-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, D3QhQHGpv8k4KDMZDogWDSuigD99s+i5NtO73qv9W3X7afvABby/ABotkwe82EV7 8fOwxg4bDInDq+xly8uLug== 0000950123-96-007220.txt : 19961210 0000950123-96-007220.hdr.sgml : 19961210 ACCESSION NUMBER: 0000950123-96-007220 CONFORMED SUBMISSION TYPE: S-2/A PUBLIC DOCUMENT COUNT: 5 FILED AS OF DATE: 19961209 SROS: AMEX FILER: COMPANY DATA: COMPANY CONFORMED NAME: TRANS LUX CORP CENTRAL INDEX KEY: 0000099106 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 131394750 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-2/A SEC ACT: 1933 Act SEC FILE NUMBER: 333-15481 FILM NUMBER: 96677581 BUSINESS ADDRESS: STREET 1: 110 RICHARDS AVE CITY: NORWALK STATE: CT ZIP: 06856-5090 BUSINESS PHONE: 2038534321 MAIL ADDRESS: STREET 1: 110 RICHARDS AVENUE CITY: NORWALK STATE: CT ZIP: 06856-5090 S-2/A 1 AMENDMENT #1 TO FORM S-2 1 AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 9, 1996 REGISTRATION NO. 333-15481 ================================================================================ SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-2 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ TRANS-LUX CORPORATION (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 13-1394750 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
------------------------ 110 RICHARDS AVENUE NORWALK, CONNECTICUT 06856-5090 (203) 853-4321 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) ------------------------ HOWARD S. MODLIN, ESQ. WEISMAN CELLER SPETT & MODLIN, P.C., 445 PARK AVENUE NEW YORK, NEW YORK 10022 (212) 371-5400 (NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE) ------------------------ WITH A COPY TO: PAUL JACOBS, ESQ. FULBRIGHT & JAWORSKI L.L.P. 666 FIFTH AVENUE NEW YORK, NEW YORK 10103 (212) 318-3000 ------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after this Registration Statement is declared effective. If any of the securities being registered on this Form are being offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. [ ] If the Registrant elects to deliver its latest annual report to security holders, or a complete and legible facsimile thereof, pursuant to Item 11 (a)(1) of this form, check the following box. [ ] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ] If delivery of the prospectus is expected to be made pursuant to Rule 434, please check the following box. [X] ------------------------ CALCULATION OF REGISTRATION FEE ====================================================================================================================== - ---------------------------------------------------------------------------------------------------------------------- PROPOSED PROPOSED MAXIMUM MAXIMUM TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF SECURITIES TO BE REGISTERED(1) BE REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE - ---------------------------------------------------------------------------------------------------------------------- % Convertible Subordinated Notes due 2006..................................... $31,625,000 100% $31,625,000 $9,583.34(4) - ---------------------------------------------------------------------------------------------------------------------- Common Stock, par value $1.00 per share.... (3) -- -- (5) ======================================================================================================================
(1) Includes an additional $4,125,000 principal amount of the Notes subject to the over-allotment option granted to the Underwriter. (2) Estimated solely for purposes of calculating the registration fee pursuant to Rule 457 under the Securities Act of 1933. (3) Represents such indeterminate number of shares of Common Stock as shall be issuable upon conversion of the Notes. (4) $8,712.12 of which has previously been paid. (5) Pursuant to Rule 457(i), no registration fee is required. ---------------------------- THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. ================================================================================ 2 INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE. SUBJECT TO COMPLETION DECEMBER 9, 1996 $27,500,000 LOGO LOGO % CONVERTIBLE SUBORDINATED NOTES DUE 2006 ------------------------ The Notes offered hereby (the "Offering") will be convertible into Common Stock, $1.00 par value per share (the "Common Stock"), of Trans-Lux Corporation ("Trans-Lux" or the "Company") at any time after 60 days following the date of initial issuance thereof and prior to maturity, unless previously redeemed, at a conversion price of $ per share, subject to adjustment under certain conditions. See "Description of Notes -- Conversion Rights" for a description of events which may cause an adjustment to the conversion price. The Common Stock of the Company is traded on the American Stock Exchange (the "AMEX") under the symbol "TLX." On December 6, 1996, the last reported sale price of the Common Stock on the AMEX was $11 7/8 per share. See "Price Range of Common Stock and Dividend Policy." Interest on the Notes is payable on June 1 and December 1 of each year, commencing June 1, 1997. The Notes are redeemable, in whole or in part, at the option of the Company at any time on or after December 1, 1999, at the redemption prices set forth herein, plus accrued interest, if any, to the redemption date. If a Repurchase Event (as defined herein) occurs, each Holder of the Notes will have the right, subject to certain conditions and restrictions, to require the Company to repurchase all outstanding Notes, in whole or in part, owned by such holder at 100% of their principal amount plus accrued interest, if any, to the date of repurchase. The Notes are subordinated to all existing and future Senior Indebtedness (as defined herein) of the Company and will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. At September 30, 1996, the Company had approximately $23.2 million of outstanding Senior Indebtedness and the Company's subsidiaries had indebtedness and other liabilities of approximately $4.8 million. The Indenture governing the Notes does not restrict the ability of the Company to incur additional indebtedness, including Senior Indebtedness. See "Description of Notes" for a more complete discussion of the Indenture's provisions. Application has been made for inclusion of the Notes on the AMEX upon notice of issuance. SEE "RISK FACTORS" ON PAGES 7 TO 10 FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE NOTES. THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. ============================================================================================== PRICE TO UNDERWRITING PROCEEDS TO PUBLIC(1) DISCOUNTS(2) COMPANY(3) - ----------------------------------------------------------------------------------------------- Per Note................................. $ $ $ - ----------------------------------------------------------------------------------------------- Total(4)................................. $ $ $ ===============================================================================================
(1) Plus accrued interest, if any, from the date of initial issuance. (2) See "Underwriting" for information concerning indemnification of the Underwriter and other matters. (3) Before deducting expenses payable by the Company, estimated to be $400,000. (4) The Company has granted the Underwriter a 30-day over-allotment option to purchase up to an additional $4,125,000 of the Notes on the same terms and conditions set forth above. If the Underwriter exercises this option in full, the total Price to Public, Underwriting Discounts and Proceeds to Company will be $ , $ and $ , respectively. See "Underwriting." ------------------------ The Notes offered by this Prospectus are offered by the Underwriter, subject to prior sale, when, as and if delivered to and accepted by it and subject to certain conditions. It is expected that delivery of certificates representing the Notes will be made at the office of Southcoast Capital Corporation, 277 Park Avenue, New York, New York, on or about , 1996. ------------------------ SOUTHCOAST CAPITAL CORPORATION The date of this Prospectus is , 1996. 3 TRANS-LUX TRANS-LUX IS A SUPPLIER OF LARGE-SCALE, MULTI-COLOR ELECTRONIC INFORMATION DISPLAYS FOR INDOOR AND OUTDOOR USE. IN CONNECTION WITH THE OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR EFFECT TRANSACTIONS THAT STABILIZE OR MAINTAIN THE MARKET PRICE OF THE NOTES OFFERED HEREBY AND THE COMMON STOCK OF THE COMPANY AT LEVELS ABOVE THOSE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE AMERICAN STOCK EXCHANGE OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME. 2 4 TRANS-LUX DISPLAYS ARE USED PRIMARILY IN REAL-TIME APPLICATIONS FOR THE FINANCIAL, BANKING, GAMING, CORPORATE, SPORTS AND TRANSPORTATION MARKETS. FINANCIAL Tricolor DataWalls(@) supply traders at Midland Walwyn The Chicago Mercantile Exchange has added to the Capital in Toronto with real-time financial data. number of Trans-Lux panoramic display panels on its trading floor. PictureWall(TM) displays, like this one in the Internationally, emerging reception area of Chase Manhattan Bank's world exchanges call on Trans-Lux to headquarters, combine real-time design and install sophisticated market data and colorful graphics. and reliable displays. GAMING Trans-Lux's bright, easy-to-read displays are used in Foxwoods Resort and Casino casinos such as Bally's new Race and Sports Book. selected Trans-Lux for its new Race Book. THEATRE At Sony Theaters, Trans-Lux lobby displays are tied into the ticketing system to announce screening times and inform moviegoers when a show is sold out.
[The above captions refer to examples of Trans-Lux's electronic displays] 5 PROSPECTUS SUMMARY The following summary is qualified in its entirety by the more detailed information and financial statements appearing elsewhere in this Prospectus or incorporated herein by reference. Except as otherwise noted, all information in this Prospectus assumes no exercise of the Underwriter's over-allotment option. THE COMPANY The Company is a manufacturer, distributor, and servicer of large-scale, real-time electronic information displays for both indoor and outdoor use. These display systems utilize light emitting diode ("LED") and light bulb technologies to display real-time information entered by the user or via a third party information supplier. The Company provides high quality, reliable display products configured to suit its customers' needs, and offers extensive on-site service and maintenance coverage. The Company's display products include data, graphics, and picture displays for stock and commodity exchanges, financial institutions, airports, casinos, sports venues, convention centers, corporate, theatres, retail, and numerous other applications. In addition to the core display business, the Company also operates a small chain of motion picture theatres in the southwestern U.S. In 1995, the Company derived approximately 89% of its revenue from its indoor and outdoor information display business. The Company's high performance electronic information displays are used to communicate messages and information in a variety of indoor and outdoor applications. The Company's product line encompasses a wide range of state-of-the-art electronic displays in various shape, size and color configurations. Most of the Company's display products include hardware components and sophisticated software. In both the indoor and outdoor markets, the Company adapts basic product types and technologies for specific use in various niche market applications. The Company also operates a direct service network throughout the U.S. and Canada which performs on-site service and maintenance for its customers, further distinguishing the Company from many of its competitors. In the indoor market, the Company's high performance electronic displays are used to communicate messages in the financial, gaming, transportation, entertainment and retail industries, among others. In the financial industry, the Company's products display news and market information, interest rates, up-to-the-second stock and commodity prices, and other financial product information for stock and commodity exchanges, brokerage firms, banks, mutual fund companies, and other financial institutions. In the gaming industry, the Company's products transmit racing and pari-mutuel betting odds and results, sports scores, statistics, slot machine jackpots and other wagering information. In the transportation industry, the Company's products are used to display arrival and departure information and gate and baggage claim information for airports and other transportation facilities. While the securities and commodities industries continue to represent a significant portion of the Company's customer base, the Company has a strong presence in the gaming industry through its race and sports book displays and also markets its displays to such users as banks, corporations, transportation facilities, the military, racetracks, restaurants, pharmacies, theatres, hotels and convention centers. In the indoor display market the Company's customers include the American Stock Exchange, Charles Schwab & Co. Incorporated, the Chicago Board of Trade ("CBOT"), the Chicago Mercantile Exchange ("CME"), Goldman Sachs & Co., Kaiser Permanente, Merrill Lynch Pierce Fenner & Smith, Inc., MGM Grand, Inc., Mirage Resorts, Inc., the New York Mercantile Exchange, Inc., the New York Stock Exchange, Inc. and Sony Theaters Management Corporation. Over the past four years, the Company has utilized its strong position in the indoor display market combined with several acquisitions to establish a growing presence in the outdoor display market. Trans-Lux outdoor displays are installed in amusement parks, entertainment facilities, professional and college sports stadiums, military installations, bridges and other roadway installations, automobile dealerships, banks and other financial institutions. In the outdoor display market the Company's customers include Auburn University, Pontiac Silverdome, Resorts International, Six Flags Over Georgia, 3 Com Park, and Twin City Federal Financial Corp. 3 6 The Company has made three acquisitions over the past four years in order to establish and enhance its presence in the outdoor market. In August 1992, after first managing the portfolio for approximately 15 months, the Company acquired a portfolio of outdoor electric and electronic equipment displays from American Electronic Displays, L.P. In August 1993, the Company expanded its presence in the outdoor display market by acquiring a portfolio of outdoor lease, maintenance and other contracts from Indicator Maintenance Corporation. In January 1995, the Company acquired all of the capital stock of Integrated Systems Engineering, Inc. ("ISE"), a manufacturer of outdoor electronic displays. The Company's principal executive offices are located at 110 Richards Avenue, Norwalk, Connecticut 06856-5090. The Company's telephone number is (203) 853-4321. THE OFFERING Securities Offered........ $27.5 million aggregate principal amount of % Convertible Subordinated Notes due 2006 (the "Notes"). Interest Payment Dates.... June 1 and December 1, commencing June 1, 1997. Maturity.................. December 1, 2006. Conversion................ The Notes are convertible into the Company's Common Stock at any time after 60 days following the date of initial issuance thereof and prior to maturity, unless previously redeemed, at a conversion price of $ per share, subject to adjustment under certain conditions. Redemption at Option of Company................. The Notes are redeemable, in whole or in part, at the option of the Company, at any time on or after December 1, 1999, at the redemption prices (expressed as a percentage of the principal amount) set forth below for the 12-month period beginning December 1 of the years indicated: 1999......................................... % 2000......................................... % 2001......................................... % 2002......................................... % 2003......................................... % 2004......................................... %
thereafter and at maturity at 100% of principal, together in the case of any such redemption with accrued interest to the redemption date. Repurchase at Option of Holders................. If a Repurchase Event occurs, each Holder of the Notes will have the right, subject to certain conditions and restrictions, to require the Company to repurchase all outstanding Notes, in whole or in part, owned by such holder at 100% of their principal amount plus accrued interest, if any, to the date of repurchase. If a Repurchase Event were to occur, there is no assurance that the Company would have sufficient funds to pay the repurchase price for all the Notes tendered by the Holders thereof. The Company's ability to make such payments may be limited by its leverage and the terms of its then existing borrowing and other agreements. See "Description of Notes -- Repurchase at Option of Holders Upon a Repurchase Event" for a more complete discussion of the rights of Holders of the Notes upon the occurrence of a Repurchase Event. Subordination............. The Notes are subordinated to all existing and future Senior Indebtedness of the Company and will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. At September 30, 1996, the Company had approximately $23.2 million of outstanding Senior Indebted- 4 7 ness and the Company's subsidiaries had indebtedness and other liabilities of approximately $4.8 million. The Indenture governing the Notes does not restrict the ability of the Company to incur additional indebtedness, including Senior Indebtedness. Use of Proceeds........... The Proceeds of the Offering will be used to finance the Company's expansion program and for general corporate purposes, including the repayment of certain outstanding indebtedness. See "Use of Proceeds." Listing................... Application has been made for inclusion of the Notes on the AMEX upon notice of issuance and the Notes will be listed under the symbol "TLX.N." The Common Stock is listed on the AMEX under the symbol "TLX." RISK FACTORS For a discussion of certain material factors that should be considered by prospective purchasers of the Notes, see "Risk Factors." 5 8 SUMMARY CONSOLIDATED FINANCIAL INFORMATION The summary data below has been derived from the audited financial statements, the unaudited financial statements and other records of the Company. The following summary data should be read in conjunction with the financial statements of the Company and the notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, -------------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Total revenues...................... $22,133 $24,130 $35,799 $33,742 $37,791 $28,881 $32,871 Operating expenses.................. 14,127 15,299 21,554 19,413 22,406 16,914 20,165 Gross profit from operations........ 8,006 8,831 14,245 14,329 15,385 11,967 12,706 General and administrative expenses.......................... 7,151 7,384 10,202 11,023 11,494 9,210 9,442 Interest expense, net............... 570 893 2,380(1) 1,242(2) 2,144 1,565 1,669 Income before income taxes.......... 542 741 1,663(1) 2,064(2) 1,839 1,262 1,498 Provision for income taxes.......... 280 469 1,174(1) 750(2) 773 530 629 Net income.......................... 262 272 489(1) 1,314(2) 1,066 732 869 OTHER DATA: EBITDA(3) $ 5,201 $ 6,670 $10,385 $ 9,819 $10,884 $ 7,961 $ 8,444 Ratio of earnings to fixed charges(4)........................ 1.4 1.5 1.6 2.3 1.8 1.7 1.7 Net rental equipment................ $13,550 $29,995 $29,039 $29,653 $30,778 $30,142 $32,594 Net book value per share(5)......... $ 14.59 $ 15.35 $ 15.60 $ 16.29 $ 17.08 $ 16.85 $ 17.39
AS OF SEPTEMBER 30, 1996 --------------------- AS ACTUAL ADJUSTED(6) ------- ----------- (UNAUDITED) BALANCE SHEET DATA: Cash and cash equivalents............................................ $ 54 $14,906 Total assets......................................................... 63,045 79,421 Long-term debt, including current portion............................ 29,084 45,573 Stockholders' equity................................................. 22,308 22,242
- --------------- (1) 1993 reflects the impact of an assessment of income taxes and related interest expense incurred resulting from a prior year state income tax audit of approximately $600,000. (2) 1994 reflects the positive impact of a settlement of approximately $360,000 related to the 1993 assessment described in footnote No. 1 above. (3) EBITDA is defined as income before effect of changes of accounting plus interest, income taxes, depreciation and amortization. EBITDA is presented here because it is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness. However, EBITDA should not be considered as an alternative to net income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. The Company's measure of EBITDA may not be comparable to similarly titled measures reported by other companies. (Unaudited) (4) Earnings used in computing the ratio of earnings to fixed charges consist of income before income taxes, fixed charges and extraordinary items. Fixed charges consist of interest expense, including amounts capitalized, and that portion of rent expense which management deems to be attributable to interest costs.(Unaudited) (5) Unaudited (6) Adjusted to reflect the sale of $27,500,000 of the Notes offered by the Company hereby, the receipt of the estimated net proceeds therefrom and the repayment of certain outstanding indebtedness. See "Use of Proceeds" and "Capitalization." 6 9 RISK FACTORS LEVERAGE As of September 30, 1996, as adjusted for the issuance of the Notes and the application of the proceeds therefrom the Company's total long-term debt (including current portion) would have been $45.6 million. The Company expects it will incur indebtedness in addition to the Notes in connection with the implementation of its growth strategy. The Indenture governing the Notes does not restrict the ability of the Company or its subsidiaries to incur additional indebtedness, including Senior Indebtedness. Additional indebtedness of the Company may rank senior or pari passu with the Notes in certain circumstances, while additional indebtedness of the Company's subsidiaries will rank effectively senior to the Notes. See "Description of Notes." The Company's ability to satisfy its obligations will be dependent upon its future performance, which is subject to prevailing economic conditions and financial, business and other factors, including factors beyond the Company's control. There can be no assurance that the Company's operating cash flows will be sufficient to meet its debt service requirements or to repay the Notes at maturity or that the Company will be able to refinance the Notes or other indebtedness at maturity. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." SUBORDINATION The Notes will be unsecured subordinated obligations of the Company and will be subordinated in right of payment to all present and future Senior Indebtedness and other liabilities of the Company and will be effectively subordinated to all indebtedness and other liabilities of the Company's subsidiaries. In the event of bankruptcy, liquidation or reorganization of the Company, the assets of the Company will be available to pay obligations on the Notes only after all Senior Indebtedness has been paid in full, and there may not be sufficient assets remaining to pay amounts due on any or all of the Notes then outstanding. The Holders of any indebtedness of the Company's subsidiaries will be entitled to payment of the indebtedness from the assets of the subsidiaries prior to the holders of any general unsecured obligations of the Company, including the Notes. At September 30, 1996, the Company had approximately $23.2 million of outstanding Senior Indebtedness and the Company's subsidiaries had indebtedness and other liabilities of approximately $4.8 million. In the event of a payment default with respect to Senior Indebtedness, no payments may be made on account of the Notes until such default no longer exists with respect to Senior Indebtedness of the Company. See "Description of Notes" and "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." RISKS RELATED TO A REPURCHASE EVENT Upon the occurrence of a Repurchase Event, each Holder of the Notes may require the Company to repurchase all or a portion of such Holder's Notes. If a Repurchase Event were to occur, there can be no assurance that the Company would have sufficient financial resources, or would be able to arrange financing, to pay the repurchase price for all the Notes tendered by Holders thereof. In addition, the occurrence of certain Repurchase Events would constitute an event of default under certain of the Company's current debt agreements, and the Company's repurchase of the Notes as a result of the occurrence of a Repurchase Event may be prohibited or limited by, or create an event of default under, the terms of future agreements relating to borrowings of the Company, including agreements relating to Senior Indebtedness. In the event a Repurchase Event occurs at a time when the Company is prohibited from purchasing the Notes, the Company could seek the consent of its lenders to purchase the Notes or could attempt to refinance the borrowings that contain such prohibition. If the Company does not obtain such a consent or repay such borrowings, the Company would remain prohibited from purchasing the Notes. In such case, the Company's failure to purchase tendered Notes would constitute an Event of Default under the Indenture which would, in turn, constitute a further default under certain of the Company's existing debt agreements and may constitute a default under the terms of other indebtedness that the Company may incur from time to time. In such circumstances, the subordination provisions in the Indenture would prohibit payments to the Holders of the Notes. See "Description of Notes -- Repurchase at Option of Holders Upon a Repurchase Event." 7 10 RELIANCE ON KEY SUPPLIERS The Company designs certain of its materials to match components furnished by suppliers. If such suppliers were unable or unwilling to provide the Company with those components, the Company would have to obtain replacement sources. In particular, the Company purchases almost all of the LED module blocks used in its electronic displays from a single supplier. The Company does not have a long-term supply contract with this supplier. A change in suppliers of either LED module blocks or certain other components may result in engineering design changes, as well as delays in obtaining such replacement components. The Company's inability to obtain sufficient quantities of certain components as required, or to develop alternative sources at acceptable prices and within a reasonable time, could result in delays or reductions in product shipments which could have a materially adverse effect on the business and results of operations of the Company. COMPETITION The Company's electronic information displays compete with a number of companies, both larger and smaller than itself, and with products based on different forms of technology. In addition, there are several companies whose current products utilize similar technology and who possess the resources to develop competitive and more sophisticated products in the future. The Company's success is somewhat dependent upon its ability to anticipate technological changes in the industry and to successfully identify, obtain, develop and market new products that satisfy evolving industry requirements. There can be no assurance that competitors will not market new products which have perceived advantages over the Company's products or which, because of pricing strategies, render the products currently sold by the Company less marketable or otherwise adversely affect the Company's operating margins. The Company's motion picture theatres are subject to varying degrees of competition in the geographic areas in which they operate. In some areas, theatres operated by national circuits compete with the Company's theatres. The Company's theatres also face competition from all other forms of entertainment competing for the public's leisure time and disposable income. NATURE OF LEASING AND MAINTENANCE REVENUES The Company derives a substantial percentage of its revenues from the leasing of its electronic information display products, generally pursuant to leases which have an average term of less than three years. Consequently, the Company's future success is at least partly dependent on its ability to obtain the renewal of existing leases or to enter into new leases as existing leases expire. The Company also derives a significant percentage of its revenues from maintenance agreements relating to its display products. The average term of such agreements is generally three to five years. A portion of the maintenance agreements are cancellable upon 30 days notice. There can be no assurance that the Company will be successful in obtaining renewal of existing leases or maintenance agreements, obtaining replacement leases or realizing the value of assets currently under leases that are not renewed. DEPENDENCE ON KEY PERSONNEL The Company believes that its Chairman, Mr. Richard Brandt, and President and Chief Executive Officer, Mr. Victor Liss, play a significant role in the success of the Company and the loss of the services of either could have an adverse effect on the Company. There can be no assurance that the Company would be able to find a suitable replacement for either Mr. Brandt or Mr. Liss. The Company has an employment agreement with Mr. Brandt which expires in 2002 and an employment agreement with Mr. Liss which, if not extended, expires in December 1997. The Company believes that in addition to the above referenced key personnel, there is a core group of executives which also plays a significant role in the success of the Company. See "Executive Compensation and Transactions with Management -- Employment Agreements." EFFECT OF CERTAIN ANTI-TAKEOVER PROVISIONS AND CONTROL BY EXISTING STOCKHOLDERS The Company's Restated Certificate of Incorporation contains certain provisions that could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire control of the Company. Such provisions could limit the price that certain investors might be willing 8 11 to pay in the future for shares of the Company's Common Stock, thus making it less likely that a stockholder will receive a premium on any sale of shares. Under the Company's Restated Certificate of Incorporation, the Company has two classes of common stock outstanding, Common Stock and Class B Stock, each with its own rights and preferences. Each share of Class B Stock receives ten votes per share on all matters submitted to a vote of the stockholders versus the one vote received for each share of Common Stock. The Class B Stock is entitled to vote separately as a class on any proposal for the merger, consolidation and certain other significant transactions. See "Description of Capital Stock -- Common Stock" and "Class B Stock." Moreover, the Company's Board of Directors is divided into three classes, each of which serves for a staggered three-year term, making it more difficult for a third party to gain control of the Company's Board. The Company has also adopted a provision for its Restated Certificate of Incorporation which requires a four-fifths vote on any merger, consolidation or sale of assets with or to an "Interested Person" or "Acquiring Person." Additionally, the Company is authorized to issue 500,000 shares of Preferred Stock containing such rights, preferences, privileges and restrictions as may be fixed by the Company's Board of Directors which may adversely affect the voting power or other rights of the holders of Common Stock or delay, defer or prevent a change in control of the Company, or discourage bids for the Common Stock at a premium over its market price or otherwise adversely affect the market price of the Common Stock. See "Description of Capital Stock -- Preferred Stock." The Board of Directors of the Company is also authorized to issue 4,000,000 shares of Class A Stock which is identical to the Common Stock but is non-voting and is entitled to a 10% higher dividend than the Common Stock. See "Description of Capital Stock -- Class A Stock." Twelve stockholders, who are executive officers and/or directors of the Company beneficially own approximately 71.5% of the Company's outstanding Class B Stock, 17.8% of all classes and 54.3% of the voting power. As a result, these stockholders collectively will continue to have the ability to elect all of the Company's directors and to veto major transactions for which a stockholder vote is required under Delaware law, including mergers, consolidations and certain other significant transactions. These stockholders could also block tender offers for the Company's Common Stock that could give stockholders of the Company the opportunity to realize a premium over the then prevailing market price for their shares of Common Stock. ABSENCE OF PUBLIC MARKET FOR THE NOTES The Notes are a new issue of securities for which there is currently no public market. Although application has been made to have the Notes approved for inclusion on the AMEX, there is no assurance as to the liquidity of the market for the Notes that may develop, the ability of the holders to sell their Notes or the prices at which holders of the Notes would be able to sell their Notes. If a market for the Notes does develop, the Notes may trade at a discount from their initial public offering price, depending on prevailing interest rates, the market for similar securities, the performance of the Company, the market price of the Company's Common Stock and other factors. There is no assurance that an active trading market will develop or be maintained for the Notes. See "Underwriting." LIMITED TRADING VOLUME AND VOLATILITY OF STOCK PRICE The Company's Common Stock is not widely held and the volume of trading has been low and sporadic. Accordingly, the Common Stock is subject to increased price volatility and reduced liquidity. There can be no assurance a more active trading market for the Common Stock will develop, or be sustained if it does develop. The limited public float of the Company's Common Stock could cause the market price for the Common Stock to fluctuate substantially. In addition, stock markets have experienced wide price and volume fluctuations in recent periods and these fluctuations often have been unrelated to the operating performance of the specific companies affected. Any of these factors could adversely affect the market price of the Common Stock. SHARES ELIGIBLE FOR FUTURE SALE Future sales of Common Stock in the public market following the Offering by current stockholders of the Company could adversely affect the market price for the Common Stock. Upon expiration of lock-up 9 12 agreements with the Underwriter 90 days after the date of this Prospectus, or earlier upon the written consent of Southcoast Capital Corporation ("Southcoast Capital"), 225,590 shares of Common Stock (including Class B Stock if converted into equal amounts of Common Stock) may be sold in the public market by executive officers and directors, subject to the limitations contained in Rule 144 under the Securities Act of 1933, as amended. Following the Offering, sales of substantial amounts of the shares of Common Stock in the public market, or even the potential for such sales, could adversely affect the prevailing market price of the Common Stock. 10 13 USE OF PROCEEDS The net proceeds to the Company (after deducting underwriting discounts and estimated offering expenses) from the sale of the Notes offered hereby are estimated to be approximately $25.9 million ($29.8 million if the Underwriter's over-allotment option is exercised in full). The Company will repay approximately $6.2 million of debt currently outstanding under its revolving credit facility which currently bears interest at the effective rate of 7.49% and has a final maturity of June 2003 and will call and retire approximately $4.8 million of the Company's 9% Convertible Subordinated Debentures. The Company will call these Debentures within 45 days of the completion of the Offering. The remaining net proceeds will be used to finance the expansion of the Company's leased equipment base, fund product development and marketing efforts aimed at expanding the Company's position in both the indoor and outdoor information display markets and for general working capital purposes. The Company may also use a portion of the net proceeds for acquisitions; however no agreement with respect to any such acquisition currently exists and the Company is not currently involved in any negotiations with respect to any acquisitions. The Company may also use a portion of the net proceeds for the development of additional theatres. Pending use of the net proceeds for the above purposes, the Company intends to invest such funds in U.S. government securities or other investment-grade securities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." PRICE RANGE OF COMMON STOCK AND DIVIDEND POLICY The Common Stock is traded on the AMEX under the symbol "TLX." The following table sets forth the high and low closing sales prices of the Common Stock for the periods indicated, as reported on the AMEX.
PERIOD HIGH LOW --------------------------------------------------------------------- ---- --- 1994 First Quarter...................................................... $ 9 5/8 $ 8 3/8 Second Quarter..................................................... 10 8 3/4 Third Quarter...................................................... 10 1/8 7 5/8 Fourth Quarter..................................................... 9 3/8 7 1/4 1995 First Quarter...................................................... $10 $ 8 7/8 Second Quarter..................................................... 9 1/8 7 15/16 Third Quarter...................................................... 9 1/4 7 13/16 Fourth Quarter..................................................... 9 8 1996 First Quarter...................................................... $ 9 5/8 $ 8 1/8 Second Quarter..................................................... 16 1/2 8 5/8 Third Quarter...................................................... 14 7/8 10 1/2 Fourth Quarter (through December 6, 1996).......................... 13 3/4 11 7/8
On December 6, 1996, the last reported sale price for the Common Stock on the AMEX was $11 7/8 per share. As of September 30, 1996, there were 965,002 and 298,882 shares of Common Stock and Class B Stock outstanding and 847 and 68 holders of Common Stock and Class B Stock, respectively. Commencing with the fourth quarter of 1993, the Company's dividend policy has been to pay a regular quarterly dividend of $.035 per share on the Common Stock and $.0315 per share on the Class B Stock. The declaration or payment by the Company of dividends, if any, on its Common Stock and Class B Stock in the future is subject to the discretion of the Board of Directors and will depend on the Company's earnings, financial condition, capital requirements and other relevant factors. The Company's present credit facility restricts the payment of dividends to no more than an aggregate $750,000 per year. See "Management's Discussion and Analysis of Financial Condition and Results of Operations -- Liquidity and Capital Resources." 11 14 CAPITALIZATION The following table sets forth the consolidated capitalization of the Company as of September 30, 1996, and as adjusted to give effect to (i) the consummation of the Offering of the Notes and (ii) the application of the net proceeds therefrom as described in "Use of Proceeds" (assuming no exercise of the Underwriter's over-allotment option). This information should be read in conjunction with Selected Financial Data and the related notes and other financial information included elsewhere in this Prospectus.
AS OF SEPTEMBER 30, 1996 -------------------------------- ACTUAL AS ADJUSTED(1) -------- ------------------- (UNAUDITED, DOLLARS IN THOUSANDS) Short-term debt and current portion of long-term debt............ $ 1,814 $ 1,814 ======== ======== Long-term debt: Revolving credit facility(2)................................... $ 6,200 $ -- Notes payable.................................................. 15,202 15,202 9% Convertible subordinated debentures(3)...................... 4,811 -- 9 1/2% Subordinated debentures................................. 1,057 1,057 % Convertible subordinated notes............................. -- 27,500 -------- -------- Total long-term debt...................................... $ 27,270 $ 43,759 -------- -------- Stockholders' equity: Preferred, $1.00 par value; 500,000 shares authorized; no shares issued and outstanding............................... -- -- Common, $1.00 par value; 4,000,000 shares authorized; 2,441,523 shares issued and outstanding(4)(6)......................... $ 2,441 $ 2,441 Class B, $1.00 par value; 2,000,000 shares authorized; 298,882 shares issued and outstanding(5)(6)......................... 299 299 Additional paid-in capital..................................... 13,828 13,828 Retained earnings(3)........................................... 17,626 17,560 Other.......................................................... (65) (65) Less: 1,481,252 treasury shares at cost..................... (11,821) (11,821) -------- -------- Total stockholders' equity................................ 22,308 22,242 -------- -------- Total capitalization................................... $ 49,578 $ 66,001 ======== ========
- --------------- (1) Adjusted to reflect the sale of $27,500,000 of the Notes offered by the Company hereby, the receipt of the estimated net proceeds therefrom and the repayment of certain outstanding indebtedness. See "Use of Proceeds." (2) The Company has a revolving credit facility with First Union Bank of Connecticut ("First Union Bank") pursuant to which it may borrow up to $7.0 million from time to time, available through June 1998, at which time, at the option of the Company, amounts outstanding are converted to a five year term note with a final maturity of June 2003. The revolving credit facility bears a variable rate of interest of LIBOR plus 200 basis points. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Liquidity and Capital Resources." (3) The Company will record a charge in the first quarter of 1997 to its earnings of approximately $113,000 ($66,000 net of tax) for the unamortized portion of its financing costs. (4) Excludes 78,594 shares of Common Stock issuable upon exercise of stock options outstanding at September 30, 1996 at exercise prices ranging from $6.31 to $9.69 per share and 378,819 shares upon conversion of the Company's 9% Convertible Subordinated Debentures due 2005 at $12.70 per share. (5) Class B Stock has greater voting power. See "Description of Capital Stock." (6) Subsequent to September 30, 1996, a certificate of amendment was filed to the Company's Restated Certificate of Incorporation increasing the authorized shares of Common Stock to 5,500,000 shares, decreasing the authorized shares of Class B Stock to 1,000,000 shares and authorizing 4,000,000 shares of a new non-voting Class A Stock. See "Description of Capital Stock." 12 15 SELECTED FINANCIAL DATA The following selected financial data of the Company at and for each of the five years ended December 31, 1995 except for Other Data, are derived from and are qualified by reference to the Company's financial statements, some of which are presented herein. The selected financial data for the nine months ended September 30, 1995 and 1996 and the balance sheet data as of September 30, 1995 and 1996 are derived from unaudited financial statements of the Company which in management's opinion include all adjustments (consisting only of normal recurring adjustments) necessary for the fair presentation of the information set forth therein. The results of operations for the nine months ended September 30, 1996 are not necessarily indicative of the results that may be expected for the year ending December 31, 1996. This data should be read in conjunction with the financial statements and notes thereto and "Management's Discussion and Analysis of Financial Condition and Results of Operations."
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ----------------------------------------------------------- -------------------- 1991 1992 1993 1994 1995 1995 1996 ------- ------- ------- ------- ------- ------- ------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED) STATEMENT OF OPERATIONS DATA: Revenues: Equipment rentals and maintenance....... $10,494 $13,307 $20,824 $21,652 $21,205 $16,509 $16,273 Equipment sales......................... 2,949 4,040 11,806 8,498 12,364 9,174 13,276 Theatre receipts and other.............. 8,690 6,783 3,169 3,592 4,222 3,198 3,322 ------- ------- ------- ------- ------- ------- ------- Total revenues.................... 22,133 24,130 35,799 33,742 37,791 28,881 32,871 ------- ------- ------- ------- ------- ------- ------- Operating expenses: Cost of equipment rentals and maintenance........................... 5,360 7,069 11,249 11,929 11,358 8,700 8,883 Cost of equipment sales................. 1,587 2,273 7,648 4,620 7,863 5,752 8,753 Cost of theatre receipts and other...... 7,180 5,957 2,657 2,864 3,185 2,462 2,529 ------- ------- ------- ------- ------- ------- ------- Total operating expenses.......... 14,127 15,299 21,554 19,413 22,406 16,914 20,165 ------- ------- ------- ------- ------- ------- ------- Gross profit from operations.............. 8,006 8,831 14,245 14,329 15,385 11,967 12,706 General and administrative expenses....... 7,151 7,384 10,202 11,023 11,494 9,210 9,442 ------- ------- ------- ------- ------- ------- ------- 855 1,447 4,043 3,306 3,891 2,757 3,264 Interest expense, net..................... 570 893 2,380(1) 1,242(2) 2,144 1,565 1,669 Other income.............................. 257 187 -- -- 92 70 (97) ------- ------- ------- ------- ------- ------- ------- Income before income taxes................ 542 741 1,663(1) 2,064(2) 1,839 1,262 1,498 ------- ------- ------- ------- ------- ------- ------- Provision for income taxes: Current................................. 95 97 231 407 576 501 521 Deferred................................ 185 372 943 343 197 29 108 ------- ------- ------- ------- ------- ------- ------- 280 469 1,174(1) 750(2) 773 530 629 ------- ------- ------- ------- ------- ------- ------- Net income................................ $ 262 $ 272 $ 489(1) $ 1,314(2) $ 1,066 $ 732 $ 869 ======= ======= ======= ======= ======= ======= ======= PER SHARE DATA: Earnings per share: Primary................................. $ 0.20 $ 0.22 $ 0.39(1) $ 1.04(2) $ 0.85 $ 0.58 $ 0.68 Fully diluted........................... (3) (3) (3) 0.94(2) 0.81 (3) 0.64 Average common and common equivalent shares outstanding: Primary................................. 1,305 1,249 1,249 1,260 1,259 1,258 1,283 Fully diluted........................... (3) (3) (3) 1,943 1,643 (3) 1,674 PRO FORMA PER SHARE DATA(4): Earnings per share: Primary................................. $ 0.08 $ 0.23 Fully diluted........................... (3) (3) Average common and common equivalent shares outstanding: Primary................................. 1,259 1,283 Fully diluted........................... 3,223 3,256 OTHER DATA: EBITDA(5)............................... $ 5,201 $ 6,670 $10,385 $ 9,819 $10,884 $ 7,961 $ 8,444 Ratio of earnings to fixed charges(6)... 1.4 1.5 1.6 2.3 1.8 1.7 1.7 Net rental equipment.................... $13,550 $29,995 $29,039 $29,653 $30,778 $30,142 $32,594 Net book value per share(7)............. $ 14.59 $ 15.35 $ 15.60 $ 16.29 $ 17.08 $ 16.85 $ 17.39 BALANCE SHEET DATA: Cash and cash equivalents............... $ 1,592 $ 1,180 $ 1,128 $ 2,335 $ 665 $ 4,925 $ 54 Total assets............................ 35,647 50,826 52,138 53,307 57,460 58,453 63,045 Long-term debt, including current portion............................... 11,648 23,497 23,293 22,353 24,299 24,644 29,084 Retained earnings....................... 15,412 14,514 14,850 15,993 16,888 16,597 17,626 Stockholders' equity.................... 20,062 19,169 19,484 20,524 21,499 21,202 22,308
(Footnotes provided on the following page.) 13 16 - --------------- (1) 1993 reflects the impact of an assessment of income taxes and related interest expense incurred resulting from a prior year state income tax audit of approximately $600,000. (2) 1994 reflects the positive impact of a settlement of approximately $360,000 related to the 1993 assessment described in footnote No. 1 above. (3) Not dilutive. (4) The pro forma earnings per share data assume that the Offering was consummated at January 1, 1995, with the Notes bearing interest at the annual rate of 6.75%, an assumed conversion price of $14.00, and the application of the proceeds therefrom as described in "Use of Proceeds." Assuming the remaining net proceeds after repayment of debt earned interest at an annual rate of 5.0%, the pro forma primary earnings per share for the year ended December 31, 1995 would have been $0.55, the pro forma earnings per share for the nine months ended September 30, 1996 would have been $0.53 and $0.48 for primary and fully diluted, respectively. (Unaudited) (5) EBITDA is defined as income before effect of changes of accounting plus interest, income taxes, depreciation and amortization. EBITDA is presented here because it is a widely accepted financial indicator of a company's ability to service and/or incur indebtedness. However, EBITDA should not be considered as an alternative to net income or cash flow data prepared in accordance with generally accepted accounting principles or as a measure of a company's profitability or liquidity. The Company's measure of EBITDA may not be comparable to similarly titled measures reported by other companies. (Unaudited) (6) Earnings used in computing the ratio of earnings to fixed charges consist of income before income taxes, fixed charges and extraordinary items. Fixed charges consist of interest expense, including amounts capitalized, and that portion of rent expense which management deems to be attributable to interest costs. (Unaudited) (7) Unaudited. 14 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the Company's financial statements and the notes thereto included elsewhere in this Prospectus. This Prospectus contains, in addition to historical information, forward-looking statements that involve risks and uncertainties. The Company's actual results could differ materially. Factors that could cause or contribute to such differences include, but are not limited to, those discussed in "Risk Factors" as well as those discussed below and elsewhere in this Prospectus. GENERAL The Company is a manufacturer, distributor, and servicer of large-scale, real-time electronic information displays for both indoor and outdoor use. These display systems utilize LED and light bulb technologies to display real-time information entered by the user or via a third party information supplier. The Company provides high quality, reliable display products configured to suit its customers' needs, and offers extensive on-site service and maintenance coverage. The Company's display products include data, graphics, and picture displays for stock and commodity exchanges, financial institutions, airports, casinos, sports venues, convention centers, corporate, theatres, retail and numerous other applications. In addition to the core display business, the Company also operates a small chain of motion picture theatres in the southwestern U.S. In 1995, the Company derived approximately 89% of its revenue from its indoor and outdoor information display business. RESULTS OF OPERATIONS NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995. The Company's total revenues for the nine months ended September 30, 1996 increased 13.8% to $32.9 million versus $28.9 million for the same period in the previous year. Revenues from equipment rentals and maintenance decreased from $16.5 million in 1995 to $16.3 million in 1996, or 1.4%, primarily due to the expected decline in revenues from the outdoor lease and maintenance bases previously acquired, although the decline is at a slower rate than originally anticipated. This decline in revenues was partially offset by an increase in new indoor and outdoor display rentals and maintenance contracts. Revenues from equipment sales increased 44.7% or $4.1 million in 1996, primarily due to increased sales of outdoor displays as a result of the acquisition of ISE in January 1995 and certain significant sales which are being recognized on the percentage of completion basis. Revenues from theatre receipts and other increased by $124,000 or 3.9% in 1996, primarily attributable to increased concession sales at the theatres. Cost of equipment rentals and maintenance increased by $183,000 or 2.1%, primarily due to operating expenses of the indoor displays. The cost of equipment rentals and maintenance represented 54.6% of related revenues in 1996 compared to 52.7% in 1995. Cost of equipment sales increased by $3.0 million to $8.8 million in 1996 or 52.2%, primarily due to increased sales of outdoor displays and certain significant indoor display equipment sales, which due to the size of the orders have lower gross profit margins. Due to the nature of the outdoor display market, the Company anticipates the gross profit margin to decline somewhat as it enters new industry segments of the outdoor market. The Company does not anticipate the gross profit margin on future significant indoor display equipment sales to decline. The cost of equipment sales represented 65.9% of related revenues in 1996 compared to 62.7% in 1995. The cost of theatre receipts and other increased $67,000 or 2.7%, which was proportional to the increase in theatre revenues. The cost of theatre receipts and other represented 76.1% and 77.0% of related revenues in 1996 and 1995, respectively. General and administrative expenses increased by $232,000 or 2.5%, primarily due to expanded sales efforts and increased payroll and benefits costs, partially offset by the favorable adjustment of previously accrued expenses. Interest income decreased by $29,000, primarily attributable to reduced investments. Interest expense increased by $75,000, primarily due to increased bank borrowing for general corporate purposes on the revolving credit line. 15 18 Other expense of $97,000 in 1996 relates to the loss incurred by the theatre joint venture, MetroLux Theatres, which includes start up costs. Other income of $70,000 in 1995 was largely due to the sale of a theatre property in New Mexico. The effective tax rate at September 30, 1996 and 1995 was 42.0%. YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994 The Company's total revenues for the year ended 1995 increased by 12.0% to $37.8 million in 1995 from $33.7 million in 1994. In January 1995, the Company acquired all the capital stock of ISE, a manufacturer of outdoor electronic displays. Operating results for 1995 include a full twelve months from this acquisition. Revenues from equipment rentals and maintenance decreased $447,000 or 2.1% during 1995, primarily due to the expected decline in revenues from the two acquisitions of outdoor lease and maintenance base portfolios from $11.7 million in 1994 to $10.8 million in 1995. Revenues from equipment sales increased 45.5% during 1995. The increase was largely attributable to the revenues generated from the acquisition of ISE, which contributed $3.6 million in revenues during 1995. Revenues from theatre receipts and other increased $630,000 during 1995, primarily due to the inclusion of a full year of operations at the five-plex theatre in Durango, Colorado which opened in mid-1994. Cost of equipment rentals and maintenance, which includes field service expenses, plant repair costs and depreciation, decreased $571,000 or 4.8% during 1995, to 53.6% of related revenues from 55.1% in 1994. The decrease is primarily attributable to a reduction in field service expenses. The cost of equipment sales as a percentage of related revenue represented 63.6% in 1995 and 54.4% in 1994. The increase in costs is primarily due to the expected lower profit margins generated by ISE. The cost of theatre receipts and other, which includes film rental expenses increased $321,000 or 11.2% during 1995, primarily due to a full year of operations at the five-plex theatre in Durango, Colorado which opened in mid-1994. Cost of theatre receipts and other represented 75.4% of related revenues in 1995 and 79.7% in 1994. General and administrative expenses increased $471,000 or 4.3% from $11.0 million in 1994 to $11.5 million in 1995 primarily due to the acquisition of ISE. General and administrative expenses decreased as a percentage of revenue to 30.4% in 1995, compared to 32.7% in 1994, primarily as a result of economies of scale. Interest income decreased $57,000 during 1995, primarily attributable to reduced investments which were utilized for acquisitions. Interest expense increased by $845,000 during 1995, primarily as a result of the additional debt incurred relative to the acquisition of ISE, in addition to the lower interest expense recorded in 1994 as a result of a settlement of a 1993 assessment of interest resulting from a 1986 state income tax audit. The other income of $92,000 in 1995 is largely due to the sale of a theatre property in New Mexico. YEAR ENDED DECEMBER 31, 1994 COMPARED TO YEAR ENDED DECEMBER 31, 1993 The Company's total revenues for the year ended 1994 decreased by 5.7% to $33.7 million from $35.8 million in 1993. Revenues from equipment rentals and maintenance increased $828,000 or 4.0% during 1994. The revenue from the acquisition of the lease base portfolio of outdoor displays and maintenance contracts which occurred in August 1993 contributed a full year of revenues. Revenues from equipment sales decreased $3.3 million or 28.0% during 1994, primarily because 1993 included a $4.3 million sale to the CME, the largest sale in the Company's history. Revenues from theatre receipts and other increased by $423,000 in 1994, primarily due to the opening of the theatre in Durango, Colorado in mid-1994. Cost of equipment rentals and maintenance increased $680,000 or 6.0% during 1994, to 55.1% of related revenue from 54.0% in 1993. The increase is primarily attributable to a full year of field service expenses relating to the August 1993 acquisition. The cost of equipment sales decreased $3.0 million or 39.6% in 1994 and represented 54.4% of related revenue compared to 64.8% in 1993, primarily due to the sale to the CME in 1993, which due to the size of the order had a lower gross profit margin. The cost of theatre receipts and other increased $207,000 or 7.8% during 1994. Cost of theatre receipts and other represented 79.7% of related 16 19 revenue in 1994 compared to 83.8% in 1993, primarily due to lower film rental costs and the opening of the theatre in Durango, Colorado in mid-1994. General and administrative expenses increased by $821,000 or 8.0% during 1994, partially due to the additional expenses incurred in order to maintain the outdoor lease and maintenance base acquired in August 1993. General and administrative expenses increased as a percentage of revenue to 32.7% in 1994 compared to 28.5% in 1993, which increase was caused by the overall decrease in 1994 total revenues from the 1993 level, which included the sale to the CME. Interest income decreased $19,000 during 1994. Interest expense decreased $1.2 million during 1994. The decrease was primarily due to the settlement of a 1993 assessment of interest resulting from a 1986 state income tax audit, which when assessed in 1993 increased interest expense for that year. INCOME TAXES The effective tax rate was 42.0% in 1996 and 1995, 36.3% in 1994 and 70.6% in 1993. The increase in the effective tax rate for 1995 was due to a settlement of a 1986 state income tax audit in 1994, which lowered the effective tax rate in 1994 and when assessed in 1993 increased the effective tax rate for that year. ACCOUNTING STANDARDS The Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of " in the first quarter of 1996. In accordance with the standard, the Company evaluates the carrying value of its long-lived assets and identifiable intangibles, including goodwill, when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The adoption of the standard did not have any effect on the Company's consolidated financial position or results of operations. The Company also adopted the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" in the first quarter of 1996. As provided for in the standard, the Company continues to apply Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations for employee stock compensation measurement and will disclose the required pro forma information in the 1996 Form 10-K. LIQUIDITY AND CAPITAL RESOURCES Historically, the Company's primary sources of liquidity and capital resources have been cash flow from operations and bank borrowings. The Company believes that cash generated from operations together with the anticipated net proceeds of the Offering will be sufficient to fund its anticipated further cash requirements. Cash and cash equivalents decreased by $1.7 million in 1995 compared to an increase of $1.2 million in 1994 and a decrease of $52,000 in 1993. The decrease in 1995 is primarily attributable to cash utilized to acquire ISE, repayment of its long-term debt and an investment in a theatre joint venture. This was offset by an increase of $1.1 million in deferred revenue and deposits, primarily due to prepayments of annual billings not yet recorded as revenue. During the nine months ended September 30, 1996, the Company's cash and cash equivalents decreased by $611,000, primarily attributable to cash utilized for investment in rental equipment, an increase in accounts receivable which is attributable to the timing of large equipment sales, unbilled receivables and a decrease in deferred revenue and deposits which was primarily due to the timing of recording the revenues versus billings and the loan to the theatre joint venture, MetroLux Theatres. The decrease in cash and cash equivalents in 1995 was largely attributable to the cash utilized to acquire ISE, repayment of long-term debt and the investment in MetroLux Theatres. Inventories, prepaids and intangibles increased during 1995 primarily due to the acquisition of ISE. Although receivables increased both at December 31, 1995 and September 30, 1996, the Company continues to experience a favorable collection cycle on its trade receivables. 17 20 The Company entered into a Credit Agreement in August 1995 restructuring $15.6 million of indebtedness and a $4.0 million revolving credit facility with First Union Bank. The revolving credit facility was increased to $7.0 million during 1996 and was extended until June 1998. The revolving credit facility was subsequently supplemented by a $3.0 million revolving facility available to the Company at the discretion of First Union Bank, which expires January 1997. The restructuring extended the terms at a variable rate of interest of LIBOR plus 175 basis points. Simultaneously, the Company entered into an interest rate swap for three years at a fixed rate of 7.86% for $15.6 million of notional value to mitigate the risk of the variable interest rate. The loans provide for certain covenants such as net worth, capital expenditures, fixed charge coverage ratio and debt to worth ratio. The Company is a guarantor of a $3 million term loan to MetroLux Theatres, the theatre joint venture. The owner of the non-related general partner of the joint venture has guaranteed their pro rata portion of the indebtedness to the Company. RESULTS OF OPERATIONS The following table sets forth unaudited quarterly financial data:
QUARTER ENDED MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 - --------------------------------------------------------- -------- ------- ------------ ----------- (DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) 1996 Revenues................................................. $10,033 $10,591 $ 12,247 Gross profit............................................. 3,969 4,080 4,579 Income before income taxes............................... 427 467 604 Net income............................................... 248 271 350 Earnings per share: Primary................................................ $ 0.20 $ 0.21 $ 0.27 Fully diluted.......................................... 0.19 0.20 0.25 1995 Revenues................................................. $ 9,379 $ 9,861 $ 9,641 $ 8,910 Gross profit............................................. 3,913 4,078 3,976 3,418 Income before income taxes............................... 340 390 532 577 Net income............................................... 197 226 309 334 Earnings per share: Primary................................................ $ 0.16 $ 0.18 $ 0.24 $ 0.27 Fully diluted.......................................... (1 ) (1) 0.23 0.24 1994 Revenues................................................. $ 8,343 $ 8,006 $ 8,765 $ 8,628 Gross profit............................................. 3,424 3,485 3,534 3,886 Income before income taxes............................... 677 (2) 375 437 575 Net income............................................... 554 (2) 216 241 303 Earnings per share: Primary................................................ $ 0.44 (2) $ 0.17 $ 0.19 $ 0.24 Fully diluted.......................................... 0.34 (2) 0.17 0.18 0.23
- --------------- (1) Not dilutive. (2) The first quarter of 1994 reflects the positive impact of a settlement of a 1993 assessment of income taxes and related interest expense incurred resulting from a 1986 state income tax audit of approximately $360,000, $0.29 primary earnings per share and $0.18 fully diluted earnings per share. 18 21 The following table sets forth unaudited selected financial data stated as a percentage of the Company's total revenues:
YEAR ENDED DECEMBER 31, LATEST TWELVE --------------------------- MONTHS ENDING 1993 1994 1995 SEPTEMBER 30, 1996 ------ ----- ------ ------------------ Revenues: Equipment rentals and maintenance.............. 58.2% 64.2% 56.1% 50.2% Equipment sales................................ 33.0 25.2 32.7 39.4 Theatre receipts and other..................... 8.8 10.6 11.2 10.4 ------ ------ ------ ------ Total revenues......................... 100.0 100.0 100.0 100.0 ------ ------ ------ ------ Operating expenses: Cost of equipment rentals and maintenance...... 31.4 35.3 30.1 27.6 Cost of equipment sales........................ 21.4 13.7 20.8 26.0 Cost of theatre receipts and other............. 7.4 8.5 8.4 7.8 ------ ------ ------ ------ Total operating expenses............... 60.2 57.5 59.3 61.4 Income before income taxes....................... 4.6 6.1 4.9 5.0 Net income....................................... 1.4 3.9 2.8 2.9
The following table sets forth the gross profit of each of the Company's three revenue categories as a percentage of the revenue generated by that category. Gross margin analysis: Equipment rentals and maintenance.............. 46.0% 44.9% 46.4% 45.0% Equipment sales................................ 35.2 45.6 36.4 34.0 Theatre receipts and other..................... 16.2 20.3 24.6 25.2 ------ ----- ------ ------ Total gross margin..................... 39.8 42.5 40.7 38.6
19 22 BUSINESS GENERAL The Company is a manufacturer, distributor, and servicer of large-scale, real-time electronic information displays for both indoor and outdoor use. These display systems utilize LED and light bulb technologies to display real-time information entered by the user or via a third party information supplier. The Company provides high quality, reliable display products configured to suit its customers' needs, and offers extensive on-site service and maintenance coverage. The Company's display products include data, graphics, and picture displays for stock and commodity exchanges, financial institutions, airports, casinos, sports venues, convention centers, corporate, theatres, retail, and numerous other applications. In addition to the core display business, the Company also operates a small chain of motion picture theatres in the southwestern U.S. In 1995, the Company derived approximately 90% of its revenue from its indoor and outdoor information display business. The Company is a Delaware corporation founded in 1920 as a developer of display products. The Company sold its first large scale moving display product in 1923, based on proprietary rear screen projection technology. The Company's development of rear screen projection technology also led it into the theatre business which at one time represented a significant portion of its revenues. Over the years, the Company has focused on the development and examination of new technologies in the information display industry. In the late 1960s, the Company developed and marketed its first electromechanical display units. These products were actively marketed until 1983 when the Company introduced its first LED-based display systems. The Company's high performance electronic information displays are used to communicate messages and information in a variety of indoor and outdoor applications. The Company's product line encompasses a wide range of state-of-the-art electronic displays in various shape, size and color configurations. Most of the Company's display products include hardware components and sophisticated software. In both the indoor and outdoor markets, the Company adapts basic product types and technologies for specific use in various niche market applications. The Company also operates a direct service network throughout the U.S. and Canada which performs on-site service and maintenance for its customers, further distinguishing the Company from many of its competitors. In the indoor market, the Company's high performance electronic displays are used to communicate messages in the financial, gaming, transportation, entertainment and retail industries, among others. In the financial industry, the Company's products display news and market information, interest rates, up-to-the-second stock and commodity prices, and other financial product information for stock and commodity exchanges, brokerage firms, banks, mutual fund companies, and other financial institutions. In the gaming industry, the Company's products transmit racing and pari-mutuel betting odds and results, sports scores, statistics, slot machine jackpots and other wagering information. In the transportation industry, the Company's products are used to display arrival and departure information and gate and baggage claim information for airports and other transportation facilities. While the securities and commodities industries continue to represent a significant portion of the Company's customer base, the Company has a strong presence in the gaming industry through its race and sports book displays and also markets its displays to such users as banks, corporations, transportation facilities, the military, racetracks, restaurants, pharmacies, theatres, hotels and convention centers. In the indoor display market, the Company's customers include the American Stock Exchange, Charles Schwab & Co. Incorporated, the CBOT, the CME, Goldman Sachs & Co., Kaiser Permanente, Merrill Lynch Pierce Fenner & Smith, Inc., MGM Grand, Inc., Mirage Resorts, Inc., the New York Mercantile Exchange, Inc., the New York Stock Exchange, Inc. and Sony Theaters Management Corporation. Over the past four years, the Company has utilized its strong position in the indoor display market combined with several acquisitions to establish a growing presence in the outdoor display market. Trans-Lux outdoor displays are installed in amusement parks, entertainment facilities, professional and college sports stadiums, military installations, bridges and other roadway installations, automobile dealerships, banks and other financial institutions. In the outdoor display market, the Company's customers include Auburn 20 23 University, Pontiac Silverdome, Resorts International, Six Flags Over Georgia, 3 Com Park and Twin City Federal Financial Corp. The Company has made three acquisitions over the past four years in order to establish and enhance its presence in the outdoor market. In August 1992, after first managing the portfolio for approximately 15 months, the Company acquired a portfolio of outdoor electric and electronic equipment displays from American Electronic Displays, L.P. In August 1993, the Company expanded its presence in the outdoor display market by acquiring a portfolio of outdoor lease, maintenance and other contracts from Indicator Maintenance Corporation. In January 1995, the Company acquired all of the capital stock of ISE, a manufacturer of outdoor electronic displays. ELECTRONIC INFORMATION DISPLAY MARKET Accessing information in a timely and efficient manner has become increasingly important over the past two decades and has been driven by technological improvements in both the telecommunications and computer industries. Today, access to either specific information or general news events is critical in many aspects of business. As demand for various information displays has spread into an increasingly diverse number of applications, an equally diverse number of display products has emerged, leaving the industry highly fragmented with no single company or group of companies having a dominant share of the entire industry. The electronic information display market can be broken down into two distinct markets: the indoor market and the outdoor market. Electronic information displays are used by financial institutions, including brokerage firms, banks, saving and loans, insurance companies and mutual fund companies; by retail outlets; by casinos, race tracks and other gaming establishments; by outdoor advertising companies; in airports, train stations and bus terminals, and other transportation facilities; on highways and major thoroughfares; and by movie theatres, and in various other applications. The industry is expected to continue to expand as additional applications are added and current applications are increasingly implemented by businesses attempting to increase information flow to current and potential customers. The Indoor Market: The indoor electronic display market is currently dominated by three categories of users: financial, gaming and corporate. The financial market segment, including trading floors, exchanges, brokerage firms and mutual fund companies, has long been a user of electronic information displays due to the need for the real-time dissemination of data. The major stock and commodity exchanges depend on reliable information displays to post stock and commodity prices, trading volumes, interest rates and other financial information. Brokerage firms have increasingly installed electronic ticker displays for both customers and brokers, and in the last few years have installed larger displays to post major headline news events in their brokerage offices to enable their sales force to stay up-to-date on the events affecting general market conditions and specific stocks. The changing regulatory environment in the financial marketplace has also resulted in the influx of banks and other financial institutions into the brokerage business and has resulted in these institutions increasingly using information displays to advertise product offerings to consumers. The proliferation of gaming establishments including casinos, Indian gaming establishments, and off-track betting parlors, has resulted in the rapid expansion of electronic information displays in the gaming industry. These establishments generally use large information displays to post odds for race and sporting events and to display timely information such as results, track conditions, jockey weights and scratches. Casinos also use electronic displays throughout their facilities to advertise to and attract gaming patrons. This includes using electronic displays in conjunction with slot machines to attract customer attention to potential payoffs and thus increase customer play. The corporate market includes applications found in major corporations, public utilities and government agencies for the display of real-time, critical data in command/control centers, data centers, help desks, inbound/outbound telemarketing centers and for employee communications. Electronic displays have found acceptance in applications for the healthcare industry such as out-patient pharmacies, military hospitals and HMOs which desire to automatically post patient names when prescriptions are ready for pick up. Theatres use electronic displays to post current box office and ticket information, directional information and to 21 24 promote concession sales. Information displays are consistently used in airports, bus terminals and train stations to post arrival and departure information and gate and baggage claim information, which helps to guide passengers through these facilities. The Outdoor Market: The outdoor electronic display market is even more diverse than the indoor market with displays being used by banks and other financial institutions, gas stations, highway departments, sports stadiums and outdoor advertisers attempting to capture the attention of passers-by. In addition to traditional uses of outdoor electronic displays, the Company believes the outdoor market represents a growth opportunity for participants in the indoor electronic information display industry. The entire "out-of-home" advertising category, such as traditional billboards and roadside displays, has expanded to include displays in shopping centers and malls, airports, stadiums, movie theatres and supermarkets. While most existing outdoor advertisers do not currently utilize either LED or light bulb generated messages, the Company believes a growing number of outdoor advertising mediums are beginning to turn to these higher-end technologies in order to enhance visibility, recognition and impression on the viewer, and to expand the capabilities of the display, which therefore represents a potential growth opportunity for participants in the electronics information display industry. COMPANY STRATEGY The Company's strategy is to leverage its position in the U.S. indoor electronic information display market to expand market share in the global indoor and outdoor display markets. Trans-Lux has a proven track record for providing high quality, innovative information display products in the indoor market. The Company supplies many of the electronic information displays to the financial services industry and to the race and sports book segment of the gaming industry, and has a significant presence in the corporate and transportation markets. The Company offers its customers the option of either leasing or purchasing its display products and believes this provides a competitive advantage over most of its competitors who primarily offer their products for sale only. In addition, the Company plans to expand the scope of its service force to include the maintenance of other companies' display products and related electronic equipment. The Company believes that by providing high quality, reliable electronic displays configured to suit their customers' needs, combined with offering extensive on-site service and maintenance coverage and the opportunity to purchase or lease display products, it will be able to continue to expand its market share in the indoor and outdoor display markets. In the indoor market, the Company's growth strategy centers around increased marketing efforts, expanded sales coverage and continued product developments aimed at capitalizing on the Company's presence in its current market segments and expanding into new market segments. Because of the Company's expertise in and close association with certain market segments, such as the financial services industry, it is able to anticipate requirements for new products, product enhancements and new technologies before its competitors. The Company has increased its engineering staff to accommodate the development of new products and enhancements, and will continue to do so as needed. The Company also plans to continue to penetrate new market segments such as call centers, motion picture theatres, outpatient pharmacies and military hospitals through increased direct marketing and sales efforts. Additionally, the Company expects its new progressive meter and controller systems to provide expanded opportunities within the gaming industry. The Company will continue its strategy of developing partnerships with key data suppliers and software vendors in its various market niches, both to add value to the access of the data and to increase product exposure via third party distribution channels. The Company's acquisitions in the outdoor market will be enhanced through focused marketing efforts and expansion of the sales force. The Company will continue to increase its presence in the outdoor market by identifying target segments in which to become a leading supplier. The Company has identified and commenced market development in key outdoor market segments such as sports stadiums and arenas, convention centers, theme parks, shopping malls, automobile dealerships, theatres and highway/transportation applications. 22 25 The Company expects that its recently completed and planned product developments will enhance its outdoor product line and allow it to penetrate new market segments. The capability of displaying live video, offering lower power consumption and other competitive advantages, provides an attractive product offering to targeted market segments and paves the way for entry into the broader advertising market. Development of a 16 shades of gray outdoor display system will enable the Company to capitalize on the growth of its basic message center business across all market segments, which will appeal to customers who want to utilize animation without the added cost of full color. Internationally, the Company anticipates growth in the financial exchange markets, penetration of the international gaming markets for its meter and controller product line and entry into advertising/media applications and other outdoor applications. The Company is currently in the process of expanding its distributor network in key foreign markets. INFORMATION DISPLAY PRODUCTS The Company's high performance electronic information displays are used to communicate messages and information in a variety of indoor and outdoor applications. The Company's product line encompasses a wide range of state-of-the-art electronic displays in various shape, size and color configurations. Most of the Company's display products include hardware components and sophisticated software. In both the indoor and outdoor markets, the Company adapts basic product types and technologies for specific use in various niche market applications. The Company also operates a direct service network throughout the U.S. and Canada which performs on-site service and maintenance for its customers, further distinguishing the Company from many of its competitors. The Company employs a modular engineering design strategy, allowing basic "building blocks" of electronic modules to be easily combined and configured in order to meet the broad application requirements of the markets the Company serves. This approach ensures maximum product flexibility, reliability, ease of service and minimum spare parts requirements. Listed below are the Company's major product technologies and a brief description of their features and primary market applications: INDOOR MARKET LED Jet(@): A two line scrolling LED text display which is widely used in financial exchanges, brokerage firms and retail investment centers to post last-sale information on stock trades directly from various exchange sources. LED News Jet(TM): A multi-line scrolling LED text display which interfaces directly to real-time news services and information services. The News Jet is used to provide up-to-the-second critical news to the floor traders in financial exchanges, brokerage firms and retail investment centers. DataWall(@): A high speed, line- and character-addressable LED text display which is used in applications that require the posting of frequently changing tabular information, such as indices, stocks, bonds, foreign exchange and news in the financial markets; race and sports odds and results in the gaming market; and arrival and departure information in the transportation market. PictureWall(TM): A full-matrix, tricolor LED display that, via custom software, displays any text and/or graphic images that can be shown on a computer monitor. Typical uses for this product include real-time financial data, graphs and charts for exchanges and brokerage firms, and computer-generated data for corporate command centers. OUTDOOR MARKET Time & Temperature Displays: Alternating or full-view models used primarily by banks to build corporate identity and generate public awareness. Message Center Displays: Scrolling message ranging in size from one to three lines used by shopping malls, automobile dealerships and other retail outlets to promote products and services, generate public awareness and inform customers. 23 26 Graphic Displays and Score Boards: Fully populated displays accommodating graphics, animation and video used by stadiums, arenas, convention centers, casinos and other entertainment venues to welcome fans, promote events and advertise products and sponsors. Also used in scoreboards, in conjunction with Message Centers and scoring displays, to show instant replays and animated advertising. MARKETING AND DISTRIBUTION The Company markets its indoor and outdoor electronic information display products primarily through its direct sales force and telemarketers which as of September 30, 1996 consisted of 30 direct sales representatives and 8 telemarketers. The Company divides its domestic sales and marketing efforts into two categories: (i) renewal of existing product leases and product upgrades; and (ii) the sale or lease of display products to new customers. In the indoor market for leased equipment, the Company attempts to maintain an ongoing relationship with its customers to discuss lease renewals. In the outdoor market, sales personnel contact existing and potential customers to discuss the customer's usage or requirements for display equipment. The Company also uses primarily telemarketing personnel to maintain communication with its installed base of lease equipment customers contacting them prior to the expiration of existing leases in order to discuss lease renewal. The Company uses a number of different techniques in order to attract new customers, including direct marketing efforts by its sales force to known or potential users of information displays, advertising in industry publications, and placing exhibits at approximately 20 domestic and international trade shows annually. In the outdoor market, the Company supplements these efforts by using a network of independent distributors who market and sell the products of several manufacturers. The Company intends to use a portion of the proceeds from the Offering to expand its marketing and sales efforts. Internationally, the Company uses a combination of internal sales people and independent distributors to market its products in Europe, South America, Asia and Australia. The Company currently has manufacturing operations, service centers and sales offices in New South Wales, Australia and Ontario, Canada. The Company has existing relationships with approximately 30 independent distributors worldwide covering Europe, South America, Asia and Australia. Historically, international sales have represented less than 15% of the Company's revenues but the Company believes that it is positioned to expand its international sales and that such sales will represent an increasing percentage of the Company's revenues in the future. Headquartered in Norwalk, Connecticut, the Company has major sales and service offices in New York, Chicago, Las Vegas, Torrance, California, Ontario, Canada, Logan, Utah and New South Wales, Australia, as well as 58 satellite offices in the U.S. and Canada. SERVICE AND SUPPORT The Company emphasizes the quality and reliability of its products and the ability of its field service personnel to provide timely and expert service to the Company's installed base. The Company believes that the quality and timeliness of its on-site service personnel are important components in the Company's success. The Company provides turnkey installation and support for the products it leases or sells in the U.S., Canada and Australia as part of the installation. The Company provides training to end users and provides ongoing support to users who have questions regarding operating procedures, equipment problems or other issues. The Company provides service to customers who lease equipment and offers installation and service to those who purchase equipment. In the markets the Company's distributors cover, the distributors offer support for the products they sell. Personnel based in regional and satellite service locations throughout the U.S., Canada and Australia provide high quality and timely on-site service for the installed equipment base. Purchasers or lessees of the Company's larger products, such as financial exchanges, casinos and sports facilities, often retain the Company to provide on-site service through the deployment of a service technician who is on-site daily or for the scheduled sporting event. The Company also maintains a National Technical Services Center in the Atlanta, Georgia area which performs off-site equipment repairs and dispatches service technicians on a nationwide basis. The Company's field service is augmented by various outdoor service companies in the U.S., Canada and overseas. From time to time the Company uses various third party service agents to install, service 24 27 and/or assist in the service of outdoor displays for reasons that include geographic area and unusual height of displays. ENGINEERING AND PRODUCT DEVELOPMENT The Company's ability to compete and operate successfully depends upon, among other factors, its ability to anticipate and respond to the changing technological and product needs of its customers. As such, the Company continually examines and tests new display technologies and develops enhancements to its existing products in order to meet the current and anticipated future needs of its customers. Product enhancement work continues in both the indoor and outdoor areas. Development of new indoor products includes progressive meter and controller systems for use in the gaming industry; smaller character displays to post more information in a comparably sized area; higher speed processors for faster data access and improved update speed; integration of blue LEDs to provide full color text and graphics displays; a new graphics interface to display more data in higher resolutions; and tricolor news displays providing the ability to color-code and identify "hot" stories. New outdoor product plans include the development of the Spectra Lens System(TM) which will enable the Company to capitalize on full color, full matrix indoor applications, particularly in the sports market. Complete development of the 16 shades of gray Spectra Lens System should encourage the growth of the Company's message center business in all market segments. This product will be targeted to customers who want an animated display at a lower cost than full color. The Company is also currently developing full color LED displays which will have application particularly in the gaming market where entertainment value is important to marketing properties and in the sports market where enhancing the presentation of live action is of central importance. As part of its ongoing development efforts, the Company seeks to package certain products for specific market segments as well as to continually track emerging technologies that can enhance its products. Future technologies under consideration are trending toward full color, live video, and digital input. The Company is currently focused on certain technologies which incorporate these features and which are expected to provide a choice of products for the custom applications the Company's customers demand. The Company maintains a staff of 32 people who are responsible for product development and support in indoor and outdoor markets. The engineering and product enhancement and development efforts are supplemented by outside independent engineering consulting organizations where required. Engineering, product enhancement and development amounted to $1,315,000, $1,497,000 and $2,139,000 in 1993, 1994 and 1995, respectively. MANUFACTURING AND OPERATIONS The Company's production facilities are located in Norwalk, Connecticut, Logan, Utah, Ontario, Canada and New South Wales, Australia and consist principally of the manufacturing, assembly and testing of display units, and related components. The Company performs most subassembly and all final assembly of its products. Equipment orders generally have a lead time of 30 to 90 days depending on the size and type of the equipment, and material availability. All product lines are design engineered by the Company, and controlled throughout the manufacturing process. The Company has the ability to produce printed circuit board fabrications, very large sheet metal fabrications, plastic molded parts, cable assemblies, and surface mount and through hole designed assemblies. The Company produces more than 100,000 board assemblies annually which are tested with the latest state of the art automated test equipment. The Company's production of many of the subassemblies and all of the final assemblies gives the Company the control needed for on-time delivery to its customers. The Company also has the ability to rapidly modify its product lines. The Company's displays are designed with versatility in mind, enabling the Company to customize its displays to meet different application with a minimum of lead time. The Company's automated planning and purchasing department further enables it to secure raw materials in a timely fashion without maintaining excessive inventories. The Company also 25 28 partners with large distributors via volume purchase agreements, giving it the benefit of a third party stocking its components ready for delivery on demand. The Company designs certain of its materials to match components furnished by suppliers. If such suppliers were unable to provide the Company with those components, the Company would have to contract with other suppliers to obtain replacement sources. Such replacement might result in engineering design changes, as well as delays in obtaining such replacement components. The Company does not acquire a material amount of purchases directly from foreign suppliers, but components are manufactured by foreign sources. See "Risk Factors -- Reliance on Key Suppliers." BACKLOG The amount of sales order backlog was approximately $2.2 million and $2.6 million at September 30, 1995 and 1996, respectively. The September 30, 1996 backlog will be recognized throughout 1996 and 1997. These amounts do not include leases or renewals of leases currently in effect. COMPETITION The Company supplies many of the large-scale electronic display products to the financial services industry and the race and sports book segment of the gaming industry in the U.S. The Company's offer of short-term leases to customers and its nationwide sales, service and installation capabilities are major competitive advantages in the display business. The Company competes with a number of competitors, both larger and smaller than itself, and with products based on different forms of technology. In addition, there are several companies whose current products utilize similar technology and who possess the resources necessary to develop competitive and more sophisticated products in the future. In the indoor market, competitors vary according to market segment. In the financial market, major competitors include Daktronics, Inc., Sunrise Systems, Inc., Display Solutions, Inc. and Ferranti Packard Electronics Ltd. Additional competitors include Grandwell Industries Inc., Gamma Technologies, Inc. IGG Systems Inc. (exchanges only), and Adaptive Micro Systems, Inc. In some corporate market applications the Company competes with other technologies (such as video monitors); in others, Adaptive Micro Systems is a competitor. In the race and sports book segment of the gaming market, competitors include Daktronics and Display Solutions. In the progressive meter and controller segment, the dominant vendor is Mikohn Gaming Corporation; other competitors include Casino Data Systems, Daktronics, INFAX, Inc., and AEG Corporation compete in the transportation market. In the outdoor market, key competitors with direct sales capabilities are Daktronics, White Way Sign, Fairtron Corporation and Display Solutions. Other competitors include local sign companies that distribute other manufacturers' equipment and have limited resources. Internationally, competitors vary according to market and region. Primary competitors include Daktronics, IGG and Giantek Technology Corp. (Taiwan). There are also numerous local and regional competitors. The Company's motion picture theatres are subject to varying degrees of competition in the geographic areas in which they operate. In some areas, theatres operated by national circuits compete with the Company's theatres. The Company's theatres also face competition from all other forms of entertainment competing for the public's leisure time and disposable income. THEATRE OPERATIONS The Company currently operates 29 screens in eight locations in the southwestern U.S. This includes a twelve-plex theatre in Loveland, Colorado which was built in late 1995 through a 50% owned joint venture. The Company's theatre revenues are generated from box office admissions, theatre concessions, theatre rentals and other sales. Theatre revenues are generally seasonal and coincide with the release dates of major films during the summer and holiday seasons. In 1995, the Company derived approximately 10% of its revenues from theatre operations. 26 29 PROPERTIES The Company's headquarters and principal executive offices are located at 110 Richards Avenue, Norwalk, Connecticut. The Company owns the 102,000 square foot facility located at such site, which it also uses for engineering, production and assembly of its indoor displays and outdoor LED display products. The Company owns facilities in Ontario, Canada, Torrance, California and Logan, Utah which it uses for administration, sales and service. The Ontario, Canada and Logan, Utah sites are also used as production and assembly facilities. In addition, the Company owns a facility in Norcross, Georgia which it uses as its National Technical Services Center from which it dispatches the Company's service technicians on a nationwide basis. The Company also leases ten premises throughout North America and in Australia for use as sales, service and/or administrative operations. Additionally, the Company owns the buildings and land in Santa Fe, New Mexico, Taos, New Mexico, and Durango, Colorado which house theatre operations. REGULATION In the U.S. and other countries, various laws and regulations restrict the installation of outdoor signs and information displays. These regulations may impose greater restriction on information displays due to alleged concerns over aesthetics or driver safety if a display is located near a road or highway. The Company's products are tested to safety standards developed by Underwriters Laboratories and Edison Testing Laboratories in the U.S. as well as similar standards in other countries. The Company designs and produces its products in accordance with these standards. The Company's printed circuit board manufacturing operations must also meet various safety related rules and regulations. The Company believes it is in compliance with all applicable governmental laws and regulations. INTELLECTUAL PROPERTY The Company owns or licenses a number of patents and holds a number of trademarks for its communications equipment and theatrical enterprises and considers such patents, trademarks and licenses important to its business. LITIGATION The Company is not involved in any litigation other than in the ordinary course of business, none of which would materially adversely affect the financial position, results of operations or cash flows of the Company in the event of an adverse judgment. EMPLOYEES The Company has approximately 564 employees as of September 30, 1996, of which 431 employees are related to the Company's electronics display business. Less than 1% of the employees are unionized. The Company believes its employee relations are good. 27 30 MANAGEMENT
NAME AGE OFFICE - ----------------------------------- --- ------------------------------------------------ Richard Brandt..................... 69 Chairman of the Board and Director Victor Liss........................ 59 Vice Chairman of the Board, President, Chief Executive Officer and Director Michael R. Mulcahy................. 48 Executive Vice President Frank N. Daniels................... 58 Senior Vice President Karl P. Hirschauer................. 51 Senior Vice President Thomas F. Mahoney.................. 49 Senior Vice President Angela D. Toppi.................... 41 Senior Vice President, Treasurer, Secretary and Chief Financial Officer Steven Baruch...................... 58 Director Jean Firstenberg................... 60 Director Allan Fromme....................... 81 Director Robert Greenes..................... 75 Director Gene Jankowski..................... 62 Director Howard S. Modlin................... 65 Director
Richard Brandt has been a director of the Company since 1954, Chairman of the Board since 1973, President from 1962 to 1980 and Chief Executive Officer from 1974 to 1992. He has been an employee of the Company for over 45 years. He is a director of Presidential Realty Corporation, a real estate company, Vice Chairman and a trustee of the College of Santa Fe, Chairman Emeritus and a trustee of the American Film Institute ("AFI") and a trustee of American Theatre Wing. Mr. Brandt is the brother-in-law of Dr. Allan Fromme. Victor Liss has been a director of the Company since 1988 and an executive officer since 1968. He has been Chief Executive Officer of the Company since December 1992, and Co-Chief Executive Officer between March 1992 and December 1992, responsible for overall operations of the Company, including corporate direction, long range planning and business development. He has been an employee for over 28 years. He is a director of Blue Cross & Blue Shield of Connecticut, Inc., and a trustee of Norwalk Hospital and Norwalk Community Technical College Foundation, Inc. Michael R. Mulcahy was elected Executive Vice President of the Company in charge of sales, marketing and engineering operations in May 1995. He was Senior Vice President between December 1993 and May 1995, and a Vice President between 1989 and December 1993. He has been an employee of the Company for over 29 years. Frank N. Daniels was elected Senior Vice President of the Company in charge of field service and human resources in December 1993 and has been an executive officer since 1984. He has been an employee of the Company for over 33 years. Karl P. Hirschauer was elected Senior Vice President of the Company in charge of engineering and product development in December 1993 and was a Vice President in charge of engineering between 1984 and December 1993. He has been an employee of the Company for over 16 years. Thomas F. Mahoney was elected Senior Vice President of the Company in charge of sales in June 1996. He was a Vice President between 1994 and June 1996 in charge of financial sales and an Assistant Vice President in sales from 1988 to 1994. He has been an employee of the Company for over 29 years. Angela D. Toppi was elected Senior Vice President of the Company in charge of finance in September 1995. Ms. Toppi has served as Secretary since July 1992, Chief Financial Officer since March 1992 and Treasurer since 1988. She has been an employee of the Company for over 10 years. Steven Baruch has been a director of the Company since 1994. During the past five years he has been Executive Vice President of Presidential Realty Corporation, a real estate company. He has been a producer 28 31 of various theatrical productions, among them Driving Miss Daisy, Angels in America, Love Letters and the Broadway revivals of Damn Yankees, Smokey Joe's Cafe and A Funny Thing Happened on the Way to the Forum. Jean Firstenberg has been a director of the Company since 1989 and is Chairperson of its Audit Committee. She is currently Chief Executive Officer of the AFI, has been a director of AFI since 1980 and is a trustee of Boston University. Dr. Allan Fromme has been a director of the Company since 1958. He is a consultant to the Company and Chairman of its Executive Committee. Dr. Fromme is a psychologist and author. Robert Greenes has been a director of the Company since 1971 and is Vice Chairman of its Executive Committee. During the past five years he has been President of Petroconsult, Inc., a petroleum consulting company and President of East Coast Energy Council. He previously was President and Chief Executive Officer of Public Fuel Service Inc., a fuel marketing and distribution company. Gene Jankowski has been a director of the Company since 1994. He has been Chairman of Jankowski Communications System, Inc., a broadcast consulting company, since 1990. He previously was President and Chairman of the CBS Broadcast Group. He is an Adjunct Professor of Telecommunications for Michigan State University, Chairman Emeritus of the AFI, director of The Advertising Educational Foundation and the Silvermine Art Center and advisor to the World Press Freedom Foundation. Howard S. Modlin has been a director of the Company since 1975 and is Chairman of its Compensation Committee. He is an attorney and member of the firm Weisman Celler Spett & Modlin, P.C. which provides legal services to the Company. He is a director of Fedders Corporation and General DataComm Industries, Inc. The executive officers are elected annually at the meeting of the Board following the annual meeting of stockholders to serve until their successors are elected. However, provisions in employment agreements provide for such election throughout the term of such respective agreements. The Board of Directors is divided into three classes with the term of office of one of the classes of directors expiring each year and with each class being elected for a three-year term. The term of each of Messrs. Baruch and Fromme expires in 1997, the term of each of Messrs. Brandt, Jankowski and Liss and Ms. Firstenberg expires in 1998 and the term of each of Messrs. Greenes and Modlin expires in 1999. 29 32 EXECUTIVE COMPENSATION AND TRANSACTIONS WITH MANAGEMENT COMPENSATION OF EXECUTIVE OFFICERS The following Summary Compensation Table sets forth all cash and non-cash compensation paid or awarded for the fiscal years ended December 31, 1995, 1994 and 1993 to the Company's four most highly compensated executive officers and the Chairman of the Board whose compensation exceeded $100,000 for the fiscal year ended December 31, 1995. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM -------------------------------------- COMPENSATION NAME AND PRINCIPAL OTHER ANNUAL OPTIONS ALL OTHER POSITION YEAR SALARY($) BONUS($) COMPENSATION($) GRANTED COMPENSATION($)(1) - -------------------------- ---- --------- -------- --------------- ------------ ------------------ Richard Brandt............ 1995 -- 78,618 368,146 -- 57,549 Chairman of the Board, 1994 -- 73,491 363,380 -- 116,535 former Chief and Co-Chief 1993 -- 57,694 349,242 12,500 96,615 Executive Officer(2) Victor Liss............... 1995 228,037 106,230 -- 5,000 1,888 Chief Executive Officer, 1994 196,915 133,753 -- 10,000 1,888 President and Vice Chairman 1993 168,244 67,694 -- 10,000 1,958 Michael R. Mulcahy........ 1995 166,593 21,458 -- 1,500 -- Executive Vice President, 1994 130,261 28,124 -- 3,500 -- former Senior Vice President 1993 129,689 -- -- 500 -- and Vice President of Sales Karl P. Hirschauer........ 1995 98,654 5,000 -- 1,000 -- Senior Vice President, 1994 91,212 6,719 -- 1,000 -- former Vice President 1993 91,859 -- -- 500 -- of Engineering
- --------------- (1) There are no restricted stock awards, stock appreciation rights or deferred long-term incentive payouts. The amounts reflected for Mr. Liss are payments by the Company for split dollar life insurance premiums. (2) The bonuses and other annual compensation for Mr. Brandt constituted consulting fees and other payments under a prior agreement with the Company which was superseded on August 16, 1996 by a new employment agreement. RETIREMENT PLAN AND SUPPLEMENTAL RETIREMENT BENEFITS There was a cash contribution of $98,816 for the individuals listed in the Summary Compensation Table and all other eligible employees to the Company's retirement plan for 1995. The amounts set forth for All Other Compensation include $96,615, $116,535 and $57,549 paid to Mr. Brandt for tax equalization payments in 1993, 1994 and 1995, respectively, under a former consulting agreement primarily resulting from limitations placed on the Plan by the Internal Revenue Code. Under the supplemental retirement arrangement with Mr. Liss, $15,000, $95,475 and $43,723 was accrued but not paid in 1993, 1994 and 1995, respectively. The Company's retirement plan covers all salaried employees over age 21 with at least one year of service who are not covered by a collective bargaining agreement to which the Company is a party. The following table presents estimated retirement benefits payable at normal retirement date, which normally is age 65. The amounts shown include estimated Social Security benefits which would be deducted in calculating benefits payable under such Plan. 30 33
FINAL AVERAGE SALARY ESTIMATED ANNUAL RETIREMENT BENEFITS FOR HIGHEST FIVE OF BASED ON CREDITED SERVICE YEARS THE TEN YEARS ------------------------------------------------- PRECEDING RETIREMENT 10 20 30 35 40 --------------------------------------- ------- ------- ------- -------- -------- $100,000............................... $15,000 $30,000 $45,000 $ 52,500 $ 60,000 125,000............................... 18,750 37,500 56,250 65,625 75,000 150,000............................... 22,500 45,000 67,500 78,750 90,000 200,000(1)............................ 30,000 60,000 90,000 105,000 120,000(2)
As of January 1, 1996, Messrs. Liss, Mulcahy and Hirschauer had 27, 28 and 16 years of credited service, respectively. - --------------- (1) $235,840 is the legislated annual cap on compensation for 1993 and $150,000 is the limit for subsequent years. (2) Maximum legislated annual benefits payable from qualified pension plan. CERTAIN TRANSACTIONS During the year 1995, $265,000 in fees for legal services rendered were paid by the Company to the law firm of which Mr. Modlin, a director of the Company, is a member. A subsidiary of the Company loaned an aggregate of $290,385 during the years 1989 through 1996 (and has agreed to loan an additional $30,000) to Dr. Fromme, Chairman of the Executive Committee, to fully pay the premiums on a $500,000 life insurance policy on his life. The Company has received an assignment of the policy as collateral for their repayment to the extent the proceeds of the policy are in excess of $200,000. The loans plus accrued interest are repayable solely from the proceeds of the policy. Messrs. Matthew Brandt and Thomas Brandt (sons and nephews of Messrs. R. Brandt and Dr. Fromme, respectively) are Vice Presidents of the Company, and each is employed by the Company at annual compensation level of approximately $87,500. EMPLOYMENT AGREEMENTS The Company has employment agreements with Messrs. R. Brandt, Liss, Mulcahy and Hirschauer expiring on December 31, 2002, December 31, 1997, May 31, 1998 and December 31, 1996, respectively. The agreements provide for annual compensation of $356,762 (subject to cost of living adjustments) for Mr. Brandt, $205,000 in 1996 and $215,000 in 1997 for Mr. Liss, $145,000 through May 1997 and $155,000 through May 1998 for Mr. Mulcahy, and $100,000 in 1996 for Mr. Hirschauer. Each agreement contains graduated bonus provisions based on the Company's defined pre-tax consolidated earnings, not to exceed $125,000, $150,000, $30,000 and $20,000 in the case of Messrs. R. Brandt, Liss, Mulcahy and Hirschauer, respectively. Each agreement also contains varying disability, death, and, other than Mr. Hirschauer, insurance benefits. In the case of Messrs. R. Brandt and Liss, each of their agreements provide for profit participations of 1 1/2% of the Company's defined pre-tax consolidated earnings. Mr. Mulcahy's agreement also provides for sales override commissions and severance benefits. Messrs. Brandt and Liss have the right to cancel their agreements if, among other things, in the case of Mr. Liss, the Company fails to renegotiate the terms of his agreement (which negotiations are in process) and elect him to his present positions and, in the case of Mr. Brandt, the Company fails to elect him to his present position in which case he has the right to receive the payments for the balance of the term of his agreement, including certain lump sum payments thereof. The foregoing is a summary of the agreements and reference is made to the agreements, each of which has been filed with the Securities and Exchange Commission for the full terms thereof. STOCK OPTION PLANS The Company has two incentive stock option plans adopted by the stockholders in 1992 and 1995 which provide for the grant of incentive stock options to purchase Common Stock (and/or Class A Stock under the 1995 Plan) at fair market value (or 110% of fair market value if the optionee owns more than 10% of the 31 34 Company's outstanding voting securities) on the date of grant. Options outstanding are exercisable during the period one to ten years after the date of grant and 500 and 76,200 shares remain available for issuance under the 1992 and 1995 Plans, respectively. The following two tables set forth certain information with respect to (i) the number of options granted to named executive officers in fiscal 1995 and (ii) the aggregate number and value of options exercisable by the named executive officers at December 31, 1995. Except for Mr. Mulcahy, no other named executive officer exercised any options in fiscal 1995. In 1996, Mr. Liss exercised options to purchase 6,906 shares. OPTION GRANTS IN LAST FISCAL YEAR INDIVIDUAL GRANTS
POTENTIAL % OF REALIZABLE VALUE TOTAL AT ASSUMED OPTIONS ANNUAL RATES OF NUMBER OF GRANTED STOCK PRICE SECURITIES TO EXERCISE APPRECIATION FOR UNDERLYING EMPLOYEES OR BASE OPTION TERM OPTIONS IN FISCAL PRICE EXPIRATION ------------------ NAME GRANTED(#) YEAR PER SHARE($) DATE 5% ($) 10% ($) - -------------------------- ---------- --------- ------------ ---------- ------ ------- Victor Liss............... 5,000 18.4% 8.125 07/26/05 26,000 65,000 Michael R. Mulcahy........ 1,500 5.5% 8.125 07/26/05 8,000 19,000 Karl P. Hirschauer........ 1,000 3.7% 8.125 07/26/05 5,000 13,000
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION VALUES
NUMBER OF SECURITIES VALUE OF UNDERLYING UNEXERCISED UNEXERCISED IN-THE-MONEY OPTION EXERCISES OPTIONS AT OPTIONS AT ------------------------------ FISCAL YEAR END FISCAL YEAR END($) SHARES --------------- ------------------ ACQUIRED ON VALUE EXERCISABLE/ EXERCISABLE/ NAME EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE(1) - ---------------------------------- ------------- ------------ --------------- ------------------ Richard Brandt.................... -- -- 12,500/-- 6,250/-- Victor Liss....................... -- -- 28,000/5,000 17,875/-- Michael R. Mulcahy................ 2,000 2,063 4,000/1,500 --/-- Karl P. Hirschauer................ -- -- 2,000/1,000 844/--
- --------------- (1) Market value of underlying securities at fiscal year end, minus the exercise price. MEETINGS OF THE BOARD OF DIRECTORS AND CERTAIN COMMITTEES During 1995, the Board of Directors had five meetings. All directors attended 75% or more of such meetings and of committees of which they were members. Non-employee directors receive an annual fee of $3,500 and $950 for each meeting of the Board attended, while employee directors receive an annual fee of $2,200 and $450 for each meeting attended. The members of the Executive Committee of the Board of Directors are Messrs. R. Brandt, Greenes, Liss, Modlin and Dr. Fromme. The Executive Committee is authorized to exercise the powers of the Board of Directors during the intervals between the meetings of the Board and is from time to time delegated certain authorizations by the Board in matters pertaining to the Company. The Executive Committee did not hold any formal meetings in 1995. Members of said Committee receive a fee of $300 for each meeting of the Committee they attend. Dr. Fromme receives an annual fee of $12,000 as Chairman of the Executive Committee and for other consulting services. Mr. Greenes receives an annual fee of $6,000 as Vice Chairman of the Executive Committee and for other consulting services. The members of the Compensation Committee of the Board of Directors are Messrs. Modlin, Greenes and Jankowski and Ms. Firstenberg. The Compensation Committee reviews compensation and other benefits. 32 35 The Compensation Committee had two meetings in 1995. Members of said Committee receive a fee of $300 for each meeting of the Committee they attend and the Chairman, Mr. Modlin, receives an annual fee of $2,500. The members of the Audit Committee of the Board of Directors are Ms. Firstenberg and Messrs. Baruch, Greenes and Modlin. The Audit Committee reviews the audit function and material aspects thereof with the Company's independent auditors. Such Committee had two meetings in 1995. Members of the Audit Committee receive a fee of $300 for each meeting which they attend and the Chairperson, Ms. Firstenberg, receives an annual fee of $2,500. On June 20, 1989, the Board of Directors established a Non-Employee Director Stock Option Plan as amended, which covers a maximum of 30,000 shares for grant. Options are for a period of six years from the date of the grant, are granted at fair market value on the date of the grant, may be exercised at any time after one year from the date of the grant while a director and are based on years of service, with a minimum of 500 stock options for each director, an additional 500 based on five or more years of service, another 500 based on ten or more years of service and an additional 1,000 based on twenty or more years of service. Additional options are granted upon the expiration or exercise of any such option which is no earlier than four years after the date of the grant, in an amount equal to such exercised or expired options. 33 36 DESCRIPTION OF NOTES The Notes offered hereby are to be issued under an Indenture, to be dated as of December , 1996, between the Company and Continental Stock Transfer & Trust Company, as Trustee (the "Trustee"), a copy of which is filed as an exhibit to the Registration Statement of which this Prospectus is a part. The following summary of certain provisions of the Indenture do not purport to be complete and are subject to, and are qualified in their entirety by reference to, all the provisions of the Indenture, including the definitions therein of certain terms. Wherever a particular Section, Article or defined term is referred to, such Section, Article or defined term refers to the Indenture and is incorporated herein by reference. GENERAL The Notes will be unsecured subordinated obligations of the Company, will be limited to an aggregate principal amount of $27,500,000 (subject to increase in the event of the exercise of the Underwriter's over-allotment option) and will mature on December 1, 2006. The Notes will bear interest at the rate per annum shown on the front cover of this Prospectus from the date of initial issuance, or from the most recent Interest Payment Date to which interest has been paid or provided for, payable semi-annually on June 1 and December 1 of each year, commencing June 1, 1997, to the Person in whose name the Notes (or any predecessor Notes) are registered at the close of business on the Regular Record Date for such interest, which shall be May 15 or November 15 (whether or not a Business Day), as the case may be, next preceding such Interest Payment Date. Interest on the Notes will be paid on the basis of a 360-day year of twelve 30-day months, based on actual days elapsed. (Section 2.04 and 6.01) Principal of, and premium, if any, and interest on the Notes will be payable, and the transfer of Notes will be registerable, at the office or agency of the Company maintained for such purposes in the Borough of Manhattan, the City of New York. In addition, payment of interest may, at the option of the Company, be made by check mailed to the address of the Person entitled thereto as it appears in the Note Register. (Sections 2.03, 6.01 and 6.02) The Notes will be issued only in fully registered form, without coupons, in denominations of $1,000 and any integral multiples thereof. (Section 3.2) No service charge will be made for any registration of transfer or exchange of the Notes, but the Company may require payment of a sum sufficient to cover any tax or other governmental charge payable in connection therewith. The Company is not required (i) to issue, register the transfer of or exchange any Note during a period beginning at the opening of business 15 days before the day fixed for any redemption and ending at the close of business on such Redemption Date or (ii) to register the transfer of or exchange any Notes for redemption in whole or in part, except the unredeemed portion of the Notes being redeemed in part. (Section 2.07) All monies paid by the Company to the Trustee or any Paying Agent for the payment of principal of and premium, if any, and interest on any Note which remains unclaimed for two years after such principal, premium or interest becomes due and payable may be repaid to the Company. Thereafter, the Holder of such Note may, as an unsecured general creditor, look only to the Company for payment thereof. (Section 13.04) The Indenture does not contain any provisions that would provide protection to Holders of the Notes against a sudden and dramatic decline in the credit quality of the Company resulting from any takeover, recapitalization or similar restructuring, except as described below under "Repurchase at Option of Holders Upon a Repurchase Event." CONVERSION RIGHTS The Notes will be convertible into the Common Stock of the Company at any time after 60 days following the date of initial issuance thereof and up to and including the maturity date (subject to prior redemption by the Company on not less than 30 nor more than 60 days' notice) of the principal amount thereof, initially at the Conversion Price stated on the cover page of this Prospectus (subject to adjustment as described below). The right to convert the Notes called for redemption or delivered for repurchase will terminate at the close of business on the last Trading Day prior to the Redemption Date or the Repurchase 34 37 Date, unless the Company defaults in making the payment due upon redemption or repurchase. (Section 5.01) For information as to notices of redemption, see "Optional Redemption." The Conversion Price will be subject to adjustment in certain events, including (i) dividends (and other distributions) payable in Common Stock or any class of capital stock of the Company, (ii) the issuance to all holders of Common Stock of rights, warrants or options entitling them to subscribe for or purchase Common Stock at less than the current market price, (iii) subdivisions or combinations of Common Stock, (iv) distributions to all holders of Common Stock of evidences of indebtedness of the Company, cash or other assets (including securities, but excluding those dividends, rights, warrants, options and distributions referred to above and excluding dividends and distributions paid exclusively in cash), (v) distributions consisting exclusively of cash (excluding any cash portion of distributions referred to in (iv) above or cash distribution upon a merger or consolidation to which the second succeeding paragraph applies) to all holders of Common Stock in an aggregate amount that, combined together with (a) all other such all-cash distributions made within the preceding 12 months in respect to which no adjustment has been made and (b) any cash and the fair market value of other consideration paid or payable in respect of any tender offers by the Company for Common Stock concluding within the preceding 12 months in respect of which no adjustment has been made, exceeds 12.5% of the Company's market capitalization (defined as being the product of the current market price of the Common Stock times the number of shares of Common Stock then outstanding) on the record date for such distribution, and (vi) the purchase of Common Stock pursuant to a tender offer made by the Company or any of its subsidiaries which involves an aggregate consideration that together with (a) any cash and the fair market value of any other consideration paid or payable in any other tender offer by the Company or any of its subsidiaries of Common Stock expiring within the 12 months preceding the expiration of such tender offer in respect of which no adjustment has been made and (b) the aggregate amount of any such all-cash distributions referred to in (v) above to all holders of Common Stock within the 12 months preceding the expiration of such tender offer in respect of which no adjustments have been made, exceeds 12.5% of the Company's market capitalization on the expiration of such tender offer. No adjustment in the Conversion Price shall be required unless such adjustment (plus any adjustments not previously made) would require an increase or decrease of at least 1% in such price; provided, however, that any adjustments which by reason of this sentence are not required to be made shall be carried forward and then taken into account in any subsequent adjustment. (Section 5.04) In addition to the foregoing adjustments, the Company will be permitted to make such reduction in the Conversion Price as it considers to be advisable in order that any event treated for Federal income tax purposes as a dividend or distribution of stock or stock rights will not be taxable to the holders of the Common Stock. (Section 5.04) Subject to the rights of Holders of the Notes described below under the "Repurchase at Option of Holders Upon a Repurchase Event," in case of certain consolidations or mergers to which the Company is a party or the transfer of substantially all of the assets of the Company, each Note then outstanding would, without the consent of any Holders of the Notes, become convertible only into the kind and amount of securities, cash and other property receivable upon the consolidation, merger or transfer by a holder of the number of shares of Common Stock into which such Note might have been converted immediately prior to such consolidation, merger or transfer (assuming such holder of Common Stock failed to exercise any rights of election and received per share the kind and amount received per share by a plurality of non-electing shares). (Section 5.10) Fractional shares of Common Stock will not be issued upon conversion, but, in lieu thereof, the Company will pay a cash adjustment based upon market price. (Section 5.03) Notes surrendered for conversion during the period from the close of business on any Regular Record Date next preceding any Interest Payment Date to the opening of business on such Interest Payment Date (except the Notes called for redemption on a Redemption Date within such period) must be accompanied by payment of an amount equal to the interest thereon which the registered Holder is to receive. In the case of any Note that has been converted after any Regular Record Date but on or before the next Interest Payment Date, interest whose stated maturity is on such Interest Payment Date will be payable on such Interest Payment Date notwithstanding such conversion, and such interest will be paid to the Holder of such Note on such Regular Record Date. Except as described 35 38 above, no interest on converted Notes will be payable by the Company on any Interest Payment Date subsequent to the date of conversion. No other payment or adjustment for interest or dividends will be made upon conversion. (Section 5.02) If at any time the Company makes a distribution of property to its stockholders that would be taxable to such stockholders as a dividend for Federal income tax purposes (e.g., distributions of evidence of indebtedness or assets of the Company, but generally not stock dividends or rights to subscribe for Common Stock) and, pursuant to the antidilution provisions of the Indenture, the Conversion Price of the Notes is reduced, such reduction may be deemed to be the payment of a taxable dividend to Holders of the Notes. Holders of the Notes could, therefore, have taxable income as a result of an event pursuant to which they receive no cash or property that could be used to pay the related income tax. SUBORDINATION The payment of the principal of and premium, if any, and interest on the Notes will, to the extent set forth in the Indenture, be subordinated in right of payment to the prior payment in full of all Senior Indebtedness. Upon any payment or dissolution of assets to creditors upon any liquidation, dissolution, winding-up, reorganization, assignment for the benefit of creditors, marshaling of assets or any bankruptcy, insolvency or similar proceedings of the Company, the holders of all Senior Indebtedness will be first entitled to receive payment in full of all amounts due or to become due thereon before the Holders of the Notes will be entitled to receive any payment in respect of the principal of or premium, if any, or interest on the Notes. No payment or distribution of any assets of the Company shall be made on account of principal of and premium, if any, or interest on the Notes, in the event and during the continuation of (i) any default in the payment of principal of or premium, if any, or interest on any Senior Indebtedness beyond any applicable grace period with respect thereto or (ii) any other event of default with respect to any Senior Indebtedness permitting the holders of such Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) to declare such Senior Indebtedness due and payable prior to the date on which it would otherwise have become due and payable, upon written notice thereof to the Company and the Trustee by any holders of Senior Indebtedness (or a trustee or other representative on behalf of the holders thereof) (the "Default Notice"), unless and until such event of default shall have been cured or waived or ceased to exist and such acceleration shall have been rescinded or annulled; provided such payments may not be prevented under clause (ii) above for more than 179 days after an applicable Default Notice has been received by the Trustee unless the Senior Indebtedness in respect of which such event of default exists has been declared due and payable in its entirety, in which case no such payment may be made until such acceleration has been rescinded or annulled or such Senior Indebtedness has been paid in full. No event of default which existed or was continuing on the date of any Default Notice may be made the basis for the giving of a second Default Notice and only one such Default Notice may be given in any 365-day period. (Article Four) By reason of such subordination, in the event of insolvency, creditors of the Company who are not holders of Senior Indebtedness or of the Notes may recover less, ratably, than holders of Senior Indebtedness and may recover more, ratably, than the Holders of the Notes. "Senior Indebtedness" means, with respect to the Company, any of the following (without duplication): (i) (a) any liability or obligation of the Company for borrowed money (including, without limitation, the payment of principal of and premium, if any, or interest, fees, penalties, expenses, collection expenses, and other obligations in respect thereof, and, to the extent permitted by applicable law, interest accruing after the filing of a petition initiating any proceeding under the Bankruptcy Code whether or not allowed as a claim in such proceeding), whether or not evidenced by bonds, debentures, notes or other written instruments, and any other liability or obligation evidenced by notes, bonds, debentures or similar instruments (other than the Notes) whether or not contingent and whether outstanding on the date of execution of the Indenture or thereafter created, incurred or assumed, (b) any deferred payment obligation of the Company for the payment of the purchase price of property or assets evidenced by a note or similar instrument (excluding any obligation for trade payables or constituting the deferred purchase price of property or assets which is not evidenced by a note or similar instrument and which is unsecured), (c) any obligation of the Company for the payment of rent or other amounts under a lease of property or assets which obligation is required to be classified and 36 39 accounted for as a capitalized lease on the balance sheet of the Company under generally accepted accounting principles, (d) all obligations of the Company under interest rate and currency swaps, floors, caps, or similar arrangements intended to fix interest rate obligations or currency fluctuation risks, (e) all obligations of the Company evidenced by a letter of credit or any reimbursement obligation of the Company in respect of a letter of credit, (f) all obligations of others secured by a lien to which any of the properties or assets of the Company are subject (including, without limitation, leasehold interests and any intangible property rights), whether or not the obligations secured thereby have been assumed by the Company or shall otherwise be the Company's legal obligation and (g) all obligations of others of the kinds described in the preceding clauses (a), (b), (c), (d) or (e) assumed by or guaranteed by the Company and the obligations of the Company under guarantees of any such obligations; and (ii) any amendments, renewals, extensions, deferrals, modifications, refinancing and refunding of any of the foregoing. "Senior Indebtedness" shall not include: (i) indebtedness that by the terms of the instrument or instruments by which such indebtedness was created or incurred expressly provides that it (a) is junior in right of payment to the Notes or (b) ranks pari passu, in right of payment with the Notes, (ii) any repurchase, redemption or other obligation in respect of Disqualified Capital Stock, (iii) any indebtedness of the Company to any Subsidiary or to any Affiliate of the Company or any of the Subsidiaries, (iv) any indebtedness incurred in connection with the purchase of goods, assets, materials or services in the ordinary course of business or representing amounts recorded as accounts payable, trade payables (which are unsecured) or other current liabilities of the Company (other than for borrowed money) on the books of the Company (other than the current portion of any long-term indebtedness of the Company that but for this clause (iv) would constitute Senior Indebtedness), (v) any indebtedness of or amount owed by the Company to employees for services rendered to the Company, (vi) any liability for Federal, state, local or other taxes owing or owed by the Company and (vii) the Company's 9 1/2% Subordinated Debentures due 2012 and 9% Convertible Subordinated Debentures due 2005. (Section 1.01) The Notes will be effectively subordinated to all indebtedness and other liabilities and commitments (including trade payables and lease obligations) of the Company's subsidiaries. Any right of the Company to receive assets of any such subsidiary upon the liquidation or reorganization of any such subsidiary (and the consequent right of the Holders of the Notes to participate in those assets) will be effectively subordinated to the claims of that subsidiary's creditors, except to the extent that the Company is itself recognized as a creditor of such subsidiary, in which case the claims of the Company would still be subordinate to any security in the assets of such subsidiary and any indebtedness of such subsidiary senior to that held by the Company. The Indenture does not prohibit or limit the incurrence of additional Senior Indebtedness. At September 30, 1996 , the Company's Senior Indebtedness aggregated approximately $23.2 million, excluding accrued interest and the Company's subsidiaries had indebtedness and other liabilities of approximately $4.8 million. The Company expects from time to time to incur additional indebtedness, including Senior Indebtedness. See Note 9 of "Notes to Consolidated Financial Statements" for a more detailed description of the Company's outstanding indebtedness. The Company's 9% Convertible Subordinated Debentures due 2005 and 9 1/2% Subordinated Debentures due 2012 are not Senior Indebtedness. 37 40 OPTIONAL REDEMPTION The Notes are redeemable at the Company's option, in whole or from time to time in part, upon not less than 30 nor more than 60 days' notice mailed to each Holder of the Notes to be redeemed at such Holder's address appearing in the Note Register, on any date on or after December 1, 1999 and prior to maturity. The Redemption Prices (expressed as a percentage of the principal amount) are as follows for the 12-month period beginning December 1 of the years indicated:
YEAR PERCENTAGE ---------- 1999...................................................... % 2000...................................................... 2001...................................................... 2002...................................................... 2003...................................................... 2004......................................................
thereafter and at maturity at 100% of principal, together in the case of any such redemption with accrued interest to the Redemption Date (subject to the right of Holders of record on the relevant Regular Record Date to receive interest due on an Interest Payment Date that is on or prior to the Redemption Date). No sinking fund is provided for the Notes. EVENTS OF DEFAULT The following will be Events of Default under the Indenture: (i) failure to pay principal of or premium, if any, on any Note when due, whether or not such payment is prohibited by the subordination provisions of the Indenture; (ii) failure to pay any interest on any Note when due, continued for 30 days, whether or not such payment is prohibited by the subordination provisions of the Indenture; (iii) default in the payment of the Repurchase Price in respect of any Note on the Repurchase Date therefor, whether or not such payment is prohibited by the subordination provisions of the Indenture; (iv) failure to perform or breach of any other covenant of the Company in the Indenture, which continues for 60 days after written notice as provided in the Indenture; and (v) certain events of bankruptcy, insolvency or reorganization of the Company or any Significant Subsidiary. (Section 7.01) Subject to the provisions of the Indenture relating to the duties of the Trustee, in case an Event of Default shall occur and be continuing, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request or direction of any of the Holders, unless such Holders shall have offered to the Trustee reasonable indemnity. (Section 8.01) Subject to the Trustee being offered reasonable security or indemnity against the costs, expenses and liabilities which might be incurred by the Trustee, the Holders of a majority in aggregate principal amount of the Outstanding Notes will have the right by written instruction to the Trustee, to direct the time, method and place of conducting any proceeding for any remedy available to the Trustee or exercising any trust or power conferred on the Trustee. (Section 7.05) If an Event of Default shall occur and be continuing, either the Trustee or the Holders of not less than 25% in aggregate principal amount of the Outstanding Notes may accelerate the maturity of all Notes; provided, however, that after such acceleration, but before a judgment or decree based on acceleration, the Holders of a majority in aggregate principal amount of the Outstanding Notes may, under certain circumstances, rescind and annul such acceleration if all Events of Default, other than the non-payment of accelerated principal, have been cured or waived as provided in the Indenture. (Section 7.02) For information as to waiver of defaults, see "Modification and Waiver" below. 38 41 No Holder of any Note will have any right to institute any proceeding with respect to the Indenture or for any remedy thereunder, unless (i) such Holder shall have previously given to the Trustee written notice of a continuing Event of Default and unless also the Holders of at least 25% in aggregate principal amount of the Outstanding Notes shall have made written request to the Trustee to institute proceedings, (ii) such Holder has offered to the Trustee reasonable indemnity, (iii) the Trustee for 60 days after receipt of such notice has failed to institute any such proceeding and (iv) no direction inconsistent with such request shall have been given to the Trustee during such 60-day period by the Holders of a majority in principal amount of the Outstanding Notes. (Section 7.06) However, such limitations do not apply to a suit instituted by a Holder of a Note for enforcement of (a) payment of the principal of and premium, if any, or interest on such Note on or after the respective due dates expressed in such Note, (b) the right to require repurchase of such Note or (c) the right to convert such Note in accordance with the Indenture. (Section 7.07) The Indenture provides that the Company will deliver to the Trustee, within 95 days after the end of each fiscal year, an officers' certificate, stating as to each signer thereof that he or she is familiar with the affairs of the Company and whether or not to his or her knowledge the Company is in default in the performance and observance of any of the Company's obligations under the Indenture and if the Company shall be in default, specifying all such defaults of which he or she has knowledge and the nature and status thereof. (Section 6.04) CONSOLIDATION, MERGER AND SALE OF ASSETS The Company, without the consent of the Holders of any of the Notes under the Indenture, may consolidate with or merge into any other Person or convey, transfer or lease its assets substantially as an entirety to any Person, provided that (i) the successor is a Person organized under the laws of any domestic jurisdiction; (ii) the successor Person, if other than the Company, assumes the Company's obligations on the Notes and under the Indenture; (iii) after giving effect to the transaction no Event of Default, and no event after notice or lapse of time, would become an Event of Default, shall have occurred and be continuing; and (iv) the Company has delivered to the Trustee an Officers' Certificate and an Opinion of Counsel, each stating that such consolidation, merger, conveyance, transfer or lease and, if a supplemental indenture is required in connection with such transaction, such supplemental indenture, complies with this covenant and that all conditions precedent herein provided for relating to such transaction have been complied with. (Section 12.01) MODIFICATION AND WAIVER Modifications and amendments of the Indenture may be made by the Company and the Trustee with the consent of the Holders of 66 2/3% in aggregate principal amount of the Outstanding Notes; provided, however, that no such modification or amendment may, without consent of the Holder of each Outstanding Note affected thereby, (i) change the stated maturity of the principal of, or any installment of interest on any Note; (ii) reduce the principal amount of, or the premium or interest on any Note; (iii) change the place of payment where, or currency in which, any Note or any premium or interest thereof is payable; (iv) impair the right to institute suit for the enforcement of any payment on or with respect to any Note; (v) adversely affect the right to convert the Notes; (vi) adversely affect the right to cause the Company to repurchase the Notes; (vii) modify the subordination provisions in a manner adverse to the Holders of the Notes; (viii) reduce the above-stated percentage of Outstanding Notes necessary to modify or amend the Indenture; or (ix) reduce the percentage of aggregate principal amount of Outstanding Notes necessary for waiver of compliance with certain provisions of the Indenture or for waiver of certain defaults. (Section 11.02) The Holders of a majority in aggregate principal amount of Outstanding Notes may waive compliance by the Company with certain restrictive provisions of the Indenture. (Section 7.04) The Holders of a majority in aggregate principal amount of the Outstanding Notes may waive any past default or right under the Indenture, except (i) a default in payment of principal, premium or interest, (ii) the right of a Holder to redeem or convert the Note or (iii) with respect to any covenant or provision of the Indenture that requires the consent of the Holder of each Outstanding Note affected. (Section 7.04) 39 42 REPURCHASE AT OPTION OF HOLDERS UPON A REPURCHASE EVENT The Indenture provides that if a Repurchase Event occurs after initial issuance of the Notes, each Holder of the Notes shall have the right (which right may not be waived by the Board of Directors or the Trustee) at the Holder's option, to require the Company to repurchase all of such Holder's Notes, or any portion thereof that is an integral multiple of $1,000, on the date (the "Repurchase Date") that is 45 calendar days after the date of the Company Notice (as defined below), for cash at a price equal to 100% of the principal amount of such Notes to be repurchased (the "Repurchase Price"), together with accrued interest to the Repurchase Date. (Section 6.09) Within 30 calendar days after the occurrence of a Repurchase Event, the Company is obligated to mail all Holders of record of the Notes a notice (the "Company Notice") of the occurrence of such Repurchase Event and of the repurchase right arising thereof. The Company must deliver a copy of the Company Notice to the Trustee. To exercise the repurchase right, the Holder of such Note must deliver on or before the fifth day preceding the Repurchase Date irrevocable written notice to the Trustee of the Holder's exercise of such right (except that the right of the Holders to convert such Notes shall continue until the close of business on the last Trading Day preceding the Repurchase Date), together with the Notes with respect to which the right is being exercised, duly endorsed for transfer to the Company. (Section 6.09) A Repurchase Event will be deemed to have occurred at such time after initial issuance of the Notes if: (i) any Person (including any syndicate or group deemed to be a "Person" under Section 13(d)(3)of the Exchange Act), other than the Company, any subsidiary of the Company, any existing Person (including directly or indirectly, the immediate family of any such Person) who currently beneficially owns shares of capital stock with 50% or more of the voting power as described below, or any current or future employee or director benefit plan of the Company or any subsidiary of the Company or any entity holding capital stock of the Company for or pursuant to the terms of such plan, or an underwriter engaged in a firm commitment underwriting in connection with a public offering of capital stock of the Company, is or becomes the beneficial owner, directly or indirectly, through a purchase, merger or other acquisition transaction or series of transactions of shares of capital stock of the Company entitling such Person to exercise 50% or more of the total voting power of all shares of capital stock of the Company entitled to vote generally in the election of directors; (ii) the Company sells or transfers all or substantially all of the assets of the Company to another Person; (iii) there occurs any consolidation of the Company with, or merger of the Company into, any other Person, any merger of another Person into the Company (other than a merger (a) which does not result in any reclassification, conversion, exchange or cancellation of outstanding shares of Common Stock, (b) which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock, or (c) a transaction in which the stockholders of the Company immediately prior to such transaction owned, directly or indirectly, immediately following such transaction, at least a majority of the combined voting power of the outstanding voting stock of the Company resulting from the transaction, such stock to be owned by such stockholders in substantially the same proportion as their ownership of the voting stock of the Company immediately prior to such transaction); (iv) a change in the Board of Directors of the Company in which the individuals who constituted the Board of Directors of the Company at the beginning of the 24-month period immediately preceding such change (together with any other director whose election by the Board of Directors of the Company or whose nomination for election by the stockholders of the Company was approved by a vote of at least a majority of the directors then in office either who were directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the directors then in office; or 40 43 (v) the Common Stock of the Company is the subject of a "Rule 13e-3 transaction" as defined under the Exchange Act. provided, however, that a Repurchase Event shall not be deemed to have occurred if the closing price per share of the Common Stock for any five Trading Days within the period of ten consecutive Trading Days ending immediately before a Repurchase Event shall equal or exceed 110% of the Conversion Price of such Notes in effect on each such Trading Day. A "beneficial owner" shall be determined in accordance with Rule 13d-3 promulgated by the Commission under the Exchange Act, as in effect on the date of execution of the Indenture. (Sections 1.01 and 6.09) The right to require the Company to repurchase the Notes as a result of the occurrence of a Repurchase Event could create an event of default under Senior Indebtedness as a result of which any repurchase could, absent a waiver, be blocked by the subordination provisions of the Notes. See "Subordination" above. Failure of the Company to repurchase the Notes when required would result in an Event of Default with respect to the Notes whether or not such repurchase is permitted by the subordination provisions. The Company's ability to pay cash to the Holders of Notes upon a repurchase may be limited by certain financial covenants contained in the Company's credit agreement. Rule 13e-4 under the Exchange Act requires, among other things, the dissemination of certain information to security holders in the event of any issuer tender offer and may apply in the event that the repurchase option becomes available to the Holders of the Notes. The Company will comply with this rule to the extent applicable at that time. (Section 6.09) The repurchase feature of the Notes may in certain circumstances make more difficult or discourage a takeover of the Company and the removal of incumbent management. The foregoing provisions would not necessarily afford Holders of the Notes protection in the event of highly leveraged or other transactions involving the Company that may adversely affect Holders. Except as described above with respect to a Repurchase Event, the Indenture does not contain provisions permitting the Holders of the Notes to require the Company to repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. Subject to the limitation on mergers and consolidations described above, the Company, its management or its subsidiaries could, in the future, enter into certain transactions, including refinancing, certain recapitalizations, acquisitions, the sale of all or substantially all of its assets, the liquidation of the Company or similar transactions, that would not constitute a Repurchase Event under the Indenture, but that would increase the amount of Senior Indebtedness (or any other indebtedness) outstanding at such time or substantially reduce or eliminate the Company's assets. There are no restrictions in the Indenture on the creation of Senior Indebtedness (or any other indebtedness) and, under certain circumstances, the incurrence of significant amounts of additional indebtedness could have an adverse effect on the Company's ability to service its indebtedness, including the Notes. If a Repurchase Event were to occur, there is no assurance that the Company would have sufficient funds to repurchase all Notes tendered by the Holders thereof or to make any principal, premium, if any, or interest payments otherwise required by the Notes. At September 30, 1996, the Company had outstanding approximately $21.4 million principal amount of indebtedness under its existing credit agreement which could be accelerated upon the occurrence of certain change of control events. As noted above, one of the events that constitutes a Repurchase Event under the Indenture is a sale or other transfer of all or substantially all of the assets of the Company. The Indenture will be governed by New York law, and the definition under New York law of "substantially all" of the assets of a corporation varies according to the facts and circumstances of the transaction. Accordingly, if the Company were to engage in a transaction in which it disposed of less than all of its assets, a question of interpretation could arise as to whether such disposition was of "substantially all" of its assets and whether the transaction was a Repurchase Event. 41 44 SATISFACTION AND DISCHARGE The Company may, subject to certain conditions, discharge its obligations under the Indenture while the Notes remain outstanding if (i) all outstanding Notes will become due and payable at their scheduled maturity within one year or (ii) all outstanding Notes are scheduled for redemption within one year, and, in either case, the Company has deposited with the Trustee an amount sufficient to pay and discharge all outstanding Notes on the date of their scheduled maturity or the scheduled date of redemption. (Section 13.01) REPORTS In addition to complying with any applicable legal requirements, the Company will deliver to the Holders of record, and to any beneficial owners so requesting, annual reports containing audited consolidated financial statements with a report thereon by the Company's independent public accountants. (Section 8.06) GOVERNING LAW The Indenture and the Notes will be governed by and construed in accordance with the laws of the State of New York. INFORMATION CONCERNING THE TRUSTEE Continental Stock Transfer & Trust Company is the Trustee under the Indenture. A successor Trustee may be appointed in accordance with the terms of the Indenture. The Trustee's duties are set forth in the Trust Indenture Act, as amended (the "Trust Indenture Act"), and in the Indenture. The Trust Indenture Act imposes certain limitations on the right of the Trustee, in the event it becomes a creditor of the Company, to obtain payment of claims in certain cases, or to realize on certain property received in respect to any such claim as security or otherwise. The Trustee will be permitted to engage in other transactions; provided, however, it if acquires any conflicting interest within the meaning of Section 310 of the Trust Indenture Act, it must generally either eliminate such conflict or resign. Prior to an Event of Default, the Trustee is responsible to perform only such duties as are specifically set out in the Indenture. In case an Event of Default shall occur (and shall not be cured), the Trust Indenture Act required that the Trustee use the degree of care of a prudent person in the conduct of its own affairs in the exercise of its powers. Subject to such provisions, the Trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any of the Holders of Notes, unless they shall have offered to the Trustee reasonable security or indemnity. (Section 8.01) The holders of a majority in principal amount of all outstanding Notes will have the right to direct the time, method and place of conducting any proceeding for exercising any remedy or power available to the Trustee, provided that such direction does not conflict with any rule of law or with the Indenture, is not prejudicial to the rights of another Holder or the Trustee, and does not involve the Trustee in personal liability. (Sections 7.05 and 8.01) The Trustee is also the trustee for the Company's 9% Convertible Subordinated Debentures due 2005 and 9 1/2% Subordinated Debentures due 2012. 42 45 DESCRIPTION OF CAPITAL STOCK COMMON STOCK The shares of Common Stock are entitled to one vote per share on all matters submitted to stockholders. The holders of Common Stock are entitled to vote separately as a class (as are the shares of Class B Stock) on all matters requiring an amendment to the Company's Certificate of Incorporation, as well as on mergers, consolidations and certain other significant transactions for which stockholder approval is required under Delaware law. Holders of the Common Stock do not have preemptive rights or cumulative voting rights. Dividends on the Common Stock will be paid if, and when declared. The Common Stock is entitled to cash dividends which are 11.1% higher per share than the cash dividends which may be paid on the Class B Stock. Except as otherwise set forth herein the Common Stock and the Class B Stock rank equally. Stock dividends on and stock splits of Common Stock will only be payable or made in shares of Common Stock. In the event of liquidation the Common Stock is entitled to receive the entire net assets of the Company remaining after payment of all debts and other claims of creditors and after the holders of each series of Preferred Stock, if any, have been paid the preferred liquidating distribution on their shares, if any, as fixed by the Board of Directors of the Company. The Common Stock is not convertible into shares of any other equity security of the Company. The Common Stock is freely transferable. As of September 30, 1996, there were 847 holders of record of Common Stock. CLASS B STOCK The shares of Class B Stock are entitled to ten votes per share on all matters submitted to stockholders. They are entitled to vote separately as a class (as are the shares of Common Stock) on all matters requiring an amendment to the Company's Certificate of Incorporation, as well as on mergers, consolidations and certain other significant transactions for which stockholder approval is required under Delaware law. Holders of the Class B Stock do not have preemptive rights or cumulative voting rights. Dividends on the Class B Stock will be paid only as and when dividends on the Common Stock are declared and paid. The Class B Stock is entitled to cash dividends which are 10% lower per share than the cash dividends which may be paid on the Common Stock. Except as otherwise set forth herein the Common Stock and the Class B Stock rank equally. Stock dividends on and stock splits of Class B Stock will only be payable or made in shares of Class B Stock. In the event of liquidation or insolvency, each share of Class B Stock will be entitled, through conversion into Common Stock, to share ratably with the Common Stock in the assets remaining after payment of all debts and other claims of creditors, subject to the rights of any Preferred Stock which may be issued in the future. Holders of Class B Stock may elect at any time to convert any or all of such shares into shares of Common Stock on a share-for-share basis. In the event that the number of outstanding shares of Class B Stock falls below 5% of the aggregate number of issued and outstanding shares of Common Stock and Class B Stock, or the Board of Directors and a majority of the outstanding shares of Class B Stock approve the conversion of all of the Class B Stock into Common Stock, then immediately upon the occurrence of either event, the shares of the Class B Stock will automatically be converted into shares of Common Stock. In the event of such conversion, certificates formerly representing outstanding shares of Class B Stock will thereafter be deemed to represent a like number of shares of Common Stock. The Class B Stock is not transferable except to certain family members and related entities. As of September 30, 1996 there were 68 holders of Class B Stock. 43 46 CLASS A STOCK Each share of Class A Stock has no voting rights except as otherwise required by law. Under the Delaware General Corporation Law, holders of Class A Stock are entitled to vote on proposals to increase or decrease the number of authorized shares of Class A Stock, change the par value of the Class A Stock or to alter or change the powers, preferences or special rights of the shares of Class A Stock which may affect them adversely. Each outstanding share of Class A Stock is entitled to receive such dividends and other distributions in cash, stock or property as may be declared by the Board of Directors of the Company, provided that, if at any time a cash dividend is paid on the Common Stock, a cash dividend will also be paid on the Class A Stock in an amount 10% higher than the amount per share paid on the Common Stock and 22.2% higher than that paid on the Class B Stock. In no event shall dividends and other distributions be paid on any of the Common Stock, Class A Stock or Class B Stock unless the other such classes of stock also receive dividends subject to the above provisions for the requirement of the respective higher cash dividends for Class A Stock and Common Stock. Dividends or other distributions payable in shares of stock shall be made to holders of Class A Stock in shares of Class A Stock. The Board can authorize a distribution of Class A Stock proportionately to holders of Common Stock, Class A Stock and Class B Stock. In no event will either Common Stock, Class A Stock or Class B Stock be split, divided or combined unless the others are also proportionately split, divided or combined. The Class A Stock will convert into Common Stock only at such time as all of the Class B Stock is converted to Common Stock in accordance with the terms of the Certificate of Incorporation. The Certificate of Incorporation provides that if the number of shares of Class B Stock falls below 5% of the aggregate number of outstanding shares of Common Stock and Class B Stock, or if the Board of Directors and a majority of the outstanding shares of Class B Stock approve, the outstanding shares of Class B Stock will be converted into Common Stock. Consistent with the terms of the Common Stock and Class B Stock, the Class A Stock does not carry any preemptive rights enabling a holder to subscribe for or receive shares of any class of stock of the Company or any other securities convertible into shares of any class of stock of the Company. The Class A Stock is entitled to receive the same consideration per share as the Common Stock and Class B Stock in the event of any liquidation, dissolution or winding-up of the Company. Each holder of Class A Stock is entitled to receive the same per share consideration as the per share consideration, if any, received by any holder of the Common Stock and Class B Stock in a merger or consolidation of the Company. SPECIAL VOTING REQUIREMENTS The Company's Certificate of Incorporation, as presently in effect, contains a required four-fifths vote on mergers, consolidations or a sale of substantially all of the Company's assets with an "Interested Person," i.e. a holder of 10% or more of its common stock, unless such transaction is first approved by the Company's Board of Directors. It also contains a "fair price" provision requiring all stockholders to receive equal treatment in the event of a takeover which may be coercive. Such provision may not be amended except by a four-fifths vote of the stockholders and may be considered to have the effect of discouraging tender offers, takeover attempts, acquisitions or business combinations involving the Company. Such provision also requires that business combinations involving the Company and certain "Acquiring Persons" (i.e., a person or entity which directly or indirectly owns or controls at least 5% of the voting stock of the Company) be approved by the holders of four-fifths of the Company's outstanding shares entitled to vote (excluding shares held by the Acquiring Person) unless such business combination either (1) has been authorized by the Board of Directors prior to the time that the Acquiring Person involved in such business combination became an Acquiring Person, or (2) will result in the receipt by the other stockholders of a specified minimum amount and form of payment for their shares. 44 47 PREFERRED STOCK Preferred stock may be issued in one or more series from time to time by action of the Board of Directors. The shares of any series of Preferred Stock may be convertible into Common Stock, may have priority over the Common Stock, Class B Stock and Class A Stock in the payment of dividends and as to the distribution of assets in the event of liquidation, dissolution or winding-up of the Company and may have preferential or other voting rights, in each case, to the extent, if any, determined by the Board of Directors of the Company at the time it creates the series of Preferred Stock. There currently are no shares of Preferred Stock outstanding. DELAWARE ANTI-TAKEOVER LAW Under Section 203 of the Delaware General Corporation Law (the "Delaware anti-takeover law"), certain "business combinations" between a Delaware corporation whose stock is listed on a national securities exchange or held of record by more than 2,000 stockholders, and an "interested stockholder" are prohibited for a three-year period following the date that such stockholder became an interested stockholder, unless (i) the corporation has elected in its certificate of incorporation or bylaws not to be governed by the Delaware anti-takeover law (the Company has not made such an election), (ii) the business combination was approved by the board of directors of the corporation before the other party to the business combination became an interested stockholder, (iii) upon consummation of the transaction that made it an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the commencement of the transaction (excluding voting stock owned by directors who are also officers or held in employee stock plans in which the employees do not have a right to determine confidentially whether to tender or vote stock held by the plan), or (iv) the business combination was approved by the board of directors of the corporation and ratified by 66 2/3% of the voting stock which the interested stockholder did not own. The three year prohibition does not apply to certain business combinations proposed by an interested stockholder following the announcement or notification of certain extraordinary transactions involving the corporation and a person who had not been an interested stockholder during the previous three years or who became an interested stockholder with the approval of a majority of the corporation's directors. The term "business combination" is defined generally to include mergers or consolidations between a Delaware corporation and an interested stockholder, transactions with an interested stockholder involving the assets or stock of the corporation or its majority-owned subsidiaries and transactions which increase an interested stockholder's percentage ownership of stock. The term "interested stockholder" is defined generally as a stockholder who becomes the beneficial owner of 15% or more of a Delaware corporation's voting stock. The Delaware anti-takeover law could have the effect of delaying, deferring or preventing a change in control of the Company. LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS The Company's Certificate of Incorporation provides that directors of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Company or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, relating to prohibited dividends or distributions or the repurchase or redemption of stock, or (iv) for any transaction from which the director derives an improper personal benefit. The provision does not apply to claims against a director for violations of certain laws, including federal securities law. If the Delaware General Corporation Law is amended to authorize the further elimination or limitation of directors' liability, then the liability of directors of the Company shall automatically be limited to the fullest extent provided by law. The Company's By-laws also contain provisions to indemnify the directors, officers, employees or other agents to the fullest extent permitted by the Delaware General Corporation Law. In addition, the Company has entered into indemnification agreements with its current directors and executive officers. These provisions and agreements may have the practical effect in certain cases of eliminating the ability of stockholders to collect monetary damages from directors. The Company believes that these contractual agreements and the provisions in its Certificate of Incorporation and By-laws are necessary to attract and retain qualified persons as directors and officers. TRANSFER AGENT AND REGISTRAR The transfer agent and registrar of the Common Stock of the Company is Continental Stock Transfer & Trust Company, 2 Broadway, New York, New York 10004. 45 48 UNDERWRITING The Underwriter, Southcoast Capital, has agreed, subject to the terms and conditions of the Underwriting Agreement, to purchase from the Company $27,500,000 principal amount of the Notes. The Underwriting Agreement provides that the obligations of the Underwriter to pay for and accept delivery of the Notes are subject to certain conditions precedent, and that the Underwriter is committed to purchase all of the Notes if it purchase any of the Notes. The Underwriter has advised the Company that it proposes initially to offer the Notes to the public on the terms set forth on the cover page of this Prospectus. The Underwriter may allow selected dealers a concession of not more than % of the principal amount of the Notes, and the Underwriter may allow, and such dealers may reallow, a discount of not more than % of the principal amount of the Notes to other dealers. The public offering price and the concession and discount to dealers may be changed by the Underwriter after the initial public offering of the Notes. The Notes are offered subject to receipt and acceptance by the Underwriter, and to certain other conditions, including the right to reject orders in whole or in part. The Company has granted the Underwriter an option for 30 days to purchase up to an additional $4,125,000 principal amount of the Notes solely to cover over-allotments, if any, at the same price per Note as the initial principal amount of the Notes to be purchased by the Underwriter. The Underwriting Agreement provides that the Company will indemnify the Underwriter against certain liabilities, including civil liabilities under the Securities Act of 1933, as amended (the "Securities Act"), or will contribute to payments the Underwriter may be required to make in respect thereof. The Notes are a new issue of securities for which there is currently no public market. Application has been made to have the Notes approved for inclusion on the AMEX. However, no assurance can be given as to the liquidity of or trading market for the Notes. Directors and executive officers of the Company, who in the aggregate own approximately 288,590 shares (including options to purchase shares) of Common Stock (including Class B Stock if converted into equal amounts of Common Stock), have agreed not to offer for sale, sell, distribute or otherwise dispose of any shares of Common Stock, or any securities convertible into or warrants to purchase shares of Common Stock, now owed or hereafter acquired for a period of 90 days after the date of this Prospectus without prior written consent of Southcoast Capital. 46 49 LEGAL MATTERS The legality of the Notes and the Common Stock offered hereby and certain other legal matters will be passed upon for the Company by Weisman Celler Spett & Modlin, P.C., New York, New York. Certain legal matters in connection with the offering contemplated hereby will be passed upon for the Underwriter by Fulbright & Jaworski L.L.P., New York, New York. As of June 30, 1996, members of the firm of Weisman Celler Spett & Modlin, P.C. beneficially owned 2,812 shares of the Class B Stock of the Company. Howard S. Modlin, a member of such firm, is a director of the Company. EXPERTS The financial statements as of December 31, 1995 and 1994 and for each of the three years in the period ended December 31, 1995 of the Company included and incorporated by reference in this Prospectus from the Company's Annual Report on Form 10-K for the year ended December 31, 1995 have been audited by Deloitte & Touche LLP, independent auditors, as stated in their report which is included and incorporated by reference herein, and have been so included and incorporated in reliance upon the reports of such firm given upon their authority as experts in accounting and auditing. AVAILABLE INFORMATION The Company is subject to the informational requirements of the Securities Exchange Act of 1934 the ("Exchange Act") and, in accordance therewith, files reports, proxy statements and other information with the Securities and Exchange Commission (the "Commission"). Such reports, proxy statements and other information filed by the Company can be inspected and copied at the public reference facilities maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549; and at the Commission's regional offices located at Northwestern Atrium Center, Suite 1400, 500 West Madison Street, Chicago, Illinois 60661; and Seven World Trade Center, 13th Floor, New York, New York 10048. Copies of such material can be obtained at prescribed rates by writing the Public Reference Section of the Commission, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549. The Commission also maintains a web site that contains reports, proxy and information statements and other information regarding registrants that file electronically with the Commission, including the Company at http://www.sec.gov. The Common Stock is listed on the AMEX and reports, proxy statements and other information concerning the Company can be inspected at such Exchange's office located at 86 Trinity Place, New York, New York 10006. This Prospectus forms a part of a registration statement on Form S-2 (herein, together with all exhibits thereto, referred to as the "Registration Statement") filed by the Company with the Commission under the Securities Act of 1933 (the "Securities Act") with respect to the Notes offered hereby. This Prospectus does not contain all the information set forth in the Registration Statement, certain parts of which have been omitted in accordance with the rules and regulations of the Commission. Statements contained herein concerning the provisions of certain documents are not necessarily complete and, in each instance, reference is made to the copy of such document filed as an exhibit to the Registration Statement or otherwise filed with the Commission. Each such statement is qualified in its entirety by such reference. The Registration Statement and the exhibits thereto can be inspected and copied at the public reference facilities and regional offices referred to above. INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE The following documents, which have been filed by the Company with the Commission pursuant to the Exchange Act (File No. 1-2257), are hereby incorporated by reference in and made a part of this Prospectus: (1) The Company's Annual Report on Form 10-K for the fiscal year ended December 31, 1995, (filed April 1, 1996). 47 50 (2) The Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1996, June 30, 1996, and September 30, 1996 (filed May 14, 1996, August 14, 1996, and November 12, 1996 respectively). Any statement contained in a document incorporated or deemed to be incorporated herein by reference shall be deemed to be modified or superseded for the purposes of this Prospectus to the extent that a statement contained herein modifies or supersedes such statement. Any statement so modified or superseded shall not be deemed, except as so modified or superseded, to constitute a part of this Prospectus. The Company will provide without charge to each person to whom a Prospectus is delivered, upon the written or oral request of any such person, a copy of any of or all the documents referred to above which have been or may be incorporated in this Prospectus by reference, other than exhibits to such documents which are not specifically incorporated by reference into such documents. Requests for such copies should be directed to Angela Toppi, Chief Financial Officer, Trans-Lux Corporation, 110 Richards Avenue, Norwalk, Connecticut 06856-5090, telephone number (203) 853-4321. 48 51 TRANS-LUX CORPORATION INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- Independent Auditors' Report.......................................................... F-2 Consolidated Balance Sheets as of December 31, 1994 and 1995.......................... F-3 Consolidated Statements of Income for the years ended December 31, 1993, 1994 and 1995................................................................................ F-4 Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994 and 1995................................................................................ F-5 Notes to Consolidated Financial Statements............................................ F-6 Consolidated Balance Sheets as of December 31, 1995 and September 30, 1996 (Unaudited)......................................................................... F-20 Consolidated Statements of Income for the nine months ended September 30, 1995 and 1996 (Unaudited).................................................................... F-21 Consolidated Statements of Cash Flows for the nine months ended September 30, 1995 and 1996 (Unaudited)......................................................................... F-22 Notes to Consolidated Financial Statements (Unaudited)................................ F-23
F-1 52 INDEPENDENT AUDITORS' REPORT To the Board of Directors and Stockholders of Trans-Lux Corporation: We have audited the accompanying consolidated balance sheets of Trans-Lux Corporation and subsidiaries as of December 31, 1995 and 1994 and the related consolidated statements of income and cash flows for each of the three years in the period ended December 31, 1995. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of the Company and its subsidiaries at December 31, 1995 and 1994 and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995 in conformity with generally accepted accounting principles. Deloitte & Touche LLP Stamford, Connecticut February 28, 1996 F-2 53 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, --------------------------- 1994 1995 ----------- ----------- ASSETS Current assets: Cash and cash equivalents............................................... $ 2,335,000 $ 665,000 Available-for-sale securities........................................... 1,603,000 576,000 Receivables............................................................. 1,403,000 2,403,000 Inventories............................................................. 517,000 1,900,000 Prepaids and other current assets....................................... 104,000 466,000 Current deferred taxes.................................................. 192,000 -- ----------- ----------- Total current assets............................................... 6,154,000 6,010,000 ----------- ----------- Rental equipment.......................................................... 43,807,000 47,043,000 Less accumulated depreciation........................................... 14,154,000 16,265,000 ----------- ----------- 29,653,000 30,778,000 ----------- ----------- Property, plant and equipment............................................. 18,313,000 20,913,000 Less accumulated depreciation and amortization.......................... 5,070,000 5,921,000 ----------- ----------- 13,243,000 14,992,000 Prepaids, intangibles and other........................................... 2,295,000 4,081,000 Maintenance contracts, net................................................ 1,962,000 1,599,000 ----------- ----------- $53,307,000 $57,460,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accruals........................................... $ 5,379,000 $ 4,804,000 Income taxes payable.................................................... 198,000 136,000 Short-term borrowings................................................... -- 500,000 Current portion of long-term debt....................................... 2,660,000 1,804,000 ----------- ----------- Total current liabilities.......................................... 8,237,000 7,244,000 ----------- ----------- Long-term debt: 9% convertible subordinated debentures due 2005......................... 4,874,000 4,874,000 9 1/2% subordinated debentures due 2012................................. 1,057,000 1,057,000 Notes payable........................................................... 13,762,000 16,564,000 ----------- ----------- 19,693,000 22,495,000 Deferred revenue and deposits............................................. 1,550,000 2,621,000 Deferred income taxes..................................................... 3,282,000 3,600,000 Minority interest......................................................... 21,000 1,000 ----------- ----------- Stockholders' equity: Capital stock Preferred -- $1 par value -- 500,000 shares authorized.................. Common -- $1 par value -- 4,000,000 shares authorized 2,435,046 shares issued in 1994 and 2,436,268 in 1995................. 2,435,000 2,436,000 Class B -- $1 par value -- 2,000,000 shares authorized 305,359 shares issued in 1994 and 304,137 in 1995..................... 305,000 304,000 Additional paid-in capital.............................................. 13,809,000 13,806,000 Retained earnings....................................................... 15,993,000 16,888,000 Other................................................................... (107,000) (71,000) ----------- ----------- 32,435,000 33,363,000 Less treasury stock -- at cost -- 1,492,581 shares in 1994 and 1,488,837 in 1995 (excludes additional 305,359 shares held in 1994 and 304,137 in 1995 for conversion of Class B stock)................................... 11,911,000 11,864,000 ----------- ----------- Total stockholders' equity......................................... 20,524,000 21,499,000 ----------- ----------- $53,307,000 $57,460,000 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-3 54 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, ------------------------------------------- 1993 1994 1995 ----------- ----------- ----------- GROSS REVENUES: Equipment rentals and maintenance................. $20,824,000 $21,652,000 $21,205,000 Equipment sales................................... 11,806,000 8,498,000 12,364,000 Theatre receipts and other........................ 3,169,000 3,592,000 4,222,000 ----------- ----------- ----------- 35,799,000 33,742,000 37,791,000 ----------- ----------- ----------- OPERATING EXPENSES: Cost of equipment rentals and maintenance......... 11,249,000 11,929,000 11,358,000 Cost of equipment sales........................... 7,648,000 4,620,000 7,863,000 Cost of theatre receipts and other................ 2,657,000 2,864,000 3,185,000 ----------- ----------- ----------- 21,554,000 19,413,000 22,406,000 ----------- ----------- ----------- GROSS PROFIT FROM OPERATIONS........................ 14,245,000 14,329,000 15,385,000 General and administrative expenses................. 10,202,000 11,023,000 11,494,000 ----------- ----------- ----------- 4,043,000 3,306,000 3,891,000 Interest income..................................... 223,000 204,000 147,000 Interest expense.................................... (2,603,000) (1,446,000) (2,291,000) Other income........................................ -- -- 92,000 ----------- ----------- ----------- INCOME BEFORE INCOME TAXES.......................... 1,663,000 2,064,000 1,839,000 ----------- ----------- ----------- Provision for income taxes: Current........................................... 231,000 407,000 576,000 Deferred.......................................... 943,000 343,000 197,000 ----------- ----------- ----------- 1,174,000 750,000 773,000 ----------- ----------- ----------- NET INCOME.......................................... $ 489,000 $ 1,314,000 $ 1,066,000 =========== =========== =========== Earnings per share: Primary........................................... $ 0.39 $ 1.04 $ 0.85 Fully diluted..................................... * $ 0.94 $ 0.81 Average common and common equivalent shares outstanding: Primary........................................... 1,249,000 1,260,000 1,259,000 Fully diluted..................................... -- 1,943,000 1,643,000
- --------------- * not dilutive The accompanying notes are an integral part of these consolidated financial statements. F-4 55 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, ------------------------------------------- 1993 1994 1995 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income.......................................... $ 489,000 $ 1,314,000 $ 1,066,000 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization..................... 6,342,000 6,513,000 6,901,000 Deferred income taxes............................. 1,022,000 (188,000) 475,000 Current deferred taxes............................ (31,000) 230,000 192,000 Minority interest................................. -- 20,000 (20,000) Changes in operating assets and liabilities: Receivables.................................... 454,000 1,062,000 (595,000) Inventories.................................... 73,000 (3,000) (361,000) Prepaids and other current assets.............. 226,000 42,000 (309,000) Prepaids, intangibles and other................ (256,000) (85,000) (78,000) Accounts payable and accruals.................. 1,409,000 370,000 (1,675,000) Income taxes payable........................... 96,000 (48,000) (62,000) Deferred revenue and deposits.................. (2,315,000) 1,002,000 1,071,000 ----------- ----------- ----------- Net cash provided by operating activities.... 7,509,000 10,229,000 6,605,000 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of rental equipment....................... (2,972,000) (5,276,000) (5,932,000) Purchases of property, plant and equipment.......... (915,000) (3,187,000) (1,749,000) Payments for acquisitions........................... (3,274,000) -- (3,178,000) Proceeds from acquisition note receivable........... -- -- 658,000 Sale of assets...................................... -- 52,000 221,000 Investment in joint venture......................... -- (12,000) (480,000) Purchases of securities............................. (1,110,000) (3,470,000) (494,000) Proceeds from sales of securities................... 1,088,000 3,978,000 1,582,000 ----------- ----------- ----------- Net cash (used in) investing activities...... (7,183,000) (7,915,000) (9,372,000) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt........................ 2,400,000 4,308,000 4,379,000 Repayment of long-term debt......................... (2,604,000) (2,163,000) (3,655,000) Proceeds from short-term borrowings................. -- -- 500,000 Redemption of Company's 9% convertible subordinated debentures........................................ -- (3,080,000) -- Proceeds from exercise of stock options and stock award............................................. -- -- 45,000 Purchase of treasury stock.......................... (21,000) (1,000) (1,000) Cash dividends...................................... (153,000) (171,000) (171,000) ----------- ----------- ----------- Net cash provided by (used in) financing activities................................ (378,000) (1,107,000) 1,097,000 ----------- ----------- ----------- Net increase (decrease) in cash and cash equivalents....................................... (52,000) 1,207,000 (1,670,000) Cash and cash equivalents at beginning of year...... 1,180,000 1,128,000 2,335,000 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF YEAR............ $ 1,128,000 $ 2,335,000 $ 665,000 =========== =========== =========== Interest paid....................................... $ 1,767,000 $ 2,135,000 $ 1,851,000 Interest received................................... 228,000 214,000 176,000 Income taxes paid................................... 140,000 756,000 661,000
The accompanying notes are an integral part of these consolidated financial statements. F-5 56 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Principles of consolidation: The consolidated financial statements include the accounts of Trans-Lux Corporation and its majority-owned subsidiaries (the "Company"). Investment in a 50% owned joint venture, MetroLux Theatres, is reflected under the equity method. Cash equivalents: The Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Available-for-sale securities: Available-for-sale securities consists of U.S. Treasury Notes and common and preferred stock holdings and are stated at fair value. Inventories: Inventories are stated at the lower of cost (first-in, first-out method) or market value. Rental equipment and property, plant and equipment: These assets are stated at cost and are being depreciated over their respective useful lives using straight line or 150% declining balance methods. Leaseholds and improvements are amortized over the lesser of the useful life or term of the lease. The estimated useful lives are as follows: Rental equipment...................................................... 5 to 15 years Buildings and improvements............................................ 10 to 45 years Machinery, fixtures and theatre equipment............................. 4 to 15 years Leaseholds and improvements........................................... 2 to 12 years
When rental equipment and property, plant and equipment are fully depreciated, retired or otherwise disposed of, the cost and accumulated depreciation are eliminated from the accounts. Maintenance contracts: These assets are stated at cost and are being amortized over their economic lives of eight to 15 years using an accelerated method. Revenue recognition: Rental income from leasing of equipment and revenue from maintenance contracts are recognized as they accrue during the term of the respective agreement. The Company recognizes revenues on certain significant equipment sales contracts using the percentage of completion method. Income is recognized based on the percentage of incurred costs to the estimated total costs. Revenue on other equipment sales are recognized upon shipment. Theatre receipts and other revenues are recognized at the time service is provided. Taxes on income: Effective January 1, 1993 the Company adopted Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes". Under this Standard, deferred tax assets and liabilities are determined based on the difference between financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Earnings per share: Primary earnings per share of Common and Class B shares are based on the weighted average number of Common and Class B shares and common stock equivalents outstanding computed by the "treasury stock" method. Fully diluted earnings per share assumes conversion of dilutive convertible debentures and the assumed exercise of all common stock equivalents. Long-lived assets: The Company will adopt the provisions of Statement of Financial Accounting Standards No. 121 "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of" in the first quarter of 1996. The anticipated effect of adopting this new standard is not expected to have a material effect on the Company's consolidated financial position or results of operations. Stock-based compensation: The Company will adopt the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" (FAS 123) in the first quarter of 1996. The Company, as provided for in FAS 123, will continue to apply Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees" for employees stock compensation measurement, and F-6 57 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) will disclose the required pro forma effect on net income and earnings per share based on the fair value of the equity instruments awarded. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Certain reclassifications have been made to prior years' amounts to conform to the current year's format. 2. AVAILABLE-FOR-SALE SECURITIES Available-for-sale securities are carried at estimated fair values and the unrealized holding losses are excluded from earnings and are reported net of income taxes in a separate component of stockholders' equity until realized. Adjustments of $107,000 and $71,000 were made to equity to reflect the net unrealized losses on available-for-sale securities as of December 31, 1994 and 1995, respectively. Available-for-sale securities consist of the following as of December 31, 1994 and 1995.
1994 1995 ----------------------- ----------------------- FAIR UNREALIZED FAIR UNREALIZED VALUE LOSS VALUE LOSS ---------- -------- -------- ---------- Equity securities..................... $ 610,000 $104,000 $576,000 $ 71,000 U.S. Treasury securities.............. 993,000 3,000 -- -- -------- ------- ---------- -------- $1,603,000 $107,000 $576,000 $ 71,000 ======== ======= ========== ========
3. INVENTORIES Inventories consist of the following:
1994 1995 -------- ---------- Raw materials and spare parts................................ $498,000 $1,191,000 Work-in-process.............................................. -- 181,000 Finished goods............................................... 19,000 528,000 ---------- -------- $517,000 $1,900,000 ========== ========
4. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment consists of the following:
1994 1995 ----------- ----------- Land, buildings and improvements.......................... $13,521,000 $14,767,000 Machinery, fixtures and equipment......................... 3,785,000 5,129,000 Leaseholds and improvements............................... 1,007,000 1,017,000 ----------- ----------- $18,313,000 $20,913,000 =========== ===========
Land, buildings and equipment having a net book value of $8,049,000 and $12,292,000 at December 31, 1994 and 1995, respectively, were pledged as collateral under borrowing agreements. F-7 58 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 5. PREPAIDS, INTANGIBLES AND OTHER Prepaids, intangibles and other consists of the following:
1994 1995 ---------- ---------- Prepaids and other.......................................... $1,145,000 $1,005,000 Deferred debenture expense.................................. 168,000 206,000 Deferred financing costs.................................... 287,000 480,000 Acquisition costs........................................... 100,000 96,000 Deposits and advances....................................... 89,000 68,000 Long-term note receivable................................... 218,000 -- Patents..................................................... -- 323,000 Goodwill and noncompete agreement........................... -- 1,105,000 Investment in joint ventures................................ 38,000 506,000 Long-term portion of officers' and employees' loans......... 250,000 292,000 ---------- ---------- $2,295,000 $4,081,000 ========== ==========
Deferred debenture expense represents costs attributable to the 9% convertible subordinated debenture issue and the 9 1/2% subordinated debenture issue being amortized over the respective lives of the issues on a straight line basis, and are net of accumulated amortization of $652,000 and $670,000, at December 31, 1994 and 1995, respectively. Deferred financing costs represent costs attributable to financing agreements being amortized over the lives of the agreements on a straight line basis, and are net of accumulated amortization of $182,000 and $349,000 at December 31, 1994 and 1995, respectively. Acquisition costs represent the purchase price attributable to intangibles being amortized over 30 years on a straight line basis, and are net of accumulated amortization of $49,000 and $53,000 at December 31, 1994 and 1995, respectively. Patents represent costs attributable to engineering and design costs of outdoor products being amortized over 14 years on a straight line basis, and is net of accumulated amortization of $64,000 at December 31, 1995. Goodwill and noncompete agreement costs are attributable to the purchase costs associated with the acquisition of ISE in January 1995. (See Note 7 -- Acquisitions.) Goodwill is being amortized over 20 years on a straight line basis, and is net of accumulated amortization of $35,000 at December 31, 1995. The noncompete agreement is being amortized over five years on a straight line basis, the term of the agreement, and is net of accumulated amortization of $96,000 at December 31, 1995. Impairment of intangibles and their associated useful lives are evaluated quarterly based on recoverability of unamortized balances from expected future cash flows on an undiscounted basis. The investment in joint ventures is primarily an investment in MetroLux Theatres, a 12-plex theatre located in Loveland, Colorado. 6. MAINTENANCE CONTRACTS Maintenance contracts represent the present value of contracts the Company has with customers to service their outdoor display equipment, which were acquired during 1993. (See Note 7 -- Acquisitions.) These contracts are being amortized over 15 years, on an accelerated method, which contemplates contract expiration, fall out and non-renewals and are net of accumulated amortization of $686,000 and $1,049,000, at December 31, 1994 and 1995, respectively. 7. ACQUISITIONS During January 1995, the Company acquired all of the capital stock of Integrated Systems Engineering, Inc. (ISE), which manufactures outdoor electronic signs, for a cash purchase price of approximately $2.7 million plus payment of noncompete and consulting fees. The payments for the acquisition are shown in the Consolidated Statements of Cash Flows net of $1.9 million of liabilities assumed. F-8 59 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The acquisition has been accounted for using the purchase method of accounting. The purchase price has been allocated on the basis of the fair value of the assets acquired and liabilities assumed. Assets include land, building, machinery and equipment, accounts receivable, inventory and patents. The excess of the purchase price over the fair value of the net assets acquired has been recorded as goodwill. Pro forma results of operations as if the acquisition had occurred as of January 1, 1995 are not presented, as the amounts are not materially different from those presented. The following pro forma financial information should be read in conjunction with the Company's consolidated financial statements. The pro forma information does not purport to represent what the Company's results of operations or financial position would have been if the acquisition, in fact, had occurred on January 1, 1994, or to project the Company's results of operations or financial position for any future period or at any future date. The results of operations have been included in the Company's consolidated financial statements since the date of acquisition. The pro forma consolidated balance sheet is not presented as the transaction is already reflected in the Company's consolidated balance sheet at December 31, 1995.
1994 ----------- UNAUDITED Gross revenues.......................................................... $38,284,000 ----------- Gross profit from operations............................................ $17,046,000 ----------- Net income.............................................................. $ 1,439,000 ----------- Earnings per share -- primary........................................... $1.14 ----- Earnings per share -- fully diluted..................................... $1.00 -----
During 1993 the Company, through its subsidiary Trans-Lux Sign Corporation, purchased certain assets and liabilities of Indicator Maintenance Corporation for an aggregate cash price of approximately $3.2 million. The assets acquired included a portfolio of leased outdoor electronic signs, a maintenance base and other contracts. The acquisition has been accounted for using the purchase method of accounting. The purchase price has been allocated on the basis of the fair value of the assets which approximates the acquisition cost. The following pro forma financial information should be read in conjunction with the Company's consolidated financial statements. The pro forma information does not purport to represent what the Company's results of operations or financial position would have been if the acquisition, in fact, had occurred on January 1, 1993, or to project the Company's results of operations or financial position for any future period or at any future date. The results of operations have been included in the Company's consolidated financial statements since the date of acquisition.
1993 ----------- UNAUDITED Gross revenues.......................................................... $39,035,000 ----------- Gross profit from operations............................................ $14,752,000 ----------- Net income.............................................................. $ 505,000 ----------- Earnings per share...................................................... $0.40 -----
F-9 60 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 8. TAXES ON INCOME The components of income tax expense are as follows:
YEARS ENDED DECEMBER 31, ------------------------------------ 1993 1994 1995 ---------- -------- -------- Current: Federal......................................... $ 76,000 $229,000 $490,000 State........................................... 155,000 150,000 86,000 Foreign......................................... -- 28,000 -- -------- -------- ---------- 231,000 407,000 576,000 -------- -------- ---------- Deferred: Federal......................................... 391,000 311,000 157,000 State........................................... 552,000 -- 40,000 Foreign......................................... -- 32,000 -- -------- -------- ---------- 943,000 343,000 197,000 -------- -------- ---------- Total income tax expense.......................... $1,174,000 $750,000 $773,000 ======== ======== ==========
1994 includes the favorable state tax settlement, which assessment was recorded in 1993. Income taxes provided differed from the expected federal statutory rate of 34% as follows:
1993 1994 1995 ---- ---- ---- Statutory federal income tax rate.............................. 34.0% 34.0% 34.0% State income taxes, net of federal benefit..................... 28.1 8.1 4.5 Benefit of NOL................................................. 7.3 (6.4) -- Other.......................................................... 1.2 0.6 3.5 ---- ---- ---- Effective income tax rate................................. 70.6% 36.3% 42.0% ==== ==== ====
The tax effect of temporary differences giving rise to the Company's deferred tax provision are as follows:
1993 1994 1995 -------- --------- -------- Depreciation and amortization..................... $(96,000) $ 180,000 $ 49,000 Pension actuarial gain............................ 20,000 (30,000) (14,000) Supplemental retirement plan...................... 7,000 (143,000) (15,000) State income taxes................................ 211,000 478,000 27,000 Impact of NOL..................................... 801,000 61,000 191,000 AMT credit........................................ -- (235,000) (25,000) Other............................................. -- 32,000 (16,000) --------- --------- -------- Net deferred tax provision................... $943,000 $ 343,000 $197,000 ========= ========= ========
F-10 61 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The tax effects of the items comprising the net deferred tax asset and liability at December 31, 1994 and 1995 in the Company's statement of financial position are as follows:
1994 1995 ---------- ---------- Current asset Deferred tax asset: Operating loss carryforwards........................... $ 192,000 -- Valuation allowance.................................... -- -- ---------- ---------- Net deferred tax asset............................ 192,000 -- ========== ========== Long-term liability Deferred tax asset: Operating loss carryforwards........................... $ 82,000 $ 175,000 Excess financial reporting depreciation and amortization over tax depreciation and amortization......................................... 259,000 331,000 Acquisition costs not deducted for tax purposes........ 84,000 84,000 Net pension cost not deducted for tax purposes......... 36,000 52,000 Supplemental retirement plan costs not deducted for tax purposes............................................. 44,000 61,000 Tax credit carryforwards............................... 337,000 397,000 Unrealized holding losses not deducted for tax purposes............................................. 87,000 58,000 Bad debt expense not deducted for tax purposes......... -- 37,000 Valuation allowance.................................... (402,000) (232,000) ---------- ---------- 527,000 963,000 ---------- ---------- Deferred tax liability: Excess tax depreciation over financial reporting depreciation......................................... 2,715,000 3,328,000 Gain on purchases of Company's 9% debentures not reported for tax purposes............................ 439,000 439,000 Net pension benefit not reported for tax purposes...... 373,000 373,000 Foreign exchange gain not reported for tax purposes.... 32,000 31,000 State income taxes..................................... 250,000 392,000 ---------- ---------- 3,809,000 4,563,000 ---------- ---------- Net deferred tax liability........................ $3,282,000 $3,600,000 ========== ==========
The valuation allowance changed by $170,000 for the year ended December 31, 1995. The valuation allowance has been established for the amount of deferred tax assets which management estimates will more likely than not expire unused. F-11 62 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 9. LONG-TERM DEBT Long-term debt consists of the following:
1994 1995 ----------- ----------- 9% convertible subordinated debentures due 2005........... $ 4,874,000 $ 4,874,000 9 1/2% subordinated debentures due 2012................... 1,057,000 1,057,000 Loan and security agreement -- bank, secured, due in quarterly installments through 1998..................... 9,855,000 -- Line of credit and security agreement -- bank, secured.... 2,989,000 -- Note payable -- banks, secured, due in monthly installments through 1998............................... 538,000 -- IRB note payable -- banks, secured, due in quarterly installments through 1997............................... 733,000 -- Term loans -- bank, secured, due in quarterly installments through 2002............................................ -- 15,177,000 Loan payable -- CDA, due in monthly installments through 2002 at 5.0%............................................ -- 517,000 Real estate mortgages -- secured, due in monthly and quarterly installments through 2015..................... 2,206,000 2,597,000 Capital lease obligation, -- secured, due in monthly installments through 1999 at 9.5%....................... 101,000 77,000 ----------- 22,353,000 24,299,000 Less portion due within one year.......................... 2,660,000 1,804,000 ----------- $19,693,000 $22,495,000 ===========
Payments of long-term debt due for the next five years are:
1996 1997 1998 1999 2000 - ---------- ---------- ---------- ---------- ---------- $1,804,000 $1,817,000 $2,660,000 $1,792,000 $2,696,000
During 1985, the Company issued $15 million of 9% convertible subordinated debentures due 2005. These debentures are redeemable at the option of the Company at declining premiums. An annual sinking fund requirement of $1,125,000 was to commence December 1, 1995; however, at its option, the Company is depositing with the Trustee debentures that have been repurchased and receive a credit against such required payments. The debentures are redeemable at the option of the Company at par. The debentures are currently convertible into shares of the Company's Common Stock at a conversion price of $12.70 per share. During 1994, the Company made an Offer to Exchange $1,000 principal amount of its new 9 1/2% subordinated debentures due 2012 ("New Debentures") for each $1,000 principal amount of its 9% convertible subordinated debentures due 2005 ("Old Debentures"). The New Debentures pay an interest rate of 9 1/2%, mature in 2012, are not callable until 1999 and are not convertible into Common Stock. The Company accepted $1,057,000 of Old Debentures in exchange for $1,057,000 of New Debentures. The New Debentures are redeemable at the option of the Company at declining premiums. An annual sinking fund requirement of $105,700 will commence December 1, 2009. Simultaneously with the Offer to Exchange, the Company called for redemption of approximately 39% of the Old Debentures at 101.125% on December 1, 1994 and redeemed $3,080,000 of the Old Debentures. The Company entered into a Line of Credit and Security Agreement for $3,000,000 to finance such redemption. The line of credit was converted to a five-year term note on January 27, 1995 with an interest rate of 9.04% through January 27, 1998 and at prime plus 1/2% thereafter. This loan was part of the restructuring in August 1995. The Company entered into a Credit Agreement with First Union Bank of Connecticut (formerly known as First Fidelity Bank) in August 1995 restructuring its indebtedness of $15,581,000 and a $4,000,000 line F-12 63 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) of credit. The restructuring extends the terms to an average of 11 years at a variable rate of interest of LIBOR plus 175 basis points (7.688% at December 31, 1995). Simultaneously, the Company entered into interest rate swap agreements to reduce the impact of changes in interest rates on its floating rate long-term debt. At December 31, 1995, the Company had outstanding two interest rate swap agreements with a commercial bank, having a notional value of $15,177,000. The resulting gain or loss on the swaps is included in interest expense. The agreements effectively change the Company's interest rate exposure on its $7,867,000 floating rate installment note due quarterly through October 2002 to a fixed rate of 7.86% and its $7,310,000 floating rate installment note due quarterly through July 2002 to a fixed rate of 7.86%. The notional value of the interest rate swap agreements are reduced quarterly with the installment payments on the notes and mature July 1, 1998. The aggregate cost to terminate the interest rate swap agreements at December 31, 1995 was $389,000. The Company is subject to credit loss in the event of nonperformance by other parties to the interest rate swap agreements. However, the Company does not anticipate nonperformance by the counterparties. The $4 million line of credit is at a variable rate of interest of LIBOR plus 200 basis points (7.867% at December 31, 1995) and is available until June 1997. At December 31, 1995, the Company had $3.5 million available under such agreement. The Company has a first mortgage on a four-plex theatre in Taos, New Mexico at an interest rate of prime plus 1% (9.5% at December 31, 1995) with a balloon payment of $837,000 in 1998 and a first mortgage on a five-plex theatre in Durango, Colorado at an interest rate of prime plus 1%, capped at 9% with a balloon payment of $920,000 in 2000. The fair value of the 9% convertible subordinated debentures and the 9 1/2% subordinated debentures are $5,166,000 and $1,046,000, respectively at December 31, 1995. The fair value of the remaining long-term debt approximates the carrying value. The theatrical joint venture, MetroLux Theatres, entered into an agreement to borrow $3,000,000 for the land and construction of the 12-plex theatre located in Loveland, Colorado. The Company is the guarantor of the entire indebtedness. However, the owner of the non-related general partner of the joint venture has guaranteed their prorata portion of the indebtedness to the Company. F-13 64 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 10. STOCKHOLDERS' EQUITY Changes in capital stock, additional paid-in capital, treasury stock and retained earnings for the three years ended December 31, 1995 are as follows:
COMMON STOCK CLASS B ADDITIONAL RETAINED ---------------------- ------------------ PAID-IN TREASURY EARNINGS SHARES AMOUNT SHARES AMOUNT CAPITAL STOCK AND OTHER --------- ---------- ------- -------- ----------- ------------ ----------- Balance December 31, 1992.................... 2,420,201 $2,420,000 319,811 $320,000 $13,804,000 $(11,889,000) $14,514,000 Net income................ -- -- -- -- -- -- 489,000 Cash dividends............ -- -- -- -- -- -- (153,000) Common stock acquired (2,311 shares).......... -- -- -- -- -- (21,000) -- Class B conversion to common stock............ 13,264 13,000 (13,264) (13,000) -- -- -- --------- ---------- ------- -------- ----------- ------------ ----------- Balance December 31, 1993.................... 2,433,465 2,433,000 306,547 307,000 13,804,000 (11,910,000) 14,850,000 Net income................ -- -- -- -- -- -- 1,314,000 Cash dividends............ -- -- -- -- -- -- (171,000) 9% debentures conversion.............. 393 1,000 -- -- 5,000 -- -- Unrealized holding losses.................. -- -- -- -- -- -- (107,000) Common stock acquired (131 shares)................. -- -- -- -- -- (1,000) -- Class B conversion to common stock............ 1,188 1,000 (1,188) (2,000) -- -- -- --------- ---------- ------- -------- ----------- ------------ ----------- Balance December 31, 1994.................... 2,435,046 2,435,000 305,359 305,000 13,809,000 (11,911,000) 15,886,000 Net income................ -- -- -- -- -- -- 1,066,000 Cash dividends............ -- -- -- -- -- -- (171,000) Unrealized holding gain... -- -- -- -- -- -- 36,000 Exercise of stock options................. -- -- -- -- (4,000) 40,000 -- Common stock acquired (56 shares)............. -- -- -- -- -- (1,000) -- Common stock award........ -- -- -- -- 1,000 8,000 -- Class B conversion to common stock............ 1,222 1,000 (1,222) (1,000) -- -- -- --------- ---------- ------- -------- ----------- ------------ ----------- Balance December 31, 1995.................... 2,436,268 $2,436,000 304,137 $304,000 $13,806,000 $(11,864,000) $16,817,000 ========= ========== ======= ======== =========== ============ ===========
During 1995, the Board of Directors declared four quarterly cash dividends of $.035 per share on the Company's Common Stock and $.0315 per share on the Company's Class B Stock, which were paid in April, July and October 1995 and January 1996. During 1993 the Board authorized an increase of 17% in the quarterly cash dividends to its current level. Each share of Class B Stock is convertible at any time into one share of Common Stock and has ten votes per share, as compared to Common Stock which has one vote per share but receives a higher dividend. During 1995, the stockholders approved 3 million shares of a new class of capital stock designated Class A Stock, $1.00 par value. The stock will have no voting rights except as required by law and will receive a 10% higher dividend than the Common Stock. A Certificate of Amendment authorizing the Class A shares and adjusting authorized shares of Common Stock to 5.5 million and Class B Stock to 1 million will be filed prior to the first issuance of Class A Stock. No specific issuance of Class A Stock is presently contemplated. At December 31, 1995, shares of Common Stock were reserved for: Conversion of 9% convertible subordinated debentures....................... 782,000 Stock options.............................................................. 124,000
F-14 65 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) 11. LEASES The Company occupies theatre and other premises under operating leases expiring at varying dates through 2006. Certain of the leases provide for the payment of real estate taxes and other occupancy costs. In addition, the Company has a long-term lease for a telephone system, which is classified as a capital lease. The following is a summary of future minimum lease payments due under capital and operating leases at December 31, 1995:
CAPITAL OPERATING YEAR LEASE LEASES -------------------------------------------------------------- ------- ---------- 1996.......................................................... $30,000 $ 248,000 1997.......................................................... 30,000 188,000 1998.......................................................... 30,000 160,000 1999.......................................................... 7,000 129,000 2000.......................................................... -- 107,000 Thereafter.................................................... -- 668,000 ------- ---------- Total future minimum lease payments........................... $97,000 $1,500,000 ========== Amount representing interest.................................. 20,000 ------- Present value of net minimum lease payments................... 77,000 Current portion............................................... 24,000 ------- Long-term portion............................................. $53,000 =======
Total rent expense for all operating leases amounted to $308,000, $267,000, and $238,000 in 1993, 1994 and 1995, respectively. At December 31, 1995, sublease income of $110,000 is to be received on non-cancelable leases through 2000. 12. ENGINEERING DEVELOPMENT EXPENSE Engineering development expense was $108,000, $238,000 and $172,000 for 1993, 1994 and 1995, respectively. 13. PENSION PLAN All eligible salaried employees of Trans-Lux Corporation and certain of its subsidiaries are covered by a non-contributory pension plan. Pension benefits vest after five years of service and are based on years of service and final average salary. The Company's funding policy is to contribute annually an amount that can be deducted for Federal income tax purposes. Contributions are intended to provide not only for benefits based on service to date, but also for those benefits expected to be earned in the future. F-15 66 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) The funded status of the plan at December 31, 1994 and 1995 are as follows:
1994 1995 ---------- ---------- Fair value of plan assets, invested in insurance company funds..................................................... $3,893,000 $4,172,000 ---------- ---------- Actuarial present value of benefits for service rendered to date: Accumulated benefits based on salaries to date, including vested benefits of $1,902,000 and $2,879,000 for 1994 and 1995, respectively................................. 1,998,000 2,985,000 Additional benefits based on estimated future salary levels................................................. 1,016,000 1,286,000 ---------- ---------- Projected benefit obligation (PBO).......................... 3,014,000 4,271,000 ---------- ---------- Plan assets (less than) in excess of PBO.................... 879,000 (99,000) Unrecognized prior service cost............................. 24,000 22,000 Unrecognized net loss from past experience different from that assumed.............................................. 53,000 952,000 Unrecognized net asset on January 1, 1985 being recognized over 13.38 years.......................................... (132,000) (92,000) ---------- ---------- Prepaid pension cost........................................ $ 824,000 $ 783,000 ========== ==========
The following items are components of the net pension cost for 1995: Present value of benefits earned during the period........................ $273,000 Interest cost on projected benefit obligation............................. 278,000 Actual return on plan assets.............................................. (372,000) Net amortization and deferral............................................. (38,000) -------- Net pension cost.......................................................... $141,000 ========
The weighted average discount rate used in determining the actuarial present value of the PBO was 8.5% in 1994 and 7.5% in 1995. The rate of increase in future compensation levels used in determining the actuarial present value of the PBO was 4.25% in 1994 and 4.0% in 1995. The expected long-term rate of return on assets was 9.5 percent for 1994 and 1995. The Company provides supplemental retirement benefits for the Chief Executive Officer, during 1995, the Company accrued $43,000 for such benefits. At December 31, 1994 and 1995, respectively, the total liability accrued was $110,000 and $153,000. The Company's pension and supplemental pension costs for the years ended December 31, 1993, 1994 and 1995 were $241,000, $226,000 and $183,000, respectively. The Company does not offer any postretirement benefits other than the pension and the supplemental retirement benefits described herein. As of January 1, 1994, the Company adopted SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This statement requires the accrual of estimated costs of benefits to former or inactive employees after employment but before retirement. The adoption of this standard did not have a material effect on the Company's consolidated financial statements. The Company did not accrue any liability for such benefits during 1995. 14. STOCK OPTION PLANS The Company has five stock option plans. The 1995 Stock Option Plan and the 1992 Stock Option Plan each reserved 50,000 shares of Common Stock for issue to key employees. Stock Option Plan II terminated, and accordingly, additional shares cannot be granted under such plan, which originally reserved 50,000 shares of Common Stock (before giving effect for stock dividends). The Non-Employee Director Stock Option Plan F-16 67 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) reserved 15,000 shares of Common Stock for grant. The Non-Statutory Stock Option Plan Agreement reserved 12,500 shares of Common Stock for issue to the Chairman of the Board. Changes in the stock option plans are as follows:
NUMBER OF SHARES ------------------------------------ AUTHORIZED GRANTED AVAILABLE ---------- ------- --------- Balance December 31, 1992............................ 111,900 95,100 16,800 Additional authorized shares......................... 12,500 -- 12,500 Terminated........................................... (22,500) (42,500) 20,000 Granted.............................................. -- 27,900 (27,900) ------- ------- ------ Balance December 31, 1993............................ 101,900 80,500 21,400 Terminated........................................... (3,500) (8,000) 4,500 Granted.............................................. -- 17,000 (17,000) ------- ------- ------ Balance December 31, 1994............................ 98,400 89,500 8,900 Additional authorized shares......................... 50,000 -- 50,000 Terminated........................................... (19,700) (25,200) 5,500 Granted.............................................. -- 28,200 (28,200) Exercised............................................ (5,000) (5,000) -- ------- ------- ------ Balance December 31, 1995............................ 123,700 87,500 36,200 ======= ======= ======
Under the 1995 Stock Option Plan and the 1992 Stock Option Plan, option prices must be at least 100% of the market value of the Common Stock at the time of the grant. Exercise periods are for ten years from date of the grant (five years if the optionee owns more than 10% of the voting power) and terminate at a stipulated period of time after an employee's termination of employment. At December 31, 1995, under the 1995 Plan, options for 23,800 shares (granted in 1995) with an exercise price of $8.125 per share were outstanding. No shares were exercisable or were exercised during 1995. At December 31, 1995, under the 1992 Plan, options for 48,700 shares (granted in 1992, 1993, 1994 and 1995) with exercise prices ranging from $6.3125 to $9.6875 per share were outstanding, of which 45,300 shares were exercisable. Options for 1,300 shares (granted in 1992) with an exercise price of $6.3125 per share were exercised in 1995. During 1995, options for 1,000 shares expired. No options were exercised during 1993 and 1994. Under Stock Option Plan II, option prices must be at least 100% of the market value of the Common Stock at the time of the grant. Exercise periods are for six years from date of the grant (five years if the optionee owns more than 10% of the voting power) and terminate at a stipulated period of time after an employee's termination of employment. At December 31, 1995, all 19,700 options under the plan have terminated. Options for 2,200 shares (granted in 1989) with an exercise price of $7.625 per share were exercised in 1995. No options were exercised during 1993 and 1994. Under the Non-Employee Director Stock Option Plan, options must be at least 100% of the market value of the Common Stock at the time of the grant. No option may be exercised prior to one year after the date of the grant and the optionee must be a director of the Company at the time of exercise, except in certain cases as permitted by the Compensation Committee. Exercise periods are for six years from date of the grant and options terminate at a stipulated period of time after an optionee ceases to be a director. At December 31, 1995, options for 2,500 shares (granted in 1994 and 1995) with exercise prices ranging from $8.625 to $9.6875 per share were outstanding, all of which were exercisable. During 1995, options for 1,500 shares (granted in 1989) with an option price of $7.4375 per share were exercised. During 1995, options for 4,500 shares expired. No options were exercised during 1993 and 1994. Under the Non-Statutory Stock Option Agreement, the option must be at least 100% of the market value of the Common Stock at the time of the grant. The exercise period is for ten years from the date of the grant. F-17 68 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) At December 31, 1995, an option for 12,500 shares (granted in 1993) with an exercise price of $7.50 per share was outstanding, which is exercisable. No options were exercised during 1993, 1994 and 1995. 15. COMMITMENTS AND CONTINGENCIES The Company has employment/consulting agreements with certain current and former executive officers which expire at various dates through December 2002. The aggregate commitment for future salaries/consulting fees at December 31, 1995, excluding bonuses, is approximately $3,404,000. The Company is subject to legal proceedings and claims which arise in the ordinary course of its business. In the opinion of management, the amount of ultimate liability with respect to these actions will not have a material adverse affect on the consolidated financial statements of the Company. 16. BUSINESS SEGMENT DATA The Company's operations have been classified into two business segments. The Communications Division designs, produces, leases, sells and services large-scale, multi-color, real-time electronic information displays for both indoor and outdoor use. The Entertainment and Real Estate Division owns a chain of motion picture theatres in the Southwestern United States and owns real estate used for both corporate and income-producing purposes in the United States and Canada. F-18 69 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED) Information about the Company's operations in its two business segments for the three years ended December 31, 1995 is as follows:
1993 1994 1995 ----------- ----------- ----------- GROSS REVENUE Communications.................................... $32,630,000 $30,150,000 $33,569,000 Entertainment and real estate..................... 3,169,000 3,592,000 4,222,000 ------------ ------------ ------------ $35,799,000 $33,742,000 $37,791,000 ============ ============ ============ OPERATING INCOME Communications.................................... $ 9,431,000 $ 8,881,000 $ 9,500,000 Entertainment and real estate..................... 142,000 204,000 548,000 ------------ ------------ ------------ 9,573,000 9,085,000 10,048,000 Other income........................................ -- -- 92,000 General and administrative expenses................. (5,530,000) (5,779,000) (6,157,000) Interest expense -- net............................. (2,380,000) (1,242,000) (2,144,000) ------------ ------------ ------------ Income before taxes................................. $ 1,663,000 $ 2,064,000 $ 1,839,000 ============ ============ ============ ASSETS Communications.................................... $43,743,000 $42,684,000 $49,565,000 Entertainment and real estate..................... 4,955,000 6,685,000 6,654,000 ------------ ------------ ------------ Total identifiable assets........................... 48,698,000 49,369,000 56,219,000 Cash and available-for-sale securities.............. 3,440,000 3,938,000 1,241,000 ------------ ------------ ------------ $52,138,000 $53,307,000 $57,460,000 ============ ============ ============ DEPRECIATION AND AMORTIZATION Communications.................................... $ 5,988,000 $ 5,951,000 $ 6,403,000 Entertainment and real estate..................... 215,000 264,000 301,000 General corporate................................. 139,000 298,000 197,000 ------------ ------------ ------------ $ 6,342,000 $ 6,513,000 $ 6,901,000 ============ ============ ============ CAPITAL EXPENDITURES Communications.................................... $ 3,768,000 $ 6,240,000 $ 7,461,000 Entertainment and real estate..................... 119,000 2,223,000 220,000 ------------ ------------ ------------ $ 3,887,000 $ 8,463,000 $ 7,681,000 ============ ============ ============
No single customer accounted for 10% or more of total revenues in 1994 and 1995. During 1993, the Company recorded revenues of approximately $4.3 million from a single customer. Foreign revenues were less than 10% of consolidated revenue in 1993 and 1995 and were approximately 15% in 1994. 17. ACCOUNTS PAYABLE AND ACCRUALS Accounts payable and accruals includes $1,361,000 and $1,730,000 for accounts payable, $135,000 and $368,000 for accrued interest payable, and $466,000 and $518,000 for taxes payable for 1994 and 1995, respectively. F-19 70 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 ----------- SEPTEMBER 30, 1996 ------------- (UNAUDITED) ASSETS Current assets: Cash and cash equivalents.............................................. $ 665,000 $ 54,000 Available-for-sale securities.......................................... 576,000 586,000 Receivables............................................................ 2,403,000 5,434,000 Unbilled receivables................................................... -- 1,632,000 Inventories............................................................ 1,900,000 1,778,000 Prepaids and other current assets...................................... 466,000 332,000 ----------- ----------- Total current assets................................................. 6,010,000 9,816,000 ----------- ----------- Rental equipment....................................................... 47,043,000 52,574,000 Less accumulated depreciation........................................ 16,265,000 19,980,000 ----------- ----------- 30,778,000 32,594,000 ----------- ----------- Property, plant and equipment.......................................... 20,913,000 21,795,000 Less accumulated depreciation and amortization....................... 5,921,000 6,960,000 ----------- ----------- 14,992,000 14,835,000 Prepaids, intangibles and other........................................ 4,081,000 3,640,000 Maintenance contracts, net............................................. 1,599,000 1,352,000 Note receivable, MetroLux Theatres (excludes $94,000 current portion).............................................................. -- 808,000 ----------- ----------- $57,460,000 $63,045,000 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable and accruals.......................................... $ 4,804,000 $ 6,436,000 Income taxes payable................................................... 136,000 55,000 Short-term borrowings.................................................. 500,000 -- Current portion of long-term debt...................................... 1,804,000 1,184,000 ----------- ----------- Total current liabilities............................................ 7,244,000 8,305,000 ----------- ----------- Long-term debt: 9% convertible subordinated debentures due 2005...................... 4,874,000 4,811,000 9 1/2% subordinated debentures due 2012.............................. 1,057,000 1,057,000 Notes payable........................................................ 16,564,000 21,402,000 ----------- ----------- 22,495,000 27,270,000 Deferred revenue and deposits.......................................... 2,621,000 1,513,000 Deferred income taxes.................................................. 3,600,000 3,648,000 Minority interest...................................................... 1,000 1,000 ----------- ----------- Stockholders' equity: Capital stock Preferred -- $1 par value -- 500,000 shares authorized............ Common -- $1 par value -- 4,000,000 shares authorized 2,436,268 shares issued in 1995 and 2,441,523 in 1996........... 2,436,000 2,441,000 Class B -- $1 par value -- 2,000,000 shares authorized 304,137 shares issued in 1995 and 298,882 in 1996............... 304,000 299,000 Additional paid-in capital........................................... 13,806,000 13,828,000 Retained earnings.................................................... 16,888,000 17,626,000 Other................................................................ (71,000) (65,000) ----------- ----------- 33,363,000 34,129,000 Less treasury stock -- at cost -- 1,488,837 shares in 1995 and 1,481,258 in 1996 (excludes additional 304,137 shares held in 1995 and 298,882 in 1996 for conversion of Class B stock)...................... 11,864,000 11,821,000 ----------- ----------- Total stockholders' equity........................................ 21,499,000 22,308,000 ----------- ----------- $57,460,000 $63,045,000 =========== ===========
The accompanying notes are an integral part of these consolidated financial statements. F-20 71 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1995 1996 ----------- ----------- (UNAUDITED) REVENUES: Equipment rentals and maintenance............................. $16,509,000 $16,273,000 Equipment sales............................................... 9,174,000 13,276,000 Theatre receipts and other.................................... 3,198,000 3,322,000 ----------- ----------- Total revenues............................................. 28,881,000 32,871,000 ----------- ----------- OPERATING EXPENSES: Cost of equipment rentals and maintenance..................... 8,700,000 8,883,000 Cost of equipment sales....................................... 5,752,000 8,753,000 Cost of theatre receipts and other............................ 2,462,000 2,529,000 ----------- ----------- Total operating expenses................................... 16,914,000 20,165,000 ----------- ----------- GROSS PROFIT FROM OPERATIONS.................................... 11,967,000 12,706,000 General and administrative expenses............................. 9,210,000 9,442,000 ----------- ----------- 2,757,000 3,264,000 ----------- ----------- Interest income................................................. 124,000 95,000 Interest expense................................................ (1,689,000) (1,764,000) Other income (expense).......................................... 70,000 (97,000) ----------- ----------- INCOME BEFORE INCOME TAXES...................................... 1,262,000 1,498,000 ----------- ----------- Provision for income taxes: Current....................................................... 501,000 521,000 Deferred...................................................... 29,000 108,000 ----------- ----------- 530,000 629,000 ----------- ----------- NET INCOME...................................................... $ 732,000 $ 869,000 =========== =========== Earnings per share: Primary....................................................... $ 0.58 $ 0.68 Fully diluted................................................. * $ 0.64 Average common and common equivalent shares outstanding: Primary....................................................... 1,258,000 1,283,000 Fully diluted................................................. * 1,674,000 Cash dividends per share: Common stock.................................................. $ 0.105 $ 0.105 Class B stock................................................. $ 0.0945 $ 0.0945
- --------------- * not dilutive The accompanying notes are an integral part of these consolidated financial statements. F-21 72 TRANS-LUX CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, ----------------------------- 1995 1996 ----------- ----------- (UNAUDITED) CASH FLOWS FROM OPERATING ACTIVITIES Net income...................................................... $ 732,000 $ 869,000 Adjustment to reconcile net income to net cash provided by operating activities: Depreciation and amortization.............................. 5,134,000 5,277,000 Net loss of joint venture.................................. -- 97,000 Deferred income taxes...................................... 531,000 44,000 Minority interest.......................................... (8,000) -- Changes in operating assets and liabilities: Receivables.............................................. (1,386,000) (3,031,000) Unbilled receivables..................................... -- (1,632,000) Inventories.............................................. (307,000) 122,000 Prepaids and other current assets........................ (113,000) 228,000 Prepaids, intangibles and other.......................... (82,000) (239,000) Accounts payable and accruals............................ 117,000 1,632,000 Income taxes payable..................................... 87,000 (81,000) Deferred revenue and deposits............................ (796,000) (1,108,000) ----------- ----------- Net cash provided by operating activities............. 3,909,000 2,178,000 ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES Purchases of rental equipment................................... (4,112,000) (5,531,000) Purchases of property, plant and equipment...................... (1,389,000) (882,000) Payments for an acquisition..................................... (3,178,000) -- Proceeds from acquisition note receivable....................... 658,000 -- Sale of assets.................................................. 209,000 -- Investment in joint venture..................................... (1,304,000) 345,000 Loan to joint venture........................................... -- (941,000) Purchases of securities......................................... (494,000) -- Proceeds from sales of securities............................... 1,582,000 -- ----------- ----------- Net cash (used in) investing activities............... (8,028,000) (7,009,000) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES Proceeds from long-term debt.................................... 4,275,000 5,700,000 Repayment of long-term debt..................................... (3,206,000) (1,352,000) Proceeds from short-term borrowings............................. 1,300,000 -- Proceeds from exercise of stock options......................... 36,000 4,000 Purchase of treasury stock...................................... (1,000) (1,000) Cash dividends.................................................. (128,000) (131,000) ----------- ----------- Net cash provided by financing activities............. 2,276,000 4,220,000 ----------- ----------- Net (decrease) in cash and cash equivalents..................... (1,843,000) (611,000) Cash and cash equivalents at beginning of year.................. 2,335,000 665,000 ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD...................... $ 492,000 $ 54,000 =========== =========== Interest paid................................................... $ 1,366,000 $ 1,452,000 Interest received............................................... 132,000 101,000 Income taxes paid............................................... 376,000 542,000
The accompanying notes are an integral part of these consolidated financial statements. F-22 73 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. BASIS OF PRESENTATION Financial information included herein is unaudited, however, such information reflects all adjustments which are, in the opinion of management, necessary for the fair presentation of the consolidated financial statements for the interim periods. The results for the interim periods are not necessarily indicative of the results to be expected for the full year. Certain reclassifications have been made to prior year's amounts to conform to the current year's format. It is suggested that the September 30, 1995 and 1996 consolidated financial statements be read in conjunction with the consolidated financial statements and notes included in the Company's Annual Report on Form 10-K for the year ended December 31, 1995. The Company adopted the provisions of Statement of Financial Accounting Standards No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of " in the first quarter of 1996. In accordance with the standard, the Company evaluates the carrying value of its long-lived assets and identifiable intangibles, including goodwill, when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The adoption of the standard did not have any effect on the Company's consolidated financial position or results of operations. The Company adopted the provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" in the first quarter of 1996. As provided for in the standard, the Company continues to apply Accounting Principals Board Opinion No. 25, "Accounting for Stock Issued to Employees" and related interpretations for employee stock compensation measurement and will disclose the required pro forma information in the 1996 Form 10-K. 2. ACCOUNTING FOR INCOME TAXES The effective tax rate at September 30, 1996 was 42%. There was no change in the valuation allowance during the nine months ended September 30, 1996. 3. PREPAIDS, INTANGIBLES AND OTHER Prepaid, intangibles and other consists of the following:
DECEMBER 31 SEPTEMBER 30 1995 1996 ------------ ------------ Prepaids and other..................................... $1,005,000 $1,048,000 Deferred debenture expense............................. 206,000 193,000 Deferred financing costs............................... 480,000 421,000 Acquisition costs...................................... 96,000 92,000 Deposits and advances.................................. 68,000 76,000 Patents................................................ 323,000 275,000 Goodwill and noncompete agreement...................... 1,105,000 1,003,000 Investment in joint venture............................ 506,000 128,000 Long-term portion of officers' and employees' loans.... 292,000 404,000 ---------- ---------- $4,081,000 $3,640,000 ========== ==========
4. ACCOUNTS PAYABLE AND ACCRUALS Accounts payable and accruals includes $1,730,000 and $2,415,000 for accounts payable, $368,000 and $569,000 for accrued interest payable, and $518,000 and $632,000 for taxes payable at December 31, 1995 and September 30, 1996, respectively. F-23 74 TRANS-LUX DISPLAYS ARE USED PRIMARILY IN REAL-TIME APPLICATIONS FOR THE FINANCIAL, BANKING, GAMING, CORPORATE, SPORTS AND TRANSPORTATION MARKETS. OUTDOOR Trans-Lux's recent acquisitions have given the Company Trans-Lux's outdoor displays are used in a wide array a growing presence in the outdoor market, such as this of applications including college and professional outdoor display for the Luxor Hotel and Casino in Las stadiums. Vegas. SPORTS TRANSPORTATION Trans-Lux's complete line of sports displays Travelers depend on clear, easy-to- read Trans-Lux incorporate up-to-the-second information, video displays for arrival, departure and other timely replays and information. full-color animation enhancing the experience for players and fans at athletic events. CORPORATE Trans-Lux network management display systems are used to track the status of data communications networks.
TRANS-LUX [The above captions refer to examples of Trans-Lux's electronic displays] 75 - ------------------------------------------------------ - ------------------------------------------------------ NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY THE UNDERWRITER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH AN OFFER OR SOLICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. ------------------------ TABLE OF CONTENTS
PAGE ---- Prospectus Summary.................... 3 Risk Factors.......................... 7 Use of Proceeds....................... 11 Price Range of Common Stock and Dividend Policy..................... 11 Capitalization........................ 12 Selected Financial Data............... 13 Management's Discussion and Analysis of Financial Condition and Results of Operations....................... 15 Business.............................. 20 Management............................ 28 Executive Compensation and Transactions with Management........ 30 Description of Notes.................. 34 Description of Capital Stock.......... 43 Underwriting.......................... 46 Legal Matters......................... 47 Experts............................... 47 Available Information................. 47 Incorporation of Certain Documents by Reference........................... 47 Index to Consolidated Financial Statements.......................... F-1
- ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ - ------------------------------------------------------ $27,500,000 LOGO LOGO % CONVERTIBLE SUBORDINATED NOTES DUE 2006 ------------------------ PROSPECTUS ------------------------ SOUTHCOAST CAPITAL CORPORATION , 1996 ------------------------------------------------------ ------------------------------------------------------ 76 PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the expenses (other than underwriting discounts) to be incurred payable by the registrant in connection with the issuance and distribution of the shares registered hereby. Other than the SEC registration fee and the NASD filing fee, such expenses are estimates. SEC registration fee...................................................... $ 9,583 NASD filing fee........................................................... 3,750 AMEX listing fee.......................................................... 5,000 Printing costs (excluding notes).......................................... 110,000 Accounting fees and expenses.............................................. 45,000 Blue Sky fees and expenses................................................ 6,000 Legal fees and expenses................................................... 150,000 Miscellaneous expenses.................................................... 70,667 -------- Total................................................................... $400,000 ========
- --------------- ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145(a) of the General Corporation Law of the State of Delaware provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of the corporation), by reason of the fact that he is or was a director, officer, employee or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation or enterprise, against expenses, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no cause to believe his conduct was unlawful. Section 145(b) provides that a Delaware corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that such person acted in any of the capacities set forth above, against expenses actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted under similar standards, except that no indemnification may be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the corporation unless and only to the extent that the court in which such action or suit was brought shall determine that despite the adjudication of liability, such person is fairly and reasonably entitled to be indemnified for such expenses which the court shall deem proper. Section 145 further provides that to the extent a director or officer of a corporation has been successful in the defense of any action, suit or proceeding referred to in subsections (a) and (b) or in the defense of any claim, issue or matter therein, he shall be indemnified against expenses actually and reasonably incurred by him in connection therewith; that indemnification provided for by Section 145 shall not be deemed exclusive of any other rights to which the indemnified party may be entitled; and that the corporation may purchase and maintain insurance on behalf of a director or officer of the corporation against any liability asserted against him or incurred by him in any such capacity or arising out of his status as such whether or not the corporation would have the power to indemnify him against such liabilities under such Section 145. The Company's By-laws provide that the Company shall indemnify certain persons, including officers, directors, employees and agents, to the fullest extent permitted by Section 145 of the General Corporation II-1 77 Law of the State of Delaware. The Company has also entered into indemnification agreements with its current directors and executive officers. Reference is made to the By-laws and Indemnification Agreement filed with the Commission. The Company's directors and officers are insured against losses arising from any claim against them as such for wrongful acts or omissions, subject to certain limitations. Under Section 9 of the Underwriting Agreement, the Underwriter is obligated, under certain circumstances, to indemnify officers, directors and controlling persons of the Company against certain liabilities, including liabilities under the Securities Act. Reference is made to the form of Underwriting Agreement filed as Exhibit 1 hereto. Under an insurance policy with The Chubb Group of Companies, the directors and certain officers of the Company are indemnified against certain losses arising from certain claims which may be made against such persons, by reason of their being such directors or officers. ITEM 16. EXHIBITS 1 Form of Underwriting Agreement. 3.1 Form of Restated Certificate of Incorporation of the Company.* 3.2 By-laws of the Company.* 4.1 Specimen Common Stock Certificate.* 4.2 Form of Indenture.* 5 Opinion of Weisman Celler Spett & Modlin, P.C.* 10.1 Form of Indemnity Agreement -- Directors.* 10.2 Form of Indemnity Agreement -- Officers.* 10.3 Employment Agreement, dated as of August 16, 1996 between the Company and Richard Brandt.* 11 Statement of Computation of Earnings Per Share. 12 Statement of Computation of Ratio of Earnings to Fixed Charges. 23.1 Consent of Deloitte & Touche LLP. 23.2 Consent of Weisman Celler Spett & Modlin, P.C. (contained in Exhibit 5).* 24 Powers of Attorney.* 25 Statement of Eligibility of Trustee.*
- --------------- * Previously filed. ITEM 17. UNDERTAKINGS The Registrant hereby undertakes that, for purposes of determining any liability under the Securities Act, each filing of the registrant's annual report pursuant to Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing of an employee benefit plan's annual report pursuant to Section 15(d) of the Securities Exchange Act) that is incorporated by reference in the registration statement shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the Registrant pursuant to the provisions described in Item 15, the II-2 78 Registrant has been informed that in the opinion of the Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The undersigned Registrant hereby undertakes: For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of a registration statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. For purpose of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 79 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-2 and has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 9th day of December, 1996. TRANS-LUX CORPORATION By: /s/ VICTOR LISS ----------------------------- Victor Liss Vice Chairman, President and Chief Executive Officer Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated. * Chairman of the Board December 9, 1996 - ------------------------------------- Richard Brandt Vice Chairman of the Board, December 9, 1996 /s/ VICTOR LISS President and Chief Executive - ------------------------------------- Officer Victor Liss /s/ ANGELA D. TOPPI Senior Vice President and Chief December 9, 1996 - ------------------------------------- Financial Officer Angela D. Toppi * Chief Accounting Officer December 9, 1996 - ------------------------------------- Robert A. Carroll * Director December 9, 1996 - ------------------------------------- Steven Baruch * Director December 9, 1996 - ------------------------------------- Jean Firstenberg * Director December 9, 1996 - ------------------------------------- Allan Fromme, PhD * Director December 9, 1996 - ------------------------------------- Robert Greenes * Director December 9, 1996 - ------------------------------------- Gene Jankowski * Director December 9, 1996 - ------------------------------------- Howard S. Modlin * By /s/ VICTOR LISS - ------------------------------------- as Attorney in Fact
II-4 80 TRANS-LUX CORPORATION EXHIBIT INDEX Certain of the exhibits to this registration statement are hereby incorporated by reference, as specified below, to other documents filed with the Commission. Exhibit designations below correspond to the numbers assigned to exhibit classifications in Regulation S-K.
EXHIBIT SEQUENTIAL NO. DESCRIPTIONS PAGE NOS. - ------- --------------------------------------------------------------------------- ---------- 1 Form of Underwriting Agreement............................................. 3.1 Form of Restated Certificate of Incorporation of the Company*.............. 3.2 By-laws of the Company*.................................................... 4.1 Specimen Common Stock Certificate*......................................... 4.2 Form of Indenture*......................................................... 5 Opinion of Weisman Celler Spett & Modlin, P.C.*............................ 10.1 Form of Indemnity Agreement -- Directors*.................................. 10.2 Form of Indemnity Agreement -- Officers*................................... 10.3 Employment Agreement, dated as of August 16, 1996 between the Company and Richard Brandt*............................................................ 11 Statement of Computation of Earnings Per Share............................. 12 Statement of Computation of Ratio of Earnings to Fixed Charges............. 23.1 Consent of Deloitte & Touche LLP........................................... 23.2 Consent of Weisman Celler Spett & Modlin, P.C. (contained in Exhibit 5)*... 24 Powers of Attorney*........................................................ 25 Statement of Eligibility of Trustee*.......................................
- --------------- * Previously filed. II-5 EX-1 2 UNDERWRITING AGREEMENT 1 Exhibit 1 $27,500,000 _____% Convertible Subordinated Notes due 2006 TRANS-LUX CORPORATION UNDERWRITING AGREEMENT New York, New York ___________, 1996 Southcoast Capital Corporation 277 Park Avenue New York, New York 10172 The undersigned, Trans-Lux Corporation (the "Company"), a Delaware corporation, hereby confirms its agreement with Southcoast Capital Corporation. Section 1. Underwriter. The term "Underwriter," as used herein, will mean and refer to Southcoast Capital Corporation. Section 2. Securities Offered. Subject to the terms and conditions hereof, the Company proposes to issue and sell to the Underwriter and the Underwriter proposes to purchase from the Company, $27,500,000 aggregate principal amount of _____% Convertible Subordinated Notes due 2006 of the Company ("Notes") pursuant to an indenture (the "Indenture") to be dated on or about December __, 1996 between the Company and Continental Stock Transfer & Trust Company as trustee (the "Trustee"). The $27,500,000 aggregate principal amount of Notes to be sold by the Company are herein referred to as the "Firm Securities." In addition, the Company proposes to grant to the Underwriter the option to purchase from the Company up to an additional $4,125,000 aggregate principal amount of Notes (the "Option Securities") solely for the purpose of covering over-allotments, if any, in connection with the sale of the Firm Securities. The Firm Securities and the Option Securities are referred to herein collectively as the "Securities." 2 Section 3. Representations and Warranties. The Company represents and warrants to the Underwriter that: (i) A registration statement (File No. 333-15481) on Form S-2, relating to the Securities and the shares of the Company's common stock, $1.00 par value per share (the "Common Stock") into which the Securities are convertible (the "Conversion Shares), including a preliminary prospectus, has been prepared by the Company in conformity with the requirements of the Securities Act of 1933, as amended (the "Act"), and the rules and regulations (the "Rules and Regulations") of the Securities and Exchange Commission (the "Commission") thereunder and the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act"), and has been filed by the Company with the Commission and the Company is entitled under the Rules and Regulations to file such registration statement on Form S-2 and has made all required electronic filings under Regulation S-T, including all financial data schedules required to be filed pursuant to Item 601(c) of Regulation S-K. One or more amendments to such registration statement, including in each case a revised preliminary prospectus, have been so prepared and filed. If such registration statement has not become effective as of the execution and delivery of this Agreement, and the filing of a further amendment (the "Final Amendment") to such registration statement is necessary to permit such registration statement to become effective, such amendment will promptly be filed by the Company with the Commission. If such registration statement has become effective and any post-effective amendment has been filed with the Commission prior to the execution and delivery of this Agreement, the most recent such amendment has been declared effective by the Commission. If such registration statement has become effective, a final prospectus (the "Rule 430A Prospectus") containing information permitted to be omitted at the time of effectiveness by Rule 430A of the Rules and Regulations will promptly be filed by the Company pursuant to Rule 424(b) of the Rules and Regulations. The term "preliminary prospectus" as used herein means any preliminary prospectus (as referred to in Rule 430 of the Rules and Regulations) with respect to the Securities included at any time as part of such registration statement or filed with the Commission pursuant to Rule 424(a) of the Rules and Regulations; such registration statement as amended at the time that it becomes or became effective, or, if applicable, as amended at the time the most recent post-effective amendment to such registration statement filed with the Commission prior to the execution and delivery of this Agreement became effective, including financial statements and all exhibits (whether filed or incorporated by reference) and information deemed to be a part thereof at such time pursuant to Rule 430A of the Rules and Regulations is herein called the "Registration Statement;" the term "Prospectus" shall mean (x) if the Company relies on Rule 434 under the Act, the Term Sheet (as defined below) relating to the Shares that is first filed pursuant to Rule -2- 3 424(b)(7) under the Act, together with the preliminary prospectus identified therein that the Term Sheet supplements, or (y) if the Company does not rely on Rule 434 under the Act, the prospectus first filed with the Commission pursuant to Rule 424(b) under the Act, or, if no prospectus is required to be filed pursuant to Rule 424(b) under the Act, the prospectus included in the Registration Statement at the time it becomes effective. "Term Sheet" shall mean any term sheet that satisfies the requirements of Rule 434 under the Act. The date on which the Registration Statement becomes effective is hereinafter called the "Effective Date." Any reference herein to any Preliminary Prospectus or the Prospectus or the Registration Statement shall be deemed to include any information incorporated by reference therein pursuant to Item 12 of Form S-2 under the Act, as of the date of such Preliminary Prospectus, the Prospectus or the Registration Statement, as the case may be. (ii) When the Registration Statement becomes effective, and at all subsequent times to and including the Closing Time (hereinafter defined), and at the Option Exercise Time (hereinafter defined), or for such longer period as the Prospectus may be required to be delivered in connection with sales of the Notes by the Underwriter or a dealer, the Registration Statement and the Prospectus (as amended or as supplemented if the Company shall have filed with the Commission any amendment thereof or supplement thereto; provided, that no amendment or supplement to the Registration Statement or the Prospectus shall be made without prior consultation with you, and to which you shall reasonably object), will comply with the requirements of the Act and the Rules and Regulations in all material respects, will not contain an untrue statement of a material fact and will not omit to state a material fact required to be stated therein or necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided however, that the representations and warranties in this subsection (ii) do not apply to statements or omissions in the Registration Statement or the Prospectus based upon and made in conformity with written information furnished to the Company by the Underwriter specifically for inclusion therein. (iii) The documents incorporated by reference in the Preliminary Prospectus and the Prospectus pursuant to Item 12 of Form S-2 under the Act, when they were filed with the Commission, conformed in all material respects to the requirements of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules and regulations of the Commission thereunder, and none of such documents contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; since January 1, 1996, the Company has timely filed all documents with the -3- 4 Commission which were required to be filed under the Exchange Act and the rules and regulations of the Commission thereunder on or prior to the date hereof. (iv) The Commission has not issued an order preventing or suspending the use of any preliminary prospectus with respect to the Securities and has not instituted or, to the Company's knowledge, threatened to institute any proceedings with respect to such an order. Each preliminary prospectus, when filed with the Commission, conformed in all material respects with the requirements of the Act and the Rules and Regulations and, as of its date, did not include any untrue statement of a material fact or omit to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided however, that the representations and warranties in this sentence do not apply to statements or omissions in each such preliminary prospectus based upon and made in conformity with written information furnished to the Company by the Underwriter specifically for inclusion therein. (v) The Company is, and at the Closing Time, and at the Option Exercise Time will be, a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Each of the Company's subsidiaries (collectively, the "Subsidiaries" and individually, a "Subsidiary") is listed in Exhibit 21 to the Company's Report on Form 10-K for the year ended December 31, 1995 and, at the Closing Time and at each Option Exercise Time, each Subsidiary, including each Significant Subsidiary (as defined in Rule 1-02(w) under Regulation S-X), is and will be, a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation. The Company owns, free and clear of all mortgages, pledges, liens, security interests, conditional sale agreements, charges, encumbrances and restrictions of every nature, the outstanding shares of the capital stock of each Subsidiary, with the exception of Trans-Lux Pty Ltd., as to which the Company owns 75% of that Company's outstanding common stock, and all of such shares have been duly and validly authorized and issued and are fully paid and non-assessable. Each of the Company and the Subsidiaries has, and at the Closing Time and at each Option Exercise Time will have, the corporate power and authority and all necessary approvals, orders, licenses, certificates, permits and other governmental authorizations to conduct all of the activities conducted by it, to own or lease all of the assets owned or leased by it and to conduct its business as described in the Registration Statement and the Prospectus except where the failure to have any such approval, order, license, certificate, permit or governmental authorization will not have a material adverse effect on the condition (financial or otherwise), business, business prospects, assets or results of operations of the Company and its Subsidiaries, taken as a -4- 5 whole (a "Material Adverse Effect"); and is, and at the Closing Time and at the Option Exercise Time will be, duly licensed or qualified to do business and in good standing as a foreign corporation in all jurisdictions in which the nature of the activities conducted by it and/or the character of the assets owned and leased by it makes such license or qualification necessary, except where the failure to be so licensed or qualified will not have a Material Adverse Effect. Except for the shares of the stock of each Subsidiary owned by the Company and except for the Company's 50% ownership interests in each of MetroLux Theatres and Mossgood Theatre-Saunders Realty, both joint ventures, neither the Company nor any Subsidiary owns, and at the Closing Time and at the Option Exercise Time neither the Company nor any Subsidiary will own, any shares of stock or any other securities of any corporation or have any equity interest in any firm, partnership, association or other entity. A complete and correct copy of the Certificate of Incorporation and by-laws of the Company, the charter documents of each Subsidiary, and the by-laws of each Subsidiary, as currently in effect, have been delivered to you and no changes therein will be made subsequent to the date hereof and prior to the Closing Time or the Option Exercise Time. A complete and correct copy of all joint venture and or partnership agreements to which the Company or any Subsidiary is party have been delivered to you and no changes therein will be made subsequent to the date hereof and prior to the Closing Time or Option Exercise Time. (vi) The Company is, and at the Closing Time and at the Option Exercise Time will be, authorized to issue only 5,500,000 shares of Common Stock, 1,000,000 shares of the Company's Class B Common Stock, $1.00 par value per share (the "Class B Common Stock"), 4,000,000 shares of the Company's Class A Common Stock, $1.00 par value per share (the "Class A Common Stock") and 500,000 shares of the Company's Preferred Stock, $1.00 par value per share (the "Preferred Stock"). All of the Company's issued and outstanding shares of capital stock have been duly authorized, validly issued and are fully paid and nonassessable, and the Common Stock and the capitalization of the Company conform to the descriptions thereof and the statements made with respect thereto in the Registration Statement and the Prospectus as of the date set forth therein. There are no outstanding securities convertible into or exchangeable for, and no outstanding options, warrants or other rights to purchase, any shares of the capital stock of the Company, nor any agreements or commitments to issue any of the same, except as described in the Registration Statement and the Prospectus, and there are no preemptive or other rights to subscribe for or to purchase, and no restrictions upon the voting or transfer of, any shares of outstanding capital stock of the Company pursuant to the Company's Certificate of Incorporation or by-laws or any agreement or other instrument to which the Company is a party. All offers and sales of the Company's capital -5- 6 stock by the Company during the 36-month period prior to the date hereof were at all relevant times duly registered or exempt from the registration requirements of the Act, and were duly registered or the subject of an available exemption from the registration requirements of the applicable state securities or blue sky laws. (vii) The financial statements of the Company (including the footnotes thereto) filed with and as part of the Registration Statement and the Prospectus present fairly the financial position of the Company as of the respective dates thereof and the statements of income, statement of shareholders' equity and statements of cash flow of the Company for the respective periods covered thereby, all in conformity with generally accepted accounting principles applied on a basis consistent with prior periods. Deloitte & Touche LLP (the "Company's accountants"), who have reported on such financial statements, are independent accountants with respect to the Company as required by the Act and the Rules and Regulations. Other than as presented in the Registration Statement and the Prospectus, no other financial statements are required to be included in the Registration Statement and the Prospectus. (viii) To the extent such items contain financial data from the Company's financial statements, the financial information and data set forth in the Prospectus under "Prospectus Summary, "Risk Factors," "Use of Proceeds," "Price Range of Common Stock and Dividend Policy," "Capitalization," "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business," "Management," "Executive Compensation and Transactions with Management," "Description of Notes" and "Description of Capital Stock" are fairly presented and prepared on a basis consistent with the financial statements of the Company. (ix) Subsequent to the respective dates as of which information is given in the Registration Statement and the Prospectus and prior to the Closing Time and to each Option Exercise Time, except as set forth in the Registration Statement and the Prospectus, (A) neither the Company nor any Subsidiary has incurred or will have incurred any material liabilities or obligations, direct or contingent, or entered into any material transactions not in the ordinary course of business; (B) there has been no adverse change with respect to the inventory or rental equipment owned by the Company or any Subsidiary which will have a Material Adverse Effect; (C) the Company has not paid or declared nor will pay or declare any dividends or other distributions on its capital stock other than the Company's regular quarterly dividend as set forth in the Prospectus under the heading "Price Range of Common Stock and Dividend Policy"; and (D) except as contemplated by Section 3(vi) hereof, there has not been and will not have been any change in the capitalization of the Company or any -6- 7 Significant Subsidiary or any Material Adverse Effect in the business, business prospects, financial condition, assets or results of operations of the Company and its Subsidiaries, taken as a whole, arising for any reason whatsoever. (x) Except as set forth in the Registration Statement, there are no actions, suits or proceedings at law or in equity pending, or to the knowledge of the Company, threatened, against the Company or any Subsidiary, any of their respective assets or any of their respective officers or directors, before or by any federal, state, county or local commission, regulatory body, administrative agency or other governmental body, domestic or foreign, not covered by insurance wherein an unfavorable ruling, decision or finding is reasonably likely to result in a Material Adverse Effect. Neither the Company nor any Subsidiary is involved in any labor dispute nor, to the knowledge of the Company, is any such dispute threatened, which dispute would have a Material Adverse Effect. (xi) Each of the Company and the Significant Subsidiaries has, and at the Closing Time and at each Option Exercise Time will have, complied in all material respects with all laws, regulations and orders applicable to it or its business, the violation of which would have a Material Adverse Effect. Each of the Company and the Significant Subsidiaries has, and at the Closing Time and at each Option Exercise Time will have, in all material respects performed all of the obligations required to be performed by it, and is not, and at the Closing Time and at each Option Exercise Time will not be, in default under (there being no existing state of facts which with notice or lapse of time or both would constitute a default under) any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, letter of credit agreement, bond, debenture, note agreement or other evidence of indebtedness, contract or other agreement to which it is a party or by which it is bound, except defaults which would not have a Material Adverse Effect, and, to the knowledge of the Company, no other party under any such material agreement or instrument to which the Company or any Subsidiary is a party is in default in any material respect thereunder. (xii) The Company (i) keeps books, records and accounts that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company and its Subsidiaries and (ii) maintains a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management's general or specific authorization, (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles in the United States and to maintain accountability for assets, and (C) the recorded accountability for assets is compared with the existing assets at -7- 8 reasonable intervals and appropriate action is taken with respect to any differences. (xiii) Neither the Company nor any Significant Subsidiary is in violation of its respective Certificate of Incorporation, Memorandum and Articles of Association or its charter, or its by-laws, as the case may be. (xiv) The Securities to be issued and sold by the Company to the Underwriter hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, will constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms except as such enforceability may be limited by the laws of bankruptcy, insolvency, reorganization, moratorium or creditors' rights, generally, or by general principles of equity; the Securities will be entitled to the benefits of the Indenture; the Indenture has been duly authorized and, when duly executed and delivered by the Company and the Trustee, will constitute a legal, valid and binding obligation of the Company, enforceable against the Company in accordance with its terms; and the Securities have been approved for listing, subject to official notice of issuance, on the American Stock Exchange (the "AMEX"); the Securities and the Indenture conform, and when the Registration Statement becomes effective and at the Closing Time and at each Option Exercise Time will conform, to all statements with regard thereto contained in the Registration Statement and the Prospectus. (xv) The Conversion Shares have been duly and validly authorized and reserved for issuance, and such shares, when issued and delivered in accordance with the provisions of the Securities and the Indenture, will be duly and validly issued, fully paid and non-assessable, and, if issued on the date hereof, would conform to the description of the Common Stock contained in the Prospectus; and the Conversion Shares have been approved for listing, subject to official notice of issuance, on the AMEX. (xvi) This Agreement and the Indenture have been duly authorized, executed and delivered by the Company and each constitutes a valid and binding agreement of the Company enforceable in accordance with its terms except as such enforceability may be limited by the laws of bankruptcy, insolvency, reorganization, moratorium or creditors' rights, generally, or by general principles of equity and except as enforceability of those provisions of this Agreement relating to indemnity and contribution may be limited by the federal securities laws and principles of public policy; the performance of, and compliance with all the terms of, this Agreement and the Indenture and the consummation of the transactions contemplated herein and therein will not conflict with or result in a material breach or violation of any of the terms and provisions -8- 9 of, or constitute a material default under (there being no existing state of events to the knowledge of the Company which with notice or lapse of time or both would constitute a default) or result (or with the giving of notice or lapse of time or both would result) in the creation or imposition of any lien, charge, or encumbrance upon the assets or properties of the Company or any Subsidiary, pursuant to any indenture, mortgage, deed of trust, voting trust agreement, loan agreement, letter of credit agreement, bond, debenture, note agreement or other evidence of indebtedness, contract or other agreement to which the Company or any Subsidiary is a party or by which the Company or any Subsidiary, or under the certificate of incorporation or by-laws of the Company or any Subsidiary or under any statute or under any order, rule or regulation applicable to the Company or any Subsidiary or their respective businesses or properties or of any court or other governmental body except where such breach or violation would not have a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole; and no consent, approval, authorization or order of any court or governmental agency or body is required for the consummation by the Company of the transactions on its part contemplated in this Agreement or the Indenture, except such as may be required under the Act, the rules and regulations of the NASD, the AMEX or under state securities or blue sky laws. (xvii) Each of the Company and the Subsidiaries has good and marketable title to or valid leasehold interests in all material properties and assets owned by it ("good and marketable" title shall mean fee simple title with respect to real property not the subject of a leasehold interest), free and clear of all liens, charges, encumbrances or restrictions, except such as are described in or referred to in the Prospectus or do not materially interfere with or impair the business of the Company and its Subsidiaries, taken as a whole. Each of the Company and the Subsidiaries has valid, subsisting and enforceable leases for the properties described in the Prospectus as leased by it, with such exceptions as are not material and do not interfere with the use made, and proposed to be made, of such properties by it. (xviii) There is no document or contract of a character required to be described in the Prospectus or to be filed as an exhibit to the Registration Statement which is not described or filed as required; and no statement, representation, warranty or covenant made by the Company in this Agreement or in any certificate or document required by this Agreement to be delivered to you contains, when made, or as of the Closing Time or any Option Exercise Time will contain any untrue statement of a material fact, or omitted to state a material fact required to be stated therein or necessary to make any statement therein, in light of the circumstances when made, not misleading. -9- 10 (xix) Each of the Company and the Subsidiaries has sufficient trademarks, trade names, registered service marks, patents, patent applications, patent rights, licenses, permits, copyright protection and governmental or other authorizations of a similar nature currently required for the conduct of its business (collectively, "Rights"), except where the failure to have or obtain a Right would not result in a Material Adverse Effect on the Company and its Subsidiaries, taken as a whole, and each of the Company and the Subsidiaries is in all material respects complying therewith, and the products and services, and the marks associated therewith, used by the Company and each Subsidiary do not, to the best of its knowledge, violate or infringe any trademarks, trade names, registered service marks, patents, patent rights, licenses, permits or copyrights held or owned by any other party except as otherwise disclosed in the Prospectus. Neither the Company nor any Subsidiary has received any notice of violation or infringement of or conflict with asserted rights of others with respect to any Rights owned or used by the Company or any Subsidiary except for a claim by Daktronics, Inc. that it is not violating the Company's Rights. Other than as disclosed in the Prospectus, the expiration of any such Right would not result in a Material Adverse Effect. (xx) The Company intends to apply its proceeds from the sale of the Shares for the purposes set forth in the Prospectus under "Use of Proceeds." (xxi) The Company is not conducting, and does not presently intend to conduct its business in a manner in which it would become, an "investment company" as defined in Section 3(a) of the Investment Company Act of 1940, as amended (the "Investment Company Act"). (xxii) No holder of any securities of the Company has the right to require registration of the Common Stock or other securities of the Company because of the filing or effectiveness of the Registration Statement. (xxiii) Neither the Company nor any of its officers or directors or affiliates (as defined in the Rules and Regulations) has taken or will take, directly or indirectly, any unlawful action designed to stabilize or manipulate the price of any security of the Company, or which has constituted or which might reasonably be expected to cause or result in stabilization or manipulation of the price of any security of the Company, to facilitate the sale or resale of any of the Company's Securities. (xxiv) The Company has not, and at the Closing Time and at each Option Exercise Time will not have, incurred any liability for finder's or brokerage fees or agent's commissions in connection with the offer and -10- 11 sale of the Securities, this Agreement or the transactions hereby contemplated, except for the Underwriter's discounts and commissions provided for in this Agreement. (xxv) The Company and each Significant Subsidiary have filed all foreign, U.S., state and local income and franchise tax returns required to be filed through the date hereof and have paid all taxes due thereon (except where the failure to do so could not have a Material Adverse Effect), and no tax deficiency has been, nor does the Company have any knowledge of any tax deficiency which might be, asserted against the Company or any Subsidiary which could have a Material Adverse Effect. Section 4. (a) Purchase, Sale and Delivery of the Firm Securities; Closing Time. (i) On the basis of the representations, warranties and covenants contained in this Agreement, and subject to the terms and conditions herein set forth, the Company agrees to issue and sell to the Underwriter an aggregate of $27,500,000 principal amount of Firm Securities, and the Underwriter agrees to purchase from the Company, at a purchase price of ____% of the principal amount thereof, plus accrued interest, if any, from the date of issuance to the Closing Time, the principal amount of Firm Securities. (ii) Delivery of the Firm Securities shall be made to the Underwriter at its offices at 277 Park Avenue, New York, New York, or such other location in the New York metropolitan area as you shall advise the Company by at least two full business days' notice in writing, against payment by you of the purchase price therefor to the Company by wire transfer in immediately available funds to the Company of the amount of such purchase price, at 10:00 A.M., New York City Time, on December __, 1996, or on such other time and business day (Saturdays, Sundays and legal holidays in the City or State of New York not being considered business days for the purposes of this Agreement), as shall be agreed to by the Company and you but not later than the seventh calendar day (or the business day next following such seventh calendar day if such seventh calendar day shall not be a business day) following the date of this Agreement as you shall determine and advise the Company by at least two full business days' notice in writing, which time and date are herein called the "Closing Time." Delivery of the Firm Securities shall be made in registered form in such name or names and in such denominations as you shall request by at least two full business days' notice in writing. The cost of original issue tax stamps and transfer stamps, if any, in connection with the issuance and delivery or sale of the Firm Securities by the Company to the Underwriter shall be borne by the Company. The Company will pay and save the Underwriter or its nominees, and any subsequent holder of the Firm Securities, harmless from any and all liabilities with respect to or resulting from any failure or delay in paying federal or state stamp and other transfer taxes, if any, which may be payable or determined to be payable in connection with the sale by the Company to the Underwriter of the Firm Securities or any portion thereof. -11- 12 (b) Purchase, Sale and Delivery of the Option Securities. (i) The Company hereby grants to the Underwriter an option (the "Option") to purchase from the Company up to $4,125,000 aggregate principal amount of Option Securities at the same purchase price as the Firm Securities are being sold by the Company as stated in paragraph (a) of this Section 4; plus accrued interest, if any, from the date of issuance to the Option Exercise Time (as hereinafter defined); provided however, that the Option may be exercised only for the purpose of covering any over-allotments which may be made by the Underwriter in connection with the distribution and sale of the Firm Securities. (ii) The Option is exercisable by you in whole or in part at any time or times on or before 12:00 noon, New York City time, on the day prior to the Closing Time, and at any time or times thereafter during the period ending 30 days after the date of the Prospectus (or if such 30th day shall be a Saturday, Sunday or holiday, on the next business day thereafter when the New York Stock Exchange is open for trading), in each case by giving notice to the Company in the manner provided in Section 11 hereof, setting forth the number of Option Securities as to which the Option is being exercised, the name or names in which the certificates for the Option Securities are to be registered, the denominations of such certificates and the date of delivery of such Option Securities, which date shall not be less than two nor more than seven business days after such notice. (iii) Upon each exercise of the Option, the Company shall sell to the Underwriter the aggregate number of Option Securities specified in the notice exercising the Option and the Underwriter, on the basis of the representations and warranties of the Company contained herein and in each certificate and document contemplated under this Agreement to be delivered to you, but subject to the terms and conditions of this Agreement, shall purchase from the Company the aggregate number of Option Securities specified in such notice. (iv) Delivery of the Option Securities with respect to which the Option shall have been exercised shall be made to the Underwriter at its offices at 277 Park Avenue, New York, New York, or such other location in the New York metropolitan area as you shall determine and advise the Company, against payment by you, of the purchase price therefor to the Company by wire transfer in immediately available funds to the Company in the amount of such purchase price, at 10:00 A.M., New York City Time, on the date designated in the notice given by you as above provided for, unless some other place, time and date is mutually agreed upon (such time and date being herein called an "Option Exercise Time"). The cost of original issue tax stamps or transfer stamps, if any, in connection with each issuance and delivery of the Option Securities by the Company to the Underwriter shall be borne by the Company. The Company will pay and save the Underwriter or its nominees, and any subsequent holder of Option Securities, harmless from any and all liabilities with respect to or resulting from any failure or delay in paying federal and state stamp taxes, if any, which may be payable or determined to -12- 13 be payable as a result of the sale by the Company to the Underwriter of the Option Securities or any portion thereof. (v) The Company will make the certificates for the Option Securities to be purchased at each Option Exercise Time available to you for examination at your offices at 277 Park Avenue, New York, New York, or such other place as you shall request, not later than 2:00 P.M., New York City Time, on the business day next preceding each Option Exercise Time. (vi) The obligation of the Underwriter to purchase and pay for Option Securities at each Option Exercise Time shall be subject to compliance as of such date with all the conditions specified in Section 8 hereof and the delivery to you of opinions, certificates and letters, each dated the respective Option Exercise Time, substantially similar in scope to those specified in Section 8 hereof, and to the absence of any occurrence referred to in Section 10 hereof. Section 5. Registration Statement and Prospectus. (a) The Company will deliver to you, without charge, four fully signed copies of the Registration Statement and of each amendment thereto, including all financial statements and exhibits, and the number of conformed copies of the Registration Statement and of each amendment thereto, including all financial statements, but excluding exhibits, as you may reasonably request. (b) The Company has delivered to you, and each of the Selected Dealers (as hereinafter defined), without charge, as many copies as you have reasonably requested of each preliminary prospectus heretofore filed with the Commission and will deliver to you and to each Selected Dealer, without charge, on the Effective Date, and thereafter from time to time during the period in which the Prospectus is required by law to be delivered in connection with sales of Securities, as many copies of the Prospectus (and, in the event of any amendment of or supplement to the Prospectus, of such amended or supplemented Prospectus) as you may reasonably request. (c) The Company has authorized you to use, and make available for use by prospective dealers, the Preliminary Prospectuses, and authorizes you, all dealers (the "Selected Dealers") selected by you in connection with the distribution of the Shares and all dealers to whom any of such Securities may be sold by you or by any Selected Dealer, to use the Prospectus, as from time to time amended or supplemented, in connection with the sale of the Securities in accordance with the applicable provisions of the Act, the applicable Rules and Regulations and applicable state law until completion of the public offering of the Securities and for such longer period as you may request if the Prospectus is required to be delivered in connection with sales of the Securities by you or a dealer. -13- 14 Section 6. Covenants. The Company covenants and agrees with the Underwriter that: (i) After the execution and delivery of this Agreement, the Company will not, at any time, whether before or after the Effective Date, file any amendment of or supplement to the Registration Statement or the Prospectus of which you shall not previously have been advised and furnished with a copy, or to which you or Fulbright & Jaworski L.L.P. ("counsel for the Underwriter") shall not have reasonably approved, or which is not in compliance with the Act or the Rules and Regulations. (ii) If the Registration Statement has not become effective, the Company will promptly file the Final Amendment with the Commission and will use its best efforts to cause the Registration Statement to become effective as promptly as possible. If the Registration Statement has become effective, the Company will file the Rule 430A Prospectus or other Prospectus with the Commission as promptly as practicable, but in no event later than that permitted by Rule 424(b). The Company will promptly advise you (A) when the Registration Statement, or any post effective amendment thereto, shall have become effective, or any amendments or supplements to the Prospectus shall have been filed with the Commission, (B) of any request by the Commission or any state or other regulatory body for any amendment or supplement of the Registration Statement or the Prospectus or for additional information and the nature and substance thereof, (C) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any Preliminary Prospectus or prohibiting the offer or sale of any of the Securities or of the initiation of any proceedings for such purpose, (D) of any receipt by the Company of any notification with respect to the suspension of qualification of the Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, and (E) of the happening of any event during the period in which the Prospectus is to be used in conjunction with the offer or sale of Securities which makes any statement of a material fact made in the Registration Statement or the Prospectus untrue or which requires the making of any changes in the Registration Statement or the Prospectus in order to make the statements therein not misleading in light of the circumstances when made. The Company will use its best efforts (in the case of orders by the Commission) or its reasonable best efforts (in the case of orders by any state or other regulatory body) to prevent the issuance of any stop order or any order preventing or suspending the use of the Registration Statement or Prospectus and, if such order is issued, to obtain the withdrawal thereof as promptly as possible. -14- 15 (iii) The Company will prepare and file with the Commission, upon your request, any such amendments of or supplements to the Registration Statement or the Prospectus, in form and substance reasonably satisfactory to Weisman Celler Spett & Modlin, P.C. ("counsel for the Company"), as in the opinion of counsel for the Underwriter may be necessary or advisable in connection with the distribution of the Securities which, or the terms upon which, the Securities may be offered by you, and will use its best efforts to cause the same to become effective as promptly as possible. (iv) The Company will comply with the Act and the Rules and Regulations, and the Exchange Act and the rules and regulations thereunder, so as to permit the continuance of sales of the Securities by you or any selected dealer under the Act and the Exchange Act for so long as a Prospectus is required to be delivered under the Act. If at any time when a prospectus is required to be delivered under the Act an event shall have occurred as a result of which it is necessary to amend or supplement the Prospectus in order to make the statements therein not untrue or misleading or to make the Prospectus comply with the Act, the Company will notify you promptly thereof and will, subject to the provisions of Section 6(a)(i) hereof, furnish to you an amendment or supplement which will correct such statement in accordance with the requirements of Section 9 of the Act. (v) The Company will comply with all of the provisions of any undertakings contained in the Registration Statement. (vi) The Company will use its reasonable best efforts to qualify or register the Shares for sale under the blue sky laws of such jurisdictions as you shall request, to make such applications, file such documents and furnish such information as may be required for such purpose and to comply with such laws so as to continue such qualification in effect so long as required for the purposes of the distribution of the Securities; provided however, that the Company shall not be required to qualify as a foreign corporation in any jurisdiction, subject itself to general taxation or to file a consent to service of process in any jurisdiction in any action other than one arising out of the offering or sale of the Securities. (vii) The Company will make generally available to its security holders and to the Underwriter as soon as practicable, but not later than 45 days after the end of the 12-month period beginning at the end of the fiscal quarter of the Company during which the Effective Date occurs (or 95 days, if such 12-month period coincides with the Company's fiscal year), an earnings statement of the Company, which will be in reasonable detail, but need not be audited, and will cover a period of twelve months commencing after the Effective Date. Such earnings statement shall -15- 16 comply with the requirements of Section 11(a) of the Act or Rule 158 of the Rules and Regulations. During the period of five years commencing on the Effective Date, the Company will furnish to its shareholders a copy of its annual report. The Company will make available to its shareholders upon their request copies of the Company's Form 10-K. (viii) Prior to the later to occur of the termination of the Option and the Option Exercise Time, except as required by law, the Company will not issue, directly or indirectly, without your prior consent not to be unreasonably or untimely withheld and that of your counsel, any press release or other communication or hold any press conference with respect to the Company or its activities or the offering of the Securities. (ix) During the 90 days following the date hereof, the Company will not, without the prior written consent of Southcoast Capital Corporation, sell, contract to sell or otherwise dispose of any securities except (i) as contemplated in the Prospectus and (ii) except for the Securities and (iii) except pursuant to options granted under the Company's Stock Option Plans or exercises of such options and the Company has caused each of its executive officers and directors to deliver to you on or before the date of this Agreement an agreement, satisfactory in form and substance to you and counsel for the Underwriter, whereby each agrees, for a period of 90 days after the date of this Agreement, not to publicly offer, pledge, sell or contract to sell, transfer or otherwise dispose of any securities of the Company, directly or indirectly, without your prior written consent. Section 7. Expenses. The Company will pay and bear all costs, fees, taxes and expenses incident to the performance of the obligations of the Company under this Agreement, including, but not limited to: (a) the costs incident to the issuance, sale and delivery to the Underwriter of the Securities; (b) the costs incident to the preparation, printing and filing under the Act of each Preliminary Prospectus, the Prospectus, the Registration Statement (including the costs of the Form T-1) and any amendments or supplements thereof and exhibits thereto; (c) the costs of distributing the Registration Statement and any post-effective amendments thereto; (d) the costs of printing and distributing to the Underwriter and any Selected Dealer copies of any Preliminary Prospectus, the Prospectus, the Registration Statement and any amendment or supplement to the Prospectus or Registration Statement required by this Agreement or the Act; (e) the costs of preparation, printing, mailing, delivery, filing and distribution of preliminary and final blue sky memoranda, Underwriters' Questionnaires and Powers of Attorney, letters to prospective Underwriters, the Agreement Among Underwriters, the Selling Agreement, if any, this Agreement and all documents related thereto; (f) the filing fees of the Commission; (g) the costs of qualification or registration of the Securities in the jurisdictions referred to in subsection (vi) of Section 6 hereof, including the reasonable legal fees and expenses of counsel for the Underwriter in connection therewith, and all filing fees in connection therewith; (h) the cost of preparation, including the reasonable legal fees and actual -16- 17 out-of-pocket expenses of counsel for the Underwriter in connection therewith, of all filings with the NASD and all filing fees in connection therewith; (i) fees and expenses of counsel for the Company, the Company's accountants and the Company's consultants; (j) fees in connection with the listing of the Securities and Conversion Shares on the AMEX; and (k) all other costs and expenses incurred or to be incurred by the Company in connection with the transactions contemplated by this Agreement, including trustee's fees and applicable transfer taxes, and the retention of Deloitte & Touche LLP. Section 8. Conditions of the Underwriter's Obligations. The Underwriter's obligations hereunder to purchase and pay for the Securities are subject (as of the date hereof, the Closing Time and each Option Exercise Time) to the accuracy of and compliance with the representations and warranties of the Company herein (in all material respects to the extent not otherwise qualified by materiality) and in each certificate and document contemplated under this Agreement to be delivered, to the accuracy of the statements of the Company, and of the officers of the Company made pursuant to the provisions hereof (in all material respects to the extent not otherwise qualified by materiality), to the performance, in all material respects, by the Company of its covenants and agreements hereunder and under each such certificate and document, and to the following additional conditions: (a) (i) The Registration Statement shall have become effective not later than 5:00 P.M., New York City Time, on the date of this Agreement, or at such later time or on such later date as you may agree to in writing; (ii) if required, the Prospectus shall have been filed with the Commission pursuant to Rule 424(b)(1) or (4) of the Rules and Regulations within the applicable time period prescribed for such filing thereunder and in accordance with the provisions of Section 6(ii) hereof; (iii) at or prior to the Closing Time, no stop order suspending the effectiveness of the Registration Statement or the qualification or registration of the Securities under the blue sky laws of any jurisdiction (whether or not a jurisdiction which you shall have specified) shall have been issued and no proceeding for that purpose shall have been initiated or shall be threatened or contemplated by the Commission or the authorities of any such jurisdiction; (iv) any request for additional information on the part of the Commission or any such authorities shall have been complied with to the satisfaction of the Commission or such authorities; (v) the NASD, upon review of the terms of the public offering of Shares, shall not have objected to such offering, such terms, or the Underwriter's participation in the same; and (vi) after the date hereof, no amendment or supplement to the Registration Statement or the Prospectus shall have been filed without your prior consent. (b) You shall not have advised the Company that the Registration Statement or the Prospectus or any amendment thereof or supplement thereto contains an untrue statement of a material fact, or omits to state a material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. -17- 18 (c) Between the time of the execution and delivery of this Agreement and the Closing Time, there shall be no actions, suits or proceedings at law or in equity pending, or to the knowledge of the Company, threatened against the Company or any Subsidiary, any of their respective assets or any of their respective officers or directors before or by any federal, state, county or local commission, regulatory body, administrative agency or other governmental body, domestic or foreign, wherein an unfavorable ruling, decision or finding would have a Material Adverse Effect. (d) Each of the representations and warranties of the Company contained herein and in each certificate and document contemplated under this Agreement to be delivered shall be true and correct in all material respects at the Closing Time as if made at the Closing Time, and all covenants and agreements contained herein, and in each such certificate and document, to be performed on the part of the Company and all conditions contained herein and in each such certificate and document to be fulfilled or complied with by the Company or prior to the Closing Time shall have been duly performed, fulfilled or complied with in all material respects. (e) At the Closing Weisman Celler Spett & Modlin, P.C., counsel for the Company, shall furnish to you an opinion, in form and substance satisfactory to you, dated as of the date of its delivery, to the effect that: (i) Each of the Company and the Significant Subsidiaries is a duly incorporated and validly existing corporation in good standing under the laws of its jurisdiction of incorporation with full power and authority (corporate and other) to own or lease its properties and to conduct its business as described in the Prospectus, and is duly qualified to do business as a foreign corporation and is in good standing in the jurisdictions listed in Schedule A to this Opinion except as listed on Schedule A. To the best knowledge of such counsel, there are no pending or threatened proceedings by any governmental authority alleging that the conduct of the Company's or any Significant Subsidiary's business requires such qualification (except for those jurisdictions in which the failure to so qualify can be cured without having a Material Adverse Effect). To the knowledge of such counsel, no proceeding has been instituted by any governmental authority for the dissolution of the Company or any Significant Subsidiary; (ii) The Company has authorized capital stock as set forth in the Prospectus; the securities of the Company conform in all material respects to the description thereof contained in the Prospectus; the outstanding shares of Common Stock and Class B Common Stock have been duly authorized and validly issued by the Company, are fully paid and nonassessable, and are free of any preemptive or other rights to subscribe for any of the Securities or Conversion Shares; (iii) The Securities to be issued and sold by the Company to the Underwriter hereunder have been duly and validly authorized and, when issued and delivered against payment therefor as provided herein, -18- 19 will constitute legal, valid and binding obligations of the Company, enforceable against the Company in accordance with their terms except as such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights and the availability of remedies (regardless of whether such enforceability is considered in a proceeding in equity or at law); the Securities will be entitled to the benefits of the Indenture; the Securities and the Indenture conform in all material respects to the descriptions thereof in the Prospectus; and the Securities and Conversion Shares have been approved for listing, subject to official notice of issuance, on the AMEX; (iv) The Conversion Shares have been duly and validly authorized and reserved for issuance, and such shares, when issued and delivered in accordance with the provisions of the Securities and the Indenture, will be duly and validly issued, fully paid and non-assessable, and, if issued on the date hereof, would conform to the description of the Common Stock contained in the Prospectus; (v) To the best knowledge of such counsel, there is not pending or threatened against the Company any action, suit, proceeding or investigation before or by any court or governmental body required to be disclosed in the Prospectus which is not disclosed; (vi) The Company has full legal right, power and authority to enter into this Agreement and the Indenture and to consummate the transactions provided for herein and this Agreement and the Indenture have been duly authorized, executed and delivered by the Company, and each of this Agreement and the Indenture, assuming due authorization, execution and delivery by each other party hereto, is a legal, valid and binding agreement of the Company, enforceable against the Company in accordance with its terms, except as (A) such enforceability may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application relating to or affecting the enforcement of creditors' rights and the availability of remedies (regardless of whether such enforceability is considered in a proceeding in equity or at law) and (B) rights to indemnity and contribution may be limited by federal or state securities laws and the public policy underlying such laws. None of the Company's execution or delivery of this Agreement or the Indenture, its performance thereof or its consummation of the transactions contemplated therein conflicts or will conflict with or results or will result in any breach or violation of any of the terms or provisions of, or constitute a default under, or result in the creation or imposition of any lien, charge or encumbrance upon, any property or assets of the Company or any Subsidiary pursuant to the terms of their respective Certificate of Incorporation, by-laws or other governing document except as would not -19- 20 have a Material Adverse Effect, the terms of any indenture, mortgage, deed of trust, voting trust agreement, shareholder's agreement, note agreement or other agreement known to such counsel to which the Company or any Subsidiary is a party or by which any of them is or may be bound except as would not have a Material Adverse Effect; or any judgment, decree or order, known to such counsel, of any government, arbitrator, court, regulatory body or other governmental body except as would not have a Material Adverse Effect; and no consent, approval, authorization or order of any court, regulatory body or other governmental body has been or is required for the Company's performance of this Agreement or the Indenture, or the consummation of the transactions contemplated therein in connection with the purchase and distribution by the Underwriter of the Securities sold by the Company, except such as have been obtained under the Act or may be required under state securities or blue sky laws; (vii) Issuances of Common Stock by the Company during the 36-month period prior to the date of this Agreement were either registered under the Act or exempt from registration under the Act and complied in all respects with the provisions of all applicable U.S. federal and state securities laws. No holder of any securities of the Company has the right to require registration of the Common Stock or other securities of the Company because of the filing or effectiveness of the Registration Statement. (viii) (A) The Registration Statement has been declared effective under the Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); (B) to the best knowledge of such counsel, no stop order suspending the effectiveness of the Registration Statement or any amendment thereto has been issued, and no proceedings for that purpose have been instituted or are pending or, are threatened under the Act; (C) the Registration Statement (and the Form T-1 filed as an exhibit to the Registration Statement) originally filed with respect to the Securities and each amendment thereto and the Prospectus and, if any, each amendment and supplement thereto (except for the financial statements, schedules and other financial data included therein, as to which such counsel need not express any opinion), complied as to form in all material respects with the requirements of the Act and the Rules and Regulations and the Trust Indenture Act of 1939; the documents incorporated by reference in the Prospectus (other than the financial statements and related schedules and other financial or statistical data included therein or omitted therefrom, as to which such counsel need express no opinion, and except to the extent that any statement therein is modified or superseded in the Prospectus), as of the dates they were filed with the Commission, conform in all material respects to the -20- 21 requirements of the Exchange Act and the rules and regulations thereunder; the Company is entitled under the Rules and Regulations to file such registration statement on Form S-2 and to the best knowledge of such counsel based upon the Company's representation to such counsel to such effect, has made all required electronic filings under Regulation S-T; the Indenture has been duly qualified under the Trust Indenture Act; (ix) Since January 1, 1996, the Company has timely filed all documents with the Commission which were required to be filed under the Exchange Act and the rules and regulations of the Commission thereunder on or prior to the date hereof. (x) To the knowledge of such counsel, there is no action, suit, proceeding or investigation, governmental or otherwise, pending or threatened to which the Company is a party, that seeks to restrain, enjoin, prevent the consummation of or otherwise change the issuance of the Securities or the execution and delivery of this Agreement or any of the other transactions contemplated hereby, or that questions the legality or validity of any of such transactions or that seeks to recover damages or obtain other relief in connection with any of such transactions, or that, if adversely determined, would materially and adversely affect the ability of the Company to perform its obligations under this Agreement; (xi) The Company is not now, and upon consummation of the offering of the Securities, the Company will not be an "investment company" required to register under the Investment Company Act of 1940, as amended; (xii) The Indenture has been qualified under the Trust Indenture Act of 1939; (xiii) The statements set forth in the Registration Statement and the Prospectus under the captions "Prospectus Summary," "Risk Factors," "Capitalization," "Business," "Management," "Executive Compensation and Transactions with Management" "Executive Compensation and Transactions with Management," "Description of Notes" and "Description of Capital Stock," insofar as such statements summarize or describe agreements of the Company or its subsidiaries, the Indenture, the Notes and the capital stock of the Company, as the case may be, fairly present the information required with respect to such items; and (xiv) To the knowledge of such counsel, there are no contracts or documents which are required by the Act to be described in the Registration Statement or the Prospectus or to be filed as exhibits to the Registration Statement which are not described in the Registration -21- 22 Statement or the Prospectus or filed as exhibits to the Registration Statement as required by the Act and the Rules and Regulations. In addition, such counsel shall state that in the course of the preparation of the Registration Statement and the Prospectus, such counsel has participated in conferences with officers and representatives of the Company and with the Company's independent public accountants, at which conferences such counsel made inquiries of such officers, representatives and accountants and discussed the contents of the Registration Statement and the Prospectus and nothing has come to such counsel's attention that causes such counsel to believe that either the Registration Statement as of the date it is declared effective and as of the Closing Time or the Prospectus as of the date thereof and as of the Closing Time contained or contains any untrue statement of a material fact or omitted or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading (it being understood that such counsel need not express any opinion with respect to the financial statements, schedules and other financial data included in the Registration Statement or the Prospectus). In rendering any such opinion, such counsel may rely, as to matters of fact, to the extent such counsel deems proper, on certificates of responsible officers of the Company and public officials. References to the Registration Statement and the Prospectus in this paragraph (e) shall include any amendment or supplement thereto at the date of such opinion. (f) Fulbright & Jaworski L.L.P., counsel to the Underwriter, shall have furnished to you their written opinion or opinions, dated the Closing Time, in form and substance satisfactory to you, with respect to the incorporation of the Company, the validity of the Securities, the Registration Statement, the prospectus and other related matters as you may reasonably request, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters. (g) Concurrently with the execution and delivery of this Agreement and at the Closing Time, the Company's accountants shall have furnished to you a letter, dated as of the date of its delivery, addressed to you and in form and substance satisfactory to you, to the effect that: (i) Such accountants are independent certified public accountants with respect to the Company as required by the Act and the Rules and Regulations. (ii) Insofar as reported on by them, in their opinion, the financial statements of the Company included in the Prospectus comply as to form in all material respects with the applicable accounting requirements of the Act or the Exchange Act, as applicable, and the published rules and regulations thereunder. -22- 23 (iii) On the basis of procedures and inquiries (not constituting an examination in accordance with generally accepted auditing standards) for a review of interim financial statements as specified by the American Institute of Certified Public Accountants and described in SAS No. 71. with respect to the unaudited interim financial statements of the Company, if any, appearing in the Registration Statement and the Prospectus and the latest available unaudited interim financial statements of the Company, if more recent than that appearing in the Registration Statement and Prospectus, inquiries of officers of the Company responsible for financial and accounting matters as to the transactions and events subsequent to the date of the latest audited financial statements of the Company, and a reading of the minutes of meetings of the shareholders, the Board of Directors of the Company and any committees of the Board of Directors, as set forth in the minute books of the Company, nothing has come their attention which, in their judgment, would indicate that (A) during the period from the date of the latest financial statements of the Company appearing in the Registration Statement and Prospectus to a specified date not more than three business days prior to the date of such letter, there have been any decreases in net current assets or net assets as compared with amounts shown in such financial statements or decreases in net sales or decreases [increases] in total or per share net income compared with the corresponding period in the preceding year or any change in the capitalization or long-term debt of the Company, except in all cases as set forth in or contemplated by the Registration Statement and the Prospectus, and (B) the unaudited interim financial statements of the Company, if any, appearing in the Registration Statement and the Prospectus, do not comply as to form in all material respects with the applicable accounting requirements of the Act and the Regulations or are not fairly presented in conformity with generally accepted accounting principles and practices on a basis substantially consistent with the audited financial statements included in the Registration Statement or the Prospectus. (iv) They have compared specific dollar amounts, numbers of shares, numerical data, percentages of revenues and earnings, and other financial information pertaining to the Company set forth in the Prospectus (with respect to all dollar amounts, numbers of shares, percentages and other financial information contained in the Prospectus, to the extent that such amounts, numbers, percentages and information may be derived from the general accounting records of the Company, and excluding any questions requiring an interpretation by legal counsel) with the results obtained from the application of specified readings, inquiries and other appropriate procedures (which procedures do not constitute an examination in accordance with generally accepted auditing standards) set forth in the letter, and found them to be in agreement. (v) in addition to the examination referred to in their reports included in the Registration Statement and the Prospectus and the limited procedures referred to in clause (iii) above, they have carried out certain -23- 24 specified procedures, not constituting an audit, with respect to certain amounts, percentages and financial information specified by the Underwriter, which are derived from the general accounting records of the Company and its subsidiaries which appear in the Prospectus, or in Part II of, or in exhibits and schedules to, (a) the Registration Statement, (b) the Company's Annual Report on Form 10-K for the year ended December 31, 1995 (including the information from the Company's 1996 Proxy Statement incorporated by reference therein), and (c) the Company's Quarterly Reports on Form 10-Q for the quarters ended March 31, 1995, June 30, 1996 and September 30, 1996, and have compared such amounts and financial information with the accounting records of the Company and its subsidiaries, and have found them to be in agreement and have proved the mathematical accuracy of certain specified percentages. (h) At the Closing Time, there shall be furnished to you, on behalf of the Company, an accurate certificate, dated the date of its delivery, signed by each of the chief executive officer and the chief financial officer of the Company, in form and substance reasonably satisfactory to you, to the effect that: (i) Each signer of such certificate has carefully examined the Registration Statement and the Prospectus and (A) as of the date of such certificate, neither the Registration Statement nor the Prospectus contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading; (B) in the case of a certificate delivered after the date of this Agreement, since the Effective Date, no event has occurred of which he or she has knowledge and which was required by the Act or the Rules and Regulations to be set forth in a supplement to or amendment of the Prospectus but which has not been so set forth; and (C) since the dates as of which and the periods for which information is given in the Registration Statement and the Prospectus, there has not been to his or her knowledge any Material Adverse Effect (financial or otherwise), in the condition or business prospects of the Company from that set forth in the Registration Statement and the Prospectus, other than changes which the Registration Statement and the Prospectus specifically disclose have occurred or may occur subsequent to the Effective Date. (ii) No stop order suspending the effectiveness of the Registration Statement has been issued, and no proceedings for such purpose have been commenced or are, to the knowledge of each signer of such certificate, threatened by the Commission. (iii) No stop order suspending the qualification or registration of any of the Securities under the blue sky laws of any jurisdiction (whether or not a jurisdiction you shall have specified) has been issued, and no proceedings for such purpose have been commenced -24- 25 or are, to the knowledge of each signer of such certificate, threatened by any jurisdiction. (iv) The conditions, separately set forth in such certificate, contained in subsections (a), (c) and (k) of this Section 8 have been complied with. (v) There has been no breach of any of the terms or provisions of the agreements referred to in Section 6(ix) hereof. (vi) Each of the representations and warranties of the Company contained in this Agreement and in each certificate and document contemplated under this Agreement to be delivered to you was, when originally made and is, at the time such certificate is dated, true and correct in all material respects. (vii) Each of the covenants required herein to be performed by the Company on or prior to the date of such certificate has been duly performed in all material respects and each condition herein required to be complied with by the Company on or prior to the date of such certificate has been duly, timely and fully complied with by the Company. (i) The Company shall have furnished to you such certificates, in addition to those specifically mentioned herein, as you may have reasonably requested in a timely manner as to the fulfillment of the conditions concurrent and precedent to your obligations hereunder. (j) Except as contemplated by the Registration Statement and the Prospectus, since the date hereof, there shall not have been any change in the capitalization of the Company or any change constituting a Material Adverse Effect in the business, business prospects, financial condition or results of operations of the Company or in the value of the assets of the Company, or any material change, without your consent, in the conduct of the business of the Company, arising for any reason whatsoever which makes it impracticable or inadvisable to proceed with the Offering. (k) Each of the agreements referred to in Section 6(ix) hereof shall have been delivered to you and there shall have been no breach of any such agreement. (l) All corporate proceedings and other legal matters relating to the sale and transfer of the Shares, this Agreement, the Registration Statement, the Prospectus and other related matters shall be reasonably satisfactory in all material respects to counsel for the Underwriter who shall have furnished to you at the Closing Time such opinion, in form and substance reasonably satisfactory to you, with respect to the sufficiency of the aforementioned corporate proceedings and other legal matters as you may reasonably require; and the Company shall have furnished to such counsel -25- 26 such records and documents as such counsel may have reasonably requested in a timely manner for the purpose of enabling them to pass upon such matters. (m) The Securities and the Conversion Shares shall be authorized for listing on the AMEX. All of the opinions, letters, evidence and certificates mentioned above or elsewhere in this Agreement shall be deemed to be in compliance with the provisions hereof only if they are in form and substance reasonably satisfactory to counsel for the Underwriter. You reserve the right to waive any condition hereinabove set forth. Each opinion, certificate, letter or other document required to be delivered at the Closing Time shall also be required to be delivered at each Option Exercise Time. Section 9. Indemnification and Contribution. (a) The Company agrees to indemnify and hold harmless the Underwriter and each person who controls the Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act and each and all of them, from and against any and all losses, claims, damages, liabilities or actions, joint or several (including any investigation, legal or other expense incurred in connection with, and any amount paid in settlement of, any action, suit or proceeding or any claim asserted), to which the Underwriter or any of them may become subject under the Act, the Exchange Act or otherwise but only insofar as such losses, claims, damages, liabilities or actions arise out of, or are based upon, (i) any untrue statement or alleged untrue statement made by the Company in Section 3 of this Agreement, (ii) any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto or in any application or other document executed by the Company based upon written information furnished by or on behalf of the Company filed in any jurisdiction in order to register or qualify the Securities under the securities laws thereof or filed with the Commission, or the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; or provided however, that (i) the indemnity agreement contained in this subsection (a) shall not extend to the Underwriter in respect of any such losses, claims, damages, liabilities or actions arising out of, or based upon, any such untrue statement or alleged untrue statement or any such omission or alleged omission, if such statement or omission was made in reliance upon information furnished in writing to the Company by the Underwriter specifically for use in connection with the preparation of the Registration Statement, any preliminary prospectus or the Prospectus or any such amendment or supplement thereto, or any application or other document filed in any jurisdiction in order to register or qualify the Securities. Notwithstanding the foregoing, the Company shall not be obligated to indemnify the Underwriter and its controlling persons in respect of any such statement or omission contained in any preliminary prospectus which was corrected in the Prospectus to the extent that the Underwriter failed to deliver such Prospectus. -26- 27 (b) The Underwriter agrees to indemnify and hold harmless the Company, its directors, the officers of the Company who shall have signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to the Underwriter, but in each case to the extent, and only to the extent, that any statement in or omission from or alleged omission from the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement thereto was made in reliance upon information furnished in writing to the Company by the Underwriter specifically for use in connection with the preparation of the Registration Statement, any preliminary prospectus or the Prospectus or any such amendment or supplement thereto. (c) If any action is brought against a person entitled to indemnification pursuant to the foregoing subsections (a) or (b) (an "indemnified party") in respect of which indemnity may be sought against a person granting indemnification (an "indemnifying party") pursuant to such subsections, such indemnified party shall promptly notify such indemnifying party in writing of the commencement thereof; but the omission to so notify the indemnifying party of any such action shall not release the indemnifying party from any liability it may have to such indemnified party otherwise than on account of the indemnity agreement contained in subsection (a) or (b) of this Section 9 except to the extent that such failure results in the forfeiture of substantial rights or defenses. In case any such action is brought against an indemnified party and it notifies an indemnifying party of the commencement thereof, the indemnifying party against which a claim is to be made will be entitled to participate therein at its own expense and, to the extent that it may wish, to assume at its own expense the defense thereof, with counsel reasonably satisfactory to such indemnified party; provided however, that (i) if the defendants in any such action include both the indemnified party and the indemnifying party and the indemnified party shall have reasonably concluded based upon advice of counsel that there may be legal defenses available to it and/or other indemnified parties which are different from or additional to those available to the indemnifying party, the indemnified party shall have the right to select separate counsel to assume such legal defenses and otherwise to participate in the defense of such action on behalf of such indemnified party or parties; and (ii) in any event, the indemnified party shall be entitled to have counsel chosen by such indemnified party, at such indemnified party's expense, participate in, but not conduct, the defense. Upon receipt of notice from the indemnifying party to such indemnified party of its election so to assume the defense of such action and approval by the indemnified party of counsel, the indemnifying party will not be liable to such indemnified party under this Section 9 for any legal or other expenses subsequently incurred by such indemnified party in connection with the defense thereof unless (i) the indemnified party shall have employed such counsel in connection with the assumption of legal defenses in accordance with proviso (i) of the next preceding sentence (it being understood, however, that the indemnifying party shall not be liable for the expenses of more than one separate counsel); (ii) the indemnifying party shall not have employed counsel reasonably satisfactory to the indemnified party to represent the indemnified party within a reasonable time after notice of commencement of the action; or (iii) the -27- 28 indemnifying party has authorized the employment of counsel for the indemnified party at the expense of the indemnifying party. An indemnifying party shall not be liable for any settlement of any action or proceeding effected without its prior written consent. (d) In order to provide for just and equitable contribution in circumstances in which the indemnity agreement provided for in subsection (a) or (b) of this Section 9 is unavailable in accordance with its terms, the Company, and, subject to the limitations set forth below, the Underwriter shall contribute to the aggregate losses, claims, damages and liabilities, of the nature contemplated by said indemnity agreement, incurred by the Company and the Underwriter, in such proportions as are applicable to reflect the relative benefits received by the Company on the one hand, and the Underwriter, on the other hand, from the offering of the Securities; provided however, that if such allocation is not permitted by applicable law or if the indemnified party failed to give the notice required under subsection (c) of this Section 9, then the relative fault of the Company, on the one hand, and the Underwriter, on the other hand, in connection with the statements or omissions which resulted in such losses, claims, damages and liabilities and other relevant equitable considerations will be considered together with such relative benefits. The relative benefits received by the Company, on the one hand, and the Underwriter, on the other hand, shall be deemed to be in such proportion as the total proceeds from the offering of the Securities (net of underwriting discounts and commissions but before deducting expenses) received by the Company bear to the total underwriting discount received by the Underwriter, in each case as set forth in the table on the cover page of the Prospectus and in the notes thereto. The relative fault of the Company, on the one hand, and of the Underwriter, on the other, shall be determined by reference to, among other things, whether in the case of an untrue statement or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact, such statement or omission relates to information supplied by the Company, on the one hand, or by the Underwriter, on the other hand, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such untrue statement or omission. The Company and the Underwriter agree that it would not be just and equitable if contribution pursuant to this subsection (d) were determined by pro-rata allocation or by any other method of allocation that does not take account of the equitable considerations referred to in this subsection (d). The amount paid or payable by the indemnified party as a result of the losses, claims, damages or liabilities referred to above in this subsection (d) shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in connection with investigating or defending against or appearing as a third-party witness in any such action or claim. Notwithstanding the provisions of this subsection (d), (i) the Underwriter shall not be required to contribute any amount in excess of the amount by which the total price at which the Securities purchased by it were offered to the public exceeds the amount of any damages which the Underwriter has otherwise been required to pay by reason of such untrue or alleged untrue statement or omission or alleged omission; and (ii) no person guilty of fraudulent misrepresentation within the meaning of Section 11(f) of the Act shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this subsection (d), each person, if any, who -28- 29 controls the Underwriter within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the Act or Section 20 of the Exchange Act shall have the same rights to contribution as the Company. (e) The respective indemnity and contribution agreements by the Underwriter and the Company contained in subsections (a), (b), (c) and (d) of this Section 9, and the respective covenants, representations and warranties of the Company set forth in Sections 2, 3, 4, 5, 6, and 7 hereof, shall remain operative and in full force and effect regardless of (i) any investigation made by the Underwriter, on its behalf or by or on behalf of any person who controls the Underwriter, the Company or any controlling person of the Company, or any director or officer of the Company; or (ii) acceptance of any of the Securities; and shall survive the delivery of the Securities, and any successor of the Underwriter or the Company, or of any person who controls the Underwriter or the Company, as the case may be, shall be entitled to the benefit of such respective indemnity and contribution agreements. The respective indemnity and contribution agreements by the Underwriter and the Company contained in subsections (a), (b), (c) and (d) of this Section 9 shall be in addition to any liability which the Underwriter and the Company may otherwise have. Section 10. Termination. This Agreement (except for the provisions of Sections 6(i) and 9 hereof) may be terminated by you by notifying the Company at any time: (a) at or prior to the Closing Time if any of the conditions specified in Section 8 hereof shall not have been fulfilled when and as required by this Agreement to be fulfilled or if any of the covenants, representations or warranties contained herein or in any certificate or document contemplated under this Agreement to be delivered to you shall not have been satisfied or fulfilled, in all material respects, within the respective times herein provided for, unless compliance therewith or performance or satisfaction thereof shall have been expressly waived by you in writing; or (b) at or prior to the Closing Time if any one or more of the following shall have occurred or have been established between the time of your execution of this Agreement and the Closing Time and in your judgment the same has made or makes it inadvisable or impracticable for you generally to proceed with the offering, sale, delivery, or collection of payment for, the Securities pursuant to the public offering contemplated by this Agreement: (i) a general suspension of, or a general limitation on prices for, trading in securities on the New York Stock Exchange, the AMEX or the Nasdaq National Market; (iii) a material adverse change in general market or domestic economic conditions, from such conditions on the date hereof having an effect on U.S. financial markets that in the judgment of the Underwriter makes it impracticable or inadvisable to proceed with the Offering; (iv) a declaration -29- 30 of a banking moratorium by Federal or New York State authorities; (v) any outbreak of major hostilities or declaration by the United States of any national or international calamity; or (vi) there is a Material Adverse Effect as a result of any material adverse change or any material adverse development involving a prospective change not contemplated in the Registration Statement or affecting particularly the business or properties of the Company and the Subsidiaries taken as a whole. Section 11. Notices. Except as otherwise expressly provided in this Agreement, whenever advice or a notice, objection, designation, request or report is given or is required by the provisions of this Agreement to be given, such advice, notice, objection, designation, request or report shall be in writing and shall be delivered by first-class mail, postage prepaid, nationally recognized courier or by telecopy, (a) if to the Company, addressed to it and delivered to 110 Richards Avenue, Norwalk, Connecticut 06856-5090, Attention: Victor Liss, President, with a copy to Weisman Celler Spett & Modlin, P.C., 445 Park Avenue, New York, New York 10022, Attention: Howard S. Modlin, Esq.; and (b) if to the Underwriter, addressed to Southcoast Capital Corporation, and delivered at 277 Park Avenue, New York, New York 10172, Attention: David Boris, with a copy to Fulbright & Jaworski L.L.P., 666 Fifth Avenue, New York, New York 10103, Attention: Paul Jacobs, Esq.; or at such other address or telecopier number as a party hereto may give notice in accordance herewith. Section 12. Miscellaneous. (a) This Agreement is made solely for the benefit of the Underwriter and the Company, the Company's directors, the Company's officers who shall have signed the Registration Statement and any controlling person referred to in Section 9 hereof, and their respective successors and assigns, and no other person, partnership, association or corporation shall acquire or have any right under or by virtue of this Agreement. The term "successor" or the term "successors and assigns" as used in this Agreement shall not include any buyer, as such, of any of the Securities from the Underwriter. (b) The information in the Prospectus under the section "Underwriting" with respect to the amounts of the selling concession and reallowance, and the last paragraph of the outside front cover page of the Prospectus shall constitute the only information furnished in writing by or on behalf of the Underwriter for use in connection with the preparation of the Registration Statement as originally filed or in any amendment thereto, any preliminary prospectus or the Prospectus as the case may be. (c) This Agreement shall supersede any agreement or understanding, oral or in writing, express or implied, between the Company and you relating to the sale of any of the Securities. (d) No change, amendment or supplement to, or waiver of, this Agreement or any term, provision or condition contained herein, shall be valid or of any effect unless in writing and signed by the party against whom such is asserted. -30- 31 (e) This Agreement shall be governed by and construed in accordance with the law of the State of New York applicable to contracts made and to be performed therein without giving effect to the principles of conflicts of law thereof. If any action or proceeding shall be brought by the Underwriter or the Company in order to enforce any right or remedy under this Agreement, the Company and the Underwriter each hereby consent to and submit to, the jurisdiction of the courts of the State of New York and of any federal court sitting in the Borough of Manhattan, City of New York. The Company and the Underwriter each agree that process in any such action or proceeding may be served in the manner provided by New York law for service on foreign persons, as appropriate. (f) This Agreement may be signed in two counterparts with the same effect as if the signatures to each counterpart were upon a single instrument, and all such counterparts together shall be deemed an original of this Agreement. Please confirm that the foregoing correctly sets forth the agreement between the Company and you. Very truly yours, TRANS-LUX CORPORATION By: --------------------------- Name: Title: Accepted as of the date first above written SOUTHCOAST CAPITAL CORPORATION By: -------------------------- Name: Title: -31- EX-11 3 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 TRANS-LUX CORPORATION & SUBSIDIARIES COMPUTATION OF EARNINGS PER SHARE
FOR THE TWELVE FOR THE TWELVE FOR THE NINE MONTHS ENDED MONTHS ENDED MONTHS ENDED DECEMBER 31, 1994 DECEMBER 31, 1995 SEPTEMBER 30, 1996 ----------------- ----------------- ------------------ Primary: - -------- Net income $1,314,000 $1,066,000 $ 869,000 ========== ========== ========== Average common shares outstanding 1,247,000 1,250,000 1,256,000 Assumes exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options 13,000 9,000 27,000 ---------- ---------- ---------- Average common and common equivalent shares outstanding 1,260,000 1,259,000 1,283,000 ========== ========== ========== Primary earnings per share $ 1.04 $ 0.85 $ 0.68 ========== ========== ========== Fully Diluted: - -------------- Net income $1,314,000 $1,066,000 $ 869,000 Add after tax interest expense applicable to 9% convertible subordinated debentures 511,000 262,000 195,000 ---------- ---------- ---------- Adjusted net income $1,825,000 $1,328,000 $1,064,000 ========== ========== ========== Average common shares outstanding 1,247,000 1,250,000 1,256,000 Assumes exercise of options reduced by the number of shares which could have been purchased with the proceeds from exercise of such options 14,000 9,000 36,000 Assumes conversion of 9% convertible subordinated debentures 682,000 384,000 382,000 ---------- ---------- ---------- Average common and common equivalent shares outstanding 1,943,000 1,643,000 1,674,000 ========== ========== ========== Fully diluted earnings per share $ 0.94 $ 0.81 $ 0.64 ========== ========== ==========
Fully diluted earnings per share are not presented for the twelve months ended December 31, 1993 and for the nine months ended September 30, 1995 as the effect was not dilutive. EX-12 4 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES 1 EXHIBIT 12 TRANS-LUX CORPORATION & SUBSIDIARIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
NINE MONTHS ENDED YEAR ENDED DECEMBER 31, SEPTEMBER 30, ---------------------------------------------- --------------------- 1991 1992 1993 1994 1995 1995 1996 ------ ------ ------ ------ ------ ------ ---------- (DOLLARS IN THOUSANDS, EXCEPT RATIO) (UNAUDITED) Income from continuing operations before provision for income taxes per statement of income............. $ 542 $ 741 $1,663(1) $2,064(2) $1,839 $1,262 $1,498 Add: Interest on indebtedness............ 1,106 1,245 2,512(1) 1,293(2) 2,107 1,556 1,796 Amortization of debt expense........ 58 53 91 153 184 133 98 Interest portion of rent expense(3)....................... 101 96 102 88 79 57 106 ------ ------ ------ ------ ------ ------ ------ Income as adjusted.......... $1,807 $2,135 $4,368 $3,598 $4,209 $3,008 $3,498 ====== ====== ====== ====== ====== ====== ====== Fixed charges: Interest on indebtedness............ $1,106 $1,245 $2,512(1) $1,293(2) $2,107 $1,556 1,796 Amortization of debt expense........ 58 53 91 153 184 133 98 Capitalized interest................ -- 49 -- 40 -- -- -- Interest portion of rent expense(3)....................... 101 96 102 88 79 57 106 ------ ------ ------ ------ ------ ------ ------ Fixed charges............... $1,265 $1,443 $2,705 $1,574 $2,370 $1,746 2,000 ====== ====== ====== ====== ====== ====== ====== Ratio of earnings to fixed charges.... 1.4 1.5 1.6 2.3 1.8 1.7 1.7
- --------------- (1) 1993 reflects the impact of an assessment of related interest expense incurred resulting from a prior year state income tax audit. (2) 1994 reflects the positive impact of a settlement related to the 1993 assessment described in footnote No. 1 above. (3) The interest portion of rent expense is assumed to be one-third of rent expense. EX-23.1 5 CONSENT OF DELOITTE & TOUCHE LLP 1 EXHIBIT 23.1 INDEPENDENT AUDITORS' CONSENT We consent to the use in this Amendment No. 1 to Registration Statement No. 333-15481 of Trans-Lux Corporation of our report dated February 28, 1996, included in the Annual Report on Form 10-K of Trans-Lux Corporation for the year ended December 31, 1995, and to the use of our report dated February 28, 1996, appearing in the Prospectus, which is part of this Registration Statement. We also consent to the reference to us under the heading "Experts" in such Prospectus. DELOITTE & TOUCHE LLP Stamford, Connecticut December 9, 1996 -----END PRIVACY-ENHANCED MESSAGE-----