<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) January 2, 1998
ADVANCED LIGHTING TECHNOLOGIES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
OHIO 0-27202 34-1803229
- --------------------------------------------------------------------------------
(State or other jurisdiction (Commission File Number) (IRS Employer
of incorporation) Identification No.)
2307 EAST AURORA ROAD, SUITE ONE, TWINSBURG, OHIO 44087
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 330 / 963-6680
--------------------------
NOT APPLICABLE
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
<PAGE> 2
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
On January 2, 1998, Advanced Lighting Technologies, Inc. ("ADLT" or the
"Company") acquired all of the issued and outstanding capital stock (the
"Stock") of Ruud Lighting, Inc., located in Racine, Wisconsin. Ruud Lighting,
Inc. manufactures and directly markets high-intensity discharge ("HID") lighting
systems, with a strong focus on metal halide installations, for commercial,
industrial, outdoor, and related lighting applications.
The Stock was acquired from the five shareholders of Ruud Lighting, Inc., in a
privately-negotiated purchase transaction. The purchase price for the Stock
consisted of three million shares of the Company's Common Stock and
approximately $35.5 million in cash. The shares were newly-issued from available
authorized but unissued shares of the Company. The amount of consideration for
the Stock was determined by arms-length negotiation.
The cash portion of the purchase price for the acquisition was financed using a
portion of the proceeds of the Company's new $85 million secured revolving
facility provided by: National City Bank (the Administrative Agent); NBD Bank;
PNC Bank, National Association; and, National Bank of Canada. After completion
of the Ruud Lighting transaction and payment of existing and outstanding North
American bank borrowings of ADLT and Ruud Lighting (See Item 5), the Company's
available borrowing capacity under the new facility was approximately $31
million.
In connection with the acquisition, Mr. Alan J. Ruud, chief executive officer,
founder and principal shareholder of Ruud Lighting, Inc., and Mr. John R.
Buerkle, President, Regional Director - Consumer Products, Asia-Pacific
operations of S. C. Johnson & Son, Inc., were appointed as members of the
Company's board of directors effective January 2, 1998. Mr. Ruud will also serve
as vice chairman of the Company and on the executive committee of the board of
directors. Prior to the acquisition, the Company supplied its products to Ruud
Lighting, Inc., but had no other relationship with Ruud Lighting, Inc. or any of
its shareholders.
ITEM 5. OTHER EVENTS.
On January 2, 1998, the Company replaced its existing domestic Revolving Credit
and Security Agreement and its Term Note (the "Loan Agreement") and other
borrowings in North America with a new facility (See Item 2 for a description of
the new facility). This early extinguishment of debt under the Loan Agreement
resulted in a noncash write-off of deferred financing costs and an extraordinary
charge (estimated to amount to $650,000, net of applicable estimated income tax
benefits) in the quarter ending March 31, 1998.
1
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements of Business Acquired.
The audited financial statements of Ruud Lighting, Inc. are attached hereto at
page F-1 through F-11.
(b) Pro Forma Financial Information
The unaudited pro forma condensed combined financial statements are presented
for illustrative purposes only, giving effect to the acquisition of Ruud
Lighting, Inc. ("Ruud") by Advanced Lighting Technologies, Inc. ("ADLT"). The
acquisition will be accounted for under the purchase method of accounting,
whereby the purchase price is allocated based on the fair value of the assets
acquired and the liabilities assumed.
The unaudited pro forma condensed combined balance sheet gives effect to the
acquisition as if such transaction occurred on September 30, 1997. This balance
sheet includes the consolidated balance sheet of ADLT and the balance sheet of
Ruud as of September 30, 1997 and pro forma adjustments to reflect the
combination.
The unaudited pro forma condensed combined statements of income for the year
ended June 30, 1997, and the three months ended September 30, 1997, give effect
to the acquisition of Ruud by ADLT as if the acquisition had occurred on July 1,
1996. The unaudited pro forma condensed combined statements of income include
the consolidated statements of income of ADLT and Ruud for the year ended June
30, 1997 and the three months ended September 30, 1997 and pro forma adjustments
to reflect the combination.
The pro forma results are not necessarily indicative of the results of
operations had the acquisition taken place at the beginning of the respective
periods or of future results of the combined companies. The allocation of the
purchase price is preliminary. Final amounts could differ from those reflected
in the pro forma condensed combined financial statements. Upon final
determination, the purchase price will be allocated to the assets and
liabilities acquired based on fair value as of the date of the acquisition.
The principal pro forma adjustments to the condensed combined balance sheet
include purchase accounting entries for the: (i) issuance of three million
shares of ADLT's Common Stock; (ii) increase in debt outstanding to finance the
cash portion of the purchase price; (iii) adjustment of the net assets of Ruud
at estimated fair values; and, (iv) excess of acquisition cost over the fair
value of net assets acquired ("goodwill").
The principal pro forma adjustments to the condensed combined statements of
income include: (i) amortization of goodwill and other intangibles; (ii)
interest expense on the additional funding to finance the cash portion of the
purchase price; and, (iii) incremental tax effects of the pro forma adjustments.
2
<PAGE> 4
Advanced Lighting Technologies, Inc.
Pro Forma Condensed Combined Balance Sheet (Unaudited)
(Dollars in thousands)
<TABLE>
<CAPTION>
As of September 30, 1997
----------------------------------------------------
Historical Pro Forma
--------------------- ---------------------------
ADLT Ruud Adjustments Combined
---------- --------- ----------- ---------
Assets (Note 1)
Current assets:
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents $ 23,839 $ 58 $ 23,897
Short-term investments 4,075 -- 4,075
Trade receivables, net 32,659 1,565 $ (10) a 34,214
Inventories:
Finished goods 23,525 4,578 259 a 28,362
Raw materials and work-in-process 8,944 5,707 322 a 14,973
--------- ---------- -------- ---------
32,469 10,285 581 43,335
Other assets 4,276 387 4,663
--------- ---------- -------- ---------
Total current assets 97,318 12,295 571 110,184
Property, plant and equipment:
Land and buildings 6,177 17,993 (7,180) a 16,990
Machinery and equipment 37,550 13,406 (7,594) a 43,362
Furniture and fixtures 8,303 4,957 (2,679) a 10,581
--------- ---------- -------- ---------
52,030 36,356 (17,453) 70,933
Less accumulated depreciation 9,201 13,385 (13,385) a 9,201
--------- ---------- --------- ---------
42,829 22,971 (4,068) 61,732
Other assets 18,317 618 1,228 e 20,163
Intangible assets, net 4,166 -- 37,478 a 41,644
Excess of cost over net assets of businesses acquired, net 7,878 -- 18,858 b 26,736
--------- --------- -------- ---------
$ 170,508 $ 35,884 $ 54,067 $ 260,459
========= ========= ======== =========
Liabilities and Shareholders' Equity
Current liabilities:
Short-term debt and current portion of long-term debt $ 3,738 $ 50 $ 3,788
Payables and accrued liabilities 20,974 6,530 $ 1,402 c 28,906
--------- ---------- -------- ---------
Total current liabilities 24,712 6,580 1,402 32,694
Long-term debt 3,143 13,000 35,500 c 51,643
Other liabilities 4,482 -- 4,482
Mezzanine equity -- 8,136 (8,136) d --
Shareholders' equity
Common stock 16 5 (2) c,d 19
Paid-in-capital 128,733 120 33,346 c,d 162,199
Retained earnings 9,422 8,043 (8,043) d 9,422
--------- --------- --------- ----------
138,171 8,168 25,301 171,640
--------- --------- --------- ----------
$ 170,508 $ 35,884 $ 54,067 $ 260,459
========= ========= ========= ==========
See note to pro forma condensed combined balance sheet
</TABLE>
3
<PAGE> 5
Advanced Lighting Technologies, Inc.
Note to Pro Forma Condensed Combined Balance Sheet (Unaudited)
September 30, 1997
(Dollars in thousands)
Note 1 - The pro forma balance sheet has been prepared to reflect the
acquisition of Ruud Lighting, Inc. ("Ruud") by Advanced Lighting Technologies,
Inc. ("ADLT") for an aggregate purchase price of $69,769, including estimated
direct costs of acquisition. Pro forma adjustments, based on the application of
the purchase method of accounting, were made to reflect the:
a. Adjustment of the net assets of Ruud to estimated fair value
at the acquisition date.
b. Excess of acquisition cost over the fair value of net assets
acquired ("goodwill").
c. Issuance of three million shares of the ADLT's common stock
and the imputed funding to pay the cash portion of the
purchase price.
d. Elimination of the shareholders' equity and mezzanine equity
accounts of Ruud.
e. Adjustment of deferred taxes related to differences in
estimated fair values and tax basis values of the net assets
of Ruud.
4
<PAGE> 6
Advanced Lighting Technologies, Inc.
Pro Forma Condensed Combined Statement of Income (Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Year Ended June 30, 1997
---------------------------------------------------------
Historical Pro Forma
---------------------------- --------------------------
ADLT Ruud Adjustments Combined
----------- ---------- ----------- -----------
(Note 2)
<S> <C> <C> <C> <C> <C>
Net sales $ 86,490 $ 68,547 $ (649) a $ 154,388
Costs and expenses:
Cost of sales 45,738 46,235 (1,411) a,b 90,562
Marketing and selling 15,434 6,802 22,236
Research and development 5,804 1,893 7,697
General and administrative 7,184 6,098 (434) b 12,848
Settlement of claims 771 771
Consumer product advertising 398 398
Fiber optic joint venture formation costs 286 286
Amortization of intangible assets 406 1,494 c 1,900
----------- ---------- ---------- ----------
Income from operations 10,469 7,519 (298) 17,690
Other income (expense):
Interest expense (1,513) (1,086) (2,485) d (5,084)
Interest income 845 845
----------- ---------- ---------- ----------
Income before income taxes 9,801 6,433 (2,783) 13,451
Income taxes 2,697 - 1,464 e,f 4,161
----------- ---------- ---------- ----------
Net income $ 7,104 $ 6,433 $(4,247) $ 9,290
=========== ========== ========== ==========
Earnings per share $ 0.52 $ 0.56
=========== ==========
Shares used for computing per share amounts 13,558 16,558
=========== ==========
</TABLE>
Note 2 - Pro forma adjustments were made to reflect the:
a. Elimination of ADLT sales to Ruud Lighting, Inc.
b. Depreciation expense relating to property, plant and equipment
based on estimated fair value over estimated useful lives.
c. Amortization of goodwill on a straight-line method over 40 years
and other intangibles over periods ranging from 30 to 40 years.
d. Annual interest charges on $35,500 of imputed funding at 7.0%
interest.
e. Reduction of income taxes relating to the foregoing adjustments.
f. Income tax expense provision on Ruud's income before
income taxes.
5
<PAGE> 7
Advanced Lighting Technologies, Inc.
Pro Forma Condensed Combined Statement of Income (Unaudited)
(Amounts in thousands, except per share amounts)
<TABLE>
<CAPTION>
For the Three Months Ended September 30, 1997
Historical Pro Forma
------------------------- -----------------------------
ADLT Ruud Adjustments Combined
----------- ----------- ----------- -----------
(Note 3)
<S> <C> <C> <C> <C> <C>
Net sales $ 30,242 $ 17,364 $ (129) a $ 47,477
Costs and expenses:
Cost of sales 17,546 12,075 (349) a,b 29,272
Marketing and selling 4,416 1,026 5,442
Research and development 1,594 517 2,111
General and administrative 2,286 1,609 (130) b 3,765
Consumer product advertising 269 269
Fiber optic joint venture formation costs 212 212
Amortization of intangible assets 219 374 c 593
------------ ----------- ---------- -----------
Income from operations 3,700 2,137 (24) 5,813
Other income (expense):
Interest expense (337) (283) (621) d (1,241)
Interest income 527 527
------------ ----------- ---------- -----------
Income before income taxes 3,890 1,854 (645) 5,099
Income taxes 1,400 511 e,f 1,911
------------ ----------- ---------- -----------
Net income $ 2,490 $ 1,854 $ (1,156) $ 3,188
============ =========== ========== ===========
Earnings per share $ 0.15 $ 0.16
============ ===========
Shares used for computing per share amounts 16,625 19,925
============ ===========
</TABLE>
Note 3 - Pro forma adjustments were made to reflect the:
a. Elimination of ADLT sales to Ruud Lighting, Inc.
b. Depreciation expense relating to property, plant and equipment
based on estimated fair value over estimated useful lives.
c. Amortization of goodwill on a straight-line method over 40 years
and other intangibles over periods ranging from 30 to 40 years.
d. Annual interest charges on $35,500 of imputed funding at 7.0%
interest.
e. Reduction of income taxes relating to the foregoing
adjustments.
f. Income tax expense provision on Ruud's income before
income taxes.
6
<PAGE> 8
<TABLE>
<CAPTION>
(c) Exhibits
Exhibit No. Description of Exhibits Page No.
- ----------- ----------------------------------------------------- --------
<S> <C>
2.1 Stock Purchase Agreement among Advanced Lighting
Technologies, Inc., Ruud Lighting, Inc. and Alan J. Ruud,
Theodore O. Sokoly, Donald Wandler, Christopher A. Ruud
and Cynthia A. Johnson, Dated December 19, 1997.
23.1 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
7
<PAGE> 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ADVANCED LIGHTING TECHNOLOGIES, INC.
Date January 12, 1998 By: /s/ Wayne R. Hellman
---------------- --------------------------------------
Wayne R. Hellman
Chief Executive Officer
8
<PAGE> 10
[ERNST & YOUNG LLP LETTERHEAD]
Report of Independent Auditors
Board of Directors
Ruud Lighting, Inc.
We have audited the accompanying balance sheets of Ruud Lighting, Inc. (the
Company) as of November 30, 1997 and 1996, and the related statements of income,
shareholders' equity and cash flows for each of the three years in the period
ended November 30, 1997. 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 financial position of Ruud Lighting, Inc. as of
November 30, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended November 30, 1997, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
December 19, 1997
F-2
<PAGE> 11
Ruud Lighting, Inc.
Balance Sheets
(In Thousands, Except Share Amounts)
<TABLE>
<CAPTION>
NOVEMBER 30
1997 1996
-------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 39 $ 134
Trade accounts receivable, less allowances of $24
and $4, respectively 1,600 2,182
Receivables from related parties 79 259
Other receivables 56 216
Inventories:
Finished goods 3,023 2,956
Raw materials 5,134 5,082
-------------------------------------------
8,157 8,038
Prepaid expenses 289 333
-------------------------------------------
Total current assets 10,220 11,162
Property and equipment:
Land and buildings 18,450 18,702
Machinery and equipment 12,834 11,317
Furniture and fixtures 5,088 4,392
-------------------------------------------
36,372 34,411
Less accumulated depreciation 13,774 11,294
-------------------------------------------
22,598 23,117
Investments in affiliates 517 380
Other assets 375 177
-------------------------------------------
$33,710 $34,836
===========================================
LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities:
Short-term borrowings and current portion of long-term debt $ - $ 4,041
Accounts payable 4,329 4,190
Payables to related parties 18 115
Employee-related liabilities 2,060 1,621
Accrued taxes 218 388
Other accrued liabilities 447 617
-------------------------------------------
Total current liabilities 7,072 10,972
Long-term debt 11,074 8,300
Mezzanine equity, 5,240 shares issued and outstanding 7,767 7,767
Shareholders' equity:
Common stock, $1 par value, 56,000 shares authorized, 5,260
shares issued and outstanding 5 5
Paid-in capital 120 120
Retained earnings 7,672 7,672
-------------------------------------------
Total shareholders' equity 7,797 7,797
-------------------------------------------
$33,710 $34,836
===========================================
See notes to financial statements.
</TABLE>
F-3
<PAGE> 12
Ruud Lighting, Inc.
Statements of Income
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1997 1996 1995
------------------ ----------------------- -----------------
(In Thousands)
<S> <C> <C> <C>
Net sales $69,249 $65,443 $58,762
Costs and expenses:
Cost of sales 46,746 44,647 41,800
Marketing and selling 5,970 6,626 5,027
Research and development 2,002 1,885 1,725
General and administrative expenses 6,358 5,478 4,825
-----------------------------------------------------------
Income from operations 8,173 6,807 5,385
Interest expense (1,070) (823) (730)
-----------------------------------------------------------
Net income $ 7,103 $ 5,984 $ 4,655
============================================================
See notes to financial statements.
</TABLE>
F-4
<PAGE> 13
Ruud Lighting, Inc.
Statements of Shareholders' Equity
Years Ended November 30, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Common Paid-In Retained
Stock Capital Earnings Total
----------------- ---------------- ----------------- ------------------
(In Thousands)
<S> <C> <C> <C> <C>
Balance December 1, 1994 $5 $120 $5,373 $5,498
Net income - - 4,655 4,655
Distributions to shareholders - - (3,250) (3,250)
Transfer to mezzanine equity - - (701) (701)
----------------- ---------------- ----------------- -----------------
Balance November 30, 1995 5 120 6,077 6,202
Net income - - 5,984 5,984
Distributions to shareholders - - (2,800) (2,800)
Transfer to mezzanine equity - - (1,589) (1,589)
----------------- ---------------- ----------------- -----------------
Balance November 30, 1996 5 120 7,672 7,797
Net income - - 7,103 7,103
Distributions to shareholders - - (7,103) (7,103)
----------------- ---------------- ----------------- -----------------
Balance November 30, 1997 $5 $120 $7,672 $7,797
================= ================ ================= =================
</TABLE>
F-5
<PAGE> 14
Ruud Lighting, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED NOVEMBER 30
1997 1996 1995
----------------- ------------------ -------------------
(In Thousands)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income $ 7,103 $ 5,984 $ 4,655
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 2,621 2,427 2,232
Provision for doubtful accounts 20 - -
Loss on disposal of property and equipment 31 6 87
Net changes in:
Accounts receivable and other receivables 902 (831) (88)
Inventories (119) (499) (357)
Prepaid expenses and other assets (154) (67) (167)
Accounts payable and accrued expenses 141 232 59
-----------------------------------------------------
Net cash provided by operating activities 10,545 7,252 6,421
INVESTING ACTIVITIES
Capital expenditures (2,479) (8,357) (5,294)
Proceeds on sale of property 346 19 21
Investments in affiliates (137) (41) (339)
-----------------------------------------------------
Net cash used in investing activities (2,270) (8,379) (5,612)
FINANCING ACTIVITIES
Net proceeds (payments) on short-term borrowings (3,340) (935) 3,306
Proceeds from issuance of long-term debt 27,257 5,069 1,765
Payments of long-term debt (25,184) (304) (2,599)
Distributions to shareholders (7,103) (2,800) (3,250)
-----------------------------------------------------
Net cash (used in) provided by financing activities (8,370) 1,030 (778)
-----------------------------------------------------
Net (decrease) increase in cash (95) (97) 31
Cash at beginning of year 134 231 200
-----------------------------------------------------
Cash at end of year $ 39 $ 134 $ 231
=====================================================
Supplemental cash flow information:
Interest paid $ 1,083 $ 1,063 $ 797
=====================================================
Capitalized interest $ - $ 236 $ 65
=====================================================
See notes to financial statements.
</TABLE>
F-6
<PAGE> 15
Ruud Lighting, Inc.
Notes to Financial Statements
November 30, 1997
(Dollar Amounts in Thousands)
A. ORGANIZATION
NATURE OF BUSINESS
Ruud Lighting, Inc. (the Company) purchases and manufactures lighting products
primarily for sale in the construction and commercial markets in the United
States, Canada, Mexico and Pacific Rim countries. In addition, the Company
operates a facility in which aluminum and steel parts are treated, painted and
finished with top quality protective coatings. The Company uses these parts in
the lighting products it manufactures. It also applies the process to outside
customers' products.
B. SIGNIFICANT ACCOUNTING POLICIES
INVENTORIES
Inventories are stated at cost, which is not in excess of market. Cost is
principally determined using the last-in, first-out (LIFO) method. Certain
inventory ($153 at November 30, 1997 and $276 at November 30, 1996) is
determined using the first-in, first-out (FIFO) method.
If the inventories had been costed using the first-in, first-out (FIFO) method,
they would have been greater by approximately $565 and $536 at November 30, 1997
and 1996, respectively.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation expense related to
buildings and building equipment is computed on the straight-line method.
Depreciation expense on all other assets is computed using accelerated methods.
Estimated useful lives are as follows:
<TABLE>
<CAPTION>
Years
---------------------
<S> <C>
Buildings 15 - 40
Machinery and equipment 5 - 7
Furniture and fixtures 5 - 7
</TABLE>
F-7
<PAGE> 16
Ruud Lighting, Inc.
Notes to Financial Statements (continued)
B. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES
The Company elected S Corporation status under the provisions of the Internal
Revenue Code effective as of December 1, 1985. Under those provisions and most
state laws, the Company generally does not pay federal or state income taxes on
its taxable income. As a result of a taxable year different than the calendar
year, the Company is required to make a refundable corporate tax deposit. This
deposit represents the tax effect of income to the shareholders which is
deferred due to the election of a November 30 year-end and is adjustable each
year based upon changes in income to the shareholders. The deposit is fully
refundable upon termination of S Corporation status or changing to a calendar
year-end. The deposit was $233 and $177 at November 30, 1997 and 1996,
respectively. As an S Corporation, any taxable income or loss of the Company
will be includable in the individual income tax returns of the shareholders.
As of November 30, 1997, there were previously taxed S Corporation earnings not
distributed of approximately $14,300.
RESEARCH AND DEVELOPMENT
The Company expenses research and development costs as incurred.
REVENUE RECOGNITION
The Company recognizes revenue from the sale of lighting products at the time of
shipment. Revenue from services is recognized in the period that the service is
performed.
ADVERTISING EXPENSES
The Company follows the policy of expensing all marketing and advertising costs
as incurred. Total marketing and advertising expenses were $1,200, $1,514 and
$1,248 during the years ended November 30, 1997, 1996 and 1995, respectively.
F-8
<PAGE> 17
Ruud Lighting, Inc.
Notes to Financial Statements (continued)
B. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ACCOUNTING ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in certain circumstances that affect the amounts reported in the
financial statements and notes. Actual results could differ from those
estimates.
FINANCIAL STATEMENT PRESENTATION CHANGES
Certain amounts for prior years have been reclassified to conform to the current
year presentation.
C. PENDING BUSINESS COMBINATION
In September 1997, the Company announced the signing of a letter of intent to
merge with Advanced Lighting Technologies, Inc. (ADLT) for $35,500 in cash and 3
million shares of ADLT common stock. The transaction is contingent upon certain
matters including shareholder approval.
D. INVESTMENTS IN AND ADVANCES TO JOINT VENTURES
During 1996, the Company invested in two joint ventures, Ruud Lighting Australia
and Ruud Lighting Japan. The Company is a 49.5% general partner in Ruud Lighting
Australia and a 40% limited partner in Ruud Lighting Japan. Primary activities
of the joint ventures are sales and distribution of the Company's products in
these local countries. The Company's investments in these joint ventures are
accounted for using the equity method. At November 30, 1997 and 1996, the total
investment in Ruud Lighting Australia was $517 and $380, respectively. The total
investment in Ruud Lighting Japan was $0 at November 30, 1997 and 1996,
respectively.
E. FINANCING ARRANGEMENTS
The Company has a general bank line of credit, which provides for borrowings up
to $21,000. The line bears interest, payable monthly, at LIBOR plus 1.4% and is
secured by a general business security agreement. The line expires on April 11,
2000. At November 30, 1997, there was $11,074 outstanding on the line.
F-9
<PAGE> 18
Ruud Lighting, Inc.
Notes to Financial Statements (continued)
E. FINANCING ARRANGEMENTS (CONTINUED)
The Company's general bank line of credit contains various covenants and
restrictions which are, among other things, the maintenance of minimum tangible
net worth and net earnings, as defined; restrictions on distributions and
limitations on certain new investments.
All debt from the prior year was refinanced into this general bank line of
credit.
Long-term debt at November 30, 1996, consisted of the following:
<TABLE>
<S> <C>
Construction note payable $6,500
Finishing equipment note payable 1,588
Industrial Development Revenue Bonds 1,000
Other 28
-----------
9,116
Less current portion 816
-----------
Long-term debt $8,300
===========
</TABLE>
F. SELF-FUNDED HEALTH INSURANCE
The Company partially self-insures for eligible employees' health insurance and
is responsible for a maximum of $30 per year of claims per participant.
Insurance has been purchased to cover claims in excess of the individual
maximums. Total expense, including insurance premiums, for the years ended
November 30, 1997, 1996 and 1995, was approximately $569, $437 and $273,
respectively.
G. BENEFIT PLAN
The Company has a 401(k) salary deferral arrangement for employees. Employees
contribute a designated portion of their salary and the Company matching
contributions are discretionary. Company contributions for the calendar years
1997, 1996 and 1995 were approximately $268, $257 and $184, respectively.
H. RELATED-PARTY TRANSACTIONS
The Company purchases raw materials and tooling from a company owned by a
minority shareholder's son. Purchases from this vendor for the years ended
November 30, 1997, 1996 and 1995, were approximately $245, $292 and $258,
respectively.
F-10
<PAGE> 19
Ruud Lighting, Inc.
Notes to Financial Statements (continued)
H. RELATED-PARTY TRANSACTIONS (CONTINUED)
The Company had a note payable to a related party, payable on demand, at prime.
The amount of the note at November 30, 1996 was $115. The note was paid in 1997.
For the years ended November 30, 1997, 1996 and 1995, the Company had sales to
Ruud Lighting Australia of $421, $402 and $230, respectively; and sales to Ruud
Lighting Japan of $32, $20 and $103, respectively.
During 1997, the Company sold a portion of land to certain of the Company
shareholders for $345 in cash. A gain of $48 was recorded on the sale.
I. STOCK PURCHASE AGREEMENTS
The Company has stock purchase agreements with two shareholders whereby the
Company is obligated to purchase their common stock in the event of the
shareholders' death, termination of employment for any reason or upon the
occurrence of certain other events. In addition, the Company has stock purchase
agreements with two other shareholders whereby the Company may purchase the
outstanding shares or the shareholders may require the Company to purchase the
shares at any time. The total shares subject to these agreements represent 5,240
common shares. Such amounts are classified as mezzanine equity on the balance
sheet. The purchase price is determined based upon historical book value and is
payable over three years with interest at prime.
F-11
<PAGE> 20
Item 7(a) Financial Statements of Business Acquired.
RUUD LIGHTING, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page No.
Audited Financial Statements of Ruud Lighting, Inc.
<S> <C>
Report of Ernst & Young LLP, Independent Auditors..................... F-2
Balance sheets as of November 30, 1997 and 1996....................... F-3
Statements of income for the years ended
November 30, 1997, 1996 and 1995............................. F-4
Statements of shareholders' equity for the years ended
November 30, 1997, 1996 and 1995............................. F-5
Statements of cash flows for the years ended
November 30, 1997, 1996 and 1995............................. F-6
Notes to financial statements......................................... F-7
</TABLE>
F-1
<PAGE> 21
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description of Exhibits Page No.
- -----------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Stock Purchase Agreement among Advanced Lighting
Technologies, Inc., Ruud Lighting, Inc. and Alan J. Ruud,
Theodore O. Sokoly, Donald Wandler, Christopher A. Ruud
and Cynthia A. Johnson, Dated December 19,1997.
23.1 Consent of Ernst & Young LLP, Independent Auditors
</TABLE>
9
<PAGE> 1
Exhibit 2.1
EXECUTION COPY
STOCK PURCHASE AGREEMENT
AMONG
ADVANCED LIGHTING TECHNOLOGIES, INC.,
RUUD LIGHTING, INC.
AND
ALAN J. RUUD,
THEODORE O. SOKOLY,
DONALD WANDLER,
CHRISTOPHER A. RUUD
and
CYNTHIA A. JOHNSON
December 19, 1997
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 1 THE TRANSACTION................................................................1
Section 1.1 Purchase of Shares.............................................1
Section 1.2 Purchase Price.................................................1
Section 1.3 Anti-Dilution..................................................1
Section 1.4 Payment of Purchase Price......................................2
Section 1.5 Closing........................................................2
Section 1.6 Deliveries and Proceedings at Closing..........................2
Section 1.7 Purchase Price Adjustment......................................5
ARTICLE 2 REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS AND RLI......................................................6
Section 2.1 Title to RLI Shares............................................6
Section 2.2 Organization and Qualification.................................6
Section 2.3 Shares; Capitalization.........................................6
Section 2.4 No Subsidiaries................................................7
Section 2.5 Authorization and Enforceability...............................7
Section 2.6 No Violation of Laws or Agreements.............................7
Section 2.7 Financial Statements...........................................8
Section 2.8 Undisclosed Liabilities........................................8
Section 2.9 No Changes.....................................................9
Section 2.10 Tax Matters....................................................9
Section 2.11 Receivables; Inventory........................................10
Section 2.12 Business; Assets..............................................10
Section 2.13 Litigation....................................................10
Section 2.14 Contracts; Compliance.........................................11
Section 2.15 Permits.......................................................11
Section 2.16 Compliance With Laws..........................................11
Section 2.17 Real Property.................................................12
Section 2.18 Transactions With Related Parties.............................12
Section 2.19 Insurance.....................................................12
Section 2.20 Employee Relations............................................13
Section 2.21 Patents and Intellectual Property Rights......................13
Section 2.22 Benefit Plans.................................................14
Section 2.23 Finder's Fees.................................................15
Section 2.24 Confidentiality Agreements....................................15
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
Section 2.25 Compliance with Environmental Laws............................16
Section 2.26 Environmental Liabilities.....................................16
Section 2.27 Disclosure....................................................16
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS................................16
Section 3.1 Title to RLI Shares...........................................16
Section 3.2 Authorization and Enforceability..............................16
Section 3.3 No Violation of Laws or Agreements............................17
Section 3.4 Purchase Entirely for Own Account.............................17
Section 3.5 Restricted Securities.........................................17
Section 3.6 Disclosure of Information.....................................18
Section 3.7 Investment Experience.........................................18
Section 3.8 Accredited Investor...........................................18
ARTICLE 4 REPRESENTATIONS AND WARRANTIES OF ADLT........................................18
Section 4.1 Title to ADLT Shares..........................................18
Section 4.2 Securities....................................................18
Section 4.3 Organization..................................................18
Section 4.4 Shares; Capitalization........................................19
Section 4.5 Subsidiaries..................................................19
Section 4.6 Authorization and Enforceability..............................19
Section 4.7 No Violation of Laws or Agreements............................19
Section 4.8 SEC Reports...................................................20
Section 4.9 Finder's Fees.................................................20
Section 4.10 Disclosure....................................................21
Section 4.11 No Material Adverse Change....................................21
Section 4.12 Litigation....................................................21
Section 4.13 Compliance with Environmental Laws............................21
Section 4.14 Environmental Liabilities.....................................21
Section 4.15 Registration Rights...........................................21
Section 4.16 Financial Statements..........................................21
Section 4.17 Properties....................................................22
Section 4.18 Employee Matters..............................................22
Section 4.19 Intellectual Property.........................................22
Section 4.20 Insurance.....................................................22
Section 4.21 Limitations on Subsidiary Dividends...........................23
Section 4.22 Permits.......................................................23
Section 4.23 Tax Matters...................................................23
Section 4.24 No Default....................................................23
Section 4.25 Private Placements; Securities................................23
Section 4.26 Compliance With Laws..........................................24
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
Section 4.27 Interested Party Transactions.................................24
Section 4.28 Undisclosed Liabilities.......................................24
ARTICLE 5 COVENANTS OF THE SHAREHOLDERS................................................25
Section 5.1 Conduct of Business Pending Closing...........................25
Section 5.2 Access, Information and Documents.............................26
Section 5.3 Preserve Accuracy of Representations and Warranties...........26
Section 5.4 Filings and Authorizations....................................27
Section 5.5 Notice of Changes.............................................27
Section 5.6 Section 338(h)(10) Election; Certain Tax Returns..............27
Section 5.7 Tax Returns and Payment of Taxes for Periods
Through the Closing Date......................................27
Section 5.8 Resale of ADLT Shares.........................................27
Section 5.9 No Negotiations...............................................27
Section 0.1 1997 Audited Financial Statements.............................28
ARTICLE 6 COVENANTS OF ADLT.............................................................28
Section 6.1 Conduct of Business Pending Closing...........................28
Section 6.2 Preserve Accuracy of Representations and Warranties...........29
Section 6.3 Filings and Authorizations....................................29
Section 6.4 Notice of Changes.............................................29
Section 6.5 Stock Option Plan.............................................29
Section 6.6 Employee Benefits.............................................30
Section 6.7 ADLT Board of Directors.......................................30
Section 6.8 Stock Legends.................................................30
Section 6.9 Purchase Price Allocation; Appraisals.........................30
Section 6.10 Permitted Dividends...........................................30
Section 6.11 Access, Information and Documents.............................30
Section 6.12 Post-Closing Indemnification of Certain Persons...............30
ARTICLE 7 CONDITIONS TO CLOSING.........................................................31
Section 7.1 Mutual Conditions Precedent...................................31
Section 7.2 Conditions Precedent to Obligations of ADLT...................32
Section 7.3 Conditions Precedent to the Obligations of the Shareholders...32
ARTICLE 8 TERMINATION...................................................................33
Section 8.1 Termination...................................................33
iii
</TABLE>
<PAGE> 5
<TABLE>
<S> <C> <C>
ARTICLE 9 SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION..................................34
Section 9.1 Survival of Representations...................................34
Section 9.2 Indemnification by the Shareholders...........................34
Section 9.3 Indemnification by ADLT.......................................35
Section 9.4 Minimum and Maximum Indemnification Claim.....................35
Section 9.5 Option to Deliver ADLT Shares as Payment......................36
Section 9.6 Notice of Claims..............................................36
Section 9.7 Third Party Claims............................................36
Section 9.8 Limitation on Damages; Insurance; Etc.........................36
Section 9.9 Good Faith Effort to Settle Disputes..........................37
Section 9.10 Exclusivity...................................................37
ARTICLE 10 MISCELLANEOUS................................................................37
Section 10.1 Construction..................................................37
Section 10.2 Notices.......................................................38
Section 10.3 Successors and Assigns........................................39
Section 10.4 Governing Law.................................................39
Section 10.5 No Assignment.................................................39
Section 10.6 Approvals and Actions by the Shareholders.....................39
Section 10.7 Amendment and Waiver; Cumulative Effect.......................39
Section 10.8 Entire Agreement..............................................40
Section 10.9 Severability..................................................40
Section 10.10 No Third Party Beneficiaries..................................40
Section 10.11 Counterparts..................................................40
</TABLE>
iv
<PAGE> 6
EXHIBITS
Exhibit A Form of General Release
Exhibit B Forms of Employment Agreements
Exhibit C Form of Opinion of Counsel to the Shareholders
Exhibit D Form of Opinion of Counsel to ADLT
Exhibit E Form of Loan Agreement
Exhibit F Form of Registration Rights Agreement
Exhibit G Form of ADLT Stock Option Plan
V
<PAGE> 7
SCHEDULES
Schedule 1.4 Shareholders
Schedule 1.6B Restrictive Legends
Schedule 1.7 Preparation of Closing Statement of Net Worth
Schedule 2.2 Foreign Qualifications
Schedule 2.3 Securities Rights
Schedule 2.4 Subsidiaries
Schedule 2.6 RLI Required Consents
Schedule 2.7 Permitted Accounting Changes
Schedule 2.8 Other Liabilities
Schedule 2.9A Material Transactions
Schedule 2.9B Surplus Real Property
Schedule 2.10 Tax Matters
Schedule 2.11 Receivables
Schedule 2.12 Business; Permitted Encumbrances
Schedule 2.13 Litigation
Schedule 2.14 Contracts
Schedule 2.17 Real Property
Schedule 2.18 Transactions with Related Parties
Schedule 2.19 Insurance; Warranty Claims
Schedule 2.20 Employee Relations
Schedule 2.21 Intellectual Property
Schedule 2.22 Benefit Plans
Schedule 2.23 Confidentiality Agreements
Schedule 2.25 Environmental Matters
Schedule 4.5 ADLT Non-Subsidiary Equity Investments
Schedule 4.7 ADLT Required Consents
Schedule 9.1 Special Indemnity Survival Periods
vi
<PAGE> 8
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") entered into
as of the 19th day of December, 1997 by and among Advanced Lighting
Technologies, Inc., an Ohio corporation ("ADLT"), Ruud Lighting, Inc., a
Wisconsin corporation ("RLI"), and Alan J. Ruud ("Ruud"), Theodore O. Sokoly
("Sokoly"), Donald Wandler ("Wandler"), Christopher A. Ruud and Cynthia A.
Johnson (Ruud, Sokoly, Wandler, Christopher A. Ruud and Cynthia A. Johnson are
sometimes referred to herein individually as a "Shareholder" and collectively as
the "Shareholders");
WITNESSETH:
WHEREAS, the Shareholders own 10,500 shares (the "RLI Shares")
of common stock of RLI, par value $1.00 per share ("RLI Common Stock"), which
shares represent 100% of the issued and outstanding shares of capital stock of
RLI; and
WHEREAS, ADLT desires to acquire from the Shareholders, and
the Shareholders desire to sell to ADLT, the RLI Shares in consideration for
cash in the amount of $35,500,000 and three million shares (the "ADLT Shares")
of common stock of ADLT, par value $.001 per share ("ADLT Common Stock"), all
under and subject to the terms and conditions set forth herein,
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, and intending to be
legally bound, the parties hereto agree as follows:
ARTICLE 1
THE TRANSACTION
Section 1.1 PURCHASE OF SHARES. Subject to the terms and
conditions of this Agreement, the Shareholders shall sell, assign, transfer and
deliver to ADLT at the Closing (as defined in Section 1.5 below), and ADLT shall
purchase from the Shareholders at the Closing, the RLI Shares in exchange for
the Purchase Price (as defined in Section 1.2 below).
Section 1.2 PURCHASE PRICE. As used herein, "Purchase Price"
means (i) $35,500,000 in cash plus (ii) 3 million shares of ADLT Common Stock
(the "ADLT Shares").
Section 1.3 ANTI-DILUTION. If between the date hereof and
Closing the issued and outstanding shares of ADLT Common Stock shall have been
changed into a different number of shares as a result of a stock split, reverse
stock split, stock dividend, recapitalization, reclassification or other similar
transaction with a record or effective date within such period, the term "ADLT
Shares" shall mean the number of shares of ADLT Common Stock which a record
holder of three million shares of ADLT Common Stock prior to such transaction
would own or be entitled to receive after the consummation of such transaction.
<PAGE> 9
Section 1.4 PAYMENT OF PURCHASE PRICE. ADLT shall deliver to
each of the Shareholders on the Closing Date (i) a certificate representing the
number of ADLT Shares prepared by ADLT's transfer agent and (ii) the amount in
cash by wire transfer, or, if permitted by Section 1.6(c)ii, certified or bank
checks payable to the order of each Shareholder, each as set forth opposite such
Shareholder's name on Schedule 1.4. Upon such deliveries, the Purchase Price
shall be paid in full, subject to the adjustment provided for in Section 1.7
below. When reference in this Agreement is made to the RLI Shares, the ADLT
Shares or the Purchase Price with respect to any individual Shareholder, such
reference shall be to the number of RLI Shares or ADLT Shares or the portion of
the cash Purchase Price set forth opposite such Shareholder's name in Schedule
1.4, as adjusted pursuant to Section 1.3.
Section 1.5 CLOSING. The closing hereunder (the "Closing")
shall take place at the offices of Cowden, Humphrey & Sarlson Co., L.P.A., 1414
Terminal Tower, 50 Public Square, Cleveland, Ohio 44113, or such other place as
shall be agreed by RLI and ADLT, on January 2, 1998, effective at 12:01 a.m. on
January 2, 1998, except that if all of the conditions to closing under Article 7
shall not have been satisfied on or before January 2, 1998, then closing shall
take place within six business days after all of the conditions to Closing under
Article 7 shall have been satisfied or waived in writing, at 10:00 a.m. local
time or at such other time, date or place as the parties hereto agree (the date
of the Closing is sometimes referred to herein as the "Closing Date").
Section 1.6 DELIVERIES AND PROCEEDINGS AT CLOSING.
(a) DELIVERIES BY THE SHAREHOLDERS. Each Shareholder shall
deliver or cause to be delivered to ADLT at the Closing and shall cause RLI to
deliver the documents required by (b) below:
i. Certificates representing such Shareholder's RLI
Shares, duly endorsed or with stock powers duly
executed in blank with all transfer taxes, if any,
paid in full;
ii. General Releases in substantially the form set forth
in Exhibit A, duly executed by each of the
Shareholders;
iii. Individual Employment Agreements in substantially the
forms set forth in Exhibit B, duly executed by Ruud,
Sokoly, Wandler, Susan Ruud, Christopher A. Ruud and
Jason Johnson; and
iv. Such other documents and agreements as ADLT may
reasonably request.
(b) DELIVERIES BY RLI. RLI shall deliver or cause to be
delivered to ADLT at the Closing:
2
<PAGE> 10
i. Certificate of status of RLI, issued by the Wisconsin
Department of Financial Institutions within 20 days
prior to Closing, in substance reasonably
satisfactory to ADLT;
ii. An incumbency and specimen signature certificate
signed by the officers of RLI and certified by the
Secretary of RLI;
iii. A true and correct copy of the Articles of
Incorporation (and all amendments thereto) of RLI in
effect as of the Closing Date certified by the
Wisconsin Department of Financial Institutions and
the By-Laws of RLI (together with all amendments
thereto) certified by the Secretary of RLI;
iv. Resolutions of the Board of Directors of RLI
authorizing the execution and delivery of this
Agreement and each Other Agreement to which it is a
party and the performance by RLI of the transactions
contemplated hereby and thereby, certified by the
Secretary of RLI;
v. A certificate dated the Closing Date certifying to
the fulfillment of the conditions set forth in
Section 7.2 hereof;
vi. An opinion of Reinhart Boerner Van Deuren Norris &
Rieselbach, S.C. in substantially the form attached
hereto as Exhibit C;
vii. The minute books, stock ledgers and corporate seal of
RLI and each Subsidiary and all share certificates of
each Subsidiary representing shares of capital stock
of such Subsidiary owned by RLI; and
viii. Such other agreements and documents as ADLT may
reasonably request.
(c) DELIVERIES BY ADLT. ADLT shall deliver or cause to be
delivered to the Shareholders at the Closing:
i. To each Shareholder, a certificate representing the
ADLT Shares registered in the name of such
Shareholder in the name and at the address set forth
on Schedule 1.4 for purposes of ADLT's stock transfer
records and using the Social Security Number set
forth on Schedule 1.4, such share certificates shall
bear restrictive legends in substantially the form
set forth on Schedule 1.6B;
ii. To each Shareholder, a confirmation of a wire
transfer made in accordance with written instructions
provided by such Shareholder, provided however, that
if such instructions are not provided three business
days prior to the
3
<PAGE> 11
Closing, ADLT may deliver a certified or bank check,
payable to the order of such Shareholder, in either
case, in the amount set forth on Schedule 1.4;
iii. Duly executed copies of such other documents and
agreements provided for herein;
iv. A Good Standing certificate of ADLT issued within 20
days prior to Closing certified by the Secretary of
State of the State of Ohio, in form reasonably
satisfactory to RLI;
v. An incumbency and specimen signature certificate
signed by the officers of ADLT and certified by the
Secretary of ADLT;
vi. A true and correct copy of the Restated Articles of
Incorporation (and all amendments thereto) of ADLT in
effect as of the Closing Date certified by the
Secretary of State of the State of Ohio and the Code
of Regulations of ADLT (together with all amendments
thereto) certified by the Secretary of ADLT;
vii. Resolutions of the Board of Directors of ADLT
authorizing the execution and delivery of this
Agreement and each Other Agreement to which it is a
party and the performance of the transactions
contemplated hereby and thereby, certified by the
Secretary of ADLT;
viii. A certificate dated the Closing Date of an officer of
ADLT certifying to the fulfillment of the conditions
set forth in Section 7.3;
ix. The opinion of Cowden, Humphrey & Sarlson Co., L.P.A.
in substantially the form attached as Exhibit D;
x. A Loan Agreement, in substantially the form attached
as Exhibit E, relating to loans to be made available
to the Shareholders in an amount up to a portion of
their tax liability resulting from the transaction,
duly executed by ADLT;
xi. A Registration Rights Agreement, in substantially the
form attached as Exhibit F, relating to piggy back
registration rights of Shareholders (and their
permitted transferees) after the Restricted Period,
as defined in Section 5.8, duly executed by ADLT;
xii. Employment Agreements, in substantially the forms set
forth as Exhibit A, relating to the employment of
Ruud, Sokoly, Wandler, Susan Ruud, Christopher A.
Ruud and Jason Johnson, duly executed by ADLT;
4
<PAGE> 12
xiii. Stock option grant resolution, with respect to the
grant of options to purchase 800,000 shares of ADLT
Common Stock pursuant to the Stock Option Plan (as
defined in Section 6.5), in form reasonably
satisfactory to RLI;
xiv. A copy of the Stock Option Plan certified by the
Secretary of ADLT; and
xv. Such other documents and agreements as RLI shall
reasonably request.
Section 1.7 PURCHASE PRICE ADJUSTMENT.
(a) As promptly as practicable after the Closing Date, but in
any case, prior to February 15, 1998, RLI, with the assistance of Ernst & Young
LLP, shall, at the sole expense of RLI, prepare and deliver to ADLT a statement
of Closing net worth of RLI as of the Closing Date (the "Closing Statement of
Net Worth") prepared in accordance with the procedures set forth on Schedule
1.7. Except as provided in Schedule 2.7, the Closing Statement of Net Worth
shall be prepared in accordance with United States generally accepted accounting
principles ("GAAP") consistently applied with past practice and shall present
fairly the net worth of RLI as of the Closing Date. Based on the Closing
Statement of Net Worth, (i) if the net worth of RLI exceeds the Target Net
Worth, ADLT shall pay each Shareholder, his or her Pro Rata Share of the
difference and (ii) if the net worth of RLI is less than the Target Net Worth,
each Shareholder shall each pay ADLT his or her Pro Rata Share of the
difference. In either case, such payment shall include interest on such
difference from the Closing Date to the date of payment at the rate of interest
publicly announced by The Bank of New York in New York from time to time as its
"Prime Rate." As used herein, the "Target Net Worth" shall equal $15,563,592
LESS $1,500,000 PLUS the "December net income" or LESS the "December net loss."
For purposes hereof, the "December net income" shall mean the net income of RLI,
if any, in accordance with GAAP consistently applied, for the period from
December 1, 1997 to the Closing Date. For purposes hereof, the "December net
loss" shall mean the net loss of RLI, if any, in accordance with GAAP
consistently applied, for the period from December 1, 1997 to the Closing Date.
As used herein, Pro Rata Share means, with respect to any Shareholder, the
number of RLI Shares held by such Shareholder, as set forth on Schedule 1.4,
divided by 10,500. Such difference and the interest payable thereon is referred
to hereinafter as the "Adjustment to Purchase Price."
(b) If ADLT disputes the accuracy of the Closing Statement of
Net Worth in any respect, it shall so notify the Shareholders within ten days of
receipt of the Closing Statement of Net Worth of its disagreement, indicating
the items which are being disputed (the "Disputed Items") and the reasons for
such dispute. If ADLT fails to notify the Shareholders as provided in the
preceding sentence, payment of the Adjustment to Purchase Price shall be due and
payable not later than fifteen days after receipt by ADLT of the Closing
Statement of Net Worth. ADLT and the Shareholders
5
<PAGE> 13
shall make a good faith effort to resolve any Disputed Items, but if they
are unable to do so, the remaining Disputed Items shall be presented to Arthur
Andersen LLP or another firm of independent public accountants mutually
acceptable to ADLT and the Shareholders (the "Accountants"), to make a final
written determination with respect to the correctness of each remaining Disputed
Item. The Accountants shall make such determination within thirty days after the
dispute is submitted to them, and their determination shall be final and binding
upon the parties. The party that is required to pay the Adjustment to Purchase
Price shall pay the other party such amount not later than five days after
receipt of the Accountants' determination. One-half the fees and expenses of the
Accountants in rendering the above opinion shall be payable by ADLT and one-half
shall be payable by the Shareholders.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES
OF THE SHAREHOLDERS AND RLI
The Shareholders and RLI, jointly and severally, represent and
warrant to ADLT as set forth in this Article 2.
Section 2.1 TITLE TO RLI SHARES. Each Shareholder is the
record holder of the number of shares set forth opposite such Shareholder's name
on Schedule 1.4.
Section 2.2 ORGANIZATION AND QUALIFICATION. RLI has been duly
incorporated, is validly existing as a corporation in good standing under the
laws of the State of Wisconsin, has requisite corporate power and authority to
own or lease its property as now owned or leased and to conduct the Business (as
defined in Section 2.12) as it is now conducted. As used herein, the term
"Person" means any person, corporation, association, partnership, limited
liability company, trust, business trust, joint venture, unincorporated
organization or any other legal entity and the term "Other Agreement" with
respect to any party shall mean the other agreements and documents contemplated
hereby to be executed and delivered by such party or any Affiliate thereof on or
before the Closing. Except as set forth in Schedule 2.2, RLI is duly qualified
to transact business and is in good standing as a foreign corporation in those
jurisdictions set forth on Schedule 2.2, which are the only jurisdictions
wherein the conduct of its business or leasing of property requires such
qualification, except to the extent that failure to be so qualified or be in
good standing would not have a material adverse effect on RLI. As used herein,
"Affiliate" means, with respect to any Person, any other Person that, directly
or indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with such Person.
Section 2.3 SHARES; CAPITALIZATION. The authorized capital
stock of RLI consists solely of 56,000 shares of Common Stock, $1.00 par value
per share, of which 10,500 shares are issued and outstanding. Except as set
forth on Schedule 2.3, there are no Securities Rights with respect to any RLI
Shares nor are there any securities convertible into or exchangeable for any RLI
Common Stock or any other Security Rights with respect to any unissued RLI
Common Stock. "Securities Right" means any option, warrant, other right, proxy,
put, call, demand, plan,
6
<PAGE> 14
commitment, agreement, understanding or arrangement of any kind relating to any
RLI Shares. "Security Right" means any right relating to issuance, sale,
assignment, transfer, purchase, redemption, conversion, exchange, registration
or voting rights with respect to any capital stock of the issuer, whether issued
or unissued, or any other security convertible into or exchangeable for capital
stock of the issuer conferred by statute, by the issuer's governing documents or
by agreement, including any subscription right, option, preemptive purchase
right or registration right. All of the RLI Shares are (a) validly issued, fully
paid and nonassessable, except as set forth in Wisconsin statutes section
180.0622(b)(b), as interpreted, (b) were not issued in violation of the terms of
any agreement or other understanding of RLI, and (c) were issued in compliance
with all applicable federal and state securities or "blue-sky" laws and
regulations.
Section 2.4 NO SUBSIDIARIES. Except for Ruud Australia, LLC,
RLI has no direct or indirect subsidiaries. Except as set forth on Schedule 2.4,
RLI does not own, directly or indirectly, any partnership, equity, profit,
participation or similar ownership interest in any corporations, partnerships,
joint ventures, trusts, unincorporated organizations, associations or similar
entities. The term "subsidiary" (or its plural) as used in this Agreement with
respect to RLI, ADLT or any other Person shall mean any corporation,
partnership, joint venture or other legal entity of which RLI, ADLT or such
other Person, as the case may be (either alone or through or together with any
other subsidiary), owns, directly or indirectly, greater than 50% of the stock
or other equity interests the holders of which are generally entitled to vote
for the election of the board of directors or other governing body of such
corporation or other legal entity.
Section 2.5 AUTHORIZATION AND ENFORCEABILITY. The execution,
delivery and performance by RLI of this Agreement has been duly authorized by
all necessary corporate action on its part. This Agreement has been duly
executed and delivered by RLI and constitutes, and each Other Agreement which is
to be executed and delivered by RLI, when executed and delivered by RLI, shall
constitute, the legal, valid and binding obligation of RLI, enforceable against
RLI in accordance with its terms, except to the extent that enforceability may
be limited by applicable bankruptcy, insolvency, reorganization, receivership,
moratorium and other similar laws relating to or affecting the rights and
remedies of creditors generally and by general principles of equity including,
without limitation, concepts of materiality, reasonableness, good faith and fair
dealing and the possible unavailability of specific performance, injunctive
relief or other equitable remedies, regardless of whether enforceability is
considered in a proceeding in equity or at law.
Section 2.6 NO VIOLATION OF LAWS OR AGREEMENTS. Except as set
forth on Schedule 2.6, none of the execution and delivery of this Agreement or
any Other Agreement, the consummation of the transactions contemplated hereby or
thereby or the compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof by the Shareholders or RLI will: (i) contravene any
provision of the charter or bylaws of RLI, (ii) conflict with, result in a
breach of or constitute a default or an event of default (or an event which
would, with the passage of time or the giving of notice or both, constitute a
default) under any term, condition or provision of, or result in the termination
or loss of any right (or give others the right to cause such a termination or
loss) under, any material license or franchise, or any other Contract, to which
RLI is a party or by which
7
<PAGE> 15
RLI's assets may be bound or affected, (iii) violate any Law (as defined in
Section 2.16) or violate any judgment or order of any court, government,
department, commission, board, bureau, agency, official or other regulatory,
administrative or governmental authority or instrumentality, whether federal,
state, local or foreign ("Governmental Body") to which RLI is subject, (iv)
result in the creation or imposition of any Encumbrance upon any RLI Common
Stock or the assets of RLI or give to others any interests or rights therein, or
(v) result in the maturation or acceleration of any indebtedness of RLI for
borrowed money in excess of $200,000 (or give others the right to cause such a
maturation or acceleration). Except as may be required by the U.S.
Hart-Scott-Rodino Anti-Trust Improvements Act of 1976, as amended (the "HSR
Act"), and except as set forth on Schedule 2.6 (collectively, the "Consents"),
no material consent, approval, declaration or authorization of, or registration
or filing with, any Person (including any Governmental Body) is required in
connection with the execution and delivery by RLI of this Agreement or the Other
Agreements to which it is a party and the consummation of the transactions
contemplated hereby and thereby by RLI. "Encumbrance" or "Encumbrances" means
any security interest, pledge, mortgage, lien (including, without limitation,
environmental and tax liens), charge, encumbrance, adverse claim, preferential
arrangement or restriction of any kind, including, without limitation, any
restriction on the use, voting, transfer, receipt of income or other exercise of
any attributes of ownership.
Section 2.7 FINANCIAL STATEMENTS. The Shareholders have
previously delivered to ADLT (a) the audited balance sheets, income statements
and retained earnings and statements of cash flows for RLI, together with the
accompanying footnotes, for the twelve month periods ("Audited Annual
Statement") ended November 30, 1996 and 1995 and (b) unaudited balance sheets,
income statements and retained earnings and statements of cash flows for RLI,
together with the accompanying footnotes, for the eleven month period ending
October 28, 1997 (the balance sheet as of October 28, 1997 is sometimes referred
to herein as the "Interim Balance Sheet") (all of the foregoing referred to
herein collectively as the "RLI Financial Statements"). The RLI Financial
Statements have been prepared in accordance with GAAP on a consistent basis
throughout the indicated periods (except for changes required as a result of
changes in GAAP and, with respect to the Interim Financial Statements, the
absence of notes and for normal year-end adjustments) and fairly present in all
material respects the financial condition, assets and liabilities and results of
operations and cash flows of RLI in accordance with GAAP at the dates and for
the periods indicated. When delivered to ADLT, the Audited Annual Statement for
the twelve month period ending November 30, 1997, will have been prepared in
accordance with GAAP on a consistent basis throughout the periods of such
financial statement and the periods of the RLI Financial Statements (except for
changes required as a result of changes in GAAP) and will fairly present in all
material respects the financial condition, assets and liabilities and results of
operations and cash flows of RLI in accordance with GAAP at November 30, 1997
and for the twelve months then ended.
Section 2.8 UNDISCLOSED LIABILITIES. Except as disclosed in
the RLI Financial Statements and as otherwise disclosed in Schedule 2.8 hereto,
RLI has no Liabilities, other than Liabilities incurred in the ordinary course
of business since the date of the Interim Balance Sheet. For purposes hereof,
"Liabilities" means material liabilities of any nature whatsoever (whether
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absolute, fixed, contingent or otherwise), whether due or to become due, whether
incurred directly or by any predecessor, and whether arising out of any act,
omission, transaction, circumstance, sale of goods or services, state of facts
or other condition.
Section 2.9 NO CHANGES. Except as set forth in Schedule 2.9A,
since November 30, 1996, there has not been any declaration or payment of any
dividend or other distribution on or with respect to, or redemption or purchase
by RLI, of any shares of RLI Common Stock, including any of the RLI Shares,
other than Permitted Dividends. Since October 28, 1997, except as set forth in
Schedule 2.9A, there has been no (a) material adverse change in the financial
condition, assets, Liabilities, net worth, Business or, to the knowledge of the
Shareholders or RLI, prospects of RLI; (b) damage or destruction to any material
asset of RLI, not covered by insurance; (c) increase in the salary, wage or
bonus of any (i) officer of RLI or (ii) other employee of RLI which exceed, in
the aggregate, $100,000; (d) asset acquisition or expenditure, including capital
expenditure, in excess of $200,000 in the aggregate which is not reflected on
the Interim Balance Sheet; (e) amendment to any RLI Plan which would be
reasonably expected to increase the annual expense of RLI in respect of such RLI
Plan by an amount in excess of $100,000; (f) disposition of any assets (other
than inventory, the Excess Real Estate or Permitted Dividends) in the aggregate
for more than $100,000; or (g) agreement or commitment to do any of the
foregoing. The term "Permitted Dividends" shall mean aggregate dividends and/or
distributions made on or after November 30, 1996, consisting of (i) the total
of: (A) the amount of net income of RLI for the twelve months ended November 30,
1997, as shown in the 1997 financial statements of RLI prepared in accordance
with GAAP (excluding any net income from the sale of the Excess Real Estate), on
a basis consistent with the RLI Financial Statements, and (B) $1,500,000, and
(ii) a distribution of the real estate described in Schedule 2.9B (the "Excess
Real Estate") or the proceeds of the sale of Excess Real Estate.
Section 2.10 TAX MATTERS.
(a) RLI is now, and for all periods since December 1, 1986,
has been, a corporation which has elected to be taxed in accordance with
Subchapter S of the United States Internal Revenue Code of 1986, as amended (the
"Code").
(b) RLI has filed all foreign, federal, state and local tax
returns ("Tax Returns") that are required to be filed or has requested
extensions thereof (except in any case in which failure to so file would not
have a material adverse effect on RLI) and has paid all taxes required to be
paid by it and any other assessment, fine or penalty levied against it, to the
extent that any of the foregoing is due and payable, except for any such
assessment, fine or penalty which is reflected as a Liability on the Closing
Statement of Net Worth or which is currently being contested in good faith and
the failure to pay would not have a material adverse effect on RLI.
(c) RLI has not received from the Internal Revenue Service or
from any other tax authority from any state, foreign, county, local or other
jurisdiction a notice of underpayment of Taxes, a proposed assessment of Tax,
a proposed adjustment to any Tax return filed or other deficiency that is
pending or has not been paid or resolved.
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(d) Neither RLI nor any Affiliate of RLI has waived
restrictions on assessment or collection of Taxes or executed a waiver or
consented to the extension of any statute of limitations for federal income or
other Tax Liability that remains outstanding. Except as set forth on Schedule
2.10, neither RLI nor any RLI Affiliate in respect of RLI has made any payments,
is obligated to make any payments, or is a party to any agreement that under any
circumstances could obligate it to make any payments that will not be deductible
under Code Section 280G or 162(m).
Section 2.11 RECEIVABLES; INVENTORY.
(a) RECEIVABLES. Schedule 2.11 discloses all trade and other
accounts receivable of RLI ("Receivables") outstanding as of October 28, 1997
presented on an aged basis and separately identifies the name of each account
debtor and the total amount of each related Receivable. All Receivables, whether
disclosed on Schedule 2.11 or created after October 28, 1997, arose from bona
fide sale transactions of RLI, and except as disclosed on Schedule 2.11, to the
knowledge of the Shareholders, no portion of any Receivable is subject to
counterclaim, defense or set-off or is otherwise in dispute.
(b) INVENTORY. The inventories of RLI are sufficient to permit
the conduct of the RLI Business in the ordinary course of business immediately
following the Closing in the manner in which the RLI Business is presently
conducted.
Section 2.12 BUSINESS; ASSETS. RLI is engaged in the business
of manufacturing lighting systems and direct marketing lighting systems and
lighting system components to commercial, industrial and retail users
(collectively, the "Business"). RLI's equipment and RLI's buildings, fixtures,
improvements, machinery, equipment, tools, furniture, improvements and tangible
personal property, including those reflected on the Interim Balance Sheet, are
in good operating condition and repair (reasonable wear and tear excepted). RLI
has good and marketable title to all of its personal property and none of such
personal property is subject to any Encumbrance except Permitted Encumbrances.
As used herein, the term "Permitted Encumbrances" means liens for governmental
charges that are not yet due and payable, Encumbrances identified in Schedule
2.12 and Encumbrances which do not materially and adversely affect the value of
such property (and are not reflected on the Interim Balance Sheet) and do not
interfere materially with the use made of such property by RLI. Schedule 2.12
identifies any material asset of RLI that is not located on property owned or
leased by RLI, other than vehicles owned or leased by RLI.
Section 2.13 LITIGATION. Except as set forth on Schedule 2.13,
there are no actions, suits, investigations, claims or proceedings of any nature
or kind whatsoever ("Litigation") pending, to which RLI is a party or to which
any of its assets are subject, or, to the knowledge of the Shareholders or RLI,
threatened against RLI or its assets, which could reasonably be expected to (i)
result in a liability, or the impairment of any asset, in excess of $100,000, in
any individual instance or in excess of $250,000, in the aggregate, or (ii)
materially and adversely affect the Business or the operations of RLI or the
transactions contemplated by this Agreement or any Other Agreement. There are
no outstanding judgments, decrees or orders of any Governmental Body
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against or affecting RLI, the RLI Shares, the Business or RLI's assets. RLI has
not commenced and does not have pending any material action, suit or proceeding
against any third party, except as set forth on Schedule 2.15. Except as set
forth in Schedule 2.13, RLI has not been a party to any other Litigation during
the past three years which has or had a material adverse effect on the
Business.
Section 2.14 CONTRACTS; COMPLIANCE.
(a) Disclosed on Schedule 2.14 is a list of each contract,
lease, indenture, mortgage, instrument, commitment or other agreement, to which
RLI is a party or by which it or its assets may be affected with respect to
which RLI has continuing Liability and that (i) involves the purchase, sale or
lease of any asset, materials, supplies, inventory or services in excess of
$200,000 per year; (ii) relates to the borrowing or lending of any money or
guarantee of any obligation in excess of $200,000; (iii) limits the right of RLI
to compete in any line of business; (iv) is an employment or consulting contract
involving the payment of compensation and benefits in excess of $100,000 per
year; or (v) involves the pending or former purchase or sale of any material
business (each, a "Contract" and, collectively, the "Contracts"), but excluding
(A) any Contract that is terminable with no continuing Liability by RLI on no
greater than 60 days notice and (B) purchase orders entered into by RLI in the
ordinary course of business. Schedule 2.14 discloses any outstanding stand-by
letters of credit issued for the account of RLI in excess of $100,000, in any
instance or in excess of $250,000 in the aggregate (the "Letters of Credit").
(b) Each Contract is a legal, valid and binding obligation of
RLI and is in full force and effect. Except as disclosed on Schedule 2.14, RLI
and, to the knowledge of RLI or the Shareholders, each other party to each
Contract has performed all obligations required to be performed by it thereunder
and is not in breach or default, and is not alleged to be in breach or default,
in any respect thereunder, and, to the knowledge of RLI or the Shareholders, no
event has occurred and no condition or state of facts exists (or would exist
upon the giving of notice or the lapse of time or both) that would become or
cause a breach, default or event of default thereunder, would give to any Person
the right to cause such a termination or would cause an acceleration of any
obligation thereunder. Without limiting the foregoing, except as disclosed on
Schedule 2.14, RLI is in compliance with its loan covenants set forth in its
construction note and its finishing equipment note, with Bank One.
Section 2.15 PERMITS. RLI holds and is in compliance in all
material respects with all permits, certificates, licenses, franchises,
privileges, approvals, registrations and authorizations required under all Laws,
in connection with the operation of RLI's assets and the Business (collectively,
the "Permits") and each of such Permits is in full force and effect, except for
any failure to comply which would not have a material adverse effect on RLI. No
notice of (a) cancellation of or default, dispute or complaint concerning any
Permit or (b) any event, condition or state of facts described in the
preceding sentence, has been received by RLI, in either case, which would
reasonably be expected to have a material adverse effect on RLI.
Section 2.16 COMPLIANCE WITH LAWS. RLI has received no notice
that it is and, to the knowledge of RLI and the Shareholders, RLI is not, in
violation in any material respect of any
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applicable foreign, federal, state and local statutes, laws, ordinances, rules
or regulations (collectively, "Laws"), and, to the knowledge of RLI or the
Shareholders, no event has occurred or condition or state of facts exists that
could give rise to any such violation.
Section 2.17 REAL PROPERTY. Schedule 2.17 sets forth a correct
list of all real properties currently owned ("Owned Real Property") or leased by
RLI or in which RLI has an interest (including options) ("Leased Real Property,"
collectively, the "Real Property"). RLI has good and marketable title in fee
simple to all Owned Real Property. Except as described in Schedule 2.17, there
are no leases, subleases, tenancies or other rights of occupancy affecting all
or any part of the Owned Real Property, and RLI has not granted any options to
purchase or otherwise acquire, and there are no outstanding offers to purchase,
all or any part of the Owned Real Property. RLI has previously delivered to ADLT
correct and complete copies of all leases with respect to Leased Real Property.
RLI has not received any written or oral notice of assessments for public
improvements or condemnation against any Real Property.
Section 2.18 TRANSACTIONS WITH RELATED PARTIES. Except as
disclosed on Schedule 2.18, no Related Party (as hereafter defined) has directly
or indirectly:
(a) Any interest in any property or assets used or owned by
RLI (other than ownership of the RLI Shares);
(b) Any agreement or plan providing for payment or vesting (or
acceleration of either) of property, severance benefits or other benefits that
are contingent on the transactions contemplated by this Agreement or conditioned
upon a change of control after the termination of employment of such employee
regardless of the reason for such termination of employment or the value of any
of the benefits which will be calculated on the basis of any of the transactions
contemplated by this Agreement;
(c) Become a party to any Contract or has any agreement or
understanding of any nature with any party to any Contract with regard to such
Contract; or
(d) An economic interest in any of RLI's suppliers, vendors or
customers other than the ownership of no more than 5% of the outstanding voting
stock of a publicly traded corporation.
As used herein, the term "Related Party" means (i) the Shareholders, (ii) any
Affiliate of the Shareholders, (iii) any officer or director of RLI and (iv)
any spouse or other member of the immediately family of any natural person
identified in preceding clauses. Without limiting the foregoing, (A) Schedule
2.18 identifies any assets, arrangements or services to which RLI is a party or
with respect to which RLI benefits that will have to be replaced or would be
materially adversely affected after Closing because RLI will after Closing no
longer be owned directly by the Shareholders and (B) Schedule 2.18 identifies
any and all assets (including insurance claims files, legal files, accounting
information, tax returns, etc.) of RLI in the possession of any of the
Shareholders.
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Section 2.19 INSURANCE. Schedule 2.19 sets forth a complete
list of all policies of insurance (collectively, the "Insurance Policies") of
which RLI is the owner, insured or beneficiary or programs of self insurance and
identifies whether such policies are claims made or occurrence policies. Except
as set forth on Schedule 2.19, all premiums under the Insurance Policies have
been paid in accordance with the terms of the policies and there are no deposits
or other amounts for the benefit of RLI held by any third party relating to any
insurance or self insurance program of RLI. There have been no defaults with
respect to any provision contained in any such Insurance Policies, nor has there
been any failure to give any notice or present any unresolved claim under any
such policies in a timely fashion or in the manner or detail required by the
Insurance Policies. Since November 30, 1996, no notice of cancellation or
non-renewal with respect to, or disallowance of any unresolved claim under, or
material increase of the premium for any such insurance policy has been received
by RLI except in the ordinary course of business. Schedule 2.19 describes any
program of self-insurance maintained by RLI or by any Affiliate of RLI for or on
behalf of RLI. All of RLI's environmental pollution insurance coverage policies
are identified on Schedule 2.19.
Section 2.20 EMPLOYEE RELATIONS. No employee of RLI is
represented by any union or other labor organization. Except as set forth in
Schedule 2.20, no representation election, arbitration proceeding, grievance,
labor strike, dispute, slowdown or stoppage is pending or, to the knowledge of
RLI or the Shareholders, threatened against, involving, affecting or potentially
affecting RLI which would reasonably be expected to have material adverse effect
on RLI. No complaint against RLI is pending or, to the knowledge of RLI or the
Shareholders, threatened before the National Labor Relations Board, the Equal
Employment Opportunity Commission or any similar state or local agency, by or on
behalf of any employee of RLI, which, if decided adversely to RLI, would have a
material adverse effect on RLI. Neither the execution and delivery of this
Agreement, the performance of the provisions hereof nor the consummation of the
transactions contemplated hereby will trigger any severance pay obligation under
any contract to which RLI or any Affiliate of RLI is a party or under any Law.
Section 2.21 PATENTS AND INTELLECTUAL PROPERTY RIGHTS.
(a) Schedule 2.21 contains a complete list of all trademark
rights, trademark applications, trademark registrations, service marks, trade
names and brand names, copyright registrations and copyright applications,
letters patent, patent applications, logos and licenses (except for licenses not
material to the Business) used in the Business including the expiration dates,
if any, of each such intellectual property right.
(b) RLI owns or possesses, or can acquire on reasonable terms,
the right to use, in the manner and geographic area currently used, (i) the
intellectual property rights identified pursuant to subparagraph (a) above and
(ii) any other processes, know-how and related know-how, formulae, trade
secrets, inventions, discoveries, improvements, blueprints, specifications,
drawings, designs, shop and royalty rights and other similar types of
proprietary intellectual property, and all research and development related to
the Business (collectively, "Intellectual Property Rights") currently used in
the Business and RLI has not received any notice of, nor does it have any
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reasonable belief that its use constitutes, a material infringement of or
conflict with asserted rights of any third party with respect to any of the
foregoing which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in a material adverse change in the
condition, financial or otherwise, or Business of RLI.
Section 2.22 BENEFIT PLANS.
(a) BENEFIT PLANS; RLI PLANS. Schedule 2.22 discloses all
written "employee benefit plans" within the meaning of Section 3(3) of the U.S.
Employee Retirement Income Security Act of 1974, as amended, and the applicable
rulings and regulations thereunder ("ERISA"), and any other written profit
sharing, pension, savings, deferred compensation, fringe benefit, insurance,
medical, medical reimbursement, life, disability, accident, post-retirement
health or welfare benefit, stock option, stock purchase, sick pay, vacation,
employment, severance, termination or other plan, agreement, contract, policy,
trust fund or arrangement (each, a "Benefit Plan"), whether or not funded, (i)
currently maintained or sponsored by RLI, (ii) with respect to which RLI (or the
Shareholders with respect to RLI) has or may have Liability or is obligated to
contribute, (A) that otherwise covers any of the current or former employees of
RLI or its Affiliates or (B) as to which any such current or former employees or
their beneficiaries participated or were entitled to participate or accrue or
have accrued any rights thereunder (each, a "RLI Plan"). Neither RLI nor any of
its Affiliates now maintains or contributes to, or has ever maintained,
contributed to or been obligated to contribute to, any employee pension benefit
plan as defined in Section 3(2) of ERISA, whether a defined benefit plan or a
defined contribution plan, or a plan defined in Section 3(27) of ERISA.
(b) RLI GROUP MATTERS; FUNDING. Neither RLI nor any
corporation that may be aggregated with RLI under Sections 414(b), (c), (m) or
(o) of the Code (the "RLI Group") has any obligation to contribute to or any
direct or indirect Liability under or with respect to any Benefit Plan of the
type described in Sections 4063 and 4064 of ERISA or Section 413(c) of the Code.
RLI does not have any Liability, and after the Closing RLI will not have any
Liability, with respect to any Benefit Plan of any other member of the RLI
Group, whether as a result of delinquent contributions, distress terminations,
fraudulent transfers, failure to pay premiums to the Pension Benefit Guaranty
Corporation (the "PBGC"), withdrawal Liability or otherwise which Liability is
material to RLI. No accumulated funding deficiency (as defined in Section 302 of
ERISA and Section 412 of the Code) exists nor has any funding waiver from the
IRS been received or requested with respect to any RLI Plan or any Benefit Plan
of any member of the RLI Group and no excise or other Tax is due or owing
because of any failure to comply with the minimum funding standards of the Code
or ERISA with respect to any of such plans and which would have a material
adverse effect on RLI.
(c) COMPLIANCE. To the knowledge of RLI or the Shareholders,
and except as such non-compliance would not have a material and adverse effect
on RLI, each of the RLI Plans and all related trusts, insurance contracts and
funds have been created, maintained, funded and administered in all respects in
compliance with all applicable Laws and in compliance with the plan document,
trust agreement, insurance policy or other writing creating the same or
applicable thereto.
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To the knowledge of RLI or the Shareholders, no RLI Plan is or is proposed to
be under audit or investigation, and no completed audit of any RLI Plan has
resulted in the imposition of any Tax, fine or penalty.
(d) QUALIFIED PLANS. Schedule 2.25 discloses each RLI Plan
that purports to be a qualified plan under Section 401(a) of the Code and exempt
from United States federal income Tax under Section 501(a) of the Code (a
"Qualified Plan"). With respect to each Qualified Plan, a determination letter
(or opinion or notification letter, if applicable) covering the U.S. Tax Reform
Act of 1986 and later Code changes for which the remedial amendment period has
not closed has been received from the IRS that such plan is qualified under
Section 401(a) of the Code and exempt from federal income Tax under Section
501(a) of the Code. No Qualified Plan has been amended since the date of the
most recent such letter. To the knowledge of RLI or the Shareholders, no member
of RLI Group, nor any fiduciary of any Qualified Plan, nor any agent of any of
the foregoing, has done anything that would adversely affect the qualified
status of a Qualified Plan or the qualified status of any related trust.
(e) NO DEFINED BENEFIT PLANS. No RLI Plan is a defined
benefit plan within the meaning of Section 3(35) of ERISA (a "Defined Benefit
Plan"). No Defined Benefit Plan sponsored or maintained by any member of RLI
Group has been terminated or partially terminated after September 1, 1974.
During the five year period ending on the Closing Date, no member of RLI Group
has transferred a Defined Benefit Plan to a corporation that was not, at the
time of transfer, related to the transferor in any manner described in Sections
414(b), (c), (m) or (o) of the Code.
(f) MULTIEMPLOYER PLANS. No RLI Plan is a multiemployer plan
within the meaning of Section 3(37) or Section 4001(a)(3) of ERISA (a
"Multiemployer Plan"). No member of RLI Group has withdrawn from any
Multiemployer Plan or incurred any withdrawal Liability to or under any
Multiemployer Plan. No RLI Plan covers any employees of any member of RLI Group
in any foreign country or territory.
(g) PROHIBITED TRANSACTIONS; FIDUCIARY DUTIES;
POST-RETIREMENT BENEFITS. No prohibited transaction (within the meaning of
Section 406 of ERISA and Section 4975 of the Code) with respect to any RLI Plan
exists or has occurred that could subject RLI to any Liability or Tax under Part
5 of Title I of ERISA or Section 4975 of the Code. Neither RLI nor, to the
knowledge of RLI or the Shareholders, any administrator or fiduciary of any RLI
Plan, nor any agent of any of the foregoing, has engaged in any transaction or
acted or failed to act in a manner that will subject RLI to any Liability for
a breach of fiduciary or other duty under ERISA or any other applicable Law.
With the exception of the requirements of Section 4980B of the Code and except
as disclosed on Schedule 2.22, no post-retirement benefits are provided under
any RLI Plan that is a welfare benefit plan as described in ERISA Section
3(1).
Section 2.23 FINDER'S FEES. Neither the Shareholders nor RLI
nor any of RLI's officers, directors or employees has employed any broker or
finder or incurred any Liability for any brokerage fees, commissions or finder's
fees in connection with the transactions contemplated herein. Neither the
Shareholders nor RLI nor any of RLI's officers, directors or employees has made
any
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agreement or taken any other action which might cause anyone to become entitled
to a broker's fee or commission as a result of the transactions contemplated
hereunder.
Section 2.24 CONFIDENTIALITY AGREEMENTS. Schedule 2.24 sets
forth a true, correct and complete list of all confidentiality agreements to
which RLI is a party.
Section 2.25 COMPLIANCE WITH ENVIRONMENTAL LAWS. Except as
described on Schedule 2.25, RLI (i) is in compliance with any applicable Law
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants, including
common law nuisance, property damage and similar common law theories
("Environmental Law"), (ii) has received all permits, licenses or other
approvals required of it under applicable Environmental Laws to conduct its
Business and (iii) is in compliance with all terms and conditions of any such
permit, license or approval, except where such noncompliance with Environmental
Laws, failure to receive required permits, licenses or other approvals or
failure to comply with the terms and conditions of such permits, licenses or
approvals would not, singly or in the aggregate, have a material adverse effect
on RLI.
Section 2.26 ENVIRONMENTAL LIABILITIES. To the knowledge of
RLI or the Shareholders, there are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or operating
expenditures required for clean-up, closure of properties or compliance with any
Environmental Laws or any permit, license or approval, any related constraints
on operating activities and any potential liabilities to third parties) which
would, singly or in the aggregate, have a material adverse effect on RLI.
Section 2.27 DISCLOSURE. None of the representations or
warranties of the Shareholders or RLI contained herein and none of the
information contained in the Schedules referred to in Article 2 is false or
misleading in any material respect or omits to state a fact herein or therein
necessary to make the statements herein or therein not misleading in any
material respect.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF SHAREHOLDERS
Each Shareholder, severally and not jointly, represents and
warrants to ADLT, with respect to such Shareholder's RLI Shares, as follows:
Section 3.1 TITLE TO RLI SHARES. (a) Except as set forth on
Schedule 3.1, such Shareholder has legal, valid, beneficial and exclusive title
to his or her RLI Shares, free of all Encumbrances, and (b) upon delivery of
such RLI Shares at Closing against receipt of the Purchase Price to be delivered
to such Shareholder, ADLT shall acquire legal and valid title to such RLI
Shares, free of all Encumbrances. Such Shareholder exclusively holds all rights
and powers to vote his or her RLI Shares.
Section 3.2 AUTHORIZATION AND ENFORCEABILITY. This Agreement
has been duly executed and delivered by such Shareholder and constitutes, and
each Other Agreement which is to
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be executed and delivered by such Shareholder, when executed and delivered by
such Shareholder, shall constitute the legal, valid and binding agreement of
such Shareholder, enforceable against such Shareholder in accordance with its
terms, except to the extent that enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, receivership, moratorium and other
similar laws relating to or affecting the rights and remedies of creditors
generally and by general principles of equity including, without limitation,
concepts of materiality, reasonableness, good faith and fair dealing and the
possible unavailability of specific performance, injunctive relief or
other equitable remedies, regardless of whether enforceability is considered in
a proceeding in equity or at law.
Section 3.3 NO VIOLATION OF LAWS OR AGREEMENTS. None of the
execution and delivery of this Agreement or any Other Agreement, the
consummation of the transactions contemplated hereby or thereby or the
compliance with or fulfillment of the terms, conditions and provisions hereof or
thereof by the Shareholders or RLI will: (i) conflict with, result in a breach
of or constitute a default or an event of default (or an event which would, with
the passage of time or the giving of notice or both, constitute a default) under
any term, condition or provision of, or result in the termination or loss of any
right (or give others the right to cause such a termination or loss) under any
license, franchise, mortgage or other contract, agreement or instrument to which
such Shareholder is a party or by which such Shareholder's assets may be bound
or affected, or (ii) result in the creation, maturation or acceleration of any
Liability or obligation of such Shareholder. Except as may be required by the
HSR Act, no consent, approval, declaration or authorization of, or registration
or filing with, any Person (including any Governmental Body) is required in
connection with the execution and delivery by such Shareholder of this Agreement
or the Other Agreements to which he or she is a party and the consummation of
the transactions contemplated hereby and thereby by such Shareholder.
Section 3.4 PURCHASE ENTIRELY FOR OWN ACCOUNT. Such
Shareholder confirms he or she is acquiring the ADLT Shares solely for his or
her own account for investment, not as a nominee or agent and not with a view to
the resale or distribution of any part thereof and such Shareholder has no
present intention of selling, granting any participation in, or otherwise
distributing the same. Such Shareholder further represents that he or she does
not have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to such person or any third person, with
respect to any of the ADLT Shares.
Section 3.5 RESTRICTED SECURITIES.
(a) Such Shareholder understands that the issuance and sale of
the ADLT shares pursuant to this Agreement have not been registered pursuant to
the Securities Act of 1933, as amended (the "Securities Act"), or under any
state securities laws, that the ADLT Shares are characterized as "restricted
securities" under the federal securities laws inasmuch as they will be initially
acquired from ADLT in a transaction not involving a public offering and that
under such laws and applicable regulations, such securities may be resold
without registration under the Securities Act, only in certain limited
circumstances. In this connection, such Shareholder represents that he or she is
familiar with SEC Rule 144 as presently in effect, and understands the resale
limitations imposed thereby and by the Act.
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(b) Such Shareholder further understands that the transfer of
the ADLT Shares is further limited by the terms of this Agreement and that
transfers of the ADLT Shares are generally not permitted prior to the second
anniversary of the Closing Date without the consent of ADLT, which consent is in
the sole and absolute discretion of ADLT.
Section 3.6 DISCLOSURE OF INFORMATION. Such Shareholder
represents he or she has had an opportunity to ask questions of and receive
answers from ADLT regarding ADLT and its business. Such Shareholder believes he
or she has received all the information he or she considers necessary or
appropriate for deciding whether to acquire the ADLT Shares.
Section 3.7 INVESTMENT EXPERIENCE. Such Shareholder
acknowledges he or she is able to fend for himself or herself, can bear the
economic risk of his or her investment and has such knowledge and experience in
financial or business matters that he or she is capable of evaluating the merits
of acquiring the ADLT Shares.
Section 3.8 ACCREDITED INVESTOR. Such Shareholder represents
he or she is an "accredited investor" as that term is defined in Rule 501 of
Regulation D of the Act, as presently in effect.
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF ADLT
ADLT represents and warrants to the Shareholders as follows:
Section 4.1 TITLE TO ADLT SHARES. Upon delivery of the ADLT
Shares at Closing against receipt of the RLI Shares, each Shareholder shall
acquire legal and valid title to his or her ADLT Shares free of any
Encumbrances.
Section 4.2 SECURITIES. ADLT is an "accredited investor" as
such term is defined in Rule 501 of Regulation D of the Securities Act. ADLT
understands that the RLI Shares have not been registered under the Securities
Act or any state securities law by reason of specific exemptions under the
provisions thereof which depend in part upon the other representations and
warranties made by ADLT in this Agreement. ADLT understands that the RLI Shares
are "restricted securities" under the Securities Act. ADLT confirms that it is
acquiring the RLI Shares for its own account for investment, and not as a
nominee or agent and not with a view to the resale or distribution of any part
thereof and ADLT has no present intention of selling, granting a participation
in or otherwise distributing the same, except that ADLT may pledge the RLI
Shares to its lender or transfer the RLI Shares to an Affiliate of ADLT. ADLT
does not have any undertaking, agreement or arrangement with any Person to
sell, transfer or grant a participation to such Person or any third person,
with respect to any of the RLI Shares, other than a pledge of the RLI Shares to
ADLT's lender.
Section 4.3 ORGANIZATION. ADLT has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the State
of Ohio, has the corporate power and
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authority to own or lease its property as now owned or leased and to conduct
its business as it is now conducted and is duly qualified to transact business
and is in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on ADLT and its subsidiaries,
taken as a whole.
Section 4.4 SHARES; CAPITALIZATION. The authorized capital
stock of ADLT consists of (i) 80,000,000 shares of ADLT Common Stock, of which
there are issued and outstanding 16,446,943 shares plus (A) shares issued upon
exercise of options under ADLT's 1995 Incentive Compensation Plan and ADLT's
1997 Employee Stock Purchase Plan since September 22, 1997 and (B) shares issued
upon the prior written consent of RLI pursuant to Section 6.1 hereof, and (ii)
1,000,000 shares of Preferred Stock, $.001 par value, none of which is issued
and outstanding. On the Closing Date, the ADLT Shares will be duly authorized,
validly issued, fully paid and nonassessable and not subject to preemptive
rights created by statute, ADLT's Articles of Incorporation or Regulations or
any agreement to which ADLT is a party or is bound.
Section 4.5 SUBSIDIARIES. Each subsidiary of ADLT has been
duly incorporated, is validly existing as a corporation in good standing under
the laws of the jurisdiction of its incorporation, has the corporate power and
authority to own or lease its property and to conduct its business as described
in the Prospectus and the Annual Report (as defined in Section 4.8) and is duly
qualified to transact business and is in good standing in each jurisdiction in
which the conduct of its business or its ownership or leasing of property
requires such qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse effect on
ADLT and its subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of ADLT have been duly and validly authorized and
issued, are fully paid and non-assessable and are owned directly by ADLT or a
subsidiary of ADLT, free and clear of all liens, encumbrances, equities or
claims. A list of all entities in which the equity interest of ADLT (and all
subsidiaries of ADLT, taken as a whole) exceeds 20% is set forth on Schedule
4.5.
Section 4.6 AUTHORIZATION AND ENFORCEABILITY. The execution,
delivery and performance by ADLT of this Agreement has been duly authorized by
all necessary corporate action on its part. The execution, delivery and
performance by ADLT of each Other Agreement to which ADLT is a party has been
duly authorized by all necessary action on its part. This Agreement has been
duly executed and delivered by and constitutes, and each Other Agreement which
is to be executed and delivered by ADLT, when executed and delivered by ADLT,
shall constitute the legal, valid and binding obligation of ADLT, enforceable
against ADLT in accordance with its terms, except to the extent that
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, receivership, moratorium and other similar laws relating to or
affecting the rights and remedies of creditors generally and by general
principles of equity including, without limitation, concepts of materiality,
reasonableness, good faith and fair dealing and the possible unavailability of
specific performance, injunctive relief or other equitable remedies, regardless
of whether enforceability is considered in a proceeding in equity or at law.
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Section 4.7 NO VIOLATION OF LAWS OR AGREEMENTS. Except as set
forth on Schedule 4.7, none of the execution and delivery of this Agreement or
any Other Agreements, the consummation of the transactions contemplated hereby
or thereby or the compliance with or fulfillment of the terms, conditions and
provisions hereof or thereof by ADLT, nor the execution and delivery of any
Other Agreement, the consummation of the transactions contemplated thereby or
the compliance with or fulfillment of the terms, conditions and provisions
thereof by ADLT, will: (i) contravene any provision of the charter or
regulations of ADLT or any of its subsidiaries, (ii) conflict with, result in a
breach of or constitute a default or an event of default (or an event which
would, with the passage of time or the giving of notice or both, constitute a
default) under any term, condition or provision of, or results in the
termination or loss of any right (or give others the right to cause such a
termination or loss) under, any license, franchise, indenture, mortgage or any
other contract, agreement or instrument to which ADLT or any of its subsidiaries
is a party or by which the assets of ADLT or any of its subsidiaries may be
bound or affected, and which is material to ADLT and its subsidiaries, taken as
a whole, (iii) violate any Law or judgment or order of any Governmental Body to
which ADLT or any of its subsidiaries is subject, (v) result in the creation or
imposition of any Encumbrance upon the ADLT Shares or gives to others any
interests or rights therein, or (iv) result in the maturation or acceleration of
any Liability or obligation of ADLT (or gives others the right to cause such a
maturation or acceleration). Except as may be required by the HSR Act and the
Exchange Act (as defined below), and the listing of the ADLT Shares on the
NASDAQ National Market, no consent, approval, declaration or authorization of,
or registration or filing with, any Person (including any Governmental Body) is
required in connection with the execution and delivery by ADLT of this Agreement
and the Other Agreements and the consummation of the transactions contemplated
hereby and thereby by ADLT or the execution and delivery by ADLT of the Other
Agreements to which it is a party and the consummation of the transactions
contemplated thereby by ADLT; provided, however, that, in making this
representation, ADLT is relying on certain representations of RLI and the
Shareholders, pursuant to which the issuance of the ADLT Shares is exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act").
Section 4.8 SEC REPORTS. ADLT has delivered to the
Shareholders a copy of the following documents filed with the Securities and
Exchange Commission ("SEC") by ADLT pursuant to the Securities Act of 1933, as
amended (the "Securities Act"), or the Securities Exchange Act of 1934, as
amended (the "Exchange Act"): ADLT's Annual Report on Form 10-K for the fiscal
year ended June 30, 1997 (the "Annual Report"), ADLT's proxy statement dated
September 30, 1997 with respect to ADLT's annual shareholders meeting held on
November 12, 1997 (the 1997 Proxy Statement") and each other SEC Filing made by
ADLT pursuant to the Exchange Act after June 30, 1997 and prior to the date of
this Agreement (the "Exchange Act Filings") and the 424(b) prospectus,
dated July 1, 1997, related to ADLT's Registration Statement No. 333-28529 (the
"Prospectus") (the Exchange Act Filings and the Prospectus are sometimes
referred to collectively as the SEC Filings"). The SEC Filings, as of their
respective filing dates, (i) complied as to form in all material respects with
all applicable requirements of the Securities Act and the Exchange Act and (ii)
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
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Section 4.9 FINDER'S FEES. Neither ADLT, its Affiliates nor
any of their respective officers, directors or employees has employed any broker
or finder or incurred any Liability for any brokerage fees, commissions or
finder's fees in connection with the transactions contemplated herein. Neither
ADLT, its Affiliates nor any of their respective officers directors or employees
has made an agreement or taken any other action which might cause anyone to
become entitled to a broker's fee or commission as a result of the transactions
contemplated hereunder.
Section 4.10 DISCLOSURE. None of the representations or
warranties of ADLT contained herein is false or misleading in any material
respect or omits to state a fact herein necessary to make the statements herein
not misleading in any material respect.
Section 4.11 NO MATERIAL ADVERSE CHANGE. There has not
occurred any material adverse change, or any development involving a prospective
material adverse change, in the condition, financial or otherwise, or in the
earnings, business or operations of ADLT and its subsidiaries, taken as a whole,
from that set forth in the Annual Report.
Section 4.12 LITIGATION. There is no Litigation pending, or to
the knowledge of ADLT, or threatened to which ADLT or any of its subsidiaries is
a party or to which any of the properties of ADLT or any of its subsidiaries is
subject (i) affecting the transactions contemplated by this Agreement or any
Other Agreement or (ii) that are required to be described in the Exchange Act
Filings and are not so described or any statutes, regulations, contracts or
other documents that are required to be described in the Exchange Act Filings or
to be filed as exhibits to the Exchange Act Filings that are not described or
filed as required.
Section 4.13 COMPLIANCE WITH ENVIRONMENTAL LAWS. ADLT and its
subsidiaries (i) are in compliance with any and all Environmental Laws, (ii)
have received all permits, licenses or other approvals required of them under
applicable Environmental Laws to conduct their respective businesses and (iii)
are in compliance with all terms and conditions of any such permit, license or
approval, except where such noncompliance with Environmental Laws, failure to
receive required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals would not,
singly or in the aggregate, have a material adverse effect on ADLT and its
subsidiaries, taken as a whole.
Section 4.14 ENVIRONMENTAL LIABILITIES. To the knowledge of
ADLT, there are no costs or liabilities associated with Environmental Laws
(including, without limitation, any capital or operating expenditures required
for clean-up, closure of properties or compliance with Environmental Laws or any
permit, license or approval, any related constraints on operating activities and
any potential liabilities to third parties) which would, singly or in the
aggregate, have a material adverse effect on ADLT and its subsidiaries, taken as
a whole.
Section 4.15 REGISTRATION RIGHTS. Other than the Registration
Rights and Option Agreement dated December 15, 1995 among General Electric
Company, ADLT and Wayne R. Hellman, there are no contracts, agreements or
understandings between ADLT and any person
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granting such person the right to require ADLT to file a registration statement
under the Securities Act with respect to any securities of ADLT.
Section 4.16 FINANCIAL STATEMENTS. The consolidated financial
statements and schedules of ADLT and its subsidiaries included in the Annual
Report (the ADLT Financial Statements") fairly present the financial position
of ADLT and the results of operations and cash flows as of the dates and periods
therein specified. Such financial statements and schedules have been prepared in
accordance with GAAP consistently applied throughout the periods involved
(except as otherwise noted therein). The selected financial data set forth under
the caption "Selected Financial Data" in the Annual Report fairly present, on
the basis stated in the Annual Report, the information included therein.
Section 4.17 PROPERTIES. ADLT and each of its subsidiaries
have good and marketable title in fee simple to all items of real property and
good and marketable title to all personal property owned by each of them, in
each case free and clear of any security interests, liens, encumbrances,
equities, claims and other defects, except such as do not materially and
adversely affect the value of such property and do not interfere with the use
made or proposed to be made of such property by ADLT or such subsidiary, and any
real property and buildings held under lease by ADLT or any such subsidiary are
held under valid, subsisting and enforceable leases, with such exceptions as are
not material and do not interfere with the use made or proposed to be made of
such property and buildings by ADLT or such subsidiary, in each case except as
described in or contemplated by the Annual Report.
Section 4.18 EMPLOYEE MATTERS. No representation election,
arbitration proceeding, grievance, labor strike, dispute, slowdown or stoppage
is pending or, to the knowledge of ADLT, threatened against ADLT or any of its
subsidiaries which would reasonably be expected to result in a material adverse
change in the condition, financial or otherwise, or business of ADLT and its
subsidiaries taken as a whole, except as described in or contemplated by the
Annual Report.
Section 4.19 INTELLECTUAL PROPERTY. ADLT and its subsidiaries
own or possess, or can acquire on reasonable terms, all material Intellectual
Property Rights currently used by them in connection with their respective
businesses, and neither ADLT nor any such subsidiary has received any notice of,
or has any reasonable belief that its use constitutes, a material infringement
of or conflict with asserted rights of any third party with respect to any of
the foregoing which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would result in a material adverse
change in the condition, financial or otherwise, or business of ADLT and its
subsidiaries.
Section 4.20 INSURANCE. ADLT and each of its subsidiaries is
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as are prudent and customary in the businesses in
which they are engaged; neither ADLT nor any such subsidiary has been refused
any insurance coverage sought or applied for; and neither ADLT nor any such
subsidiary has any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be
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necessary to continue its business at a cost that would not materially and
adversely affect the condition, financial or otherwise, or in the management,
business prospects, earnings, business or operations of ADLT and its
subsidiaries taken as a whole, except as described in or contemplated by the
Annual Report. All premiums under all insurance policies of which ADLT or any
of its subsidiaries is the owner, insured or beneficiary have been paid in
accordance with the terms of such policies and there have been no defaults with
respect to any provision contained in any such policies, nor has there been any
failure to give any notice or present any unresolved claim under any such
policies in a timely fashion or in the manner or detail required by such
policies.
Section 4.21 LIMITATIONS ON SUBSIDIARY DIVIDENDS. Except as
set forth in ADLT's Revolving Credit and Security Agreement by and between ADLT,
its subsidiaries and BNY Financial Corporation and except as set forth in the
Postponement of Claim and Assignment dated as of February 11, 1997 by and among
the Royal Bank of Canada, Canadian Lighting Systems Holding, Inc. and
Ballastronix, Inc., no subsidiary of ADLT is currently prohibited pursuant to
any agreement, directly or indirectly, from paying any dividends to ADLT, from
making any other distribution on such subsidiary's capital stock, from repaying
to ADLT any loans or advances to such subsidiary of ADLT or from transferring
any of such subsidiary's property or assets to ADLT or any other subsidiary of
ADLT, except as described in or contemplated by the Annual Report.
Section 4.22 PERMITS. ADLT and its subsidiaries possess and
are in compliance in all material respects with all material certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither ADLT nor any such subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would reasonably be expected to result
in a material adverse change in the condition, financial or otherwise, or
business of ADLT and its subsidiaries.
Section 4.23 TAX MATTERS. ADLT, its subsidiaries and each
Predecessor (as such term is defined in the Prospectus), have filed all foreign,
federal, state and local tax returns that are required to be filed or have
requested extensions thereof (except in any case in which the failure so to file
would not have a material adverse effect on ADLT and its subsidiaries taken as a
whole) and have paid all taxes required to be paid by them and any other
assessment, fine or penalty levied against them, to the extent that any of the
foregoing is due and payable, except for any such assessment, fine or penalty
that is currently being contested in good faith or as described in or
contemplated by the Annual Report.
Section 4.24 NO DEFAULT. No default exists, and no event has
occurred which, with notice or lapse of time or both, would constitute a default
in the due performance and observance of any term, covenant or condition of any
indenture, mortgage, deed of trust, lease or other material agreement or
instrument to which ADLT or any of its subsidiaries is a party or by which ADLT
or any of its subsidiaries or any of their respective properties is bound or may
be affected in any material adverse respect with regard to property, business or
operations of ADLT and its subsidiaries taken as a whole, including, without
limitation, each agreement filed or incorporated by reference
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as an exhibit to the Annual Report (the ADLT Contracts"). Each ADLT Contract is
a legal, valid and binding obligation of ADLT and is in full force and effect.
Section 4.25 PRIVATE PLACEMENTS; SECURITIES.
(a) Other than the 2,900,000 shares of ADLT Common Stock sold
by ADLT in the initial public offering on December 11, 1995 (the "IPO"), the
2,452,050 shares of ADLT Common Stock of ADLT sold by ADLT in the July 1996
public offering and the 3,000,000 shares of ADLT Common Stock sold by ADLT in
the July 1997 public offering, and offers and sales pursuant to ADLT's 1995
Incentive Award Plan and ADLT's Employee Stock Purchase Plan, all offers and
sales of ADLT Common Stock by ADLT prior to the date hereof, including the offer
and sale of 7,281,848 shares of Common Stock in connection with the Combination
(as such term is defined in the Prospectus), were at all relevant times exempt
from the registration requirements of the Securities Act, and were the subject
of an available exemption from the registration requirements of all applicable
state securities or blue sky laws.
(b) Except as disclosed in the SEC Filings, there are no
outstanding (i) securities or obligations of ADLT or any of its subsidiaries
convertible into or exchangeable for any capital stock of ADLT or any such
subsidiary, (ii) warrants, rights or options to subscribe for or purchase from
ADLT or any such subsidiary any such capital stock or any such convertible or
exchangeable securities or obligations, or (iii) obligations of ADLT or any such
subsidiary to issue any shares of capital stock, any such convertible or
exchangeable securities or obligations, or any such warrants, rights or options.
Section 4.26 COMPLIANCE WITH LAWS. ADLT has received no notice
that it is, and, to the knowledge of ADLT, ADLT is not, in violation in any
material respect of any applicable Laws, and, to the knowledge of ADLT, no event
has occurred or condition or state of facts exists that could give rise to any
such violation, except for any violation which would not have a material
adverse effect on ADLT and its subsidiaries, taken as a whole.
Section 4.27 INTERESTED PARTY TRANSACTIONS. Since the date of
the 1997 Proxy Statement, no officer or director of ADLT, or any spouse or
member of the immediate family of such officer or director, has acquired any
interest in any property of ADLT or any of its subsidiaries (except as a
shareholder of ADLT) or has entered into any business relationship with ADLT or
any of its subsidiaries (except as an employee, officer, director or shareholder
thereof), in any such case, of a nature which would be required to be disclosed
in a proxy statement relating to the election of directors filed under the
Exchange Act.
Section 4.28 UNDISCLOSED LIABILITIES. Except as disclosed in
the ADLT financial statements or as otherwise disclosed in the SEC Filings or in
Schedule 4.28 hereto, ADLT has no Liabilities other than Liabilities incurred in
the ordinary course of business since June 30, 1997.
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ARTICLE 5
COVENANTS OF THE SHAREHOLDERS AND RLI
Section 5.1 CONDUCT OF BUSINESS PENDING CLOSING. During the
period commencing on the date of this Agreement and ending on the earlier to
occur of (i) the Closing or (ii) the termination of this Agreement (the "Interim
Period"), and unless ADLT shall otherwise consent or agree in writing and
without limiting any other provision herein, RLI shall, and the Shareholders
shall cause RLI to, conduct its affairs as follows:
(a) ORDINARY COURSE; COMPLIANCE. The Business shall be
conducted in the ordinary course and substantially consistent with past
practice. RLI shall use reasonable best efforts to maintain its property,
equipment and other assets consistent with past practice and shall comply timely
in all material respects with the provisions of all its leases, agreements,
contracts and commitments in connection with the Business or its assets.
(b) PRESERVATION OF BUSINESS. During the Interim Period, RLI
shall use reasonable efforts to preserve its business organization intact, keep
available the services of its employees and preserve the goodwill of its
suppliers, customers and others having business relations with it.
(c) PROHIBITED TRANSACTIONS. During the Interim Period, RLI
shall not, nor shall the Shareholders cause or permit RLI to:
i. Amend its charter documents or bylaws;
ii. Enter into any contract or commitment which is made
other than in the ordinary course of business, the
terms of which are consistent with past practice;
iii. Form any subsidiary;
iv. Enter into any employment contract that is not
terminable at will, without penalty or obligation
continuing after the Closing Date;
v. Make, change or revoke any Tax election or make any
agreement or settlement with any taxing authority
that relates to the period after Closing;
vi. Create any Encumbrance, other than Permitted
Encumbrances, on any assets, tangible or intangible;
vii. Declare, set aside or pay any dividend or other
distribution (whether in cash, stock, property or any
combination thereof), other than Permitted Dividends,
in respect of RLI Common Stock or directly or
indirectly issue, sell, redeem, purchase or otherwise
acquire or dispose of, or create any Securities
Rights with respect to, RLI Common Stock or any
rights to purchase RLI Common Stock or securities
convertible into or exchangeable for RLI Common
Stock;
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viii. Increase any of the salaries or other compensation
payable or to become payable to, or make any advance
or loan to, any employee, or make any increase in, or
any addition to, other benefits (including any RLI
Benefit Plan) to which any employee may be entitled,
or make any payments to or in respect of any RLI
Benefit Plan (other than a discretionary payment to
the Company's 401(k) salary deferral arrangement not
in excess of $257,500) or any change in any RLI
Benefit Plan which is not consistent with past
practice;
ix. Make or authorize any single capital expenditure or
series of related capital expenditures in excess of
$200,000 or acquire (by merger, consolidation or
acquisition of stock or assets) any corporation,
partnership or other business organization or
division thereof, or make any investment either by
purchase of stock or securities, contribute capital,
make any loan or advance of funds to any Person or,
except in the ordinary course of business, purchase
any property or assets;
x. Sell, transfer or otherwise dispose of any assets
(other than inventory, the Excess Real Estate and
Permitted Dividends), except sales of assets in the
ordinary course of business not in excess of
$100,000; or
xi. Make any payment, loan or advance of any amount to or
in respect of, or any sale, transfer or lease of any
properties or assets (whether real, personal or
mixed, tangible or intangible) to, or consummate any
transaction or create any agreement or arrangement
with, any Related Party, except for (A) compensation
to the officers and employees at rates not exceeding
the rates of compensation existing on the date
hereof (or reflecting increases in compensation
consistent with past practice), (B) Permitted
Dividends, (C) purchase by Ruud of the $2,000,000
life insurance policy on his life presently owned by
RLI, at a purchase price at least equal to the
policy's cash surrender value at the time of
such purchase, (D) the sale of the Excess Real
Estate, and (E) otherwise as contemplated by this
Agreement.
Section 5.2 ACCESS, INFORMATION AND DOCUMENTS. During the
Interim Period, the Shareholders and RLI shall give to ADLT and to its employees
and representatives (including independent public accountants, attorneys,
environmental consultants and engineers) access during normal business hours to
all of the properties (including Real Property for purposes of an environmental
assessment), books, Tax returns, contracts, commitments, records, officers,
personnel and accountants (including independent public accountants) of RLI and
shall furnish to ADLT all such documents and copies of documents and all
information with respect to the affairs of RLI as ADLT may reasonably request.
Section 5.3 PRESERVE ACCURACY OF REPRESENTATIONS AND
WARRANTIES. The Shareholders shall use their reasonable efforts to ensure that
RLI conducts, and RLI shall use its
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reasonable best efforts to conduct, the Business in such a manner that, at the
Closing, the representations and warranties of the Shareholders and RLI
contained in this Agreement shall be true and correct in all material respects
as though such representations and warranties were made on, as of, and with
reference to such date. The Shareholders and RLI shall each promptly notify
ADLT of any lawsuit, claim, proceeding or investigation that may be threatened,
brought, asserted or commenced after the date hereof against RLI. The
Shareholders and RLI shall each notify ADLT of any facts or circumstances as to
which it obtains knowledge that cause any representation and warranty contained
in Article 2 or 3 of this Agreement or relating to any matters required to be
set forth in the related Schedules hereto to be untrue.
Section 5.4 FILINGS AND AUTHORIZATIONS. As promptly as
practicable, each of RLI and the Shareholders shall make, or cause to be made,
such filings and submissions under law, rules and regulations applicable to it,
including the HSR Act, as may be required for it to consummate the purchase and
transfer of the RLI Shares hereunder, and shall use its best efforts to obtain,
or cause to be obtained, all authorizations, approvals, consents and waivers
from all Governmental Bodies necessary to be obtained by it.
Section 5.5 NOTICE OF CHANGES. During the Interim Period, the
Shareholders and RLI shall give ADLT prompt written notice of any material
change or inaccuracies in any data previously given or made available to ADLT
pursuant to this Agreement.
Section 5.6 SECTION 338(h)(10) ELECTION; CERTAIN TAX RETURNS.
The Shareholders shall join with ADLT in the timely filing of a joint election
pursuant to Section 338(h)(10) of the Code (the "Section 338(h)(10) Election")
under which, for federal (and state, where permissible) income tax purposes,
the sale of the RLI Shares will be treated as if it were a sale of all of the
assets of RLI in a single transaction on the Closing Date. The Shareholders
shall take all reasonable steps required in order to make the Section
338(h)(10) Election valid. The Shareholders shall use the purchase price
allocation and values set forth in the appraisals conducted in accordance with
Section 6.9 in the preparation of all Tax returns relating to the income of RLI
or the income of the Shareholders resulting from the transactions contemplated
hereby.
Section 5.7 TAX RETURNS AND PAYMENT OF TAXES FOR PERIODS
THROUGH THE CLOSING DATE. The Shareholders shall pay any Tax due with respect to
the income of RLI for all periods up to and including the Closing Date and
amounts due as a result of the Section 338(h)(10) Election. The Shareholders
shall be responsible for and pay all Taxes of RLI and each Subsidiary up to and
including the Closing Date, including any Taxes attributable to any audits of
RLI's federal income Tax returns currently in process. The Shareholders shall be
entitled to all income tax refunds for all taxable periods ending before the
Closing Date.
Section 5.8 RESALE OF ADLT SHARES. No Shareholder (and no
permitted transferee of the ADLT Shares of any Shareholder) shall transfer any
ADLT Shares prior to the second anniversary of the Closing Date (the "Restricted
Period") without the prior written consent of ADLT, which consent is in the sole
and absolute discretion of ADLT; provided, however, that any Shareholder may
make a charitable donation of some or all of such Shareholder's shares or a
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transfer, other than a transfer for value, to any member of such Shareholder's
immediate family, provided, in either such case, that such transferee is bound
by the transfer restrictions set forth in this Section 5.8. If, during the
Restricted Period, any Shareholder pledges any of his or her ADLT Shares as
security for a loan, such Shareholder agrees not to intentionally take any
action, or omit to take any action, which would cause a default on the loan
secured by the ADLT Shares during the Restricted Period. After expiration of the
Restricted Period, any Shareholder (and any permitted transferee) may transfer
his or her ADLT shares only in accordance with applicable securities laws.
Section 5.9 NO NEGOTIATIONS. Until the termination of this
Agreement, neither RLI nor any Shareholder shall institute, continue or
otherwise entertain or maintain negotiations or discussions with any person,
other than ADLT, with respect to the sale of all, or substantially all, the
capital stock, business or assets of RLI.
Section 5.10 1997 AUDITED FINANCIAL STATEMENTS. At least two
business days prior to the Closing, Rudd shall provide ADLT with an Audited
Annual Statement for the fiscal year ended November 30, 1997.
ARTICLE 6
COVENANTS OF ADLT
Section 6.1 CONDUCT OF BUSINESS PENDING CLOSING. During the
Interim Period, and unless RLI shall agree in writing and without limiting any
other provision herein, ADLT shall conduct its affairs and the affairs of its
subsidiaries as follows:
(a) ORDINARY COURSE; COMPLIANCE. The Business shall be
conducted in the ordinary course and substantially consistent with past
practice. ADLT and each of its subsidiaries shall use reasonable best efforts to
maintain its property, equipment and other assets consistent with past practice
and shall comply timely in all material respects with the provisions of all its
leases, agreements, contracts and commitments in connection with its business or
assets.
(b) PROHIBITED TRANSACTIONS. During the Interim Period, ADLT
shall not, nor shall ADLT cause or permit any of its Subsidiaries to:
i. Amend its charter documents or bylaws;
ii. Enter into any contract or commitment which is made
other than in the ordinary course of business the
terms of which are consistent with past practice;
iii. Issue any shares of ADLT capital stock, or grant any
options, warrants or other rights to purchase such
capital stock or other securities exchangeable for or
convertible into such capital stock, other than
options issued under ADLT's 1995 Incentive Award
Plan, 1997 Employee Stock Purchase Plan and 1997
Billion Dollar Market Capitalization Incentive Award
Plan, all as
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defined in the Exchange Act Filings, and shares
issued upon exercise of options under such plans;
iv. Declare, set aside or pay any dividend or other
distribution (whether in cash, stock, property or any
combination thereof) in respect of ADLT Common Stock
or any securities of any subsidiary of ADLT other
than dividends by any direct or indirect subsidiary
of ADLT to its parent;
v. Sell, transfer or convey, or enter into an agreement
to sell, transfer or convey, all or a material
portion of its assets, except sales of assets in the
ordinary course of business; provided, however, that
ADLT or any of its subsidiaries may transfer assets
used or useful in the design or manufacture of fiber
optic lighting systems to a joint venture with Rohm
and Haas Company, or its subsidiary;
vi. Make any payment, loan or advance of any amount to or
in respect of, or any sale, transfer or lease of any
properties or assets (whether real, personal or
mixed, tangible or intangible) to, or consummate any
transaction or create any agreement or arrangement
with, any Person which is an "affiliate" of ADLT as
defined in the Exchange Act, except for compensation
to the officers and employees at rates not exceeding
the rates of compensation existing on the date hereof
and otherwise as contemplated by this Agreement; or
vii. Amend ADLT's 1995 Incentive Award Plan, 1997 Employee
Stock Purchase Plan or 1997 Billion Dollar Market
Capitalization Incentive Award Plan.
Section 6.2 PRESERVE ACCURACY OF REPRESENTATIONS AND
WARRANTIES. ADLT shall use its reasonable efforts to conduct its business in
such a manner that, at the Closing, the representations and warranties of ADLT
contained in this Agreement shall be true and correct in all material respects
as though such representations and warranties were made on, as of, and with
reference to such date. ADLT shall promptly notify the Shareholders of any
lawsuit, claim, proceeding or investigation that may be threatened, brought,
asserted or commenced after the date hereof against ADLT or any subsidiary of
ADLT. ADLT shall notify the Shareholders of any facts or circumstances as to
which it obtains knowledge that cause any representation and warranty contained
in Article 4 of this Agreement or relating to any matters required to be set
forth in the related Schedules hereto to be untrue.
Section 6.3 FILINGS AND AUTHORIZATIONS. As promptly as
practicable, ADLT shall make, or cause to be made, such filings and submissions
under law, rules and regulations applicable to it, including the HSR Act, as may
be required for it to consummate the purchase and transfer of the RLI Shares
hereunder, and shall use its best efforts to obtain, or cause to be obtained,
all authorizations, approvals, consents and waivers from all Governmental Bodies
necessary to be obtained by it.
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Section 6.4 NOTICE OF CHANGES. During the Interim Period, ADLT
shall deliver to the Shareholders copies of any material public disclosures made
by ADLT and shall give RLI prompt written notice of any material change or
inaccuracies in any data previously given or made available to RLI or the
Shareholders pursuant to this Agreement.
Section 6.5 STOCK OPTION PLAN. On or prior to the Closing Date
ADLT will adopt a stock option plan, substantially in the form of Exhibit F
hereto (the "Stock Option Plan"), with effect on the Closing Date. To the extent
required to permit options under such plan to be incentive stock options under
the Code, ADLT will include approval of such stock option plan in its proxy
statement for its 1998 annual meeting of shareholders.
Section 6.6 EMPLOYEE BENEFITS. ADLT will maintain in force
each RLI Plan which was in force on September 17, 1997 until the first
anniversary of the Closing Date, unless ADLT can provide improved benefit plans
reasonably acceptable to RLI management.
Section 6.7 ADLT BOARD OF DIRECTORS. As promptly as
practicable following the Closing, the Board of Directors of ADLT shall (i)
elect Ruud Vice Chairman of ADLT, (ii) appoint Ruud to the vacant seat on the
ADLT Board of Directors with the term expiring at ADLT's annual meeting in 2000,
and (iii) appoint John R. Buerkle, or another individual nominated by Ruud and
reasonably acceptable to the ADLT Board of Directors, to the vacant seat on the
ADLT Board of Directors with the term expiring at ADLT's annual meeting in 1999.
Section 6.8 STOCK LEGENDS. After expiration of the Restricted
Period, ADLT shall instruct its transfer agent to reissue to any Shareholder (or
its permitted transferee), upon surrender of the certificates for their ADLT
Shares, a certificate or certificates representing such Shareholder's (or
transferee's) ADLT Shares without the restrictive legend set forth on such
certificate referring to the transfer restrictions set forth in Section 5.8 of
this Agreement.
Section 6.9 PURCHASE PRICE ALLOCATION; APPRAISALS. ADLT shall
obtain, at its sole expense, appraisals, by appraisers reasonably satisfactory
to ADLT and RLI, of (a) the value of the ADLT Shares for the purpose of
determining the Tax liabilities of the parties and (b) the value of the assets
of RLI. ADLT shall promptly prepare a purchase price allocation based on the
values set forth in such appraisals and deliver a copy of such allocation to
each Shareholder. ADLT shall use such purchase price allocation and values for
the purposes of preparation of its Tax returns.
Section 6.10 PERMITTED DIVIDENDS. Notwithstanding anything in
this Agreement to the contrary, ADLT shall permit RLI to declare and pay, and
RLI may declare and pay, Permitted Dividends at any time prior to the Closing.
Section 6.11 ACCESS, INFORMATION AND DOCUMENTS. During the
Interim Period, ADLT shall give to RLI and to its employees and representatives
(including independent public accountants, attorneys, environmental consultants
and engineers) access during normal business hours to all of the properties,
books, Tax returns, contracts, commitments, records, officers,
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personnel and accountants (including independent public accounts) of ADLT and
its subsidiaries and shall furnish to RLI all such documents and copies of
documents and all information with respect to the affairs of ADLT and its
subsidiaries as RLI shall reasonably request.
Section 6.12 POST-CLOSING INDEMNIFICATION OF CERTAIN PERSONS.
(a) From and after the Closing, ADLT shall, and shall cause
RLI to, indemnify, defend and hold harmless the present and former officers,
directors, employees, agents and representatives of RLI (collectively, the
"Indemnified Parties") against all losses, expenses, claims, damages or
liabilities arising out of actions or omissions occurring at or prior to the
Closing (including, without limitation, the transactions contemplated by this
Agreement) to the fullest extent permitted or required under the Wisconsin
Business Corporation Law (the "Wisconsin Law") or other applicable state law
(and shall also advance reasonable expenses as incurred to the fullest extent
permitted under the Wisconsin Law or other applicable state law, provided that
the persons to whom expenses are advanced provide an undertaking to repay such
advances contemplated by the Wisconsin Law). ADLT agrees that all rights to
indemnification, including provisions relating to advances of expenses incurred
in defense of any claim, action, suit, proceeding or investigation (a "Claim")
existing in favor of the Indemnified Parties as provided in RLI's Articles of
Incorporation or By-Laws or other agreement or provisions, as in effect as of
the date hereof, with respect to matters occurring through the Closing, shall
survive the Closing and shall continue in full force and effect.
(b) Without limiting the foregoing, in the event any Claim is
brought against any Indemnified Party (whether arising before or after the
Closing) after the Closing (i) the Indemnified Parties may retain counsel
satisfactory to them (subject to approval by ADLT and RLI, which approval will
not be unreasonably withheld or delayed), (ii) ADLT and RLI shall pay all
reasonable fees and expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received subject to the ability of ADLT and
RLI to receive such information relative to the legal services provided as is
customarily provided and reasonably requested by ADLT and RLI, and (iii) ADLT
and RLI will use all reasonable efforts to assist in the vigorous defense of any
such matter, provided that neither ADLT nor RLI shall be liable for any
settlement of any Claim effected without its written consent, which consent,
however, shall not be unreasonably withheld or delayed. Any Indemnified Party
wishing to claim indemnification under this Section 6.12, upon learning of any
such Claim, shall notify ADLT (but the failure so to notify ADLT shall not
relieve it from any liability which it may have under this Section 6.12 except
to the extent such failure materially prejudices ADLT). The Indemnified Parties
as a group may retain only one law firm to represent them with respect to each
such matter unless there is, as evidenced by the written opinion of counsel
reasonably acceptable to ADLT and RLI, under applicable standards of
professional conduct, a conflict on any significant issue between the positions
of any two or more Indemnified Parties.
(c) This section 6.12 is intended to benefit the Indemnified
Parties and shall be binding on all successors and assigns of ADLT and RLI.
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ARTICLE 7
CONDITIONS TO CLOSING
Section 7.1 MUTUAL CONDITIONS PRECEDENT. The obligations of
ADLT and the Shareholders to proceed with the Closing under this Agreement are
subject to the fulfillment prior to the Closing of the following conditions:
(a) LITIGATION. No order of any Governmental Body shall be in
effect which enjoins, restrains or prohibits the transactions contemplated
hereby or that would limit or adversely affect ADLT's ownership of the RLI
Shares or the Shareholders's ownership of the ADLT Shares, and there shall not
have been threatened, nor shall there be pending, any action or proceeding by or
before any Governmental Body challenging any of the transactions contemplated by
this Agreement or the Other Agreements or seeking monetary relief by reason of
the consummation of such transactions.
(b) FILINGS. The filing and waiting period requirements of any
applicable federal or state law or Governmental Body relating to the
consummation of the transactions contemplated by this Agreement and the Other
Agreements shall have been complied with.
Section 7.2 CONDITIONS PRECEDENT TO OBLIGATIONS OF ADLT. The
obligation of ADLT to proceed with the Closing under this Agreement is subject
to the fulfillment prior to or at Closing of the following conditions (any one
or more of which may be waived in whole or in part by ADLT at ADLT's option):
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Shareholders and RLI contained in Article
2 of this Agreement, and each of the representations and warranties of the
Shareholders contained in Article 3 of this Agreement, shall be true and correct
in all material respects on and as of the Closing Date, with the same force and
effect as though such representations and warranties had been made on, as of and
with reference to such date.
(b) PERFORMANCE AND COMPLIANCE. The Shareholders and RLI
shall each have performed in all material respects all of the covenants and
complied in all material respects with all of the provisions required by this
Agreement to be performed or complied with by it on or before the Closing.
(c) NO MATERIAL ADVERSE CHANGE. Between October 28, 1997 and
the Closing Date, there shall have been no material adverse change in the
financial condition, assets, Liabilities, net worth, Business or prospects of
RLI or any Subsidiary, and no event or condition shall have occurred or exist
that might be expected to cause such a change in the future.
(d) APPROVAL BY ADLT BOARD OF DIRECTORS. The Board of
Directors of ADLT shall have approved this Agreement, the Other Agreements and
the consummation of the transactions
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contemplated hereby and thereby. Messrs. Wayne Hellman and Louis Fisi agree to
use their best efforts to obtain such approval promptly after the signing of
this Agreement.
(e) CLOSING DOCUMENTS. Receipt of the deliveries referred to
in Section 1.6(a) and (b).
(f) CONSENTS. Receipt of evidence reasonably satisfactory to
ADLT that the consents set forth in Schedule 2.6 have been obtained.
Section 7.3 CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE
SHAREHOLDERS. The obligation of the Shareholders to proceed with the Closing
hereunder is subject to the fulfillment prior to or at Closing of the following
conditions (any one or more of which may be waived in whole or in part by the
Shareholders at the Shareholders's option):
(a) ACCURACY OF REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of ADLT contained in Article 4 of this Agreement
shall be true and correct in all material respects on, as of, and with reference
to the Closing Date, with the same force and effect as though such
representations and warranties had been made on, as of and with reference to
such date.
(b) PERFORMANCE AND COMPLIANCE. ADLT shall have performed in
all material respects all of the covenants and complied in all material respects
with all of the provisions required by this Agreement to be performed or
complied with by it on or before the Closing. ADLT shall have performed in all
material respects all of the covenants and complied in all material respects
with all of the provisions required by the Other Agreements to which it is a
party to be performed or complied with by it on or before Closing.
(c) NO MATERIAL ADVERSE CHANGE. Between June 30, 1997 and the
Closing Date, there shall have been no material adverse change in the financial
condition, assets, liabilities, net worth, business or prospects of ADLT and its
subsidiaries taken as a whole, and no event or condition shall have occurred or
exist that might be expected to cause such a change in the future.
(d) CLOSING DOCUMENTS. The Shareholders shall have received
the deliveries referred to in Section 1.6(c).
ARTICLE 8
TERMINATION
Section 8.1 TERMINATION. This Agreement may be terminated at
any time prior to Closing by: (i) mutual consent of ADLT, Shareholders holding a
majority of the RLI Shares and RLI; (ii) ADLT, if (A) any of the conditions
specified in Sections 7.1 or 7.2 hereof shall not have been fulfilled by January
20, 1998 and shall not have been waived by ADLT, but only if ADLT has not caused
the condition giving rise to termination not to be satisfied through its own
action or inaction, or (B) if the ADLT Stock Price on the Closing Date is less
than $20 per share; or (iii) the Shareholders holding a majority of the RLI
Shares if (A) any of the conditions specified in
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Sections 7.1 or 7.3 hereof shall not have been fulfilled by January 20, 1998
and shall not have been waived by the Shareholders, but only if the
Shareholders or RLI have not caused the condition giving rise to termination
not to be satisfied through their own action or inaction, or (B) if the ADLT
Stock Price on the Closing Date is less than $20. Nothing in this Section 8.1
shall be construed as excusing the breach of any obligation under this
Agreement or as limiting the remedies which may be available to any
non-breaching party in respect of such breach. Notwithstanding the foregoing,
in the event that this Agreement is terminated by one party hereto pursuant to
clause (ii) or (iii) of the first sentence of this Section solely as a result
of a breach by another party hereto of a representation or warranty of such
other party as of a date after the date of this Agreement, which breach could
not have been reasonably anticipated by such other party and was beyond the
reasonable control of such other party, then neither party shall have any
liability to the other hereunder. Any dispute arising under this Section 8.1
shall be resolved by arbitration in accordance with the rules of the American
Arbitration Association in the City of Cleveland, Ohio using three arbitrators,
one being chosen by Shareholders holding a majority of the RLI Shares, one
being chosen by ADLT and the third being chosen by the other two arbitrators
(collectively, the "Arbitrators"). The term "ADLT Stock Price" shall mean the
average of the last sale prices, as reported by the NASDAQ National Market, for
the ten trading days immediately preceding the date of calculation.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
Section 9.1 SURVIVAL OF REPRESENTATIONS. All representations,
warranties, covenants and agreements made by any party in this Agreement or
pursuant hereto shall survive the Closing, but no claim may be made with respect
to any breach of any representation or warranty hereunder after October 31,
1998; provided, however, that claims for breach of the representations and
warranties contained in the Sections listed in Schedule 9.1 may be made at any
time to the applicable date set forth on Schedule 9.1. The Shareholders and RLI
acknowledge with respect to ADLT, and ADLT acknowledges with respect to RLI,
that they have performed comprehensive due diligence investigations and that
they have no knowledge of any facts and circumstances which would result in the
inaccuracy of any representation or warranty of ADLT, or RLI and/or the
Shareholders, as applicable.
Section 9.2 INDEMNIFICATION BY THE SHAREHOLDERS. Subject to
the limitations set forth in this Article 9 and the Closing of the transactions
contemplated by this Agreement, the Shareholders, severally but not jointly,
shall indemnify, defend, save and hold ADLT and its officers, directors,
employees, Affiliates and agents (including, after Closing, RLI) (collectively,
"ADLT Indemnitees") harmless from and against all demands, claims, actions or
causes of action, assessments, losses, damages, deficiencies, Liabilities, costs
and expenses, including reasonable attorneys' fees, interest, penalties, and all
reasonable amounts paid in investigation, defense or settlement of any of the
foregoing (collectively, "ADLT Damages") asserted against, imposed upon,
resulting to or incurred by any of the ADLT Indemnitees, directly or indirectly,
in connection with, or arising out of, or resulting from (i) a breach of any of
the representations and warranties made by the Shareholders or RLI in Article 2
of this Agreement, except as set forth above in Section 9.1, ("ADLT Warranty
Damages"), (ii) a breach of any of the representations and warranties made by
any
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Shareholder in Article 3 of this Agreement, except as set forth above in
Section 9.1 and except that each Shareholder will be severally responsible only
for his or her own such representations and warranties and (iii) a breach of any
of the covenants or agreements made by the Shareholders, or a breach of any of
the covenants or agreements of RLI to be completed before the Closing, in or
pursuant to this Agreement and in any Other Agreement to which the Shareholders
or RLI is a party, except that, with respect to Shareholder covenants, each
Shareholder will be severally responsible only for his or her own covenants or
agreements. The waiver by ADLT of any condition to Closing set forth in Section
7.2 shall be deemed to be a waiver by ADLT of its rights of indemnification
hereunder. All claims made by virtue of such representations and warranties
shall be made under, and subject to, the limitations set forth in this Article
9. The Liability of each Shareholder with respect to any claim for indemnity
shall be equal to the Shareholder's Pro Rata Share, provided, however, that each
Shareholder shall be entirely responsible for any violation of his or her own
representations contained in Article 3.
Section 9.3 INDEMNIFICATION BY ADLT. (a) Subject to the
limitations set forth in this Article 9 and the Closing of the transactions
contemplated by this Agreement, ADLT shall indemnify, defend, save and hold
the Shareholders harmless from and against any and all demands, claims, actions
or causes of action, assessments, losses, damages, deficiencies, Liabilities,
costs and expenses, including reasonable attorneys' fees, interest, penalties,
and all reasonable amounts paid in investigation, defense or settlement of any
of the foregoing (collectively, "Shareholder Damages") asserted against,
imposed upon, resulting to or incurred by any of the Shareholders, directly or
indirectly, in connection with, or arising out of, or resulting from (i) a
breach of any of the representations and warranties made by ADLT in Article 4
of this Agreement, except as set forth above in Section 9.1, ("Shareholder
Warranty Damages") or (ii) a breach of any of the covenants or agreements made
by ADLT in or pursuant to this Agreement and in any Other Agreement to which
ADLT is a party. The waiver by the Shareholders of any condition to Closing set
forth in Section 7.3 shall be deemed a waiver by the Shareholders of their
rights to indemnification hereunder. All claims made by virtue of such
representations and warranties shall be made under, and subject to, the
limitations set forth in this Article 9.
(b) Subject to Section 9.6 below, ADLT shall indemnify,
defend, save and hold the Shareholders harmless from and against any and all
costs and expenses, including reasonable attorneys' fees, interest, penalties
(but not the additional taxes) and all reasonable amounts paid in investigation,
defense or settlement of any of the foregoing (collectively, "Tax Damages")
incurred by any of the Shareholders directly or indirectly, in connection with
or arising out of, or resulting from, any proceeding by the Internal Revenue
Service, Wisconsin Department of Revenue or other taxing authority resulting
from a claim that the tax liability of the Shareholders is an amount greater
than the amount of tax calculated by ADLT in its presentation to the
Shareholders.
Section 9.4 MINIMUM AND MAXIMUM INDEMNIFICATION CLAIM. The
provision for indemnity for Shareholder Warranty Damages, or ADLT Warranty
Damages, as the case may be, shall only be effective and no Shareholder shall be
required to provide such indemnity to the ADLT Indemnitees, and ADLT shall not
be required to provide such indemnity to the Shareholder Indemnitees, hereunder
unless the claim(s) of indemnification of the ADLT Indemnitees, or RLI
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Indemnitees, as the case may be, shall exceed in the aggregate $1,000,000 (the
"Basket"). In the event the ADLT Indemnitees' claims, or the RLI Indemnitees'
claims, as the case may be, shall exceed the Basket, then the ADLT Indemnitees
shall have the right to be indemnified for Shareholder Warranty Damages, or ADLT
Warranty Damages, as the case may be, but only for amounts in excess of the
Basket and, in all cases, subject to the further limitation that the
Shareholders shall in no event be liable for ADLT Damages in excess of
$5,000,000 (the "Cap"). None of the ADLT Indemnitees, or the RLI Indemnitees, as
the case may be, shall have any claim against any Shareholders, or ADLT, as the
case may be, for any damages, costs or expenses up to the amount of the Basket
and the Shareholders shall have no liabilities to the ADLT Indemnitees for
claims in excess of the Cap.
Section 9.5 OPTION TO DELIVER ADLT SHARES AS PAYMENT. In the
event a Shareholder becomes obligated to make an indemnification payment to any
of the ADLT Indemnitees pursuant to this Article 9, such Shareholder may, at his
or her option, in lieu of making a payment to the ADLT Indemnitees in cash,
elect to deliver to the ADLT Indemnitees a portion of the ADLT shares received
hereunder. Such ADLT shares shall be valued, for purposes of this Article 9 at
the greater of $25 per share or the ADLT Stock Price as of the date the amount
of the indemnification payment is fixed.
Section 9.6 NOTICE OF CLAIMS. If any ADLT Indemnitee or
Shareholder (an "Indemnified Party") believes that it has suffered or incurred
or will suffer or incur any ADLT Damages, Shareholder Damages or Tax Damages
("Damages") for which it is entitled to indemnification under this Article 9, or
if any legal, governmental or administrative proceeding which may result in such
damages is threatened or asserted (including any written notice from any taxing
authority), such Indemnified Party shall so notify the party or parties from
whom indemnification is being claimed (the "Indemnifying Party") with reasonable
promptness and reasonable particularity in light of the circumstances then
existing. If any action at law or suit in equity is instituted by or against a
third party with respect to which any Indemnified Party intends to claim any
Damages, such Indemnified Party shall promptly notify the Indemnifying Party of
such action or suit. The failure of an Indemnified Party to give any notice
required by this Section 9.4 shall not affect any of such party's rights under
this Article 9 except to the extent such failure is actually prejudicial to the
rights or obligations of the Indemnifying Party.
Section 9.7 THIRD PARTY CLAIMS. In case any legal,
governmental or administrative proceeding which may result in such Damages is
instituted, threatened or asserted (including any written notice from any taxing
authority) by or against a third party with respect to which an Indemnified
Party intends to claim any Damages and the Indemnified Party notifies the
Indemnifying Party of such proceeding as provided in Section 9.6, the
Indemnifying Party shall be entitled to participate therein and, to the extent
that it may wish, jointly with any other Indemnifying Party similarly notified,
to assume the defense thereof, with counsel reasonably satisfactory to such
Indemnified Party (who shall not, except with the consent of the Indemnified
Party, be counsel to the Indemnifying Party), and after notice from the
Indemnifying Party to such Indemnified Party of its election so to assume the
defense thereof, the Indemnifying Party will not be liable to such Indemnified
Party under this Article 9 for any legal or other expenses subsequently incurred
by such
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Indemnified Party in connection with the defense thereof other than
reasonable costs of investigation. No Indemnifying Party shall, without the
prior written consent of the Indemnified Party, effect any settlement of any
pending or threatened action in respect of which any Indemnified Party is or
could have been a party and indemnity could have been sought hereunder by such
Indemnified Party unless such settlement includes an unconditional release of
such Indemnified Party from all Liability on any claims that are the subject
matter of such proceeding.
Section 9.8 LIMITATION ON DAMAGES; INSURANCE; ETC. In
determining Damages hereunder, (i) each Indemnified Party shall be required to
pursue all valid claims against any insurance carrier providing coverage with
respect to the matter giving rise to such Damages, (ii) if such Damages arise
out of matters concerning any customers of RLI, RLI shall use its best efforts
to pursue its rights and remedies against such customers (without litigation or
arbitration), and (iii) if such Damages arise out of matters involving Persons
other than customers of RLI and RLI has indemnification rights against such
Persons, then RLI shall permit the Shareholders, at the Shareholders' expense,
to pursue any and all remedies against such Persons and the Shareholders shall
be entitled to the proceeds thereof to the extent that the Shareholders have
provided indemnity in respect of such Damages; provided, however, that no such
requirement shall delay the Shareholders' obligations to indemnify ADLT or RLI
hereunder (except that the indemnification obligation hereunder shall be
delayed if and to the extent that the applicable insurance company under clause
(i) above assumes the defense or acknowledges liability).
Section 9.9 GOOD FAITH EFFORT TO SETTLE DISPUTES. The parties
agree that, prior to commencing any litigation against the other concerning any
matter with respect to which such party intends to claim a right of
indemnification in such proceeding, Ruud and the chief executive officer of ADLT
shall meet in a timely manner and attempt in good faith to negotiate a
settlement of such dispute during which time such individuals shall disclose to
the others all relevant information relating to such dispute.
Section 9.10 EXCLUSIVITY. It is understood and agreed that,
except as expressly provided in this Article 9, after Closing, no Shareholder
will have any obligation or liability to the ADLT Indemnitees with respect to
any ADLT Warranty Damages, and ADLT will not have any obligation or liability
with respect to any Shareholder Warranty Damages, it being understood and agreed
that the remedies provided for in this Article 9 shall be the sole and exclusive
remedies for any such claim by the ADLT Indemnitees or Shareholder Indemnitees,
as the case may be, for any such matters, whether such claims are framed in
contract, tort or otherwise. No Shareholder shall have any liability under any
circumstances pursuant to this Article 9 in connection with the breach of any
representation or warranty regarding title to shares of RLI Common Stock which
were owned by another Shareholder.
37
<PAGE> 45
ARTICLE 10
MISCELLANEOUS
Section 10.1 CONSTRUCTION. As used herein, unless the context
otherwise requires: (i) the terms defined herein shall have the meaning set
forth herein for all purposes; (ii) references to "Article" or "Section" are to
an article or section hereof; (iii) all "Exhibits" and "Schedules" referred to
herein are to Exhibits and Schedules attached hereto and are incorporated herein
by reference and made a part hereof; (iv) "include," "includes" and "including"
are deemed to be followed by "without limitation" whether or not they are in
fact followed by such words or words of like import; (v) "writing," "written"
and comparable terms refer to printing, typing, lithography and other means of
reproducing words in a visible form; (vi) "hereof," "herein," "hereunder" and
comparable terms refer to the entirety of this Agreement and not to any
particular article, section or other subdivision hereof or attachment hereto;
(vii) references to any gender include references to all genders, and references
to the singular include references to the plural and vice versa; (viii)
references to an agreement or other instrument or law, statute or regulation are
referred to as amended and supplemented from time to time (and, in the case of a
statute or regulation, to any successor provision) and all regulations,
rulings and interpretations promulgated pursuant thereto; (ix) the preliminary
statements made on page 1 hereof are incorporated herein and made a part
hereof; (x) the headings of the various articles, sections and other
subdivisions hereof are for convenience of reference only and shall not modify,
define or limit any of the terms or provisions hereof; (xi) the deadline for
all deliveries and notices hereunder shall be determined by reference to the
local time of the place such delivery or notice is properly made; and (l) all
currency references herein are to U.S. dollars.
Section 10.2 NOTICES. All notices, and other communications
given or made pursuant to this Agreement shall be in writing and shall be deemed
to have been duly given or made (i) the second day after mailing, if sent by
registered or certified mail, return receipt requested, (ii) upon delivery, if
sent by hand delivery, (iii) when received, if sent by prepaid overnight
carrier, with a record of receipt, or (iv) the first day after dispatch, if sent
by cable, telegram, facsimile or telecopy (with a copy simultaneously sent by
registered or certified mail, return receipt requested), to the parties at the
following addresses (or at such other addresses as shall be specified by the
parties by like notice):
(a) if to ADLT, to:
Advanced Lighting Technologies, Inc.
2307 East Aurora Road Suite 1
Twinsburg, Ohio 44087
38
<PAGE> 46
with a copy to:
Cowden, Humphrey & Sarlson Co., L.P.A.
1414 Terminal Tower
50 Public Square
Cleveland, Ohio 44113
(b) if to the Shareholders, to:
Alan J. Ruud
Theodore O. Sokoly
Donald Wandler
Christopher A. Ruud
Cynthia A. Johnson
At the addresses set forth on Schedule 1.4 with a
copy to:
Donald J. Christl, Esq.
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C.
1000 North Water Street, Suite 2100
P. O. Box 92900
Milwaukee, WI 53202-0900
(c) If to RLI, to:
Ruud Lighting, Inc.
9201 Washington Avenue
Racine, Wisconsin 54406
Attention: Mr. Alan J. Ruud, CEO
with a copy to:
Donald J. Christl, Esq.
Reinhart, Boerner, Van Deuren, Norris & Rieselbach, S.C.
1000 North Water Street, Suite 2100
P. O. Box 92900
Milwaukee, WI 53202-0900
Section 10.3 SUCCESSORS AND ASSIGNS. This Agreement and all
the rights and powers granted hereby shall bind and inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
Section 10.4 GOVERNING LAW. This Agreement shall be governed
by and construed in accordance with the laws of the State of Ohio without regard
to its conflict of law doctrines.
39
<PAGE> 47
Section 10.5 NO ASSIGNMENT. This Agreement and the rights,
interests and obligations hereunder may not be assigned by any party hereto
without the prior written consent of the other parties hereto, except that ADLT
may assign its rights hereunder to any direct or indirect wholly owned
subsidiary of ADLT, so long as ADLT remains fully liable hereunder.
Section 10.6 APPROVALS AND ACTIONS BY THE SHAREHOLDERS.
Whenever any approval or action by the Shareholders is required or permitted
pursuant to this Agreement, or any Other Agreement, including any consent,
waiver or amendment, such approval or action shall be sufficient if it is made
by Shareholders holding (or who held prior to the Closing) a majority of the RLI
Shares, and such approval or action shall be binding on all Shareholders.
Section 10.7 AMENDMENT AND WAIVER; CUMULATIVE EFFECT. The
parties may by mutual agreement amend this Agreement in any respect, and any
party, as to such party, may (i) extend the time for the performance of any of
the obligations of any other party, waive any inaccuracies in representations
by any other party, (ii) waive compliance by any other party with any of the
agreements contained herein and performance of any obligations by such other
party, and (iii) waive the fulfillment of any condition that is precedent to
the performance by such party of any of its obligations under this Agreement.
To be effective, any such amendment or waiver must be in writing and be signed
by the party against whom enforcement of the same is sought.
Neither the failure of any party hereto to exercise any right, power or remedy
provided under this Agreement where otherwise available in respect hereof at law
or in equity, or to insist upon compliance by any other party with its
obligations hereunder, nor any custom or practice of the parties at variance
with the terms hereof, shall constitute a waiver by such party of its right to
exercise any such right, power or remedy or to demand such compliance. The
rights and remedies of the parties hereto are cumulative and not exclusive of
the rights and remedies that they otherwise might have now or hereafter, at law,
in equity, by statute or otherwise.
Section 10.8 ENTIRE AGREEMENT. This Agreement and the
Schedules and Exhibits set forth all of the promises, covenants, agreements,
conditions and undertakings between the parties hereto with respect to the
subject matter hereof, and supersede all prior and contemporaneous agreements
and understandings, inducements or conditions, express or implied, oral or
written, other than the Secrecy Agreement between RLI and ADLT.
Section 10.9 SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other terms, conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the extent possible.
40
<PAGE> 48
Section 10.10 NO THIRD PARTY BENEFICIARIES. This Agreement is
not intended to confer upon any Person other than the parties hereto any rights
or remedies hereunder, except the provisions of Section 6.12 and Section 9.3
relating to RLI Indemnitees and Section 9.2 relating to ADLT Indemnitees, which
are intended to benefit such indemnitees.
Section 10.11 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, each of which shall be deemed to be an original but
all of which together shall be deemed to be one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ Wayne R. Hellman
-----------------------------------------
Wayne R. Hellman, CEO
RUUD LIGHTING, INC.
By: /s/ Alan J. Ruud
-----------------------------------------
Alan J. Ruud, CEO
/s/ Alan J. Ruud
--------------------------------------------
Alan J. Ruud, Shareholder
/s/ Theodore O. Sokoly
--------------------------------------------
Theodore O. Sokoly, Shareholder
/s/ Donald Wandler
--------------------------------------------
Donald Wandler, Shareholder
/s/ Christopher A. Ruud
--------------------------------------------
Christopher A. Ruud, Shareholder
/s/ Cynthia A. Johnson
--------------------------------------------
Cynthia A. Johnson, Shareholder
41
<PAGE> 49
SCHEDULE 9.1
<TABLE>
<CAPTION>
Last Date for Claim
<S> <C> <C>
Section 2.3 Capitalization October 31, 2000
Section 2.8 Undisclosed Liabilities No survival
Section 2.10 Taxes October 31, 2000
Section 2.11 Receivables; Inventory No survival
Section 2.12 Business; Assets No survival, except title representation
which survives to statute of limitations,
plus 90 days
Section 2.14(a) Contracts No survival
Section 2.17 Real Property October 31, 2000
Section 2.19 Insurance No survival
Section 2.24 Confidentiality Agreements No survival
Section 3.1 Title to RLI Shares Statute of Limitations, plus 90 days
Section 3.4 Purchase for Own Account October 31, 2000
Section 3.5 Restricted Securities October 31, 2000
Section 3.6 Disclosure October 31, 2000
Section 3.7 Investment Experience October 31, 2000
Section 3.8 Accredited Investor October 31, 2000
Section 4.1 Title to ADLT Shares Statute of limitations, plus 90 days
Section 4.2 Securities October 31, 2000
Section 4.4 Capitalization October 31, 2000
Section 4.17 Properties Title representation survives to
October 31, 2000
Section 4.23 Tax Matters October 31, 2000
</TABLE>
<PAGE> 50
CONFIDENTIAL CH&S DRAFT -DECEMBER 9, 1997
EXHIBIT B
TO
STOCK PURCHASE AGREEMENT
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT entered into and effective as of January 1,
1998, among RUUD LIGHTING, INC., a Wisconsin corporation (RLI or EMPLOYER"),
ADVANCED LIGHTING TECHNOLOGIES, INC., an Ohio corporation ("ADLT"), and ALAN J.
RUUD ("EMPLOYEE");
WITNESSETH:
-----------
WHEREAS, RLI and Employee desire to terminate any and all prior
agreements, whether oral or written, between the parties and between Employee
and ADLT relating to Employee's employment; and
WHEREAS, RLI and Employee desire to enter into an Employment Agreement
as set forth herein below to ensure RLI and ADLT of the services of Employee as
Vice Chairman of ADLT and Chief Executive Officer of RLI, and to set forth the
rights and duties of the parties hereto,
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. TERMINATION OF PRIOR AGREEMENTS. RLI and Employee hereby terminate any
and all prior agreements, whether oral or written, between the parties
or ADLT relating to Employee's employment.
2. EMPLOYMENT.
(a) RLI hereby employs Employee, and Employee hereby accepts
employment, upon the terms and conditions hereinafter set
forth.
(b) During the term of this Employment Agreement, (for purposes
hereof, all references to the term of this Employment
Agreement shall be deemed to include all renewals or
extensions hereof, if any), Employee shall devote his full
business time to his employment and shall perform diligently
such duties as are, or may be, required by the Board of
Directors of RLI and the Board of Directors of ADLT or their
designee, which duties shall be within the bounds of
reasonableness and acceptable business standards and ethics.
(c) During the term of this Employment Agreement, Employee shall
not, without the prior written consent of RLI, which shall not
be unreasonably withheld, directly or indirectly, render
services of a business, professional or commercial nature to
any other person or firm, whether for compensation or
otherwise, other than in the performance of duties naturally
inherent in the businesses of RLI or any subsidiary or
affiliate of RLI, including but not limited to ADLT; provided,
however, that Employee may continue (i) to serve on the board
of directors of companies to the extent such service and
service on the ADLT Board of Directors is permitted by law,
and (ii) to render services to and participate in
<PAGE> 51
philanthropic and charitable causes, in each case, in a
manner and to the extent consistent with his past practice.
3. TERM AND POSITION.
(a) Subject to the termination provisions contained herein, the
term of this Employment Agreement shall commence as of January
1, 1998 and shall continue for a term of three years from such
date, subject, however, to the provisions of Section 6.
(b) Employee shall serve as Vice Chairman of ADLT and as Chief
Executive Officer of RLI, and in such offices or positions
with ADLT and RLI as shall be agreed upon by Employee and the
Board of Directors of RLI or the Board of Directors of ADLT,
as the case may be, without, however, any change in Employee's
compensation (but such offices or positions shall be
consistent with the office and position stated herein).
(c) Employee shall promptly be appointed to a term on the ADLT
Board of Directors expiring at the ADLT annual meeting in the
year 2000 and be appointed Vice Chairman of ADLT and as a
member of the Executive Committee of the ADLT Board of
Directors.
(d) The principal business office of Employee shall be in Racine,
Wisconsin; provided, however, Employee maintains a residence
and a business office in ____________Florida, from which the
Employee may perform his duties under this Agreement. Employee
shall not be required to relocate without Employee's consent.
Employee's travel expenses for travel to and from the
Wisconsin and Florida offices shall be paid by RLI.
4. COMPENSATION.
(a) Subject to the provisions of this Employment Agreement, for
all services which Employee may render to RLI or ADLT during
the term of this Employment Agreement, Employee shall receive
a salary at the rate of ________________________ Dollars
($___________) per annum for the first year of this Agreement,
which shall be payable in equal, consecutive biweekly
installments.
(b) Provided that Employee satisfactorily performs his services
under this Employment Agreement, Employee shall be entitled to
salary increases from time to time as determined by the
Compensation Committee of ADLT.
(c) Provided that Employee has satisfactorily performed his
services under this Employment Agreement, Employee shall be
eligible for bonuses from time to time as determined by the
Compensation Committee of ADLT.
5. OTHER BENEFITS.
During the term of this Employment Agreement, Employee shall be
entitled to such vacation privileges, life insurance, medical and
hospitalization benefits, and such other benefits as are typically provided to
other executive officers of ADLT and its subsidiaries in comparable positions;
provided, however, that such benefits shall be not less valuable to Employee
than those benefits provided by Employer in the recent past, provided that, on
or after January 1, 1999, any benefit reduction to executive officers of ADLT
may be applied to Employee's non-vacation benefits.
2
<PAGE> 52
6. TERMINATION AND FURTHER COMPENSATION.
(a) The employment of Employee under this Employment Agreement,
for the term thereof, may be terminated by the Board of
Directors of RLI or ADLT for cause at any time. For purposes
hereof, the term "cause" shall mean:
(i) Employee's fraud, dishonesty, willful misconduct or
gross negligence in the performance of his duties
hereunder; or
(ii) Employee's material breach of this Agreement, in
whole or in part.
Any termination by reason of the foregoing shall not be in
limitation of any other right or remedy RLI may have under
this Employment Agreement or otherwise.
(b) In the event of (i) termination of the Employment Agreement
for any of the reasons set forth in Subparagraph (a) of this
Section 6, or (ii) if Employee shall voluntarily terminate his
employment hereunder prior to the end of the term of this
Employment Agreement, then in either event Employee shall be
entitled to no further salary, bonus or other benefits under
this Employment Agreement, except as to that portion of any
unpaid salary and other benefits accrued and earned by him
hereunder up to and including the effective date of such
termination. In the event the Employee voluntarily terminates
this Agreement, Employee shall provide 30 days' prior written
notice to RLI of such voluntary termination.
(c) In the event that RLI terminates Employee's employment without
"cause" (as defined herein above) or Employee terminates
employment with "good reason" (as defined below) prior to the
end of the term of this Employment Agreement, then Employee
shall be entitled to all salary and medical benefits for the
remainder of the term of this Employment Agreement all upon
the terms and as set forth herein. At the conclusion of the
term of this Employment Agreement, all salary, medical and
other benefits as set forth herein shall cease. Employee shall
have no other rights and remedies except as set forth in this
Section 6. For purposes hereof, the term "good reason" shall
mean (i) without the express written consent of Employee, a
material reduction of Employee's duties, authority,
compensation, benefits or responsibilities or (ii) a material
breach of this Agreement by RLI or ADLT.
(d) In the event of Employee's death or permanent disability (as
defined herein below) occurring during the term of this
Employment Agreement, this Employment Agreement shall be
deemed terminated for cause and Employee or his estate, as the
case may be, shall be entitled to no further salary or other
compensation provided for herein except as to that portion of
any unpaid salary accrued or earned by Employee hereunder up
to and including the date of death or permanent disability,
and any benefits under any insurance policies or other plans.
(e) "Permanent disability" means the inability of Employee to
perform satisfactorily his usual or customary occupation for a
period of 120 days in the aggregate out of 150 consecutive
days as a result of a physical or mental illness or other
disability which in the written opinion of a physician of
recognized ability and reputation, is likely to continue for a
significant period of time.
3
<PAGE> 53
(f) In the event this Employment Agreement is terminated with
cause, before the end of the term, RLI may, in its sole
discretion, notify Employee that RLI intends to continue to
pay all compensation, benefits and monies due under the terms
of the Employment Agreement for the remainder of the term. In
such event, and provided RLI continues to make such payments,
Employee shall continue to be bound by the terms of the
non-competition provisions in Section 7 hereof.
7. COVENANTS REGARDING NON-COMPETITION AND CONFIDENTIAL INFORMATION.
(a) Non-Competition.
(i) Recognizing that Employee will have been involved as
an executive officer of RLI and ADLT and that RLI and
its affiliates, including ADLT, are engaged in the
supply of products and/or services in every state of
the United States and internationally, therefore,
upon termination of his employment, for any reason,
he agrees that he will not, for a period of three
years immediately following such termination, engage,
in the United States or in any country where RLI,
ADLT or any of their affiliates conducts business,
either directly or indirectly on behalf of himself or
on behalf of any employee, consultant, principal,
substantial shareholder or investor, partner or
officer of any corporation, in any business of the
type and character or in competition with the
business carried on by RLI, ADLT or their affiliates
(as conducted on the date Employee ceases to be
employed by RLI in any capacity).
(ii) Employee will not, for a period of three years
immediately following the termination of his
employment, either directly or indirectly or on
behalf of another as an employee, agent, principal,
partnership or other entity, recruit, hire or
otherwise entice any employees of RLI, ADLT or their
affiliates to leave the Employer.
(iii) Employee will not disclose, divulge, discuss, copy or
otherwise use or suffer to be used in any manner, in
competition with, or contrary to the interests of
RLI, ADLT or their affiliates, the customer lists,
manufacturing methods, product research or
engineering data or other trade secrets of RLI, ADLT
or any of their affiliates, it being acknowledged by
Employee that all such information regarding the
business of RLI, ADLT or their affiliates developed,
compiled or obtained by or furnished to Employee
while Employee shall have been employed by or
associated with RLI, ADLT or their affiliates is
confidential information and RLI's, ADLT's or their
affiliates' exclusive property. Employee's
obligations under this Section 7(a)(iii) will not
apply to any information which (A) is known to the
public other than as a result of Employee's acts or
omissions, (B) is approved for release, in writing,
by the Company, (C) is disclosed to Employee by a
third party without restriction, or (D) Employee is
legally required to disclose.
4
<PAGE> 54
(b) Employee expressly agrees and understands that the remedy at
law for any breach by him of this Section 7 will be inadequate
and that the damages flowing from such breach are not readily
susceptible to being measured in monetary terms. Accordingly,
it is acknowledged that upon adequate proof of Employee's
violation of any legally enforceable provision of this Section
7, RLI shall be entitled to immediate injunctive relief and
may obtain a temporary order restraining any threatened or
further breach. Nothing in this Section 7 shall be deemed to
limit RLI's remedies at law or in equity for any breach by
Employee of any of the provisions of this Section 7 which may
be pursued or availed of by RLI or any of its affiliates
including but not limited to ADLT.
(c) In the event Employee shall violate any legally enforceable
provision of this Section 7 as to which there is a specific
time period during which he is prohibited from taking certain
actions or from engaging in certain activities as set forth in
such provision then, in such event, such violation shall toll
the running of such time period from the date of such
violation until such violation shall cease.
8. RENEWAL.
Not later than six (6) months prior to the termination of this
Agreement, Employer shall be entitled to notify Employee whether it desires to
renew this Employment Agreement with Employee for an additional period of three
(3) years, which notice, if given, shall contain the compensation and other
benefits proposed to be paid and provided to Employee by Employer. For a period
of thirty (30) days after receipt of such notice, Employee shall have the option
to accept such offer of renewal or, in the alternative, shall be entitled to
consult with Employer with respect to different compensation and/or benefits to
be paid and provided to Employee by Employer during said renewal period of
employment. If at the end of said thirty (30) day period Employee and Employer
are unable to agree, then this Employment Agreement shall not be renewed at the
end of the term thereof, unless otherwise agreed to by the parties. In the
event, however, that Employer does not, timely notify Employee of its desire to
renew this Employment Agreement, then this Employment Agreement shall not be
renewed at the end of the term thereof, unless otherwise agreed upon by the
parties.
9. SEVERABLE PROVISIONS.
The provisions of this Employment Agreement are severable and if any
one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision to the extent enforceable in any jurisdiction shall,
nevertheless, be binding and enforceable.
10. ARBITRATION.
Any controversy or claim arising out of or relating to this Employment
Agreement, or the breach thereof, shall be settled by arbitration by a single
arbitrator in the City of Racine, State of Wisconsin, in accordance with the
Rules of the American Arbitration Association, and judgment upon the award
rendered by the Arbitrator may be entered in any court having jurisdiction
thereof. The Arbitrator shall be deemed to possess the powers to issue mandatory
orders and restraining orders in connection with such arbitration; PROVIDED,
HOWEVER, that nothing in this Section 10 shall be construed so as to deny RLI
the right and power to seek and obtain injunctive relief in a court of equity
for any breach or threatened breach of Employee of any of his covenants
contained in Section 7 hereof.
5
<PAGE> 55
11. NOTICES.
(a) Each notice, request, demand or other communication ("NOTICE")
by either party to the other party pursuant to this Agreement
shall be in writing and shall be personally delivered or sent
by U.S. certified mail, return receipt requested, postage
prepaid, or by nationally recognized overnight commercial
courier, charges prepaid, or by facsimile transmission (but
each such Notice sent by facsimile transmission shall be
confirmed by sending a copy thereof to the other party by U.S.
mail or commercial courier as provided herein no later than
the following business day), addressed to the address of the
receiving party or to such other address as such party shall
have communicated to the other party in accordance with this
Section. Any Notice hereunder shall be deemed to have been
given and received on the date when personally delivered, on
the date of sending when sent by facsimile, on the third
business day following the date of sending when sent by mail
or on the first business day following the date of sending
when sent by commercial courier.
(b) If a Notice is to RLI, then such Notice shall be addressed to
Ruud Lighting, Inc., attention of the Board of Directors.
(c) If a Notice is to Employee, then such Notice shall be
addressed to Employee at his home address last known on the
payroll records of RLI.
12. WAIVER.
The failure of either party to enforce any provision or provisions of
this Employment Agreement shall not in any way be construed as a waiver of any
such provision or provisions as to any future violations thereof, nor prevent
that party thereafter from enforcing each and every other provision of this
Employment Agreement. The rights granted the parties herein are cumulative and
the waiver of any single remedy shall not constitute a waiver of such party's
right to assert all other legal remedies available to it under the
circumstances.
13. MISCELLANEOUS.
This Employment Agreement supersedes all prior agreements and
understandings between the parties and may not be modified or terminated orally.
No modification, termination or attempted waiver shall be valid unless in
writing and signed by the party against whom the same it is sought to be
enforced.
14. GOVERNING LAW.
This Employment Agreement shall be governed by and construed according
to the laws of the State of Wisconsin.
6
<PAGE> 56
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement on the day and year first set forth above.
WITNESS: RUUD LIGHTING, INC.
By: By:
------------------------------- ------------------------------
Name: Name:
------------------------------- ------------------------------
Its:
------------------------------
WITNESS: ADVANCED LIGHTING TECHNOLOGIES, INC.
By: By:
------------------------------- ------------------------------
Name: Name:
------------------------------- ------------------------------
Its:
------------------------------
WITNESS:
By:
------------------------------- ------------------------------
Name: ALAN J. RUUD
-------------------------------
7
<PAGE> 57
CONFIDENTIAL CH&S DRAFT -DECEMBER 8, 1997
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT entered into and effective as of January 1,
1998, among RUUD LIGHTING, INC., a Wisconsin corporation ("RLI" or "EMPLOYER")
and ________________ ("EMPLOYEE");
WITNESSETH:
-----------
WHEREAS, RLI and Employee desire to terminate any and all prior
agreements, whether oral or written, between the parties and between Employee
and ADLT relating to Employee's employment; and
WHEREAS, RLI and Employee desire to enter into an Employment Agreement
as set forth herein below to ensure RLI and ADLT of the services of Employee as
______________ of RLI, and to set forth the rights and duties of the parties
hereto,
NOW, THEREFORE, in consideration of the mutual promises herein
contained, the parties agree as follows:
1. TERMINATION OF PRIOR AGREEMENTS. RLI and Employee hereby terminate any
and all prior agreements, whether oral or written, between the parties
or ADLT relating to Employee's employment.
2. EMPLOYMENT.
(a) RLI hereby employs Employee, and Employee hereby accepts
employment, upon the terms and conditions hereinafter set
forth.
(b) During the term of this Employment Agreement, (for purposes
hereof, all references to the term of this Employment
Agreement shall be deemed to include all renewals or
extensions hereof, if any), Employee shall devote his full
business time to his employment and shall perform
diligently such duties as are, or may be, required by the
Board of Directors of RLI and the Board of Directors of
ADLT or their designee, which duties shall be within the
bounds of reasonableness and acceptable business standards
and ethics.
(c) During the term of this Employment Agreement, Employee
shall not, without the prior written consent of RLI, which
shall not be unreasonably withheld, directly or indirectly,
render services of a business, professional or commercial
nature to any other person or firm, whether for
compensation or otherwise, other than in the performance of
duties naturally inherent in the businesses of RLI or any
subsidiary or affiliate of RLI, including but not limited
to ADLT.
3. TERM AND POSITION.
(a) Subject to the termination provisions contained herein, the
term of this Employment Agreement shall commence as of
January 1, 1998 and shall continue for a term of three
years from such date, subject, however, to the provisions
of Section 6.
1
<PAGE> 58
(b) Employee shall serve as___________________ and in such
offices or positions with ADLT and RLI as shall be agreed
upon by Employee and the Board of Directors of RLI or the
Board of Directors of ADLT, as the case may be, without,
however, any change in Employee's compensation (but such
offices or positions shall be consistent with the office
and position stated herein).
(c) The principal business office of Employee shall be in
Racine, Wisconsin. Employee shall not be required to
relocate without Employee's consent.
4. COMPENSATION.
(a) Subject to the provisions of this Employment Agreement, for
all services which Employee may render to RLI or ADLT
during the term of this Employment Agreement, Employee
shall receive a salary at the rate of ___________________
Dollars ($___________) per annum for the first year of this
Agreement, which shall be payable in equal, consecutive
biweekly installments.
(b) Provided that Employee satisfactorily performs his services
under this Employment Agreement, Employee shall be entitled
to salary increases from time to time as determined by the
Compensation Committee of ADLT.
(c) Provided that Employee has satisfactorily performed his
services under this Employment Agreement, Employee shall be
eligible for bonuses from time to time as determined by the
Compensation Committee of ADLT.
5. OTHER BENEFITS.
During the term of this Employment Agreement, Employee shall be
entitled to such vacation privileges, life insurance, medical and
hospitalization benefits, and such other benefits as are typically provided to
other executives of ADLT and its subsidiaries in comparable positions; provided,
however, that such benefits shall be not less valuable to Employee than those
benefits provided by Employer in the recent past, provided that, on or after
January 1, 1999, any benefit reduction to executive officers of ADLT may be
applied to Employee's non-vacation benefits.
6. TERMINATION AND FURTHER COMPENSATION.
(a) The employment of Employee under this Employment Agreement,
for the term thereof, may be terminated by the Board of
Directors of RLI or ADLT for cause at any time. For
purposes hereof, the term "cause" shall mean:
(i) Employee's fraud, dishonesty, willful misconduct or
gross negligence in the performance of his duties
hereunder; or
(ii) Employee's material breach of this Agreement, in
whole or in part.
Any termination by reason of the foregoing shall not be in
limitation of any other right or remedy RLI may have under
this Employment Agreement or otherwise.
2
<PAGE> 59
(b) In the event of (i) termination of the Employment Agreement
for any of the reasons set forth in Subparagraph (a) of
this Section 6, or (ii) if Employee shall voluntarily
terminate his employment hereunder prior to the end of the
term of this Employment Agreement, then in either event
Employee shall be entitled to no further salary, bonus or
other benefits under this Employment Agreement, except as
to that portion of any unpaid salary and other benefits
accrued and earned by him hereunder up to and including the
effective date of such termination. In the event the
Employee voluntarily terminates this Agreement, Employee
shall provide 30 days' prior written notice to RLI of such
voluntary termination.
(c) In the event that RLI terminates Employee's employment
without "cause" (as defined herein above) or Employee
terminates employment with "good reason" (as defined below)
prior to the end of the term of this Employment Agreement,
then Employee shall be entitled to all salary and medical
benefits for the remainder of the term of this Employment
Agreement all upon the terms and as set forth herein. At
the conclusion of the term of this Employment Agreement,
all salary, medical and other benefits as set forth herein
shall cease. Employee shall have no other rights and
remedies except as set forth in this Section 6. For
purposes hereof, the term "good reason" shall mean (i)
without the express written consent of Employee, a material
reduction of Employee's duties, authority, compensation,
benefits or responsibilities or (ii) a material breach of
this Agreement by RLI or ADLT.
(d) In the event of Employee's death or permanent disability
(as defined herein below) occurring during the term of this
Employment Agreement, this Employment Agreement shall be
deemed terminated for cause and Employee or his estate, as
the case may be, shall be entitled to no further salary or
other compensation provided for herein except as to that
portion of any unpaid salary accrued or earned by Employee
hereunder up to and including the date of death or
permanent disability, and any benefits under any insurance
policies or other plans.
(e) "Permanent disability" means the inability of Employee to
perform satisfactorily his usual or customary occupation
for a period of 120 days in the aggregate out of 150
consecutive days as a result of a physical or mental
illness or other disability which in the written opinion of
a physician of recognized ability and reputation, is likely
to continue for a significant period of time.
(f) In the event this Employment Agreement is terminated with
cause, before the end of the term, RLI may, in its sole
discretion, notify Employee that RLI intends to continue to
pay all compensation, benefits and monies due under the
terms of the Employment Agreement for the remainder of the
term. In such event, and provided RLI continues to make
such payments, Employee shall continue to be bound by the
terms of the non-competition provisions in Section 7
hereof.
7. COVENANTS REGARDING NON-COMPETITION AND CONFIDENTIAL INFORMATION.
(a) Non-Competition.
(i) Recognizing that Employee will have been involved
as an executive officer of RLI and ADLT and that
RLI and its affiliates, including ADLT, are engaged
in
3
<PAGE> 60
the supply of products and/or services in every
state of the United States and internationally,
therefore, upon termination of his employment, for
any reason, he agrees that he will not, for a
period of three years immediately following such
termination, engage, in the United States or in any
country where RLI, ADLT or any of their affiliates
conducts business, either directly or indirectly on
behalf of himself or on behalf of any employee,
consultant, principal, substantial shareholder or
investor, partner or officer of any corporation, in
any business of the type and character or in
competition with the business carried on by RLI,
ADLT or their affiliates (as conducted on the date
Employee ceases to be employed by RLI in any
capacity).
(ii) Employee will not, for a period of three years
immediately following the termination of his
employment, either directly or indirectly or on
behalf of another as an employee, agent, principal,
partnership or other entity, recruit, hire or
otherwise entice any employees of RLI, ADLT or
their affiliates to leave the Employer.
(iii) Employee will not disclose, divulge, discuss, copy
or otherwise use or suffer to be used in any
manner, in competition with, or contrary to the
interests of RLI, ADLT or their affiliates, the
customer lists, manufacturing methods, product
research or engineering data or other trade secrets
of RLI, ADLT or any of their affiliates, it being
acknowledged by Employee that all such information
regarding the business of RLI, ADLT or their
affiliates developed, compiled or obtained by or
furnished to Employee while Employee shall have
been employed by or associated with RLI, ADLT or
their affiliates is confidential information and
RLI's, ADLT's or their affiliates' exclusive
property. Employee's obligations under this Section
7(a)(iii) will not apply to any information which
(A) is known to the public other than as a result
of Employee's acts or omissions, (B) is approved
for release, in writing, by the Company, (C) is
disclosed to Employee by a third party without
restriction, or (D) Employee is legally required to
disclose.
(b) Employee expressly agrees and understands that the remedy
at law for any breach by him of this Section 7 will be
inadequate and that the damages flowing from such breach
are not readily susceptible to being measured in monetary
terms. Accordingly, it is acknowledged that upon adequate
proof of Employee's violation of any legally enforceable
provision of this Section 7, RLI shall be entitled to
immediate injunctive relief and may obtain a temporary
order restraining any threatened or further breach. Nothing
in this Section 7 shall be deemed to limit RLI's remedies
at law or in equity for any breach by Employee of any of
the provisions of this Section 7 which may be pursued or
availed of by RLI or any of its affiliates including but
not limited to ADLT.
(c) In the event Employee shall violate any legally enforceable
provision of this Section 7 as to which there is a specific
time period during which he is prohibited from taking
certain actions or from engaging in certain activities as
set forth in such provision then, in such event, such
violation shall toll the running of such time period from
the date of such violation until such violation shall
cease.
4
<PAGE> 61
8. RENEWAL.
Not later than six (6) months prior to the termination of this
Agreement, Employer shall be entitled to notify Employee whether it desires to
renew this Employment Agreement with Employee for an additional period of three
(3) years, which notice, if given, shall contain the compensation and other
benefits proposed to be paid and provided to Employee by Employer. For a period
of thirty (30) days after receipt of such notice, Employee shall have the option
to accept such offer of renewal or, in the alternative, shall be entitled to
consult with Employer with respect to different compensation and/or benefits to
be paid and provided to Employee by Employer during said renewal period of
employment. If at the end of said thirty (30) day period Employee and Employer
are unable to agree, then this Employment Agreement shall not be renewed at the
end of the term thereof, unless otherwise agreed to by the parties. In the
event, however, that Employer does not, timely notify Employee of its desire to
renew this Employment Agreement, then this Employment Agreement shall not be
renewed at the end of the term thereof, unless otherwise agreed upon by the
parties.
9. SEVERABLE PROVISIONS.
The provisions of this Employment Agreement are severable and if any
one or more provisions may be determined to be illegal or otherwise
unenforceable, in whole or in part, the remaining provisions and any partially
unenforceable provision to the extent enforceable in any jurisdiction shall,
nevertheless, be binding and enforceable.
10. ARBITRATION.
Any controversy or claim arising out of or relating to this Employment
Agreement, or the breach thereof, shall be settled by arbitration by a single
arbitrator in the City of Racine, State of Wisconsin, in accordance with the
Rules of the American Arbitration Association, and judgment upon the award
rendered by the Arbitrator may be entered in any court having jurisdiction
thereof. The Arbitrator shall be deemed to possess the powers to issue mandatory
orders and restraining orders in connection with such arbitration; PROVIDED,
HOWEVER, that nothing in this Section 10 shall be construed so as to deny RLI
the right and power to seek and obtain injunctive relief in a court of equity
for any breach or threatened breach of Employee of any of his covenants
contained in Section 7 hereof.
11. NOTICES.
(a) Each notice, request, demand or other communication
("NOTICE") by either party to the other party pursuant to
this Agreement shall be in writing and shall be personally
delivered or sent by U.S. certified mail, return receipt
requested, postage prepaid, or by nationally recognized
overnight commercial courier, charges prepaid, or by
facsimile transmission (but each such Notice sent by
facsimile transmission shall be confirmed by sending a copy
thereof to the other party by U.S. mail or commercial
courier as provided herein no later than the following
business day), addressed to the address of the receiving
party or to such other address as such party shall have
communicated to the other party in accordance with this
Section. Any Notice hereunder shall be deemed to have been
given and received on the date when personally delivered,
on the date of sending when sent by facsimile, on the third
business day following the date of sending when sent by
mail or on the first business day following the date of
sending when sent by commercial courier.
5
<PAGE> 62
(b) If a Notice is to RLI, then such Notice shall be addressed
to Ruud Lighting, Inc., attention of the Board of
Directors.
(c) If a Notice is to Employee, then such Notice shall be
addressed to Employee at his home address last known on the
payroll records of RLI.
12. WAIVER.
The failure of either party to enforce any provision or provisions of
this Employment Agreement shall not in any way be construed as a waiver of any
such provision or provisions as to any future violations thereof, nor prevent
that party thereafter from enforcing each and every other provision of this
Employment Agreement. The rights granted the parties herein are cumulative and
the waiver of any single remedy shall not constitute a waiver of such party's
right to assert all other legal remedies available to it under the
circumstances.
13. MISCELLANEOUS.
This Employment Agreement supersedes all prior agreements and
understandings between the parties and may not be modified or terminated orally.
No modification, termination or attempted waiver shall be valid unless in
writing and signed by the party against whom the same it is sought to be
enforced.
14. GOVERNING LAW.
This Employment Agreement shall be governed by and construed according
to the laws of the State of Wisconsin.
IN WITNESS WHEREOF, the parties have executed this Employment
Agreement on the day and year first set forth above.
WITNESS: RUUD LIGHTING, INC.
By: By:
------------------------------- --------------------------------
Name: Name:
------------------------------- --------------------------------
Its:
--------------------------------
WITNESS:
By:
------------------------------- --------------------------------
Name: EMPLOYEE
6
<PAGE> 63
CH&S Draft - November 12, 1997
EXHIBIT F
TO
STOCK PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is entered into as of the 1st day of
January, 1998, by and among ADVANCED LIGHTING TECHNOLOGIES, INC., an Ohio
corporation (the "COMPANY"), ALAN J. RUUD, THEODORE O. SOKOLY, DONALD WANDLER,
CHRISTOPHER A. RUUD and CYNTHIA A. JOHNSON (individually referred to as
"SHAREHOLDER" and collectively, as "SHAREHOLDERS");
WITNESSETH:
WHEREAS, the Company, Ruud Lighting, Inc. and the Shareholders have
entered into a certain Stock Purchase Agreement ("STOCK PURCHASE AGREEMENT")
pursuant to which the Company will issue, at Closing, three million shares of
its Common Stock to the Shareholders, as partial consideration for the
Shareholders' shares of capital stock of Ruud Lighting, Inc.; and
WHEREAS, the Stock Purchase Agreement requires the execution and
delivery of this Agreement by the Company and the Shareholders as a condition to
Closing,
NOW, THEREFORE, in consideration of the premises and the mutual
covenants herein contained, the parties hereto agree as follows:
SECTION 1. DELIVERY OF COMMON SHARES.
At the Closing, the Company will deliver shares of its Common Stock to
the Shareholders in accordance with its obligations under the Stock Purchase
Agreement. Such shares, and any other shares required to be delivered pursuant
to Section 1.3 of the Stock Purchase Agreement, will be subject to the terms of
this Agreement. All shares so issued to the Shareholders pursuant to the Stock
Purchase Agreement shall be referred to herein as "STOCK" and references in this
Agreement to a percentage of Stock shall be calculated by multiplying the total
number of shares of Stock held by all Holders (as defined in Section 4.3 below)
times the applicable percentage.
SECTION 2. REGISTRATION RIGHTS.
2.1 REGISTRATION RIGHTS. If the Company, at any time on or after two
years following the date of Closing under the Stock Purchase Agreement (the
"CLOSING DATE") and on or before the seventh anniversary of the Closing Date,
proposes to file on its behalf and/or on behalf of any of its security holders a
Registration Statement under the Securities Act on any form (other than a
Registration Statement on Form S-4 or S-8 or any successor form for securities
to be offered on a transaction of the type referred to in Rule 145 under the
Securities Act or to employees of the
<PAGE> 64
Company pursuant to any employee benefit plan, respectively) for the general
registration of securities to be sold for cash with respect to its Common Stock,
it will give written notice to all Holders of Stock at least 30 days before the
initial filing with the Commission of such Registration Statement, which notice
shall set forth the intended method of disposition of the securities proposed to
be registered by the Company. The notice shall offer to include in such filing
the aggregate number of shares of Stock, as such Holders may request.
Each Holder of any such Stock desiring to have Stock registered under
this Section 2.1 shall advise the Company in writing within 10 days after the
date of receipt of such notice from the Company, setting forth the amount of
such Stock for which registration is requested. The Company shall thereupon
include in such filing the number of shares of Stock for which registration is
so requested, subject to the next sentence, and shall use its best efforts to
effect registration under the Securities Act of such shares. If the managing
underwriter of a proposed public offering shall advise the Company in writing
that, in its opinion, the distribution of the Stock requested to be included in
the registration concurrently with the securities being registered by the
Company or any other holder of Common Stock of the Company desiring to be
included in the registration (a "DEMANDING HOLDER") would materially and
adversely affect the distribution of such securities by the Company or such
other holder, then the number of shares of Common Stock of the Company
determined by such underwriting to be the maximum number of shares of Common
Stock capable of being included in such registration shall be allocated as
follows: (i) if the offering was initiated by the Company as a primary offering,
first to the Company and second to the Holders of the Stock and to any Demanding
Holder in proportion to the respective numbers of shares sought to be included
by them therein; and (ii) if the offering was initiated by a Demanding Holder as
a secondary offering, first to such Demanding Holder and to the Holders of the
Stock in proportion to the numbers of shares sought to be included by them in
such registration and second to the Company. Except as otherwise provided in
Section 2.3, all expenses of such registration shall be borne by the Company.
2.2 REGISTRATION PROCEDURES. It shall be a condition precedent to the
obligation of the Company to take any action pursuant to Section 2.1 in respect
of the securities which are to be registered at the request of any Holder of
Stock that such Holder shall furnish to the Company such information regarding
the securities held by such Holder and the intended method of disposition
thereof as the Company shall reasonably request and as shall be required in
connection with the action taken by the Company.
2.3 EXPENSES. All expenses incurred in complying with Section 2,
including, without limitation, all registration and filing fees (including all
expenses incident to filing with the NASD), printing expenses, fees and
disbursements of counsel for the selling security holders (selected by those
holding a majority of the shares being registered), expenses of any special
audits incident to or required by any such registration and expenses of
complying with the securities or blue sky laws shall be paid by the Company,
except that
(a) all such expenses in connection with any amendment or supplement to
the Registration Statement or prospectus filed more than 180 days after the
effective date of such
2
<PAGE> 65
Registration Statement because any Holder of Stock has not effected the
disposition of the securities requested to be registered shall be paid by such
Holder; and
(b) the Company shall not be liable for any fees, discounts or
commissions to any underwriter in respect of the securities sold by such Holder
of Stock.
2.4 INDEMNIFICATION AND CONTRIBUTION.
(a) In the event of any registration of any of the Stock under the
Securities Act pursuant to this Section 2, the Company shall indemnify and hold
harmless the Holder of such Stock, such Holder's directors and officers, and
each other Person (including each underwriter) who participated in the offering
of such Stock and each other Person, if any, who controls such Holder or such
participating Person within the meaning of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which such Holder
or any such director or officer or participating Person or controlling Person
may become subject under the Securities Act or controlling Person may become
subject under the Securities Act or any other statute or at common law, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any alleged untrue statement of any material
fact contained, on the effective date thereof, in any Registration Statement
under which such securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereto, or (ii) any alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and shall reimburse such Holder or such director, officer or
participating Person or controlling Person for any legal or any other expenses
reasonably incurred by such Holder or such director, officer or participating
Person or controlling Person in connection with investigating or defending any
such loss, claim, damage, liability or action; PROVIDED, HOWEVER, that the
Company shall not be liable in such case to the extent that such loss, claim,
damage or liability arises out of or is based upon any alleged untrue statement
or alleged omission made in such Registration Statement, preliminary prospectus,
prospectus or amendment or supplement in reliance upon and in conformity with
written information furnished to the Company by such Holder specifically for use
therein. Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such Holder or such director, officer or
participating Person or controlling Person, and shall survive the Transfer of
such securities by such Holder.
(b) Each Holder of any Stock, by acceptance thereof, agrees to
indemnify and hold harmless the Company, its directors and officers and each
other Person, if any, who controls the Company within the meaning of the
Securities Act against any losses, claims, damages or liabilities, joint or
several, to which the Company or any such director or officer or any such Person
may become subject under the Securities Act against any losses, claims, damages
or liabilities, joint or several, to which the Company or any such director or
officer of any such Person may become subject under the Securities Act or any
other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
information in writing provided to the Company by such Holder of such Stock
specifically for use in the following
3
<PAGE> 66
documents and contained, on the effective date thereof, in any Registration
Statement under which securities were registered under the Securities Act at the
request of such Holder, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto.
(c) If the indemnification provided for in this Section 2.4 from the
indemnifying party is unavailable to an indemnified party hereunder in respect
of any losses, claims, damages, liabilities or expenses referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party and indemnified parties in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative fault of such indemnifying party
and indemnified parties shall be determined by referenced to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such indemnifying
party or indemnified parties, and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such action. The
amount paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include any legal
or other fees or expenses reasonably incurred by such party in connection with
any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 2.4(c) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No Person guilty of fraudulent misrepresentations (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any Person
who was not guilty of such fraudulent misrepresentation.
2.5 CERTAIN LIMITATIONS ON REGISTRATION RIGHTS. Notwithstanding the
other provisions of Section 2, the Company shall not be obligated to register
the Stock of any Holder if, in the opinion of counsel to the Company reasonably
satisfactory to the Holder and its counsel (or, if the Holder has engaged an
investment banking firm, to such investment banking firm and its counsel), the
sale or other disposition of such Holder's Stock, in the manner proposed by such
Holder (or by such investment banking firm), may be effected without registering
such Stock under the Securities Act.
2.6 HOLDBACK AGREEMENTS.
(a) If any registration of Common Stock to which Section 2.1 applies is
an underwritten public offering, each Holder of Stock by acquisition of such
Stock agrees, if so required by the managing underwriter, not to effect a public
sale or distribution of Stock (other than as part of such underwritten public
offering) within one business day (or such longer period as may be prohibited by
Regulation M under the Securities Act) prior to the pricing of Common Stock
offered pursuant to the related registration statement or the earlier of (i) the
one hundred twentieth (120th) day after
4
<PAGE> 67
the effective date of such registration statement or (ii) the date all
securities registered under such registration statement are sold, provided that
the Company shall have complied with its obligations under Section 2.6(b) below.
(b) the Company agrees not to effect any public sale or distribution
within one business day (or such longer period as may be prohibited by
Regulation M under the Securities Act) prior to the pricing of Common Stock
offered pursuant to any registration statement filed pursuant to Section 2.1
above and in connection with any underwritten public offering and prior to the
earlier of (A) the one hundred twentieth (120th) day after any such registration
statement has become effective and (B) the date on which all securities
registered under such registration statement are sold, except as part of such
underwritten public offering pursuant to such registration statement and except
for securities registered on Form S-4 or S-8 or any successor forms thereto.
SECTION 3. SUPPLYING INFORMATION.
The Company shall cooperate with each Holder of Stock in supplying such
information as may be reasonably necessary for such Holder to complete and file
any information reporting forms presently or hereafter required by the
Commission as a condition to the availability of an exemption from the
Securities Act for the sale of any Stock. The Company shall use its best efforts
at all times to make public information available so as to afford the Holders of
the Stock the benefit of Rule 144 of the Securities Act in connection with
resales, as such Rule 144 may be amended from time to time or any similar rule
or regulation thereafter adopted by the Commission.
SECTION 4. MISCELLANEOUS
4.1 HEADINGS. The headings contained in this Agreement are inserted for
convenience of reference only and do not constitute a part of this Agreement.
4.2 ENTIRE AGREEMENT. This Agreement and the Stock Purchase Agreement
constitute the entire agreement among the parties and supersede all other prior
agreements and understandings, both written and oral, among the parties.
4.3 CERTAIN DEFINITIONS. As used in this Agreement, the following terms
have the respective meanings set forth below:
"CLOSING" shall have the same meaning as ascribed thereto as in the
Stock Purchase Agreement.
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
5
<PAGE> 68
"COMMON STOCK" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.001, of the Company, and any capital
stock into which such Common Stock may thereafter be changed.
"HOLDER" shall mean any Person who owns of record 10,000 or more shares
of Stock.
"NASD" shall mean the National Association of Securities Dealers, Inc.,
or any successor corporation thereto.
"PERSON" shall mean any individual, sole proprietorship, partnership,
limited liability company, joint venture, trust, incorporated organization,
association, corporation, institution, public benefit corporation, entity or
government (whether federal, state, county, city, municipal or otherwise,
including, without limitation, any instrumentality, division, agency, body or
department thereof).
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"TRANSFER" shall mean any disposition of any Stock or of any interest
in either thereof, which would constitute a sale thereof within the meaning of
the Securities Act.
4.4 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which taken together shall constitute one instrument.
4.5 SEVERABILITY. To the extent possible, each provision of this
Agreement shall be interpreted in a manner as to be valid, legal and
enforceable. Any determination that any provision of this Agreement or any
application thereof is invalid, illegal or unenforceable in any respect or in
any instance shall be effective only to the extent of such invalidity,
illegality or unenforceability and shall not affect the validity, legality or
enforceability of any other provision of this Agreement.
4.6 AMENDMENT. This Agreement may be amended only by a written
instrument duly executed by the parties.
4.7 NOTICES. All notices and other communications given or made
pursuant to this Agreement shall be in writing and shall be deemed to have been
given or made if in writing and delivered personally or sent by facsimile or
telecopy or by registered or certified mail (postage prepaid, return receipt
requested) or any overnight courier to the parties at the following addresses:
6
<PAGE> 69
(i) If to any Holder, at the address set forth on the records of the
Company, with a copy to:
Donald J. Christl, Esq.
Reinhart, Boerner, Van Deuren, Norris &
Rieselbach, S.C.
1000 North Water Street
P.O. Box 92900
Milwaukee, Wisconsin 53202-0900
(ii) If to the Company:
2307 E. Aurora Road, Suite One
Twinsburg, Ohio 44087
With a copy to:
Gerald W. Cowden, Esq.
Cowden, Humphrey & Sarlson Co., L.P.A.
1414 Terminal Tower
Cleveland, Ohio 44113
or to such other addresses as shall be furnished by like notice by such party.
Any such notice or communication given by mail shall be deemed to have been
given when received.
4.8 THIRD PARTY BENEFICIARIES. Except as provided in Section 4.9 below,
each party hereto intends that this Agreement shall not benefit or create any
right or cause of action in or on behalf of any person other than the parties
hereto; nor shall any statement here be deemed an admission against interest by
any party in proceedings with third persons.
4.9 ASSIGNMENT. This Agreement and all of the provisions hereto shall
be binding upon and inure to the benefit of the parties hereto and their
respective heirs, executors, successors and assigns (to the extent assignment is
permitted hereunder).
4.10 GOVERNING LAW JURISDICTION. This Agreement shall be governed by
and construed in accordance with the internal substantive laws of the State of
Ohio without regard to the conflicts of law principles hereof.
7
<PAGE> 70
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day first written above.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By:
----------------------------------
Name: WAYNE R. HELLMAN
----------------------------------
Its: CHIEF EXECUTIVE OFFICER
----------------------------------
-------------------------------------
ALAN J. RUUD
------------------------------------
THEODORE O. SOKOLY
-----------------------------------
DONALD WANDLER
------------------------------------
CHRISTOPHER A. RUUD
-----------------------------------
CYNTHIA A. JOHNSON
8
<PAGE> 71
CH&S DRAFT - November 12, 1997
JANUARY 2, 1998
EXHIBIT G
TO
STOCK PURCHASE AGREEMENT
ADVANCED LIGHTING TECHNOLOGIES, INC.
1998 INCENTIVE AWARD PLAN
SECTION 1. PURPOSE.
The purposes of this Advanced Lighting Technologies, Inc. 1998
Incentive Award Plan (the "Plan") are to encourage selected employees, advisors,
consultants, and directors of Advanced Lighting Technologies, Inc. (together
with any successor thereto, the "Company") and its Affiliates (as defined below)
to acquire a proprietary interest in the growth and performance of the Company,
to generate an increased incentive to contribute to the Company's future success
and prosperity, thus enhancing the value of the Company for the benefit of its
shareholders, and to enhance the ability of the Company and its Affiliates to
attract and retain exceptionally qualified individuals upon whom, in large
measure, the sustained progress, growth and profitability of the Company depend.
The Plan will be submitted for approval by the shareholders of the Company at
the next annual shareholders' meeting.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or
through one or more intermediaries, is controlled by the
Company and (ii) any entity in which the Company has a
significant equity interest, as determined by the Committee.
(b) " 'A' Option" shall mean an "A" Option granted under Section
6(a) of the Plan.
(c) "Award" shall mean any "A" Option or "B" Option granted under
the Plan.
(d) "Award Agreement" shall mean any written agreement, contract,
or other instrument or document evidencing any Award granted
under the Plan.
(e) " 'B' Option" shall mean a "B" Option granted under Section
6(a) of the Plan.
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(f) "Code" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
(g) "Committee" shall mean a committee of the Board of Directors
of the Company designated by such Board to administer the Plan
and composed of not less than three (3) directors.
(h) "Employee" shall mean any employee of the Company or of any
Affiliate.
(i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other
securities), the fair market value of such property determined
by such methods or procedures as shall be established from
time to time by the Committee.
(j) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the
requirements of Section 422 of the Code, or any successor
provision thereto.
(k) "Non-Employee Participant" shall mean any advisor, consultant
or director of the Company or any Affiliate designated to be
granted an Award (other than an Incentive Stock Option) under
the Plan and eligible to be a Participant under Section 5 of
the Plan.
(l) "Non-Qualified Stock Option" shall mean an option granted
under Section 6(a) of the Plan that is not intended to be an
Incentive Stock Option.
(m) "Option" shall mean an "A" Option or a "B" Option.
(n) "Participant" shall mean any Employee or Non-Employee
Participant designated to be granted an Award under the Plan.
(o) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated
organization, or governmental or political subdivision
thereof.
(p) "Section 16" shall mean Section 16 of the Securities Exchange
Act of 1934, as amended.
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(q) "Shares" shall mean the shares of Common Stock of the Company,
$.001 par value, and such other securities or property as may
become the subject of Awards, or become subject to Awards,
pursuant to an adjustment made under Section 4(b) of the Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered solely by the Committee. Subject to the
terms of the Plan and applicable law, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards, or other property, or canceled, forfeited or
suspended, and the method or methods by which Awards may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award under the Plan
shall be deferred either automatically or at the election of the holder thereof
or of the Committee; (vii) interpret and administer the Plan and any instrument
or agreement relating to, or Award made under, the Plan; (viii) establish,
amend, suspend, or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan; and (ix)
make any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time, and shall be final, conclusive, and binding upon all Persons, including
the Company, any Affiliate, any Participant, any holder or beneficiary of any
Award, any shareholders, and any employee of the Company or of any Affiliate.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) SHARES AVAILABLE. Subject to adjustment as provided in Section
4(b):
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(i) CALCULATION OF NUMBER OF SHARES AVAILABLE. The number of
Shares available for granting Awards under the Plan shall be 800,000 Shares,
subject to adjustment as provided in Section 4(b). Further if, after the
effective date of the Plan, any Shares covered by an Award granted under the
Plan, or to which such an Award relates, are forfeited, or if an Award otherwise
terminates without the delivery of Shares or of other consideration, then the
Shares covered by such Award, or to which such Award relates, or the number of
Shares otherwise counted against the aggregate number of Shares available under
the Plan with respect to such Award, to the extent of any such forfeiture or
termination, shall again be, or shall become, available for granting Awards
under the Plan.
(ii) ACCOUNTING FOR AWARDS. For purposes of this Section 4,
the number of Shares covered by an Award shall be counted on the date of grant
of such Award against the aggregate number of Shares available for granting
Awards under the Plan; provided, however, that Awards that operate in tandem
with (whether granted simultaneously with or at a different time from), or that
are substituted for, other Awards may be counted or not counted under procedures
adopted by the Committee in order to avoid double counting. Any Shares that are
delivered by the Company, and any Awards that are granted by, or become
obligations of, the Company, through the assumption by the Company or any
Affiliate of, or in substitution for, outstanding awards previously granted by
an acquired company shall not, except in the case of Awards granted to
Participants who are officers or directors of the Company for purposes of
Section 16, be counted against the Shares available for granting Awards under
the Plan.
(iii) SOURCES OF SHARES DELIVERABLE UNDER AWARDS. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of authorized
and unissued Shares or of Treasury Shares.
(b) ADJUSTMENTS. In the event that the Committee shall determine that
any dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property) recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares
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such that an adjustment is determined by the Committee to be appropriate in
order to prevent dilution or enlargement of the benefits or potential benefits
intended to be made available under the Plan, then the Committee shall, in such
manner as it may deem equitable, adjust any or all of (i) the number and type of
Shares (or other securities or property) which thereafter may be made the
subject of Awards, (ii) the number and type of Shares (or other securities or
property) subject to outstanding award, or, if deemed appropriate, make
provision for a cash payment to the holder of an outstanding Award; provided,
however, in each case, that with respect to Awards of Incentive Stock Options no
such adjustment shall be authorized to the extent that such authority would
cause the Plan to violate Section 422 of the Code or any successor provision
thereto; and provided further, however, that the number of Shares subject to any
Award denominated in Shares shall always be a whole number.
SECTION 5. ELIGIBILITY.
Any Employee, advisor, consultant or director of the Company or of any
Affiliate, shall be eligible to be designated a Participant; provided however,
no officer or director of the Company shall be eligible to be designated a
Participant unless the shareholders of the Company shall have approved the Plan
in accordance with the Company's Regulations.
SECTION 6. AWARDS.
(a) OPTIONS. The Committee is hereby authorized to grant "A" Options
and "B" Options to Participants with the following terms and conditions and with
such additional terms and conditions, in either case not inconsistent with the
provisions of the Plan, as the Committee shall determine:
(i) EXERCISE PRICE FOR "A" OPTIONS. The purchase price per
Share purchasable under an "A" Option shall be the Fair Market Value per Share
on the date of grant of such "A" Options.
(ii) EXERCISE PRICE FOR "B" OPTIONS. The purchase price per
Share purchasable under a "B" Option shall be determined by the Committee;
provided, however, that such purchase price shall not be less than the Fair
Market Value of a Share on the date of grant of such "B"
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Option (or, if the Committee so determines, in the case of any "B" Option
retroactively granted in tandem with or in substitution for another Award, on
the date of grant of such Award).
(iii) OPTION TERM. The term of each Option shall be fixed by
the Committee.
(iv) TIME AND METHOD OF EXERCISE. The Committee shall
determine the time or times at which an Option may be exercised in whole or in
part, and the method or methods by which, and the form or forms, including,
without limitation, cash, Shares, other Awards, or other property, or any
combination thereof, having a Fair Market Value on the exercise date equal to
the relevant exercise price, in which, payment of the exercise price with
respect thereto may be made or deemed to have been made; provided, however, that
no Option may be exercised prior to six months after its date of grant.
(v) INCENTIVE STOCK OPTIONS. The terms of any Incentive Stock
Option granted under the Plan shall comply in all respects with the provisions
of Section 422 of the Code, or any successor provisions thereto, and any
regulations promulgated thereunder. An Incentive Stock Option may be granted
only to an Employee and no Incentive Stock Option may be granted to any owner of
ten percent or more of the total combined voting power of the Company and its
Affiliates. The aggregate Fair Market Value determined as of the date of the
Award, of Shares subject to an Incentive Stock Option exercised by an Employee
in any calendar year shall not exceed $100,000.
(b) GENERAL.
(i) CONSIDERATION FOR AWARDS. Awards may be granted for no
cash consideration or such cash consideration as may be required by applicable
law. Awards also may be granted for cash or such other consideration as the
Committee may deem appropriate.
(ii) AWARDS MAY BE GRANTED SEPARATELY OR TOGETHER. Awards may,
in the discretion of the Committee, be granted either alone or in addition to,
in tandem with, or in substitution for any other Award or any award granted
under any other plan of the Company or any Affiliate. Awards granted in
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addition to or in tandem with other Awards may be granted either at the same
time as or at a different time from the grant of such other Awards.
(iii) LIMITS ON TRANSFER OF AWARDS. No Award and no right
under any such Award, shall be assignable, alienable, saleable, or transferable
by a Participant otherwise than by will or by the laws of descent and
distribution; provided, however, that, if so determined by the Committee, a
Participant may, in the manner established by the Committee, designate a
beneficiary or beneficiaries to exercise the rights of the Participant, and to
receive any property distributable with respect to any Award upon the death of
the Participant. Each Award, and each right under any Award, shall be
exercisable, during the Participant's lifetime, only by the Participant or, if
permissible under applicable law, by the Participant's guardian or legal
representative. No Award, and no right under any such Award, may be pledged,
alienated, attached, or otherwise encumbered, and any purported pledge,
alienation, attachment, or encumbrance thereof shall be void and unenforceable
against the Company or any Affiliate.
(iv) TERM OF AWARDS. The term of each Award shall be for such
period as may be determined by the Committee; provided, however, that in no
event shall the term of any Incentive Stock Option exceed a period of ten years
from the date of its grant.
(v) SECTION 16 SIX MONTH LIMITATIONS. If necessary to comply
with Section 16 and its rules only, any equity security issued pursuant to the
Plan may not be sold for at least six months after acquisition and any
derivative security issued pursuant to the Plan will not be exercisable for six
months from its date of grant. Terms used in the preceding sentence shall, for
the purposes of such sentence only, have the meanings, if any, assigned or
attributed to them under Section 16 and the rules promulgated thereunder.
(vi) SHARE CERTIFICATES. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other restrictions as
the Committee may deem advisable under the Plan, or the rules, regulations, and
other requirements of the Securities and Exchange Commission, any stock exchange
or over the counter market
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upon which such Shares or other securities are then listed or traded, and any
applicable federal or state securities laws, and the Committee may cause a
legend or legends to be put on any certificates to make appropriate reference to
such restrictions.
SECTION 7. AMENDMENT AND TERMINATION.
Except to the extent prohibited by applicable law and unless
otherwise expressly provided in an Award Agreement or in the Plan:
(a) AMENDMENTS TO THE PLAN. Subject to the last sentence of this
Section 7(a), the Board of Directors of the Company may amend, alter, suspend,
discontinue, or terminate the Plan, without the consent of any shareholders,
Participant, other holder or beneficiary of an Award, or other person; provided,
however, that, notwithstanding any other provision of the Plan or any Award
Agreement, without the approval of the shareholders of the Company no such
amendment, alteration, suspension, discontinuation, or termination shall be made
that would:
(i) increase the total number of Shares available for Awards
under the Plan, except as provided in Section 4 hereof; or
(ii) permit Options to be granted with per Share grant,
purchase, or exercise prices of less than the Fair Market Value of a Share on
the date of grant thereof, except to the extent permitted under Section 6(a)
hereof. No amendment, alteration, suspension, discontinuation or termination
shall in any manner adversely affect any outstanding Option without the prior
written consent of the Participant holding the Option.
(b) AMENDMENTS TO AWARDS. Unless otherwise provided in the Award
Agreement, the Committee may waive any conditions or rights under, amend any
terms of, or amend, alter, suspend, discontinue, or terminate, any Award
theretofore granted, prospectively or retroactively, without the consent of any
relevant Participant or holder or beneficiary of an Award.
(c) ADJUSTMENTS OF AWARDS UPON CERTAIN ACQUISITIONS. In the event the
Company or any Affiliate shall assume outstanding employee awards or the right
or obligation to make future such awards
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in connection with the acquisition of another business or another corporation or
business entity, the Committee may make such adjustments, not inconsistent with
the terms of the Plan, in the terms of Awards as it shall deem appropriate in
order to achieve reasonable comparability or other equitable relationship
between the assumed awards and the Awards granted under the Plan as so adjusted.
(d) ADJUSTMENTS OF AWARDS UPON THE OCCURRENCE OF CERTAIN UNUSUAL OR
NONRECURRING EVENTS. The Committee shall be authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4(b) hereof) affecting the Company, any Affiliate, or the
financial statements of the Company or any Affiliate, or the changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits to be made available under the
Plan.
(e) CORRECTION OF DEFECTS, OMISSIONS, AND INCONSISTENCIES. The
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it shall
deem desirable to carry the Plan into effect.
SECTION 8. GENERAL PROVISIONS.
(a) NO RIGHTS TO AWARDS. No Employee, Non-Employee Participant or other
Person shall have any claim to be granted any Award under the Plan, and there is
no obligation for uniformity of treatment of Employees, Non-Employee
Participants, or holders or beneficiaries of Awards under the Plan. The terms
and conditions of Awards need not be the same with respect to each recipient.
(b) DELEGATION. The Committee may delegate to one or more officers or
managers of the Company or any Affiliate, or a committee of such officers or
managers, the authority, subject to such terms and limitations as the Committee
shall determine, to grant Awards to, or to cancel, modify, waive rights with
respect to, alter, discontinue, suspend, or terminate Awards held by, Salaried
Employees who are not officers or directors of the Company, for purposes of
Section 16.
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(c) WITHHOLDING. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made under any
Award or under the Plan the amount (in cash, Shares, other securities, other
Awards, or other property) of withholding taxes due in respect of an Award, its
exercise, or any payment or transfer under such Award or under the Plan and to
take such other action as may be necessary in the opinion of the Company or
Affiliate to satisfy all obligations for the payment of such taxes.
(d) NO LIMIT ON OTHER COMPENSATION ARRANGEMENTS. Nothing contained in
the Plan shall prevent the Company or any Affiliate from adopting or continuing
in effect other or additional compensation arrangements, and such arrangements
may be either generally applicable or applicable only in specific cases.
(e) NO RIGHT TO EMPLOYMENT. The grant of an Award shall not be
construed as giving a Participant the right to be retained in the employ of the
Company or any Affiliate. Further, the Company or an Affiliate may at any time
dismiss a Participant from employment, free from any liability, or any claim
under the Plan, unless otherwise expressly provided in the Plan or in any Award
Agreement.
(f) GOVERNING LAW. The validity, construction, and effect of the Plan
and any rules and regulations relating to the Plan shall be determined in
accordance with the laws of the State of Ohio and applicable federal law.
(g) SEVERABILITY. If any provision of the Plan or any Award is or
becomes or is deemed to be invalid, illegal, or unenforceable in any
jurisdiction, or as to any Person or Award, or would disqualify the Plan or any
Award under any law deemed applicable by the Committee, such provision shall be
construed or deemed amended to conform to applicable laws, or if it cannot be so
construed or deemed amended without, in the determination of the Committee,
materially altering the intent of the Plan or the Award, such provisions shall
be stricken as to such jurisdiction, Person, or Award, and the remainder of the
Plan and any such Award shall remain in full force and effect.
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(h) NO TRUST OR FUND CREATED. Neither the Plan nor any Award shall
create or be construed to create a trust or separate fund of any kind or a
fiduciary relationship between the Company or any Affiliate and a Participant or
any other Person. To the extent that any Person acquires a right to receive
payments from the Company or any Affiliate pursuant to an Award, such right
shall be no greater than the right of an unsecured general creditor of the
Company or any Affiliate.
(i) NO FRACTIONAL SHARES. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares, or whether such fractional Shares or any
rights thereto shall be canceled, terminated, or otherwise eliminated.
(j) HEADINGS. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 9. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the later of (a) the effective date
of its approval by the Board of Directors of the Company or (b) January 2, 1998.
SECTION 10. TERM OF THE PLAN.
No Award shall be granted under the Plan after January 2, 2008.
However, unless otherwise expressly provided in the Plan or in an applicable
Award Agreement, any Award theretofore granted may extend beyond such date, and
the authority of the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award, or to waive any conditions or rights under any such
Award, and the authority of the Board of Directors of the Company to amend the
Plan, shall extend beyond such date.
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[RUUD MANAGEMENT EMPLOYEES]
"A" OPTION GRANT, INTENDED TO QUALIFY AS AN INCENTIVE STOCK OPTION
Date of Grant: _______________, 199_.
THIS "A" OPTION GRANT is delivered by Advanced Lighting Technologies,
Inc., an Ohio corporation (the "Company") to ______________________________ (the
"Grantee"), who is an employee of the Company or one of its Affiliates (the
Grantee's employer is referred to herein as the "Employer").
WHEREAS, the Board of Directors of the Company (the "Board") has
adopted the Advanced Lighting Technologies, Inc. 1998 Incentive Award Plan (the
"Plan") with an effective date of ____________________;
WHEREAS, the Plan provides for the granting of Incentive Stock Options
by a committee to be appointed by the Board (the "Committee") to eligible
employees, advisors, consultants or directors of the Company or any Affiliate to
purchase Common Stock, $.001 par value, of the Company (the "Stock"), in
accordance with the terms and provisions thereof; and
WHEREAS, the Committee considers the Grantee to be a person who is
eligible for a grant of an Incentive Stock Option under the Plan, and has
determined that it would be in the best interest of the Company to grant the
Incentive Stock Option award herein as an "A" Option pursuant to the Plan.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Grant of "A" Option.
Subject to the terms and conditions hereinafter set forth, the Company,
with the approval and at the direction of the Committee, hereby grants to the
Grantee, as of the date of grant noted above ("Date of Grant"), an "A" Option to
purchase up to ____________________ (____) shares of Stock at a price of
$________ per share, which the Committee has determined to be the Fair Market
Value of the Stock as of the date hereof. The shares of stock purchasable upon
exercise of the Option are hereinafter sometimes referred to as the " 'A' Option
Shares." The "A" Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under section 422
of the Internal Revenue Code of 1986), unless the Plan has not been approved by
Company shareholders in accordance with such Section 422.
2. Installment Exercise.
Subject to such further limitations as are provided herein, the Grantee
having the right hereunder to purchase from the Company the following number of
"A" Option Shares upon exercise of the "A" Option, on and after the following
dates, and so long as the Employer shall have attained the "A" Option Vesting
Schedule EBIT Goals established by the Committee with respect to the relevant
fiscal years noted below:
(a) on and after September 30, ____, up to 25% of the total number of
"A" Option Shares if the Employer has attained its Goal during the fiscal year
ending June 30, ____;
(b) on and after September 30, 20__, up to an additional 35% of the
total number of "A" Option Shares if the Employer has attained its Goal during
the fiscal year ending June 30, 20___;
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(c) on and after September 30, 20__, up to an additional 40% of the
total number of "A" Option Shares if the Employer has attained its Goal during
the fiscal year ending June 30, 20___;
(d) Should any of the Goals not be attained by the Employer during any
fiscal year, then any unearned "A" Options may become exercisable on and after
the sixth anniversary of the Date of Grant;
(e) Any unearned "A" Options remaining after the sixth anniversary of
the Date of Grant shall become immediately exercisable if the Grantee has been
continuously employed by the Employer, the Company and/or any affiliate of the
Company from the Date of Grant through such date;
(f) The Committee reserves the right to revise the Goals at any time.
3. Termination of "A" Option.
(a) The "A" Option and all rights hereunder with respect thereto, to
the extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of ten years from the Date of Grant (the
"Option Term").
(b) Upon a termination of the Grantee's employment for any reason
(other than by retirement, disability or death), the "A" Option may be exercised
for sixty (60) days thereafter, but only to the extent that the "A" Option was
outstanding and exercisable on the date of termination of the Grantee's
employment. Upon a termination of the Grantee's employment by reason of
retirement, disability or death, the "A" Option may be exercised during the
following periods, but only to the extent that the "A" Option was outstanding
and exercisable on any such date of retirement, disability or death: (i) the
one-year period following the date of such termination of the Grantee's
employment in the case of a disability (within the meaning of Section 22(e)(3)
of the Code), (ii) the six-month period following the date of issuance of
letters testamentary or letters of administration to the executor or
administrator of a deceased Grantee, in the case of the Grantee's death during
his employment by the Employer, but not later than one year after the Grantee's
death, and (iii) the three-month period following the date of such termination
in the case of retirement on or after attainment of age 65, or in the case of
disability other than as described in (i) above. In no event, however, shall any
such period extend beyond the Option Term.
(c) A transfer of the Grantee's employment between the Company and any
Affiliate, or between any Affiliates of the Company, shall not be deemed to be a
termination of the Grantee's employment.
(d) Notwithstanding any other provisions set forth herein or in the
Plan, if the Grantee shall (i) commit any act of malfeasance or wrongdoing
affecting the Company or Affiliate, (ii) breach any covenant not to compete, or
employment contract, with the Company or Affiliate, or (iii) engage in conduct
that would warrant the Grantee's discharge for cause (excluding general
dissatisfaction with the performance of the Grantee's duties, but including any
act of disloyalty or any conduct clearly tending to bring discredit upon the
Company or any Affiliate), any unexercised portion of the "A" Option shall
immediately terminate and be void.
4. Procedure to Exercise "A" Options.
(a) The Grantee may exercise the "A" Option with respect to all or any
part of the number of "A" Option Shares then exercisable hereunder by giving the
Secretary of the Company written notice of intent to exercise. The notice of
exercise shall specify the number of "A" Option Shares as to which the "A"
Option is to be exercised and the date of exercise thereof, which date shall be
at least five days after the giving of such notice unless an earlier time shall
have been mutually agreed upon.
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(b) Full payment (in U.S. dollars) by the Grantee of the option price
for the "A" Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Committee, in whole or in part through the surrender of previously
acquired shares of Stock at their fair market value on the exercise date.
(c) On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to the
Grantee, a certificate or certificates for the "A" Option Shares then being
purchased (out of theretofore unissued Stock or Treasury Stock, as the Company
may elect) upon full payment for such "A" Option Shares. The obligation of the
Company to deliver Stock shall, however, be subject to the condition that if at
any time the Committee shall determine in its discretion that the listing,
registration or qualification of the "A" Option or the "A" Option Shares upon
any securities exchange or under any state or federal law, or the consent or
approval of any governmental regulatory body, is necessary or desirable as a
condition of, or in connection with, the "A" Option or the issuance or purchase
of Stock thereunder, the "A" Option may not be exercised in whole or in part
unless such listing, registration, qualification, consent or approval shall have
been effected or obtained free of any conditions not acceptable to the
Committee.
(d) If the Grantee fails to pay for any of the "A" Option Shares
specified in such notice or fails to accept delivery thereof, the Grantee's
right to purchase such "A" Option Shares may be terminated by the Company. The
date specified in the Grantee's notice as the date of exercise shall be deemed
the date of exercise of the "A" Option, provided that payment in full for the
"A" Option Shares to be purchased upon such exercise shall have been received by
such date.
5. No Rights of Shareholders.
Neither the Grantee nor any personal representative shall be, or shall
have any of the rights and privileges of, a shareholder of the Company with
respect to any shares of Stock purchasable or issuable upon the exercise of the
"A" Option, in whole or in part, prior to the date of exercise of the "A"
Option.
6. Non-Transferability of Option.
During the Grantee's lifetime, the "A" Option hereunder shall be
exercisable only by the Grantee or any guardian or legal representative of the
Grantee, and the "A" Option shall not be transferable except, in case of the
death of the Grantee, by will or the laws of descent and distribution, nor shall
the "A" Option be subject to attachment, execution or other similar process. In
the event of (a) any attempt by the Grantee to assign, alienate, sell, pledge,
hypothecate or otherwise dispose of the "A" Option, except as provided for
herein, or (b) the levy of any installment, execution or similar process upon
the rights or interest hereby conferred, the Company may terminate the "A"
Option by notice to the Grantee and it shall thereupon become null and void.
7. Employment Not Affected.
Neither the granting of the "A" Option nor its exercise shall not be
construed as granting to the Grantee any right with respect to continuance of
employment of the Employer. Except as may otherwise be limited by a written
agreement between the Employer and the Grantee, the right of the Employer to
terminate at will the Grantee's employment with it at any time (whether
specifically reserved by the Company, as the Employer or on behalf of the
Employer (whichever the case may be), and acknowledged by the Grantee.
<PAGE> 85
8. Amendment of "A" Option.
The "A" Option may be amended by the Committee at any time (i) if the
Committee determines, in its sole discretion, that amendment is necessary or
advisable in the light of any addition to or change in the Internal Revenue Code
of 1986 or in the regulations issued thereunder, or any federal or state
securities law or other law or regulation, which change occurs after the Date of
Grant and by its terms applies to the "A" Option; or (ii) other than in the
circumstances described in clause (i), with the consent of the Grantee.
9. Notice.
Any notice to the Company provided for in this instrument shall be
addressed to it in care of its Secretary at its executive offices at 2307 East
Aurora Road, Suite 1, Twinsburg, Ohio 44087, or such other address as the
Company shall specify by written notice to the Grantee, and any notice to the
Grantee shall be addressed to the Grantee at the current address shown on the
payroll records of the Employer. Any notice shall be deemed to be duly given if
and when properly addressed and posted by registered or certified mail, postage
prepaid.
10. Incorporation of Plan by Reference.
The "A" Option is granted pursuant to the terms of the Plan, the terms
of which are incorporated herein by reference, and the "A" Option shall in all
respects be interpreted in accordance with the Plan. The Committee shall
interpret and construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.
11. Governing Law.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in accordance with
the law of the State of Ohio, except to the extent preempted by federal law,
which shall to the extent govern.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute and attest this grant of an "A" Option, and the Grantee has placed
his or her signature hereon, effective as of the Date of Grant.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By:
---------------------------------------
ACCEPTED AND AGREED TO:
By:
---------------------------------------
Grantee
<PAGE> 86
[RUUD EMPLOYEES]
"B" OPTION GRANT, INTENDED TO QUALIFY AS AN INCENTIVE STOCK OPTION
Date of Grant: ____________, 199__.
THIS "B" OPTION GRANT is delivered by Advanced Lighting Technologies,
Inc., an Ohio corporation (the "Company") to ______________________________ (the
"Grantee"), who is an employee of the Company or one of its Affiliates (the
Grantee's employer is referred to herein as the "Employer").
WHEREAS, the Board of Directors of the Company (the "Board") has
adopted the Advanced Lighting Technologies, Inc. 1998 Incentive Award Plan (the
"Plan") with an effective date of ___________________;
WHEREAS, the Plan provides for the granting of Incentive Stock Options
by a committee to be appointed by the Board (the "Committee") to eligible
employees, advisors, consultants or directors of the Company or any Affiliate to
purchase Common Stock of the Company (the "Stock"), in accordance with the terms
and provisions thereof; and
WHEREAS, the Committee considers the Grantee to be a person who is
eligible for a grant of an Incentive Stock Option under the Plan, and has
determined that it would be in the best interest of the Company to grant the
Incentive Stock Option award herein as an "B" Option pursuant to the Plan.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Grant of "B" Option.
Subject to the terms and conditions hereinafter set forth, the Company,
with the approval and at the direction of the Committee, hereby grants to the
Grantee, as of the date of grant noted above ("Date of Grant"), a "B" Option to
purchase up to ____________________ (____) shares of Stock at a price of
$__________ per share, which the Committee has determined to be the Fair Market
Value of the Stock as of the date hereof. The shares of stock purchasable upon
exercise of the Option are hereinafter sometimes referred to as the "'B' Option
Shares." The "B" Option is intended by the parties hereto to be, and shall be
treated as, an incentive stock option (as such term is defined under section 422
of the Internal Revenue Code of 1986), unless the Plan has not been approved by
Company shareholders in accordance with such Section 422.
2. Installment Exercise.
Subject to such further limitations as are provided herein, the Grantee
having the right hereunder to purchase from the Company the following number of
"B" Option Shares upon exercise of the "B" Option, on and after the following
dates:
(a) on and after the first anniversary of the Date of Grant, 25% of the
total number of "B" Option Shares;
(b) on and after the second anniversary of the Date of Grant, an
additional 35% of the total number of "B" Option Shares; and
(c) on and after the third anniversary of the Date of Grant, an
additional 40% of the total number of "B" Option Shares.
<PAGE> 87
3. Termination of "B" Option.
(a) The "B" Option and all rights hereunder with respect thereto, to
the extent such rights shall not have been exercised, shall terminate and become
null and void after the expiration of ten years from the Date of Grant (the
"Option Term").
(b) Upon a termination of the Grantee's employment for any reason
(other than by retirement, disability or death), the "B" Option may be exercised
for 60 days thereafter, but only to the extent that the "B" Option was
outstanding and exercisable on the date of termination of the Grantee's
employment. Upon a termination of the Grantee's employment by reason of
retirement, disability or death, the "B" Option may be exercised during the
following periods, but only to the extent that the "B" Option was outstanding
and exercisable on any such date of retirement, disability or death: (i) the
one-year period following the date of such termination of the Grantee's
employment in the case of a disability (within the meaning of Section 22(e)(3)
of the Code), (ii) the six-month period following the date of issuance of
letters testamentary or letters of administration to the executor or
administrator of a deceased Grantee, in the case of the Grantee's death during
his employment by the Employer, but not later than one year after the Grantee's
death, and (iii) the three-month period following the date of such termination
in the case of retirement on or after attainment of age 65, or in the case of
disability other than as described in (i) above. In no event, however, shall any
such period extend beyond the Option Term.
(c) A transfer of the Grantee's employment between the Company and any
Affiliate, or between any Affiliates of the Company, shall not be deemed to be a
termination of the Grantee's employment. The term "Employer" shall thereafter
mean the Affiliate for which the Grantee is then employed.
(d) Notwithstanding any other provisions set forth herein or in the
Plan, if the Grantee shall (i) commit any act of malfeasance or wrongdoing
affecting the Company or Affiliate, (ii) breach any covenant not to compete, or
employment contract, with the Company or Affiliate, or (iii) engage in conduct
that would warrant the Grantee's discharge for cause (excluding general
dissatisfaction with the performance of the Grantee's duties, but including any
act of disloyalty or any conduct clearly tending to bring discredit upon the
Company or any Affiliate), any unexercised portion of the "B" Option shall
immediately terminate and be void.
4. Procedure to Exercise "B" Options.
(a) The Grantee may exercise the "B" Option with respect to all or any
part of the number of "B" Option Shares then exercisable hereunder by giving the
Secretary of the Company written notice of intent to exercise. The notice of
exercise shall specify the number of "B" Option Shares as to which the "B"
Option is to be exercised and the date of exercise thereof, which date shall be
at least five days after the giving of such notice unless an earlier time shall
have been mutually agreed upon.
(b) Full payment (in U.S. dollars) by the Grantee of the option price
for the "B" Option Shares purchased shall be made on or before the exercise date
specified in the notice of exercise in cash, or, with the prior written consent
of the Committee, in whole or in part through the surrender of previously
acquired shares of Stock at their fair market value on the exercise date.
(c) On the exercise date specified in the Grantee's notice or as soon
thereafter as is practicable, the Company shall cause to be delivered to the
Grantee, a certificate or certificates for the "B" Option Shares then being
purchased (out of theretofore unissued Stock or Treasury Stock, as the Company
may elect) upon full payment for such "B" Option Shares. The obligation of the
Company to deliver Stock shall, however, be subject to the condition that if at
any time the Committee shall determine in its discretion that the listing,
registration or qualification of the "B" Option or the "B" Option Shares upon
any securities
<PAGE> 88
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the "B" Option or the issuance or purchase of Stock thereunder,
the "B" Option may not be exercised in whole or in part unless such listing,
registration, qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Committee.
(d) If the Grantee fails to pay for any of the "B" Option Shares
specified in such notice or fails to accept delivery thereof, the Grantee's
right to purchase such "B" Option Shares may be terminated by the Company. The
date specified in the Grantee's notice as the date of exercise shall be deemed
the date of exercise of the "B" Option, provided that payment in full for the
"B" Option Shares to be purchased upon such exercise shall have been received by
such date.
5. No Rights of Shareholders.
Neither the Grantee nor any personal representative shall be, or shall
have any of the rights and privileges of, a shareholder of the Company with
respect to any shares of Stock purchasable or issuable upon the exercise of the
"B" Option, in whole or in part, prior to the date of exercise of the "B"
Option.
6. Non-Transferability of Option.
During the Grantee's lifetime, the "B" Option hereunder shall be
exercisable only by the Grantee or any guardian or legal representative of the
Grantee, and the "B" Option shall not be transferable except, in case of the
death of the Grantee, by will or the laws of descent and distribution, nor shall
the "B" Option be subject to attachment, execution or other similar process. In
the event of (a) any attempt by the Grantee to assign, alienate, sell, pledge,
hypothecate or otherwise dispose of the "B" Option, except as provided for
herein, or (b) the levy of any installment, execution or similar process upon
the rights or interest hereby conferred, the Company may terminate the "B"
Option by notice to the Grantee and it shall thereupon become null and void.
7. Employment Not Affected.
Neither the granting of the "B" Option nor its exercise shall not be
construed as granting to the Grantee any right with respect to continuance of
employment of the Employer. Except as may otherwise be limited by a written
agreement between the Employer and the Grantee, the right of the Employer to
terminate at will the Grantee's employment with it at any time (whether
specifically reserved by the Company, as the Employer or on behalf of the
Employer (whichever the case may be), and acknowledged by the Grantee.
8. Amendment of "B" Option.
The "B" Option may be amended by the Committee at any time (i) if the
Committee determines, in its sole discretion, that amendment is necessary or
advisable in the light of any addition to or change in the Internal Revenue Code
of 1986 or in the regulations issued thereunder, or any federal or state
securities law or other law or regulation, which change occurs after the Date of
Grant and by its terms applies to the "B" Option; or (ii) other than in the
circumstances described in clause (i), with the consent of the Grantee.
9. Notice.
Any notice to the Company provided for in this instrument shall be
addressed to it in care of its Secretary at its executive offices at 2307 East
Aurora Road, Suite 1, Twinsburg, Ohio 44087, or such other address as the
Company shall specify by written notice to the Grantee, and any notice to the
Grantee shall be addressed to the Grantee at the current address shown on the
payroll records of the Employer. Any
<PAGE> 89
notice shall be deemed to be duly given if and when properly addressed and
posted by registered or certified mail, postage prepaid.
10. Incorporation of Plan by Reference.
The "B" Option is granted pursuant to the terms of the Plan, the terms
of which are incorporated herein by reference, and the "B" Option shall in all
respects be interpreted in accordance with the Plan. The Committee shall
interpret and construe the Plan and this instrument, and its interpretations and
determinations shall be conclusive and binding on the parties hereto and any
other person claiming an interest hereunder, with respect to any issue arising
hereunder or thereunder.
11. Governing Law.
The validity, construction, interpretation and effect of this
instrument shall exclusively be governed by and determined in accordance with
the law of the State of Ohio, except to the extent preempted by federal law,
which shall to the extent govern.
IN WITNESS WHEREOF, the Company has caused its duly authorized officers
to execute and attest this grant of an "B" Option, and the Grantee has placed
his or her signature hereon, effective as of the Date of Grant.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By:
-------------------------------
ACCEPTED AND AGREED TO:
By:
-------------------------------
Grantee
<PAGE> 1
EXHIBIT 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement
(Form S-8 No. 33-34642) pertaining to the Amended and Restated Advanced
Lighting Technologies, Inc. 1995 Incentive Award Plan and the Registration
Statement (Form S-8 No. 333-22159) pertaining to the Advanced Lighting
Technologies, Inc. Employee Stock Purchase Plan of our report dated December
19, 1997 with respect to the financial statements of Ruud Lighting, Inc.
included in this Current Report (Form 8-K) dated January 2, 1998.
/s/ Ernst & Young LLP
Cleveland, Ohio
January 12, 1998
