<PAGE> 1
Filed Pursuant To Rule 424(b)(1)
Registration No. 333-28529
PROSPECTUS
[Advanced Logo]
3,000,000 Shares
ADVANCED LIGHTING
TECHNOLOGIES, INC.
COMMON STOCK
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OF THE 3,000,000 SHARES OF COMMON STOCK OFFERED HEREBY, 2,400,000 SHARES ARE
BEING OFFERED INITIALLY IN THE UNITED STATES AND CANADA BY THE U.S.
UNDERWRITERS AND 600,000 SHARES ARE BEING OFFERED INITIALLY OUTSIDE OF
THE UNITED STATES AND CANADA BY THE INTERNATIONAL UNDERWRITERS. SEE
"UNDERWRITERS." THE COMMON STOCK OF THE COMPANY IS QUOTED ON THE
NASDAQ NATIONAL MARKET UNDER THE SYMBOL "ADLT." ON JULY 1,
1997, THE REPORTED LAST SALE PRICE OF THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET WAS $25 1/8 PER SHARE.
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SEE "RISK FACTORS" BEGINNING ON PAGE 9 FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE INVESTORS.
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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 $24 3/4 A SHARE
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<TABLE>
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UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share.......................... $24.75 $1.24 $23.51
Total (3).......................... $74,250,000 $3,720,000 $70,530,000
</TABLE>
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(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 U.S. 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 U.S. Underwriters exercise such option
in full, the total price to public, underwriting discounts and
commissions and proceeds to Selling Shareholders will be $85,387,500,
$4,278,000 and $10,579,500, respectively. The Company will not receive
any proceeds from the sale of Shares by the Selling Shareholders. See
"Principal and Selling Shareholders" and "Underwriters."
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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 July 8, 1997, at the office of Morgan
Stanley & Co. Incorporated, New York, N.Y., against payment therefor in
immediately available funds.
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MORGAN STANLEY DEAN WITTER
PRUDENTIAL SECURITIES INCORPORATED
RAYMOND JAMES & ASSOCIATES, INC.
July 1, 1997
<PAGE> 2
[INSIDE FRONT COVER]
[FOUR PRODUCT PICTURES WITH DESCRIPTIVE
CAPTION: "MATERIALS," "SYSTEM COMPONENTS,"
"EQUIPMENT" AND "SYSTEMS"]
<PAGE> 3
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.
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TABLE OF CONTENTS
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PAGE
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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
Certain United States Federal Tax Consequences for Non-United States Holders.......... 57
Underwriters.......................................................................... 60
Legal Matters......................................................................... 63
Experts............................................................................... 63
Index to Financial Statements......................................................... F-1
</TABLE>
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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 over-allot 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
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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> 5
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>
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(1) Recent commercial introduction
(2) Currently in development
5
<PAGE> 6
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> 7
- 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
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Common Stock offered by the Company:
U.S. Offering............................... 2,400,000
International Offering...................... 600,000
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Total.................................... 3,000,000
=========
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>
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(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 924,752 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> 8
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
======= ======= ======= ======= =======
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<CAPTION>
AS OF MARCH 31, 1997
---------------------------
ACTUAL AS ADJUSTED(9)
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(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments...................................... $ 16,437 $ 30,992(10)
Working capital........................................................................ 43,393 57,948
Total assets........................................................................... 112,320 148,775(10)
Total long-term debt................................................................... 22,952 3,257
Total shareholders' equity............................................................. 63,158 133,013
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(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 Operations."
(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, after deducting underwriting discounts and
commissions and estimated offering expenses, and the application of the net
proceeds therefrom. See "Use of Proceeds."
(10) Total assets includes approximately (i) $16,900 for capital expenditures
over the next 12 months and (ii) $5,000 as the cash contribution to the
proposed Rohm and Haas joint venture. Pending such use, the Company would
have, as of March 31, 1997, cash, cash equivalents and short-term
investments of $52,892.
8
<PAGE> 9
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
9
<PAGE> 10
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 $10.3 million in
fiscal 1996, of which $5.7 million was to GE, and $6.2 million in the nine
months ended March 31, 1997, of which $3.9 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
10
<PAGE> 11
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 13.5% of the Company's outstanding shares
of Common Stock (12.3% 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 32.0% of the Company's outstanding shares of Common Stock
(29.3% 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."
11
<PAGE> 12
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 $15
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 funds to the Company's
management, upon whose judgment they must depend. Purchasers have 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
12
<PAGE> 13
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 924,752 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, during the period ending 90 days after the
date of this 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 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. The restrictions
described in this paragraph do not apply to (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, (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 or (e) transactions by any person other than the
Company of shares of Common Stock or other securities acquired in open market
transactions after completion of the offering of the Common Stock.
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> 14
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.
14
<PAGE> 15
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> 16
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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<PAGE> 17
USE OF PROCEEDS
The net proceeds to the Company from the sale of 3,000,000 shares of Common
Stock offered hereby, after deducting underwriting discounts and commissions and
estimated offering expenses, are estimated to be approximately $69.9 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 $33.4 million to repay indebtedness, including (a) $25.4 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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<PAGE> 18
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 3/16 $10
Third Quarter....................................................... 14 3/ 8 1/2
Fourth Quarter...................................................... 18 1/ 12 5/8
Fiscal Year Ending June 30, 1997
First Quarter....................................................... 19 7/ 13 1/8
Second Quarter...................................................... 25 1/ 16 3/8
Third Quarter....................................................... 27 1/ 22
Fourth Quarter...................................................... 26 1/ 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.
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<PAGE> 19
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 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........................................... 58,815 128,667
Retained earnings.................................................... 4,330 4,330
------- --------
Total shareholders' equity........................................ 63,158 133,013
------- --------
Total capitalization.............................................. $86,110 $136,270
======= ========
</TABLE>
- ---------------
(1) Does not include 954,002 shares of Common Stock reserved for issuance under
the Incentive Award Plan, of which options to purchase 924,752 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.
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<PAGE> 20
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> 21
- ---------------
(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> 22
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> 23
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> 24
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> 25
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> 26
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> 27
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> 28
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."
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<PAGE> 29
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> 30
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> 31
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> 32
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.
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<PAGE> 33
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> 34
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 72% of the domestic lighting market in 1995. 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> 35
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 lighting agents to pay commissions for selling the Company's
lamps. Such commissions, unique among lamp
35
<PAGE> 36
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> 37
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> 38
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> 39
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.
39
<PAGE> 40
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> 41
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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<PAGE> 42
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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<PAGE> 43
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.
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<PAGE> 44
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.
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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> 46
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 $10,000 if they attend
75% or more meetings of the board and committees to which they belong. No
director who is an employee of the Company will receive separate compensation
for services rendered as a director.
COMPENSATION OF EXECUTIVE OFFICERS
The following table sets forth certain information with respect to all
compensation paid or earned for services rendered to the Company in all
capacities for the fiscal years ending June 30, 1996 and June 30, 1995 by the
Company's executive officers.
46
<PAGE> 47
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
----------------------------------------------
OTHER ANNUAL
SALARY BONUS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($)(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> 48
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 are outstanding. As of May 28, 1997, an aggregate of
686,377 "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> 49
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> 50
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> 51
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)............ 5,299,545 39.1% 32.0% 198,169 4,849,545 29.3%
Louis S. Fisi(5)............... 539,042 4.0 3.3 50,550 488,492 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 67,103 650,260 3.9
Nicholas R. Sucic.............. 3,563 * * 0 3,563 *
All Directors and Executive
Officers as a Group(4)(6)
(7 persons).................. 5,560,301 41.0 33.6 248,719 5,110,301 30.9
OTHER SELLING SHAREHOLDERS:
Robert S. Roller(5)(8)......... 417,125 3.1% 2.5 31,576 385,549 2.3%
James F. Sarver(5)............. 392,597 2.9 2.4 36,816 355,781 2.2
Juris Sulcs(5)................. 369,161 2.7 2.2 34,619 334,542 2.0
Christine Hellman(5)(9)........ 332,350 2.5 2.0 31,167 301,183 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 2,063,211 shares (1,865,042 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 (1,218,159 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 (1,591,344 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> 52
3,061,334 (2,809,503 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> 53
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.
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<PAGE> 54
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%.
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<PAGE> 55
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 924,752
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, during the period ending 90 days after the
date of this 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 agreement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the
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<PAGE> 56
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 restrictions described in this paragraph do not apply to (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, (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 or
(e) transactions by any person other than the Company of shares of Common Stock
or other securities acquired in open market transactions after completion of the
offering of the Common Stock.
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> 57
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-UNITED STATES HOLDERS
GENERAL
The following discussion concerns the material United States federal income
and estate tax consequences of the ownership and disposition of shares of Common
Stock applicable to Non-U.S. Holders of such shares of Common Stock. In general,
a "Non-U.S. Holder" is any holder other than (i) a citizen or resident, as
specifically defined for U.S. federal income and estate tax purposes, of the
United States, (ii) a corporation, partnership or any entity treated as a
corporation or partnership for U.S. federal income tax purposes created or
organized in the United States or under the laws of the United States or of any
State thereof (including the District of Columbia), (iii) an estate the income
of which is includible in gross income for United States federal income tax
purposes regardless of its source, or (iv) a trust if a court within the United
States is able to exercise primary jurisdiction over the trust's administration
and one or more United States fiduciaries have the authority to control all the
substantial decisions of such trust. The discussion is based on current law,
which is subject to change retroactively or prospectively, and is for general
information only. The discussion does not address all aspects of United States
federal income and estate taxation and does not address any aspects of state,
local or foreign tax laws. The discussion does not consider any specific facts
or circumstances that may apply to a particular Non-U.S. Holder. Accordingly,
prospective investors are urged to consult their tax advisors regarding the
current and possible future United States federal, state, local and non-U.S.
income and other tax consequences of holding and disposing of shares of Common
Stock.
DIVIDENDS
The Company does not intend to declare or pay any cash dividends for the
foreseeable future. See "Common Stock Price Range and Dividend Policy."
In general, dividends paid to a Non-U.S. Holder will be subject to United
States withholding tax at a 30% rate (or a lower rate as may be specified by an
applicable tax treaty) unless the dividends are (i) effectively connected with a
trade or business carried on by the Non-U.S. Holder within the United States or
(ii) if a tax treaty applies, attributable to a United States permanent
establishment or, in the case of an individual, a fixed base in the United
States, maintained by the Non-U.S. Holder. Dividends effectively connected with
such a trade or business or, if a tax treaty applies, attributable to such
permanent establishment or fixed base will generally not be subject to
withholding (if the Non-U.S. Holder files certain forms annually with the payor
of the dividend) but generally will be subject to United States federal income
tax on a net income basis at regular graduated individual or corporate rates. In
the case of a Non-U.S. Holder that is a corporation, such effectively connected
income also may be subject to the branch profits tax (which is generally imposed
on a foreign corporation on the deemed repatriation from the United States of
effectively connected earnings and profits) at a 30% rate or such lower rate as
may be specified by an applicable income tax treaty. The branch profits tax may
not apply if the recipient is a qualified resident of certain countries with
which the United States has an income tax treaty.
To determine the applicability of a tax treaty providing for a lower rate
of withholding, dividends paid to an address in a foreign country are presumed
under current United States Treasury Regulations to be paid to a resident of
that country, unless the payor has definite knowledge that such presumption is
not warranted or an applicable tax treaty (or United States Treasury Regulations
thereunder) requires some other method for determining a Non-U.S. Holder's
residence. However, under proposed regulations, in the case of dividends (paid
after December 31, 1997 or after December 31, 1999 in the case of dividends paid
to accounts in existence on or before the date that is 60 days after the
proposed regulations are published as final regulations), a Non-U.S. Holder
generally would be subject to United States withholding tax at a 31% rate under
the backup withholding rules described below, rather than at a 30% rate or at a
reduced rate under an income tax treaty, unless certain certification procedures
(or, in the case of payments made outside the United States with respect to an
offshore account, certain documentary evidence procedures) are complied with,
directly or through an intermediary. Under current regulations, the Company must
report annually to the United States Internal Revenue Service (the "IRS") and to
each Non-U.S. Holder the amount of dividends
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paid to, and the tax withheld with respect to, each Non-U.S. Holder. These
reporting requirements apply regardless of whether withholding was reduced or
eliminated by an applicable tax treaty. Copies of these information returns also
may be made available under the provisions of a specific treaty or agreement
with the tax authorities of the country in which the Non-U.S. Holder resides.
A Non-U.S. Holder that is eligible for a reduced rate of United States
withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amounts currently withheld by filing an appropriate claim for refund with
the IRS.
SALE OF COMMON STOCK
Generally, a Non-U.S. Holder will not be subject to United States federal
income tax on any gain realized upon the sale or other disposition of such
holder's shares of Common Stock unless (i) the gain is effectively connected
with a trade or business carried on by the Non-U.S. Holder within the United
States and, if a tax treaty applies, the gain is attributable to a permanent
establishment or a fixed base maintained by the Non-U.S. Holder in the United
States; (ii) the Non-U.S. Holder is an individual who holds the shares of Common
Stock as a capital asset and is present in the United States for 183 days or
more in the taxable year of the disposition, and either (a) such Non-U.S. Holder
has a "tax home" (as specifically defined for U.S. federal income tax purposes)
in the United States (unless the gain from disposition is attributable to an
office or other fixed place of business maintained by such non-U.S. Holder in a
foreign country and a foreign tax equal to at least 10% of such gain has been
paid to a foreign country), or (b) the gain from the disposition is attributable
to an office or other fixed place of business maintained by such Non-U.S. Holder
in the United States; (iii) the Non-U.S. Holder is subject to tax pursuant to
the provisions of U.S. tax law applicable to certain United States expatriates
or (iv) the Company is or has been during certain periods a "U.S. real property
holding corporation" for U.S. federal income tax purposes (which the Company
does not believe that is has been, currently is or is likely to become) and,
assuming that the Common Stock is deemed for tax purposes to be "regularly
traded on an established securities market," the Non-U.S. Holder held, at any
time during the five-year period ending on the date of disposition (or such
shorter period that such shares were held), directly or indirectly, more than
five percent of the Common Stock.
ESTATE TAX
Shares of Common Stock owned or treated as owned by an individual who is
not a citizen or resident (as specially defined for United States federal estate
tax purposes) of the United States at the time of death will be includible in
the individual's gross estate for United States federal estate tax purposes,
unless an applicable tax treaty provides otherwise, and may be subject to United
States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
As a general rule, under current United States federal income tax law,
backup withholding tax (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that fail to furnish the information
required under the U.S. information reporting requirements) and information
reporting requirements apply to the actual and constructive payment of
dividends. The United States backup withholding tax and information reporting
requirements generally, under current regulations, will not apply to dividends
paid on Common Stock to a Non-U.S. Holder at an address outside the United
States, unless the payor has knowledge that the payee is a U.S. person. Backup
withholding and information reporting generally will apply to dividends paid on
Common Stock to addresses inside the United States to beneficial owners that are
not entitled to an exemption, as discussed above and that fail to provide in the
manner required certain identifying information. However, under proposed
regulations, in the case of dividends paid after December 31, 1997, a Non-U.S.
Holder generally would be subject to backup withholding at a 31% rate, unless
certain certification procedures (or, in the case of payments made outside the
United States with respect to an offshore account, certain documentary evidence
procedures) are complied with, directly or through an intermediary.
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The payment of the proceeds from the disposition of shares of Common Stock
to or through the United States office of a broker will be subject to
information reporting and backup withholding unless the holder, under penalties
of perjury, certifies, among other things, its status as a Non-U.S. Holder, or
otherwise establishes an exemption. Generally, the payment of the proceeds from
the disposition of shares of Common Stock to or through a non-U.S. office of a
non-U.S. broker will not be subject to backup withholding and will not be
subject to information reporting. In the case of the payment of proceeds from
the disposition of shares of Common Stock to or through a non-U.S. office of a
broker that is a U.S. person or a "U.S.-related person," existing regulations
require (i) backup withholding if the broker has actual knowledge that the owner
is not a Non-U.S. Holder, and (ii) information reporting on the payment unless
the broker receives a statement from the owner, signed under penalties of
perjury, certifying, among other things, its status as a Non-U.S. Holder, or the
broker has documentary evidence in its files that the owner is a Non-U.S. Holder
and the broker has no actual knowledge to the contrary. For this purpose, a
"U.S.-related person" is (i) a "controlled foreign corporation" for United
States federal income tax purposes or (ii) a foreign person 50% or more of whose
gross income from all sources for the three-year period ending with the close of
its taxable hear preceding the payment (or for such part of the period that the
broker has been in existence) is derived from activities that are effectively
connected with the conduct of a United States trade or business. The IRS
recently proposed regulations addressing the withholding and information
reporting rules which could affect the treatment of the payment of proceeds
discussed above. Non-U.S. Holders should consult their tax advisors regarding
the application of these rules to their particular situations, the availability
of an exemption therefrom, the procedure for obtaining such an exemption, if
available, and the possible application of the proposed regulations addressing
the withholding and information reporting rules.
Backup withholding is not an additional tax. Any amounts withheld from a
payment to a Non-U.S. Holder under the backup withholding rules will be allowed
as a credit against such holder's United States federal income tax liability, if
any, provided that such holder files the required information or appropriate
claim for refund with the IRS.
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UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof, the U.S. Underwriters named below, for whom
Morgan Stanley & Co. Incorporated, Prudential Securities Incorporated and
Raymond James & Associates, Inc. are acting as U.S. Representatives, and the
International Underwriters named below for whom Morgan Stanley & Co.
International Limited, Prudential-Bache Securities (U.K.) Inc. and Raymond James
& Associates, Inc. are acting as International Representatives, have severally
agreed to purchase, and the Company has agreed to sell to them, severally, 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>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated....................................... 590,000
Prudential Securities Incorporated...................................... 590,000
Raymond James & Associates, Inc......................................... 590,000
Robert W. Baird & Co. Incorporated...................................... 70,000
William Blair & Company, L.L.C.......................................... 70,000
A.G. Edwards & Sons, Inc................................................ 140,000
EVEREN Securities, Inc.................................................. 70,000
GS2 Securities, Inc..................................................... 70,000
Legg Mason Wood Walker, Incorporated.................................... 70,000
Smith Barney Inc........................................................ 140,000
---------
Subtotal................................................................ 2,400,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited.............................. 200,000
Prudential-Bache Securities (U.K.) Inc.................................. 200,000
Raymond James & Associates, Inc......................................... 200,000
---------
Subtotal................................................................ 600,000
---------
Total........................................................... 3,000,000
=========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives", respectively. 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 their 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 U.S.
Underwriters' over-allotment option described below) if any such shares are
taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer to sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it is in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter.
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The foregoing limitations do not apply to stabilization transactions or to
certain other transactions specified in the Agreement between U.S. and
International Underwriters. As used herein, "United States or Canadian Person"
means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and Canada of any
United States or Canadian Person), and includes any United States or Canadian
branch of a person who is otherwise not a United States or Canadian Person. All
shares of Common Stock to be purchased by the Underwriters under the
Underwriting Agreement are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in
61
<PAGE> 62
compliance with applicable provisions of Japanese law, and that such dealer will
send to any other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
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 that represents a concession
not in excess of $.75 per share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of $.10 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.
The Selling Shareholders have granted to the U.S. 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 U.S. 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
U.S. 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 U.S. Underwriter's name in the preceding table
bears to the total number of shares of Common Stock set forth next to the names
of all U.S. Underwriters in the preceding table.
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, during the period ending 90 days after the date of
this 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 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. The restrictions
described in this paragraph do not apply to (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, (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 or (e) transactions by any person other than the
Company of shares of Common Stock or other securities acquired in open market
transactions after completion of the offering of the Common Stock.
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 over-allot in
connection with the Offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments 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
62
<PAGE> 63
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.
The Company, the Selling Shareholders and the Underwriters have agreed to
indemnify each other against certain liabilities, including liabilities under
the Securities Act.
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.
63
<PAGE> 64
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE> 65
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> 66
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> 67
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> 68
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> 69
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> 70
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> 71
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> 72
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> 73
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> 74
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> 75
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> 76
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> 77
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> 78
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> 79
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> 80
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> 81
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> 82
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> 83
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> 84
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> 85
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> 86
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
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<PAGE> 87
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> 88
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)--CONTINUED
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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.
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[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."]
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[ADVANCED LOGO]
ADVANCED
LIGHTING
TECHNOLOGIES INC.
