provisions of Article Eight; (3) to consent to the execution of an indenture or indentures supplemental hereto pursuant to the provisions of Section 11.02; or (4) to take any other action authorized to be taken by or on behalf of the Holders of any specified aggregate principal amount of the Securities under any other provision of this Indenture or under applicable law. SECTION 10.02. Call of Meetings by Trustee. The Trustee may at any time call a meeting of Securityholders to take any action specified in Section 10.01, to be held at such time and at such place in the Borough of Manhattan, The City of New York, New York, as the Trustee shall determine. Notice of every meeting of the Securityholders, setting forth the time and the place of such meeting and in general terms the action proposed to be taken at such meeting, shall be given to the Holders of Securities in the manner provided in Section 15.03. Such notice shall be mailed not less than 20 nor more than 90 days prior to the date fixed for the meeting. SECTION 10.03. Call of Meetings by Company or Securityholders. In case at any time the Company, pursuant to a resolution of its Board of Directors, or the Holders of at least 10% in aggregate principal amount of the Securities then outstanding, shall have requested the Trustee to call a meeting of Securityholders, by written request setting forth in reasonable detail the action proposed to be taken at the meeting, and the Trustee shall not have mailed the notice of such meeting within 20 days after receipt of such request, then the Company or such Securityholders may determine the time and the place in The Borough of Manhattan, The City of New York, New York for such meeting and may call such meeting to take any action authorized in Section 10.01, by mailing notice thereof as provided in Section 10.02. SECTION 10.04. Qualifications for Voting. To be entitled to vote at any meeting of Securityholders a person shall (a) be a Holder of one or more Securities; or (b) be a person appointed by an instrument in writing as proxy by a Holder of one or more Securities. The only persons who shall be entitled to be present or to speak at any meeting of Securityholders shall be the persons entitled to vote at such meeting and their counsel and any representatives of the Trustee and its counsel and any representatives of the Company and its counsel. 50 58 SECTION 10.05. Regulations. Notwithstanding any provisions of this Indenture, the Trustee may make such reasonable regulations as it may deem advisable for any meeting of Securityholders in regard to proof of the holding of Securities and of the appointment of proxies, and in regard to the appointment and duties of inspectors of votes, the submission and examination of proxies and other evidence of the right to vote, and such other matters concerning the conduct of the meeting as it shall think fit. The Trustee shall, by an instrument in writing, appoint a temporary chairman of the meeting, unless the meeting shall have been called by the Company or by Securityholders as provided in Section 10.03, in which case the Company or the Securityholders calling the meeting, as the case may be, shall in like manner appoint a temporary chairman. A permanent chairman and a permanent secretary of the meeting shall be elected by a majority vote of the meeting. Subject to the provisions of Section 9.03, at any meeting of Securityholders, each Securityholder or proxy shall be entitled to one vote for each $1,000 principal amount of Securities held or represented by him, provided however, that no vote shall be cast or counted at any meeting in respect of any Security challenged as not outstanding and ruled by the chairman of the meeting to be not outstanding. The chairman of the meeting shall have no right to vote other than by virtue of Securities held by him or instruments in writing as aforesaid duly designating him as the person to vote on behalf of other Securityholders. Any meeting of Securityholders duly called pursuant to the provisions of Section 10.02 or 10.03 may be adjourned from time to time by a majority of those present, whether or not constituting a quorum, and the meeting may be held as so adjourned without further notice. At any meeting of Securityholders duly called pursuant to the provisions of Section 10.02 or 10.03, the presence of persons holding or representing Securities in an aggregate principal amount sufficient to take action on any business for the transaction of which such meeting was called shall constitute a quorum. SECTION 10.06. Voting. The vote upon any resolution submitted to any meeting of Securityholders shall be by written ballots on which shall be subscribed the signatures of the Holders of Securities or of their representatives by proxy and the principal amount of the Securities held or represented by them. The permanent chairman of the meeting shall appoint two inspectors of votes who shall count all votes cast at the meeting for or against any resolution and who shall make and file with the secretary of the meeting their verified written reports in duplicate of all votes cast at the meeting. A record in duplicate of the proceedings of each meeting of Securityholders shall be prepared by the secretary of the meeting and there shall be attached to said record the original reports of the inspectors of votes on any vote by ballot taken thereat and affidavits by one or more persons having knowledge of the facts setting forth a copy of the notice of the meeting and showing that said notice was mailed as provided in Section 10.02. The record shall be signed and verified by the affidavits of the permanent chairman and secretary of the meeting and one 51 59 of the duplicates shall be delivered to the Company and the other to the Trustee to be preserved by the Trustee. Any record so signed and verified shall be conclusive evidence of the matters therein stated. SECTION 10.07. No Delay of Rights by Meeting. Nothing in this Article Ten contained shall be deemed or construed to authorize or permit, by reason of any call of a meeting of Securityholders or any rights expressly or impliedly conferred hereunder to make such call, any hindrance or delay in the exercise of any right or rights conferred upon or reserved to the Trustee or to the Securityholders under any of the provisions of this Indenture or of the Securities. ARTICLE ELEVEN. SUPPLEMENTAL INDENTURES. SECTION 11.01. Supplemental Indenture Without Consent of Securityholders. The Company, when authorized by the resolutions of its Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for one or more of the following purposes: (a) to make provision with respect to the conversion rights of Holders of Securities pursuant to the requirements of Section 5.10; (b) to evidence the succession of another corporation to the Company, or successive successions, and the assumption by the successor corporation of the covenants, agreements and obligations of the Company pursuant to Article Twelve hereof; (c) to add to the covenants of the Company such further covenants, restrictions or conditions for the protection of the Holders of the Securities as the Board of Directors of the Company and the Trustee shall consider to be for the protection of the Holders of Securities, and to make the occurrence, or the occurrence and continuance, of a default in any of such additional covenants, restrictions or conditions a default or an Event of Default permitting the enforcement of all or any of the several remedies provided in this Indenture as herein set forth; provided however, that in respect of any such additional covenant, restriction or condition such supplemental indenture may provide for a particular period of grace after default (which period may be shorter or longer than that allowed in the case of other defaults) or may provide for an immediate enforcement upon such default or may limit the remedies available to the Trustee upon such default; 52 60 (d) to provide for uncertificated Securities in addition to or in place of certificated Securities; (e) to cure any ambiguity or to correct or supplement any provision contained herein or in any supplemental indenture which may be defective or inconsistent with any other provision contained herein or in any supplemental indenture, or to make such other provisions in regard to matters or questions arising under this Indenture which shall not adversely affect the interests of the Holders of the Securities; and (f) to modify, eliminate or add to the provisions of this Indenture to such extent as shall be necessary to effect the qualification of this Indenture under the TIA, or under any similar federal statute hereafter enacted. The Trustee is hereby authorized to join with the Company in the execution of any such supplemental indenture, to make any further appropriate agreements and stipulations which may be therein contained and to accept the conveyance, transfer and assignment of any property thereunder, but the Trustee shall not be obligated to enter into any such supplemental indenture which affects the Trustee's own rights, duties or immunities under this Indenture or otherwise. Any supplemental indenture authorized by the provisions of this Section 11.01 may be executed by the Company and the Trustee without the consent of the Holders of any of the Securities at the time outstanding, notwithstanding any of the provisions of Section 11.02. SECTION 11.02. Supplemental Indentures with Consent of Securityholders. With the consent (evidenced as provided in Section 9.01) of the Holders of not less than two-thirds in aggregate principal amount of the Securities at the time outstanding, the Company, when authorized by the resolutions of its Board of Directors, and the Trustee may from time to time and at any time enter into an indenture or indentures supplemental hereto for the purpose of adding any provisions to or changing in any manner or eliminating any of the provisions of this Indenture or of any supplemental indenture or of modifying in any manner the rights of the Holders of the Securities; provided however, that no such supplemental indenture shall (i) change the stated maturity of the principal of, or any installment of interest on, any Security; (ii) reduce the principal amount of, or the premium or interest on, any Security; (iii) change the place of payment where, or currency in which, any Security or any premium or interest thereof is payable; (iv) impair the right to institute suit for the enforcement of any payment on or with respect to any Security; (v) adversely affect the right to convert the Securities; (vi) adversely affect the right to cause the Company to repurchase the Securities; (vii) modify the subordination provisions in a manner adverse to the Holders of the Securities; (viii) reduce the above-stated percentage of Outstanding Securities necessary to modify or amend the Indenture; or (ix) reduce the percentage of aggregate 53 61 principal amount of Outstanding Securities necessary for waiver of compliance with certain provision of this Indenture or for waiver of certain Defaults. Upon the request of the Company, accompanied by a copy of the resolutions of its Board of Directors certified by its Secretary or Assistant Secretary authorizing the execution of any such supplemental indenture and upon the filing with the Trustee of evidence of the consent of Securityholders as aforesaid, the Trustee shall join with the Company in the execution of such supplemental indenture unless such supplemental indenture affects the Trustee's own rights, duties or immunities under this Indenture or otherwise, in which case the Trustee may in its discretion, but shall not be obligated to, enter into such supplemental indenture. It shall not be necessary for the consent of the Securityholders under this Section 11.02 to approve the particular form of any proposed supplemental indenture, but it shall be sufficient if such consent shall approve the substance thereof. SECTION 11.03. Compliance with Trust Indenture Act; Effect of Supplemental Indentures. Any supplemental indenture executed pursuant to the provisions of this Article Eleven shall comply with the TIA as in effect on the date of execution thereof. Upon the execution of any supplemental indenture pursuant to the provisions of this Article Eleven this Indenture shall be and be deemed to be modified and amended in accordance therewith and the respective rights, limitation of rights, obligations, duties and immunities under this Indenture of the Trustee, the Company and the Holders of Securities shall thereafter be determined, exercised and enforced hereunder subject in all respects to such modifications and amendments, and all the terms and conditions of any such supplemental indenture shall be and be deemed to be part of the terms and conditions of this Indenture for any and all purposes. SECTION 11.04. Notation on Securities. Securities authenticated and delivered after the execution of any supplemental indenture pursuant to the provisions of this Article Eleven may bear a notation in form approved by the Trustees as to any matter provided for in such supplemental indenture. If the Company or the Trustee shall so determine, new Securities so modified as to conform, in the opinion of the Trustee and the Board of Directors, to any modification of this Indenture contained in any such supplemental indenture may be prepared and execution by the Company, authenticated by the Trustee and delivered in exchange for the Securities then outstanding. SECTION 11.05. Evidence of Compliance of Supplemental Indenture to Be Furnished Trustee. The Trustee, subject to the provisions of Section 8.01, may receive an Officers' Certificate and an Opinion of Counsel both conforming to Section 15.04 as conclusive evidence that any supplemental indenture executed pursuant hereto complies with the requirements of this Indenture. 54 62 ARTICLE TWELVE. CONSOLIDATION, MERGER AND SALE BY THE COMPANY. SECTION 12.01. When Company May Merge, Etc. Notwithstanding anything contained herein to the contrary, the Company may consolidate with or merge with, or sell, assign, transfer, lease, convey or otherwise dispose of all or substantially all of its assets to (each a "transaction"), another person; provided (i)(a) the Company is the surviving entity, or (b) the successor person (if other than the Company) formed by such consolidation or into which the Company is merged or to which such assets are sold, assigned, transferred, leased, conveyed or otherwise disposed is a corporation organized and existing under the laws of the United States or a state thereof or the District of Columbia and such corporation expressly assumes by supplemental indenture all the obligations of the Company under the Securities and the Indenture; (ii) at the time of and immediately after giving effect to such transaction, no Default or Event of Default has occurred and is continuing; and (iii) the Company has delivered to the Trustee an Officers' Certificate and Opinion of Counsel that all conditions precedent herein relating to such transaction have been complied with, and thereafter all obligations of the Company (if the Company is not the resulting, surviving or transferee person) shall terminate. SECTION 12.02. Successor Corporation Substituted. Upon any consolidation or merger, or any transfer of all or substantially all of the assets of the Company in accordance with Section 12.01, the successor corporation formed by such consolidation or into which the Company is merged or to which such transfer is made shall succeed to, and be substituted for, and may exercise every right and power of, the Company under this Indenture with the same effect as if such successor corporation had been named as the Company herein. ARTICLE THIRTEEN. SATISFACTION AND DISCHARGE OF INDENTURE; UNCLAIMED MONEYS. SECTION 13.01. Discharge of Indenture. If (a) there shall have been delivered to the Trustee for cancellation all Securities theretofore authenticated (other than any Securities which shall have been destroyed, lost or stolen and in lieu of or in substitution for which other Securities shall have been authenticated and delivered), or (b)(1) all such Securities not theretofore delivered to the Trustee for cancellation shall have become due and payable, or will become due and payable at their stated maturity within one year, or have been called for redemption, and the Company shall have irrevocably deposited with the Paying Agent, in trust, funds (except funds paid to the Company pursuant to Section 13.04) sufficient to pay at maturity or upon redemption all of such Securities (other than any Securities which shall have been destroyed, lost or stolen and in lieu of or in substitution for which other Securities shall have been authenticated and delivered) not theretofore delivered to the 55 63 Trustee for cancellation, including principal (and premium, if any) and interest, and such deposit shall be upon terms making such funds payable forthwith upon due presentation, whether before or after such date of maturity or redemption of such Securities, (2) the Company shall have delivered to the Trustee an Opinion of Counsel to the effect that such trust funds will not be subject to any rights of holders of Senior Indebtedness, including without limitation, those arising under Article Four hereof, and (3) the Company shall have delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that all conditions precedent provided for herein relating to the satisfaction and discharge of this Indenture have been complied with, and if in any such case the Company shall also pay or cause to be paid all other sums payable hereunder by the Company, then (except as provided below) this Indenture shall cease to be of further effect, and the Trustee, on demand of the Company accompanied by an Officers' Certificate and an Opinion of Counsel as required by Section 15.04 and at the cost and expense of the Company, shall execute proper instruments acknowledging satisfaction of and discharging this Indenture; provided however, that the Company's obligations under Sections 2.03, 2.04, 2.05, 2.06, 2.07, 2.08, 6.01, 6.02, 6.03, 8.07, 8.08, 13.04, 13.05 and Article Five shall survive until the Securities are no longer outstanding. SECTION 13.02. Deposited Moneys to Be Held in Trust by Trustee. All moneys deposited with the Paying Agent pursuant to Section 13.01 shall be held in trust and, subject to the provisions of Section 13.04, applied by it to the payment, either directly or through any Paying Agent, to the Holders of the particular Securities for the payment or redemption of which such moneys have been deposited with the Trustee, of all sums due thereon for principal and interest (and premium, if any). SECTION 13.03. Paying Agent to Repay Moneys Held. Upon the satisfaction and discharge of this Indenture all moneys then held by any Paying Agent of the Securities (other than the Trustee) shall, upon demand of the Company, be repaid to it and thereupon the Paying Agent shall be released from all further liability with respect to such moneys. SECTION 13.04. Unclaimed Moneys. Any moneys deposited with the Trustee or any Paying Agent (including moneys held in trust by the Company if it shall act as its own Paying Agent) not applied but remaining unclaimed by the Holders of Securities for two years after the date upon which the principal of (and premium, if any) or interest on such Securities shall have become due and payable shall be repaid to the Company by the Trustee or such Paying Agent on demand, or if held in trust by the Company may at the Company's option be released from such trust; and the Holder of any of the Securities entitled to receive such payment shall thereafter look only to the Company, as the holder of a general claim, for the payment thereof, provided however, that the Trustee or such Paying Agent before being required to make any such repayment, may at the expense of the Company cause to be mailed to each such holder a notice that said moneys have not been so applied and that after a date named therein any unclaimed balance of said moneys then remaining will be returned to the Company. 56 64 SECTION 13.05. Reinstatement. If the Trustee or a Paying Agent is unable to apply any moneys in accordance with Section 13.01 by reason of any legal proceeding or by reason of any order or judgment of any court or governmental authority enjoining, restraining or otherwise prohibiting such application, the Company's obligations under this Indenture and the Securities shall be revived and reinstated as though no deposit had occurred pursuant to Section 13.01 until such time as the Trustee or such Paying Agent is permitted to apply all such moneys in accordance with Section 13.01; provided however, that if the Company has made any payment of principal or interest on any of the Securities because of the reinstatement of its obligations, the Company shall be subrogated to the rights of the Holders of the Securities to receive such payment from moneys held by the Trustee or such Paying Agent. ARTICLE FOURTEEN. IMMUNITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS AND DIRECTORS. SECTION 14.01. Indenture and Securities Solely Corporate Obligations. No recourse for the payment of the principal or premium or interest on any Security, or for any claim based thereon or otherwise in respect thereof, and no recourse under or upon any obligation, covenant or agreement of the Company in this Indenture, or in any Security, or because of the creation of any indebtedness represented thereby, shall be had against any incorporator, stockholder, officer or director, as such, past, present or future, of the Company or of any successor corporation, either directly or through the Company or an successor corporation, whether by virtue of any constitution, statute or rule of law, or by the enforcement of any assessment or penalty or otherwise; it being expressly understood that all such liability is hereby expressly waived and released as a condition of, and as a consideration for, the execution of this Indenture and the issue of the Securities. ARTICLE FIFTEEN. MISCELLANEOUS PROVISIONS. SECTION 15.01. Provisions Binding on Company's Successors. All the covenants, stipulations, promises and agreements in this Indenture contained by or on behalf of the Company shall bind its successors and assigns, whether so expressed or not. SECTION 15.02. Official Acts by Successor Corporation. Any act or proceeding by any provision of this Indenture authorized or required to be done or performed by any board, committee or officer of the Company shall and may be done and performed with like 57 65 force and effect by the like board, committee or officer of any corporation that shall at the time be the lawful sole successor of the Company. SECTION 15.03. Notices. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or by the Holders of Securities on the Company may be given or served by being deposited, first class postage prepaid, in a United States post office letter box addressed (until another address is filed by the Company with the Trustee) to Trans-Lux Corporation, 110 Richards Avenue, Norwalk, Connecticut 06856, Attn: Chief Executive Officer. Any notice, direction, request, or demand by any Securityholder to or upon the Trustee shall be deemed to have been sufficiently given or made, for all purposes, if given or made in writing at the principal office of the Trustee, addressed to the attention of its Corporate Trust Department. Any notice or demand which by any provision of this Indenture is required or permitted to be given or served by the Trustee or the Company to or on the Holders of Securities shall be given or served by first-class mail, postage prepaid, addressed to the Holders of such Securities at their last addressed as the same appear on the registry books referred to in Section 2.03, and any such notice shall be deemed to be given or served by being deposited in a post office letter box in the form and manner provided in this Section 15.03. SECTION 15.04. Evidence of Compliance with Conditions Precedent. Upon any application or demand by the Company to the Trustee to take any action under any of the provisions of this Indenture, the Company shall furnish to the Trustee an Officers' Certificate stating that in the opinion of the signers all conditions precedent, if any, provided for in this Indenture relating to the proposed action have been complied with and an Opinion of Counsel stating that, in the opinion of such counsel, all such conditions precedent have been complied with. Each certificate or opinion provided for in this Indenture and delivered to the Trustee with respect to compliance with a condition or covenant provided for in this Indenture shall include: (1) a statement that the person making such certificate or opinion has read such covenant or condition; (2) a brief statement as to the nature and scope of the examination or investigation upon which the statements or opinion contained in such certificate or opinion are based; (3) a statement that, in the opinion of such person, he had made such examination or investigation as is necessary to enable him to express an informed opinion as to whether or not such covenant or condition has been complied with; and (4) a statement as to whether or not, in the opinion of such person, such condition or covenant has been complied with. SECTION 15.05. Legal Holidays. In any case where the date of maturity of interest on or principal of the Securities or the date fixed for redemption of any Security or the last day on which a Securityholder has the right to convert his Security at a particular 58 66 Conversion Price shall not be a Business Day, then payment of interest or principal (and premium, if any) or conversion of the Securities need not be made on such date but may be made on the next succeeding Business Day, with the same force and effect as if made on the date of such maturity or the date fixed for redemption or such last day for conversion, and, in the case of payment, no interest shall accrue for the period from and after such date. SECTION 15.06. Trust Indenture Act to Control. The provisions of Section 310 to and including Section 317 of the TIA that imposes duties on any person (including any such provisions automatically deemed included in an indenture by the TIA) are a part of and govern this Indenture. If any provision hereof limits, qualifies or conflicts with any of such duties imposed by operation of such provisions of the TIA, the applicable provisions of the TIA and duties imposed thereby shall control. SECTION 15.07. Communications by Holders with Other Holders. A Securityholder may communicate pursuant to TIA Section 312(b) with other Securityholders with respect to their rights under this Indenture or the Securities. The Company, the Trustee, the Registrar and anyone else shall have the protection of TIA Section 312(c). SECTION 15.08. Governing Law. This Indenture and each Security shall be deemed to be a contract made under the laws of the State of New York, and for all purposes shall be construed in accordance with the laws of said State, without giving effect to such State's conflicts of law principles. SECTION 15.09. Table of Contents and Headings. The table of contents, titles and headings of the articles and sections of this Indenture have been inserted for convenience of reference only, are not to be considered a part hereof, and shall in no way modify or restrict any of the terms or provisions hereof. SECTION 15.10. No Security Interest Created. Nothing in this Indenture or in the Securities, express or implied, shall be construed to constitute a security interest under the Uniform Commercial Code or similar legislation, as now or hereafter enacted and in effect in any jurisdiction where property of the Company or its Subsidiaries is or may be located. SECTION 15.11. Execution in Counterparts. This Indenture may be executed in any number of counterparts, each of which shall be an original; but such counterparts shall together constitute but one and the same instrument. The Trustee hereby accepts the trusts in this Indenture declared and provided, upon terms and conditions hereinabove set forth. 59 67 IN WITNESS WHEREOF, Trans-Lux Corporation has caused this Indenture to be signed and acknowledged by its Chairman, its Vice Chairman, its President, or one of its vice presidents, and its corporate seal to be affixed hereunto, and the same to be attested by its secretary or one of its assistant secretaries, and Continental Stock Transfer & Trust Company has caused this Indenture to be signed and acknowledged by its President or one of its vice presidents, has caused its corporate seal to be affixed hereunto, and the same to be attested by one of its Responsible Officers, as of the day and year first written above. TRANS-LUX CORPORATION By ________________________________ Name: Title: Attest: ___________________________________ Secretary CONTINENTAL STOCK TRANSFER & TRUST COMPANY, As Trustee By ________________________________ Name: Title: Attest: ___________________________________ Trust Officer/Assistant Secretary 60 68 EXHIBIT A TRANS-LUX CORPORATION _____% Convertible Subordinated Note due 2006 TRANS-LUX CORPORATION, a Delaware corporation, promises to pay to or registered assigns, the principal sum of _____________________________ Dollars, on December 1, 2006. Interest Payment Dates: June 1 and December 1 Regular Record Dates: May 15 and November 15 Additional provisions of this Security are set forth on other side of this Security. IN WITNESS WHEREOF, TRANS-LUX CORPORATION has caused this instrument to be duly signed. TRANS-LUX CORPORATION By: ____________________ Chairman of the Board CERTIFICATE OF AUTHENTICATION By: ____________________ Secretary Continental Stock Transfer & Trust Company, as Trustee, certifies that this is one of the Securities referred to in the within mentioned Indenture. Continental Stock Transfer & Trust Company, as Trustee By: __________________________ Authorized Signatory Dated: A-1 69 1. Interest. TRANS-LUX CORPORATION, a Delaware corporation (the "Company"), promises to pay interest on the principal amount of this Security at _____% per annum from and including the date of issuance of this Security to maturity or earlier redemption. The Company will pay interest semi-annually on June 1 and December 1 of each year commencing June 1, 1997. Interest on the Securities will accrue from the most recent date to which interest has been paid. If an Interest Payment Date falls on a day that is not a Business Day, the interest payment to be made on such Interest Payment Date will be made on the next succeeding Business Day with the same force and effect as if made on such Interest Payment Date, and no additional interest will accrue as a result of such delayed payment. Interest will be computed on the basis of a 360-day year of twelve 30-day months. The Company shall pay interest on overdue principal at the rate borne by this Security, and it shall pay interest on overdue installments of interest at the same rate to the extent lawful. 2. Method of Payment. The Company will pay interest on the Securities (except defaulted interest) to the persons who are the registered Holders of the Securities at the close of business on the May 15 or November 15 next preceding the Interest Payment Date. Holders must surrender Securities to a Paying Agent to collect principal payments. The Company will pay principal and interest in money of the United States that at the time of payment is legal tender for payment of public and private debts. The Company, however, may pay principal and interest by its check payable in such money. It may mail an interest check to a Holder's registered address. 3. Registrar and Agents. Initially, Continental Stock Transfer & Trust Company will act as the Registrar, the Paying Agent, the Conversion Agent and agent for service of notices and demands. The Company may change any Registrar, co-registrar, Paying Agent, Conversion Agent and agent for service of notices and demands without the prior consent of the Holders but upon notice to the Holders. The Company or any of its Subsidiaries may act as Registrar, co-registrar, Paying Agent or Conversion Agent. 4. Indenture; Limitations. The Company issued the Securities under an Indenture dated as of November __, 1996 (the "Indenture") between the Company and Continental Stock Transfer & Trust Company (the "Trustee"). Capitalized terms herein are used as defined in the Indenture unless otherwise defined herein. The terms of the Securities include those stated in the Indenture and those made part of the Indenture by the Trust Indenture Act of 1939 (15 U.S. Code SectionSection 77aaa-77bbbb) as in effect on the date of the Indenture. The Securities are subject to all such terms, and the Holders of the Securities are referred to the Indenture and said Act for a statement of such terms. The Securities are general unsecured obligations of the Company limited to $28,750,000 principal amount. 5. Optional Redemption by the Company. The Company may, at its option, redeem the Securities, in whole or from time to time in part, on any date after December 1, 1999, at the following redemption prices, expressed as percentages of the principal amount, if redeemed during the 12 months beginning December 1, of the years indicated below: A-2 70 Year Percentage 1999................................. % 2000................................. 2001................................. 2002................................. 2003................................. 2004................................. thereafter and at maturity at 100% of principal together in the case of any such redemption with accrued interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). 6. Notice of Redemption. Notice of redemption will be mailed at least 25 days but not more than 65 days before the Redemption Date to each Holder to be redeemed at such Holder's address appearing in the Note Register. Securities in denominations larger than $1,000 principal amount may be redeemed in part, but only in an amount of $1,000 principal amount or integral multiples thereof. In the event of redemption of this Security in part only, a new Security or Securities for the unredeemed portion hereof will be issued in the name of the Holder hereof upon the cancellation hereof. On and after the Redemption Date, interest ceases to accrue on Securities or portions of them called for redemption. 7. Repurchase Event. In the event of a Repurchase Event (as hereinafter defined) each Holder of Securities shall have the right (which right may not be waived by the Board of Directors or the Trustee) at the Holder's option, to require the Company to repurchase all of such Holder's Securities, or any portion thereof that is an integral multiple of $1,000, on the date (the "Repurchase Date") that is 45 calendar days after the date of the Company Notice (as defined below), at a price equal to 100% of the principal amount of such Securities to be repurchased (the "Repurchase Price"), together with accrued interest to the Repurchase Date; provided however, that a Repurchase Event shall not be deemed to have occurred if the closing price per share of the Common Stock for any five Trading Days within the period of ten consecutive Trading Days ending immediately before the Repurchase Event shall equal or exceed 110% of the Conversion Price of such Securities in effect on each such Trading Day. A "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act, as in effect on the date of execution of the Indenture. A Repurchase Event shall be deemed to have occurred at such time after initial issuance of the Securities: (i) any Person (including any syndicate or group deemed to be a "Person" under Section 13(d)(3) of the Exchange Act), other than the Company, any Subsidiary, any existing Person (including, directly or indirectly, the immediate family (parents, spouse, children, brothers or sisters) of any such A-3 71 Person) who currently beneficially owns shares of the Company's capital stock with 50% or more of the voting power as described below, or any current or future employee or director benefit plan of the Company or any Subsidiary or any entity holding capital stock of the Company for or pursuant to the terms of such plan, or an underwriter engaged in a firm commitment underwriting in connection with a public offering of capital stock of the Company, is or becomes the beneficial owner, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors; (ii) the Company sells or transfers all or substantially all of the assets of the Company to another Person; (iii) there occurs any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger (a) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock, (b) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) or (c) a transaction in which the stockholders of the Company immediately prior to such transaction owned, directly or indirectly, immediately following such transaction, a majority of the combined voting power of the voting capital stock of the corporation resulting from the transaction, such stock to be owned by such stockholders in substantially the same proportion as their ownership of the voting stock of the Company immediately prior to such transaction); (iv) a change in the Board of Directors in which the individuals who constituted the Board of Directors at the beginning of the 24-month period immediately preceding such change (together with any other director whose election by the Board of Directors or whose nomination for election by the stockholders of the Company was approved by a vote of at least a majority of the directors then in office either who were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; or (v) the Common Stock is the subject of a "Rule 13e-3 transaction" as defined under the Exchange Act. 8. Conversion. Beginning 60 days following the date of initial issuance of the Securities, a Holder of a Security may convert such Security into Common Stock of the Company at any time before the close of business on December 1, 2006. If the Security is called for redemption or delivered for repurchase, the Holder may convert it at any time before the close of business on the last Business Day prior to the Redemption Date or the Repurchase Date, as the case may be, unless the Company defaults in making the payment due upon redemption or repurchase. The initial Conversion Price is $__.__ per share, subject to adjustment in certain events as set forth in the Indenture. To determine the number of shares issuable upon conversion of a Security, divide the principal amount to be converted by the Conversion Price in effect on the conversion date and then round to the nearest 1/100th share. The Company will deliver a check for any fractional share. To convert a Security, a Holder must (1) complete and sign the conversion notice on the back of the Security, (2) surrender the Security to the Conversion Agent or Registrar, (3) furnish appropriate endorsements and transfer documents if required by the A-4 72 Registrar or Conversion Agent and (4) pay any transfer or similar tax if required. Securities (or portion of a Security) surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except Securities called for redemption on a Redemption Date within such period) must be accompanied by payment of an amount equal to the interest thereon which the registered Holder is to receive. In the case of any Securities that have been converted after any Regular Record Date but on or before the next Interest Payment Date, interest whose stated maturity is on such Interest Payment Date will be payable on such Interest Payment Date notwithstanding such conversion, and such interest will be paid to the Holder of such Note on such Regular Record Date. Except as described above, no interest on converted Securities will be payable by the Company on any Interest Payment Date subsequent to the date of conversion. No other payment or adjustment for interest or dividends will be made upon conversion. If the Company is a party to a consolidation or merger or a transfer or lease of all or substantially all of its assets, the right to convert a Security into Common Stock may be changed into a right to convert it into securities, cash or other assets of the Company or another Person. 9. Subordination. This Security is subordinated to all existing and future Senior Indebtedness of the Company as defined in the Indenture. To the extent and in the manner provided in the Indenture, Senior Indebtedness must be paid in cash before any payment may be made to any Holders of Securities. Any Securityholder by accepting this Security agrees to the subordination and authorizes the Trustee to give it effect. In addition to all other rights of Senior Indebtedness described in the Indenture, the Senior Indebtedness shall continue to be Senior Indebtedness and entitled to the benefits of the subordination provisions irrespective of any amendment, modification or waiver of any term of any instrument relating to the Senior Indebtedness or extension or renewal of the Senior Indebtedness. 10. Denominations, Transfer, Exchange. The Securities are in registered form without coupons in denominations of $1,000 principal amount and integral multiples thereof. A Holder may register the transfer of or exchange Securities in accordance with the Indenture. The Registrar may require a Holder, among other things, to furnish appropriate endorsements and transfer documents and to pay any taxes and fees required by law or permitted by the Indenture. The Registrar need not register the transfer of or exchange any Securities selected for redemption in whole or in part or register the transfer of or exchange any Securities for a period of 15 days before the first mailing of a Redemption Notice of Securities to be redeemed. 11. Persons Deemed Owners. The registered Holder of a Security shall be treated as the owner of it for all purposes. A-5 73 12. Unclaimed Money. If money for the payment of principal or interest on any Securities remains unclaimed for two years, the Trustee and the Paying Agent will pay the money back to the Company at its request. After that, Holders may look only to the Company for payment. 13. Merger or Consolidation. The Company may not consolidate with, or merge into, or transfer or lease all or substantially all of its assets to, another person unless: the person is a corporation; such corporation assumes by supplemental indenture all the obligations of the Company under the Securities and the Indenture; at the time thereof and after giving effect to the transaction no Default or Event of Default shall exist; and certain other conditions set forth in the Indenture are satisfied. 14. Discharge Prior to Redemption or Maturity. The Indenture will be discharged and canceled except for certain sections thereof upon payment of funds sufficient to pay principal and interest due on such payment or redemption of all Outstanding Securities. 15. Amendment and Waiver. Subject to certain exceptions, the Indenture or the Securities may be amended with the consent of the Holders of at least two-thirds in principal amount of the Securities then outstanding and any existing Event of Default may be waived with the consent of the Holders of a majority in principal amount of the Securities then outstanding. Without the consent of or notice to any Securityholder, the Company may amend the Indenture or the Securities to, among other things, provide for uncertificated Securities, to cure any ambiguity, defect or inconsistency or make any other change that does not adversely affect the rights of any Securityholder. 16. Successors. When a successor assumes all the obligations of its predecessor under the Securities and the Indenture, the predecessor will be released from those obligations. 17. Defaults and Remedies. If an Event of Default, as defined in the Indenture, occurs and is continuing, the Trustee or the Holders of at least 25% in principal amount of Securities may declare all the Securities to be due and payable in the manner and with the effect provided in the Indenture, and upon any such declaration such principal and accrued interest shall become due and payable immediately. Holders of Securities may not enforce the Indenture or the Securities except as provided in the Indenture. The Trustee may require indemnity satisfactory to it before it enforces the Indenture or the Securities. Subject to certain limitations, Holders of a majority in principal amount of the Securities then outstanding may direct the Trustee in its exercise of any trust or power. The Company is required to file periodic reports with the Trustee as to the absence of Default. An Event of Default is: the Company defaults in the payment of the principal of or premium, if any, of any of the Securities as and when the same shall become due and payable either at maturity, upon redemption; the Company defaults in the payment of any installment of interest upon any of the Securities as and when the same shall become due and payable and the default continues for a period of 30 days; the Company defaults in the payment of the A-6 74 Repurchase Price in respect of any Security on the Repurchase Date therefor, whether or not such payment is prohibited by the subordination provisions of the Indenture; or the Company fails to perform or breaches any other covenant or agreement in the Securities or in the Indenture and the default continues for 60 days after receipt by the Company of notice in accordance with the Indenture. 18. Trustee Dealings with the Company. The Trustee, in its individual or any other capacity, may make loans to, accept deposits from, and perform services for the Company or its affiliates, and may otherwise deal with the Company or its affiliates, as if it were not Trustee. 19. No Recourse Against Others. No stockholder, director, officer or incorporator, as such, past, present or future, of the Company or any successor corporation shall have any liability for any obligation of the Company under the Securities or the Indenture or for any claim based on, in respect of or by reason of, such obligations or their creation. Each Holder of a Security by accepting a Security waives and releases all such liability. The waiver and release are part of the consideration for the issuance of the Securities. 20. Authentication. This Security shall not be valid until the Trustee signs the certificate of authentication on the other side of this Security. 21. Abbreviations. Customary abbreviations may be used in the name of a Securityholder or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties), JT TEN (=joint tenants with rights of survivorship and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors Act). The Company will furnish to any Securityholder upon written request and without charge a copy of the Indenture. It also will furnish the text of this Security in larger type. Requests may be made to: Trans-Lux Corporation, 110 Richards Avenue, Norwalk, Connecticut 06856. A-7 75 ASSIGNMENT FORM If you the Holder want to assign this Security, fill in the form below and have your signature guaranteed: I or we assign and transfer this Security to (INSERT ASSIGNEE'S SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER) ___________________________________ ___________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) and irrevocably appoint_________________________________________________________ ______________________________________________________ agent to transfer this Security on the books of the Company. The agent may substitute another to act for him. Date:___________________________________________________________________________ Your signature:_________________________________________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:____________________________________________________________ THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. 76 CONVERSION NOTICE To convert this Security into Common Stock of the Company, check the box: ---- / / ---- To convert only part of this Security, state the principal amount to be converted (which must be a minimum of $1,000 or any multiple thereof): _________________________ $ _________________________ If you want the stock certificate made out in another person's name, fill in the form below: (INSERT ASSIGNEE'S SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER) ___________________________________ ___________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ (Print or type assignee's name, address and zip code) ________________________________________________________________________________ Date:___________________________________________________________________________ Your signature:_________________________________________________________________ (Sign exactly as your name appears on the other side of this Security) Signature Guarantee:____________________________________________________________ If you want the stock certificate made out in another person's name, please have your signature guaranteed by by an eligible guarantor institution (banks, stockbrokers, savings and loan associations and credit unions with membership in an approved 77 signature guarantee medallion program), pursuant to S.E.C. Rule 17Ad-15. 78 OPTION OF HOLDER TO ELECT PURCHASE If you want to elect to have this Security purchased by the Company pursuant to Section 6.09 of the Indenture, check the box: ---- / / ---- If you want to elect to have only part of this Security purchased by the Company pursuant to Section 6.09 of the Indenture, state the amount: ___________________________________ (in an integral multiple of $1,000) Date:_______________ Signature(s): __________________ _______________________________________ (Sign exactly as your name(s) appear(s) on the other side of this Security) Signature(s) guaranteed by:_____________________________________________________ THE SIGNATURES SHOULD BE GUARANTEED BY AN ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCKBROKERS, SAVINGS AND LOAN ASSOCIATIONS AND CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED SIGNATURE GUARANTEE MEDALLION PROGRAM), PURSUANT TO S.E.C. RULE 17Ad-15. EX-5 6 OPINION OF WEISMAN CELLER SPETT & MODLIN,P.C. 1 Exhibit 5 November 4, 1996 Board of Directors Trans-Lux Corporation 110 Richards Avenue Norwalk, Connecticut 06856-5090 Gentlemen: Reference is made to the registration statement ("Registration Statement") which Trans-Lux Corporation (the "Corporation") is filing with the Securities and Exchange Commission under the Securities Act of 1933, as amended, for the registration of $28,750,000 aggregate principal amount of convertible subordinated notes ("Notes") and the common stock ("Common Stock") issuable on conversion thereof. Pursuant to your request, we have examined those of the Corporation's books and records deemed relevant by us for the purpose of furnishing you with our opinion concerning the binding effect of the Notes and the legality and validity of issue of the shares of Common Stock of the Corporation covered by the Registration Statement. Based upon the foregoing and upon our investigation and examination of certain other matters pertaining to the Corporation, we are of the opinion that: 1. The Corporation is duly incorporated and validly existing as a corporation in good standing under the laws of the State of Delaware. 2. The Notes proposed to be registered by the above Registration Statement, when issued, sold and paid for as set forth in said Registration Statement, will be binding obligations of the Corporation. 2 Board of Directors November 4, 1996 Page 2 3. All of the shares of Common Stock proposed to be registered by the above Registration Statement, when and if issued upon the conversion of the above Notes as set forth in said Registration Statement, will be validly issued, fully paid and nonassessable by the Corporation, with no personal liability attaching to the ownership thereof. We herewith give our consent to the use of this opinion as an Exhibit to the herein referred to Registration Statement and to the use of our name therein. Very truly yours, WEISMAN CELLER SPETT & MODLIN, P.C. EX-10.1 7 FORM OF INDEMNITY AGREEMENT--DIRECTORS 1 EXHIBIT 10.1 INDEMNITY AGREEMENT - DIRECTORS This Agreement is made as of the _______ day of __________, ______, by and between Trans-Lux Corporation, a Delaware corporation (the "Corporation") and _____________________ ("Indemnitee"), a Director ("Corporation") of the Corporation. WHEREAS, it is essential to the Corporation to retain and attract as Directors the most capable persons available, and WHEREAS, the substantial increase in corporate litigation subjects Directors to expensive litigation risks at the same time that the availability of Directors' liability insurance may become severely limited, and WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its Directors so as to provide them with the maximum possible protection permitted by law, and WHEREAS, Indemnitee may not be willing to serve as an Director of the Corporation without adequate protection, and the Corporation desires Indemnitee to serve in such capacity, NOW THEREFORE: W I T N E S S E T H: Corporation and Indemnitee do hereby agree as follows: 1. Agreement to Serve. Indemnitee agrees to serve as a Director of Corporation for so long as he is duly elected or appointed or until such time as he tenders his resignation in writing. 2. Definitions. As used in this Agreement: 2 (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of the fact that Indemnitee is or was a Director of the Corporation, by reason of any action taken by him or of any inaction on his part while acting as such a Director, or by reason of the fact that he is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, amounts paid in satisfaction of any judgments, fines, penalties, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Corporation" shall include any service as a Director, Officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement. 3. Indemnity in Third Party Proceedings. The Corporation shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is -2- 3 a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor) by reason of the fact that Indemnitee is or was a Director of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding but only if Indemnitee acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation and, in the case of a criminal proceeding, in addition, had no reasonable cause to believe that his conduct was unlawful. The termination of any such Proceeding by judgment, order of court, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith in a manner which he reasonably believed to be in the best interests of the Corporation, and with respect to any criminal proceeding, that such person had reasonable cause to believe that his conduct was unlawful. 4. Indemnity in Proceedings By or in the Right of the Corporation. The Corporation shall indemnify Indemnitee in accordance with the provisions of this Section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee was or is a Director of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding, but only if Indemnitee acted in good faith and in a manner which he -3- 4 reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation unless and only to the extent that any court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to Indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses, judgments, fines and penalties incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Corporation in advance at the written request of the Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification for such expenses. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4 and/or 6 shall be made no later than 21 days after receipt of the written request of Indemnitee. -4- 5 The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses incurred in connection with successfully establishing his right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Certificate of Incorporation or the By-Laws of the Corporation, any agreement, any vote of stockholders or disinterested Directors of the Corporation, the General Corporation Law of the State of Delaware, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though he may have ceased to be a Director or Officer of Corporation and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the -5- 6 investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Savings Clause. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments, fines and penalties with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any other applicable law. 11. This Agreement does not supersede, modify or amend in any respect any existing agreement between the Corporation and/or Corporation and Indemnitee including but not limited to any existing employment agreement. 12. Notice. Indemnitee shall as a condition precedent to his right to be indemnified under this Agreement, give to the Corporation notice in writing as soon as practicable of any claim made against him for which indemnity is sought under this Agreement. Notice to the Corporation shall be directed to Trans-Lux Corporation, 110 Richards Avenue, Norwalk, CT 06856-5090 Attention: Chairman of the Board (or such other address as the Corporation shall designate in writing to Indemnitee). Notice shall be deemed received three days after the date postmarked if sent by prepaid mail, properly addressed. In addition, Indemnitee shall give the Corporation such information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 13. Counterpart. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. -6- 7 14. Applicable Law. This Agreement shall be governed by and construed in accordance with Delaware law. 15. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns. IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly executed and signed as of the day and year first above written. TRANS-LUX CORPORATION By:____________________________ ____________________________ (INDEMNITEE) -7- EX-10.2 8 FORM OF INDEMNITY AGREEMENT--OFFICERS 1 EXHIBIT 10.2 INDEMNITY AGREEMENT - OFFICERS This Agreement is made as of the _____ day of __________, by and between Trans-Lux Corporation, a Delaware corporation (the "Corporation") and __________________________________ ("Indemnitee"), an Officer ("Corporation") of the Corporation. WHEREAS, it is essential to the Corporation to retain and attract as Officers the most capable persons available, and WHEREAS, the substantial increase in corporate litigation subjects Officers to expensive litigation risks at the same time that the availability of Officers' liability insurance may become severely limited, and WHEREAS, it is now and has always been the express policy of the Corporation to indemnify its Officers so as to provide them with the maximum possible protection permitted by law, and WHEREAS, Indemnitee may not be willing to serve as an Officer of the Corporation without adequate protection, and the Corporation desires Indemnitee to serve in such capacity, NOW THEREFORE: W I T N E S S E T H: Corporation and Indemnitee do hereby agree as follows: 1. Agreement to Serve. Indemnitee agrees to serve as an Officer of Corporation for so long as he is duly elected or appointed or until such time as he tenders his resignation in writing. 2. Definitions. As used in this Agreement: 2 (a) The term "Proceeding" shall include any threatened, pending or completed action, suit or proceeding, whether brought in the right of the Corporation or otherwise and whether of a civil, criminal, administrative or investigative nature, in which Indemnitee may be or may have been involved as a party or otherwise, by reason of the fact that Indemnitee is or was an Officer of the Corporation, by reason of any action taken by him or of any inaction on his part while acting as such an Officer, or by reason of the fact that he is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, whether or not he is serving in such capacity at the time any liability or expense is incurred for which indemnification or reimbursement can be provided under this Agreement. (b) The term "Expenses" includes, without limitation thereto, expenses of investigations, judicial or administrative proceedings or appeals, amounts paid in settlement by or on behalf of Indemnitee, amounts paid in satisfaction of any judgments, fines, penalties, attorneys' fees and disbursements and any expenses of establishing a right to indemnification under Paragraph 7 of this Agreement. (c) References to "other enterprise" shall include employee benefit plans; references to "fines" shall include any excise tax assessed with respect to any employee benefit plan; references to "serving at the request of the Corporation" shall include any service as a Director, Officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Agreement. 2 3 3. Indemnity in Third Party Proceedings. The Corporation shall indemnify Indemnitee in accordance with the provisions of this section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding (other than a Proceeding by or in the right of the Corporation to procure a judgment in its favor) by reason of the fact that Indemnitee is or was an Officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred by Indemnitee in connection with the defense or settlement of such Proceeding but only if Indemnitee acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation and, in the case of a criminal proceeding, in addition, had no reasonable cause to believe that his conduct was unlawful. The termination of any such Proceeding by judgment, order of court, settlement, conviction, or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that Indemnitee did not act in good faith in a manner which he reasonably believed to be in the best interests of the Corporation, and with respect to any criminal proceeding, that such person had reasonable cause to believe that his conduct was unlawful. 4. Indemnity in Proceedings By or in the Right of the Corporation. The Corporation shall indemnify Indemnitee in accordance with the provisions of this Section if Indemnitee is a party to or threatened to be made a party to or otherwise involved in any Proceeding by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that Indemnitee was or is an Officer of the Corporation or is or was serving at the request of the Corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against all Expenses, judgments, fines and penalties, actually and reasonably incurred 3 4 by Indemnitee in connection with the defense or settlement of such Proceeding, but only if Indemnitee acted in good faith and in a manner which he reasonably believed to be in or not opposed to the best interests of the Corporation, except that no indemnification for Expenses shall be made under this Paragraph 4 in respect of any claim, issue or matter as to which Indemnitee shall have been adjudged to be liable to the Corporation unless and only to the extent that any court in which such Proceeding was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, Indemnitee is fairly and reasonably entitled to Indemnity for such expenses as such court shall deem proper. 5. Indemnification of Expenses. Notwithstanding any other provisions of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise, in defense of any Proceeding or in defense of any claim, issue or matter therein, including the dismissal of an action without prejudice, Indemnitee shall be indemnified against all Expenses, judgments, fines and penalties incurred in connection therewith. 6. Advances of Expenses. The Expenses incurred by Indemnitee pursuant to Paragraphs 3 and 4 in any Proceeding shall be paid by the Corporation in advance at the written request of the Indemnitee, if Indemnitee shall undertake to repay such amount to the extent that it is ultimately determined that Indemnitee is not entitled to indemnification for such expenses. 7. Right of Indemnitee to Indemnification Upon Application; Procedure Upon Application. Any indemnification or advance under Paragraphs 3, 4 and/or 6 shall be made no later than 21 days after receipt of the written request of Indemnitee, unless a determination is made within said 21 day period by (1) the Board of Directors 4 5 by a majority vote of a quorum consisting of directors who were not parties to such proceeding, or (2) independent legal counsel in a written opinion (which counsel shall be appointed if such a quorum is not obtainable), that the Indemnitee has not met the relevant standards for indemnification set forth in Paragraphs 3 and 4. The right to indemnification or advances as provided by this Agreement shall be enforceable by Indemnitee in any court of competent jurisdiction. The burden of proving that indemnification or advances are not appropriate shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification or advances are proper in the circumstances because Indemnitee has met the applicable standard of conduct, nor an actual determination by the Corporation (including its Board of Directors or independent legal counsel) that Indemnitee has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that Indemnitee has not met the applicable standard of conduct. Indemnitee's expenses incurred in connection with successfully establishing his right to indemnification or advances, in whole or in part, in any such Proceeding shall also be indemnified by the Corporation. 8. Indemnification Hereunder Not Exclusive. The indemnification provided by this Agreement shall not be deemed exclusive of any other rights to which Indemnitee may be entitled under the Certificate of Incorporation or the By-Laws of the Corporation, any agreement, any vote of stockholders or disinterested Directors of the Corporation, the General Corporation Law of the State of Delaware, or otherwise, both as to action in his official capacity and as to action in another capacity while holding such office. The indemnification under this Agreement shall continue as to Indemnitee even though he may have ceased to be a Director or Officer of Corporation and shall inure to the benefit of the heirs and personal representatives of Indemnitee. 5 6 9. Partial Indemnification. If Indemnitee is entitled under any provision of this Agreement to indemnification by the Corporation for some or a portion of the Expenses, judgments, fines or penalties actually and reasonably incurred by him in the investigation, defense, appeal or settlement of any Proceeding but not, however, for the total amount thereof, the Corporation shall nevertheless indemnify Indemnitee for the portion of such Expenses, judgments, fines or penalties to which Indemnitee is entitled. 10. Savings Clause. If this Agreement or any portion thereof shall be invalidated on any ground by any court of competent jurisdiction, then the Corporation shall nevertheless indemnify Indemnitee as to Expenses, judgments, fines and penalties with respect to any Proceeding to the full extent permitted by any applicable portion of this Agreement that shall not have been invalidated or by any other applicable law. 11. This Agreement does not supersede, modify or amend in any respect any existing agreement between the Corporation and/or Corporation and Indemnitee including but not limited to any existing employment agreement. 12. Notice. Indemnitee shall as a condition precedent to his right to be indemnified under this Agreement, give to the Corporation notice in writing as soon as practicable of any claim made against him for which indemnity is sought under this Agreement. Notice to the Corporation shall be directed to Trans-Lux Corporation, 110 Richards Avenue, Norwalk, CT 06856-5090 Attention: Chairman of the Board (or such other address as the Corporation shall designate in writing to Indemnitee). Notice shall be deemed received three days after the date postmarked if sent by prepaid mail, properly addressed. In addition, Indemnitee shall give the Corporation such 6 7 information and cooperation as it may reasonably require and as shall be within Indemnitee's power. 13. Counterpart. This Agreement may be executed in any number of counterparts, each of which shall constitute the original. 14. Applicable Law. This Agreement shall be governed by and construed in accordance with Delaware law. 7 8 15. Successors and Assigns. This Agreement shall be binding upon the Corporation and its successors and assigns. IN WITNESS WHEREOF, the parties hereby have caused this Agreement to be duly executed and signed as of the day and year first above written. TRANS-LUX CORPORATION By:___________________________ ___________________________ (INDEMNITEE) 8 EX-10.3 9 RICHARD BRANDT EMPLOYMENT AGREEMENT 08-16-96 1 EXHIBIT 10.3 EMPLOYMENT AGREEMENT made as of August l6, l996, by and between TRANS-LUX CORPORATION, a Delaware corporation, transacting business at 110 Richards Avenue, Norwalk, Connecticut 06856-5090 (hereinafter referred to as "Company"), and RICHARD BRANDT, residing at 306 Harvest Commons, Westport, Connecticut 06880 (hereinafter referred to as "Brandt"). WHEREAS, the parties have heretofore entered into a consulting agreement dated December 30, l992 effective January l, l993; and WHEREAS, the parties desire to terminate such consulting agreement as of August l5, l996, but all rights and benefits which accrued or accrue to Brandt thereunder on or prior to August l5, 1996 shall not be abrogated and shall remain in full force and effect; and WHEREAS, the parties desire to enter into an employment agreement; and WHEREAS, Brandt for approximately forty-five (45) years has been continuously engaged as an employee, officer, consultant and/or director of the Company, and for approximately thirty-two (32) years had been an executive officer and chief executive manager of the affairs of the Company and its subsidiaries and affiliates; and WHEREAS, Brandt has had a long, continuously successful experience and performance in the business operations of the Company and has a unique and deep 2 knowledge of the management, needs, trade secrets, know-how and affairs of the Company and its subsidiaries and affiliates; and WHEREAS, by reason of all of the aforesaid, Brandt's services are uniquely valuable and advantageous to the Company; and WHEREAS, it is the considered judgment of the Board of Directors of the Company that it is in the best interests and to the advantage of the Company that it secure to itself the employment services of Brandt by entering into this employment agreement ("Agreement") upon the terms hereinafter provided; NOW, THEREFORE, in consideration of the mutual premises herein contained, the parties agree with each other as follows: 1. The Company hereby employs Brandt to perform the employment services to the Company on the terms and conditions hereafter set forth, and Brandt hereby accepts such employment with the Company for a term ("Term") commencing on the date hereof and ending on December 31, 2002. Notwithstanding the foregoing, Brandt may terminate the Term of this Agreement on December 3l, l998 and on December 3l of each year thereafter, on no less than six months prior written notice, in which event the Term shall end on such December 3l to the same effect as if such date was fixed herein as the date for the end of the Term. 2. (a) During the Term, Brandt will serve the Company faithfully and diligently and shall render to the Company such services as are appropriate to be rendered by the Chairman of the Board and such additional executive services as may be reasonably assigned to him from time to time by the Board of Directors of the 2 3 Company, or by the Executive Committee of the Board of Directors of the Company, provided that such services are of a type, dignity and nature appropriate to the Chairman of the Board of Directors and former chief executive officer and executive manager of the Company. Brandt shall render such services primarily in Southern Connecticut, the New York Metropolitan area or Santa Fe, New Mexico, and shall devote such time and attention as may be reasonably necessary to effect the efficient discharge of his duties hereunder. (b) During the Term the Company shall use its best efforts to nominate and elect Brandt from year to year as the Chairman of the Board, a director, and a member of the Executive Committee of the Company. In the event that Brandt shall not be elected at all times during the Term hereof as the Company's Chairman of the Board of Directors, as a member of its Board of Directors, and as a member of the Executive Committee, the same shall, at Brandt's option, constitute a material breach of this Agreement by the Company unless the Company shall completely cure such breach within thirty (30) days from receiving notice from Brandt specifically setting forth the claimed breach. Upon failure of the Company to cure such breach, Brandt, at his option, shall at any time thereafter be entitled to terminate his obligations hereunder by notice ("Notice") to the Company, specifically including the rendition of any services by him to the Company. After the giving of the Notice the Company shall pay to Brandt, notwithstanding such termination, all sums payable or otherwise provided to Brandt under this Agreement for the balance of the Term, including, but not limited to: (i) the salary and fees, Profit Participation and Bonus payments provided to be paid to him pursuant to Paragraphs 3(a), (b), (c) and (d) for the period from the date of such Notice of termination through December 31, 2002; and (ii) the insurance and other benefits provided under this Agreement. The aforesaid sums and benefits shall be paid or provided to Brandt as follows: (i) the aggregate salary and fees provided to be paid 3 4 for the balance of the Term pursuant to Paragraphs 3(a) and (b) shall be paid to Brandt in one lump sum ten (10) days after such Notice of termination, in the same aggregate amounts as are so provided in said Paragraphs 3(a) and (b) to be paid for the balance of the Term (adjusted for the CPI Adjustment, as hereafter defined, to the date of such payment); and (ii) the sums provided to be paid pursuant to Paragraphs 3(c) and (d) and the insurance and other benefits provided under this Agreement, shall be paid or provided to Brandt in the same manner, at the same times, and in the same amounts as are provided in the said Paragraphs (c) and (d) and in Paragraph 4 and elsewhere in the Agreement to be paid or provided during the balance of the Term. (c) Nothing contained in this Agreement shall in any way limit or prevent Brandt from: (i) being connected with, in any manner whatsoever, including, without limiting the generality of the foregoing, as owner, investor, executive or director or otherwise in any business whatsoever, including, without limiting the generality thereof, the business of producing, distributing or exhibiting motion pictures, or the business of film booking and buying, so long as the business is not directly competitive with any business of the Company; (ii) owning or dealing in the stock or securities of any corporation whose stocks or securities are traded on any public market provided that such holdings of Brandt in any individual corporation that is a direct competitor of the Company shall not exceed five (5%) percent of the outstanding securities of any class of any such corporation. 4 5 3. During the Term the Company agrees to pay Brandt the following, in addition to Directors' fees and fees as a member of the Executive Committee and other Committees, if any, of the Board of Directors of the Company (such fees to be paid as if Brandt was not an an employee of the Company and in the same amounts as non-employee directors are paid): (a) A salary at the rate of $296,762.08 per annum for the balance of l996, subject to the CPI Adjustment for subsequent years as hereafter provided; (b) A fee as Chairman at the rate of $60,000 per annum for the balance of l996, subject to the CPI Adjustment for subsequent years as hereafter provided; (c) An amount equal to one and one-half percent (l-l/2%) of the Company's pre-tax consolidated earnings, as hereinafter defined (after deducting minority interests) in each calendar year during the Term hereof, hereinafter referred to as the "Profit Participation". Such pre-tax consolidated earnings shall be fixed and determined by the independent certified public accountants regularly employed by the Company. Such independent certified public accountants, in ascertaining such pre-tax consolidated earnings, shall apply all accounting practices and procedures heretofore applied by the Company's independent certified public accountants in arriving at such annual pre-tax consolidated earnings as disclosed in the Company's annual statement for that year of profit and loss released to its stockholders. The determination by such 5 6 independent certified public accountants shall be final, absolute and controlling upon the parties. Payment of such amount, if any is due, shall be made for each year by the Company to Brandt within thirty (30) days after such accountant shall have furnished such statement to the Company disclosing the Company's pre-tax consolidated earnings for such calendar year. The Company undertakes to use its reasonable efforts to cause said accountants to prepare and furnish such statements within one hundred thirty (130) days from the close of each such fiscal year and to cause said independent certified public accountants, concomitantly with the delivery of such statement by said accountants to it, to deliver a copy of such statement to Brandt. The Company shall not have any liability to Brandt arising out of any delays with respect to the foregoing; and (d) The Board of Directors of the Company, upon the recommendation of the Compensation Committee of the Board of Directors, shall consider no later than May of each year the grant of a bonus ("Bonus") to Brandt based upon the performance of Brandt during the immediate preceding year. In determining whether to grant any such bonus and the amount thereof, consideration may be given to the performance of the Company in light of competitive and economic conditions. Notwithstanding the foregoing, the Company shall pay to Brandt the highest Bonus applicable for each calendar year ending December 31, commencing December 31, 1996, in the respective amounts hereinafter set forth, in the event the Company's pre-tax 6 7 consolidated earnings for any year during the Term, determined in accordance with Paragraph 3(c), meets or exceeds the respective amounts hereinafter set forth.
If Pre-Tax Consolidated Annual Non-Cumulative Level of Earnings in Any Year Exceed Bonus Payable - --------------------------- ------------------------------ $ 250,000 5,000 500,000 10,000 750,000 15,000 1,000,000 20,000 1,250,000 31,250 1,500,000 37,500 1,750,000 43,750 2,000,000 50,000 Over 2,000,000 $50,000 plus 2-1/2% of each full increment of $250,000 over $2,000,000, the total annual bonus not to exceed $125,000 (e.g., if $2,900,000, $50,000 plus 2-1/2% of $750,000 or $50,000 plus $18,750 = $68,750).
Notwithstanding Paragraph 3(c) of this Agreement, for purposes of only Paragraph 3(d) of this Agreement, there shall be excluded from the calculation of pre-tax consolidated earnings during the Term of this Agreement (i) 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 calendar year or (y) any item 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 in accordance with generally accepted accounting principles and items of gain and loss shall not be netted against each other for purpose of the above 20% calculation, (ii) any effect of FASB 109 or similar promulgation or (iii) any direct effect on pre-tax consolidated earnings of write-offs of 7 8 existing prepaid financing costs prior to the normal amortization schedule of such financings provided however that for the purposes of this Paragraph (d) only, such financing costs shall thereafter be amortized in accordance with such normal amortization schedule of such financings. Each Bonus payment shall be made in accordance with the time provisions set forth in Paragraph 3(c). Notwithstanding the foregoing, the Board may, in any event, even if any of the aforesaid pre-tax consolidated earnings levels are not exceeded, grant Brandt the aforesaid Bonus or any portion thereof for any such year or any other bonus based on his performance. In the event Brandt is entitled to or is awarded a Bonus, the Company shall notify Brandt thereof no later than May 31 of such year and Brandt shall have the option of receiving such bonus in (i) cash, (ii) common stock of the Company or (iii) cash and common stock in such ratio as Brandt elects. Such election shall be made by Brandt by written notice to the Company and the Company shall pay said Bonus in the form elected by Brandt within fourteen (14) days after receipt of Brandt's written notice thereof. Upon Brandt's failure to make such election within sixty (60) days after notice to Brandt from the Company of the Bonus, such Bonus shall be paid in cash to Brandt on the day following the expiration of said sixty (60) day period. In the event Brandt elects to receive any such Bonus in common stock of the Company, the same shall be valued at the Closing price of such common stock on the American Stock Exchange (or other principal stock exchange on which the Company's common stock is listed or, if not listed, at the mean between the average of the high and low bid and asked prices on the over-the-counter market) on the date of Brandt's election, or if there is no trade on such date on such exchanges, then the Closing price on the date on which it last traded. 8 9 (e) The Company may make appropriate deductions from the said payments required to be made in this Paragraph 3 to Brandt, to comply with all governmental withholding requirements. The payments provided in Paragraphs 3(a) and (b) shall be made in equal weekly installments, or as otherwise may be the practice of the Company in making similar payments, but not less often than once monthly. The payments provided to be made to Brandt pursuant to said Paragraphs 3(a) and (b) shall each be appropriately adjusted upward ("CPI Adjustment") for inflation at the beginning of each calendar year commencing in 1997 based on the United States Department of Labor Bureau of Labor Statistics, Consumer Price Index, United States City Average, all items (1996=100). The CPI Adjustment shall be paid retroactively, when determined, for payments already made in the applicable calendar year. Brandt shall also be entitled to reimbursement from the Company for the amount of the social security payments payable by Brandt based on amounts paid to him under this Agreement to the extent such social security payments would have been made by the Company if the fees under Paragraph 3(b) were paid as a salary. Any such reimbursement payable by the Company hereunder shall be grossed up to take into account and reimburse Brandt for any tax consequences resulting therefrom. This Agreement shall not be deemed abrogated or terminated if the Company, in its discretion, shall determine to increase the compensation of Brandt for any period of time, or if Brandt shall accept such increase. (f) If, during the Term of this Agreement, Brandt shall be prevented from performing or be unable to perform, or fail to perform his duties by 9 10 reason of illness or any other incapacity or disability, the payments and/or benefits provided in Paragraphs 3 and 4 and elsewhere in this Agreement to be made or provided to Brandt, shall continue to be made or provided to Brandt for the balance of the Term, without any reduction whatsoever, at the same times, in the same manner, and in the same amounts as provided in Paragraphs 3 and 4 and elsewhere in this Agreement. If Brandt shall die during the Term, the Company shall pay to Brandt's widow and/or issue, as provided below in this paragraph, an amount equal to the aggregate payments provided to be made under Paragraphs 3 (a) and (b) that otherwise would have been payable to Brandt during the Term but for his death, for the balance of the Term through December 31, 2002, without any reduction whatsoever. Such payments of the amounts provided in Paragraphs 3(a) and (b) shall be made at the same times, in the same manner, and in the same amounts as provided in Paragraphs 3(a) and (b), as follows: Fifty percent (50%) to Brandt's widow, if she shall survive him, and in such event the remaining fifty percent (50%) shall be equally divided among his surviving issue, per stirpes and not per capita. In the event that Brandt's wife shall predecease him or, having survived him, shall die during the balance of the Term ending December 31, 2002, the entire amounts thereafter payable during the balance of the Term shall be payable as provided in Paragraphs 3(a) and (b) in equal shares to his surviving issue, per stirpes and not per capita. In addition to the payments, insurance and/or benefits provided in Paragraphs 3(f) and 4 and elsewhere in this Agreement, in the event of Brandt's death during the Term, the Company shall pay to Brandt's widow and/or issue, as provided below in this paragraph, an amount equal to the Profit Participation provided for in Paragraph 3(c) hereof and the Bonus payments provided for in Paragraph 3(d) hereof 10 11 which Brandt would have been entitled to receive for the balance of the Term of this Agreement through December 31, 2002 but for his death. Such payments of Bonus and Profit Participation under this Paragraph 3(f) shall be made at the same times, in the same manner, and in the same amounts as provided in Paragraphs 3(c) and (d), as follows: (i) fifty (50%) percent thereof to Brandt's widow and (ii) fifty (50%) percent thereof shall be equally divided amongst Brandt's surviving issue, per stirpes and not per capita, provided, however, that if Brandt's wife shall predecease him or having survived him shall die prior to the completion of such payments, then in the event of her death, the fifty (50%) percent said payment which would have been made to her pursuant to (i) of this paragraph above, shall be made in equal shares to Brandt's surviving issue, per stirpes and not per capita. 4. (a) The Company will obtain and furnish to Brandt (provided Brandt is insurable) a policy of life insurance upon Brandt's life, the term of which shall continue during the Term through December 31, 2002. Such policy shall provide that Brandt, upon the expiration of said policy, shall have a conversion right privilege, if same is available. Said policy shall provide for a death benefit of $250,000 payable as follows: Eighty (80%) percent of the death benefit of such policy to Helen K. Brandt, his wife, and in such event the remaining twenty (20%) percent of such death benefit shall be equally divided among his surviving issue, per stirpes and not per capita. In the event that Brandt's wife shall predecease him, then such policy shall provide that the entire death benefit payable thereunder shall be payable in equal shares to his surviving issue, per stirpes and not per capita. 11 12 If Brandt shall not be insurable, or if the amount of such insurance is less than $250,000, then, upon Brandt's death during the Term hereof, the Company shall in every event, pay to Brandt's said widow and/or issue as provided above in this Paragraph 4(a), the amount of such uninsured portion within 30 days after Brandt's said death. For example, if the amount of insurance is $130,000, then $120,000 shall be paid by the Company to Brandt's said widow and/or issue within 30 days after Brandt's death. (b) The Company shall also provide to Brandt and his wife during the Term, at the Company's expense, medical insurance coverage for Brandt and his wife at least at the same levels as in effect for him on the date of the execution of this Agreement, as well as any other group insurance plan, hospitalization plan (subject to Medicare reimbursements), medical service plan or any other benefit plan which Company may have in effect during the Term. Included in such plans and benefits that the Company will make available or pay to Brandt are travel and accident insurance and Christmas bonuses to the extent the same are made available or paid to the senior executives of the Company. Brandt shall also be entitled to any other insurance and other employee benefits, including life insurance, which are available to senior executives of the Company. Notwithstanding the foregoing, Brandt acknowledges and agrees that he is not entitled to participate in the Company's existing pension plan ("Pension Plan") and the Company agrees to reimburse Brandt for any and all tax liabilities relating to (i) said Pension Plan and (ii) previous payments to Brandt from said Pension Plan, resulting from Brandt entering into this employment agreement and/or becoming an employee of the Company. Any such reimbursement by the Company shall be grossed up to take into account and reimburse Brandt for any tax consequences resulting from such reimbursement. 12 13 5. The Company agrees that during the Term hereof Brandt shall be provided with appropriate secretarial and administrative support, office space and office equipment in connection with his services under this Agreement. The Company shall also reimburse Brandt for all out-of-pocket expenses incurred by him in furtherance of the business and activities of the Company, including travel, board and hotel expenses. During the Term hereof, Brandt shall be entitled to reasonable periods of sick-leave in each year and vacations not in excess of a total of six weeks in any one year. The Company shall also furnish Brandt with a car and driver, as may be requested by Brandt during the Term hereof. 6. A waiver by either party of any of the terms and conditions of this Agreement in any instance shall be in writing and shall not be deemed or construed to be a waiver of such term or condition for the future, or of any subsequent breach thereof. 7. Any and all notices required or permitted to be given hereunder shall be in writing and shall be deemed to have been given when deposited in the United States mails, certified or registered, addressed as follows: To Brandt: Richard Brandt 306 Harvest Commons Westport, Connecticut 06880 To Company: Trans-Lux Corporation 110 Richards Avenue Norwalk, Connecticut 06854 Att: CEO Either party may, by written notice to the other, change the address to which notices are to be addressed. 13 14 8. The Company may itself, or through any of its subsidiaries or affiliates, make payment to Brandt of the compensation due him hereunder, provided, however, that if such payment be made by a company other than the Company, that fact shall not relieve the Company of its obligations hereunder, except with respect to the extent of the amounts so paid. 9. The provisions hereof shall be binding upon and shall inure to the benefit of Brandt, his heirs, executors and administrators and the Company and its successors. During the Term of this Agreement, if the Company shall at any time be consolidated or merged into any other corporation, or if substantially all of the assets of the Company are transferred to any other corporation, the provisions of this Agreement shall be binding upon and inure to the benefit of the corporation resulting in such merger, or to which such assets shall have been transferred, and this provision shall apply in the event of any subsequent merger, consolidation or transfer. 10. Wherever in this Agreement it is provided that payments and/or benefits are to be made and/or provided to Brandt's wife and/or widow, and/or issue and/or trust, Brandt shall have the sole right at any time and from time to time during his lifetime to change the parties and/or the percentages and/or the amounts to be paid and/or provided to such parties. Whenever in this Agreement the term "issue" is used it shall mean natural issue except in the case of Brandt's grandchildren issue shall include grandchildren legally adopted by Brandt's natural children. 11. This Agreement contains all the understandings and agreements arrived at between the parties in relation to the subject matter and supersedes and terminates as of August 15, 1996, the consulting agreement made between the parties 14 15 dated December 30, l992 effective January l, l993. Notwithstanding the termination of said December 30, l992 consulting agreement and this employment agreement, all rights and benefits which accrued or accrue to Brandt on or prior to August l5, l996 under said December 30, l992 consulting agreement, shall not be abrogated by this employment agreement and shall remain in full force and effect, and this employment agreement shall not affect any agreement other than said December 30, l992 consulting agreement between Brandt and the Company, including but not limited to, any stock option and insurance agreements. The invalidity or unenforceability of any provisions of this Agreement shall not affect the validity or enforceability of any other provision of this Agreement, which shall remain in full force and effect. 12. This Agreement shall not be varied, altered, modified, changed or in any way amended, except by an instrument in writing, executed by the parties hereto, or their legal representatives. IN WITNESS WHEREOF, Brandt has executed and the Company has caused its Vice Chairman, on its behalf, to execute this Agreement, on the day and year first above written. TRANS-LUX CORPORATION /s/ Victor Liss ------------------------------------- Vice Chairman /s/ Richard Brandt -------------------------------------- Richard Brandt 15 EX-11 10 STATEMENT OF COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 TRANS-LUX CORPORATION & SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
FOR THE TWELVE FOR THE TWELVE FOR THE SIX MONTHS ENDED MONTHS ENDED MONTHS ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 JUNE 30, 1996 ----------------- ----------------- ------------- Primary: - -------- Net income $1,314,000 $1,066,000 $ 519,000 ========== ========== ========== Average common shares outstanding 1,247,555 1,250,444 1,254,648 Assumes exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options 12,937 8,433 17,581 ---------- ---------- ---------- Average common and common equivalent shares outstanding 1,260,492 1,258,877 1,272,229 ========== ========== ========== Primary earnings per share $ 1.04 $ 0.85 $ 0.41 ========== ========== ========== Fully Diluted: - -------------- Net income $1,314,000 $1,066,000 $ 519,000 Add after tax interest expense applicable to 9% convertible subordinated debentures 511,000 262,000 131,000 ---------- ---------- ---------- Adjusted net income $1,825,000 $1,328,000 $ 650,000 ========== ========== ========== Average common shares outstanding 1,247,555 1,250,444 1,254,648 Assumes exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options 13,564 8,433 26,110 Assumes conversion of 9% convertible subordinated debentures 682,198 383,780 383,017 ---------- ---------- ---------- Average common and common equivalent shares outstanding 1,943,317 1,642,657 1,663,775 ========== ========== ========== Fully diluted earnings per share $ 0.94 $ 0.81 $ 0.39 ========== ========== ==========
Fully diluted earnings per share are not presented for the twelve months ended December 31, 1993 and for the six months ended June 30, 1995 as the effect was not dilutive. EX-12 11 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 TRANS-LUX CORPORATION & SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
SIX MONTHS ENDED YEAR ENDED DECEMBER 31, JUNE 30, ---------------------------------------------- --------------------- 1991 1992 1993 1994 1995 1995 1996 ------ ------ ------ ------ ------ ------ ---------- (DOLLARS IN THOUSANDS, EXCEPT RATIO) (UNAUDITED) Income from continuing operations before provision for income taxes per statement of income............. $ 542 $ 741 $1,663(1) $2,064(2) $1,839 $ 730 $ 894 Add: Interest on indebtedness............ 1,106 1,245 2,512(1) 1,293(2) 2,107 1,016 1,144 Amortization of debt expense........ 58 53 91 153 184 73 65 Interest portion of rent expense(3)....................... 101 96 102 88 79 37 161 ------ ------ ------ ------ ------ ------ ------ Income as adjusted.......... $1,706 $2,039 $4,266 $3,510 $4,130 $1,856 $2,102 ====== ====== ====== ====== ====== ====== ====== Fixed charges: Interest on indebtedness............ $1,106 $1,245 $2,512(1) $1,293(2) $2,107 $1,016 $1,144 Amortization of debt expense........ 58 53 91 153 184 73 65 Capitalized interest................ -- 49 -- 40 -- -- -- Interest portion of rent expense(3)....................... 101 96 102 88 79 37 161 ------ ------ ------ ------ ------ ------ ------ Fixed charges............... $1,265 $1,443 $2,705 $1,574 $2,370 $1,126 $1,369 ====== ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges.... 1.3 1.4 1.6 2.2 1.7 1.6 1.5
- --------------- (1) 1993 reflects the impact of an assessment of related interest expense incurred resulting from a prior year state income tax audit. (2) 1994 reflects the positive impact of a settlement related to the 1993 assessment described in footnote No. 1 above. (3) The interest portion of rent expense is assumed to be one-third of rent expense. EX-23.1 12 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Registration Statement of Trans-Lux Corporation on Form S-2 of our report dated February 28, 1996, included in the Annual Report on Form 10-K of Trans-Lux Corporation for the year ended December 31, 1995, and to the use of our report dated February 28, 1996, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Stamford, Connecticut November 4, 1996 EX-25 13 STATEMENT OF ELIGIBILITY OF TRUSTEE 1 EXHIBIT 25 FORM T-1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 STATEMENT OF ELIGIBILITY AND QUALIFICATION UNDER THE TRUST INDENTURE ACT OF 1939 OF A CORPORATION DESIGNATED TO ACT AS TRUSTEE Continental Stock Transfer & Trust Company (Exact name of trustee as specified in its charter) New York 13-2780552 (State of incorporation (I.R.S. employer if not a national bank) identification no.) 2 Broadway, New York, New York 10004 (Address of principal executive offices) (Zip code) Jesse R. Meer, 120 W. 45th St., New York, N.Y. 10036, 212-704-0100 (Name, address and telephone number of agent for service) Trans-Lux Corporation (Exact name of obligor as specified in its charter) Delaware 13-1394750 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification no.) 110 Richards Avenue Norwalk, Connecticut 06856 (Address of principal executive offices) (Zip code) ----% Convertible Subordinated Notes due 2006 (Title of indenture securities) 2 ITEM 1. GENERAL INFORMATION. (a) The name and address of each examining or supervising authority to which the trustee is subject: Banking Department of the State of New York 2 Rector Street New York, New York 10006 (b) Whether the trustee is authorized to exercise corporate trust powers. The trustee is so authorized. ITEM 2. AFFILIATIONS WITH THE OBLIGOR. If the obligor is an affiliate of the trustee, describe each such affiliation: There was no such affiliation as of October 31, 1996. NOTE: Items 3 through and including 15 are omitted, in accordance with General Instruction B., based upon the obligor's representation that it is not in default under other indentures under which Continental Stock Transfer & Trust Company is the trustee. ITEM 16. LIST OF EXHIBITS. The following exhibits to this Statement of Eligibility and Qualification were filed as exhibits to the Statements of Eligibility and Qualification on Form T-1 that accompanied the registration statements of the named obligors in the S.E.C. files specified. Such exhibits are hereby incorporated by reference to such filings. 1(a). Amended organization certificate of the trustee. Trans-Lux Corporation, S.E.C. File No. 33-1695. 1(b). Certificate of amendment, dated May 14, 1986, of the trustee's organization certificate. Howtek, Inc., S.E.C. File No. 33-8971. 2. Certificate of authority of the Banking Department of New York. Trans-Lux Corporation, S.E.C. File No. 33-1695. - 2 - 3 3. Certificate of amendment, dated December 19, 1984, of the trustee's organization certificate. Trans-Lux Corporation, S.E.C. File No. 33-1695. 4. By-laws of the trustee. Trans-Lux Corporation, S.E.C. File No. 33-1695. 5. Not applicable. 6. Consent of the trustee as required by Section 321(b) of the Act. Trans-Lux Corporation, S.E.C. File No. 33-1695. 7. Balance sheet of the trustee, as of December 31, 1995. (The trustee is not required by the Banking Department to publish a report of its condition.) 8. Not applicable. 9. Not applicable. SIGNATURE Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee, Continental Stock Transfer & Trust Company, a limited purpose trust company, organized and existing under the laws of the State of New York, has duly caused this statement of eligibility and qualification to be signed on its behalf by the undersigned, thereunto duly authorized, all in the City and the State of New York on October 31, 1996. CONTINENTAL STOCK TRANSFER & TRUST COMPANY By: /s/ Michael Nelson ------------------------- Michael Nelson, President - 3 - 4 EXHIBIT 7 CONTINENTAL STOCK TRANSFER & TRUST COMPANY
BALANCE SHEET DECEMBER 31, 1995 - -------------------------------------------------------------------------------- ASSETS CURRENT ASSETS: Cash $ 174,066 Accounts receivable (net of allowance for doubtful accounts of $10,000) 1,359,772 Interest receivable 26,208 U.S. Government securities - short-term 399,762 Prepaid expenses and other 80,808 ---------- Total curent assets 2,040,616 PROPERTY AND EQUIPMENT - Net 95,204 U.S. GOVERNMENT SECURITIES - long-term 987,518 OTHER ASSETS 9,985 ---------- TOTAL $3,133,323 ========== LIABILITIES AND STOCKHOLDER'S EQUITY CURRENT LIABILITIES: Accrued expenses and other liabilities $ 226,922 Federal income taxes payable to parent 192,409 State and local income taxes payable to parent 130,274 ---------- Total current liabilities 549,605 ---------- COMMITMENTS AND CONTINGENCIES STOCKHOLDER'S EQUITY: Capital stock, $100 par value - authorized and outstanding, 5,000 shares (no change during year) 500,000 Additional paid-in capital 1,000,000 Retained earnings 1,083,718 ---------- Total stockholder's equity 2,583,718 ---------- TOTAL $3,133,323 ==========
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