EX-99.A.1.A 3 offering021804.txt OFFERING CIRCULAR DATED 02/23/04 Exhibit (a)(1)(A) OFFERING CIRCULAR TRANS-LUX CORPORATION Offer to Exchange its 8 1/4% Limited Convertible Senior Subordinated Notes due 2012 for up to $15,000,000 Principal Amount of its 7 1/2% Convertible Subordinated Notes due 2006 THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME ON MARCH 31, 2004 UNLESS EXTENDED. Trans-Lux Corporation (the "Company" or "Trans-Lux") hereby offers (the "Exchange Offer") upon the terms and conditions stated in this Offering Circular and in the accompanying Letter of Transmittal $1,000 principal amount of its 8 1/4% Limited Convertible Senior Subordinated Notes due March l, 2012 ("New Notes") in exchange for each $1,000 principal amount of 7 1/2% Convertible Subordinated Notes due December l, 2006 ("Old Notes"). Subject to the terms and conditions of the Exchange Offer,we will accept for exchange from the holders ("Old Noteholders") no less than an aggregate of $4,000,000 principal amount of the outstanding Old Notes and up to an aggregate of $15,000,000 principal amount (approximately 49.7%) of the outstanding Old Notes properly tendered and not withdrawn prior to the expiration of the Exchange Offer. If the minimum amount is not tendered, we may terminate the Exchange Offer without accepting tenders. If more than the maximum amount is tendered, we will accept all tendered Old Notes on a pro rata basis. We also reserve the right to amend the Exchange Offer and accept all tendered Old Notes if less than the minimum or if in excess of the maximum is tendered. (See "The Exchange Offer-Conditions of the Exchange Offer.") Subject to applicable securities laws and the terms set forth in this Offering Circular, we reserve the right to waive any and all conditions of the Exchange Offer. The New Notes will provide for a higher interest rate, a longer term, will be convertible into Common Stock at a lower conversion price of $9.00 per share, until 2007 and are senior to the Old Notes and the Company's 9 1/2% Subordinated Debentures due 2012 but do not have any restriction on issuance of additional indebtedness, issuance of preferred stock or restricted payments. (See "Summary of the Exchange Offer" for differences between the Old Notes and New Notes.) The Old Notes are convertible into Common Stock of the Company at a conversion price of $14.013 per share. On February 20, 2004, the last sale prices of the Old Notes and the Common Stock on the American Stock Exchange were $100.00 per $1,000 principal amount and $7.03 per share, respectively. For a more complete description of the New Notes we propose to issue in the Exchange Offer, see the section of this Offering Circular entitled "Description of New Notes." Executive officers and directors of the Company who own an aggregate of $110,000 of the Old Notes have indicated they will tender their Old Notes. NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR ADEQUACY OF THIS OFFERING CIRCULAR. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ___________________ HOW TO EXCHANGE Tendering Old Noteholders must either (i) complete and sign the accompanying Letter of Transmittal, have their signatures guaranteed, if required, and forward the Letter of Transmittal with their certificate(s) and other required documentation to Wells Fargo Bank, N.A., the Exchange Agent, at the address set forth herein, or (ii) request their brokers, dealers, banks or trust companies to effect the transaction for them, or (iii) follow the procedures for guaranteed delivery, in each case, prior to 5:00 P.M. New York City time on March 31, 2004. (See "The Exchange Offer-How to Tender Old Notes.") ___________________ Questions regarding the Exchange Offer or requests for information may be directed to the Company at (203) 853-4321 (call Ms. Angela D. Toppi, Secretary) or e-mail to atoppi@trans-lux.com. ___________________ The date of this Offering Circular is February 23, 2004 The Exchange Offer is being made by the Company in reliance on the exemption from the registration requirements of the Securities Act of 1933, as amended, afforded by Section 3(a)(9) thereof. The Company therefore, will not pay any commission or other remuneration to any broker, dealer, salesperson or other person for soliciting tenders of Old Notes. However, regular employees of the Company (who will not be additionally compensated therefor) may solicit tenders and will answer inquiries concerning the Exchange Offer. Tendering Old Noteholders will not be obligated to pay brokerage commissions on the exchange. No person is authorized by the Company to give any information or to make any representation, in connection with the offering made hereby, other than as contained in this Exchange Offer including the documents incorporated by reference in this Offering Circular. This Exchange Offer does not constitute an offer by the Company in any jurisdiction to any person to whom such offer would be unlawful in such jurisdiction. This Exchange Offer speaks as of its date of issue. Neither delivery hereof nor any exchanges 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. Statements contained in this Exchange Offer concerning the contents of any documents are not necessarily complete; with respect to each such document, copies are available for inspection at the Company's executive office. Reference is hereby made to such documents for a more complete description of the matter involved and each such statement shall be deemed to be qualified in its entirety by such reference. Holders of Old Notes should consult their own attorney, financial advisor or tax advisor as to legal, financial or tax advice with respect to the Exchange Offer. In general, the exchange of Old Notes for New Notes should constitute a tax-free recapitalization for Federal income tax purposes (see "The Exchange Offer-Tax Consequences"). (i) TABLE OF CONTENTS Page ---- SUMMARY TERM SHEET . . . . . . . . . . . . . . . . . . . . 1 TERMS OF THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . 8 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION SUMMARY CONSOLIDATED FINANCIAL DATA . . . . . . . . . . . . . . 10 CONSOLIDATED STATEMENTS OF OPERATIONS DATA . . . . . . . . . . . 10 RATIO OF EARNINGS TO FIXED CHARGES. . . . . . . . . . . . . . . 11 CONSOLIDATED BALANCE SHEET DATA . . . . . . . . . . . . . . . . 11 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Leverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Risks Related to a Repurchase Event . . . . . . . . . . . . . . . . . . . 13 Reliance on Key Suppliers . . . . . . . . . . . . . . . . . . . . . . . . 14 Competition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Nature of Leasing and Maintenance Revenues. . . . . . . . . . . . . . . . 14 Dependence on Key Personnel . . . . . . . . . . . . . . . . . . . . . . . 14 Effect of Certain Anti-Takeover Provisions and Control by Existing Stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Absence of Public Market for the New Notes . . . . . . . . . . . . . . . 15 Limited Trading Volume and Volatility of Stock Price . . . . . . . . . . 15 Share Eligible for Future Sale . . . . . . . . . . . . . . . . . . . . . 16 THE EXCHANGE OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Terms of the Exchange Offer . . . . . . . . . . . . . . . . . . . . . . . 17 Principal Differences Between the New Notes and the Old Notes . . . . . . 17 Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Limited Convertibility . . . . . . . . . . . . . . . . . . . . . . . . 17 Redemption and Sinking Funds. . . . . . . . . . . . . . . . . . . . . . 17 Maturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Security . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Subsequent Trading in Securities Exchanged . . . . . . . . . . . . . . . 18 Purpose of the Exchange Offer . . . . . . . . . . . . . . . . . . . . . . 18 Tax Consequences . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Expiration and Extension of the Exchange Offer . . . . . . . . . . . . . 18 Conditions of the Exchange Offer . . . . . . . . . . . . . . . . . . . . 19 How to Tender Old Notes . . . . . . . . . . . . . . . . . . . . . . . . . 19 Terms and Conditions of the Letter of Transmittal . . . . . . . . . . . . 21 Withdrawal of Tenders . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Acceptance of Tenders of Old Notes; Delivery of New Notes . . . . . . . . 21 Exchange Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Payment of Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 PRICE RANGE OF OLD NOTES AND COMMON STOCK AND DIVIDENDS ON COMMON STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 USE OF PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 DESCRIPTION OF NEW NOTES . . . . . . . . . . . . . . . . . . . . . . . . . 24 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Conversion Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 (ii) Page ---- Consolidation, Merger and Sale of Assets. . . . . . . . . . . . . . . . . 28 Modification and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 29 Repurchase at Option of Holders Upon a Repurchase Event . . . . . . . . . 29 Satisfaction and Discharge . . . . . . . . . . . . . . . . . . . . . . . 31 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 Information Concerning the Trustee. . . . . . . . . . . . . . . . . . . . 31 DESCRIPTION OF OLD NOTES. . . . . . . . . . . . . . . . . . . . . . . . . . 33 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Conversion Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 Restriction on Incurrence of Indebtedness and Issuance of Preferred Stock 35 Restricted Paymetns . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Subordination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Optional Redemption . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 Consolidation, Merger and Sale of Assets . . . . . . . . . . . . . . . . 40 Modification and Waiver . . . . . . . . . . . . . . . . . . . . . . . . . 41 Repurchase at Option of Holders Upon a Repurchase Event . . . . . . . . . 41 Satisfaction and Discharge. . . . . . . . . . . . . . . . . . . . . . . . 43 Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Information Concerning the Trustee. . . . . . . . . . . . . . . . . . . . 43 DESCRIPTION OF CAPITAL STOCK. . . . . . . . . . . . . . . . . . . . . . . . 45 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Class B Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Class A Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 Delaware Anti-Takeover Law. . . . . . . . . . . . . . . . . . . . . . . . 46 Limitation of Liability and Indemnification Matters . . . . . . . . . . . 47 Special Voting Requirements . . . . . . . . . . . . . . . . . . . . . . . 47 Transfer Agent and Registrar. . . . . . . . . . . . . . . . . . . . . . . 48 INCORPORATION OF DOCUMENTS BY REFERENCE . . . . . . . . . . . . . . . . . . 49 INFORMATION AND LETTER OF TRANSMITTAL REQUESTS. . . . . . . . . . . . Back Cover (iii) SUMMARY TERM SHEET ------------------ Through this Offering Circular and the enclosed Letter of Transmittal, we are offering to exchange $1,000 principal amount of our 8 1/4% Limited Convertible Senior Subordinated Notes due March 1, 2012 (the "New Notes") for each $1,000 principal amount of our 7 1/2% Convertible Subordinated Notes due December 1, 2006 (the "Old Notes") for tenders of no less than an aggregate of $4,000,000 and up to $15,000,000 principal amount of the outstanding Old Notes. The following are some of the questions you may have as a Holder of the Old Notes and answers to those questions. The following summary highlights selected information from this Offering Circular, but may not contain all the information you will need to make a decision regarding whether or not to tender your Old Notes and accept our New Notes in exchange. This Offering Circular includes specific terms of the Exchange Offer including a description of the New Notes, the Old Notes and some financial data. We encourage you to carefully read this Offering Circular and the related documents to which we refer you in their entirety, including the discussion of risks and uncertainties affecting our business included in the section of the Offering Circular entitled "Risk Factors" beginning on page 13. Who Is Making the Exchange Offer? Trans-Lux Corporation, a Delaware corporation, is making the Exchange Offer. We are a worldwide full-service provider of integrated multimedia systems for communication environments. The essential elements of these systems are the real-time, programmable electronic information displays we manufacture, distribute and service. Those displays are designed to meet the evolving communication needs of both the indoor and outdoor markets and are used primarily in applications for financial, banking, gaming, corporate, transportation, entertainment and sports industries and markets. In addition to our display business, we own and operate a chain of motion picture theatres in the western Mountain States. Founded 84 years ago, we are the oldest listed company on the American Stock Exchange, where our common stock has traded under the symbol "TLX" since 1925. Our headquarters are located at 110 Richards Avenue, Norwalk, Connecticut 06856-5090, our telephone number is (203) 853-4321 and our website address is www.trans-lux.com. For more information concerning Trans-Lux, see the section of this Offering Circular entitled, "Incorporation of Documents by Reference." Neither we nor any of our subsidiaries or any of our other affiliates or directors had any transactions in Old Notes in the two year period preceding the Exchange Offer. What Class and Amounts of Securities Are Sought in the Exchange Offer? We are offering to exchange our New Notes for minimum tenders of an aggregate of $4,000,000 and up to a maximum of $15,000,000 of our outstanding Old Notes, representing 49.7% of our currently outstanding $30,177,000 principal amount of our Old Notes. The Exchange Offer is subject to our right to extend the Exchange Offer in our sole and absolute discretion and amend or terminate the Exchange Offer if the conditions set forth in this Offering Circular entitled, "The Exchange Offer-Conditions of the Exchange Offer" are not satisfied. If the maximum $15,000,000 principal amount of Old Notes is tendered pursuant to the Exchange Offer, we will issue $15,000,000 principal amount of New Notes. If the minimum amount of Old Notes is not tendered, we will terminate the Exchange Offer and return any Old Notes which are tendered. If more than an aggregate of $15,000,000 of Old Notes is tendered, we will accept them on a pro rata basis. We also reserve the right to amend the Exchange Offer and accept all tendered Old Notes if less than the aggregate of $4,000,000 minimum or more than the aggregate of $15,000,000 maximum are tendered. For more information regarding the terms of the Exchange Offer, see the section of the Offering Circular entitled "The Exchange Offer." 1 What Securities Is Trans-Lux Offering to Issue in Exchange for My Old Notes? We are offering to issue $1,000 principal amount of our 8 1/4% Limited Convertible Senior Subordinated Notes due 2012 for each $1,000 principal amount of our 7 1/2% Convertible Subordinated Notes due 2006 that is properly tendered and not withdrawn subject to the maximum and minimum limitations of the Exchange Offer. On February 20, 2004, the day before commencement of the Exchange Offer, the last reported price of the Old Notes on the American Stock Exchange was $100.00 per Old Note the last reported price of our Common Stock into which the Old Notes are convertible was $7.03 share. The 8 1/4% Limited Convertible Senior Subordinated Notes have the following characteristics. -- An annual rate of 8.25% or $82.50 annually per $1,000 principal amount, payable semi-annually. -- Convertible into 111 shares of our Common Stock for each $1,000 principal amount of New Notes or a conversion rate of $9.00 per share up to and including March 1, 2007, after which the New Notes will no longer be convertible into Common Stock. -- The New Notes are senior in payment to the Old Notes and other Subordinated Indebtedness of Trans- Lux not ranking equal to the New Notes, but are subordinated in payment to all Senior Indebtedness (as defined in the section entitled "Description of New Notes-Subordination" upon its occurrence of any liquidation (voluntary or otherwise), dissolution or winding up of Trans-Lux. -- Payable upon maturity on March 1, 2012 unless earlier redeemed by Trans-Lux or converted into Common Stock prior to March 1, 2007. -- No restrictions on issuance of additional indebtedness, issuance of referred stock or restricted payments. -- Not subject to any sinking fund. -- Redeemable at the option of Trans-Lux at any time after March 1, 2006 at 102% of principal amount ($1,020 per $1,000 principal amount) declining to 101% on March 1, 2007, and 100% on or after March 1, 2008. -- Not secured. If you tender Old Notes in this Exchange Offer, and the Exchange Offer is consummated, you will receive the interest on the Old Notes at the annual rate of 7 1/2% through the Expiration Date and thereafter receive interest on the New Notes from date of issuance payable on the March 1 and September 1 semi- annual interest payment dates. For more information describing the New Notes, see the section of this Offering Circular entitled "Description of New Notes." How Do the Terms of the New Notes Compare to the Terms of the Old Notes? Following is a comparison of the New Notes and the Old Notes: -- The interest rate of the New Notes is 8.25% per annum, while the Old Notes have an interest rate of 7.50% per annum. -- The conversion rate on the New Notes is $9.00 per share per $1,000 principal amount or 111 shares of Common Stock, while the conversion rate on the Old Notes is $14.013 per $1,000 principal amount or 71 shares of Common Stock. The New Notes are convertible until March 1, 2007, while the Old Notes are convertible until December 1, 2006, their maturity date. 2 -- The New Notes are redeemable by the Company after March 1, 2006 at 102% of principal amount, declining to 101% on March 1, 2007, and 100% on March 1, 2008 and thereafter, and at maturity, respectively, while the Old Notes are currently redeemable at 101.875%, declining to 101.938% on December 1, 2004, and 100% on December 1, 2005 and thereafter, and at maturity. -- The New Notes are senior in payment to the Old Notes in the event of liquidation, dissolution or winding up of the Company. -- The New Notes do not restrict the incurrence of additional indebtedness, issuance of preferred stock or restricted payments, while the Old Notes do have restrictions on incurrence of additional indebtedness, issuance of preferred stock and restricted payments. -- Neither the New Notes nor the Old Notes have a sinking fund for the purpose of retiring any part of such indebtedness prior to maturity. What Is the Purpose of the Exchange Offer? The Board of Directors believes implementation of the Exchange Offer at this time when the trading price of the Common Stock is substantially below the $14.013 conversion price of Old Notes would enable it to provide longer term financing. It would also eliminate future potential dilution after March 1, 2007 when the New Notes are no longer convertible. What Does the Trans-Lux Board of Directors Think of the Exchange Offer? While directors who own an aggregate of $110,000 of Old Notes have indicated they will tender their Old Notes, our Board of Directors is not making any recommendations regarding whether you should tender your Old Notes in the Exchange Offer and, accordingly, you must make your own determination as to whether to tender your Old Notes and receive the New Notes we propose to issue in exchange. We urge you to make your own decision by carefully reading this Offering Circular and the other documents to which we refer, including the discussion entitled "Risk Factors." Does the Board of Directors Believe the Exchange Offer is Fair to Unaffiliated Security Holders? No director dissented or abstained in the vote. The Board of Directors believes the transaction is fair because Holders are being offered a higher rate of interest, extended maturity of their debt securities and New Notes which are senior to the Old Notes in the event of bankruptcy, liquidation or reorganization in exchange for acceptance of removal of the conversion feature after March 1, 2007. The Board of Directors used their best judgment to select the interest rate based on prevailing interest rates and likewise selected the extended maturity in light of maturities of note issues and believes approximately 8 years extension to be an appropriate time frame. We believe the Exchange Offer is fair because Old Noteholders have the right to reject the Exchange Offer and are not forced to accept the New Notes. We did not consider net book value, going concern value, liquidation value or purchase price of previous Old Notes by us or Affiliates in determining the fairness thereof, nor did we receive any firm offers by unaffiliated persons for a merger of Trans-Lux with another person or sale of all or substantially all our assets to another person or for sale of control of Trans-Lux during the past 18 months. No approval of a majority or unaffiliated security holders is required for the Exchange Offer. No unaffiliated representative has been retained to negotiate the terms of the Exchange Offer and/or prepare a report concerning the fairness of the transaction. What Risks Should I Consider In Deciding Whether or Not to Tender My Old Notes? In deciding whether to participate in the Exchange Offer, you should carefully consider the discussion of risks and uncertainties affecting our business in the section of this Offering Circular entitled "Risk Factors." 3 Are We Able to Issue the New Notes? Yes. The New Notes we propose to issue in the Exchange Offer do not require stockholder approval. The Exchange Offer also is not prohibited by terms of our principal loan and security agreement which was entered into in February, 2003, and the amount to be issued does not exceed limitations on Indebtedness in the Indenture governing the Old Notes. The Exchange Offer is being made in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act of 1933, as amended ("Securities Act") and the New Notes have not been registered with the Securities and Exchange Commission ("SEC"). Accordingly, we are not required to have an effective registration statement on file with the SEC to register the issuance of New Notes in the Exchange Offer, and, as a result, the issuance of the New Notes need not be delayed pending SEC review of a registration statement. Therefore, provided that none of the events set forth in the section of this Offering Circular entitled "The Exchange Offer-Conditions of the Exchange Offer" has occurred and unless terminated by us, we intend to issue New Notes for properly tendered Old Notes promptly following the expiration of the Exchange Offer. For more information concerning the timing of the issuance of the New Notes in the Exchange Offer, see the section of this Offering Circular entitled "The Exchange Offer-Acceptance of Tenders of Old Notes; Delivery of New Notes." What are the Conditions of the Exchange Offer? The Exchange Offer is being made in reliance on the exemption from registration provided by Section 3(a)(9) of the Securities Act and has not been registered with the SEC. The Exchange Offer is subject to a number of customary conditions, any or all of which we may waive. If any of these conditions are not satisfied, we will not be obligated to accept and exchange any properly tendered Old Notes. For more information regarding the conditions of the Exchange Offer, see the section of this Offering Circular entitled, "The Exchange Offer-Conditions of the Exchange Offer." Will Trans-Lux Receive Any Cash Proceeds From the Exchange Offer? No. We will not receive any cash proceeds from the Exchange Offer. How long do I have to Decide Whether to Tender? You will have until 5:00 p.m., New York City time, on March 31, 2004 to tender your Old Notes. If you cannot deliver your Old Note Certificates and the other documents required to make a valid tender by that time, you may be able to use a guaranteed delivery procedure. For more information regarding the time period for tendering your Old Notes, including the use of a guaranteed delivery procedure, see the sections of this Offering Circular entitled "The Exchange Offer-Terms of the Exchange Offer; Terms and Conditions of the Letter of Transmittal" and "How to Tender Old Notes." Can the Exchange Offer be Extended or Amended and Under What Circumstances? We can extend the Exchange Offer in our sole and absolute discretion, and we reserve the right to do so. During an extension of the Exchange Offer, Old Notes that were previously tendered and not withdrawn will remain subject to the extended Exchange Offer. In addition, we expressly reserve the right to amend the Exchange Offer, and not to accept any Old Notes if any of the events described in the section of this Offering Circular entitled "The Exchange Offer-Conditions of the Exchange Offer" are not satisfied. For more information regarding our right to extend or amend the Exchange Offer, see the sections of this Offering Circular entitled "The Exchange Offer-Terms of the Exchange Offer," and "How to Tender Old Notes." 4 How Will I be Notified if the Exchange Offer is Extended or Amended? If we extend or amend the Exchange Offer, we will issue a press release or another form of public announcement. In the case of an extension, a release or announcement will be issued no later than 9:00 a.m., New York City time, on the next business day after the previously scheduled expiration date of the Exchange Offer. For more information regarding notification of extensions or amendments of the Exchange Offer, see the section of this Offering Circular entitled "The Exchange Offer-Terms of the Exchange Offer," and "Expiration and Extension of the Exchange Offer." How do I Tender my Old Notes? If Old Notes are held in certificated form, they must be tendered by delivering the certificates representing your Old Notes, together with a completed Letter of Transmittal and any other documents required by the Letter of Transmittal, to the Exchange Agent, not later than the time the Exchange Offer expires. If the Old Notes are held in street name (that is, through a broker, dealer or other nominee), the Old Notes can be tendered by your nominee through The Depository Trust Company, or DTC. If your Old Notes are held by a broker, you should receive instructions from your broker on how to participate in the Exchange Offer. If you do not receive instructions, you should contact your broker. If you cannot provide the Exchange Agent with all of the required documents prior to the expiration of the Exchange Offer, you may obtain additional time to do so by submitting a notice of guaranteed delivery to the Exchange Agent, which must be certified by a broker, bank or other fiduciary that is a member of the Securities Transfer Agent Medallion Program or another eligible institution guarantee. You are also required to guarantee that these items will be received by the Exchange Agent within three American Stock Exchange trading days, and for your tender to be valid, the Exchange Agent must receive the missing items within that three trading-day period. For more information regarding the procedures for tendering your Old Notes, see the section of this Offering Circular entitled "The Exchange Offer-How to Tender Old Notes." Can I Tender Only a Portion of my Old Notes? Yes. This is a voluntary Exchange Offer, which means that you may tender some, all or none of your Old Notes in the Exchange Offer. If you have a certificate that represents more than the principal amount of Old Notes you wish to tender, you may specify on the Letter of Transmittal how much principal amount of Old Notes is to be tendered and how much is to be returned to you. Any amount that you are not tendering but that is represented by certificates sent in to the Exchange Agent will be returned to you. See "The Exchange Offer- How to Tender Old Notes." What Should I do if I Want to Retain my Old Notes? Nothing, if you are not tendering any of your Old Notes in the Exchange Offer. However, if you are tendering some, but not all, of your Old Notes in the Exchange Offer, and the amount you wish to tender is represented by the same certificate as the amount you wish to retain, you will need to give certain instructions to the Exchange Agent as provided for in the instructions to the Letter of Transmittal. What Happens if More Than $15,000,000 Principal Amount of Old Notes is Tendered? If more than an aggregate of $15,000,000 principal amount in Old Notes is tendered in the Exchange Offer, all Old Notes that are validly tendered will be accepted for exchange on a pro rata basis. Proration will be based on the amount of Old Notes that each Holder has tendered in the Exchange Offer, and not on that Holder's aggregate ownership of Old Notes. Any Old Notes not accepted for exchange as a result of proration will be returned to tendering Holders. 5 When Will I Receive the New Notes in Exchange for my Old Notes? Subject to the satisfaction or waiver of all conditions of the Exchange Offer, and assuming we have not previously elected to withdraw or amend the Exchange Offer, we will accept for exchange your Old Notes that are properly tendered and not withdrawn prior to the expiration of the Exchange Offer at 5:00 p.m., New York City time, on March 31, 2004. Promptly following this date, New Notes will be delivered in exchange for Old Notes, up to the maximum amount we are offering to exchange. For more information regarding our obligation to issue the New Notes in exchange for tendered Old Notes, see the section of this Offering Circular entitled "The Exchange Offer-Acceptance of Tenders of Old Notes; Delivery of New Notes." What Happens if my Old Notes are not Accepted for Exchange? If we decide for any reason not to accept any Old Notes, we will return the Old Notes to the registered Holder at our expense promptly after the expiration or termination of the Exchange Offer. For more information regarding the withdrawal of tendered Old Notes, see the sections of this Offering Circular entitled "The Exchange Offer-Terms of Exchange Offer; Withdrawal of Tenders." Until When may I Withdraw Previously Tendered Old Notes? You may withdraw previously tendered Old Notes at any time until the Exchange Offer has expired. If we have not agreed to accept your Old Notes for exchange by March 31, 2004, you may withdraw them at any time after that date until we accept your Old Notes for exchange. For more information regarding your right to withdraw tendered Old Notes, see the section of this Offering Circular entitled "The Exchange Offer-Withdrawal of Tenders." How do I Withdraw Previously Tendered Old Notes? To withdraw previously tendered Old Notes you are required to deliver, which you may do by facsimile, a written notice of withdrawal to the Exchange Agent, with all the information required by the notice of withdrawal. For more information regarding the procedures for withdrawing tendered Old Notes, see the section of this Offering Circular entitled "The Exchange Offer-Withdrawal of Tenders." What are the United States Federal Income Tax Consequences to me if I Participate in the Exchange Offer? In general, the exchange of Old Notes for New Notes should constitute a tax-free recapitalization for Federal income tax purposes. No gain or loss should be recognized by exchanging Old Notes as a result of their exchange. (See the section of this Offering Circular entitled "The Exchange Offer-Tax Consequences.") Will the New Notes be Listed for Trading? We anticipate that the New Notes will be traded in the over-the-counter market after issuance. We intend to apply for listing of the New Notes on the American Stock Exchange ("AMEX"). No assurance can be given that such New Notes will be listed on such Exchange. The Old Notes are listed on the AMEX. If, as a result of this Exchange Offer the principal amount of the Old Notes or the distribution and number of holders of such Old Notes should fall below such Exchange's minimum standards for listed securities, the Old Notes might be delisted by the AMEX, in which event it would be likely that the Old Notes would be traded in the over-the-counter market, see "The Exchange Offer- Subsequent Trading in Securities Exchanged." 6 Who can I talk to if I have Questions about the Exchange Offer? If you have questions regarding the information in this Offering Circular or the Exchange Offer, contact Ms. Angela D. Toppi, Secretary at (203) 853-4321 or atoppi@trans-lux.com. If you have questions regarding the procedures for tendering in the Exchange Offer or require assistance in tendering your Old Notes, contact the Exchange Agent. If you would like additional copies of this Offering Circular, our Quarterly Report for the period ended September 30, 2003 our 2002 Annual Report, or our Annual Meeting Proxy Statement, contact either Ms. Toppi or the Exchange Agent. Additional, this Offering Circular, the Letter of Transmittal and other documents sent to Holders are filed with the SEC and are available at no charge at the SEC's website at http://www.sec.gov. You can call the Exchange Agent at (612) 667-7390. You can also write to the Exchange Agent at the addresses listed on the back cover page of this Offering Circular. For more information regarding Trans-Lux, see the section of this Offering Circular entitled "Incorporation of Documents by Reference." You can also contact us at: Trans-Lux Corporation 110 Richards Avenue Norwalk, CT 06856-5090 Attention: Angela D. Toppi - Secretary Phone number: (203) 853-4321 Fax Number: (203) 866-9496 Email address: atoppi@trans-lux.com 7 TERMS OF THE EXCHANGE OFFER The following is a summary intended merely to supply, in non-technical terms, certain pertinent facts and highlights from material contained in the body of this Offering Circular. More detailed information may be found in the remainder of this Offering Circular, which investors should consider before making their investment decision. The Exchange Offer ------------------ The Company offers hereunder $1,000 principal amount of its 8 1/4% Limited Convertible Senior Subordinated Notes due March 1, 2012 ("New Notes") in exchange for each $1,000 principal amount of its 7 1/2% Convertible Subordinated Notes due December l, 2006 ("Old Notes"). New Notes Old Notes --------- --------- Type $1,000 principal amount of 8 1/4% $1,000 principal amount of 7 1/2% Limited Convertible Senior Convertible Subordinated Notes Subordinated Notes Aggregate Principal Amount $15,000,000 (if maximum of Old $30,177,000 (outstanding) Notes are exchanged) Annual Interest $82.50 for each $1,000 principal $75.00 for each $1,000 principal amount amount Maturity Date March l, 2012 December l, 2006 Subordination Provisions Subordinated to all Senior Subordinated to all Senior Indebtedness and Senior to Old Indebtedness and New Notes Notes Conversion Provisions Each $1,000 New Note is Each $1,000 Old Note is convertible into 111 shares of convertible into 71 shares of Common Stock at a conversion rate Common Stock at a conversion of $9.00 per share up through price of $14.013 per share until March 1, 2007 December 1, 2006 Optional Redemption Redemable by the Company at any Redeemable by the Company at any time, including time after Mach 1, 2006 at l02% currently at 101.875% and of principal amount, declining and eventually declining to to 101% on March 1, 2007 and 100% on December 1, 2005 declining to 100% on March 1, 2008 Restriction Provisions None Restriction on incurrence of additional indebtedness, issuance of preferred stock and restricted payments Sinking Fund None None Security None None Listing Application will be made to list on American Stock Exchange the American Stock Exchange
8 The Company is offering to exchange for a minimum of $4,000,000 and maximum of $15,000,000 principal amount of its outstanding Old Notes, see the section of this Offering Circular entitled "The Exchange Offer-Conditions of the Exchange Offer." 9 SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION SUMMARY CONSOLIDATED FINANCIAL DATA The following table sets forth summary consolidated financial data of Trans-Lux as of and for each of the periods indicated. We derived the consolidated financial data as of and for the nine months ended September 30, 2003 and 2002 from our unaudited consolidated financial statements. We derived the consolidated financial data as of and for each of the annual periods presented from our audited consolidated financial statements. This information is only a summary and you should read it in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the historical consolidated financial statements, and the related schedules and notes, contained in Trans-Lux's Annual Report on Form 10-K, which is incorporated by reference herein and Quarterly Reports on Form 10-Q and other information that Trans-Lux has filed with the SEC. See "Incorporation of Documents by Reference" on page 49. Consolidated Statement of Operations Data (in thousands, except per share data) Nine Months Ended September 30 Fiscal Year Ended December 31 ------------ ----------------------------- 2003 2002 2002 2001 2000 ---- ---- ---- ---- ---- Total revenues......................... $44,211 $58,164 $74,891 $70,171 $66,763 Gross profit from operations........... 11,971 16,608 21,038 23,536 20,789 Income (loss) before income taxes...... and income from joint venture.......... 1,491 ( 128) ( 161) 665 (3,451) Net income (loss)...................... 938 291 428 509 (2,231) Earnings (loss) per share Basic................................ $ 0.74 $ 0.23 $ 0.34 $ 0.40 $ (1.77) Diluted.............................. $ 0.54 $ 0.23 $ 0.34 $ 0.40 $ (1.77) Dividends per share: Common............................... $ 0.105 $ 0.105 $ 0.140 $ 0.140 $ 0.140 Class B.............................. $0.0945 $0.0945 $ 0.126 $ 0.126 $ 0.126 Other Financial Data: Calculation of earnings before interest, taxes, depreciation and amortization (EBITDA): Net income (loss).................... 938 291 428 509 (2,231) Interest expense, net................ 2,891 3,322 4,401 5,375 5,535 Provisions for income taxes.......... 976 238 212 553 ( 867) Depreciation and amortization........ 7,533 7,594 10,247 10,067 9,532 ------- ------- ------- ------- -------- EBITDA................................. $12,338 $11,445 $15,288 $16,504 $11,969 Capital expenditures................... 2,969 4,483 6,375 8,856 18,315 Depreciation and amortization.......... 7533 7,594 10,247 10,067 9,532 Cash flow provided by (used in): Operating activities................ 2722 3,930 9,198 8,184 6,559 Investing activities................ 3,826 (3,722) (4,842) (7,699) (8,957) Financing activities................ (2,983) ( 240) (1,785) 1,294 2,667 Net book value per share-basic......... 19.08 18.85 18.26 18.69 18.79 Net book value per share-diluted....... 15.88 15.80 15.58 15.74 15.78
10 Ratio of Earnings to Fixed Charges Nine Months Ended September 30 Fiscal Year Ended December 31 ------------ ----------------------------- 2003 2002 2002 2001 ---- ---- ---- ---- Ratio of earnings to fixed charges..... 1.13 1.19 1.61 1.15
Consolidated Balance Sheet Data (in thousands) Nine Months Ended September 30 Fiscal Year Ended December 31 ------------ ----------------------------- 2003 2002 2002 2001 ---- ---- ---- ---- Cash and cash equivalents............. $ 11,835 $ 5,667 $ 8,270 $ 5,699 Total assets.......................... 102,912 114,042 110,974 113,897 Long-term debt........................ 60,988 67,002 67,209 69,250 Stockholders' equity.................. 24,055 23,765 3,025 23,568
11 CAPITALIZATION The following table summarizes the Company's debt and stockholders' equity at September 30, 2003: September 30, 2003 Actual As Adjusted (in thousands) ------ ----------- (1) Short-term debt: Current portion of long-term debt.................................... $ 2,979 $ 2,979 ======== ======== Long-term debt(2): Notes payable........................................................ $ 29,754 $ 29,754 Subordinated notes: 7 1/2% convertible subordinated notes due 2006....................... 30,177 15,177 8 1/4% limited convertible senior subordinated notes due 2012........ --- 15,000 9 1/2% subordinated debentures due 2012.............................. $ 1,057 $ 1,057 -------- -------- Total long-term debt and subordinated notes.......................... $ 63,967 $ 63,967 ======== ======== Stockholders' equity: Preferred stock, par value $l.00 (authorized 500,000 shares; issued 0 shares) Common Stock, par value $1.00 (authorized 5,500,000 shares; issued 2,452,900 shares)............... $ 2,453 $ 2,453 Class B Stock par value $1.00 (authorized 1,000,000 shares; issued 287,505 shares)................. 287 287 Additional paid-in capital.............................................. 13,901 13,901 Retained earnings....................................................... 20,417 20,417 Accumulated other comprehensive loss.................................... ( 1,166) ( 1,166) Treasury stock at cost (1,479,688 shares)(3)............................ (11,837) (11,837) Total stockholders'equity............................................... 24,055 24,055 --------- -------- Total capitalization................................................. $ 88,022 $ 88,022 ========= ======== _______ (1) Adjusted to reflect the exchange of $15,000,000 principal amount of Old Notes for $15,000,000 principal amount of New Notes. (2) For information as of December 31, 2002 regarding the Company's long-term debt, commitments and contingencies, see Notes 10 and 15 of Notes to Consolidated Financial Statements which is incorporated by reference herein.. (3) Excludes additional 287,505 shares of Common Stock held for conversion of Class B Stock.
12 RISK FACTORS You should carefully consider the Risk Factors set forth below, as well as the other information appearing in this Offering Circular and the documents to which we refer you, including those incorporated by reference, before deciding whether or not to exchange your Old Notes for New Notes. Leverage As of September 30, 2003, without adjusting for the issuance of the New Notes on a dollar for dollar exchange for Old Notes, our total long-term debt (including current portion) was $64.0 million. We expect we will incur indebtedness in addition to the New Notes in connection with the implementation of our growth strategy. The Indenture governing the New Notes does not restrict the ability of us, or our subsidiaries, to incur additional indebtedness, including Senior Indebtedness. Additional indebtedness of the Company may rank senior or pari passu with the New Notes in certain circumstances, while additional indebtedness of our subsidiaries will rank effectively senior to the New Notes. See "Description of New Notes." Our ability to satisfy our obligations will be dependent upon our future performance, which is subject to prevailing economic conditions and financial, business and other factors, including factors beyond our control. There can be no assurance that our operating cash flows will be sufficient to meet our debt service requirements or to repay the New Notes at maturity or that we will be able to refinance the New 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 New Notes are senior to the Old Notes in the event of bankruptcy, liquidation or reorganization. The New Notes will be unsecured senior 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 our subsidiaries. In the event of our bankruptcy, liquidation or reorganization, our assets will be available to pay obligations on the New 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 New Notes then outstanding. The Holders of any indebtedness of our 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 New Notes. At September 30, 2003, we had approximately $17.4 million of outstanding Senior Indebtedness and our subsidiaries had indebtedness and other liabilities of approximately $21.2 million. In the event of a payment default with respect to Senior Indebtedness, no payments may be made on account of the New Notes until such default no longer exists with respect to our Senior Indebtedness. See "Description of New 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 New Notes may require us to repurchase all or a portion of such Holder's New Notes. If a Repurchase Event were to occur, there can be no assurance that we would have sufficient financial resources, or would be able to arrange financing, to pay the repurchase price for all the New Notes tendered by Holders thereof. In addition, the occurrence of certain Repurchase Events could constitute an event of default under certain of our current debt agreements, and our repurchase of the New 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 our borrowings of, including agreements relating to Senior Indebtedness. In the event a Repurchase Event occurs at a time when we are prohibited from purchasing the New Notes, we could seek the consent of our lenders to purchase the New Notes or could attempt to refinance the borrowings that contain such prohibition. If we do not obtain such a consent or repay such borrowings, we would remain prohibited from purchasing the New Notes. In such case, our failure to purchase tendered New Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a further default under certain of our existing debt agreements and may constitute a default under the terms of other indebtedness that we 13 may incur from time to time. In such circumstances, the subordination provisions in the Indenture would prohibit payments to the Holders of the New Notes. See "Description of New Notes-Repurchase at Option of Holders Upon a Repurchase Event." Reliance on Key Suppliers We design certain of our materials to match components furnished by suppliers. If such suppliers were unable or unwilling to provide us with those components, we would have to contract with other suppliers to obtain replacement sources. In particular, we purchase almost all of the LED module blocks used in our electronic information displays from a single supplier. We do 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. We believe there are presently other qualified vendors of these components. Our inability to obtain sufficient quantities of certain components as required, or to develop alternative sources at acceptable prices and within a reasonable time, could result in delays or reductions in product shipments that could have a materially adverse effect on our business and results of operations. Competition Our electronic information displays compete with a number of competitors, both larger and smaller than us, and with products based on different forms of technology. In addition, there are several companies whose current products utilize similar technology and who possess the resources to develop competitive and more sophisticated products in the future. Our success is somewhat dependent upon our ability to anticipate technological changes in the industry and to successfully identify, obtain, develop and market new products that satisfy evolving industry requirements. There can be no assurance that competitors will not market new products which have perceived advantages over our products or which, because of pricing strategies, render the products currently sold by us less marketable or otherwise adversely affect our operating margins. Our motion picture theatres are subject to varying degrees of competition in the geographic areas in which they operate. In one geographical area, theatres operated by national circuits compete with our theatres. Our 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 We derive a substantial percentage of our revenues from the leasing of our electronic information displays, generally pursuant to leases which generally have an average term of three years. Consequently, our future success is at least partly dependent on our ability to obtain the renewal of existing leases or to enter into new leases as existing leases expire. We also derive a significant percentage of our revenues from maintenance agreements relating to our display products. The average term of such agreements is generally three to five years. A portion of the maintenance agreements are cancelable upon 30 days notice. There can be no assurance that we 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 We believe that our President and Co-Chief Executive Officer, Michael R. Mulcahy and our Co-Chief Executive Officer and Executive Vice President, Thomas Brandt, 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. Mulcahy or Mr. Brandt. The Company has employment agreements with Mr. Mulcahy and Mr. Brandt which expire in 2005. The Company believes that in addition to the above referenced key personnel, there is a core group of executives that also plays a significant role in the success of the Company. 14 Effect of Certain Anti-Takeover Provisions and Control by Existing Stockholders Our Restated Certificate of Incorporation contains certain provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire control of us. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our Common Stock, thus making it less likely that a stockholder will receive a premium on any sale of shares. Under our Restated Certificate of Incorporation, we have 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, our Board of Directors is divided into three classes, each of which serves for a staggered three-year term, making it more difficult for a third party to gain control of our Board. Our Restated Certificate of Incorporation also has a provision that requires a four-fifths vote on any merger, consolidation or sale of assets with or to an "Interested Person" or "Acquiring Person." Additionally, we are authorized to issue 500,000 shares of Preferred Stock containing such rights, preferences, privileges and restrictions as may be fixed by our Board of Directors which may adversely affect the voting power or other rights of the holders of Common Stock or delay, defer or prevent a change in control of the Company, or discourage bids for the Common Stock at a premium over its market price or otherwise adversely affect the market price of the Common Stock. See "Description of Capital Stock-Preferred Stock." Our Board of Directors 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." As of December 31, 2003, 15 stockholders, who are executive officers and/or directors of the Company beneficially own approximately 78.99% of our outstanding Class B Stock, 18.01% of all classes and 59.01% of the voting power. As a result, these stockholders collectively will continue to have the ability to elect all of our 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 our Common Stock that could give stockholders the opportunity to realize a premium over the then prevailing market price for their shares of Common Stock. Absence of Public Market for the New Notes The New Notes are a new issue of securities for which there is currently no public market. Although the New Notes may be approved for listing on the AMEX if we satisfy present minimum listing requirements of $5,000,000 principal amount of New Notes, there is no assurance as to the liquidity of the market for the New Notes that may develop, the ability of the Holders to sell their New Notes or the prices at which Holders of the New Notes would be able to sell their New Notes. If a market for the New Notes does develop, the New Notes may trade at a discount from their face value of $1,000, depending on prevailing interest rates, the market for similar securities, or performance, the market price of our Common Stock and other factors. There is no assurance that an active trading market will develop or be maintained for the New Notes. Limited Trading Volume and Volatility of Stock Price Our 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 our Common Stock could cause the market price for the Common Stock to fluctuate substantially. In addition, stock markets have experienced wide price and volume fluctuations in recent periods and these fluctuations often have been unrelated to the operating performance of the specific companies affected. Any of these factors could adversely affect the market price of the Common Stock. 15 Shares Eligible for Future Sale Future sales of Common Stock in the public market following the Exchange Offer by current stockholders of the Company could adversely affect the market price for the Common Stock. Following the Exchange Offer, 250,990 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. Sales of substantial amounts of the shares of Common Stock in the public market, or even the potential for such sales, could adversely affect the prevailing market price of our Common Stock. 16 THE EXCHANGE OFFER Terms of the Exchange Offer Subject to the conditions described below, the Company hereof offers $1,000 principal amount of its 8 1/4% Limited Convertible Senior Subordinated Notes due 2012 ("New Notes") in exchange for each $1,000 principal amount of its 7 1/2% Convertible Subordinated Notes due 2006 ("Old Notes"). The Exchange Offer will expire 5:00 P.M., New York City time, on March 31, 2004 subject to extension by written notice by the Company to the Exchange Agent. Such date, as it may be extended, is herein referred to as the "Expiration Date." The Company is offering to exchange for up to $15,000,000 principal amount of $30,177,000 of its Old Notes presently outstanding. Tenders may be withdrawn at any time prior to 5:00 P.M., New York City time, on March 31, 2004 and at any time after April 23, 2004 if they have not been accepted by such date. We do not know whether or not Old Noteholders will find the Exchange Offer attractive and tender their Old Notes. However, executive officers and directors of the Company who own an aggregate of $110,000 of Old Notes have indicated they will tender their Old Notes. Principal Differences Between the New Notes and the Old Notes ----------------- Interest. The New Notes will bear interest at the rate of 8.25% (or $82.50 -------- per $1,000 principal amount) per annum. The interest will accrue beginning on the Effective Date of the Exchange Offer. The Old Notes bear interest at the rate of 7.50% (or $75.00 per $1,000 principal amount) per annum, and, with respect to Old Notes tendered and exchanged, such interest will accrue to the Effective Date of the Exchange Offer. Such interest, to the extent so accrued, will be paid to exchanging Holders of Old Notes together with their certificates for New Notes. Limited Convertibility. Each $1,000 principal amount of the New Notes will ---------------------- be convertible into 111 Shares of our Common Stock at $9.00 per share, subject to adjustment under certain conditions, up to March 1, 2007. Each $1,000 principal amount of the Old Notes is convertible into 71 shares of our Common Stock at $14.013 per share, subject to adjustment under certain conditions, until maturity on December 1, 2006. See "Price Range of Old Notes and Common Stock and Dividends on Common Stock" for a description of recent market prices of the Old Notes and the Common Stock and "Description of Old Notes" for a description of conversion rights. Redemption and Sinking Funds. The New Notes may, at the Company's option, ---------------------------- be redeemed, in whole or in part, at any time after March 1, 2006, at 102% of the principal amount redeemed plus accrued interest and at rates declining to 100% on and after March 1, 2008. We have no present intention to redeem the New Notes. There is no sinking fund for the New Notes or the Old Notes. The Old Notes are redeemable, at our option in whole or in part, at a current redemption price equal to 101.875% of the principal amount redeemed plus accrued interest, and declining to 100% on and after December 1, 2005. Maturity. The New Notes will mature in 2012 which is subsequent to the -------- maturity of the Old Notes which mature in 2006. Subordination. The New Notes and the Old Notes are each subordinated to ------------- Senior Indebtedness. However, the respective indentures provide that as between themselves, the New Notes are senior to the Old Notes upon any distribution of the Company's assets upon any dissolution, winding up, liquidation, readjustment or reorganization of the Company or its property. See "Description of New Notes" and "Description of Old Notes." 17 Restrictions. The New Notes do not have any restriction on incurrence of ------------ additional indebtedness, issuance of preferred stock or restricted payments. The Old Notes have restrictions on incurrence of additional indebtedness, issuance of preferred stock and restricted payments. Security. The New Notes and the Old Notes are unsecured. -------- Subsequent Trading in Securities Exchanged ------------------------------------------ It is anticipated that the New Notes will be traded in the over-the-counter market after issuance. The Company intends to apply for listing of the New Notes on the American Stock Exchange ("AMEX"). Eligibility for listing will depend primarily upon the total amount of New Notes issued pursuant to the Exchange Offer. The current requirements of the AMEX for the listing of an additional issue of debt securities are a principal amount outstanding of at least $5,000,000. No assurance can be given that the New Notes will be listed on such Exchange. The Old Notes are listed on the AMEX. If as a result of the Exchange Offer the principal amount of Old Notes or the distribution and number of Holders of such Old Notes should fall below the AMEX's minimum standards for listed Notes, such Old Notes might be delisted by the AMEX in which event it would be likely that the Old Notes would be traded in the over-the-counter market. The New Notes are issuable in denominations of $1,000 and integral multiples of $1,000. It is anticipated that New Notes in denominations of $1,000 will be traded in the over-the-counter market. In general, securities traded in the over-the-counter market may be subject to greater uncertainty with respect to such matters as marketability, eligibility for margin, and the cost of executing trades than is the case with securities listed on the AMEX. Purpose of the Exchange Offer The purpose of the Exchange Offer is to provide the Holders of the Old Notes an opportunity to receive a higher annual interest rate, a lower conversion rate, extension of the maturity of their debt securities, and subordination rights senior to the Old Notes in the event of bankruptcy, liquidation or reorganization in exchange for their acceptance of removal of the conversion feature of such debt securities in 2007, extending the maturity of the amount exchanged and removal of certain restrictions on the Company's issuance of additional indebtedness and preferred stock, repurchase of securities and payment of dividends. Tax Consequences ---------------- With respect to the Federal income tax consequences of the exchange, the Company believes that (i) no gain or loss would be recognized by any Noteholder on the receipt of New Notes solely in exchange for Old Notes; (ii) the basis of the New Notes received by an exchanging Noteholder would be the same as such Noteholder's basis in the Old Notes surrendered in exchange therefor; and (iii) the holding period of the New Notes received by an exchanging Noteholder would include the period during which such Noteholder held the Old Notes surrendered in exchange therefor, provided the Old Notes surrendered constituted a capital asset in the exchanging Old Noteholder's hands as of the date of the exchange. Expiration and Extension of the Exchange Offer The Exchange Offer will expire at 5:00 P.M., New York City time, on March 31, 2004 unless extended by the Company. During any extension of the Exchange Offer, all Old Notes previously tendered pursuant to the Exchange Offer will remain subject to the Exchange Offer (and to the withdrawal rights specified herein) and may be accepted for exchange by the Company. The Exchange Offer may be extended by oral or written notice from the Company to the Exchange Agent at any time or from time to time on or prior to the date then fixed for the 18 expiration of the Exchange Offer. The date fixed for the expiration of the Exchange Offer, as it may be extended, is referred to as the "Expiration Date." Public announcement of any extension of the Exchange Offer will be timely made by the Company, but, unless otherwise required by law or regulation, the Company shall not have any obligation to communicate such public announcement other than by making a release to the Dow Jones News Service, the substance of which is carried over the Dow Jones Broad Tape. Conditions of the Exchange Offer Notwithstanding any other provisions of the Exchange Offer, or any extension of the Exchange Offer, the Company will not be required to issue New Notes in respect of any properly tendered Old Notes not accepted and may amend or terminate the Exchange Offer (by oral or written notice to the Exchange Agent and by timely public announcement communicated, unless otherwise required by applicable law or regulation, by making a release to the Dow Jones News Service, the substance of which is carried over the Dow Jones Broad Tape) if any material change occurs which is likely to affect the Exchange Offer or the value or market price of the Old Notes including, but not limited to the following: (a) there shall be instituted or threatened any action or proceeding before any court or governmental agency challenging the Exchange Offer or otherwise directly or indirectly relating to the Exchange Offer or otherwise affecting the Company; (b) there shall occur any development in any pending action or proceeding, which, in the sole judgment of the Company, would or might (i) have an adverse effect on the business of the Company, (ii) prohibit, restrict or delay consummation of the Exchange Offer, or (iii) impair the contemplated benefits of the Exchange Offer; (c) there shall occur any general suspension of, or limitation on prices for, trading in securities on the AMEX; (d) any statute, rule or regulation shall have been proposed or enacted, or any action shall have been taken by any governmental authority, which, in the sole judgment of the Company, would or might (i) have an adverse effect on the business of the Company, (ii) prohibit, restrict or delay consummation of the Exchange Offer, or (iii) impair the contemplated benefits of the Exchange Offer; or (e) there shall occur any change, or development involving a prospective change, which has had or may have a material adverse effect on the business of the Company or the Exchange Offer. The foregoing conditions are for the sole benefit of the Company and may be waived by the Company, in whole or in part, in its sole discretion. Any determination made by the Company concerning an event described or referred to above will be final and binding on all parties to the Exchange Offer. The Company expressly reserves the right to terminate or amend the Exchange Offer and not accept for exchange any Old Note upon the occurrence of any of the foregoing conditions. How to Tender Old Notes In order to tender certificates of Old Notes for exchange, the Old Noteholder must submit a Letter of Transmittal which is being mailed to Holders of record. A Letter of Transmittal may be requested by sending a written request to Ms. Angela D. Toppi, Secretary, Trans-Lux-Corporation. Letters of Transmittal may also be obtained by telephone request to Ms. Toppi at (203) 853-4321 or by email at atoppi@trans-lux.com. Upon receipt of the Letter of Transmittal, an Old Noteholder may tender Old Notes by (i) properly completing and signing the Letter of Transmittal or facsimile thereof (all references in this Offering Circular to the Letter of Transmittal shall be deemed to include a facsimile thereof) and delivering the same, together with the certificate(s) representing the principal amount of Old Notes being tendered to the Exchange Agent on or prior 19 to the Expiration Date, or (ii) requesting a broker, dealer, bank, trust company or other nominee to effect the transaction. If tendered Old Notes are registered in the name of the signer of the Letter of Transmittal and the New Notes to be issued in exchange therefor are to be issued in the name of the registered Holder and delivered to the address appearing on the Company's transfer books, the signature of such signer need not be guaranteed. If New Notes are to be issued in the name of a person other than the registered Holder of the certificate(s) of Old Notes tendered, the tendered certificate(s) must be endorsed or accompanied by bond powers or written instruments of transfer in form satisfactory to the Company and duly executed by the registered owner, and the signature on the endorsement or bond power must be guaranteed by a participation in a Securities Transfer Association recognized signature program (any of the foregoing hereinafter referred to as an "Eligible Institution"). If the New Notes are to be delivered to an address other than that of the registered Holder appearing on the Company's transfer books, the signature in the Letter of Transmittal must be guaranteed by an Eligible Institution. THE METHOD OF DELIVERY OF THE OLD NOTES AND ALL OTHER DOCUMENTS IS AT THE ELECTION AND RISK OF THE OLD NOTEHOLDER. IF SENT BY MAIL, IT IS RECOMMENDED THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED BE USED, AND PROPER INSURANCE OBTAINED. For the convenience of Old Noteholders whose certificate(s) are not immediately available, tenders may be made without the concurrent deposit of certificate(s) if made through an Eligible Institution. In such case, the Letter of Transmittal must be received by the Exchange Agent prior to the Expiration Date and must contain a guarantee from an Eligible Institution that the tendered certificate(s) will be deposited within threee business days after the date of receipt of the Letter of Transmittal by the Exchange Agent and, if possible, should list the serial numbers of the tendered certificate(s). If an Old Noteholder desires to accept the Exchange Offer and time will not permit his or her Letter of Transmittal to reach the Exchange Agent before the Expiration Date, his or her tender may be effected if the Exchange Agent has received prior to such date a letter or facsimile transmission from an Eligible Institution setting forth the name of the tendering Old Noteholder, the principal amount tendered, the name(s) in which the Old Notes are registered and, if possible, the serial numbers of the certificate(s) to be tendered, and stating that the tender is being made thereby and guaranteeing that within three business days after the date of receipt of such letter or facsimile transmission by the Exchange Agent, the Old Note certificate(s) together with the Letter of Transmittal (and any other required documents), will be deposited by such Eligible Institution with the Exchange Agent. Unless certificates being tendered by either of the above- described methods are deposited with the Exchange Agent within the time periods set forth above (accompanied or preceded by a properly completed Letter of Transmittal), the Company may, at its option, reject that tender. A tender will be deemed to have been received by the Company as of the date when the tendering Old Noteholder's duly signed Letter of Transmittal accompanied by certificate(s) or a guarantee of delivery or a letter or facsimile transmission (as provided above) from an Eligible Institution is received by the Exchange Agent. Issuances of certificates for New Notes in exchange for Old Notes tendered pursuant to a guarantee of delivery or a letter or facsimile transmission (as provided above) by an Eligible Institution will be made only against deposit of the Letter of Transmittal (and any other required documents) and the tendered certificates. Any principal amount of Old Notes in multiples of $1,000 may be tendered. Tendering Old Noteholders may tender less than all of the principal amount represented by the certificates they hold provided they appropriately indicate this fact on the Letter of Transmittal accompanying their tendered Old Note certificates. Tenders of amounts which are not multiples of $1,000 will not be accepted. With respect to tenders of the Old Notes, the Company reserves full discretion to determine whether the documentation is complete and generally to determine all questions as to tenders, including the date of receipt of a tender, the propriety of execution of any document, and other questions as to the eligibility or acceptability of any tender. The Company reserves the right to reject any tender not in proper form or to waive any irregularities or conditions, and the Company's interpretation of the terms and conditions of the Exchange Offer (including the instructions on the Letter of Transmittal) will be final. The Company shall not be obligated to give notice of any defects or irregularities in tenders and shall not incur any liability for failure to give any such notice. Old Notes shall not be deemed to have been duly tendered unless and until all defects and irregularities have been cured or waived. Certificates for all improperly tendered Old Notes, as well as certificates representing principal amounts 20 in excess of those tendered for exchange, will be returned (unless irregularities and defects are timely cured or waived), without cost to the tendering Old Noteholder as soon as practicable after the Expiration Date. Terms and Conditions of the Letter of Transmittal The Letter of Transmittal contains the following terms and conditions, which are part of the Exchange Offer: Certificates for Old Notes tendered for exchange for New Notes must be received (or a timely confirmation of a book-entry transfer of such Old Notes into the Exchange Agent's account at Depository Trust Company (Cede & Co.) must be received) by the Exchange Agent, Wells Fargo Bank, N.A., with the Letter of Transmittal and any other required documents by 5:00 P.M., New York City time, on or prior to March 31, 2004 unless extended, or within the time periods set forth above in "How to Tender Old Notes" pursuant to a guarantee or letter or facsimile transmission from an Eligible Institution. The party tendering the Old Notes for exchange (the "Transferor") assigns and transfers Old Notes to the Company and irrevocably appoints the Company as the Transferor's attorney-in-fact to cause the Old Notes to be transferred and exchanged. The Transferor warrants that it has full power to tender these Old Notes and the Company will acquire good title to these Old Notes. All authority conferred by the Transferor will survive the death or incapacity of the Transferor. Signature(s) on the Letter of Transmittal will be required to be guaranteed and endorsement(s) on the certificates being tendered will be required as set forth above in "How to Tender Old Notes." All questions as to the validity, form, and eligibility (including time of receipt and acceptance of Old Notes tendered) will be determined by the Company, in its sole discretion, and such determination will be final and binding. Unless waived by the Company, irregularities and defects must be cured by the Expiration Date. The Company will pay all transfer taxes applicable, if any, due to the transfer and exchange of Old Notes tendered. Withdrawal of Tenders All tenders may be withdrawn at any time prior to 5:00 P.M. March 31, 2004 and after April 23, 2004 if not accepted by the Company. To be effective, notice of withdrawal must be timely received by the Company, addressed in writing to Ms. Angela D. Toppi, Secretary, Trans-Lux Corporation, 110 Richards Avenue, Norwalk, Connecticut 06856-5090, or by the Exchange Agent at its address set forth below under the person named in the Letter of Transmittal as having tendered the principal amount of Old Notes to be withdrawn, the name of the registered Holder of such Old Notes and the serial number shown on the particular certificate(s) to be withdrawn. The Exchange Agent will return the withdrawn Old Notes as soon as practicable following receipt of notice of withdrawal. All questions as to the validity, including time of receipt, of notices of withdrawals, will be determined by the Company, and such determination will be final and binding on all Old Noteholders. Acceptance of Tenders of Old Notes; Delivery of New Notes Subject to the terms and conditions of the Exchange Offer, Old Notes tendered as described in "How to Tender Old Notes" with a properly executed Letter of Transmittal and all other required documentation, and not withdrawn, will be accepted for exchange on the Expiration Date. Once accepted for exchange, tendered Old Notes cannot be withdrawn. Delivery of certificates of New Notes to be issued in exchange for properly tendered Old Notes will be made by the Exchange Agent as soon as practicable after acceptance of the Old Notes. Although the Company does not presently intend to do so, if it modifies the terms of the Exchange Offer, such modified terms will be available with respect to all Old Notes (but excluding any redeemed Old Notes), whether or not such Old Notes have been tendered prior to such modification. The acceptance by the Company of tendered Old Notes pursuant to any one of the procedures set forth in "How to Tender Old Notes" will constitute an agreement between the tendering Old Noteholder and the Company upon the terms and subject to the conditions of the Exchange Offer. 21 Exchange Agent Wells Fargo Bank, N.A., has been appointed as Exchange Agent for the Exchange Offer. Letters of Transmittal must be addressed to the Exchange Agent as follows: By Mail Wells Fargo Bank Minnesota, N.A. By Hand* Wells Fargo Corporate Trust Customized Fiduciary Services c/o The Depository Trust Company 6th and Marquette, MAC N9303-120 1st Floor; TADS Department Minneapolis, MN 55479 55 Water Street Attn: David Bergstrom New York, NY 10041 --------- *Hand delivery to other than the above address will not constitute valid delivery.
Payment of Expenses The Company will pay all the expenses of making the Exchange Offer, including the fees of the Exchange Agent. The Company will also reimburse brokerage houses and other custodians, nominees and fiduciaries for their reasonable out-of-pocket expenses in forwarding copies of this Offering Circular and related documents to the beneficial owners of Old Notes held in their names or in forwarding tenders for their customers. The Company has not retained any dealer-manager or similar agent in connection with the Exchange Offer and will not make any payments to brokers, dealers or others for soliciting tenders for the Exchange Offer. The Company estimates that expenses of making the Exchange Offer will be approximately $85,000. 22 PRICE RANGE OF OLD NOTES AND COMMON STOCK AND DIVIDENDS ON COMMON STOCK Our Common Stock is traded on the American Stock Exchange ("AMEX") under the symbol "TLX." Our Old Notes are traded on the AMEX under the symbol TLX.C. The following table sets forth the cash dividends paid on Common Stock and the high and low sale prices for the Company's Old Notes and Common Stock as reported on the AMEX for each quarterly period during the last two fiscal years. Dividends Old Notes Common Stock High Low High Low ---- --- ---- --- 2001 ---- First Quarter.............. $0.035 $ 80.00 $77.00 $5.25 $3.563 Second Quarter............. 0.035 86.00 76.25 7.05 4.20 Third Quarter.............. 0.035 82.50 80.00 6.00 4.00 Fourth Quarter............. 0.035 87.00 79.25 6.70 4.00 2002 ---- First Quarter.............. $0.035 $ 89.00 $80.125 $6.24 $ 4.85 Second Quarter............. 0.035 88.00 80.125 7.80 5.20 Third Quarter.............. 0.035 86.00 79.50 5.85 4.90 Fourth Quarter............. 0.035 83.75 78.25 6.15 4.79 2003 ---- First Quarter.............. $0.035 $ 82.00 $79.00 $5.35 $ 4.75 Second Quarter............. 0.035 84.00 79.25 6.55 5.10 Third Quarter.............. 0.035 92.00 84.00 7.79 6.00 Fourth Quarter............. 0.035 95.00 92.00 7.19 5.85 2004 ---- First Quarter.............. $0.035 $100.50 $94.00 $7.49 $ 5.99 (to February 20, 2004)
On February 20, 2004 the last reported sales price, for the Old Notes and Common Stock on the American Stock Exchange were $100.00 per Old Note and $7.03 per share, respectively. The financial covenants of our existing indebtedness may limit our ability to pay dividends on our capital stock. Any future payment of dividends is at the discretion of our Board of Directors and will depend upon, among other things, our results of operations, financial condition, capital requirements and other relevant factors. We intend to pay dividends currently on our Common Stock and Class B Stock. USE OF PROCEEDS There will be no proceeds to us from the exchange of New Notes for Old Notes. Any Old Notes accepted in the Exchange Offer will be cancelled. 23 DESCRIPTION OF NEW NOTES The New Notes offered hereby are to be issued under an Indenture (the "New Indenture"), to be dated as of March 1, 2004, between the Company and Wells Fargo Bank, N.A., as Trustee (the "Trustee"), a copy of which is filed as an exhibit to Schedule TO of which this Offering Circular is a part. The following summary of certain provisions of the New Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the New 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 New Indenture and is incorporated herein by reference. General The New Notes will be unsecured senior subordinated obligations of the Company, will be limited to an aggregate principal amount of $15,000,000 (subject to increase in the event the Exchange Offer is oversubscribed up to a maximum of $30,177,000 and the Company amends the Exchange Offer to accept tenders in excess of $15,000,000 of Old Notes) and will mature on March 1, 2012. The New Notes will bear interest at the rate per annum of 8.25%, payable semi-annually on March 1 and September 1 of each year, to the person in whose name the New Notes (or any predecessor New Notes) are registered at the close of business on the Regular Record Date for such interest, which shall be February 15 or August 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Interest on the New Notes will be paid on the basis of a 360-day year of twelve 30-day months, based on actual days elapsed. (Sections 2.04 and 6.01) Principal of, and premium, if any, and interest on the New Notes will be payable, and the transfer of New 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 register for the New Note. (Sections 2.03, 6.01 and 6.02) The New 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 New 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 New 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 New Notes for redemption in whole or in part, except the unredeemed portion of the New 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 New 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 New Note may, as an unsecured general creditor, look only to the Company for payment thereof. (Section 13.04) The New Indenture does not contain any provisions that would provide protection to Holders of the New 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 New Notes will be convertible into the Common Stock of the Company at any time following the date of initial issuance thereof and up to and including March 1, 2007 (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 of $9.00 per share (subject to adjustment as described below). The right to convert the New Notes called for redemption or delivered for repurchase will terminate at the close of business on March 1, 2007 24 and also on the last Trading Day prior to the Redemption Date or the Repurchase Date, if sooner, 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 New 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 New Note then outstanding would, without the consent of any Holders of the New 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 New 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) New 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 New 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 New 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 New Note on such Regular Record Date. Except as described above, no interest on converted New 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 25 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 New Indenture, the Conversion Price of the New Notes is reduced, such reduction may be deemed to be the payment of a taxable dividend to holders of the New Notes. Holders of the New Notes could, therefore, have taxable income as a result of an event pursuant to which they receive no cash or property that could be used to pay the related income tax. Subordination The payment of the principal of and premium, if any, and interest on the New Notes will, to the extent set forth in the New 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 New Notes will be entitled to receive any payment in respect of the principal of or premium, if any, or interest on the New 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 New 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 New Notes may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the Holders of the New 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 New Notes) whether or not contingent and whether outstanding on the date of execution of the New 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 26 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 New Notes or (b) ranks pari passu, in right of payment with the New 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 Old Notes and the Company's 9 1/2% Subordinated Debentures due 2012. (Section 1.01) However, the New Notes are Senior Indebtedness with respect to the Old Notes and the Company's 9 1/2% Subordinated Debentures due 2012. The New 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 New 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 New Indenture does not restrict the incurrence of additional Indebtedness, including Senior Indebtedness. At September 30, 2003, the Company's Senior Indebtedness aggregated approximately $17.4 million, excluding accrued interest and the Company's subsidiaries had indebtedness and other liabilities of approximately $21.2 million. The Company expects from time to time to incur additional indebtedness, including Senior Indebtedness. See Note 10 of "Notes to Consolidated Financial Statements" for a more detailed description of the Company's outstanding indebtedness. The Company's Old Notes and 9 1/2% Subordinated Debentures due 2012 are not Senior Indebtedness. Optional Redemption The New 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 New Notes to be redeemed at such Holder's address appearing in the Note Register, on any date prior to maturity. The Redemption Prices (expressed as a percentage of the principal amount) are as follows for the periods beginning March 1 of the years indicated: Year Percentage ---- ---------- 2006 102.00% 2007 101.00 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 New Notes. Events of Default The following will be Events of Default under the New Indenture: 27 (i) failure to pay principal of or premium, if any, on any New Note when due, whether or not such payment is prohibited by the subordination provisions of the New Indenture; (ii) failure to pay any interest on any New Note when due, continued for 30 days, whether or not such payment is prohibited by the subordination provisions of the New Indenture; (iii) default in the payment of the Repurchase Price in respect of any New Note on the Repurchase Date therefor, whether or not such payment is prohibited by the subordination provisions of the New Indenture; (iv) failure to perform or breach of any other covenant of the Company in the New Indenture, which continues for 60 days after written notice as provided in the New 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 New 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 New 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 New 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 New Notes may accelerate the maturity of all New 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 New 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 New Indenture. (Section 7.02) For information as to waiver of defaults, see "Modification and Waiver" below. No Holder of any New Note will have any right to institute any proceeding with respect to the New 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 New 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 New Notes. (Section 7.06) However, such limitations do not apply to a suit instituted by a Holder of a New Note for enforcement of (a) payment of the principal of and premium, if any, or interest on such New Note on or after the respective due dates expressed in such New Note, (b) the right to require repurchase of such New Note or (c) the right to convert such New Note in accordance with the New Indenture. (Section 7.07) The New 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 New 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 New Notes under the New 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 New Notes and under the New Indenture; (iii) after giving effect to the transaction no Event of Default, and no event after notice or lapse 28 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 New 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 New Indenture may be made by the Company and the Trustee with the consent of the Holders of 66% in aggregate principal amount of the Outstanding New Notes; provided, however, that no such modification or amendment may, without consent of the Holder of each outstanding New Note affected thereby, (i) change the stated maturity of the principal of, or any installment of interest on any New Note; (ii) reduce the principal amount of, or the premium or interest on any New Note; (iii) change the place of payment where, or currency in which, any New 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 New Note; (v) adversely affect the right to convert the New Notes; (vi) adversely affect the right to cause the Company to repurchase the New Notes; (vii) modify the subordination provisions in a manner adverse to the Holders of the New Notes; (viii) reduce the above-stated percentage of Outstanding New Notes necessary to modify or amend the New Indenture; or (ix) reduce the percentage of aggregate principal amount of Outstanding New Notes necessary for waiver of compliance with certain provisions of the New Indenture or for waiver of certain defaults. (Section 11.02) The Holders of a majority in aggregate principal amount of Outstanding New Notes may waive compliance by the Company with certain restrictive provisions of the New Indenture. (Section 7.04) The Holders of a majority in aggregate principal amount of the Outstanding New Notes may waive any past default or right under the New Indenture, except (i) a default in payment of principal, premium or interest, (ii) the right of a Holder to redeem or convert the New Note or (iii) with respect to any covenant or provision of the New Indenture that requires the consent of the Holder of each Outstanding New Note affected. (Section 7.04) Repurchase at Option of Holders Upon a Repurchase Event The New Indenture provides that if a Repurchase Event occurs after initial issuance of the New Notes, each Holder of the New Notes shall have the right (which might 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 New 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 New 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 New 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 New 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 New Notes on or before March 1, 2007 shall continue until the close of business on the last Trading Day preceding the Repurchase Date), together with the New Notes with 29 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 New 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, 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 New Notes 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 New Indenture. (Sections 1.01 and 6.09) The right to require the Company to repurchase the New 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 New Notes. See "Subordination" above. Failure of the Company to repurchase the New Notes when required would result in an Event of Default with respect to the New Notes whether or not such repurchase is permitted by the subordination provisions. The Company's ability to pay cash to the Holders of New Notes upon a repurchase may be limited by certain financial covenants contained in the Company's principal loan and security 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 New Notes. The Company will comply with this rule to the extent applicable at that time. (Section 6.09) The repurchase feature of the New 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 New Notes protection in the event of highly leveraged or other transactions 30 involving the Company that may adversely affect Holders. Except as described above with respect to a Repurchase Event, the New Indenture does not contain provisions permitting the Holders of the New Notes to require the Company to repurchase or redeem the New 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 New 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. 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 New Notes. If a Repurchase Event were to occur, there is no assurance that the Company would have sufficient funds to repurchase all New Notes tendered by the Holders thereof or to make any principal, premium, if any, or interest payments otherwise required by the New Notes. As noted above, one of the events that constitutes a Repurchase Event under the New Indenture is a sale or other transfer of all or substantially all of the assets of the Company. The New 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 New Indenture while the New Notes remain outstanding if (i) all outstanding New Notes will become due and payable at their scheduled maturity within one year or (ii) all outstanding New Notes are scheduled for redemption within one year, and, in either case, the Company has deposited with the Trustee an amount sufficient to pay and discharge all outstanding New 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 New Indenture and the New Notes will be governed by and construed in accordance with the laws of the State of New York. Information Concerning the Trustee Wells Fargo Bank, N.A., is the Trustee under the New Indenture. A successor Trustee may be appointed in accordance with the terms of the New Indenture. The Trustee's duties are set forth in the Trust Indenture Act, as amended (the "Trust Indenture Act"), and in the New 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. 31 Prior to an Event of Default, the Trustee is responsible to perform only such duties as are specifically set out in the New 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 New Indenture at the request of any of the Holders of New 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 New 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 New 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) 32 DESCRIPTION OF OLD NOTES The Old Notes were issued under an Indenture (the "Indenture") dated as of December 1, 1996, between the Company and Continental Stock Transfer & Trust Company, as Trustee (the "Trustee"). The following summary of certain provisions of the Indenture does not purport to be complete and is subject to, and is qualified in its entirety by reference to, all the provisions of the Indenture, including the definitions therein of certain terms which is on file with the SEC. 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 Old Notes are unsecured subordinated obligations of the Company and will mature on December 1, 2006. The Old Notes bear interest at the rate per annum of 7.5%, payable semi-annually on June 1 and December 1 of each year, to the person in whose name the Old Notes (or any predecessor Old 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 Old Notes is paid on the basis of a 360-day year of twelve 30-day months, based on actual days elapsed. (Sections 2.04 and 6.01) Principal of, and premium, if any, and interest on the Old Notes is payable, and the transfer of Old Notes is 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 register for the Old Notes. (Sections 2.03, 6.01 and 6.02) The Old Notes were 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 Old 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 Old 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 Old Notes for redemption in whole or in part, except the unredeemed portion of the Old 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 Old 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 Old 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 Old 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 Old Notes are convertible into the Common Stock of the Company 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 of $14.013 per share (subject to adjustment as described below). The right to convert the Old Notes called for redemption or delivered for repurchase will terminate at the close of business on the last trading day prior to the Redemption Date or the Repurchase 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 33 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 Old 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 Old Note then outstanding would, without the consent of any Holders of the Old 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 Old 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) Old 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 Old 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 Old 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 Old Note on such Regular Record Date. Except as described above, no interest on converted Old 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 Old Notes is reduced, such reduction may be deemed to be the payment of a taxable dividend to Holders of the Old Notes. Holders of the Old Notes could, therefore, have taxable income as a result of an event pursuant to which they receive no cash or property that 34 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 Old 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 Old 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. (Section 6.12) "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 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 35 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 Old 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. "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 Old 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 36 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 Old 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 Old Notes on terms at least as favorable to the Holders of Old 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. 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. (Section 1.01) 37 Subordination The payment of the principal of and premium, if any, and interest on the Old 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 Old Notes will be entitled to receive any payment in respect of the principal of or premium, if any, or interest on the Old 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 Old 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 Old Notes may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the Holders of the Old 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 Old Notes, but including the New Notes) whether or not contingent and whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, (b) any deferred payment obligation of the Company for the payment of the purchase price of property or assets evidenced by a note or similar instrument (excluding any obligation for trade payables or constituting the deferred purchase price of property or assets which is not evidenced by a note or similar instrument and which is unsecured), (c) any obligation of the Company for the payment of rent or other amounts under a lease of property or assets which obligation is required to be classified and accounted for as a capitalized lease on the balance sheet of the Company under generally accepted accounting principles, (d) all obligations of the Company under interest rate and currency swaps, floors, caps, or similar arrangements intended to fix interest rate obligations or currency fluctuation risks, (e) all obligations of the Company evidenced by a letter of credit or any reimbursement obligation of the Company in respect of a letter of credit, (f) all obligations of others secured by a lien to which any of the properties or assets of the Company are subject (including, without limitation, leasehold interests and any intangible property rights), whether or not the obligations secured thereby have been assumed by the Company or shall otherwise be the Company's legal obligation and (g) all obligations of others of the kinds described in the preceding clauses (a), (b), (c), (d) or (e) assumed by or guaranteed by the Company and the obligations of the Company under guarantees of any such obligations; and (ii) any amendments, renewals, extensions, deferrals, modifications, refinancing and refunding of any of the foregoing. "Senior Indebtedness" shall not include: (i) indebtedness that by the terms of the instrument or instruments by which such indebtedness was created or incurred expressly provides that it (a) is junior in right of payment to the Old Notes or (b) ranks pari passu, in right of payment with the Old 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 38 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. (Section 1.01) However, the New Notes are Senior Indebtedness with respect to the Old Notes and the Company's 9 1/2% Subordinated Debentures due 2012. The Old 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 Old 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, 2003, the Company's Senior Indebtedness aggregated approximately $17.4 million, excluding accrued interest and the Company's subsidiaries had indebtedness and other liabilities of approximately $21.2 million. The Company expects from time to time to incur additional indebtedness, including Senior Indebtedness to the extent permitted by the Indenture. See Note 10 of "Notes to Consolidated Financial Statements" for a more detailed description of the Company's outstanding indebtedness. The Company's 9 1/2% Subordinated Debentures due 2012 are not Senior Indebtedness. However, the New Notes will be Senior Indebteness with respect to the Old Notes. Optional Redemption The Old Notes are presently 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 Old Notes to be redeemed at such Holder's address appearing in the Note Register, prior to maturity. The Redemption Prices (expressed as a percentage of the principal amount) are as follows for the 12-month period beginning December 1 of the years indicated: Year Percentage ---- ---------- 2003 101.875% 2004 100.938 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 Old Notes. Events of Default The following are Events of Default under the Indenture: (i) failure to pay principal of or premium, if any, on any Old 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 Old 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 Old Note on the Repurchase Date therefor, whether or not such payment is prohibited by the subordination provisions of the Indenture; 39 (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 Old 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 Old Notes may accelerate the maturity of all Old 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 Old 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 Old 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 Old 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 Old Notes. (Section 7.06) However, such limitations do not apply to a suit instituted by a Holder of an Old Note for enforcement of (a) payment of the principal of and premium, if any, or interest on such Old Note on or after the respective due dates expressed in such Old Note, (b) the right to require repurchase of such Old Note or (c) the right to convert such Old 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 Old 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 Old 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 40 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% in aggregate principal amount of the Outstanding Old Notes; provided, however, that no such modification or amendment may, without consent of the Holder of each Outstanding Old Note affected thereby, (i) change the stated maturity of the principal of, or any installment of interest on any Old Note; (ii) reduce the principal amount of, or the premium or interest on any Old Note; (iii) change the place of payment where, or currency in which, any Old 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 Old Note; (v) adversely affect the right to convert the Old Notes; (vi) adversely affect the right to cause the Company to repurchase the Old Notes; (vii) modify the subordination provisions in a manner adverse to the Holders of the Old Notes; (viii) reduce the above- stated percentage of Outstanding Old Notes necessary to modify or amend the Indenture; or (ix) reduce the percentage of aggregate principal amount of Outstanding Old 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 Old 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 Old 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 Old Note or (iii) with respect to any covenant or provision of the Indenture that requires the consent of the Holder of each Outstanding Old Note affected. (Section 7.04) Repurchase at Option of Holders Upon a Repurchase Event The Indenture provides that if a Repurchase Event occurs after initial issuance of the Old Notes, each Holder of the Old 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 Old 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 Old 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 Old 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 Old Notes shall continue until the close of business on the last Trading Day preceding the Repurchase Date), together with the Old 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 Old 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 41 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, 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 Old Notes 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. (Sections 1.01 and 6.09) The right to require the Company to repurchase the Old 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 Old Notes. See "Subordination" above. Failure of the Company to repurchase the Old Notes when required would result in an Event of Default with respect to the Old Notes whether or not such repurchase is permitted by the subordination provisions. The Company's ability to pay cash to the Holders of Old 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 Old Notes. The Company will comply with this rule to the extent applicable at that time. (Section 6.09) The repurchase feature of the Old 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 Old 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 Old Notes to require the Company to repurchase or redeem the Old 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 42 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 Old Notes. If a Repurchase Event were to occur, there is no assurance that the Company would have sufficient funds to repurchase all Old Notes tendered by the Holders thereof or to make any principal, premium, if any, or interest payments otherwise required by the Old Notes. 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 is 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 Old Notes remain outstanding if (i) all outstanding Old Notes will become due and payable at their scheduled maturity within one year or (ii) all outstanding Old Notes are scheduled for redemption within one year, and, in either case, the Company has deposited with the Trustee an amount sufficient to pay and discharge all outstanding Old 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 delivers 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 Old Notes are 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 Old Notes, unless they shall have offered to the Trustee reasonable indemnity. (Section 8.01) 43 The Holders of a majority in principal amount of all outstanding Old 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 1/2% Subordinated Debentures due 2012. 44 DESCRIPTION OF CAPITAL STOCK Common Stock The shares of Common Stock are entitled to one (1) 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 11.11% higher per share than the cash dividends which may be paid on the Class B Stock, but otherwise 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 or insolvency, 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 December 31, 2003, there were 709 holders of record of Common Stock. Class B Stock The shares of Class B Stock are entitled to ten (10) votes per share on all matters submitted to stockholders. The holders of Class B Stock 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. In the event the combined listing for trading of the Common Stock on the American Stock Exchange no longer requires twenty-five percent (25%) of the directors to be elected separately by the holders of Common Stock, or if the number of shares of Class B Stock is less than twelve and one-half percent (12 1/2%) of the total number of shares of Common Stock and Class B Stock outstanding, then the Common Stock and Class B Stock will vote as one class in the election of directors, with each share of Common Stock entitled to one (1) vote per share and each share of Class B Stock entitled to ten (10) votes per share. Dividends on the Class B Stock will be paid only as and when dividends on the Common Stock are declared and paid. The Common Stock is entitled to cash dividends which are 11.11% higher per share than the cash dividends which may be paid on the Class B Stock, but otherwise the Common Stock and the Class B Stock rank equally. Stock dividends on and stock splits of Class B Stock will only be payable or made in shares of Class B Stock. In the event of liquidation or insolvency, each share of Class B Stock will be entitled, through conversion into Common Stock, to share ratably with the Common Stock in the assets remaining after payment of all debts and other claims of creditors, subject to the rights of any Preferred Stock which may be issued in the future. Holders of Class B Stock may elect at any time to convert any or all of such shares back into shares of the 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 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 December 31, 2003, there were 63 holders of Class B Stock. 45 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. There are no shares of Class A Stock outstanding. 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 46 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% 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. 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; and 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 an 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 47 (2) will result in the receipt by the other stockholders of a specified minimum amount and form of payment for their shares. Transfer Agent and Registrar The transfer agent and registrar of the Common Stock of the Company is Continental Stock Transfer & Trust Company, 17 Battery Place, New York, New York 10004. 48 INCORPORATION OF DOCUMENTS BY REFERENCE The SEC allows us to "incorporate by reference" information into this document, which means that we can disclose important information to you by referring you to another document filed separately with the SEC. This document incorporates by reference the documents set forth below that we have previously filed with the SEC. These documents contain important information about Trans-Lux and its finances. The following documents that we previously filed with the SEC are incorporated in this Offering Circular by reference: * Quarterly Report on Form 10-Q for the period ended September 30, 2003; * Annual Report on Form 10-K for the fiscal year ended December 31, 2002; and * Proxy Statement on Schedule 14A relating to our 2003 Annual Meeting of Stockholders. In addition to the foregoing, all reports and other documents that we file pursuant to Section 13(a), 13(c), 14 or 15(d) of the Exchange Act subsequent to the date of this Offering Circular and prior to the expiration date of the Exchange Offer shall be deemed to be incorporated by reference into this Offering Circular and to be a part hereof from the dates of filing of such reports and documents. Any statement contained in a document incorporated or deemed to be incorporated by reference herein shall be deemed to be modified or superseded for purposes of this Offering Circular to the extent that a statement contained herein, or in any other subsequently filed document which also is incorporated or deemed to be incorporated by reference 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 Offering Circular. 49 INFORMATION AND LETTER OF TRANSMITTAL REQUESTS Requests for information, Letters of Transmittal or additional copies of this Offering Circular should be made to: Ms. Angela D. Toppi - Secretary Trans-Lux Corporation 110 Richards Avenue Norwalk, CT 06856-5090 Phone Number: (203) 853-4321 Fax Number: (203) 866-9496 E-mail address: atoppi@trans-lux.com Exchange Agent If Old Noteholders wish to tender in the Exchange Offer, delivery of the Letter of Transmittal, and Old Note certificates and any other required documents should be made to the Exchange Agent, Wells Fargo Bank, N.A., as follows: By Mail ------- Wells Fargo Bank Minnesota, N.A. Customized Fiduciary Services 6th and Marquette, MAC N9303-120 Minneapolis, MN 55479 Attn: David Bergstrom By Hand* ------- Wells Fargo Corporate Trust c/o The Depository Trust Company 1st Floor; TADS Department 55 Water Street New York, NY 10041 ----------- *Hand delivery to other than the above addresses will not constitute valid delivery.