<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 19, 1996
REGISTRATION NO. 333-15481
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
TRANS-LUX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 13-1394750
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
</TABLE>
------------------------
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]
------------------------
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.
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<PAGE> 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 DECEMBER 19, 1996
$27,500,000
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 December 17, 1996, the last reported sale price of the Common
Stock on the AMEX was $12 1/8 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, 2001, 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 $23.2 million of outstanding Senior Indebtedness and the
Company's subsidiaries had indebtedness and other liabilities of approximately
$4.8 million. The Indenture governing the Notes permits the Company to incur
certain additional indebtedness, including Senior Indebtedness. See "Description
of Notes" for a more complete discussion of the Indenture's provisions.
Application has been 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.
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<TABLE>
<S> <C> <C> <C>
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC(1) DISCOUNTS(2) COMPANY(3)
- -----------------------------------------------------------------------------------------------
Per Note................................. $ $ $
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Total(4)................................. $ $ $
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</TABLE>
(1) Plus accrued interest, if any, from the date of initial issuance.
(2) See "Underwriting" for information concerning indemnification of the
Underwriter and other matters.
(3) Before deducting expenses payable by the Company, estimated to be $400,000.
(4) The Company has granted the Underwriter a 30-day over-allotment option to
purchase up to an additional $4,125,000 of the Notes on the same terms and
conditions set forth above. If the Underwriter exercises 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 Underwriter,
subject to prior sale, when, as and if delivered to and accepted by it 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.
<PAGE> 3
TRANS-LUX
TRANS-LUX IS A SUPPLIER OF
LARGE-SCALE, MULTI-COLOR
ELECTRONIC INFORMATION DISPLAYS
FOR INDOOR AND OUTDOOR USE.
IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT
TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED
HEREBY AND THE COMMON STOCK OF THE COMPANY AT LEVELS ABOVE THOSE THAT WHICH
MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON
THE AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
2
<PAGE> 4
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 Underwriter's over-allotment option.
THE COMPANY
The Company is a 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 provides high quality, reliable display
products configured to suit its customers' needs, and offers extensive on-site
service and maintenance coverage. 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.
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.
3
<PAGE> 5
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........ $27.5 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, 2001, 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:
<TABLE>
<S> <C>
2001......................................... %
2002......................................... %
2003......................................... %
2004......................................... %
</TABLE>
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.
Certain Covenants......... The Indenture contains certain covenants that, among
other things, limit the ability of the Company and
its subsidiaries to make restricted payments, to
incur Indebtedness, to issue preferred stock of
Subsidiaries, and to enter
4
<PAGE> 6
into merger and similar transactions. These covenants
are subject to important exceptions and
qualifications. See "Description of the Notes."
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
$23.2 million of outstanding Senior Indebtedness and
the Company's subsidiaries had indebtedness and other
liabilities of approximately $4.8 million. The
Indenture governing the Notes permits the Company to
incur certain 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 has been made for inclusion of the Notes
on the AMEX upon notice of issuance and the Notes
will be listed under the symbol "TLX.N." 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
<PAGE> 7
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."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------------- -------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total revenues........................ $22,133 $24,130 $35,799 $33,742 $37,791 $28,881 $32,871
Operating expenses.................... 14,127 15,299 21,554 19,413 22,406 16,914 20,165
Gross profit from operations.......... 8,006 8,831 14,245 14,329 15,385 11,967 12,706
General and administrative expenses... 7,151 7,384 10,202 11,023 11,494 9,210 9,442
Interest expense, net................. 570 893 2,380(1) 1,242(2) 2,144 1,565 1,669
Income before income taxes............ 542 741 1,663(1) 2,064(2) 1,839 1,262 1,498
Provision for income taxes............ 280 469 1,174(1) 750(2) 773 530 629
Net income............................ 262 272 489(1) 1,314(2) 1,066 732 869
OTHER DATA:
EBITDA(3)............................. $ 5,201 $ 6,670 $10,385 $ 9,819 $10,884 $ 7,961 $ 8,444
Net cash provided by operating
activities.......................... 4,379 7,002 7,509 10,229 6,605 3,909 2,178
Net cash (used in) investing
activities.......................... (1,253) (18,571) (7,183) (7,915) (9,372) (8,028) (7,009)
Net cash provided by (used in)
financing activities................ (2,364) 11,157 (378) (1,107) 1,097 2,276 4,220
Ratio of earnings to fixed
charges(4).......................... 1.4 1.5 1.6 2.3 1.8 1.7 1.7
Net rental equipment.................. $13,550 $29,995 $29,039 $29,653 $30,778 $30,142 $32,594
Net book value per share.............. $ 14.59 $ 15.35 $ 15.60 $ 16.29 $ 17.08 $ 16.85 $ 17.39
</TABLE>
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30,
1996
---------------------
AS
ACTUAL ADJUSTED(5)
------- -----------
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................ $ 54 $14,906
Total assets......................................................... 63,045 79,421
Long-term debt, including current portion............................ 29,084 45,573
Stockholders' equity................................................. 22,308 22,242
</TABLE>
- ---------------
(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 is defined as income before effect of changes of accounting plus
interest, income taxes, depreciation and amortization. EBITDA is presented
here because it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness. However, EBITDA should not be
considered as an alternative to net income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. The Company's measure of EBITDA may
not be comparable to similarly titled measures reported by other companies.
(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.
(5) Adjusted to reflect the sale of $27,500,000 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
<PAGE> 8
RISK FACTORS
LEVERAGE
As of September 30, 1996, as adjusted for the issuance of the Notes and the
application of the proceeds therefrom the Company's total long-term debt
(including current portion) would have been $45.6 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 permits
the Company or its subsidiaries to incur certain 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 and other liabilities 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 $23.2 million of outstanding Senior Indebtedness and the Company's
subsidiaries had indebtedness and other liabilities of approximately $4.8
million. 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
<PAGE> 9
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 to acquire
control of the Company. Such provisions could limit the price that certain
investors might be willing
8
<PAGE> 10
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
3,000,000 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 has been 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.
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
9
<PAGE> 11
agreements with the Underwriter 90 days after the date of this Prospectus, or
earlier upon the written consent of Southcoast Capital Corporation ("Southcoast
Capital"), 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
<PAGE> 12
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 $25.9 million ($29.8 million if the Underwriter's
over-allotment option is exercised in full). The Company will repay
approximately $6.2 million of debt currently outstanding under its revolving
credit facility which currently bears interest at the effective rate of 7.49%
and has a final maturity of June 2003 and will call and retire approximately
$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 and the Company
is not currently involved in any negotiations with respect to any acquisitions.
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.
<TABLE>
<CAPTION>
PERIOD HIGH LOW
--------------------------------------------------------------------- ---- ---
<S> <C> <C>
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 December 17, 1996)......................... 13 3/4 111/2
</TABLE>
On December 17, 1996, the last reported sale price for the Common Stock on
the AMEX was $12 1/8 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 and the Indenture
restrict 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
<PAGE> 13
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 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 Underwriter's 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.
<TABLE>
<CAPTION>
AS OF SEPTEMBER 30, 1996
--------------------------------
ACTUAL AS ADJUSTED(1)
-------- -------------------
(UNAUDITED, DOLLARS IN
THOUSANDS)
<S> <C> <C>
Short-term debt and current portion of long-term debt............ $ 1,814 $ 1,814
======== ========
Long-term debt:
Revolving credit facility(2)................................... $ 6,200 $ --
Notes payable.................................................. 15,202 15,202
9% Convertible subordinated debentures(3)...................... 4,811 --
9 1/2% Subordinated debentures................................. 1,057 1,057
% Convertible subordinated notes............................. -- 27,500
-------- --------
Total long-term debt...................................... $ 27,270 $ 43,759
-------- --------
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; 2,441,523
shares issued and outstanding(4)(6)......................... $ 2,441 $ 2,441
Class B, $1.00 par value; 2,000,000 shares authorized; 298,882
shares issued and outstanding(5)(6)......................... 299 299
Additional paid-in capital..................................... 13,828 13,828
Retained earnings(3)........................................... 17,626 17,560
Other.......................................................... (65) (65)
Less: 1,481,252 treasury shares at cost..................... (11,821) (11,821)
-------- --------
Total stockholders' equity................................ 22,308 22,242
-------- --------
Total capitalization................................... $ 49,578 $ 66,001
======== ========
</TABLE>
- ---------------
(1) Adjusted to reflect the sale of $27,500,000 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) The Company has a revolving credit facility with First Union Bank of
Connecticut ("First Union Bank") pursuant to which it may borrow up to $7.0
million from time to time, available through June 1998, at which time, at
the option of the Company, amounts outstanding are converted to a five year
term note with a final maturity of June 2003. The revolving credit facility
bears a variable rate of interest of LIBOR plus 200 basis points. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
(3) The Company will record a charge in the first quarter of 1997 to its
earnings of approximately $113,000 ($66,000 net of tax) for the unamortized
portion of its financing costs.
(4) Excludes 78,594 shares of Common Stock issuable upon exercise of stock
options outstanding at September 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.
(5) Class B Stock has greater voting power. See "Description of Capital Stock."
(6) Subsequent to September 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
3,000,000 shares of a new non-voting Class A Stock. See "Description of
Capital Stock."
12
<PAGE> 14
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 nine months ended
September 30, 1995 and 1996 and the balance sheet data as of September 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 nine months ended September
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."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
Equipment rentals and maintenance....... $10,494 $13,307 $20,824 $21,652 $21,205 $16,509 $16,273
Equipment sales......................... 2,949 4,040 11,806 8,498 12,364 9,174 13,276
Theatre receipts and other.............. 8,690 6,783 3,169 3,592 4,222 3,198 3,322
------- ------- ------- ------- ------- ------- -------
Total revenues.................... 22,133 24,130 35,799 33,742 37,791 28,881 32,871
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Cost of equipment rentals and
maintenance........................... 5,360 7,069 11,249 11,929 11,358 8,700 8,883
Cost of equipment sales................. 1,587 2,273 7,648 4,620 7,863 5,752 8,753
Cost of theatre receipts and other...... 7,180 5,957 2,657 2,864 3,185 2,462 2,529
------- ------- ------- ------- ------- ------- -------
Total operating expenses.......... 14,127 15,299 21,554 19,413 22,406 16,914 20,165
------- ------- ------- ------- ------- ------- -------
Gross profit from operations.............. 8,006 8,831 14,245 14,329 15,385 11,967 12,706
General and administrative expenses....... 7,151 7,384 10,202 11,023 11,494 9,210 9,442
------- ------- ------- ------- ------- ------- -------
855 1,447 4,043 3,306 3,891 2,757 3,264
Interest expense, net..................... 570 893 2,380(1) 1,242(2) 2,144 1,565 1,669
Other income.............................. 257 187 -- -- 92 70 (97)
------- ------- ------- ------- ------- ------- -------
Income before income taxes................ 542 741 1,663(1) 2,064(2) 1,839 1,262 1,498
------- ------- ------- ------- ------- ------- -------
Provision for income taxes:
Current................................. 95 97 231 407 576 501 521
Deferred................................ 185 372 943 343 197 29 108
------- ------- ------- ------- ------- ------- -------
280 469 1,174(1) 750(2) 773 530 629
------- ------- ------- ------- ------- ------- -------
Net income................................ $ 262 $ 272 $ 489(1) $ 1,314(2) $ 1,066 $ 732 $ 869
======= ======= ======= ======= ======= ======= =======
PER SHARE DATA:
Earnings per share:
Primary................................. $ 0.20 $ 0.22 $ 0.39(1) $ 1.04(2) $ 0.85 $ 0.58 $ 0.68
Fully diluted........................... (3) (3) (3) 0.94(2) 0.81 (3) 0.64
Average common and common equivalent
shares outstanding:
Primary................................. 1,305 1,249 1,249 1,260 1,259 1,258 1,283
Fully diluted........................... (3) (3) (3) 1,943 1,643 (3) 1,674
PRO FORMA PER SHARE DATA(4):
Earnings per share:
Primary................................. $ 0.08 $ 0.23
Fully diluted........................... (3) (3)
Average common and common equivalent
shares outstanding:
Primary................................. 1,259 1,283
Fully diluted........................... 3,223 3,256
OTHER DATA:
EBITDA(5)............................... $ 5,201 $ 6,670 $10,385 $ 9,819 $10,884 $ 7,961 $ 8,444
Net cash provided by operating
activities............................ 4,379 7,002 7,509 10,229 6,605 3,909 2,178
Net cash (used in) investing
activities............................ (1,253) (18,571) (7,183) (7,915) (9,372) (8,028) (7,009)
Net cash provided by (used in) financing
activities............................ (2,364) 11,157 (378) (1,107) 1,097 2,276 4,220
Ratio of earnings to fixed charges(6)... 1.4 1.5 1.6 2.3 1.8 1.7 1.7
Net rental equipment.................... $13,550 $29,995 $29,039 $29,653 $30,778 $30,142 $32,594
Net book value per share................ $ 14.59 $ 15.35 $ 15.60 $ 16.29 $ 17.08 $ 16.85 $ 17.39
BALANCE SHEET DATA:
Cash and cash equivalents............... $ 1,592 $ 1,180 $ 1,128 $ 2,335 $ 665 $ 4,925 $ 54
Total assets............................ 35,647 50,826 52,138 53,307 57,460 58,453 63,045
Long-term debt, including current
portion............................... 11,648 23,497 23,293 22,353 24,299 24,644 29,084
Retained earnings....................... 15,412 14,514 14,850 15,993 16,888 16,597 17,626
Stockholders' equity.................... 20,062 19,169 19,484 20,524 21,499 21,202 22,308
</TABLE>
(Footnotes provided on the following page.)
13
<PAGE> 15
- ---------------
(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) The pro forma earnings per share data assume that the Offering was
consummated at January 1, 1995, with the Notes bearing interest at the
annual rate of 6.75%, an assumed conversion price of $14.00, and the effect
that the repayment of debt, as indicated in "Use of Proceeds," would have
assuming the receipt and application of those proceeds to retire such debt
at January 1, 1995.
(5) EBITDA is defined as income before effect of changes of accounting plus
interest, income taxes, depreciation and amortization. EBITDA is presented
here because it is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness. However, EBITDA should not be
considered as an alternative to net income or cash flow data prepared in
accordance with generally accepted accounting principles or as a measure of
a company's profitability or liquidity. The Company's measure of EBITDA may
not be comparable to similarly titled measures reported by other companies.
(6) 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.
14
<PAGE> 16
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 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 provides high quality, reliable display products configured to suit its
customers' needs, and offers extensive on-site service and maintenance coverage.
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.
RESULTS OF OPERATIONS
NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30,
1995.
The Company's total revenues for the nine months ended September 30, 1996
increased 13.8% to $32.9 million versus $28.9 million for the same period in the
previous year. Revenues from equipment rentals and maintenance decreased from
$16.5 million in 1995 to $16.3 million in 1996, or 1.4%, primarily due to the
expected decline in revenues from the outdoor lease and maintenance bases
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 44.7% or $4.1 million in 1996, primarily due to
increased sales of outdoor displays as a result of the acquisition of ISE in
January 1995 and certain significant sales which are being recognized on the
percentage of completion basis. Revenues from theatre receipts and other
increased by $124,000 or 3.9% in 1996, primarily attributable to increased
concession sales at the theatres.
Cost of equipment rentals and maintenance increased by $183,000 or 2.1%,
primarily due to operating expenses of the indoor displays. The cost of
equipment rentals and maintenance represented 54.6% of related revenues in 1996
compared to 52.7% in 1995. Cost of equipment sales increased by $3.0 million to
$8.8 million in 1996 or 52.2%, primarily due to increased sales of outdoor
displays and certain significant indoor display equipment sales, which due to
the size of the orders have lower gross profit margins. Due to the nature of the
outdoor display market, the Company anticipates the gross profit margin to
decline somewhat as it enters new industry segments of the outdoor market. The
Company does not anticipate the gross profit margin on future significant indoor
display equipment sales to decline. The cost of equipment sales represented
65.9% of related revenues in 1996 compared to 62.7% in 1995. The cost of theatre
receipts and other increased $67,000 or 2.7%, which was proportional to the
increase in theatre revenues. The cost of theatre receipts and other represented
76.1% and 77.0% of related revenues in 1996 and 1995, respectively.
General and administrative expenses increased by $232,000 or 2.5%,
primarily due to expanded sales efforts and increased payroll and benefits
costs, partially offset by the favorable adjustment of previously accrued
expenses.
Interest income decreased by $29,000, primarily attributable to reduced
investments. Interest expense increased by $75,000, primarily due to increased
bank borrowing for general corporate purposes on the revolving credit line.
15
<PAGE> 17
Other expense of $97,000 in 1996 relates to the loss incurred by the
theatre joint venture, MetroLux Theatres, which includes start up costs. Other
income of $70,000 in 1995 was largely due to the sale of a theatre property in
New Mexico.
The effective tax rate at September 30, 1996 and 1995 was 42.0%.
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 Chicago Mercantile
Exchange (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
16
<PAGE> 18
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 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 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 nine
months ended September 30, 1996, the Company's cash and cash equivalents
decreased by $611,000, 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, unbilled receivables and a decrease in
deferred revenue and deposits which was primarily due to the timing of recording
the revenues versus billings and the loan to the theatre joint venture, MetroLux
Theatres. The decrease in cash and cash equivalents in 1995 was largely
attributable to the cash utilized to acquire ISE, repayment of long-term debt
and the investment in MetroLux Theatres. Inventories, prepaids and intangibles
increased during 1995 primarily due to the acquisition of ISE. Although
receivables increased both at December 31, 1995 and September 30, 1996, the
Company continues to experience a favorable collection cycle on its trade
receivables.
17
<PAGE> 19
The Company entered into a Credit Agreement in August 1995 restructuring
$15.6 million of indebtedness and a $4.0 million revolving credit facility with
First Union Bank. The revolving credit facility was increased to $7.0 million
during 1996 and was extended until June 1998. The revolving credit facility was
subsequently supplemented by a $3.0 million revolving facility available to the
Company at the discretion of First Union Bank, which expires January 1997. 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 agreement relating to the
Company's credit facility contains certain financial covenants with which the
Company must comply, absent a waiver by First Union Bank, on a continuing basis
including: (1) the Company is required to make rental equipment capital
expenditures of not less than $3 million per year; (2) the Company may not make
capital expenditures of more than $12 million per year (excluding capital
expenditures related to movie theatres); (3) the Company must maintain a
debt-to-worth ratio of at least 1.25 to 1.0 until September, 1997, 1.2 to 1.0
between September 1997 and September 1998 and 1.0 to 1.0 after September 1998;
(4) the Company must maintain a fixed charge coverage ratio of 1.05 to 1.0; (5)
the Company must maintain consolidated tangible net worth of not less than $18
million; and (6) the Company may not make any payment in excess of $1 million in
respect of any lease (excluding leases related to movie theatres) during any
fiscal year. In the event the Company breaches one or more these covenants and
the Company receives a Default Notice from First Union Bank, no payment may be
made on account of principal of or premium, if any, or interest on the Notes
unless certain conditions are met. See "Description of Notes -- Subordination."
The 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:
<TABLE>
<CAPTION>
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
- ----------------------------------------------------- -------- ------- ------------ -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1996
Revenues............................................. $10,033 $10,591 $ 12,247
Gross profit......................................... 3,969 4,080 4,579
Income before income taxes........................... 427 467 604
Net income........................................... 248 271 350
Earnings per share:
Primary............................................ $ 0.20 $ 0.21 $ 0.27
Fully diluted...................................... 0.19 0.20 0.25
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
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
</TABLE>
- ---------------
(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.
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<PAGE> 20
The following table sets forth unaudited selected financial data stated as
a percentage of the Company's total revenues:
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, LATEST TWELVE
--------------------------- MONTHS ENDING
1993 1994 1995 SEPTEMBER 30, 1996
------ ----- ------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Equipment rentals and maintenance.............. 58.2% 64.2% 56.1% 50.2%
Equipment sales................................ 33.0 25.2 32.7 39.4
Theatre receipts and other..................... 8.8 10.6 11.2 10.4
------ ------ ------ ------
Total revenues......................... 100.0 100.0 100.0 100.0
------ ------ ------ ------
Operating expenses:
Cost of equipment rentals and maintenance...... 31.4 35.3 30.1 27.6
Cost of equipment sales........................ 21.4 13.7 20.8 26.0
Cost of theatre receipts and other............. 7.4 8.5 8.4 7.8
------ ------ ------ ------
Total operating expenses............... 60.2 57.5 59.3 61.4
Income before income taxes....................... 4.6 6.1 4.9 5.0
Net income....................................... 1.4 3.9 2.8 2.9
</TABLE>
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.
<TABLE>
<S> <C> <C> <C> <C>
Gross margin analysis:
Equipment rentals and maintenance.............. 46.0% 44.9% 46.4% 45.0%
Equipment sales................................ 35.2 45.6 36.4 34.0
Theatre receipts and other..................... 16.2 20.3 24.6 25.2
------ ----- ------ ------
Total gross margin..................... 39.8 42.5 40.7 38.6
</TABLE>
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<PAGE> 21
BUSINESS
GENERAL
The Company is a 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 provides high quality, reliable display products configured to suit its
customers' needs, and offers extensive on-site service and maintenance coverage.
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 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.
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.
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
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<PAGE> 22
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 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
21
<PAGE> 23
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 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. The Company supplies many of the 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.
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.
22
<PAGE> 24
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(TM): 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(TM): 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.
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.
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<PAGE> 25
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
and/or assist in the service of outdoor displays for reasons that include
geographic area and unusual height of displays.
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<PAGE> 26
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 partners with large distributors via volume
purchase agreements, giving it the benefit of a third party stocking its
components ready for delivery on demand. The Company designs certain of its
materials to match components furnished by suppliers. If such suppliers were
unable to provide the Company with those
25
<PAGE> 27
components, the Company would have to contract with other suppliers to obtain
replacement sources. Such replacement might result in engineering design
changes, as well as delays in obtaining such replacement components. The Company
does not acquire a material amount of purchases directly from foreign suppliers,
but components are manufactured by foreign sources. See "Risk
Factors -- Reliance on Key Suppliers."
BACKLOG
The amount of sales order backlog was approximately $2.2 million and $2.6
million at September 30, 1995 and 1996, respectively. The September 30, 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 supplies many of the 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. 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, major competitors include Daktronics, Inc., Sunrise Systems,
Inc., Display Solutions, Inc. and Ferranti Packard Electronics Ltd. Additional
competitors include Grandwell Industries Inc., Gamma Technologies, Inc. IGG
Systems Inc. (exchanges only), 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 10% of its revenues from
theatre operations.
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<PAGE> 28
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
<PAGE> 29
MANAGEMENT
<TABLE>
<CAPTION>
NAME AGE OFFICE
- ----------------------------------- --- ------------------------------------------------
<S> <C> <C>
Richard Brandt..................... 69 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................. 51 Senior Vice President
Thomas F. Mahoney.................. 49 Senior Vice President
Angela D. Toppi.................... 41 Senior Vice President, Treasurer, Secretary and
Chief Financial Officer
Steven Baruch...................... 58 Director
Jean Firstenberg................... 60 Director
Allan Fromme....................... 81 Director
Robert Greenes..................... 75 Director
Gene Jankowski..................... 62 Director
Howard S. Modlin................... 65 Director
</TABLE>
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 29 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 producer
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<PAGE> 30
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.
The executive officers are elected annually at the meeting of the Board
following the annual meeting of stockholders to serve until their successors are
elected. However, provisions in employment agreements provide for such election
throughout the term of such respective agreements.
The Board of Directors is divided into three classes with the term of
office of one of the classes of directors expiring each year and with each class
being elected for a three-year term. The term of each of Messrs. Baruch and
Fromme expires in 1997, the term of each of Messrs. Brandt, Jankowski and Liss
and Ms. Firstenberg expires in 1998 and the term of each of Messrs. Greenes and
Modlin expires in 1999.
29
<PAGE> 31
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 $100,000 for the fiscal
year ended December 31, 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG TERM
-------------------------------------- COMPENSATION
NAME AND PRINCIPAL OTHER ANNUAL OPTIONS ALL OTHER
POSITION YEAR SALARY($) BONUS($) COMPENSATION($) GRANTED COMPENSATION($)(1)
- -------------------------- ---- --------- -------- --------------- ------------ ------------------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
- ---------------
(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
<PAGE> 32
<TABLE>
<CAPTION>
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
--------------------------------------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
$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)
</TABLE>
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 annual compensation level of approximately
$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
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<PAGE> 33
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
<TABLE>
<CAPTION>
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% ($) 10% ($)
- -------------------------- ---------- --------- ------------ ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
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
</TABLE>
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
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)
- ---------------------------------- ------------- ------------ --------------- ------------------
<S> <C> <C> <C> <C>
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/--
</TABLE>
- ---------------
(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.
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<PAGE> 34
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
<PAGE> 35
DESCRIPTION OF NOTES
The Notes offered hereby are to be issued under an Indenture, to be dated
as of December , 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 $27,500,000 (subject to increase
in the event of the exercise of the Underwriter's 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 2.02) 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 mailing of notice
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" and "Consolidation, Merger and Sale of Assets."
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 to the Trustee) 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
34
<PAGE> 36
Repurchase 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
"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
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
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<PAGE> 37
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.
RESTRICTION ON INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
The Indenture provides that the Company will not, and will not permit any
of its Subsidiaries to, directly or indirectly, create, incur, issue, assume,
Guarantee or otherwise become directly or indirectly liable, contingently or
otherwise, with respect to (collectively, "incur"), after the date of issuance
of the Notes, any Indebtedness (including Acquired Debt) and the Company will
not issue any Disqualified Capital Stock and will not permit any of its
Subsidiaries to issue any shares of preferred stock. Indebtedness consisting of
reimbursement obligations in respect of a letter of credit will be deemed to be
incurred when the letter of credit is first issued.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and its Subsidiaries of Indebtedness
represented by the Notes;
(ii) the incurrence by the Company or any of its Subsidiaries of Permitted
Refinancing Indebtedness in exchange for, or the net proceeds of which are used
to extend, refinance, renew, replace, defease or refund, Indebtedness that was
permitted by the Indenture to be incurred (including, without limitation,
Existing Indebtedness);
(iii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by performance bonds, standby letters of credit or
appeal bonds, in each case to the extent incurred in the ordinary course of
business of the Company or such Subsidiary; and
(v) the incurrence by the Company of Indebtedness, which, together with all
other Indebtedness outstanding as of the date of such incurrence, does not
exceed (a) five times EBITDA for the last four full fiscal quarters ending
immediately preceding such date plus (b) $5.0 million.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person, including,
without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified Person, and (ii) Indebtedness secured by a lien
encumbering any asset acquired by such specified Person. "Acquired Debt" shall
be deemed to be incurred by such Person at the time of such merger, or upon the
other Person becoming a Subsidiary or upon the acquisition of such asset.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Consolidated Net Income" means, with respect to any Person for any period,
the aggregate of the Net Income of such Person and its Subsidiaries for such
period, on a consolidated basis, determined in accordance with GAAP; provided
that (i) the Net Income of any Person that is not a Subsidiary or that is
accounted for by the equity method of accounting shall be included only to the
extent of the amount of dividends or
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<PAGE> 38
distributions paid in cash to the referent Person or a wholly-owned Subsidiary
thereof, (ii) the Net Income of any Subsidiary shall be excluded to the extent
that the declaration or payment of dividends or similar distributions by that
Subsidiary of that Net Income is not at the date of determination permitted
without any prior governmental approval (that has not been obtained) or,
directly or indirectly, by operation of the terms of its charter or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its stockholders, (iii) the Net
Income of any Person acquired in a pooling of interests transaction for any
period prior to the date of such acquisition shall be excluded and (iv) the
cumulative effect of a change in accounting principles shall be excluded.
"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.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of the Indenture, until such amounts are
repaid, including all reimbursement obligations with respect to letters of
credit outstanding as of the date of issuance of the Notes.
"EBITDA" means, with respect to any Person for any period, the Consolidated
Net Income of such Person for such period plus (i) an amount equal to any
extraordinary loss plus any net loss realized in connection with a Sale of
Assets (to the extent such losses were deducted in computing such Consolidated
Net Income), plus (ii) provision for taxes based on income or profits of such
Person and its Subsidiaries for such period, to the extent that such provision
for taxes was included in computing such Consolidated Net Income, plus (iii) the
Fixed Charges of such Person and its Subsidiaries for such period, to the extent
that such Fixed Charges were deducted in computing such Consolidated Net Income,
plus (iv) depreciation and amortization of such Person and its Subsidiaries for
such period to the extent that such depreciation and amortization were deducted
in computing such Consolidated Net Income, in each case, on a consolidated basis
and determined in accordance with GAAP. Notwithstanding the foregoing, the
provision for taxes on the income or profits of, and the depreciation and
amortization of a Subsidiary of the referent Person shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the Net Income of such Subsidiary was included in calculating
the Consolidated Net Income of such Person and only of a corresponding amount
would be permitted at the date of determination to be dividended to such Person
by such Subsidiary without prior approval (that has not been obtained), pursuant
to the terms of its charter and all agreements, instruments, judgments, decrees,
orders, statutes, rules and governmental regulations applicable to that
Subsidiary or its stockholders.
"Fixed Charges" means, with respect to any Person for any period, the sum
of (i) the consolidated interest expense of such Person and its Subsidiaries for
such period, whether paid or accrued (including, without limitation,
amortization of original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest component
of all payments associated with Capital Lease Obligations, commissions, and
discounts and other fees and charges incurred in respect of letters of credit or
bankers' acceptance financings, (ii) the consolidated interest expense of such
Person and its Subsidiaries that was capitalized during such period, (iii) any
interest expense on Indebtedness of another Person that is Guaranteed by such
Person or one of its Subsidiaries or secured by a lien on assets of such Person
or one of its Subsidiaries (whether or not such Guarantee or lien is called
upon), (iv) the product of (a) all cash dividend payments (and non-cash dividend
payments in the case of a Person that is a Subsidiary) on any series of
preferred stock of such Person, times (b) a fraction, the numerator of which is
one and the denominator of which is one minus the then current combined federal,
state and local statutory tax rate of such Person, expressed as a decimal, in
each case, on a consolidated basis and in accordance with GAAP, and (v) (without
duplication of any of the foregoing) one-third of the aggregate rental
obligations of such Person and its Subsidiaries for such period, whether paid or
accrued, in respect of leases of real and personal property, whether or not such
obligations are reflected as liabilities on the balance sheet of such Person and
its Subsidiaries.
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"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 and 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 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. "Indebtedness" shall not include; (i) any
indebtedness of the Company to any Subsidiary or to any Affiliate of the Company
or any of the Subsidiaries, (ii) 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), other current liabilities (other than for borrowed money)
or deferred revenue and deposits of the Company on the books of the Company,
(iii) any indebtedness of or amount owed by the Company to employees for
services rendered to the Company, and (iv) any liability for Federal, state,
local or other taxes owing or owed by the Company.
"Net Income" means, with respect to any Person, the net income (loss) of
such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with any Sale of Assets and (ii) any extraordinary
or nonrecurring gain (but not loss), together with any related provision for
taxes on such extraordinary or nonrecurring gain (but not loss).
"Permitted Refinancing Indebtedness" means any Indebtedness of the Company
or any of its Subsidiaries issued in exchange for, or the net proceeds of which
are used solely to extend, refinance, renew, replace, defease or refund, other
Indebtedness of the Company or any of its Subsidiaries; provided that, except in
the case of Indebtedness of the Company issued in exchange for, or the net
proceeds of which are used solely to extend, refinance, renew, replace, defease
or refund, Indebtedness of a Subsidiary of the Company: (i) the principal amount
of such Permitted Refinancing Indebtedness does not exceed the principal amount
of the Indebtedness so extended, refinanced, renewed, replaced, defeased or
refunded (plus the amount of any premiums paid and reasonable expenses incurred
in connection therewith); (ii) such Permitted Refinancing Indebtedness has a
final maturity date later than the final maturity date of, and has a Weighted
Average Life to Maturity equal to or greater than the Weighted Average Life to
Maturity of, the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded; (iii) if the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded is subordinated in right of payment to
the Notes, such Permitted Refinancing Indebtedness has a final maturity date
later than the final maturity date of, and is subordinated in right of payment
to, the Notes on terms at least as favorable to the Holders of Notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and (iv) such Indebtedness
is incurred either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
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RESTRICTED PAYMENTS
The Indenture provides that the Company shall not make any Restricted
Payment to any Person and the Company shall not permit any Subsidiary or
Affiliate to make any Restricted Payment other than to the Company, (Section
6.11). "Restricted Payment" means, with respect to any Person, (i) the
declaration or payment of any dividend or the occurrence of any liability to
make any other payment or distribution of cash or other property or assets in
respect of such Person's Stock, excluding dividends from one Subsidiary to
another or to the Company and excluding cash dividends by the Company which do
not exceed $750,000 in the aggregate in any fiscal year, (ii) except for (A) the
Odd Lot Purchase Program, (B) the purchase of shares of Common Stock of the
Company in the aggregate amount of up to $750,000 in any fiscal year, and (C) in
respect of the Stock Option Plans, any payment on account of the purchase,
redemption, defeasance or other retirement of such Person's Stock or any other
payment or distribution made in respect thereof, either directly or indirectly,
or (iii) any payment, loan, contribution, or other transfer of funds or other
property to any Stockholder of such Person in their capacity as Stockholders as
opposed to employees, directors or consultants; provided, however, that no Event
of Default exists or would be caused by the making of a Restricted Payment.
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.
"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 of and
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 Notes) whether or not
contingent and whether outstanding on the date of execution of the Indenture or
thereafter created, incurred
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<PAGE> 41
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
(other than for borrowed money) or deferred revenue and deposits of the Company
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% 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 permits the incurrence of certain additional Indebtedness,
including Senior Indebtedness. At September 30, 1996 , the Company's Senior
Indebtedness aggregated approximately $23.2 million, excluding accrued interest
and the Company's subsidiaries had indebtedness and other liabilities of
approximately $4.8 million. The Company expects from time to time to incur
additional indebtedness, including Senior Indebtedness to the extent permitted
by the Indenture. 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.
OPTIONAL REDEMPTION
The Notes are redeemable at the Company's option, in whole or from time to
time in part, upon not less than 20 nor more than 65 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, 2001 and prior to maturity.
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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:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
----------
<S> <C>
2001...................................................... %
2002......................................................
2003......................................................
2004......................................................
</TABLE>
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.
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
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<PAGE> 43
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; (iv) the Company or the surviving person (if other than the
Company) (A) will have Consolidated Net Worth (immediately after the transaction
but prior to any purchase accounting adjustments resulting from the transaction)
greater than or equal to the Consolidated Net Worth of the Company immediately
preceding the transaction and (B) will, at the time of such transaction after
giving pro forma effect thereto as if such transaction had occurred at the
beginning of the applicable four-quarter period, be permitted to incur at least
$1.00 of additional Indebtedness pursuant to Section 6.12 of the Indenture and
(v) 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)
"Consolidated Net Worth" means, with respect to any Person as of any date,
the sum of (i) the consolidated equity of the common stockholders of such Person
and its consolidated Subsidiaries as of such date plus (ii) the respective
amounts reported on such Person's balance sheet as of such date with respect to
any series of preferred stock (other than Disqualified Capital Stock).
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)
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<PAGE> 44
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 15 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
(v) the Common Stock of the Company is the subject of a "Rule 13e-3
transaction" as defined under the Exchange Act.
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<PAGE> 45
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 certain restrictions in the Indenture on the
creation of Senior Indebtedness (and other Indebtedness), however, 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 $21.4 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.
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
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<PAGE> 46
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 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.
45
<PAGE> 47
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 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.
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<PAGE> 48
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, unless such transaction is first
approved by the Company's Board of Directors. 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.
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<PAGE> 49
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.
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<PAGE> 50
UNDERWRITING
The Underwriter, Southcoast Capital, has agreed, subject to the terms and
conditions of the Underwriting Agreement, to purchase from the Company
$27,500,000 principal amount of the Notes. The Underwriting Agreement provides
that the obligations of the Underwriter to pay for and accept delivery of the
Notes are subject to certain conditions precedent, and that the Underwriter is
committed to purchase all of the Notes if it purchase any of the Notes.
The Underwriter has advised the Company that it proposes initially to offer
the Notes to the public on the terms set forth on the cover page of this
Prospectus. The Underwriter may allow selected dealers a concession of not more
than % of the principal amount of the Notes, and the Underwriter 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 Underwriter after the
initial public offering of the Notes. The Notes are offered subject to receipt
and acceptance by the Underwriter, and to certain other conditions, including
the right to reject orders in whole or in part.
The Company has granted the Underwriter an option for 30 days to purchase
up to an additional $4,125,000 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 Underwriter.
The Underwriting Agreement provides that the Company will indemnify the
Underwriter against certain liabilities, including civil liabilities under the
Securities Act of 1933, as amended (the "Securities Act"), or will contribute to
payments the Underwriter 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 has been 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.
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<PAGE> 51
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 Underwriter 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).
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<PAGE> 52
(2) The Company's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1996, June 30, 1996, and September 30, 1996 (filed May 14,
1996, August 14, 1996, and November 12, 1996 respectively).
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.
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TRANS-LUX CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 September 30, 1996
(Unaudited)......................................................................... F-20
Consolidated Statements of Income for the nine months ended September 30, 1995 and
1996 (Unaudited).................................................................... F-21
Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and
1996
(Unaudited)......................................................................... F-22
Notes to Consolidated Financial Statements (Unaudited)................................ F-23
</TABLE>
F-1
<PAGE> 54
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.
Deloitte & Touche LLP
Stamford, Connecticut
February 28, 1996
F-2
<PAGE> 55
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------
1994 1995
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 56
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
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
</TABLE>
- ---------------
* not dilutive
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 57
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
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
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 58
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:
<TABLE>
<S> <C>
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
</TABLE>
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.
Revenue recognition: 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 long term equipment
sales contracts, which require more than three months to complete, using the
percentage of completion method. Income is recognized based on the percentage of
incurred costs to the estimated total costs. Revenue on equipment sales other
than long term equipment sales contracts are recognized upon shipment. Theatre
receipts and other revenues are recognized at the time service is provided.
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
F-6
<PAGE> 59
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
will disclose the required pro forma effect on net income and earnings per share
based on the fair value of the equity instruments awarded.
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.
<TABLE>
<CAPTION>
1994 1995
----------------------- -----------------------
FAIR UNREALIZED FAIR UNREALIZED
VALUE LOSS VALUE LOSS
---------- -------- -------- ----------
<S> <C> <C> <C> <C>
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
======== ======= ========== ========
</TABLE>
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
1994 1995
-------- ----------
<S> <C> <C>
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
========== ========
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
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
=========== ===========
</TABLE>
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
<PAGE> 60
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PREPAIDS, INTANGIBLES AND OTHER
Prepaids, intangibles and other consists of the following:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 61
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.
<TABLE>
<CAPTION>
1994
-----------
UNAUDITED
<S> <C>
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
-----
</TABLE>
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.
<TABLE>
<CAPTION>
1993
-----------
UNAUDITED
<S> <C>
Gross revenues.......................................................... $39,035,000
-----------
Gross profit from operations............................................ $14,752,000
-----------
Net income.............................................................. $ 505,000
-----------
Earnings per share...................................................... $0.40
-----
</TABLE>
F-9
<PAGE> 62
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. TAXES ON INCOME
The components of income tax expense are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
---------- -------- --------
<S> <C> <C> <C>
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
======== ======== ==========
</TABLE>
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:
<TABLE>
<CAPTION>
1993 1994 1995
---- ---- ----
<S> <C> <C> <C>
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%
==== ==== ====
</TABLE>
The tax effect of temporary differences giving rise to the Company's
deferred tax provision are as follows:
<TABLE>
<CAPTION>
1993 1994 1995
-------- --------- --------
<S> <C> <C> <C>
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
========= ========= ========
</TABLE>
F-10
<PAGE> 63
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:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
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
<PAGE> 64
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1994 1995
----------- -----------
<S> <C> <C>
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
===========
</TABLE>
Payments of long-term debt due for the next five years are:
<TABLE>
<CAPTION>
1996 1997 1998 1999 2000
- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$1,804,000 $1,817,000 $2,660,000 $1,792,000 $2,696,000
</TABLE>
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 Union Bank of
Connecticut (formerly known as First Fidelity Bank) in August 1995 restructuring
its indebtedness of $15,581,000 and a $4,000,000 line
F-12
<PAGE> 65
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of credit. The restructuring extends the terms to an average 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
<PAGE> 66
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:
<TABLE>
<CAPTION>
COMMON STOCK CLASS B ADDITIONAL RETAINED
---------------------- ------------------ PAID-IN TREASURY EARNINGS
SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK AND OTHER
--------- ---------- ------- -------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
========= ========== ======= ======== =========== ============ ===========
</TABLE>
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:
<TABLE>
<S> <C>
Conversion of 9% convertible subordinated debentures....................... 782,000
Stock options.............................................................. 124,000
</TABLE>
F-14
<PAGE> 67
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:
<TABLE>
<CAPTION>
CAPITAL OPERATING
YEAR LEASE LEASES
-------------------------------------------------------------- ------- ----------
<S> <C> <C>
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
=======
</TABLE>
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
<PAGE> 68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The funded status of the plan at December 31, 1994 and 1995 are as follows:
<TABLE>
<CAPTION>
1994 1995
---------- ----------
<S> <C> <C>
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
========== ==========
</TABLE>
The following items are components of the net pension cost for 1995:
<TABLE>
<S> <C>
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
========
</TABLE>
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
<PAGE> 69
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:
<TABLE>
<CAPTION>
NUMBER OF SHARES
------------------------------------
AUTHORIZED GRANTED AVAILABLE
---------- ------- ---------
<S> <C> <C> <C>
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
======= ======= ======
</TABLE>
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
<PAGE> 70
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
<PAGE> 71
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:
<TABLE>
<CAPTION>
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
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.................................... $ 9,431,000 $ 8,881,000 $ 9,500,000
Entertainment and real estate..................... 142,000 204,000 548,000
------------ ------------ ------------
9,573,000 9,085,000 10,048,000
Other income........................................ -- -- 92,000
General and administrative expenses................. (5,530,000) (5,779,000) (6,157,000)
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
============ ============ ============
</TABLE>
General and administrative expenses consist of general corporate expenses
not deemed to be operating expenses and have therefore not been allocated.
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.
17. ACCOUNTS PAYABLE AND ACCRUALS
Accounts payable and accruals includes $1,361,000 and $1,730,000 for
accounts payable, $135,000 and $368,000 for accrued interest payable, and
$466,000 and $518,000 for taxes payable for 1994 and 1995, respectively.
F-19
<PAGE> 72
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER
31,
1995
----------- SEPTEMBER 30,
1996
-------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 665,000 $ 54,000
Available-for-sale securities.......................................... 576,000 586,000
Receivables............................................................ 2,403,000 5,434,000
Unbilled receivables................................................... -- 1,632,000
Inventories............................................................ 1,900,000 1,778,000
Prepaids and other current assets...................................... 466,000 332,000
----------- -----------
Total current assets................................................. 6,010,000 9,816,000
----------- -----------
Rental equipment....................................................... 47,043,000 52,574,000
Less accumulated depreciation........................................ 16,265,000 19,980,000
----------- -----------
30,778,000 32,594,000
----------- -----------
Property, plant and equipment.......................................... 20,913,000 21,795,000
Less accumulated depreciation and amortization....................... 5,921,000 6,960,000
----------- -----------
14,992,000 14,835,000
Prepaids, intangibles and other........................................ 4,081,000 3,640,000
Maintenance contracts, net............................................. 1,599,000 1,352,000
Note receivable, MetroLux Theatres (excludes $94,000 current
portion).............................................................. -- 808,000
----------- -----------
$57,460,000 $63,045,000
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accruals.......................................... $ 4,804,000 $ 6,436,000
Income taxes payable................................................... 136,000 55,000
Short-term borrowings.................................................. 500,000 --
Current portion of long-term debt...................................... 1,804,000 1,184,000
----------- -----------
Total current liabilities............................................ 7,244,000 8,305,000
----------- -----------
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 21,402,000
----------- -----------
22,495,000 27,270,000
Deferred revenue and deposits.......................................... 2,621,000 1,513,000
Deferred income taxes.................................................. 3,600,000 3,648,000
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 2,441,523 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 298,882 in 1996............... 304,000 299,000
Additional paid-in capital........................................... 13,806,000 13,828,000
Retained earnings.................................................... 16,888,000 17,626,000
Other................................................................ (71,000) (65,000)
----------- -----------
33,363,000 34,129,000
Less treasury stock -- at cost -- 1,488,837 shares in 1995 and
1,481,258 in 1996 (excludes additional 304,137 shares held in 1995 and
298,882 in 1996 for conversion of Class B stock)...................... 11,864,000 11,821,000
----------- -----------
Total stockholders' equity........................................ 21,499,000 22,308,000
----------- -----------
$57,460,000 $63,045,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-20
<PAGE> 73
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
-----------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
REVENUES:
Equipment rentals and maintenance............................. $16,509,000 $16,273,000
Equipment sales............................................... 9,174,000 13,276,000
Theatre receipts and other.................................... 3,198,000 3,322,000
----------- -----------
Total revenues............................................. 28,881,000 32,871,000
----------- -----------
OPERATING EXPENSES:
Cost of equipment rentals and maintenance..................... 8,700,000 8,883,000
Cost of equipment sales....................................... 5,752,000 8,753,000
Cost of theatre receipts and other............................ 2,462,000 2,529,000
----------- -----------
Total operating expenses................................... 16,914,000 20,165,000
----------- -----------
GROSS PROFIT FROM OPERATIONS.................................... 11,967,000 12,706,000
General and administrative expenses............................. 9,210,000 9,442,000
----------- -----------
2,757,000 3,264,000
----------- -----------
Interest income................................................. 124,000 95,000
Interest expense................................................ (1,689,000) (1,764,000)
Other income (expense).......................................... 70,000 (97,000)
----------- -----------
INCOME BEFORE INCOME TAXES...................................... 1,262,000 1,498,000
----------- -----------
Provision for income taxes:
Current....................................................... 501,000 521,000
Deferred...................................................... 29,000 108,000
----------- -----------
530,000 629,000
----------- -----------
NET INCOME...................................................... $ 732,000 $ 869,000
=========== ===========
Earnings per share:
Primary....................................................... $ 0.58 $ 0.68
Fully diluted................................................. * $ 0.64
Average common and common equivalent shares outstanding:
Primary....................................................... 1,258,000 1,283,000
Fully diluted................................................. * 1,674,000
Cash dividends per share:
Common stock.................................................. $ 0.105 $ 0.105
Class B stock................................................. $ 0.0945 $ 0.0945
</TABLE>
- ---------------
* not dilutive
The accompanying notes are an integral part of these consolidated financial
statements.
F-21
<PAGE> 74
TRANS-LUX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER
30,
-----------------------------
1995 1996
----------- -----------
(UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income...................................................... $ 732,000 $ 869,000
Adjustment to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization.............................. 5,134,000 5,277,000
Net loss of joint venture.................................. -- 97,000
Deferred income taxes...................................... 531,000 44,000
Minority interest.......................................... (8,000) --
Changes in operating assets and liabilities:
Receivables.............................................. (1,386,000) (3,031,000)
Unbilled receivables..................................... -- (1,632,000)
Inventories.............................................. (307,000) 122,000
Prepaids and other current assets........................ (113,000) 228,000
Prepaids, intangibles and other.......................... (82,000) (239,000)
Accounts payable and accruals............................ 117,000 1,632,000
Income taxes payable..................................... 87,000 (81,000)
Deferred revenue and deposits............................ (796,000) (1,108,000)
----------- -----------
Net cash provided by operating activities............. 3,909,000 2,178,000
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of rental equipment................................... (4,112,000) (5,531,000)
Purchases of property, plant and equipment...................... (1,389,000) (882,000)
Payments for an acquisition..................................... (3,178,000) --
Proceeds from acquisition note receivable....................... 658,000 --
Sale of assets.................................................. 209,000 --
Investment in joint venture..................................... (1,304,000) 345,000
Loan to joint venture........................................... -- (941,000)
Purchases of securities......................................... (494,000) --
Proceeds from sales of securities............................... 1,582,000 --
----------- -----------
Net cash (used in) investing activities............... (8,028,000) (7,009,000)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from long-term debt.................................... 4,275,000 5,700,000
Repayment of long-term debt..................................... (3,206,000) (1,352,000)
Proceeds from short-term borrowings............................. 1,300,000 --
Proceeds from exercise of stock options......................... 36,000 4,000
Purchase of treasury stock...................................... (1,000) (1,000)
Cash dividends.................................................. (128,000) (131,000)
----------- -----------
Net cash provided by financing activities............. 2,276,000 4,220,000
----------- -----------
Net (decrease) in cash and cash equivalents..................... (1,843,000) (611,000)
Cash and cash equivalents at beginning of year.................. 2,335,000 665,000
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 492,000 $ 54,000
=========== ===========
Interest paid................................................... $ 1,366,000 $ 1,452,000
Interest received............................................... 132,000 101,000
Income taxes paid............................................... 376,000 542,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-22
<PAGE> 75
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. Certain
reclassifications have been made to prior year's amounts to conform to the
current year's format. It is suggested that the September 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 on 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 effective tax rate at September 30, 1996 was 42%. There was no change
in the valuation allowance during the nine months ended September 30, 1996.
3. PREPAIDS, INTANGIBLES AND OTHER
Prepaid, intangibles and other consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31 SEPTEMBER 30
1995 1996
------------ ------------
<S> <C> <C>
Prepaids and other..................................... $1,005,000 $1,048,000
Deferred debenture expense............................. 206,000 193,000
Deferred financing costs............................... 480,000 421,000
Acquisition costs...................................... 96,000 92,000
Deposits and advances.................................. 68,000 76,000
Patents................................................ 323,000 275,000
Goodwill and noncompete agreement...................... 1,105,000 1,003,000
Investment in joint venture............................ 506,000 128,000
Long-term portion of officers' and employees' loans.... 292,000 404,000
---------- ----------
$4,081,000 $3,640,000
========== ==========
</TABLE>
4. ACCOUNTS PAYABLE AND ACCRUALS
Accounts payable and accruals includes $1,730,000 and $2,415,000 for
accounts payable, $368,000 and $569,000 for accrued interest payable, and
$518,000 and $632,000 for taxes payable at December 31, 1995 and September 30,
1996, respectively.
F-23
<PAGE> 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 THE UNDERWRITER. 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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.......... 46
Underwriting.......................... 49
Legal Matters......................... 50
Experts............................... 50
Available Information................. 50
Incorporation of Certain Documents by
Reference........................... 50
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
$27,500,000
LOGO
LOGO
% CONVERTIBLE
SUBORDINATED NOTES
DUE 2006
------------------------
PROSPECTUS
------------------------
SOUTHCOAST CAPITAL
CORPORATION
, 1996
------------------------------------------------------
------------------------------------------------------
<PAGE> 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.
<TABLE>
<S> <C>
SEC registration fee...................................................... $ 9,583
NASD filing fee........................................................... 3,750
AMEX listing fee.......................................................... 5,000
Printing costs (excluding notes).......................................... 110,000
Accounting fees and expenses.............................................. 45,000
Blue Sky fees and expenses................................................ 6,000
Legal fees and expenses................................................... 150,000
Miscellaneous expenses.................................................... 70,667
--------
Total................................................................... $400,000
========
</TABLE>
- ---------------
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.
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
II-1
<PAGE> 78
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 9 of the Underwriting Agreement, the Underwriter is
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 1 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
<TABLE>
<S> <C>
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.*
25 Statement of Eligibility of Trustee.*
</TABLE>
- ---------------
* Previously filed.
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
<PAGE> 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
<PAGE> 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 18th day of
December, 1996.
TRANS-LUX CORPORATION
By: /s/ VICTOR LISS
------------------------------------
Victor Liss
Vice Chairman, President and
Chief Executive Officer
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.
<TABLE>
<C> <S> <C>
* Chairman of the Board December 18, 1996
- -------------------------------------
Richard Brandt
Vice Chairman of the Board, December 18, 1996
/s/ VICTOR LISS President and Chief Executive
- ------------------------------------- Officer
Victor Liss
/s/ ANGELA D. TOPPI Senior Vice President and Chief December 18, 1996
- ------------------------------------- Financial Officer
Angela D. Toppi
* Chief Accounting Officer December 18, 1996
- -------------------------------------
Robert A. Carroll
* Director December 18, 1996
- -------------------------------------
Steven Baruch
* Director December 18, 1996
- -------------------------------------
Jean Firstenberg
* Director December 18, 1996
- -------------------------------------
Allan Fromme, PhD
* Director December 18, 1996
- -------------------------------------
Robert Greenes
* Director December 18, 1996
- -------------------------------------
Gene Jankowski
* Director December 18, 1996
- -------------------------------------
Howard S. Modlin
* By /s/ VICTOR LISS
- -------------------------------------
as Attorney in Fact
</TABLE>
II-4
<PAGE> 81
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.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NO. DESCRIPTIONS PAGE NOS.
- ------- --------------------------------------------------------------------------- ----------
<S> <C> <C>
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*........................................................
25 Statement of Eligibility of Trustee*.......................................
</TABLE>
- ---------------
* Previously filed.
II-5
<PAGE> 1
Exhibit 4.1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
TRANS-LUX CORPORATION
and
CONTINENTAL STOCK TRANSFER & TRUST COMPANY,
AS TRUSTEE
------------------
INDENTURE
DATED AS OF DECEMBER __, 1996
------------------
$27,500,000*
____% CONVERTIBLE SUBORDINATED SECURITIES DUE 2006
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Subject to increase up to $31,625,000.
<PAGE> 2
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TRUST INDENTURE ACT SECTION SECTION OF INDENTURE
- --------------------------- --------------------
<C> <C>
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
- ------------------
</TABLE>
This Cross-Reference Table shall not, for any purpose, be deemed to be
a part of this Indenture.
<PAGE> 3
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
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
</TABLE>
<PAGE> 4
<TABLE>
<CAPTION>
ARTICLE FOUR.
SUBORDINATION OF SECURITIES.
<S> <C>
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
</TABLE>
<PAGE> 5
<TABLE>
<S> <C>
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
SECTION 6.11. Restricted Payments..................................................................... 38
SECTION 6.12. Incurrence of Indebtedness and Issuance of Preferred Stock.............................. 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
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
ARTICLE NINE.
CONCERNING THE SECURITYHOLDERS.
<S> <C>
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
</TABLE>
<PAGE> 7
<TABLE>
<S> <C>
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
</TABLE>
<PAGE> 8
THIS INDENTURE, dated as of December __, 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 $31,625,000 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
<PAGE> 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.
"Acquired Debt" means, with respect to any specified Person, (i)
Indebtedness of any other Person existing at the time such other Person is
merged with or into or becomes a Subsidiary of such specified Person,
including, without limitation, Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into or becoming a
Subsidiary of such specified person, and (ii) Indebtedness secured by a lien
encumbering any asset acquired by such specified Person. Acquired Debt shall be
deemed to be incurred by such Person at the time of such merger, or upon the
other Person becoming a Subsidiary or upon the acquisition of such asset.
"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 Lease Obligation" means, at the time any determination
thereof is to be made, the amount of the liability in respect of a capital
lease that would at such time be required to be capitalized on a balance sheet
in accordance with GAAP.
"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.
"Consolidated Net Income" means, with respect to any Person for any
period, the aggregate of the Net Income of such Person and its Subsidiaries
for such period, on a consolidated basis, determined in accordance with GAAP;
provided that (i) the Net Income of any Person that is not a Subsidiary or that
is accounted for by the equity method of accounting shall be included only to
the extent of the amount of dividends or distributions paid in cash to the
referent Person or a wholly-owned Subsidiary thereof, (ii) the Net Income of
any Subsidiary shall be excluded to the extent that the declaration or payment
of dividends or similar distributions by that Subsidiary of that Net Income is
not at the date of determination permitted without any prior governmental
approval (that has not been obtained) or, directly or indirectly, by operation
of the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that Subsidiary
or its stockholders, (iii) the Net Income of any Person acquired in a pooling
of interests transaction for any period prior to the date of such acquisition
shall be excluded, and (iv) the cumulative effect of a change in accounting
principles shall be excluded.
"Consolidated Net Worth" means, with respect to any Person as of any
date, the sum of (i) the consolidated equity of the common stockholders of such
Person and its consolidated Subsidiaries as of such date plus (ii) the
respective amounts reported on such Person's balance sheet as of such date with
respect to any series of preferred stock (other than Disqualified Capital
Stock).
"corporation" means any corporation, voluntary association, joint stock
association, business trust, or similar organization.
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<PAGE> 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.
"EBITDA" means, with respect to any Person for any period, the
Consolidated Net Income of such Person for such period plus (i) an amount equal
to any extraordinary loss plus any net loss realized in connection with a Sale
of Assets (to the extent such losses were deducted in computing such
Consolidated Net Income), plus (ii) provision for taxes based on income or
profits of such Person and its Subsidiaries for such period, to the extent that
such provision for taxes was included in computing such Consolidated Net Income,
plus (iii) the Fixed Charges of such Person and its Subsidiaries for such
period, to the extent that such Fixed Charges were deducted in computing such
Consolidated Net Income, plus (iv) depreciation and amortization of such Person
and its Subsidiaries for such period to the extent that such depreciation and
amortization were deducted in computing such Consolidated Net Income, in each
case, on a consolidated basis and determined in accordance with GAAP.
Notwithstanding the foregoing, the provision for taxes on the income or profits
of, and the depreciation and amortization of, a Subsidiary of the referent
Person shall be added to Consolidated Net Income to compute EBITDA only to the
extent (and in the same proportion) that the Net Income of such Subsidiary was
included in calculating the Consolidated Net Income of such Person and only if a
corresponding amount would be permitted at the date of determination to be
dividended to such Person by such Subsidiary without prior approval (that has
not been obtained), pursuant to the terms of its charter and all agreements,
instruments, judgments, decrees, orders, statutes, rules and governmental
regulations applicable to that Subsidiary or its stockholders.
"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.
"Existing Indebtedness" means Indebtedness of the Company and its
Subsidiaries in existence on the date of the Indenture, until such amounts are
repaid, including all reimbursement obligations with respect to letters of
credit outstanding as of the date of issuance of the Notes.
"Fixed Charges" means, with respect to any Person for any period, the
sum of (i) the consolidated interest expense of such Person and its
Subsidiaries for such period, whether paid or accrued (including, without
limitation, amortization of original issue discount, non-cash interest
payments, the interest component of any deferred payment obligations, the
interest component of all payments associated with Capital Lease Obligations,
commissions, and discounts and other fees and charges incurred in respect of
letters of credit or bankers' acceptance financings, (ii) the consolidated
interest expense of such Person and its Subsidiaries that was capitalized
during such period, (iii) any interest expense on Indebtedness of another
Person that is guaranteed by such Person or one of its Subsidiaries or secured
by a lien on assets of such Person or one of its Subsidiaries (whether or not
such Guarantee or lien is called upon), (iv) the product of (a) all cash
dividend payments (and non-cash dividend payments in the case of a Person that
is a Subsidiary) on any series of preferred stock of such Person, times (b) a
fraction, the numerator of which is one and the denominator of which is one
minus the then current combined federal, state and local statutory tax rate of
such Person, expressed as a decimal, in each case, on a consolidated basis and
in accordance with GAAP, and (v) (without duplication of any of the foregoing)
one-third of the aggregate rental obligations of such Person and its
Subsidiaries for such period, whether paid or accrued, in respect of leases of
real and personal property, whether or not such obligations are reflected as
liabilities on the balance sheet of such Person and its Subsidiaries.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession in the United States.
"Guarantee" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"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 of and 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
GAAP, (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. "Indebtedness" shall not include: (i) any indebtedness of the Company
to any Subsidiary or to any Affiliate of the Company or any of the Subsidiaries,
(ii) 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), other
current liabilities (other than for borrowed money) or deferred revenue and
deposits of the Company on the books of the Company, (iii) any indebtedness of
or amount owed by the Company to employees for services rendered to the Company,
and (iv) any liability for federal, state, local or other taxes owing or owed by
the Company.
"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.
"Net Income" means, with respect to any Person, the net income (loss)
of such Person, determined in accordance with GAAP and before any reduction in
respect of preferred stock dividends, excluding, however, (i) any gain (but not
loss), together with any related provision for taxes on such gain (but not
loss), realized in connection with any Sale of Assets, and (ii) any
extraordinary or nonrecurring gain (but not loss), together with any related
provision for taxes on such extraordinary or nonrecurring gain (but not loss).
"Odd Lot Purchase Program" shall mean the redemption by the Company,
up to the maximum aggregate amount of $250,000 in any fiscal year, of shares of
the Common Stock.
"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 .
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<PAGE> 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.
"Permitted Refinancing Indebtedness" means any Indebtedness of the
Company or any of its Subsidiaries issued in exchange for, or the net proceeds
of which are used solely to extend, refinance, renew, replace, defease or
refund, other Indebtedness of the Company or any of its Subsidiaries; provided
that, except in the case of Indebtedness of the Company issued in exchange for,
or the net proceeds of which are used solely to extend, refinance, renew,
replace, defease or refund, Indebtedness of a Subsidiary of the Company: (i)
the principal amount of such Permitted Refinancing Indebtedness does not exceed
the principal amount of the Indebtedness so extended, refinanced, renewed,
replaced, defeased or refunded (plus the amount of any premiums paid and
reasonable expenses incurred in connection therewith); (ii) such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and has a Weighted Average Life to Maturity equal to or
greater than the Weighted Average Life to Maturity of, the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; (iii) if the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded is subordinated in right of payment to the Securities, such Permitted
Refinancing Indebtedness has a final maturity date later than the final
maturity date of, and is subordinated in right of payment to, the Securities on
terms at least as favorable to the Holders of Securities as those contained in
the documentation governing the Indebtedness being extended, refinanced,
renewed, replaced, defeased or refunded; and (iv) such Indebtedness is incurred
either by the Company or by the Subsidiary who is the obligor on the
Indebtedness being extended, refinanced, renewed, replaced, defeased or
refunded.
"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
<PAGE> 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.
"Restricted Payment" shall mean, with respect to any Person, (i) the
declaration or payment of any dividend or the occurrence of any liability to
make any other payment or distribution of cash or other property or assets in
respect of such Person's Stock, excluding dividends from one Subsidiary to
another or to the Company and excluding cash dividends by the Company which do
not exceed $750,000 in the aggregate in any fiscal year, (ii) except for (A)
the Odd Lot Purchase Program, (B) the purchase of shares of common stock of the
Company in the aggregate amount of up to $750,000 in any fiscal year, and (C)
in respect of the Stock Option Plans, any payment on account of the purchase,
redemption, defeasance or other retirement of such Person's Stock or any other
payment or distribution made in respect thereof, either directly or indirectly,
or (iii) any payment, loan, contribution, or other transfer of funds or other
property to any Stockholder of such Person in their capacity as Stockholders as
opposed to employees, directors or consultants, provided, however, that no Event
of Default exists or would be caused by the making of a Restricted Payment.
"Sale of Assets" means (i) any sale, lease, conveyance or other
disposition by the Company or any Subsidiary of the Company of any assets
(including by way of a sale-and-leaseback) other than in the ordinary course of
business (provided that the sale, lease, conveyance or other disposition of all
or substantially all of the assets of the Company shall not be a "Sale of
Assets" but instead shall be governed by the provisions of Section 12.01 of
this Indenture, or (ii) the issuance or sale of Capital Stock of any Subsidiary
of the Company, in each case, whether in a single transaction or a series of
related transactions, to any Person (other than to the Company).
"Securities" means the securities that are authenticated and delivered
under this Indenture.
5
<PAGE> 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 of and
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), (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 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)
other current liabilities (other than for borrowed money) or deferred revenues
and deposits of the Company on the books
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<PAGE> 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.
"Stock" shall mean all shares, options, warrants, general or limited
partnership interests, participation or other equivalents (regardless of how
designated) of or in a corporation, partnership or equivalent entity whether
voting or nonvoting, including, without limitation, common stock, preferred
stock, or any other "equity security" (as such term is defined in Rule 3a11-1
of the General Rules and Regulations promulgated by the Securities and Exchange
Commission under the Securities Exchange Act of 1934, as amended).
"Stock Option Plans" shall mean the 1989 Non-Employee Director Stock
Option Plan, the 1992 Stock Option Plan and the 1995 Stock Option Plan.
"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.
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<PAGE> 15
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Term Defined in Section
- ---- ------------------
<S> <C>
"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
</TABLE>
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.
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<PAGE> 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
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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 $27,500,000, 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 $4,125,000 pursuant to Section 2 of the Underwriting
Agreement, dated December __, 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 January __, 1997, 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.
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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
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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
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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
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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
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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, 2001 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
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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
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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
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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.
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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
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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
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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
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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.
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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.
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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
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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.
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
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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
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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.
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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
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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.
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(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
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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
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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.
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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
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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.
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(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.
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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;
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(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
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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).
SECTION 6.11 Restricted Payments. The Company shall not make any
Restricted Payment to any Person and the Company shall not permit any
Subsidiary or Affiliate to make any Restricted Payment other than to the
Company.
SECTION 6.12 Incurrence of Indebtedness and Issuance of Preferred
Stock. The Company will not, and will not permit any of its Subsidiaries to,
directly or indirectly, create, incur, issue, assume, Guarantee or otherwise
become directly or indirectly liable, contingently or otherwise, with respect
to (collectively, "incur"), after the date of issuance of the Notes, any
Indebtedness (including Acquired Debt) and the Company will not issue any
Disqualified Capital Stock and will not permit any of its Subsidiaries to issue
any shares of preferred stock. Indebtedness consisting of reimbursement
obligations in respect of a letter of credit will be deemed to be incurred when
the letter of credit is first issued.
The foregoing provisions will not apply to:
(i) the incurrence by the Company and its Subsidiaries of
Indebtedness represented by the Notes;
(ii) the incurrence by the Company or any of its Subsidiaries of
Permitted Refinancing Indebtedness in exchange for, or the net proceeds of
which are used to extend, refinance, renew, replace, defease or refund,
Indebtedness that was permitted by the Indenture to be incurred (including,
without limitation, Existing Indebtedness);
(iii) the incurrence by the Company or any of its Subsidiaries of
intercompany Indebtedness between or among the Company and any of its
Subsidiaries;
(iv) the incurrence by the Company or any of its Subsidiaries of
Indebtedness represented by performance bonds, standby letters of credit or
appeal bonds, in each case to the extent incurred in the ordinary course of
business of the Company or such Subsidiary; and
(v) the incurrence by the Company of Indebtedness, which, together
with all other Indebtedness outstanding as of the date of such incurrence, does
not exceed (a) five times EBITDA for the last four full fiscal quarters ending
immediately preceding such date, plus (b) $5.0 million.
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
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(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
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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
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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
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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
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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
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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.
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(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
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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
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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
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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.
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(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:
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(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.
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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
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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;
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(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
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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.
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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; (iii) the Company or the
surviving person (if other than the Company) (A) will have Consolidated Net
Worth (immediately after the transaction but prior to any purchase according to
adjustments resulting from the transaction) greater than or equal to the
Consolidated Net Worth of the Company immediately preceding the transaction and
(B) will, at the time of such transaction after giving pro forma effect thereto
as if such transaction had occurred at the beginning of the applicable
four-quarter period, be permitted to incur at least $1.00 of additional
Indebtedness pursuant to Section 6.12 and (iv) 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
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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
<PAGE> 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
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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:
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<PAGE> 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 December __, 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 Section 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 $31,625,000 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, 2001, 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:
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Year Percentage
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 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, any existing Person
(including, directly or indirectly, the immediate family (parents, spouse,
children, brothers or sisters) of any such
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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
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<PAGE> 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.
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<PAGE> 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
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<PAGE> 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.
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<PAGE> 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.
<PAGE> 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
<PAGE> 77
signature guarantee medallion program), pursuant to
S.E.C. Rule 17Ad-15.
<PAGE> 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.
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No. 2 to Registration Statement No.
333-15481 of Trans-Lux Corporation 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
December 19, 1996
