<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------------------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the period ended March 31, 1997
------------------
or
____ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________________ to _____________________
Commission file number 0-27202
ADVANCED LIGHTING TECHNOLOGIES, INC.
- -------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 34-1803229
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(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
2307 EAST AURORA ROAD, SUITE 1, TWINSBURG, OHIO 44087
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(Address of principal executive offices) (Zip Code)
216/ 963-6680
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(Registrant's telephone number, including area code)
Indicate by check () whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
------- ------
There were 13,484,058 shares of the Registrant's Common Stock, $.001 par value
per share, outstanding as of May 9, 1997.
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<TABLE>
<CAPTION>
INDEX
ADVANCED LIGHTING TECHNOLOGIES, INC.
PAGE NO.
<S> <C> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets - March 31,
1997 and June 30, 1996 2
Condensed Consolidated Statements of Operations -- Three
and nine month periods ended March 31, 1997 and
March 31, 1996 3
Condensed Statements of Consolidated Shareholders'
Equity - Nine months ended March 31, 1997 4
Condensed Consolidated Statements of Cash Flows -- Nine
months ended March 31, 1997 and March 31, 1996 5
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings N/A
Item 2. Changes in Securities N/A
Item 3. Default upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders N/A
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
</TABLE>
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N/A - Not Applicable
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
1
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<TABLE>
<CAPTION>
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
MARCH 31, JUNE 30,
1997 1996
-------- --------
(IN THOUSANDS)
ASSETS
Current assets:
<S> <C> <C>
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 25,765 17,298
Furniture and fixtures 7,303 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
2
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<TABLE>
<CAPTION>
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
--------------------- ---------------------
1997 1996 1997 1996
-------- -------- -------- --------
(In thousands, except per share dollar amounts)
<S> <C> <C> <C> <C>
Net sales $ 22,334 $ 13,786 $ 60,776 $ 37,295
Costs and expenses:
Cost of sales 11,866 7,404 32,463 19,957
Marketing and selling 3,894 2,336 10,535 5,864
Research and development 1,524 669 4,268 1,714
General and administrative 1,880 1,466 5,418 4,395
Amortization of intangible assets 105 28 199 63
Settlement of claim -- -- 771 --
Noncash settlement of claim -- -- -- 2,732
-------- -------- -------- --------
Income from operations 3,065 1,883 7,122 2,570
Other income (expense):
Interest expense (392) (211) (749) (1,197)
Interest income 283 75 610 110
-------- -------- -------- --------
Income before income taxes and
extraordinary charge 2,956 1,747 6,983 1,483
Income taxes 1,074 260 2,481 525
-------- -------- -------- --------
Income before extraordinary charge 1,882 1,487 4,502 958
Extraordinary charge, net of applicable
income tax benefits -- (32) -- (135)
-------- -------- -------- --------
NET INCOME $ 1,882 $ 1,455 $ 4,502 $ 823
======== ======== ======== ========
Earnings (loss) per share:
Before extraordinary item $ 0.14 $ 0.14 $ 0.33 ($ 0.04)
Extraordinary charge -- (0.00) -- (0.02)
-------- -------- -------- --------
NET EARNINGS (LOSS) PER SHARE $ 0.14 $ 0.14 $ 0.33 ($ 0.06)
======== ======== ======== ========
Shares used for computing per share amounts 13,802 10,749 13,503 8,999
======== ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements
3
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<TABLE>
<CAPTION>
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 1997
-------------------------------------
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
------- ------- -------- -------
(In thousands)
<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
4
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<TABLE>
<CAPTION>
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS ENDED
MARCH 31,
--------------------
1997 1996
-------- --------
(In thousands)
<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
5
<PAGE> 8
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
included in the Company's annual report on Form 10-K for the year ended
6
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June 30, 1996. 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 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.
7
<PAGE> 10
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 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
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.
8
<PAGE> 11
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. INVESTMENT 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 an 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.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
(Dollars in thousands, except per share dollar amounts)
This report on Form 10-Q may contain forward-looking statements. For this
purpose, any statement contained herein that is not a statement of historical
fact may be deemed to be a forward-looking statement. Without limiting the
foregoing, the words "believes," "anticipates," "plans," "expects," and similar
expressions are intended to identify forward-looking statements. There are a
number of factors that could cause the Company's actual results to differ
materially from those indicated by such forward-looking statements.
The following is management's discussion and analysis of certain significant
factors which have affected the results of operations and should be read in
conjunction with the accompanying unaudited Condensed Consolidated Financial
Statements and notes thereto.
RESULTS OF OPERATIONS - SELECTED ITEMS AS A PERCENTAGE OF NET SALES
The following table sets forth, as a percentage of net sales, certain items in
the Company's Condensed Consolidated Statements of Operations for the indicated
periods:
<TABLE>
<CAPTION>
------------------------------------
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
-------------------------------------
1997 1996 1997 1996
-------------------------------------
<S> <C> <C> <C> <C>
Net sales .............................. 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales ....................... 53.1 53.7 53.4 53.5
Marketing and selling ............... 17.4 16.9 17.3 15.7
Research and development ............ 6.8 4.9 7.0 4.6
General and administrative .......... 8.4 10.6 8.9 11.8
Amortization of intangible assets ... 0.5 0.2 0.3 0.2
Settlement of claim ................. -- -- 1.3 --
Noncash settlement of claim ......... -- -- -- 7.3
-------------------------------------
Income from operations ................. 13.7 13.7 11.7 6.9
Other income (expense):
Interest expense .................... (1.8) (1.5) (1.2) (3.2)
Interest income ..................... 1.3 0.5 1.0 0.3
-------------------------------------
Income before income taxes and
extraordinary charge ................ 13.2 12.7 11.5 4.0
Income taxes ........................... 4.8 1.9 4.1 1.4
-------------------------------------
Income before extraordinary charge ..... 8.4 10.8 7.4 2.6
Extraordinary charge, net of applicable
income tax benefits of $91 in 1996 .. -- (0.2) -- (0.4)
-------------------------------------
NET INCOME ............................. 8.4% 10.6% 7.4% 2.2%
=====================================
</TABLE>
NOTE: Columns may not total due to rounding
Factors which have affected the results of operations and net income for the
three and nine month periods ended March 31, 1997 as compared to the comparable
periods of 1996 are discussed below.
OVERVIEW OF RESULTS OF OPERATIONS--NINE MONTHS ENDED MARCH 31, 1997 COMPARED
WITH THE NINE MONTHS ENDED MARCH 31, 1996
Income from operations was $7,122 for the nine months ended March 31, 1997,
compared with income from operations of $2,570 for the nine months ended March
31, 1996. Net income for the nine months ended March 31, 1997 was $4,502,
compared to net income of $823 during the comparable period of fiscal 1996.
The following factors should be considered in comparing the Company's nine month
operations:
- - Results for fiscal 1997 include a nonrecurring charge of $771 ($0.06
per share) in settlement of a claim.
- - Results for fiscal 1996 include a noncash charge of $2,732 ($0.30 per
share) in settlement of threatened litigation.
10
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After excluding the above, the Company's operating activities would have
resulted in income from operations of $7,893 for the nine months ended March 31,
1997, a 49% increase over the $5,302 of income from operations in the first nine
months of fiscal 1996.
THREE MONTHS ENDED MARCH 31, 1997 COMPARED WITH THREE MONTHS ENDED MARCH 31,
1996
Net sales. Net sales increased 62% to $22,334 for the third quarter of fiscal
1997 from $13,786 for the third quarter of fiscal 1996. This increase was a
result of sales growth in lamps ($2.8 million), lamp production equipment ($2.2
million), components ($0.7 million) and the Company's newly-acquired power
supply business ($2.5 million). The increase in lamp and component sales was
primarily attributable to increased unit volume, while the increase in equipment
sales resulted from an increase in equipment contracts in-progress, as compared
with the number of contracts-in-progress during the third quarter of fiscal
1996.
Cost of Sales. Cost of sales increased 60% to $11,866 in the third quarter of
fiscal 1997 from $7,404 in the third quarter of fiscal 1996. As a percentage of
net sales, cost of sales decreased to 53% in the third quarter of fiscal 1997
from 54% in the third quarter of fiscal 1996. This decrease was primarily
attributable to leverage arising from higher lamp and lamp production equipment
sales as compared to the third quarter of fiscal 1996, partially offset by lower
gross margin sales at the Company's newly-acquired power supply business (a
condition the Company expects to improve over the next two years).
Marketing and Selling Expenses. Marketing and selling expenses increased 67% to
$3,894 in the third quarter of fiscal 1997 from $2,336 in the third quarter of
fiscal 1996. The increase reflected the Company's efforts to develop domestic
and foreign metal halide market opportunities and increased marketing of its new
portable lighting systems. Marketing and selling expenses, as a percentage of
net sales, remained relatively constant at approximately 17%.
Research and Development Expenses. Research and development expenses increased
to $1,524 in the third quarter of fiscal 1997, a 128% increase over the $669
incurred in the third quarter of fiscal 1996. As a percentage of net sales,
research and development expenses increased to 7% in the third quarter of fiscal
1997 from 5% in the third quarter of fiscal 1996. The spending in this vital
area 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.
General and Administrative Expenses. General and administrative expenses
increased 28% to $1,880 in the third quarter of fiscal 1997 from $1,466 in the
third quarter of fiscal 1996. As a percentage of net sales, general and
administrative expenses decreased to 8% in the third quarter of fiscal 1997 from
11% in the
11
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third quarter 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.
Income from Operations. As a result of the aforementioned factors, during the
third quarter of fiscal 1997 income from operations increased 63% to $3,065,
from $1,883 during the third quarter of fiscal 1996. As a percentage of net
sales, income from operations remained constant at 14%.
Interest Expense. Interest expense increased to $392 during the third quarter of
fiscal 1997 as compared to $211 for the third quarter of fiscal 1996. This
increase resulted from a higher average debt outstanding during the third
quarter of fiscal 1997 as compared to the third quarter of fiscal 1996.
Interest Income. Interest income increased to $283 during the third quarter of
fiscal 1997, as compared to $75 in the third quarter of fiscal 1996. This
increase is attributable to the short-term investments and cash equivalents
arising from the availability of the net proceeds of the common stock offering
completed during the first quarter of fiscal 1997.
Income Taxes. Income tax expense increased 313% to $1,074 in the third quarter
of fiscal 1997, from $260 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 an equivalent valuation allowance in the third
quarter of fiscal 1996 as compared with the utilization of NOLs in the third
quarter of fiscal 1997 with no related valuation allowance reversal.
At June 30, 1996, the Company had United States NOLs for tax purposes of
approximately $8,200 to offset future taxable income. These NOLs expire in the
fiscal years 2006 through 2011.
Extraordinary charge. The Company recorded a $32 extraordinary charge (net of
applicable income taxes of $22) in the third quarter of fiscal 1996,
representing costs associated with the early extinguishment of debt.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED WITH NINE MONTHS ENDED MARCH 31, 1996
Net sales. Net sales increased 63% to $60,776 for the nine months ended March
31, 1997 from $37,295 for the nine months ended March 31, 1996. This increase
was a result of sales growth in lamps ($12.5 million), lamp production equipment
($6.0 million), components ($2.1 million) and the Company's newly-acquired power
supply business ($2.5 million). The increase in lamp and component 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.
12
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Cost of Sales. Cost of sales increased 63% to $32,463 in the nine months ended
March 31, 1997 from $19,957 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 80% to
$10,535 in the nine months ended March 31, 1997 from $5,864 in the nine months
ended March 31, 1996. Marketing and selling expenses, as a percentage of net
sales, increased to 17% during the first three quarters of fiscal 1997, from 16%
in the same period of fiscal 1996. The increase primarily reflects increased
spending related to the development of new domestic and foreign market
opportunities.
Research and Development Expenses. Research and development expenses increased
to $4,268 in the nine months ended March 31, 1997, a 149% increase over the
$1,714 incurred in the comparable period of fiscal 1996. As a percentage of net
sales, research and development expenses increased to 7% in the first three
quarters of fiscal 1997 from 5% in the first three quarters of fiscal 1996. The
spending in this vital area 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.
General and Administrative Expenses. General and administrative expenses
increased 23% to $5,418 in the nine months ended March 31, 1997 from $4,395 in
the comparable period of fiscal 1996. As a percentage of net sales, general and
administrative expenses decreased to 9% in the first three quarters of fiscal
1997 from 12% 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.
Settlement of Claims. On March 1, 1996, a former shareholder of a Predecessor
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 shares prior to the Combination. On August 23, 1996, another
former shareholder of the same predecessor 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 charge of $771 in the nine
month period ended March 31, 1997 represents the $475 settlement plus legal and
other directly-related costs, net of anticipated insurance recoveries.
On October 27, 1995, several former shareholders of the same predecessor 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
13
<PAGE> 16
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 177% to $7,122,
from $2,570 during the nine months ended March 31, 1996. As a percentage of net
sales, income from operations increased to 12% in the first three quarters of
fiscal 1997 from 7% in the first three quarters of fiscal 1996.
Interest Expense. Interest expense decreased 37%, to $749 during the nine months
ended March 31, 1997 as compared to $1,197 for the comparable period of the
preceding year. This decrease resulted from lower average debt outstanding
during the first three quarters of fiscal 1997, as compared to the first three
quarters of fiscal 1996.
Interest Income. Interest income increased to $610, or 454% during the nine
month period ended March 31, 1997, as compared to $110 in the nine months ended
March 31, 1996. This increase is attributable to the 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 373% to $2,481 for the nine months
ended March 31, 1997, from $525 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 an equivalent valuation allowance in the first
three quarters of fiscal 1996 as compared with the utilization of NOLs in the
first three quarters of fiscal 1997 with no related valuation allowance
reversal.
At June 30, 1996, the Company had United States NOLs for tax purposes of
approximately $8,200 to offset future taxable income. These NOLs expire in the
fiscal years 2006 through 2011.
Extraordinary Charge. The Company recorded a $135 extraordinary charge (net of
applicable income tax benefits of $91) in the nine months ended March 31, 1996,
representing costs associated with the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financial requirements are for manufacturing equipment,
market development activities, research and development efforts, investments in
business acquisitions, joint ventures and working capital. These requirements
have been, and the Company expects they will continue to be, financed through a
combination of cash flow from operations, borrowings under various credit
facilities
14
<PAGE> 17
and the sales of common stock (including the remaining proceeds from the July
1996 issuance of common stock currently invested in short-term instruments).
During July 1996, the Company received $33,103 of proceeds from the sale of
2,452,050 shares of its common stock in connection with a public offering.
Underwriting fees amounted to $1,913 and additional costs associated with the
public offering primarily for legal, accounting, consulting, and printing fees
amounted to $1,099. The net proceeds were $30,091, of which, $16,800 was used to
reduce outstanding debt under the Company's domestic Revolving Credit and
Security Agreement (the "Loan Agreement"). The remaining net proceeds were used
to purchase short-term investments and cash equivalents.
Net cash used in operating activities during the nine months ended March 31,
1997 amounted to $6,534, and was primarily used for higher accounts receivable
arising from increased sales and an increase in inventory levels to support
higher sales service levels.
At March 31, 1997, working capital advances outstanding under the Company's
revolving credit agreements were $10,970. Under the agreements, the unpaid
principal balance (together with accrued interest thereon) is payable in March
1999. Working capital advances bear interest at the option of the Company at a
rate per annum 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%. At March 31, 1997,
the interest rate was 8.0%.
The Company's working capital at March 31, 1997 was $43,393 as compared to
$17,341 at June 30, 1996, resulting in a working capital ratio of 2.9 to 1.0,
compared to 2.2 to 1.0 at June 30, 1996.
Capital expenditures, primarily for production equipment and leasehold
improvements, totaled $11,589 in the first three quarters of fiscal 1997.
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 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 $5,511 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 proceeds from a $8,400 term-loan with a
bank.
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 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 an 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.
15
<PAGE> 18
Over the next twelve months, the Company intends to spend approximately $16,900
on additional production equipment. In addition, investments will be made in
joint ventures and affiliates as opportunities arise. While the Company
believes that its available cash, cash flow from operations and available
borrowing capability are sufficient to fund its operations for at least the
next twelve months, it will consider additional borrowings to finance capital
needs when deemed appropriate.
16
<PAGE> 19
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Second Amended and Restated Articles of Incorporation
[as amended to February 12, 1997]; Second Amendment
to Second Amended and Restated Articles of
Incorporation.*
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.**
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.**
11 Statement re Computation of Earnings Per Share
(Unaudited).
27 Financial Data Schedule.
99.1 Advanced Lighting Technologies, Inc. 1997 Employee
Stock Purchase Plan, as amended.
* Incorporated by reference to referenced Exhibit in Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended December 31, 1996.
** 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.
(b) Reports on Form 8-K. No reports on Form 8-K have been filed
during the quarter ended March 31, 1997.
17
<PAGE> 20
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned thereunto duly authorized.
Date: May 14, 1997 ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ Wayne R. Hellman
----------------------------------
Wayne R. Hellman
Chief Executive Officer
By: /s/ Nicholas R. Sucic
----------------------------------
Nicholas R. Sucic
Chief Financial Officer
18
<PAGE> 21
<TABLE>
<CAPTION>
EXHIBIT INDEX
-------------
<S> <C> <C>
EXHIBIT NO. DESCRIPTION OF EXHIBITS PAGE NO.
- ----------- ----------------------- --------
3.1 Second Amended and Restated Articles of Incorporation [as
amended to February 12, 1997]; Second Amendment to Second
Amended and Restated Articles of Incorporation. *
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. **
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. **
11 Statement re Computation of Earnings Per Share (Unaudited).
27 Financial Data Schedule.
99.1 Advanced Lighting Technologies, Inc. 1997 Employee Stock Purchase
Plan, as amended.
* Incorporated by reference to referenced Exhibit in Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended December 31, 1996.
** 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.
</TABLE>
19
<PAGE> 1
ADVANCED LIGHTING TECHNOLOGIES, INC.
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DOLLAR AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended March 31,
----------------------------------------------------------------------
1997 1996
----------------------------------------------------------------------
Shares Amount EPS Shares Amount EPS
======================================================================
<S> <C> <C>
Income before extraordinary charge $1,882 $1,487
Less: Increase in warrants value -- --
------- -------
INCOME BEFORE EXTRAORDINARY CHARGE
ATTRIBUTABLE TO COMMON SHAREHOLDERS $1,882 $1,487
======= =======
Net income $1,882 $1,455
Less: Increase in warrants value -- --
------- -------
NET INCOME ATTRIBUTABLE TO COMMON
SHAREHOLDERS $1,882 $1,455
======= =======
Sharebase:
Shares deemed outstanding at beginning of period 10,845 7,282
Weighted average shares issued pursuant to
public offering 2,452 2,900
Weighted average shares issued upon
warrant conversion -- 536
Weighted average shares issued in acquisition 70 --
Weighted average shares issued for exercise of
stock options 36 --
Weighted average common share equivalents 364 --
Weighted average shares issued during the period -- 28
Weighted average shares issuable 35 3
-------- --------
13,802 10,749
======== ========
Earnings (loss) per share:
Income before extraordinary item $0.14 $ 0.14
Extraordinary charge -- (0.00)
====== ======
NET EARNINGS (LOSS) PER SHARE $0.14 $0.14
====== =======
<CAPTION>
Nine Months Ended March 31,
----------------------------------------------------------------------
1997 1996
----------------------------------------------------------------------
Shares Amount EPS Shares Amount EPS
=======================================================================
<S> <C> <C>
Income before extraordinary charge $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
Weighted average shares issued pursuant to
public offering 2,285 1,171
Weighted average shares issued upon
warrant conversion -- 216
Weighted average shares issued in acquisition 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
========= =======
EARNINGS (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>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADVANCED
LIGHTING TECHNOLOGIES, INC. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
QUARTER ENDED MARCH 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JAN-1-1997
<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> 22,334
<TOTAL-REVENUES> 22,334
<CGS> 11,866
<TOTAL-COSTS> 11,866
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3
<INTEREST-EXPENSE> 392
<INCOME-PRETAX> 2,956
<INCOME-TAX> 1,074
<INCOME-CONTINUING> 1,882
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,882
<EPS-PRIMARY> 0.14
<EPS-DILUTED> 0.14
</TABLE>
<PAGE> 1
EXHIBIT 99.1
April 1, 1997
ADVANCED LIGHTING TECHNOLOGIES, INC.
1997 EMPLOYEE STOCK PURCHASE PLAN
SECTION 1. PURPOSE.
The purpose of the Advanced Lighting Technologies, Inc. 1997
Employee Stock Purchase Plan (the "Plan") is to provide a method whereby
employees of Advanced Lighting Technologies, Inc., (together with any successor
thereto, the "Company") and its Subsidiaries (as defined below) will have an
opportunity to acquire a proprietary interest in the growth and performance of
the Company through the purchase of shares of Common Stock of the Company
("Stock"). It is the intention of the Company to have the Plan qualify as an
"employee stock purchase plan" under Section 423 of the Internal Revenue Code of
1986, as amended (the "Code"). The provisions of the Plan shall be construed so
as to extend and limit participation in a manner consistent with the
requirements of that section of the Code.
SECTION 2. DEFINITIONS.
2.01. Committee.
"Committee" shall mean the Incentive Award Committee
of the Company's Board of Directors.
2.02. Compensation.
"Compensation" shall mean all wages and earnings
included within the definition of wages in Section 3401(a) of the Code.
2.03. Employee.
"Employee" means any person who is customarily
employed on a full-time or part-time basis by the Company or any Subsidiary and
is regularly scheduled to work more than twenty (20) hours per week.
2.04. Participant.
"Participant" means any Employee who has satisfied
the eligibility requirements and completed the authorization form in the manner
provided in Section 3.04 of this Plan.
2.05. Purchase Date.
"Purchase Date" means the last business day of each
calendar month.
2.06. Subsidiary.
"Subsidiary" means (i) any corporation in an
unbroken chain of corporations, starting with the Company, where, at each link
of the chain, the corporation in the link above owns at least Fifty Percent
(50%) of the combined voting power of all the classes of stock in the
corporation below, and (ii) is designated as a participant in the Plan by the
Committee.
SECTION 3. ELIGIBILITY AND PARTICIPATION.
3.01. Initial Eligibility.
Any Employee who shall have completed six (6) months
employment and shall be employed by the Company or any Subsidiary on the date
such Employee's participation for any Offering Period in the Plan is to
<PAGE> 2
become effective shall be eligible to participate in offerings under the Plan
which commences on or after such six (6) month period has concluded.
3.02. Leave of Absence.
For purposes of participation in the Plan, a person
on leave of absence shall be deemed to be an Employee for the first ninety (90)
days of such leave of absence and such Employee's employment shall be deemed to
have terminated at the close of business on the ninetieth day of such leave of
absence unless such Employee shall have returned to regular full-time or
part-time employment (as the case may be) prior to the close of business on such
ninetieth day. Termination by the Company or any Subsidiary of any Employee's
leave of absence, other than termination of such leave of absence on return to
full time or part time employment, shall terminate an Employee's employment for
all purposes of the Plan and shall terminate such Employee's participation in
the Plan and right to exercise any option.
3.03. Restrictions on Participation.
Notwithstanding any provisions of the Plan to the
contrary, no Employee shall be granted an option to participate in the Plan:
(a) if, immediately after the grant, such
Employee would own Stock, and/or hold outstanding options to purchase Stock,
possessing 5% or more of the total combined voting power or value of all classes
of Stock of the Company (for purposes of this paragraph, the rules of Section
424(d) of the Code shall apply in determining Stock ownership of any Employee);
or
(b) which permits the Employee's rights to
purchase Stock under all employee stock purchase plans of the Company to accrue
at a rate which exceeds $25,000 in fair market value of the Stock (determined at
the time such option is granted) for each calendar year in which such option is
outstanding.
3.04. Commencement of Participation.
An eligible Employee may become a Participant by
completing an authorization for a payroll deduction on the form provided by the
Company and filing it with the office of the Treasurer of the Company prior to
the Commencement Date of the next succeeding Offering Period. Payroll deductions
for a Participant shall thereafter commence on the next succeeding Commencement
Date and shall end on the Termination Date of the Offering to which such
authorization is applicable unless sooner terminated by the Participant as
provided in Section 8. Notwithstanding the forgoing, an eligible Employee may
become a Participant at any time during the Offering Period beginning on April
15, 1997 and ending on June 30, 1997 by filing the authorization for payroll
deduction form with the Treasurer of the Company. In such event, payroll
deductions for such Participant shall commence on the next pay date.
SECTION 4. OFFERING.
4.01. Offering.
The Plan will be implemented by an offering
of 100,000 shares of Stock (the "Offering") beginning on April 15, 1997 and
continuing thereafter until all the shares of Stock have been purchased, but
terminating, in any event, on December 31, 2001. The Company may increase the
Offering from time to time in accordance with the procedures set forth in
Section 424 of the Code. As used in this Plan "Commencement Date" means the
first business day of each January and July until termination of the Plan
(except that the Commencement Date of the first Offering Period is April 15,
1997) and "Termination Date" means the last business day of each December and
June until termination of the Plan. Each period between a Commencement Date and
a Termination Date shall constitute a separate "Offering Period."
SECTION 5. PAYROLL DEDUCTIONS.
5.01. Amount of Deduction.
<PAGE> 3
At the time an Employee files an authorization
for payroll deduction, the Employee shall elect to have deductions made from the
Employee's pay on each payday during the time the Employee is a Participant at a
rate not to exceed ten percent (10%) of the Employee's compensation (the
"Payroll Deduction").
5.02. Participant's Account.
All Payroll Deductions made for a Participant
shall be credited to the Participant's account under the Plan. A Participant may
not make any separate cash payment into such account except when on leave of
absence and then only as provided in Section 5.04 of this Plan.
5.03. Changes in Payroll Deductions.
A Participant may discontinue his participation
in the Plan as provided in Section 8, but no other change can be made during an
Offering Period and, specifically, a Participant may not alter the amount of the
Participant's Payroll Deductions during an Offering Period.
5.04. Leave of Absence.
If a Participant goes on a leave of absence, such
Participant shall have the right to elect: (a) to withdraw the balance in the
Participant's account pursuant to Section 7.02, (b) to discontinue contributions
to the Plan but remain a Participant in the Plan, or (c) remain a Participant in
the Plan during such leave of absence, authorizing deductions to be made from
payments by the Company or any Subsidiary to the Participant during such leave
of absence and undertaking to make cash payments to the Plan at the end of each
payroll period to the extent that amounts payable by the Company or any
Subsidiary to such Participant are insufficient to meet such Participant's
authorized Payroll Deduction.
SECTION 6. GRANTING OF OPTION.
6.01. Number of Option Shares.
For each Offering Period, a Participant shall be
deemed to have been granted an option to purchase the maximum whole number of
shares of Stock which may be purchased with each Participant's Payroll Deduction
on each Purchase Date during such Offering Period, at a price equal to
Eighty-Five Percent (85%) of the market value of the Stock on such Purchase Date
(the "Option Price").
6.02. Determination of Option Price.
The Option Price as of each Purchase Date shall be
based upon the closing price of the Stock on each Purchase Date, or the nearest
prior business day on which trading occurred on the NASDAQ National Market
System.
SECTION 7. EXERCISE OF OPTION.
7.01. Automatic Exercise.
Unless a Participant gives written notice to the
Company as hereinafter provided, a Participant's option for the purchase of
Stock with Payroll Deductions made during any Offering Period will be deemed to
have been exercised on each applicable Purchase Date for the purchase of the
number of shares of Stock which the accumulated Payroll Deductions in the
Participant's account at that time will purchase at the applicable Option Price.
7.02. Withdrawal of Account.
By written notice to the Treasurer of the Company
not less than five (5) days prior to any Purchase Date, a Participant may elect
to withdraw all the Payroll Deductions in the Participant's account at such time
and terminate the Participant's participation in the then current Offering
Period.
<PAGE> 4
7.03. Transferability of Option.
During a Participant's lifetime, options held by a
Participant shall be exercisable only by that Participant.
7.04. Delivery of Stock.
As promptly as practicable after each Purchase
Date, the Company will deliver to each Participant (or hold in an account for
the Participant's benefit), as appropriate, the Stock purchased upon exercise of
the Participant's option. Promptly following written notice to the Treasurer of
the Company at any time, the Company will deliver to any Participant the Stock
held in an account for such Participant's benefit.
SECTION 8. WITHDRAWAL.
8.01. In General.
As indicated in Section 7.02, a Participant may
withdraw Payroll Deductions credited to a Participant's account under the Plan
at any time by giving written notice to the Treasurer of the Company. All of the
Participant's Payroll Deductions credited to the Participant's account will be
paid to him promptly after receipt of the Participant's notice of withdrawal,
and (a) no further Payroll Deductions will be made during such Offering Period
and (b) no further Stock shall be purchased during such Offering Period.
8.02. Effect on Subsequent Participation.
A Participant's withdrawal from any Offering
Period will not have any effect upon the Participant's eligibility to
participate in any succeeding Offering Period or in any similar plan which may
hereafter be adopted by the Company.
8.03. Termination of Employment.
Upon termination of the Participant's employment for
any reason, including retirement (but excluding death while in the employ of the
Company or continuation of a leave of absence for a period beyond ninety days),
the Participant's Payroll Deductions will be returned, and any Stock held in an
account for the Participant's benefit will be delivered to the Participant or,
in the case of death subsequent to the termination of employment, to the person
or persons entitled thereto under Section 12.01.
8.04. Termination of Employment Due to Death.
Upon termination of the Participant's employment
because of the Participant's death, the beneficiary (as defined in Section
12.01) shall have the right to elect, by written notice given to the Treasurer
of the Company prior to the earlier of the Termination Date or the expiration of
a period of sixty (60) days commencing with the date of the death of the
Participant, either:
(a) to withdraw all of the Payroll Deductions
credited to the Participant's account under the Plan, or
(b) to exercise the Participant's option
for the purchase of Stock on the Termination Date next following the date of the
Participant's death for the purchase of the number of shares of Stock which the
Payroll Deductions in the Participant's account at the date of the Participant's
death will purchase at the applicable Option Price, and any excess in such
account will be returned to said beneficiary, without interest.
In the event that no such written notice of
election shall be duly received by the office of the Treasurer of the Company,
the beneficiary shall automatically be deemed to have elected, pursuant to
paragraph (b), to exercise the Participant's option.
<PAGE> 5
Following the expiration of such 60-day period,
any Stock held in an account for Participant's benefit will be delivered to said
beneficiary.
8.05. Leave of Absence.
A Participant on leave of absence shall,
subject to the election made by such Participant pursuant to Section 5.04,
continue to be a Participant in the Plan so long as such Participant is on
continuous leave of absence. A Participant who has been on leave of absence for
more than ninety days and who therefore is not an Employee for the purpose of
the Plan shall not be entitled to purchase Stock on any Purchase Date following
such ninetieth day. Notwithstanding any other provisions of the Plan, unless a
Participant on leave of absence returns to regular full-time or part-time
employment with the Company or any Subsidiary at the earlier of: (a) the
termination of such leave of absence or (b) three months from the ninetieth day
of such leave of absence, then such Participant's participation in the Plan
shall terminate on whichever of such dates first occurs.
SECTION 9. INTEREST.
9.01. Payment of Interest.
No interest will be paid or allowed on any money
paid into the Plan or credited to the account of any Participant.
SECTION 10. STOCK.
10.01. Maximum Shares of Stock.
The maximum number of shares of Stock which shall be
issued under the Plan, subject to adjustment upon changes in capitalization of
the Company as provided in Section 12.04, shall be 100,000 shares of Stock. If
the total number of shares of Stock for which options are exercised on any
Termination Date in accordance with Section VI exceeds the maximum number of
shares of Stock for the applicable offering, the Company shall make a pro rata
allocation of the shares available for delivery and distribution in as nearly a
uniform manner as shall be practicable and as it shall determine to be
equitable, and the balance of Payroll Deductions credited to the account of each
Participant under the Plan shall be returned to the Participant as promptly as
possible.
10.02. Participant's Interest in Option Stock.
The Participant will have no interest in Stock
covered by an option until such option has been exercised.
10.03. Registration of Stock.
Stock to be delivered to a Participant under the
Plan will be held by the Company in an account for the benefit of the
Participant, or, if the Participant so directs by written notice to the
Treasurer of the Company prior to the Termination Date applicable thereto, in
the name of the Participant and/or one such other person as may be designated by
the Participant, as joint tenants with rights of survivorship, to the extent
permitted by applicable law.
10.04. Restrictions on Exercise.
The Board of Directors may, in its discretion,
require as conditions to the exercise of any option that the shares of Stock
reserved for issuance upon the exercise of the option shall have been duly
listed, upon official notice of issuance, upon a stock exchange, and that
either:
(a) a Registration Statement under the Securities Act
of 1933, as amended, with respect to the Stock shall be effective, or
(b) the Participant shall have represented at the time of
purchase, in form and substance satisfactory to he Company, that it is the
Participant's intention to purchase the Stock for investment and not for resale
or distribution.
<PAGE> 6
SECTION 11. ADMINISTRATION.
11.01. Appointment of Committee.
The Plan shall be administered by the Committee.
No member of the Committee shall be eligible to purchase Stock under the Plan.
11.02. Authority of Committee.
Subject to the express provisions of the Plan and
applicable law, the Committee shall have full power and authority in its
discretion to interpret and construe any and all provisions of the Plan, to
adopt rules and regulations for administering the Plan, and to make all other
determinations deemed necessary or advisable for administering the Plan. The
Committee's determination on the foregoing matters shall be conclusive.
SECTION 12. MISCELLANEOUS.
12.01. Designation of Beneficiary.
A Participant may file a written designation of a
beneficiary who is to receive any Stock and/or cash. Such designation of
beneficiary may be changed by the Participant any time by written notice to the
Treasurer of the Company. Upon the death of a Participant and upon receipt by
the Company of proof of identity and existence at the Participant's death of a
beneficiary validly designated by the Participant under the Plan, the Company
shall deliver such Stock and/or cash to such beneficiary. In the event of the
death of a Participant and in the absence of a beneficiary validly designated
under the Plan who is living at the time of such Participant's death, the
company shall deliver such Stock and/or cash to the executor or administrator of
the estate of the Participant, or if no such executor or administrator has been
appointed (to the knowledge of the Company), the Company, in its discretion, may
deliver such Stock and/or cash to the spouse or to any one or more dependents of
the Participant as the Company may designate. No beneficiary shall, prior to the
death of the Participant by whom the beneficiary has been designated, acquire
any interest in the Stock or cash credited to the Participant under the Plan.
12.02. Transferability.
Neither Payroll Deductions nor any rights with
regard to the exercise of an option or to receive Stock under the Plan may be
assigned, transferred, pledged, or otherwise disposed of in any way by a
Participant other than by will or the laws of descent and distribution. Any such
attempted assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds in accordance with Section 7.02.
12.03. Use of Funds.
All Payroll Deductions received or held by the
Company under this Plan shall be segregated in a separate account maintained by
the Company.
12.04. Adjustment Upon Changes in Capitalization.
(a) In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Stock, other
securities, or other property) recapitalization, Stock split, reverse Stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Stock or other securities of the Company, issuance of
warrants or other rights to purchase Stock or other securities of the Company,
or other similar corporate transaction or event affects the Stock such that an
adjustment is determined by the Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Plan, the Committee may make appropriate and
proportionate adjustments in the number and/or kind of shares which are subject
to purchase under outstanding options and on the option exercise price or prices
applicable to such outstanding options. In addition, in any such event, the
number and/or kind of shares which may be offered in the Offering may also be
proportionately adjusted.
<PAGE> 7
(b) Upon the dissolution or liquidation of the Company, or
upon a reorganization, merger or consolidation of the Company with one or more
corporations as a result of which the Company is not the surviving corporation,
or upon a sale of substantially all of the property or Stock of the Company to
another corporation, the holder of each option then outstanding under the Plan
will thereafter be entitled to receive at the next Termination Date upon the
exercise of such option for each share of Stock as to which such option shall be
exercised, as nearly as reasonably may be determined, the cash, securities
and/or property which a holder of one share of the Common Stock was entitled to
receive upon and at the time of such transaction. The Board of Directors shall
take such steps in connection with such transactions as the Board shall deem
necessary to assure that the provisions of this Section 12.04 shall thereafter
be applicable, as nearly as reasonably may be determined, in relation to the
said cash, securities and/or property as to which such holder of such option
might thereafter be entitled to receive.
12.05. Amendment and Termination.
The Board of Directors shall have complete power
and authority to terminate or amend the Plan; provided, however, that the Board
of Directors shall not, without the approval of the shareholders of the Company
(i) increase the maximum number of shares of Stock which may be issued; (ii)
amend the requirements as to the class of Employees eligible to purchase Stock
under the Plan or permit the members of the Committee to purchase Stock under
the Plan. No termination, modification, or amendment of the Plan may, without
the consent of an Employee then having an option under the Plan to purchase
Stock, adversely affect the rights of such Employee under such option.
12.06. Effective Date.
The Plan shall become effective as of February 1,
1997, subject to approval by the holders of the majority of the Stock present
and represented at a special or annual meeting of the shareholders held on or
before December 31, 1997.
12.07. No Employment Rights.
The Plan does not, directly or indirectly, create
any right for the benefit of any Employee or class of Employees to purchase any
shares of Stock under the Plan, or create in any Employee or class of Employees
any right with respect to continuation of employment by the Company or any
Subsidiary, and it shall not be deemed to interfere in any way with the
Company's or any Subsidiary's right to terminate, or otherwise modify, an
Employee's employment at any time.
12.08. Effect of Plan.
The provisions of the Plan shall, in accordance
with its terms, be binding upon, and inure to the benefit of, all successors of
each Employee participating in the Plan, including, without limitation, such
Employee's estate and the executors, administrators or trustees thereof, heirs
and legatees, and any receiver, trustee in bankruptcy or representative of
creditors of such Employee.
12.09. Governing Law.
The law of the State of Ohio will govern all matters
relating to this Plan except to the extent it is superseded by the laws of the
United States.
