<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 4, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ADVANCED LIGHTING TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OHIO 3641 34-1803229
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2307 EAST AURORA ROAD
SUITE ONE
TWINSBURG, OH 44087
TELEPHONE: (216) 963-6680
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WAYNE R. HELLMAN, CHIEF EXECUTIVE OFFICER
ADVANCED LIGHTING TECHNOLOGIES, INC.
2307 EAST AURORA ROAD
SUITE ONE
TWINSBURG, OH 44087
TELEPHONE: (216) 963-6680
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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The Commission is requested to send copies of all communications to:
<TABLE>
<S> <C>
JAMES S. HOGG, ESQ. ANDREW M. TUCKER, ESQ.
COWDEN, HUMPHREY & SARLSON CO., L.P.A. KING & SPALDING
1414 TERMINAL TOWER 191 PEACHTREE STREET
CLEVELAND, OH 44113 ATLANTA, GA 30303
(216) 241-2880 (404) 572-4600
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being offered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, 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. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
===================================================================================================================
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.001 par value........... 3,450,000 Shares $25 1/2(2) $ 87,975,000(2) $ 26,660
===================================================================================================================
</TABLE>
(1) Includes 450,000 shares of Common Stock which the Underwriters have the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457, based on the last reported sale price of the Common
Stock on the Nasdaq National Market on June 3, 1997.
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DUE 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.
================================================================================
<PAGE> 2
ADVANCED LIGHTING TECHNOLOGIES, INC.
CROSS-REFERENCE SHEET REQUIRED BY
REGULATION S-K, ITEM 501(b)
<TABLE>
<CAPTION>
ITEM NUMBER AND CAPTION CAPTION IN PROSPECTUS
- ------------------------------------------------ -------------------------------------------
<C> <S> <C>
1. Forepart of the Registration Statement and
Outside Front Cover Page of Prospectus..... Outside Front Cover Page of Prospectus
2. Inside Front and Outside Back Cover Pages
of Prospectus.............................. Inside Front Cover; Available Information
3. Summary Information, Risk Factors and Ratio
of Earnings to Fixed Charges............... Prospectus Summary; Risk Factors
4. Use of Proceeds............................ Use of Proceeds
5. Determination of Offering Price............ Not Applicable
6. Dilution................................... Not Applicable
7. Selling Security Holders................... Principal and Selling Shareholders
8. Plan of Distribution....................... Front Cover Page; Underwriters
9. Description of Securities to be
Registered................................. Description of Capital Stock
10. Interests of Named Experts and Counsel..... Legal Matters
11. Information with Respect to the
Registrant................................. Prospectus Summary; Recent Developments;
Background of the Company; Common Stock
Price Range and Dividend Policy;
Capitalization; Selected Financial Data;
Management's Discussion and Analysis of
Financial Condition and Results of
Operations; Business; Management; Certain
Transactions; Principal and Selling
Shareholders
12. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities................................ Not Applicable
</TABLE>
<PAGE> 3
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.
PROSPECTUS (SUBJECT TO COMPLETION)
ISSUED JUNE 4, 1997
3,000,000 Shares
ADVANCED LIGHTING
TECHNOLOGIES, INC.
[Advanced Logo] COMMON STOCK
------------------
ALL OF THE SHARES OF COMMON STOCK OFFERED HEREBY ARE BEING SOLD BY THE COMPANY.
THE COMMON STOCK OF THE COMPANY IS QUOTED ON THE NASDAQ NATIONAL MARKET
UNDER THE SYMBOL "ADLT." ON JUNE 3, 1997, THE REPORTED LAST SALE PRICE
OF THE COMMON STOCK ON THE NASDAQ NATIONAL MARKET WAS $25 1/2 PER
SHARE.
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE $ A SHARE
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<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total (3).......................... $ $ $
</TABLE>
- ---------------
(1) The Company and the Selling Shareholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriters."
(2) Before deducting expenses payable by the Company estimated at $675,000.
(3) The Selling Shareholders have granted the Underwriters an option,
exercisable within 30 days of the date hereof, to purchase up to an
aggregate of 450,000 additional Shares at the price to public less
underwriting discounts and commissions for the purpose of covering
over-allotments, if any. If the Underwriters exercise such option in full,
the total price to public, underwriting discounts and commissions and
proceeds to Selling Shareholders will be $ , $ and $ ,
respectively. The Company will not receive any proceeds from the sale of
Shares by the Selling Shareholders. See "Principal and Selling Shareholders"
and "Underwriters."
------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by King & Spalding, counsel for the Underwriters. It is expected that delivery
of the Shares will be made on or about , 1997, at the office of
Morgan Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
New York funds.
------------------
MORGAN STANLEY DEAN WITTER
PRUDENTIAL SECURITIES INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
, 1997
<PAGE> 4
[INSIDE FRONT COVER]
[FOUR PRODUCT PICTURES WITH DESCRIPTIVE
CAPTION: "MATERIALS," "SYSTEM COMPONENTS,"
"EQUIPMENT" AND "SYSTEMS"]
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS,
AND IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON
AS HAVING BEEN AUTHORIZED BY THE COMPANY, BY ANY SELLING SHAREHOLDER OR BY ANY
UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF ANY OFFER TO BUY, ANY SECURITY OTHER THAN THE COMMON STOCK
OFFERED HEREBY, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY SECURITIES OFFERED HEREBY TO ANY PERSON IN ANY JURISDICTION IN
WHICH IT IS UNLAWFUL TO MAKE ANY SUCH OFFER OR SOLICITATION TO SUCH PERSON.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREBY SHALL UNDER ANY
CIRCUMSTANCE IMPLY THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY
DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information................................................................. 4
Prospectus Summary.................................................................... 5
Risk Factors.......................................................................... 9
Recent Developments................................................................... 14
Background of the Company............................................................. 15
Use of Proceeds....................................................................... 17
Common Stock Price Range and Dividend Policy.......................................... 18
Capitalization........................................................................ 19
Selected Financial Data............................................................... 20
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 22
Business.............................................................................. 31
Management............................................................................ 44
Certain Transactions.................................................................. 49
Principal and Selling Shareholders.................................................... 51
Description of Capital Stock.......................................................... 52
Shares Eligible for Future Sale....................................................... 55
Underwriters.......................................................................... 57
Legal Matters......................................................................... 58
Experts............................................................................... 58
Index to Financial Statements......................................................... F-1
</TABLE>
------------------------
Certain persons participating in this offering may engage in transactions
that stabilize, maintain, or otherwise affect the price of the Common Stock.
Specifically, the Underwriters may overallot in connection with this offering
and may bid for, and purchase shares of the Common Stock in the open market. In
addition, Underwriters and selling group members may engage in passive market
making. For a description of these activities, see "Underwriters."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP MEMBERS
MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK ON NASDAQ
IN ACCORDANCE WITH RULE 103 UNDER REGULATION M. SEE "UNDERWRITERS."
3
<PAGE> 6
AVAILABLE INFORMATION
This Prospectus constitutes a part of a Registration Statement filed by the
Company with the Securities and Exchange Commission (the "Commission") under the
Securities Act of 1933, as amended ("Securities Act"), with respect to the
Common Stock offered hereby. This Prospectus omits certain of the information
contained in the Registration Statement, and reference is hereby made to the
Registration Statement and related exhibits and schedules for further
information with respect to the Company and the Common Stock offered hereby. Any
statements contained herein concerning the provisions of any document are not
necessarily complete, and in each such instance reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. The Registration
Statement and the exhibits and schedules forming a part thereof can be inspected
and copied at the public reference facilities maintained by the Commission at
Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549 and are also available
for inspection and copying at the following regional offices of the Commission:
7 World Trade Center, Suite 1300, New York, NY 10048; and Northwestern Atrium
Center, 500 West Madison Street, Suite 1400, Chicago, IL 60661-2511. Copies of
such material can be obtained from the Public Reference Section of the
Commission, 450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates.
The Commission maintains a World Wide Web ("Web") site that contains
registration statements filed by registrants, including the Company, which file
electronically. The address of the Commission's Web site is http://www.sec.gov.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended ("Exchange Act"), and, in accordance therewith,
files annual reports, containing audited financial statements and a report
thereon expressed by independent auditors, quarterly reports for the first three
fiscal quarters of each year, containing certain unaudited interim financial
information, proxy statements and other information with the Commission. Such
reports, proxy statements, and other information filed by the Company can be
inspected and copied at the public reference facilities and Web site described
above.
4
<PAGE> 7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including Consolidated Financial Statements and Notes thereto,
appearing elsewhere in this Prospectus. The Company was formed on May 19, 1995
and acquired ownership, primarily by merger (the "Combination"), of affiliated
companies that were previously under common ownership and management (the
"Predecessors"). Unless the context otherwise requires, the "Company" refers to
Advanced Lighting Technologies, Inc., its subsidiaries and the Predecessors.
Unless the context otherwise requires, the information in this Prospectus gives
effect to this offering of Common Stock (the "Offering") and, except as
otherwise indicated, the information contained in this Prospectus assumes that
the Underwriters' over-allotment option will not be exercised. Industry data in
this Prospectus with respect to the lighting market is reported on a calendar
year basis and includes the industrial, commercial and residential sectors, but
not the automotive sector. Such industry data is derived from selected reports
published by the National Electrical Manufacturers Association ("NEMA").
THE COMPANY
Advanced Lighting Technologies, Inc. is an innovation-driven designer,
manufacturer and marketer of metal halide lighting products. Metal halide
lighting combines superior energy efficient illumination with long lamp life,
excellent color rendition and compact lamp size. The Company believes that it is
the only designer and manufacturer in the world focused primarily on metal
halide lighting. As a result of this unique focus, the Company has developed
substantial expertise in all aspects of metal halide lighting. The Company
believes that this focus enhances its responsiveness to customer demand and has
contributed to its technologically advanced product development and
manufacturing capabilities.
The metal halide market is the fastest growing segment of the domestic
lighting market, having grown at a compound annual rate of approximately 15%
since 1993. The Company's strong market position, new product development
capabilities and participation in international markets have enabled the Company
to increase its revenues at rates in excess of the growth of the domestic metal
halide market. The Company's sales increased at a compound annual growth rate of
32.9% to $54.6 million in fiscal 1996 from $30.9 million in fiscal 1994, as the
Company has become a vertically integrated provider of metal halide products.
The Company has experienced growth in net sales in each of the past 15
consecutive quarters and the Company's sales increased 63.0% to $60.8 million in
the nine months ended March 31, 1997 from $37.3 million in the nine months ended
March 31, 1996.
The Company has integrated vertically to design, manufacture and market:
(i) materials necessary for the manufacture of metal halide lamps (light bulbs);
(ii) system components necessary to assemble metal halide lighting systems; and
(iii) complete metal halide lighting systems for use or installation by an end
user. This integration is illustrated by the following list of principal
products:
<TABLE>
<S> <C> <C>
- ----------------------------- ----------------------------- -------------------------
MATERIALS SYSTEM COMPONENTS SYSTEMS
- ----------------------------- ----------------------------- -------------------------
Metal Halide Salts Lamps (Light Bulbs): Portable Lighting
Electrodes Specialty Fixtures(1)
Amalgams Commodity Fiber Optic Lighting(1)
Getters Power Supplies: Projection TV Optical
Magnetic Systems(2)
Electronic
System Controls and
Switches
Fiber Optic Cable
</TABLE>
- ---------------
(1) Recent commercial introduction
(2) Currently in development
5
<PAGE> 8
The Company also designs, manufactures and markets turnkey lamp production
equipment groups that are typically sold to international manufacturers. Such
equipment is sold to existing lamp manufacturers or to joint ventures formed by
the Company in developing markets. The Company generates revenue from the
initial sale of its production equipment and recurring sales of the materials
used in lamp production. The Company has also begun to manufacture and sell
photometric measuring equipment and to market internationally its power supply
production equipment.
The Company produces over 300 ultra-pure metal halide salts and believes
that it produces 100% of the metal halide salts used in the manufacture of metal
halide lamps in the United States and over 80% of salts used worldwide. Metal
halide salts are the primary ingredient within the arc tube of metal halide
lamps and determine the lighting characteristics of the lamp. The Company
currently markets over 240 specialty and 40 commodity-type metal halide lamps,
giving it the most diverse product line of any metal halide lamp manufacturer.
In addition, the Company offers more than 400 power supply products for metal
halide and other discharge lamp systems.
METAL HALIDE
Invented approximately 35 years ago, metal halide is the newest of all
major lighting technologies and can produce the closest simulation to sunlight
of any available lighting technology. Metal halide lighting is currently used
primarily in commercial and industrial applications such as factories and
warehouses, outdoor site and landscape lighting, sports facilities and large
retail spaces such as superstores. In addition, due to metal halide's superior
lighting characteristics, the Company believes many opportunities exist to
"metal halidize" applications currently dominated by older incandescent and
fluorescent lighting technologies. For example, a 100 watt metal halide lamp,
which is approximately the same size as a household incandescent lamp, produces
as much light as five 100 watt incandescent lamps and as much as three 34 watt,
four foot long fluorescent lamps. While domestic sales of incandescent and
fluorescent lamps grew at a compound annual rate of approximately 5% over the
last three years, domestic metal halide lamp sales have grown at a compound
annual rate of approximately 15% over the same period, making metal halide the
fastest growing segment of the approximately $2.7 billion domestic lamp market.
In 1996, metal halide accounted for approximately 7% of domestic lamp sales.
The Company believes that the majority of the growth of metal halide has
occurred in commercial and industrial applications. Recently, metal halide
systems have been introduced in fiber optic, projection television and
automotive headlamp applications. The Company believes that additional
opportunities for metal halide lighting exist in other applications where energy
efficiency and light quality are important. As a result of the Company's
dominant position in metal halide materials and lamp production equipment, the
Company expects to benefit from continued growth in metal halide markets. In
addition, the Company expects to be a leader in metal halide's continued market
expansion by providing innovative metal halide system components and integrated
systems.
STRATEGY
The Company's operating strategies include: (i) remaining focused on the
metal halide market; (ii) continuing to pursue vertical integration to expand
the Company's ability to introduce new products and applications; and (iii)
strengthening the Company's relationships with original equipment manufacturers
("OEMs") and lighting agents to increase the number of applications and the
penetration of the Company's products in new metal halide installations. The
Company's growth strategy contains four key elements:
- Introduce New Products, Systems and Applications. The Company intends to
develop new products, system components and systems which will permit
metal halide to penetrate lighting applications that are currently
dominated by older lighting technologies. To further the Company's
integrated systems strategy, the Company acquired two manufacturers of
power supplies, emphasizing metal halide lighting systems. The Company can
now package lamps together with power supplies and other system
components, ensuring compatibility and quality, increasing the
marketability of these system components to OEM customers and accelerating
introduction of new systems.
6
<PAGE> 9
- Increase Sales of Existing Products. By expanding existing relationships
and developing new relationships with lighting agents and OEMs, the
Company expects to increase sales of existing specialty lamps and power
supplies. The Company also expects its sales of replacement bulbs to
increase as the installed base of the Company's specialty lamps increases
and such lamps need to be replaced.
- Participate in Growing International Markets. Because the Company expects
that international growth of metal halide lighting products and systems
will exceed domestic growth, the Company intends to directly market its
products in developed countries and to pursue joint venture arrangements
in developing countries to accelerate metal halide's penetration of
international markets.
- Penetrate the Residential Lighting Market. Over the longer term, the
Company intends to penetrate the residential lighting market with metal
halide table and floor lamps as well as products designed for residential
recessed and track lighting applications. The Company has recently
introduced a limited range of metal halide residential lighting fixtures
and also has developed a "gear pack" which permits existing incandescent
table or floor lamp designs to be adapted to the Company's MICROSUN(TM)
technology.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the Company........... 3,000,000 shares
Common Stock to be outstanding after the
Offering (1)................................ 16,430,731 shares
Use of proceeds............................... To repay the Company's term loan facility and
amounts outstanding under its domestic
revolving credit facilities, including
borrowings incurred to fund the purchase of
the power supply business of W. J. Parry &
Co. (Nottingham) Ltd., to fund capital
expenditures and to fund the Company's
anticipated cash contribution to the proposed
fiber optic lighting systems joint venture
with Rohm and Haas Company. The remaining
proceeds will be used for general corporate
purposes, including investments in joint
ventures, acquisitions and working capital.
See "Use of Proceeds."
Nasdaq National Market Symbol................. ADLT
</TABLE>
- ---------------
(1) Does not include 954,002 shares of Common Stock reserved for issuance under
the Company's 1995 Incentive Award Plan (the "Incentive Award Plan"), of
which options to purchase 951,112 shares of Common Stock had been granted
and were outstanding as of May 28, 1997. See "Management -- Incentive Award
Plan." Does not include 100,000 shares of Common Stock reserved for issuance
under the Company's Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan").
7
<PAGE> 10
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED JUNE 30,
------------------- ---------------------------------
1997 1996 1996 1995 1994
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................................................ $60,776 $37,295 $54,636 $40,767 $30,938
Costs and expenses:
Cost of sales (1)...................................... 32,463 19,957 29,164 21,899 17,253
Selling, general and administrative(1)................. 15,953 10,259 14,907 11,833 8,400
Research and development............................... 4,268 1,714 3,000 1,673 1,006
Amortization of intangible assets(1)................... 199 63 90 55 55
Settlement of claim.................................... 771(2) -- -- -- --
Noncash settlement of claim............................ -- 2,732(3) 2,732(3) -- --
Reorganizing and restructuring......................... -- -- -- (121)(4) 852(4)
------- ------- ------- ------- -------
Income from operations................................... 7,122 2,570 4,743 5,428 3,372
Interest expense, net.................................... 139 1,087 1,316 2,074 2,095
------- ------- ------- ------- -------
Income before income taxes and extraordinary items....... 6,983 1,483 3,427 3,354 1,277
Income taxes (5)......................................... 2,481 525 910 212 71
------- ------- ------- ------- -------
Income before extraordinary items........................ 4,502 958 2,517 3,142 1,206
Extraordinary gain (charge).............................. -- (135)(6) (135)(6) (253)(7) --
------- ------- ------- ------- -------
Net income............................................... $ 4,502 $ 823 $ 2,382 $ 2,889 $ 1,206
======= ======= ======= ======= =======
Income (loss) per share(8):
Before extraordinary items............................. $ .33 $ (.04) $ .12 $ .10 $ .13
Extraordinary items.................................... -- (.02) (.01) (.03) --
------- ------- ------- ------- -------
Net income (loss)...................................... $ .33 $ (.06) $ .11 $ .07 $ .13
======= ======= ======= ======= =======
Shares used for computing per share amounts (8).......... 13,503 8,999 9,479 7,818 7,818
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
---------------------------
ACTUAL AS ADJUSTED(9)
-------- --------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...................................... $ 16,437 $ 37,337
Working capital........................................................................ 43,393 64,293
Total assets........................................................................... 112,320 155,120
Total long-term debt................................................................... 22,952 3,257
Total shareholders' equity............................................................. 63,158 135,158
</TABLE>
- ---------------
(1) Beginning with the nine month period ended March 31, 1997, the components of
selling, general and administrative expenses were disaggregated to report
separately marketing and selling expenses and general and administrative
expenses. See "Condensed Consolidated Statements of Operations (Unaudited)."
Also, beginning with the nine month period ended March 31, 1997,
amortization of intangible assets was reported as a separate component of
costs and expenses. Amortization of intangible assets for all periods
presented above has been reclassified to conform with this presentation.
Previously, amortization of intangible assets for fiscal 1996 was included
in cost of sales, and for fiscal 1995 and earlier years was included in
interest expense.
(2) On March 1, 1996, a former shareholder of the holding company ("VLI") for
the Company's largest Predecessor, Venture Lighting International, Inc.
("Venture"), asserted a claim against certain officers and directors of the
Company, and subsequently against the Company, seeking $3,600 in damages
relating to the redemption of his VLI shares prior to the Combination. On
August 23, 1996, another former VLI shareholder filed a similar claim
against the Company and such officers and directors seeking damages of
$1,600. On November 29, 1996, the Company and such officers and directors
entered into a settlement of both claims for an aggregate amount of $475.
The pretax charge of $771 in the second quarter of fiscal 1997 represents
the $475 settlement plus legal and other directly-related costs, net of
anticipated insurance recoveries.
(3) On October 27, 1995, several former VLI shareholders, whose shares were
redeemed in August 1995 (prior to the Combination), asserted a claim against
certain officers of the Company. On November 15, 1995, such officers entered
into a settlement agreement. Since the settlement resulted in a transfer of
personal shares held by such officers, there was no dilution of the
ownership interests of other shareholders of the Company. The settlement was
recorded as a noncash expense and an increase in paid-in capital in December
1995.
(4) In fiscal 1994, the Company recorded a provision of $852 for the costs,
principally inventory and equipment write-downs, in connection with exiting
a product line unrelated to lighting. In fiscal 1995, the disposition plan
was revised, resulting in a reduction of the original estimate by $121.
(5) At June 30, 1996, the Company had net operating loss tax carryforwards of
approximately $8,200, which expire in fiscal years 2006 through 2011. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(6) In fiscal 1996, the Company incurred an extraordinary loss on the early
extinguishment of debt of $135. See "Management's Discussion and Analysis of
Financial Condition and Results of Operation."
(7) In fiscal 1995, the Company incurred an extraordinary loss on the early
extinguishment of debt of $253. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(8) Net income per share is based upon the income attributable to common
shareholders. Such income has been decreased by preferred stock dividends
and increases in the value of warrants aggregating $1,350 ($.15 per share)
in the nine months ended March 31, 1996, $1,350 ($.14 per share) in fiscal
1996, $2,360 ($.30 per share) in fiscal 1995 and $170 ($.02 per share) in
fiscal 1994. See Note K to "Notes to Consolidated Financial Statements."
(9) As adjusted to give effect to the sale of 3,000,000 shares of Common Stock
offered by the Company hereby at the assumed public offering price of
$25 1/2 (the last reported sale price for the Common Stock on June 3, 1997),
after deducting underwriting discounts and commissions and estimated
offering expenses, and the application of the net proceeds therefrom. See
"Use of Proceeds."
8
<PAGE> 11
RISK FACTORS
This Prospectus contains statements which constitute forward looking
statements within the meaning of Section 27A of the Securities Act and Section
21E of the Exchange Act. Those statements appear in a number of places in this
Prospectus and include statements regarding the intent, belief or current
expectations of the Company, its directors or its officers with respect to,
among other things: (i) potential acquisitions or joint ventures by the Company;
(ii) the use of the proceeds of the Offering; (iii) the Company's financing
plans; (iv) trends affecting the Company's financial condition or results of
operations; (v) continued growth of the metal halide lighting market; (vi) the
Company's operating strategy and growth strategy; (vii) the declaration and
payment of dividends; and (viii) litigation affecting the Company. Prospective
investors are cautioned that any such forward looking statements are not
guarantees of future performance and involve risks and uncertainties, and that
actual results may differ materially from those projected in the forward looking
statements as a result of various factors. The accompanying information
contained in this Prospectus, including without limitation the information set
forth under the headings "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," identifies
important factors that could cause such differences.
An investment in the shares of Common Stock offered hereby involves a high
degree of risk. Prospective investors should carefully consider the following
risk factors, in addition to the other information set forth in this Prospectus,
in connection with an investment in the Common Stock offered hereby.
DEPENDENCE ON METAL HALIDE INDUSTRY
The Company derives substantially all of its net sales and net income from
the sale of metal halide materials, system components and production equipment
and the Company's current operations and growth strategy are focused on the
metal halide lighting industry. Metal halide is the newest of all commercial
lighting technologies, and metal halide lamp sales represented approximately 7%
of domestic lamp sales in 1996. Fluorescent and incandescent lamps represented
approximately 87% of domestic lamp sales in 1996. The Company's success has been
attributable to the increased usage of metal halide lighting in commercial and
industrial applications and its future results are dependent upon the further
growth of metal halide lighting in these and other applications. There can be no
assurance that metal halide products will continue to gain market share within
the overall lighting market or that better lighting technologies will not be
introduced, displacing metal halide lighting in the market. See
"Business -- Lighting Industry."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
The Company has experienced significant growth in recent years, which has
placed, and could continue to place, a significant strain on its management,
employees, finances and operations. To manage growth effectively, the Company
must continue to implement changes in many aspects of its business, expand its
information systems, increase the capacity and productivity of its materials,
system components and production equipment operations, develop its metal halide
systems capability and hire, develop, train and manage an increasing number of
managerial, production and other employees. Certain of the Company's product
line extensions have been, or will be, effected through acquisitions, and the
success of these acquisitions will depend on the integration of the acquired
operations with the Company's existing operations. If management is unable to
anticipate or manage growth effectively, or unable to successfully integrate
acquired operations, the Company's operating results could be adversely
affected. See "Business -- Growth Strategy."
COMPETITION
The Company competes with General Electric Company and its subsidiaries
("General Electric" or "GE"), Philips Electronics N.V. ("Philips") and Siemens
A.G.'s OSRAM/Sylvania, Inc. subsidiary ("Sylvania") in the sale of metal halide
lamps and with these and a number of other firms that manufacture and sell
various other types of lamps. The Company estimates, based on published industry
data for 1996, that these three companies had a combined domestic market share
of approximately 80% for metal halide lamps
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<PAGE> 12
and approximately 95% of the total domestic lamp market. Accordingly, these
companies dominate the lamp industry and exert significant influence over the
channels through which all lamp products, including those of the Company, are
distributed and sold. These companies have significantly longer operating
histories, substantially greater financial, technical and other resources, and
larger marketing and distribution organizations than the Company. Although GE,
Philips and Sylvania each have focused their efforts on the larger incandescent
and fluorescent markets, all three companies produce metal halide lamps and
Philips produces power supplies. These three companies have emphasized sales of
a relatively small variety of commodity-type metal halide products (such as
those found in the most common commercial and industrial applications), which
the Company believes represent approximately 75% of total metal halide lamp
sales. There can be no assurance that these companies will not increase their
efforts with respect to metal halide system components, including specialty
lamps, or expand their product lines to compete with the Company's products. See
"Business -- Competition."
RELATIONSHIPS WITH GENERAL ELECTRIC AND OTHER MAJOR LAMP MANUFACTURERS
As described above under "Competition," the Company competes with GE,
Philips and Sylvania in the sale of its products, and these three companies
dominate the manufacturing, distribution and sale of lighting products.
Notwithstanding this competition, the Company purchases a significant quantity
of its raw materials and private label lamps from these three companies
(aggregating $10.5 million in fiscal 1996, of which $8.2 million was from GE,
and $10.4 million in the nine months ended March 31, 1997, of which $6.9 million
was from GE) and derives significant revenue from sales of its materials and
system components to each of these three companies (aggregating $7.7 million in
fiscal 1996, of which $3.1 million was to GE, and $5.5 million in the nine
months ended March 31, 1997, of which $3.2 million was to GE). Any significant
change in the Company's relationships with these companies, or in the manner in
which these companies participate in the manufacturing, distribution and sale of
metal halide lighting products, could have a material adverse effect on the
Company. GE currently holds 535,887 shares of Common Stock, which after
completion of the Offering will represent approximately 3.3% of the issued and
outstanding Common Stock of the Company. See "Business -- Lighting Industry."
ABILITY TO DEVELOP AND BROADEN PRODUCT CATEGORIES
The Company has recently broadened its system components product line. The
Company also has recently introduced a limited range of products for residential
use and expects to develop additional types of metal halide lighting systems.
The marketing efforts and strategies for such product extensions are
substantially different from those associated with the Company's historical
operations. There can be no assurance that the Company will be successful in
adding new products to its current product categories or in developing new
categories of products. See "Business -- Products."
DEPENDENCE UPON NEW PRODUCT INTRODUCTIONS
The Company's historical success has been attributable, in large part, to
the introduction of new products in each of its product lines to meet the
requirements of its customers. The Company's future success will depend upon its
continued ability to develop and introduce innovative products, and there can be
no assurance of the Company's ability to do so. Even if a new product is
developed for a particular type of lighting fixture or application, the product
may not be commercially successful in the lighting market. In addition,
competitors occasionally have followed the Company's introduction of successful
products with similar product offerings. As a result of these and other factors,
there can be no assurance that the Company will continue to be successful in
introducing new products. See "Business -- Product Design and Development."
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS
The Company has derived an increasing portion of its net sales from its
international business with international revenues representing 49.2% of the
Company's net sales for the nine months ended March 31, 1997. The Company's
international joint ventures and operations and its export sales are subject to
the risks inherent in doing business abroad, including delays in shipments,
adverse fluctuations in currency exchange
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<PAGE> 13
rates, increases in import duties and tariffs and changes in foreign regulations
and political climate. The Company's joint ventures and operations in foreign
countries have been and will be granted rights to use the Company's technology.
While the Company will attempt to protect its intellectual property rights in
these foreign joint ventures and operations, the laws of many foreign countries
do not protect intellectual property rights to the same extent as the laws of
the United States. See "Business -- Growth Strategy."
PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company relies on trade secret, trademark and patent laws to protect
its rights to certain aspects of its products, including proprietary
manufacturing processes and technologies, product research and concepts and
trademarks, all of which the Company believes are important to the success of
its products and its competitive position. There can be no assurance that the
actions taken by the Company to protect its proprietary rights will be adequate
to prevent imitation of its products, processes or technology, that the
Company's proprietary information will not become known to competitors, that the
Company can effectively protect its rights to unpatented proprietary information
or that others will not independently develop substantially equivalent or better
products that do not infringe on the Company's intellectual property rights. No
assurance can be given that others will not assert rights in, and ownership of,
the patents and other proprietary rights of the Company.
In recent years, the Company has successfully taken legal action to enjoin
misappropriation of trade secrets by other parties. Any increase in the level of
activities involving misappropriation of the Company's trade secrets or other
intellectual property rights could require the Company to increase significantly
the resources devoted to such efforts. In addition, an adverse determination in
litigation could subject the Company to the loss of its rights to a particular
trade secret, trademark or patent, could require the Company to grant licenses
to third parties, could prevent the Company from manufacturing, selling or using
certain aspects of its products or could subject the Company to substantial
liability, any of which could have a material adverse effect on the Company's
results of operations. See "Business -- Intellectual Property."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the continued services of Wayne R.
Hellman, the Company's founder, President, Chief Executive Officer and principal
shareholder. Mr. Hellman and the Company have entered into an employment
agreement providing for a term ending December 31, 1998. However, the loss of
the services of Mr. Hellman for any reason could have a material adverse effect
on the Company. The Company maintains key man life insurance with respect to Mr.
Hellman in the amount of $3.0 million and on certain other members of senior
management. See "Management -- Employment and Consulting Agreements."
CONTROL BY PRINCIPAL SHAREHOLDER
Upon completion of the Offering, Mr. Hellman will own beneficially,
directly and indirectly, approximately 14.3% of the Company's outstanding shares
of Common Stock (13.0% if the Underwriters' over-allotment option is exercised
in full). Upon completion of the Offering, Mr. Hellman will, individually and as
voting trustee under a voting trust entered into by certain existing
shareholders of the Company or through irrevocable proxies, have the power to
vote an aggregate of 32.8% of the Company's outstanding shares of Common Stock
(30.0% if the Underwriters' over-allotment option is exercised in full). As a
result, Mr. Hellman will be able to significantly influence, and may be able
effectively to control, all matters requiring shareholder approval, including
the election of directors (and thereby the affairs and management of the
Company), amendments to the Company's Articles of Incorporation, mergers, share
exchanges, the sale of all or substantially all of the Company's assets, going
private transactions and other fundamental transactions. The factors described
above, individually or in the aggregate, could adversely affect the market price
of the Common Stock. See "Principal and Selling Shareholders" and "Description
of Capital Stock."
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<PAGE> 14
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials as well as laws relating to occupational
health and safety. The Company believes that its business, operations and
facilities are being operated in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
However, the operations of manufacturing plants entail risks in these areas, and
there can be no assurance that the Company will not incur material costs or
liabilities. In addition, potentially significant expenditures could be required
to comply with evolving environmental and health and safety laws, regulations or
requirements that may be adopted or imposed in the future. See
"Business -- Environmental Regulation."
CERTAIN ANTITAKEOVER PROVISIONS
Certain provisions of the Company's Articles of Incorporation and Code of
Regulations (by-laws) and Ohio law may make a change in the control of the
Company more difficult to effect, even if a change in control were in the
shareholders' interest. The Company's Articles of Incorporation allow the Board
of Directors to determine the terms of preferred stock which may be issued by
the Company without approval of the holders of the Common Stock. The ability of
the Company to issue preferred stock in such manner could enable the Board of
Directors to prevent changes in the management and control of the Company. The
Board of Directors is divided into three classes of directors elected for
staggered three-year terms. Such staggered terms may affect the ability of the
holders of the Common Stock to effect a change in control of the Company. See
"Description of Capital Stock -- Certain Provisions of the Company's Articles of
Incorporation" and "-- Certain Provisions of Ohio Law."
POSSIBLE VOLATILITY OF STOCK PRICE
The Common Stock first became publicly traded in December 1995. Since then,
the per share price of the Common Stock has risen substantially from the initial
public offering price of $10.00 per share. During and after the Offering, the
market price of the Common Stock may be highly volatile and could be subject to
wide fluctuations in response to quarterly variations in operating results,
changes in financial estimates by securities analysts, announcements of material
events by the Company, developments in the lighting industry or other events or
factors. The market price of the Common Stock also may be affected by the
Company's ability to meet analysts' expectations, and any failure to meet such
expectations, even if minor, could have a material adverse effect on the market
price of the Common Stock. In addition, changes in general conditions in the
economy or the financial markets could adversely affect the market price of the
Common Stock.
DISCRETION AS TO THE USE OF PROCEEDS
The Company has not yet identified specific uses for approximately $21
million of the net proceeds from the Offering. The Company's management will
retain broad discretion to allocate net proceeds. Purchasers of the shares of
Common Stock offered hereby will be entrusting their funds to the Company's
management, upon whose judgment they must depend, with limited information
concerning the general corporate purposes to which such funds may be applied,
including investments in joint ventures, acquisitions and working capital
requirements. See "Use of Proceeds."
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 16,430,731 shares of
Common Stock outstanding. Of these shares, 9,546,323 shares (9,996,323 shares if
the Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction or further registration under the Securities Act,
except for those shares held by "affiliates" (as defined in the Securities Act)
of the Company. The remaining 6,884,222 shares outstanding (6,434,222 shares if
the Underwriters' over-allotment option is exercised in full) are "Restricted
Securities" as that term is defined in Rule 144 of the Securities Act and fall
into two
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<PAGE> 15
categories, "Rule 144 Shares" consisting of 6,757,299 shares and "Regulation S
Shares" consisting of 126,923 shares. In addition, 954,002 shares of Common
Stock are reserved under the Incentive Award Plan for exercises of stock options
granted by the Company, of which options to purchase 951,112 shares had been
granted and were outstanding as of May 28, 1997, of which 129,565 are
exercisable within 60 days of the date of this Prospectus and 100,000 shares of
Common Stock are reserved for purchase under the Employee Stock Purchase Plan.
The Company has registered the issuance of Common Stock in connection with the
exercise of options under the Incentive Award Plan and purchases under the
Employee Stock Purchase Plan and, consequently, when such shares are purchased,
such shares will be available for sale in the public market without restriction,
to the extent they are not held by affiliates.
In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance with
the Rule) who has beneficially owned Restricted Securities for at least one year
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1.0% of the outstanding shares of Common Stock
(approximately 164,307 shares based upon the number of shares outstanding after
the Offering) or the reported average weekly trading volume in the
over-the-counter market for the four weeks preceding the sale. Sales under Rule
144 are also subject to certain manner of sale restrictions and notice
requirements and to the availability of current public information concerning
the Company. Persons who have not been affiliates of the Company for at least
three months and who have held their shares for more than two years are entitled
to sell Restricted Securities without regard to the volume, manner of sale,
notice and public information requirements of Rule 144. Except for 88,024 shares
of Common Stock issued in 1997 in connection with acquisitions and subject to
the agreement described in the next following paragraph, all shares of
Restricted Securities are eligible for sale under Rule 144.
Each of the Company, the Selling Shareholders, the Company's officers and
directors, GE and Venture Lighting Japan, who, upon completion of the Offering,
will own in the aggregate 5,822,060 shares (5,372,060 shares if the
Underwriters' over-allotment option is exercised in full), have agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other agreement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or such other securities, in cash or otherwise, during
the period ending 90 days after the date hereof, other than (a) the shares of
Common Stock offered hereby, (b) the issuance by the Company of shares of Common
Stock upon the exercise of an option or warrant or the conversion of a security
outstanding on the date hereof, (c) any options granted or shares of Common
Stock issued pursuant to existing benefit plans of the Company or (d) with
respect to any Selling Shareholder, any sale of shares of Common Stock, which
are subject to an existing pledge or other security arrangement on the date
hereof of which the Underwriters have been advised in writing, in good faith
pursuant to the terms of such pledge or arrangement.
The Company is unable to predict the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price for the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect the market price for the Common Stock and could impair the
Company's future ability to obtain capital through offerings of equity
securities.
Following the Offering, the Company may issue its Common Stock from time to
time in connection with the acquisition of stock or assets of other companies.
Such securities may be issued in transactions exempt from registration under the
Securities Act.
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<PAGE> 16
RECENT DEVELOPMENTS
To expand the Company's ability to develop and market new products and
metal halide lighting systems, the Company has recently entered into a number of
transactions:
On June 2, 1997, the Company purchased the system component manufacturing
and operating assets of W. J. Parry & Co. (Nottingham) Ltd. ("Parry"), a
manufacturer and marketer of magnetic power supplies for high intensity
discharge lighting systems, based in the United Kingdom. The assets are held by
the Company's newly-formed United Kingdom subsidiary which has 171 employees.
The assets include a 100,000 square foot manufacturing and warehousing facility
in Draycott, England. The purchase price for this acquisition was approximately
$8.5 million in cash, which the Company financed through borrowings under its
domestic revolving loan. See "Use of Proceeds."
On May 6, 1997, the Company entered into a joint development agreement with
Rohm and Haas Company ("Rohm and Haas"), for the development of advanced fiber
optic cable systems using metal halide lamps. The Company is presently
negotiating with Rohm and Haas to form a joint venture focused on the
manufacture and sale of fiber optic cable and illuminators and fiber optic
lighting systems. No assurance can be given that the negotiations will be
successfully completed, that the joint venture will be formed or that the joint
venture, if formed, will successfully develop or commercialize products. During
December 1996, the Company, acquired all of the assets and assumed certain
liabilities of Cable Lite Corporation, a designer, manufacturer and marketer of
fiber optic cable and fiber optic lighting systems, for 50,000 shares of Common
Stock (and up to 50,000 additional shares of Common Stock if the average price
per share in May 1998 is less than $30.00). If the proposed joint venture with
Rohm and Haas is formed, the Company expects that its capital contribution will
consist of $5.0 million, the Cable Lite operation and the Company's other fiber
optic system assets.
On April 2, 1997, the Company invested approximately $3.8 million of cash
in exchange for a 30% interest in Koto Luminous Co., Ltd., the Company's sole
agent in Japan. Subsequent to the date of investment, Koto Luminous, a maker and
distributor of metal halide lamps, began doing business under the name Venture
Lighting Japan. Using the proceeds of the investment and an additional
investment by a Koto affiliate, Venture Lighting Japan will equip and operate a
metal halide lamp manufacturing facility in Japan, which is expected to begin
operations in October 1997.
On February 11, 1997, the Company expanded its system components offerings
by acquiring Ballastronix, Inc. ("Ballastronix"), a Canadian company focused on
designing, manufacturing and marketing magnetic power supplies for high
intensity discharge and fluorescent lighting systems. The consideration for the
acquisition was approximately $5.5 million and 38,024 shares of Common Stock.
On January 31, 1997, the Company completed the purchase, for approximately
$600,000, of certain assets of Web Design Associates, Inc., a company engaged in
consumer product design and development which was used initially to facilitate
introduction of the Company's residential products. During November 1996, the
Company entered into a 50% joint venture in the formation of Lighting
Professionals, Inc., to provide technical services and designs for advanced
optical system components not manufactured by the Company, such as reflectors
and shrouds, used in conjunction with metal halide lighting systems.
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<PAGE> 17
BACKGROUND OF THE COMPANY
THE COMBINATION
The Company was formed as an Ohio corporation on May 19, 1995. Through the
Combination, the Company acquired 17 affiliated operating corporations that were
previously under common ownership and management, each of which is engaged in
some aspect of the metal halide lighting business. The Combination was effected
in October 1995 through a series of mergers or stock exchanges in which the
Predecessors' shareholders received Common Stock, except that certain investors
and former employees of the Predecessors received cash for their shares. The
principal owners of the Predecessors were Wayne R. Hellman, Louis S. Fisi, David
L. Jennings, Robert S. Roller, James F. Sarver and Juris Sulcs, all currently
executive officers or employees of the Company. In the Combination, Messrs.
Hellman, Fisi, Jennings, Roller, Sarver and Sulcs received 3,125,153 shares,
657,112 shares, 858,145 shares, 500,668 shares, 459,485 shares and 449,299
shares of Common Stock, respectively. See "Certain Transactions -- The
Combination."
HISTORY
The Company's business was established in 1983 by Wayne R. Hellman, the
Company's current Chief Executive Officer, and certain key employees of the
Company to focus on the design and manufacture of metal halide lamps. Management
initially acquired an entity engaged in the production of metal halide salts
necessary to make metal halide lamps and founded a lamp manufacturer soon
thereafter. The Company produced its first metal halide lamp in 1985 and, over
the next several years, designed, introduced and manufactured a wide range of
specialty metal halide lamps, as well as certain commodity-type lamps. The
Company continued to grow its business with specific focus on metal halide
technology. In order to support the growth of its metal halide operations, the
Company manufactured and sold non-metal halide products such as high pressure
sodium lamps. To gain entrance into the European lamp market, the Company
acquired a German quartz halogen lamp manufacturer in 1984, which was sold in
1990, as described below.
The Company financed early operations through a combination of venture
capital financing and significant bank borrowing. The Company experienced
significant growth between fiscal 1983 and fiscal 1989, with metal halide
products representing slightly less than half of the Company's net sales in
fiscal 1989. In January 1989, the senior lender to Venture, requested that it
obtain alternative financing sources for the approximately $32.0 million of bank
debt which Venture then had outstanding. However, Venture was unable to
consummate alternative financing arrangements that would have retired the
outstanding debt because of its venture capital investor's refusal to accept the
terms and values offered for its investment in Venture in two potential
transactions with major lamp manufacturers. In June 1990, Venture and the
venture capital investor negotiated an exchange of the investor's preferred
equity for subordinated notes of Venture. Following this exchange, Venture was
able to reduce the $32.0 million of indebtedness owed to its senior lender to
$6.7 million by December 1990 through dispositions of certain subsidiaries,
including its German quartz halogen lamp manufacturer. As a result of these
dispositions, non-metal halide product sales declined to approximately 17% of
net sales in fiscal 1991.
During fiscal 1992, Venture was unsuccessful in refinancing the remaining
outstanding senior debt, which had risen to $8.0 million at June 30, 1992 and
was limited to that amount by its senior lender. As a result, Venture
experienced working capital constraints, and its management made a strategic
decision to refocus its manufacturing operations on the core business of
specialty metal halide lamps. Venture contracted its operations by significantly
reducing the number of product lines it manufactured, reducing its work force by
approximately 50 employees and eliminating its second manufacturing shift. The
Company's principal products became materials, lamps and production equipment,
which remain its principal products today.
At the end of fiscal 1992, the senior lender expressed its intention not to
further extend the term of the remaining bank debt. Although Venture was in
default of certain covenants, it had never missed a scheduled interest or
principal payment to the senior lender. Unable to obtain acceptable refinancing,
Venture voluntarily filed for protection under Chapter 11 of the United States
Bankruptcy Code on July 29, 1992. Venture successfully emerged from Chapter 11
protection in July 1993. The Company's net sales declined to $25.5 million in
fiscal 1993 from $26.4 million in fiscal 1992. During fiscal 1993, the Company
maintained
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<PAGE> 18
substantially all of its relationships with existing customers and suppliers. As
part of the plan of reorganization, Venture's management received complete
ownership of Venture for an additional equity investment of $250,000. Venture's
reorganization was facilitated by financing arrangements totalling $8.0 million
provided by GE (the "GE Loan"), which were personally guaranteed by Mr. Hellman.
In addition, at this time, the Company issued to GE a warrant to purchase common
stock of Venture (the "GE Warrant"). In connection with the Company's initial
public offering, GE received $3.0 million in cash plus 5.0% of the Company's
then outstanding Common Stock in exchange for the cancellation of the GE Warrant
and for other consideration. In addition, with a portion of the proceeds of the
initial public offering (approximately $400,000), the Company paid all amounts
remaining to be paid pursuant to the plan of reorganization.
EXECUTIVE OFFICES
The Company's principal executive offices are located at 2307 East Aurora
Road, Suite One, Twinsburg, Ohio 44087 and its telephone number is (216)
963-6680.
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USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock offered hereby, based on an assumed offering price of $25 1/2 per share of
Common Stock (the last reported sale price for the Common Stock on the Nasdaq
National Market on June 3, 1997) and after deducting underwriting discounts and
commissions and estimated offering expenses, are estimated to be approximately
$72.0 million. If the Underwriters' over-allotment option is exercised, the
Company will not receive any of the proceeds from the sale by the Selling
Shareholders of shares of Common Stock.
The Company intends to use the net proceeds of the Offering as follows: (i)
approximately $29.2 million to repay indebtedness, including (a) $21.2 million
outstanding under its revolving credit facilities, which bear interest at a
formula rate, which was 8.5% at May 31, 1997 and mature in March 1999, of which
approximately $8.5 million was incurred to fund the purchase of the power supply
manufacturing and operating assets of Parry, approximately $600,000 was used to
complete the purchase of certain assets of Web Design Associates, Inc. and
approximately $700,000 was used in the formation of Lighting Professionals,
Inc.; and (b) approximately $8.0 million to repay the Company's term loan
facility, which matures in March 1999 and bears interest at a formula rate,
which was 8.5% at May 31, 1997, of which facility approximately $5.5 million was
used to finance the cash portion of the Ballastronix acquisition; (ii)
approximately $16.9 million for capital expenditures, consisting principally of
expansion of manufacturing facilities or acquisition of manufacturing equipment
over the next 12 months; and (iii) approximately $5.0 million as the Company's
cash contribution to the proposed fiber optic lighting system joint venture with
Rohm and Haas. See "Recent Developments." The balance of the net proceeds will
be used for general corporate purposes, including investments in joint ventures,
acquisitions and working capital. See "Recent Developments" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
The Company has from time to time engaged in discussions with respect to
possible acquisitions. While it has no present commitments or agreements with
respect to any material acquisition, the Company is actively investigating
acquisitions in complementary manufacturing business lines which would further
the Company's vertical integration efforts or broaden applications for metal
halide technology and has had preliminary discussions with several acquisition
candidates. No assurance can be given that any such transaction can be
successfully negotiated or completed or that available proceeds from the
Offering will be sufficient to fund acquisitions identified by the Company.
Pending such uses, the net proceeds will be invested in short term,
investment-grade securities, certificates of deposit, or direct or guaranteed
obligations of the United States government.
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COMMON STOCK PRICE RANGE AND DIVIDEND POLICY
Since December 12, 1995, the Common Stock has been quoted on the Nasdaq
National Market under the symbol "ADLT." The following table sets forth for the
periods indicated the range of high and low closing sale prices for the Common
Stock, as reported on the Nasdaq National Market.
<TABLE>
<CAPTION>
HIGH LOW
----- -------
<S> <C> <C>
Fiscal Year Ended June 30, 1996
Second Quarter (beginning December 12, 1995)....................... $10 1/4 $ 10
Third Quarter...................................................... 14 7/8 7 5/8
Fourth Quarter..................................................... 18 1/4 12 5/8
Fiscal Year Ending June 30, 1997
First Quarter...................................................... 19 7/8 13 1/8
Second Quarter..................................................... 25 1/4 16 3/8
Third Quarter...................................................... 27 1/4 22
Fourth Quarter (through June 3, 1997).............................. 26 1/8 19
</TABLE>
A recent reported last sale price for the Common Stock as reported on the
Nasdaq National Market is set forth on the cover page of this Prospectus. On May
28, 1997, there were approximately 224 holders of record of the Common Stock.
The Company has never declared or paid a dividend on its Common Stock. The
Company does not intend to declare or pay any cash dividends for the foreseeable
future and intends to retain earnings, if any, for the future operation and
expansion of the Company's business. The Company's revolving credit facility
prohibits payment of dividends on the Common Stock without the prior consent of
the lender, which consent may not be withheld unreasonably.
18
<PAGE> 21
CAPITALIZATION
The table below sets forth the Company's short-term debt and current
portion of long-term debt and capitalization at March 31, 1997 and as adjusted
to give effect to the sale of the 3,000,000 shares of Common Stock offered by
the Company (at an assumed offering price of $25 1/2 per share) and the
application of the estimated net proceeds therefrom. This table should be read
in conjunction with Management's Discussion and Analysis of Financial Condition
and Results of Operations and the Consolidated Financial Statements and Notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF MARCH 31, 1997
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt and current portion of long-term debt.................. $ 1,400 $ 1,400
======= ========
Long-term debt......................................................... $22,952 $ 3,257
Shareholders' equity:
Common Stock, $.001 par value; 80,000,000 shares authorized;
13,430,731 shares issued and outstanding and 16,430,731 shares
issued and outstanding, as adjusted(1)............................ 13 16
Additional paid-in capital........................................... 58,815 130,812
Retained earnings.................................................... 4,330 4,330
------- --------
Total shareholders' equity........................................ 63,158 135,158
------- --------
Total capitalization.............................................. $86,110 $ 138,415
======= ========
</TABLE>
- ---------------
(1) Does not include 954,002 shares of Common Stock reserved for issuance under
the Incentive Award Plan, of which options to purchase 951,112 shares of
Common Stock had been granted and were outstanding as of May 28, 1997. See
"Management -- Incentive Award Plan." Does not include 100,000 shares
reserved for issuance under the Employee Stock Purchase Plan.
19
<PAGE> 22
SELECTED FINANCIAL DATA
The following table contains certain selected consolidated and combined
financial data and is qualified by the more detailed Consolidated Financial
Statements and Notes thereto of the Company included elsewhere in this
Prospectus. The balance sheet data as of June 30, 1995 and 1996 and the income
statement data for each of the fiscal years ended June 30, 1994, 1995 and 1996
are derived from the audited Consolidated Financial Statements of the Company
included herein. The balance sheet data as of June 30, 1993 and 1994 and the
income statement data for the fiscal year ended June 30, 1993 are derived from
the audited Combined Financial Statements of the Company's Predecessor
companies. The balance sheet data as of June 30, 1992 and the income statement
data for the fiscal year ended June 30, 1992 have been derived from the
unaudited Combined Financial Statements of the Company's Predecessor companies.
The balance sheet data as of March 31, 1997 and the income statement data for
the nine months ended March 31, 1996 and 1997 have been derived from the
Unaudited Consolidated Financial Statements of the Company, which have been
prepared by management on the same basis as the audited Consolidated Financial
Statements of the Company, and, in the opinion of management, include all
adjustments consisting of normal recurring accruals which the Company considers
necessary for a fair presentation of the results for such periods. The selected
financial data should be read in conjunction with the Consolidated Financial
Statements and Notes thereto and Management's Discussion and Analysis of
Financial Condition and Results of Operations included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED JUNE 30,
------------------------ --------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------------ ------- ------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales........................... $ 60,776 $37,295 $54,636 $40,767 $30,938 $25,455 $26,416
Costs and expenses:
Cost of sales (1)................. 32,463 19,957 29,164 21,899 17,253 17,033 16,240
Selling, general and
administrative(1)............... 15,953 10,259 14,907 11,833 8,400 5,500 6,677
Research and development.......... 4,268 1,714 3,000 1,673 1,006 1,166 1,203
Amortization of intangible
assets(1)....................... 199 63 90 55 55 55 55
Settlement of claim............... 771(2) -- -- -- -- -- --
Noncash settlement of claim....... -- 2,732(3) 2,732(3) -- -- -- --
Reorganizing and restructuring.... -- -- -- (121)(4) 852(4) 7,152(5) --
-------- ------- ------- ------- ------- ------- -------
Income (loss) from operations....... 7,122 2,570 4,743 5,428 3,372 (5,451) 2,241
Interest expense, net............... 139 1,087 1,316 2,074 2,095 883(6) 1,636
-------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes
and extraordinary items........... 6,983 1,483 3,427 3,354 1,277 (6,334) 605
Income taxes(7)..................... 2,481 525 910 212 71 48 101
-------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
items............................. 4,502 958 2,517 3,142 1,206 (6,382) 504
Extraordinary gain (charge)......... -- (135)(8) (135)(8) (253)(9) -- 11,368(10) --
-------- ------- ------- ------- ------- ------- -------
Net income (loss)................... $ 4,502 $ 823 $ 2,382 $ 2,889 $ 1,206 $ 4,986 $ 504
======== ======= ======= ======= ======= ======= =======
Income (loss) per share(11):
Before extraordinary items........ $ .33 $ (.04) $ .12 $ .10 $ .13 $ (.96) $ (.01)
Extraordinary items............... -- (.02) (.01) (.03) -- 1.45 --
-------- ------- ------- ------- ------- ------- -------
Net income (loss)................. $ .33 $ (.06) $ .11 $ .07 $ .13 $ .49 $ (.01)
======== ======= ======= ======= ======= ======= =======
Shares used for computing per share
amounts(11)......................... 13,503 8,999 9,479 7,818 7,818 7,818 7,818
======== ======= ======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH AS OF JUNE 30,
31, --------------------------------------------------------
1997 1996 1995 1994 1993 1992
------------ ------- ------- ------- ------- -------
(UNAUDITED) (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and
short-term investments............ $ 16,437 $ 1,682 $ 1,030 $ 663 $ 1,095 $ 315
Working capital (deficit)........... 43,393 17,341 (870) (25) 853 (8,448)
Total assets........................ 112,320 56,297 29,402 23,454 23,001 27,631
Total long-term debt................ 22,952 11,034 8,853 7,821 10,246 11,737
Total shareholders' equity
(deficit)......................... 63,158 26,594 (1,035) 1,165 (320) (4,345)
</TABLE>
- ---------------
(Footnotes on following page)
20
<PAGE> 23
- ---------------
(1) Beginning with the nine month period ended March 31, 1997, the components
of selling, general and administrative expenses were disaggregated to
report separately marketing and selling expenses and general and
administrative expenses. See "Condensed Consolidated Statements of
Operations (Unaudited)." Also, beginning with the nine month period ended
March 31, 1997, amortization of intangible assets was reported as a
separate component of costs and expenses. Amortization of intangible assets
for all periods presented above has been reclassified to conform with this
method of presentation. Previously, amortization of intangible assets for
fiscal 1996 was included in cost of sales, and for fiscal 1995 and earlier
years was included in interest expense.
(2) On March 1, 1996, a former VLI shareholder, asserted a claim against
certain officers and directors of the Company, and subsequently against the
Company, seeking $3,600 in damages relating to the redemption of his VLI
shares prior to the Combination. On August 23, 1996, another former VLI
shareholder filed a similar claim against the Company and such officers and
directors seeking damages of $1,600. On November 29, 1996, the Company and
such officers and directors entered into a settlement of both claims for an
aggregate amount of $475. The pretax charge of $771 in the second quarter
of fiscal 1997 represents the $475 settlement plus legal and other
directly-related costs, net of anticipated insurance recoveries.
(3) On October 27, 1995, several former VLI shareholders, whose shares were
redeemed in August 1995 (prior to the Combination), asserted a claim
against certain officers of the Company. On November 15, 1995, such
officers entered into a settlement agreement. Since the settlement resulted
in a transfer of personal shares held by such officers, there was no
dilution of the ownership interests of other shareholders of the Company.
The settlement was recorded as a noncash expense and an increase in paid-in
capital of the Company in December 1995.
(4) In fiscal 1994, the Company recorded a provision of $852 for the costs,
principally inventory and equipment write-downs, in connection with exiting
a product line unrelated to lighting. In fiscal 1995, the disposition plan
was revised resulting in a reduction of the original estimate by $121.
(5) On July 29, 1992, Venture, though never having missed any scheduled
payments on its then existing senior debt was unable to refinance such
senior debt, and therefore voluntarily filed for protection under Chapter
11 of the United States Bankruptcy Code. Venture emerged from such
protection in July 1993. While under such protection, the Company
maintained substantially all of its relationships with existing customers
and suppliers. See "Background of the Company -- History." The one-time
reorganization charge of $7,152 in fiscal 1993 consisted of the write-downs
related to disposal of assets for exiting certain product lines,
professional fees and administrative expense.
(6) While under Chapter 11 protection during fiscal 1993, Venture was not
required to accrue interest on certain outstanding indebtedness, which, if
accrued, would have increased interest expense by approximately $507.
(7) At June 30, 1996, the Company had net operating loss tax carryforwards of
approximately $8,200, which expire in fiscal years 2006 through 2011. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(8) In fiscal 1996, the Company incurred an extraordinary loss on the early
extinguishment of debt of $135. See "Management's Discussion and Analysis
of Financial Condition and Results of Operation."
(9) In fiscal 1995, the Company incurred an extraordinary loss on the early
extinguishment of debt of $253. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
(10) Upon emergence of Venture from Chapter 11 reorganization, the Company
recognized an extraordinary gain in fiscal 1993 from the discharge of
certain indebtedness.
(11) Net income per share is based upon the income attributable to common
shareholders. Such income has been decreased by preferred stock dividends
and increases in the value of warrants aggregating $1,350 ($.15 per share)
in the nine months ended March 31, 1996, $1,350 ($.14 per share) in fiscal
1996, $2,360 ($.30 per share) in fiscal 1995, $170 ($.02 per share) in
fiscal 1994, and $1,131 ($.14 per share) in fiscal 1993. See Note K to
"Notes to Consolidated Financial Statements."
21
<PAGE> 24
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
GENERAL
The Company designs, manufactures and markets metal halide lighting
products, including materials, system components, systems and production
equipment. Metal halide lighting is currently used primarily in commercial and
industrial applications such as factories and warehouses, outdoor site and
landscape lighting, sports facilities and large retail spaces such as
superstores.
The Company previously categorized its products as lamps, components and
production equipment. The Company has broadened the scope of its product
categories and continues to integrate vertically, expanding its product
categories to include metal halide lighting systems. The category "System
Components" includes all components used in lighting systems, including lamps,
power supplies, switches and fiber optic cable, expanding the previous "Lamps"
category. The category "Materials" includes materials necessary for the
manufacture of system components, including metal halide salts, electrodes,
amalgams and getters, all products formerly classified as "Components." The
category "Production Equipment" includes lamp production equipment, historically
the entire category, and is expected to include photometric measurement
equipment and turnkey production equipment groups for other system components in
the future. The category "Systems" includes complete lighting systems for use or
installation by an end user, and would include, for example, portable light
fixtures for residential use and fiber optic lighting systems.
The following table sets forth the product category contributions to the
Company's net sales for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, FISCAL YEAR ENDED JUNE 30,
---------------- ----------------------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
System Components............................ 71.8% 74.0% 74.3% 68.8% 73.8%
Materials.................................... 14.2 20.8 19.5 23.8 23.0
Production Equipment......................... 13.0 5.2 6.2 7.4 3.2
Systems...................................... 1.0 N/A N/A N/A N/A
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
System components, materials and systems revenue is recognized when
products are shipped, and production equipment revenue is recognized under the
percentage of completion method.
Consistent with the Company's strategy for new product introductions, the
Company invests substantial resources in research and development to engineer
materials and system components to be included in customers specialized lighting
systems. Over the last three fiscal years, the Company has spent an aggregate of
$5.7 million on research and development, representing 4.5% of aggregate net
sales over that period. During the nine months ended March 31, 1997, the Company
spent $4.3 million on research and development, representing 7.0% of net sales
for that period. Such expenditures have enabled the Company to introduce new
specialized products, develop new applications for metal halide lighting and
improve the quality of its materials. The Company has spent additional amounts
for manufacturing process and efficiency enhancements, which were charged to
cost of goods sold when incurred. The Company expects to continue spending
approximately 7.0% to 7.5% of net sales on research and development in the
future to enhance its position as the leading innovator in the metal halide
lighting industry.
In addition to specific factors affecting the Company's results of
operations as discussed below, certain factors typically recur from period to
period. The primary components of the cost of sales are purchased
22
<PAGE> 25
materials, fixed overhead and labor production costs. Purchased materials
include quartz used in lamp production as well as packaging materials. Selling,
general, and administrative ("SG&A") expenses include costs related to
developing, advertising, marketing and selling the Company's products, as well
as infrastructure costs for management and systems. While certain SG&A costs
vary with the level of net sales, many are relatively fixed over fairly wide
ranges of unit volume.
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain items
in the Company's consolidated income statement for the indicated periods:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31, FISCAL YEAR ENDED JUNE 30,
----------------- ---------------------------
1997 1996 1996 1995 1994
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales.............................. 53.4 53.5 53.4 53.7 55.8
Selling, general and administrative........ 26.2 27.5 27.3 29.0 27.2
Research and development................... 7.0 4.6 5.5 4.1 3.3
Amortization of intangible assets.......... .3 .2 .2 .1 .2
Settlement of claim........................ 1.3 -- -- -- --
Noncash settlement of claim................ -- 7.3 5.0 -- --
Reorganizing and restructuring............. -- -- -- (.3) 2.8
----- ----- ----- ----- -----
Income from operations....................... 11.7 6.9 8.7 13.3 10.9
Interest expense, net........................ .2 2.9 2.4 5.1 6.8
----- ----- ----- ----- -----
Income before income taxes and extraordinary
items...................................... 11.5 4.0 6.3 8.2 4.1
Income taxes................................. 4.1 1.4 1.7 .5 .2
----- ----- ----- ----- -----
Income before extraordinary items............ 7.4 2.6 4.6 7.7 3.9
Extraordinary gain (charge).................. -- (.4) (.2) (.6) --
----- ----- ----- ----- -----
Net income................................... 7.4% 2.2% 4.4% 7.1% 3.9%
===== ===== ===== ===== =====
</TABLE>
Beginning with the nine month period ended March 31, 1997, the components
of "Selling, general and administrative" expense were disaggregated to report
separately "Marketing and selling," expenses and "General and administrative"
expenses. See "Condensed Consolidated Statements of Operations (Unaudited)."
Also, beginning with the nine month period ended March 31, 1997, amortization of
intangible assets was reported as a separate component of costs and expenses.
Amortization of intangible assets for all periods presented above has been
reclassified to conform with this presentation. Previously, amortization of
intangible assets for fiscal 1996 was included in cost of sales, and for fiscal
1995 and earlier years was included in interest expense.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED WITH NINE MONTHS ENDED MARCH 31, 1996
Net sales. Net sales increased 63.0% to $60.8 million for the nine months
ended March 31, 1997 from $37.3 million for the nine months ended March 31,
1996. This increase consisted primarily of a $12.5 million increase in lamp
sales, a $6.0 million increase in lamp production equipment sales, a $2.1
million increase in materials sales and a $2.5 million increase from the
Company's newly-acquired power supply business, Ballastronix. The increase in
lamp and materials sales arose primarily from increased unit volume, while the
increase in equipment sales was attributable to an increase in equipment
contracts for the sale of lamp production equipment currently in-progress, as
compared with the number of contracts in-progress during the first three
quarters of fiscal 1996.
23
<PAGE> 26
Cost of Sales. Cost of sales increased 62.7% to $32.5 million in the nine
months ended March 31, 1997 from $20.0 million in the same period of the
preceding year. As a percentage of net sales, cost of sales remained relatively
constant at 53.4% during the nine months ended March 31, 1997 compared to 53.5%
in the nine months ended March 31, 1996.
Marketing and Selling Expenses. Marketing and selling expenses increased
79.7% to $10.5 million in the nine months ended March 31, 1997 from $5.9 million
in the nine months ended March 31, 1996. Marketing and selling expenses, as a
percentage of net sales, increased to 17.3% during the first nine months of
fiscal 1997, from 15.7% in the same period of fiscal 1996. The increase
primarily reflects increased spending to develop new domestic and foreign market
opportunities.
General and Administrative Expenses. General and administrative expenses
increased 23.3% to $5.4 million in the nine months ended March 31, 1997 from
$4.4 million in the comparable period of fiscal 1996. As a percentage of net
sales, general and administrative expenses decreased to 8.9% in the first nine
months of fiscal 1997 from 11.8% in the same period of fiscal 1996. The decrease
primarily reflects a spending growth rate considerably lower than sales
increases, through the leveraging of fixed costs as sales levels increase.
Research and Development Expenses. Research and development expenses
increased to $4.3 million in the nine months ended March 31, 1997, a 149.0%
increase over the $1.7 million incurred in the comparable period of fiscal 1996.
As a percentage of net sales, research and development expenses increased to
7.0% in the first nine months of fiscal 1997 from 4.6% in the first nine months
of fiscal 1996. The increase reflected the Company's continued emphasis on the
development of additional commercial and industrial products, the introduction
of new lamp types, and metal halide systems development.
Settlement of Claims. On March 1, 1996, a former shareholder of VLI
asserted a claim against certain officers and directors of the Company, and
subsequently against the Company, seeking $3.6 million in damages relating to
the redemption of his VLI shares prior to the Combination. On August 23, 1996,
another former shareholder of VLI filed a similar claim against the Company and
such officers and directors seeking damages of $1.6 million. On November 29,
1996, the Company and such officers and directors entered into a settlement of
both claims for an aggregate amount of $475,000. The pretax charge of $771,000
in the nine month period ended March 31, 1997 represents the $475,000 settlement
plus legal and other directly-related costs, net of anticipated insurance
recoveries.
On October 27, 1995, several former shareholders of VLI, whose shares were
redeemed in August 1995 (prior to the Combination), asserted a claim against
certain officers of the Company. On November 15, 1995, such officers entered
into a settlement agreement with the former shareholders (the "Settlement")
whereby they transferred, from their personal holdings, an aggregate of 273,185
shares of Common Stock to the former shareholders. Since the Settlement resulted
in a transfer of personal shares held by such officers, there was no dilution of
the ownership interests of other shareholders of the Company. The Settlement was
recorded as a noncash expense and an increase in paid-in capital in December
1995.
Income from Operations. As a result of the aforementioned factors,
including the effects of the settlements of claims discussed previously, income
from operations during the nine months ended March 31, 1997 increased to $7.1
million from $2.6 million during the nine months ended March 31, 1996. As a
percentage of net sales, income from operations increased to 11.7% in the first
nine months of fiscal 1997 from 6.9% in the first nine months of fiscal 1996.
Interest Expense. Interest expense decreased 37.4%, to $749,000 during the
nine months ended March 31, 1997 as compared to $1.2 million for the comparable
period of the preceding year. This decrease resulted from lower average debt
outstanding during the first nine months of fiscal 1997, as compared to the
first nine months of fiscal 1996.
Interest Income. Interest income increased to $610,000 during the nine
month period ended March 31, 1997, as compared to $110,000 in the nine months
ended March 31, 1996. This increase is attributable to the
24
<PAGE> 27
short-term investments and cash equivalents arising from the availability of the
net proceeds of the common stock offering completed during July 1996.
Income Taxes. Income tax expense increased to $2.5 million for the nine
months ended March 31, 1997, from $525,000 for the comparable period of the
preceding year. The increase was caused by the utilization of net operating loss
carryforwards ("NOLs") with the reversal of applicable valuation allowances in
the first nine months of fiscal 1996 as compared with the utilization of NOLs in
the first nine months of fiscal 1997 with no related valuation allowance
reversal.
At June 30, 1996, the Company had United States NOLs for tax purposes of
approximately $8.2 million to offset future taxable income. These NOLs expire in
the fiscal years 2006 through 2011.
Extraordinary Charge. The Company recorded a $135,000 extraordinary charge
(net of applicable income tax benefits of $91,000) in the nine months ended
March 31, 1996, representing costs associated with the early extinguishment of
debt.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net Sales. Net sales increased 34.0% to $54.6 million for fiscal 1996 from
$40.8 million for fiscal 1995. This increase consisted of an $11.6 million
increase in system component sales, a $1.8 million increase in materials sales,
and the remainder from increased production equipment sales. The increase in
system component and materials sales arose primarily from increased unit volume
in all major lamp sales channels and material categories and increased sales of
new products.
Cost of Sales. Cost of sales increased 33.6% to $29.3 million for fiscal
1996 from $21.9 million for fiscal 1995. As a percentage of net sales, cost of
sales decreased to 53.4% for fiscal 1996 from 53.7% for fiscal 1995. This slight
decrease was primarily the result of improved margins on system components and
materials sales, which were somewhat offset by transitional costs of operational
integration associated with the acquisition of Current Industries.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 26.0% to $14.9 million for fiscal 1996 from
$11.8 million for fiscal 1995. As a percentage of net sales, such expenses
decreased to 27.3% in fiscal 1996 from 29.0% in fiscal 1995. The percentage
decrease reflects lower general and administrative expenses as a percentage of
sales partially offset by (i) higher spending related to significant promotional
activities for new product introductions, (ii) increased marketing focus on
replacement lamp sales in the U.S. and (iii) costs associated with Japanese
market penetration.
Research and Development Expense. Research and development expenses
increased 79.0% to $3.0 million for fiscal 1996 from $1.7 million for fiscal
1995. As a percentage of net sales, research and development expenses increased
to 5.5% for fiscal 1996 from 4.1% for fiscal 1995. These increases arose from
increased spending for the: (i) expansion of the line of new lamps intended to
replace many first generation metal halide lamps in industrial and commercial
applications; (ii) development and testing of electronic power supply systems
and (iii) development of new materials for the world's major lighting
manufacturers.
Noncash Settlement of Claim and Restructuring Credit. As discussed in Note
I to the Consolidated Financial Statements, on October 27, 1995, several former
VLI shareholders whose shares were redeemed in August 1995 (prior to the
Combination), asserted a claim against certain officers of the Company. On
November 15, 1995, such officers entered into the Settlement whereby they
transferred, from their personal holdings, an aggregate of 273,185 shares of
Common Stock to the former shareholders. Since the Settlement resulted in a
transfer of personal shares held by such officers, there was no dilution of the
ownership interests of other shareholders of the Company. The Settlement was
recorded as a noncash expense and an increase in paid-in capital in December
1995.
The Company recorded a $121,000 credit to operating expenses in fiscal
1995. This credit resulted from a revision of the Company's plan of disposition
for exiting a product line unrelated to lighting. There was no such credit in
fiscal 1996.
25
<PAGE> 28
Income from Operations. As a result of the factors discussed above,
including the effects of the noncash charge for the Settlement and the
restructuring credit, income from operations decreased 12.6% to $4.7 million in
fiscal 1996 from $5.4 million in fiscal 1995. As a percentage of net sales,
income from operations decreased to 8.7% in fiscal 1996 from 13.3% in fiscal
1995. Excluding the noncash charge for the Settlement during fiscal 1996 and the
restructuring credit recognized in fiscal 1995, income from operations for
fiscal 1996 would have increased to $7.5 million from $5.4 million in fiscal
1995. As a percentage of net sales, income from operations would have increased
to 13.7% in fiscal 1996 from 13.2% in fiscal 1995.
Interest Expense, Net. Interest expense decreased 36.5% to $1.3 million
for fiscal 1996 from $2.1 million for fiscal 1995. This decrease resulted from
lower average debt outstanding, lower noncash amortization of debt issuance
costs and higher interest income for fiscal 1996 as compared to the average debt
outstanding, noncash amortization of debt issuance costs and interest income for
fiscal 1995.
Income Taxes. Income tax expense for fiscal 1996 increased by $698,000
from fiscal 1995 primarily due to higher state and local income taxes and an
increase in deferred tax expense attributable to accelerated depreciation for
tax purposes. As of June 30, 1996, the Company's available NOLs were
approximately $8.2 million and will expire in fiscal years 2006 through 2011.
Extraordinary Item. The Company recorded a $135,000 extraordinary charge
(net of applicable income taxes of $91,000) during fiscal 1996, representing
costs associated with the early extinguishment of debt using a portion of the
net proceeds from its initial public offering. In fiscal 1995, the Company
recorded a $253,000 extraordinary charge (net of applicable income taxes of
$168,000), which also represented costs associated with the early extinguishment
of debt.
FISCAL 1995 COMPARED WITH FISCAL 1994
Net Sales. Net sales increased 31.8% to $40.8 million for fiscal 1995 from
$30.9 million for fiscal 1994. This increase consisted of a $5.2 million
increase in system component sales, a $2.6 million increase in materials sales
and a $2.0 million increase in production equipment sales. System component
sales increased primarily as a result of new product introductions and higher
unit volumes. Unit lamp sales increased even though the lamp manufacturing
operations experienced capacity constraints during the first half of fiscal
1995. The addition of a second shift in January 1995 doubled annual production
capacity from 700,000 lamps to 1.4 million lamps. Materials sales increased
primarily as a result of higher unit volumes driven by substantial growth in
global metal halide lamp sales. Production equipment sales increased as a result
of the shipment of a complete production equipment group to a lamp manufacturer
in the People's Republic of China in April 1995.
Cost of Sales. Cost of sales increased 26.9% to $21.9 million for fiscal
1995 from $17.3 million for fiscal 1994. Cost of sales as a percentage of net
sales decreased to 53.7% in fiscal 1995 from 55.8% in fiscal 1994. This decrease
was due primarily to increased sales of higher margin materials and production
equipment, which increased to 23.8% and 7.4%, respectively, of fiscal 1995 net
sales from 23.0% and 3.2%, respectively, of fiscal 1994 net sales. In addition,
the Company experienced higher margins on materials sales during fiscal 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 40.8% to $11.8 million for fiscal 1995 from
$8.4 million for fiscal 1994. Selling, general and administrative expenses as a
percentage of net sales increased to 29.1% in fiscal 1995 from 27.2% in fiscal
1994. This increase was due primarily to: (i) a greater percentage of
international sales of system components on which the Company pays higher
commission rates; (ii) increased spending on employee incentive programs; and
(iii) non-recurring organizational expenses associated with the Combination,
which amounted to approximately $176,000.
Research and Development Expenses. Research and development expenses
increased 66.6% to $1.7 million for fiscal 1995 from $1.0 million for fiscal
1994. Research and development expenses as a percentage of net sales increased
to 4.1% in fiscal 1995 from 3.2% in fiscal 1994. This increase was due primarily
to increased spending on new commercial and industrial lamp development and
materials quality
26
<PAGE> 29
improvement. As a result of the increase in research and development, the
Company introduced more new products in fiscal 1995 than it had in any prior
year. The Company introduced the Energy Master Plus(TM) product line in fiscal
1995, targeted at many large industrial and commercial applications currently
served by first generation metal halide lamps.
Reorganizing and Restructuring Expenses (Credit). The Company recorded a
$121,000 restructuring credit in fiscal 1995 compared to an $852,000
restructuring charge in fiscal 1994. The fiscal 1995 credit resulted from a
revision in the Company's plan of disposition for exiting its nonlamp materials
product line.
Income from Operations. As a result of the above factors, income from
operations increased 61.0% to $5.4 million for fiscal 1995 from $3.4 million for
fiscal 1994. Income from operations as a percentage of net sales increased to
13.3% in fiscal 1995 from 10.9% in fiscal 1994. Excluding the effects of the
restructuring credit for fiscal 1995 and the restructuring charge for fiscal
1994, income from operations increased 25.6% to $5.3 million for fiscal 1995
from $4.2 million for fiscal 1994. As a percentage of net sales, income from
operations would have decreased to 13.0% in fiscal 1995 from 13.7% in fiscal
1994.
Income Taxes. Income taxes increased to $212,000 for fiscal 1995 from
$71,000 for fiscal 1994. The difference between the effective tax rate and the
statutory tax rate is primarily attributable to the reversal of valuation
allowances due to utilization of NOLs. As of June 30, 1995, the Company had NOLs
of approximately $11.0 million available to offset future taxable income, which
expire in fiscal 2006 through fiscal 2010.
Extraordinary Charge. The Company recorded a $253,000 extraordinary charge
in fiscal 1995 representing costs associated with the early extinguishment of
debt. Such debt was extinguished in October 1994 and refinanced at a lower
interest rate.
27
<PAGE> 30
UNAUDITED SELECTED QUARTERLY RESULTS
The unaudited selected consolidated quarterly results for each of the seven
quarters ended March 31, 1997 are presented for informational purposes only and
do not purport to project the Company's results of operations for any future
period. The unaudited selected quarterly results should be read in conjunction
with the historical Consolidated Financial Statements of the Company and the
related Notes thereto and other financial information included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------------------------------------------------------------
MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30,
1997 1996 1996 1996 1996 1995 1995
--------- -------- --------- -------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales.............................. $22,334 $ 20,107 $ 18,335 $ 17,341 $13,786 $12,037 $ 11,472
Costs and expenses:
Cost of sales(1)..................... 11,866 10,696 9,900 9,208 7,404 6,422 6,130
Selling, general and
administrative(1)................. 5,774 5,346 4,834 4,647 3,802 3,248 3,210
Research and development............. 1,524 1,468 1,277 1,287 668 540 505
Amortization of intangible
assets(1)......................... 105 47 47 27 28 18 17
Settlement of claim(2)............... -- 771 -- -- -- -- --
Noncash settlement of claim(2)....... -- -- -- -- -- 2,732 --
------- ------- ------- ------- ------- ------- -------
Income (loss) from operations.......... 3,065 1,779 2,277 2,172 1,884 (923) 1,610
Interest expense (income), net......... 109 52 (24) 228 137 434 517
------- ------- ------- ------- ------- ------- -------
Income (loss) before income taxes and
extraordinary items.................. 2,956 1,727 2,301 1,944 1,747 (1,357) 1,093
Income taxes........................... 1,074 576 831 385 260 96 169
------- ------- ------- ------- ------- ------- -------
Income (loss) before extraordinary
items................................ $ 1,882 $ 1,151 $ 1,470 $ 1,559 $ 1,487 $(1,453) $ 924
======= ======= ======= ======= ======= ======= =======
</TABLE>
The following table sets forth, for each of the seven quarters ended March
31, 1997, the percentage of net sales represented by the items reflected in the
Company's unaudited selected consolidated quarterly results.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------------------------------------
MARCH 31, DEC. 31, SEPT. 30, JUNE 30, MARCH 31, DEC. 31, SEPT. 30,
1997 1996 1996 1996 1996 1995 1995
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales(1)...................... 53.1 53.2 54.0 53.1 53.7 53.4 53.4
Selling, general and
administrative(1).................. 25.8 26.6 26.4 26.8 27.6 27.0 28.0
Research and development.............. 6.8 7.3 7.0 7.4 4.9 4.5 4.4
Amortization of intangible
assets(1).......................... .5 .2 .3 .2 .2 .1 .2
Settlement of claim(2)................ -- 3.8 -- -- -- -- --
Noncash settlement of claim(2)........ -- -- -- -- -- 22.7 --
------- ------ - ------ - ------ - ------ - ------ - ------ -
Income (loss) from operations........... 13.7 8.8 12.4 12.5 13.7 (7.7) 14.0
Interest expense (income), net.......... .5 .3 (.1) 1.3 1.0 3.6 4.5
------- ------ - ------ - ------ - ------ - ------ - ------ -
Income (loss) before income taxes and
extraordinary items................... 13.2 8.6 12.5 11.2 12.7 (11.3) 9.5
Income taxes............................ 4.8 2.9 4.5 2.2 1.9 .8 1.5
------- ------ - ------ - ------ - ------ - ------ - ------ -
Income (loss) before extraordinary
items................................. 8.4% 5.7% 8.0% 9.0% 10.8% (12.1)% 8.1%
======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Beginning with the three month period ended September 30, 1996, the
components of selling, general and administrative expenses were
disaggregated to report separately marketing and selling expenses and
general and administrative expenses. Beginning with the three month period
ended December 31, 1996, amortization of intangible assets was reported as a
separate component of costs and expenses. Amortization of intangible assets
for all periods presented has been reclassified to conform with this
presentation. Previously, amortization of intangible assets for the three
month periods ended September 30, 1996 and June 30, 1996 was included in
cost of sales, and for the three month periods ended March 31, 1996,
December 31, 1995, and September 30, 1995 was included in interest expense.
(2) See "-- Nine Months Ended March 31, 1997 Compared With Nine Months Ended
March 31, 1996 -- Settlement of Claims."
28
<PAGE> 31
Over the last seven quarterly periods, the Company's net sales have
increased from $11.5 million for the quarter ended September 30, 1995 to $22.3
million for the quarter ended March 31, 1997. The increases in net sales have
resulted from the Company's new product development efforts and expansion into a
vertically integrated provider of metal halide materials, system components and
systems. Historically, the Company's sales have not been subject to seasonal
variation.
Cost of sales has remained relatively constant between 53.1% and 54.0% of
net sales. Selling, general and administrative expenses as a percentage of net
sales have decreased from 28.0% to 25.8% primarily as a result of spreading
certain relatively fixed costs over a larger sales base. Research and
development expenses have ranged from 4.4% to 7.4% of net sales due to the
Company's increased focus on the development of additional commercial and
industrial products, the introduction of new specialized lamps and metal halide
systems development expenses. The Company expects to continue spending
approximately 7.0% to 7.5% of net sales on research and development in the
future to enhance its position as the leading innovator in the metal halide
lighting industry.
LIQUIDITY AND CAPITAL RESOURCES
The Company uses cash principally for capital expenditures, market
development activities, research and development efforts, investments in
business acquisitions and joint ventures, and working capital. These
requirements have been financed through a combination of cash flow from
operations, borrowings under various credit facilities and proceeds from the
issuance of Common Stock. The Company believes that its cash balances, cash flow
from operations, available borrowings and the net proceeds to the Company of the
Offering will be sufficient to fund its operations for at least the next twelve
months.
Net cash provided by operating activities in fiscal 1996 totaled $1.3
million. Net cash used in operating activities during the nine months ended
March 31, 1997 totaled $6.5 million and was primarily used for higher accounts
receivable arising from increased sales and an increase in inventory levels to
support higher sales service levels.
The Company's working capital at March 31, 1997 was $43.4 million as
compared to $17.3 million at June 30, 1996. During July 1996, the Company
received net proceeds of $30.1 million from the sale of 2,452,050 shares of
Common Stock in a public offering, of which $16.8 million was used to reduce
outstanding debt under the Company's domestic credit facility. The remaining net
proceeds were used to purchase short-term investments and cash equivalents.
Capital expenditures, primarily for production equipment and leasehold
improvements, totaled $5.0 million in fiscal 1996 and $11.6 million in the first
nine months of fiscal 1997.
Since March 1996, the Company has had revolving loan facilities (the
"Revolving Loan Facilities") with BNY Financial Corporation and its Canadian
affiliate ("BNY"). Pursuant to the Revolving Loan Facilities, BNY has agreed to
extend advances to the Company in aggregate amounts not exceeding $25.0 million
(including amounts outstanding under the Capex Facility described below). Within
this aggregate limitation, separate revolving loan facilities in the United
States (the "Domestic Revolving Loan") and Canada (the "Canadian Revolving
Loan") are limited to separate maximum amounts based on eligible inventory and
receivables in each country and, in Canada, to a Cdn.$3.0 million (approximately
$2.2 million) maximum. Under the terms of the Domestic Revolving Loan, BNY may
make advances in excess of the formula percentages of eligible receivables and
inventory ("Discretionary Advances"). At May 31, 1997, advances outstanding
under the Domestic Revolving Loan were $19.4 million and additional available
capacity under the facility was approximately $1.2 million and advances
outstanding under the Canadian Revolving Loan were $300,000 and additional
available capacity under the facility was approximately $1.0 million. After
completion of the Offering and repayment of the outstanding balances, available
capacity under the Domestic Revolving Loan is expected to be approximately $13.2
million and available capacity under the Canadian Revolving Loan is expected to
be approximately $1.3 million.
The Company has a term loan facility with BNY (the "Term Loan") with an
outstanding balance at May 31, 1997 of approximately $8.1 million. When the Term
Loan is repaid with the proceeds of the Offering,
29
<PAGE> 32
the Company will regain the availability of its loan facility with BNY to
finance permitted capital expenditures (the "Capex Facility") in a maximum
amount of $5.0 million. All of the Revolving Loan Facilities, the Term Loan and
the Capex Facility become due and payable on March 24, 1999. Principal payments
of $100,000 per month are due on the Term Loan until maturity.
The Domestic Revolving Loan bears interest at a rate (the "Domestic
Revolver Rate") equal to :(i) the higher of (a) the prime rate minus .5% or (b)
the Federal Funds Rate; or (ii) the average LIBOR plus 2.5%, provided that, in
any calendar month when Discretionary Advances remain outstanding for five or
more days, all outstanding advances bear interest at the Domestic Revolver Rate
plus .5% for such month. It is expected that outstanding advances under the
Domestic Revolving Loan will bear interest at the Domestic Revolver Rate plus
.5% until the outstanding balances are repaid with the proceeds of the Offering.
The Canadian Revolving Loan bears interest at a rate equal to the Canadian prime
rate plus 1.25%. The Term Loan bears interest at a rate equal to the higher of
(a) the prime rate or (b) the Federal Funds Rate plus .5%, and any amounts
borrowed under the Capex Facility will bear interest at the higher of (a) the
prime rate plus .5% or (b) the Federal Funds Rate plus 1.0%.
The Company is presently discussing with BNY and alternative lenders, the
establishment of a comprehensive financing facility that meets its long-term
financial requirements.
On January 31, 1997, the Company completed the purchase of certain assets
of Web Design Associates, Inc., a company engaged in consumer product design and
development for approximately $600,000 in cash.
On February 11, 1997, the Company acquired certain assets and the
outstanding shares of Ballastronix, Inc., a company focused on designing,
manufacturing and marketing of electromagnetic power supplies for metal halide
lighting systems. The purchase price consisted of approximately $5.5 million in
cash and 38,024 shares of the Company's Common Stock. The funds to complete the
transaction were financed through the use of a portion of the Term Loan.
On April 2, 1997, the Company invested approximately $3.8 million of cash
in exchange for a 30% interest in Koto Luminous Co., Ltd., the Company's sole
agent in Japan. Subsequent to the date of investment, Koto Luminous, a maker and
distributor of metal halide lamps, began doing business under the name Venture
Lighting Japan. Using the proceeds of the investment and an additional
investment by a Koto affiliate, Venture Lighting Japan will equip and operate a
metal halide lamp manufacturing facility in Japan, which is expected to begin
operations in October 1997.
On June 2, 1997, the Company acquired the system component assets of Parry
for approximately $8.5 million in cash. The purchase price was financed through
borrowings under the Domestic Revolving Loan, pursuant to special terms which
did not reduce available capacity based on eligible inventories and receivables
for a period of 90 days.
The Company maintains separate revolving credit loan facilities for
Ballastronix, in Canada, and for certain other non-United States subsidiaries
for working capital requirements. The aggregate outstanding balances under these
facilities were approximately $1.4 million as of April 30, 1997. The Company
believes these facilities are adequate to meet the working capital needs of
these operations.
30
<PAGE> 33
BUSINESS
The Company is an innovation-driven designer, manufacturer and marketer of
metal halide lighting products. Metal halide lighting combines superior energy
efficient illumination with long life, excellent color rendition and compact
size. The Company has integrated vertically to design, manufacture and market:
(i) materials necessary for the manufacture of metal halide lamps (light bulbs);
(ii) system components necessary to assemble metal halide lighting systems; and
(iii) complete metal halide lighting systems for use or installation by an end
user. This integration is illustrated by the following list of principal
products:
<TABLE>
<S> <C> <C>
- -------------------------------- -------------------------------- -------------------------
MATERIALS SYSTEM COMPONENTS SYSTEMS
- -------------------------------- -------------------------------- -------------------------
Metal Halide Salts Lamps (Light Bulbs): Portable Lighting
Electrodes Specialty Fixtures(1)
Amalgams Commodity Fiber Optic Lighting(1)
Getters Power Supplies: Projection TV Optical
Magnetic Systems(2)
Electronic
System Controls and Switches
Fiber Optic Cable
</TABLE>
- ---------------
(1) Recent commercial introduction
(2) Currently in development
The Company also designs, manufactures and markets turnkey lamp production
equipment groups that are typically sold into international markets. Such
equipment is sold to existing lamp manufacturers or to joint ventures formed by
the Company in developing markets. Through the sale of lamp production
equipment, the Company generates revenue from the initial sale of its production
equipment and recurring sales of the materials used in lamp production. The
Company also manufactures and sells photometric measuring equipment and has
recently begun to market its power supply production equipment in international
markets.
Invented approximately 35 years ago, metal halide is the newest of all
major lighting technologies and can produce the closest simulation to sunlight
of any available lighting technology. A 100 watt metal halide lamp, which is
approximately the same size as a household incandescent lamp, produces as much
light as five 100 watt incandescent lamps and as much as three 34 watt, four
foot long fluorescent lamps. Metal halide lighting is currently used in
commercial and industrial applications such as factories and warehouses, outdoor
site and landscape lighting, sports facilities and large retail spaces such as
superstores. Due to metal halide's superior lighting characteristics, the
Company believes many opportunities exist to "metal halidize" applications
currently dominated by older technologies, incandescent and fluorescent. For
example, metal halide lighting has recently been introduced in fiber optic,
projection television and automotive headlamp applications and the Company has
introduced a line of portable metal halide fixtures. The Company believes that
applications for metal halide lamps will continue to increase as metal halide
systems become more widely known and available.
Management believes the Company is the only designer and manufacturer in
the world focused primarily on metal halide lighting. As a result of this unique
focus, the Company has developed substantial expertise in all aspects of this
industry. The Company believes that this focus enhances its responsiveness to
customer demand and has contributed to its technologically advanced metal halide
product development and manufacturing capabilities. The Company believes it
supplies 100% of the metal halide salts used in domestic metal halide lamp
production and in excess of 80% of those used worldwide. It is also a leading
domestic producer of other metal halide materials, and the only vendor of
turnkey metal halide lamp production equipment groups. The Company currently
markets over 240 specialty and 40 commodity-type metal halide lamps, giving it
the most diverse product line of any metal halide lamp manufacturer. Since the
Company's initial public offering in December 1995, the Company has expanded
into additional metal halide system components products, primarily through
acquisitions, and now offers more than 400 magnetic and electronic power supply
products.
31
<PAGE> 34
The Company has begun to leverage this broad knowledge base and ability to
supply additional system components to design and produce metal halide lighting
systems for new applications.
LIGHTING TECHNOLOGY
BACKGROUND
Light is radiant energy that provides the ability to see detail and color
and can be used to highlight form, color and texture, provide atmosphere and
enhance safety and security. The quantity of light, measured in lumens,
generated by a light source can differ significantly from the quantity that
reaches the intended area. Lighting quality is determined by characteristics
such as color of light and color rendition. Color rendition is a qualitative
measure of how accurately a light source allows an object's actual color to be
viewed.
The lifetime cost of a lighting system is composed of the cost of the
original lamp and fixture, replacement lamps, related labor costs, and the cost
of energy to power the system. Energy costs typically represent more than 80% of
a lighting system's total lifetime cost. The Company believes that the principal
lighting design considerations for industrial and commercial buildings, outdoor
space and residences are total system costs and the quality of light produced.
There are three primary types of lighting technology: incandescent,
fluorescent and high-intensity discharge ("HID"), which includes metal halide.
Each of these lighting technologies offers certain characteristics (such as
energy efficiency, color rendition, range of color, average life, lamp size and
ability to deliver substantial amounts of light to a focused area) that makes it
suited for particular applications. Choosing the appropriate lighting technology
to serve a given application involves matching the system's characteristics to
the end user's requirements.
THE OLDER LIGHTING TECHNOLOGIES -- INCANDESCENT AND FLUORESCENT
Incandescent. The oldest and most common lighting technology,
incandescent, was first introduced approximately 110 years ago. Incandescent
lamps have the largest installed base, primarily residential and retail, and,
due to their design versatility, over 1,000 different types of incandescent
lamps are presently available. As a result of the continued introduction of new
incandescent products, such as halogen, and the increase in the number of new
residences, domestic sales of incandescent lamps grew approximately 6% in 1996.
Incandescent lamps represented approximately 48% of the domestic lamp market in
1996.
Incandescent light is produced by the flow of electric current through a
wire or filament. Incandescent lamps produce a yellowish light. Incandescent
lamps offer the advantages of low initial cost, good color rendition,
versatility and the ability to deliver substantial amounts of light to a focused
area. Incandescent lamps have the shortest life (750 to 2,000 hours), are the
least energy efficient (15 to 30 lumens per watt) and generally have the highest
lifetime system cost of any lighting technology.
Developed in 1959, halogen incandescent lighting was first broadly
introduced in automotive headlights in Europe. As a result of its aggressive
introduction into the residential market in the early 1980's, halogen lighting
has been the fastest growing technology in the incandescent lighting segment for
more than a decade. Halogen's wide acceptance is primarily a result of its
"whiter" light, small size and greater light levels (through increased
wattages). These advantages, however, are accompanied by a number of
disadvantages. Halogen lamps, as with all incandescent lamps, are extremely
inefficient; converting most of the energy they consume into heat.
One of the most popular halogen products is the floor lamp (torchiere) that
uses either a 300 or 500 watt halogen bulb. There are an estimated 35-40 million
of these fixtures owned by consumers in the United States. Recently, there have
been a number of instances of property damage, burns, injuries and even deaths
resulting from fires caused by halogen products. Underwriters Laboratories
("UL") no longer approves 500 watt halogen torchiere products for residential
use. In addition, UL has instituted more stringent testing standards for the 300
watt halogen torchieres effective February 1997. The Company's metal halide
table and floor lamps were recently approved by UL for residential use.
32
<PAGE> 35
Fluorescent. Fluorescent lamps were first introduced in 1935, and have
become the standard interior light source for office buildings, retail stores
and certain industrial applications. Today, over 400 different fluorescent lamp
types are available. In 1996, domestic sales of fluorescent lamps grew
approximately 1%. Fluorescent lamps represented approximately 40% of the
domestic lamp market in 1996.
Fluorescent lamps produce light when the discharge from an electrically
excited low pressure mercury vapor interacts with a phosphor powder coating on
the inside surface of the lamp. Unlike incandescent lamps, fluorescent lamps
require a power supply device used to regulate electrical current. Fluorescent
lamps produce a white light, but one that is often described as flat or
unnatural. Fluorescent lamps offer instant light, good color rendition, improved
life and efficiency as compared to incandescent lamps (10,000 to 20,000 hours
life and 80 to 90 lumens per watt) and moderate initial cost. Light output
decreases if the ambient temperature in the area in which a fluorescent lamp is
installed declines, making fluorescent lighting impractical for many outdoor
uses. Traditional fluorescent lamps are much larger than incandescent lamps,
making it difficult to deliver substantial amounts of light to a focused area.
A new fluorescent technology is compact fluorescent lamps ("CFLs"). CFLs
are available in much smaller bulb sizes than traditional fluorescent lamps,
increasing the number of applications for fluorescent lamps. CFLs were first
introduced to the commercial market approximately ten years ago and, as energy
awareness has increased, they have penetrated the residential market. CFLs have
light outputs equivalent to incandescent lamps ranging from 15 to 100 watts.
Although CFLs cost more than standard incandescent lamps, this initial cost is
offset in most applications by energy savings and longer life.
THE NEWER LIGHTING TECHNOLOGY -- HIGH-INTENSITY DISCHARGE
General. An HID lamp produces light from a gaseous arc discharge, caused
by electrical excitation of certain chemicals (or "doses") in the lamp. The
gases and doses in an HID lamp are contained in an arc tube under high pressure.
A wide array of lighting effects can be obtained by varying the doses. HID lamps
are not affected by ambient temperatures. HID lamps require a power supply to
regulate electrical current, a warm-up period to reach full brightness and a
cool-down period before restart. HID light sources include mercury, high
pressure sodium ("HPS") and metal halide.
Mercury was the first HID lamp developed, but is used infrequently today
because it is the least efficient HID lamp. The primary use of mercury lamps
today is outdoor lighting in areas where there is a preference for white light
over the yellow light produced by HPS lamps. In 1996, domestic sales of mercury
lamps decreased approximately 4%. Mercury HID lamps have an energy efficiency
ranging from 40 to 60 lumens per watt and have a life of approximately 16,000 to
24,000 hours. In 1996, mercury lamps represented approximately 1% of the
domestic lamp market. HPS lamps produce a yellow light that provides poor color
rendition, making HPS lamps a less desirable choice than metal halide lamps for
most applications. As a result, HPS lamps are primarily used in roadway lighting
and, to a lesser extent, outdoor flood lighting, warehouses and factories. In
1996, domestic sales of HPS lamps increased 5%, primarily as a result of
increases in the amount of lighted roadway. HPS lamps have the longest life
(24,000 hours) and the highest energy efficiency (100 to 140 lumens per watt) of
any lighting technology. In 1996, HPS lamps represented approximately 5% of the
domestic lamp market.
Metal Halide Lamps. Metal halide products were first developed
approximately 35 years ago and are used most commonly in commercial and
industrial applications such as factories and warehouses, large public spaces
such as convention centers and airports, outdoor site and landscape lighting,
sports facilities and large retail spaces such as superstores. As a result of
technological improvements in wattage, life and color consistency and the
subsequent introduction of new products, metal halide lamps have become
available for a wide range of applications. The primary factor in increasing
applications for metal halide lighting has been the development of new lamps in
a wide variety of sizes and wattages. Metal halide lighting has recently been
introduced in fiber optic, projection television and automotive headlamp
applications. Over the last three years, domestic sales of metal halide lamps
have grown at a compound annual growth rate of approximately 15%, and sales
increased approximately 8% in 1996, making it the fastest growing lighting
technology available. In 1996, metal halide lamp sales accounted for
approximately 7% of total domestic lamp sales.
33
<PAGE> 36
Metal halide lamps provide excellent color rendition, long life (10,000 to
20,000 hours) and very high efficiency (70 to 110 lumens per watt) making them
the best choice for many applications. Metal halide lamps typically have higher
initial costs than either incandescent or fluorescents, but these costs are more
than offset in most applications by energy savings and long life as well as by
the need to install fewer fixtures to achieve the same illumination as competing
technologies. Metal halide lamps, like all HID and fluorescent lamps, require a
power supply to regulate electric current. However, metal halide systems require
a more technologically advanced power supply than fluorescent systems.
Metal halide lighting can produce the closest simulation to sunlight of all
available light sources, enhancing the sense of user comfort and well being and
improving productivity. A single metal halide lamp produces approximately five
times as much light as an incandescent lamp of the same wattage. The compact
size of metal halide lamps allows delivery of substantial amounts of light to a
focused area. These characteristics offer greater options in illumination
levels, lighting design and system cost as well as significant energy savings.
While the Company believes that incandescent and fluorescent technologies will
continue to be used in most of their current applications, the characteristics
of metal halide lighting make it more effective for a variety of such
applications.
Metal halide lamps are capable of producing a wide variety of lighting
effects. The color of light produced by a metal halide lamp is dependent on the
metal halide salts contained in the arc tube. By varying the metal halide salts,
different effects may be achieved. Similarly, varying the size, shape and
wattage of the lamp make it possible to change the lighting effect and the
applications for which the lamp is used. Although these changes result in lamps
very similar in appearance, many of these lamps are very difficult to engineer.
For instance, scaling down a 400 watt lamp in size and wattage requires
significant technological changes to maintain the same level of energy
efficiency. Primarily as a result of these technological difficulties, only
approximately 15 companies worldwide manufacture metal halide lamps as compared
to thousands that manufacture incandescent lamps and hundreds that manufacture
fluorescent lamps.
LIGHTING INDUSTRY
OPPORTUNITIES IN METAL HALIDE
The Company currently produces metal halide lighting products for
commercial, industrial and residential applications. Until recently, metal
halide technology has served only the commercial and industrial sectors which
represented approximately 10% and 63% of the domestic lighting market in 1995,
respectively. However, with the miniaturization of metal halide lamps and
fixtures and the recognition of the benefits of metal halide technology,
including improved light color, energy efficiency, lower operating temperature
and safety of metal halide products relative to other technologies, significant
opportunities for growth exist. Key factors driving growth in the metal halide
industry include:
Demand for Specialized Lamps. The demand for specialized metal halide
lamps has increased as the Company's OEM and lighting agent customers have
recognized the benefits associated with using specialized metal halide products.
While the lighting industry is dominated by GE, Philips and Sylvania, each of
these companies has traditionally focused on the larger incandescent and
fluorescent market and has generally limited its production of metal halide
lamps to those found in the most common commercial and industrial applications.
Although these commodity-type metal halide lamps represent approximately 75% of
total metal halide lamp sales, they do not afford the OEM or lighting agent
complete flexibility in designing lighting contract bids. For example, a
lighting agent may attempt to differentiate its bid by designing a lighting
solution which incorporates a specialized metal halide lamp to reduce energy
costs while still achieving desired lighting levels.
Development of New and Advanced Metal Halide Power Supplies. Historically,
the introduction of new metal halide lamps and systems has been constrained by
the lack of complementary metal halide power supplies. Significant engineering
expertise is required to adapt existing power supplies for new metal halide
products. While domestic sales of metal halide power supplies exceeded an
estimated $150 million in 1996, power supply manufacturers, like lamp
manufacturers, have focused on the larger fluorescent power supply market and,
to a lesser extent, on the commodity-type metal halide lamp market rather than
development of
34
<PAGE> 37
new power supply products for metal halide products and applications. The
development of appropriate power supply sources focused on metal halide will
significantly enhance the expansion of metal halide applications, reduce the
development time currently required to introduce new metal halide products and
improve the reliability and durability of existing metal halide products.
Opportunity for Integrated Metal Halide Systems. Metal halide systems for
commercial and industrial applications are assembled primarily by fixture
manufacturers, lighting agents, and intermediaries who are limited in their
ability to integrate different components which comprise a metal halide system.
The Company believes that significant growth opportunities exist through the
packaging of compatible, reliable system components for OEM customers from a
single supplier. In addition, the Company believes that metal halide systems
have significant potential to displace older lighting technologies in
traditional applications and that residential sales and related hospitality
applications will represent a substantial market for metal halide lighting
within the next five years. Other potential applications for metal halide
systems include fiber optic systems, projection television displays and
automotive headlamps.
International Demand for Metal Halide. International markets represent
attractive opportunities for metal halide products as developing nations
continue to build infrastructure to support their growing economies. Facilities
such as train stations, airports, government buildings, highways and factories
all require substantial lighting for which metal halide products are well
suited. In addition, given the high energy efficiency of metal halide and the
high cost of energy in developing nations (including the high cost of power
plant construction), the Company believes that the international metal halide
market will grow faster than the United States market.
OPERATING STRATEGY
In order to increase the number of metal halide applications and the
penetration of the Company's products, the Company pursues the following
operating strategies:
FOCUS ON METAL HALIDE
The Company focuses its resources primarily on designing, manufacturing and
marketing metal halide materials, system components, systems and production
equipment. By focusing on metal halide, the Company believes it has developed
unique design, manufacturing and marketing expertise. Such expertise provides
the Company with significant competitive advantages, which enable the Company to
deliver highly customized products to meet customer needs. The Company's
experienced workforce is dedicated to improving metal halide lighting products,
production processes and developing new applications for this technology.
CONTINUE VERTICAL INTEGRATION
The Company began operations as a manufacturer of metal halide salts and
expanded into production of system components, initially lamps. The Company has
expanded its focus on system components to include magnetic and electronic power
supplies, through the recent acquisitions of Ballastronix and Parry, and fiber
optic cable through its acquisition of Cable Lite Corporation. The Company is
broadening its manufacturing capabilities to include metal halide lighting
systems. Through vertical integration, the Company is able to develop and
package complementary system components and develop systems which enable metal
halide lighting to penetrate applications and markets currently served by older
technologies.
STRENGTHEN OEM AND LIGHTING AGENT RELATIONSHIPS
The Company concentrates on developing strong relationships with lighting
fixture OEMs by providing the key system components for a lighting fixture,
either alone or packaged as a unit, tailored to meet their needs. Historically,
the Company provided specialized lamps tailored to meet OEM needs. With its
recently acquired ability to design and manufacture power supplies, the Company
expects to better meet OEM needs by packaging the principal system components
(lamps, power supplies, switches and controls) for a lighting fixture. Frequent
interaction with OEMs serves dual purposes, providing the Company with valuable
ideas for new products and providing OEMs with the information necessary to
market the Company's new products. Lamps and power supplies designed for a
specific fixture are included with the fixture when sold by the OEM, increasing
distribution of the Company's products. The Company has also entered into
agreements with
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<PAGE> 38
lighting agents to pay commissions for selling the Company's lamps. Such
commissions, unique among lamp manufacturers, provide the agent an incentive to
include the Company's metal halide lamps in its bids on a construction or
renovation project.
GROWTH STRATEGY
The Company believes that metal halide technology represents the best
lighting technology for a wide variety of applications, many of which are not
yet served by an appropriate metal halide product. As the principal supplier of
metal halide materials and production equipment to the metal halide lamp
industry, the Company benefits from any expansion of metal halide lamp sales
including sales by other lamp manufacturers. The Company is continuing to
introduce more products for new applications and to expand the distribution
channels for its products. The key elements of the Company's growth strategy
include:
INTRODUCE NEW PRODUCTS, SYSTEMS AND APPLICATIONS
The Company has introduced over 75% of the approximately 200 new lamps in
the domestic metal halide lamp industry since 1985. As applications become
increasingly complex, the advantage of simultaneous design of system components
as an integrated system is becoming more significant. To further the Company's
integrated systems strategy, the Company completed the Ballastronix and Parry
transactions. As a result, the Company can now package lamps together with power
supplies and other system components, ensuring compatibility and quality,
increasing the marketability of these system components to OEM customers and
accelerating introduction of new systems. The Company intends to continue to
develop, manufacture and market additional types of high performance and
technologically advanced metal halide materials and system components.
Capitalizing on its expanding system component production capability, design
capability and unique metal halide focus, the Company expects to develop
additional specialty systems, such as fiber optic lighting systems and
projection television optical systems. Over the last three fiscal years, the
Company has spent an aggregate of approximately $5.7 million on research and
development, representing 4.5% of aggregate net sales over that period. However,
during the nine months ended March 31, 1997, the Company increased its
commitment to research and development, spending $4.3 million, or 7.0% of net
sales for that period.
INCREASE SALES OF EXISTING PRODUCTS
By expanding existing relationships and developing new relationships with
lighting agents and OEMs, the Company expects to increase sales of existing
specialty lamps and power supplies. The Company also expects its sales of
replacement bulbs to increase as the installed base of the Company's specialty
lamps increases and as such lamps need to be replaced. The Company expects to
increase sales in the replacement lamp market, in part through a novel direct
marketing approach to end users. The Company prints its toll-free phone number
on each lamp, and customers can order replacement lamps directly from the
Company for next day delivery. In addition, this interaction with customers
provides the Company with the opportunity to market additional metal halide
products.
PARTICIPATE IN GROWING INTERNATIONAL MARKETS
The Company intends to continue to capitalize on opportunities in growing
international markets in three ways. First, the Company directly exports its
products to countries that do not impose restrictive tariffs, local content laws
and other trade barriers. The primary countries in which the Company directly
markets products are the United Kingdom, Australia, Canada and Japan. The
Company has recently strengthened its distribution capabilities by acquiring or
investing in its distributors in these countries. Second, the Company may pursue
strategic acquisitions or build manufacturing facilities in international
markets. Third, in countries that impose trade restrictions, the Company either
sells production equipment or enters into joint ventures with local lamp
manufacturers. By selling production equipment, the Company creates a customer
for its metal halide salts and other materials. The Company has existing joint
ventures in China, Korea and Japan and has entered into joint venture agreements
in India and Vietnam to which it expects to sell production equipment and, when
lamp production commences, certain materials.
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<PAGE> 39
PENETRATE THE RESIDENTIAL LIGHTING MARKET
The Company believes that residential and hospitality applications will
represent a substantial market for metal halide lighting within the next five
years. Accordingly, the Company has developed the first metal halide lamp system
for these markets and has begun the roll-out of its products. This roll-out
began with the sale of table and floor lamps to certain premium hotel chains in
the United States in March 1997, with these placements serving as the basis of a
direct marketing program. The Company also expects to implement a direct
marketing program to up-scale consumers. To further facilitate the penetration
of the residential market, the Company has developed a "gear pack" which permits
existing incandescent table and floor lamp designs to be adapted to the
Company's MICROSUN(TM) technology.
PRODUCTS
The Company designs, manufactures and sells metal halide materials, system
components and systems, which are used in a wide variety of applications and
locations including:
<TABLE>
<S> <C> <C>
- - floodlighting - sports and arena lighting - general lighting
- - architectural area lighting - commercial downlighting - industrial highbays
- - general industrial lighting - airport and railway station - tunnel lighting
- - billboard and sign lighting lighting - indirect indoor sports and
- - site lighting - gas station canopy lighting office lighting
- - soffit lighting - interior downlighting - parking garage lighting
- - hazardous location lighting - decorative lighting - security lighting
- - accent lighting - retail store downlighting - landscape lighting
and track lighting
</TABLE>
The Company also designs, manufacturers and sells production equipment for
the metal halide industry.
MATERIALS
The Company produces and sells metal halide salts, electrodes, amalgams and
getters. Metal halide salts are the primary ingredient within the arc tube of
metal halide lamps, which determine the lighting characteristics of the lamp.
Electrodes form the electrical connections within the lamp. Amalgams are
chemicals which are used in the arc tubes of HPS lamps and in fluorescent lamps.
Getters are devices required to be included in each metal halide lamp to remove
impurities in the lamp.
The Company produces over 300 different metal halide salts that can be used
in metal halide lamps to produce different lighting characteristics. In addition
to meeting its own needs, the Company believes it produces all of the metal
halide salts used in metal halide lamps manufactured in the United States,
including those manufactured by GE, Philips and Sylvania, and a vast majority of
metal halide salts used in metal halide lamps manufactured overseas. The Company
serves all major lamp manufacturers, each of which uses different metal halide
salts. The Company vigorously guards each customers' specific formulas from
other customers, including the Company's own lamp engineers. Because of its
ability to produce these ultra pure metal halide doses, the Company has also
been called upon by its lamp manufacturer customer base to produce most of the
amalgams used in the domestic production of HPS lighting and, most recently, to
develop and supply a breakthrough amalgam for fluorescent applications.
SYSTEM COMPONENTS
The Company's system component products include specialty and commodity
lamps, magnetic and electronic power supplies, system controls and switches and
fiber optic cable. Specialty lamps are lamps designed and manufactured for
particular OEM applications. Commodity lamps are high-volume lamps which the
Company typically buys for resale under arrangements with GE and Sylvania. Power
supplies are devices which regulate power and are necessary for operation of HID
and fluorescent lamps. System controls and switches are auxiliary electrical
controls included in fixtures and systems. Fiber optic cable transmits light
from a light source to the place of intended use.
The Company believes it differentiates itself from other metal halide lamp
manufacturers by offering a wider variety of lamps, many of which have been
customized to offer a specific solution to a lighting problem.
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<PAGE> 40
Since 1985, the Company believes that it has introduced over 75% of the
approximately 200 new lamps in the domestic metal halide lamp industry.
Currently, the Company offers over 240 specialty lamp types and 40
commodity-type lamps in 20 different watt variations ranging from 32 watts to
2,000 watts for over 30 different applications. In certain instances, the
Company produces these products for its competitors on a private label basis in
order to capture sales through competitors' distribution channels. The Company
also sells commodity-type lamps which it sources from other manufacturers.
The Company has acquired Ballastronix, a Canadian manufacturer of magnetic
and electronic power supplies, and the power supply business of Parry, a
manufacturer located in the United Kingdom, in fiscal 1997. These businesses
currently offer over 400 power supply products, including a variety of HID
(including metal halide) and fluorescent power supplies. The Company also offers
electronic controls for metal halide lighting systems.
SYSTEMS
A metal halide lighting system consists of a lamp, power supply and related
electronic controls and switches and any other necessary components assembled
into a product for an end user. The Company believes it will be able to combine
its metal halide expertise and system component manufacturing capabilities to
design, develop, produce and market metal halide systems for innovative
applications. Specifically, the Company has developed and begun to market
distinctive table and floor fixtures for residential and hospitality
applications and is finalizing development of fiber optic lighting systems using
metal halide technology.
The Company's residential metal halide lighting systems use a compact 68
watt metal halide lamp (and the necessary electronic power supply) emitting
light equivalent to a 300 watt halogen lamp while using less than 25% of the
electricity. Additional benefits include longer life and greatly reduced
operating temperatures, which dramatically lessen safety concerns. To further
facilitate the penetration of the residential market, the Company's "gear pack"
permits manufacturers to adapt existing incandescent table and floor lamp
designs to the Company's MICROSUN(TM) technology.
The Company is in the early stages of development of an optical light
system for use in projection televisions. Recent innovations in projection
display have made it possible for a compact light unit to generate substantially
larger and clearer imaging than that available in existing projection systems.
Currently, television manufacturers are limited by the high cost of existing
lighting units. The Company is working with a television manufacturer to develop
a low-cost system using a metal halide lamp, electronic power supply and optical
controls.
The Company also believes that it has a significant opportunity to
introduce metal halide technology to fiber optic lighting systems. Because of
metal halide lighting's ability to produce varied lighting effects, it is
particularly well-suited to be adapted as the light source for fiber optic
lighting systems. Fiber optic lighting systems are currently used in accent
applications, such as swimming pool lighting or as replacement lighting for neon
lighting, and the Company expects to introduce, through its proposed joint
venture, metal halide fiber optic systems for retail applications, such as
downlighting and display case lighting.
PRODUCTION EQUIPMENT
The Company is the only manufacturer and marketer of turnkey metal halide
lamp production equipment groups, and has begun to market internationally its
power supply production equipment. A lamp production equipment group consists of
up to 50 different production machines and is capable of producing metal halide
lamps. The Company has also begun to manufacture and sell photometric measuring
equipment, which is used to measure quantity and quality of light for design and
testing of lighting products and systems.
Each lamp production equipment group sells for between $1.0 million to $6.0
million. In order to maintain manufacturing flexibility, the Company must
continually update its own system component production equipment, through the
internal design and fabrication of production equipment. The Company leverages
its manufacturing expertise by selling lamp production equipment groups in
international markets to independent companies or to joint ventures formed by
the Company. In connection with each lamp production
38
<PAGE> 41
equipment group sale, the Company provides lamp designs and specifications,
trains the purchaser in production and creates an on-going customer for its
materials products.
PRODUCT DESIGN AND DEVELOPMENT
Management believes one of its key strengths is its ability to design and
develop new products. Management has dedicated research and development efforts
in each of its product lines having invested $5.7 million or 4.5% of net sales
into research and development over the last three full fiscal years. In the nine
months ended March 31, 1997 the Company invested $4.3 million or 7.0% of net
sales in research and development. Historically, the Company's efforts primarily
have been focused on the development of materials and system components.
Materials. The Company is focused on improving the purity of, and
production processes for, metal halide salts. The Company pursues these efforts
proactively as well as in response to customer requests for specific metal
halide salts. The Company also focuses on designing and developing improved
electrodes, amalgams and getters used in lamp manufacturing.
System Components. The Company's product design and development has
focused on developing innovative components to meet the specialized needs of
various customers, including lighting fixture OEMs. The Company's product design
teams work together with OEMs on the design, development and commercialization
of new system components. Such collaborative development efforts have resulted
in the design of improved metal halide lamps with reduced wattage, better energy
efficiency, smaller size and increased life expectancy.
Systems. Since 1996, the Company has increased its focus on design and
development of integrated systems. For example, the "gear pack" was designed by
leveraging the Company's expertise in materials and system components. The
Company expects efforts in this area to become increasingly important as the
Company seeks to develop new fiber optic applications and systems for the
residential and hospitality markets.
MARKETING AND DISTRIBUTION
COMMERCIAL PRODUCTS
The Company's innovative marketing techniques enabled it to capture
approximately 29% of all domestic metal halide lamp sales for new installations
in 1996. Since electrical distributors typically market only commodity-type
lamps, the Company believes that its specialty lamp products do not lend
themselves to the traditional marketing channels associated with commodity-type
lamp products. As a result, in initial distribution, the Company markets its
metal halide system components through OEMs, which generally have been involved
in the design of the lamp, and commissioned lighting agents, who package the
Company's lamps and power supplies in their bids on each construction or
renovation project. Due to the fact that the Company's lamps are produced to the
specifications required to match a particular fixture or use by an OEM, the
Company's lamp will generally be included with the fixture each time the fixture
is sold. The Company intends to market complementary lamps and power supplies as
a package to provide better service to its OEM customers, as well as to increase
sales.
The Company also has distributed its metal halide lamps through lighting
agents. Unlike GE, Philips and Sylvania that each have extensive local
distributor relationships, the Company has entered into agency agreements with
lighting agents who represent a full line of fixture manufacturers, under which
the agent receives a commission for selling the Company's lamps. The Company
believes it is the only major lamp manufacturer to distribute its products
through lighting agents. This relationship allows the lighting agent to package
the Company's metal halide lamps with the other products included in its bid on
a project. By bidding a more complete or unique package, the lighting agent has
a competitive advantage over less complete bids and, if selected, earns a
commission on Company lamps sold, which agents previously did not receive.
The Company intends to increase its sales of replacement lamps through
direct marketing. First, since 1994, the Company has printed its toll-free
number on each lamp that it sells allowing a customer to call the Company,
rather than an electrical distributor, to order the replacement lamp directly
from the Company.
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<PAGE> 42
This enables the customer to speak to a more knowledgeable representative,
thereby increasing the accuracy and efficiency of service to the end user. This
interaction also allows the Company to suggest enhanced products better suited
for the end user's needs. In addition, the Company telemarkets replacement lamps
in connection with catalogue distributions. Lamps are delivered by overnight
courier to end users, thereby providing service efficiency comparable to local
electrical distributors. The Company estimates it sold less than 1% of all
replacement metal halide lamps in 1996. Given the expected life of the Company's
lamps, the Company is only now beginning to benefit from this strategy.
Replacement lamps are typically sold at a higher margin than lamps sold
initially through OEMs or lighting agents.
In addition to packaging power supplies with lamps, the Company is
continuing direct marketing to OEMs and sales through electrical distributors.
The Company markets its metal halide materials to other metal halide lamp
manufacturers, primarily GE, Philips and Sylvania. The Company informs these
customers of its capabilities through seminars and direct marketing materials.
The Company also markets lamp materials to its joint venture partners. In
addition, the Company works very closely with its customers to manufacture
materials according to their specifications. Certain customer-developed
materials are considered proprietary to the Company's customers.
In marketing its production equipment internationally, the Company seeks
out the most technically advanced lamp manufacturers in each country or the
Company is approached by foreign lamp manufacturers seeking to acquire the
technology. The Company initially sends a catalogue to these manufacturers, then
later calls on these manufacturers to determine their needs. The Company
develops a customized configuration for the production equipment to meet the
customers' needs. The Company believes its ability to supply a full range of
materials provides it an advantage in selling production equipment.
International sales aggregated $29.9 million (49.2% of net sales) for the nine
months ended March 31, 1997, $16.3 million (29.9% of net sales) for fiscal 1996,
$12.1 million (29.8% of net sales) for fiscal 1995 and $6.4 million (20.8% of
net sales) for fiscal 1994.
RESIDENTIAL PRODUCTS
The Company has begun preliminary manufacturing, marketing and sales of
portable metal halide fixtures for the residential and hospitality markets. The
Company intends to pursue a strategy of branding its products under its
MICROSUN(TM) brand name to create brand identity, differentiating it from
potential competitors, as well as establishing brand loyalty. In fiscal 1996,
the Company conducted focus groups where various examples of incandescent table
lamps and table lamps containing the MICROSUN(TM) metal halide lighting system
were presented to and compared by various potential customers. The responses
received by the Company were favorable, and using information obtained in the
focus group sessions, the Company designed a line of table lamps and produced a
catalogue to market these lamps. The Company has successfully marketed similar
lamps to selected hotel chains to provide well-lit work areas for business
travelers. The Company has received orders from several select lighting
showrooms in Cleveland, Ohio to further test market the sale of table lamps
using its MICROSUN(TM) brand name. The Company has commenced limited commercial
production of MICROSUN(TM) brand products. There can be no assurance that the
Company will successfully introduce metal halide lighting into the residential
market.
MANUFACTURING AND OPERATIONS
The Company's lamp manufacturing facility in Solon, Ohio operates five days
a week, 16 hours a day, with the Company's lamp manufacturing employees working
in two eight-hour shifts each day. The manufacturing of metal halide lamps
consists of three primary processes. First, the quartz arc tube is shaped,
electrodes for carrying the current are installed, the metal halide salt dose is
introduced and the arc tube is sealed. The entire process is performed at high
temperatures in carefully controlled conditions to ensure that the arc tube is
properly sealed and that no impurities enter the arc tube. Second, the arc tube
is mounted inside a pyrex bulb container and sealed. Finally, the lamp is
finished by adding a contact for the electrical outlet. Although light output of
metal halide lamps is not affected by ambient temperatures, an outer bulb is
used to prevent contact with the arc tube, which operates at extremely high
temperatures. Quartz and pyrex are used in the production of metal halide lamps
because of their durability and ability to retain shape and
40
<PAGE> 43
function at extremely high temperatures. All of the finished lamps are
inspected, tested and then shipped in accordance with customer instructions.
The Company produces magnetic power supplies at its facility in Amherst,
Nova Scotia, which operates five days a week with one full shift and a partial
second shift. The Company produces magnetic and electronic power supplies at its
facility in Draycott, England, which operates five days a week with one full
shift. The manufacture of magnetic power supplies is a combination of batch and
production line processes. The production line process starts with a coil
winding department, progresses to an in-line coil and core operation and then to
final assembly. Subassemblies for ignitors and capacitors are located off-line
in a batch operation for inclusion in final assembly.
The Company produces all of the metal halide salts it uses and sells at its
facility in Urbana, Illinois. The Urbana facility with 62 employees working a
single shift also produces precision metal pieces, precision metal electrode
leads and high speed dose dispensers which are used by the Company and sold to
other metal halide lamp manufacturers.
The Company manufactures production equipment for metal halide lamp
production at its facility in Bellevue, Ohio. This equipment is used for the
Company's lamp production and is also sold to other lamp manufacturers
worldwide. The Company internally manufactures many critical and proprietary
parts for its production equipment. It purchases commercial components and has
other parts built to its specifications by a number of local suppliers. The
Company assembles and tests this production equipment as well as trains
customers in its use. The Company supplies extensive product, quality, process
and training documentation with the production equipment.
RAW MATERIALS AND SUPPLIERS
The Company sources its raw materials from a variety of suppliers.
Presently, it sources most of its quartz tubing and pyrex bulbs for lamps from
GE. The Company purchases certain of its industrial commodity-type lamps from GE
and Sylvania. This enables the Company to use its production equipment to
produce more specialty, higher margin lamp types. Although an interruption in
these supplies could disrupt the Company's operations, the Company believes that
alternative sources of supply exist and could be arranged prior to the
interruption having a material adverse effect on the Company's operations or
sales. The materials for the Company's power supply products are readily
available on the open market.
Most of the raw materials used in the production of metal halide salts can
be sourced from several suppliers. The Company has been the dominant supplier of
metal halide salts to the metal halide lamp industry for many years. Therefore,
the Company has focused on addressing any circumstance which could jeopardize
the continued production of these vital materials. Since the Company is the
primary supplier of metal halide salts to the metal halide lamp industry, any
disruption in supply would also affect each producer of the affected lamp type.
The power supplies for the Company's MICROSUN(TM) systems are manufactured
for the Company by a single supplier. The Company believes that in the case of
any disruption of this supply, alternative sources of these power supplies can
be arranged prior to any material adverse effect on the Company's sales.
COMPETITION
Metal halide systems compete with other types of lighting technology for
many applications. The Company's metal halide lamps compete with lamps produced
by other metal halide lamp manufacturers, primarily GE, Philips and Sylvania.
Metal halide technology is the newest of all lighting technologies and although
the market awareness and the uses of metal halide lamps continue to grow,
competition exists from older technologies in each metal halide application.
GE, Philips and Sylvania are the Company's principal competitors in the
production of metal halide lamps. Although GE, Philips and Sylvania have focused
their efforts on the larger incandescent and fluorescent markets, all three
companies produce metal halide lamps. These three companies have emphasized
sales of a relatively small variety of commodity-type metal halide lamps, such
as those found in
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the most common commercial and industrial applications, which the Company
believes represents approximately 75% of the total metal halide lamp segment.
Although the Company believes its technical and engineering expertise in the
production of specialty metal halide lamps and its unique marketing approach
give it a competitive advantage in this market, the Company's three primary
competitors have significantly longer operating histories, substantially greater
financial, technical and other resources and larger marketing and distribution
organizations than the Company and could potentially expand their focus into
specialty lamps.
The Company does not believe that the foreign lamp manufacturers to whom
the Company sells lamp production equipment compete with the Company's specialty
products. Due to the technical and engineering expertise required to produce a
new type of metal halide lamp, these purchasers have typically only produced the
commodity-type lamps in which they have been trained by the Company. Although
these purchasers could potentially produce specialty lamp types to compete with
the Company, these purchasers would need to independently develop the expertise
required to produce specialty metal halide lamps.
The Company's North American and European power supply products compete
primarily with products of two manufacturers, Advance Transformers, a subsidiary
of Philips, and MagneTek, both headquartered in the United States. Both these
companies have focused on the large fluorescent power supply market whereas the
focus of the Company's recent acquisitions, Ballastronix and Parry, has been in
HID magnetic power supplies for use primarily in metal halide applications.
INTELLECTUAL PROPERTY
The Company relies on trade secret, trademark and patent laws to protect
its rights to certain aspects of its products, including proprietary
manufacturing processes and technologies, product research and concepts and
trademarks, all of which the Company believes are important to the success of
its products and its competitive position. In recent years, the Company has
successfully taken legal action to enjoin misappropriation of trade secrets by
other parties. Any increase in the level of activities involving
misappropriation of the Company's trade secrets or other intellectual property
rights could require the Company to increase significantly the resources devoted
to such efforts. In addition, an adverse determination in litigation could
subject the Company to the loss of its rights to a particular trade secret,
trademark or patent, could require the Company to grant licenses to third
parties, could prevent the Company from manufacturing, selling or using certain
aspects of its products or could subject the Company to substantial liability,
any of which could have a material adverse effect on the Company's results of
operations.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials as well as laws relating to occupational
health and safety. The Company believes that its business, operations and
facilities are being operated in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
However, the operations of manufacturing plants entail risks in these areas,
which could potentially result in significant expenditures in order to comply
with evolving environmental and health and safety laws, regulations or
requirements that may be adopted or imposed in the future.
In 1993, the Company entered into a consent decree with the City of Solon
Sewer District ("Solon") with respect to the discharge of mercury into the sewer
system from its Solon, Ohio plant operations. The Company instituted procedures
to comply with this consent decree, and the consent decree expired by its terms
due to the Company's operation within required discharge limits for the period
required by the decree. However, routine sampling of the effluent by Solon
between September 1995 and September 1996 revealed instances of mercury
discharge in excess of the limits imposed by Solon. Subsequent tests conducted
by Solon showed mercury discharges within required limits. The Company has
implemented a plan intended to prevent intermittently exceeding Solon's mercury
standards in the future. The Company believes the cost of continued compliance
will not have a material effect on its financial position or results of
operations.
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The Company believes that the overall impact of compliance with regulations
and legislation protecting the environment will not have a material effect on
its future financial position or results of operations. Capital expenditures and
operating expenses in fiscal 1995, fiscal 1996 and the nine months ended March
31, 1997 attributable to compliance with such legislation were not material.
PROPERTIES
The Company's headquarters are located in Twinsburg, Ohio, and the Company
maintains manufacturing facilities in Ohio, Illinois, Texas and Nova Scotia,
Canada. Set forth below is certain information with respect to the Company's
principal facilities:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE OWNED/
FACILITY LOCATION ACTIVITIES FOOTAGE LEASED
- ----------------------- ------------------------------------------ ----------- -------
<S> <C> <C> <C>
NORTH AMERICA
Solon, Ohio System components manufacturing, office 150,000 Leased
space
Bellevue, Ohio System components manufacturing, 60,000 Leased
production equipment manufacturing
Cleveland, Ohio Residential fixture manufacturing 45,000 Owned
Amherst, Nova Scotia,
Canada Power supply manufacturing 45,000 Owned
Urbana, Illinois Materials manufacturing 30,000 Owned
Scarborough, Ontario,
Canada Distribution warehouse, office space 28,000 Leased
Dallas, Texas Fiber optic cable and lighting systems 21,000 Leased
manufacturing
Buffalo, New York Power supply distribution warehouse 13,000 Leased
Twinsburg, Ohio Corporate office space 9,000 Leased
OTHER
Draycott, England Power supply manufacturing 100,000 Owned
Mitcham, Victoria,
Australia Distribution warehouse, office space 16,000 Leased
</TABLE>
The owned facilities are subject to mortgages in the following approximate
outstanding amounts: Amherst -- $960,000; Urbana -- $770,000; Cleveland --
$450,000. The aggregate annual rental cost of the leased facilities is
approximately $1.6 million, and the average remaining lease term is two years.
EMPLOYEES
As of March 31, 1997, the Company had approximately 906 full-time
employees, consisting of employees engaged in the designing, manufacturing and
marketing of materials (66 employees), system components (689 employees),
systems (44 employees) and production equipment (78 employees) and 29 employees
in corporate/administrative services. The Company believes that its employee
relations historically have been good. The Company's employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage.
LEGAL PROCEEDINGS
The Company does not have pending any litigation that, separately or in the
aggregate, if adversely determined, could reasonably be expected to have a
material adverse effect on the Company. The Company and its subsidiaries may,
from time to time, be a party to litigation or administrative proceedings which
arise in the normal course of their business.
43
<PAGE> 46
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information with respect to each
person who is currently a director, an executive officer or key employee of the
Company.
<TABLE>
<CAPTION>
DIRECTORS
TERM
NAME AGE POSITION EXPIRES
- ------------------------------ --- --------------------------------------------- ---------
<S> <C> <C> <C>
Wayne R. Hellman 51 President, Chief Executive Officer and 1998
Chairman of the Board of Directors
Louis S. Fisi 62 Executive Vice President, Secretary and 2000
Director
Francis H. Beam 61 Director 2000
Theodore A. Filson 62 Director 1998
Susumu Harada 46 Director 1999
A Gordon Tunstall 53 Director 1999
Nicholas R. Sucic 50 Chief Financial Officer, Vice President and
Treasurer
Key Employees
David L. Jennings 47 Coordinator of Pacific Rim Development
Robert S. Roller 51 Coordinator of Market Development
Juris Sulcs 52 Coordinator of Technology Development
</TABLE>
Wayne R. Hellman has served as the chief executive and a director of the
Company since 1995 and as chief executive or other senior officer of each of the
Company's Predecessors since 1983. From 1968 to 1983 he was employed by the
lighting division of General Electric Company. While at General Electric, Mr.
Hellman served as Manager of Strategy Analysis for the Lighting Business Group;
Manager of Engineering for the Photo Lamp Department; Halarc Project Venture
Manager; Manager of Quartz Halogen Engineering and Manager of Metal Halide
Engineering. As the Halarc Project Venture Capital Manager, he was given the
responsibility of developing metal halide technology.
Louis S. Fisi has served as the Executive Vice President and a director of
the Company since 1995, served as chief financial officer of the Company from
1995 to November 1996 and chief financial officer of one or more of the
Company's Predecessors from 1985 to November 1996, and assisted Mr. Hellman in
the founding of the Predecessors. From 1976 to 1985, Mr. Fisi was employed in
executive and financial capacities by the Smithers Company, an international
industrial company, and from 1967 to 1976 was employed as a certified public
accountant by an international accounting and consulting firm currently known as
Ernst & Young LLP, the Company's independent auditors.
Francis H. Beam has served as a director of the Company since 1995. Mr.
Beam has served as President of Pepper Capital Corp., a venture capital firm
which he formed, since 1988. Mr. Beam is also a director of The Lamson &
Sessions Co., a manufacturer of thermoplastic conduit and pipe, enclosures,
wiring devices and accessories. From 1959 to 1988 he was employed by an
international accounting and consulting firm currently known as Ernst & Young
LLP, the Company's independent auditors. Beginning in 1967 he held various
partnership positions with that firm until his retirement in 1988 as Vice
Chairman and Regional Managing Partner.
Theodore A. Filson has been a director of the Company since 1995. Mr.
Filson has served as an independent consultant to the lighting industry since
1994. From 1986 to 1994 he was employed as president and chief executive officer
of Advance Transformer, Inc., the largest manufacturer of lighting system power
supplies in the world.
44
<PAGE> 47
Susumu Harada has served as a director of the Company since January 1996.
Mr. Harada is the chief executive officer of the following Japanese companies:
Koto Electric, Koto Bunkogen, Iwaki Cristal and Wakoh. Mr. Harada is also the
chief executive of Venture Lighting Japan ("Venture Japan"), formerly, Koto
Luminous, which is the Japanese distribution and manufacturing joint venture in
which the Company has a 30% interest. The product lines of these companies
include specialty lamps, hermetic seals for quartz crystal and optical
semiconductors and digital display lamps. In 1981, Mr. Harada joined Koto as the
Overseas and Domestic Sales and Planning Manager. He held a number of positions
with Koto before he assumed his current position as chief executive officer in
1992.
A Gordon Tunstall has served as a director of the Company since June 1996.
He is the founder of, and for more than 13 years has served as President of,
Tunstall Consulting, Inc., a provider of strategic consulting and financial
planning services. Mr. Tunstall is also currently a director of Romac
International, Inc., a professional and technical placement firm; Orthodontic
Centers of America, Inc., a manager of orthodontic practices; Discount Auto
Parts, Inc., a retail chain of automotive aftermarket parts stores; and L.A.T
Sportswear, Inc., a sports apparel company.
Nicholas R. Sucic joined the Company in 1996 as Special Assistant to the
Chairman and was appointed Chief Financial Officer and Treasurer in November
1996 and Vice President in April 1997. He is a certified public accountant. From
1989 to 1996, he was employed by The Prudential Investment Corporation having
served as chief financial officer and comptroller for various institutional
investment units. Prior to joining The Prudential, Mr. Sucic was a partner with
Ernst & Young LLP, the Company's independent auditors, having been associated
with the firm since 1970.
David L. Jennings has served as the senior officer responsible for product
manufacturing and development for one or more of the Predecessors since 1983,
and assisted Mr. Hellman in the founding of the Predecessors. From 1972 to 1983,
he was employed by General Electric in a managerial capacity, engaged primarily
in the marketing and engineering of metal halide and other lighting products.
Robert S. Roller has served as the senior officer responsible for product
marketing for one or more of the Predecessors since 1983, and assisted Mr.
Hellman in the founding of the Predecessors. From 1966 to 1983, he was employed
by the lighting division of General Electric in a managerial capacity, engaged
primarily in the marketing and engineering of metal halide and other lighting
products.
Juris Sulcs has served as the senior officer responsible for technology
development for one or more of the Predecessors since 1983, and assisted Mr.
Hellman in the founding of the Predecessors. From 1966 to 1983, he was employed
by the lighting division of General Electric in a managerial capacity, engaged
primarily in the technological development and quality control of metal halide
and other lighting products.
COMPOSITION OF THE BOARD OF DIRECTORS
Pursuant to the terms of the Company's Articles of Incorporation and the
Regulations (by-laws), the Board of Directors has the power to change the number
of directors by resolution. The number of directors is currently set at nine
members. Three vacancies currently exist on the board of directors. The
directors are divided into three classes. Each director in a particular class is
elected to serve a three-year term or until his or her successor is duly elected
and qualified. The classes are staggered so that their terms expire in
successive years resulting in the election of only one class of directors each
year.
COMMITTEES OF THE BOARD OF DIRECTORS
Executive Committee. The Company's Executive Committee is composed of Mr.
Hellman, Mr. Fisi and Mr. Filson. The Executive Committee is authorized to
exercise all of the powers of the Board of Directors except the powers to
declare dividends and issue shares of Common Stock or rights to acquire such
Common Stock. The Executive Committee is empowered to act during the interim
periods between meetings of the Board of Directors, where circumstances require
immediate Board of Directors' action and where time and other constraints
preclude a prompt special meeting of the entire Board of Directors.
45
<PAGE> 48
Audit Committee. The Company's Audit Committee is composed of Mr. Beam,
Mr. Filson and Mr. Tunstall. The Audit Committee makes recommendations
concerning the engagement of independent auditors, reviews with the independent
auditors the plans and results of the audit engagement, approves professional
services provided by the independent auditors, reviews the independence of the
independent auditors, considers the range of audit and non audit fees and
reviews the adequacy of the Company's internal accounting controls.
Compensation Committee. The Company's Compensation Committee is composed
of Mr. Beam, Mr. Filson and Mr. Harada. The Compensation Committee determines
the compensation of the Company's executive officers.
Incentive Award Plan Committee. The Company's Incentive Award Plan
Committee is composed of Mr. Hellman, Mr. Fisi and Mr. Tunstall. The members of
this Committee are ineligible to receive discretionary grants of stock or stock
options under any plan of the Company during the time they serve on the
Committee and during the one-year period prior to such service. The Incentive
Award Plan Committee administers the Incentive Award Plan and will make all
determinations as to grants of stock and stock options thereunder. See
"Management -- Incentive Award Plan."
Other Committees. The Board of Directors may establish other committees as
deemed necessary or appropriate from time to time.
COMPENSATION OF DIRECTORS
All directors of the Company receive reimbursement for reasonable
out-of-pocket expenses incurred in connection with meetings of the Board of
Directors. In December 1995, the Company granted options to purchase 9,600
shares of Common Stock under the Incentive Award Plan to its nonemployee
directors. These options were granted at an exercise price of $10.00 per share,
options as to 2,400 shares are currently exercisable by each of Messrs. Beam and
Filson. In January 1996, the Company granted options to purchase 9,600 shares of
Common Stock at $10.25 per share under the Incentive Award Plan to Mr. Harada
upon appointment to the Board of Directors, options as to 2,400 shares are
currently exercisable. In June 1996, the Company granted options to purchase
9,600 shares of Common Stock at $17.00 per share under the Incentive Award Plan
to Mr. Tunstall upon appointment to the Board of Directors. In June 1996, all
nonemployee directors other than Mr. Harada were granted options to purchase an
additional 5,400 shares at an exercise price of $17.00 per share. Each grant was
made at the market price of the Company's Common Stock on the date of grant.
Each option will vest 25% in the first year, 35% in the second year and 40% in
the third year, from the date of grant. In addition, commencing in fiscal 1997,
the nonemployee directors receive $2,500 for each meeting of the full board
attended. Such directors will be entitled to a minimum of $10,000 if they attend
75% or more meetings of the board and committees to which they belong. No
director who is an employee of the Company will receive separate compensation
for services rendered as a director.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information with respect to all
compensation paid or earned for services rendered to the Company in all
capacities for the fiscal years ending June 30, 1996 and June 30, 1995 by the
Company's executive officers.
46
<PAGE> 49
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------
OTHER ANNUAL
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(1) ($) ($)
- ------------------------------------- ---- -------- -------- ------------
<S> <C> <C> <C> <C>
Wayne R. Hellman 1996 $271,177 $ 0 $ 32,780(2)
Chief Executive Officer and
President 1995 $324,926 $136,524 $ (3)
Louis S. Fisi 1996 $169,224 $ 0 $ (3)
Executive Vice President and 1995 $196,156 $ 83,857 $ (3)
Chief Financial Officer(4)
</TABLE>
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
--------------------------------------------------
AWARDS PAYOUTS
------------------------------------ ---------
RESTRICTED LONG TERM
STOCK SECURITIES INCENTIVE ALL OTHER
AWARDS UNDERLYING PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) OPTIONS/SARS ($) ($)(5)
- ----------------------------------- ---- ---------- ------------ --------- ------------
<S> <C> <C> <C> <C> <C>
Wayne R. Hellman 1996 $0 0 $ 0 $109,426
Chief Executive Officer and
President 1995 $0 0 $ 0 $109,426
Louis S. Fisi 1996 $0 0 $ 0 $ 70,961
Executive Vice President 1995 $0 0 $ 0 $ 70,961
Chief Financial Officer(4)
</TABLE>
- ---------------
(1) Mr. Hellman and Mr. Fisi are each parties to an Employment Agreement with
the Company. These Employment Agreements have an initial term commencing
January 1996 and expiring December 1998. Through these Employment
Agreements, Mr. Hellman and Mr. Fisi will receive an annual base
compensation of $195,000 and $165,000 per year, respectively. In addition,
Mr. Hellman and Mr. Fisi will each receive bonuses, if any, as determined by
the Compensation Committee. These Employment Agreements provide for annual
increases in annual base compensation in amounts determined by the
Compensation Committee during the term of these Employment Agreements. Under
these Employment Agreements, Mr. Hellman and Mr. Fisi participate in Company
sponsored life, health and disability insurance coverage. Also includes
compensation deferred pursuant to the Company's 401(k) deferred compensation
plan and Company matching contributions relating thereto.
(2) Fiscal 1996 perquisites provided to Mr. Hellman included club dues
($21,600), automobile use ($9,768), automobile insurance and health
insurance.
(3) Perquisites provided to the executive officers consisted primarily of
automobile use, automobile insurance, club dues and health insurance
premiums and did not exceed 10% of the person's salary and bonus.
(4) Mr. Sucic was elected to the office of Chief Financial Officer on November
13, 1996.
(5) Split-dollar life insurance premiums.
INCENTIVE AWARD PLAN
The Incentive Award Plan, which became effective as of August 21, 1995, was
established to encourage selected employees, advisors, consultants and directors
of the Company to acquire an equity interest in the Company, to create an
increased incentive for those persons to contribute to the Company's future
success and to enhance the ability of the Company to attract and retain
qualified individuals.
The Incentive Award Plan is administered by the Incentive Award Plan
Committee, each member of which is a "disinterested" person within the meaning
of former Rule 16b-3 under the Exchange Act.
Subject to adjustment under certain circumstances to prevent dilution or
enlargement of the benefits or potential benefits intended to be made under the
Incentive Award Plan, the number of shares of Common Stock originally available
for awards under the Incentive Award Plan was 1,000,000. These shares may be
issued in connection with the grant by the Incentive Award Plan Committee as "A"
Incentive Options and/or "B" Incentive Options, as the case may be (collectively
called the "Options"). The Incentive Award Plan also provides that no "A" or "B"
Incentive Option may be exercised prior to six months after the date of its
grant and that no awards may be granted under the Incentive Award Plan after
July 31, 2005.
47
<PAGE> 50
The Company has granted Incentive Options to purchase the Common Stock of
the Company. As of May 28, 1997, 188,375 "A" Incentive Options granted at an
exercise price equal to the initial public offering price ($10.00) of the Common
Stock were outstanding, 21,500 shares of which are vested and the rest of which
will become vested based on operating performance or at the end of five years
from the date of grant. 50,000 additional "A" type Incentive Options have been
issued at $22.75, and 25,000 additional "A" type Incentive Options have been
issued at $25.50, and are outstanding. As of May 28, 1997, an aggregate of
687,737 "B" Incentive Options had been granted on and after December 12, 1995,
at market value exercise prices of $10.00 per share to $19.00 per share, and
remained outstanding. The "B" Incentive Options vest as follows: 25% after one
year, 35% after two years and 40% after three years from the date of grant.
Stock Options granted under the Incentive Award Plan are required to comply in
all respects with the provisions of Section 422 of the Internal Revenue Code of
1986, as amended, or any successor provisions thereto and any regulations
promulgated thereunder. Accordingly, the Incentive Award Plan provides that
Incentive Stock Options will only be issued to an employee of the Company and
will not be granted to an owner of ten percent or more of the combined voting
power of the Company.
The Incentive Award Plan further provides that to the extent required to
comply with Rule 16b-3, any equity security issued pursuant to the Incentive
Award Plan may not be sold for at least six months after acquisition, except in
the case of death or disability. The Incentive Award Plan may be amended,
altered, suspended, discontinued or terminated by the Company's Board of
Directors except to the extent prohibited by applicable law and as expressly
provided in an award agreement or in the Incentive Award Plan.
EMPLOYEE STOCK PURCHASE PLAN
The Company has recently initiated an Employee Stock Purchase Plan,
pursuant to which all employees are eligible to purchase shares of the Company's
Common Stock at a discount from market value at the time of purchase. All shares
will be purchased from the Company and employees will pay for shares through
payroll deductions. 100,000 shares of Common Stock have been reserved for
issuance under the plan.
EMPLOYMENT AND CONSULTING AGREEMENTS
Mr. Hellman and Mr. Fisi are each parties to an Employment Agreement with
the Company. These Employment Agreements have an initial term expiring December
1998. Through these Employment Agreements, Mr. Hellman and Mr. Fisi, will
receive an annual base compensation of $195,000 and $165,000 per year,
respectively. In addition, Mr. Hellman and Mr. Fisi will be entitled to receive
a bonus in amounts determined by the Compensation Committee. These Employment
Agreements provide for annual increases in the annual base compensation as
determined by the Compensation Committee during the term of these Employment
Agreements. Under these Employment Agreements, Mr. Hellman and Mr. Fisi
participate in Company sponsored life, health and disability insurance coverage.
In addition, Mr. Hellman and Mr. Fisi have entered into agreements not to
compete with the Company for a period of three years after termination of
employment.
The Company entered into a three year agreement with Mr. Filson for
consulting services commencing in 1994, which required payment by the Company of
$100,000 per year. This agreement was terminated in 1996. In calendar 1997, Mr.
Filson will provide consulting services to the Company and receive a fee of
$100,000. In calendar 1998, Mr. Filson has agreed to be available to provide
consulting services to the Company, although the amount of any fees has not yet
been determined.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors requires a majority to
be independent directors. During fiscal 1996, this Committee consisted of Mr.
Beam, Mr. Filson and a former board member, Richard Capra. Mr. Filson is a
consultant to the Company. The Company has also established an Incentive Award
Plan Committee composed of Wayne R. Hellman and Louis S. Fisi, the Chief
Executive Officer and Executive Vice President, respectively, of the Company,
and A Gordon Tunstall, each of whom are disinterested directors since they will
not participate in awards under such plan.
48
<PAGE> 51
CERTAIN TRANSACTIONS
THE COMBINATION
In connection with the Combination, the following executive officers and
directors of the Company or their immediate family members received Common Stock
in the merger of the Predecessors into the Company in exchange for the shares of
Common Stock of the Predecessors which they had held. The following table sets
forth the number of shares of Common Stock received by these individuals in the
Combination.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMPANY
EXECUTIVE OFFICER, COMMON STOCK
DIRECTOR OR IMMEDIATE RECEIVED
FAMILY MEMBER IN COMBINATION
- ----------------------------------------------------------------------------- ----------------
<S> <C>
Wayne R. Hellman............................................................. 3,125,153
Louis S. Fisi................................................................ 657,112
Theodore A. Filson(1)........................................................ 15,021
Francis H. Beam.............................................................. 34,685
Brian A. Hellman (2)......................................................... 177,523
Lisa B. Hellman (2).......................................................... 167,206
</TABLE>
- ---------------
(1) Mr. Filson's beneficial ownership is by virtue of the Filson Family Limited
Partnership, of which Mr. Filson is a general partner.
(2) Brian Hellman and Lisa Hellman are Mr. Hellman's children.
The Combination was principally effected through a series of nonmonetary
mergers or stock exchanges in which the Predecessors' shareholders received
shares of the Company, except that certain former employees received, in the
aggregate, an insignificant amount of cash for their shares.
OTHER TRANSACTIONS WITH DIRECTORS AND OFFICERS
During fiscal 1996, the Company paid $764,000 to H&F Management, Inc., a
company owned solely by Mr. Hellman, Mr. Fisi and Mr. Brian A. Hellman. H&F
Management, Inc. provided management services to certain Predecessors prior to
the Combination. This arrangement terminated prior to the Company's initial
public offering.
On June 28, 1995, the Company loaned to Mr. Hellman $88,000 (due in June
1997), represented by Mr. Hellman's 8% promissory note to the Company. On May
10, 1995, the Company loaned to Mr. Fisi $70,000 (due in May 1997), represented
by Mr. Fisi's 8% promissory note. These loans were repaid in full in fiscal
1997.
On August 10, 1995, a Predecessor redeemed from Mr. Hellman 193,000 shares
of such Predecessor's common stock at a total price of $146,250.
On September 15, 1995, a Predecessor transferred its nonlamp assets to H&F
Five, Inc., a company owned by Messrs. Hellman, Fisi and certain other employees
of the Company, for a demand promissory note from H&F Five, Inc. in the amount
of $220,000 bearing interest at 8.5% per annum.
In July 1994, Mr. Beam and Mr. Filson were each granted the right to
purchase 48,750 shares of common stock of a Predecessor at $1.00 per share. Such
grant further provided that if all shares were purchased pursuant to such rights
the related rightholder would be entitled to receive an additional 9,750 shares
of common stock of the Predecessor. On various dates in 1994 and 1995, Mr. Beam,
either directly or through trusts or partnerships which he controlled or in
which he had beneficial interests, exercised all of such rights and received
such additional shares. In addition, as to the Filson interest, the shares were
acquired by a trust for the benefit of a family member. In addition, in April
1995, Mr. Filson received an aggregate of 6,500 shares of common stock of the
Predecessor for services rendered. Further, such directors each received 5,000
shares
49
<PAGE> 52
of common stock of the Predecessor in July 1993 upon its emergence from Chapter
11 reorganization for services rendered. No compensation expense for such shares
was recorded in any period because the amount of such expense in each period was
deemed insignificant. As a result of all of the foregoing, Mr. Beam and Mr.
Filson received 34,685 shares and 15,021 shares of Common Stock, respectively,
in the Combination.
The Company has entered into a three year agreement with Mr. Filson for
consulting services commencing in 1994, which required payment by the Company of
$100,000 per year. This agreement was terminated in 1996. In calendar 1997, Mr.
Filson will provide consulting services to the Company and receive a fee of
$100,000. In 1998, Mr. Filson has agreed to be available to provide consulting
services to the Company, although the amount of any fees has not yet been
determined.
The Company does not intend to enter into any material transaction with
officers or directors, or their family members, without the approval of a
majority of the nonemployee directors in the future.
Mr. Harada, a director of the Company, is an executive officer, director
and a shareholder of Venture Japan, formerly known as Koto Luminous Ltd., a
Japanese manufacturer and marketer of lighting products. Venture Japan owns
182,268 shares of the Company, which were acquired in the Combination as a
result of an investment in a Predecessor. In April 1997, the Company purchased a
30% equity interest in Venture Japan. Venture Japan and the Company are each 50%
joint venture partners in Pacific Lighting, Inc., a British Virgin Island
holding company. The Company uses Pacific Lighting to own and hold a number of
the Company's joint venture's investments. Venture Japan is the Company's sole
trading partner in Japan and, as a result, the Company supplies Venture Japan
with materials and lamps. Venture Japan paid the Company approximately $2.4
million and $1.4 million in fiscal 1996 and the nine months ended March 31,
1997, respectively.
On January 22, 1996 two subsidiaries of the Company each entered into a
six-year Aircraft Operating Agreement with Levetz Investments, Inc. ("Levetz"),
an unrelated Ohio corporation, for the purpose of chartering a 1986 Beechcraft
King Air 300 airplane (the "King Air Aircraft"), which Levetz leases from
LightAir Ltd. ("LightAir"), an Ohio limited liability company owned by Mr.
Hellman (80%) and Mr. Fisi (20%). On May 27, 1997, the Company entered into a
ten-year Aircraft Dry Lease Agreement with LightAir for the purpose of leasing a
1993 Lear Jet 60 airplane (the "Lear Aircraft"). In each case, the leased
airplanes enable the Company to have air service into locations which are not
adequately served by commercial carriers. One of the subsidiaries has committed
to a minimum of 200 King Air flight hours per year, and the other subsidiary has
committed to a minimum of 75 King Air flight hours per year. Until the minimum
number of hours is reached, the subsidiaries pay $950 per flight hour for the
King Air, and $550 per flight hour thereafter, in each case plus operating and
maintenance expenses. The Company has committed to a minimum of 260 Lear flight
hours per year. The lease rate for the Lear Aircraft is $2,500 per flight hour,
plus operating costs and maintenance expenses. Messrs. Hellman and Fisi
guaranteed the repayment of $1.7 million of indebtedness incurred to purchase
the King Air Aircraft and the repayment of $8.4 million of indebtedness incurred
to purchase the Lear Aircraft. Payments to LightAir pursuant to the King Air
Aircraft lease totalled $244,000 in fiscal 1996 and $489,808 in the nine months
ended March 31, 1997. Levetz has entered into a separate Aircraft Dry Lease
Agreement with LightAir for use of the Lear Aircraft when not in use by the
Company.
50
<PAGE> 53
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of May 30, 1997, and as adjusted to reflect the
completion of the Offering, by: (i) each of the Company's directors and
executive officers; (ii) all directors and executive officers of the Company as
a group; (iii) each person known by the Company to own beneficially 5.0% or more
of the outstanding Common Stock; and (iv) the Selling Shareholders. Shares will
be sold by the Selling Shareholders only if, and to the extent that, the
Underwriters exercise their over-allotment option. If the Underwriters exercise
their over-allotment option in part, the number of shares purchased from each
Selling Shareholder will be reduced proportionately. Except as otherwise noted
below, each of the holders listed below has sole voting power and investment
power with respect to the shares shown as beneficially owned.
<TABLE>
<CAPTION>
SHARES
SHARES BENEFICIALLY OWNED
BENEFICIALLY SHARES AFTER THE FULL
OWNED PRIOR TO PERCENTAGE SUBJECT EXERCISE OF OVER-
THE OFFERING(2) BENEFICIALLY TO OVER- ALLOTMENT OPTION(2)
-------------------- OWNED AFTER ALLOTMENT --------------------
NAME(1) NUMBER PERCENT OFFERING(2)(3) OPTION NUMBER PERCENT
- ------------------------------- --------- ------- -------------- --------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
DIRECTORS, EXECUTIVE OFFICERS
AND PRINCIPAL SHAREHOLDERS:
Wayne R. Hellman(4)............ 5,424,545 40.0% 32.8% 204,564 4,974,545 30.0%
Louis S. Fisi(5)............... 539,042 4.0 3.3 49,266 489,776 3.0
Francis H. Beam................ 36,504 * * 0 36,504 *
Theodore A. Filson............. 18,771 * * 0 18,771 *
Susumu Harada(6)............... 193,168 1.4 1.2 0 193,168 1.2
A Gordon Tunstall.............. 8,750 * * 0 8,750 *
David L. Jennings(5)(7)........ 717,363 5.3 4.3 65,399 651,964 3.9
Nicholas R. Sucic.............. 3,563 * * 0 3,563 *
All Directors and Executive
Officers as a Group(4)(6)
(7 persons).................. 5,685,301 41.9 34.3 253,830 5,235,301 31.6
OTHER SELLING SHAREHOLDERS:
Robert S. Roller(5)(8)......... 417,125 3.1% 2.5 30,774 386,351 2.3%
James F. Sarver(5)............. 392,597 2.9 2.4 35,882 356,715 2.2
Juris Sulcs(5)................. 369,161 2.7 2.2 33,740 335,421 2.0
Christine Hellman(5)(9)........ 332,350 2.5 2.0 30,375 301,975 1.8
</TABLE>
- ---------------
* Less than one percent.
(1) The business address of each of Messrs. Hellman, Fisi, Sucic, Jennings and
Filson is 2307 East Aurora Road, Suite One, Twinsburg, Ohio 44087. The
business addresses of Messrs. Beam, Harada and Tunstall are: Mr.
Beam -- Pepper Capital Corporation, 30195 Chagrin Boulevard, Suite 114N,
Pepper Pike, Ohio 44124; Mr. Harada -- Koto Electric Co., Ltd., Bunmeido
Bldg., 7th Floor, 3-16-5, Taito, Taito-Ku, Tokyo 110, Japan; and Mr.
Tunstall -- Tunstall Consulting, 13153 North Dale Mabry, Tampa, Florida,
33618.
(2) Shares beneficially owned include the following shares which may be acquired
within 60 days of the date of this Prospectus by exercise of options granted
pursuant to the Incentive Award Plan: Mr. Beam -- 3,750 shares; Mr.
Filson -- 3,750 shares; Mr. Harada -- 2,400 shares; Mr. Tunstall -- 3,750
shares; Mr. Sucic -- 3,563 shares. Percentage ownership is calculated on the
basis of shares outstanding before and after the Offering, plus shares which
may be acquired within 60 days of the date of this Prospectus upon exercise
of all options granted pursuant to the Incentive Award Plan, totaling
129,565 shares.
(3) Assumes that the Underwriters do not exercise any portion of their
over-allotment option.
(4) Includes 2,188,211 shares (1,983,647 shares if the Underwriters'
over-allotment option is exercised in full) owned by Mr. Hellman
individually; 125,000 shares owned by a limited liability company of which
Mr. Hellman is the manager and as to which Mr. Hellman has voting and
investment power; 50,000 shares owned by a private charitable foundation
established by Mr. Hellman and as to which Mr. Hellman has voting and
investment power; 1,320,761 shares (1,220,764 shares if the Underwriters'
over-allotment option is exercised in full) beneficially owned by certain
shareholders of the Company held under a voting trust which expires in 2005
(the "Trust") and 1,740,573 shares (1,595,134 shares if the Underwriters'
over-allotment option is exercised in full) formerly owned by the Trust as
to which Mr. Hellman holds an irrevocable proxy under similar terms. These
shares, totalling
- ---------------
(Footnotes continued on following page)
51
<PAGE> 54
3,061,334 (2,815,896 shares if the Underwriters' over-allotment option is
exercised in full), are referred to herein as the "Trust Shares." The shares
offered hereby include 204,562 shares owned by Mr. Hellman, individually,
and 245,438 Trust Shares. The Trust Shares include all shares individually
owned by Messrs. Fisi, Jennings, Roller, Sarver, Sulcs, Ms. Christine
Hellman, Ms. Lisa Hellman and trusts for the benefits of Mr. Roller's
children. The Trust Shares also include shares owned by Mr. Brian Hellman.
Pursuant to the terms of the Trust and the irrevocable proxies, Mr. Hellman
is empowered to vote the Trust Shares for all purposes at his sole
discretion, but is not provided with investment power with respect to the
Trust Shares. Beneficial owners of the Trust Shares may remove the shares
from the Trust or release the shares from the irrevocable proxy, as the case
may be, to effect a bona fide sale free of the restrictions of the Trust.
All share distributions on account of the Trust Shares become subject to the
Trust and all cash and other nonshare distributions on account of the Trust
Shares are to be paid over to the grantors of the Trust. The expiration of
the Trust may be accelerated under certain circumstances. Mr. Hellman does
not receive any compensation for serving as voting trustee of the Trust.
(5) All individually owned shares are Trust Shares subject to voting control by
Mr. Hellman.
(6) Includes 182,268 shares owned by Venture Japan, of which Mr. Harada is chief
executive officer. Mr. Harada disclaims beneficial ownership of these
shares.
(7) Includes 1,805 shares owned by Mr. Jennings' wife as to which he disclaims
beneficial ownership. All shares, other than shares owned by Mr. Jennings'
wife, are Trust Shares subject to voting control by Mr. Hellman.
(8) Includes 80,414 shares owned by six trusts for the benefit of Mr. Roller's
children. Mr. Roller disclaims beneficial ownership of these shares. All
such shares are Trust Shares. Includes 6,000 shares owned by a private
charitable foundation established by Mr. Roller and as to which Mr. Roller
has voting and investment power.
(9) Ms. Christine Hellman is a consultant to the Company.
DESCRIPTION OF CAPITAL STOCK
GENERAL
The Company's authorized capital stock consists of 80.0 million shares of
Common Stock having a par value of $.001 per share and 1.0 million shares of
preferred stock having a par value of $.001 per share. As of May 28, 1997,
13,430,731 shares of Common Stock and no shares of preferred stock were issued
and outstanding.
COMMON STOCK
Each holder of Common Stock is entitled to one vote for each share held.
Shareholders do not have the right to cumulate their votes in elections of
directors. Accordingly, holders of a majority of the issued and outstanding
Common Stock will have the right to elect the Company's directors and otherwise
control the affairs of the Company.
Holders of Common Stock are entitled to dividends on a pro rata basis upon
declaration of dividends by the Board of Directors. Dividends are payable only
out of unreserved and unrestricted surplus that is legally available for the
payment of dividends. The Board of Directors is not required to declare
dividends, and it currently expects to retain any funds generated from
operations to finance the development of the Company's business. The payment of
dividends in the future will depend upon earnings, capital needs, and other
factors. See "Dividend Policy."
Upon a liquidation of the Company, holders of Common Stock will be entitled
to a pro rata distribution of the assets of the Company, after payment of all
amounts owed to the Company's creditors, and subject to any preferential amount
payable to holders of preferred stock of the Company, if any.
PREFERRED STOCK
The Company's Articles of Incorporation permit the Company's Board of
Directors to issue shares of preferred stock in one or more series, and to fix
the relative rights, preferences, and limitations of each series. Among such
rights, preferences, and limitations are dividend rights and rates, provisions
for redemption, rights upon liquidation, conversion privileges, and certain
voting powers. The Board of Directors of the Company currently has no plans to
issue any shares of preferred stock.
52
<PAGE> 55
The purpose for authorizing the Board of Directors to issue and to
designate the features of preferred stock is, in part, to eliminate delays
associated with a shareholder vote to authorize the issuance of preferred stock.
The issuance of preferred stock, for example in connection with a shareholder
rights plan, could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from acquiring, a majority of the
outstanding capital stock of the Company.
CERTAIN PROVISIONS OF THE COMPANY'S ARTICLES OF INCORPORATION
The Company's Articles of Incorporation provide for a classified Board of
Directors. The directors are divided into three classes. The directors are
elected for three-year terms, which are staggered so that the terms of one-third
of the directors expire each year. The Articles of Incorporation permit
shareholders to remove directors only for cause at a meeting by the affirmative
vote of at least a majority of the outstanding shares of Common Stock. Directors
of the Company may remove directors with or without cause.
The above-described provisions of the Company's Articles of Incorporation
may have certain antitakeover effects. Such provisions, in addition to the
provisions described below and the possible issuance of preferred stock
discussed above, may make it more difficult for other persons, without the
approval of the Company's Board of Directors, to make a tender offer or
acquisitions of substantial amounts of the Common Stock or to launch other
takeover attempts that a shareholder might consider to be in such shareholder's
best interests.
CERTAIN PROVISIONS OF OHIO LAW
The Company is subject to several antitakeover provisions under Ohio law
that apply to Ohio public corporations, unless the Company elects to opt out of
these provisions in its Articles of Incorporation or Regulations (by-laws). The
Company has not opted out of these takeover provisions.
Under Ohio's Control Share Acquisition Act (the "Acquisition Act"), any
"control share acquisition" of an Ohio public corporation shall be made only
with the prior authorization of the shareholders of the corporation in
accordance with the provisions of the Acquisition Act. A "control share
acquisition" is defined under the Acquisition Act to mean the acquisition,
directly or indirectly, by any person of shares of a public corporation that,
when added to all other shares of the corporation such person owns, would
entitle such person, directly or indirectly, to exercise voting power in the
election of directors within the following ranges: more than 20%, more than 33%
and a majority.
The Acquisition Act also requires that the acquiring person deliver an
"acquiring person's statement" to the Ohio public corporation. The Ohio public
corporation must then call a special meeting of its shareholders to vote upon
the proposed acquisition within 50 days after receipt of such acquiring person's
statement, unless the acquiring person agrees to a later date.
The Acquisition Act further specifies that the shareholders of the
corporation must approve the proposed control share acquisition by certain
percentages at a special meeting of shareholders at which a quorum is present.
In order to comply with the Acquisition Act, the acquiring person may only
acquire the stock of the Ohio public corporation upon the affirmative vote of:
(i) a majority of the voting power of the corporation that is represented in
person or by proxy at the special meeting and (ii) a majority of the voting
power of the corporation that is represented in person or by proxy at the
special meeting, excluding those shares of the corporation deemed to be
"interested shares" for purposes of the Act.
"Interested shares" are defined under the Act to mean shares in respect of
which the voting power is controlled by any of the following persons: (i) an
acquiring person; (ii) any officer of the Ohio public corporation; and (iii) any
employee who is also a director of the corporation. "Interested shares" also
include shares of the corporation that are acquired by any person after the date
of the first public disclosure of the proposed acquisition and the date of the
special meeting, if either (i) the aggregate consideration paid by such person,
and any person acting in concert with him, for such shares of the Ohio public
corporation exceeds $250,000 or (ii) the number of shares acquired by such
person, and any person acting in concert with him, exceeds one-half of one
percent of the outstanding shares of the corporation.
53
<PAGE> 56
Section 1701.59 of the Ohio Revised Code, inter alia, empowers an Ohio
corporation to indemnify any director, officer, employee or agent of the
corporation against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlement actually and reasonably incurred by him or her in
connection with such action, suit or proceeding if he or she acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the corporation, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe his or her conduct was unlawful.
Similar indemnity is authorized for such person against expenses (including
attorneys' fees) actually and reasonably incurred in connection therewith.
In addition, Section 1701.59 eliminates the personal liability in damages
of a director for violations of the director's fiduciary duty, except if it is
proved by clear and convincing evidence that his action or failure to act
involved acts or omissions undertaken with deliberate intent to cause injury to
the corporation or with reckless disregard for the best interests of the
corporation. The Company has not opted out of Section 1701.59 of the Ohio
Revised Code. This statute does not affect the liability of directors pursuant
to Section 1701.95 of the Ohio Revised Code (providing for liability of
directors for unlawful payment of dividends or unlawful distribution of assets)
nor does it affect the liability of the directors under federal securities laws.
The Company is also subject to Ohio's Merger Moratorium Act. The Merger
Moratorium Act generally prohibits a wide range of business combinations and
other transactions (including mergers, consolidations, asset sales, loans,
disproportionate distributions of property and disproportionate issuances or
transfers of shares or rights to acquire shares) between an Ohio corporation and
a person that owns, alone or with other related parties, shares representing at
least 10% of the voting power of the corporation (an "Interested Shareholder")
for a period of three years after such person becomes an Interested Shareholder,
unless, prior to the date that the Interested Shareholder became such, the
directors approve either the transaction or the acquisition of the corporation's
shares that resulted in the person becoming an Interested Shareholder. Following
the three-year moratorium period, the corporation may engage in covered
transactions with an Interested Shareholder only if, among other things, (i) the
transaction receives the approval of the holders of two-thirds of all the voting
shares and the approval of the holders of a majority of the voting shares held
by persons other than an Interested Shareholder or (ii) the remaining
shareholders receive an amount for their shares equal to the higher of the
highest amount paid in the past by the Interested Shareholder for the
corporation's shares or the amount that would be due the shareholders if the
corporation were to dissolve.
Contemporaneous with the adoption of Ohio's Merger Moratorium Act, Ohio
enacted a so-called "green mailer disgorgement" statute which provides that a
person who announces a control bid must disgorge profits realized by that person
upon the sale of any equity securities within 18 months of the announcement of
the control bid.
The Company is also subject to Ohio's Control Bid Statute. Ohio's Control
Bid Statute provides that no offeror may make a "control bid" pursuant to a
tender offer or a request or invitation for tenders unless, on the day the
offeror commences a control bid, it files with the Ohio Division of Securities
(the "Securities Division") and the target company certain information in
respect of the offeror, his ownership of the corporation's shares and his plans
for the corporation (including, among other things, plans to terminate employee
benefit plans, close any plant or facility or reduce the work force). If the
Securities Division determines that the offeror's disclosures are inadequate, it
must act within three calendar days from the date of the offeror's filing to
issue a suspension order. If a bid is suspended, a hearing must be held within
10 calendar days from the date of the Securities Division's suspension order.
The hearing procedure must be completed no later than 16 calendar days after the
date on which the suspension was imposed.
A "control bid" under Ohio's Control Bid Statute is defined as the purchase
of or an offer to purchase any equity security of an issuer with certain
connections to Ohio from a resident of Ohio if (i) after the purchase of such
security, the offeror would directly or indirectly be the beneficial owner of
more than 10% of any class of the issued and outstanding equity securities of
the issuer or (ii) the offeror as the issuer, there is a pending control bid by
a person other than the issuer and the number of issued and outstanding shares
of the corporation will be reduced by more than 10%.
54
<PAGE> 57
Finally, Ohio law provides for the right of the Board of Directors to
consider the interests of various constituencies, including employees,
customers, suppliers and creditors of the Company, as well as the communities in
which the Company is located, in addition to the interest of the Company and its
shareholders, in discharging their duties in determining what is in the
Company's best interests.
The above-described provisions of Ohio law may have certain antitakeover
effects. Those provisions make it more difficult for other persons, without the
approval of the Company's Board of Directors, to make a tender offer or
acquisitions of substantial amounts of the Common Stock or to launch other
takeover attempts that a shareholder might consider in such shareholder's best
interests.
TRANSFER AGENT
American Stock Transfer & Trust Company, New York, New York, acts as
transfer agent for the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have 16,430,731 shares of
Common Stock outstanding. Of these shares, 9,546,323 shares (9,996,323 shares if
the Underwriters' over-allotment option is exercised in full) will be freely
tradeable without restriction or further registration under the Securities Act,
except for those shares held by "affiliates" (as defined in the Securities Act)
of the Company. The remaining 6,884,222 shares outstanding (6,434,222 shares if
the Underwriters' over-allotment option is exercised in full) are "Restricted
Securities" as that term is defined in Rule 144 of the Securities Act and fall
into two categories, "Rule 144 Shares" consisting of 6,757,299 shares and
"Regulation S Shares" consisting of 126,923 shares. In addition, 954,002 shares
of Common Stock are reserved under the Incentive Award Plan for exercises of
stock options granted by the Company, of which options to purchase 951,112
shares had been granted and were outstanding as of May 28, 1997, of which
129,565 are exercisable within 60 days of the date of this Prospectus and
100,000 shares of Common Stock are reserved for purchase under the Employee
Stock Purchase Plan. The Company has registered the issuance of Common Stock in
connection with the exercise of options under the Incentive Award Plan and
purchases under the Employee Stock Purchase Plan and, consequently, when such
shares are purchased, such shares will be available for sale in the public
market without restriction, to the extent they are not held by affiliates.
In general, under Rule 144 as currently in effect, any affiliate of the
Company or any person (or persons whose shares are aggregated in accordance with
the Rule) who has beneficially owned Restricted Securities for at least one year
is entitled to sell within any three-month period a number of shares that does
not exceed the greater of 1.0% of the outstanding shares of Common Stock
(approximately 164,307 shares based upon the number of shares outstanding after
the Offering) or the reported average weekly trading volume in the over-
the-counter market for the four weeks preceding the sale. Sales under Rule 144
are also subject to certain manner of sale restrictions and notice requirements
and to the availability of current public information concerning the Company.
Persons who have not been affiliates of the Company for at least three months
and who have held their shares for more than two years are entitled to sell
Restricted Securities without regard to the volume, manner of sale, notice and
public information requirements of Rule 144. Except for 88,024 shares of Common
Stock issued in 1997 in connection with acquisitions and subject to the
agreement described in the next following paragraph, all shares of Restricted
Securities are eligible for sale under Rule 144.
Each of the Company, the Selling Shareholders, the Company's officers and
directors, GE and Venture Lighting Japan, who, upon completion of the Offering,
will own in the aggregate 5,822,060 shares (5,372,060 shares if the
Underwriters' over-allotment option is exercised in full), has agreed that,
without the prior written consent of Morgan Stanley & Co. Incorporated on behalf
of the Underwriters, it will not (i) offer, pledge, sell, contract to sell, sell
any option or contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase or otherwise transfer or dispose
of, directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or (ii) enter
into any swap or other agreement that transfers to another, in whole or in part,
any of the economic consequences of ownership of the Common Stock, whether any
such transaction described in clause
55
<PAGE> 58
(i) or (ii) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise, during the period ending 90 days after the
date hereof, other than (a) the shares of Common Stock offered hereby, (b) the
issuance by the Company of shares of Common Stock upon the exercise of an option
or warrant or the conversion of a security outstanding on the date hereof, (c)
any options granted or shares of Common Stock issued pursuant to existing
benefit plans of the Company, or (d) with respect to any Selling Shareholder,
any sale of shares of Common Stock, which are subject to an existing pledge or
other security arrangement on the date hereof of which the Underwriters have
been advised in writing, in good faith pursuant to the terms of such pledge or
arrangement.
The Company is unable to predict the effect, if any, that future sales of
shares, or the availability of shares for future sale, will have on the market
price for the Common Stock prevailing from time to time. Sales of substantial
amounts of Common Stock, or the perception that such sales could occur, could
adversely affect the market price for the Common Stock and could impair the
Company's future ability to obtain capital through offerings of equity
securities.
Following the Offering, the Company may issue its Common Stock from time to
time in connection with the acquisition of stock or assets of other companies.
Such securities may be issued in transactions exempt from registration under the
Securities Act.
56
<PAGE> 59
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the Underwriters named below, for whom Morgan
Stanley & Co. Incorporated, Prudential Securities Incorporated and Raymond James
& Associates, Inc. are serving as Representatives, have severally agreed to
purchase, and the Company has agreed to sell to them the respective numbers of
shares of Common Stock set forth opposite the names of such Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
----------------------------------------------------------------------------- ---------
<S> <C>
Morgan Stanley & Co. Incorporated............................................
Prudential Securities Incorporated...........................................
Raymond James & Associates, Inc..............................................
---------
Total.............................................................. 3,000,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock
offered hereby are subject to the approval of certain legal matters by counsel
and to certain other conditions. The Underwriters are obligated to take and pay
for all of the shares of Common Stock offered hereby (other than those covered
by the over-allotment option described below) if any are taken.
The Underwriters initially propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page hereof and part to certain dealers at a price which represents a concession
not in excess of $ per share. Any Underwriter may allow, and such
dealers may reallow, a concession not in excess on $ per share to other
Underwriters or to certain other dealers. After the initial offering of the
shares of Common Stock, the offering price and other selling terms may from time
to time be varied by the Representatives.
Pursuant to the Underwriting Agreement, the Selling Shareholders have
granted to the Underwriters an option, exercisable for 30 days from the date of
this Prospectus, to purchase up to an aggregate 450,000 additional shares of
Common Stock at the public offering price set forth on the cover page hereof,
less underwriting discounts and commissions. The Underwriters may exercise such
option to purchase solely for the purpose of covering over-allotments, if any,
incurred in the sale of the shares of Common Stock offered hereby. To the extent
such option is exercised, each Underwriter will become obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares as the number set forth next to such Underwriter's name in the
preceding table bears to the total number of shares of Common Stock offered
hereby.
Each of the Company and the Selling Shareholders and the Company's officers
and directors, GE and Venture Lighting Japan have agreed that, without the prior
written consent of Morgan Stanley & Co. Incorporated on behalf of the
Underwriters, it will not (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or
57
<PAGE> 60
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock or (ii) enter into any swap or other agreement that transfers to
another, in whole or in part, any of the economic consequences of ownership of
the Common Stock, whether any such transaction described in clause (i) or (ii)
above is to be settled by delivery of Common Stock or such other securities, in
cash or otherwise, during the period ending 90 days after the date hereof, other
than (a) the shares of Common Stock offered hereby, (b) the issuance by the
Company of shares of Common Stock upon the exercise of an option or warrant or
the conversion of a security outstanding on the date hereof, (c) any options
granted or shares of Common Stock issued pursuant to existing benefit plans of
the Company or (d) with respect to any Selling Shareholder, any sale of shares
of Common Stock, which are subject to an existing pledge or other security
arrangement on the date hereof of which the Underwriters have been advised in
writing, in good faith pursuant to the terms of such pledge or arrangement.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities under the Securities Act.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may overallot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the Offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Underwriters and dealers may engage in passive marketing making
transactions in the Common Stock in accordance with Rule 103 of Regulation M
promulgated by the Securities and Exchange Commission. In general, a passive
market maker may not bid for, or purchase, the Common Stock at a price that
exceeds the highest independent bid. In addition, the net daily purchases made
by any passive market maker generally may not exceed 30% of its average daily
trading volume in the Common Stock during a specified two month prior period. A
passive market maker must identify passive market making bids as such on the
Nasdaq electronic inter-dealer reporting system. Passive market making may
stabilize or maintain the market price of the Common Stock above independent
market levels. Underwriters and dealers are not required to engage in passive
market making and may end passive market making activities at any time.
LEGAL MATTERS
Certain legal matters in connection with the validity of the Common Stock
offered hereby will be passed upon for the Company by Cowden, Humphrey & Sarlson
Co., L.P.A., Cleveland, Ohio, counsel to the Company, and for the Underwriters
by King & Spalding, Atlanta, Georgia.
EXPERTS
The consolidated financial statements of Advanced Lighting Technologies,
Inc. at June 30, 1996 and 1995, and for each of the three years in the period
ended June 30, 1996, appearing in this Prospectus and Registration Statement
have been audited by Ernst & Young LLP, independent auditors, as set forth in
their report thereon appearing elsewhere herein and in the Registration
Statement, and are included in reliance upon such report given upon the
authority of such firm as experts in accounting and auditing.
58
<PAGE> 61
INDEX TO FINANCIAL STATEMENTS
ADVANCED LIGHTING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Audited Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors............................ F-2
Consolidated Balance Sheets as of June 30, 1996 and 1995..................... F-3
Consolidated Statements of Income for the Years Ended June 30, 1996, 1995 and
1994........................................................................ F-4
Statements of Consolidated Shareholders' Equity for the Years Ended June 30,
1996, 1995 and 1994......................................................... F-5
Consolidated Statements of Cash Flows for the Years Ended June 30, 1996, 1995
and 1994.................................................................... F-6
Notes to Consolidated Financial Statements................................... F-7
Unaudited Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1997 (Unaudited) and
June 30, 1996............................................................... F-18
Condensed Consolidated Statements of Operations (Unaudited) for the Nine
Months Ended March 31, 1997 and 1996........................................ F-19
Condensed Statement of Consolidated Shareholders' Equity (Unaudited) for the
Nine Months Ended March 31, 1997............................................ F-20
Condensed Consolidated Statements of Cash Flows (Unaudited) for the Nine
Months Ended March 31, 1997 and 1996........................................ F-21
Notes to Condensed Consolidated Financial Statements (Unaudited)............. F-22
</TABLE>
F-1
<PAGE> 62
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Advanced Lighting Technologies, Inc.
We have audited the consolidated balance sheets of Advanced Lighting
Technologies, Inc. as of June 30, 1996 and 1995, and the related consolidated
statements of income, shareholders' equity and cash flows for each of the three
years in the period ended June 30, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our 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, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Advanced Lighting
Technologies, Inc. as of June 30, 1996 and 1995, and the consolidated results of
its operations and its cash flows for each of the three years in the period
ended June 30, 1996, in conformity with generally accepted accounting
principles.
ERNST & YOUNG LLP
Cleveland, Ohio
September 26, 1996
F-2
<PAGE> 63
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
<TABLE>
<CAPTION>
JUNE 30
1996 1995
-------- -------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 1,682 $ 1,030
Trade receivables, less allowances of $287 and $243.................... 13,736 7,417
Receivables from related parties....................................... 98 129
Inventories:
Finished goods...................................................... 10,344 3,560
Raw materials and work-in-progress.................................. 2,363 1,496
-------- -------
12,707 5,056
Prepaid expenses....................................................... 526 448
Deferred taxes......................................................... 3,517 560
-------- -------
Total current assets..................................................... 32,266 14,640
Fixed assets:
Land and buildings..................................................... 2,304 1,849
Machinery and equipment................................................ 17,298 13,673
Furniture and fixtures................................................. 2,994 1,687
-------- -------
22,596 17,209
Less accumulated depreciation.......................................... 6,359 5,199
-------- -------
16,237 12,010
Deferred taxes........................................................... 231 1,354
Receivables from related parties......................................... 913 304
Other assets............................................................. 3,085 1,094
Excess of cost over net assets of businesses acquired, net............... 3,565 --
-------- -------
$56,297 $29,402
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................................ $ 790 $ 2,041
Accounts payable....................................................... 8,790 6,574
Payables to related parties............................................ 434 172
Employee-related liabilities........................................... 1,859 1,651
Accrued income and other taxes......................................... 263 714
Other accrued expenses................................................. 2,607 1,758
Current portion of long-term debt...................................... 182 2,600
-------- -------
Total current liabilities................................................ 14,925 15,510
Long-term debt........................................................... 11,034 8,853
Other liabilities........................................................ 161 171
Deferred taxes........................................................... 3,583 1,054
Redeemable warrants...................................................... -- 4,849
Shareholders' Equity:
Preferred stock........................................................ -- 50
Common stock........................................................... 11 360
Additional paid-in-capital............................................. 26,755 --
Retained earnings (deficit)............................................ (172) (1,445)
-------- -------
26,594 (1,035)
-------- -------
$ 56,297 $29,402
======== =======
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE> 64
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED JUNE 30
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Net sales....................................................... $54,636 $40,767 $30,938
Costs and expenses:
Cost of sales................................................. 29,254 21,899 17,253
Selling, general and administrative........................... 14,907 11,833 8,400
Research and development...................................... 3,000 1,673 1,006
Noncash settlement of claim................................... 2,732 -- --
Restructuring................................................. -- (121) 852
------- ------- -------
Income from operations.......................................... 4,743 5,483 3,427
Interest expense, net........................................... 1,316 2,129 2,150
------- ------- -------
Income before income taxes and extraordinary items.............. 3,427 3,354 1,277
Income taxes.................................................... 910 212 71
------- ------- -------
Income before extraordinary items............................... 2,517 3,142 1,206
Extraordinary charge (net of applicable income taxes of $91 in
1996 and $168 in 1995)........................................ 135 253 --
------- ------- -------
Net income...................................................... $ 2,382 $ 2,889 $ 1,206
======= ======= =======
Earnings per share:
Before extraordinary items.................................... $ .12 $ .10 $ .13
Extraordinary items........................................... (.01) (.03) --
------- ------- -------
Net income.................................................... $ .11 $ .07 $ .13
======= ======= =======
Shares used for computing per share amounts................... 9,479 7,818 7,818
======= ======= =======
</TABLE>
See notes to the consolidated financial statements.
F-4
<PAGE> 65
ADVANCED LIGHTING TECHNOLOGIES, INC.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1996, 1995 AND 1994
(In thousands)
<TABLE>
<CAPTION>
ADDITIONAL
PREFERRED COMMON PAID-IN RETAINED SHAREHOLDERS'
STOCK STOCK CAPITAL EARNINGS EQUITY
--------- ------ ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1993................... $2,125 $ 254 $ -- $ (2,699) $ (320)
Net income -- Year ended June 30, 1994.... -- -- -- 1,206 1,206
Capitalization of a subsidiary............ 50 105 -- -- 155
Redemption of warrants.................... -- -- -- (340) (340)
Change in value of warrants............... -- -- -- 464 464
------- ----- -------- ------- -------
Balance at June 30, 1994.................. 2,175 359 -- (1,369) 1,165
Net income -- Year ended June 30, 1995.... -- -- -- 2,889 2,889
Redemption of preferred stock............. (2,125) -- -- (663) (2,788)
Change in value of warrants............... -- -- -- (2,302) (2,302)
Capitalization of a subsidiary............ -- 1 -- -- 1
------- ----- -------- ------- -------
Balance at June 30, 1995.................. 50 360 -- (1,445) (1,035)
Net income -- Year ended June 30, 1996.... -- -- -- 2,382 2,382
Activities prior to initial public
offering of stock:
Purchases of common stock.......... -- 147 -- -- 147
Redemption of preferred and common
stock........................... (50) (252) -- (1,109) (1,411)
Stock options exercised............ -- 10 -- -- 10
Exchange of subsidiary companies'
stock for parent company
stock........................... -- (259) 259 -- --
Noncash settlement of claim........ -- -- 2,732 -- 2,732
Activities subsequent to initial public
offering of stock:
Proceeds from initial public
offering, net of commissions and
costs........................... -- 3 23,927 -- 23,930
Issuance of common stock in
exchange for warrants and other
consideration................... -- 1 (1,350) -- (1,349)
Exchange of subsidiary company
stock for parent company
stock........................... -- -- 313 -- 313
Issuance of shares in connection
with purchase of business....... -- 1 874 -- 875
------- ----- -------- ------- -------
Balance at June 30, 1996.................. $ -- $ 11 $ 26,755 $ (172) $26,594
======= ===== ======== ======= =======
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 66
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED JUNE 30
(In thousands)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income............................................................. $ 2,382 $ 2,889 $ 1,206
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization...................................... 1,638 1,399 1,467
Provision for doubtful accounts.................................... 43 32 70
Noncash settlement of claim........................................ 2,732 -- --
Restructuring...................................................... -- 286 852
Deferred income taxes.............................................. 695 (959) (19)
Extraordinary charge............................................... 135 253 --
Changes in operating assets and liabilities (excluding the effects
of purchases of businesses):
Change in receivables......................................... (4,057) (2,338) (2,289)
Change in inventories......................................... (4,128) (986) 794
Change in prepaids and other assets........................... (3,032) (412) (425)
Changes in accounts payable and accrued expenses.............. 4,930 4,369 (228)
Changes in other liabilities.................................. (12) (69) (25)
-------- -------- --------
Net cash provided by operating activities.............................. 1,326 4,464 1,403
INVESTING ACTIVITIES
Purchases of fixed assets.............................................. (5,050) (1,530) (1,043)
Purchase of businesses................................................. (3,075) -- --
-------- -------- --------
Net cash used in investing activities.................................. (8,125) (1,530) (1,043)
FINANCING ACTIVITIES
Proceeds from revolving facility....................................... 10,580 24,630 19,904
Payments on revolving facility......................................... (8,192) (24,088) (18,569)
Proceeds from long-term debt........................................... 22,362 1,726 191
Payments on long-term debt and capital leases.......................... (19,453) (4,776) (2,152)
Issuance of common stock............................................... 157 -- 155
Borrowings for preferred stock redemption and dividends................ -- 2,788 --
Redemption of preferred stock and dividends............................ (1,100) (2,788) --
Redemption of common stock............................................. (311) -- --
Other.................................................................. -- (59) (321)
Net proceeds from initial public offering.............................. 23,930 -- --
Use of proceeds:
Repayment of long-term debt.......................................... (3,350) -- --
Repayment of revolving credit facility............................... (4,429) -- --
Redemption of warrants............................................... (6,199) -- --
Payment of trade payables............................................ (4,447) -- --
Payment of note...................................................... (1,541) -- --
Other................................................................ (556) -- --
-------- -------- --------
Net cash provided by (used in) financing activities.................. 7,451 (2,567) (792)
-------- -------- --------
Change in cash and cash equivalents.................................... 652 367 (432)
Cash and cash equivalents at beginning of year......................... 1,030 663 1,095
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR............................... $ 1,682 $ 1,030 $ 663
======== ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES
Interest paid.......................................................... $ 1,112 $ 1,688 $ 1,362
Income taxes paid...................................................... 375 280 117
Noncash transactions:
Equipment acquired by capital leases................................. 149 145 79
Stock issued for purchase of businesses.............................. 1,188 -- --
Detail of acquisitions:
Assets acquired...................................................... 9,904 -- --
Liabilities assumed.................................................. 5,546 -- --
Stock issued......................................................... 1,188 -- --
-------- -------- --------
Cash paid............................................................ 3,170 -- --
less cash acquired................................................. 95 -- --
-------- -------- --------
Net cash paid for acquisitions....................................... $ 3,075 -- --
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 67
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
A. ORGANIZATION AND PRESENTATION
Advanced Lighting Technologies, Inc. (the "Company") is an innovation-driven
designer, manufacturer and marketer of metal halide lighting products, including
lamps (light bulbs), lamp components and lamp production equipment.
The Company was formed as an Ohio corporation on May 19, 1995 for the purpose of
acquiring ownership, primarily by merger (the "Combination"), of 17 affiliated
operating corporations that were previously under common ownership and
management (the "Predecessors"), each one of which is engaged in an aspect of
the metal halide lighting business. More specifically, the Combination was
principally effected through a series of nonmonetary mergers or stock exchanges
in which the shareholders of the former companies received shares of the
Company, except that certain former employees received, in the aggregate, an
insignificant amount of cash for their shares.
The Combination has been accounted for as a reorganization of entities under
common control. Historical financial statements of each of the Predecessors for
periods prior to the Combination have been combined. Certain adjustments have
been recorded primarily to eliminate intercompany transactions that would have
been required had the Company been a consolidated entity during such periods.
The Company operates in a single industry, on a global basis: the design,
manufacture and sale of metal halide lighting products including lamps,
components and production equipment. Substantially all of the Company's products
are manufactured in the United States. Export sales, which did not exceed 10% of
consolidated sales in any individual country, amounted to $16,349, $12,129 and
$6,442 in fiscal 1996, 1995 and 1994, respectively. Approximately $5,689 of net
sales in 1996 were made to one customer.
Reference to the Company, in the following notes to consolidated financial
statements, refers to one or more of the Predecessors.
B. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries, after elimination of all significant
intercompany accounts and transactions and related revenues and expenses.
CASH EQUIVALENTS
The Company considers all highly-liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
ACCOUNTS RECEIVABLE
Trade accounts receivable are principally from major manufacturers and
distributors in the lighting industry. Generally, collateral or other security
is not required.
INVENTORIES
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
F-7
<PAGE> 68
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
B. SIGNIFICANT ACCOUNTING POLICIES--CONTINUED
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. The cost of self-constructed
assets include related materials, labor, overhead and interest. Repair and
maintenance costs are expensed as incurred.
In March 1995, Statement of Financial Accounting Standards (FAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of", was issued. FAS No. 121 requires long-lived assets to be
reviewed for impairment losses whenever events or changes in circumstances
indicate the carrying amount may not be recovered through future net cash flows
generated by the assets. The Company must adopt FAS No. 121 in the first quarter
of 1997 and, although the Company has not completed the analysis necessary to
assess the impact of adoption, it believes the effect of adoption will not be
significant.
DEPRECIATION AND AMORTIZATION
Depreciation of property, plant and equipment is provided to amortize the
assets' costs over their estimated useful lives and is computed by the
straight-line method for financial reporting purposes.
The weighted average useful lives for each major category of fixed assets
follow:
<TABLE>
<S> <C>
Buildings........................................................ 30 years
Machinery and equipment.......................................... 17 years
Furniture and fixtures........................................... 8 years
</TABLE>
The excess of cost over net assets of businesses acquired is amortized over 20
to 25 years. Accumulated amortization was $24 at June 30, 1996.
REVENUE RECOGNITION
Lamp and lamp component revenue is recognized when products are shipped and lamp
production equipment revenue is recognized using the percentage of completion
method.
ESTIMATES
Preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions in
certain circumstances that affect amounts reported in the consolidated financial
statements and notes. Actual results could differ from these estimates.
FOREIGN CURRENCY TRANSLATION
The functional currency of consolidated subsidiaries outside the United States
is the local currency. Financial statements for the subsidiaries are translated
into United States dollars at year-end exchange rates as to assets and
liabilities and weighted-average exchange rates as to revenues and expenses. The
resulting translation adjustments were not significant in all years presented.
FINANCIAL STATEMENT PRESENTATION CHANGES
Certain amounts for prior years have been reclassified to conform to the current
year presentation.
F-8
<PAGE> 69
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
C. ACQUISITIONS
During 1996, the Company completed four business combinations, all of which were
accounted for by the purchase method and, accordingly, results of operations for
the acquired businesses have been included in the consolidated statement of
income from their respective dates of acquisition. Proforma financial
information is not presented because the impact is not significant to the
results of operations.
On July 1, 1995, and February 9, 1996, the Company acquired all of the
outstanding common stock of Venture Lighting-UK ("VLI-UK"), for 50,000 shares
(valued at $313) of the Company's common stock. VLI-UK was the exclusive
distributor of the Company's products in the United Kingdom. The purchase
resulted in an excess of cost over net assets acquired of $363, which is being
amortized over 20 years.
On February 5, 1996, the Company acquired the net assets of Current Industries,
Inc. ("Current") of Oceanside, New York for $1,689. Current designs,
manufacturers and markets specialized electrical and electromagnetic lighting
control systems used in metal halide and other high intensity discharge lighting
systems. The purchase resulted in an excess of cost over net assets acquired of
$1,456, which is being amortized over 25 years.
On March 25, 1996, the Company acquired the net assets of Spectro Electric,
Inc., ("Spectro") for $1,636 and 34,783 shares (valued at $500) of the Company's
common stock. Spectro (renamed Advanced Lighting Technologies, Canada, Inc.)
distributes the Company's products in the Canadian market and has facilities in
Toronto, Vancouver, Calgary and Montreal. The purchase resulted in an excess of
cost over net assets acquired of $72, which is being amortized over 20 years.
On June 28, 1996, the Company acquired the net assets of Venture Lighting
Australia Pty Ltd ("VLA"), a leading lamp marketing organization in Australia,
for $100 and 76,923 shares (valued at $875) of the Company's common stock. VLA
has been the exclusive agent for the Company's products in Australia since 1987.
The purchase resulted in an excess of cost over net assets acquired of $1,698,
which is being amortized over 20 years.
D. FINANCING ARRANGEMENTS
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------ ------
<S> <C> <C>
Multioption credit facility............................... $ 790
Revolving credit facility................................. -- $1,867
Other..................................................... -- 174
------ ------
$ 790 $2,041
====== ======
</TABLE>
In June 1996, the Company entered into a Multioption Credit Facility with a
foreign bank that provides a line of short-term credit. Such facility provides
an aggregate line of credit of $1,200 and is collateralized with certain
operating assets that totaled $1,982 at June 30, 1996, and a $750 standby letter
of credit. Amounts borrowed and related interest are payable quarterly.
The weighted average interest rate on short-term borrowings was 7.89% and 10.00%
at June 30, 1996 and 1995.
F-9
<PAGE> 70
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
D. FINANCING ARRANGEMENTS--CONTINUED
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30
1996 1995
------- ------
<S> <C> <C>
Revolving credit and security agreement.................. $ 9,924 --
7.5% mortgage note payable in monthly principal
installments of $5, plus accrued interest through
October 1, 2008........................................ 819 $ 886
7.5% mortgage note payable in monthly principal
installments of $2, plus accrued interest through
August 1, 2010......................................... 166 --
Senior note payable...................................... -- 6,254
Term notes payable....................................... -- 3,678
Other.................................................... 307 635
------- ------
11,216 11,453
Less current portion........................... 182 2,600
------- ------
$11,034 $8,853
======= ======
</TABLE>
In March 1996, the Company entered into a three-year domestic Revolving Credit
and Security Agreement (the "Loan Agreement") with a bank. The Loan Agreement
permits working capital advances to the Company in aggregate amounts equal to
the lesser of: (i) $25.0 million less the current outstanding amount of the
advances under the Capex Facility (defined below) (the "Maximum Revolving Loan
Amount") or (ii) an amount based on eligible receivables and inventory (the
"Working Capital Facility"). The unpaid principal balance of the working capital
facility (together with accrued interest thereon) is payable on March 24, 1999.
Advances under the Working Capital Facility bear interest at the option of the
Company at a rate per annum (the "Working Capital Interest Rate") equal to: (i)
the higher of (a) the prime rate minus 0.5% or (b) the Federal Funds Rate; or
(ii) the average LIBOR plus 2.5%. Under the terms of the Loan Agreement, the
bank may make advances in excess of the applicable percentages of eligible
receivables and inventory, provided that, if such excess amounts remain
outstanding for five or more days in any calendar month, all outstanding
advances bear interest at the Working Capital Interest Rate plus 0.5% for such
month. At June 30, 1996, the interest rate was 7.75%.
The Company is able to obtain advances under the Loan Agreement up to $5.0
million to permit the Company to finance permitted capital expenditures (Capex
Facility), which bear interest at a rate per annum equal to the higher of (a)
the prime rate plus 0.5% or (b) the Federal Funds Rate plus 1.0%. The unpaid
principal balance of the Capex Facility (together with accrued interest thereon)
is payable on March 24, 1999. The bank has also agreed to issue letters of
credit in an amount of up to $5.0 million, at anytime, provided the outstanding
letters of credit and working capital advances do not exceed the Maximum
Revolving Loan Amount. At June 30, 1996 no amounts were outstanding under the
Capex Facility.
In July 1996, a foreign subsidiary of the Company entered into a similar
Revolving Credit and Security Agreement with a foreign affiliate of the bank
(the "Foreign Loan Agreement"). Pursuant to the Foreign Loan Agreement, the bank
has agreed to extend working capital advances in the aggregate amount equal to
the lesser of (i) the United States dollar equivalent of approximately $2,196 in
the local currency or (ii) an amount based on eligible receivables and
inventory. All amounts advanced under the Foreign Loan Agreement reduce, by the
United States dollar value of outstanding amounts, the Maximum Revolving Loan
Amount available to the Company under the Loan Agreement. The unpaid principal
balance of the Foreign Loan Agreement (together with accrued interest thereon)
is payable in March 1999. Advances under the Foreign Loan Agreement bear
interest at the rate per annum set at a formula intended to approximate that of
the Loan Agreement.
F-10
<PAGE> 71
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
D. FINANCING ARRANGEMENTS--CONTINUED
In July 1996, the Company repaid $8,774 of amounts outstanding at June 30, 1996
under the Loan Agreement with a portion of the proceeds of a common stock
offering completed in July 1996.
The provisions of the Loan Agreement contain certain restrictive covenants
concerning the incurrence of indebtedness and liens, capital expenditures,
investments, guarantees of indebtedness of others, providing loans to others,
the sale of assets, and the payment of dividends. In addition, the Company must
maintain certain working capital, leverage, cash flow, debt, and tangible net
worth ratios.
The 7.5% mortgage note payable in 2008 is secured by land and a building
(approximately $1,670 net carrying value at June 30, 1996).
The 7.5% mortgage note payable in 2010 is secured by land purchased for future
development (approximately $215 net carrying value at June 30, 1996).
All items of debt outstanding at June 30, 1995, showing no balance at June 30,
1996, were fully-paid during the second and third quarters of 1996, primarily
with proceeds from the initial public offering. During 1996, the Company
recorded an extraordinary loss of $135 (net of applicable income taxes of $91)
for the write-off of deferred financing costs related to the early
extinguishment of debt.
In October 1994, the Company refinanced certain of its borrowings resulting in
an extraordinary loss on the early extinguishment of debt of $253 (net of
applicable income taxes of $168).
The fair value of debt, based on market rates, approximates carrying value. Debt
issuance costs, classified with other assets, are being amortized over the terms
of the related debt.
The Company incurred interest expense of $1,467, $2,163 and $2,177 during fiscal
1996, 1995 and 1994, respectively.
E. SHAREHOLDERS' EQUITY
SHAREHOLDERS' EQUITY
On December 12, 1995, the Company completed an initial public offering and
issued 2,900,000 shares. Prior to the initial public offering, shares of the
Predecessors were exchanged for 7,281,849 shares of common stock of the Company;
and 535,887 shares were issued to a warrant holder in exchange for the warrants.
During fiscal 1996, the Company issued 126,923 shares of common stock in
connection with certain acquisitions and, at June 30, 1996, 34,783 shares of
Common Stock were issuable in connection with an acquisition. At June 30, 1996,
there were 22,000,000 shares of common stock authorized and 10,844,659 shares
issued and outstanding. The common stock authorized, issued and outstanding as
of June 30, 1995 represents the aggregate of the Predecessors' common stocks.
The shares authorized, issued and outstanding of the individual issues of common
stock of the Predecessors are not presented as the information is not
meaningful.
On July 16, 1996, the Company issued 2,452,000 shares of its common stock in a
public offering at $13.50 a share. Net proceeds, after the underwriters'
discount and other costs associated with the offering, amounted to approximately
$30,000, of which $9,200 was used to pay-down a portion of bank debt outstanding
as of July 16, 1996.
At June 30, 1995, the Company had 892,500 preferred shares outstanding (without
par value). In August 1995, the Company redeemed such preferred shares for
$1,012,500.
F-11
<PAGE> 72
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
E. SHAREHOLDERS' EQUITY--CONTINUED
EMPLOYEE STOCK OPTIONS
The Company's 1995 Incentive Award Plan provides for granting of "A" and "B"
incentive options to purchase common stock of the Company. The "A" options
become exercisable over one-to-five years from the date of grant depending on
the Company's operating performance. The "B" options become exercisable at the
rate of 25% after one year, 35% after two years, and 40% after three years. All
"A" and "B" options have been granted at market value on the date of grant. At
June 30, 1996, the Company had 1,000,000 shares reserved for future issuance
upon exercise of stock options granted under the Incentive Award Plan.
Stock option activity under the 1995 Incentive Award Plan was as follows:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE
SHARES PER SHARE
--------- ------------
<S> <C> <C>
Outstanding at July 1, 1995........................ 0
Granted............................................ 814,350 $10 to $17
Canceled........................................... (22,500) $10
---------
Outstanding at June 30, 1996....................... 791,850 $10 to $17
========
</TABLE>
At June 30, 1996, no options were exercisable.
F. REDEEMABLE STOCK PURCHASE WARRANTS
Warrants issued in connection with a financing entered into during 1994 were
valued at $1,300 on date of issuance based on an independent appraisal. In
December 1995, the warrant holder exchanged the warrants for $3,000 plus 5.0% of
the Company's common stock.
Warrants issued in connection with a financing entered into during 1990 were
redeemed by the Company for $3,199 in March 1996.
G. INCOME TAXES
The provision for income taxes is computed using the liability method and is
based on applicable federal and state statutory rates adjusted for permanent
differences between financial and taxable income.
Income taxes have been provided as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Federal:
Current..................................... $(138) $ 776 $ 253
Deferred.................................... 485 (538) (188)
----- ----- -----
State and Local:
Current..................................... 281 160 50
Deferred.................................... 167 (186) (44)
----- ----- -----
Foreign:
Current..................................... 72 0 0
Deferred.................................... 43 0 0
----- ----- -----
$ 910 $ 212 $ 71
===== ===== =====
</TABLE>
F-12
<PAGE> 73
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
G. INCOME TAXES--CONTINUED
The income tax provision for periods prior to the Combination has been
calculated as if the Company filed a consolidated tax return.
Deferred income taxes reflect the tax effects of temporary differences between
the carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax assets and liabilities
at June 30, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------ ------
<S> <C> <C>
Deferred tax liabilities:
Tax over book depreciation........................... $3,380 $1,016
Other................................................ 203 38
------ ------
Total deferred tax liabilities............................ 3,583 1,054
Deferred tax assets:
Net operating loss carryforwards..................... 2,882 4,100
AMT carryforward..................................... 208 43
Tax under book accrued expenses...................... 630 39
Other................................................ 304 604
------ ------
4,024 4,786
Valuation allowance....................................... (276) (2,872)
------ ------
Total deferred tax assets................................. 3,748 1,914
------ ------
Net deferred tax assets................................... $ 165 $ 860
====== ======
</TABLE>
The statutory federal income tax rate and the effective income tax rate are
reconciled as follows:
<TABLE>
<CAPTION>
1996 1995 1994
----- ----- -----
<S> <C> <C> <C>
Statutory rate................................... 35.0% 35.0% 35.0%
State and local income taxes net of federal
benefit........................................ 9.2 1.0 5.0
Net operating loss carryforwards................. (56.4) (31.0) (15.0)
Nondeductible settlement of a claim.............. 30.9 .0 .0
Other............................................ 7.8 2.0 5.0
----- ----- -----
Effective tax rate............................... 26.5% 7.0% 30.0%
===== ===== =====
</TABLE>
Income taxes paid (net of refunds) were $375 in 1996; $280 in 1995 and $117 in
1994.
As of June 30, 1996, the Company had United States net operating loss
carryforwards for tax purposes of approximately $8,200 available to offset
future taxable income. These carryforwards expire in the years 2006 through
2011.
H. EMPLOYEE BENEFITS
The Company has two elective savings and retirement plans covering substantially
all full-time employees at two of its subsidiaries. The Plans are funded by
participants' contributions with a portion matched by the Company if certain
criteria are met. Administrative expenses of the plan are paid by the Company.
Total expenses recognized for the plans were $234 in 1996 and 1995 and $163 in
1994.
F-13
<PAGE> 74
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
H. EMPLOYEE BENEFITS--CONTINUED
The Company also has two profit-sharing retirement plans covering substantially
all salaried employees at two of its subsidiaries. The plans are funded through
participant contributions, which are matched by Company contributions up to 2%.
Company contributions were $16 in 1996 and 1995, and $11 in 1994.
I. NONCASH SETTLEMENT OF CLAIM
On October 27, 1995, several former preferred shareholders of the Company's lamp
manufacturing subsidiary, whose shares were redeemed in August 1995 (prior to
the Combination), asserted a claim against certain officers of the Company. On
November 15, 1995, such officers entered into a settlement agreement with the
former preferred shareholders, whereby such officers and certain other
shareholders transferred, from their personal holdings, an aggregate of 273,185
shares of the Company's common stock to the former preferred shareholders. Since
the settlement resulted in a transfer of personal shares held by such officers,
there was no dilution of the ownership interest of shareholders of the Company.
The settlement was recorded as a noncash expense and paid-in-capital of the
Company.
J. RESTRUCTURING CHARGES
In June 1994, one of the Company's subsidiaries recorded a provision of $852 for
the costs, principally inventory and equipment write-downs, to exit its nonlamp
product line. During 1995, the disposition plan was revised resulting in a
reduction of $121 in the estimated costs to exit the nonlamp product line.
During 1996, the assets of the nonlamp product line (principally inventory and
equipment) were sold to an affiliate of the Company for an amount equal to the
carrying value of such assets as of June 30, 1995. As of June 30, 1996, the
Company has an 8.5% note from the affiliate for $220 related to the sale of the
assets of the nonlamp product line which is classified as a receivable from
related parties.
F-14
<PAGE> 75
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
K. NET INCOME PER SHARE
Net income per share is computed as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Income:
Income before extraordinary items........................ $ 2,517 $ 3,142 $ 1,206
Less: Preferred stock dividends(1)....................... -- 58 170
Increase in warrants' value(2).................... 1,350 2,302 --
------- ------- -------
Income before extraordinary items attributable to common
shareholders.......................................... $ 1,167 $ 782 $ 1,036
======= ======= =======
Net income............................................... $ 2,382 $ 2,889 $ 1,206
Less: Preferred stock dividends(1)....................... -- 58 170
Increase in warrants' value(2).................... 1,350 2,302 --
------- ------- -------
Net income attributable to common shareholders........... $ 1,032 $ 529 $ 1,036
======= ======= =======
Income (loss) per share:
Income before extraordinary items........................ $ .12 $ .10 $ .13
Extraordinary charges.................................... (.01) (.03) --
------- ------- -------
Net income............................................... $ .11 $ .07 $ .13
======= ======= =======
Weighted average shares used (in thousands)................ 9,479 7,818 7,818
======= ======= =======
Weighted average shares were computed as follows:
Shares deemed outstanding at beginning of period......... 7,282 7,282 7,282
Weighted average shares issued pursuant to initial public
offering.............................................. 1,601 -- --
Weighted average shares issued upon warrant conversion... 296 -- --
Weighted average common share equivalents................ 272 536 536
Weighted average shares issued during the period......... 20 -- --
Weighted average shares issuable......................... 8 -- --
------- ------- -------
9,479 7,818 7,818
======= ======= =======
</TABLE>
- ---------------
(1) The preferred stock dividends represent cumulative dividends in arrears. No
dividends were declared on the preferred stock in any of the years
presented. The cumulative dividends in arrears were paid to the preferred
shareholders when the related preferred shares were redeemed in October
1994.
(2) There was no accretion in the value of the warrants in 1994. The warrants
were redeemed in 1996.
L. RELATED PARTY TRANSACTIONS
Prior to the initial public offering, management fees paid by the Company to an
affiliate were $764 in 1996, $831 in 1995 and $173 in 1994.
During January 1996, the Company entered into a six-year Aircraft Operating
Agreement ("Agreement") with an unrelated company to charter an airplane for
service into locations which are not adequately served by commercial carriers.
The unrelated company leases the airplane from an affiliate of the Company owned
by certain officers of the Company. These officers have guaranteed the repayment
of $1.7 million of indebtedness incurred by the affiliate to purchase the
airplane. The Company's minimum annual commitments under the Agreement are $261.
Fees paid by the Company under this agreement were $244 in 1996.
F-15
<PAGE> 76
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
L. RELATED PARTY TRANSACTIONS--CONTINUED
During 1996, 1995 and 1994, the Company paid a director of the Company $100 per
annum for consulting services.
The Company sold lamps and lamp components to an overseas company aggregating
$2,363 in 1996 and $650 in 1995. A director of the Company is also an executive
officer and director of the overseas company.
M. COMMITMENTS
The Company leases buildings and certain equipment under noncancelable operating
lease agreements. Total rent expense was $893 in 1996, $613 in 1995, and $580 in
1994. Future minimum lease commitments, as of June 30, 1996, were as follows:
<TABLE>
<S> <C>
Year:
1997........................................................... $ 1,049
1998........................................................... 1,176
1999........................................................... 1,159
2000........................................................... 1,091
2001........................................................... 1,060
Thereafter....................................................... 1,128
-------
Minimum lease payments........................................... $ 6,663
======
</TABLE>
Estimated costs to complete construction-in-progress, at June 30, 1996, were
$605.
N. CONTINGENCY
On March 1, 1996, a former common shareholder of a Predecessor asserted a claim
in the United States District Court for the Northern District of Ohio against
the Chief Executive Officer and a director of the Company, and the Chief
Financial Officer and a director of the Company, and subsequently, a claim
against the Company, alleging certain misrepresentations and/or omissions were
made to the former common shareholder in connection with: (i) the Company's
purchase of his equity interest effected by a merger of a Predecessor into the
Company, as to which the former common shareholder waived his statutory
appraisal rights and (ii) the purchase by the Chief Executive Officer of the
former common shareholder's beneficial interest in a trust controlled by the
Chief Executive Officer. The former common shareholder alleges that the
misrepresentations and/or omissions made by the Chief Financial Officer and
others on behalf of the Chief Executive Officer and the Chief Financial Officer
caused direct damages which exceed $900. The suit also claims punitive damages
in an undetermined amount believed by the former common shareholder to exceed
$2,700.
On August 23, 1996, another former common shareholder filed similar claims
against the Chief Executive and Chief Financial Officers and the Company seeking
direct damages of $400 and punitive damages of $1,200.
The Chief Executive and Chief Financial Officers have denied all of the above
allegations and are vigorously defending the claims. Management of the Company
does not believe the outcome of these claims will have a material adverse effect
on the financial condition, results of operations or liquidity of the Company.
F-16
<PAGE> 77
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--CONTINUED
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
O. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the years
ended June 30, 1996 and 1995.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
1996 JUN 30 MAR 31 DEC 31(a) SEP 30
- ------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales.............................................. $17,341 $13,786 $12,037 $11,472
Gross profit(c)........................................ 8,043 6,382 5,615 5,342
Income (loss) from operations(c)....................... 2,110 1,911 (905) 1,627
Income (loss) before extraordinary items............... 1,559 1,487 (1,453) 924
Net income (loss)...................................... $ 1,559 $ 1,455 $(1,556) $ 924
Income (loss) per share:
Before extraordinary items........................ $ 0.14 $ 0.14 $ (.33) $ 0.12
Extraordinary items............................... -- -- (.01) --
------- ------- ------- -------
Net income (loss)...................................... $ 0.14 $ 0.14 $ (.34) $ 0.12
------- ------- ------- -------
Average shares outstanding............................. 11,000 10,749 8,448 7,818
Price Range of Common Stock (b)
High.............................................. $18.250 $14.875 $10.250 N/A
Low............................................... $12.625 $ 7.625 $10.000 N/A
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------
1995 JUN 30 MAR 31 DEC 31 SEP 30
- ------------------------------------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales.............................................. $10,748 $10,721 $ 9,988 $ 9,310
Gross profit........................................... 5,129 4,948 4,481 4,310
Income from operations................................. 960 1,419 1,557 1,547
Income before extraordinary items...................... 1,074 463 855 749
Net income............................................. $ 1,074 $ 463 $ 602 $ 749
Income (loss) per share:
Before extraordinary items........................ $ .06 $ (.01) $ (.03) $ .02
Extraordinary items............................... -- -- .03 --
======= ======= ======= =======
Net income (loss)...................................... $ .06 $ (.01) $ -- $ .02
======= ======= ======= =======
Average shares outstanding............................. 7,818 7,818 7,818 7,818
Price Range of Common Stock (b)
High.............................................. N/A N/A N/A N/A
Low............................................... N/A N/A N/A N/A
</TABLE>
- ---------------
(a) The three months ended December 31, 1995 includes a nondeductible noncash
charge of $2,732 for the settlement of a claim.
(b) The Company completed its initial public offering on December 12, 1995.
(c) Capitalization of overhead variances increased gross profit and income from
operations for the three months ended June 30, 1996 by approximately $300.
F-17
<PAGE> 78
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.............................................. $ 6,208 $ 1,682
Short-term investments................................................. 10,229 0
Trade receivables, less allowances of $236 and $287.................... 25,385 13,736
Receivables from related parties....................................... 186 98
Inventories:
Finished goods...................................................... 16,818 10,344
Raw materials and work-in-progress.................................. 3,693 2,363
-------- --------
20,511 12,707
Prepaid expenses....................................................... 1,657 526
Deferred taxes......................................................... 1,746 3,517
-------- --------
Total current assets..................................................... 65,922 32,266
Property, plant and equipment:
Land and buildings..................................................... 4,308 2,304
Machinery and equipment................................................ 28,660 17,298
Furniture and fixtures................................................. 4,408 2,994
-------- --------
37,376 22,596
Less accumulated depreciation.......................................... 8,016 6,359
-------- --------
29,360 16,237
Receivables from related parties......................................... 1,142 913
Investments and other assets............................................. 8,629 3,316
Excess of cost over net assets of businesses acquired, net............... 7,267 3,565
-------- --------
$ 112,320 $ 56,297
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt.................. $ 1,400 $ 972
Accounts payable....................................................... 11,683 8,790
Payables to related parties............................................ 428 434
Employee-related liabilities........................................... 2,405 1,859
Accrued income and other taxes......................................... 1,986 263
Other accrued expenses................................................. 4,627 2,607
-------- --------
Total current liabilities................................................ 22,529 14,925
Long-term debt........................................................... 22,952 11,034
Other liabilities........................................................ 98 161
Deferred taxes........................................................... 3,583 3,583
Shareholders' equity
Common stock........................................................... 13 11
Paid-in-capital........................................................ 58,815 26,755
Retained earnings (deficit)............................................ 4,330 (172)
-------- --------
63,158 26,594
-------- --------
$ 112,320 $ 56,297
======== ========
</TABLE>
See notes to condensed consolidated financial statements
F-18
<PAGE> 79
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share dollar amounts)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
-------------------
1997 1996
------- -------
<S> <C> <C>
Net sales.............................................................. $60,776 $37,295
Costs and expenses:
Cost of sales........................................................ 32,463 19,957
Marketing and selling................................................ 10,535 5,864
Research and development............................................. 4,268 1,714
General and administrative........................................... 5,418 4,395
Amortization of intangible assets.................................... 199 63
Settlement of claim.................................................. 771 --
Noncash settlement of claim.......................................... -- 2,732
------ ------
Income from operations................................................. 7,122 2,570
Other income (expense):
Interest expense..................................................... (749) (1,197)
Interest income...................................................... 610 110
------ ------
Income before income taxes and extraordinary charge.................... 6,983 1,483
Income taxes........................................................... 2,481 525
------ ------
Income before extraordinary charge..................................... 4,502 958
Extraordinary charge, net of applicable income tax benefits............ -- (135)
------ ------
NET INCOME............................................................. $ 4,502 $ 823
====== ======
Earnings (loss) per share:
Before extraordinary item............................................ $ .33 $ (.04)
Extraordinary charge................................................. -- (.02)
------ ------
NET EARNINGS (LOSS) PER SHARE.......................................... $ .33 $ (.06)
====== ======
Shares used for computing per share amounts............................ 13,503 8,999
====== ======
</TABLE>
See notes to condensed consolidated financial statements
F-19
<PAGE> 80
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 1997
(In thousands)
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------ ------- -------- -------
<S> <C> <C> <C> <C>
Balance at July 1, 1996............................ $ 11 $26,755 ($ 172) $26,594
Net income......................................... -- -- 4,502 4,502
Net proceeds from public offering of 2,452,050
common shares.................................... 2 30,089 -- 30,091
Stock options exercised............................ -- 434 -- 434
Issuance of shares in connection with purchases of
businesses....................................... -- 1,537 -- 1,537
--- ------- ------ -------
Balance at March 31, 1997.......................... $ 13 $58,815 $4,330 $63,158
=== ======= ====== =======
</TABLE>
See notes to condensed consolidated financial statements
F-20
<PAGE> 81
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................... $ 4,502 $ 823
Adjustments to reconcile net income to net cash (used in) provided by
operating activities:
Depreciation and amortization............................................ 1,829 1,272
Deferred income taxes.................................................... 1,782 --
Noncash settlement of claim.............................................. -- 2,732
Extraordinary charge..................................................... -- 135
Changes in operating assets and liabilities:
Trade receivables..................................................... (9,400) (4,255)
Inventories........................................................... (5,612) (4,006)
Prepaids and other assets............................................. (2,430) (1,408)
Accounts payable and accrued expenses................................. 2,869 5,845
Other liabilities..................................................... (74) 380
------ ------
Net cash (used in) provided by operating activities................... (6,534) 1,518
INVESTING ACTIVITIES
Capital expenditures......................................................... (11,589) (2,462)
Purchase of short-term investments........................................... (10,229) --
Purchases of businesses...................................................... (6,595) (3,330)
Investments in affiliates.................................................... (1,023) --
------ ------
Net cash used in investing activities................................. (29,436) (5,792)
FINANCING ACTIVITIES
Proceeds from revolving credit facility...................................... 65,189 10,580
Payments of revolving credit facility........................................ (47,344) (8,084)
Proceeds from long-term debt................................................. 14,822 6,478
Payments of long-term debt and capital leases................................ (5,896) (5,806)
Issuance of common and preferred stock....................................... 434 157
Redemption of common stock................................................... -- (310)
Redemption of preferred stock and dividends.................................. -- (1,101)
Net proceeds from public offering............................................ 30,091 23,961
Use of net proceeds from public offering:
Payment of long-term debt.................................................. -- (3,350)
Payment of revolving credit facility....................................... (16,800) (4,429)
Redemption of warrants..................................................... -- (6,199)
Payment of trade payables.................................................. -- (4,447)
Payment of note............................................................ -- (1,541)
Other...................................................................... -- (556)
------ ------
Net cash provided by financing activities............................. 40,496 5,353
------ ------
Increase in cash and cash equivalents.......................................... 4,526 1,079
Cash and cash equivalents, beginning of period................................. 1,682 1,030
------ ------
CASH AND CASH EQUIVALENTS, END OF PERIOD....................................... $ 6,208 $ 2,109
====== ======
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid................................................................ $ 684 $ 870
Income taxes paid............................................................ 81 136
Noncash transactions:
Equipment acquired through capital leases.................................... 1,004 120
Stock issued for purchases of businesses..................................... 1,537 500
Detail of acquisitions:
Assets acquired.............................................................. $ 14,212 $ 4,974
Liabilities assumed.......................................................... (5,688) (1,144)
Stock issued................................................................. (1,537) (500)
------ ------
Cash paid.................................................................... 6,987 3,330
Less cash acquired........................................................... 392 --
------ ------
Net cash paid for acquisitions........................................ $ 6,595 $ 3,330
====== ======
</TABLE>
See notes to condensed consolidated financial statements
F-21
<PAGE> 82
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1997
(IN THOUSANDS, EXCEPT PER SHARE DATA)
A. ORGANIZATION
Advanced Lighting Technologies, Inc. (the "Company") is an
innovation-driven designer, manufacturer and marketer of metal halide lighting
products, including lamps (light bulbs), lamp components and lamp production
equipment.
The Company was formed on May 19, 1995 for the purpose of acquiring
ownership, primarily by merger (the "Combination"), of 17 affiliated operating
corporations that were previously under common ownership and management (the
"Predecessors"), each one of which is engaged in an aspect of the metal halide
lighting business. More specifically, the Combination was principally effected
through a series of nonmonetary mergers or stock exchanges in which the
shareholders of the former companies received shares of the Company. The
Combination has been accounted for as a reorganization of entities under common
control. Historical financial statements of each of the Predecessors for periods
prior to the Combination have been combined. Certain adjustments have been
recorded primarily to eliminate intercompany transactions that would have been
required had the Company been a consolidated entity during such periods.
B. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and disclosures required by generally accepted accounting principles
for complete financial statements. In the opinion of management, this
information includes all material adjustments, including adjustments of a normal
and recurring nature, as well as the charge for the settlement of a claim
described in Note D, necessary for a fair presentation. Preparation of financial
statements in conformity with generally accepted accounting principles requires
management to make estimates and assumptions in certain circumstances that
affect amounts reported in the consolidated financial statements and notes and,
actual results could differ from these estimates. Certain reclassifications were
made to prior year amounts to conform to the current period presentation. For
further information, refer to the consolidated financial statements and notes
thereto for the year ended June 30, 1996 included elsewhere in this Prospectus.
Operating results for the three or nine month periods ended March 31, 1997 are
not necessarily indicative of the results that may be expected for the full-year
ending June 30, 1997.
C. RECOVERABILITY OF LONG-LIVED ASSETS
Effective July 1, 1996, the Company adopted Statement of Financial
Accounting Standards (FAS) No. 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of." FAS No. 121 requires
long-lived assets to be reviewed for impairment losses whenever events or
changes in circumstances indicate the carrying amount may not be recovered
through future net cash flows generated by the assets. No significant
adjustments were made to the carrying amount of assets as a result of adopting
FAS 121.
D. SETTLEMENT OF A CLAIM
On March 1, 1996, a former common shareholder of a Predecessor asserted a
claim in the United States District Court for the Northern District of Ohio
against the Chief Executive Officer and a director of the Company, and the
Executive Vice President and a director of the Company, and subsequently, a
claim against the Company. The claim alleged that certain misrepresentations
and/or omissions were made to the former common shareholder in connection with:
(i) the Company's purchase of his equity interest effected by a
F-22
<PAGE> 83
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
D. SETTLEMENT OF A CLAIM--CONTINUED
merger of a Predecessor into the Company, as to which the former common
shareholder waived his statutory appraisal rights and (ii) the purchase by the
Chief Executive Officer of the former common shareholder's beneficial interest
in a trust controlled by the Chief Executive Officer. The former common
shareholder alleged that the misrepresentations and/or omissions caused direct
damages which exceeded $900. The suit also claimed punitive damages in an
undetermined amount believed by the former common shareholder to exceed $2,700.
On August 23, 1996, another former common shareholder filed similar claims
against the Chief Executive Officer and Executive Vice President and the Company
seeking direct damages of $400 and punitive damages of $1,200.
The Chief Executive Officer, the Executive Vice President and the Company
denied all of the allegations and vigorously defended against the claims.
On November 29, 1996, the Company, the Chief Executive Officer and the
Executive Vice President reached an out-of-court settlement of both former
common shareholders' claims for an aggregate amount of $475. The charge of $771
in the second quarter of fiscal 1997 represents the $475 settlement plus legal
and other directly-related costs, net of anticipated insurance recoveries.
E. NONCASH SETTLEMENT OF CLAIM
On October 27, 1995, several former preferred shareholders of the Company's
lamp manufacturing subsidiary, whose shares were redeemed in August 1995 (prior
to the Combination), asserted a claim against certain officers of the Company.
On November 15, 1995, such officers entered into a settlement agreement with the
former preferred shareholders, whereby such officers and certain other
shareholders transferred, from their personal holdings, an aggregate of 273,185
shares of the Company's common stock to the former preferred shareholders. Since
the settlement resulted in a transfer of personal shares held by such officers,
there was no dilution of the ownership interest of shareholders of the Company.
The settlement was recorded as a noncash expense and paid-in-capital of the
Company.
F. INCOME TAXES
At June 30, 1996, the Company had United States net operating loss
carryforwards ("NOLs") for tax purposes of approximately $8,200 to offset future
taxable income. These NOLs expire in the fiscal years 2006 through 2011.
G. EARNINGS PER SHARE
Earnings per share (EPS) is based on the weighted average number of shares
of common stock and common stock equivalents outstanding during each period. In
February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (FAS) No. 128, "Earnings per Share," which
requires changes in computing and presenting earnings per share, effective for
the quarter ended December 31, 1997. Early adoption of FAS No. 128 is prohibited
and the impact as it relates to the Company's reported EPS is not expected to be
material.
H. FINANCING ARRANGEMENT
In December 1996, a subsidiary of the Company entered into a three-year
financing arrangement with a bank for the purchase of real estate and a
building. The arrangement provided $450 to the subsidiary at a twelve-month
fixed interest rate of 8.25%, which was equal to the bank's prime lending rate
at the date of closing. Thereafter, the interest rate becomes variable based on
changes in the bank's prime lending rate. Only
F-23
<PAGE> 84
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
H. FINANCING ARRANGEMENT--CONTINUED
interest payments are required for the first year of the loan. During the
subsequent 23 months, principal payments of $2 plus interest are required,
followed by a final payment of $407 at maturity.
I. ACQUISITIONS
During December 1996, a newly-organized subsidiary of the Company, Advanced
Cable Lite Corporation, acquired all of the assets (and assumed certain
liabilities) of Cable Lite Corporation in exchange for 50,000 shares of the
Company's Common Stock (valued at $975), with up to an additional 50,000 shares
of Common Stock contingently issuable based upon the market price of the shares
during the month of June 1998. The purchase price resulted in an excess of cost
over net assets acquired of $1,008, which is being amortized over 25 years.
Advanced Cable Lite Corporation designs, manufactures and sells fiber optic and
fiber light products.
On January 31, 1997, the Company completed the purchase of certain assets
of Web Design Associates, Inc., a company engaged in consumer product design and
development for approximately $600 in cash.
On February 11, 1997, the Company acquired the outstanding shares of
Ballastronix, Inc., a company focused on designing, manufacturing and marketing
of electromagnetic power supplies for metal halide lighting systems. The
purchase price consisted of $5,511 in cash and 38,024 shares of the Company's
Common Stock. The transaction was financed through cash on-hand and a portion of
the proceeds from a $8,400 term-loan with a bank. The transaction has been
accounted for by the purchase method.
J. INVESTMENTS SUBSEQUENT TO MARCH 31, 1997
On April 2, 1997, the Company invested approximately $3,800 of cash in
exchange for a 30% interest in Koto Luminous Co., Ltd., the Company's sole agent
in Japan. Subsequent to the date of investment, Koto Luminous, a marketer and
distributor of metal halide lamps, began doing business under the name Venture
Lighting Japan. Using the proceeds of the investment and an additional
investment by a Koto affiliate, Venture Lighting Japan will equip and operate a
metal halide lamp manufacturing facility in Japan, which is expected to be
operational in October 1997.
On June 2, 1997, the Company purchased the system component manufacturing
and operating assets of W.J. Parry & Co. (Nottingham), Ltd., a manufacturer and
marketer of magnetic power supplies for high intensity discharge lighting
systems, based in the United Kingdom for approximately $8,500 in cash, which the
Company financed through borrowings under its domestic revolving credit and
security agreement with a bank.
F-24
<PAGE> 85
[INSIDE BACK COVER]
ADVANCED LOGO
"ADVANCED LIGHTING TECHNOLOGIES' INNOVATIONS ACCELERATE DEMAND FOR METAL HALIDE
LIGHTING"
[PICTURE MONTAGE WITH THE FOLLOWING CAPTIONS: "RETAIL," "SPORTS LIGHTING,"
"INFRASTRUCTURE," "OUTDOOR COMMERCIAL," "FIBER OPTICS," "AUTOMOTIVE,"
"TELEVISIONS" AND "RESIDENTIAL."]
<PAGE> 86
ADVANCED LIGHTING
TECHNOLOGIES INC.
[ADVANCED LOGO]
<PAGE> 87
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is an itemized statement of expenses of the Company in
connection with the issuance and distribution of the shares of Common Stock
being registered. All but the Securities and Exchange Commission registration
fee and the National Association of Securities Dealers, Inc. filing fee are
estimates.
<TABLE>
<S> <C>
Securities and Exchange Commission Registration Fee...................... $ 26,660
National Association of Securities Dealers, Inc. Filing Fee.............. 9,298
Nasdaq National Market System Listing Fee................................ 17,500
Printing and Engraving Expenses.......................................... 200,000
Blue Sky Fees and Expenses............................................... 6,500
Legal Fees and Expenses.................................................. 200,000
Accounting Fees and Expenses............................................. 75,000
Transfer Agent Fees...................................................... 6,000
Miscellaneous Expenses................................................... 134,042
--------
Total.................................................................... $675,000
========
</TABLE>
The Selling Shareholders will not pay expenses in connection with the
Offering.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Reference is made to Section 1701.59 of the Ohio Revised Code, which
eliminates the personal liability in damages of a director for violations of the
director's fiduciary duty, except if it is proved by clear and convincing
evidence that his action or failure to act involved acts or omissions undertaken
with deliberate intent to cause injury to the corporation or with reckless
disregard for the best interests of the corporation. This statute does not
affect the liability of directors pursuant to Section 1701.95 of the Ohio
Revised Code(providing for liability of directors for unlawful payment of
dividends or unlawful distribution of assets).
Reference is made to Section 1701.13 of the Ohio Revised Code, which
provides that a corporation may indemnify directors and officers as well as
other employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative other than an action by or in the name of the corporation (a
"derivative action") if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard is applicable in the case
of derivative actions, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement of
such action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's articles of
incorporation, code of regulations, disinterested director vote, shareholder
vote, agreement or otherwise.
Reference is made to Article Seven of the Code of Regulations (by-laws) of
the Company contained in Exhibit 3.2 hereto which provides for the
indemnification of directors and officers to the fullest extent permitted by
Ohio law.
Reference is also made to Section 8 of the Underwriting Agreement contained
in Exhibit 1.1 hereto, indemnifying directors and officers of the Company
against certain liabilities.
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<PAGE> 88
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
In a merger of parents of the certain Predecessors into the Company
effective October 6, 1995, the Company issued 452,863 shares of Common Stock to
a total of 13 officers, directors and/or employees of the Company or its
Predecessors. The consideration received by the Company was various shares of
common stock of the parents of the Predecessors. Such securities were sold
pursuant to Section 4(2) of the 1933 Act, in that they were offered in
transactions not involving any public offering, exclusively to a limited number
of persons, each of whom had a preexisting relationship with the Company or its
Predecessors and, in each case, had access to all material information
concerning the Company, and such securities were offered without the use of any
form of general solicitation or advertising.
On October 10, 1995, the Company issued 335,774 shares of Common Stock to
94 employees pursuant to the exemption provided by Rule 701. Pursuant to the
Incentive Award Plan and in connection with a merger of a Predecessor's parent
into the Company the merger caused the cancellation of the common stock of the
Predecessor's parent held by such employees if the employees elected to receive
$.02 plus the receipt of Common Stock pursuant to the Incentive Award Plan.
Those employees electing this option received such securities pursuant to a
written compensatory benefit plan established by the Company for the
participation of its employees. Each participant in the compensatory benefit
plan was provided with a copy of such plan. The aggregate offering price
received by the issuer for the issuance of the securities was non-cash
consideration comprised of the cancellation of the Predecessor's parent common
stock pursuant to the merger and the employees' services provided in the regular
course of their duties. The aggregate offering price of these shares issued
pursuant to Rule 701 did not exceed 15% of the Company's total assets.
Also, in connection with such merger effective October 10, 1995, the
Company issued 2,494,627 shares of Common Stock to Mr. Hellman individually and
as voting trustee on behalf of the beneficial owners thereof. Such securities
were issued pursuant to Section 4(2) of the 1933 Act, in that they were offered
in transactions not involving any public offering, exclusively to a limited
number of persons, each of whom had a preexisting relationship with the Company
or its Predecessors and, in each case, had access to all material information
concerning the Company, and such securities were offered without the use of any
form of general solicitation or advertising.
On October 10, 1995, the Company issued 52,686 shares of Common Stock to 29
employees pursuant to the exemption provided by Rule 701. These securities were
issued pursuant to a written compensatory benefit plan established by the
Company for the participation of its employees and in connection with an
exchange of stock between shareholders of the Predecessor and the Company. Each
participant in the compensatory benefit plan was provided with a copy of such
plan. The aggregate offering price received by the issuer for the issuance of
the securities was noncash consideration comprised of the common stock of the
Predecessor and the employees' services provided in the regular course of their
duties. The aggregate offering price of these shares issued pursuant to Rule 701
did not exceed 15% of the Company's total assets.
In a merger of another parent of a Predecessor into the Company effective
October 10, 1995, the Company issued 2,785,090 shares of Common Stock to a total
of eight officers, directors and/or employees of the Company or its
Predecessors. The consideration received by the Company was 997 shares of common
stock of the parents of the Predecessors. Such securities were sold pursuant to
Section 4(2) of the 1933 Act, in that they were offered in transactions not
involving any public offering, exclusively to a limited number of persons, each
of whom had a preexisting relationship with the Company or its Predecessors and,
in each case, had access to all material information concerning the Company, and
such securities were offered without the use of any form of general solicitation
or advertising. After this merger, the remaining ten shareholders of the
Predecessor exchanged a total of 7,505 shares of Predecessor common stock for a
total of 342,565 shares of Common Stock. Such securities were sold pursuant to
Section 4(2) of the 1933 Act, in that they were offered in transactions not
involving any public offering, exclusively to a limited number of persons, each
of whom had a preexisting relationship with the Company or its Predecessors and,
in each case, had access to all material information concerning the Company, and
such securities were offered without the use of any form of general solicitation
or advertising.
On October 10, 1995, the Company issued 664,429 shares of Common Stock to
nine employees pursuant to the exemption provided by Rule 701. These securities
were issued pursuant to a written compensatory
II-2
<PAGE> 89
benefit plan established by the Company for the participation of its employees
and in connection with an exchange of stock between shareholders of the
Predecessor and the Company. Each participant in the compensatory benefit plan
was provided with a copy of such plan. The aggregate offering price received by
the issuer for the issuance of the securities was noncash consideration
comprised of the common stock of the Predecessor and the employees' services
provided in the regular course of their duties. The aggregate offering price of
these shares issued pursuant to Rule 701 did not exceed 15% of the Company's
total assets.
On October 10, 1995, Wayne R. Hellman exchanged 100 shares of Predecessor
common stock for 5,718 shares of Common Stock of the Company. Such securities
were sold pursuant to Section 4(2) of the 1933 Act, in that they were offered in
transactions not involving any public offering, exclusively to a limited number
of persons, each of whom had a preexisting relationship with the Company or its
Predecessors and, in each case, had access to all material information
concerning the Company, and such securities were offered without the use of any
form of general solicitation or advertising.
On October 10, 1995, six officers, directors and employees of the Company
exchanged 106 shares in a Predecessor with the Company for a total of 148,096
shares of Common Stock. Such securities were sold pursuant to Section 4(2) of
the 1933 Act, in that they were offered in transactions not involving any public
offering, exclusively to a limited number of persons, each of whom had a
preexisting relationship with the Company or its Predecessors and, in each case,
had access to all material information concerning the Company, and such
securities were offered without the use of any form of general solicitation or
advertising.
On October 10, 1995, the Company issued to 32 employees "A" Incentive
Options under its Incentive Award Plan for an aggregate of 230,000 shares of
Common Stock, each exercisable at $7.00 per share. These options will become
vested if certain financial goals are met or after five years from date of
grant. These options were issued in reliance upon the exemption provided by Rule
701. These securities were issued pursuant to a written compensatory benefit
plan established by the Company for the participation of its employees. Each
participant in the compensatory benefit plan was provided with a copy of such
plan. The aggregate offering price received by the issuer for the issuance of
the securities was noncash consideration comprised of the employees' services
provided in the regular course of their duties. The aggregate offering price of
these shares issued pursuant to Rule 701 did not exceed 15% of the Company's
total assets.
On December 8, 1995, the Company amended the "A" Incentive Options so that
the exercise price equaled the initial public offering price of the Common Stock
($10 per share).
On December 11, 1995, the Company paid to GE $3.0 million in cash plus
535,887 shares of Common Stock in consideration for the GE Warrant. These shares
were issued pursuant to Section 4(2) of the 1933 Act in that they were offered
in a transaction not involving a public offering. These shares were issued with
a restrictive legend.
Effective February 9, 1996, the Company acquired the 20% remaining equity
interest in its 80%-owned English subsidiary in exchange for 50,000 shares of
Common Stock. Such securities were sold in reliance upon an exemption pursuant
to Regulation S under the Securities Act, in that they were offered and sold in
England to two individual residents of the United Kingdom in exchange for their
minority interests in the Company's subsidiary, and are subject to transfer
restrictions.
On June 13, 1996, in connection with the Company's acquisition of
substantially all of the assets of two Australian vendors of lamps, Cleveland
Investments PTY, Ltd. (f/k/a Venture Lighting International PTY Limited) and
Scandium Investments PTY, Ltd. (f/k/a Venture Lighting Australia PTY Limited),
both of whom are distributors for Venture Lighting International, Inc., the
Company issued 38,423 Shares of Common Stock to Cleveland Investments PTY, Ltd.
and 38,500 Shares of Common Stock to Scandium Investments PTY, Ltd. Such
securities were issued in reliance upon an exemption pursuant to Regulation S
under the Securities Act, in that they were offered and sold pursuant to a
negotiated agreement, offered and sold in Australia to two entities, both of
whom are residents of Australia. Additionally, the issued shares are subject to
transfer restrictions.
On December 23, 1996, a newly-organized subsidiary of the Company, Advanced
Cable Lite Corporation, acquired all of the assets (and assumed certain
liabilities) of Cable Lite Corporation (the "Seller") in
II-3
<PAGE> 90
exchange for the Company's issuance of 50,000 shares of Common Stock and other
consideration. The Common Stock was issued to Cable Lite Corporation in a
negotiated purchase of assets. Cable Lite is required to transfer the shares to
its shareholders in liquidation. Cable Lite and its four shareholders signed an
investment representation and agreed to transfer restrictions. The certificates
representing the shares bear a restrictive legend. The sale of the shares was
exempt pursuant to Sections 4(1) and 4(2) of the Securities Act.
On February 11, 1997, the Company acquired certain assets and all of the
outstanding shares of Ballastronix Inc. The negotiated purchase price included
$5,511,000 in cash and 38,024 shares of the Company's Common Stock. The Common
Stock was issued to five Ballastronix Inc. manager/shareholders in a negotiated
acquisition. Each of these shareholders signed an investment representation and
agreed to transfer restrictions. The shares were issued with a restrictive
legend. The sale of the shares was exempt pursuant to Section 4(2) of the
Securities Act.
No underwriters were used, no underwriting discounts were incurred, and no
commissions were paid in connection with any of the above transactions.
ITEM 16. EXHIBITS
a. Exhibits
<TABLE>
<S> <C>
1.1 Form of Underwriting Agreement
3.1 Second Amended and Restated Articles of Incorporation [as amended to
February 12, 1997].****
3.2 Code of Regulations*
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Form of Stock Certificate for Common Stock of the Company*
5.1 Opinion of Cowden, Humphrey & Sarlson
9.1 Form of Voting Trust Agreement dated as of October 10, 1995 by and among the
Company, Wayne R. Hellman, Louis S. Fisi, David L. Jennings, Robert S.
Roller, Juris Sulcs, James F. Sarver, Brian A. Hellman, and Lisa Hellman, as
amended December 20, 1995.*
9.2 Form of Irrevocable Proxy*
10.1 Copy of the Company's Incentive Award Plan*
10.1/A Form of Amended Option "A" Grant, qualifying as an Incentive Stock Option*
10.2 Copy of the Non-Employee Director Stock Purchase Plan for Venture Lighting
International, Inc.*
10.3 Plan and Agreement of Merger Among H & F Four, Inc., VLI Partners II, Inc.
and Venture Lighting International, Inc., effective as of October 6, 1995**
10.4 Plan and Agreement of Merger With of H&F Six, Inc., H&F Seven, Inc., H&F
Eight, Inc., H&F Nine, Inc., H&F Twelve, Inc., H&F Thirteen, Inc., H&F
Fourteen, Inc., H&F Fifteen, Inc. and H&F Sixteen, Inc. and Into Advanced
Lighting Technologies, Inc., effective as of October 6, 1995*
10.5 Plan and Agreement for Exchange of Stock Among Advanced Lighting
Technologies, Inc. and Shareholders of Metal Halide Technologies, Inc.,
effective as of October 10, 1995*
10.6 Plan and Agreement for Exchange of Stock Among Advanced Lighting
Technologies, Inc. and Shareholders of Microsun Technologies, Inc.,
effective as of October 10, 1995*
10.7 Plan and Agreement of Merger of VLI Partners II, Inc. With and Into Advanced
Lighting Technologies, Inc., effective as of October 10, 1995, as amended*
10.8 Plan and Agreement of H & F One, Inc. With and Into Advanced Lighting
Technologies, Inc., effective as of October 10, 1995, as amended*
10.9 Form of Plan and Agreement for Exchange of Stock Among Advanced Lighting
Technologies, Inc. and Individual Shareholders of APL Engineered Materials,
Inc., effective as of October 10, 1995*
10.10 Form of Preferred Stock Redemption Agreement between VLI Partners II, Inc.
and its preferred shareholders (all are substantially the same except the
number of shares being redeemed and the total redemption price)*
10.11 Agreement to Repay, dated October 5, 1995 with GE*
10.12 Bill of Sale dated September 15, 1995 from APL Engineered Materials, Inc. to
H & F Five, Inc.*
</TABLE>
II-4
<PAGE> 91
<TABLE>
<S> <C>
10.13 Letter Agreement between Greyrock Financial Group and APL Engineered
Materials, Inc. dated October 10, 1995*
10.14 Lease Agreement dated January 1, 1996 by and between 32000 Aurora Road
Company, Ltd. and Venture Lighting International, Inc. (a wholly-owned
subsidiary of the Company)
10.15 Amended Lease Agreement dated September 30, 1992, by and between LR
Properties and Lighting Resources International, Inc.*
10.16 Employment Agreement dated October 6, 1995, by and between the Company and
Wayne R. Hellman*
10.17 Employment Agreement dated October 6, 1995, by and between the Company and
Louis S. Fisi*
10.18 Settlement Agreement, Covenant Not To Sue and Mutual Release*
10.19 Aircraft Lease Agreement between LightAir, Ltd., an Ohio limited liability
company, of which Wayne R. Hellman owns 80% of the membership interests and
Louis S. Fisi owns 20% of the membership interests, and Levetz Investments,
Inc., an unrelated corporation engaged in the business of chartering
aircraft and otherwise providing general aviation services ("Levetz
Investments"), dated as of January 22, 1996. (Form 10-Q Exhibit 10.1)**
10.20 Aircraft Operating Agreement between Levetz Investments and Venture Lighting
International, Inc., a wholly-owned subsidiary of the Company, dated as of
January 22, 1996. (Form 10-Q Exhibit 10.2)**
10.21 Aircraft Operating Agreement between Levetz Investments and APL Engineered
Materials, Inc., a wholly-owned subsidiary of the Company, dated as of
January 22, 1996. (Form 10-Q Exhibit 10.3)**
10.22 Asset Purchase Agreement between Current Industries, Inc., Metal Halide
Controls, Inc. and Advanced Lighting Technologies, Inc. dated January 26,
1996. (Form 10-Q Exhibit 10.1)***
10.23 Letter Agreement between Venture Lighting International, Inc. and the Bank
of Nova Scotia dated March 11, 1996 regarding the purchase of capital stock
and certain indebtedness of Spectro Electric, Inc. (Form 10-Q Exhibit
10.2)***
10.24 Revolving Credit and Security Agreement between Advanced Lighting
Technologies, Inc. et al. and BNY Financial Corporation dated March 25,
1996, as amended
10.25 Amendment No. 1 to Lease Agreement dated March 6, 1996, by and between 32000
Aurora Road Company, Ltd. and Venture Lighting International, Inc. (a
wholly-owned subsidiary of the Company)
10.26 Aircraft Dry Lease Agreement dated as of May 27, 1997 by and between
LightAir, Ltd. and Advanced Lighting Technologies, Inc.
11.1 Statement Re: Computation of Per Share Earnings
21.0 List of subsidiaries, states of organization
23.1 Consent of Ernst & Young LLP, Independent Auditors
23.2 Consent of Cowden, Humphrey & Sarlson -- See Exhibit 5.1
24.1 Powers of Attorney
27 Financial Data Schedule
</TABLE>
- ---------------
<TABLE>
<S> <C>
* Incorporated by reference to Exhibit of same number in Company's Registration
Statement on Form S-1, Registration No. 33-97902, Effective December 11, 1995.
** Incorporated by reference to referenced Exhibit in Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended December 31, 1995.
*** Incorporated by reference to referenced Exhibit in Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended March 31, 1996.
**** Incorporated by reference to referenced Exhibit in Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended December 31, 1996.
</TABLE>
II-5
<PAGE> 92
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 (the "Act") may be permitted to directors, officers and controlling
persons of the registrant pursuant to the provisions described in Item 14 above
or otherwise, the registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 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 already 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 Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that (1) for the purposes of
determining any liability under the Securities Act of 1933 (the "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
Act shall be deemed to be part of the registration statement as of the time it
was declared effective, and (2) 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-6
<PAGE> 93
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO,
ON JUNE 4, 1997.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ WAYNE R. HELLMAN
-------------------------------------
Wayne R. Hellman
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT) HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------------------- --------------
<C> <S> <C>
/s/ WAYNE R. HELLMAN Chief Executive Officer and Director June 4, 1997
- ----------------------------------------
Wayne R. Hellman
/s/ LOUIS S. FISI Executive Vice President and Director June 4, 1997
- ----------------------------------------
Louis S. Fisi
/s/ NICHOLAS R. SUCIC Chief Financial Officer, Vice June 4, 1997
- ---------------------------------------- President and Treasurer (Chief
Nicholas R. Sucic Accounting Officer)
/s/ THEODORE A. FILSON Director June 4, 1997
- ----------------------------------------
Theodore A. Filson
/s/ FRANCIS H. BEAM Director June 4, 1997
- ----------------------------------------
Francis H. Beam
/s/ SUSUMA HARADA Director June 4, 1997
- ----------------------------------------
Susuma Harada
/s/ A GORDON TUNSTALL Director June 4, 1997
- ----------------------------------------
A Gordon Tunstall
</TABLE>
II-7
<PAGE> 1
EXHIBIT 1.1
3,000,000 Shares
ADVANCED LIGHTING TECHNOLOGIES, INC.
COMMON STOCK, PAR VALUE $.001 PER SHARE
UNDERWRITING AGREEMENT
_____________, 1997
<PAGE> 2
___________, 1997
Morgan Stanley & Co. Incorporated
Prudential Securities Incorporated
Raymond James & Associates, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Dear Sirs and Mesdames:
Advanced Lighting Technologies, Inc., an Ohio corporation (the
"Company") proposes to issue and sell to the several Underwriters named in
Schedule I hereto (the "Underwriters"), 3,000,000 shares of the Common Stock,
par value $.001 per share, of the Company (the "Firm Shares").
Certain shareholders of the Company (the "Selling Shareholders") named
in Schedule II hereto severally propose to sell to the several Underwriters the
additional number of shares of the Common Stock, par value $.001 per share, of
the Company set forth in Schedule II hereto opposite the name of each Selling
Shareholder for a total of not more than an additional 450,000 (the "Additional
Shares") if and to the extent that you, as Managers of the offering, shall have
determined to exercise, on behalf of the Underwriters, the right to purchase
such shares of common stock granted to the Underwriters in Section 4 hereof. The
Firm Shares and the Additional Shares are hereinafter collectively referred to
as the "Shares." The shares of Common Stock, par value $.001 per share, of the
Company to be outstanding after giving effect to the sales contemplated hereby
are hereinafter referred to as the "Common Stock." The Company and the Selling
Shareholders are hereinafter sometimes collectively referred to as the
"Sellers."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement, including a prospectus, relating to the
Shares. The registration statement as amended at the time it becomes effective,
including the information (if any) deemed to be part of the registration
statement at the time of effectiveness pursuant to Rule 430A under the
Securities Act of 1933, as amended (the "Securities Act"), is hereinafter
referred to as the "Registration Statement"; the prospectus in the form first
used to confirm sales of Shares is hereinafter referred to as the "Prospectus."
If the Company has filed an abbreviated registration statement to register
additional shares of Common Stock pursuant to Rule 462(b) under the Securities
Act (the "Rule 462 Registration Statement"), then any reference herein to the
term "Registration Statement" shall be deemed to include such Rule 462
Registration Statement.
<PAGE> 3
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND GROUP 1 SELLING
SHAREHOLDERS. The Company and each of the Selling Shareholders identified in
Schedule II hereto as Group 1 Selling Shareholders (collectively, "Group 1
Selling Shareholders") jointly and severally represent and warrant to and agree
with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission
(b) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading, except that the representations and warranties set forth in
this paragraph 1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own or lease its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified
or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own or lease its property and to conduct its business as
described in the Prospectus and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so qualified
or be in good standing would not have a material adverse effect on the
Company and its subsidiaries, taken as a whole; all of the issued
shares of capital stock of each subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and
non-assessable and are owned directly by the Company or a subsidiary of
the Company, free and clear of all liens, encumbrances, equities or
claims. For the purposes of
2
<PAGE> 4
this Agreement, the term subsidiary shall exclude any entity as to
which the Company (and all subsidiaries of the Company, taken as a
whole) does not own an equity interest entitling the Company to
exercise in excess of 50% of the voting power of such entity. Such
excluded entities and the equity interest of the Company (and all
subsidiaries of the Company, taken as a whole) in each such excluded
entity are set forth on Schedule III hereto.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The shares of Common Stock (including the Shares to be
sold by the Selling Shareholders) outstanding prior to the issuance of
the Shares to be sold by the Company have been duly authorized and are
validly issued, fully paid and non-assessable.
(h) The Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and
non-assessable, and the issuance of such Shares will be not subject to
any preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the certificate
of incorporation or regulations of the Company or any agreement or
other instrument binding upon the Company or any of its subsidiaries
that is material to the Company and its subsidiaries, taken as a whole,
or any judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary, and no
consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement
3
<PAGE> 5
or the Prospectus or to be filed as exhibits to the Registration
Statement that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act
and the applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(n) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such permit, license
or approval, except where such noncompliance with Environmental Laws,
failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits,
licenses or approvals would not, singly or in the aggregate, have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(p) Other than the Registration Rights and Option Agreement
dated December 15, 1995 among General Electric Company, the Company and
Wayne R. Hellman, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(q) To the extent applicable to the Company, the Company has
complied with all provisions of Section 517.075, Florida Statutes
relating to doing business with the Government of Cuba or with any
person or affiliate located in Cuba.
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<PAGE> 6
(r) The combined financial statements and schedules of the
Company and its subsidiaries included in the Registration Statement and
the Prospectus fairly present the financial position of the Company and
the results of operations and cash flows as of the dates and periods
therein specified. Such financial statements and schedules have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (except as
otherwise noted therein). The selected financial data set forth under
the caption "Selected Financial Data" in the Prospectus fairly present,
on the basis stated in the Prospectus, the information included
therein.
(s) Ernst & Young LLP who have audited certain financial
statements of the Company and delivered their report with respect to
the Company's audited combined financial statements and schedules
included in the Registration Statement and the Prospectus, are
independent public accountants as required by the Securities Act and
the applicable rules and regulations thereunder.
(t) The Company has not, directly or indirectly, (i) taken any
action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company to facilitate
the sale or resale of the Shares or (ii) since the filing of the
Registration Statement (A) sold, bid for, purchased, or paid anyone any
compensation for soliciting purchases of, the Shares or (B) paid or
agreed to pay to any person any compensation for soliciting another to
purchase any other securities of the Company.
(u) The Company and each of its subsidiaries have good and
marketable title in fee simple to all items of real property and
marketable title to all personal property owned by each of them, in
each case free and clear of any security interests, liens,
encumbrances, equities, claims and other defects, except such as do not
materially and adversely affect the value of such property and do not
interfere with the use made or proposed to be made of such property by
the Company or such subsidiary, and any real property and buildings
held under lease by the Company or any such subsidiary are held under
valid, subsisting and enforceable leases, with such exceptions as are
not material and do not interfere with the use made or proposed to be
made of such property and buildings by the Company or such subsidiary,
in each case except as described in or contemplated by the Prospectus.
(v) No labor dispute with the employees of the Company or any
of its subsidiaries exists or is threatened or imminent that could
result in a material adverse change in the condition, financial or
otherwise, or in the management, business prospects, earnings, business
or operations of the Company and its subsidiaries taken as a whole,
except as described in or contemplated by the Prospectus.
(w) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent applications,
trademarks, service marks, trade names, licenses, copyrights and
proprietary or other confidential information currently
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<PAGE> 7
employed by them in connection with their respective businesses, and
neither the Company nor any such subsidiary has received any notice of,
or has any reasonable belief that its use constitutes, a material
infringement of or conflict with asserted rights of any third party
with respect to any of the foregoing which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition, financial or
otherwise, or in the management, business prospects, earnings, business
or operations of the Company and its subsidiaries.
(x) The Company and each of its subsidiaries is insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or in the management, business
prospects, earnings, business or operations of the Company and its
subsidiaries taken as a whole, except as described in or contemplated
by the Prospectus.
(y) Except as set forth in the Domestic Revolving Loan (as
such term is defined in the Prospectus or if the Prospectus is not in
existence, the most recent preliminary prospectus) and except as set
forth in the Postponement of Claim and Assignment dated as of February
11, 1997 by and among the Royal Bank of Canada, Canadian Lighting
Systems Holding, Inc. and Ballastronix, Inc., no subsidiary of the
Company is currently prohibited pursuant to an agreement, directly or
indirectly, from paying any dividends to the Company, from making any
other distribution on such subsidiary's capital stock, from repaying to
the Company any loans or advances to such subsidiary from the Company
or from transferring any of such subsidiary's property or assets to the
Company or any other subsidiary of the Company, except as described in
or contemplated by the Prospectus.
(z) The Company and its subsidiaries possess all material
certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct
their respective businesses, and neither the Company nor any such
subsidiary has received any notice of proceedings relating to the
revocation or modification of any such certificate, authorization or
permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material
adverse change in the condition, financial or otherwise, or in the
management, business prospects, earnings, business or operations of the
Company and its subsidiaries.
(aa) The Company, its subsidiaries and each Predecessor (as
such term is defined in the Prospectus or if the Prospectus is not in
existence, the most recent preliminary prospectus) have filed all
foreign, federal, state and local tax returns that are required to be
filed or have requested extensions thereof (except in any case in which
the failure so to file
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<PAGE> 8
would not have a material adverse effect on the Company and its
subsidiaries taken as a whole) and have paid all taxes required to be
paid by them and any other assessment, fine or penalty levied against
them, to the extent that any of the foregoing is due and payable,
except for any such assessment, fine or penalty that is currently being
contested in good faith or as described in or contemplated by the
Prospectus.
(bb) The Company and each of its subsidiaries maintain a
system of internal accounting controls sufficient to provide reasonable
assurance that (i) transactions are executed in accordance with
management's general or specific authorizations; (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (iii) access to assets is permitted only
in accordance with management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(cc) No default exists, and no event has occurred which, with
notice or lapse of time or both, would constitute a default in the due
performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease or other material agreement
or instrument to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or any of
their respective properties is bound or may be affected in any material
adverse respect with regard to property, business or operations of the
Company and its subsidiaries taken as a whole.
(dd) Other than the 2,900,000 shares of the Common Stock, par
value $.001 per share, of the Company sold in the initial public
offering on December 11, 1995 (the "IPO") and the 2,800,000 shares of
the Common Stock, par value $.001 per share, of the Company sold in the
secondary public offering on July 16, 1996, and offers and sales
pursuant to the Company's 1995 Incentive Award Plan and the Company's
Employee Stock Purchase Plan, all offers and sales of the Company's
capital stock prior to the date hereof, including the offer and sale of
7,281,848 shares of Common Stock in connection with the Combination (as
such term is defined in the Prospectus or if the Prospectus is not in
existence, the most recent preliminary prospectus), were at all
relevant times exempt from the registration requirements of the
Securities Act, and were the subject of an available exemption from the
registration requirements of all applicable state securities or blue
sky laws.
(ee) Except as disclosed in the Prospectus, there are no
outstanding (i) securities or obligations of the Company or any of its
subsidiaries convertible into or exchangeable for any capital stock of
the Company or any such subsidiary, (ii) warrants, rights or options to
subscribe for or purchase from the Company or any such subsidiary any
such capital stock or any such convertible or exchangeable securities
or obligations, or (iii) obligations of the
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<PAGE> 9
Company or any such subsidiary to issue any shares of capital stock,
any such convertible or exchangeable securities or obligations, or any
such warrants, rights or options.
(ff) The Company has not distributed and, prior to the later
of (i) the Closing Date and (ii) the completion of the distribution of
the Shares, will not distribute any offering material in connection
with the offering and sale of the Shares other than the Registration
Statement or any amendment thereto or the Prospectus or any supplement
or amendment thereto, or any materials, if any permitted by the
Securities Act.
2. REPRESENTATIONS AND WARRANTIES OF THE SELLING SHAREHOLDERS. Each of
the Selling Shareholders, severally and not jointly, represents and warrants to
and agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder.
(b) The execution and delivery by such Selling Shareholder of,
and the performance by such Selling Shareholder of its obligations
under, this Agreement, the Custody Agreement signed by such Selling
Shareholder and American Stock Transfer & Trust Company, as Custodian,
relating to the deposit of the Shares to be sold by such Selling
Shareholder (the "Custody Agreement") and the Power of Attorney
appointing Wayne R. Hellman as such Selling Shareholder's
attorney-in-fact to the extent set forth therein, relating to the
transactions contemplated hereby and by the Registration Statement (the
"Power of Attorney") will not contravene any provision of applicable
law or any agreement or other instrument binding upon such Selling
Shareholder or any judgment, order or decree of any governmental body,
agency or court having jurisdiction over such Selling Shareholder, and
no consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by such
Selling Shareholder of its obligations under this Agreement or the
Custody Agreement or Power of Attorney of such Selling Shareholder,
except such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of the Shares.
(c) Such Selling Shareholder has, and on the Closing Date will
have, valid title to the Shares to be sold by such Selling Shareholder
and the legal right and power, and all authorization and approval
required by law, to enter into this Agreement, the Custody Agreement
and the Power of Attorney and to sell, transfer and deliver the Shares
to be sold by such Selling Shareholder.
(d) The Shares to be sold by such Selling Shareholder pursuant
to this Agreement have been duly authorized and are validly issued,
fully paid and non-assessable.
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<PAGE> 10
(e) The Custody Agreement and the Power of Attorney have been
duly authorized, executed and delivered by such Selling Shareholder and
are valid and binding agreements of such Selling Shareholder.
(f) Delivery of the Shares to be sold by such Selling
Shareholder pursuant to this Agreement will pass title to such Shares
free and clear of any security interests, claims, liens, equities and
other encumbrances.
3. REPRESENTATIONS AND WARRANTIES OF THE GROUP 2 SELLING SHAREHOLDERS.
Each of the Selling Shareholders identified in Schedule II hereto as a Group 2
Selling Shareholder (collectively, "Group 2 Selling Shareholders"), severally
and not jointly, represents and warrants to and agrees with each of the
Underwriters that:
(a) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading, (ii) the Registration Statement and
the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii)
the Prospectus does not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; but only, in each such case, with reference to information
relating to such Group 2 Selling Shareholder furnished in writing by
such Group 2 Selling Shareholder expressly for use in the Registration
Statement, any preliminary prospectus, the Prospectus or any amendments
or supplements thereto.
4. AGREEMENTS TO SELL AND PURCHASE. The Company hereby agrees to sell
to the several Underwriters, and each Underwriter, upon the basis of the
representations and warranties herein contained, but subject to the conditions
hereinafter stated, agrees, severally and not jointly, to purchase from the
Company at $_______ a share (the "Purchase Price") the number of Firm Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the number of Firm Shares to be
sold by the Company as the number of Firm Shares set forth in Schedule I hereto
opposite the name of such Underwriter bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Selling Shareholders
agree to sell to the Underwriters the Additional Shares, and the Underwriters
shall have a one-time right to purchase, severally and not jointly, up to
450,000 Additional Shares at the Purchase Price. If you, on behalf of the
Underwriters, elect to exercise such option, you shall so notify the Selling
Shareholders in writing not later than 30 days after the date of this Agreement,
which notice shall specify the number of Additional Shares to be purchased by
the Underwriters and the date on which such shares are to be purchased. Such
date
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<PAGE> 11
may be the same as the Closing Date (as defined below) but not earlier than the
Closing Date nor later than ten business days after the date of such notice.
Additional Shares may be purchased as provided in Section 6 hereof solely for
the purpose of covering over-allotments made in connection with the offering of
the Firm Shares. If any Additional Shares are to be purchased, each Underwriter
agrees, severally and not jointly, to purchase the number of Additional Shares
(subject to such adjustments to eliminate fractional shares as you may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of Firm Shares set forth in Schedule I
hereto opposite the name of such Underwriter bears to the total number of Firm
Shares.
Each Seller hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 90 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any shares
of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock or (ii) enter into any swap or other arrangement
that transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing sentence shall not apply
(A) to the Shares to be sold hereunder, (B) to the issuance by the Company of
shares of Common Stock upon the exercise of an option or warrant or the
conversion of a security outstanding on the date hereof of which the
Underwriters have been advised in writing, (C) to any options granted or shares
of Common Stock issued pursuant to existing benefit plans of the Company or (D)
with respect to any Selling Shareholder, to any sale of shares of Common Stock
which are subject to an existing pledge or other security arrangement on the
date hereof of which the Underwriters have been advised in writing, in good
faith pursuant to the terms of such pledge or arrangement. In addition, each
Selling Shareholder, agrees that, without the prior written consent of Morgan
Stanley & Co. Incorporated on behalf of the Underwriters, it will not, during
the period ending 90 days after the date of the Prospectus, make any demand for,
or exercise any right with respect to, the registration of any shares of Common
Stock or any security convertible into or exercisable or exchangeable for Common
Stock.
5. TERMS OF PUBLIC OFFERING. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at
$____________ a share (the "Public Offering Price") and to certain dealers
selected by you at a price that represents a concession not in excess of $______
a share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of $_____ a share, to any
Underwriter or to certain other dealers.
6. PAYMENT AND DELIVERY. Payment for the Firm Shares to be sold by the
Company shall be made to the Company in Federal or other funds immediately
available in New York City against delivery of such Firm Shares for the
respective accounts of the several Underwriters at 10:00
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<PAGE> 12
A.M., New York City time, on ____________ 19__ , or at such other time on the
same or such other date, not later than ________, 19__, as shall be designated
in writing by you. The time and date of such payment are hereinafter referred to
as the "Closing Date."
Payment for any Additional Shares shall be made to the Selling
Shareholders in Federal or other funds immediately available in New York City
against delivery of such Additional Shares for the respective accounts of the
several Underwriters at 10:00 A.M., New York City time, on the date specified in
the notice described in Section 4 or at such other time on the same or on such
other date, in any event not later than ______, 19__, as shall be designated in
writing by you. The time and date of such payment are hereinafter referred to as
the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
7. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration Statement shall have become
effective not later than [_______] (New York City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date,
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of
this Agreement) that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated
in the Prospectus.
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<PAGE> 13
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in clause (a)(i) above and to
the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date
an opinion of Cowden, Humphrey & Sarlson Co., L.P.A., counsel for the
Company, dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has the
corporate power and authority to own its property and to
conduct its business as described in the Prospectus and is
duly qualified to transact business and is in good standing in
each jurisdiction in which the conduct of its business or its
ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be
in good standing would not have a material adverse effect on
the Company and its subsidiaries, taken as a whole;
(ii) each subsidiary of the Company listed on
Schedule IV hereto ("Major Subsidiaries") has been duly
incorporated, is validly existing as a corporation in good
standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own
its property and to conduct its business as described in the
Prospectus and is duly qualified to transact business and is
in good standing in each jurisdiction in which the conduct of
its business or its ownership or leasing of property requires
such qualification, except to the extent that the failure to
be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries,
taken as a whole;
(iii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares
to be sold by the Selling Shareholders) outstanding prior to
the issuance of the Shares to be sold by the Company have been
duly authorized and are validly issued, fully paid and
non-assessable;
(v) all of the issued shares of capital stock of each
Major Subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and
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<PAGE> 14
nonassessable and are owned directly by the Company or
subsidiary of the Company, free and clear of all liens,
encumbrances, equities or claims;
(vi) the Shares to be sold by the Company have been
duly authorized and, when issued and delivered in accordance
with the terms of this Agreement, will be validly issued,
fully paid and non-assessable, and the issuance of such Shares
will not be subject to any preemptive or similar rights;
(vii) this Agreement has been duly authorized,
executed and delivered by the Company;
(viii) the execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement will not contravene any provision of applicable
law or the certificate of incorporation or regulations of the
Company or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon the Company or any
of its subsidiaries that is material to the Company and its
subsidiaries, taken as a whole, or, to the best of such
counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over
the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any
governmental body or agency is required for the performance by
the Company of its obligations under this Agreement, except
such as may be required by the securities or Blue Sky laws of
the various states in connection with the offer and sale of
the Shares;
(ix) the statements (A) in the Prospectus under the
captions "Business Environmental Regulation," "Certain
Transactions," "Description of Capital Stock" and
"Underwriters" and (B) in the Registration Statement in Items
14 and 15, in each case insofar as such statements constitute
summaries of the legal matters, documents or proceedings
referred to therein, fairly present the information called for
with respect to such legal matters, documents and proceedings
and fairly summarize the matters referred to therein;
(x) after due inquiry, such counsel does not know of
any legal or governmental proceedings pending or threatened to
which the Company or any of its subsidiaries is a party or to
which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in
the Registration Statement or the Prospectus and are not so
described or of any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described
or filed as required;
(xi) the Company is not and, after giving effect to
the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus,
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<PAGE> 15
will not be an "investment company" as such term is defined in
the Investment Company Act of 1940, as amended;
(xii) After due inquiry, such counsel has no
knowledge, and has no reason to believe, that the Company and
its subsidiaries (A) are not in compliance with any and all
applicable Environmental Laws, (B) have not received all
permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective
businesses and (C) are not in compliance with all terms and
conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such
permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and
its subsidiaries, taken as a whole; and
(xiii) such counsel (A) is of the opinion that the
Registration Statement and Prospectus (except for financial
statements and schedules and other financial and statistical
data included therein as to which such counsel need not
express any opinion) comply as to form in all material
respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder, (B) has no reason to
believe that (except for financial statements and schedules
and other financial and statistical data as to which such
counsel need not express any belief) the Registration
Statement and the prospectus included therein at the time the
Registration Statement became effective contained any 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 not misleading and (C) has no reason to
believe that (except for financial statements and schedules
and other financial and statistical data as to which such
counsel need not express any belief) the Prospectus contains
any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading.
(d) The Underwriters shall have received on the Closing Date
an opinion of Cowden, Humphrey & Sarlson Co., L.P.A., counsel for the
Selling Shareholders, dated the Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed
and delivered by or on behalf of each of the Selling
Shareholders;
(ii) the execution and delivery by each Selling
Shareholder of, and the performance by such Selling
Shareholder of its obligations under, this Agreement and the
Custody Agreement and Powers of Attorney of such Selling
Shareholder will not contravene any provision of applicable
law, or, to the best of such counsel's knowledge, any
agreement or other instrument binding upon such Selling
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<PAGE> 16
Shareholder or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over such Selling Shareholder, and
no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is
required for the performance by such Selling Shareholder of
its obligations under this Agreement or the Custody Agreement
or Power of Attorney of such Selling Shareholder, except such
as may be required by the securities or Blue Sky laws of the
various states in connection with offer and sale of the
Shares;
(iii) each of the Selling Shareholders has the legal
right and power, and all authorization and approval required
by law, to enter into this Agreement and the Custody Agreement
and Power of Attorney of such Selling Shareholder and to sell,
transfer and deliver the Shares to be sold by such Selling
Shareholder;
(iv) the Custody Agreement and the Power of Attorney
of each Selling Shareholder have been duly authorized,
executed and delivered by such Selling Shareholder and are
valid and binding agreements of such Selling Shareholder; and
(v) delivery of the Shares to be sold by each Selling
Shareholder pursuant to this Agreement will pass good and
marketable title to such Shares free and clear of any security
interests, claims, liens, equities and other encumbrances.
(e) The Underwriters shall have received on the Closing Date
an opinion of King & Spalding, counsel for the Underwriters, dated the
Closing Date, covering the matters referred to in subparagraphs (vi),
(vii), (ix) (but only as to the statements in the Prospectus under
"Description of Capital Stock" and "Underwriters") and (xiii) of
paragraph (c) above.
With respect to subparagraph (xiii) of paragraph (c) above,
Cowden, Humphrey & Sarlson Co., L.P.A. and King & Spalding may state
that their opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification,
except as specified. With respect to paragraph (d) above, Cowden,
Humphrey & Sarlson Co., L.P.A. may rely upon an opinion or opinions of
counsel for any Selling Shareholders and, with respect to factual
matters and to the extent such counsel deems appropriate, upon the
representations of each Selling Shareholder contained herein and in the
Custody Agreement and Power of Attorney of such Selling Shareholder and
in other documents and instruments; provided that (A) each such counsel
for the Selling Shareholders is satisfactory to your counsel, (B) a
copy of each opinion so relied upon is delivered to you and is in form
and substance satisfactory to your counsel, (C) copies of such Custody
Agreements and Powers of Attorney and of any such other documents and
instruments shall be delivered to you and shall be in form and
substance satisfactory to your counsel and (D) Cowden, Humphrey &
Sarlson Co., L.P.A. shall state in their opinion that they are
justified in relying on each such other opinion.
15
<PAGE> 17
The opinions of Cowden, Humphrey and Sarlson Co., L.P.A.
described in paragraphs (c) and (d) above (and any opinions of counsel
for any Selling Shareholder referred to in the immediately preceding
paragraph) shall be rendered to the Underwriters at the request of the
Company or one or more of the Selling Shareholders, as the case may be,
and shall so state therein.
(f) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from Ernst & Young LLP independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
provided that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(g) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company listed on Schedule V hereto relating to sales
and certain other dispositions of shares of Common Stock or certain
other securities, delivered to you on or before the date hereof, shall
be in full force and effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional
Shares hereunder are subject to the delivery to you on the Option Closing Date
of such documents as you may reasonably request with respect to the good
standing of the Company, the due authorization and issuance of the Additional
Shares and other matters related to the issuance of the Additional Shares.
8. COVENANTS OF THE COMPANY. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four (4) signed copies
of the Registration Statement (including exhibits thereto) and for
delivery to each other Underwriter a conformed copy of the Registration
Statement (without exhibits thereto) and to furnish to you in New York
City, without charge, prior to 5:00 P.M. New York City time on the
business day next succeeding the date of this Agreement and during the
period mentioned in paragraph (c) below, as many copies of the
Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule
424(b) under the Securities Act any prospectus required to be filed
pursuant to such Rule.
16
<PAGE> 18
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer, any event shall
occur or condition exist as a result of which it is necessary to amend
or supplement the Prospectus in order to make the statements therein,
in the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the Company)
to which Shares may have been sold by you on behalf of the Underwriters
and to any other dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earning statement covering
the twelve-month period ending June 30, 1998 that satisfies the
provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
9. EXPENSES. Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, the Company agrees to
pay or cause to be paid all expenses incident to the performance of their
obligations under this Agreement, including: (i) the fees, disbursements and
expenses of the Company's counsel, the Company's accountants and counsel for the
Selling Shareholders in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in connection
with the preparation and filing of the Registration Statement, any preliminary
prospectus, the Prospectus and amendments and supplements to any of the
foregoing, including all printing costs associated therewith, and the mailing
and delivering of copies thereof to the Underwriters and dealers, in the
quantities hereinabove specified, (ii) all costs and expenses related to the
transfer and delivery of the Shares to the Underwriters, including any transfer
or other taxes payable thereon, (iii) the cost of printing or producing any Blue
Sky or Legal Investment memorandum in connection with the offer and sale of the
Shares under state securities laws and all expenses in connection with the
qualification of the Shares for offer and sale under state securities laws as
provided in Section 8(d) hereof, including filing fees and the reasonable fees
and disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky or Legal Investment
memorandum, (iv) all filing fees and disbursements of counsel to the
Underwriters incurred in connection with the review and qualification of the
offering of the Shares by the National Association of Securities Dealers, Inc.,
(v) all fees and expenses in connection with the preparation and filing of the
registration statement on Form 8-A relating to the Common Stock and all costs
and expenses incident to listing the Shares on the Nasdaq National
17
<PAGE> 19
Market, (vi) the cost of printing certificates representing the Shares, (vii)
the costs and charges of any transfer agent, registrar or depositary, (viii) the
costs and expenses of the Company relating to investor presentations on any
"road show" undertaken in connection with the marketing of the offering of the
Shares, including, without limitation, expenses associated with the production
of road show slides and graphics, fees and expenses of any consultants engaged
in connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, and (ix) all other costs and expenses incident to
the performance of the obligations of the Company hereunder for which provision
is not otherwise made in this Section. It is understood, however, that except as
provided in this Section, Section 10 entitled "Indemnity and Contribution", and
the last paragraph of Section 12 below, the Underwriters will pay all of their
costs and expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them, any advertising
expenses connected with any offers they may make and all expenses in connection
with any offer and sale of the Shares outside of the United States, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with offers and sales outside of the United States.
The provisions of this Section shall not supersede or otherwise affect
any agreement that the Sellers may otherwise have for the allocation of such
expenses among themselves.
10. INDEMNITY AND CONTRIBUTION.
(a) The Company and each Group 1 Selling Shareholder, jointly
and severally, agree to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), from
and against any and all losses, claims, damages and liabilities
(including, without limitation, any legal or other expenses reasonably
incurred in connection with defending or investigating any such action
or claim) caused by any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement or any
amendment thereof, any preliminary prospectus or the Prospectus (as
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading,
except insofar as such losses, claims, damages or liabilities are
caused by any such untrue statement or omission or alleged untrue
statement or omission based upon information relating to any
Underwriter furnished to the Company in writing by such Underwriter
through you expressly for use therein; PROVIDED, HOWEVER, that the
foregoing indemnity agreement with respect to any preliminary
prospectus shall not inure to the benefit of any Underwriter from whom
the person asserting any such losses, claims, damages or liabilities
purchased Shares, or any person controlling such Underwriter, if a copy
of the Prospectus (as then amended or supplemented if the Company shall
have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Underwriter to such person, if required
by law so to have been delivered, at or prior to the
18
<PAGE> 20
written confirmation of the sale of the Shares to such person, and if
the Prospectus (as so amended or supplemented) would have cured the
defect giving rise to such losses, claims, damages or liabilities,
unless such failure is the result of noncompliance by the Company with
Section 7(a) hereof.
(b) Each Group 2 Selling Shareholder agrees, severally and not
jointly, to indemnify and hold harmless the Company, its directors, its
officers who sign the Registration Statement and each person, if any,
who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, and each Underwriter
and each person, if any, who controls any Underwriter within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, from and against any and all losses, claims, damages and
liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any
such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or
any amendment thereof, any preliminary prospectus or the Prospectus (as
amended or supplemented if the Company shall have furnished any
amendments or supplements thereto), or caused by any omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, but
only with reference to information relating to such Group 2 Selling
Shareholder furnished in writing by or on behalf of such Group 2
Selling Shareholder expressly for use in the Registration Statement,
any preliminary prospectus, the Prospectus or any amendments or
supplements thereto.
(c) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Selling Shareholders, the
directors of the Company, the officers of the Company who sign the
Registration Statement and each person, if any, who controls the
Company or any Selling Shareholder within the meaning of either Section
15 of the Securities Act or Section 20 of the Exchange Act from and
against any and all losses, claims, damages and liabilities (including,
without limitation, any legal or other expenses reasonably incurred in
connection with defending or investigating any such action or claim)
caused by any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, but only with
reference to information relating to such Underwriter furnished to the
Company in writing by such Underwriter through you expressly for use in
the Registration Statement, any preliminary prospectus, the Prospectus
or any amendments or supplements thereto.
(d) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to paragraph (a), (b) or (c) of
this Section 10, such person (the "indemnified party") shall promptly
notify the person against whom such indemnity may be sought (the
"indemnifying
19
<PAGE> 21
party") in writing and the indemnifying party, upon request of the
indemnified party, shall retain counsel reasonably satisfactory to the
indemnified party to represent the indemnified party and any others the
indemnifying party may designate in such proceeding and shall pay the
fees and disbursements of such counsel related to such proceeding. In
any such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel shall
be at the expense of such indemnified party unless (i) the indemnifying
party and the indemnified party shall have mutually agreed to the
retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the
indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or
potential differing interests between them. It is understood that the
indemnifying party shall not, in respect of the legal expenses of any
indemnified party in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for (i) the fees and
expenses of more than one separate firm (in addition to any local
counsel) for all Underwriters and all persons, if any, who control any
Underwriter within the meaning of either Section 15 of the Securities
Act or Section 20 of the Exchange Act, (ii) the fees and expenses of
more than one separate firm (in addition to any local counsel) for the
Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the
meaning of either such Section and (iii) the fees and expenses of more
than one separate firm (in addition to any local counsel) for all
Selling Shareholders and all persons, if any, who control any Selling
Shareholder within the meaning of either such Section, and that all
such fees and expenses shall be reimbursed as they are incurred. In the
case of any such separate firm for the Underwriters and such control
persons of any Underwriters, such firm shall be designated in writing
by Morgan Stanley & Co. Incorporated. In the case of any such separate
firm for the Company, and such directors, officers and control persons
of the Company, such firm shall be designated in writing by the
Company. In the case of any such separate firm for the Selling
Shareholders and such control persons of any Selling Shareholders, such
firm shall be designated in writing by the persons named as
attorneys-in-fact for the Selling Shareholders under the Powers of
Attorney. The indemnifying party shall not be liable for any settlement
of any proceeding effected without its written consent, but if settled
with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from
and against any loss or liability by reason of such settlement or
judgment. Notwithstanding the foregoing sentence, if at any time an
indemnified party shall have requested an indemnifying party to
reimburse the indemnified party for fees and expenses of counsel as
contemplated by the second and third sentences of this paragraph, the
indemnifying party agrees that it shall be liable for any settlement of
any proceeding effected without its written consent if (i) such
settlement is entered into more than 30 days after receipt by such
indemnifying party of the aforesaid request and (ii) such indemnifying
party shall not have reimbursed the indemnified party in accordance
with such request prior to the date of such settlement. No indemnifying
party shall, without the prior written consent of the indemnified
party, effect any settlement of any pending or threatened proceeding in
respect of which any indemnified party is or could have been a party
and indemnity could have been sought hereunder by such indemnified
party, unless such settlement includes an unconditional
20
<PAGE> 22
release of such indemnified party from all liability on claims that are
the subject matter of such proceeding.
(e) To the extent the indemnification provided for in
paragraph (a), (b) or (c) of this Section 10 is unavailable to an
indemnified party or insufficient in respect of any losses, claims,
damages or liabilities referred to therein, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the indemnifying party or parties on the
one hand and the indemnified party or parties on the other hand from
the offering of the Shares or (ii) if the allocation provided by clause
(i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the indemnifying party
or parties on the one hand and of the indemnified party or parties on
the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received
by the Sellers on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in
the same respective proportions as the net proceeds from the offering
of the Shares (before deducting expenses) received by each Seller and
the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of
the Prospectus, bear to the aggregate Public Offering Price of the
Shares. The relative fault of the Sellers on the one hand and the
Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Sellers or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute
pursuant to this Section 10 are several in proportion to the respective
number of Shares they have purchased hereunder, and not joint.
(f) The Sellers and the Underwriters agree that it would not
be just or equitable if contribution pursuant to this Section 10 were
determined by PRO RATA allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in paragraph (e) of this Section 10. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section
10, no Underwriter shall be required to contribute any amount in excess
of the amount by which the total price at which the Shares underwritten
by it and distributed to the public were offered to the public exceeds
the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No
21
<PAGE> 23
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 10 are not
exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
(g) The indemnity and contribution provisions contained in
this Section 10 and the representations, warranties and other
statements of the Company and the Selling Shareholders contained in
this Agreement shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement, (ii) any
investigation made by or on behalf of any Underwriter or any person
controlling any Underwriter, any Selling Shareholder or any person
controlling any Selling Shareholder, or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of
and payment for any of the Shares.
11. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago
Mercantile Exchange or the Chicago Board of Trade, (ii) trading of any
securities of the Company shall have been suspended on any exchange or in any
over-the-counter market, (iii) a general moratorium on commercial banking
activities in New York shall have been declared by either Federal or New York
State authorities or (iv) there shall have occurred any outbreak or escalation
of hostilities or any change in financial markets or any calamity or crisis
that, in your judgment, is material and adverse and (b) in the case of any of
the events specified in clauses (a) (i) through (iv), such event, singly or
together with any other such event, makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated in the Prospectus
12. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I bears to the aggregate number of
Firm Shares set forth opposite the names of all such non-defaulting
Underwriters, or in such other proportions as you may specify, to purchase the
Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase on such date; PROVIDED that in no event shall the number of
Shares that any Underwriter has agreed to purchase pursuant to this Agreement be
increased pursuant to this Section 12 by an amount in excess of one-ninth of
such number of Shares without the written consent of such Underwriter. If, on
the Closing Date, any
22
<PAGE> 24
Underwriter or Underwriters shall fail or refuse to purchase Firm Shares and the
aggregate number of Firm Shares with respect to which such default occurs is
more than one-tenth of the aggregate number of Firm Shares to be purchased and
arrangements satisfactory to you and the Company for the purchase of such Firm
Shares are not made within 36 hours after such default, this Agreement shall
terminate without liability on the part of any non-defaulting Underwriter, the
Company or the Selling Shareholders. In any such case either you or the Company
shall have the right to postpone the Closing Date, but in no event for longer
than seven days, in order that the required changes, if any, in the Registration
Statement and in the Prospectus or in any other documents or arrangements may be
effected. If, on the Option Closing Date, any Underwriter or Underwriters shall
fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Additional Shares to be purchased, the
non-defaulting Underwriters shall have the option to (i) terminate their
obligation hereunder to purchase Additional Shares or (ii) purchase not less
than the number of Additional Shares that such non-defaulting Underwriters would
have been obligated to purchase in the absence of such default. Any action taken
under this paragraph shall not relieve any defaulting Underwriter from liability
in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of any Seller to comply with
the terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
13. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
14. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
15. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
23
<PAGE> 25
Very truly yours,
ADVANCED LIGHTING TECHNOLOGIES, INC.
By:
----------------------------------
Name: Louis S. Fisi
Title: Executive Vice President and Secretary
The Selling Shareholders
named in Schedule II hereto,
acting severally
By:
----------------------------------
Wayne R. Hellman
Attorney-in-Fact
Accepted as of the date hereof
Morgan Stanley & Co. Incorporated
Prudential Securities Incorporated
Raymond James & Associates, Inc.
Acting severally on behalf
of themselves and the
several Underwriters named
herein.
By: Morgan Stanley & Co.
Incorporated
By:_________________________
Name:
Title:
24
<PAGE> 26
SCHEDULE I
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C> <C>
Morgan Stanley & Co. Incorporated
Prudential Securities Incorporated
Raymond James & Associates, Inc.
[NAMES OF OTHER UNDERWRITERS]
---------
Total . . . . . 3,000,000
---------
</TABLE>
25
<PAGE> 27
SCHEDULE II
<TABLE>
<CAPTION>
Number of
Additional
Shares To
Selling Shareholder Be Sold
------------------- ----------
<S> <C> <C>
Group 1:
- -------
Wayne R. Hellman 204,564
Louis S. Fisi 49,266
Group 2:
- -------
David L. Jennings 65,399
Robert S. Roller 30,774
James F. Sarver 35,882
Juris Sulcs 33,740
Christine Hellman 30,375
------
Total . . . . . . . 450,000
=======
</TABLE>
26
<PAGE> 28
SCHEDULE III
Equity Interest Owned by
the Company (and all subsidies
of the Company, take as a
Excluded Entity whole) in the Excluded Entity
- --------------- -----------------------------
27
<PAGE> 29
SCHEDULE IV
Major Subsidiaries of the Company
- ---------------------------------
28
<PAGE> 30
SCHEDULE V
Lock-up Agreements
- ------------------
Wayne R. Hellman
Louis S. Fisi
Francis H. Beam
Theodore A. Filson
Susumu Harada
A Gordon Tunstall
David L. Jennings
Nicholas R. Sucic
Robert S. Roller
James F. Sarver
Juris Sulcs
Christine Hellman
General Electric Company
Venture Lighting Japan, Inc.
29
<PAGE> 31
Exhibit A
__________, 1997
Morgan Stanley & Co. Incorporated
Prudential Securities Incorporated
Raymond James & Associates, Inc.
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, NY 10036
Dear Sirs:
The undersigned understands that Morgan Stanley & Co. Incorporated
("Morgan Stanley"), as Representative of the several Underwriters, proposes to
enter into an Underwriting Agreement (the "Underwriting Agreement") with
Advanced Lighting Technologies, Inc., an Ohio corporation (the "Company") and
certain shareholders of the Company (the "Selling Shareholders") providing for
the public offering (the "Public Offering") by the several Underwriters,
including Morgan Stanley (the "Underwriters"), of 3,000,000 shares of the Common
Stock, par value $.001 per share, of the Company (the "Firm Shares") to be
issued and sold by the Company and up to an additional 450,000 shares of the
Common Stock, par value $.001 per share, of the Company (the "Additional
Shares") to be sold by the Selling Shareholders. The Firm Shares and the
Additional Shares are hereinafter collectively referred to as the "Shares".
To induce the Underwriters that may participate in the Public
Offering to continue their efforts in connection with the Public Offering, the
undersigned hereby agrees that, without the prior written consent of Morgan
Stanley on behalf of the Underwriters, it will not, during the period commencing
on the date hereof and ending 90 days after the date of the final prospectus
relating to the Public Offering (the "Prospectus"), (1) offer, pledge, sell,
contract to sell, sell any option or contract to purchase, purchase any option
or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable for
Common Stock (provided that such shares or securities are either now owned by
the undersigned or are hereafter acquired prior to or in connection with the
Public Offering), or (2) enter into any swap or other arrangement that transfers
to another, in whole or in part, any of the economic consequences of ownership
of such shares of Common Stock, whether any such transaction described in clause
(1) or (2) above is to be settled by delivery of Common Stock or such other
securities, in cash or otherwise. The foregoing sentence shall not apply to the
sale of any Shares to the Underwriters pursuant to the Underwriting Agreement or
to the sale of any shares of Common Stock which are subject to an existing
pledge or other security arrangement, in good faith pursuant to the terms of
such pledge or arrangement. In addition, the undersigned agrees that, without
the prior written consent of Morgan Stanley on behalf of the Underwriters, it
will not, during the period commencing on the date hereof and ending 90 days
after the date of the Prospectus, make any demand for or exercise any right with
respect to, the registration of any shares of Common Stock or any security
convertible into or exercisable or exchangeable for Common Stock.
<PAGE> 32
Whether or not the Public Offering actually occurs depends on a
number of factors, including market conditions. Any Public Offering will only be
made pursuant to an Underwriting Agreement, the terms of which are subject to
agreement between the Company, the Selling Shareholders and the Underwriters.
Very truly yours,
(Name)
(Address)
2
<PAGE> 1
EXHIBIT 5.1
COWDEN, HUMPHREY & SARLSON
TELEPHONE A LEGAL PROFESSIONAL ASSOCIATION
(216) 241-2880 1414 TERMINAL TOWER
---------- CLEVELAND, OHIO 44113
TELECOPIER
(216) 241-2881
June 4, 1997
Advanced Lighting Technologies, Inc.
2307 East Aurora Road, Suite 1
Twinsburg, Ohio 44087
RE: 3,450,000 Shares of Common Stock, Par Value $0.001
per Share to be Offered Through Underwriters
Gentlemen:
Advanced Lighting Technologies, Inc., an Ohio corporation (the
"Company"), proposes to file with the Securities and Exchange Commission (the
"Commission") its Registration Statement on Form S-1 (Registration No. 333- )
(the "Registration Statement") of which this opinion is to be a part. The
Registration Statement relates to the proposed issuance and sale by the Company
of up to 3,000,000 shares of Common Stock with a par value of $0.001 per share
(the "Company Shares"), and the proposed sale by certain selling shareholders
of 450,000 shares of Common Stock with a par value of $0.001 per share (the
"Selling Shareholders' Shares") in accordance with the form of Underwriting
Agreement attached as Exhibit 1.1 to the Registration Statement (the
"Underwriting Agreement") among the Company, the selling shareholders, Morgan
Stanley & Co. Incorporated, Prudential Securities, Inc. and Raymond James &
Associates, Inc., as representatives of the several underwriters named in
Schedule I thereto. Capitalized terms not otherwise defined herein shall have
the same meanings ascribed to them in the Registration Statement.
We have acted as counsel to the Company in connection with the
transaction that is the subject matter of the Registration Statement and are
familiar with the various corporate proceedings relating thereto. We have
examined the corporate records of the Company and such other instruments,
documents and certificates as we have deemed necessary to provide a basis for
this opinion.
For the purposes of this opinion, we have assumed that: (a) the proposed
transaction will be carried out on the basis set forth in the Registration
Statement and in conformity with the authorizations, approvals, consents and/or
exemptions of the securities laws of the various states and of other
jurisdictions of the United States, (b) the Commission shall have issued an
order declaring the Registration Statement effective, (c) all requisite
authorizations, approvals, consents or exemptions under the securities laws of
the various states and other jurisdictions of the United States shall have been
obtained, (d) the certificates evidencing the Company Shares shall have been
duly executed and delivered in exchange for the requisite related purchase
price, and (e) the certificates evidencing the Selling Shareholders' Shares have
been duly executed and shall have been delivered in exchange for the requisite
related purchase price.
Based on the foregoing, we are of the opinion that (i) the Company
Shares, when sold in accordance with the terms of the Registration Statement,
will be legally issued, fully paid and nonassessable and (ii) the Selling
Shareholders' Shares, when sold in accordance with the terms of the
Registration Statement, will be legally issued, fully paid and nonassessable.
<PAGE> 2
COWDEN, HUMPHREY & SARLSON
Advanced Lighting Technologies, Inc.
June 4, 1997
Page Two
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and as a part thereof, or as an exhibit to any document
that may be filed with respect to the proposed transaction under the securities
laws of the various states and other jurisdiction of the United States. We
also consent to the reference of our firm under the caption ("Legal Matters")
and elsewhere in the Prospectus which is a part of the Registration Statement.
We are admitted to practice in the State of Ohio and do not express any
opinion herein other than as to the laws of the State of Ohio and the federal
laws of the United States.
Very truly yours,
COWDEN, HUMPHREY & SARLSON CO., L.P.A.
<PAGE> 1
Exhibit 10.14
EXECUTION COPY
LEASE AGREEMENT
THIS LEASE (the "Lease Agreement"), made as of this 1st day of
January, 1996, by and between 32000 AURORA ROAD COMPANY, LTD., an Ohio limited
partnership, with its principal place of business located at 29100 Aurora Road,
Solon, Ohio 44139 (hereinafter referred to as "Landlord"), and VENTURE LIGHTING
INTERNATIONAL, INC., an Ohio corporation, with its current mailing address at
32000 Aurora Road, Solon, Ohio 44139 (hereinafter referred to as "Tenant").
NOW, THEREFORE, for valuable consideration, the parties agree
as follows:
ARTICLE I.
DEFINITIONS
All capitalized terms shall have the meaning ascribed to such
terms in Exhibit "A" attached hereto.
ARTICLE II.
LEASED PREMISES
2.1. LEASED PREMISES. In consideration of the rents, terms,
provisions and covenants of this Lease Agreement, Landlord hereby leases, lets
and demises to Tenant the premises, consisting of a portion of a freestanding
office/warehouse building consisting of approximately 84,822 square feet of
space of Landlord's property located at 32000 Aurora Road, Solon, Ohio, as
outlined in blue Exhibit "B", including the manufacturing area on the first
floor of the two story building (the "Building"), (said leased area is
hereinafter referred to as the "Leased Premises"). Tenant shall also have
reasonable access to such other areas of the Building as is necessary for the
operation of Tenant's business,including but not limited to those areas
described on Schedule 2.1, subject however, to the written approval of Landlord,
which shall not be unreasonably withheld or delayed provided, however in case of
an emergency, Landlord's written approval shall not be required. Landlord shall
cause each new tenant of the Premises to agree in its lease with Landlord to
provide Tenant reasonable access to such areas of the Building as is necessary
for the operation of Tenants' business, including but not limited to, those
areas described on Schedule 2.1, upon twenty four hours prior written notice by
Tenant except in case of emergency in which event Tenant shall have immediate
access to such areas. The exercise of these rights to access shall not
unreasonably interfere with Landlord or other tenants' operations or occupancy.
2.2. THE COMMON AREAS. Landlord hereby grants to Tenant and
Tenant's employees, agents, customers and invitees the non-exclusive right,
during the term hereof, to use the Common Areas, in common with other tenants,
employees and invitees entitled to the use thereof.
Landlord reserves the right to alter or vary such areas from
time to time so long as it does not either materially reduce the total
facilities available for Tenant's use or impair in any material respect access
to and from adjacent public rights of way.
<PAGE> 2
2.3. PARKING. Tenant shall receive vehicle parking privileges
over the existing parking lot area of the Leased Premises, as shown on attached
Exhibit "C". Landlord shall have no responsibility for the security or
patrolling of such parking areas or for the unauthorized use of such parking
spaces by other persons; nor for damage or loss to any vehicle while parked on
the Premises unless caused by the negligence of the Landlord.
2.4. MECHANICAL EQUIPMENT ROOM AND BOILER ROOM. Tenant shall
have a right of nonexclusive access and license to use the Boiler Room, and
shall be provided a key to the outside door of the Boiler Room upon execution of
the Lease. Tenant shall provide Landlord with the names of three (3) employees
of Tenant who shall have a nonexclusive right of access and license to use the
Mechanical Equipment Rooms. Tenant shall also have the nonexclusive right of
access and license to be able to continue to run two additional exhaust pipes
through the wall between the low and high bays (Column row 8) and up through the
ceiling. The exercise of these rights to access and use shall not unreasonably
interfere with Landlord or other tenants' operations or occupancy. Access to the
Mechanical Equipment Rooms shall be permitted only to allow Tenant to maintain
its operations and systems.
2.5. CONDITION OF LEASED PROPERTY. Tenant has thoroughly
inspected the Leased Premises and is satisfied that the Leased Premises are
suitable for Tenant's intended use. Upon expiration of the term or earlier
termination of this Lease, Tenant shall surrender and deliver possession of the
Leased Premises to Landlord in broom clean condition and in good condition and
repair and excepting only ordinary wear and tear and loss by insured casualty,
subject to the terms and conditions of Section 5.5 herein.
ARTICLE III.
TERM
3.1. TERM OF LEASE. The term of this Lease Agreement shall be
six (6) years commencing on the 1st day of January, 1996, and shall terminate on
the 31st day of December, 2001, or otherwise mutually agreed by the parties, or
pursuant to Landlord's remedies hereinafter provided in the event of Tenant's
default in the performance of its obligations hereunder.
3.2. HOLDING OVER. If Tenant shall remain in possession of all
or any part of the Leased Premises after the expiration of the term of this
Lease, Tenant shall be deemed a tenant of the Leased Premises from
month-to-month, at a monthly rental equal to one hundred and fifty percent
(150%) of the Base Rent ("Holdover Rent") and subject to all the other terms and
conditions of the within Lease which are not inconsistent with such
month-to-month tenancy. Nothing herein contained shall be deemed a consent to or
approval of, or to excuse, any holding over by Tenant without Landlord's prior
written consent or without a new written agreement between the parties.
Negotiations shall not be construed as an agreement to renew or enter into a new
lease agreement. Upon any such holding over Tenant shall hold harmless and
indemnify Landlord from and against any and all damages, costs and expenses
sustained by Landlord as a result of Tenant's retention of possession of the
Leased Premises or any portion thereof, less any Holdover Rent received herein.
In the event that any environmental remediation of the Leased Premises is
required to be performed by Tenant and has not been completed prior to the
expiration of the Lease or any month-to-month tenancy thereafter, Tenant shall
pay Holdover Rent for the Leased Premises. Such completion shall be determined
upon inspection by Landlord's Environmental Expert which inspection shall occur
within two (2) weeks after the expiration of the lease or any month-to-month
tenancy thereafter.
3.3. TERMINATION OF LEASE. Upon termination of this Lease
Agreement, or upon the termination of the Tenant's right to possession in the
event of Tenant's default, without termination of the Lease Agreement, the
Tenant shall surrender possession and vacate the Leased Premises immediately,
and
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<PAGE> 3
deliver possession of the Leased Premises to Landlord in broom-clean condition
and in good condition and repair, excepting ordinary wear and tear and/or loss
by insured casualty. Landlord may enter into and repossess said Leased Premises
with process of law and remove all persons and property therefrom in accordance
with the terms of this Agreement in the same manner and with the same right as
if this Lease Agreement had not been made.
Upon the termination of this Lease Agreement, or upon the
termination of the Tenant's right to possession in the event of Tenant's
default, without termination of the Lease Agreement, and subject to Tenant's
rights set forth in Section 10.3, any and all property may be removed from the
Leased Premises by the Landlord at Landlord's sole discretion and may be
handled, removed, stored or otherwise disposed of by the Landlord at the risk
and expense of the Tenant, and the Landlord shall in no event be responsible for
the preservation or safekeeping thereof. The Tenant shall pay to the Landlord
upon demand, any and all expenses incurred in such removal and all storage
charges against such property so long as the same shall be in the Landlord's
possession or under the Landlord's control. In the event the Landlord sells any
or all of the personal property of the Tenant, any funds received for the sale
therefrom shall be applied first to the payment of Landlord's expenses incurred
in said sale and then to the payment of rent and all other sums due from Tenant
hereunder. If any property shall remain on the Leased Premises or in the
possession of the Landlord and shall not be retaken by the Tenant within a
period of twenty (20) days from and after the time when the Leased Premises are
either abandoned by Tenant or repossessed by the Landlord under the terms of
this Lease Agreement, said property, at the sole option of Landlord, shall
conclusively be deemed to have been forever abandoned by the Tenant and shall
thereafter be the exclusive property of Landlord, subject to the terms of any
Landlord Agreement.
The Landlord shall charge the Tenant for the reasonable cost
of the removal of debris.
ARTICLE IV.
TITLE
4.1. QUIET ENJOYMENT. Landlord covenants that Landlord will
warrant and defend Tenant in the quiet enjoyment and peaceable possession of the
Leased Premises and all appurtenances thereto belonging, free from the claims of
all persons whatsoever, throughout the term hereof, so long as Tenant shall
perform the covenants to be performed by it hereunder, or so long as the period
for remedying any default in such performance shall not have expired. Landlord
warrants that it has not received written notice from any governmental authority
that the Leased Premises is not in compliance with any government regulations,
including, but not limited to, zoning ordinances, building codes, and health and
safety regulations, except with respect to matters Tenant has agreed to repair
or remediate pursuant to the terms of this Lease.
ARTICLE V.
RENT
5.1. BASE RENT. Tenant agrees to pay as rent for the Leased
Premises during the term of this Lease Agreement without demand, deduction or
offset, the amount of Two Million Three Hundred Five Thousand Dollars
($2,305,000.00) (a) Three Hundred Fifty Five Thousand Dollars ($355,000.00)
payable in twelve (12) equal, consecutive installments of Twenty-Nine Thousand
Five Hundred Eighty Three and 33/100 Dollars ($29,583.33) on the first day of
each month from January 1, 1996 through December 31, 1996; (b) Seven Hundred
Fifty Thousand Dollars ($750,000.00) in twenty four (24) equal, consecutive
payments of Thirty One Thousand Two Hundred Fifty Dollars ($31,250.00) on the
first day of each month from January 1, 1997 through December 31, 1998; and (c)
One Million Two Hundred Thousand Dollars ($1,200,000.00) in thirty six (36)
equal, consecutive payments of Thirty Three Thousand Three Hundred
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<PAGE> 4
Thirty Three and 33\100 Dollars ($33,333.33) on the first day of each month from
January 1, 1999 through December 1, 2001.
5.2. OPERATING EXPENSES, INSURANCE AND TAXES. If for any
Comparison Year commencing January 1, 1996, Tenant's Share of Operating Expenses
exceeds Tenant's Share of Base Operating Expenses or if for any Comparison Year
commencing January 1, 1996, Tenant's Share of Insurance and Taxes exceeds
Tenant's Share of Base Insurance and Taxes Tenant shall pay the excess amount to
Landlord as Additional Charges. Notwithstanding the foregoing, Tenant's Share of
Operating Expenses for each Comparison Year, commencing January 1, 1996, shall
not exceed one hundred ten percent (110%) of Tenant's Share of Operating
Expenses for the immediately preceding year. Tenant shall pay such Additional
Charges in the following manner:
(i) Prior to January 1, 1996, and prior to the commencement of
each succeeding Comparison Year or as soon thereafter as
possible, Landlord shall furnish to Tenant a statement showing
Landlord's estimate of Operating Expenses, Insurance and Taxes
for the previous year and the amount of any Additional Charges
due from Tenant based upon that estimate;
(ii) Commencing as of January 1 of each Comparison Year, and on or
before the first day of each calendar month, Tenant shall pay
Landlord one-twelfth (1/12) of the amount of the estimated
Additional Charges due from Tenant for the Comparison Year, as
shown by the statement; provided, however, that for any
partial Comparison Year, on or before the first day of each
calendar month during any partial Comparison Year within the
Lease Term, Tenant shall pay to Landlord a sum equal to the
total estimated Additional Charges due from Tenant for that
partial Comparison Year (based on the proration in clause (iv)
of this subparagraph) divided by the number of calendar months
in that partial Comparison Year (counting any fractional
calendar month as a whole month). If Landlord's statement is
furnished after January 1 of a Comparison Year, on or before
the first day of the first calendar month following Tenant's
receipt of Landlord's statement, in addition to the monthly
installment of estimated Additional Charges for the Comparison
Year due on that date, Tenant shall pay another monthly
installment of estimated Additional Charges for each calendar
month or fraction thereof that has already elapsed in that
Comparison Year;
(iii) There shall be a final adjustment at the end of each
Comparison Year, to reflect annual Operating Expenses,
Insurance and Taxes as provided in Section 5.3; and
(iv) If the Commencement Date is other than January 1 or the Lease
Term expires or terminates on a day other than December 31,
the Additional Charges payable by Tenant shall be prorated on
a daily basis, based on a 360-day year.
5.3. FINAL STATEMENT. As soon as reasonably practicable after
the end of each Comparison Year, Landlord shall present Tenant with a final
statement of actual Operating Expenses, Insurance and Taxes for that Comparison
Year ("Final Statement"). Within thirty (30) days of presentation of the final
statement, Tenant shall pay Landlord, as Additional Charges, any amount due for
Tenant's Share of Insurance and Taxes and Tenant's Share of Operating Expenses
subject to the limitations set forth in Section 5.2. Any credit due Tenant for
overpayment of Tenant's Share of Insurance and Taxes or Tenant's Share of
Operating Expenses shall be credited against the monthly installments of
Tenant's Share of Operating Expenses or Tenant's Share of Insurance and Taxes
next coming due (except that Landlord shall refund to Tenant the amount of any
such credit for the final Comparison Year in the Lease Term). Tenant shall have
thirty (30) days after presentation of Landlord's final statement of actual
Insurance, Taxes and Operating Expenses within which to object in writing to the
accuracy of the statement; and shall be entitled to receive reasonable
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<PAGE> 5
documentation and information relating to the sums set forth in the statement.
Upon expiration of said thirty (30) day period, Landlord's statement shall be
conclusive and binding on Tenant, provided Tenant has not objected to such
statement. Objection by Tenant shall not excuse or abate Tenant's obligation to
make the payments required by this paragraph pending resolution of Tenant's
objection. In the event Landlord and Tenant cannot resolve Tenant's objection
within thirty (30) days of receipt of notice by Landlord of Tenant's objection,
and Tenant is not in default under any provision of the Lease, they shall each
appoint an arbitrator, both of whom shall select a third arbitrator. The
decision of the arbitrators shall be made within thirty (30) days of such
appointment and shall be final, and shall be pursuant to the then existing rules
of the American Arbitration Association. It shall be a condition precedent to
arbitration that Tenant have paid the total charges for Tenant's share of
Operating Expenses, Taxes and Insurance appearing on Landlord's statement. The
party ruled in error by the arbitration shall bear the total costs associated
with the arbitration. In the event that the difference between the amount of
Operating Expenses, Taxes and Insurance set forth on the Final Statement and the
actual amount of Operating Expenses, Taxes and Insurance is less than five
percent (5%) of the Final Statement, then Tenant shall bear its own and
Landlord's costs of the arbitration.
5.4. SECURITY DEPOSIT. There is currently Ten Thousand Two
Hundred Fifty and 98/100 Dollars ($10,250.98) on deposit for the Cleveland
Illuminating Company, and Four Thousand Seven Hundred Thirty Five and 09/100
Dollars ($4,735.04) for the Solon Department of Water and Sewer all of which
shall be deemed to be deposits for the benefit of Landlord should Tenant fail to
pay the utilities as billed. Tenant will deposit with Landlord funds equal to
one (1) month Base Rent. Tenant will replenish funds if deposits are used during
the term of the Lease for any payments by Landlord due to Tenant's default
within five (5) business days of demand; provided, however, that if, in the
reasonable opinion of Tenant, a default has not occurred, Landlord and Tenant
shall each appoint an arbitrator, both of whom shall appoint a third arbitrator
to determine whether a default hereunder Section 13 has occurred. The decision
of the arbitrators shall be final and shall be pursuant to the then existing
rules of the American Arbitration Association. In the event the arbitrators
determine that an event of default has not occurred, Landlord shall reimburse
Tenant the amount of funds replenished by Tenant within five (5) days of the
decision of the arbitrators. It shall be a condition precedent to arbitration
that Tenant shall have replenished the full amount of its security deposit. The
party ruled in default by the arbitrators shall bear the total costs associated
with the arbitration. Upon the occurrence of any default by Tenant or breach by
Tenant of Tenant's covenants under this Lease Agreement, Landlord may from time
to time without prejudice to any other remedy, use the security deposit to the
extent necessary to make good any arrears of rent and/or any damage, injury,
expense or liability caused to Landlord by the event of default or breach of
covenant, any remaining balance of the security deposit to be returned by
Landlord to Tenant upon termination of this Lease Agreement, and further
provided, that no default by Tenant under the Lease shall have occurred and be
continuing without cure at such time. Landlord may, but shall not be obligated
to, use or apply all or any part of the security deposit, as necessary, to cure
such default of Tenant.
5.5 PAYMENTS DUE IN ADVANCE. All monthly rental amounts are
due in advance on the first day of the month, and if not so paid, late charges
as set forth in Article 5.6 hereinbelow shall apply.
5.6 LATE CHARGES. The rental installments and the amounts due
in connection with the increase in the cost of Operating Expenses Taxes and
Insurance, as set forth in Article VI are all due in accordance with the
provisions contained within said Articles. If, after the fifth (5th) business
day beyond which such payments are to be made Tenant has not made such payments,
Landlord may charge Tenant a late charge of five percent (5%) of Base Rent for
each month or partial month said payments are not timely made.
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<PAGE> 6
ARTICLE VI.
UTILITIES
6.1. UTILITIES.
---------
(a) Tenant shall pay the equitable share of the cost of all
utility services, including, but not limited to, all charges for electricity,
gas, water and sewer services consumed on the Leased Premises as a result of its
occupancy and for all electric light lamps and/or tubes as follows:
(i) TELEPHONE CHARGES. Tenant will pay 100% of its own
telephone charges.
(ii) NATURAL GAS. Subject to subparagraph (c) herein, Tenant
will pay for heating gas to the Leased Premises, based upon a formula set forth
on Schedule 6.1.
(iii) WATER/SEWER. Subject to subparagraph (c) herein, Tenant
will pay 100% of the water and sewer charges.
(iv) ELECTRICITY. Subject to subparagraph (c) herein, Tenant
will pay for electricity to the Leased Premises based upon a formula set forth
on Schedule 6.1.
(b) Tenant covenants to pay all water and sewer charges
accrued through the Commencement Date of this Lease Agreement. Landlord shall be
responsible for all costs to install any additional necessary utility meters,
except meters for Tenant's processed gas and water lines. Notwithstanding any
other provision contained herein, all utilities and utilities accesses and
services shall be in compliance with the applicable building codes and
regulations.
(c) In the event that new or current tenants leasing the
Premises use utility services to a greater extent than such utilities are being
used by tenants of the Premises (other than Tenant) as of September 1, 1995,
then Tenant's equitable share of the cost of such utility service reflected on
Schedule 6.1 shall be immediately adjusted and reduced by the cost of such
utility services used by other tenants. Tenant's equitable share of the cost of
such utility service shall be adjusted on Schedule 6.1 commencing upon the
billing period in which the cost of utility services used by other tenant's
increases. In the event Tenant pays more than its equitable share of such
utility services, Landlord shall promptly reimburse Tenant for such excess
payment. In the event of such utility increases, Tenant shall have the option,
at its expense, to install meters on its water and steam and gas lines and shall
pay one hundred percent (100%) of its metered charges arising from its use of
such utilities. Upon Tenant's request, Landlord shall install meters, at its own
expense, to measure electricity and Tenant shall pay one hundred percent (100%)
of its metered charges arising from its use of such electricity.
(d) Landlord shall have the right to cut off and discontinue,
after thirty (30) days' written notice to Tenant, any utility service furnished
by Landlord, whenever and during any period for which charges for same remain
unpaid beyond the due date.
6.2. INTERRUPTION OF SERVICES. Tenant understands and
acknowledges that any one or more utilities or other building services may be
interrupted by reason of accident, failure of equipment, emergency or other
causes beyond Landlord's control, or may be discontinued or diminished
temporarily by Landlord or other persons until certain repairs, alterations or
improvements are made within a reasonable period of time; that Landlord does not
represent or warrant the uninterrupted availability of such utilities or
building services and that any such interruption shall not be deemed an eviction
or disturbance of Tenant's right to possession, occupancy and use of the Leased
Premises or any part thereof, or render Landlord liable
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<PAGE> 7
to Tenant for damages by abatement of rent or otherwise, or relieve Tenant from
obligations to perform its covenants under this Lease; provided, such repairs,
alterations or improvements are made within a reasonable period of time and in
no event longer than three (3) days, or in the event such repairs, alterations
or improvements cannot be completed within three (3) days Landlord shall
diligently perform and complete such repairs, alterations or improvements within
such time as is reasonably necessary.
ARTICLE VII.
INSURANCE
7.1. TENANT'S INSURANCE. Tenant hereby agrees to indemnify and
hold Landlord harmless from and against any cost, damage, claim, liability or
expense incurred by or claimed against Landlord, directly or indirectly, as a
result of or in any way arising from the negligent or intentional acts or
omissions of Tenant and Tenant's employees, agents, contractors and invitees on
the Leased Premises. Landlord hereby agrees to indemnify and hold Tenant
harmless from and against any cost, damage, claim, liability or expense incurred
by or claimed against Landlord, directly or indirectly, as a result of or in any
way arising from the negligent or intentional acts or omissions of Landlord and
Landlord's employees, agents, contractors and invitees on the Leased Premises.
Tenant further covenants and agrees that at all times during
the term of this Lease or any renewals or extensions hereof, it shall maintain
in full force and effect, with a financially responsible insurance carrier
licensed to transact business in the jurisdiction in which the Leased Premises
is located and reasonably approved by Landlord, at Tenant's sole cost and
expense, the following policies of insurance:
(a) Tenant, at all times during the term of this lease, and at
its expense, will procure, maintain and keep in force to indemnify Tenant and
Landlord as their respective interests may appear general public liability
insurance for claims for personal injury, death or property damage, occurring in
or about the Leased Premises, with a deductible not to exceed Twenty-Five
Thousand Dollars ($25,000.00), and with limits of not less than Five Million
Dollars ($5,000,000.00) with respect to personal injury or death and not less
than Five Million Dollars ($5,000,000.00) with respect to property damage.
(b) An all-risk policy of Fire and Extended Coverage insurance
on Tenant's trade fixtures, merchandise, equipment, improvements and all other
personal property located in or comprising a part of the Leased Premises and
either belonging to Tenant or in the care, custody and control of Tenant, and
providing insurance against damage caused by fire, lightning, flood and all
other risks typically included within the coverage provided by an all risk
policy. Said policy of insurance shall be in an amount not less than the
replacement value of Tenant's trade fixtures, merchandise, improvements and
other personal property. Tenant shall be the sole owner of such insurance and
shall recover and retain the proceeds of such insurance in the event of any loss
covered by such insurance.
(c) Tenant shall also provide and maintain rent insurance
payable in the event of a casualty in an amount equal to the sum of the annual
rent as provided for herein, and any increases in the annual rent, plus the
amount of any real estate taxes that Tenant is required to pay, for a period of
one (1) year, which policies shall be payable to Landlord, or to mortgagee of
Landlord, as their interest may appear, if procurable in that form. Duplicate
originals of policies of insurance shall be deposited with Landlord. The
proceeds of such insurance collected shall be applied by Landlord on account of
the annual rent or any increased annual rent or any additional rent accruing
under the terms of this Lease Agreement, the balance, if any, to be paid to
Tenant and Tenant shall pay the premium on all said policies from time to time.
It is agreed that the annual rent or the increased annual rent payable hereunder
shall abate to the extent of the proceeds of such insurance policies as may be
received by Landlord but that Tenant shall remain fully
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responsible for such rents which exceed the amount of the proceeds of such
insurance, except as otherwise provided herein.
Each such policy or certificate therefor issued by the insurer
shall (i) to the extent obtainable, provide that any loss otherwise payable
thereunder shall be payable notwithstanding any act or negligence of Landlord or
Tenant which might, absent such agreement, result in a forfeiture of all or part
of the payment of such loss, and (ii) contain an agreement by the insurer that
such policy shall not be changed or cancelled without at least twenty (20) days
prior written notice to Landlord and to any such fee mortgagee named as a loss
payee thereunder. Tenant shall have the right to take out such insurance under a
blanket insurance policy or policies which can cover other properties owned or
occupied by Tenant, as well as the Leased Premises, provided such blanket
policies otherwise comply with the provisions of this Section, and provided
further that such policies shall provide for a reserved amount thereunder with
respect to the Leased Premises, so as to assure that the proceeds of the
insurance policies required by the provision hereof will be available,
notwithstanding any losses incurred with respect to the other properties covered
by such blanket policy. Tenant shall deliver to Landlord at least twenty (20)
days prior to the expiration of any of the aforementioned policies, certificate
evidencing replacement of the same.
Upon the failure at any time on the part of Tenant to procure
and deliver to Landlord any of the policies of insurance or certificates
hereinabove provided, at least twenty (20) days before the expiration of the
prior insurance policies, if any, or to pay the premiums therefor, Landlord
shall be at liberty from time to time, as often as such failure shall occur,
following ten (10) days prior written notice to Tenant, to procure such
insurance for a term not exceeding one (1) year and to pay the premiums
therefor, and any sums paid for insurance by Landlord shall be and become and
are hereby declared to be additional rent under this Lease Agreement forthwith
due and payable, and shall be collectible accordingly.
Tenant shall not take out separate insurance concurrent in
form or contributing in the event of a loss with that required to be furnished
by Tenant under this Section, unless Landlord and the holder of any fee mortgage
covering the Leased Premises are included therein as named insureds, with loss
payable as provided for hereinabove. Tenant shall immediately notify Landlord
whenever any such separate insurance is taken out and shall deliver to Landlord
duplicate original(s) thereof, or original certificates evidencing the same with
true copies thereof, as provided for in this Lease Agreement.
7.2. WAIVER OF SUBROGATION. Landlord and Tenant hereby waive
all causes of action and rights of recovery which either has or may have or
which may hereafter arise, and on behalf of any person or entity claiming
through or under them by way of subrogation or otherwise, for any loss or damage
to the Building on the Leased Premises or any portion thereof, property or
operation therein, by reason of fire or any peril insured against by standard
fire and extended coverage insurance, regardless of cause or origin, including
any act of negligence by either party, but only to the extent of any recovery
under any such policy of insurance then in effect, and only if such waiver shall
not invalidate or impair the coverage of any such policy of insurance. Each
party to this Lease shall give to each insurance company which has issued to it
one or more policies of fire and extended coverage insurance, notice of the
terms of the mutual releases contained in this Section 7.2 and have such
insurance policies properly endorsed, if necessary, to prevent the invalidation
of such insurance by reason of the provisions of this Section 7.2 Landlord and
Tenant hereby indemnify the other against any loss or expense, including
reasonable attorney fees, resulting from the failure to obtain such waiver.
7.3. LOSS OR DAMAGE TO PROPERTY. Tenant hereby agrees that all
personal property of every kind or description which may at any time be kept in
or about the Leased Premises including, but not limited to, motor vehicles,
merchandise, fixtures and equipment, shall be there at the sole risk of Tenant,
or at the risk of those claiming under Tenant, and Landlord shall not be liable
for the care, safety or theft of said
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property, nor for any damage or injury thereto unless caused by the negligence
of Landlord. In addition, Landlord shall have no liability for any damage to
said property or loss suffered by Tenant arising directly or indirectly from the
bursting, overflowing or leaking of water, sewer or steam pipes, beating and
plumbing fixtures, and roof leaks; electrical wiring and equipment; heat or
cold; gas or odors; any act of any other tenant or occupant of the Building; and
any other manner whatsoever, unless caused by Landlord's negligence, but only to
the extent not waived by the Waiver of Subrogation contained above.
7.4. LANDLORD'S INSURANCE. During the Lease term, Landlord
shall keep the Building insured against loss by fire and all of the risks and
perils usually covered by an extended coverage endorsement to a policy of fire
insurance upon property comparable to the Premises, and shall maintain, or
caused to be maintained, public liability insurance upon the Premises. This
insurance shall be written by a company of recognized financial standing which
is authorized to an insurance business in the State of Ohio, and shall be in
amounts customary for property comparable to the original Premises. Landlord may
also procure other insurance on the Leased Premises deemed appropriate by
Landlord, including, but not limited to, boiler and machinery, plate glass, rent
loss and "all risk of physical loss" insurance or endorsements.
7.5. INCREASE IN TENANT'S INSURANCE PREMIUMS. In the event
that the operations of any tenant of the Premises causes an increase in the
insurance premiums of Tenant in excess of Five Thousand Dollars ($5,000.00) on
an annual basis, and Tenant provides Landlord reasonable evidence that the
operations of such other Tenant caused such increase Landlord and Tenant shall
within a reasonable period of time after Tenant receives notice of such
increase, agree upon an equitable adjustment to Base Rent or credit to Tenant,
which adjustment or credit shall be made within a reasonable period of time. In
the event that Tenant's insurance is cancelled as the result of the operations
of any tenant of the Premises and after diligent efforts Tenant can not obtain
insurance, Landlord shall cause the other tenant to modify its operations within
ten (10) days of written notice of such cancellation so that Tenant can obtain
insurance coverage equivalent to the coverage carried by Tenant at the date of
cancellation in accordance with Section 7.1.
7.6. NOTICE OF NEW TENANT. In the event that any person or
entity ("New Tenant") enters into a lease of a portion of the Premises
subsequent to the date hereof, Landlord shall give notice to Tenant upon
execution of a lease, whichever occurs earlier setting forth the name of the New
Tenant, a reasonably detailed description of the New Tenant's business and the
date of occupancy of the Premises by the New Tenant.
ARTICLE VIII.
DESTRUCTION
8.1. CASUALTY DAMAGE AND RESTORATION. In the event of damage
to or destruction of the Leased Premises or to common facilities and areas
necessary to provide normal access to the Leased Premises or to other portions
of the Building or its equipment, which portions and equipment are necessary to
provide services to the Leased Premises in accordance herewith, then the
following provisions shall apply:
(a) If the Leased Premises shall be destroyed or damaged by
any cause as to be unfit in whole or in part for occupancy, and in Landlord's
sole judgment, such destruction or damage could reasonably be repaired within
ninety (90) days from the date of said destruction or damage, then Tenant shall
not be entitled to surrender possession of the Leased Premises, nor shall
Tenant's liability to pay rent under this Lease cease without the mutual consent
of the parties hereto; provided, however in the case of any such destruction or
damage, Landlord shall repair the same with all reasonable speed and shall
complete such repairs within ninety (90) days from the date of said destruction
or damage, and if, during such period, Tenant shall be unable to use all or any
portion of the Leased Premises, a proportionate allowance shall be made to
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Tenant from the rent and other charges, including, but not limited to, Operating
Expenses, Taxes and Insurance due from Tenant corresponding to the time during
which and to the portion of the Leased Premises of which Tenant shall be so
deprived of the use on account thereof.
(b) If, in Landlord's sole judgment, such destruction or
damage cannot reasonably be repaired within ninety (90) days form the date of
said destruction or damage, Landlord shall notify Tenant within thirty (30) days
after the happening of such destruction or damage whether or not Landlord will
repair or rebuild. If Landlord shall elect to repair or rebuild, Landlord shall
specify the time within which such repairs or reconstruction will be completed.
Tenant shall have the option within thirty (30) days after the receipt of such
notice, to elect either to terminate this Lease and thereupon both Landlord and
Tenant shall be relieved of all further liability hereunder or to extend the
term of this Lease by a period of time equivalent to the time from the happening
of such destruction or injury until the Leased Premises are restored to their
former condition. In the event Tenant elects to extend the term of the Lease,
Landlord shall restore the Leased Premises to their former condition within the
time specified in the notice, and if, during such period, Tenant shall be unable
to use all or any portion of the Leased Premises, a proportionate allowance
shall be made to Tenant from the rent and other charges, including, but not
limited to, Operating Expenses, Taxes and Insurance due from Tenant
corresponding to the time during which and to the portion of the Leased Premises
of which Tenant shall be so deprived of the use on account thereof.
(c) If the Leased Premises are destroyed or damaged during the
last eighteen (18) months of the term of the Lease or any extension thereof to
the extent of fifty percent (50%) or more of the then value of the Leased
Premises or the Building of which the Leased Premises are a part, then Landlord
shall have the right to cancel and terminate this Lease as of the date of such
damage or destruction by giving notice thereof within thirty (30) days after the
date of such damage or destruction.
(d) Notwithstanding anything contained herein to the contrary
in this Section 8.1(d), Landlord may cancel this Lease with no further liability
to Tenant whatsoever, in the event that following any such damage or
destruction, Landlord's mortgagee requires Landlord to make advance payments
upon or full payment of the outstanding mortgage balance.
(e) Except as provided herein, the obligation to pay the rent
provided for herein and to otherwise perform Tenant's obligations hereunder
shall continue unabated by reason of any such damage or destruction of the
Leased Premises; that is, there shall be no abatement or diminution of rent or
release from any of Tenant's obligations hereunder by reason of such damage or
destruction, regardless of the period of time, if any, during which the Leased
Premises or any part hereof remain untenantable, any laws to the contrary
notwithstanding, except to the extent Landlord actually receives the proceeds of
any rent insurance as its sole property.
(f) In the event the insurance proceeds are not permitted by a
mortgagee of the Leased Premises to be made available for such repair or
restoration, or in the event such repair or restoration cannot be effected
within ninety (90) days of the damage or destruction, the Tenant may elect:
(i) To terminate the term of this Lease Agreement by giving to
Landlord written notice thereof within thirty (30) days after the determination
that proceeds are not available and such proceeds not having been made
available; or
(ii) To continue this Lease Agreement, and in such event, the Base
Rent for the Leased Premises shall be abated in proportion to the amount of the
Leased Premises rendered unsuitable for Tenant's uses during such time as such
insurance proceeds are not made so available for restoration; provided, however,
that in the event the Landlord promptly notifies Tenant of Landlord having other
funds available for
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use in rebuilding and restoring in lieu of and in the amount of not less than
the insurance proceeds, Tenant may not terminate this Lease Agreement, and such
substitute funds shall be used for repair and rebuilding as if they were the
insurance proceeds, and the rent shall be abated in proportion to the amount of
the Leased Premises rendered unsuitable for Tenant's uses.
ARTICLE IX.
USE
9.1. USE OF LEASED PREMISES. Landlord specifically consents to
the use of the Leased Premises solely for office, manufacture, distribution and
storage of lighting bulbs, lamps, fixtures, supplies and related activities and
for no other purpose or use whatsoever without the prior written consent of
Landlord, which shall not be unreasonably withheld or delayed.
9.2. COVENANTS REGARDING USE. In connection with its use of
the Leased Premises, Tenant agrees to the following:
(a) Tenant shall not use the Leased Premises in any hazardous
manner because of fire risk or otherwise without taking normal precautions. No
hazardous substance or equipment shall be brought or kept on the Leased Premises
or adjacent areas, or stored or used therein, in violation of any applicable
laws. If any of Tenant's operations produce gases, vapors, odors, smoke,
residuary material or noise other than that which is currently produced by its
operations or which is significantly disturbing to the other tenants of the
Premises, Tenant will, on Landlord's written request, forthwith cease such
operation and shall install ventilating or other apparatus to eliminate such
disturbances. If Tenant installs equipment which unbalances or overloads
electrical equipment or wiring in or about the Leased Premises, it shall correct
such unbalanced or overloaded condition and replace any equipment or wiring
thereby damaged at its own expense. Tenant shall not deposit oil, grease,
solvents or other toxic or hazardous substances in sewers or drains serving the
Leased Premises in violation of any Environmental Laws. In the event of a spill
or release by Tenant in violation of any Environmental Laws, Tenant shall have
such sewers and drains cleaned at its expense.
(b) Tenant shall not use the Leased Premises, or allow the
Leased Premises to be used, for any purpose or in any manner which would
invalidate any policy of insurance now or hereafter carried on the Building or
increase the rate of premiums payable on any such insurance policy. Tenant, at
its sole expense, shall comply with any and all reasonable requirements of any
insurance organization or company necessary for the maintenance of fire and
public liability insurance covering the Leased Premises and the Building at a
reasonable cost and upon reasonable prior written notice of such requirements
and an opportunity to modify its activities. Should Tenant fail to comply with
this covenant, Landlord may, at its option, require Tenant to stop engaging in
such activity or to reimburse Landlord as additional rent for any increase in
premiums charged during the term of this Lease on the insurance carried by
Landlord on the Leased Premises and attributable to the use being made of the
Leased Premises by Tenant.
9.3. ACCESS AND INSPECTION OF THE LEASED PREMISES. Landlord
reserves the right to enter the Leased Premises or any part thereof, at any time
in the event of an emergency, and otherwise at reasonable times, after
reasonable written notice delivered twenty-four (24) hours prior to the time of
entry, to take any and all measures, including inspections, repairs,
alterations, additions and improvements to the Leased Premises or to the
Building, as may be necessary or desirable for the safety, protection or
preservation of the Leased Premises or the Building or as may be necessary in
order to comply with all laws, orders, and requirements of any governmental
authority; or for the purpose of exhibiting same to prospective purchasers,
lenders or mortgagees.
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9.4. COMPLIANCE WITH LAWS. Tenant shall, at its sole cost and
expense, comply with all laws, ordinances, orders, rules and regulations of
state, federal or municipal or other agencies or bodies having jurisdiction
relating to the use, conditions and occupancy of the Leased Premises, provided,
however, failure to comply with any minor provision of such laws, ordinances,
orders, rules and regulations shall not constitute a default hereunder unless
any such state, federal, municipal or other agency or such body having
jurisdiction requires compliance with such provisions by notice to Landlord.
Notwithstanding anything to the contrary herein, Tenant shall have no obligation
to make any repairs to the Leased Premises, except as provided in Schedule 11.1,
or to make any alteration or improvement to the Leased Premises, or to the
Building of which the Leased Premises forms a part, which would constitute a
capital improvement to the extent that said capital improvements are not
necessitated as a result of Tenant's use and/or operations without or about the
Leased Premises, or make any other structural change to the Leased Premises or
remedy any condition of the Premises existing prior to the commencement of
Tenant's leasing of the Premises.
Tenant shall secure all necessary governmental permits for its
use and occupancy of the Leased Premises as are required by law from time to
time and shall provide copies of the same to Landlord upon request or whenever a
new permit is required to be obtained.
9.5. COMPLIANCE WITH BUILDING RULES AND REGULATIONS. Rules and
regulations governing the use and occupancy of the Building have been adopted by
Landlord for the mutual benefit and protection of all the tenants in the
Building. Tenant shall comply with and conform to the rules and regulations
currently in effect, which are set forth in a schedule attached hereto, made a
part hereof, and marked Exhibit "E". Landlord shall have the right to amend such
rules and regulations or to adopt new rules and regulations from time to time in
any manner that it deems necessary or desirable in order to insure the safety,
care and cleanliness of the Building and the preservation of order therein. All
such rules and regulations shall be made, applied and enforced uniformly as to
all tenants in the Building, whenever practical.
9.6. COMPLIANCE WITH ENVIRONMENTAL LAWS.
-----------------------------------
(a) ENVIRONMENTAL LAWS AND HAZARDOUS SUBSTANCES. For purposes
herein, the term "Environmental Law(s)" shall mean any federal, state or local
statute, law, ordinance, code, rule, regulation, order or decree regulating,
relating to or imposing liability or standards of conduct concerning any
Hazardous Substance, as now or at any time hereafter in effect. For purposes
herein, the term "Hazardous Substance(s)" shall include, but not be limited to,
Hazardous Material, Hazardous Waste, Toxic Material, Toxic Waste, Infectious
Material, Infectious Waste and shall have the meaning ascribed in any
Environmental Law to any hazardous, toxic or dangerous waste, substance,
pollutant or material.
(b) COMPLIANCE WITH ENVIRONMENTAL LAWS. Tenant warrants and
represents that: (i) Tenant will not violate, in connection with the use, lease,
maintenance or operation of the Leased Premises and the conduct of the business
related thereto, any Environmental Laws, and (ii) Tenant, its agents, employees,
subtenants and independent contractors, will operate the Leased Premises and
will receive, handle, use, generate, manufacture, recycle, store, treat,
transport and dispose of all Hazardous Substances in substantial compliance with
all Environmental Laws. Notwithstanding the foregoing, Tenant shall not permit
the Leased Premises to become a storage or disposal site for hazardous or toxic
substances and wastes, in violation of any Environmental Law. Tenant shall have
no obligation to remediate any condition of the Premises described in a certain
environmental report prepared by ERT dated August 8, 1988, except Tenant shall
be responsible for the remediation of such condition if Tenant causes such
condition or any other condition to be in violation of any Environmental Law.
(c) TANKS. Tenant warrants that it will not install any
storage tanks without the written consent of Landlord, which shall not be
unreasonably withheld or delayed or waste water treatment facilities
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or other similar facilities on, under or at the Leased Premises which contain
materials which, if known to be present in soils or groundwater, would require
clean up, removal, or some other remedial action on the Leased Premises.
Landlord hereby consents to the installation of an above ground storage tank
located on the premises.
(d) NOTICES OR OTHER INFORMATION. If Tenant acquires any
knowledge of or receives any notice or other information regarding any
noncompliance with regard to any environmental, health or safety law, or if
Tenant is required to give notice of a release pursuant to any environmental
laws, Tenant shall immediately notify Landlord orally and in writing and provide
Landlord with copies of any written notice or information. If said violation was
caused by Tenant, or Tenant's agents or subtenants, then Tenant shall
immediately take any and all remedial action required by Environmental Laws. If
Tenant fails to take such immediate remedial action, Landlord may do so and the
costs of said action shall be payable by Tenant upon demand. If Landlord
acquires any knowledge of or receives any notice or other information regarding
any noncompliance with regard to any environmental, health or safety law by any
tenant on the Premises, Landlord shall immediately notify Tenant orally and in
writing and provide Tenant with copies of any written notice or information.
(e) INDEMNIFICATION. The Tenant agrees to indemnify Landlord
and hold Landlord harmless from and against any and all losses, liabilities
(including strict liability), damages, orders and executions, injuries,
expenses, claims, penalties, costs of any settlement or judgment and claims of
any and every kind whatsoever paid, incurred or suffered by, or asserted
against, the Landlord by any person or entity or governmental agency for, with
respect to, or as a direct or indirect result of any activity of Tenant or
Tenant's subtenants, agents, licensees or invitees during the time Tenant is in
or has a right to possession or the presence caused by Tenant, agents, licensees
or invitees on or under the Leased Premises of, or the release, threatened
release or transportation by Tenant of, any Hazardous Substance. The provisions
of this Section shall survive termination of the Lease.
Landlord agrees to indemnity Tenant and hold Tenant harmless
from and against any and all losses, liabilities (including strict liability),
damages, orders and executions, injuries, expenses, claims, penalties,
reasonable attorney's fees, costs of any settlement or judgment and claims of
any and every kind whatsoever paid, incurred or suffered by, or asserted
against, the Tenant by any person or entity or governmental agency for, with
respect to, or as a direct or indirect result of (i) the presence on or under
the Leased Premises of, or the release, threatened release or transportation, of
any Hazardous Substance, except if released or caused by Tenant or (ii)
Landlord's noncompliance with any Environmental Laws. The provisions of this
Section shall survive termination of the Lease.
(f) INSPECTION OF LEASED PREMISES. Landlord's Environmental
Expert shall have reasonable access to inspect the Leased Premises for
compliance with the Environmental Laws upon twenty four (24) hours' prior
written notice, which notice shall specify the area and item(s) to be inspected,
subject to Tenant's consent, which shall not be unreasonably withheld. Tenant
shall be responsible for the utility, water and sewer charges relating to its
environmental compliance.
9.7. ASSIGNMENT AND SUBLETTING. Tenant may not sublet or
assign, whether by operation of law or otherwise, said Lease Agreement without
prior written approval of Landlord, which consent shall not be unreasonably
withheld or delayed.
If Landlord consents to an assignment or subletting, Tenant
shall nevertheless remain fully and primarily responsible and liable for the
payment of rent and the performance of all Tenant's obligations under this
Lease; provided, however, that in the event of a default under this Lease,
Landlord may, at its option, collect rent directly from the assignee or
subtenant and such action shall not be construed as a novation
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or release of Tenant, nor shall the acceptance of rent by Landlord or
performance of any other obligation under this Lease from or by any person other
than Tenant be deemed to be a waiver by Landlord of any provision of this Lease
nor shall it be deemed to be a consent to an assignment of this Lease or the
subletting of the Leased Premises.
In the event Landlord consents to any assignment or subletting
by Tenant, any option to renew this Lease or right to extend the lease term or
any right of first refusal to which Tenant may be entitled shall automatically
terminate unless otherwise agreed to in writing by Landlord.
If any sublease or assignment is at a rental rate which
exceeds the Base Rent and Additional Charges payable hereunder, such excess
rental shall be paid to Landlord when received by Tenant as additional rent
hereunder.
It shall be a condition to any consent by Landlord that Tenant
shall reimburse Landlord upon demand for any and all costs and expenses
including but not limited to, reasonable attorneys fees for the review and
preparation of the documents, which may be received by Landlord in connection
with any request for consent to an assignment or subletting, whether or not such
consent is granted. Tenant further agrees that a minimum fee of $100.00 shall be
payable to Landlord for each and every request to consent to an assignment or
sublease, which fee shall be paid simultaneously with such request.
9.8. ASSIGNMENT AS A RESULT OF MERGER OR CONSOLIDATION. Tenant
shall have the right, without Landlord's consent to assign this Lease Agreement
or sublet the Leased Premises, or any part thereof, to any corporation or
related entity or partnership into which or with which Tenant merges or
consolidates and to any parent, subsidiary or affiliated corporation. No such
assignment or subletting shall release Tenant of its liabilities and obligations
hereunder except for an assignment of this Lease Agreement to a corporation or
related entity or partnership into which or with which Tenant merges or
consolidates and transfers the bulk of its assets.
ARTICLE X.
ALTERATIONS, SIGNS AND FIXTURES
10.1. ALTERATIONS OR IMPROVEMENTS. Except as otherwise
provided herein, Tenant hereby agrees to make no structural additions,
improvements or alterations to the Leased Premises or Building without, in each
instance, having obtained the prior written consent of Landlord to Tenant's
plans and specifications (which response shall not be withheld or unreasonably
delayed) and also obtaining prior to the commencement of any work, any building
permit(s) and approvals which may be required by any governmental authority.
Tenant shall make said improvements or alterations in accordance with all
applicable laws and building codes, in a good and workmanlike manner and in
quality equal to or better than the original construction of the Leased Premises
and shall comply with such requirements as Landlord considers reasonably
necessary or desirable, including, without limitation, requirements as to the
manner in which and the times at which such work shall be done and the
contractor or subcontractors to be selected to perform such work. No material
modifications or additions to any previously approved plans and specifications
shall be made without Landlord's prior written consent, which response shall not
be unreasonably withheld or delayed. Tenant further agrees to promptly deliver
to Landlord "as built" plans and specifications subsequent to the completion of
any such alterations and improvements.
Tenant shall promptly pay all costs attributable to any
structural alterations and improvements and shall indemnify Landlord against
claims asserted as a result thereof, and against any costs or expenses which may
be incurred as a result of building code violations to such work.
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All additions, decorations, fixtures and equipment (except
Tenant's trade fixtures) and improvements in or upon the Leased Premises shall,
unless Landlord elects to require their removal, become the property of Landlord
and shall remain upon the Leased Premises at the termination of this Lease,
without compensation, allowance or credit to Tenant. If, upon Landlord's demand,
Tenant does not remove said improvements, Landlord may remove same at Tenant's
expense, including the cost of restoring the Leased Premises to its original
condition.
10.2. NON-STRUCTURAL ALTERATIONS. Tenant shall have the right,
during the term of this Lease Agreement, to make such non-structural
alterations, changes, replacements, improvements and additions in and to the
Leased Premises, as it may deem desirable; provided, however, that any such
alterations, additions, changes or other improvements shall be made in
accordance with the applicable zoning and building codes imposed by governmental
authorities.
Tenant may convert to Tenant's own use all old materials
removed by Tenant when making any such alterations, changes and improvements or
additions to the Leased Premises.
Upon the termination or expiration of this Lease Agreement, or
Tenant's occupancy of the Leased Premises, Tenant shall remove all of the
foregoing at Tenant's sole cost and expense.
10.3. TRADE FIXTURES. All trade fixtures and equipment, signs,
movable partitions, shelving and like property installed on the Leased Premises
by Tenant and all inventory and other personal property of Tenant, shall be
removed by Tenant on the expiration or earlier termination of this Lease and
Tenant shall repair, at its own expense, any and all damage to the Leased
Premises resulting from such removal. If Tenant fails to remove any and all such
trade fixtures, furnishings and other property from the Leased Premises, then
Landlord may remove or otherwise dispose of same at Tenant's expense, including
the cost of restoring the Leased Premises to its original condition, pursuant to
the terms of the Landlord Agreement.
10.4. LIENS. Tenant shall not suffer or permit to remain upon
all or any part of the Leased Premises or the Building or Tenant's interest in
this Lease any lien for work performed or materials supplied to or for Tenant
and/or to or for the Leased Premises, or any other lien or encumbrance thereon
arising by reason of Tenant's use and occupancy thereof, unless such lien arises
from work performed by or on behalf of Landlord or its agents. Tenant, at its
own cost and expense, shall defend Landlord against any action, suit or
proceeding which may be brought on any such lien or for the enforcement thereof;
shall cause any such lien or encumbrance to be removed and satisfied of record
within thirty (30) days after notice of the filing thereof, and shall indemnify
and hold harmless and Landlord against any and all loss, damage, cost, expense
or liability by reason of or in connection with any claims, demands, suits,
actions or other proceedings for the enforcement thereof. In the event such lien
cannot be released and removed through appropriate proceedings within such
thirty (30) day period, Tenant shall cause such lien to be bonded or insured
over by a reputable title insurer or surety reasonably satisfactory to Landlord,
or provide Landlord with a letter of credit, certificate of deposit, or other
comparable security in the amount of 200% of the amount of such lien. Tenant
thereafter shall be entitled to contest such lien as long as Tenant shall
contest such lien diligently by appropriate proceedings (provided such contest
shall not cause any sale, foreclosure, or forfeiture of the Leased Premises by
reason of such nonpayment) and cause the same to be removed or discharged prior
to entry of any order foreclosing the same. In the event that any such lien is
not so released and removed, bonded over or secured against, or in the event
Tenant shall fail to contest such lien as herein required, Landlord may, upon at
least five (5) days' notice to Tenant, take all action necessary to release and
remove such lien and avail itself of any security provided by Tenant (without
any duty to investigate the validity thereof), and Tenant shall promptly, upon
demand, reimburse Landlord for all sums, costs and expenses
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(including, without limitation, reasonable attorneys' fees and expenses)
incurred by Landlord in connection with the release and removal of such lien.
10.5. SIGNAGE. Tenant may erect, at its sole cost, an
appropriate sign advertising Tenant's business on the portion of the exterior of
said Leased Premises designated by Landlord for the placement of Tenant's signs.
The size, number, design and location of all signs shall require Landlord's
written approval prior to installation, which shall not be unreasonably withheld
or delayed. All signs shall comply with all requirements of appropriate
governmental authorities and all necessary permits or licenses shall be obtained
by Tenant. Tenant shall maintain all signs in good condition and repair at all
times, and shall save the Landlord harmless from injury to person or property
arising from the erection and maintenance of said signs. Upon vacating the
Leased Premises, Tenant shall remove all signs and repair all damages caused by
such installation and removal. No signs shall be painted on the exterior of the
Leased Premises. The use of portable or free-standing signs is strictly
prohibited without the prior written consent of Landlord, which shall not be
unreasonably withheld or delayed. Tenant hereby acknowledges that Landlord has
the right, at any time, to rename and/or reidentify the Premises of which the
Leased Premises demised hereunder forms a part, at Landlord's sole discretion.
Tenant further agrees to remove, at Tenant's sole expense, its existing signage
from the Premises and restore any damages as a consequence of such removal, upon
sixty (60) days' prior written notice from Landlord.
ARTICLE XI.
MAINTENANCE AND REPAIRS
11.1. REPAIRS AND MAINTENANCE. Except for those repairs
described in Schedule 11.1 and any other repairs Tenant has assumed herein,
Landlord agrees, throughout the term of this Lease Agreement, to maintain and
make any repairs and replacements, structural or otherwise, necessary to
maintain the Leased Premises in good condition and repair, including but not
limited to repairs to any (i) heating or air-conditioning system which shall
include but not be limited to quarterly maintenance of the heating and air
conditioning systems, (ii) all mechanical, water and sanitary sewer systems,
(iii) replacements to common lighting fixtures, (iv) wiring and electrical
systems, including, but not limited to the electrical switch gear, and (v) all
replacements to common plumbing fixtures; provided, however, Landlord shall not
be required to replace anything that Tenant has agreed and failed to maintain
properly. Landlord shall also maintain the Common Areas, including but not
limited to, driveways, parking lots, sidewalks, and water and sewer fixtures and
lines located outside the Leased Premises, and perform any necessary ground
maintenance, including snow removal, lawn-mowing and weed control.
Tenant agrees at its expense, throughout the term of this
Lease Agreement to maintain and make any repairs necessary to maintain in good
condition and repair the non common electrical, lighting and plumbing fixtures
and other items serving the Leased Premises that are not part of the heating or
air conditioning system. Tenant agrees, at its expense throughout the term of
this Lease Agreement, to make those repairs described in Schedule 11.1.
Any and all loss, injury, breakage or damage to the Leased
Premises or the Building of which they are a part, caused, directly or
indirectly, by Tenant or its agents, contractors, employees and invitees,
including individuals and persons making deliveries to or from the Leased
Premises, except to the extent that the foregoing is inconsistent with the
provisions of the "Waiver of Subrogation" set forth in this Lease, shall be
repaired by Landlord. In the event such loss, injury, breakage or damage is not
covered by insurance, repairs of the foregoing shall be made at the sole expense
of Tenant. Payment of the cost of such repairs by Tenant shall be immediately
due and payable as additional rent. This provision shall not be in limitation of
any other rights and remedies which Landlord has or may have in such
circumstances.
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All repairs and replacements shall be in quality equal to or
better than the original equipment, materials or work. Tenant shall at all times
maintain sufficient heat in the Leased Premises to prevent freezing of sprinkler
or water lines. If Tenant installs or moves partitions or walls within the
Leased Premises, Tenant shall make, at its own expense but subject to Landlord's
approval, all additions to or changes in location of heating, plumbing,
sprinkler or electrical lines and equipment made necessary by those
installations.
Tenant shall be responsible for weed control and snow removal
over any sidewalks, stairways, ramps, driveways or dock areas contiguous to the
Leased Premises and over which Tenant has exclusive use or control.
If there is now or shall be installed in the Leased Premises
or Building a "sprinkler system", and if any governmental authority or
Landlord's fire insurance carrier require or recommend that any reasonable
changes, modifications, alterations or additional sprinkler heads or other
equipment be made or supplied by reason of the Tenant's business or operations,
or the location of partitions, trade fixtures, or other such changes,
modifications, alterations or penalty or charge against the full allowance for a
sprinkler system in Landlord's fire insurance premium or rate, Tenant shall, at
the Tenant's expense, promptly make and supply such changes, modifications,
alterations, additional sprinkler heads or other equipment.
11.2. LANDLORD'S RIGHT. If Tenant fails to perform Tenant's
obligations under Section 11.1 hereof, Landlord may (but shall not be required
to) enter upon the Leased Premises after ten (10) days' prior written notice to
Tenant (except for cases of emergency or imminent threat of damage to person or
property where such notice will not be required) and put the Leased Premises in
good order, condition and repair, which shall include the right to cause the
Leased Premises to comply with all requirements set forth in any applicable
building codes and ordinances and the cost thereof, together with the sum of
fifteen percent (15%) of said costs for overhead and supervision by Landlord,
shall become due and payable to Landlord upon demand; provided, however, if
Tenant commences to perform such obligations within such ten (10) day period and
diligently pursues such performance to completion within a reasonable time and
to Landlord's reasonable satisfaction, Landlord shall not have the right to
perform such obligations.
Tenant shall keep the Leased Premises in a clean, sanitary,
and safe condition in accordance with the laws of the State of Ohio, and in
accordance with all directions, rules, and regulations of the health officer,
fire marshal, building inspector, or other proper officers of the governmental
agencies governing the Leased Premises, at the sole cost and expense of Tenant.
Tenant shall permit no waste, nuisance, damage or injury to the Leased Premises,
and Tenant shall, at its own cost and expense, replace any glass windows and
doors in the Leased Premises which may be broken by Tenant, and keep the Leased
Premises neat, clean and in orderly and sanitary condition, free of offensive
odors, vermin, rodents, bugs, insects and other pests. At the expiration of the
tenancy created hereunder, Tenant shall surrender the Leased Premises to
Landlord in as good a condition as it was upon the Commencement Date, reasonable
wear and tear excepted.
11.3. FURTHER TENANT IMPROVEMENTS. In addition to the
improvements discussed in Section 11.1 hereof, the Tenant is hereby given the
right and shall have the ability to make, at its own expense, any improvements
to the Leased Premises at any time during the Lease term it deems appropriate
provided:
(a) Whatever improvements are commenced shall be completed as
quickly as reasonably possible in a good and workmanlike manner and in
accordance with all applicable laws and building regulations.
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<PAGE> 18
(b) Whatever improvements are for a unique manufacturing
purpose (unique to the business of Tenant) shall be removed by the Tenant upon
its vacation of the Leased Premises.
(c) That the Tenant is not in default.
(d) Any structural changes may be made only upon the consent
of Landlord, which consent will not be unreasonably withheld.
ARTICLE XII.
OTHER PROVISIONS
12.1. ADDITIONAL AGREEMENTS. Tenant agrees that:
(a) This Lease Agreement shall be deemed entered into within
and shall be governed by and interpreted in accordance with the laws of Ohio,
and the parties submit to the jurisdiction of any appropriate court within that
state for adjudication of disputes arising from this Lease Agreement.
(b) Except as otherwise provided, this Lease Agreement shall
not be modified except by written agreement signed on behalf of Tenant and
Landlord by their respective authorized officers.
(c) This Lease Agreement supersedes all prior understandings,
representations, negotiations and correspondence between the parties,
constitutes the entire agreement between them with respect to the matters
described, and shall not be modified or affected by any course of dealing,
course of performance or usage of trade.
(d) If any provision of this Lease Agreement is held to be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall in no way be affected or impaired.
(e) Tenant shall have all of its solid and liquid waste and
refuse taken away, at its sole expense and on a timely basis, to insure
compliance with all local ordinances and state and federal environmental
protection agency regulations and directives.
(f) If Tenant shall put its own locks on any doors, Tenant
shall deposit with Landlord copies of such keys. For the purpose of the safety
of the Leased Premises, Landlord may enter the Leased Premises at any reasonable
time, provided, except in the case of an emergency, Landlord gives Tenant
reasonable notice of such entry.
(g) During the last nine (9) months of the term of this Lease
Agreement, Landlord may enter the Leased Premises for the purpose of exhibiting
said Leased Premises upon twenty four (24) hours' prior written notice with name
of prospective tenant and putting up the usual "For Rent" and "For Sale"
notices, which shall not be removed, obliterated or hidden by Tenant. In the
event the prospective tenant is a competitor of Tenant (as reasonably determined
solely by Tenant), Tenant may restrict access to areas of the Leased Premises
reasonably necessary to protect the confidentiality of any of its processes or
trade secrets.
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<PAGE> 19
ARTICLE XIII.
DEFAULT
13.1. DEFAULTS. The occurrence of any one or more of the
following events shall constitute a default hereunder by Tenant:
(a) Failure by Tenant to pay the rents reserved, charges for
operating expenses or any other charge payable by Tenant hereunder, as and when
due, and such failure shall continue for a period of five (5) business days
after written notice thereof by Landlord to Tenant; or
(b) Failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed or performed by
Tenant, other than the payment of money and such failure shall continue for a
period of thirty (30) days after written notice thereof from Landlord to Tenant;
provided, however, that if the nature of Tenant's default is such that more than
thirty (30) days are reasonably required for its cure, the Tenant shall not be
deemed to be in default if Tenant has commenced such cure within said thirty
(30) day period and thereafter diligently pursues such cure to completion within
a period of not more than thirty (30) additional days; or
(c) (i) The making by Tenant of any general assignment for the
benefit of creditors; (ii) the filing of a petition to have Tenant adjudged a
bankrupt or a petition for reorganization under any bankruptcy, insolvency or
other laws relating to the readjustment of indebtedness generally by Tenant or
against Tenant and which is not dismissed within sixty (60) days; (iii) the
appointment of a Trustee or receiver to take possession of substantially all of
Tenant's assets located at the Leased Premises or of Tenant's interest in this
Lease; or (iv) the attachment, execution or other judicial seizure of
substantially all of Tenant's assets located at the Leased Premises or of
Tenant's interest in this Lease; and for purposes of this clause (c), "Tenant"
shall include any parent company of Tenant or any guarantor of some or all of
Tenant's obligations under this Lease; or
(d) Tenant shall vacate or abandon the Leased Premises.
Tenant's failure to occupy the Leased Premises for a period of thirty (30)
consecutive days shall be deemed conclusive evidence of abandonment.
(e) Tenant shall be in default of Section 9.6.
(f) An assignment or subletting of this Lease or any portion
of the Leased Premises without Landlord's prior written consent, which shall not
be unreasonably withheld or delayed.
13.2. REMEDIES. In the event of Tenant's default hereunder,
Landlord, at Landlord's option, may terminate this Lease, or without terminating
this Lease, re-enter and retake possession of the Leased Premises by any means
permitted by law and in either event may dispossess Tenant therefrom and neither
Tenant nor any person claiming under or through Tenant shall thereafter be
entitled to possession of the Leased Premises. If Landlord elects to terminate
this Lease, or if this Lease is otherwise terminated pursuant to law by reason
of any default on the part of Tenant, then Tenant shall pay to Landlord, as
damages, and Landlord shall be entitled to recover, the then present value of
the Base Rent and Additional Charges reserved hereunder for the entire remainder
of the stated term hereof as if this Lease had not been terminated. No re-entry
or retaking of possession of the Leased Premises by Landlord shall be deemed to
be an election by Landlord to terminate this Lease, which election may be made
only by written notice thereof given to Tenant. If Landlord elects to re-enter
and retake possession of the Leased Premises without terminating this Lease,
Tenant shall not be deemed released from its obligations to pay the Base Rent
and Additional Charges reserved, and additional and other charges payable by
Tenant hereunder and otherwise to perform the
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<PAGE> 20
provisions of this Lease on Tenant's part to be performed hereunder, and all
Base Rent and Additional Charges reserved for the entire remainder of the stated
term hereof shall, at Landlord's option, be accelerated and become immediately
due and payable.
In no event shall Landlord be required to postpone or delay
suit for such damages or accelerated Base Rent and Additional Charges until the
date when the term of this Lease would have expired, or until such Base Rent and
Additional Charges would have become payable, had not the within Lease been so
terminated or the rents accelerated. If Landlord shall dispossess Tenant from
the Leased Premises as aforesaid, or if Tenant shall abandon or vacate the
Leased Premises, Landlord shall use its reasonable business efforts to relet all
or any part of the Leased Premises for such rents (including any reasonable rent
concessions) and upon such other terms and conditions as Landlord, in Landlord's
sole discretion, deems suitable and acceptable and for any use and purpose which
Landlord deems appropriate. In the event of any such reletting without the
termination of this Lease, any rents received by Landlord for the Leased
Premises shall be applied first to the costs and expenses incurred by Landlord
by reason of said repossession, retaking and reletting, including, without
limitation, brokerage costs, reasonable attorney fees and the cost of any
repairs or restoration or alterations of said Leased Premises for damages caused
by Tenant, and then to the amount of rents and other charges payable by Tenant
hereunder. The failure of Landlord to relet or, if relet, to collect the rent
under such reletting, shall not release or affect Tenant's liability hereunder
for all such costs and expenses.
13.3. REMEDIES CUMULATIVE. Exercise of any of the remedies of
Landlord under this Lease shall not prevent the concurrent or subsequent
exercise of any other remedy provided for in this Lease or otherwise available
to Landlord at law or in equity.
13.4. RENT DEMAND/ACCORD AND SATISFACTION.
(a) No payment by Tenant or receipt by Landlord of a lesser
amount than the Base Rent and Additional Charges herein stipulated shall be
deemed to be other than on account of the stipulated Base Rent and Additional
Charges nor shall any endorsement or statement on any check or any letter
accompanying any check or payment as Base Rent and Additional Charges be deemed
an accord and satisfaction. Landlord may accept such check or any partial
payment without prejudice to Landlord's right to recover the balance of such
Base Rent and Additional Charges or pursue any other remedy provided for in this
Lease or available at law or in equity to collect the balance of such Base Rent
and Additional Charges.
(b) After the service of any notice or commencement of any
suit or final judgment therein, Landlord may receive and collect any Base Rent
and Additional Charges due and such collection, or receipt shall not operate as
a waiver of nor affect such notice, suit or judgment.
ARTICLE XIV.
RECORDING AND SUBORDINATION
14.1. MEMORANDUM OF LEASE AND SUPPLEMENT TO LEASE. Landlord
and Tenant agree that this Lease Agreement shall not be recorded, but Landlord
and Tenant will at the request of either party execute a Memorandum of this
Lease Agreement, in form satisfactory to counsel for Tenant, which Memorandum of
Lease shall contain such matters as Tenant desire, but shall make no reference
to the rent payable hereunder, and which Memorandum of Lease may be filed for
record. The cost of preparation and recording shall be borne by the party
requiring same.
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<PAGE> 21
14.2. SUBORDINATION. Tenant hereby acknowledges that Chase
Bank currently holds a first mortgage lien on the property of which the Leased
Premises forms a part. Tenant agrees that if and when it becomes necessary for
the Landlord to obtain any mortgage financing in connection with the Leased
Premises and if the lending institution shall so require, the Tenant will
execute a written waiver or such other instrument as may be required and/or
necessary waiving the priority of this Lease Agreement in favor of the mortgage
of any such lending institution. In return for the granting of same, the Tenant
shall receive a non-disturbance agreement from any lender requesting a
subordination agreement. Landlord shall use all reasonable efforts to secure a
non-disturbance agreement from its existing mortgagee on the Leased Premises. If
Tenant shall fail to execute such documents within ten (10) days of submission
of same to Tenant, then, notwithstanding above Section 14.1, Landlord may record
a memorandum of this Lease Agreement and this Lease Agreement shall be deemed to
grant unto Landlord an irrevocable power of attorney, coupled with an interest,
so as to allow Landlord to execute such documents on Tenant's behalf.
ARTICLE XV.
CONDEMNATION
In the event that the Leased Premises or any part thereof,
shall at any time after the execution of this Lease Agreement be taken for
public or quasi-public use in condemnation proceedings or by exercise of any
right of eminent domain, or if following the adoption of any resolution,
ordinance or other law expressing an interest by any public authority to
appropriate or authorize the acquisition of the whole or any part of the Leased
Premises, Landlord and such public authority shall agree upon a purchase of
subject premises by the public authority (all such proceedings being
collectively referred to herein as a "taking"), the Tenant shall not be entitled
to claim, or have paid to Tenant any compensation or damages whatsoever for or
on account of any loss, injury, damage, or taking of any right, interest or
estate of the Tenant and the Tenant hereby relinquishes to Landlord any rights
to any such damages; but the Landlord shall be entitled to claim and have paid
to it for the use and benefit of the Landlord all compensation and/or damages
for and/or on account of and/or arising out of such taking and/or condemnation
without deduction from the amount for or on account of any right, title,
interest or estate of the Tenant in or to said property, and the Lease shall
terminate as to the portion of the Leased Premises taken by the taking.
If all or any portion of the Leased Premises should become
subject to such eminent domain proceedings, the Tenant shall have the option, at
any time after the commencement of the condemnation proceedings, to terminate
this Lease Agreement as to the portion of the Leased Premises subject to
condemnation or, if more than twenty-five percent (25%) of the Leased Premises
are subject to condemnation, as to the whole of the Leased Premises. Such option
shall be exercised by giving the Landlord a written notice of termination or
partial termination, specifying the reasons for such termination and the part
terminated, if termination is partial. If Tenant elects to continue the Lease
Agreement as to the uncondemned portion of the property, future rentals will be
adjusted on a pro rata basis to reduce the total rental to the extent the
property has been diminished in quantity, serviceability and/or usefulness to
Tenant by the partial condemnation. Landlord and Tenant further agree that in
the event Tenant shall not have exercised its option to terminate earlier, on
the date of actual loss of possession by Tenant pursuant to the exercise of
rights by the condemnor, under any order of a court of competent jurisdiction
authorizing the condemnor in an eminent domain proceeding to take possession of
all or a portion of the Leased Premises, Tenant's obligation to pay the rental
hereby specified shall cease as to the portion or portions of the Leased
Premises subject to the taking. In addition, the Tenant shall be entitled to a
rebate of rental paid in advance for any period after the date of said loss of
possession for the portion or portions of the Leased Premises subject to the
taking. Nothing in this provision shall be construed to limit or affect the
Tenant's right to be relieved of rental obligations or the right to a rebate of
rental payments in the event of earlier termination of this Lease Agreement as
to all or a portion of the Leased Premises as the result of a condemnation
proceeding or otherwise.
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<PAGE> 22
Tenant shall have the right to appear, claim, prove and
receive any award by the appropriation or condemning authority (i) for damages
to or condemnation of such trade fixtures, machines and equipment used in
Tenant's business and tenants betterments or other installations as Tenant would
otherwise have been entitled to remove from said Leased Premises pursuant to the
provisions of this indenture of lease, and (ii) in reimbursement of Tenant's
cost in moving and in relocating such trade fixtures, machines and equipment
used in Tenant's business.
Landlord shall provide Tenant with written notice of the
commencement of any condemnation proceeding affecting the Leased Premises as
soon as practical after Landlord becomes aware of same.
In the event the condemnation proceeds are not permitted by a
mortgagee of the Leased Premises to be made available for such repair or
restoration, the Tenant may elect:
(a) To terminate the term of this Lease Agreement by giving to
Landlord written notice thereof within thirty (30) days after request by Tenant
for such proceeds to be available and such proceeds not having been made
available; or
(b) To continue this Lease Agreement, and, in such event, the
Base Rent and Additional Charges for the Leased Premises shall be abated in
proportion to the amount of the Leased Premises rendered unsuitable for Tenant's
use during such time as such condemnation proceeds are not made so available for
restoration; provided, however, that in the event the Landlord promptly notifies
the Tenant of Landlord having other funds available for use in rebuilding and
restoring in lieu of and in the amount of not less than the condemnation
proceeds, Tenant may not terminate this Lease Agreement, and such substitute
funds shall be used for repair and rebuilding as if they were the condemnation
proceeds, and the rent shall not abate from the time such substitute proceeds
are made available for such restoration.
ARTICLE XVI.
GENERAL NOTICES
All the notices required or permitted to be given to the
parties hereto shall be given in writing either by personally delivering same or
by depositing the same with the party or in the United States Mail, postage
prepaid, and addressed to the party for which such notice is intended, at the
addresses hereinafter specified or at such other address as either party may
hereinafter designate by notice to the other:
To Landlord: 32000 Aurora Road Limited Partnership
29100 Aurora Road
Solon, Ohio 44139
Attn: General Counsel
To Tenant: Venture Lighting International, Inc.
32000 Aurora Road
Solon, Ohio 44139
Attn: Wayne R. Hellman
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ARTICLE XVII.
MISCELLANEOUS
17.1. EXHIBITS. All exhibits referred to in, and attached to,
this Lease Agreement are hereby made a part of this Lease Agreement.
17.2. ENTIRE AGREEMENT. This Lease Agreement contains the
entire agreement of the parties and cannot be changed orally, but only by an
agreement in writing and signed by the party against whom enforcement of any
waiver, change, modification or discharge is sought.
17.3. DUPLICATES. This Lease Agreement may be executed in
several duplicates, all of which shall be deemed to be but one original Lease.
17.4. NO BROKER. Landlord and Tenant represent and warrant to
each other that neither has dealt with any broker in connection with this
transaction, except Landlord has retained Weston Realty, Inc. as as a broker in
this transaction and shall be solely responsible for the payment of its fees and
shall indemnify, defend and hold harmless Tenant from any claims, damages,
causes of action, liability, costs or expenses, including reasonable attorney
fees arising from Landlord's failure to pay such fees to Weston Realty, Inc.
17.5. ESTOPPEL CERTIFICATE. Tenant shall, within ten (10) days
following receipt of a written request from Landlord, execute, acknowledge and
deliver to Landlord or to any lender or purchaser or prospective lender or
purchaser designated by Landlord a written statement certifying (i) that the
Lease Agreement is in full force and effect and unmodified (or, if modified,
stating the nature of such modification), (ii) the date to which rent has been
paid, and (iii) that there are not, to Tenant's knowledge, any existing defaults
(or specifying such default if any are claimed). Tenant's failure to deliver
such statement within such period shall be conclusive upon Tenant that this
Lease Agreement is in full force and effect and unmodified, and that there are
not existing defaults on the part of Landlord hereunder.
17.6. LANDLORD FINANCING. Landlord shall have the right at any
time to obtain financing secured in whole or in part by its interest in the
Leased Premises or under this Lease, and in connection therewith to mortgage or
otherwise collaterally transfer its interest in the Leased Premises or
collaterally assign its interest under this Lease. With respect to any financing
by Landlord, Tenant shall, within ten (10) days of request therefore, execute,
acknowledge and deliver to Landlord such amendments or modifications of this
Lease as may be reasonably requested by the holder of the indebtedness created
or to be created, but in no event shall any such amendment or modification
materially affect or alter the rights and obligations of Tenant under this
Lease.
17.7. ANNUAL FINANCIAL STATEMENTS. Tenant covenants and agrees
to furnish to Landlord annually, within ninety (90) days after the end of each
fiscal year of Tenant, copies of its most recent financial statements in
reasonable detail and agrees that Landlord may deliver any such financial
statements to any existing or prospective mortgagee, assignees or purchasers of
the Premises of which the Leased Premises forms a part, provided such
mortgagees, assignees or purchasers execute an agreement reasonably satisfactory
to Tenant to maintain the confidentiality of such information and not disclose
such information to any third party. Such financial statements shall be prepared
in accordance with generally accepted accounting principles consistently applied
and shall be certified by Tenant. In addition, Tenant hereby agrees to cooperate
with Landlord's existing or potential mortgagees, assignees or purchasers and to
comply with reasonable requests for financial information provided such
mortgagees, assignees or purchasers execute an agreement reasonably satisfactory
to Tenant to maintain the confidentiality of such information and not disclose
such information to any third party.
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17.8. NO WAIVER BY LANDLORD. No waiver of any of the terms,
covenants, provisions, conditions, rules and regulations required by this Lease,
and no waiver of any legal or equitable relief or remedy shall be implied by the
failure of Landlord to assert any rights, or to declare any forfeiture, or for
any other reason. No waiver of any of said terms, provisions, covenants, rules
and regulations shall be valid unless it shall be in writing signed by Landlord.
No waiver by Landlord or forgiveness of performance by Landlord with respect to
Tenant or one or ore other tenants of the Building shall constitute a waiver or
forgiveness of performance in favor of Tenant herein, or any other tenant, or
may be claimed or pleaded by Tenant to excuse a subsequent failure of
performance of any of the terms, provisions, conditions, covenants, rules and
regulations of this Lease.
17.9. LANDLORD AGREEMENT. Landlord's rights hereunder shall be
subject to the terms of any Landlord Agreement.
17.10. REPEATED DEFAULT. Notwithstanding anything to the
contrary set forth in this Lease, if Tenant shall be in default in the timely
payment of any rent due Landlord pursuant to this Lease, and if any such default
after written notice shall occur two (2) times in any period of twelve (12)
consecutive months, then, notwithstanding that such default shall have been
cured within the period after notice, as provided in Section 13.1 above, any
further similar default within said twelve (12) month period shall be deemed to
be a Repeated Default. In the event of a Repeated Default, Tenant shall not have
the right to cure same and Landlord, without giving Tenant any further notice
and without affording Tenant any opportunity to cure such default, may exercise
any rights or remedies available to Landlord pursuant to Section 13.2 hereof,
including, without limitation, the right to terminate this Lease or to require
Tenant to increase its security deposit to an amount satisfactory to Landlord,
at Landlord's sole discretion.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this
Lease Agreement as of the 9th day of November, 1995.
Witnesses: LANDLORD:
32000 AURORA ROAD COMPANY, LTD.,
an Ohio limited partnership
/s/
- ----------------------------
Print Name:
-----------------
/s/ By: /s/ T.S. Asher
- ---------------------------- ----------------------------
Print Name: Name: T.S. Asher
---------------- ---------------------------
Its: President
------------------------------
TENANT:
VENTURE LIGHTING INTERNATIONAL, INC.,
an Ohio corporation
/s/
- ----------------------------
Print Name:
-----------------
/s/ By: /s/ Louis S. Fisi
- ---------------------------- ----------------------------
Print Name: Name: Louis S. Fisi
---------------- ---------------------------
Its: Executive Vice President
------------------------------
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<PAGE> 1
EXHIBIT 10.24
REVOLVING CREDIT AND SECURITY AGREEMENT
between
ADVANCED LIGHTING TECHNOLOGIES, INC. et al.
and
BNY FINANCIAL CORPORATION
March 25, 1996
<PAGE> 2
REVOLVING CREDIT
AND
SECURITY AGREEMENT
Revolving Credit and Security Agreement dated March 25, 1996 between
ADVANCED LIGHTING TECHNOLOGIES, INC. ("ADLT") and the corporations which are
additional signatories hereto, all corporations organized under the laws of the
States now or hereafter listed on Schedule A hereto (individually and
collectively referred to as "BORROWER") and BNY FINANCIAL CORPORATION
("LENDER"), a corporation organized under the laws of the State of New York.
The liability of each Borrower is joint and several hereunder.
IN CONSIDERATION of the mutual covenants and undertakings herein
contained, Borrower and Lender hereby agree as follows:
DEFINITIONS.
1.
1.1 ACCOUNTING TERMS. As used in this Agreement or any certificate,
report or other document made or delivered pursuant to this
Agreement, accounting terms not defined in Section 1.2 or elsewhere in this
Agreement and accounting terms partly defined in Section 1.2 to the extent not
defined, shall have the respective meanings given to them under GAAP.
1.2 GENERAL TERMS. For purposes of this Agreement the following terms
shall have the following meanings:
"ADVANCES" shall mean and include the Working Capital Advances, the Capex
Advances and Letters of Credit under Article II hereof.
"ADVANCE RATES" shall have the meaning set forth in Section 2.1(a) hereof.
"AFFILIATE" of any Person shall mean (a) any person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled by,
or is under common control with such Person, or (b) any Person who is a director
or officer (i) of such Person, (ii) of any Subsidiary of such Person or (iii)
of any Person described in clause (a) above. For purposes of this definition,
control of a Person shall mean the power, direct or indirect, (x) to vote 6% or
more of the securities having ordinary voting power for the election of
directors of such Person, or (y) to direct or cause the direction of the
management and policies of such Person whether by contract or otherwise.
"ALTERNATE BASE RATE" shall mean, for any day, a rate per annum equal to
the higher of (i) the Prime Rate in effect on such day or (ii) the Federal
Funds Rate in effect on such day plus 1/2 of 1%.
"ALTERNATE BASE RATE ADVANCES" shall mean the Advances or any portion
thereof bearing interest at a rate of interest determined by reference to the
Alternate Base Rate.
"AUTHORITY" shall have the meaning set forth in Section 4.19(d).
"BANK" shall mean The Bank of New York.
"BLOCKED ACCOUNTS" shall have the meaning set forth in Section 4.15(h).
"BORROWER" shall mean jointly and severally, Advanced Lighting
Technologies, Inc. ("ADLT"), APL Engineered Materials, Inc., Bio Light,
Inc., Bright Ideas Advertising and Design, Inc., Energy Efficient Products,
Inc., Energy-Wise Lighting, Inc., HID Direct, Inc., HID Recycling, Inc., High
Intensity Technologies, Inc., The Light Source, Inc., Lighting Resources
International, Inc., Metal Halide Controls, Inc., Metal Halide Technologies,
Inc., MICROSUN Technologies, Inc., Specialty Discharge Lighting, Inc., Venture
Lighting International, Inc., all additional Persons becoming parties hereto
pursuant to Section 2.12 hereof, and all permitted successors and assigns of
each, each individually and collectively hereunder.
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<PAGE> 3
"BORROWING PERIOD" shall have the meaning set forth in Section 2.1(b)
hereof.
"BUSINESS DAY" shall mean any day other than a day on which commercial
banks in New York are authorized or required by law to close.
"CAPEX ADVANCES" shall have the meaning set forth in Section 2.1 (b)
hereof.
"CAPEX ADVANCE RATE" shall have the meaning set forth in Section 2.1 (b)
hereof.
"CAPEX INTEREST RATE" shall mean an interest rate per annum equal to (i)
Alternate Base plus (ii) one half of one percent (1/2%).
"CASH FLOW" for any period, and determined on a consolidated basis, shall
mean the sum of (i) Earnings Before Interest and Taxes for such period plus
(ii) ADLT's consolidated depreciation and amortization and all other non-cash
charges which were deducted in determining net income for such period, minus
(iii) non cash credits which were taken into account in determining Earnings
Before Interest and Taxes for such period.
"CASH FLOW COVERAGE" shall mean, for any period, and determined on a
consolidated basis, (a) Net Cash Flow divided by (b) scheduled payments on
Indebtedness for such period (other than principal payments made from time to
time with respect to Working Capital Advances).
"CERCLA" shall mean the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended, 42 U.S.C. 9601 et seq.
"CHANGE OF OWNERSHIP" shall mean (a) 20% or more of the common stock of
the Borrower having voting rights is no longer owned or controlled by the
Original Owner, or (b) any merger, consolidation or sale of substantially all of
the property or assets of the Borrower, or (c) the occurrence of any event
which results in the transfer of the power to direct or cause the direction, by
contract or otherwise of the management and policies of any Borrower to a
Person who is not an Original Owner. For the purposes of the calculation of
percentage ownership, any shares of common stock into which any capital stock
of the Borrower held by any of the Original Owners is convertible or for which
any such shares of the capital stock of the Borrower or of any other Person may
be exchanged and any shares of common stock of the Borrower held by any of the
Original Owners is convertible or for which any such share of the capital stock
of the Borrower or of any other Person may be exchanged and any shares of
common stock issuable to such Original Owners upon exercise of any warrants,
options or similar rights which may at the time of calculation be held by such
Original Owners shall be included.
"CHARGES" shall mean all taxes, charges, fees, imposts, levies or other
assessments, including, without limitation, all net income, gross income, gross
receipts, sales, use, ad valorem, value added, transfer, franchise, profits,
inventory, capital stock, license, withholding, payroll, employment, social
security, unemployment, excise, severance, stamp, occupation and property taxes,
custom duties, fees, assessments, Liens, Claims and charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts, imposed by any taxing or other authority, domestic or
foreign (including, without limitation, the Pension Benefit Guaranty Corporation
or any environmental agency or superfund), upon the Collateral, the Borrower or
any of its Affiliates.
"CLAIMS" shall mean all security interests, Liens, claims or encumbrances
held or asserted by any Person against any or all of the Collateral, other
than (A) Charges and (B) Permitted Encumbrances.
"CLOSING DATE" shall mean March 25, 1996 or such other date as may be
agreed to by the parties hereto.
"COLLATERAL" shall mean and include:
(a) all Receivables;
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(b) all General Intangibles;
(c) all Inventory;
(d) all Equipment, the purchase of which was financed with Capex
Advances;
(e) all of the Borrower's right, title and interest in and to (i) its
goods and other property including, but not limited to all merchandise returned
or rejected by customers, relating to or securing any of the Receivables; (ii)
all of the Borrower's rights as a consignor, a consignee, an unpaid vendor,
mechanic, artisan, or other lienor, including stoppage in transit, set off,
detinue, replevin, reclamation and repurchase; (iii) all additional amounts due
to the Borrower from any customer relating to the Receivables; (iv) other
property, including warranty claims relating to any goods securing this
Agreement; (v) if and when obtained by the Borrower, all real and personal
property of third parties in which Borrower has been granted a lien or security
interest as security for the payment or enforcement of Receivables; and (vi) any
other goods or personal property now owned or hereafter acquired in which the
Borrower has expressly granted a security interest or may in the future grant a
security interest to the Lender hereunder, or in any amendment or supplement
hereto, or under any other agreement between the Lender and the Borrower;
(f) all of the Borrower's ledger sheets, ledger cards, files,
correspondence, records, books or account, business papers, computers, computer
software (owned by the Borrower or in which it has an interest), computer
programs, tapes, disks and documents relating to (a), (b), (c), (d) and (e) of
this Paragraph; and
(g) all proceeds and products of (a), (b), (c), (d) and (e) in
whatever form, including, but not limited to: cash, deposit accounts (whether
or not comprised solely of proceeds), certificates of deposits, insurance
proceeds (including hazard, flood and credit insurance), negotiable instruments
and other instruments for the payment of money, chattel paper, security
agreements or documents.
"CURRENT ASSETS" at a particular date, and determined on a consolidated
basis, shall mean all cash, cash equivalents, accounts and inventory of ADLT
and all other items which would, in conformity with GAAP, be included under
current assets on a balance sheet of ADLT as at such date; provided, however,
that such amounts shall not include (a) any amounts for any Indebtedness owing
by an Affiliate to ADLT, unless such Indebtedness arose in connection with the
sale of goods or rendition of services in the ordinary course of business and
would otherwise constitute current assets in conformity with GAAP, (b) any
shares of stock issued by an Affiliate of the Borrower, or (c) the cash
surrender value of any life insurance policy.
"CURRENT LIABILITIES" at a particular date, shall mean all amounts which
would, in conformity with GAAP, and on a consolidated basis, be included under
current liabilities on a balance sheet of ADLT, but in any event including,
without limitation, the amounts of (a) all Indebtedness of any such Person
payable on demand, or at the option of the Person to whom such indebtedness
is owed, not more than twelve (12) months after such date, (b) any payments in
respect of any Indebtedness of such Person (whether installment, serial
maturity, sinking fund payment or otherwise) required to be made not more than
twelve (12) months after such date and (c) all reserves in respect of
liabilities or indebtedness payable on demand or, at the option of the Person
to whom such indebtedness is owed, not more than twelve (12) months after such
date, the validity of which is contested at such date, and (d) all accruals for
federal or other taxes measured by income payable within a twelve (12) month
period, and (e) the amount of outstanding indebtedness under this Agreement at
the time of calculation, except with respect to that portion of the debt,
except with respect to that portion of the Indebtedness that is appropriately
classified as a non-current liability (it being understood that for purpose of
this definition, Capex Advances are non-current liabilities).
"CUSTOMER" shall mean and include the account debtor with respect to any
of the Receivables and/or the prospective purchaser of goods, services or both
with respect to any contract or other arrangement with the Borrower, pursuant
to which the Borrower is to deliver any personal property or perform any
services.
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<PAGE> 5
"DEFAULT RATE" shall mean a rate equal to two (2%) percent per annum in
excess of the applicable Working Capital Interest Rate or Capex Interest Rate
or Capex Interest Rate or Overadvance Rate, as the case may be.
"DEPOSITORY ACCOUNTS" shall have the meaning set forth in Section 4.15(h)
hereof.
"DOCUMENTS" shall have the meaning set forth in Section 8.1(c) hereof.
"DOLLAR" and the sign "$" shall mean lawful money of the United States of
America.
"EARNINGS BEFORE INTEREST AND TAXES" shall mean ADLT's net income before
interest and taxes exclusive of depreciation, amortization, extraordinary gains
and losses and all other non-cash charges, determined on a consolidated basis.
"ELIGIBLE INVENTORY" shall mean and include raw materials and finished
goods inventory located in the United States and Canada, valued at the lower of
cost or market value, determined on a first-in-first-out method, which is not,
in Lender's reasonable opinion, obsolete, slow moving or unmerchantable and
which Lender shall not deem eligible inventory, based on such considerations
as Lender may from time to time deem appropriate including, without limitation,
whether the inventory is subject to a perfected, first priority security
interest in favor of Lender and whether the inventory conforms to all standards
imposed by any governmental agency, division or department thereof which has
regulatory authority over such goods or the use or sale thereof.
"ELIGIBLE RECEIVABLES" shall mean each Receivable arising in the ordinary
course of Borrower's business, and which Lender, in its sole credit judgment
exercised reasonably, shall deem to be an Eligible Receivable, based on such
considerations as Lender may from time to time deem appropriate. In general, a
Receivable shall not be deemed eligible unless such Receivable is subject to
Lender's perfected security interest and no other Lien other than Permitted
Encumbrances, and is evidenced by an invoice or other documentary evidence
reasonably satisfactory to Lender. In addition, no Receivable shall be an
Eligible Receivable if:
(a) it arises out of a sale made by Borrower to an Affiliate of
Borrower or to a Person controlled by an Affiliate of Borrower;
(b) it is due or unpaid more than one hundred and twenty (120) days
after the original invoice date;
(c) it is unpaid more than sixty (60) days after its due date;
(d) fifty percent (50%) or more of the Receivables from the account
debtor are not deemed Eligible Receivables hereunder. Such percentage may, in
Lender's reasonable discretion, be increased or decreased from time to time;
(e) any covenant, representation or warranty contained in this
Agreement with respect to such Receivable has been breached;
(f) the account debtor is also Borrower's creditor or supplier, or
the account debtor has disputed liability, or the account debtor has made any
claim with respect to any other Receivable due from such account debtor to
borrower, or the Receivable otherwise is or may become subject to any right of
setoff by the account debtor (but in any case, only to the extent of the
maximum amount of such liability, claim or setoff with respect to such account
debtor);
(g) the account debtor has commenced a voluntary case under the
federal bankruptcy laws, as now constituted or hereafter amended, or made an
assignment for the benefit of creditors, or if a decree or order for relief has
been entered by a court having jurisdiction in the premises in respect of the
account debtor in an involuntary case under any state or federal bankruptcy
laws, as now constituted or hereafter amended, or if any other petition or
other application for relief under any state or
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<PAGE> 6
federal bankruptcy law has been filed against the account debtor, or if the
account debtor has failed, suspended business, ceased to be solvent, called a
meeting of its creditors, or consented to or suffered a receiver, trustee,
liquidator or custodian to be appointed for it or for all or a significant
portion of its assets or affairs;
(h) the sale is to an account debtor outside the continental
United States or Canada, unless the sale is on letter of credit, guaranty or
acceptance terms, or is insured by a foreign credit insurance policy in each
case acceptable to Lender in its sole discretion;
(i) the sale to the account debtor is on a bill-and-hold,
guaranteed sale, sale-and-return, sale on approval, consignment or any other
repurchase or return basis or is evidenced by chattel paper;
(j) Lender believes, in its sole and reasonable judgment,
that collection of such Receivable is insecure or that such Receivable may not
be paid by reason of the account debtor's financial inability to pay;
(k) the account debtor is the United States of America, any
state or any department, agency or instrumentality of any of them, unless
Borrower assigns its right to payment of such Receivable to Lender pursuant to
the Assignment of Claims Act of 1940, as amended (31 U.S.C. Sub-Section 203
et set.) or has otherwise complied with other applicable statutes or ordinances;
(l) the goods giving rise to such Receivable have not been
shipped and delivered to and accepted by the account debtor or the services
giving rise to such receivable have not been performed by Borrower and accepted
by the account debtor of the Receivable otherwise does not represent a final
sale;
(m) the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim or if the Receivable is contingent in any
respect or for any reason (but in any case, only to the extent of the maximum
amount of such offset, deduction, defense, dispute, counterclaim or
contingency);
(n) Borrower has made any agreement with any account debtor
for any deduction therefrom, except for discounts or allowances made in the
ordinary course of business for prompt payment, all of which discounts or
allowances are reflected in the calculation of the face value of each respective
invoice related thereto;
(o) shipment of the merchandise or the rendition of services
has not been completed;
(p) any return, rejection or repossession of the merchandise
has occurred;
(q) such Receivable is not payable to the Borrower; or
(r) such Receivable is not otherwise satisfactory to the
Lender as determined in good faith by the Lender in the exercise of its
discretion in a reasonable manner.
"ENVIRONMENT COMPLAINT" shall have the meaning set forth in
Section 4.19(d) hereof.
"ENVIRONMENTAL LAWS" shall mean all federal, state and local
environmental, land use, zoning, health, chemical use, safety and sanitation
laws, statutes, ordinances and codes relating to the protection of the
environment and/or governing the use, storage, treatment, generation,
transportation, processing, handling, production or disposal of Hazardous
Substances and the rules, regulations, policies, guidelines, interpretations,
decisions, orders and directives of federal, state and local governmental
agencies and authorities with respect thereto.
"EQUIPMENT" shall mean and include all of the Borrower's goods
(excluding inventory) whether now owned or hereafter acquired or constructed and
wherever located including, without
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<PAGE> 7
limitation, all equipment, machinery, apparatus, motor vehicles, fittings,
furniture, furnishings, fixtures, parts, accessories and all replacements and
substitutions therefor or accessions thereto.
"EQUIPMENT CONTRACT RECEIVABLES" shall mean Receivables arising from
the sale of lamp manufacturing equipment with respect to which either (i) a
cash deposit of not less than 10% of the purchase price has been remitted to
Borrower or (ii) in the case of non-creditworthy Customers, a letter of credit
has been issued in the amount of the purchase price in favor of the Borrower.
"EQUIPMENT CONTRACT RECEIVABLE ADVANCE RATE" shall have the meaning
set forth in Section 2.1(a) hereof.
"EVENT OF DEFAULT" shall mean the occurrence of any of the events set
forth in Article X hereof.
"FEDERAL FUNDS RATE" shall mean, for any day, the weighted average of
the rates on overnight Federal funds transactions with members of the Federal
Reserve System arranged by Federal funds brokers, as published for such day (or
if such day is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or if such rate is not so published for any
day which is a Business Day, the average of quotations for such day on such
transactions received by the Bank from three Federal funds brokers of
recognized standing selected by the Bank.
"FORMULA AMOUNT" shall have the meaning set forth in Section 2.1(a).
"GAAP" shall mean accounting principles generally accepted in the
United States of America in effect from time to time.
"GENERAL INTANGIBLES" shall mean and include all of the Borrower's
general intangibles, whether now owned or hereafter acquired including, without
limitation, all choices in action, causes of action, corporate or other business
records, inventions, designs, patents, patent applications, equipment
formulations, manufacturing procedures, quality control procedures, trademarks,
trade secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, tax refunds, tax refund claims, computer programs, all claims
under guaranties, security interests or other security held by or granted to
Borrower to secure payment of any of the Receivables by an account debtor, all
rights of indemnification and all other intangible property of every kind and
nature (other than Receivables).
"HAZARDOUS DISCHARGE" shall have the meaning set forth in
Section 4.19(d) hereof.
"HAZARDOUS SUBSTANCE" shall mean, without limitation, any flammable
explosives, radon, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated byphenyls, petroleum and petroleum products,
methane, hazardous materials, hazardous wastes, hazardous or toxic substances
or related materials as defined in CERCLA, the Hazardous Materials
Transportation Act, as amended (49 U.S.C. Sections 1801, et seq.), RCRA,
Articles 15 and 27 of the New York State Environmental Conversation [sic]
Law or any other applicable Environmental Law and in the regulations adopted
pursuant hereto.
"HAZARDOUS WASTES" includes all waste materials subject to regulation
under CERCLA, RCRA or applicable state law, and any other applicable Federal and
state laws now in force or hereafter enacted relating to hazardous waste
disposal.
"INCIPIENT EVENT OF DEFAULT" shall mean an event which, with the giving
of notice or passage of time or both, would constitute an Event of Default.
"INDEBTEDNESS" of a Person at a particular date shall mean all
obligations of such Person which in accordance with GAAP would be classified
upon ADLT's consolidated balance sheet as liabilities (except trade accounts
payable and accrued expenses and other liabilities arising from the normal and
ordinary course of business capital stock and surplus earned or otherwise) and
in any event, without limitation by reason of enumeration, shall include all
indebtedness, debt and other similar monetary
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<PAGE> 8
obligations of such Person whether direct or guaranteed, and all premiums, if
any, due at the required prepayment dates of such indebtedness, and all
indebtedness secured by a Lien on assets owned by such Person, whether or not
such indebtedness actually shall have been created, assumed or incurred by such
Person. Any indebtedness of such Person resulting from the acquisition by such
Person of any assets subject to any Lien shall be deemed, for the purposes
hereof, to be the equivalent of the creation, assumption and incurring of the
indebtedness secured thereby, whether or not actually so created, assumed or
incurred.
"INVENTORY" shall mean all of Borrower's now owned or hereafter
acquired goods, merchandise and other personal property, wherever located, to
be furnished under any contract of service or held for sale or lease, all raw
materials, work in progress, finished goods and materials and supplies of any
kind, nature or description which are or might be used or consumed in
Borrower's business or used in selling or furnishing such goods, merchandise
and other personal property, and all documents of title or other documents
representing them.
"INVENTORY ADVANCE RATE" shall have the meaning set forth in
Section 2.1(a) hereof.
"LETTERS OF CREDIT" shall have the meaning set forth in Section 2.8.
"LETTER OF CREDIT FEES" shall have the meaning set forth in
Section 3.2.
"LIBO RATE" shall mean, relative to any day, the rate of interest
equal to the rate per annum listed in the Wall Street Journal on such day as
the LIBO Rate for a period equal to 30 days.
"LIBO RATE ADVANCE" shall mean the Advances or any portion thereof
bearing interest at a rate of interest determined by reference to the LIBO Rate.
"LIEN" shall mean any mortgage, deed of trust, pledge, hypothecation,
assignment, security interest, lien, charge, Claim or encumbrance, or
preference, priority or other security agreement or preferential arrangement in
respect of any asset of the Borrower or any Subsidiary of the Borrower of any
kind or nature whatsoever including, without limitation, any conditional sale
or other title retention agreement, any lease having substantially the same
economic effect as any of the foregoing, and the filing of, or agreement to
give, any financing statement under the Uniform Commercial Code or comparable
law of any jurisdiction.
"MAXIMUM LOAN AMOUNT" shall mean $25,000,000.00 less the current
outstanding amount of Capex Advances.
"MONTHLY ADVANCES" shall have the meaning set forth in Section 3.1
hereof.
"NET CASH FLOW" for any fiscal period shall mean (a) Cash Flow of ADLT
for such period minus (b) capital expenditures (net of indebtedness incurred to
finance such expenditures) in an amount for such period not to exceed the
amount permitted under Section 7.6, all as determined on a consolidated basis
and (c) Permitted Investments (net of Indebtedness and/or capital stock
incurred or issued to finance such Permitted Investment).
"OBLIGATIONS" shall mean and include any and all of the Borrower's
Indebtedness and/or liabilities to the Lender or any corporation that directly
or indirectly controls or is controlled by or is under common control with
Lender of every kind, nature and description, direct or indirect, secured or
unsecured, joint, several, joint and several, absolute or contingent, due or to
become due, now existing or hereafter arising, contractual or tortious,
liquidated or unliquidated, regardless of how such indebtedness or liabilities
arise or by what agreement or instrument they may be evidenced or whether
evidenced by any agreement or instrument, including, but not limited to, any
and all of the Borrower's Indebtedness and/or liabilities under this Agreement
or under any other agreement between the Lender and the Borrower and all
obligations of the Borrower to the Lender to perform acts or refrain from
taking any action.
"ORIGINAL OWNER" shall mean Wayne R. Hellman.
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"OTHER DOCUMENTS" shall mean the Questionnaire and any and all other
agreements, instruments and documents, including, without limitation,
guaranties, pledges, powers of attorney, consents, and all other writings
heretofore, now or hereafter executed by Borrower and/or delivered to Lender in
respect of the transactions contemplated by this Agreement.
"OVERADVANCE RATE" shall mean the interest rate equal to the
applicable Working Capital Interest Rate or Capex Interest Rate plus one half
of one percent (1/2%) per annum.
"PARENT" of any Person shall mean a corporation or other entity
owning, directly or indirectly at least 50% of the shares of stock or other
ownership interests having ordinary voting power to elect a majority of the
directors of the Person, or other Persons performing similar functions for any
such Person.
"PAYMENT OFFICE" shall mean initially 1290 Avenue of the Americas, New
York, New York 10104; thereafter, such other office of Lender, if any, which it
may designate by notice to the Borrower to be the Payment Office.
"PERMITTED ENCUMBRANCES" shall mean (a) liens in favor of Lender; (b)
liens for taxes, assessments or other governmental charges not delinquent, or,
being contested in good faith and by appropriate proceedings and with respect to
which proper reserves have been taken by Borrower; (c) liens disclosed in the
financial statements referred to in Section 5.5, the existence of which Lender
has consented to in writing; (d) deposits or pledges to secure obligations under
workmen's compensation, social security or similar laws, or under unemployment
insurance; (e) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the ordinary
course of Borrower's business; (f) judgment liens that have been stayed or
bonded and mechanics', workmen's, materialmen's or other like liens arising in
the ordinary course of Borrower's business with respect to obligations which are
not due or which are being contested in good faith by Borrower; (g) liens placed
upon fixed assets hereafter acquired to secure a portion of the purchase price
thereof, provided that (x) any such lien shall not encumber any other property
of the Borrower and (y) the aggregate amount of Indebtedness secured by such
liens incurred as a result of such purchases during any fiscal year shall not
exceed the amount provided for in Section 7.6; (h) liens securing purchase money
security indebtedness other than those set forth in Section 7.6 hereof, provided
that such liens shall attach only to the property financed thereby and the
purchase price of all such property shall not exceed $500,000 in the aggregate
in any one fiscal year; (i) liens securing operating leases in an amount not to
exceed $500,000 in the aggregate in any one fiscal year; (j) liens existing at
the time of the Closing Date or granted from time to time on the assets of any
Borrower, which assets are located outside of the United States or Canada, and
which liens secure loans from a foreign bank or financial institution and do not
exceed $1,000,000 in the aggregate at any one time without our prior written
consent; and (k) liens disclosed on Exhibit 1.2, the existence of which Lender
has consented to in writing.
"PERMITTED INVESTMENTS" shall have the meaning set forth in
Section 7.4 hereof.
"PERSON" shall mean an individual, a partnership, a corporation, a
business trust, a joint stock company, a trust, an unincorporated association, a
joint venture, a governmental authority or any other entity of whatever nature.
"PRIME RATE" for the purpose of this Agreement means the rate of
interest publicly announced from time to time by the Bank at its principal
office in New York as its prime rate or prime lending rate. The rate of interest
is determined from time to time by the Bank as a means of pricing some loans to
its customers and is neither tied to any external rate of interest or index nor
does it necessarily reflect the lowest rate of interest actually charged by the
Bank to any particular class or category of customers of the Bank.
"QUESTIONNAIRE" shall mean the Questionnaire executed by Borrower and
delivered to Lender.
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"RCRA" shall mean the Resource Conservation and Recovery Act, 42
U.S.C. Section 6901 et seq., as same may be amended from time to time.
"REAL PROPERTY" shall mean all of Borrower's rights, title and
interest in and to the premises located at the addresses set forth on Schedule
A hereto.
"RECEIVABLES" shall mean and include all of the Borrower's accounts,
contract rights, instruments, documents, chattel paper, general intangibles
relating to accounts, drafts and acceptances, and all other forms of obligations
owing to Borrower arising out of or in connection with the sale or lease of
inventory or the rendition of services, all guarantees and other security
therefor, whether secured or unsecured, now existing or hereafter created.
"RECEIVABLES ADVANCE RATE" shall have the meaning set forth in
Section 2.1(a) hereof.
"RELEASE" shall have the meaning set forth in Section 5.7(c)(i) hereof.
"REVOLVING CREDIT NOTE" shall mean the promissory note referred to in
Section 2.2. hereof.
"SUBSIDIARY" of any Person shall mean a corporation or other entity of
whose shares of stock or other ownership interests having ordinary voting power
(other than stock or other ownership interests having such power only by reason
of the happening of a contingency) to elect a majority of the directors of such
corporation, or other Persons performing similar functions for such entity, are
owned, directly or indirectly, by such Person.
"TANGIBLE NET WORTH" at a particular date, and determined on a
consolidated basis, shall mean (a) the aggregate amount of all assets of ADLT
as may properly be classified as such in accordance with GAAP consistently
applied and excluding such other assets as are properly classified as
"INTANGIBLE ASSETS," less (b) the aggregate amount of total liabilities of ADLT.
"TERM" shall mean the Closing Date through March 24, 1999, as same may
be extended in accordance with the provisions of Section 13.1.
"TOXIC SUBSTANCE" shall mean and include any material present on the
Real Property or the leasehold interests which has been shown to have
significant adverse effect on human health or which is subject to regulation
under the Toxic Substances Control Act (TSCA), 15 U.S.C. Section 2601 et seq.,
applicable state law, or any other applicable Federal or state laws now in
force or hereafter enacted, relating to toxic substances. "TOXIC SUBSTANCE"
includes but is not limited to asbestos, polychlorinated biphenyls (PCBs) and
lead-based paints.
"U.S. SUBSIDIARY" shall have the meaning set forth in Section 2.12
hereof.
"WORKING CAPITAL" at a particular date, shall mean the excess, if any,
of Current Assets over Current Liabilities at such date, all as determined on a
consolidated basis.
"WORKING CAPITAL ADVANCES" shall mean Advances made for the purpose of
funding the Borrower's normal course of business.
"WORKING CAPITAL INTEREST RATE" shall mean an interest rate per annum
equal to (i) Alternate Base Rate minus (ii) one half of one percent (1/2%)
provided, however, that if the Advances or a portion thereof are LIBO Rate
Advances, then in such event with respect to such Advance or portion thereof it
shall mean (i) the average of the LIBO Rate in effect for the month for which
such calculation is made plus (ii) two and one-half percent (2.5%).
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1.3 UNIFORM COMMERCIAL CODE TERMS. All terms used herein and defined
in the Uniform Commercial Code as adopted in the State of New York shall have
the meaning given therein unless otherwise defined herein.
II. ADVANCES, PAYMENT, INTEREST AND FEES.
2.1(a) WORKING CAPITAL ADVANCES. Subject to the terms and conditions
set forth in this Agreement and provided no Event of Default nor any Incipient
Event of Default shall have occurred under this Agreement, Lender shall make
Working Capital Advances to the Borrower in aggregate amounts outstanding at
any time equal to the lesser of (x) the Maximum Loan Amount or (y) an amount
equal to the sum of:
(i) up to 85%, subject to the provisions of Section 2.1(c)
hereof ("RECEIVABLES ADVANCE RATE"), of Eligible Receivables other than
Equipment Contract Receivables, plus
(ii) up to 35%, subject to the provisions of Section 2.1(c)
hereof ("EQUIPMENT CONTRACT RECEIVABLES ADVANCE RATE"), of Equipment Contract
Receivables; plus
(iii) up to the lesser of (A) 50%, subject to the provisions
of Section 2.1(c) hereof ("INVENTORY ADVANCE RATE"), of the value of the
Eligible Inventory or (B) $6,000,000 (the Receivables Advance Rate, the
Equipment Contract Receivables Advance Rate, the Capex Advance Rate and the
Inventory Advance Rate shall be referred to collectively, as the "ADVANCE
RATES"); minus
(iv) such reserves as Lender may reasonably deem proper and
necessary from time to time.
The sum of the amounts derived from Section 2.1(a)(i) (ii) and (iii)
minus (iv) at any time and from time to time shall be referred to as the
"FORMULA AMOUNT."
(b) CAPEX ADVANCES. Subject to the terms and conditions set forth in
this Agreement and provided no Event of Default nor any incipient Event of
Default shall have occurred and shall be continuing under this Agreement,
Lender shall make Capex Advances to the Borrower in a sum equal to up to Five
Million Dollars ($5,000,000.00) in the aggregate to permit Borrower to finance
permitted capital expenditures. Such financing will be in an amount up to fifty
percent (50%) of the net invoice cost of such Equipment (exclusive of shipping,
handling, taxes, installation and all other "SOFT" costs) or with respect to
self-constructed assets, the market value of such assets pursuant to an
appraisal acceptable to Lender, subject to the provisions of Section 2.1(c)
hereof ("Capex Advance Rate") (collectively, "CAPEX ADVANCES"). Once repaid, a
Capex Advance may not be reborrowed. Capex Advances shall bear interest at the
Capex Interest Rate.
Capex Advances shall be accumulated until the earlier of (i) the first
anniversary of the Closing Date or (ii) the date on which the aggregate amount
of Capex Advances outstanding equals $5,000,000.00 (the "BORROWING PERIOD"). At
the end of the Borrowing Period, the sum of all Capex Advances will be amortized
on the basis of a six year amortization schedule. Monthly payments will be
determined for the Capex Advances made during the Borrowing Period. The Capex
Advances shall be, with respect to principal, payable in equal monthly
installments commencing on the first Business Day following the end of the
Borrowing Period, and on the last Business Day of each month thereafter, with a
final installment in an amount equal to the entire outstanding balance thereof
payable on the last day of the Term, subject to acceleration upon the occurrence
of an Event of Default under this Agreement or termination of this Agreement,
and in accordance with, the terms of that certain secured promissory note, (the
"CAPEX PROMISSORY NOTE"), in the form attached hereto as Exhibit 2.1(b).
(c) Discretionary Rights The Advance Rates may be increased or
decreased by Lender at any time and from time to time in the exercise of its
reasonable discretion. Borrower consents to any such increases or decreases and
acknowledges that decreasing the Advance Rates may limit or restrict Advances
requested by Borrower.
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2.2 REVOLVING CREDIT NOTE ADVANCES. The Working Capital Advances shall
otherwise be evidenced by the secured promissory note ("REVOLVING CREDIT NOTE")
attached hereto as Exhibit 2.2.
2.3 PROCEDURE FOR WORKING CAPITAL ADVANCES BORROWING. (a) ADLT, as
agent for Borrower may notify the Lender prior to 11:00 a.m. on a Business Day
of its request to incur, on that day, a Working Capital Advance hereunder.
Should any amount required to be paid as interest hereunder, or as fees or other
charges under this Agreement or any other agreement with Lender, or with respect
to any other Obligation, become due, same shall be deemed a request for a
Working Capital Advance as of the date such payment is due, in the amount
required to pay in full such interest, fee, charge or Obligation under this
Agreement or any other agreement with Lender, and such request shall be
irrevocable.
(b) Each Borrower agrees that ADLT is granted an irrevocable power of
attorney to execute any documents, reports, convey any security interests or
title and issue all requests and directives on behalf of each of all other
Borrowers and ADLT to Lender, including without limitation all requests for
Advances, the proceeds of which if made, shall be remitted in Lender's
discretion to ADLT and shall be distributed to the extent necessary and
appropriate to the other Borrowers by ADLT who in addition is irrevocably
appointed as agent for such purposes. Each Borrower shall be jointly and
severally liable for all of the Obligations.
(c) At the time of Borrower's request for an initial Working Capital
Advance hereunder or any subsequent Working Capital Advance ADLT shall request
that such Advance be an Alternate Base Rate Advance or a LIBO Rate Advance. If
not notice is received to make such Advance as a LIBO Rate Advance, then any
such Advance shall be made as an Alternate Base Rate Advance.
(d) At its option and upon three (3) Business Days' prior written
notice, Borrower may prepay any Advances in whole at any time, with accrued
interest on the principal being prepaid to the date of such repayment.
2.4 DISBURSEMENT OF ADVANCE PROCEEDS. All Advances shall be disbursed
from whichever office or other place the Lender may designate from time to time
and, together with any and all other Obligations of Borrower to Lender, shall
be charged to the Borrower's account on the Lender's books. During the Term,
Borrower may use the Working Capital Advances by borrowing, prepaying and
reborrowing, all in accordance with the terms and conditions hereof. The
proceeds of each Working Capital Advance requested by ADLT or deemed to have
been requested by ADLT under Section 2.3(a) hereof shall, with respect to
requested Working Capital Advances to the extent the Lender makes such Working
Capital Advances, be made available to the Borrower by way of credit to the
ADLT operating account at such bank as ADLT may designate following
notification to Lender, in immediately available federal or other immediately
available funds or, with respect to Working Capital Advances deemed to have
been requested, be disbursed to the Lender in payment of outstanding
Obligations. Each Borrower hereby appoints ADLT as its agent for requesting
Advances hereunder and hereby agrees that ADLT shall be solely responsible for
distributing the proceeds of any such Advance to the appropriate Borrower.
Accordingly, Borrower hereby indemnifies Lender and holds Lender harmless from
and against all liability, loss, cost and expense in connection with the paper
application or distribution of the proceeds of Advances hereunder, except those
caused by the Lender's gross negligence or willful misconduct.
2.5 REPAYMENT OF ADVANCES.
(a) The Advances shall be due and payable in full on the last day of
the Term subject to earlier prepayment as herein provided.
(b) The Borrower recognizes that the amounts evidenced by checks,
notes, drafts or any other items of payment relating to and/or proceeds of
Collateral may not be collectible by the Lender on the date received. In
consideration of the Lender's agreement to conditionally credit the Borrower's
account as of the Business Day on which the Lender receives those items of
payment, the Borrower agrees that, in computing the charges under this
Agreement, all items of payment shall be deemed applied by Lender on account of
the Obligations three (3) days after confirmation to Lender by the Blocked
Account
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bank or the Depository Account bank as provided for in Section 4.15(h), that
such items of payment have been collected in good funds and finally credited to
Lender's account. The Lender is not, however, required to credit the Borrower's
account for the amount of any item of payment which is unsatisfactory to the
Lender and the Lender may charge the Borrower's account for the amount of any
item of payment which is returned to the Lender unpaid.
(c) All payments of principal, interest and other amounts payable
hereunder, or under any of the related agreements shall be made to the Lender
at the Payment Office not later than 1:00 P.M. (New York Time) on the due date
therefor in lawful money of the United States of America in Federal or other
funds immediately available to the Lender. Lender shall have the right to
effectuate payment on any and all Obligations due and owing hereunder by
charging the Borrower's account or by making Advances as provided in Section
2.4 hereof.
(d) The Borrower shall pay principal, interest, and all other amounts
payable hereunder, or under any related agreement, without any deduction
whatsoever, including, but not limited to, any deduction for any setoff or
counterclaim.
2.6 REPAYMENT OF EXCESS ADVANCES. The aggregate balance of Advances
outstanding at any time in excess of the maximum Advances permitted under
Section 2.1 hereof shall be immediately due and payable without the necessity
of any demand, at the place designated by Lender, whether or not an Incipient
Event of Default or Event of Default has occurred.
2.7 STATEMENT OF ACCOUNT. Lender shall maintain, in accordance with
its customary procedures, a loan account in the name of the Borrower in which
shall be recorded the date and amount of each Advance made by Lender and the
date and amount of each payment in respect thereof; provided, however, the
failure by Lender to record the date and amount of any Advance shall not
adversely affect Lender. For each month, Lender shall send to ADLT a statement
showing the accounting for the Advances made, payments made or credited in
respect thereof, and other transactions between Lender and the Borrower, during
such month. The monthly statements shall be deemed correct and binding upon the
Borrower in the absence of manifest error and shall constitute an account
stated between Lender and the Borrower unless Lender receives a written
statement of ADLT's specific exceptions thereto within thirty (30) days after
such statement is received by ADLT. The records of Lender with respect to the
loan account shall be prima facie evidence of the amounts of Advances and other
charges thereto and of payments applicable thereto, absent manifest error.
2.8 LETTERS OF CREDIT. Subject to the terms and conditions hereof,
Lender shall issue or cause the issuance of Letters of Credit ("LETTERS OF
CREDIT"); provided, however, that Lender will not be required to issue or cause
to be issued any Letters of Credit to the extent that the face amount of such
Letters of Credit would then cause the sum of the outstanding Working Capital
Advances plus outstanding Letters of Credit to exceed the Maximum Loan Amount.
Letters of Credit shall not exceed $5,000,000.00 in the aggregate at any time.
All disbursements or payments related to Letters of Credit shall be deemed to
be Advances and shall bear interest at the Working Capital Interest Rate;
Letters of Credit that have not been drawn upon shall not bear interest.
Letters of Credit shall be subject to the terms and conditions set forth in the
Letter of Credit and Security Agreement attached hereto as Exhibit 2.8.
2.9 ISSUANCE OF LETTERS OF CREDIT
(a) Borrower may request Lender to issue or cause the issuance of a
Letter of Credit by delivering to Lender at the Payment Office, Lender's
standard form of Letter of Credit and Security Agreement together with Bank's
standard form of Letter of Credit Application (collectively, the "LETTER OF
CREDIT APPLICATION") and completed to the satisfaction of Lender; and, such
other certificates, documents and other papers and information as Lender may
reasonably request.
(b) Each Letter of Credit shall, among other things, (i) provide for
the payment of sight drafts when presented for honor thereunder in accordance
with the terms thereof and when accompanied by the documents described therein
and (ii) have an expiry date not later than six months after such Letter of
Credit's date of issuance and in no event later than the last day of the Term.
Each Letter of Credit
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Application and each Letter of Credit shall be subject to the Uniform Customs
and Practice for Documentary Credits (1993 Revision), International Chamber of
Commerce Publication No. 500, and any amendments or revisions thereof and, to
the extent not inconsistent therewith, the laws of the State of New York.
2.10 REQUIREMENTS FOR ISSUANCE OF LETTERS OF CREDIT.
(a) In connection with the issuance or creation of any Letter of
Credit Borrower shall indemnify, save and hold Lender harmless from any loss,
cost, expense or liability, including, without limitation, payments made by
Lender, and expenses and reasonable attorneys' fees incurred by Lender arising
out of, or in connection with, any Letter of Credit to be issued or any
acceptances created for Borrower. Borrower shall be bound by Lender's or any
issuing or accepting bank's regulations and good faith interpretations of any
Letter of Credit issued or acceptance created for Borrower's account, although
this interpretation may be different from Borrower's own; and, neither Lender,
nor any of its correspondents shall be liable for any error, negligence, or
mistakes, whether by omission or commission, in following Borrower's
instructions or those contained in any Letter of Credit or of any
modifications, amendments or supplements thereto or in creating or paying any
Letter of Credit or acceptance, except for Lender's or such correspondents'
gross negligence or willful misconduct.
(b) Borrower shall authorize and direct any bank which issues a Letter
of Credit to name Borrower as the "ACCOUNT PARTY" therein and to deliver to
Lender all instruments, documents, and other writings and property received by
the bank pursuant to the Letter of Credit or in connection with any acceptance
and to accept and rely upon Lender's instructions and agreements with respect
to all matters arising in connection with the Letter of Credit, the application
therefor or any acceptance therefor.
(c) In connection with all Letters of Credit issued or created by
Lender under this Agreement, upon an Event of Default or failure to repay by
Borrower under any reimbursement agreement, Borrower hereby appoints Lender, or
its designee, as its attorney, with full power and authority (a) to sign and/or
endorse Borrower's name upon any warehouse or other receipts, letter of credit
applications and acceptances; (b) to sign Borrower's name on bills of lading;
(c) to clear inventory through Customs in the name of Borrower or Lender or
Lender's designee, and to sign and deliver to Customs Officials powers of
attorney in the name of Borrower for such purpose; and (d) to complete in
Borrower's name or Lender's, or in the name of Lender's designee, any order,
sale or transaction, obtain the necessary documents in connection therewith,
and collect the proceeds thereof. Neither Lender nor its attorneys will be
liable for any acts or omissions nor for any error of judgment or mistakes of
fact or law, except for Lender's or its attorney's gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable as long
as any Letters of Credit remain outstanding.
2.11 ADDITIONAL PAYMENTS. Any sums expended by Lender due to the
Borrower's failure to perform or comply with its obligations under this
Agreement including, without limitation, Borrower's obligations under Sections
4.2, 4.4, 4.12, 4.13, 4.14 and 6.1 hereof, may be charged to the Borrower's
account as a Working Capital Advance and added to the Obligations.
2.12 NEWLY ACQUIRED SUBSIDIARIES BECOMING A BORROWER.
(a) Borrower may, from time to time, after the Closing Date, with the
consent of Lender (except as provided in Section 2.12(iii) and as provided in
Section 7.12 hereof, form or acquire additional Subsidiaries, and those
Subsidiaries which are located in the United States and Canada (collectively,
the "U.S. SUBSIDIARY") shall become a Borrower hereunder.
(b) Borrower shall cause each new U.S. Subsidiary to satisfy or obtain
the waiver by Lender of the following conditions precedent:
(i) Execute a counterpart of this Agreement and assume the
Obligations of the Borrowers under this Agreement and each of the Documents
required by this Agreement;
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<PAGE> 15
(ii) Fully comply with each of the conditions precedent set
forth in Article VIII of this Agreement including but not limited to
Sections 8.1(a) through (g), 8.1(j) and 8.2;
(iii) provide to Lender access for the audit of the new U.S.
Subsidiary's assets of the type and nature reasonably required by Lender to
underwrite and obtain loan approval for the new U.S. Subsidiary provided,
however, that with respect to any such U.S. Subsidiary, the cash portion of the
purchase price of which is less than $500,000, the Borrower may form or acquire
such U.S. Subsidiary without the consent of Lender and Lender shall review the
transaction and perform an audit only if Lender deems it reasonably necessary;
and;
(iv) Such other conditions as Lender may reasonably require.
III. INTEREST AND FEES.
3.1 INTEREST. Interest on Advances shall be payable in arrears on the
last day of each month. Interest charges shall be computed on the actual
average of such daily Advances outstanding during the month (the "MONTHLY
ADVANCES") at a rate per annum equal to (i) with respect to Working Capital
Advances, the applicable Working Capital Interest Rate; and (ii) with respect
to each Capex Advance, the Capex Interest Rate. Whenever, subsequent to the
date of this Agreement, the Alternate Base Rate is increased or decreased, the
applicable interest rate with respect to Advances other than LIBO Rate Advances
shall be similarly changed without notice or demand of any kind by an amount
equal to the amount of such change in the Alternate Base Rate during the time
such change or changes remain in effect. In the event that Lender, in its sole
and absolute discretion, permits Advances in excess of the Formula Amount to
remain outstanding for a total of five (5) days or more during any month, then
Borrower shall pay interest on all Monthly Advances for such month at a rate
equal to the Overadvance Rate. Upon and after the occurrence of an Event of
Default, and during the continuation thereof, the Obligations shall bear
interest at the Default Rate.
3.2 LETTER OF CREDIT FEES. Borrower shall pay Lender (i) (A) for
issuing or causing the issuance of or an amendment to a standby Letter of
Credit, a fee computed at a rate per annum of one quarter of one percent (.25%)
per month on the outstanding face amount thereof from time to time for the
entire term of said Letter of Credit, (B) for issuing or causing the issuance
of a Letter of Credit that is not a standby Letter of Credit, a fee equal to
1.0% of the original and each increase in the face amount thereof for each 120
days or part thereof of its term (the fees set forth in (A) and (B) referred to
as "LETTER OF CREDIT FEES"), and (ii) Bank's other customary charges payable in
connection with Letters of Credit, as the case may be, as in effect from time
to time (which charges shall be furnished to Borrower by Lender upon request).
Such fees and charges shall be payable (i) in the case of any Letter of Credit,
on its opening (ii) in the case of a standby Letter of Credit, (A) monthly
thereafter in advance and (B) upon each increase in the outstanding amount
thereof and (iii) in the case of any Letter of Credit that is not a standby
Letter of Credit, at the time of each increase in face amount thereof. Any such
charge in effect at the time of a particular transaction shall be the charge
for that transaction, notwithstanding any subsequent change in the Bank's
prevailing charges for that type of transaction. All Letter of Credit Fees
payable hereunder shall be deemed earned in full on the date when the same are
due and payable hereunder and shall not be subject to rebate or proration upon
the termination of this Agreement for any reason.
On demand, Borrower will cause cash to be deposited and maintained in
an account with Lender, as cash collateral, in an amount equal to outstanding
Letters of Credit, and Borrower hereby irrevocably authorizes Lender, in its
discretion, on Borrower's behalf and in Borrower's name, to open such an
account and to make and maintain deposits therein, or in an account opened by
Borrower, in the amounts required to be made by Borrower, out of the proceeds
of Receivables or other Collateral or out of any other funds of Borrower coming
into Lender's possession at any time. Lender will invest such cash collateral
(less applicable reserves) in such short-term money-market items as to which
Lender and Borrower mutually agree and the net return on such investments shall
be credited to such account and constitute additional cash collateral. Borrower
may not withdraw amounts credited to any such account except upon payment and
performance in full of all Obligations and termination of this Agreement.
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3.3 CLOSING FEE. Upon the execution of this Agreement, Borrower shall
pay to Lender a facility fee of $250,000.00.
3.4 COLLATERAL MONITORING FEE. Borrower shall pay to Lender on the
date of execution of this Agreement and on each anniversary of such date, a
collateral monitoring fee in the amount of $50,000.00 for collateral analysis
or other business analysis, the need for which is to be reasonably determined
by Lender and which monitoring is undertaken by Lender for Lender's benefit.
3.5 UNUSED FEE. Borrower shall pay to Lender on the first day of each
month, in arrears, an unused fee equal to one quarter of one percent (.25%) per
annum on the difference between the Maximum Loan Amount and the Monthly
Advances for the immediately preceding month.
3.6 COMPUTATION OF INTEREST AND FEES. Interest and fees hereunder shall
be computed on the basis of a year of 360 days and for the actual number of
days elapsed. If any payment to be made hereunder becomes due and payable on a
day other than a Business Day, the due date thereof shall be extended to the
next succeeding Business Day and interest thereon shall be payable at the
applicable interest rate during such extension.
3.7 MAXIMUM CHARGES. In no event whatsoever shall interest and other
charges charged hereunder exceed the highest rate permissible under law which a
court of competent jurisdiction shall, in a final determination, deem
applicable hereto. In the event that a court determines that Lender has
received interest and other charges hereunder in excess of the highest rate
applicable hereto, such excess interest shall be first applied to any unpaid
principal balance owed by Borrower, and if the then remaining excess interest
is greater than the previously unpaid principal balance, the Lender shall
promptly refund such excess amount to Borrower and the provisions hereof shall
be deemed amended to provide for such permissible rate.
3.8 INCREASED COSTS. In the event that any applicable law, treaty or
governmental regulation, or any change therein or in the interpretation or
application thereof, or compliance by the Lender with any request or directive
(whether or not having the force of law) from any central bank or other
financial, monetary or other authority, shall:
(a) subject the Lender to any tax of any kind whatsoever with respect to
this Agreement or change the basis of taxation of payments to the Lender of
principal, fees, interest or any other amount payable hereunder or under any
Other Documents (except for changes in the rate of tax on the overall net income
of the Lender by the jurisdiction in which it maintains its principal office);
(b) impose, modify or hold applicable any reserve, special deposit,
assessment or similar requirement against assets held by, or deposits in or for
the account of, advances or loans by, or other credit extended by, any office
of the Lender, including (without limitation) pursuant to Regulation D of the
Board of Governors of the Federal Reserve System; or
(c) impose on the Lender or the London interbank Eurodollar market any
other condition with respect to this Agreement or any Other Documents and the
result of any of the foregoing is to increase the cost to the Lender of making,
renewing or maintaining the loans hereunder by an amount of any payment
(whether of principal, interest or otherwise) in respect of any of the loans by
an amount that the Lender deems to be material, then, in any case the Borrower
shall promptly pay the Lender, upon its demand, such additional amount as will
compensate the Lender for such additional cost or such reduction, as the case
may be. The Lender shall certify the amount of such additional cost or reduced
amount to the Borrower, and such certification shall be conclusive absent
manifest error.
3.9 CAPITAL ADEQUACY.
(a) In the event that the Lender shall have reasonably determined that
any applicable law, rule, regulation or guideline regarding capital adequacy,
or any change therein, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Lender
(for purposes of this
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Section 3.9, the term "Lender" shall include Lender or any corporation or bank
controlling Lender and the office or branch where Lender (as so defined) makes
or maintains any Eurodollar Loans with any request or directive regarding
capital adequacy (whether or not having the force of law)) of any such
authority, central bank or comparable agency, has or would have the effect of
reducing the rate of return on the Lender's capital as a consequence of its
obligations hereunder to a level below that which the Lender could have
achieved but for such adoption, change or compliance (taking into consideration
the Lender's policies with respect to capital adequacy) by an amount reasonably
deemed by the Lender to be material, then, from time to time, the Borrower
shall pay upon demand to the Lender such additional amount or amounts as will
compensate the Lender for such reduction. In determining such amount or
amounts, the Lender may use any reasonable averaging attribution methods. The
protection of this Section 3.9 shall be available to the Lender regardless of
any possible contention of invalidity or inapplicability of the law, regulation
or condition which shall have been imposed.
(b) A certificate of the Lender setting forth such amounts as shall be
necessary to compensate the Lender as specified in Section 3.9 hereof shall be
delivered to the Borrower and shall be conclusive absent manifest error.
3.10 SURVIVAL. The obligations of the Borrower under Sections 3.8 and
3.9, shall survive termination of this Agreement.
IV. COLLATERAL: GENERAL TERMS
4.1 SECURITY INTEREST IN THE COLLATERAL. To secure the prompt payment
and performance to Lender of the Obligations, Borrower hereby assigns, pledges
and grants to Lender a continuing security interest in and to all of the
Collateral, whether now owned or existing or hereafter acquired or arising and
wheresoever located. Borrower shall mark its books and records as may be
necessary or appropriate to evidence, protect and perfect Lender's security
interest and shall cause its financial statements to reflect such security
interest.
4.2 PERFECTION OF SECURITY INTEREST. Borrower shall take all action
that may be necessary or desirable, or that Lender may reasonably request, so
as at all time to maintain the validity, perfection, enforceability and
priority of Lender's security interest in the Collateral or to enable Lender to
protect, exercise or enforce its rights hereunder and in the Collateral,
including, but not limited to, (i) immediately discharging all Liens other than
Permitted Encumbrances, (ii) obtaining landlords' or mortgagees' lien waivers,
(iii) delivering to Lender, endorsed or accompanied by such instruments of
assignment as Lender may specify, and stamping or marking, in such manner as
Lender may specify, any and all chattel paper, instruments, letters of credits
and advices thereof and documents evidencing or forming a part of the
Collateral, (iv) entering into warehousing, lockbox and other custodial
arrangements reasonably satisfactory to Lender, and (v) executing and
delivering financing statements, instruments of pledge, mortgages, notices and
assignments, in each case in form and substance satisfactory to Lender,
relating to the creation, validity, perfection, maintenance or continuation of
Lender's security interest under the Uniform Commercial Code or other
applicable law. All charges, expenses and fees the Lender may incur in doing
any of the foregoing, and any local taxes relating thereto, shall be charged to
the Borrower's account and added to the Obligations, or at the Lender's option,
shall be paid to the Lender immediately upon demand.
4.3 DISPOSITION OF COLLATERAL. The Borrower will safeguard and protect
all Collateral for the Lender's general account and make no disposition thereof
whether by sale, lease or otherwise except the sale of Inventory in the
ordinary course of business and the sale or disposition of obsolete assets
other than Equipment which is Collateral hereunder.
4.4 PRESERVATION OF COLLATERAL. Following the occurrence of an
Incipient Event of Default or Event of Default in addition to the rights and
remedies set forth in Section 11.1 hereof, the Lender: (a) may at any time take
such steps as the Lender deems necessary to protect the Lender's interest in
and to preserve the Collateral, including the hiring of such security guards
for the placing of such security protection measures as the Lender may deem
appropriate; (b) may employ and maintain at any of the
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Borrower's premises a custodian who shall have full authority to do all acts
necessary to protect the Lender's interests in the Collateral; (c) may lease
warehouse facilities to which the Lender may move all or part of the
Collateral; (d) may use any of the Borrower's owned or leased lifts, hoists,
trucks and other facilities or equipment for handling or removing the
Collateral; and (e) shall have, and is hereby granted, a right of ingress and
egress to the places where the Collateral is located, and may proceed over and
through any of the Borrower's owned or leased property. The Borrower shall
cooperate fully with all of the Lender's efforts to preserve the Collateral and
will take such actions to preserve the Collateral as the Lender may direct. All
of the Lender's expenses of preserving the Collateral, including any expenses
relating to the bonding of a custodian, shall be charged to the Borrower's
account and added to the Obligations.
4.5 OWNERSHIP OF COLLATERAL. With respect to the Collateral, at the
time the Collateral becomes subject to the Lender's security interest: (a) the
Borrower shall be the sole owner of and fully authorized and able to sell,
transfer, pledge and/or grant a first security interest in each an every item of
the Collateral to the Lender; and, except for Permitted Encumbrances the
Collateral shall be free and clear of all Liens, Claims, Charges and
encumbrances whatsoever; (b) each document and agreement executed by Borrower or
delivered to Lender in connection with this Agreement shall be true and correct
in all material respects; (c) all signatures and endorsements of Borrower that
appear on such documents and agreements shall be genuine and Borrower shall
have full capacity to execute same; and (d) Borrower's Equipment and Inventory
is located as set forth on Exhibit 4.5 and shall not be removed from such
location(s) without the prior written consent of the Lender except with respect
to the sale of Inventory in the ordinary course of business and the sale or
disposal of obsolete assets other than Equipment which is collateral hereunder.
4.6 DEFENSE OF LENDER'S INTERESTS. Until (a) payment and performance
in full of all of Obligations and (b) termination of this Agreement, the
Lender's interests in the Collateral hereby granted to the Lender shall
continue in full force and effect. During such period the borrower shall not,
without the Lender's prior written consent, pledge, sell (except Inventory in
the ordinary course of business and the sale or disposal of obsolete assets
other than Equipment which is Collateral hereunder), assign, transfer, create
or suffer to exist a security interest in, Lien, Claim or Charge upon or
encumber or allow or suffer to be encumbered in any way except for Permitted
Encumbrances, any part of the Collateral. The Borrower shall defend the
Lender's interests in the Collateral against any and all persons whatsoever. At
any time following an Event of Default, Lender shall have the right to take
possession of the indicia of the Collateral and Collateral in whatever physical
form contained, including without limitation: labels, stationery, documents,
instruments and advertising materials. If Lender exercises this right to take
possession of the collateral, Borrower shall, upon demand, assemble it in the
best manner possible and make it available to Lender at a place reasonably
convenient to Lender. In addition, with respect to all Collateral, Lender shall
be entitled to all of the rights and remedies set forth herein and further
provided by the Uniform Commercial Code or other applicable law. At any time
following an Event of Default, Borrower shall, and Lender may, at its option,
instruct all suppliers, carriers, forwarders, warehouses or others receiving or
holding cash, checks, Inventory, documents or instruments in which Lender holds
a security interest to deliver same to Lender and/or subject to Lender's order
and if they shall come into Borrower's possession, they, and each of them,
shall be held by Borrower in trust as Lender's trustee, and Borrower will
immediately deliver them to Lender in their original form together with any
necessary endorsement.
4.7 BOOKS AND RECORDS. The Borrower shall keep proper books of record
and account in which full, true and correct entries will be make of all
dealings or transactions of or in relation to is business ad affairs pursuant
to and in accordance with, or as required by GAAP and by Regulation SX as
promulgated from time to time by the Securities and Exchange Commission of the
government of the United States of America.
4.8 FINANCIAL DISCLOSURE. The Borrower hereby irrevocably authorizes
and directs ADLT's independent auditors employed by the Borrower at any time
during the term of this Agreement to exhibit and deliver to Lender copies of
any of the Borrower's financial statements, trial balances or other accounting
records of any sort in the accountant's or auditor's possession, and to
disclose to Lender any information such accountants may have concerning the
Borrower's financial status and business operations. The Borrower hereby
authorizes all federal, state and municipal authorities to furnish to Lender
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copies of reports or examinations relating to the Borrower, whether made by the
Borrower or otherwise; however, Lender will attempt to obtain such information
or materials directly from the Borrower prior to obtaining such information or
materials from such accountants.
4.9 COMPLIANCE WITH LAWS. The Borrower shall comply with all acts,
rules, regulations and orders of any legislative, administrative or judicial
body or official applicable to the Collateral or any part thereof or to the
operation of the Borrower's business the non-compliance with which would have
a material adverse effect on the Collateral, or the operations, business or
condition (financial or otherwise) of the Borrower.
4.10 INSPECTION OF PREMISES. At all reasonable times Lender shall
have full access to and the right to audit, check, inspect and make abstracts
and copies from the Borrower's books, records, audits, correspondence and all
other papers relating to the Collateral and the operation of Borrower's
business. Lender and its agents may enter upon any of the Borrower's premises
at any time during regular business hours and at any other reasonable time, and
from time to time, for the purpose of inspecting the Collateral and any and all
records pertaining thereto and the operation of Borrower's business. Lender may
charge Borrower's account for all reasonable costs and expenses incurred by
Lender in connection with such audits and inspections, including without
limitation, Lender's customary per-diem charges for all employees or
contractors involved in such audits or inspections.
4.11 INSURANCE. Borrower shall bear the full risk of loss from any
loss of any nature whatsoever with respect to the Collateral. At the Borrower's
own cost and expense in amounts and with carriers reasonably acceptable to
Lender, the Borrower shall (a) keep all of its insurable properties and
properties in which the Borrower has an interest insured against the hazards of
fire, flood (if necessary,) sprinkler leakage, those hazards covered by extended
coverage insurance and such other hazards, and for such amounts, as is customary
in the case of companies engaged in businesses similar to Borrower's including,
without limitation, business interruption insurance: (b) maintain a bond in
such amounts as is customary in the case of companies engaged in business
similar to Borrower's insuring against larceny, embezzlement or other criminal
misappropriation of insured's officers and employees who may either singly or
jointly with others at any time have access to the assets or funds of Borrower
either directly or through authority to draw upon such funds or to direct
generally the disposition of such assets; (c) maintain public and product
liability insurance against claims for personal injury, death or property damage
suffered by others; (d) maintain all such workmen's compensation or similar
insurance as may be required under the laws of any state or jurisdiction in
which Borrower is engaged in business; (e) furnish Lender with (i) copies of all
policies and evidence of the maintenance of such policies by the renewal thereof
at least thirty (30) days before an expiration date, and (ii) appropriate loss
payable endorsements in form and substance reasonably satisfactory to the
Lender, naming the Lender as loss payee as its interests may appear with respect
to all insurance coverage referred to in clauses (a) and (b) above, and
providing (A) that all proceeds thereunder shall be payable to the Lender, (B)
no such insurance shall be affected by any act or neglect of the insured or
owner of the property described in such policy, and (C) that such policy and
loss payable clauses may not be cancelled, amended or terminated unless at least
thirty (30) days prior written notice is given to the Lender. In the event of
any loss thereunder, the carriers named therein hereby are directed by the
Lender and Borrower to make payment for such loss with respect to the Collateral
to the Lender and not to the Borrower and the Lender jointly. If any insurance
losses are paid by check, draft or other instrument payable to the Borrower and
the Lender jointly, the Lender may endorse the Borrower's name thereon and do
such other things as the Lender may deem advisable to reduce the same to cash.
The lender is hereby authorized to adjust and compromise claims under insurance
coverage referred to in clauses (a), and (b) above. All loss recoveries received
by lender upon any such insurance may be applied to the Obligations, in such
order as Lender in his sole discretion shall determine. Any surplus shall be
paid by the Lender to the Borrower or applied as may be otherwise required by
law. Any deficiency thereon shall be paid by the Borrower to the Lender, on
demand.
4.12 FAILURE TO PAY INSURANCE. If the Borrower fails to
obtain insurance as hereinabove provided, or to keep the same in force, the
Lender, if the Lender so elects, may obtain such insurance and pay the premium
thereof for the Borrower's account, and charge the Borrower's account
therefore and such expenses so paid shall be part of the Obligations.
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<PAGE> 20
4.13 PAYMENT OF TAXES. The Borrower will pay, when due, all taxes,
assessments and other Charges or Claims lawfully levied or assessed upon
Borrower or any of the Collateral including, without limitation, real and
personal property taxes, assessments and charges and all franchise, income,
employment, old age benefits, withholding, and sales taxes, provided, however,
that the Borrower shall not be required to pay and discharge or to cause to be
paid and discharged any such tax, assessment, charge or claim so long as the
validity or amount thereof shall be contested in good faith by appropriate
proceedings and the Borrower shall, to the extent required by GAAP on a
consistent basis, have set aside on its books adequate reserves with respect
thereto. If any tax by any governmental authority is or may be imposed on or as
a result of any transaction between Borrower and Lender which Lender may be
required to withhold or pay or if any taxes, assessments, or other Charges
remain unpaid after the date fixed for their payment, or if any Claim shall
be made which, in the Lender's reasonable opinion, may possibly create a valid
Lien, Charge or Claim on the Collateral, the Lender may without notice to
Borrower pay the taxes, assessments, Liens, Charges or Claims and Borrower
hereby indemnifies and holds Lender harmless in respect thereof. The amount of
any payment by Lender under this Section 4.13 shall be charged to the
Borrower's account as a Working Capital Advance and added to the Obligations
and, until Borrower shall furnish Lender with an indemnity therefore (or supply
Lender with evidence satisfactory to Lender that due provision for the payment
thereof has been made), Lender may hold without interest any balance standing
to Borrower's credit and Lender shall retain its security interest in any and
all Collateral held by Lender.
4.14 PAYMENT OF LEASEHOLD OBLIGATIONS. The Borrower shall at all
times pay, when and as due, its rental obligations under all leases under which
it is a tenant, and shall otherwise comply, in all material respects, with all
other terms of such leases and keep them in full force and effect and, at the
lender's request will provide evidence of having done so.
4.15 RECEIVABLES
(a) Nature of Receivables. Each of the Receivables shall be a bona
fide and valid account representing a bona fide indebtedness incurred by the
Customer therein named, for a fixed sum as set forth in the invoice relating
thereto (provided immaterial or unintentional invoice errors shall not be deemed
to be a breach hereof) with respect to an absolute sale or lease and delivery
of goods upon stated terms of the Borrower, or work, labor or services
theretofore rendered by the Borrower and as of the date each Receivable is
created, same shall be due and owing in accordance with Borrower's standard
terms of sale without dispute, setoff or counterclaim except as may be stated
on the accounts receivable schedules delivered by the Borrower to the Lender.
(b) Solvency of Customers. Each Customer, to the best of the
Borrower's knowledge, as of the date each Receivable is created, is and will be
solvent and able to pay all Receivables on which the Customer is obligated in
full when due. With respect to such Customers of Borrower who are not solvent
the Borrower has set up on its books and in its financial records bad debt
reserves adequate to cover such Receivables.
(c) Location of Borrower. The Borrower's chief executive office is
located at the addresses listed on Schedule A hereto. Until written notice is
given to the Lender by Borrower of any other office at which it keeps its
records pertaining to Receivables, all such records shall be kept at such
executive office.
(d) Collection of Receivables. Until the Borrower's authority to do
so is terminated by the Lender (which notice the Lender may give at any time
following the occurrence of an Event of Default) the Borrower will, at the
Borrower's sole cost and expense, but on the Lender's behalf and for the
Lender's account, collect as the Lender's property and in trust for the Lender
all amounts received on Receivables, and shall not commingle such collections
with the Borrower's funds or use the same except to pay Obligations. The
Borrower shall, upon request, deliver to the Lender in original form and on the
date of receipt thereof, all checks, drafts, notes, money orders, acceptances,
cash and other evidences of Indebtedness.
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<PAGE> 21
(e) Notification of Assignment of Receivables. At any time following
the occurrence of an Event of Default hereunder, the Lender shall have the
right to send notice of the assignment of, and the Lender's security interest
in, the Receivables to any and all Customers or any third party holding or
otherwise concerned with any of the Collateral. Thereafter, the Lender shall
have the sole right to collect the Receivables, take possession of the
Collateral, or both. Lender's actual collection expenses, including but not
limited to stationery and postage, telephone and telegraph, secretarial and
clerical expenses and the salaries of any collection personnel used for
collection, may be charged to the Borrower's account and added to the
Obligations.
(f) Power of Lender to Act on Borrower's Behalf. The lender shall have
the right to receive, endorse, assign and/or deliver in the name of the Lender
or the Borrower any and all checks, drafts and other instruments for the
payment of money relating to the Receivables, and the Borrower hereby waives
notice of presentment, protest and non-payment of any instrument so endorsed.
The Borrower hereby constitutes the Lender or the Lender's designee as the
Borrower's attorney with power (i) to endorse the Borrower's name upon any
notes, acceptances, checks, drafts, money orders or other evidences of payment
or Collateral; (ii) to sign the Borrower's name on any invoice or bill of lading
relating to any of the Receivables; (iii) to send verifications of Receivables,
drafts against Customers, assignments and verifications of Receivables; (iv) to
send verifications of Receivables to any Customer; (v) to sign the Borrower's
name on all financing statements or any other documents or instruments deemed
necessary or appropriate by the Lender to preserve, protect, or perfect the
Lender's interest in the Collateral and to file same; (vi) to demand payment of
the Receivables; (vii) to enforce payment of the Receivables by legal
proceedings or otherwise; (viii) to exercise all of Borrower's rights and
remedies with respect to the collection of the Receivables and any other
Collateral; (ix) to settle, adjust, compromise, extend or renew the
Receivables; (x) to settle, adjust or compromise any legal proceedings brought
to collect Receivables; (xi) to prepare, file and sign Borrower's name on a
proof of claim in bankruptcy or similar document against any account debtor;
(xii) to prepare, file and sign Borrower's name on any notice of Lien,
assignment or satisfaction of Lien or similar document in connection with the
Receivables; and (xiii) to do all other acts and things necessary to carry out
this Agreement. All acts of said attorney or designee are hereby ratified and
approved, and said attorney or designee shall not be liable for any acts of
omission or commission nor for any error of judgment or mistake of fact or of
law, unless done maliciously or with gross negligence; this power being coupled
with an interest is irrevocable while any of the Obligations remain unpaid. The
Lender shall have the right at any time, after the occurrence of an Event of
Default, to change the address for delivery of mail addressed to the Borrower
to such address as the Lender may designate.
(g) No Liability. The Lender shall not, under any circumstances or in
any event whatsoever, have any liability for any error or omission or delay of
any kind occurring in the settlement, collection or payment of any of the
Receivables or any instrument received in payment thereof, or for any damage
resulting therefrom, except those due to its gross negligence or willful
misconduct. Following the occurrence of an Event of Default, the Lender may,
without notice or consent from the Borrower, sue upon or otherwise collect,
extend the time of payment of, compromise or settle for cash, credit or upon
any terms any of the Receivables or any other securities, instruments or
insurance applicable thereto and/or release any obligor thereof. The Lender is
authorized and empowered to accept, following the occurrence of an Event of
Default, the return of the goods represented by any of the Receivables, without
notice to or consent by the Borrower, all without discharging or in any way
affecting the Borrower's liability hereunder.
(h) Establishment of a Lockbox Account, Dominion Account. All proceeds
of Receivables shall, at the direction of Lender, be deposited by the Borrower
into a lockbox account, Dominion account or such other "BLOCKED ACCOUNT"
("BLOCKED ACCOUNTS") as Lender may require pursuant to an arrangement with Bank
One, Akron, N.A., in Akron, Ohio and Bank Illinois, in Urbana, Illinois, or
such other banks reasonably acceptable to Borrower and Lender. The Borrower
shall issue to any such banks, an irrevocable letter of instruction directing
said bank to transfer such funds so deposited to the Lender, either to any
account maintained by the Lender at said banks or by wire transfer to
appropriate account(s) of the Lender. All funds deposited in such "BLOCKED
ACCOUNTS" shall immediately become the property of the Lender and the Borrower
shall obtain the agreement by such banks to waive any offset rights against the
fund so deposited. Lender assumes no responsibility for such "BLOCKED ACCOUNTS"
arrangement, including without limitation, any claim of accord and satisfaction
or release with respect to deposits accepted by any
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<PAGE> 22
bank thereunder. Alternatively, in the event that Lender or Borrower is
unable for any reason, to so maintain such Blocked Accounts or Lender reasonably
believes that such Blocked Accounts are not being used or operated properly, or
upon the occurrence of an Event of Default hereunder Lender may establish
depository accounts ("DEPOSITORY ACCOUNTS") in the name of Lender at a bank or
banks for the deposit for such funds and Borrower shall deposit all proceeds of
Receivables or cause same to be deposited, in kind, in such Depository Accounts
of Lender in lieu of depositing same to the Blocked Accounts.
4.16 INVENTORY. All Inventory has been, and will be produced by
Borrower in accordance with Federal Fair Labor Standards Act 1938, as amended,
and all rules, regulations and orders thereunder.
4.17 MAINTENANCE OF EQUIPMENT. The Equipment shall be maintained in
good operating condition and repair (reasonable wear and tear excepted) and all
necessary replacements of and repairs thereto shall be made so that the value
and operating efficiency of the Equipment shall be maintained and preserved in
all material respects.
4.18 EXCULPATION OF LIABILITY. Nothing herein contained shall be
construed to constitute the Lender as the Borrower's agent for any purpose
whatsoever, nor shall the Lender be responsible or liable for any shortage,
discrepancy, damage, loss or destruction of any part of the Collateral wherever
the same may be located and regardless of the cause thereof, except when caused
by the gross negligence or willful misconduct of Lender. The Lender does not,
whether by anything herein or in any assignment or otherwise, assume any of the
Borrower's obligations under any contract or agreement assigned to the Lender,
and the Lender shall not be responsible in any way for the performance by the
Borrower of any of the terms and conditions thereof.
4.19 ENVIRONMENTAL MATTERS. (a) Borrower will ensure that the Real
Property remains in substantial compliance with all material Environmental Laws
and it will not place or permit to be placed any Hazardous Substances on any
Real Property except as not prohibited by applicable law and appropriate
governmental authorities.
(b) Borrower will establish and maintain a system to monitor continued
compliance with all material applicable Environmental Laws which system shall
include periodic review of such compliance.
(c) Borrower will (i) employ in connection with its use of the Real
Property appropriate technology necessary to maintain compliance with any
applicable material Environmental Laws in Borrower's reasonable opinion, and
(ii) dispose of any and all Hazardous Waste generated at the Real Property only
at facilities and with carriers that maintain valid permits under RCRA and any
other applicable Environmental Laws to the extent Borrower is required to do so
under applicable Environmental Laws. Borrower shall use its reasonable efforts
to obtain certificates of disposal, such as hazardous waste manifest receipts,
from all treatment, transport, storage or disposal facilities or operators
employed by the Borrower in connection with the transport or disposal of any
such Hazardous Waste generated at the Real Property.
(d) In the event the Borrower obtains, gives or receives notice of any
non-permitted Release of a reportable quantity in a 24-hour period of any
Hazardous Substances at the Real Property (any such even being hereinafter
referred to as a "HAZARDOUS DISCHARGE") or receives any notice of violation,
request for information or notification that it is potentially responsible for
investigation or cleanup of environmental conditions at the Real Property,
demand letter or complaint, order, citation, or other written notice with
regard to any Hazardous Discharge or violation of Environmental Laws affecting
the Real Property or Borrower's interest therein (any of the foregoing is
referred to herein as an "ENVIRONMENTAL COMPLAINT") from any state agency
responsible in whole or in part for environmental matters in the state in which
the Real Property is located or the United States Environmental Protection
Agency (any such person or entity hereinafter the "AUTHORITY"), then the
Borrower shall, within five (5) Business Days, give written notice of same to
the Lender detailing non-privileged and non-confidential facts and
circumstances of which the Borrower is aware giving rise to the Hazardous
Discharge or Environmental Complaint. Such information is to be provided to
allow the Lender to protect its security
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<PAGE> 23
interest in the Real Property and is not intended to create nor shall it create
any obligation upon the Lender with respect thereto.
(e) Borrower shall promptly forward to the Lender copies of any
notification of potential liability, demand letter from any Authority relating
to potential responsibility with respect to the investigation or cleanup of
Hazardous Substances at any other site owned, operated or used by Borrower to
dispose of Hazardous Substances and shall continue to forward copies of
correspondence between the Borrower and the Authority regarding such claims to
the Lender until the claim is settled. The Borrower shall promptly forward to
the Lender copies of all documents and reports concerning a Hazardous Discharge
at the Real Property that the Borrower is required to file under any
Environmental Laws, except for routine reports filed with Authorities in the
ordinary course of Borrower's conduct of operations at the Real Property. Such
information is to be provided solely to allow the Lender to protect Lender's
security interest in the Real Property and the Collateral.
(f) Borrower shall respond promptly to any Hazardous Discharge or
Environmental Complaint and take all material action reasonably necessary in
order to safeguard the health of any Person and to avoid subjecting the
Collateral or Real Property to any Lien. If Borrower shall so fail to respond
promptly to any such Hazardous Discharge or Environmental Complaint or Borrower
shall fail to comply with any of the material requirements of any material
Environmental Laws which threaten the health of any Person or subjects the
Collateral or Real Property to any material lien, the Lender may, but without
the obligation to do so, for the sole purpose of protecting the Lender's
interest in Collateral: (A) give such notices or (B) enter into the Real
Property (or authorize third parties to enter into the Real Property) and take
such actions as the Lender (or such third parties as directed by the Lender)
deems reasonably necessary or advisable, to clean up, remove, mitigate or
otherwise deal with any such Hazardous Discharge or Environmental Complaint as
required by applicable Environmental Laws. All reasonable costs and expenses
incurred by the Lender (or such third parties) in the exercise of any such
rights, including any sums paid in connection with any judicial or
administrative investigation or proceedings, fines and penalties, together with
interest thereon from the date expended at the Default Rate for Working Capital
Advances shall be paid upon demand by the Borrower, and until paid shall be
added to and become a part of the Obligations secured by the Liens created by
the terms of this Agreement or any other agreement between Lender and Borrower.
(g) In the event the Lender has reasonable grounds to believe that
there has been a Hazardous Discharge at the Real Property, then promptly upon
the written request of the Lender, Borrower shall provide Lender, at the
Borrower's expense, with an Environmental site assessment or environmental
audit report prepared by an environmental engineering firm acceptable in the
reasonable opinion of the Lender, to assess with a reasonable degree of
certainty the existence of a Hazardous Discharge and the potential costs in
connection with abatement, cleanup and removal of any Hazardous Substances
found on, under, at or within the Real Property. Any report or investigation of
such Hazardous Discharge proposed and acceptable to an appropriate Authority
that is charged to oversee the clean-up of such Hazardous Discharge shall be
acceptable to the Lender. If such estimates, individually or in the aggregate,
exceed $250,000, the Lender shall have the right to require the Borrower to
post a bond, letter of credit or other security reasonably satisfactory to the
Lender to secure payment of these costs and expenses.
(h) Borrower shall defend and indemnify the Lender and hold the Lender
harmless from and against all loss, liability, damage and expense, claims,
costs, fines and penalties, including reasonable attorney's fees, suffered or
incurred by the Lender under or on account of any Environmental Laws, including
without limitation, the assertion of any lien thereunder, with respect to any
Hazardous Discharge, the presence of any Hazardous Substances affecting the
Real Property, whether or not the same originates or engages from the Real
Property or any contiguous real estate, except to the extent such loss,
liability, damage and expenses is attributable to any Hazardous Discharge
resulting from actions on the part of the Lender. The Borrower's obligations
under this Section 4.19 shall arise upon the discovery of the presence of any
Hazardous Substances at the Real Property, whether or not any federal, state,
or local environmental agency has taken or threatened any action in connection
with the presence of any Hazardous Substances. The Borrower's obligation and
the indemnifications hereunder shall survive the termination of this agreement.
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<PAGE> 24
(i) For purposes of this section 4.19, all references to Real Property
shall be deemed to include all of Borrower's right, title and interest in and
to leased premises.
V. REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants as follows:
5.1 AUTHORITY. The Borrower has full power, authority and legal
right to enter into this Agreement and the Other Documents and perform all
obligations hereunder. The execution, delivery and performance
hereof and of the Other Documents are within the Borrower's corporate powers,
have been duly authorized, are not in contravention of law or the terms of the
Borrower's by-laws, certificate of incorporation or other applicable documents
relating to the Borrower's formation or to the conduct of the Borrower's
business or of any material agreement or undertaking to which the Borrower is
a party or by which the Borrower is bound, and will not conflict with nor
result in any breach in any of the provisions of or constitute a default under
or result in the creation of any Lien except Permitted Encumbrances upon any
asset of the Borrower under the provisions of any agreement, charge,
instrument, by-law of other instrument to which the Borrower is a party or by
which it may be bound.
5.2 FORMATION AND QUALIFICATION. Each Borrower is duly incorporated
and in good standing under the laws of the State listed on Schedule A hereto as
its state of incorporation and each is qualified to do business and is in good
standing in the states listed on Exhibit 5.2 which constitute all states in
which qualification and good standing are necessary for the Borrower to conduct
its business and own its property and where the failure to so qualify would have
a material adverse effect on Borrower or its business. Borrower has delivered to
Lender true and complete copies of its certificate of incorporation and by-laws
and will promptly notify Lender of any amendment or changes thereto.
5.3 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of Borrower contained in this Agreement and the Other Documents
shall be true at the time of Borrower's execution of this Agreement and the
Other Documents, and shall survive the execution, delivery and acceptance
thereof by Lender and the parties thereto and the closing of the transactions
described therein or related thereto.
5.4 TAX RETURNS. Borrower's federal tax identification number is set
forth in Exhibit 5.4. Borrower has filed all federal, state and local tax
returns and other material reports it is required by law to file and has paid
all taxes, assessments, fees and other governmental charges that are due and
payable. The consolidated provisions for taxes on the books of ADLT are
adequate for all years not closed by applicable statutes, and for its current
fiscal year, and Borrower has no knowledge of any deficiency or additional
assessment in connection therewith not provided for on ADLT's consolidated
financial statements.
5.5 FINANCIAL STATEMENTS. The combined balance sheet of the Borrower,
its Subsidiaries and such other Persons described therein (including the
accounts of all Subsidiaries for the respective periods during which a
subsidiary relationship existed) as of June 30, 1995, and the related statements
of income, changes in shareholder's equity, and cash flow for the period ended
on such date, accompanied by a report thereon containing an opinion without
qualification by independent certified public accountants, copies of which have
been delivered to Lender, have been prepared in accordance with GAAP,
consistently applied and present fairly the financial position of ADLT and its
Subsidiaries at such date and the results of their operations for such period.
Since June 30, 1995 there has been no material change in the consolidated
condition, financial or otherwise, of ADLT and its Subsidiaries as shown on the
consolidated balance sheet as of such date and no material change in the
aggregate value of machinery, equipment and Real Property owned by the Borrower
and its Subsidiaries, except as disclosed in ADLT's consolidated financial
statements included in ADLT's Form 10-Q report for the Quarter ended December
31, 1995.
5.6 CORPORATE NAME. The Borrower has not been known by any other
corporate name in the past five years and does not sell Inventory under any
other name except as set forth on Exhibit 5.6, nor has Borrower been the
surviving corporation of a merger or consolidation or acquired all or
substantially all
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of the assets of any person during the preceding five (5) years except as
Borrower has previously disclosed to Lender.
5.7 O.S.H.A AND ENVIRONMENT COMPLIANCE.
(a) Borrower has duly complied with, and, its facilities, business
assets, property, leaseholds and equipment are in substantial compliance in all
material respects with, the provisions, of the Federal Occupational Safety and
Health Act, the Environmental Protection Act, RCRA and all other Environmental
Laws where failure to so comply would have a material adverse effect on the
business, financial condition or affairs of Borrower in each case. There are no
outstanding citations, notices or orders of non-compliance issued to Borrower or
relating to its business, assets, property, leaseholds or equipment under any
such laws, rules or regulations.
(b) Borrower has been issued all required federal, state and local
licenses, certificates or permits relating to and material to Borrower and its
facilities, businesses, assets, property, leaseholds and equipment are in
compliance in all material respects with, all applicable Environmental Laws
where failure to so comply would have a material adverse effect on the
business, financial condition or affairs of Borrower, in each case.
(c)(i) There are no visible signs of releases, spills, discharges, leaks
or disposal (collectively referred to as "RELEASES") of Hazardous Substances
at, upon, under or within any Real Property or any premises leased by Borrower;
(ii) there are no underground storage tanks or polychlorinated biphenyls on the
Real Property or any premises leased by Borrower; (iii) neither the Real
Property nor any premises leased by Borrower has ever been used as a
treatment, storage or disposal facility of Hazardous Waste; (iv) no Hazardous
Substances are present on the Real Property or any premises leased by Borrower,
excepting such substances as are handled in accordance with all applicable
manufacturer's instructions and governmental regulations and in proper storage
containers and as are necessary for the operation of the commercial business
of the Borrower or of its tenants.
(d) Borrower hereby indemnifies and holds Lender harmless from and
against any liability, loss, damage, suit, action or proceeding pertaining to
Hazardous Wastes or Toxic Substances, including, but not limited to, claims of
any federal, state or municipal government or quasi-governmental agency or any
third person, whether arising under CERCLA, RCRA, or any other federal, state
or municipal law or regulation, or tort, contract or common law.
5.8 SOLVENCY; NO LITIGATION, VIOLATION, INDEBTEDNESS OR DEFAULT.
(a) Borrower is solvent after giving effect to the Indebtedness and:
(i) the assets of Borrower, at a fair valuation, exceed the
total liabilities (including contingent, subordinated, unmatured and
unliquidated liabilities of the Borrower);
(ii) current projections which are based on underlying
assumptions which provide a reasonable basis for the projections and which
reflect Borrower's judgment based on present circumstances, the most likely set
of conditions and Borrower's most likely course of action for the period
projected, demonstrate that Borrower will have sufficient cash flow to enable it
to pay its debts as they mature; and
(iii) Borrower does not have an unreasonably small capital base
with which to engage in its anticipated business.
For purposes of this subsection (a), the "FAIR VALUATION" of the assets of
Borrower shall be determined on the basis of the amount which may be realized
within a reasonable time, whether through collection or sale of such assets at
market value, conceiving the latter as the amount which could be obtained for
the property in question within such period by a capable and diligent
businessman from an interested buyer who is willing to purchase under ordinary
selling conditions.
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<PAGE> 26
(b) Except as disclosed in Exhibit 5.8(b), the Borrower has (i) no
pending or threatened litigations, actions or proceedings which involve the
possibility of materially and adversely affecting its business, assets,
operations, condition or prospects, financial or otherwise, or the Collateral,
or the ability of Borrower to perform this Agreement, and (ii) no liabilities
nor indebtedness other than the Obligations.
(c) The Borrower is not aware of any violation of any applicable
statute, regulation or ordinance in any respect materially and adversely
affecting the Collateral or its business, assets, operations or condition or
prospects, financial or otherwise, nor is Borrower in violation of any order of
any court, governmental authority or arbitration board or tribunal.
(d) The Borrower has received no notice that it is not in full
compliance with any of the requirements of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), and its regulations and, (i) it has
not engaged in any Prohibited Transactions as defined in Section 406 of ERISA
and Section 4975 of the Internal Revenue Code as amended, (ii) it has met all
applicable minimum funding requirements under Section 302 of ERISA in respect
of their plans and no funding requirements have been postponed or delayed,
(iii) it has no knowledge of any event or occurrence which would cause the
Pension Benefit Guaranty Corporation to institute proceedings under Title IV of
ERISA to terminate any of the employee benefit plans, (iv) there exists no
event described in Section 4043 of ERISA, excluding subsections 4043(b)(2) and
4043(b)(3) thereof, for which the thirty (30) day notice period contained in 12
CFR Section 2615.3 has not been waived, (v) it does not have any fiduciary
responsibility for investments with respect to any plan existing for the
benefit of persons other than its employees or former employees, and (vi) it
has not withdrawn, completely or partially, from any multi-employer pension
plans so as to incur liability under the Multi-Employer Pension Plan Amendments
of 1980.
5.9 PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES. All patents, patent
applications, trademarks, trademark applications, copyrights, copyright
applications, tradenames, and licenses owned or utilized and material to the
business of the Borrower are set forth on Exhibit 5.9, are valid and certain of
them have been duly registered or filed with an appropriate governmental
authority as shown on said Exhibit 5.9; there is no objection or pending
challenge to the validity of any such material patent, trademark, copyright,
tradename, or license and Borrower is not aware of any grounds for any
challenge, except as set forth in Exhibit 5.9 hereto.
5.10 LICENSES AND PERMITS. Except as set forth in Exhibit 5.10,
Borrower (a) is in material compliance with and (b) has procured and is now in
possession of, all material licenses or permits required by any applicable
federal, state or local law or regulation for the operation of its business in
each jurisdiction wherein it is now conducting or proposes to conduct business
and where the failure to procure such licenses or permits would have a material
adverse effect on the business, properties, condition (financial or otherwise)
or operations, present or prospective of the Borrower.
5.11 DEFAULT OF INDEBTEDNESS. Borrower is not in default in the
payment of the principal of or interest on any indebtedness or under any
instrument or agreement under or subject to which any indebtedness has been
issued, the result of which would have a material adverse effect on the
Borrower, and no event has occurred under the provisions of any such instrument
or agreement which with or without the lapse of time or the giving of notice,
or both, constitutes or would constitute an event of default thereunder.
5.12 NO DEFAULT. Borrower is not in default in the payment or
performance of any of its material contractual obligations and no incipient
Event of Default has occurred.
5.13 NO BURDENSOME RESTRICTIONS. Borrower is not party to any contract
or agreement the performance of which would materially adversely affect the
business, assets, operations, condition or prospects (financial or otherwise)
of the Borrower. Borrower has not agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its Property,
whether now owned or hereafter acquired, to be subject to a Lien which is not a
Permitted Encumbrance.
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<PAGE> 27
5.14 NO LABOR DISPUTES. Borrower is not involved in any labor dispute;
there are no strikes or walkouts or union organization of any of Borrower's
employees threatened or in existence and no labor contract is scheduled to
expire during the Term other than as set forth on Exhibit 5.14 hereto.
5.15 MARGIN REGULATIONS. The Borrower is not engaged, nor will it
engage, principally or as one of its important activities, in the business of
extending credit for the purpose of "PURCHASING" or "CARRYING" any "MARGIN
STOCK" within the respective meanings of each of the quoted terms under
Regulation U or Regulation G of the Board of Governors of the Federal Reserve
System as now and from time to time hereafter in effect. No part of the
proceeds of any Advance will be used for "PURCHASING" or "CARRYING" "MARGIN
STOCK" as defined in Regulation U of such Board of Governors.
5.16 INVESTMENT COMPANY ACT. The Borrower is not an "INVESTMENT
COMPANY" registered or required to be registered under the Investment Company
Act of 1940, as amended, nor is it controlled by such a company.
5.17 DISCLOSURE. No representation or warranty made by the Borrower in
this Agreement or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of a
material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading. There is no fact known to the
Borrower or which reasonably should be known to the Borrower which the Borrower
has not disclosed to Lender in writing with respect to the transactions
contemplated by this Agreement which materially and adversely affects the
condition (financial or otherwise), results of operations, business, or assets
of the Borrower.
VI. AFFIRMATIVE COVENANTS
The Borrower covenants and agrees that it shall, until payment in full
of the Obligations and termination of this Agreement:
6.1 PAYMENT OF FEES. Pay to Lender on demand all usual and customary
fees and expenses which Lender reasonably incurs in connection with (a) the
forwarding of Advance proceeds and (b) the establishment and maintenance of any
Blocked Accounts or Depository Accounts as provided for in Section 4.15(h).
Lender may, without making demand, charge the account of Borrower for all such
fees and expenses.
6.2 CONDUCT OF BUSINESS AND MAINTENANCE OF EXISTENCE AND ASSETS. (a)
Conduct continuously and operate actively its business according to good
business practices and maintain all of its properties useful or necessary in
its business in good working order and condition (reasonable wear and tear
excepted and except as may be disposed of in accordance with the terms of this
Agreement), including, without limitation, all licenses, patents, copyrights,
tradenames, trade secrets and trademarks material to its business; (b) keep in
full force and effect its existence and comply in all material respects with
the laws and regulations governing the conduct of its business; and (c) make
all such reports and pay all such franchise and other taxes and license fees
and do all such other acts and things as may be lawfully required to maintain
its rights, licenses, leases, powers and franchises under the laws of the
United States or any political subdivision thereof, the failure of which would
materially and adversely effect its business or the Collateral.
6.3 VIOLATIONS. Promptly notify the Lender in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or of
any agency thereof, applicable to the Borrower which may materially adversely
affect the Collateral or the Borrower's business, assets, operations, condition
or prospectus (financial or otherwise).
6.4 GOVERNMENT RECEIVABLES. Take all steps necessary to protect
Lender's interest in the Collateral under the Federal Assignment of Claims Act
or other applicable state or local statutes or ordinances and deliver to the
Lender appropriately endorsed, any instrument or chattel paper connected with
any Eligible Receivable arising out of contracts between Borrower and the United
States, any state or any department, agency or instrumentality of any of them.
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<PAGE> 28
6.5 TANGIBLE NET WORTH. Cause to be maintained at the end of each
fiscal quarter of ADLT, (a) a consolidated Tangible Net Worth in the following
amounts on the following dates and (b) a consolidated Tangible Net Worth with
respect to Borrower and only its Subsidiaries located in the United States and
Canada in the following amounts on the following dates:
<TABLE>
<S> <C>
As of the Closing Date $20,000,000
As of June 30, 1996 21,500,000
As of September 30, 1996 21,500,000
As of December 31, 1996 21,500,000
As of March 31, 1997 21,500,000
As of June 30, 1997 26,500,000
As of September 30, 1997 26,500,000
As of December 31, 1997 26,500,000
As of March 31, 1998 26,500,000
As of June 30, 1998 30,500,000
As of September 30, 1998 30,500,000
As of December 31, 1998 30,500,000
As of March 31, 1999 30,500,000
As of June 30, 1999 and thereafter 33,500,000
</TABLE>
6.6 CURRENT RATIO. Cause to be maintained as of the end of each fiscal
quarter of ADLT a ratio of Current Assets to Current Liabilities of not less
than 1.2 to 1.0.
6.7 CASH FLOW COVERAGE RATIO. Cause to be maintained as of the end of
each fiscal quarter of ADLT beginning with the fiscal quarter ending June,
1996, a Cash Flow Coverage Ratio equal to or greater than 2.0 to 1.0.
6.8 WORKING CAPITAL. Cause to be maintained as of the end of each
fiscal quarter. Working Capital in an amount not less than the following
amounts for the following periods:
As of the March 31, 1996 $8,000,000
As of June 30, 1996 and thereafter 5,000,000
6.9 LEVERAGE RATIO. Cause to be maintained, as of the end of each
fiscal quarter of ADLT a ratio of total liabilities to Tangible Net Worth of
not greater than 1.5 to 1.0.
6.10 PLEDGE OF CREDIT. Not now or hereafter pledge the Lender's credit
on any purchases or for any purpose whatsoever or use any portion of any
Advance in or for any business other than the Borrower's business as conducted
on the date of this Agreement or as set forth in the Prospectus filed by ADLT
with the Securities and Exchange Commission, which became effective December
11, 1995.
6.11 EXECUTION OF SUPPLEMENTAL INSTRUMENTS. Execute and deliver to the
Lender from time to time, upon demand, such supplemental agreements,
statements, assignments and transfers, or instructions or documents relating to
the Collateral, and such other instruments as the Lender may reasonably
request, in order that the full intent of this Agreement may be carried into
effect.
6.12 PAYMENT OF INDEBTEDNESS. Pay, discharge or otherwise satisfy at or
before maturity (subject, where applicable, to specified grace periods and, in
the case of the trade payables, to normal payment practices) all its material
obligations and liabilities of whatsoever nature, except when the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and Borrower shall have provided for such reserves as Lender may
reasonably deem proper and necessary, subject at all times to any applicable
subordination arrangement in favor of Lender.
6.13 STANDARDS OF FINANCIAL STATEMENTS. Cause all financial statements
referred to in Section 9.7, 9.8 and 9.9 to be complete and correct in all
material respects (subject, in the case of interim statements, to normal
year-end audit adjustments) and to be prepared in reasonable detail and in
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<PAGE> 29
accordance with GAAP applied consistently throughout the periods reflected
therein (except as concurred in by such reporting accountants or officer, as the
case may be, and disclosed therein).
VII. NEGATIVE COVENANTS.
The Borrower covenants and agrees that it shall not without
the prior written consent of Lender, until satisfaction in full of the
Obligations and termination of this Agreement:
7.1 MERGER, CONSOLIDATION, ACQUISITION AND SALE OF ASSETS.
(a) Without our prior written consent enter into any merger,
consolidation or other reorganization with or into any other Person or acquire
all or a substantial portion of the assets or stock of any Person or permit any
other Person to consolidate with or merge with it.
(b) Sell, lease, transfer or otherwise dispose of any of its
properties or assets, except (i) inventory in the ordinary course of its
business, and (ii) property or assets which do not exceed in the aggregate
$50,000.00 per fiscal year or an aggregate of $200,000.00 during the Term of
this Agreement.
7.2 CREATION OF LIENS. Create or suffer to exist any Lien,
Charge, Claim or transfer upon or against any of its property or assets now
owned or hereafter acquired, except Permitted Encumbrances.
7.3 GUARANTEES. Become liable upon the obligations of any
person, firm or corporation by assumption, endorsement or guaranty thereof or
otherwise (other than to Lender) except the endorsement of checks in the
ordinary course of business.
7.4 INVESTMENTS. Purchase or acquire obligations or stock of,
or any other interest in, any Person, except for the following "Permitted
Investments": (a) obligations issued or guaranteed by the United States of
America or any agency thereof, (b) commercial paper with maturities of not more
than 180 days and a published rating of not less than A-1 or P-1 (or the
equivalent rating), (c) certificates of time deposit and bankers' acceptances
having maturities of not more than 180 days and repurchase agreements backed by
United States government securities of a commercial bank if (i) such bank has a
combined capital and surplus of at least $500,000,000, or (ii) its debt
obligations, or those of a holding company of which it is a Subsidiary, are
rated not less than A (or the equivalent rating) by a nationally recognized
investment rating agency, (d) U.S. money market funds that invest solely in
obligations issued or guaranteed by the United States of America or an agency
thereof, and (e) joint ventures, partnerships or similar arrangements
(collectively hereinafter referred to as "joint ventures") (i) in which
investments by ADLT are made solely by the exchange of any of its common or
preferred stock for an interest in such joint venture, or (ii) in which Borrower
has made an equity investment in cash in amount not to exceed $500,000 in each
instance or $l,500,000 in the aggregate on an annual basis; provided, however,
that the cash equity investment in a joint venture by a Borrower outside the
United States or Canada may exceed Five Hundred Thousand Dollars ($500,000)
provided that the amount by which such cash investment exceeds $500,000 (A) does
not exceed one hundred percent (100%) of the aggregate net after tax profits
derived from the sale of the Equipment or Inventory of a Borrower that is
constructed, delivered, installed and accepted by the joint venture and (B) the
net proceeds from such sale have not been repatriated in the jurisdiction of the
United States; and (f) as otherwise permitted in Section 7.12 hereof. The Lender
hereby acknowledges that the acquisition by ADLT of the equity and senior
secured debt of Spectro Electric, Inc. preceded the execution and delivery of
this Agreement.
7.5 LOANS. Make advances, loans or extensions of credit to any
Person, including without limitation, any Parent, Subsidiary or Affiliate,
except with respect to (a) advances made by ADLT as agent under this Agreement
or intercompany loans and transfers between Subsidiaries that are Borrowers, and
(b) the extension of commercial trade credit in connection with the sale of
inventory in the ordinary course of its business.
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<PAGE> 30
7.6 CAPITAL EXPENDITURES. Contract for, purchase or make any
expenditure or commitments for fixed or capital assets (including capitalized
leases) in any fiscal year in an amount in excess of:
(a) $4,500,000.00 as of the Borrower's fiscal year ending June
30, 1996;
(b) $12,000,000.00 during the Borrower's fiscal year ending
June 30, 1997;
(c) $10,000,000.00 as of the Borrower's fiscal year ending
June 30, 1998 and each fiscal year thereafter,
provided any such expenditure or commitment does not result in the occurrence of
an Event of Default or an Incipient Event of Default hereunder.
7.7 PERMITTED INVESTMENTS AND CAPITAL EXPENDITURES. Allow the
sum of capital expenditures permitted in Section 7.6 plus Permitted Investments
to exceed:
(a) $5,500,000.00 as of the Borrower's fiscal year ending June
30, 1996;
(b) $13,000,000.00 during the Borrower's fiscal year ending
June 30, 1997;
(c) $11,000,000.00 as of the Borrower's fiscal year ending
June 30, 1998 and each fiscal year thereafter;
7.8 DIVIDENDS. Declare, pay or make any dividend or
distribution on any shares of the common stock or preferred stock of Borrower or
apply any of its funds, property or assets to the purchase, redemption or other
retirement of any common or preferred stock, or of any options to purchase or
acquire any such shares of common or preferred stock of Borrower without the
prior written consent of Lender, which consent shall not be unreasonably
withheld.
7.9 INDEBTEDNESS. Create, incur, assume or suffer to exist
any indebtedness of Borrower except in respect of (i) Indebtedness to Lender and
(ii) Indebtedness incurred for asset purchases permitted under Section 7.6
hereof.
7.10 NATURE OF BUSINESS. Substantially change the nature of
the business in which it is presently engaged, and as specifically set forth in
the Prospectus filed by ADLT with the Securities and Exchange Commission, which
became effective on December 11, 1995, nor except as specifically permitted in
this Agreement, purchase or invest, directly or indirectly, in any assets or
property other than in the ordinary course of business for assets or property
which are useful in, necessary for and are to be used in its business as
presently conducted.
7.11 TRANSACTIONS WITH AFFILIATES. Directly or indirectly,
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, or otherwise deal with, any Affiliate not identified in this
Agreement, except disclosed transactions in the ordinary course of business, on
an arm's-length basis on terms no less favorable than terms which would have
been obtainable from a Person other than an Affiliate;
7.12 SUBSIDIARIES.
(a) Form any Subsidiary unless in compliance with Section 2.12
hereof; provided however, that irrespective of the requirements of Section 2.12
hereof, (i) ADLT may form any Subsidiary in which the investment by ADLT is made
solely by the exchange of any of its common or preferred stock without the prior
consent of Lender and (ii) any Borrower may form or acquire a Subsidiary
provided that its cash investment therein is less than $500,000 without the
consent of Lender.
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<PAGE> 31
(b) Except as permitted in Section 7.4, enter into any
partnership, joint venture or similar arrangement.
7.13 FISCAL YEAR AND ACCOUNTING CHANGES. Change its fiscal
year end from June 30 or make any change (i) in accounting treatment and
reporting practices except as required by GAAP or (ii) in tax reporting
treatment except as required by law.
7.14 PREPAYMENT OF INDEBTEDNESS. At any time, directly or
indirectly, prepay any Indebtedness (other than to Lender) or repurchase,
redeem, retire or otherwise acquire any Indebtedness of Borrower.
VIII. CONDITIONS PRECEDENT.
8.1 CONDITIONS TO INITIAL ADVANCES. The agreement of Lender to
make the initial Advances requested to be made on the Closing Date is subject to
the satisfaction, or waiver by Lender, immediately prior to or concurrently with
the making of such Advances, of the following conditions precedent:
(a) Revolving Credit Note. The Lender shall have received the
Revolving Credit Note duly executed and delivered by an authorized officer of
the Borrower;
(b) Filings, Registrations and Recordings. Each document
(including, without limitation, any Uniform Commercial Code financing statement)
required by this Agreement, any related agreement or under law or reasonably
requested by the Lender to be filed, registered or recorded in order to create,
in favor of the Lender, a perfected security interest in or lien upon the
Collateral shall have been properly filed, registered or recorded in each
jurisdiction in which the filing, registration or recordation thereof is so
required or requested, and the Lender shall have received an acknowledgment
copy, or other evidence reasonably satisfactory to it of each such filing,
registration or recordation and satisfactory evidence of the payment of any
necessary fee, tax or expense relating thereto;
(c) Corporate Proceedings of the Borrower. The Lender shall
have receives a copy of the resolutions in form and substance reasonably
satisfactory to Lender, of the Board of Directors of the Borrower authorizing
(i) the execution, delivery and performance of this Agreement, the Revolving
Credit Note and each of the agreements or documents executed and delivered in
connection therewith (collectively the "DOCUMENTS") and (ii) the granting by
Borrower of the security interests in and liens upon the Collateral in each case
certified by the Secretary or an Assistant Secretary of the Borrower as of the
Closing Date; and, such certificate shall state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded as of the date
of such certificate;
(d) Incumbency Certificates of the Borrower. The Lender shall
have received a certificate of the Secretary or any Assistant Secretary of the
Borrower, dated the Closing Date, as to the incumbency and signature of the
officers of the Borrower executing this Agreement, any certificate or other
documents to be delivered by it pursuant hereto, together with evidence of the
incumbency of such Secretary or Assistant Secretary;
(e) Legal Opinion. The Lender shall have received the executed
legal opinion of Borrower's counsel in form and substance reasonably
satisfactory to the Lender which shall cover such matters incident to the
transactions contemplated by this Agreement, the Revolving Credit Note and
Documents as the Lender may reasonably require;
(f) No Litigation. (i) No litigation, investigation or
proceeding before or by any arbitrator or governmental authority shall be
continuing or threatened against the Borrower or against the officers or
directors of the Borrower (A) in connection with the Documents or any of the
transactions contemplated thereby and which, in the reasonable opinion of the
Lender, is deemed material or (B) which if adversely determined, would, in the
reasonable opinion of the Lender, have a material adverse effect on the
business, assets, operations or condition (financial or otherwise) of the
Borrower; and (iii) no injunction, writ,
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<PAGE> 32
restraining order or other order of any nature materially adverse to the
Borrower or the conduct of its business shall have been issued by any
governmental authority;
(g) Collateral Examination. The Lender shall have completed
Collateral examinations and received appraisals, the results of which shall be
reasonably satisfactory in form and substance to the Lender, of the Receivables,
Inventory, General Intangibles of the Borrower and all books and records in
connection therewith;
(h) Fees. The Lender shall have received all fees payable to
the Lender on or prior to the Closing Date pursuant to Article III hereof;
(i) Availability. After giving effect to the initial Advance
hereunder (and not to any subsequent Advances), the then outstanding Advances
shall not exceed an amount equal to the Formula Amount minus $1,800,000.00.
(j) Other. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement shall be reasonably satisfactory in
form and substance to the Lender and its counsel.
8.2 CONDITIONS TO EACH ADVANCE. The agreement of Lender to
make any Advance requested to be made on any date (including, without
limitation, its initial Advance), is subject to the satisfaction of the
following conditions precedent as of the date such Advance is made:
(a) Representations and Warranties. Each of the
representations and warranties made by the Borrower in or pursuant to this
Agreement, and any related agreements to which it is a party, and each of the
representations and warranties contained in any certificate, document or
financial or other statement furnished at any time under or in connection with
this Agreement or any related agreement shall be true and correct in all
material respects on and as of such date as if made on and as of such date;
(b) No Default. No event of Default or Incipient Event of
Default shall have occurred and be continuing on such date, or would exist after
giving effect to the Advances requested to be made, on such date; provided,
however that Lender in its sole discretion, may continue to make Advances
notwithstanding the existence of an event of Default or Incipient Event of
Default; and
(c) Maximum Advances. In the case of any Advances requested to
be made, after giving effect thereto, the aggregate Advances shall not exceed
the maximum Advances permitted under Section 2.1 hereof.
8.3. CONDITIONS TO EACH CAPEX ADVANCE. The agreement of Lender
to make any Capex Advance is subject to satisfaction of the following conditions
precedent: (a) receipt by Lender of (i) a copy of the invoices relating to the
Equipment being purchased or with respect to self-constructed assets, workpaper
documentation supporting the amount to be capitalized, such invoices and/or
workpaper documentation to be in an amount which would permit a Capex Advance
equal to at least $250,000 for each Capex Advance requested, (ii) evidence that
such Equipment has been shipped and is accepted by Borrower and is in good
operational condition and (iii) such other documentation and evidence that
Lender may request; and (b) after giving effect thereto, the aggregate Capex
Advances shall not exceed $5,000,000.00.
Each request for an Advance by the Borrower hereunder shall
constitute a representation and warranty by the Borrower as of the date of such
Advance that the conditions contained in this subsection 8.3 shall have been
satisfied.
IX. INFORMATION AS TO BORROWER.
The Borrower covenants and agrees that it shall, until
satisfaction in full of the Obligations and the termination of this Agreement:
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9.1 DISCLOSURE OF MATERIAL MATTERS. Immediately upon learning
thereof, report to the Lender all matters materially affecting the value,
enforceability or collectability of any portion of the Collateral including,
without limitation, the Borrower's reclamation of repossession of, or the return
to the Borrower of a material amount of goods or claims or disputes asserted by
any Customer or other obligor. The Borrower will not, without the Lender's
consent, compromise or adjust any Receivables (or extend the time for payment
thereof) or accept any returns of merchandise or grant any additional discounts,
allowances or credits thereon except for those compromises, adjustments,
returns, discounts, credits and allowances as have been heretofore customary in
the business of the Borrower.
9.2 SCHEDULES. Deliver to the Lender on or before the
fifteenth (15th) day of each month as and for the prior month (a) accounts
receivable aging, (b) accounts payable schedules and (c) Inventory reports. In
addition, Borrower will deliver to Lender at such intervals as the Lender may
reasonably require: (i) confirmatory assignment schedules, (ii) copies of
Customer's invoices, (iii) evidence of shipment or delivery, and (iv) such
further schedules, documents and/or information regarding the Collateral as the
Lender may reasonably require including, without limitation, trial balances and
test verifications. The Lender shall have the right to confirm and verify all
Receivables by any manner and through any medium it considers advisable and do
whatever it may deem reasonably necessary to protect its interests hereunder.
The items to be provided under this Section are to be in form reasonably
satisfactory to the Lender and executed by the Borrower and delivered to the
Lender from time to time solely for the Lender's convenience in maintaining
records of the Collateral, and the Borrower's failure to deliver any of such
items to the Lender shall not affect, terminate, modify or otherwise limit the
Lender's lien on or security interest in the Collateral.
9.3 ENVIRONMENTAL REPORTS. Furnish Lender, concurrently with
the delivery of the financial statements referred to in Sections 9.7 and 9.8,
accompanied by a certificate of Borrower signed by the President of Borrower
stating, to the best of his knowledge, that Borrower is in compliance in all
material respects with all federal, state and local laws relating to
environmental protection and control and occupational safety and health. To the
extent Borrower is not in material compliance with the foregoing laws, the
certificate shall set forth with specificity all areas of non-compliance and the
proposed action Borrower will implement in order to achieve full compliance.
9.4 LITIGATION. Promptly notify the Lender in writing of any
litigation affecting the Borrower, whether or not the claim is covered by
insurance, and of any suit or administrative proceeding, which may materially or
adversely affect the Collateral or the Borrower's business, assets, operations,
condition or prospects (financial or otherwise).
9.5 OCCURRENCE OF DEFAULTS, ETC. Promptly notify the Lender in
writing upon the occurrence of (a) any Event of Default or Incipient Event of
Default; (b) any event, development or circumstance whereby the consolidated
financial statements most recently furnished to the Lender fail in any material
respect to present fairly, in accordance with GAAP consistently applied, the
financial condition and operating results of the Borrower as of the date of such
consolidated financial statements; (c) any accumulated retirement plan funding
deficiency which, if such deficiency continued for two plan years and was not
corrected as provided in Section 4971 of the Internal Revenue Code; (d) each and
every default by Borrower which might result in the acceleration of the maturity
of any Indebtedness with respect to which there is a default existing or with
respect to which the maturity has been or could be accelerated, and the amount
of such Indebtedness, the result of which would have a material adverse effect
on the Borrower; and (e) any other development in the business or affairs of
Borrower which would reasonably be expected to be materially adverse; in each
case describing the nature thereof and in the case of notification under clause
(a), (b) or (c) the action Borrower proposes to take with respect thereto.
9.6 GOVERNMENT RECEIVABLES. Notify the Lender immediately if
any of its Receivables arise out of contracts between the Borrower and the
United States, any state, or any department, agency or instrumentally of any of
them.
9.7 ANNUAL FINANCIAL STATEMENTS. Furnish the Lender within
ninety (90) days after the end of each fiscal year of ADLT, financial statements
of ADLT on a consolidated basis including statements
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of operating income, shareholder's equity, and cash flow from the
beginning of the current fiscal year to the end of such fiscal year and the
balance sheet at the end of such fiscal year, all prepared in accordance with
GAAP, and reported upon by an independent public accounting firm selected by
ADLT and reasonably satisfactory to Lender (the "ACCOUNTANTS"). The report of
such accounting firm shall be accompanied by a special report of such
accounting firm certifying that in making the examination of ADLT's
consolidated financial statements upon which such report was based either no
information came to their attention which to their knowledge constituted an
Event of Default or an Incipient Event of Default under this Agreement or, if
such information came to their attention, specifying any such default, and such
special report shall contain or have appended thereto calculations which set
forth ADLT's compliance with the requirements or restrictions imposed by
Sections 6.5, 6.6, 6.7, 6.8 and 6.9. In addition to ADLT's consolidated
financial statements, the underlying details of consolidation setting forth the
balance sheet, income statement and statement of cash flow of each entity in
the consolidated financial statements shall be provided to the Lender.
9.8 MONTHLY FINANCIAL STATEMENTS. Except as of the fiscal year
end of ADLT, furnish the Lender within forty-five (45) days after the end of
each month, an unaudited consolidated balance sheet of ADLT and unaudited
statements of income, and cash flow of ADLT on a consolidated basis reflecting
results of operations from the beginning of the fiscal year to the end of such
month and for such month, prepared in accordance with GAAP for interim financial
information and correct in all material respects, subject to normal year end
adjustments. The reports shall be accompanied by a certificate of ADLT, signed
by the President and/or Chief Financial Officer of Borrower, which shall state
whether an Event of Default as specified in Article X hereof or an Incipient
Event of Default has occurred. In addition to ADLT's unaudited consolidated
financial statements, the underlying details of consolidation setting forth the
balance sheet, income statement and statements of cash flow of each entity in
the consolidated financial statement shall be provided to Lender.
9.9 FINANCIAL AND CASH FLOW PROJECTIONS. ADLT will provide
Lender with Financial Cash Flow Protections in form and detail and at intervals
requested by Lender.
9.10 OTHER REPORTS. Furnish the Lender as soon as available,
but in any event within ten (10) days after the issuance thereof, with copies of
such financial statements and reports as ADLT shall file with the SEC.
9.11 ADDITIONAL INFORMATION. Furnish the Lender with
additional information as the Lender shall reasonably request in order
to enable Lender to determine whether the terms, covenants, provisions and
conditions of this Agreement and the Revolving Credit Note have been complied
with by Borrower including, without limitation and without the necessity of any
request by Lender, (a) copies of all environmental audits and reviews, (b) at
least thirty (30) days prior thereto, of Borrower's opening of any new office
or place of business or Borrower's closing of any existing office or place of
business, and (c) promptly upon Borrower's learning thereof, of any labor
dispute to which Borrower may become a party, any strikes or walkouts relating
to any of its plants or other facilities, and the expiration of any labor
contract to which Borrower is a party or by which Borrower is bound.
9.12 PROJECTED OPERATING BUDGET. Furnish Lender, no less than
thirty (30) days prior to the beginning of each of ADLT's fiscal years beginning
July, 1996, a month by month projected consolidated operating budget and
consolidated cash flow of ADLT for such fiscal year (including an income
statement for each month and a consolidated balance sheet as at the end of the
last month in each fiscal quarter), such projections to be accompanied by a
certificate signed by ADLT's President or Chief Financial Officer to the effect
that such projections have been prepared on the basis of sound financial
planning practice consistent with past budgets and financial statements and that
such officer has no reason to question the reasonableness of any material
assumptions on which such projections were prepared.
9.13 ADDITIONAL DOCUMENTS. Execute and deliver to Lender, upon
request, such documents and agreements as Lender may, from time to time,
reasonably request to carry out the purposes, terms or conditions of this
Agreement.
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X. EVENTS OF DEFAULT.
The occurrence of any one or more of the following events
shall constitute an "Event of Default":
(a) failure by Borrower to pay any principal or interest on
the Obligations to the Lender when due, whether at maturity or by reason of
acceleration pursuant to the terms of this Agreement or by notice of intention
to prepay, or by required prepayment or failure to pay any other liabilities to
the Lender hereunder or make any other payment, fee or charge for herein when
due;
(b) any representation or warrant made or deemed made by the
Borrower is this Agreement or any Document or in any certificate, document of
financial or other statement furnished at any time in connection herewith or
therewith shall prove to have been misleading in any material respect on the
date when made or deemed to have been made;
(c) failure by Borrower no later than seven (7) days after the
date required herein, to (i) furnish financial information, or (ii) permit the
inspection of its books or records;
(d) issuance of a notice of Lien, Charge, Claim, levy
assessment, injunction or attachment against a material portion of the
Borrower's property, other than Permitted Liens, which are not released by
Borrower within thirty (30) days of its notice thereof;
(e) failure or neglect of the Borrower to perform, keep or
observe any term, provision, condition, convenant herein contained, or contained
in any other agreement or arrangement, now or hereafter entered into between
the Borrower and the Lender, other than any payment obligation or a failure or
neglect of Borrower to perform, keep or observe any term provision, condition or
convenant contained in Section 6.5, 6.6, 6.7, 6.8, 6.9, 7.6, and 7.7, which is
not cured within fifteen (15) days from the occurrence of such failure or
neglect.
(f) any judgment is rendered or judgment liens filed against
the Borrower for an amount in excess of $250,000.00, individually or in the
aggregate, which within (30) days of such rendering or filing is not either
satisfied, staying or discharged of record;
(g) Borrower or any Affiliate or any Subsidiary shall (i)
apply for or consent to the appointment of, or the taking of possession by, a
receiver, custodian, trustee or liquidator of itself or of all or a substantial
part of its property, (ii) admit in writing its inability, or be generally
unable, to pay its debts, as they become due or cease operations of its present
business, (iii) make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under any state or federal bankruptcy laws (as now or
hereafter in effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a
petition seeking to take advantage of any other law providing for the relief of
debtors, (vii) acquiesce to, or fail to have dismissed, within sixty (60) days,
any petition filed against it in any involuntary case under such bankruptcy
laws, or (viii) take any action for the purpose of effecting any of the
foregoing;
(h) a default of the obligations of Borrower under any other
agreement to which it is a party shall occur which adversely affects its
condition, affairs or prospects (financial or otherwise) which default is not
cured within any applicable grace period;
(i) any Change of Ownership;
(j) intentionally deleted;
(k) any material provision of this Agreement shall, for any
reason, cease to be valid and binding on Borrower, or the Borrower shall so
claim in writing to Lender; or
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(l) any change in the management of Borrower the result of
which is that the day to day affairs of Borrower are no longer managed by the
Original Owner.
XI. LENDER'S RIGHTS AND REMEDIES AFTER DEFAULT.
11.1 RIGHTS AND REMEDIES. Upon the occurrence of an Event of
Default pursuant to Article X(g) all Obligations shall be immediately due and
payable and this Agreement shall be deemed terminated; and, upon the occurrence
of any of the other Events of Default and at any time thereafter (such default
not having previously been cured), at the option of Lender all Obligations shall
be immediately due and payable and the Lender shall have the right to terminate
this Agreement. In any such event, the Lender shall have the right to exercise
any and all other rights and remedies provided for herein, under the Uniform
Commercial Code and at law or equity generally, including, without limitation,
the right to foreclose the security interests granted herein and to realize upon
any Collateral by any available judicial procedure and/or to take possession of
and sell any or all of the Collateral with or without judicial process. The
Lender may enter any of the Borrower's premises or other premises without legal
process and without incurring liability to the Borrower therefore, and the
Lender may thereupon, or at any time thereafter, in its discretion without
notice or demand, take the Collateral and remove the same to such place as the
Lender may deem advisable and the Lender may require the Borrower to make the
Collateral available to the Lender at a convenient place. With or without having
the Collateral at the time or place of sale, the Lender may sell the Collateral,
or any part thereof, at public or private sale, at any time or place, in one or
more sales, at such price or prices, and upon such terms, either for cash,
credit or future delivery, as the Lender may elect. Except as to that part of
the Collateral which is perishable or threatens to decline speedily in value or
is of a type customarily sold on a recognized market, the Lender shall give the
Borrower reasonable notification of such sale or sales, it being agreed that in
all events written notice mailed to the Borrower at least five (5) days prior to
such sale or sales is reasonable notification. At any public sale the Lender may
bid for and become the purchaser, and Lender or any other purchaser at any such
sale thereafter shall hold the Collateral sold absolutely free from any claim or
right of whatsoever kind, including any equity of redemption and such right and
equity are hereby expressly waived and released by the Borrower. In connection
with the exercise of the foregoing remedies, the Lender is granted permission to
use all the Borrower's trademarks, trade styles, trade names, patents, patent
applications, licenses, franchises and other proprietary rights which are used
in connection with (a) Inventory for the purpose of disposing of such Inventory
and (b) Equipment for the purpose of completing the manufacture of unfinished
goods. The proceeds realized from the sale of any Collateral shall be applied
first to the reasonable costs, expenses and attorneys' fees and expenses
incurred by Lender for collection and for acquisition, completion, protection,
removal, storage, sale and delivery of the Collateral; secondly to interest due
upon any of the Obligations; and thirdly to the principal of the Obligations. If
any deficiency shall arise, Borrower shall remain liable to Lender therefor.
11.2 LENDER'S DISCRETION. The Lender shall have the right in
its sole discretion to determine which rights, Liens, security interests or
remedies the Lender may at any time pursue, relinquish, subordinate, or modify
or to take any other action with respect thereto and such determination will not
in any way modify or affect any of the Lender's rights hereunder.
11.3 SETOFF. In addition to any other rights which the Lender
may have under applicable law, upon the occurrence of any Event of Default
hereunder, the Lender shall have a right to apply any of the Borrower's property
held by the Lender or by the Bank to reduce the Obligations.
11.4 RIGHTS AND REMEDIES NOT EXCLUSIVE. The enumeration of the
foregoing rights and remedies is not intended to be exhaustive and the exercise
of any right or remedy shall not preclude the exercise of any other right or
remedies, all of which shall be cumulative and not alternative.
XII. WAIVERS AND JUDICIAL PROCEEDINGS.
12.1 WAIVER OF NOTICE. The Borrower hereby waives notice of
non-payment of any of the Receivables, demand, presentment, protest and notice
thereof with respect to any and all instruments,
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notice of acceptance hereof, notice of loans or advances made, credit extended,
Collateral received or delivered, or any other action taken in reliance hereon,
and all other demands and notices of any description, except such as are
expressly provided for herein.
12.2 DELAY. No delay or omission on the Lender's part in
exercising any right, remedy or option shall operate as a waiver of such or any
other right, remedy or option or of any default.
12.3 JURY WAIVER. EACH PARTY TO THIS AGREEMENT HEREBY
EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION (A) ARISING UNDER THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR (B) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO OR ANY OF THEM WITH RESPECT TO THIS AGREEMENT OR ANY OTHER INSTRUMENT,
DOCUMENT OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH, OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE: AND
EACH PARTY HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR
CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY, AND THAT ANY
PARTY TO THIS AGREEMENT MAY FILE AN ORIGINAL COUNTERPART OR A COPY OF THIS
SECTION WITH ANY COURT AS WRITTEN EVIDENCE OF THE CONSENTS OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
XIII. EFFECTIVE DATE AND TERMINATION.
13.1 TERM. This Agreement, which shall inure to the benefit of
and shall be binding upon the respective successors and permitted assigns of
each of the Borrower and the Lender, shall become effective on the date hereof
and shall continue in full force and effect until the anniversary of this
Agreement in the year 1999 (the "TERM") unless sooner terminated as herein
provided. The Term shall be automatically extended for successive periods of one
(1) year each unless terminated by either party at the end of such initial Term
or any successive Term by giving the other party ninety (90) days prior written
notice. The Borrower may terminate this Agreement at any time upon ninety (90)
days' prior written notice ("TERMINATION DATE") upon payment in full of the
Obligations; provided however that Borrower pays an early termination fee in an
amount equal to one quarter of one (.25%) percent of the product of (a)
$25,000,000.00 times (b) the number of years (including partial years) remaining
in the Term.
13.2 TERMINATION. The termination of the Agreement shall not
affect any of the Borrower's or the Lender's rights, or any of the Obligations
having their inception prior to the effective date of such termination, and the
provisions hereof shall continue to be fully operative until all transactions
entered into, rights or interests created or Obligations have been fully
disposed of, concluded or liquidated. The security interests, Liens and rights
granted to the Lender hereunder and the financing statements filed hereunder
shall continue in full force and effect, notwithstanding the termination of this
Agreement or the fact that the Borrower's account may from time to time be
temporarily in a zero or credit position, until all of the Obligations of the
Borrower have been paid or performed in full after the termination of this
Agreement or the Borrower has furnished the Lender with an indemnification
satisfactory to the Lender with respect thereto. Accordingly, Borrower waives
any rights which it may have under Section 9-404(1) of the Uniform Commercial
Code to demand the filing of termination statement with respect to the
Collateral, and Lender shall not be required to send such termination statements
to Borrower, or to file them with any filing office, unless and until this
Agreement shall have been terminated and accordance with its terms and all
Obligations paid in full in immediately available funds. All representations,
warranties, covenants, waivers and agreements contained herein shall survive
termination hereof until all Obligations are repaid or performed in full
otherwise provided.
XIV. MISCELLANEOUS.
14.1 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (without giving
effect to its conflict of laws rules). Any judicial
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proceeding brought by or against the Borrower with respect to any of the
Obligations, this Agreement or any related agreement may be brought in any court
of competent jurisdiction in the State of New York, United States of America,
and, by execution and delivery of this Agreement, the Borrower accepts for
itself and in connection with its properties, generally and unconditionally the
non-exclusive jurisdiction of he aforesaid courts, and irrevocably agrees to be
bound by any judgment rendered thereby in connection with this Agreement.
Nothing herein shall affect the right to serve process in any manner permitted
by law or shall limit the right of the Lender to bring proceedings against the
Borrower in the courts of any other jurisdiction. Borrower waives any objection
to jurisdiction and venue of any action instituted hereunder and shall not
assert any defense based on lack of jurisdiction or venue or based upon forum
non convenience. Any judicial proceedings by the Borrower against the Lender
involving, directly or indirectly, any matter or claim in any way arising out
of, related to or connected with this Agreement or any related agreement, shall
be brought only in a federal or state court located in the City of New York,
State of New York.
14.2 ENTIRE UNDERSTANDING. This Agreement and the documents
executed concurrently herewith contain the entire understanding between the
Borrower and the Lender and supersedes all prior agreements and understandings,
if any, relating to the subject matter hereof. Any promises, representations,
warranties or guarantees not herein contained and hereinafter made shall have no
force and effect unless in writing, signed by the Borrower's and Lender's
respective officers. Neither this Agreement nor any portion or provisions hereof
may be changed, modified, amended, waived, supplemented, discharged, cancelled
or terminated orally or by any course of dealing, or in any manner other than by
an agreement in writing, signed by the party to be charged. Borrower
acknowledges that it has been advised by counsel in connection the execution of
this Agreement and Other Documents and is not relying upon oral representations
or statements inconsistent with the terms and provisions of this Agreement.
14.3 SUCCESSORS AND ASSIGNS; PARTICIPATIONS; NEW LENDERS.
(a) This Agreement shall be binding upon and inure to the
benefit of the Borrower, the Lender, all future holders of the Revolving Credit
Note and their respective successors and assigns, except that the Borrower may
not assign or transfer any of its rights or obligations under this Agreement
without the prior written consent of Lender.
(b) Lender may sell, assign or transfer any part of its rights
under this Agreement and the Revolving Credit Note and all related agreements,
instruments and documents provided Borrower is given notice of such sale as soon
as practicable and the transferee agrees to perform the obligations of the
transferor; provided, that Lender shall be and remain the Agent bank under any
participation; provided, further, that the Lender may sell, assign or transfer
all of its rights hereunder as a result of a change of control or a merger or
combination with its parent. In addition to, and subject to, the foregoing,
Borrower acknowledges that in the regular course of commercial banking business
the Lender may at any time and from time to time sell participating interests in
the Advances to other financial institutions (each such transferee or purchaser
of a participating interest, a "TRANSFEREE"). Each Transferee may exercise all
rights of payment (including without limitation rights of set-off) with respect
to the portion of such Advances held by it or other Obligations payable
hereunder as fully as if such Transferee were the direct holder thereof.
Borrower hereby grants to any Transferee a continuing security interest in any
deposits, Moneys or other property actually or constructively held by such
Transferee as security for the Transferee's interest in the Advances.
14.4 APPLICATION OF PAYMENTS. Lender shall have the continuing
and exclusive right to apply or reverse and reapply any and all proceeds of
Collateral to any portion of the Obligations. To the extend that Borrower makes
a payment or Lender receives any payment or proceeds of the Collateral for
Borrower's benefit, which are subsequently invalidated, declared to the
fraudulent or preferential, set aside or required to be repaid to a trustee,
debtor in possession, receiver, custodian or any other party under any
bankruptcy law, common law or equitable cause, then, to such extent, the
Obligations or part thereof intended to be satisfied shall be revived and
continue as if such payment or proceeds had not been received by Lender.
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14.5 INDEMNITY. Borrower shall indemnify Lender from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, fees and disbursements of
counsel) which may be imposed on, incurred by, or asserted against Lender in any
litigation, fees and disbursements of counsel) which may be imposed on, incurred
by, or asserted against Lender in any litigation, proceeding or investigation
instituted or conducted by any governmental agency or instrumentality or any
other Person with respect to any aspect of, or any transaction contemplated by,
or referred to in, or any matter related to, this Agreement, whether or not the
Lender is a party thereto, except to the extent that any of the foregoing arises
out of the gross negligence or willful misconduct of Lender.
14.6 NOTICE. Any notice or request hereunder may be given to
Borrower to Lender at their respective addresses set forth below or at such
other address as may hereafter be specified in a notice designated as a notice
of change of address under this Section. Any notice or request hereunder shall
be given by (a) hand delivery, (b) registered or certified mail, return receipt
requested, (c) telex or telegram, subsequently confirmed by registered or
certified mail, or (d) telefax to the number set out below (or such other number
as may hereafter be specified in a notice designated as a notice of change of
address) with telephone communication to a duly authorized officer of the
recipient confirming its receipt as subsequently confirmed by registered or
certified mail. Notices and requests shall, in the case of those by mail or
telegram be deemed to have been given when deposited in the mail, or delivered
to the telegraph office addresses as provided in this Section.
(A) If to Lender, at: BNY Financial Corporation
1290 Avenue of the Americas
New York, New York 10104
Attention: Frank Imperato, V.P.
Telephone: (212) 408-7026
FAX: (212) 408-7162
(6) If to Borrower. at: Advanced Lighting Technologies, Inc.
2307 East Aurora Road, Suite 1
Twinsburg, Ohio 44087
Attention: Louis S. Fisi
Phone: 216/963-6680
FAX: 216/425-7443
14.7 SURVIVABILITY. If any or part of this Agreement is
contrary to, prohibited by, or deemed invalid under applicable laws or
regulations, such provision shall be inapplicable and deemed omitted to the
extent so contrary, prohibited or invalid, but the remainder hereof shall not be
invalidated thereby and shall be given effect so far as possible.
14.8 EXPENSES. All costs and expenses including, without
limitation reasonable attorneys' fees incurred (a) by the Lender in all efforts
made to enforce payment of any Obligation or effect collection of any
Collateral, or (b) incurred in connection with the entering into, modification,
amendment, administration and enforcement of this Agreement or any consents or
waivers hereunder and all related agreements, documents and instruments, or (c)
the instituting, maintaining, preserving, enforcing and foreclosing of or on the
Lender's security interest or Lien in any of the Collateral, whether through
judicial proceedings or otherwise, or (d) in defending or prosecuting any
actions or proceedings arising out of or relating to the Lender's transactions
with the Borrower, or (e) any advice given to Lender with respect to its rights
and obligations under this Agreement and all related agreements, may be charged
to the Borrower's account and shall be part of the Obligations.
14.9 INJUNCTIVE RELIEF. Borrower recognizes that, in the event
Borrower fails to perform, observe or discharge any of its obligations or
liabilities under this Agreement, any remedy at law may prove to be inadequate
relief to Lender; therefore, Lender if Lender so requests, shall be entitled to
temporary and permanent injunctive relief in any such case without the necessity
of proving actual damages.
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14.10 CAPTIONS. The captions at various places in this
Agreement are intended for convenience only and do not constitute and shall not
be interpreted as part of this Agreement.
14.11 COUNTERPARTS. The Agreement may be executed in one or
more counterparts, each of which taken together shall constitute one and the
same instrument.
Each of the parties has signed this Agreement as of the 25th
day of March, 1996.
ADVANCED LIGHTING TECHNOLOGIES, INC. BNY FINANCIAL CORPORATION
By: /s/ Louis S. Fisi By: /s/ Joseph Grimaldi
---------------------------------- ----------------------------
Its: Sec. Its: President
---------------------------------- ----------------------------
Address: 2307 E. Aurora Rd., Suite One
Twinsburg, OH 44087
APL ENGINEERED MATERIALS, INC. BNY FINANCIAL CORPORATION
By: /s/ Louis S. Fisi By: /s/ Frank Imperato
---------------------------------- ----------------------------
Its: Sec. Its: Vice President
---------------------------------- ----------------------------
Address: 2401 N. Willow Road
Urbana, IL 61801
BIO LIGHT, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 1521 Georgetown Rd., Suite 303
Hudson, OH 44236
BRIGHT IDEAS ADVERTISING AND DESIGN, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 8500 Station Street #275
Mentor, OH 44060
ENERGY EFFICIENT PRODUCTS, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 111 Shawnee Drive
Bellevue, OH 44811
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ENERGY-WISE LIGHTING, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 2307 E. Aurora Rd., Suite One
Twinsburg, OH 44087
HID DIRECT, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 2307 E. Aurora Rd., Suite One
Twinsburg, OH 44087
HID RECYCLING, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 32000 Aurora Rd.
Solon, OH 44139
HIGH INTENSITY TECHNOLOGIES, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 111 Shawnee Drive
Bellevue, OH 44811
THE LIGHT SOURCE, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 1696 Georgetown Rd., Unit C
Hudson, OH 44236
<PAGE> 42
LIGHTING RESOURCES INTERNATIONAL, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 3000 Seneca Industrial Parkway, P.O. Box 207
Bellevue, OH 44811
METAL HALIDE CONTROLS, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 32000 Aurora Road
Solon, OH 44139
METAL HALIDE TECHNOLOGIES, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 1521 Georgetown Rd. #203
Hudson, OH 44236
MICROSUN TECHNOLOGIES, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 2307 E. Aurora Road, Suite One
Twinsburg, OH 44087
SPECIALTY DISCHARGE LIGHTING, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 101 Shawnee Drive
Bellevue, OH 44811
<PAGE> 43
VENTURE LIGHTING INTERNATIONAL, INC.
By: /s/ Louis S. Fisi
----------------------------------
Its: Sec.
----------------------------------
Address: 32000 Aurora Road
Solon, OH 44139
<PAGE> 44
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10104
212-408-7000
February 7, 1997
Advanced Lighting Technologies, Inc.,
As Agent
2307 East Aurora Road, Suite One
Twinsburg, OH 44087
Gentlemen/Ladies:
Reference is made to the Revolving Credit and Security Agreement between us
dated March 25, 1996, as supplemented and amended (the "Credit Agreement").
As you are aware, we had not completed a UCC search as of today's date when
we funded the $8,400,000 Term Loan. The Term Loan was funded with the
understanding that if our searches revealed facts which would disclose that the
equipment subject to our first priority security interest, is valued less than
$10,557,640.00 (the amount of the appraisal as stated in the equipment appraisal
dated July 29, 1996 by Rosen & Company), you will agree to provide us with
additional collateral acceptable in all respects to us, as determined in our
sole discretion, in an amount of at least equal to the amount of the short fall
as disclosed by the search. In the event you shall not provide us with such
additional collateral, we will reduce the amount of your Working Capital
Advances under the Credit Agreement.
This will also confirm that the term loan which we funded as of today's
date will replace in its entirety the "Capex Advances" (as such term is defined
in the Credit Agreement).
Kindly indicate your agreement to the foregoing by
<PAGE> 45
signing a copy of this letter and returning it to our office as soon as
possible.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/ Kristy S. Loucks
------------------------------
Title: AVP
ACCEPTED AND AGREED TO:
ADVANCED LIGHTING TECHNOLOGIES, INC., AS
AGENT FOR THE BORROWERS UNDER THE CREDIT
AGREEMENT
By: /s/ Louis S. Fisi
-----------------------------------
Title: Executive Vice President
<PAGE> 46
TERM NOTE
---------
$8,400,000 New York, New York
February 6,1997
-------
FOR VALUE RECEIVED, Advanced Lighting Technologies, Inc. ("ALT"), APL
Engineered Materials, Inc., Bio Light, Inc., Bright Ideas Advertising and
Design, Inc., Energy Efficient Products, Inc., Energy-Wise Lighting, Inc., HID
Direct, Inc., HID Recycling, Inc., High Intensity Technologies, Inc., The Light
Source, Inc., Lighting Resources International, Inc., Metal Halide Controls,
Inc., Metal Halide Technologies, Inc., MICROSUN Technologies, Inc., Specialty
Discharge Lighting, Inc., Venture Lighting International, Inc. and Advanced
Cable Lite Corporation (each individually and collectively hereinafter referred
to as the "Borrower") jointly and severally hereby promise to pay to the order
of BNY FINANCIAL CORPORATION (the "Lender"), at 1290 Avenue of the Americas, New
York, New York 10019 (or such other place as the Lender may from time to time
designate), the principal sum of Eight Million Four Hundred Thousand Dollars
($8,400,000), in lawful money of the United States, in twenty-five (25)
consecutive equal monthly installments, each in the amount of $100,000.00
commencing March 1, 1997 and a twenty-sixth and final installment of
$5,900,000.00 which shall be due on March 24, 1999. The entire unpaid principal
balance hereof, and accrued interest thereon, shall be payable on March 24,
1999. The Lender's computation of amounts outstanding hereunder from time to
time shall be, as between the Lender and the Borrower, final, conclusive and
binding for all purposes, absent manifest error.
The Borrower agrees to pay interest on the first day of each month
hereafter occurring, at the same place, on the principal amount of this Note
from time to time outstanding, at the Alternate Base Rate in effect during the
previous month, as such term is defined in the Revolving Credit and Security
Agreement between the Borrower and the Lender, bearing the effective
date of March 25, 1996, which Agreement, together with all amendments thereof
and supplements thereto, is hereinafter called the "Agreement." All payments
received hereunder shall be applied first to interest due and the remainder to
principal. Notwithstanding anything to the contrary contained herein, in no
event shall the Borrower be required to pay interest hereunder at a rate in
excess of the maximum rate permitted by applicable law.
The Borrower shall have the right to prepay this Note, at any time, in
whole or in part, without premium or penalty, upon ten (10) business days prior
written notice. Each partial prepayment shall be applied first to accrued
interest and thereafter to installments of principal in the inverse order of
their maturity.
The entire unpaid principal balance hereof together with all interest
accrued thereon shall immediately become due and payable in full, without notice
or demand, in the event of: (i) default in the payment of any installment of
principal or of interest hereunder, or any renewal or extension hereof; or (ii)
default by the Borrower under the Agreement, or under any other agreement
between the Borrower and the Lender or executed by the Borrower in favor of the
Lender; or (iii) default by the Borrower or any other signatory under any
additional instruments or documents evidencing or granting collateral security
for, or guaranteeing any of the Obligations (as defined in the Agreement) of the
Borrower to the Lender (all such additional instruments and documents being
hereinafter collectively referred to as the "Collateral Documents"); or (iv)
termination of the Agreement for any reason or termination of any of the
Collateral Documents without the consent of the Lender; or (v) default by any
endorser hereof under any agreement between the Lender and such endorser; or
(vi) any action being taken by or against any endorser hereof or any guarantor
of the Obligations, which, if taken by or against the Borrower, would constitute
a default under the Agreement. The failure to assert this right shall not be
deemed a waiver thereof.
After maturity (by acceleration or otherwise), this Note shall continue to
bear interest at the rate provided for herein until it is paid in full. If this
Note is placed with an attorney for collection, the
<PAGE> 47
Borrower agrees to pay all costs and expenses of collection, including
reasonable attorneys' fees, which shall be added to the principal amount due
hereunder.
The holder may extend the time of payment of this Note, postpone the
enforcement hereof, grant any other indulgences and/or add or release any
collateral for the Obligations of any party primarily or secondarily liable
hereon without affecting or diminishing the holder's right or recourse against
the Borrower and endorsers of this Note, which right is hereby expressly
reserved.
This Note evidences an Obligation and is secured by, among other things,
the security interests and liens granted to the Lender under the Agreement and
the Collateral Documents, including, without limitation, the security interests
granted to the Lender pursuant to the Agreement.
The Note evidences a borrowing under the Agreement and under the Collateral
Documents and, subject to the specific terms hereof, is entitled to the benefits
of the Agreement and the Collateral Documents and is subject to all of the terms
and conditions thereof provided, however, that no payments on, or other proceeds
of, accounts receivable of the Borrower shall be applied to reduction of the
indebtedness evidenced by this Note until all other Obligations have been paid
in full.
The Borrower hereby waives diligence, demand, presentment, protest and
notice of any kind, and assents to extensions of the time of payment, release,
surrender or substitution of security, or forbearance or other indulgence,
without notice. The Borrower agrees to pay all amounts of principal, interest
and fees under this Note without offset, deduction, claim, counterclaim, defense
or recoupment, all of which, are hereby waived by the Borrower.
Borrower and Lender hereby expressly waive any right to trial by jury of
any claim, demand, action or cause of action (a) arising under this Note or any
other instrument, document or agreement executed or delivered in connection
herewith, or (b) in any way connected with or related or incidental to the
dealings of the parties hereto or any of them with respect to this Note or any
other instrument, document or agreement executed or delivered in connection
herewith, or the transactions related hereto or thereto in each case whether now
existing or hereafter arising, and whether sounding in contract or tort or
otherwise; and each party hereby agrees and consents that any such claim,
demand, action or cause of action shall be decided by court trial without a
jury, and that any party to this agreement may file an original counterpart or a
copy of this section with any court as written evidence of the consents of the
parties hereto to the waiver of their right to trial by jury.
This Note may not be changed, modified or terminated orally, but only by an
agreement in writing signed by the Borrower or any successor or assign of the
Borrower, and the Lender or any holder hereof.
In the event the Lender or any holder hereof shall retain or engage an
attorney to collect, enforce or protect its interests with respect to this Note,
the Borrower shall pay all of the reasonable costs and expenses of such
collection, enforcement or protection, including reasonable attorneys' fees,
whether or not suit is instituted.
This Note shall be governed by and construed in accordance with the laws of
the State of New York, and shall be binding upon the successors and assigns of
the Borrower and inure to the benefit of the Lender and its successors,
endorsees and assigns. If any term or provision of this Note shall be held
<PAGE> 48
invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary
--------------------------------
Address: 2307 E. Aurora Rd., Suite One
Twinsburg, OH 44087
APL ENGINEERED MATERIALS, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary
--------------------------------
Address: 2401 N. Willow Road
Urbana, IL 61801
BIO LIGHT, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 1521 Georgetown Rd., Suite 303
Hudson, OH 44236
BRIGHT IDEAS ADVERTISING AND DESIGN, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 8500 Station Street #275
Mentor, OH 44060
ENERGY EFFICIENT PRODUCTS, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary
--------------------------------
Address: 111 Shawnee Drive
Bellevue, OH 44811
<PAGE> 49
ENERGY-WISE LIGHTING, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 2307 E. Aurora Rd., Suite One
Twinsburg, OH 44087
HID DIRECT, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 2307 E. Aurora Rd., Suite One
Twinsburg, OH 44087
HID RECYCLING, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 32000 Aurora Rd.
Solon, OH 44139
HIGH INTENSITY TECHNOLOGIES, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary
--------------------------------
Address: 111 Shawnee Drive
Bellevue, OH 44811
THE LIGHT SOURCE, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 1696 Georgetown Rd., Unit C
Hudson, OH 44236
<PAGE> 50
LIGHTING RESOURCES INTERNATIONAL, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary
--------------------------------
Address: 3000 Seneca Industrial Parkway, P.O. Box 207
Bellevue, OH 44811
METAL HALIDE CONTROLS, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 32000 Aurora Road
Solon, OH 44139
METAL HALIDE TECHNOLOGIES, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 1521 Georgetown Rd. #203
Hudson, OH 44236
MICROSUN TECHNOLOGIES, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
---------------------------------
Address: 2307 E. Aurora Road, Suite One
Twinsburg, OH 44087
SPECIALTY DISCHARGE LIGHTING, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 101 Shawnee Drive
Bellevue, OH 44811
<PAGE> 51
VENTURE LIGHTING INTERNATIONAL, INC.
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 32000 Aurora Road
Solon, OH 44139
ADVANCED CABLE LITE CORPORATION
By: /s/ Louis S. Fisi
---------------------------------
Its: Secretary/Treasurer
--------------------------------
Address: 2307 E. Aurora Road, Suite One
Twinsburg, OH 44087
<PAGE> 52
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10104
212-408-7000
, 1997
- -------------------
Advanced Lighting Technologies, Inc.,
as Agent
2307 E. Aurora Road
Twinsburg, OH 44087
Gentlemen/Ladies:
Reference is made to the Revolving Credit and Security Agreement between us
dated March 25, 1996, as supplemented and amended (the "Credit Agreement").
It is hereby agreed that the Credit Agreement shall be amended so that
clause (d) of the definition of "Collateral" shall read in its entirety as
"(d) all Equipment;".
Except as hereinabove set forth, the Credit Agreement shall remain in full
force and effect in accordance with its terms.
If you are in agreement with the foregoing, please so indicate by signing
and returning the enclosed copy of this letter.
Very truly yours,
BNY FINANCIAL CORPORATION
By:
--------------------------------
Title:
AGREED:
ADVANCED LIGHTING TECHNOLOGIES, INC.
As Agent for the Borrowers under the
Credit Agreement
By: Louis S. Fisi
------------------------------
Title: Secretary
<PAGE> 53
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
100 ASHFORD CENTER NORTH, SUITE 520, ATLANTA, GA 30338
770-698-5100
February 4, 1997
Advanced Lighting Technologies, Inc.
as Agent
2307 East Aurora Road, Suite One
Twinsburg, OH 44087
Ladies/Gentlemen:
This letter shall confirm that pursuant to your request, we consent to
the following actions being taken by you:
1. The acquisition by you or your newly formed affiliate(s) of the stock
and assets of Ballastronix, Inc., a Nova Scotia corporation located at 10
Chandler Road, Amherst, Nova Scotia pursuant to the terms outlined in the
Memorandum dated January 22, 1997; and
2. The guaranty by Advanced Lighting Technologies, Inc. of the obligations
of its affiliate, Lighting Resources Holdings Limited ("LRHL"), in connection
with a a contract by and between LRHL and Asian Lighting Resources (India)
Limited with regard to the sale of lamp manufacturing equipment, which
guaranty will extend for a period of twelve months after receipt by the parties
of the necessary governmental consents and approvals regarding such sale. The
guaranty has been required by the Industrial Development Bank of India.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/
--------------------------
Title Vice President
<PAGE> 54
ASSUMPTION AGREEMENT
WHEREAS, BNY Financial Corporation a New York corporation with its
principal office located at 1290 Avenue of the Americas, Third Floor, New York,
NY 10104 ("Lender") presently provides financing to Advanced Lighting
Technologies, Inc. ("ADLT") as agent for the Borrowers under the Credit
Agreement, pursuant to among other documents a Revolving Credit and Security
Agreement dated March 25, 1996, as supplemented and amended ("Credit
Agreement"); (All capitalized terms not otherwise defined herein shall have
such meaning as are ascribed to them the Credit Agreement.) and
WHEREAS, Advanced Cable Lite Corporation, an Ohio corporation, (the "New
Borrower") is a newly formed subsidiary of ADLT and desires to become a
borrower under the Credit Agreement and assume the benefits and obligations now
or hereafter existing thereunder; and
WHEREAS, ADLT is desirous of and consents to the New Borrower being made a
part of the Credit Agreement;
NOW, THEREFORE, for good and valuable consideration the receipt of which is
here acknowledged the Lender, ADLT and the New Borrower each hereby agree as
follows:
-1-
<PAGE> 55
1. The New Borrower hereby assumes all of the now owed and hereafter
arising Obligations, and hereby assumes all of the rights and duties, grants to
Lender the security interest in all of the Collateral, affirms each and every
representation and warranty, under the Credit Agreement and the Other
Documents, in the same manner and to the same extent as if it were an original
signatory with each of the borrowers of each such document; the New Borrower
confirms that ADLT shall act as its agent in the same manner and to the same
extent as set forth in the Credit Agreement including without limitation as set
forth in Section 2.3 thereof.
2. The New Borrower assumes all existing Obligations and shall be jointly
and severally liable with ADLT and each of the Borrowers therefor, and the New
Borrower and ADLT and each of the Borrowers shall be fully and jointly and
severally obligated and liable for all hereafter arising Obligations.
This Agreement shall be interpreted under the laws of the State of New York
and each of the undersigned waive any of the rights they may have to a jury
trial in any judicial proceedings hereunder.
IN WITNESS WHEREOF, ADLT and the New Borrower have
-2-
<PAGE> 56
executed this Agreement this 30th day of January, 1997.
ADVANCED LIGHTING TECHNOLOGIES, INC., as
Agent for the Borrowers under the Credit
Agreement
By: /s/ Louis S. Fisi
-----------------------------
Title:
NEW BORROWER:
ADVANCED CABLE LITE CORPORATION
By: /s/ Louis S. Fisi
-----------------------------
Title:
-3-
<PAGE> 57
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10104
212-408-7000
January 30, 1997
Advanced Lighting Technologies, Inc.,
as Agent
2307 East Aurora Road, Suite One
Twinsburg, OH 44087
Ladies/Gentlemen:
Reference is made to the Revolving Credit and Security Agreement between us
dated March 25, 1996 (the "Agreement"). All capitalized terms not otherwise
defined herein shall have such meaning as set forth in the Agreement.
This letter shall serve to confirm that the Agreement is amended in the
following manner:
1. Upon the execution of the Assumption Agreement executed
contemporaneously herewith Advanced Cable Lite Corporation shall be
added as a Borrower under the Agreement and its name shall be inserted
as such in the first paragraph of the Agreement and likewise inserted
in the definition of "Borrower" appearing on page 2 of the Agreement.
2. The following shall be added to Exhibit 4.5 of the Agreement:
Advanced Cable Lite Corporation
2307 East Aurora Road
Suite One
Twinsburg, OH 44087
3. Exhibit 5.2 of the Agreement shall be amended to reflect that Advanced
Cable Lite Corporation is qualified to do business in the State of
Ohio.
4. Exhibit 5.4 of the Agreement shall be amended to reflect that Advanced
Cable Lite Corporation's Federal Tax I.D. number is 75-2275717 LF.
5. Section 5.6 of the Agreement shall be amended to add the name Advanced
Cable Lite Corporation.
<PAGE> 58
This letter shall also serve to confirm that pursuant to your request we
consent to the acquisition by Advanced Cable Lite Corporation of the assets of
Cable Lite Corporation pursuant to the Cable Lite Corporation Agreement and
Plan of Reorganization dated December 23, 1996.
Except as hereby or heretofore specifically modified or amended all of the
terms and provisions of the Agreement shall continue to remain in full force and
effect in accordance with the original terms.
If the foregoing correctly sets forth the Agreement between us, please
execute a copy of this letter in the space provided below and return a copy to
our office.
Very truly yours,
BNY FINANCIAL CORPORATION
By:
-----------------------
Title:
READ & AGREED TO:
ADVANCED LIGHTING TECHNOLOGIES
INC., AS AGENT FOR THE BORROWERS
UNDER THE AGREEMENT
By: Louis S. Fisi
-----------------------------
Title:
READ & AGREED TO:
ADVANCED CABLE LITE CORPORATION
By: Louis S. Fisi
-----------------------------
Title:
<PAGE> 59
BNY FINANCIAL CORPORATION
A WHOLLY OWNED SUBSIDIARY OF THE BANK OF NEW YORK
NEW YORK'S FIRST BANK-FOUNDED 1784 BY ALEXANDER HAMILTON
1290 AVENUE OF THE AMERICAS, NEW YORK, N.Y. 10104
212-408-7000
May 29, 1997
Advanced Lighting Technologies, Inc., as Agent
2307 East Aurora Road
Twinsburg, Ohio 44087
Ladies/Gentlemen:
Reference is made to the Revolving Credit and Security Agreement between us
dated March 25, 1996 as supplemented and amended (the "Credit Agreement"). All
capitalized terms not otherwise defined herein shall have such meaning as are
set forth in the Credit Agreement.
Without in any way limiting any discretionary rights we may have under the
Credit Agreement we pursuant to your request we hereby agree to provide you with
a discretionary over-formula Advance in excess of the Advance Rates under the
Credit Agreement in an amount of up to $7,400,000.00 for a period of 90 days
from the date hereof, for the purpose of providing you with the necessary
financing on a short term basis to acquire W.J. Parry & Co., Ltd. a United
Kingdom corporation.
In consideration of our providing you with the accommodation described
above, you agree to pay us a facility fee of $100,000.00, which fee shall be in
addition to any interest (including without limitation the Overadvance Rate),
fees or charges, otherwise payable by you to us under the Credit Agreement.
Furthermore, you hereby agree that you shall cause us to be provided with
the unconditional guarantees of Venture Lighting UK and W.J. Parry & Co., Ltd.,
and we shall be provided with a first and prior security interest and
<PAGE> 60
pledge of the assets of such companies to secure your Obligations. Such
guarantees and pledge of assets shall be provided to us in form and substance
satisfactory to us as promptly as possible.
If the foregoing correctly sets forth the agreement between us, please
execute a copy of this letter in the space provided below and return a fully
executed copy of this letter to our offices.
Very truly yours,
BNY FINANCIAL CORPORATION
By: /s/
---------------------------------
Title: SEVP
READ & AGREED TO:
Advanced Lighting Technologies, Inc.
APL Engineered Materials, Inc.
BIO Light, Inc.
Bright Ideas Advertising and Design, Inc.
Energy Efficient Products, Inc.
Energy-Wise Lighting, Inc.
HID Direct, Inc.
HID Recycling, Inc.
High Intensity Technologies, Inc.
The Light Source, Inc.
Lighting Resources International, Inc.
Metal Halide Controls, Inc.
Metal Halide Technologies, Inc.
MICROSUN Technologies
Specialty Discharge Lighting, Inc.
Venture Lighting International, Inc.
Advanced Cable Lite Corporation
By: /s/ Louis S. Fisi
--------------------------------
EVP
Louis S. Fisi
<PAGE> 1
EXHIBIT 10.25
AMENDMENT NO. 1 TO LEASE AGREEMENT
THIS AMENDMENT NO. 1 TO LEASE made as of this 6th day of
March, 1996, by and between 32000 AURORA ROAD COMPANY, LTD., an Ohio limited
partnership, with its principal place of business located at 29100 Aurora Road,
Solon, Ohio 44139 (hereinafter referred to as "Landlord"), and VENTURE LIGHTING
INTERNATIONAL, INC., an Ohio corporation, with its current mailing address at
32000 Aurora Road, Solon, Ohio 44139 (hereinafter referred to as "Tenant").
RECITALS:
WHEREAS, Landlord and Tenant entered into a Lease Agreement,
dated as of January 1, 1996;
WHEREAS, Tenant desires to lease additional area in the
Building from Landlord;
WHEREAS, Landlord and Tenant desire to amend the terms of the
Lease to provide for the rental of such additional area by Tenant;
NOW, THEREFORE, for valuable consideration, the parties agree
as follows:
1. AMENDMENT TO SECTION 2.1. The following sentences shall be
added to Section 2.1 of the Lease after the final sentence of Section 2.1:
Commencing April 1, 1996, and in consideration of the rents,
terms, provisions, and covenants of this Lease Agreement,
Landlord shall lease, let and demise to Tenant approximately
41,978 square feet of space of the Middle High Bay Area as
outlined in blue on Exhibit "B-1". Commencing April 1, 1996
the term "Leased Premises" shall include the area outlined in
blue on Exhibit "B-1". Commencing April 1, 1997 and in
consideration of the rents, terms, provisions, and covenants
of this Lease Agreement, Landlord shall lease, let and demise
to Tenant the remaining 26,250 square feet of the Middle High
Bay Area as outlined in yellow on Exhibit "B-1". Commencing
April 1, 1997 the defined term "Leased Premises" shall include
the area outlined in yellow on Exhibit "B-1".
<PAGE> 2
2. AMENDMENT TO SECTION 5.1 Section 5.1 of the Lease shall be
deleted in its entirety and the following substituted in lieu thereof:
5.1 BASE RENT. Tenant agrees to pay as rent for the Leased
Premises (excluding the Middle High Bay Area) during the term
of this Lease Agreement without demand, deduction or offset,
the amount of Two Million Three Hundred Five Thousand Dollars
($2,305,000.00) as follows: (a) Three Hundred Fifty Five
Thousand Dollars ($355,000.00) payable in twelve (12) equal,
consecutive installments of Twenty-Nine Thousand Five Hundred
Eighty Three and 33/100 Dollars ($29,583.33) on the first day
of each month from January 1, 1996 through December 31, 1996;
(b) Seven Hundred Fifty Thousand Dollars ($750,000.00) in
twenty four (24) equal, consecutive payments of Thirty One
Thousand Two Hundred Fifty Dollars ($31,250.00) on the first
day of each month from January 1, 1997 through December 31,
1998; and (c) One Million Two Hundred Thousand Dollars
($1,200,000.00) in thirty six (36) equal, consecutive payments
of Thirty Three Thousand Three Hundred Thirty Three and 33\100
Dollars ($33,333.33) on the first day of each month from
January 1, 1999 through December 1, 2001.
Additionally, Tenant agrees to pay rent for the Middle High
Bay Area of the Leased Premises outlined in blue on Exhibit
"B-1" from April 1, 1996 through March 31, 1997 without
demand, deduction, or offset, the amount of One Hundred Fifty
Two Thousand One Hundred Seventy Dollars and Twenty-Six Cents
Dollars ($152,170.26) as follows:
(a) One Hundred Thirteen Thousand Three Hundred Forty
Dollars and Sixty Cents ($113,340.60) payable in nine (9)
equal, consecutive installments of Twelve Thousand Five
Hundred Ninety-Three Dollars and Thirty-Five Cents
($12,593.35) on the first day of each month from April 1, 1996
through December 31, 1996;
(b) Thirty-Eight Thousand Eight Hundred Twenty-Nine
Dollars and Sixty-Six Cents ($38,829.66) in three (3) equal,
consecutive payments of Twelve Thousand Nine Hundred
Forty-Three Dollars and Twenty-Two Cents ($12,943.22) on the
first day of each month from January 1, 1997 through March 31,
1997;
Tenant agrees to pay rent for the Middle High Bay Area of the
Leased Premises outlined in blue and yellow on Exhibit "B-1"
2
<PAGE> 3
during the term of this Lease Agreement without demand,
deduction, or offset, as follows:
(a) One Hundred Eighty-Nine Thousand Three Hundred
Thirty-Two Dollars and Seventy-Three Cents ($189,332.73) in
nine (9) equal, consecutive payments of Twenty-One Thousand
Thirty-Six Dollars and Ninety-Seven Cents ($21,036.97) on the
first day of each month from April 1, 1997 through
December 31, 1997;
(b) Two Hundred Fifty Nine Thousand Two Hundred
Sixty-Six Dollars and Forty Cents ($259,266.40) in twelve (12)
equal, consecutive payments of Twenty-One Thousand Six Hundred
Five Dollars and Fifty-Three Cents ($21,605.53) on the first
day of each month from January 1, 1998 through December 31,
1998;
(c) Two Hundred Sixty-Six Thousand Eighty-Nine
Dollars and Twenty Cents ($266,089.20) in twelve (12) equal,
consecutive payments of Twenty-Two Thousand One Hundred
Seventy-Four Dollars and Ten Cents ($22,174.10) on the first
day of each month from January 1, 1999 through December 31,
1999;
(d) Two Hundred Seventy-Two Thousand Nine Hundred
Twelve Dollars ($272,912.00) in twelve (12) equal, consecutive
payments of Twenty-Two Thousand Seven Hundred Forty-Two
Dollars and Sixty-Seven Cents ($22,742.67) on the first day of
each month from January 1, 2000 through December 31, 2000; and
(e) Two Hundred Seventy-Nine Thousand Seven Hundred
Thirty-Four Dollars and Eighty Cents ($279,734.80) in twelve
(12) equal, consecutive payments of Twenty-Three Thousand
Three Hundred Eleven Dollars and Twenty-Three Cents
($23,311.23) on the first day of each month from January 1,
2001 through December 31, 2001.
Tenant shall be permitted to deduct the cost of the fence
erected by Tenant pursuant to Section 17.11 of the Lease in an
amount not to exceed Ten Thousand Dollars ($10,000.00) from
the November and December, 2001 rental payments set forth
herein; provided, however, said deductions shall not exceed
Five Thousand Dollars ($5,000.00) per month. Tenant shall
provide Landlord with copies of paid receipts for the costs
incurred in erecting said fence.
3
<PAGE> 4
3. AMENDMENT TO SECTION 17. Section 17.11 shall be added to
the Article XVII and shall provide as follows:
17.11 CONSTRUCTION OF FENCE. Tenant shall construct a fence on
the area outlined in pink on Exhibit "B-1", between the areas
designated in blue and yellow on Exhibit "B-1" on or shortly
after April 1, 1996. Tenant shall be permitted to deduct the
cost of the fence from its Base Rent pursuant to Section 5.1.
4. EXHIBITS. Exhibit "B-1" attached hereto shall be added to
the Lease Agreement, as amended.
5. PAYMENT TO HANDL-IT, INC. Upon execution of this Amendment,
Tenant shall pay Handl-It, Inc. Three Thousand Dollars ($3,000.00) to cover the
costs of its expenses arising from vacating the Middle High Bay Area.
6. AMENDMENT TO EXHIBIT "A". Paragraph 29 shall be added to
Exhibit "A" and shall provide as follows:
Lease Agreement shall mean the Lease Agreement by and between
Landlord and Tenant dated as of January 1, 1996, and all
amendments and modifications thereto.
7. AMENDMENT TO EXHIBIT "A". Paragraph 30 shall be added to
Exhibit "A" and shall provide as follows:
Middle High Bay Area shall mean those areas outlined in blue
and yellow on Exhibit "B-1".
8. AMENDMENT TO PARAGRAPH 6 OF EXHIBIT "A". The last sentence
of Paragraph 6 of Exhibit "A" shall be deleted in its entirety and the following
shall be substituted in lieu thereof:
The Common Areas within the Building are outlined in red on
Exhibit "F", and are outlined in red on Exhibit "B-1".
9. AMENDMENT TO PARAGRAPHS 16 AND 22 OF EXHIBIT "A".
Paragraphs 16 and 22 of Exhibit "A" shall be deleted in their entirety and the
following shall be substituted in lieu thereof:
16. "Leased Premises" shall have the meaning ascribed to such
term in Section 2.1 of the Lease Agreement and shall be
outlined in blue on Exhibit "B". As of April 1, 1996 the
Leased Premises shall include the area outlined in blue on
Exhibit "B-1". As of April 1, 1997, the Leased Premises shall
include the area outlined in yellow on Exhibit "B-1".
4
<PAGE> 5
22. "Rental Area of Tenant" shall mean the total number of
square feet of rentable area of the Leased Premises, which is
80,897 square feet As of April 1, 1996, the Rentable Area of
Tenant shall be 122,875 square feet. As of April 1, 1997 the
Rentable Area of Tenant shall be 149,125 square feet.
10. TERMINATION OF AGREEMENT. Landlord and Tenant hereby agree
that all of the parties' obligations under the Agreement dated November 9, 1995
are hereby terminated. Landlord hereby acknowledges that Tenant has completed
its remediation obligations set forth in Sections 2 and 3 of the Agreement.
11. GOVERNING LAW. This Amendment shall be deemed entered into
within and shall be governed by and interpreted in accordance with the laws of
Ohio, and the parties submit to the jurisdiction of any appropriate court within
that state for adjudication of disputes arising from this Amendment.
12. ENTIRE AGREEMENT. This Amendment contains the entire
agreement of the parties with respect to this Amendment and cannot be changed
orally, but only by an agreement in writing and signed by the party against whom
enforcement of any waiver, change, modification or discharge is sought.
13. DUPLICATES. This Amendment may be executed in several
duplicates, all of which shall be deemed to be but one original Amendment.
IN WITNESS WHEREOF, the Landlord and Tenant have executed this
Amendment as of the ____ day of ______________, 1996.
LANDLORD:
32000 AURORA ROAD COMPANY, LTD.,
an Ohio limited partnership
Witnesses:
By: WESTON REALTY, INC., Managing Agent
/s/
- --------------------------------
Print Name:
--------------------
/s/
- -------------------------------- By: /s/ T.S. Asher
-----------------------------
Print Name: Name: T.S. Asher
-------------------- -----------------------------
Its: President
-----------------------------
TENANT:
Witnesses: VENTURE LIGHTING INTERNATIONAL,
INC., an Ohio corporation
/s/
- --------------------------------
Print Name: By: /s/ Thomas R. Grady
-------------------- -----------------------------
5
<PAGE> 6
/s/ Name: Thomas R. Grady
- -------------------------------- -------------------------------
Print Name: Its: Vice President
--------------------- -------------------------------
6
<PAGE> 1
EXHIBIT 10.26
EXECUTION COPY
ADLT
AIRCRAFT DRY LEASE AGREEMENT
This AIRCRAFT DRY LEASE AGREEMENT (this "Agreement") entered into as of
the 27 day of May 1997, by and between LIGHTAIR, LTD. ("Owner") and ADVANCED
LIGHTING TECHNOLOGIES, INC. ("Company").
WITNESSETH:
WHEREAS, Owner is the registered owner of a 1993 Learjet Model 60, S/N:
60-004,N6U4K (the "Aircraft");
WHEREAS, Company will have "possession, control and command" of the
Aircraft, as that phrase is defined by the Internal Revenue Service in Revenue
Ruling 58-215; and
WHEREAS, Company desires to lease the Aircraft from Owner for a minimum of
260 flight hours per year, all in accordance with the terms and conditions
herein contained.
NOW THEREFORE, in consideration of the premises and mutual covenants
contained herein, and for other good and valuable consideration, the parties
hereby agree as follows:
ARTICLE ONE
Lease of Aircraft
-----------------
Company agrees to lease the Aircraft from Owner for a minimum of 260
flight hours per year during the term of this Agreement.
ARTICLE TWO
Term
----
The Agreement shall commence on the date hereof, and shall continue in
effect until April 30, 2007, unless earlier terminated under the provisions of
this Agreement.
<PAGE> 2
ARTICLE THREE
Rent and Security Deposit
-------------------------
The rent payable by Company to Owner shall be calculated on a per-flight
hour basis at the rate of Two Thousand Five Hundred Dollars ($2,500.00) for
each flight hour, or any portion thereof, the Aircraft is utilized by Company.
In addition, Company shall make a security deposit of One Hundred Eighty
Thousand Dollars ($180,000) within 30 days of the commencement of this
Agreement, such amount to be held during the term hereof as security for this
Agreement and refunded upon termination, so long as Company has complied with
all of its obligations hereunder.
ARTICLE FOUR
Aircraft Rental to Other Parties
--------------------------------
Company acknowledges that Owner will rent the Aircraft to other parties
during the term of this Agreement, but Owner shall be required to provide
reasonable notice of such rental to Company so that Company and any other
corporations affiliated with Company shall always have first call on the use of
the Aircraft.
ARTICLE FIVE
Maintenance and Repair
----------------------
Owner shall perform or cause to be performed all maintenance, repair,
inspection and overhaul work necessary to maintain certification of the
Aircraft pursuant to Part 91 of the Federal Aviation Regulations and to
maintain such certification during the term of this Agreement. All such work
on the Aircraft shall be performed in accordance with the standards set by
regulations of the Federal Aviation Administration (the "FAA"). Owner will
coordinate maintenance and repair with Company and any other lessees of the
Aircraft.
ARTICLE SIX
Operating Costs
---------------
Company shall be responsible for its proportionate share of the
following costs and expenses in operating the Aircraft during the term of
this Agreement:
A. Maintenance: All costs and expenses in performing or causing to be
performed all maintenance, repair, inspection and overhaul work on
the Aircraft.
2
<PAGE> 3
B. Insurance: All costs and expenses in maintaining in force such
passenger liability, public liability, property damage, baggage, and
cargo insurance in such form, for such amounts, and with such
insurers as shall be satisfactory to Owner and Company, protecting
Company and Owner as co-insured against claims for death of or
injury to persons, and loss of or damage to property, in connection
with the possession, maintenance, use and operation of the Aircraft.
C. Taxes: All taxes, fees, assessments, fines, and penalties due,
assessed or levied by any taxing authority which relate in any way to
the ownership, use or operation of the Aircraft, including, but
without limitation, all sales taxes and personal property taxes,
license and registration fees, and all use, excise, gross receipts,
franchise, stamp or other taxes, duties or charges, together with
any penalties, fines or interest thereon, imposed, or relating to
activities conducted, during the term of this Agreement.
D. Storage of the Aircraft: All costs and expenses in storing the
Aircraft.
ARTICLE SEVEN
Log Books and Records
---------------------
Owner shall maintain all log books and records pertaining to the
Aircraft in accordance with FAA regulations.
ARTICLE EIGHT
Default
-------
A. Owner shall be in breach of this Agreement if (1) Owner defaults in
the performance of any of its obligations under this Agreement
and such default shall continue for five (5) days after receipt by
Owner of written notice thereof from Company; or (2) Owner takes any
action to prevent or hinder the performance by Company of any of its
obligations under this Agreement. In the event of any breach by
Owner, Company shall have the right to terminate the Agreement
immediately and to pursue any other remedy available to Company in
law or equity. Notwithstanding the foregoing, so long as General
Electric Capital Corporation has a security interest in the Aircraft,
Company's obligation to make the minimum lease payments pursuant
to Article Nine, Section C shall continue.
B. Company shall be in breach of this Agreement if Company defaults in
the performance of any of its obligations under this Agreement and
such default shall continue for five (5) days after receipt by
Company of written notice thereof from
3
<PAGE> 4
Owner. In the event of any breach by Company, Owner shall have the
right to terminate the Agreement immediately and to pursue any other
remedy available to Owner in law or equity.
C. The failure of either party to enforce strictly any provision of this
Agreement shall not be construed as a waiver thereof and shall not
preclude such party from demanding performance in accordance with
the terms hereof.
ARTICLE NINE
Payments
--------
A. The lease, as specified in Article Three, for each flight shall be
due and payable to Owner within twenty (20) days after receipt
of invoices therefor.
B. Payments made and statements furnished to a party shall be directed
to the address specified in Paragraph C of Article Fifteen.
C. A minimum rent payment of Fifty-Four Thousand One Hundred Sixty-Six
Dollars and Sixty Seven Cents ($54,166.67) shall be due and payable
on the first day of each month during the term of this Agreement.
The minimum rent shall be credited against actual hours of usage
during the month, with the difference being a net charge or a net
credit (which would be carried to the next month).
ARTICLE TEN
Assignment
----------
A. Company shall not assign this Agreement or any interest in the
Aircraft without the prior written consent of Owner. Subject to the
foregoing, this Agreement inures to the benefit of, and is
binding on, the heirs, legal representatives, successors, and
assigns of the parties hereto.
B. Company is aware that Owner intends to assign this Agreement (the
"Assignment") as security to GE Capital Corporation (the "Lender")
in order to secure a loan from Lender to Owner. Lender's security
interest in the Aircraft and in this Agreement has priority over
Company's rights in the Aircraft. Company shall enter into a
Consent Agreement with Lender and such other documents in such form
as Lender shall require, so long as Company has the right to
quiet enjoyment of the Aircraft and otherwise complies with its
obligations under.
4
<PAGE> 5
ARTICLE ELEVEN
Accident and Claim
------------------
Owner and Company each shall immediately notify the other of any accident
involving the Aircraft, which notification shall specify to the extent known by
the party, the time and place of the accident, the extent of the damage, the
names and addresses of the parties involved, persons injured, known witnesses,
and owners of properties damaged. Each party shall advise the other of any and
all correspondence, papers, notices, and documents received by Owner in
connection with any claim or demand involving or relating to the Aircraft or
its operation, and shall aid in any investigation instituted by such party and
in seeking the recovery of damages from third persons liable therefor.
ARTICLE TWELVE
Indemnification
---------------
Company shall be liable to Owner for, and agrees to indemnify and hold
harmless Owner and its employees and agents from and against, any and all
suits, claims, liabilities, settlements, losses and expenses (the extent such
are not covered by the insurance policies held pursuant to Paragraph B of
Article Six above) arising out of or attributable to the operation of the
Aircraft hereunder, including but not limited to, injuries to third parties,
or employees of Company, damage to property (whether of Owner or any third
party) and any consequential or incidental damages.
ARTICLE THIRTEEN
Loss or Damage to Aircraft
-------------------------
Risk of loss of or damage to the Aircraft shall be borne by Owner. If,
during the term of this Agreement, the Aircraft is destroyed, lost or
damaged beyond repair, this Agreement shall terminate immediately,
provided, however, that Company shall continue to be bound by all obligations
described in Articles Eleven and Twelve, and shall continue to owe any amounts
due under this Agreement that were due and owing prior to the time that the
Aircraft is destroyed, lost or damaged beyond repair.
ARTICLE FOURTEEN
Automatic Extension
-------------------
After the expiration of the original term of this Agreement as set forth
in Article Two, this Agreement shall be extended automatically on a
month-to-month basis until either party, with or without cause, gives at least
thirty (30) days' prior written notice to the other party that this Agreement
shall terminate as of the end of the next succeeding calendar month.
5
<PAGE> 6
ARTICLE FIFTEEN
Miscellaneous Provision
-----------------------
A. This Agreement constitutes the entire understanding between the
parties, and as of its effective date supersedes all prior or
independent agreements between the parties covering the Aircraft. Any
change or modification hereof must be in writing signed by both
parties.
B. This Agreement is to be construed in accordance with the laws of the
State of Ohio.
C. Any notice given by one party to the other in connection with this
Agreement shall be in writing and shall be sent by certified or
registered mail, return receipt requested:
1. If Company, addressed to:
Advanced Lighting, Technologies, Inc.
2307 East Aurora Road, Suite One
Twinsburg, Ohio 44087
2. If Owner, addressed to:
LightAir, Ltd.
2307 East Aurora Road, Suite One
Twinsburg, Ohio 44087
Notices shall be deemed to have been received on the date of receipt
as shown on the return receipt.
D. Company shall have no right to consent, allow or permit any liens or
encumbrances on the Aircraft. Company shall immediately remove from
the Aircraft any lien or encumbrance arising or created by any act
or omission on the part of the Company.
E. The rights and remedies with respect to any of the terms and
conditions of the Agreement shall be cumulative and not exclusive,
and shall be in addition to all other rights and remedies.
F. If a provision hereof shall be finally declared void or illegal by
any court or administrative agency having jurisdiction over the
parties to this Agreement, the entire Agreement shall not be void,
but the remaining provisions shall continue in effect as nearly as
possible in accordance with the original intent of the parties.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the day and year first above written.
ATTEST: OWNER: LIGHTAIR, LTD.
/s/ Frank P. Nagorney By: /s/ Wayne R. Wellman
- ------------------------- --------------------------------
Title: Wayne R. Wellman
Member
---------------------------------
COMPANY: ADVANCED LIGHTING
/s/ Frank P. Nagorney By: /s/ Louis S. Fisi
- ------------------------- ---------------------------------
Title: Louis S. Fisi
Executive Vice President
7
<PAGE> 8
TRUTH IN LEASING STATEMENT
THE AIRCRAFT, A 1993 LEARJET MODEL 60, MANUFACTURER'S SERIAL NO. 60-004,
CURRENTLY REGISTERED WITH THE FEDERAL AVIATION ADMINISTRATION AS N604K, HAS
BEEN MAINTAINED AND INSPECTED UNDER FAR PART 91 DURING THE 12 MONTH PERIOD
PRECEDING THE DATE OF THIS LEASE.
THE AIRCRAFT WILL BE MAINTAINED AND INSPECTED UNDER FAR PART 91 FOR
OPERATIONS TO BE CONDUCTED UNDER THIS LEASE. DURING THE DURATION OF THIS LEASE,
ADVANCED LIGHTING TECHNOLOGIES, INC., 2307 EAST AURORA ROAD, SUITE ONE,
TWINSBURG, OHIO 44087, IS CONSIDERED RESPONSIBLE FOR OPERATIONAL CONTROL OF THE
AIRCRAFT UNDER THIS LEASE.
AN EXPLANATION OF FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT
FEDERAL AVIATION REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT
STANDARDS DISTRICT OFFICE.
THE "INSTRUCTIONS FOR COMPLIANCE WITH TRUTH IN LEASING REQUIREMENTS"
ATTACHED HERETO ARE INCORPORATED HEREIN BY REFERENCE.
I, THE UNDERSIGNED _________________, AS ______________ OF ADVANCED
LIGHTING TECHNOLOGIES, INC., CERTIFY THAT IT IS RESPONSIBLE FOR OPERATIONAL
CONTROL OF THE AIRCRAFT AND THAT IT UNDERSTANDS ITS RESPONSIBILITIES
FOR COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
IN WITNESS WHEREOF, the parties have executed this Lease.
LIGHTAIR, LTD.
/s/ Wayne R. Hellman 5/27/97
- ------------------------------- --------------
Name and Title Wayne R. Hellman Date
Member
ADVANCED LIGHTING TECHNOLOGIES, INC.
/s/ Louis S. Fisi 5/27/97
- ------------------------------ ---------------
Name and Title Louis S. Fisi Date
Executive Vice President
<PAGE> 1
ADVANCED LIGHTING TECHNOLOGIES, INC.
EXHIBIT 11.1 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Years Ended June 30
-------------------
1996 1995 1994
Shares Amount EPS Shares Amount EPS Shares Amount EPS
------ ------ --- ------ ------ --- ------ ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Income before extraordinary charges $ 2,517 $ 3,142 $ 1,206
Less: Preferred stock dividends - (58) (170)
Increase in warrants' value (1,350) (2,302) -
------- ------- -------
INCOME BEFORE EXTRAORDINARY CHARGES
ATTRIBUTES TO COMMON SHAREHOLDERS $ 1,167 $ 782 $ 1,036
======= ======= =======
Net income $ 2,382 $ 2,889 $ 1,206
Less: Preferred stock dividends - (58) (170)
Increase in warrants' value (1,350) (2,302) -
------- ------- -------
NET INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ 1,032 $ 529 $ 1,036
======= ======= =======
Sharebase:
Shares deemed outstanding at beginning of period 7,282 7,282 7,282
Weighted average shares issued pursuant to initial
public offering 1,601 - -
Weighted average shares issued upon
warrant conversion 296 - -
Weighted average common share equivalent 272 536 536
Weighted average shares issued during the period 20 - -
Weighted average contingent shares issuable 8 - -
----- ----- -----
9,479 7,818 7,818
===== ===== =====
Earnings (loss) per share:
Income before extraordinary charges $ 0.12 $ 0.10 $ 0.13
Extraordinary charges (0.01) (0.03) -
------ ------ ------
EARNINGS (LOSS) PER SHARE $ 0.11 $ 0.07 $ 0.13
====== ====== ======
</TABLE>
<PAGE> 2
ADVANCED LIGHTING TECHNOLOGIES, INC.
EXHIBIT 11.1 - STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Nine Months Ended March 31,
--------------------------------------------------------
1997 1996
--------------------------------------------------------
Shares Amount EPS Shares Amount EPS
--------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income before extraordinary charges $ 4,502 $ 958
Less: Increase in warrants' value - 1,350
------- -------
INCOME (LOSS) BEFORE EXTRAORDINARY CHARGE
ATTRIBUTABLE TO COMMON SHAREHOLDERS $ 4,502 $ (392)
======= =======
Net income $ 4,502 $ 823
Less: Increase in warrants' value - 1,350
------- -------
NET INCOME (LOSS) ATTRIBUTABLE TO COMMON
SHAREHOLDERS $ 4,502 $ (527)
======= =======
Sharebase:
Shares deemed outstanding at beginning of period 10,845 7,282
Weighed average shares issued pursuant to
public offering 2,285 1,171
Weighted average shares issued upon
warrant conversion - 216
Weighted average shares issued in aquisition 25 -
Weighted average shares issued for exercise of
stock options 15 -
Weighted average common share equivalents 298 320
Weighted average shares issued during the period - 9
Weighted average shares issuable 35 1
------ -----
13,503 8,999
====== =====
Earning (loss) per share:
Income (loss) before extraordinary item $ 0.33 $ (0.04)
Extraordinary charge - (0.02)
------ -------
NET EARNINGS (LOSS) PER SHARE $ 0.33 $ (0.06)
====== =======
</TABLE>
<PAGE> 1
EXHIBIT 21.0
The following is a list of significant subsidiaries of
Advanced Lighting Technologies, Inc., all of which are organized under the law
of the State of Ohio, except where indicated:
APL Engineered Materials, Inc.
Venture Lighting International, Inc.
Specialty Discharge Lighting, Inc.
Lighting Resources International, Inc.
Metal Halide Technologies, Inc.
Energy-Wise Lighting, Inc.
The Light Source, Inc.
Bio Light, Inc.
HID Direct, Inc.
Bright Ideas Advertising and Design, Inc.
High Intensity Technologies, Inc.
Energy Efficient Products, Inc.
Metal Halide Controls, Inc.
MICROSUN Technologies, Inc.
HID Recycling, Inc.
Advanced Cable Lite Corporation
Advanced Lighting Technologies Australia, Inc.
Venture Lighting International, Ltd.
(organized under the laws of the United Kingdom)
Pacific Lighting, Inc.
(organized under the laws of the British Virgin Islands)
Spectro Electric, Inc. a/k/a/ Advanced Lighting Technologies Canada, Inc.
(organized under the laws of Ontario)
Advanced Lighting Technologies Ltd.
(organized under the laws of the United Kingdom)
Ballastronix (Delaware), Inc.
(a Delaware corporation)
Ballastronix, Inc.
(organized under the laws of Canada)
Lighting Professionals, Inc.
(an Arizona corporation)
Advanced Lighting Technologies Europe Ltd.
(organized under the laws of the United Kingdom)
Venture Lighting SRL
(organized under the laws of Italy)
Canadian Lighting
(organized under the laws of Canada)
Wrobel Holdings
(organized under the laws of Canada)
Sparrow Industries
(organized under the laws of Canada)
Parry Power Systems, Ltd.
(organized under the laws of the United Kingdom)
<PAGE> 1
Exhibit 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated September 26, 1996, in the Registration Statement (Form
S-1) and related Prospectus of Advanced Lighting Technologies, Inc. for the
registration of 3,450,000 shares of its common stock.
ERNST & YOUNG LLP
Cleveland, Ohio
June 2, 1997
<PAGE> 1
EXHIBIT 24.1
POWER OF ATTORNEY
Each person whose signature appears below constitutes and
appoints Wayne R. Hellman and/or Louis S. Fisi his attorney-in-fact, with the
power of substitution, for him in any and all capacities, to sign the Form S-1
Registration Statement, any amendments thereto or any new registration statement
filed pursuant to Rule 462(b) and any amendments thereto, and to file the same
with exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute or substitutes may do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ WAYNE R. HELLMAN Chief Executive June 3, 1997
- ------------------------------------ Officer and Director
Wayne R. Hellman
/s/ LOUIS S. FISI Executive Vice President, June 3, 1997
- ------------------------------------ Secretary and Director
Louis S. Fisi
/s/ NICHOLAS R. SUCIC Chief Financial Officer, Vice
- ------------------------------------ President and Treasurer June 3, 1997
Nicholas R. Sucic
/s/ THEODORE A. FILSON Director June 3, 1997
- ------------------------------------
Theodore A. Filson
/s/ FRANCIS H. BEAM Director June 3, 1997
- ------------------------------------
Francis H. Beam
Director June ____, 1997
- ------------------------------------
Susumu Harada
/s/ A GORDON TUNSTALL Director June 3, 1997
- ------------------------------------
A Gordon Tunstall
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADVANCED
LIGHTING TECHNOLOGIES, INC. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
NINE MONTHS ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 6,208
<SECURITIES> 10,229
<RECEIVABLES> 26,949
<ALLOWANCES> 236
<INVENTORY> 20,511
<CURRENT-ASSETS> 65,922
<PP&E> 37,376
<DEPRECIATION> 8,016
<TOTAL-ASSETS> 112,320
<CURRENT-LIABILITIES> 22,529
<BONDS> 22,952
<COMMON> 13
0
0
<OTHER-SE> 63,145
<TOTAL-LIABILITY-AND-EQUITY> 112,320
<SALES> 60,776
<TOTAL-REVENUES> 60,776
<CGS> 32,463
<TOTAL-COSTS> 32,463
<OTHER-EXPENSES> 771
<LOSS-PROVISION> (51)
<INTEREST-EXPENSE> 749
<INCOME-PRETAX> 6,983
<INCOME-TAX> 2,481
<INCOME-CONTINUING> 4,502
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,502
<EPS-PRIMARY> .33
<EPS-DILUTED> .33
</TABLE>
