<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 7, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
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ADVANCED LIGHTING TECHNOLOGIES, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OHIO 3641 34-1803229
(STATE OF INCORPORATION) (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
32000 AURORA ROAD
SOLON, OH 44139
TELEPHONE: (440) 519-0500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
WAYNE R. HELLMAN
CHIEF EXECUTIVE OFFICER
ADVANCED LIGHTING TECHNOLOGIES, INC.
32000 AURORA ROAD
SOLON, OH 44139
TELEPHONE: (440) 519-0500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
The Commission is requested to send copies of all communications to:
<TABLE>
<S> <C>
JAMES S. HOGG, ESQ. JONATHAN B. MILLER, ESQ.
COWDEN, HUMPHREY & SARLSON CO., L.P.A. BROWN & WOOD LLP
1414 TERMINAL TOWER ONE WORLD TRADE CENTER
CLEVELAND, OH 44113 NEW YORK, NY 10048
(216) 241-2880 (212) 839-5300
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C> <C> <C>
8% Senior Notes due 2008................ $100,000,000 100% $100,000,000 $29,500
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f).
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED JULY 7, 1998
PROSPECTUS
ADVANCED LIGHTING
TECHNOLOGIES, INC.
Advanced Logo
OFFER TO EXCHANGE ITS
8% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8% SENIOR NOTES DUE 2008
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1998, UNLESS EXTENDED.
------------------------
Advanced Lighting Technologies, Inc., an Ohio corporation (the "Company"),
hereby offers, upon the terms and subject to the conditions set forth in this
Prospectus (as the same may be amended or supplemented from time to time, the
"Prospectus") and in the accompanying Letter of Transmittal (which together
constitute the "Exchange Offer"), to exchange up to $100,000,000 aggregate
principal amount of its 8% Senior Notes due 2008 (the "New Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), pursuant to a Registration Statement (as defined herein) of which this
Prospectus constitutes a part, for a like principal amount of its outstanding 8%
Senior Notes due 2008 (the "Old Notes" and, together with the New Notes, the
"Notes"), of which $100,000,000 aggregate principal amount is outstanding.
The terms of the New Notes are identical in all material respects to the
terms of the Old Notes, except that (i) the New Notes have been registered under
the Securities Act and therefore will not be subject to certain restrictions on
transfer applicable to the Old Notes and will not be entitled to registration
rights and (ii) the New Notes will not provide for any increase in the interest
rate thereon. In that regard, the Old Notes provide that, if the Exchange Offer
is not consummated by September 13, 1998, the interest rate borne by the Old
Notes will increase by 0.50% per annum following September 13, 1998 until the
Exchange Offer is consummated. See "Description of the Old Notes." The New Notes
are being offered for exchange in order to satisfy certain obligations of the
Company under the Registration Rights Agreement dated as of March 18, 1998 (the
"Registration Rights Agreement") between the Company and Morgan Stanley & Co.
Incorporated (the "Placement Agent"), the Placement Agent of the Old Notes. The
New Notes will be issued under the same Indenture (as defined herein) as the Old
Notes, and the New Notes and the Old Notes will constitute a single series of
debt securities under the Indenture. In the event that the Exchange Offer is
consummated, any Old Notes which remain outstanding after consummation of the
Exchange Offer and the New Notes issued in the Exchange Offer will vote together
as a single class for purposes of determining whether holders of the requisite
percentage in outstanding principal amount of Notes have taken certain actions
or exercised certain rights under the Indenture. See "Description of the New
Notes" and "Description of the Old Notes."
THE NEW NOTES ARE REDEEMABLE AT THE OPTION OF THE COMPANY, IN WHOLE OR IN
PART, AT ANY TIME ON OR AFTER MARCH 15, 2003, AT THE REDEMPTION PRICES SET FORTH
HEREIN. IN ADDITION, AT ANY TIME PRIOR TO MARCH 15, 2001, THE COMPANY MAY REDEEM
UP TO 35% OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES WITH THE PROCEEDS OF
ONE OR MORE PUBLIC EQUITY OFFERINGS (AS DEFINED HEREIN), AT 108% OF THEIR
PRINCIPAL AMOUNT; PROVIDED THAT AFTER ANY SUCH REDEMPTION NOTES REPRESENTING AT
LEAST 65% OF THE AGGREGATE PRINCIPAL AMOUNT OF THE NOTES ORIGINALLY ISSUED
REMAIN OUTSTANDING AND THAT NOTICE OF SUCH REDEMPTION IS MAILED WITHIN 60 DAYS
OF ANY SUCH PUBLIC EQUITY OFFERING.
THE OLD NOTES ARE, AND THE NEW NOTES WILL BE, UNSECURED SENIOR INDEBTEDNESS
OF THE COMPANY RANKING PARI PASSU WITH THE COMPANY'S EXISTING AND FUTURE
UNSUBORDINATED UNSECURED INDEBTEDNESS AND SENIOR IN RIGHT OF PAYMENT TO ALL
SUBORDINATED INDEBTEDNESS OF THE COMPANY. THE NEW NOTES WILL BE EFFECTIVELY
SUBORDINATED TO ALL SECURED INDEBTEDNESS OF THE COMPANY WITH RESPECT TO THE
ASSETS SECURING SUCH INDEBTEDNESS AND WILL BE EFFECTIVELY SUBORDINATED TO ALL
LIABILITIES OF THE COMPANY'S SUBSIDIARIES, INCLUDING TRADE PAYABLES. AT MARCH
31, 1998, THE COMPANY HAD APPROXIMATELY $119.8 MILLION OF INDEBTEDNESS
OUTSTANDING, INCLUDING APPROXIMATELY $9.2 MILLION OF INDEBTEDNESS OF THE
COMPANY'S SUBSIDIARIES, AND THE COMPANY'S SUBSIDIARIES HAD APPROXIMATELY $31.6
MILLION OF ADDITIONAL LIABILITIES. AT MARCH 31, 1998, THE COMPANY AND ITS
SUBSIDIARIES ALSO HAD $77.7 MILLION AVAILABLE (SUBJECT TO FINANCIAL RATIO
COMPLIANCE AND OTHER LIMITATIONS) TO BE DRAWN UNDER THE CREDIT FACILITY (AS
DEFINED HEREIN), WHICH IS SECURED BY SUBSTANTIALLY ALL OF THE PERSONAL PROPERTY
OF THE COMPANY AND ITS NORTH AMERICAN SUBSIDIARIES AND A PLEDGE OF STOCK OF EACH
OF THE COMPANY'S PRINCIPAL SUBSIDIARIES.
------------------------
FOR A DESCRIPTION OF CERTAIN FACTORS RELATING TO AN INVESTMENT IN THE NOTES, SEE
"RISK FACTORS" BEGINNING ON PAGE 15.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Securities and Exchange
Commission (the "Commission") as set forth in certain interpretive letters
addressed to third parties in other transactions. However, the Company has not
sought its own interpretive letter and there can be no assurance that the staff
of the Division of Corporation Finance of the Commission would make a similar
determination with respect to the Exchange Offer as it has in such interpretive
letters to third parties. Based on these interpretations by the staff of the
Division of Corporation Finance, and subject to the two immediately following
sentences, the Company believes that New Notes issued pursuant to this Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by a holder thereof (other than a holder who is a broker-dealer)
without further compliance with the registration and prospectus delivery
requirements of the Securities Act, provided that such New Notes are acquired in
the ordinary course of such holder's business and that such holder is not
participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes. However, any holder of Old Notes who is an "affiliate" of the
Company or who intends to participate in the Exchange Offer for the purpose of
distributing New Notes, or any broker-dealer who purchased Old Notes from the
Company to resell pursuant to Rule 144A under the Securities Act ("Rule 144A")
or any other available exemption under the Securities Act, (a) will not be able
to rely on the interpretations of the staff of the Division of Corporation
Finance of the Commission set forth in the above-mentioned interpretive letters,
(b) will not be permitted or entitled to tender such Old Notes in the Exchange
Offer and (c) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with any sale or other transfer
of such Old Notes unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, if any broker-dealer holds Old
Notes acquired for its own account as a result of market-making or other trading
activities and exchanges such Old Notes for New Notes, then such broker-dealer
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts, as a result of market-making activities or other
trading activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus prepared for an exchange
offer so long as it contains a description of the plan of distribution with
respect to the resale of such New Notes. Accordingly, this Prospectus, as it may
be amended or supplemented from time to time, may be used by a Participating
Broker-Dealer during the period referred to below in connection with resales of
New Notes received in exchange for Old Notes where such Old Notes were acquired
by such Participating Broker-Dealer for its own account as a result of
market-making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by a Participating Broker-Dealer in connection with resales of such New Notes
for a period ending 90 days after the Expiration Date referred to below (subject
to extension under certain limited circumstances described below) or, if
earlier, when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who
is an "affiliate" of the Company may not rely on such interpretive letters and
must comply with the registration and prospectus
2
<PAGE> 4
delivery requirements of the Securities Act in connection with any resale
transaction. See "The Exchange Offer -- Resales of New Notes."
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until the Company has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 90-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the amended
or supplemented Prospectus necessary to permit resales of the New Notes or to
and including the date on which the Company has given notice that the sale of
New Notes may be resumed, as the case may be.
The New Notes will be a new issue of securities for which there currently
is no market. Accordingly, there can be no assurance as to the development or
liquidity of any market for the New Notes. The Company currently does not intend
to apply for listing of the New Notes on any securities exchange or for
quotation through the National Association of Securities Dealers Automated
Quotation System.
Any Old Notes not tendered and accepted in the Exchange Offer will remain
outstanding and will be entitled to all the same rights and will be subject to
the same limitations applicable thereto under the Indenture (except those rights
which terminate upon consummation of the Exchange Offer). Following consummation
of the Exchange Offer, the holders of Old Notes will continue to be subject to
the existing restrictions upon transfer thereof and the Company will have no
further obligation to such holders (other than to the Placement Agent under
certain limited circumstances) to provide for registration under the Securities
Act of the Old Notes held by them. To the extent that Old Notes are tendered and
accepted in the Exchange Offer, a holder's ability to sell untendered Old Notes
could be adversely affected. See "Risk Factors -- Certain Consequences of a
Failure to Exchange Old Notes."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF OLD NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
Old Notes may be tendered for exchange on or prior to 5:00 p.m., New York
City time, on , 1998 (such time on such date being hereinafter
called the "Expiration Date"), unless the Exchange Offer is extended by the
Company (in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended). Tenders of Old Notes may be
withdrawn at any time on or prior to the Expiration Date. The Exchange Offer is
not conditioned upon any minimum principal amount of Old Notes being tendered
for exchange. However, the Exchange Offer is subject to certain events and
conditions which may be waived by the Company and to the terms and provisions of
the Registration Rights Agreement. Old Notes may be tendered in whole or in part
in a principal amount of $1,000 and integral multiples thereof. The Company has
agreed to pay all expenses of the Exchange Offer. See "The Exchange
Offer -- Fees and Expenses." Each New Note will bear interest from the most
recent date to which interest has been paid or duly provided for on the Old Note
surrendered in exchange for such New Note or, if no such interest has been paid
or duly provided for on such Old Note, from March 18, 1998. Holders of the Old
Notes whose Old Notes are accepted for exchange will not receive accrued
interest on such Old Notes for any period from and after the last Interest
Payment Date to which interest has been paid or duly provided for on such Old
Notes prior to the original issue date of the New
3
<PAGE> 5
Notes or, if no such interest has been paid or duly provided for, will not
receive any accrued interest on such Old Notes, and will be deemed to have
waived the right to receive any interest on such Old Notes accrued from and
after such Interest Payment Date or, if no such interest has been paid or duly
provided for, from and after March 18, 1998.
This Prospectus, together with the Letter of Transmittal, is being sent to
all registered holders of Old Notes as of 1998.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. No dealer-manager is being used in connection with this
Exchange Offer. See "Use of Proceeds" and "Plan of Distribution."
THIS PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON REQUEST FROM
THE COMPANY AT 32000 AURORA ROAD, SOLON, OHIO, 44139 (TELEPHONE (440) 519-0500)
ATTENTION: CORPORATE SECRETARY. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUEST SHOULD BE MADE FIVE BUSINESS DAYS PRIOR TO THE DATE ON
WHICH THE FINAL INVESTMENT DECISION MUST BE MADE.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company may be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C., and at the regional offices of the Commission at Seven World
Trade Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such information
can be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates, or on the Internet at
http://www.sec.gov. The Indenture will require the Company to file with the
Commission and provide to Holders the reports and other information required to
be filed with the Commission by the Exchange Act, whether or not the Company is
then subject to such requirements. See "Description of the New Notes."
This Prospectus constitutes a part of a registration statement on Form S-4
(together with all amendments thereto, the "Registration Statement") filed by
the Company with the Commission under the Securities Act. This Prospectus, which
forms a part of the Registration Statement, does not contain all the information
set forth in the Registration Statement, certain parts of which have been
omitted in accordance with the rules and regulations of the Commission.
Reference is hereby made to the Registration Statement and related exhibits and
schedules filed therewith for further information with respect to the Company
and the New Notes offered hereby. Statements contained herein concerning the
provisions of any document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed or incorporated by
reference as an exhibit to the Registration Statement or otherwise filed by the
Company with the Commission and each such statement is qualified in its entirety
by such reference. The Registration Statement and the exhibits and schedules
thereto may be inspected and copied at the public reference facilities
maintained by the Commission at the addresses described above.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed with the Commission by the Company
pursuant to the Exchange Act are incorporated herein by reference: (i) the
Company's Annual Report on Form 10-K for the fiscal year ended June 30, 1997;
(ii) portions of the Company's definitive proxy statement filed by the Company
with the Commission on October 10, 1997 that have been incorporated by reference
into the Annual Report on Form 10-K; (iii) the Company's Quarterly Reports on
Form 10-Q for the quarters ended September 30, 1997, December 31, 1997 and March
31, 1998; and (iv) the Company's current reports on Form 8-K filed on January
14, 1998, March 4, 1998 and May 5, 1998.
4
<PAGE> 6
All documents filed by the Company with the Commission pursuant to Section
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date hereof and prior to
the termination of the Exchange Offer for the New Notes, or subsequent to the
filing of the initial Registration Statement and prior to effectiveness of the
Registration Statement shall be deemed to be incorporated by reference into this
Prospectus and to be a part hereof from the respective dates of filing of such
documents. Any statement contained herein or in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Prospectus to the extent that a statement
contained herein or in any other subsequently filed document which also is
incorporated or deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement or document so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Prospectus. Subject to the foregoing, all information
appearing in this Prospectus is qualified in its entirety by the information
appearing in the documents incorporated herein by reference.
The Company will furnish without charge to each person to whom this
Prospectus is delivered, upon request, a copy of any and all of the documents
incorporated by reference other than exhibits to such documents which are not
specifically incorporated by reference in such documents. Written or telephone
requests should be directed to the Company at: 32000 Aurora Road, Solon, Ohio,
44139 (telephone (440) 519-0500) Attention: Corporate Secretary.
------------------------
THIS PROSPECTUS CONTAINS STATEMENTS WHICH CONSTITUTE FORWARD LOOKING
STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES ACT AND SECTION
21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THOSE STATEMENTS APPEAR
IN A NUMBER OF PLACES IN THIS PROSPECTUS AND INCLUDE STATEMENTS REGARDING THE
INTENT, BELIEF OR CURRENT EXPECTATIONS OF THE COMPANY, ITS DIRECTORS OR ITS
OFFICERS WITH RESPECT TO, AMONG OTHER THINGS: (I) POTENTIAL ACQUISITIONS OR
JOINT VENTURES BY THE COMPANY; (II) THE COMPANY'S FINANCING PLANS; (III) TRENDS
AFFECTING THE COMPANY'S FINANCIAL CONDITION OR RESULTS OF OPERATIONS; (IV)
CONTINUED GROWTH OF THE METAL HALIDE LIGHTING MARKET; (V) THE COMPANY'S
OPERATING STRATEGY AND GROWTH STRATEGY; AND (VI) LITIGATION AFFECTING THE
COMPANY. PROSPECTIVE INVESTORS ARE CAUTIONED THAT ANY SUCH FORWARD LOOKING
STATEMENTS ARE NOT GUARANTEES OF FUTURE PERFORMANCE AND INVOLVE RISKS AND
UNCERTAINTIES, AND THAT ACTUAL RESULTS MAY DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD LOOKING STATEMENTS AS A RESULT OF VARIOUS FACTORS. THE
ACCOMPANYING INFORMATION CONTAINED IN THIS PROSPECTUS, INCLUDING WITHOUT
LIMITATION THE INFORMATION SET FORTH UNDER THE HEADINGS "RISK FACTORS,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS," IDENTIFIES IMPORTANT FACTORS THAT COULD CAUSE SUCH
DIFFERENCES.
5
<PAGE> 7
SUMMARY
The following summary is qualified in its entirety by the more detailed
information, including Consolidated Financial Statements and Notes thereto,
appearing elsewhere in this Prospectus. The Company was formed on May 19, 1995
and acquired ownership, primarily by merger (the "Combination"), of affiliated
companies that were previously under common ownership and management (the
"Predecessors"). Unless the context otherwise requires, the "Company" refers to
Advanced Lighting Technologies, Inc., its subsidiaries and the Predecessors.
Industry data in this Prospectus with respect to the lighting market is reported
on a calendar year basis and includes the industrial, commercial and residential
sectors, but not the automotive sector. Unless otherwise stated herein, such
industry data is derived from selected reports published by the National
Electrical Manufacturers Association ("NEMA").
THE COMPANY
Advanced Lighting Technologies, Inc. is an innovation-driven designer,
manufacturer and marketer of metal halide lighting products. Metal halide
lighting combines energy efficient superior illumination with long lamp (i.e.,
light bulb) life, excellent color rendition and compact lamp size. The Company
believes that it is the only designer and manufacturer in the world focused
primarily on metal halide lighting. As a result of this unique focus, the
Company has developed substantial expertise in all aspects of metal halide
lighting. The Company believes that this focus enhances its responsiveness to
customer demand and has contributed to its technologically advanced product
development and manufacturing capabilities.
The metal halide market is the fastest growing segment of the domestic
lighting market, demonstrated by metal halide lamp sales having grown at a
compound annual rate of approximately 15% since 1993, although growth has varied
substantially from year to year. The Company's strong market position, new
product development capabilities and participation in international markets have
enabled the Company to increase its revenues at rates in excess of the growth of
the domestic metal halide market. The Company's sales from its continuing
operations increased at a compound annual growth rate of 44.8% to $85.6 million
in fiscal 1997 from $40.8 million in fiscal 1995. The Company has experienced
growth in net sales in each of the past 19 consecutive quarters, and the
Company's sales from continuing operations increased 83.9% to $110.9 million in
the nine months ended March 31, 1998 from $60.3 million in the nine months ended
March 31, 1997.
The Company has integrated vertically to design, manufacture and market a
broad range of metal halide products, including materials used in the production
of lamps, and lamps and other components for lighting systems as well as
complete metal halide lighting systems. The Company also manufactures and
markets equipment used to produce metal halide lamps. The Company's materials
and components are used in the manufacture of its own lighting systems for sale
to end-users and are sold to third party manufacturers for use in the production
of their metal halide products. The vertical integration of the Company's
approach to its products is illustrated below:
METAL HALIDE INTEGRATION FROM MATERIALS THROUGH SYSTEMS
<TABLE>
<S> <C> <C> <C>
|----------------|-----(arrowhead) ----------------
| MATERIALS | | Internally |------------------------------------
| LAMPS | | Developed | |
| POWER SUPPLIES | | Metal Halide |----------- |
| CONTROLS | | Systems | | (arrowhead)
|OPTICS/COATINGS | -------------- | |------------------|
| EQUIPMENT |--------------------------------------------|-----(arrowhead) | Emerging |
| | Replacement Sales (arrowhead) | Applications |
---------------- ------------------------(arrowhead) |----------------| | -Fiber Optics |
| ------------------------ | Commercial/ | | -Residential |
| | Metal Halide Systems | | Industrial | | -Projection TV |
|-----(arrowhead) | Produced by | | Outdoor | ------------------
| Third Parties | | Applications | (arrowhead)
---------------------- ---------------- |
| | (arrowhead) |
| | | |
| |----------------------- |
|------------------------------------------------------
</TABLE>
The Company produces over 300 ultra pure metal halide salts and believes
that it produces 100% of the metal halide salts used in the manufacture of metal
halide lamps in the United States and over 80% of salts used
6
<PAGE> 8
worldwide. Metal halide salts are the primary ingredient within the arc tube of
metal halide lamps and determine the lighting characteristics of the lamp. The
Company currently markets over 240 specialty and 40 standard-type metal halide
lamps, giving it the most diverse product line of any metal halide lamp
manufacturer. In addition, the Company offers components such as more than 400
power supply products for metal halide and other discharge lamp systems. The
Company also produces and markets metal halide systems, which consist of a lamp,
power supply and related electronic controls and switches and other components.
The Company also designs, manufactures and markets turnkey lamp production
equipment groups, which it typically sells to international manufacturers.
METAL HALIDE
Invented approximately 35 years ago, metal halide is the newest of all
major lighting technologies and can produce the closest simulation to sunlight
of any available lighting technology. Metal halide lighting is currently used
primarily in commercial and industrial applications such as factories and
warehouses, outdoor site and landscape lighting, sports facilities and large
retail spaces such as superstores. In addition, due to metal halide's superior
lighting characteristics, the Company believes many opportunities exist to
"metal halidize" applications currently dominated by older incandescent and
fluorescent lighting technologies. For example, a 100 watt metal halide lamp,
which is approximately the same size as a household incandescent lamp, produces
as much light as five 100 watt incandescent lamps and as much as three 34 watt,
four foot long fluorescent lamps. However, metal halide lamps are not compatible
with the substantial installed base of incandescent and fluorescent lighting
fixtures. While metal halide systems generally offer lower costs over the life
of a system, the installation of a metal halide lighting system typically
involves higher initial costs than incandescent and fluorescent lighting
systems.
While domestic sales of incandescent and fluorescent lamps grew at a
compound annual rate of approximately 4% since 1993, domestic metal halide lamp
sales have grown at a compound annual rate of approximately 15% over the same
period, making metal halide the fastest growing segment of the approximately
$2.9 billion domestic lamp market. In 1997, metal halide accounted for
approximately 7% of domestic lamp sales by dollar volume.
The Company believes that the majority of the growth of metal halide
lighting has occurred in commercial and industrial applications. Recently, metal
halide systems have been introduced in fiber optic, projection television and
automotive headlamp applications. The Company believes that additional
opportunities for metal halide lighting exist in other applications where energy
efficiency and light quality are important. As a result of the Company's
dominant position in metal halide materials and lamp production equipment, the
Company expects to benefit from continued growth in metal halide markets. In
addition, the Company expects to be a leader in metal halide's continued market
expansion by providing innovative metal halide system components and integrated
systems.
STRATEGY
The Company's strategic objective is to remain focused on the metal halide
market and expand its leadership position in the metal halide lighting industry
by: (i) continuing to pursue vertical integration to expand the Company's
ability to introduce new products and applications; (ii) strengthening the
Company's relationships with original equipment manufacturers ("OEMs") and
lighting agents (who package lamps and lighting systems for specific projects)
to increase the number of metal halide applications and the penetration of the
Company's products in new metal halide installations; and (iii) seeking to
demonstrate the superiority of metal halide lighting solutions, thereby
stimulating domestic and international demand for the Company's products.
The Company seeks to achieve its strategic objective through internal
growth and acquisitions and strategic investments. The Company acquires or
invests in businesses that, when combined with the Company's existing
capabilities and metal halide focus, provide technological, product or
distribution synergies and offer the potential to enhance the Company's
competitive position or accelerate development of additional metal halide market
opportunities. The Company has made a number of acquisitions and investments
since January 1997, as described under "Background of the Company -- Recent
Acquisitions and Strategic Investments." On January 2, 1998, the
7
<PAGE> 9
Company acquired Ruud Lighting, Inc. ("Ruud Lighting"), a manufacturer of
high-intensity discharge ("HID") lighting systems, principally focusing on metal
halide installations for commercial, industrial, outdoor and related lighting
applications, with expertise in direct marketing to contractors and end-users.
The Company is currently considering other possible acquisition and strategic
investment opportunities and will continue to do so in the future.
The Company's growth strategy contains four key elements:
- Introduce New Products and Systems. The Company intends to continue to
develop new products and systems which should permit metal halide to
penetrate lighting applications that are currently dominated by older
lighting technologies. To further the Company's integrated systems and
components strategy, the Company has acquired Ruud Lighting as well as
two manufacturers of power supplies primarily for metal halide lighting
systems. The Company can now manufacture and market complete metal halide
lighting systems for end-users as well as complementary component
packages for OEMs. The Company intends to develop, manufacture and market
additional types of high performance and technologically advanced metal
halide materials, components and systems. Capitalizing on its expanding
production capability, design capability and unique metal halide focus,
the Company expects to develop additional specialty systems, such as
fiber optic lighting systems and projection television optical systems.
- Increase Sales of Existing Products. By expanding existing relationships
and developing new relationships with lighting agents and OEMs, the
Company expects to increase sales of existing specialty lamps and power
supplies. The Company also expects its sales of replacement lamps, as
well as power supplies, to increase through its recently expanded
distribution capability (resulting from the Ruud Lighting acquisition)
and as the installed base of fixtures for the Company's specialty lamps
increases.
- Participate in Growing International Markets. Because the Company
expects that international growth of metal halide lighting products and
systems will exceed domestic growth, the Company intends to directly
market its products in developed countries and to pursue joint venture
arrangements in developing countries to accelerate metal halide's
penetration of international markets.
- Penetrate the Residential Lighting Market. Over the longer term, the
Company intends to lead metal halide's penetration of the residential
lighting market by: (i) expanding the marketing of its products,
especially contractor-installed fixtures used in the construction of new
and remodeled housing, building on Ruud Lighting's expertise in direct
marketing to contractors; (ii) developing the use of metal halide fiber
optic systems through a joint venture; and (iii) manufacturing components
for compact metal halide lighting systems (e.g., table and floor lamps),
using MICROSUN(TM) technology developed by the Company. Microsun
Technologies, Inc. ("MicroSun"), currently a wholly-owned subsidiary of
the Company, develops, designs, assembles, markets and distributes these
portable fixtures. On May 5, 1998, the Company announced plans to spin
off MicroSun, creating an independent company. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Spin-Off of MicroSun Business."
8
<PAGE> 10
THE EXCHANGE OFFER
The Exchange Offer......... Up to $100,000,000 aggregate principal amount of
New Notes are being offered in exchange for a like
aggregate principal amount of Old Notes. Old Notes
may be tendered for exchange in whole or in part in
a principal amount of $1,000 and integral multiples
thereof. The Company is making the Exchange Offer
in order to satisfy its obligations under the
Registration Rights Agreement relating to the Old
Notes. For a description of the procedures for
tendering Old Notes, see "The Exchange
Offer -- Procedures for Tendering Old Notes."
Expiration Date............ 5:00 p.m., New York City time, on ,
1998 (such time on such date being hereinafter
called the "Expiration Date") unless the Exchange
Offer is extended by the Company (in which case the
term "Expiration Date" shall mean the latest date
and time to which the Exchange Offer is extended).
See "The Exchange Offer -- Expiration Date;
Extensions; Amendments."
Certain Conditions to the
Exchange Offer........... The Exchange Offer is subject to certain
conditions. The Company reserves the right in its
sole and absolute discretion, subject to applicable
law, at any time and from time to time, (i) to
delay the acceptance of the Old Notes for exchange,
(ii) to terminate the Exchange Offer if certain
specified conditions have not been satisfied, (iii)
to extend the Expiration Date of the Exchange Offer
and retain all Old Notes tendered pursuant to the
Exchange Offer, subject, however, to the right of
holders of Old Notes to withdraw their tendered Old
Notes, or (iv) to waive any condition or otherwise
amend the terms of the Exchange Offer in any
respect. See "The Exchange Offer -- Expiration
Date; Extensions; Amendments" and "--Certain
Conditions to the Exchange Offer."
Withdrawal Rights.......... Tenders of Old Notes may be withdrawn at any time
on or prior to the Expiration Date by delivering a
written notice of such withdrawal to the Exchange
Agent in conformity with certain procedures set
forth below under "The Exchange Offer -- Withdrawal
Rights."
Procedures for Tendering
Old Notes................ Tendering holders of Old Notes must complete and
sign a Letter of Transmittal in accordance with the
instructions contained therein and forward the same
by mail, facsimile or hand delivery, together with
any other required documents, to the Exchange Agent
(as defined below), either with the Old Notes to be
tendered or in compliance with the specified
procedures for guaranteed delivery of Old Notes.
Certain brokers, dealers, commercial banks, trust
companies and other nominees may also effect
tenders by book-entry transfer. Holders of Old
Notes registered in the name of a broker, dealer,
commercial bank, trust company or other nominee are
urged to contact such person promptly if they wish
to tender Old Notes pursuant to the Exchange Offer.
See "The Exchange Offer -- Procedures for Tendering
Old Notes." Letters of Transmittal and certificates
representing Old Notes should not be sent to the
Company. Such documents should only be sent to the
Exchange Agent. Questions regarding how to tender
and requests for information should be directed to
the Exchange Agent. See "The Exchange
Offer -- Exchange Agent."
Resales of New Notes....... The Company is making the Exchange Offer in
reliance on the position of the staff of the
Division of Corporation Finance of the Commission
as set
9
<PAGE> 11
forth in certain interpretive letters addressed to
third parties in other transactions. However, the
Company has not sought its own interpretive letter
and there can be no assurance that the staff of the
Division of Corporation Finance of the Commission
would make a similar determination with respect to
the Exchange Offer as it has in such interpretive
letters to third parties. Based on these
interpretations by the staff of the Division of
Corporation Finance, and subject to the two
immediately following sentences, the Company
believes that New Notes issued pursuant to this
Exchange Offer in exchange for Old Notes may be
offered for resale, resold and otherwise
transferred by a holder thereof (other than a
holder who is a broker-dealer) without further
compliance with the registration and prospectus
delivery requirements of the Securities Act,
provided that such New Notes are acquired in the
ordinary course of such holder's business and that
such holder is not participating, and has no
arrangement or understanding with any person to
participate, in a distribution (within the meaning
of the Securities Act) of such New Notes. However,
any holder of Old Notes who is an "affiliate" of
the Company or who intends to participate in the
Exchange Offer for the purpose of distributing the
New Notes, or any broker-dealer who purchased the
Old Notes from the Company to resell pursuant to
Rule 144A or any other available exemption under
the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of
Corporation Finance of the Commission set forth in
the above-mentioned interpretive letters, (b) will
not be permitted or entitled to tender such Old
Notes in the Exchange Offer and (c) must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any sale or other transfer of such Old Notes
unless such sale is made pursuant to an exemption
from such requirements. In addition, as described
below, if any broker-dealer holds Old Notes
acquired for its own account as a result of
market-making or other trading activities and
exchanges such Old Notes for New Notes, then such
broker-dealer must deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old
Notes for New Notes in the Exchange Offer will be
required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to
be received by it are being acquired in the
ordinary course of its business, (iii) it has no
arrangement or understanding with any person to
participate in a distribution (within the meaning
of the Securities Act) of such New Notes, and (iv)
if such holder is not a broker-dealer, such holder
is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the
Securities Act) of such New Notes. Each
broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer must
acknowledge that it acquired the Old Notes for its
own account as the result of market-making
activities or other trading activities and must
agree that it will deliver a prospectus meeting the
requirements of the Securities Act in connection
with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by
delivering a prospectus, a broker-dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Based on
the position taken by the staff of the Division of
Corporation Finance of the Commission in the
interpretive letters referred to above, the Company
believes that broker-dealers who acquired Old Notes
for their own accounts as a result of market-making
10
<PAGE> 12
activities or other trading activities
("Participating Broker-Dealers") may fulfill their
prospectus delivery requirements with respect to
the New Notes received upon exchange of such Old
Notes (other than Old Notes which represent an
unsold allotment from the original sale of the Old
Notes) with a prospectus meeting the requirements
of the Securities Act, which may be the prospectus
prepared for an exchange offer so long as it
contains a description of the plan of distribution
with respect to the resale of such New Notes.
Accordingly, this Prospectus, as it may be amended
or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with
resales of New Notes received in exchange for Old
Notes where such Old Notes were acquired by such
Participating Broker-Dealer for its own account as
a result of market-making or other trading
activities. Subject to certain provisions set forth
in the Registration Rights Agreement and to the
limitations described below under "The Exchange
Offer -- Resale of New Notes," the Company has
agreed that this Prospectus, as it may be amended
or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with
resales of such New Notes for a period ending 90
days after the Expiration Date (subject to
extension under certain limited circumstances) or,
if earlier, when all such New Notes have been
disposed of by such Participating Broker-Dealer.
See "Plan of Distribution." Any Participating
Broker-Dealer who is an "affiliate" of the Company
may not rely on such interpretive letters and must
comply with the registration and prospectus
delivery requirements of the Securities Act in
connection with any resale transaction. See "The
Exchange Offer -- Resales of New Notes."
Exchange Agent............. The exchange agent with respect to the Exchange
Offer is The Bank of New York (the "Exchange
Agent"). The addresses and telephone and facsimile
numbers of the Exchange Agent are set forth in "The
Exchange Offer -- Exchange Agent" and in the Letter
of Transmittal.
Use of Proceeds............ The Company will not receive any cash proceeds from
the issuance of the New Notes offered hereby. See
"Use of Proceeds."
Certain United States
Federal Income Tax
Considerations........... Holders of Old Notes should review the information
set forth under "-- Certain United States Federal
Income Tax Considerations" prior to tendering Old
Notes in the Exchange Offer.
11
<PAGE> 13
THE NEW NOTES
Securities Offered......... Up to $100,000,000 aggregate principal amount of
the Company's 8% Senior Notes due 2008 which have
been registered under the Securities Act.
The New Notes will be issued and the Old Notes were
issued under an Indenture dated as of March 18,
1998 (the "Indenture") between the Company and The
Bank of New York (the "Trustee"). The New Notes and
any Old Notes which remain outstanding after
consummation of the Exchange Offer will constitute
a single series of debt securities under the
Indenture and, accordingly, will vote together as a
single class for purposes of determining whether
Holders of the requisite percentage in outstanding
principal amount thereof have taken certain actions
or exercised certain rights under the Indenture.
See "Description of the New Notes -- General." The
terms of the New Notes are identical in all
material respects to the terms of the Old Notes,
except that (i) the New Notes have been registered
under the Securities Act and therefore are not
subject to certain restrictions on transfer
applicable to the Old Notes and will not be
entitled to registration rights or other rights
under the Registration Rights Agreement and (ii)
the New Notes will not provide for any increase in
the interest rate thereon. See "The Exchange
Offer -- Purpose of the Exchange Offer,"
"Description of the New Notes" and "Description of
the Old Notes."
Maturity................... March 15, 2008.
Interest................... March 15 and September 15 of each year, commencing
on the first such date following the original
issuance of the New Notes.
Optional Redemption by the
Company.................. The Notes are redeemable at the option of the
Company, in whole or in part, at any time on or
after March 15, 2003 at the redemption prices set
forth herein. In addition, at any time prior to
March 15, 2001, the Company may redeem up to 35% of
the aggregate principal amount of the Notes with
the proceeds of one or more Public Equity Offerings
(as defined herein), at 108% of their principal
amount; provided that after any such redemption
Notes representing at least 65% of the Notes
initially issued remain outstanding and that notice
of such redemption is mailed within 60 days of any
such Public Equity Offering. See "Description of
the New Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control (as defined herein), the
Company will be required to make an offer to
purchase the Notes at a purchase price equal to
101% of their principal amount, plus accrued
interest. There can be no assurance that the
Company will have sufficient funds available at the
time of any Change of Control to make any required
debt repayment (including repurchases of the
Notes). See "Description of the New
Notes -- Repurchase of Notes upon a Change of
Control."
Ranking.................... The Notes will be unsecured senior indebtedness
ranking pari passu with existing and future
unsubordinated unsecured indebtedness and senior in
right of payment to all subordinated indebtedness
of the Company. The Notes will be effectively
subordinated to all secured indebtedness of the
Company and its subsidiaries with respect to the
collateral securing such indebtedness, and the
Notes will be effectively subordinated to all
liabili-
12
<PAGE> 14
ties of the Company's subsidiaries, including trade
payables. (At March 31, 1998, the Company had
approximately $119.8 million of indebtedness
outstanding, including approximately $9.2 million
of indebtedness of the Company's subsidiaries, and
the Company's subsidiaries had approximately $31.6
million of additional liabilities. At March 31,
1998, the Company and its subsidiaries also had
$77.7 million available (subject to financial ratio
compliance and other limitations) to be drawn under
the Credit Facility, which is secured by
substantially all of the personal property of the
Company and each of its North American subsidiaries
and a pledge of stock of each of the Company's
principal subsidiaries.) See "Risk
Factors -- Leverage" and "-- Priority of Secured
Creditors; Holding Company Structure."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, limit the ability of the
Company and its Restricted Subsidiaries (as defined
herein) to incur indebtedness, pay dividends,
prepay subordinated indebtedness, repurchase
capital stock, make investments, create liens,
engage in transactions with stockholders and
affiliates, sell assets and, with respect to the
Company, engage in mergers and consolidations.
However, these limitations will be subject to a
number of important qualifications and exceptions.
See "Description of the New Notes -- Covenants."
RISK FACTORS
See "Risk Factors" beginning on page 15 for a discussion of certain factors
relating to an investment in the Notes.
13
<PAGE> 15
SUMMARY FINANCIAL DATA
The following table presents (i) summary historical consolidated financial
data of the Company as of the dates and for the periods indicated and (ii)
summary unaudited pro forma financial data of the Company as of the dates and
for the periods indicated, giving effect to the acquisition of Ruud Lighting and
the issuance of the Notes as though they had occurred on the dates indicated
herein. The summary unaudited pro forma financial data are not necessarily
indicative of operating results that would have been achieved had these events
been consummated on the dates indicated and should not be construed as
representative of future operating results. The summary historical financial
data for the years ended June 30, 1997, 1996 and 1995 have been derived from the
audited consolidated financial statements of the Company. The summary historical
consolidated financial data and unaudited pro forma financial data should be
read in conjunction with the audited consolidated financial statements and
related notes thereto of the Company, the audited financial statements of Ruud
Lighting and related notes thereto, the "Unaudited Pro Forma Financial Data" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
PRO FORMA NINE MARCH 31, PRO FORMA YEAR ENDED JUNE 30,
MONTHS ENDED ------------------- YEAR ENDED ----------------------------
MARCH 31, 1998 1998 1997 JUNE 30, 1997 1997 1996 1995
-------------- -------- -------- ------------- -------- ------- -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
(IN THOUSANDS, EXCEPT RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Net sales............................... $147,052 $110,891 $ 60,291 $153,543 $ 85,645 $54,636 $40,767
Cost of sales........................... 90,265 66,241 32,299 90,431 45,703 29,164 21,899
Gross margin............................ 56,787 44,650 27,992 63,112 39,942 25,472 18,868
Operating expenses...................... 74,216 65,292 20,494 44,634 28,849 20,524 13,440
Income (loss) from continuing operations
before extraordinary charges.......... (23,105) (22,132) 4,743 7,722 7,556 2,667 3,142
Net income (loss)....................... (31,001) (30,028) 4,502 7,270 7,104 2,382 2,889
OTHER FINANCIAL DATA:
Interest expense(1)..................... $ 6,485 $ 1,649 $ 749 $ 8,620 $ 1,513 $ 1,548 $ 2,107
Depreciation and amortization........... 4,686 3,335 1,829 3,807 2,579 1,638 1,399
EBITDA(2)............................... (12,743) (17,307) 9,327 22,285 13,672 6,586 6,827
Ratio of EBITDA to interest
expense(1)(2)......................... -- -- 12.5 2.6 9.0 4.3 3.2
Capital expenditures.................... $ 21,565 $ 11,589 $ 18,095 $ 5,050 $ 1,530
Cash flow from (used in) operations..... (18,063) (6,534) (4,183) 1,326 4,464
Cash flow from (used in) investing...... (83,129) (29,436) (44,058) (8,125) (1,530)
Cash flow from (used in) financing...... 127,615 40,496 50,757 7,451 (2,567)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------
(UNAUDITED)
<S> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments......... $ 34,696
Working capital........................................... 87,646
Total assets.............................................. 308,699
Total long-term debt...................................... 117,520
Total shareholders' equity................................ 148,778
</TABLE>
- ---------------
(1) The pro forma Interest expense and Ratio of EBITDA to interest expense
reflect the transactions described above.
(2) Earnings before interest, taxes, depreciation and amortization ("EBITDA") is
provided because it is a measure commonly used to evaluate a company's
ability to service its indebtedness. EBITDA is presented to enhance the
understanding of the Company's operating results and is not intended to
represent cash flows or results of operations in accordance with generally
accepted accounting principles ("GAAP") for the periods indicated. EBITDA is
not a measurement under GAAP and is not necessarily comparable with
similarly titled measures of other companies. Net cash flows from operating,
investing and financing activities as determined using GAAP are also
presented in Other Financial Data. In the nine months ended March 31, 1998,
EBITDA was inadequate to cover interest expense by $18,956 ($19,228 for the
pro forma nine months ended March 31, 1998).
14
<PAGE> 16
RISK FACTORS
Prospective purchasers should consider carefully the following factors, as
well as the other information contained and incorporated by reference in this
Prospectus, in evaluating an investment in the Notes.
DEPENDENCE ON METAL HALIDE
The Company derives substantially all of its net sales and net income from
the sale of metal halide materials, systems and components and production
equipment and the Company's current operations and growth strategy are focused
on the metal halide lighting industry. Metal halide is the newest of all
commercial lighting technologies, and metal halide lamp sales represented
approximately 7% of domestic lamp sales in 1997. Fluorescent and incandescent
lamps represented approximately 87% of domestic lamp sales in 1997. The
Company's success has been attributable to the increased usage of metal halide
lighting in commercial and industrial applications and its future results are
dependent upon the further growth of metal halide lighting in these and other
applications. However, metal halide lamps are not compatible with the
substantial installed base of incandescent and fluorescent lighting fixtures,
and the installation of a metal halide lighting system typically involves higher
initial costs than incandescent and fluorescent lighting systems. Accordingly,
there can be no assurance that metal halide products will continue to gain
market share within the overall lighting market or that better lighting
technologies will not be introduced, displacing metal halide lighting in the
market, which could have a material adverse effect on the Company, its results
of operations and its ability to make payments on the Notes. See
"Business -- Lighting Industry."
LEVERAGE
At March 31, 1998, the Company had approximately $119.8 million of total
indebtedness outstanding and $148.8 million of shareholders' equity. At March
31, 1998, the Company and its subsidiaries also had $77.7 million available
(subject to financial ratio compliance and other limitations) to be drawn under
the Company's $85.0 million revolving credit facility entered into on January 2,
1998 (the "Credit Facility"). See "Description of Certain Indebtedness." The
Indenture permits the Company and its subsidiaries to incur substantial amounts
of additional indebtedness in the future. The degree to which the Company is
leveraged could have important consequences to holders of the Notes, including
the following: (i) the Company's ability to obtain additional financing in the
future for working capital, capital expenditures, acquisitions or other purposes
may be impaired and (ii) the Company's flexibility in planning for or reacting
to changes in market conditions may be limited, and the Company may be more
vulnerable in the event of a downturn in its business.
PRIORITY OF SECURED CREDITORS; HOLDING COMPANY STRUCTURE
Although the Notes rank pari passu in right of payment with indebtedness
outstanding under the Credit Facility, such indebtedness is secured by
substantially all of the personal property of the Company and each of its North
American subsidiaries and a pledge of stock of each of the Company's principal
subsidiaries. The Notes are unsecured and therefore do not have the benefit of
such collateral. If an event of default occurs under the Credit Facility, the
banks party thereto will have preferential claims to those assets and may
foreclose upon such collateral to the exclusion of the holders of the Notes,
notwithstanding the existence of an event of default with respect to the Notes.
Accordingly, in such an event, the Company's assets would first be used to repay
in full amounts outstanding under the Credit Facility, resulting in virtually
all of the Company's assets being unavailable to satisfy the claims of holders
of the Notes until the indebtedness under the Credit Facility is repaid in full.
Any remaining unpaid claims of creditors under the Credit Facility will be pari
passu with the Notes and entitled to share in any of the Company's remaining
assets.
The Company conducts substantially all of its operations through
subsidiaries and substantially all of its assets consist of the capital stock of
its subsidiaries. Accordingly, the Notes will be effectively subordinated to
liabilities of the Company's subsidiaries, including trade payables. At March
31, 1998, the total liabilities of the Company's subsidiaries, excluding
intercompany debt but including trade payables, were approximately $40.8
million. At March 31, 1998, the Company and its subsidiaries also had $77.7
million available (subject to
15
<PAGE> 17
financial ratio compliance and other limitations) to be drawn under the Credit
Facility, which is secured as described above.
The Company's rights and the rights of its creditors, including holders of
the Notes, to participate in the assets of any subsidiary upon such subsidiary's
liquidation or recapitalization will be subject, in the case of any subsidiary,
to the prior claims of such subsidiary's creditors, except to the extent that
the Company itself may be a creditor with recognized claims against the
subsidiary, in which case the claims of the Company would still be effectively
subordinated to any mortgage or other liens on the assets of such subsidiary and
would be subordinate to any indebtedness of such subsidiary senior to that held
by the Company. Accordingly, there can be no assurance that, after providing for
all prior claims and all pari passu claims, there would be sufficient assets
available to satisfy the obligations of the Company under the Notes.
Because the Company conducts substantially all of its operations through
its subsidiaries, the Company is and will be dependent upon the distribution of
the earnings of its subsidiaries to service its debt obligations, including the
Notes. The Company's subsidiaries are separate and distinct legal entities and
have no obligation, contingent or otherwise, to pay any amounts due on the Notes
or to make any funds available therefor.
ABILITY TO DEVELOP AND BROADEN PRODUCT CATEGORIES
The Company has recently broadened its systems and components product line.
The Company also has recently introduced a limited range of products for
residential use and expects to develop additional types of metal halide lighting
systems. The marketing efforts and strategies for such product extensions are
substantially different from those associated with the Company's historical
operations. There can be no assurance that the Company will be successful in
adding new products to its current product categories or in developing new
categories of products and the Company's ability to make payments on the Notes
may depend on its ability to do so. See "Business -- Products."
DEPENDENCE UPON NEW PRODUCT INTRODUCTIONS
The Company's historical success has been attributable, in large part, to
the introduction of new products in each of its product lines to meet the
requirements of its customers. The Company's future success will depend upon its
continued ability to develop and introduce innovative products, and there can be
no assurance of the Company's ability to do so. Even if a new product is
developed for a particular type of lighting fixture or application, the product
may not be commercially successful in the lighting market. In addition,
competitors occasionally have followed the Company's introduction of successful
products with similar product offerings. As a result of these and other factors,
there can be no assurance that the Company will continue to be successful in
introducing new products. The Company's ability to make payments on the Notes
may depend on its ability to successfully introduce new products. See
"Business -- Product Design and Development."
RISKS ASSOCIATED WITH MANAGEMENT OF GROWTH
The Company has experienced significant growth in recent years, which has
placed, and is expected to continue to place, a significant strain on its
management, employees, finances and operations. Management has set aggressive
growth objectives for the Company's net sales and net income. These objectives
may be increasingly difficult to achieve. In pursuing these objectives, the
Company will, among other things, seek to develop new products and applications
for its products, seek to expand its distribution capabilities and pursue
acquisitions and strategic investments, both in the United States and elsewhere.
Any of the Company's efforts in pursuit of these objectives may expose it to
risks that could adversely affect its results of operations and financial
condition. To manage growth effectively, the Company must continue to implement
changes in many aspects of its business, expand its information systems,
increase the capacity and productivity of its materials, systems and components
and production equipment operations, develop its metal halide systems capability
and hire, develop, train and manage an increasing number of managerial,
production and other employees. Certain of the Company's product line extensions
have been, or will be, effected through acquisitions, and the success of these
acquisitions will depend on the integration of the acquired operations with the
Company's existing operations. If management is unable to anticipate or manage
growth effectively, or unable to successfully integrate acquired
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<PAGE> 18
operations and manage expenses and risks associated with integrating the
administration and information systems of acquired companies, the Company's
operating results and its ability to make payments on the Notes could be
adversely affected. See "Business -- Strategy."
RISKS ASSOCIATED WITH ACQUISITION AND INVESTMENT STRATEGY
In order to implement its business strategy, the Company will from
time-to-time consider expansion of its products and services through joint
ventures, strategic partnerships and acquisitions of, and/or investments in,
other business entities. The Company has no agreement or understanding with any
prospective acquisition or investment candidate in respect of a specific
transaction, but it is engaged in preliminary discussions with certain
candidates at the date of this Prospectus. There is no assurance that any
agreement will result from such discussions or that management will be able to
identify, acquire or manage future acquisition candidates profitably on behalf
of the Company, or as to the timing or amount of any return or anticipated
benefits that the Company might realize on any acquisition or investment.
Acquisitions or investments could necessitate commitments of funds, which could
reduce the Company's future liquidity. Possible future acquisitions or
investments by the Company could result in the incurrence by the Company or its
subsidiaries of additional debt, contingent liabilities and amortization
expenses related to goodwill and other intangible assets, as well as writeoffs
of unsuccessful acquisitions, any or all of which could materially adversely
affect the Company's financial condition, results of operations, and ability to
make payments on the Notes. The Company has made several acquisitions since
January 1997, including Ruud Lighting, the effect of which has been to almost
double the Company's revenues on a pro forma basis. There can be no assurance
that the Company will be able to integrate these acquisitions or to manage its
expanded operations effectively. In addition, since that date the Company has
made, and the Indenture will permit the Company to continue to make, substantial
investments in entities it does not and will not be able to control. The Company
may find it difficult or impossible to realize cash flows from such investments,
or to liquidate such investments, which could adversely affect the Company's
ability to make payments on the Notes.
RISKS ASSOCIATED WITH INTERNATIONAL BUSINESS; FOREIGN CURRENCIES
The Company has derived, and expects to derive in the future, a substantial
portion of its net sales from its international business, with revenues from
customers outside of the United States representing approximately 53% of the
Company's net sales for the nine months ended March 31, 1998. The Company's
international joint ventures and operations and its export sales are subject to
the risks inherent in doing business abroad, including delays in shipments,
adverse fluctuations in currency exchange rates, increases in import duties and
tariffs and changes in foreign regulations and political climate. The Company's
joint ventures and operations in foreign countries have been and will be granted
rights to use the Company's technology. While the Company will attempt to
protect its intellectual property rights in these foreign joint ventures and
operations, the laws of many foreign countries do not protect intellectual
property rights to the same extent as the laws of the United States. See
"Business -- Strategy."
Approximately 17% of the Company's net sales in fiscal 1997, on a pro forma
basis for the Ruud Lighting acquisition, were denominated in currencies other
than U.S. dollars, principally Pounds Sterling, Australian dollars and Canadian
dollars. A weakening of such currencies versus the U.S. dollar could have a
material adverse effect on the Company and its ability to make payments on the
Notes. The Company currently does not hedge its foreign currency exposure.
PROTECTION OF INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily on trade secret, trademark and patent laws to
protect its rights to certain aspects of its products, including proprietary
manufacturing processes and technologies, product research and concepts and
trademarks, all of which the Company believes are important to the success of
its products and its competitive position. There can be no assurance that the
actions taken by the Company to protect its proprietary rights will be adequate
to prevent imitation of its products, processes or technology, that the
Company's proprietary information will not become known to competitors, that the
Company can effectively protect its rights to unpatented proprietary information
or that others will not independently develop substantially equivalent or
17
<PAGE> 19
better products that do not infringe on the Company's intellectual property
rights. No assurance can be given that others will not assert rights in, and
ownership of, the patents and other proprietary rights of the Company.
In recent years, the Company has successfully taken legal action to enjoin
misappropriation of trade secrets by other parties. Any increase in the level of
activities involving misappropriation of the Company's trade secrets or other
intellectual property rights could require the Company to increase significantly
the resources devoted to such efforts. In addition, an adverse determination in
litigation, and specifically in potential patent litigation with respect to DSI,
could subject the Company to the loss of its rights to a particular trade
secret, trademark or patent, could require the Company to grant licenses to
third parties, could prevent the Company from manufacturing, selling or using
certain aspects of its products or could subject the Company to substantial
liability, any of which could have a material adverse effect on the Company's
results of operations and its ability to make payments on the Notes. See
"Business -- Intellectual Property" and "-- Legal Proceedings."
DEPENDENCE ON KEY PERSONNEL
The Company is highly dependent on the continued services of Wayne R.
Hellman, the Company's founder, President, Chief Executive Officer and principal
shareholder. Mr. Hellman and the Company have entered into an employment
agreement providing for a term ending December 31, 1998. The Company also is
highly dependent on the services of Alan J. Ruud, the Company's Vice Chairman
and a principal shareholder. Mr. Ruud and the Company have entered into an
employment agreement providing for a term ending January 1, 2001. The loss of
the services of Mr. Hellman or Mr. Ruud for any reason could have a material
adverse effect on the Company and its ability to make payments on the Notes. The
Company maintains key man life insurance with respect to Mr. Hellman in the
amount of $13 million and Mr. Ruud in the amount of $2 million and in varying
amounts on certain other members of senior management.
CONTROL BY PRINCIPAL SHAREHOLDERS
Mr. Hellman individually owns approximately 9.4% of the outstanding shares
of the Company's common stock (the "Common Stock") and, individually and in
other capacities, has the power to vote a total of 23.2% of the outstanding
shares of Common Stock. Mr. Ruud individually owns approximately 7.5% of the
outstanding shares of Common Stock and, individually and as a voting trustee,
has the power to vote a total of approximately 14.9% of the outstanding shares
of Common Stock. As a result, although Mr. Hellman and Mr. Ruud have no
arrangement or understanding of any kind with each other as to the voting of
their shares, either Mr. Hellman or Mr. Ruud, or the two of them together, may
be able to significantly influence, and may be able effectively to control, all
matters requiring shareholder approval, including the election of directors (and
thereby the affairs and management of the Company), amendments to the Company's
Articles of Incorporation, mergers, share exchanges, the sale of all or
substantially all of the Company's assets, going private transactions and other
fundamental transactions. The interests of the Company's stockholders may differ
significantly from the interests of holders of the Notes. In particular,
stockholders may be less risk averse than holders of the Notes in pursuit of
growth. See "Principal Shareholders."
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials. The Company believes that its business,
operations and facilities are being operated in compliance in all material
respects with applicable environmental and health and safety laws and
regulations, many of which provide for substantial fines and criminal sanctions
for violations. However, the operations of manufacturing plants entail risks in
these areas, and there can be no assurance that the Company will not incur
material costs or liabilities. In addition, potentially significant expenditures
could be required to comply with evolving environmental and health and safety
laws, regulations or requirements that may be adopted or imposed in the future.
The imposition of significant environmental liabilities on the Company could
have a material adverse effect on the Company and its ability to make payments
on the Notes. See "Business -- Environmental Regulation."
18
<PAGE> 20
COMPETITION
The Company competes with respect to its major products with numerous
well-established producers of materials, components and systems and equipment,
many of which possess greater financial, manufacturing, marketing and
distribution resources than does the Company. In addition, many of these
competitors' products utilize technology that has been broadly accepted in the
marketplace and is better known to consumers than is the Company's metal halide
technology. The Company competes with General Electric Company and its
subsidiaries ("General Electric" or "GE"), Philips Electronics N.V. ("Philips")
and Siemens A.G.'s OSRAM/Sylvania, Inc. subsidiary ("Sylvania") in the sale of
metal halide lamps. The Company estimates, based on published industry data for
1997, that these three companies had a combined domestic market share of
approximately 85% for metal halide lamps based on units sold and approximately
95% of the total domestic lamp market. Accordingly, these companies dominate the
lamp industry and exert significant influence over the channels through which
all lamp products, including those of the Company, are distributed and sold. The
Company's component products and systems also face strong competition,
particularly in the power supply market, in which the Company's two largest
competitors each have a larger market share than the Company. There can be no
assurance that the Company's competitors will not increase their focus on metal
halide materials, systems and components, or expand their product lines to
compete with the Company's products. Any such increase or expansion could have a
material adverse effect on the Company and its ability to make payments on the
Notes. See "Business -- Competition."
RELATIONSHIPS WITH GENERAL ELECTRIC AND OTHER MAJOR LAMP MANUFACTURERS
Notwithstanding the fact that the Company competes with GE, Philips and
Sylvania in the sale of certain of its products, the Company purchases a
significant quantity of its raw materials and private label lamps from these
three companies (aggregating $8.4 million in fiscal 1997, of which $4.0 million
was from GE, and $13.0 million in the nine months ended March 31, 1998, of which
$7.2 million was from GE) and derives significant revenue from sales of its
materials and components and systems to each of these three companies
(aggregating $9.3 million in fiscal 1997, of which $5.1 million was to GE, and
$9.6 million in the nine months ended March 31, 1998, of which $4.1 million was
to GE). Any significant change in the Company's relationships with these
companies, or in the manner in which these companies participate in the
manufacturing, distribution and sale of metal halide lighting products, could
have a material adverse effect on the Company and its ability to make payments
on the Notes. GE continues to hold the 535,887 shares of Common Stock issued to
GE in December 1995, which represented approximately 2.7% of the issued and
outstanding Common Stock of the Company as of May 6, 1998. See
"Business -- Lighting Industry."
RESTRICTIONS IMPOSED BY THE CREDIT FACILITY AND THE INDENTURE
The Credit Facility and the Indenture contain certain restrictive
covenants, including, among others, covenants: (i) limiting the Company's and
certain of its subsidiaries' ability to incur additional indebtedness, pay
dividends, make certain investments, consummate certain asset sales, enter into
transactions with affiliates and incur liens and (ii) imposing restrictions on
the ability of certain subsidiaries to pay dividends or make certain payments to
the Company, merge or consolidate with any other person or sell, assign,
transfer, lease, convey or otherwise dispose of all or substantially all of the
assets of the Company. Although the covenants are subject to various exceptions
which are designed to allow the Company and its subsidiaries to operate without
undue restraint, there can be no assurance that such restrictions will not
adversely affect their ability to finance their future operations or capital
needs or engage in other business activities which may be in the interest of the
Company. See "Description of the New Notes -- Covenants." In addition, the
Company is required under the Credit Facility to maintain specified financial
ratios. The Company's growth will depend in part upon its ability to fund
acquisitions and investments, any of which may make it more difficult to
maintain financial ratios. See "Description of Certain Indebtedness." The
ability of the Company to comply with such provisions may be affected by events
beyond the Company's control. A breach of any of these covenants or the
inability to comply with the required financial ratios could result in a default
under the Credit Facility that would entitle the lenders to accelerate the
maturity of the Credit Facility. Such an event would adversely affect the
Company's ability to make payments on the Notes. See "-- Priority of Secured
Creditors; Holding Company Structure." As a growth
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<PAGE> 21
company, the Company may need to amend or replace the Credit Facility prior to
its maturity on December 31, 2000.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to repurchase the Notes at a purchase price equal to 101% of the
outstanding principal amount thereof, together with accrued and unpaid interest.
The Change of Control repurchase feature may make more difficult a sale or
takeover of the Company. There can be no assurance that the Company will have
the necessary financial resources to meet its obligations in respect of its
indebtedness, including the required repurchase of the Notes, following a Change
of Control. If an offer to repurchase the Notes is required to be made and the
Company does not have available sufficient funds to pay for the Notes, an event
of default would occur under the Indenture. The occurrence of an event of
default could result in acceleration of the maturity of the Notes. See
"Description of the New Notes." Furthermore, these provisions would not
necessarily afford protection to holders of the Notes in the event of a highly
leveraged transaction that does not result in a Change in Control. See
"Description of the New Notes -- Repurchase of Notes upon a Change of Control."
LACK OF PUBLIC MARKET FOR THE NEW NOTES
The New Notes are a new issue of securities for which there is currently no
trading market. Therefore, there can be no assurance that a market for the New
Notes will develop. In addition, if the New Notes are traded after their initial
issuance, the prices thereof may vary depending upon prevailing interest rates,
the market for similar securities and other factors, including general economic
conditions and the financial condition and performance of, and prospects for,
the Company and expectations and ratings of securities analysts.
YEAR 2000 COMPLIANCE
The Company utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Company and purchased software
which is run on in-house computer networks. The Company has initiated a review
and assessment of all hardware and software to determine whether it will
function properly in the year 2000. To date, those vendors which have been
contacted have indicated that their hardware or software is or will be year 2000
compliant in time frames that meet the Company's requirements. The Company
presently believes that costs associated with the compliance efforts will not
have a significant impact on the Company's ongoing results of operations
although there can be no assurance in this regard. The Company also has
initiated communications with its significant suppliers regarding the year 2000
issue. However, there can be no assurance that the systems of such suppliers, or
of customers, will be year 2000 compliant. The failure of suppliers and
customers to timely modify their systems to be year 2000 compliant could have a
significant impact on the Company's results of operations and its ability to
make payments on the Notes.
CERTAIN CONSEQUENCES OF A FAILURE TO EXCHANGE OLD NOTES
The Old Notes have not been registered under the Securities Act or any
state securities laws and therefore may not be offered, sold or otherwise
transferred except in compliance with the registration requirements of the
Securities Act and any other applicable securities laws, or pursuant to an
exemption therefrom or in a transaction not subject thereto, and in each case in
compliance with certain other conditions and restrictions, including the
Company's and the Trustee's right in certain cases to require the delivery of
opinions of counsel, certifications and other information prior to any such
transfer. Old Notes which remain outstanding after consummation of the Exchange
Offer will continue to bear a legend reflecting such restrictions on transfer.
In addition, upon consummation of the Exchange Offer, holders of Old Notes which
remain outstanding will not be entitled to any rights to have such Old Notes
registered under the Securities Act or to any similar rights under the
Registration Rights Agreement (subject to certain limited exceptions applicable
solely to the Placement Agent). The Company currently does not intend to
register under the Securities Act any Old Notes which remain outstanding after
consummation of the Exchange Offer (subject to such limited exceptions, if
applicable).
20
<PAGE> 22
To the extent that Old Notes are tendered and accepted in the Exchange
Offer, a holder's ability to sell untendered Old Notes could be adversely
affected. In addition, although the Old Notes are eligible for trading in the
Private Offerings, Resale and Trading through Automatic Linkages ("PORTAL")
market, to the extent that Old Notes are tendered and accepted in connection
with the Exchange Offer, any trading market for Old Notes which remain
outstanding after the Exchange Offer could be adversely affected.
The New Notes and any Old Notes which remain outstanding after consummation
of the Exchange Offer will constitute a single series of debt securities under
the Indenture and, accordingly, will vote together as a single class for
purposes of determining whether holders of the requisite percentage in
outstanding principal amount thereof have taken certain actions or exercised
certain rights under the Indenture. See "Description of the New
Notes -- General."
The Old Notes provide that, if the Exchange Offer is not consummated by
September 13, 1998, the interest rate borne by the Old Notes will increase by
0.50% per annum following September 13, 1998 until the Exchange Offer is
consummated. See "Description of the Old Notes." Following consummation of the
Exchange Offer, the Old Notes will not be entitled to any increase in the
interest rate thereon. The New Notes will not be entitled to any such increase
in the interest rate thereon.
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<PAGE> 23
BACKGROUND OF THE COMPANY
HISTORY
The Company's business was established in 1983 by Wayne R. Hellman, the
Company's current Chief Executive Officer, and other members of the Company's
senior management to focus on the design and manufacture of metal halide lamps.
Management initially acquired an entity engaged in the production of metal
halide salts necessary to make metal halide lamps and founded Venture Lighting
International, Inc. ("Venture"), a lamp manufacturer, soon thereafter. By 1995,
management had either formed or acquired 17 operating companies, each of which
was engaged in some aspect of the metal halide lighting business and all of
which were under common ownership (the "Predecessors"). In 1985, certain of the
Predecessors produced their first metal halide lamps and, over the next several
years, designed, introduced and manufactured a wide range of specialty metal
halide lamps, as well as certain commodity lamps. In order to support the growth
of their metal halide operations, the Predecessors manufactured and sold
non-metal halide products such as high pressure sodium lamps. To gain entrance
into the European lamp market, management acquired a German quartz halogen lamp
manufacturer in 1984, which was sold in 1990, as described below.
The Predecessors financed early operations through a combination of venture
capital financing and significant bank borrowing. The Predecessors experienced
significant growth between fiscal 1983 and fiscal 1989, with metal halide
products representing slightly less than half of the Predecessors' net aggregate
revenue in fiscal 1989. In January 1989, the senior lender to Venture, one of
the 17 Predecessor companies, requested that it obtain alternative financing
sources for the approximately $32.0 million of bank debt which Venture then had
outstanding. However, Venture was unable to consummate alternative financing
arrangements that would have retired the outstanding debt because of its venture
capital investor's refusal to accept the terms and values offered for its
investment in Venture in two potential transactions with major lamp
manufacturers. In June 1990, Venture and the venture capital investor negotiated
an exchange of the investor's preferred equity for subordinated notes of
Venture. Following this exchange, Venture was able to reduce the $32.0 million
of indebtedness owed to its senior lender to $6.7 million by December 1990
through dispositions of certain subsidiaries, including its German quartz
halogen lamp manufacturer. As a result of these dispositions, non-metal halide
product sales declined to approximately 17% of net sales in fiscal 1991.
During fiscal 1992, Venture was unsuccessful in refinancing the remaining
outstanding senior debt, which had risen to $8.0 million at June 30, 1992 and
was limited to that amount by its senior lender. As a result, Venture
experienced working capital constraints, and its management made a strategic
decision to refocus its manufacturing operations on the core business of
specialty metal halide lamps. Venture contracted its operations by significantly
reducing the number of product lines it manufactured, reducing its work force
and eliminating its second manufacturing shift.
At the end of fiscal 1992, the senior lender expressed its intention not to
further extend the term of the remaining bank debt of Venture. Although Venture
was in default of certain covenants, it had never missed a scheduled interest or
principal payment to the senior lender. Unable to obtain acceptable refinancing,
Venture voluntarily filed for protection under Chapter 11 of the United States
Bankruptcy Code on July 29, 1992. None of the other Predecessors filed for
Chapter 11 protection. Venture successfully emerged from Chapter 11 protection
in July 1993. The Predecessors' aggregate net sales declined to $25.5 million in
fiscal 1993 from $26.4 million in fiscal 1992. During fiscal 1993, the
Predecessors maintained substantially all of their relationships with existing
customers and suppliers. As part of the plan of reorganization, Venture's
management received complete ownership of Venture for an additional equity
investment of $250,000. Venture's reorganization was facilitated by financing
arrangements totalling $8.0 million provided by GE (the "GE Loan"), which were
personally guaranteed by Mr. Hellman. In addition, at that time, GE was issued a
warrant to purchase common stock of Venture (the "GE Warrant"). In connection
with the Company's initial public offering in December 1995, GE received $3.0
million in cash plus 5.0% of the Company's then outstanding Common Stock in
exchange for the cancellation of the GE Warrant and for other consideration. In
addition, with approximately $400,000 of the proceeds of the initial public
offering, the Company paid all amounts remaining to be paid pursuant to the plan
of reorganization.
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<PAGE> 24
The Company was formed as an Ohio corporation on May 19, 1995 for the
purpose of acquiring ownership, primarily by merger, of the 17 affiliated
Predecessors, including Venture, that were previously under common ownership and
management and were each engaged in some aspect of the metal halide lighting
business. The Combination was effected in October 1995 through a series of
mergers or stock exchanges in which the Predecessors' shareholders received
Common Stock of the Company, except that certain investors and former employees
of the Predecessors received, in the aggregate, an insignificant amount of cash
for their shares. See "Certain Transactions -- The Combination" and "Principal
Shareholders."
RECENT ACQUISITIONS AND STRATEGIC INVESTMENTS
To expand the Company's ability to develop and market new metal halide
products and systems, the Company has made a number of acquisitions and
strategic investments, the most notable of which completed since January 1997
are described below.
On January 28, 1998, the Company completed the acquisition of Deposition
Sciences, Inc. ("DSI"), of Santa Rosa, California. DSI is a leader in the
development of sophisticated thin film deposition systems and coatings for
lighting applications, with particular emphasis on coatings for metal halide
lighting systems, and other applications, including aerospace, defense and
automotive applications. The stock of DSI was acquired in a privately-negotiated
transaction. The purchase price consisted of 599,717 shares of the Company's
Common Stock and approximately $14.5 million in cash.
On January 2, 1998, the Company acquired all of the capital stock
outstanding of Ruud Lighting (the "Ruud Stock"), located in Racine, Wisconsin.
Ruud Lighting manufactures and directly markets HID lighting systems,
principally focusing on metal halide installations for commercial, industrial
and outdoor lighting applications. The Ruud Stock was acquired from the five
shareholders of Ruud Lighting in a privately negotiated purchase transaction.
The purchase price for the Ruud Stock consisted of three million shares of the
Company's Common Stock and approximately $35.5 million in cash.
On December 31, 1997, the Company and Rohm and Haas Company ("Rohm and
Haas") completed a series of agreements that resulted in the formation of Unison
Fiber Optics Lighting Systems LLC ("Unison"), a joint venture that focuses on
the manufacture and sale of fiber optic lighting systems. In consideration for a
50% interest in Unison, the Company contributed its subsidiary, Advanced Cable
Lite Corporation, $2.0 million in cash, other optic lighting system assets and
is obligated to contribute an additional $3.0 million in cash on January 1,
2000.
In July 1997, the Company purchased an equity interest in Fiberstars, Inc.
("Fiberstars"), a marketer and distributor of fiber optic lighting products. On
February 11, 1998, the Company increased its equity ownership to approximately
29% of Fiberstars' total shares outstanding.
On June 2, 1997, the Company purchased the system component manufacturing
and operating assets of W. J. Parry & Co. (Nottingham) Ltd. ("Parry"), a
manufacturer and marketer of magnetic power supplies for high intensity
discharge lighting systems, based in the United Kingdom. The purchase price for
this acquisition was approximately $8.5 million in cash.
On April 2, 1997, the Company invested approximately $3.8 million of cash
in exchange for a 30% interest in Koto Luminous Co., Ltd. ("Koto"), a maker and
distributor of lamps in Japan. After the Company's investment, Koto began doing
business under the name Venture Lighting Japan. Using the proceeds of the
investment and an additional investment by a Koto affiliate, Venture Lighting
Japan has equipped a metal halide lamp manufacturing facility in Japan that
began operations in December 1997.
On February 11, 1997, the Company expanded its system components offerings
by acquiring Ballastronix, Inc. ("Ballastronix"), a Canadian company focused on
designing, manufacturing and marketing magnetic power supplies for high
intensity discharge and fluorescent lighting systems. The consideration for the
acquisition was approximately $5.5 million in cash and 38,024 shares of the
Company's Common Stock.
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<PAGE> 25
EXECUTIVE OFFICES
The Company's principal executive offices are located at 32000 Aurora Road,
Solon, Ohio 44139 and its telephone number is (440) 519-0500.
USE OF PROCEEDS
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. In consideration for issuing the New Notes in exchange for
Old Notes as described in this Prospectus, the Company will receive Old Notes in
like principal amount. The Old Notes surrendered in exchange for the New Notes
will be retired and cancelled. Accordingly, the issuance of the New Notes will
not result in any change in the indebtedness of the Company.
The net proceeds to the Company from the issuance and sale of the Old Notes
was approximately $96.2 million.
The Company used a portion of the net proceeds of the issuance of the Old
Notes to repay borrowings outstanding under the Credit Facility (approximately
$76.3 million). The loans under the Credit Facility mature in December 2000 and,
as of March 18, 1998, carried a weighted average interest rate of 6.5% per
annum. See "Description of Certain Indebtedness." The Company intends to use the
balance of the net proceeds to fund capital expenditures, acquisitions and
investments in joint ventures. Any remaining proceeds may be used for working
capital and general corporate purposes. Pending application for such uses, the
Company has invested the net proceeds of the offering of the Old Notes in high
quality, short-term investments. As part of the implementation of its growth
strategy, the Company reviews acquisition and strategic investment opportunities
on a regular basis and from time to time enters into negotiations with respect
to potential acquisitions or investments. As of the date of this Prospectus, the
Company has no agreement or understanding with any significant prospective
acquisition or investment candidate in respect of a specific transaction, but is
engaged in preliminary discussions with prospective candidates. There can be no
assurance that the Company will consummate any acquisitions or investments. See
"Risk Factors -- Risks Associated with Acquisition and Investment Strategy,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and "Business -- Strategy."
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<PAGE> 26
CAPITALIZATION
The table below sets forth the Company's cash, cash equivalents and
short-term investments, short-term debt and current portion of long-term debt
and capitalization at March 31, 1998. This table should be read in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations and the Consolidated Financial Statements and Notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF
MARCH 31, 1998
------------------
(UNAUDITED)
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C>
Cash, cash equivalents and short-term investments........... $ 34,696
=========
Short-term debt and current portion of long-term debt....... $ 2,247
=========
Long-term debt:
Bank borrowings and other................................. $ 17,520
Old Notes................................................. 100,000
Shareholders' equity:
Common Stock, $.001 par value; 80,000,000 shares
authorized; 20,121,000 shares issued and outstanding... 20
Additional paid-in capital................................ 171,854
Retained earnings (deficit)............................... (23,096)
---------
Total shareholders' equity............................. 148,778
---------
Total capitalization................................... $ 266,298
=========
</TABLE>
- ---------------
(1) Does not include (i) 869,117 shares of Common Stock reserved for issuance
under the 1995 Incentive Award Plan, of which options to purchase 830,617
shares of Common Stock had been granted and were outstanding as of May 6,
1998, (ii) 800,000 shares of Common Stock reserved for issuance under the
Billion Dollar Market Capitalization Incentive Award Plan, of which options
to purchase 751,400 shares of Common Stock have been granted and were
outstanding as of May 6, 1998, (iii) 1,500,000 shares of Common Stock
reserved for issuance under the 1998 Incentive Award Plan, of which options
to purchase 990,999 shares of Common Stock have been granted and were
outstanding as of May 6, 1998 and (iv) 94,180 shares reserved for issuance
under the Employee Stock Purchase Plan as of March 31, 1998.
25
<PAGE> 27
UNAUDITED PRO FORMA FINANCIAL DATA
The accompanying unaudited pro forma condensed combined financial data are
presented for illustrative purposes only.
The unaudited pro forma condensed combined statements of operations for the
year ended June 30, 1997, and the nine months ended March 31, 1998, give effect
to the acquisition of Ruud Lighting and the issuance of the Old Notes as if the
Ruud Lighting acquisition and the issuance of the Old Notes had occurred on July
1, 1996. The unaudited pro forma condensed combined statement of operations for
the year ended June 30, 1997 includes amounts derived from the audited
consolidated statement of operations of the Company and the unaudited statement
of operations of Ruud Lighting for the year ended June 30, 1997 and pro forma
adjustments to reflect the Ruud Lighting acquisition and the issuance of the Old
Notes. The unaudited pro forma condensed combined statement of operations for
the nine months ended March 31, 1998 includes the unaudited condensed
consolidated statement of operations of the Company for the nine months ended
March 31, 1998 and the unaudited statement of operations of Ruud Lighting for
the six months ended December 31, 1997 and pro forma adjustments to reflect the
Ruud Lighting acquisition and the issuance of the Old Notes.
The pro forma results are not necessarily indicative of the results of
operations of the Company had the Ruud Lighting acquisition and the issuance of
the Old Notes 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 statements of operations, and such differences could be significant.
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.
26
<PAGE> 28
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE NINE MONTHS ENDED MARCH 31, 1998
----------------------------------------------------
HISTORICAL PRO FORMA
------------------------- -----------------------
COMPANY RUUD LIGHTING ADJUSTMENTS COMBINED
-------- ------------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales................................... $110,891 $ 37,142 $ (981)a $147,052
Costs and expenses:
Cost of sales............................. 66,241 25,492 (981)a 90,265
(487)b
Marketing and selling..................... 16,854 3,497 20,351
Research and development.................. 6,069 1,057 7,126
General and administrative................ 7,307 3,914 (281)b 10,940
Fiber optic joint venture formation
costs.................................. 212 212
Purchased in-process research and
development............................ 18,220 18,220
Special charges........................... 15,700 15,700
Amortization of intangible assets......... 930 737 c 1,667
-------- -------- -------- --------
Income (loss) from operations............... (20,642) 3,182 31 (17,429)
Other income (expense):
Interest expense.......................... (1,649) (335) (4,501)d (6,485)
Interest income........................... 1,079 1,079
Loss from equity investment............... (2) (2)
-------- -------- -------- --------
Income (loss) from continuing operations
before income taxes....................... (21,214) 2,847 (4,470) (22,837)
Income taxes................................ 918 -- (1,792)e 268
1,142 f
-------- -------- -------- --------
Income (loss) from continuing operations.... $(22,132) $ 2,847 $ (3,820) $(23,105)
======== ======== ======== ========
Loss per share -- basic and diluted:
Loss from continuing operations........... $ (1.26) $ (1.32)
======== ========
Shares used for computing per share amounts
Basic and diluted:........................ 17,540 17,540
======== ========
</TABLE>
- ---------------
Pro forma adjustments were made to reflect the following:
a. Elimination of Company sales to Ruud Lighting.
b. Decrease in depreciation expense relating to Ruud Lighting's property, plant
and equipment based on estimated fair values over estimated useful lives.
c. Amortization of intangibles, such as tradename and customer service
infrastructure, and excess of cost over net assets of businesses acquired
("goodwill") related to the Ruud Lighting acquisition on a straight-line
method over 40 years.
d. Adjustments to interest expense resulting from the following:
<TABLE>
<S> <C>
Elimination of interest expense relating to the Company's
existing bank debt, excluding mortgage debt, assumed to be
paid in full with the proceeds of the offering of the Old
Notes....................................................... $ 1,762
Interest charges on the debt resulting from the issuance of
the Old Notes............................................... (6,000)
Amortization of estimated debt issuance costs of $3,500 over
the ten year life of the Notes.............................. (263)
-------
Net increase in interest expense.................. $(4,501)
=======
</TABLE>
e. Reduction of income taxes relating to the pro forma adjustments.
f. Income tax provision on Ruud Lighting's income before income taxes not
included in the historical condensed combined statement of income as Ruud
Lighting was a Subchapter S corporation.
27
<PAGE> 29
PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED JUNE 30, 1997
--------------------------------------------------
HISTORICAL PRO FORMA
------------------------ -----------------------
COMPANY RUUD LIGHTING ADJUSTMENTS COMBINED
-------- ------------- ----------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net sales........................................ $ 85,645 $ 68,547 $ (649)a $ 153,543
Costs and expenses:
Cost of sales.................................. 45,703 46,235 (649)a 90,431
(858)b
Marketing and selling.......................... 15,165 6,802 21,967
Research and development....................... 5,097 1,893 6,990
General and administrative..................... 7,133 6,098 (482)b 12,749
Settlement of claims........................... 771 771
Fiber optic joint venture formation costs...... 286 286
Amortization of intangible assets.............. 397 1,474c 1,871
-------- -------- ------- ---------
Income from operations........................... 11,093 7,519 (134) 18,478
Other income (expense):
Interest expense............................... (1,513) (1,086) (6,021)d (8,620)
Interest income................................ 845 845
-------- -------- ------- ---------
Income from continuing operations before income
taxes.......................................... 10,425 6,433 (6,155) 10,703
Income taxes..................................... 2,869 -- (2,468)e 2,981
2,580f
-------- -------- ------- ---------
Income from continuing operations................ $ 7,556 $ 6,433 $(6,267) $ 7,722
======== ======== ======= =========
Earnings per share -- basic:
Income from continuing operations.............. $ .57 $ .58
======== =========
Earnings per share -- diluted:
Income from continuing operations.............. $ .55 $ .57
======== =========
Shares used for computing per share amounts:
Basic....................................... 13,269 16,269
======== =========
Diluted..................................... 13,558 16,558
======== =========
</TABLE>
- ---------------
Pro forma adjustments were made to reflect the following:
a. Elimination of Company sales to Ruud Lighting.
b. Decrease in depreciation expense relating to Ruud Lighting's property, plant
and equipment based on estimated fair values over estimated useful lives.
c. Amortization of goodwill and other intangible assets, such as tradename and
customer service infrastructure, related to the Ruud Lighting acquisition on
a straight-line method over 40 years.
d. Adjustments to interest expense resulting from the following:
<TABLE>
<S> <C>
Elimination of interest expense relating to the Company's
existing bank debt, excluding mortgage debt, assumed to be
paid in full with the proceeds of the offering of the Old
Notes....................................................... $ 2,329
Interest charges on the debt resulting from the issuance of
the Old Notes............................................... (8,000)
Amortization of estimated debt issuance costs of $3,500 over
the ten year life of the Notes.............................. (350)
-------
Net increase in interest expense.................. $(6,021)
=======
</TABLE>
e. Reduction of income taxes relating to the pro forma adjustments.
f. Income tax provision on Ruud Lighting's income before income taxes not
included in the historical condensed combined statement of income as Ruud
Lighting was a Subchapter S corporation.
28
<PAGE> 30
SELECTED FINANCIAL DATA
The following table contains certain selected consolidated and combined
financial data and is qualified by the more detailed Consolidated Financial
Statements and Notes thereto of the Company included elsewhere in this
Prospectus. The balance sheet data as of June 30, 1997 and 1996 and the income
statement data for each of the fiscal years ended June 30, 1997, 1996 and 1995
are derived from the audited Consolidated Financial Statements of the Company
included herein. The balance sheet data as of June 30, 1995, 1994 and 1993 and
the operating statement data for the fiscal years ended June 30, 1994 and 1993
are derived from the audited Combined Financial Statements of the Company's
Predecessor companies. The balance sheet data as of March 31, 1998 and the
operating statement data for the nine months ended March 31, 1998 and 1997 have
been derived from the Unaudited Consolidated Financial Statements of the
Company, which have been prepared by management on the same basis as the audited
Consolidated Financial Statements of the Company and, in the opinion of
management, include all adjustments (consisting of normal recurring accruals)
which the Company considers necessary for a fair presentation of the results for
such periods. The selected financial data should be read in conjunction with the
Consolidated Financial Statements and Notes thereto and Management's Discussion
and Analysis of Financial Condition and Results of Operations included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------------- --------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING STATEMENT DATA:
Net sales............................ $110,891 $ 60,291 $ 85,645 $ 54,636 $ 40,767 $ 30,938 $ 25,455
Costs and expenses:
Cost of sales...................... 66,241 32,299 45,703 29,164 21,899 17,253 17,033
Marketing and selling.............. 16,854 10,299 15,165 8,656 6,381 4,472 2,648
Research and development........... 6,069 3,851 5,097 2,894 1,673 1,006 1,166
General and administrative......... 7,307 5,378 7,133 6,152 5,452 3,928 2,852
Settlement of claims............... -- 771(1) 771(1) 2,732(2) -- -- --
Fiber optic joint venture
formation costs.................. 212 -- 286 -- -- -- --
Purchased in-process research
and development(3)............... 18,220 -- -- -- -- -- --
Special charges(3)................. 15,700 -- -- -- -- -- --
Amortization of intangible
assets........................... 930 195 397 90 55 55 55
Restructuring...................... -- -- -- -- (121) 852 7,152
-------- -------- -------- -------- -------- -------- --------
Income (loss) from operations........ (20,642) 7,498 11,093 4,948 5,428 3,372 (5,451)
Other income (expense):
Interest expense................. (1,649) (749) (1,513) (1,548) (2,107) (2,113) (901)
Interest income.................. 1,079 610 845 232 33 18 18
Loss from equity investment...... (2) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before income taxes and
extraordinary items................ (21,214) 7,359 10,425 3,632 3,354 1,277 (6,334)
Income taxes......................... 918 2,616 2,869 965 212 71 48
-------- -------- -------- -------- -------- -------- --------
Income (loss) from continuing
operations before extraordinary
items.............................. (22,132) 4,743 7,556 2,667 3,142 1,206 (6,382)
Loss from discontinued operations,
net of income tax benefits......... (7,292) (241) (452) (150) -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before extraordinary
items.............................. (29,424) 4,502 7,104 2,517 3,142 1,206 (6,382)
Extraordinary items, net of
applicable income tax.............. (604)(4) -- -- (135)(5) (253)(6) -- 11,368(7)
-------- -------- -------- -------- -------- -------- --------
Net income (loss).................... $(30,028) $ 4,502 $ 7,104 $ 2,382 $ 2,889 $ 1,206 $ 4,986
======== ======== ======== ======== ======== ======== ========
Earnings (loss) per share -- Basic:
Income from continuing
operations..................... $ (1.26) $ .36 $ .57 $ .14 $ .11 $ .14 $ (1.03)
Loss from discontinued
operations..................... (.42) (.02) (.03) (.02) -- -- --
Extraordinary items.............. (.03) -- -- (.01) (.04) -- 1.56
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) per
share -- Basic................. $ (1.71) $ .34 $ .54 $ .11 $ .07 $ .14 $ .53
======== ======== ======== ======== ======== ======== ========
Shares used for computing
per share amounts -- Basic....... 17,540 13,205 13,269 9,207 7,282 7,282 7,282
======== ======== ======== ======== ======== ======== ========
</TABLE>
29
<PAGE> 31
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
MARCH 31, YEAR ENDED JUNE 30,
-------------------- --------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(IN THOUSANDS, EXCEPT PER SHARE AND RATIO DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Earnings (loss) per share -- Diluted:
Income from continuing
operations..................... $ (1.26) $ .35 $ .55 $ .14 $ .10 $ .13 $ (.96)
Loss from discontinued
operations..................... (.42) (.02) (.03) (.02) -- -- --
Extraordinary items.............. (.03) -- -- (.01) (.03) -- 1.45
-------- -------- -------- -------- -------- -------- --------
Net earnings (loss) per share --
Diluted........................ (1.71) .33 $ .52 .11 .07 .13 .49
======== ======== ======== ======== ======== ======== ========
Shares used for computing
per share amounts -- Diluted..... 17,540 13,503 13,558 9,479 7,818 7,818 7,818
======== ======== ======== ======== ======== ======== ========
OTHER FINANCIAL DATA:
Depreciation and amortization........ $ 3,335 $ 1,829 $ 2,579 $ 1,638 $ 1,399 $ 1,467 $ 1,280
EBITDA(8)............................ (17,307) 9,327 13,672 6,586 6,827 4,839 (4,171)
Ratio of EBITDA to interest
expense(8)......................... -- 12.5x 9.0x 4.3x 3.2x 2.3x --
Ratio of earnings to fixed
charges(9)......................... -- 6.3x 5.1x 2.1x 1.7x 1.5x --
Capital expenditures................. $ 21,565 $ 11,589 $ 18,095 $ 5,050 $ 1,530 $ 1,043 $ 900
Cash flow from (used in)
operations......................... (18,063) (6,534) (4,183) 1,326 4,464 1,403 2,691
Cash flow from (used in) investing
activities......................... (83,129) (29,436) (44,058) (8,125) (1,530) (1,043) (900)
Cash flow from (used in) financing
activities......................... 127,615 40,496 50,757 7,451 (2,567) (792) (1,011)
</TABLE>
<TABLE>
<CAPTION>
AS OF AS OF JUNE 30,
MARCH 31, -----------------------------------------------------
1998 1997 1996 1995 1994 1993
------------ ---- ---- ---- ---- ----
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term investments... $ 34,696 $ 8,273 $ 1,682 $ 1,030 $ 663 $ 1,095
Working capital (deficit)........................... 87,646 42,380 17,341 (870) (25) 853
Total assets........................................ 308,699 134,838 56,297 29,402 23,454 23,001
Total long-term debt................................ 117,520 35,908 11,034 8,853 7,821 10,246
Total shareholders' equity (deficit)................ 148,778 66,032 26,594 (1,035) 1,165 (320)
</TABLE>
- ---------------
(1) On March 1, 1996, a former Venture shareholder, asserted a claim against
certain officers and directors of the Company, and subsequently against the
Company, seeking $3,600 in damages relating to the redemption of his Venture
shares prior to the Combination. On August 23, 1996, another former Venture
shareholder filed a similar claim against the Company and such officers and
directors seeking damages of $1,600. On November 29, 1996, the Company and
such officers and directors entered into a settlement of both claims for an
aggregate amount of $475. The pretax charge of $771 in fiscal 1997
represents the $475 settlement plus legal and other directly-related costs,
net of insurance recoveries.
(2) On October 27, 1995, several former Venture shareholders, whose shares were
redeemed in August 1995 (prior to the Combination), asserted a claim against
certain officers of the Company. On November 15, 1995, such officers entered
into a settlement agreement. Since the settlement resulted in a transfer of
personal shares held by such officers, there was no dilution of the
ownership interests of other shareholders of the Company. The settlement was
recorded as a noncash expense and an increase in paid-in capital of the
Company in December 1995.
(3) The nine months ended March 31, 1998, include special charges related to the
purchase price allocation for Deposition Sciences Inc. ("DSI") of $18,220
for purchased in-process research and development. The special charges also
include $18,500 principally relating to the rationalization of the Company's
global power supply operations (a) the discontinuance of certain power
supply products at the Company's power supply facilities, (b) the write-down
of certain intangible and fixed assets and (c) charges related to the
consolidation and rationalization cost of distribution activities and of new
information systems and a reassessment of investments The amounts are
classified in the March 31, 1998 statement of operations as: cost of
sales -- $2,000; purchased in-process research and development -- $18,220;
and, special charges -- $15,700.
(4) In the nine months ended March 31, 1998, the Company incurred an
extraordinary loss on the early extinguishment of debt of $604.
(5) In fiscal 1996, the Company incurred an extraordinary loss on the early
extinguishment of debt of $135. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(6) In fiscal 1995, the Company incurred an extraordinary loss on the early
extinguishment of debt of $253. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(7) Upon emergence of Venture from Chapter 11 reorganization, the Company
recognized an extraordinary gain in fiscal 1993 from the early
extinguishment of certain indebtedness.
(8) EBITDA is provided because it is a measure commonly used to evaluate a
company's ability to service its indebtedness. EBITDA is presented to
enhance the understanding of the Company's operating results and is not
intended to represent cash flows or results of operations in accordance with
GAAP for the periods indicated. EBITDA is not a measurement under GAAP and
is not necessarily
30
<PAGE> 32
comparable with similarly titled measures of other companies. Net cash flows
from operating, investing and financing activities as determined using GAAP
are also presented in Other Financial Data. In the nine months ended March
31, 1998, EBITDA was inadequate to cover interest expense by $18,956. In
fiscal 1993, EBITDA was inadequate to cover interest expense by $5,072.
(7) For purposes of calculating the unaudited ratio of earnings to fixed
charges, earnings consist of income (loss) from continuing operations before
provision for income taxes plus fixed charges. Fixed charges consist of
interest charges and amortization of debt issuance cost, whether expensed or
capitalized, and that portion of rental expense that is representative of
interest. In the nine months ended March 31, 1998, earnings were inadequate
to cover fixed charge requirements by $21,894. In fiscal 1993, earnings were
inadequate to cover fixed charge requirements by $6,346. After giving effect
to the transactions described under "Unaudited Pro Forma Financial Data,"
earnings for the nine months ended March 31, 1998, would be inadequate to
cover fixed charge requirements by $23,517. The pro forma ratio of earnings
to fixed charges, after giving effect to the transactions described under
"Unaudited Pro Forma Financial Data," would be 2.1x for the year ended June
30, 1997.
31
<PAGE> 33
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in connection with the Company's
Consolidated Financial Statements and Notes thereto included elsewhere in this
Prospectus.
GENERAL
The Company designs, manufactures and markets metal halide lighting
products, including materials, systems and components and production equipment.
Metal halide lighting is currently used primarily in commercial and industrial
applications such as factories and warehouses, outdoor site and landscape
lighting, sports facilities and large retail spaces such as superstores. Systems
and components and materials revenue is recognized when products are shipped,
and production equipment revenue is recognized under the percentage of
completion method.
Consistent with the Company's strategy for new product introductions, the
Company invests substantial resources in research and development to engineer
materials and system components to be included in customers' specialized
lighting systems. Over the last three fiscal years, the Company has spent an
aggregate of $9.7 million on research and development, representing 5.3% of
aggregate net sales from continuing operations over that period. During the nine
months ended March 31, 1998, the Company spent $6.1 million on research and
development, representing 5.5% of net sales for that period. Such expenditures
have enabled the Company to introduce new specialized products, develop new
applications for metal halide lighting and improve the quality of its materials.
The Company has spent additional amounts for manufacturing process and
efficiency enhancements, which were charged to cost of goods sold when incurred.
The Company expects to continue to make substantial expenditures on research and
development to enhance its position as the leading innovator in the metal halide
lighting industry.
The Company also has invested substantial resources in acquisitions and
strategic investments. Since December 31, 1997, the Company has acquired Ruud
Lighting and DSI and increased its equity investment in Fiberstars. From
February 11, 1997 to February 25, 1998, the Company's investment in notable
acquisitions and strategic investments aggregated approximately 3.6 million
shares of Common Stock and approximately $74.7 million in cash, plus certain
additional contingent amounts and shares. See "Background of the Company --
Recent Acquisitions and Strategic Investments" above and "-- Liquidity and
Capital Resources" below.
SPIN-OFF OF MICROSUN BUSINESS
In March 1998, the Company approved a plan to distribute to its
shareholders all of the ownership of MicroSun, the subsidiary primarily
responsible for development, design, assembly and marketing of metal halide
portable fixtures for residential and hospitality uses, in a spin-off
transaction which is expected to be tax-free. The Company believes the creation
of two separate companies will enable the Company and MicroSun to devote the
resources necessary to develop their core strategies in pursuit of their growth
objectives.
Summary operating information for MicroSun for the three month and nine
month periods ended March 31, 1998 and 1997, is presented below for
informational purposes only and does not necessarily reflect what the results of
operations would have been had MicroSun operated as a stand-alone entity.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
---------------- ----------------
1998 1997 1998 1997
------- ----- ------- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Sales........................................... $ 1,610 $ 300 $ 2,764 $ 485
Costs and expenses.............................. 2,765 437 4,761 861
------- ----- ------- -----
Loss before income taxes........................ (1,155) (137) (1,997) (376)
Income tax benefit.............................. (416) (49) (719) (135)
------- ----- ------- -----
Net loss........................................ $ (739) $ (88) $(1,278) $(241)
======= ===== ======= =====
</TABLE>
32
<PAGE> 34
Operating losses through the intended date of the spin-off follow:
<TABLE>
<CAPTION>
BEFORE
INCOME INCOME
TAXES TAXES NET
------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Operating losses for the nine months ended March 31,
1998.................................................. $ 1,997 $ 719 $1,278
Estimated operating losses from April 1, 1998 to
December 31, 1998..................................... 9,100 3,086 6,014
------- ------ ------
Operating losses through spin-off....................... $11,097 $3,805 $7,292
======= ====== ======
</TABLE>
The estimated date of disposition extends to December 31, 1998 pending the
determination of the spin-off as tax-free. As a result of the Board of
Directors' approval to spin-off the MicroSun business, the consolidated
financial statements of the Company have been adjusted and restated to reflect
the results of operations of MicroSun as a discontinued operation in accordance
with generally accepted accounting principles.
FISCAL THIRD QUARTER 1998 CHARGES
During the three months ended March 31, 1998, the Company recorded special
charges related to the purchase price allocation for DSI and an assessment of
the Company's global power supply operations.
The Company completed the acquisition of DSI in January 1998. The special
charges include $18.2 million for purchased in-process research and development,
determined by an independent valuation, relating to the DSI acquisition.
The special charges also include $18.5 million principally relating to the
rationalization of the Company's global power supply operations. With the
January 1998 acquisition of Ruud Lighting, the Company accelerated the
rationalization of its existing power supply manufacturing operations and
distribution activities in order to capitalize on new opportunities not
previously available. This assessment resulted in (a) the discontinuance of
certain power supply products at the Company's power supply facilities, (b) the
write-down of certain intangible and fixed assets and (c) a $2.8 million
write-down of inventory which is classified in cost of sales.
In addition, the charges cover the consolidation and rationalization cost
of distribution activities and facilities, the write-down of assets in
connection with the implementation of new information systems and a reassessment
of investments resulting from a change in expansion strategy arising from the
Ruud Lighting acquisition.
The special charges were determined in accordance with formal plans
developed by the Company's management using the best information available to it
at the time and, subsequently, approved by the Company's Board of Directors. The
amounts the Company may ultimately incur may change as the plans are executed.
Actions required by the plans are expected to be completed by June 30,
1999. Cash outlays to complete the balance of the Company's initiative to
rationalize the Company's global power supply operations are estimated to be
approximately $1.3 million.
After an income tax benefit of $4.7 million, these special charges reduced
net income by $32.1 million, or $1.61 diluted earnings per share for the three
months ended March 31, 1998.
See the Notes to Condensed Consolidated Financial Statements for the three
months and nine months ended March 31, 1998 and 1997, included herein.
33
<PAGE> 35
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, certain items
in the Company's Condensed Consolidated Statements of Income for the indicated
period:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED YEAR ENDED
MARCH 31, JUNE 30,
------------- ---------------------
1998 1997 1997 1996 1995
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net Sales............................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and Expenses:
Cost of sales...................................... 59.7 53.6 53.4 53.4 53.7
Marketing and selling.............................. 15.2 17.1 17.7 15.8 15.7
Research and development........................... 5.5 6.4 6.0 5.3 4.1
General and administrative......................... 6.6 8.9 8.3 11.2 13.4
Fiber optic joint venture formation cost........... .2 -- .3 -- --
Purchased in-process R & D......................... 16.4 -- -- -- --
Special charges.................................... 14.2 -- -- -- --
Settlement of claim................................ -- 1.3 .9 5.0 --
Amortization of intangible assets.................. .8 .3 .4 .2 .1
Restructuring...................................... -- -- -- -- (.3)
----- ----- ----- ----- -----
Income (loss) from operations........................ (18.6) 12.4 13.0 9.1 13.3
Other income (expense):
Interest expense................................... (1.5) (1.2) (1.8) (2.8) (5.2)
Interest income.................................... 1.0 1.0 1.0 .4 .1
Loss from equity investment........................ -- -- -- -- --
----- ----- ----- ----- -----
Income (loss) from continuing operations before
income taxes and extraordinary charge.............. (19.1) 12.2 12.2 6.7 8.2
Income taxes......................................... .8 4.3 3.4 1.8 .5
----- ----- ----- ----- -----
Income (loss) from continuing operations before
extraordinary charge............................... (19.9) 7.9 8.8 4.9 7.7
Loss from discontinued operations, net of income tax
benefits........................................... (6.6) (.4) (.5) (.3) --
----- ----- ----- ----- -----
Income (loss) before extraordinary charge............ (26.5) 7.5 8.3 4.6 7.7
Extraordinary charge, net of income tax benefits..... (.6) -- -- (.2) (.6)
----- ----- ----- ----- -----
Net income (loss).................................... (27.1)% 7.5% 8.3% 4.4% 7.1%
===== ===== ===== ===== =====
</TABLE>
- ---------------
The Company's revenues are driven by sales in the lighting market overall,
the penetration of metal halide lighting systems in new commercial and
industrial construction activities and the level of replacement sales serving
the installed base of metal halide fixtures and systems. The primary components
of the cost of sales are purchased materials, fixed and variable manufacturing
overhead (including depreciation of plant, property and equipment) and labor
production costs. Purchased materials include quartz used in lamp production as
well as packaging materials. Marketing and selling and general and
administrative expenses include costs related to developing, advertising,
marketing and selling the Company's products, as well as infrastructure costs
for management and systems.
NINE MONTHS ENDED MARCH 31, 1998 ("FIRST NINE MONTHS OF FISCAL 1998") COMPARED
WITH NINE MONTHS ENDED MARCH 31, 1997 ("FIRST NINE MONTHS OF FISCAL 1997")
Net sales. Net sales increased 83.9% to $110.9 million for the first nine
months of fiscal 1998 from $60.3 million for the first nine months of fiscal
1997. The increase in system components, materials, and systems ($46.4 million)
was primarily attributable to increased unit volume, including a $22.0 million
increase from the Company's power supply subsidiaries acquired in the second
half of fiscal 1997 and a $14.9 million increase from the Company's Ruud
Lighting subsidiary, which was acquired on January 2, 1998. The increase in
equipment sales ($4.2 million) resulted from an increase in equipment
contracts-in-progress, as compared with
34
<PAGE> 36
the number of contracts-in-progress during the first nine months of fiscal 1997,
due in part to the acquisition of Deposition Sciences, Inc. in January 1998.
Cost of Sales. Cost of sales increased 105.1% to $66.2 million in the
first nine months of fiscal 1998 from $32.3 million in the first nine months of
fiscal 1997. As a percentage of net sales, cost of sales increased to 59.7% in
the first nine months of fiscal 1998 from 53.6% in the first nine months of
fiscal 1997. Cost of sales included a $2.8 million write-down of inventory
related to the rationalization of the Company's global power supply operations
and the elimination of certain nonfocus product lines. After excluding this
write-down, cost of sales increased 96.4% to $63.4 million, or 57.2% of net
sales. The increase was primarily attributable to increased unit volume, but
also reflects a change in the product mix, whereby lower-margin power supply
products represented a larger component of total sales in fiscal 1998.
Marketing and Selling Expenses. Marketing and selling expenses increased
63.7% to $16.9 million in the first nine months of fiscal 1998 from $10.3
million in the first nine months of fiscal 1997. Marketing and selling expenses,
as a percentage of net sales, decreased to 15.2% in the first nine months of
fiscal 1998 from 17.1% in the first nine months of fiscal 1997. This decrease as
a percentage of net sales reflects the leveraging of certain fixed marketing and
selling expenses as sales levels increase and relatively lower marketing
expenses associated with the sale of power supplies.
Research and Development Expenses. Research and development expenses
increased 57.6% to $6.1 million in the first nine months of fiscal 1998 from
$3.9 million in the first nine months of fiscal 1997. This increase arose from
increased spending for the: (i) expansion of the line of new lamps intended to
replace many first generation metal halide lamps in industrial and commercial
applications; (ii) development and testing of electronic power supply systems;
and, (iii) development of new materials for the world's major lighting
manufacturers. As a percentage of net sales, research and development expenses
decreased to 5.5% in the first nine months of fiscal 1998 from 6.4% in the first
nine months of fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased 35.9% to $7.3 million in the first nine months of fiscal 1998 from
$5.4 million in the first nine months of fiscal 1997. As a percentage of net
sales, general and administrative expenses decreased to 6.6% in the first nine
months of fiscal 1998 from 8.9% in the first nine months of fiscal 1997. The
decrease as a percentage of net sales primarily reflects a spending growth rate
considerably lower than sales increases through the leveraging of fixed costs as
sales levels increase.
Fiber Optic Joint Venture Formation Costs. On May 6, 1997, the Company
entered into a joint development agreement with Rohm and Haas Company ("Rohm and
Haas") for the development of advanced fiber optic cable systems using metal
halide lamps. On December 31, 1997, the Company and Rohm and Haas completed a
series of agreements that resulted in the formation of Unison Fiber Optics
Lighting Systems LLC ("Unison"), a joint venture that focuses on the manufacture
and sale of fiber optic lighting systems to the worldwide lighting market. In
connection with this joint venture, the Company incurred $212,000 of formation
and development costs which were charged to operations during the first quarter
of fiscal 1998.
Purchased In-Process Research & Development. In connection with its
acquisition of Deposition Sciences, Inc. in January 1998, the Company acquired
in-process research and development valued at $18.2 million. In accordance with
generally accepted accounting principles, the entire amount has been recorded as
an expense in the third quarter of fiscal 1998.
Special Charges. During the third quarter of fiscal 1998, the Company
recorded special charges related to the rationalization of the Company's global
power supply businesses. Additionally, the special charges, which total $18.5
million (including the $2.8 million write-down of inventory discussed above),
cover the elimination of certain nonfocus product lines, the consolidation and
rationalization cost of distribution activities and facilities, the write-down
of assets in connection with the implementation of new information systems and a
reassessment of investments.
Settlement of Claim. During the second quarter of fiscal 1997, the Company
paid $475,000 in an out-of-court settlement of a claim brought by certain former
common shareholders of a predecessor of the Company.
35
<PAGE> 37
The charge of $771,000 ($.06 per share) represents the $475,000 settlement plus
legal and other directly-related costs, net of anticipated insurance recoveries.
Income (Loss) from Operations. As a result of the aforementioned factors,
during the first nine months of fiscal 1998, the Company incurred a loss from
operations of $20.6 million, as compared to income from operations of $7.5
million during the first nine months of fiscal 1997. Excluding the fiber optic
joint venture formation costs, total special charges, purchased in-process R&D,
and the settlement of claim, income from operations increased 97.0% to $16.3
million, or 14.7% of net sales, from $8.3 million, or 13.7% of net sales in the
first nine months of fiscal 1997.
Interest Expense. Interest expense increased to $1.6 million during the
first nine months of fiscal 1998 as compared to $749,000 in the first nine
months of fiscal 1997. This increase resulted primarily from the higher average
debt outstanding during the first nine months of fiscal 1998 as compared to the
first nine months of fiscal 1997.
Interest Income. Interest income increased to $1 million during the first
nine months of fiscal 1998 as compared to $610,000 in the first nine months of
fiscal 1997. This increase is attributable to higher average cash equivalents
and short-term investments during the first nine months of fiscal 1998 as
compared to the first nine months of fiscal 1997.
Income (Loss) from Continuing Operations before Income Taxes and
Extraordinary Charge. As a result of the aforementioned factors, during the
first nine months of fiscal 1998, the Company incurred a loss from continuing
operations before income taxes and extraordinary charge of $21.2 million, as
compared to income from continuing operations before income taxes and
extraordinary charge of $7.4 million during the first nine months of fiscal
1997. Excluding the fiber optic joint venture formation costs, total special
charges, purchased in-process R&D, and the settlement of claim, income from
continuing operations before income taxes and extraordinary charge increased
93.3% to $15.7 million or 14.2% of net sales, from $8.1 million, or 13.5% of net
sales in the first nine months of fiscal 1997.
Income Taxes. The Company recorded income tax expense of $918,000 for the
first nine months of fiscal 1998, as compared to $2.6 million in the first nine
months of fiscal 1997. The income tax expense for the first nine months of
fiscal 1998 was reduced by a tax benefit of $4.7 million related to the
tax-deductible portion of the special charges. Without this reduction, the
income tax expense would have been $5.6 million resulting in an effective tax
rate of 36% on income from continuing operations, which is comparable to the tax
rate of 36% incurred in fiscal 1997.
Loss from Discontinued Operations. In March 1998, the Company approved a
plan to distribute to its shareholders all of the ownership of MicroSun, the
subsidiary primarily responsible for development, design, assembly and marketing
of metal halide portable fixtures for residential and hospitality uses, in a
spin-off transaction which is expected to be tax-free. The Company believes the
creation of two separate companies will enable the Company and MicroSun to
devote the resources necessary to develop their core strategies in pursuit of
their growth objectives. The loss from discontinued operations of $7.3 million
represents the total of MicroSun's loss from operations in the first nine months
of fiscal 1998 and estimated operating losses through the intended date of the
spin-off.
Extraordinary Charge. The Company recorded a $604,000 extraordinary charge
(net of applicable income taxes of $311,000) during the third quarter of fiscal
1998, representing costs associated with the early extinguishment of debt.
FISCAL 1997 COMPARED WITH FISCAL 1996
Net Sales. Net sales increased 56.8% to $85.6 million for the fiscal year
ended June 30, 1997 from $54.6 million for the fiscal year ended June 30, 1996.
This increase consisted of a $22.6 million increase in system components, a $6.3
million increase in production equipment, a $700,000 increase in systems, and a
$1.4 million increase in materials. The increase in systems components is
primarily the result of increased unit sales of the Company's core businesses
and the addition, during fiscal 1997, of the Company's newly-acquired power
supply businesses. The increase in systems and materials sales arose primarily
from increased unit volume, while
36
<PAGE> 38
the increase in equipment sales was attributable to an increase in the number of
equipment contracts in-progress for the sale of production equipment, as
compared with the contracts in-progress during fiscal 1996.
Cost of Sales. Cost of sales increased 56.7% to $45.7 million in fiscal
1997 from $29.2 million in fiscal 1996, relatively consistent with the increase
in net sales. As a percentage of net sales, cost of sales was 53.4% for both
fiscal 1997 and 1996.
Marketing and Selling Expenses. Marketing and selling expense increased
75.2% to $15.2 million for fiscal 1997, compared with $8.7 million for fiscal
1996. Marketing and selling expense, as a percentage of net sales, increased to
17.7% during fiscal 1997, from 15.8% during fiscal 1996. The increase as a
percentage of net sales primarily reflects increased spending to develop new
domestic and foreign market opportunities.
Research and Development Expenses. Research and development expenses
increased 76.1% to $5.1 million in fiscal 1997 from $2.9 million in fiscal 1996.
As a percentage of net sales, research and development expenses increased to
6.0% in fiscal 1997 from 5.3% in fiscal 1996. The increased spending in this
vital area reflected the Company's continued emphasis on the development of
additional commercial and industrial products, the introduction of new lamp
types and metal halide systems development.
General and Administrative Expenses. General and administrative expenses
increased 15.9% to $7.1 million in fiscal 1997 from $6.2 million in fiscal 1996.
As a percentage of net sales, general and administrative expenses decreased to
8.3% in fiscal 1997 from 11.2% in fiscal 1996. The decrease primarily reflects a
spending growth rate considerably lower than sales increases, achieved through
the leveraging of fixed costs as sales levels increase.
Settlement of Claims. During fiscal 1997, the Company paid $475,000 in an
out-of-court settlement of a claim brought by certain former common shareholders
of a predecessor of the Company. The charge of $771,000 ($0.06 per share)
represents the $475,000 settlement plus legal and other directly-related costs,
net of insurance recoveries.
During fiscal 1996, a settlement agreement was entered into by certain
principal shareholders of the Company with former holders of preferred stock of
a subsidiary of the Company (the "Settlement"). Since the Settlement resulted in
a transfer of personal shares held by such shareholders, there was no dilution
of the ownership interest of the remaining shareholders of the Company. The
Settlement was recorded as a noncash expense in fiscal 1996 and an increase to
the Company's paid-in capital. This Settlement resulted in a noncash charge of
$2.7 million.
Fiber Optic Joint Venture Formation Costs. In May 1997, the Company
entered into a joint development agreement with Rohm and Haas, for the
development of advanced fiber optic cable systems using metal halide lamps. The
Company negotiated with Rohm and Haas to form the Unison joint venture focused
on the manufacture and sale of fiber optic cable and illuminators and fiber
optic lighting systems. In connection with this proposed joint venture, the
Company incurred $286,000 of formation and preoperating costs which was charged
to operations during fiscal 1997.
Income from Operations. Income from operations during fiscal 1997
increased to $11.1 million from $4.9 million during fiscal 1996. As discussed
above, excluding the nonrecurring charges for the settlements noted above,
income from operations for fiscal 1997 would have increased to $11.9 million, a
54.5% increase over the income from operations of $7.7 million that would have
been reported for fiscal 1996. As a percentage of net sales, income from
operations before the nonrecurring charges would have decreased to 13.9% in
fiscal 1997 from 14.1% in fiscal 1996.
Interest Income. Interest income increased to $845,000 in fiscal 1997, as
compared to $232,000 in fiscal 1996. This increase is attributable to the
short-term investments and cash equivalents arising from the availability of the
net proceeds of the Common Stock offering completed during July 1996.
Income Taxes. Income tax expense increased to $2.9 million for fiscal 1997
from $1.0 million during the preceding year. The increase was caused by
increased profitability in fiscal 1997 and by the utilization of lesser amounts
of net operating loss carryforwards ("NOLs") in 1997, compared with the
utilization of NOLs in fiscal
37
<PAGE> 39
1996. At June 30, 1997, the Company had United States NOLs for tax purposes of
approximately $4.5 million to offset future taxable income. These NOLs expire in
the fiscal years 2006 through 2011.
Extraordinary Charge. The Company did not record an extraordinary charge
in 1997 compared with a $135,000 extraordinary charge (net of applicable income
tax benefits of $91,000) recorded in fiscal 1996, representing costs associated
with the early extinguishment of debt.
FISCAL 1996 COMPARED WITH FISCAL 1995
Net Sales. Net sales increased 34.0% to $54.6 million for fiscal 1996 from
$40.8 million for fiscal 1995. This increase consisted of a $12.3 million
increase in system component sales, a $1.2 million increase in materials sales,
and the remainder from increased production equipment sales. The increase in
system component and materials sales arose primarily from increased unit volume
in all major lamp sales channels and material categories and increased sales of
new products.
Cost of Sales. Cost of sales increased 33.2% to $29.2 million for fiscal
1996 from $21.9 million for fiscal 1995. As a percentage of net sales, cost of
sales decreased to 53.4% for fiscal 1996 from 53.7% for fiscal 1995. This slight
decrease was primarily the result of improved margins on system components and
materials sales, which were somewhat offset by transitional costs of operational
integration associated with the acquisition of Current Industries.
Marketing and Selling. Marketing and selling expenses increased 35.7% for
fiscal 1996 to $8.7 million from $6.4 million for fiscal 1995. As a percentage
of net sales, marketing and selling expenses remained relatively constant at
15.8% in fiscal 1996 compared to 15.7% in fiscal 1995.
General and Administrative Expenses. General and administrative expenses
increased 12.8% to $6.2 million for fiscal 1996 from $5.5 million for fiscal
1995. As a percentage of net sales, the expenses decreased to 11.2% in fiscal
1996 from 13.4% in fiscal 1995, primarily as a result of fixed costs leveraged
against increased sales.
Research and Development Expense. Research and development expenses
increased 73.0% to $2.9 million for fiscal 1996 from $1.7 million for fiscal
1995. As a percentage of net sales, research and development expenses increased
to 5.3% for fiscal 1996 from 4.1% for fiscal 1995. These increases arose from
increased spending for the: (i) expansion of the line of new lamps intended to
replace many first generation metal halide lamps in industrial and commercial
applications; (ii) development and testing of electronic power supply systems
and (iii) development of new materials for the world's major lighting
manufacturers.
Noncash Settlement of Claim and Restructuring Credit. As mentioned above,
fiscal 1996 results include a noncash settlement expense of $2.7 million. In
fiscal 1995, the Company recorded a $121,000 credit to operating expenses. This
credit resulted from a revision of the Company's plan of disposition for exiting
a product line unrelated to lighting. There was no such credit in fiscal 1996.
Income from Operations. As a result of the factors discussed above,
including the effects of the noncash charge for the Settlement and the
restructuring credit, income from operations decreased 8.8% to $4.9 million in
fiscal 1996 from $5.4 million in fiscal 1995. As a percentage of net sales,
income from operations decreased to 9.1% in fiscal 1996 from 13.3% in fiscal
1995. Excluding the noncash charge for the Settlement during fiscal 1996 and the
restructuring credit recognized in fiscal 1995, income from operations for
fiscal 1996 would have increased to $7.7 million from $5.3 million in fiscal
1995. As a percentage of net sales, income from operations would have increased
to 14.1% in fiscal 1996 from 13.0% in fiscal 1995.
Interest Expense, Net. Interest expense decreased 26.5% to $1.5 million
for fiscal 1996 from $2.1 million for fiscal 1995. This decrease resulted from
lower average debt outstanding, lower noncash amortization of debt issuance
costs and higher interest income for fiscal 1996 as compared to the average debt
outstanding, noncash amortization of debt issuance costs and interest income for
fiscal 1995.
Interest Income. Interest income increased to $232,000 during fiscal 1996
as compared to $33,000 for fiscal 1995. This increase is the result of deposits
of available proceeds from the Company's initial public offering of Common Stock
in fiscal 1996.
38
<PAGE> 40
Income Taxes. Income tax expense for fiscal 1996 increased by $753,000
from fiscal 1995 primarily due to higher state and local income taxes and an
increase in deferred tax expense attributable to accelerated depreciation for
tax purposes.
Extraordinary Item. The Company recorded a $135,000 extraordinary charge
(net of applicable income taxes of $91,000) during fiscal 1996, representing
costs associated with the early extinguishment of debt using a portion of the
net proceeds from its initial public offering. In fiscal 1995, the Company
recorded a $253,000 extraordinary charge (net of applicable income taxes of
$168,000), which also represented costs associated with the early extinguishment
of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal capital requirements are for developing
manufacturing equipment, market development activities, research and development
efforts, investments in business acquisitions, joint ventures and working
capital. These requirements have been, and the Company expects they will
continue to be, financed through a combination of cash flow from operations,
borrowings under various credit facilities and the sale of Common Stock
(including the remaining proceeds from the July 1996 and the July 1997 public
offerings of Common Stock currently invested in short-term instruments and cash
equivalents).
During July 1997, the Company received net proceeds of $69.3 million from
the sale of three million shares of Common Stock in a public offering, of which
$33.0 million was used to reduce debt outstanding under the Company's domestic
Revolving Credit and Security Agreement and Term Note (the "Loan Agreement")
(subsequently terminated and replaced by the Credit Facility). Approximately
$8.5 million of such borrowings had been incurred to fund the Parry acquisition
in June 1997, and approximately $5.5 million had been incurred in February 1997
to finance the cash portion of the Ballastronix acquisition. Of the remaining
net proceeds, $14.5 million was used for capital expenditures, primarily
production equipment and leasehold improvements, $4.8 million was used to
purchase 29.0% of Fiberstars, a company specializing in the marketing and
distribution of fiber optic lighting products, $2.0 million was contributed to
Unison, the Company's joint venture with Rohm and Haas and $11.2 million was
used for working capital purposes.
The Company's working capital (current assets less current liabilities) at
March 31, 1998 was $87.6 million, resulting in a working capital ratio of
current assets to current liabilities of 3.4 to 1.0, as compared to $42.4
million or 2.5 to 1.0 at June 30, 1997. As of March 31, 1998, the Company had
approximately $34.7 million in cash and cash equivalents and short-term
investments and had no working capital advances outstanding under the Loan
Agreement.
On January 2, 1998, the Company replaced the Loan Agreement and other
borrowings in North America with the Credit Facility. Proceeds from this
facility were used to finance the $35.5 million cash portion of the Ruud
Lighting acquisition and the $14.5 million cash portion of the DSI acquisition.
Proceeds were also used to repay $19.2 million of existing and outstanding North
American bank borrowings of the Company, Ruud Lighting and DSI. As a growth
company, the Company may need to amend or replace the Credit Facility prior to
its maturity on December 31, 2000. See "Description of Certain Indebtedness."
The early extinguishment of debt under the Loan Agreement resulted in a
noncash write-off of deferred financing costs and an extraordinary charge of
$604,000, net of applicable income tax benefits of $311,000, in the quarter
ending March 31, 1998.
On March 13, 1998, the Company sold $100 million of the Old Notes,
resulting in net proceeds of $96.2 million. Approximately $76.3 million of the
net proceeds of the Notes were used to repay amounts outstanding under the Bank
Credit Facility, thereby lengthening the term of the Company's debt, most of
which had been incurred to finance the acquisitions of Ruud Lighting and DSI.
Net cash used in operating activities during fiscal 1997 totaled $4.2
million. Uses of operating cash flow include: (i) an approximately $9.0 million
increase in accounts receivable related to equipment contracts and (ii) an
increase in inventories to support higher sales levels, offset partially by an
increase in accounts payable and accrued expenses resulting from higher levels
of business activity. Net cash used in operating activities during the nine
months ended March 31, 1998 amounted to $18.1 million, primarily as a result of
higher accounts receivable
39
<PAGE> 41
arising from increased sales, an increase in inventory levels to support higher
sales service levels, an increase in prepaids and other assets, and a reduction
in accounts payable.
Capital expenditures, primarily for production equipment and leasehold
improvements, totaled $18.1 million in fiscal 1997. For the nine months ended
March 31, 1998, the Company invested approximately $21.6 million in capital
expenditures as compared with $11.6 million for the first nine months of fiscal
1997. Over the next twelve months the Company intends to spend approximately $20
million on capital expenditures, primarily production equipment, and $14.4
million on the expansion and upgrading of distribution, training center,
lighting demonstration and office facilities at the Company's world
headquarters.
On March 11, 1998, the Company purchased its existing Solon, Ohio facility
for a purchase price of $7.8 million, including the assumption by a single
purpose subsidiary of an existing mortgage in the amount of approximately $4.8
million. The Company expects to invest an additional amount of approximately
$8.9 million at the facility. See "Business -- Properties."
The Company believes that the successful completion of the July 1997 stock
offering and the Notes offering has strengthened its financial position and
enhanced its ability to obtain additional financing. In addition, the Company
believes that the acquisition of Ruud Lighting will favorably impact its cash
flow from operations, as Ruud Lighting has historically achieved significant
positive cash flows from its operations.
The Company believes that the combination of its anticipated cash flows
from Ruud Lighting's operations, available cash, current borrowing facilities
and strengthened financial position will be sufficient for the Company to fund
its operations for at least the next 12 months. In addition, it is the Company's
intention to avail itself of appropriate financing alternatives to ensure that
growth opportunities, including those arising from acquisitions and additional
investments in existing relationships, are realized. If the Company engages in
significant acquisition or strategic investment activity in the near to medium
term, it may need to obtain additional capital. In this regard, the Indenture
will allow the Company to incur substantial additional amounts of Indebtedness.
See "Description of the New Notes -- Covenants."
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued FAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information." The
statement requires a "management" approach to reporting financial and
descriptive information about a Company's operating segments. The Company must
adopt this statement in the first quarter of fiscal 1999. Management is
currently studying the potential effect of adopting this statement.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 provides authoritative guidance on accounting for and
financial reporting of start-up costs and organization costs. The Company is
required to adopt the SOP on July 1, 1999 (though earlier application is
encouraged) and, upon adoption, expense all previously capitalized start-up
costs and organization costs as a cumulative effect of a change in accounting
principle. Management is reviewing its capitalization policies and determining
the impact that the adoption of this SOP is expected to have on its consolidated
results of operations and financial position.
YEAR 2000 COMPLIANCE
The Company utilizes and is dependent upon data processing systems and
software to conduct its business. The data processing systems and software
include those developed and maintained by the Company and purchased software
which is run on in-house computer networks. The Company has initiated a review
and assessment of all hardware and software to determine whether it will
function properly in the year 2000. To date, those vendors which have been
contacted have indicated that their hardware or software is or will be year 2000
compliant in time frames that meet the Company's requirements. The Company
presently believes that costs associated with the compliance efforts will not
have a significant impact on the Company's ongoing results of operations
although there can be no assurance in this regard. The Company also has
initiated communications with its significant suppliers regarding the year 2000
issue. However, there can be no assurance that the systems
40
<PAGE> 42
of such suppliers, or of customers, will be year 2000 compliant. The failure of
suppliers and customers to timely modify their systems to be year 2000 compliant
could have a significant impact on the Company's results of operations and its
ability to make payments on the New Notes.
FOREIGN CURRENCY
Approximately 17% of the Company's net sales in fiscal 1997, on a pro forma
basis for the Ruud Lighting acquisition, were denominated in currencies other
than U.S. dollars, principally Pounds Sterling, Australian dollars and Canadian
dollars. A weakening of such currencies versus the U.S. dollar could have a
material adverse effect on the Company and its ability to make payments on the
New Notes. The Company currently does not hedge its foreign currency exposure.
41
<PAGE> 43
BUSINESS
The Company is an innovation-driven designer, manufacturer and marketer of
metal halide lighting products. Metal halide lighting combines superior energy
efficient illumination with long life, excellent color rendition and compact
lamp size. The Company has integrated vertically to design, manufacture and
market a broad range of metal halide products, including materials used in the
production of lamps and lamps and other components for lighting systems, as well
as complete metal halide lighting systems. The Company also manufactures and
markets equipment used to produce metal halide lamps. The Company's materials
and components are used in the manufacture of its own lighting systems for sale
to end-users and are sold to third party manufacturers for use in the production
of their metal halide products. The vertical integration of the Company's
approach to its products is illustrated below:
METAL HALIDE INTEGRATION FROM MATERIALS THROUGH SYSTEMS
<TABLE>
<S> <C> <C> <C>
|----------------|-----(arrowhead) ----------------
| MATERIALS | | Internally |------------------------------------
| LAMPS | | Developed | |
| POWER SUPPLIES | | Metal Halide |----------- |
| CONTROLS | | Systems | | (arrowhead)
|OPTICS/COATINGS | -------------- | |------------------|
| EQUIPMENT |--------------------------------------------|-----(arrowhead) | Emerging |
| | Replacement Sales (arrowhead) | Applications |
---------------- ------------------------(arrowhead) |----------------| | -Fiber Optics |
| ------------------------ | Commercial/ | | -Residential |
| | Metal Halide Systems | | Industrial/ | | -Projection TV |
|-----(arrowhead) | Produced by | | Outdoor | ------------------
| Third Parties | | Applications | (arrowhead)
---------------------- ---------------- |
| | (arrowhead) |
| | | |
| |----------------------- |
|------------------------------------------------------
</TABLE>
Invented approximately 35 years ago, metal halide is the newest of all
major lighting technologies and can produce the closest simulation to sunlight
of any available lighting technology. A 100 watt metal halide lamp, which is
approximately the same size as a household incandescent lamp, produces as much
light as five 100 watt incandescent lamps and as much as three 34 watt, four
foot long fluorescent lamps. Metal halide lighting is currently used in
commercial and industrial applications such as factories and warehouses, outdoor
site and landscape lighting, sports facilities and large retail spaces such as
superstores. Due to metal halide's superior lighting characteristics, the
Company believes many opportunities exist to "metal halidize" applications
currently dominated by older technologies, incandescent and fluorescent. For
example, metal halide lighting has recently been introduced in fiber optic,
projection television and automotive headlamp applications and the Company has
introduced a line of portable metal halide fixtures. The Company believes that
applications for metal halide lamps will continue to increase as metal halide
systems become more widely known and available.
Management believes the Company is the only designer and manufacturer in
the world focused primarily on metal halide lighting. As a result of this unique
focus, the Company has developed substantial expertise in all aspects of this
industry. The Company believes that this focus enhances its responsiveness to
customer demand and has contributed to its technologically advanced metal halide
product development and manufacturing capabilities. The Company believes it
supplies 100% of the metal halide salts used in domestic metal halide lamp
production and in excess of 80% of those used worldwide. It is also a leading
domestic producer of other metal halide materials, and the only vendor of
turnkey metal halide lamp production equipment groups. The Company currently
markets over 240 specialty and 40 standard-type metal halide lamps, giving it
the most diverse product line of any metal halide lamp manufacturer. In
addition, the Company offers components such as more than 400 power supply
products for metal halide and other HID lamp systems and produces metal halide
systems, which consist of a lamp, power supply and related electronic controls
and switches and other necessary components. The Company also designs,
manufactures and markets turnkey lamp production equipment groups. Since the
Company's initial public offering in December 1995, the Company has expanded
into additional metal halide system components products, primarily through
acquisitions, and now offers more than 400 magnetic and electronic power supply
products. In addition, through the Ruud Lighting acquisition, the Company has
become a leading manufacturer and marketer of metal halide fixtures for
commercial and industrial markets.
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The Company's turnkey lamp production equipment groups are typically sold
into international markets. Such equipment is sold to existing lamp
manufacturers or to joint ventures formed by the Company in developing markets.
Through the sale of lamp production equipment, the Company generates revenue
from the initial sale of its production equipment and recurring sales of the
materials used in lamp production. The Company's recently acquired DSI
subsidiary designs, manufactures and markets equipment capable of depositing
thin film and coatings on glass and other surfaces. The Company also
manufactures and sells photometric measuring equipment and markets its power
supply production equipment in international markets.
In marketing its production equipment internationally, the Company
endeavors to work with the most technically advanced lamp manufacturers in each
country. The Company develops a customized configuration for the production
equipment to meet the customers' needs. The Company believes its ability to
supply a full range of materials provides it an advantage in selling production
equipment. International sales aggregated $59.4 million (53% of net sales) for
the nine months ended March 31, 1998, $41.0 million (47% of net sales) for
fiscal 1997, $16.3 million (29.9% of net sales) for fiscal 1996 and $12.1
million (29.8% of net sales) for fiscal 1995.
The Company has begun to leverage this broad knowledge base and ability to
supply additional system components to design and produce metal halide lighting
systems for new applications.
LIGHTING TECHNOLOGY
Background
Light is radiant energy that provides the ability to see detail and color
and can be used to highlight form, color and texture, provide atmosphere and
enhance safety and security. The quantity of light, measured in lumens,
generated by a light source can differ significantly from the quantity that
reaches the intended area. Lighting quality is determined by characteristics
such as color of light and color rendition. Color rendition is a qualitative
measure of how accurately a light source allows an object's actual color to be
viewed.
The lifetime cost of a lighting system is composed of the cost of the
original lamp and fixture, replacement lamps, related labor costs, and the cost
of energy to power the system. Energy costs typically represent more than 80% of
a lighting system's total lifetime cost. The Company believes that the principal
lighting design considerations for industrial and commercial buildings, outdoor
space and residences are total system costs, up front costs and the quality of
light produced.
There are three primary types of lighting technology: incandescent,
fluorescent and HID, which includes metal halide. Each of these lighting
technologies offers certain characteristics (such as energy efficiency, color
rendition, range of color, average life, lamp size and ability to deliver
substantial amounts of light to a focused area) that makes it suited for
particular applications.
The Older Lighting Technologies -- Incandescent and Fluorescent
Incandescent. The oldest and most common lighting technology,
incandescent, was first introduced approximately 110 years ago. Incandescent
lamps have the largest installed base, primarily residential and retail, and,
due to their design versatility, over 1,000 different types of incandescent
lamps are presently available. As a result of the continued introduction of new
incandescent products, such as halogen, and the increase in the number of new
residences, domestic sales of incandescent lamps grew approximately 6% in 1997.
Incandescent lamps represented approximately 48% of the domestic lamp market in
1997.
Incandescent light is produced by the flow of electric current through a
wire or filament. Incandescent lamps produce a yellowish light. Incandescent
lamps offer the advantages of low initial cost, good color rendition,
versatility and the ability to deliver substantial amounts of light to a focused
area. Incandescent lamps have the shortest life (750 to 2,000 hours), are the
least energy efficient (15 to 30 lumens per watt) and generally have the highest
lifetime system cost of any lighting technology.
Developed in 1959, halogen incandescent lighting was first broadly
introduced in automotive headlights in Europe. As a result of its aggressive
introduction into the residential market in the early 1980's, halogen lighting
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has been the fastest growing technology in the incandescent lighting segment for
more than a decade. Halogen's wide acceptance is primarily a result of its
"whiter" light, small size and greater light levels (through increased
wattages). These advantages, however, are accompanied by a number of
disadvantages. Halogen lamps, as with all incandescent lamps, are extremely
inefficient and convert most of the energy they consume into heat.
One of the most popular halogen products is the floor lamp (torchiere) that
uses either a 300 or 500 watt halogen bulb. As of January 1997, there were an
estimated 40 million of these fixtures owned by consumers in the United States.
Recently, there have been a number of instances of property damage, burns,
injuries and even deaths resulting from fires caused by halogen products.
Underwriters Laboratories ("UL") no longer approves 500 watt halogen torchiere
products for residential use. In addition, UL has instituted more stringent
testing standards for the 300 watt halogen torchieres effective February 1997.
The metal halide table and floor lamps using MICROSUN(TM) technology have been
approved by UL for residential use.
Fluorescent. Fluorescent lamps were first introduced in 1935, and have
become the standard interior light source for office buildings, retail stores
and certain industrial applications. Today, over 400 different fluorescent lamp
types are available. In 1997, domestic sales of fluorescent lamps grew
approximately 4%. Fluorescent lamps represented approximately 39% of the
domestic lamp market in 1997.
Fluorescent lamps produce light when the discharge from an electrically
excited low pressure mercury vapor interacts with a phosphor powder coating on
the inside surface of the lamp. Unlike incandescent lamps, fluorescent lamps
require a power supply device used to regulate electrical current. Fluorescent
lamps produce a white light, but one that is often described as flat or
unnatural. Fluorescent lamps offer instant light, good color rendition, improved
life and efficiency as compared to incandescent lamps (10,000 to 20,000 hours
life and 80 to 90 lumens per watt) and moderate initial cost. Light output
decreases if the ambient temperature in the area in which a fluorescent lamp is
installed declines, making fluorescent lighting impractical for many outdoor
uses. Traditional fluorescent lamps are much larger than incandescent lamps,
making it difficult to deliver substantial amounts of light to a focused area.
The most recent fluorescent technology is compact fluorescent lamps
("CFLs"). CFLs are available in much smaller bulb sizes than traditional
fluorescent lamps, increasing the number of applications for fluorescent lamps.
CFLs were first introduced to the commercial market approximately ten years ago
and, as energy awareness has increased, they have penetrated the residential
market. CFLs have light outputs equivalent to incandescent lamps ranging from 15
to 100 watts. Although CFLs cost more than standard incandescent lamps, this
initial cost is offset in most applications by energy savings and longer life.
The Newer Lighting Technology -- High-Intensity Discharge
General. An HID lamp produces light from a gaseous arc discharge, caused
by electrical excitation of certain chemicals (or "doses") in the lamp. The
gases and doses in an HID lamp are contained in an arc tube under high pressure.
A wide array of lighting effects can be obtained by varying the doses. HID lamps
are not affected by ambient temperatures. HID lamps require a power supply to
regulate electrical current, a warm-up period to reach full brightness and a
cool-down period before restart. HID light sources include mercury, high
pressure sodium ("HPS") and metal halide.
Mercury was the first HID lamp developed, but is used infrequently today
because it is the least efficient HID lamp. The primary use of mercury lamps
today is outdoor lighting in areas where there is a preference for white light
over the yellow light produced by HPS lamps. In 1997, domestic sales of mercury
lamps decreased approximately 9%. Mercury HID lamps have an energy efficiency
ranging from 40 to 60 lumens per watt and have a life of approximately 16,000 to
24,000 hours. In 1997, mercury lamps represented approximately 1% of the
domestic lamp market. HPS lamps produce a yellow light that provides poor color
rendition, making HPS lamps a less desirable choice than metal halide lamps for
most applications. As a result, HPS lamps are primarily used in roadway lighting
and, to a lesser extent, outdoor flood lighting, warehouses and factories. In
1997, domestic sales of HPS lamps increased 3%, primarily as a result of
increases in the amount of lighted roadway. HPS lamps have the longest life
(24,000 hours) and the highest energy efficiency (100 to 140 lumens per watt) of
any lighting technology. In 1997, HPS lamps represented approximately 5% of the
domestic lamp market.
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Metal Halide Lamps. Metal halide products were first developed
approximately 35 years ago and are used most commonly in commercial and
industrial applications such as factories and warehouses, large public spaces
such as convention centers and airports, outdoor site and landscape lighting,
sports facilities and large retail spaces such as superstores. As a result of
technological improvements in wattage, life and color consistency and the
subsequent introduction of new products, metal halide lamps have become
available for a wide range of applications. The primary factor in increasing
applications for metal halide lighting has been the development of new lamps in
a wide variety of sizes and wattages. Metal halide lighting has recently been
introduced in fiber optic, projection television and automotive headlamp
applications. Since 1993, domestic sales of metal halide lamps have grown at a
compound annual growth rate of approximately 15%, and sales increased
approximately 8% in 1996 and 14% in 1997, making metal halide the fastest
growing lighting technology available. In 1997, metal halide lamp sales
accounted for approximately 7% of the domestic lamp market.
Metal halide lamps provide excellent color rendition, long life (10,000 to
20,000 hours) and very high efficiency (70 to 110 lumens per watt) making them
the best choice for many applications. Metal halide lamps typically have higher
initial costs than either incandescent or fluorescents, but these costs are more
than offset in most applications by energy savings and long life as well as by
the need to install fewer fixtures to achieve the same illumination as competing
technologies. Metal halide lamps, like all HID and fluorescent lamps, require a
power supply to regulate electric current. However, metal halide systems require
a more technologically advanced power supply than fluorescent systems.
Metal halide lighting can produce the closest simulation to sunlight of all
available light sources, enhancing the sense of user comfort and well being and
improving productivity. A single metal halide lamp produces approximately five
times as much light as an incandescent lamp of the same wattage. The compact
size of metal halide lamps allows delivery of substantial amounts of light to a
focused area. These characteristics offer greater options in illumination
levels, lighting design and system cost as well as significant energy savings.
While the Company believes that incandescent and fluorescent technologies will
continue to be used in most of their current applications, the characteristics
of metal halide lighting make it more effective for a variety of such
applications.
Metal halide lamps are capable of producing a wide variety of lighting
effects. The color of light produced by a metal halide lamp is dependent on the
metal halide salts contained in the arc tube. By varying the metal halide salts,
different effects may be achieved. Similarly, varying the size, shape and
wattage of the lamp make it possible to change the lighting effect and the
applications for which the lamp is used. Although these changes result in lamps
very similar in appearance, many of these lamps are very difficult to engineer.
For instance, scaling down a 400 watt lamp in size and wattage requires
significant technological changes to maintain the same level of energy
efficiency. Primarily as a result of these technological difficulties, the
Company believes that only approximately 60 companies worldwide manufacture
metal halide lamps as compared to thousands that manufacture incandescent lamps
and hundreds that manufacture fluorescent lamps.
LIGHTING INDUSTRY
Opportunities in Metal Halide
The Company currently produces metal halide lighting products for
commercial, industrial and residential applications. Until recently, metal
halide technology served primarily the industrial and outdoor sectors, which
represented approximately 32% of U.S. lighting fixture sales in 1997 (source:
Economic Industry Reports, Inc. from the U.S. Department of Commerce). However,
with the miniaturization of metal halide lamps and fixtures and the recognition
of the benefits of metal halide technology, including improved light color,
energy efficiency, lower operating temperature and safety of metal halide
products relative to other technologies, significant opportunities for growth
exist. Key factors driving growth in the metal halide industry include:
Demand for Specialized Lamps. The demand for specialized metal halide lamps
has increased as the Company's OEM and lighting agent customers have recognized
the benefits associated with using specialized metal halide products. While the
lighting industry is dominated by GE, Philips and Sylvania, each of these
companies has traditionally focused on the larger incandescent and fluorescent
market and has generally limited its production of metal halide lamps to those
found in the most common commercial and industrial applications. Although these
standard-type metal halide lamps represent a substantial majority of total metal
halide lamp sales, they do not afford the OEM or lighting agent complete
flexibility in designing lighting contract bids. For
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example, a lighting agent may attempt to differentiate its bid by designing a
lighting solution which incorporates a specialized metal halide lamp to reduce
energy costs while still achieving desired lighting levels.
Development of New and Advanced Metal Halide Power Supplies. Historically,
the introduction of new metal halide lamps and systems has been constrained by
the lack of complementary metal halide power supplies. Significant engineering
expertise is required to adapt existing power supplies for new metal halide
products. The Company believes that while domestic sales of metal halide power
supplies exceeded approximately $150 million in 1996, power supply
manufacturers, like lamp manufacturers, have focused on the larger fluorescent
power supply market and, to a lesser extent, on the standard-type metal halide
lamp market rather than development of new power supply products for specialized
metal halide products and applications. The development of appropriate power
supply sources focused on metal halide should significantly enhance the
expansion of metal halide applications, reduce the development time currently
required to introduce new metal halide products and improve the reliability and
durability of existing metal halide products.
Opportunity for Integrated Metal Halide Systems. Metal halide systems for
commercial and industrial applications are assembled primarily by fixture
manufacturers, lighting agents, and intermediaries who are limited in their
ability to integrate different components which comprise a metal halide system.
The Company believes that significant growth opportunities exist through the
packaging of compatible, reliable system components for OEM customers from a
single supplier. In addition, the Company believes that metal halide systems
have significant potential to displace older lighting technologies in
traditional applications and that residential sales and related hospitality
applications will represent a substantial market for metal halide lighting
within the next five years. Other potential applications for metal halide
systems include fiber optic systems, projection television displays and
automotive headlamps.
International Demand for Metal Halide. International markets represent
attractive opportunities for metal halide products as developing nations
continue to build infrastructure to support their growing economies. Facilities
such as train stations, airports, government buildings, highways and factories
all require substantial lighting for which metal halide products are well
suited. In addition, given the high energy efficiency of metal halide and the
high cost of energy in developing nations (including the high cost of power
plant construction), the Company believes that the international metal halide
market will grow faster than the United States market.
STRATEGY
The Company believes that metal halide technology represents the best
lighting technology for a wide variety of applications, many of which are not
yet served by an appropriate metal halide product. As the principal supplier of
metal halide materials and production equipment to the metal halide lamp
industry, the Company expects to benefit from continued growth in metal halide
markets. The Company also expects to lead metal halide's continued market
expansion, by providing innovative metal halide system components and integrated
systems through the operating and growth strategies highlighted below.
The Company's strategic objective is to remain focused on the metal halide
market and expand its leadership position in the metal halide lighting industry
by: (i) continuing to pursue vertical integration to expand the Company's
ability to introduce new products and applications; (ii) strengthening the
Company's relationships with OEMs and lighting agents to increase the number of
metal halide applications and the penetration of the Company's products in new
metal halide installations; and (iii) seeking to demonstrate the superiority of
metal halide lighting solutions, thereby stimulating domestic and international
demand for the Company's products.
The Company seeks to achieve its strategic objective through internal
growth and acquisitions and strategic investments. The Company acquires or
invests in businesses that, when combined with the Company's existing
capabilities and metal halide focus, provide technological, product or
distribution synergies and offer the potential to enhance the Company's
competitive position or accelerate development of additional metal halide market
opportunities. The Company has made a number of acquisitions and investments
since January 1997, as described under "Background of the Company -- Recent
Acquisitions and Strategic Investments." The Company is currently considering
other possible acquisition and strategic investment opportunities and will
continue to do so in the future.
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OPERATING STRATEGY
The Company focuses its resources primarily on designing, manufacturing and
marketing metal halide materials, system components, systems and production
equipment. By focusing on metal halide, the Company believes it has developed
unique design, manufacturing and marketing expertise. Such expertise provides
the Company with significant competitive advantages, which enable the Company to
deliver highly customized products to meet customer needs. The Company's
experienced workforce is dedicated to improving metal halide lighting products,
production processes and developing new applications for this technology.
In addition, in order to increase the number of metal halide applications
and the penetration of the Company's products, the Company pursues the following
operating strategies:
Continue Vertical Integration
The Company began operations as a manufacturer of metal halide salts and
expanded into production of system components, initially lamps. The Company has
expanded its focus on systems and components to include commercial and
industrial systems (through the Ruud Lighting acquisition), fiber optic systems
(through the Unison joint venture), and magnetic and electronic power supplies
(through the Ballastronix and Parry acquisitions). The Company is broadening its
materials manufacturing capabilities to include filtering and optical coatings
for lighting applications, through its recent acquisition of DSI. Through
vertical integration, the Company is able to develop and package complementary
system components and develop systems which enable metal halide lighting to
penetrate applications and markets currently served by older technologies.
Strengthen OEM and Lighting Agent Relationships
The Company concentrates on developing strong relationships with lighting
fixture OEMs by providing the key system components for a lighting fixture,
either alone or packaged as a unit, tailored to meet their needs. Historically,
the Company provided specialized lamps tailored to meet OEM needs. With its
ability to design and manufacture power supplies, achieved through the
acquisition of Ballastronix and Parry, the Company expects to better meet OEM
needs by packaging the principal system components (lamps, power supplies,
switches and controls) for a lighting fixture. Frequent interaction with OEMs
serves dual purposes, providing the Company with valuable ideas for new
component products and providing OEMs with the information necessary to market
the Company's new products. Lamps and power supplies designed for a specific
fixture are included with the fixture when sold by the OEM, increasing
distribution of the Company's products. The Company has also entered into
agreements with lighting agents to pay commissions for selling the Company's
lamps. Such commissions, unique among lamp manufacturers, provide the agent an
incentive to include the Company's metal halide lamps in its bids on a
construction or renovation project. With its recent acquisition of Ruud
Lighting, which is a leading direct marketer of HID systems, the Company expects
to significantly enhance its ability to directly market HID systems for
commercial, industrial, outdoor and retail lighting applications, as well as
replacement lamps.
Seek to Demonstrate Superiority of Metal Halide Lighting Solutions
The Company seeks to demonstrate the superiority of metal halide lighting
solutions to its customer base, including OEMs, lighting agents and contractors,
thereby stimulating domestic and international demand for the Company's
products. The Company believes that metal halide lighting systems have
significant potential to displace older lighting technologies in traditional
applications, as well as potential applications such as fiber optic systems,
projection television displays and automotive headlamps.
GROWTH STRATEGY
The Company is continuing to introduce more products for new applications
and to expand the distribution channels for its products. The key elements of
the Company's growth strategy include:
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Introduce New Products and Systems
The Company believes it has introduced over 75% of the approximately 200
new lamps in the domestic metal halide lamp industry since 1985. As applications
become increasingly complex, the advantage of simultaneous design of components
as an integrated system is becoming more significant. To further the Company's
integrated systems strategy, the Company completed the Ruud Lighting,
Ballastronix and Parry transactions. As a result, the Company can now
manufacture and market complete metal halide lighting systems for end-users, as
well as complementary component packages for OEMs. The Company intends to
develop, manufacture and market additional types of high performance and
technologically advanced metal halide materials, components and systems.
Capitalizing on its expanding production capability, design capability and
unique metal halide focus, the Company expects to develop additional specialty
systems, such as fiber optic lighting systems and projection television optical
systems.
Increase Sales of Existing Products
By expanding existing relationships and developing new relationships with
lighting agents and OEMs, the Company expects to increase sales of existing
specialty lamps and power supplies. The Company anticipates that it also will be
able to utilize Ruud Lighting's distribution capability to expand sales of
existing products, particularly replacement lamps. The Company also expects its
sales of replacement lamps, as well as power supplies, to increase through its
recently expanded distribution capability (resulting from the Ruud Lighting
acquisition) and as the installed base of fixtures for the Company's specialty
lamps increases. The Company expects to increase sales in the replacement lamp
market, in part through a novel direct marketing approach to end users. The
Company prints its toll-free phone number on each lamp, and customers can order
replacement lamps directly from the Company for express delivery. In addition,
this interaction with customers provides the Company with the opportunity to
market additional metal halide products.
Participate in Growing International Markets
The Company intends to continue to capitalize on opportunities in growing
international markets in three ways. First, the Company directly exports its
products to countries that do not impose restrictive tariffs, local content laws
and other trade barriers. The primary countries in which the Company directly
markets products are the United Kingdom, Australia, Canada and Japan. Since July
1995, the Company has strengthened its distribution capabilities by acquiring or
investing in its distributors in these countries. Second, the Company may pursue
strategic acquisitions or build manufacturing facilities in international
markets. Third, in countries that impose trade restrictions, the Company either
sells production equipment or enters into joint ventures with local lamp
manufacturers. Purchasers of production equipment can become customers for the
Company's metal halide salts and other materials. The Company has existing joint
ventures in China, Korea and Japan and has entered into joint venture agreements
in India and Vietnam to which it expects to sell production equipment and, when
lamp production commences, certain materials.
Penetrate the Residential Lighting Market
The Company believes that residential and consumer applications will
represent a substantial market for metal halide lighting within the next five
years. Over the longer term, the Company intends to lead metal halide's
penetration of the residential lighting market by: (i) expanding the marketing
of its products, especially contractor-installed fixtures used in the
construction of new and remodeled housing, building on Ruud Lighting's expertise
in direct marketing to contractors; (ii) developing the use of metal halide
fiber optic systems through a joint venture; and (iii) manufacturing components
for compact metal halide lighting systems, utilizing MICROSUN(TM) technology
developed by the Company.
In connection with the market-testing, the Company developed the first
metal halide lamp system for residential markets and MicroSun has begun the
roll-out of its products. This roll-out began with the sale of table and floor
lamps to certain premium hotel chains in the United States in March 1997, with
these placements serving as the basis of a direct marketing program. MicroSun
also has implemented a direct marketing program to up-scale consumers. To
further facilitate the penetration of the residential market, the Company
developed a
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"gear pack" which permits existing incandescent table and floor lamp designs to
be adapted to the Company's MICROSUN(TM) technology. The Company has announced
that it intends to spin off MicroSun as an independent company for developing,
designing, assembling, marketing and distributing these portable fixtures. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Spin-Off of MicroSun Business."
PRODUCTS
The Company designs, manufactures and sells metal halide materials,
components and systems, which are used in a wide variety of applications and
locations including:
<TABLE>
<S> <C> <C>
- - floodlighting - sports and arena lighting - general lighting
- - architectural area lighting - commercial downlighting - industrial highbays
- - general industrial lighting - airport and railway station - tunnel lighting
- - billboard and sign lighting lighting - indirect indoor sports and
- - site lighting - gas station canopy lighting office lighting
- - soffit lighting - interior downlighting - parking garage lighting
- - hazardous location lighting - decorative lighting - security lighting
- - accent lighting - retail store downlighting - landscape lighting
and track lighting
</TABLE>
The Company also designs, manufactures and sells lamp, power supply and
production equipment for the metal halide industry and thin film deposition
equipment for the lighting, ophthalmics and optics industries. The Company also
designs, manufactures and sells photometric measurement instruments.
Materials
The Company produces and sells metal halide salts, electrodes, amalgams and
getters. Metal halide salts are the primary ingredient within the arc tube of
metal halide lamps, which determine the lighting characteristics of the lamp.
Electrodes form the electrical connections within the lamp. Amalgams are
chemicals which are used in the arc tubes of HPS lamps and in fluorescent lamps.
Getters are devices required to be included in each metal halide lamp to prevent
impurities from interfering with lamp operation.
The Company produces over 300 different metal halide salts that can be used
in metal halide lamps to produce different lighting characteristics. In addition
to meeting its own needs, the Company believes it produces all of the metal
halide salts used in metal halide lamps manufactured in the United States,
including those manufactured by GE, Philips and Sylvania, and 80% of the metal
halide salts used in metal halide lamps manufactured overseas. The Company
serves all major lamp manufacturers, each of which uses different metal halide
salts. The Company vigorously guards each customers' specific formulas from
other customers, including the Company's own lamp engineers. Because of its
ability to produce these ultra pure metal halide doses, the Company has also
been called upon by its lamp manufacturer customer base to produce most of the
amalgams used in the domestic production of HPS lighting and, most recently, to
develop and supply a new amalgam for fluorescent applications.
With the recent acquisition of DSI, the Company also now produces optical
thin film coatings, including coatings for lighting applications with particular
emphasis on coatings for metal halide arc tubes, as well as anti-reflection
coatings, and electrochromic coatings for glass and plastic ophthalmic lenses,
multilayer magnetic films and emissivity modification films for classified
government applications, and infrared multilayer optical films on flexible
polymeric substrates. Through a reactive sputtering process, these coatings are
electrostatically attached to a product surface. When used in lighting
applications, these coatings can significantly improve the optical performance
of the light source, protect the system and its components from harmful
ultra-violet and infra-red radiation, and increase the energy efficiency of the
entire system.
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Systems and Components
The Company's component products include specialty and standard lamps,
magnetic and electronic power supplies, system controls and switches and fiber
optic cable. Specialty lamps are lamps designed and manufactured for particular
OEM applications. Standard lamps are high-volume lamps which the Company
typically buys for resale under arrangements with GE and Sylvania. Power
supplies are devices which regulate power and are necessary for operation of HID
and fluorescent lamps. System controls and switches are auxiliary electrical
controls included in fixtures and systems.
The Company believes it differentiates itself from other metal halide lamp
manufacturers by offering a wider variety of lamps, many of which have been
customized to offer a specific solution to a lighting problem. Since 1985, the
Company believes that it has introduced over 75% of the approximately 200 new
lamps in the domestic metal halide lamp industry. Currently, the Company offers
over 240 specialty lamp types and 40 standard-type lamps in 20 different watt
variations ranging from 32 watts to 2,000 watts for over 30 different
applications. In certain instances, the Company produces these products for its
competitors on a private label basis in order to capture sales through
competitors' distribution channels. The Company also sells standard-type lamps
which it sources from other manufacturers.
Through Ballastronix, the Company's Canadian subsidiary which manufactures
magnetic and electronic power supplies, and Parry, the Company's United Kingdom
subsidiary which manufactures magnetic power supplies for HID lighting systems,
the Company currently offers over 400 power supply products, including a variety
of HID (including metal halide) and fluorescent power supplies. The Company also
offers electronic controls for metal halide lighting systems.
A metal halide lighting system consists of a lamp, power supply and related
electronic controls and switches and any other necessary components assembled
into a product for an end user. The Company believes it will be able to combine
its metal halide expertise and system component manufacturing capabilities to
design, develop, produce and market metal halide systems for innovative
applications. Through its acquisition of Ruud Lighting, the Company has recently
expanded its capability to manufacture and direct market HID lighting systems,
particularly metal halide installations for commercial, industrial and outdoor
lighting applications.
The residential metal halide lighting systems marketed by MicroSun use a
compact 68 watt metal halide lamp (and the necessary electronic power supply)
emitting light equivalent to a 300 watt halogen lamp while using less than 25%
of the electricity. Additional benefits include longer life and greatly reduced
operating temperatures, which dramatically lessen safety concerns. To further
facilitate the penetration of the residential market, the Company's "gear pack"
permits manufacturers to adapt existing incandescent table and floor lamp
designs to the MICROSUN(TM) technology.
The Company is in the early stages of development of an optical light
system for use in projection systems, including televisions. Recent innovations
in projection display have made it possible for a compact light unit to generate
substantially larger and clearer imaging than that available in existing
projection systems. Currently, television manufacturers are limited by the high
cost of existing lighting units for projection systems. The Company is working
with projection system manufacturers to develop a low-cost system using a metal
halide lamp, electronic power supply and optical controls.
The Company also believes that it has a significant opportunity to
introduce metal halide technology to fiber optic lighting systems. Because of
metal halide lighting's ability to produce varied lighting effects, it is
particularly well-suited to be adapted as the light source for fiber optic
lighting systems. Fiber optic lighting systems are currently used in accent
applications, such as swimming pool lighting or as replacement lighting for neon
lighting. In applications such as these, it is important that electricity and
heat be located separately from the desired point of light emission. The Company
expects to introduce, through its Rohm and Haas joint venture, metal halide
fiber optic systems for retail applications, such as downlighting and display
case lighting.
Production Equipment
The Company is the only manufacturer and marketer of turnkey metal halide
lamp production equipment groups, and in fiscal 1997 began to market
internationally its power supply production equipment. A metal halide
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<PAGE> 52
lamp production equipment group consists of up to 50 different production
machines. The Company has also begun to manufacture and sell photometric
measuring equipment, which is used to measure quantity and quality of light for
design and testing of lighting products and systems.
Each lamp production equipment group sells for between $1.0 million to $6.0
million. In order to maintain manufacturing flexibility, the Company must
continually update its own component production equipment, through the internal
design and fabrication of production equipment. The Company leverages its
manufacturing expertise by selling lamp production equipment groups in
international markets to independent companies or to joint ventures formed by
the Company. In connection with each lamp production equipment group sale, the
Company provides lamp designs and specifications, trains the purchaser in
production and creates a customer for materials products.
With its recent acquisition of DSI, a leader in the development of
sophisticated thin film deposition equipment and measurement instrumentation and
thin film products, the Company also has the capability to manufacture and
market turnkey deposition equipment to produce thin film coatings for a variety
of applications. These systems employ sputtering technology to place optically
precise thin coatings on lighting components and other materials. When DSI sells
a system to a customer, DSI will either operate the system for the customer at
DSI's facility or transfer the system to the customer's facility.
PRODUCT DESIGN AND DEVELOPMENT
Management believes one of its key strengths is its ability to design and
develop new products. The Company has dedicated research and development efforts
in each of its product lines having invested $9.7 million or 5.3% of net sales
from continuing operations into research and development over the last three
full fiscal years. In the nine months ended March 31, 1998 the Company invested
$6.1 million of net sales in research and development. Historically, the
Company's efforts primarily have been focused on the development of materials
and system components.
Materials. The Company is focused on improving the purity of, and
production processes for, metal halide salts. The Company pursues these efforts
proactively as well as in response to customer requests for specific metal
halide salts. The Company also focuses on designing and developing improved
electrodes, amalgams and getters used in lamp manufacturing. Through DSI, the
Company expects to continue producing thin film coatings primarily for lighting
applications with particular emphasis on coatings for metal halide lighting
systems, as well as develop related software, measurement and test
instrumentation and reliable, cost-effective application processes.
Systems and Components. The Company's product design and development has
focused on developing innovative components to meet the specialized needs of
various customers, including lighting fixture OEMs. The Company's product design
teams work together with OEMs on the design, development and commercialization
of new system components. Such collaborative development efforts have resulted
in the design of improved metal halide lamps with reduced wattage, better energy
efficiency, smaller size and increased life expectancy.
Since 1996, the Company has increased its focus on design and development
of integrated systems. For example, the "gear pack" was designed by leveraging
the Company's expertise in materials and components. The Company expects efforts
in this area to become increasingly important as the Company seeks to develop
new fiber optic applications and systems for the residential and hospitality
markets and utilizes the capability of Ruud Lighting to manufacture and directly
market HID lighting systems.
MARKETING AND DISTRIBUTION
Commercial Products
Electrical distributors typically market only standard-type lamps, and the
Company believes that its specialty lamp products do not lend themselves to the
traditional marketing channels associated with standard-type lamp products.
Accordingly, the Company has adopted innovative marketing techniques for its
lamps. As a result, in initial distribution, the Company markets its metal
halide system components through OEMs, which generally
51
<PAGE> 53
have been involved in the design of the lamp, and commissioned lighting agents,
who package the Company's lamps and power supplies in their bids on construction
or renovation projects. Due to the fact that the Company's lamps are produced to
the specifications required to match a particular fixture or use by an OEM, the
Company's lamp will generally be included with the fixture each time the fixture
is sold. The Company intends to market complementary lamps and power supplies as
a package to provide better service to its OEM customers and lighting agents, as
well as to increase sales.
The Company also has distributed its metal halide lamps through lighting
agents. Unlike GE, Philips and Sylvania that each have extensive local
distributor relationships, the Company has entered into agency agreements with
lighting agents who represent a full line of fixture manufacturers, under which
the agent receives a commission for selling the Company's lamps. The Company
believes it is the only major lamp manufacturer to distribute its products
through lighting agents. This relationship allows the lighting agent to package
the Company's metal halide lamps with the other products included in its bid on
a project. By bidding a more complete or unique package, the lighting agent has
a competitive advantage over less complete bids and, if selected, earns a
commission on Company lamps sold, which agents generally do not receive from
other lamp suppliers.
The Company intends to increase its sales of replacement lamps through
direct marketing by exploiting both the Company's internally developed
capabilities and Ruud Lighting's direct marketing relationships with contractors
and end-users. Since 1994, the Company has printed its toll-free number on each
lamp that it sells, allowing a customer to call the Company, rather than an
electrical distributor, to order a replacement lamp. This enables the customer
to speak to a more knowledgeable representative, thereby increasing the accuracy
and efficiency of service to the end user. This interaction also allows the
Company to suggest enhanced products better suited for the end user's needs. In
addition, the Company telemarkets replacement lamps in connection with catalogue
distributions. Lamps are delivered by express courier to end users, thereby
providing service efficiency comparable to local electrical distributors. The
Company estimates it sold less than 1% of all replacement metal halide lamps in
1996. Given the expected life of the Company's lamps, the Company is only now
beginning to benefit from this strategy. Replacement lamps are typically sold at
a higher gross margin than lamps sold initially through OEMs or lighting agents.
In addition to packaging power supplies with lamps, the Company is
continuing direct marketing to OEMs and sales through electrical distributors.
The Company markets its metal halide materials to other metal halide lamp
manufacturers, primarily GE, Philips and Sylvania. The Company also markets lamp
materials to its joint venture partners. In addition, the Company works very
closely with its customers to manufacture materials according to their
specifications. Certain customer-developed materials are considered proprietary
to the Company's customers.
Residential Products
The Company is seeking to lead metal halide's penetration of the
residential lighting market by: (i) expanding the marketing of its products,
especially contractor-installed fixtures used in the construction of new and
remodeled housing, building on Ruud Lighting's expertise in direct marketing to
contractors; (ii) developing the use of metal halide fiber optic systems through
a joint venture; and (iii) manufacturing components for compact metal halide
lighting systems utilizing the MICROSUN(TM) technology developed by the Company.
In connection with the market-testing, MicroSun has begun assembling and
marketing of portable metal halide fixtures for the residential and hospitality
markets. The Company intends to pursue a strategy of selling components for
these products to MicroSun, which is expected to brand its products under the
MICROSUN(TM) brand name to create brand identity, differentiating it from
potential competitors, as well as establishing brand loyalty. In fiscal 1996,
MicroSun conducted focus groups where various examples of incandescent table
lamps and table lamps containing the MICROSUN(TM) metal halide lighting system
were presented to and compared by various potential customers. The responses
received by MicroSun were favorable, and using information obtained in the focus
group sessions, MicroSun designed a line of table lamps and produced a catalogue
to market these lamps. MicroSun has successfully marketed similar lamps to
selected hotel chains to provide well-lit work areas for business travelers.
MicroSun has received orders from several select lighting showrooms in
Cleveland, Ohio
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<PAGE> 54
to further test market the sale of table lamps using its MICROSUN(TM) brand
name. MicroSun has commenced commercial production of MICROSUN(TM) brand
products. There can be no assurance that MicroSun will continue to increase its
sales of metal halide lighting into the residential market. As noted above,
during 1998 the Company announced that it intends to spin-off MicroSun to its
shareholders following a capital injection of $34 million to $45 million. See
"Management's Discussion and Analyses of Financial Condition and Results of
Operations -- Spin-Off of MicroSun Business."
MANUFACTURING AND OPERATIONS
The Company's lamp manufacturing facility in Solon, Ohio operates five days
a week, 16 hours a day, with the Company's lamp manufacturing employees working
in two eight-hour shifts each day. The manufacturing of metal halide lamps
consists of three primary processes. First, the quartz arc tube is shaped,
electrodes for carrying the current are installed, the metal halide salt dose is
introduced and the arc tube is sealed. The process is performed at high
temperatures in carefully controlled conditions to ensure that the arc tube is
properly sealed and that no impurities enter the arc tube. Second, the arc tube
is mounted inside a pyrex bulb container and sealed. Finally, the lamp is
finished by adding a contact for the electrical outlet. Although light output of
metal halide lamps is not affected by ambient temperatures, an outer bulb is
used to prevent contact with the arc tube, which operates at extremely high
temperatures. Quartz and pyrex(R) are used in the production of metal halide
lamps because of their durability and ability to retain shape and function at
extremely high temperatures. Finished lamps are inspected, tested and then
shipped in accordance with customer instructions.
The Company produces magnetic power supplies at its facility in Amherst,
Nova Scotia, which operates five days a week with one full shift and a partial
second shift. The Company produces magnetic and electronic power supplies at its
facility in Draycott, England, which operates five days a week with one full
shift. The manufacture of magnetic power supplies is a combination of batch and
production line processes. The production line process starts with a coil
winding department, progresses to an in-line coil and core operation and then to
final assembly. Subassemblies for ignitors and capacitors are located off-line
in a batch operation for inclusion in final assembly.
The Company produces all of the metal halide salts it uses and sells at its
facility in Urbana, Illinois. The Urbana facility, with approximately 60
employees working a single shift, also produces precision metal pieces,
precision metal electrode leads and high speed dose dispensers which are used by
the Company and sold to other metal halide lamp manufacturers.
The Company manufactures production equipment for metal halide lamp
production at its facility in Bellevue, Ohio. This equipment is used internally
for the Company's lamp production and is also sold to other lamp manufacturers.
The Company manufactures many critical and proprietary parts for its production
equipment. It purchases commercial components and has other parts built to its
specifications by a number of local suppliers. The Company assembles and tests
this production equipment as well as trains customers in its use. The Company
supplies extensive product, quality, process and training documentation with the
production equipment.
The Ruud Lighting manufacturing facility in Racine, Wisconsin operates five
days per week, with two eight-hour shifts per day. The manufacturing process is
primarily assembly-to-order based on customer needs. Ruud Lighting's paint
finishing facility is ISO 9002-registered. The facility is five years old and is
capable of providing the combination of E-Coat primer and acrylic powder topcoat
finishing style typically required by the automotive industry.
At the Company's DSI facility in Santa Rosa, California, the Company
produces optical thin film coatings for a variety of applications, as well as
measurement and test instrumentation and equipment for deposition of thin film
coatings. The facility operates five days per week with three eight-hour shifts
per day. Coatings and systems are produced in accordance with exacting customer
specifications. Management believes that DSI has expertise over a broad range of
thin film deposition technologies allowing application of the coating technology
most suitable for a particular client need.
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<PAGE> 55
RAW MATERIALS AND SUPPLIERS
The Company sources its raw materials from a variety of suppliers.
Presently, it sources most of its quartz tubing and pyrex bulbs for lamps from
GE. Although an interruption in these supplies could disrupt the Company's
operations, the Company believes that alternative sources of supply exist and
could be arranged prior to the interruption having a material adverse effect on
the Company's operations or sales. The materials for the Company's power supply
products are readily available on the open market. The Company also purchases
certain of its industrial standard-type lamps from GE and Sylvania. This enables
the Company to devote its production equipment to higher margin specialty lamps.
Most of the raw materials used in the production of metal halide salts can
be sourced from several suppliers. The Company has been the dominant supplier of
metal halide salts to the metal halide lamp industry for many years. Therefore,
the Company has focused on addressing any circumstance which could jeopardize
the continued production of these vital materials. Since the Company is the
primary supplier of metal halide salts to the metal halide lamp industry, any
disruption in supply would also affect each producer of the affected lamp type.
The power supplies for the MICROSUN(TM) systems are manufactured by a
single supplier. The Company believes that in the case of any disruption of this
supply, alternative sources of these power supplies can be arranged prior to any
material adverse effect on the Company's sales.
Components for Ruud Lighting's systems are sourced from the Company as well
as outside suppliers. The great majority of components are readily available
from multiple suppliers.
Raw materials and components for DSI coatings and equipment are sourced
from outside suppliers. The Company has multiple qualified sources for critical
materials and components.
COMPETITION
General
Metal halide systems compete with other types of lighting technology for
many applications. The Company's metal halide lamps compete with lamps produced
by other metal halide lamp manufacturers, primarily GE, Philips and Sylvania.
Metal halide technology is the newest of all lighting technologies and although
the market awareness and the uses of metal halide lamps continue to grow,
competition exists from older technologies in each metal halide application.
Materials
The Company produces materials which are used by the Company and virtually
all other manufacturers of metal halide lamps. In metal halide salts, where the
Company has successfully used its technology focus and manufacturing capability
to develop superior products, the Company has no competitors in the United
States. In overseas markets, one lamp manufacturer produces metal halide salts,
principally for its own use. In other materials categories, the Company's chief
competition is internal production by GE, Philips and Sylvania.
Systems and Components
GE, Philips and Sylvania are the Company's principal competitors in the
production of metal halide lamps. Although GE, Philips and Sylvania have focused
their efforts on the larger incandescent and fluorescent markets, all three
companies produce metal halide lamps. These three companies have emphasized
sales of a relatively small variety of standard-type metal halide lamps, such as
those found in the most common commercial and industrial applications, which the
Company believes represents approximately 75% of the total metal halide lamp
segment. Although the Company believes its technical and engineering expertise
in the production of specialty metal halide lamps and its unique marketing
approach give it a competitive advantage in this market, the Company's three
primary competitors have significantly longer operating histories, substantially
greater financial, technical and other resources and larger marketing and
distribution organizations than the Company and could expand their focus into
specialty lamps.
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<PAGE> 56
The Company does not believe that the foreign lamp manufacturers to whom
the Company sells lamp production equipment compete with the Company's specialty
products. Due to the technical and engineering expertise required to produce a
new type of metal halide lamp, these purchasers have typically only produced the
standard-type lamps in which they have been trained by the Company. Although
these purchasers could potentially produce specialty lamp types to compete with
the Company, these purchasers would need to develop or acquire the expertise
required to produce specialty metal halide lamps.
The Company's North American and European power supply products compete
primarily with products of two manufacturers, Advance Transformers, a subsidiary
of Philips, and MagneTek, both headquartered in the United States. Both these
companies have focused on the large fluorescent power supply market whereas the
focus of the Company's recent acquisitions, Ballastronix and Parry, has been in
HID magnetic power supplies for use primarily in metal halide applications.
Ruud Lighting is the only metal halide systems manufacturer which uses
direct marketing to contractors. Ruud Lighting has over 10,000 customers for
this direct marketing effort. Competitors generally market these systems through
distributors and lighting agents. The Company's portable metal halide lighting
fixtures are in the early stages of commercial introduction and compete with
portable lamps using older technology, primarily incandescent, including
halogen, and compact fluorescent, manufactured by a large number of established
manufacturers. The initial fiber optic systems marketed by the joint venture
with Rohm and Haas will compete primarily with fiber optic products using older
lighting technology as well as conventional systems using multiple lamps and
fixtures.
DSI has one or two principal competitors in each of its markets (lighting,
coating equipment and government/aerospace). While competition is strenuous with
these existing competitors, management believes that the high technical content
of the products and services in these markets make entry by new thin film
coating manufacturers relatively difficult.
INTELLECTUAL PROPERTY
The Company relies primarily on trade secret, trademark and patent laws to
protect its rights to certain aspects of its products, including proprietary
manufacturing processes and technologies, product research and concepts and
trademarks, all of which the Company believes are important to the success of
its products and its competitive position. In recent years, the Company has
successfully taken legal action to enjoin misappropriation of trade secrets by
other parties. Any increase in the level of activities involving
misappropriation of the Company's trade secrets or other intellectual property
rights could require the Company to increase significantly the resources devoted
to such efforts. In addition, an adverse determination in litigation could
subject the Company to the loss of its rights to a particular trade secret,
trademark or patent, could require the Company to grant licenses to third
parties, could prevent the Company from manufacturing, selling or using certain
aspects of its products or could subject the Company to substantial liability,
any of which could have a material adverse effect on the Company's results of
operations. See also "Legal Proceedings" below.
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials as well as laws relating to occupational
health and safety. The Company believes that its business, operations and
facilities are being operated in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
However, the operations of manufacturing plants entail risks in these areas,
which could potentially result in significant expenditures in order to comply
with evolving environmental and health and safety laws, regulations or
requirements that may be adopted or imposed in the future.
In 1993, the Company entered into a consent decree with the City of Solon
Sewer District ("Solon") with respect to the discharge of mercury into the sewer
system from its Solon, Ohio plant operations. The Company instituted procedures
to comply with this consent decree, and the consent decree expired by its terms
due to the
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<PAGE> 57
Company's operation within required discharge limits for the period required by
the decree. However, routine sampling of the effluent by Solon between September
1995 and September 1996 revealed instances of mercury discharge in excess of the
limits imposed by Solon. Subsequent tests conducted by Solon showed mercury
discharges within required limits. The Company has implemented a plan intended
to prevent intermittently exceeding Solon's mercury standards in the future. The
Company believes the cost of continued compliance will not have a material
effect on its financial position or results of operations.
The Company believes that the overall impact of compliance with regulations
and legislation protecting the environment will not have a material effect on
its future financial position or results of operations. Capital expenditures and
operating expenses in fiscal 1995, fiscal 1996, fiscal 1997 and the nine months
ended March 31, 1998 attributable to compliance with such legislation were not
material.
PROPERTIES
The Company's headquarters are located in Solon, Ohio, and the Company
maintains manufacturing facilities in California, Ohio, Illinois, Wisconsin,
Nova Scotia, Canada and Draycott, England. Set forth below is certain
information with respect to the Company's principal facilities as of May 29,
1998:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE OWNED/
FACILITY LOCATION ACTIVITIES FOOTAGE LEASED
----------------- ---------- ----------- ------
<S> <C> <C> <C>
NORTH AMERICA
Racine, Wisconsin Office, manufacturing, finishing, warehouse 440,000 Owned
Solon, Ohio System components manufacturing, office space 330,000 Owned
Bellevue, Ohio System components manufacturing, production 60,000 Leased
equipment manufacturing
Cleveland, Ohio Residential fixture assembly (discontinued 45,000 Owned
operations)
Santa Rosa, California Offices, manufacturing 12,000 Owned
20,000 Leased
Amherst, Nova Scotia, Power supply manufacturing 45,000 Owned
Canada
Urbana, Illinois Materials manufacturing 30,000 Owned
Scarborough, Ontario, Distribution warehouse, office space 28,000 Leased
Canada
Mississauga, Ontario, Power supply distribution warehouse 13,000 Leased
Canada
OTHER
Draycott, England Power supply manufacturing 125,000 Owned
Mitcham, Victoria, Distribution warehouse, office space 16,000 Leased
Australia
</TABLE>
The owned facilities are subject to mortgages in the following approximate
outstanding amounts as of March 31, 1998: Solon -- $4.8 million;
Amherst -- $263,000; Urbana -- $703,000; Cleveland -- $443,000; Santa
Rosa -- $628,000. The aggregate annual rental cost of the leased facilities is
approximately $900,000, and the average remaining lease term is 3.8 years.
On March 11, 1998 a single purpose subsidiary of the Company purchased the
Company's existing Solon, Ohio facility for a purchase price of $7.8 million,
which includes the assumption of an existing mortgage with a principal amount
outstanding of approximately $4.8 million at March 31, 1998. The Company intends
to invest an additional amount of approximately $8.9 million at the facility,
which will become the Company's world headquarters, will have expanded
manufacturing facilities, including manufacturing space for the Unison joint
venture, and will have expanded sales and training facilities.
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EMPLOYEES
As of March 31, 1998, the Company had approximately 1,739 full-time
employees, consisting of employees engaged in the designing, manufacturing and
marketing of materials (72 employees), system components (1,006 employees),
systems (528 employees) and production equipment (94 employees) and 39 employees
in corporate/ administrative services. As a result of the Ruud Lighting and DSI
acquisitions, the employees of these companies have become employees of the
Company. The Company believes that its employee relations are good. The
Company's employees are not represented by any collective bargaining
organization, and the Company has never experienced a work stoppage.
LEGAL PROCEEDINGS
The Company does not have pending any litigation that, separately or in the
aggregate, if adversely determined, could reasonably be expected to have a
material adverse effect on the Company. The Company and its subsidiaries may,
from time to time, be a party to litigation or administrative proceedings which
arise in the normal course of their business.
The Company's recently acquired DSI subsidiary has received notice from a
competitor, which manufactures and markets equipment for the application of thin
films and provides thin film coatings for lighting and other markets, that the
competitor believes certain of DSI's equipment may infringe on the competitor's
patents. The competitor has taken no further action at the date of this
Prospectus; if formal patent infringement claims are made, DSI's management
believes that it has valid defenses to such patent infringement claims, and the
Company intends to vigorously defend any claims which may actually be filed by
the competitor. In light of the foregoing, however, the liability, if any, of
the Company in relation to such possible claims cannot be quantified.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
The following table sets forth certain information, as of March 31, 1998,
with respect to each person who is currently a director, an executive officer or
key employee of the Company.
<TABLE>
<CAPTION>
DIRECTORS
TERM
NAME AGE POSITION EXPIRES
---- --- -------- ---------
<S> <C> <C> <C>
Wayne R. Hellman 52 President, Chief Executive Officer and Chairman 1998
Alan J. Ruud 51 Vice Chairman and Director 2000
Louis S. Fisi 63 Executive Vice President, Secretary and Director 2000
Francis H. Beam 62 Director 2000
John R. Buerkle 48 Director 1999
Theodore A. Filson 62 Director 1998
Susumu Harada 46 Director 1999
A Gordon Tunstall 53 Director 1999
Nicholas R. Sucic 51 Chief Financial Officer, Vice President and
Treasurer
Key Employees
David L. Jennings 48 Coordinator of Pacific Rim Development
Robert S. Roller 51 Coordinator of Market Development
Juris Sulcs 52 Coordinator of Technology Development
</TABLE>
Wayne R. Hellman has served as the chief executive and a director of the
Company since 1995 and as chief executive or other senior officer of each of the
Company's Predecessors since 1983. From 1968 to 1983 he was employed by the
lighting division of General Electric Company. While at General Electric, Mr.
Hellman served as Manager of Strategy Analysis for the Lighting Business Group;
Manager of Engineering for the Photo Lamp Department; Halarc Project Venture
Manager; Manager of Quartz Halogen Engineering and Manager of Metal Halide
Engineering. As the Halarc Project Venture Capital Manager, he was given the
responsibility of developing metal halide technology.
Alan J. Ruud founded Ruud Lighting in December of 1982 and has served as
its chairman of the board and chief executive officer since that time. At the
time of the completion of the Ruud Lighting transaction, on January 2, 1998, Mr.
Ruud was appointed to the Company's board, and serves as vice chairman and a
member of the executive committee. Mr. Ruud founded SPI Lighting, an HID
lighting manufacturer, in 1973, which was sold to McGraw Edison in 1978. Mr.
Ruud managed SPI Lighting until 1982. From 1969 through 1979, Mr. Ruud also ran
a consulting and lighting engineering group in Milwaukee, Wisconsin.
Louis S. Fisi has served as the executive vice president and a director of
the Company since 1995, served as chief financial officer of the Company from
1995 to November 1996 and chief financial officer of one or more of the
Company's Predecessors from 1985 to November 1996, and assisted Mr. Hellman in
the founding of the Predecessors. From 1976 to 1985, Mr. Fisi was employed in
executive and financial capacities by the Smithers Company, an international
industrial company, and from 1967 to 1976 was employed as a certified public
accountant by an international accounting and consulting firm currently known as
Ernst & Young LLP, the Company's independent auditors.
Francis H. Beam has served as a director of the Company since 1995. Mr.
Beam has served as President of Pepper Capital Corp., a venture capital firm
which he formed, since 1988. Mr. Beam is also a director of The Lamson &
Sessions Co., a manufacturer of thermoplastic conduit and pipe, enclosures,
wiring devices and accessories. From 1959 to 1988 he was employed by Ernst &
Young LLP (and its predecessors), the Company's independent auditors. Beginning
in 1967 he held various partnership positions with that firm until his
retirement in 1988 as Vice Chairman and Regional Managing Partner.
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<PAGE> 60
John R. Buerkle was appointed as a director of the Company in January 1998.
Mr. Buerkle has served as Executive Vice President -- Regional Director,
Consumer Products, Asia-Pacific, of S.C. Johnson & Son, Inc. ("S.C. Johnson"), a
company engaged in the production of consumer household products, commercial
products and services and specialty polymers, since April 1995. From 1982 to
1995, Mr. Buerkle was employed in executive and managerial capacities, engaged
primarily in regional business and product development and has held other
managerial positions with S.C. Johnson since 1972.
Theodore A. Filson has been a director of the Company since 1995. Mr.
Filson has served as an independent consultant to the lighting industry since
1994. From 1986 to 1994 he was employed as president and chief executive officer
of Advance Transformer, Inc., the largest manufacturer of lighting system power
supplies in the world.
Susumu Harada has served as a director of the Company since January 1996.
Mr. Harada is the chief executive officer of the following Japanese companies:
Koto Electric, Koto Bunkogen, Iwaki Cristal and Wakoh. Mr. Harada is also the
chief executive of Venture Lighting Japan ("Venture Japan"), formerly, Koto
Luminous, which is the Japanese distribution and manufacturing joint venture in
which the Company has a 30% interest. The product lines of these companies
include specialty lamps, hermetic seals for quartz crystal and optical
semiconductors and digital display lamps. In 1981, Mr. Harada joined Koto as the
Overseas and Domestic Sales and Planning Manager. He held a number of positions
with Koto before he assumed his current position as chief executive officer in
1992.
A Gordon Tunstall has served as a director of the Company since June 1996.
He is the founder of, and for more than 13 years has served as President of,
Tunstall Consulting, Inc., a provider of strategic consulting and financial
planning services. Mr. Tunstall is also currently a director of Romac
International, Inc., a professional and technical placement firm; Orthodontic
Centers of America, Inc., a manager of orthodontic practices; Discount Auto
Parts, Inc., a retail chain of automotive aftermarket parts stores; and Horizon
Medical Products, a medical device manufacturer and distributor.
Nicholas R. Sucic joined the Company in 1996 as Special Assistant to the
Chairman and was appointed chief financial officer and treasurer in November
1996 and Vice President in April 1997. He is a certified public accountant. From
1989 to 1996, he was employed by The Prudential Investment Corporation ("The
Prudential") having served as chief financial officer and comptroller for
various institutional investment units. Prior to joining The Prudential, Mr.
Sucic was a partner with Ernst & Young LLP, the Company's independent auditors,
having been associated with the firm since 1970.
David L. Jennings has served as the senior officer responsible for product
manufacturing and development for one or more of the Predecessors since 1983,
and assisted Mr. Hellman in the founding of the Predecessors. From 1972 to 1983,
he was employed by General Electric in a managerial capacity, engaged primarily
in the marketing and engineering of metal halide and other lighting products.
Robert S. Roller has served as the senior officer responsible for product
marketing for one or more of the Predecessors since 1983, and assisted Mr.
Hellman in the founding of the Predecessors. From 1966 to 1983, he was employed
by the lighting division of General Electric in a managerial capacity, engaged
primarily in the marketing and engineering of metal halide and other lighting
products.
Juris Sulcs has served as the senior officer responsible for technology
development for one or more of the Predecessors since 1983, and assisted Mr.
Hellman in the founding of the Predecessors. From 1966 to 1983, he was employed
by the lighting division of General Electric in a managerial capacity, engaged
primarily in the technological development and quality control of metal halide
and other lighting products.
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<PAGE> 61
CERTAIN TRANSACTIONS
THE COMBINATION
In connection with the Combination, the following executive officers and
directors of the Company or their immediate family members received Common Stock
in the merger of the Predecessors into the Company in exchange for the shares of
common stock of the Predecessors which they had held. The following table sets
forth the number of shares of Common Stock received by these individuals in the
Combination.
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF COMPANY
EXECUTIVE OFFICER, COMMON STOCK
DIRECTOR OR IMMEDIATE RECEIVED
FAMILY MEMBER IN COMBINATION
- --------------------- ----------------
<S> <C>
Wayne R. Hellman............................................ 3,125,153
Louis S. Fisi............................................... 657,112
Theodore A. Filson(1)....................................... 15,021
Francis H. Beam............................................. 34,685
Brian A. Hellman(2)......................................... 177,523
Lisa B. Hellman(2).......................................... 167,206
</TABLE>
- ---------------
(1) Mr. Filson no longer beneficially owns these shares.
(2) Brian Hellman and Lisa Hellman are Mr. Hellman's children.
The Combination was principally effected through a series of nonmonetary
mergers or stock exchanges in which the Predecessors' shareholders received
shares of the Company, except that certain former employees received, in the
aggregate, an insignificant amount of cash for their shares.
OTHER TRANSACTIONS WITH DIRECTORS AND OFFICERS
During fiscal 1996, the Company paid $764,000 to H&F Management, Inc., a
company owned solely by Mr. Hellman, Mr. Fisi and Mr. Brian A. Hellman. H&F
Management, Inc. provided management services to certain Predecessors prior to
the Combination. This arrangement terminated prior to the Company's initial
public offering.
On June 28, 1995, the Company loaned to Mr. Hellman $88,000 (due in June
1997), represented by Mr. Hellman's 8% promissory note to the Company. On May
10, 1995, the Company loaned to Mr. Fisi $70,000 (due in May 1997), represented
by Mr. Fisi's 8% promissory note. These loans were repaid in full in fiscal
1997.
On August 10, 1995, a Predecessor redeemed from Mr. Hellman 193,000 shares
of such Predecessor's common stock at a total price of $146,250.
On September 15, 1995, a Predecessor transferred its nonlamp assets to H&F
Five, Inc., a company owned by Messrs. Hellman, Fisi and certain other employees
of the Company, for a demand promissory note from H&F Five, Inc. in the amount
of $220,000 bearing interest at 8.5% per annum.
In July 1994, Mr. Beam and Mr. Filson were each granted the right to
purchase 48,750 shares of common stock of a Predecessor at $1.00 per share. Such
grant further provided that if all shares were purchased pursuant to such rights
the related rightholder would be entitled to receive an additional 9,750 shares
of common stock of the Predecessor. On various dates in 1994 and 1995, Mr. Beam,
either directly or through trusts or partnerships which he controlled or in
which he had beneficial interests, exercised all of such rights and received
such additional shares. In addition, as to the Filson interest, the shares were
acquired by a trust for the benefit of a family member. In addition, in April
1995, Mr. Filson received an aggregate of 6,500 shares of common stock of the
Predecessor for services rendered. Further, such directors each received 5,000
shares of common stock of the Predecessor in July 1993 upon its emergence from
Chapter 11 reorganization for services rendered. No compensation expense for
such shares was recorded in any period because the amount of such expense in
each period was deemed insignificant. As a result of all of the foregoing, Mr.
Beam and Mr. Filson received 34,685 shares and 15,021 shares of Common Stock,
respectively, in the Combination.
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The Company entered into a three year agreement with Mr. Filson for
consulting services commencing in 1994, which required payment by the Company of
$100,000 per year. This agreement was terminated in 1996. In calendar 1997, Mr.
Filson provided consulting services to the Company and received a fee of
$100,000. In 1998, Mr. Filson has agreed to be available to provide consulting
services to the Company, although the amount of any fees has not yet been
determined.
As generally required by the Indenture, the Company does not intend to
enter into any material transaction with officers or directors, or their family
members, without the approval of a majority of the nonemployee directors in the
future.
Mr. Harada, a director of the Company, is an executive officer, director
and a shareholder of Venture Japan, formerly known as Koto Luminous Ltd., a
Japanese manufacturer and marketer of lighting products. Venture Japan owns
142,268 shares of the Company, which were acquired in the Combination as a
result of its investment in a Predecessor. In April 1997, the Company purchased
a 30% equity interest in Venture Japan. Venture Japan and the Company are each
50% joint venture partners in Pacific Lighting, Inc., a British Virgin Islands
holding company. The Company uses Pacific Lighting to own and hold a number of
the Company's joint venture's investments. Venture Japan is the Company's sole
trading partner in Japan and, as a result, the Company supplies Venture Japan
with materials and lamps. The Company had sales of approximately $1.4 million
and $700,000 in fiscal 1997 and the nine months ended March 31, 1998,
respectively, to Venture Japan.
On January 22, 1996 two subsidiaries of the Company each entered into a
six-year Aircraft Operating Agreement with Levetz Investments, Inc. ("Levetz"),
an unrelated Ohio corporation, for the purpose of chartering a 1986 Beechcraft
King Air 300 airplane (the "King Air Aircraft"), which Levetz leased from
LightAir Ltd. ("LightAir"), an Ohio limited liability company owned by Mr.
Hellman (80%) and Mr. Fisi (20%). On May 27, 1997, the Company entered into a
ten-year Aircraft Dry Lease Agreement with LightAir for the purpose of leasing a
1993 Lear Jet 60 airplane (the "Lear Aircraft"). In each case, the leased
airplanes enable the Company to have air service into locations which are not
adequately served by commercial carriers. On May 6, 1998, LightAir sold the 1986
King Air Aircraft. On April 13, 1998, LightAir purchased a 1991 Beechcraft King
Air 350 airplane (the "Replacement King Air Aircraft") which Levetz leases from
LightAir on the same terms as the original King Air Aircraft; however, there is
no commitment by the Company or any subsidiary for a minimum number of flight
hours for the Replacement King Air Aircraft. However, it is expected that the
Company's usage will remain comparable to the usage of the King Air Aircraft,
which was 453 hours during calendar year 1997. One of the subsidiaries committed
to a minimum of 200 flight hours per year on the King Air Aircraft, and the
other subsidiary committed to a minimum of 75 flight hours per year on the King
Air Aircraft. The Company and its subsidiaries will pay $950 per flight hour on
the Replacement King Air Aircraft for the first 275 hours, and $550 per flight
hour thereafter, in each case plus operating and maintenance expenses. The
Company has committed to a minimum of 260 flight hours per year on the Lear
Aircraft. The lease rate for the Lear Aircraft is $2,500 per flight hour, plus
operating costs and maintenance expenses. Messrs. Hellman and Fisi guaranteed
the repayment of $2.8 million of indebtedness incurred to purchase the
Replacement King Air Aircraft and the repayment of $8.4 million of indebtedness
incurred to purchase the Lear Aircraft. Payments to LightAir pursuant to the
King Air Aircraft lease totalled $244,000 in fiscal 1996 and $553,808 in fiscal
1997. Payments to LightAir totalled $1.6 million for the nine months ended March
31, 1998. Levetz has entered into a separate Aircraft Dry Lease Agreement with
LightAir for use of the Lear Aircraft when not in use by the Company. LightAir
has agreed to pay certain rebates of amounts paid by the Company. These amounts
are recorded as noninterest bearing receivables of the Company which were
$296,000 at June 30, 1997 and $484,000 at March 31, 1998.
On May 20, 1998, LightAir II Ltd. ("LightAir II"), an Ohio limited
liability company owned by Mr. Hellman (50%) and Mr. Ruud (50%), acquired a 1988
Cessna Citation III aircraft. The Company has not entered into any agreement
with respect to this aircraft. It is anticipated that it will be available for
charter to third parties at market rates. LightAir II has advised the Company
that it intends to make the Citation III available for charter to the Company at
approximately 80% of these third party rates. Scott Air Charter of Milwaukee,
Wisconsin is the charter broker for the plane. Messers Hellman and Ruud
guaranteed the repayment of $6.4 million of indebtedness incurred to purchase
the Citation III.
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On January 2, 1998, the Company acquired all of the capital stock of Ruud
Lighting. Mr. Ruud received approximately $17.8 million and 1,502,857 shares of
Common Stock in the transaction and Mr. Ruud's adult children received, in the
aggregate, approximately $9.3 million and 782,857 shares of Common Stock. In
connection with the transaction pursuant to which the Company acquired Ruud
Lighting, in November 1997 certain shareholders of Ruud Lighting, including Mr.
Ruud, purchased undeveloped real estate contiguous to the Ruud Lighting
facility, from Ruud Lighting, for $345,000. The terms of the transactions were
determined by arm's-length negotiation.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of June 30, 1998, by: (i) each of the Company's
directors and executive officers; (ii) each person known by the Company to own
beneficially 5.0% or more of the outstanding Common Stock; and (iii) all
directors and executive officers of the Company as a group. Except as otherwise
noted below, each of the holders listed below has sole voting power and
investment power with respect to the shares shown as beneficially owned.
<TABLE>
<CAPTION>
SHARES OF COMMON STOCK
BENEFICIALLY OWNED
------------------------------------
NAME(1) NUMBER PERCENTAGE
------- ------ ----------
<S> <C> <C>
Wayne R. Hellman(2)......................................... 4,684,676 23.2%
Alan J. Ruud(3)............................................. 3,000,000 14.9%
Louis S. Fisi(4)............................................ 495,917 2.5%
Nicholas R. Sucic........................................... 8,550 *
Francis H. Beam............................................. 36,554 *
John R. Buerkle............................................. -- *
Theodore A. Filson.......................................... 9,000 *
Susumu Harada(5)............................................ 155,028 *
A Gordon Tunstall........................................... 9,000 *
All Directors and Executive Officers as a Group(3)(5)....... 7,907,093 39.3%
</TABLE>
- ---------------
* Less than one percent.
(1) The business address of each of Messrs. Hellman, Fisi, Sucic and Filson is
32000 Aurora Road, Solon, Ohio 44139. The business addresses of Messrs.
Ruud, Buerkle, Beam, Harada and Tunstall are: Mr. Ruud -- Ruud Lighting,
Inc., 9201 Washington Avenue, Racine, Wisconsin 53406; Mr. Buerkle -- S.C.
Johnson & Son, Inc., 1525 Howe Street, Racine, Wisconsin 53403; Mr.
Beam -- Pepper Capital Corporation, 30195 Chagrin Boulevard, Suite 114N,
Pepper Pike, Ohio 44124; Mr. Harada -- Koto Electric Co., Ltd., Bunmeido
Bldg., 7th Floor, 3-16-5, Taito, Taito-Ku, Tokyo 110, Japan; and Mr.
Tunstall -- Tunstall Consulting, 13153 North Dale Mabry, Tampa, Florida,
33618.
(2) Includes 1,898,070 shares owned by Mr. Hellman individually; 125,000 shares
owned by a limited liability company of which Mr. Hellman is the manager and
as to which Mr. Hellman has voting and investment power; 50,000 shares owned
by a private charitable foundation established by Mr. Hellman and as to
which Mr. Hellman has voting and investment power; 70,414 shares
beneficially owned by certain shareholders of the Company held under a
voting trust which expires in 2005 (the "Trust") and 2,510,581 shares
formerly subject to the Trust as to which Mr. Hellman holds an irrevocable
proxy under similar terms. These shares, totaling 2,580,995, are referred to
herein as the "Trust Shares." The Trust Shares include all shares
individually owned by Messrs. Fisi, Jennings, Roller and Sulcs, Ms.
Christine Hellman and Ms. Lisa Hellman, the estate of James Sarver and
trusts for the benefit of Mr. Roller's children. The Trust Shares also
include shares owned by Mr. Brian Hellman. Pursuant to the terms of the
Trust and the irrevocable proxies, Mr. Hellman is empowered to vote the
Trust Shares for all purposes at his sole discretion, but is not provided
with investment power with respect to the Trust Shares. Beneficial owners of
the Trust Shares may remove the shares from the Trust or release the shares
from the irrevocable proxy, as the case may be, to effect a bona fide sale
free of the restrictions of the Trust. All share distributions on account of
the Trust Shares become subject to the Trust, and all cash and other
nonshare distributions on the account of the Trust Shares are to be paid
over to the grantors of the Trust. The expiration of the Trust may be
accelerated under certain circumstances. Mr. Hellman does not receive any
compensation for serving as voting trustee of the Trust. Also includes
shares beneficially owned by Mr. Hellman's wife as to which Mr. Hellman
disclaims beneficial ownership, consisting of 25,861 shares owned and 4,750
shares subject to options exercisable within 60 days of the date hereof.
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<PAGE> 65
(3) Mr. Ruud has the sole power to vote 3,000,000 shares of Common Stock of
which 1,497,143 shares of Common Stock are subject to the terms of a voting
trust agreement dated January 2, 1998 (the "Voting Trust") or an irrevocable
proxy similar to the irrevocable proxies held by Mr. Hellman, discussed
above (collectively, the "Voting Trust Shares"), representing approximately
7.5% of the outstanding Common Stock and the sole power to dispose of
1,502,857 shares of Common Stock, which constitutes approximately 14.9% of
the outstanding Common Stock in the aggregate. The purpose of the Voting
Trust Agreement and proxies is to provide Mr. Ruud with the power to vote
all of the 1,497,143 shares of Common Stock held by the signatories to the
Voting Trust Agreement. The Voting Trust Shares include all shares
individually owned by Messrs. Donald Wandler, Theodore O. Sokoly,
Christopher A. Ruud and Ms. Cynthia A. Johnson.
(4) All individually owned shares are Trust Shares subject to voting control by
Mr. Hellman.
(5) Includes 142,268 shares owned by Venture Japan, of which Mr. Harada is chief
executive officer. Mr. Harada disclaims beneficial ownership of these
shares.
DESCRIPTION OF CERTAIN INDEBTEDNESS
On January 2, 1998, the Company replaced its then outstanding Loan
Agreement and other borrowings in North America with the $85 million Credit
Facility provided by several North American financial institutions. The Credit
Facility was amended on February 26, 1998, effective the Closing Date of the
offering of the Old Notes, and as of May 13, 1998. Set forth below is a summary
description of the Credit Facility, as amended.
The Credit Facility matures on December 31, 2000, subject to extension as
provided therein. Interest rates on loans outstanding are based, at the
Company's option, on (i) the London Interbank Offered Rate ("LIBOR") or (ii) the
"Alternate Rate," which is the greater of (a) the agent bank's prime rate and
(b) the federal funds rate in effect from time to time plus 0.5%. The interest
rates based on LIBOR may range between LIBOR plus .625% and LIBOR plus 1.75%.
The interest rates based on the Alternate Rate may range between the Alternate
Rate and the Alternate Rate plus .25%. The Company is also obligated to pay
commitment fees of between .20% and .375% on the unused portion of the Credit
Facility. The Credit Facility is secured by substantially all of the personal
property of the Company and each of its North American subsidiaries and a pledge
of stock of each of the Company's principal subsidiaries. The Credit Facility
contains certain affirmative and negative covenants customary for this type of
agreement, including restrictions on incurrence of debt, changes in business,
acquisitions, consolidations, mergers or sale of assets, liens, loans and
guaranty obligations, certain leases, capital expenditures, minimum consolidated
net tangible net worth, transactions with affiliates and sale/leaseback
transactions. Furthermore, the Credit Facility contains certain financial
covenants that require the Company to maintain specified ratios, including (i) a
ratio of total debt to EBITDA of not more than (a) 4.00 to 1.00 for any period
on or prior to December 31, 1998, (b) 3.75 to 1.00 for any subsequent period
ending on or prior to December 31, 1999, or (c) 3.50 to 1.00 for any subsequent
period and (ii) a ratio of the sum of (a) EBIT and (b) amortization to total
interest expense of 4.00 to 1.00. For calculation of these ratios for periods
including the three months ended March 31, 1998, EBIT is increased by
$35,020,000, effectively eliminating the effect of noncash charges taken by the
Company in such quarter. The Credit Facility provides also for customary events
of default, including defaults on other indebtedness and final judgments of
$500,000 or more.
THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
In connection with the sale of the Old Notes, the Company entered into the
Registration Rights Agreement with the Placement Agent, pursuant to which the
Company agreed to use its reasonable best efforts to consummate an exchange
offer with respect to the exchange of the Old Notes pursuant to an effective
registration statement for debt securities with terms identical in all material
respects to the terms of the Old Notes, except that (i) the New Notes will have
been registered under the Securities Act and therefore will not be subject to
certain restrictions on transfer applicable to the Old Notes and will not be
entitled to registration and other rights under the Registration Rights
Agreement, and (ii) the New Notes will not provide for any increase in the
interest rate thereon. In that regard, the Old Notes provide, among other
things, that, if the Exchange Offer is not
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<PAGE> 66
consummated by September 13, 1998, the interest rate borne by the Old Notes
following September 13, 1998 will increase by 0.50% per annum until the Exchange
Offer is consummated. Upon consummation of the Exchange Offer, Holders of Old
Notes will not be entitled to any increased rate of interest thereon or any
further registration rights under the Registration Rights Agreement, except that
the Placement Agent may have certain registration rights under limited
circumstances. See "Risk Factors -- Certain Consequences of a Failure to
Exchange Old Notes" and "Description of the Old Notes."
The Exchange Offer is not being made to, nor will the Company accept
tenders for exchange from, holders of Old Notes in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
TERMS OF THE EXCHANGE
The Company hereby offers, upon the terms and subject to the conditions set
forth in this Prospectus and in the accompanying Letter of Transmittal, to
exchange up to $100,000,000 aggregate principal amount of New Notes for a like
aggregate principal amount of Old Notes properly tendered on or prior to the
Expiration Date (as defined below) and not properly withdrawn in accordance with
the procedures described below. The Company will issue, promptly after the
Expiration Date, an aggregate principal amount of up to $100,000,000 of New
Notes in exchange for a like principal amount of outstanding Old Notes tendered
and accepted in connection with the Exchange Offer. Holders may tender their Old
Notes in whole or in part in a principal amount of $1,000 and integral multiples
thereof.
The Exchange Offer is not conditioned upon any minimum number of Old Notes
being tendered. As of the date of this Prospectus $100,000,000 aggregate
principal amount of the Old Notes is outstanding.
Holders of Old Notes do not have any appraisal or dissenters' rights in
connection with the Exchange Offer. Old Notes which are not tendered for
exchange or are tendered but not accepted in connection with the Exchange Offer
will remain outstanding and be entitled to the benefits of the Indenture, but
will not be entitled to any further registration rights under the Registration
Rights Agreement, except that the Placement Agent may have certain registration
rights under limited circumstances.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof promptly after the Expiration
Date.
Holders who tender Old Notes in connection with the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of Old
Notes in connection with the Exchange Offer. The Company will pay all charges
and expenses, other than certain applicable taxes described below, in connection
with the Exchange Offer. See " -- Fees and Expenses."
NEITHER THE BOARD OF DIRECTORS OF THE COMPANY NOR THE COMPANY MAKES ANY
RECOMMENDATION TO HOLDERS OF OLD NOTES AS TO WHETHER TO TENDER OR REFRAIN FROM
TENDERING ALL OR ANY PORTION OF THEIR OLD NOTES PURSUANT TO THE EXCHANGE OFFER.
IN ADDITION, NO ONE HAS BEEN AUTHORIZED TO MAKE ANY SUCH
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<PAGE> 67
RECOMMENDATION. HOLDERS OF OLD NOTES MUST MAKE THEIR OWN DECISION WHETHER TO
TENDER PURSUANT TO THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF OLD
NOTES TO TENDER AFTER READING THIS PROSPECTUS AND THE LETTER OF TRANSMITTAL AND
CONSULTING WITH THEIR ADVISERS, IF ANY, BASED ON THEIR OWN FINANCIAL POSITION
AND REQUIREMENTS.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" means 5:00 p.m., New York City time, on
, 1998 unless the Exchange Offer is extended by the Company (in
which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended).
The Company expressly reserves the right in its sole and absolute
discretion, subject to applicable law, at any time and from time to time, (i) to
delay the acceptance of the Old Notes for exchange, (ii) to terminate the
Exchange Offer (whether or not any Old Notes have theretofore been accepted for
exchange) if the Company determines, in its sole and absolute discretion, that
any of the events or conditions referred to under "-- Certain Conditions to the
Exchange Offer" have occurred or exist or have not been satisfied, (iii) to
extend the Expiration Date of the Exchange Offer and retain all Old Notes
tendered pursuant to the Exchange Offer, subject, however, to the right of
holders of Old Notes to withdraw their tendered Old Notes as described under "--
Withdrawal Rights," and (iv) to waive any condition or otherwise amend the terms
of the Exchange Offer in any respect. If the Exchange Offer is amended in a
manner determined by the Company to constitute a material change, or if the
Company waives a material condition of the Exchange Offer, the Company will
promptly disclose such amendment by means of a prospectus supplement that will
be distributed to the registered holders of the Old Notes, and the Company will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
Any such delay in acceptance, extension, termination or amendment will be
followed promptly by oral or written notice thereof to the Exchange Agent and by
making a public announcement thereof, and such announcement in the case of an
extension will be made no later than 9:00 a.m., New York City time, on the next
business day after the previously scheduled Expiration Date. Without limiting
the manner in which the Company may choose to make any public announcement and
subject to applicable law, the Company shall have no obligation to publish,
advertise or otherwise communicate any such public announcement other than by
issuing a release to the Dow Jones News Service.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF NEW NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
Company will exchange, and will issue to the Exchange Agent, New Notes for Old
Notes validly tendered and not withdrawn (pursuant to the withdrawal rights
described under "-- Withdrawal Rights") promptly after the Expiration Date.
In all cases, delivery of New Notes in exchange for Old Notes tendered and
accepted for exchange pursuant to the Exchange Offer will be made only after
timely receipt by the Exchange Agent of (i) Old Notes or a book-entry
confirmation of a book-entry transfer of Old Notes into the Exchange Agent's
account at The Depository Trust Company ("DTC"), (ii) the Letter of Transmittal
(or facsimile thereof), properly completed and duly executed, with any required
signature guarantees, and (iii) any other documents required by the Letter of
Transmittal.
The term "book-entry confirmation" means a timely confirmation of a
book-entry transfer of Old Notes into the Exchange Agent's account at DTC.
Subject to the terms and conditions of the Exchange Offer, the Company will
be deemed to have accepted for exchange, and thereby exchanged, Old Notes
validly tendered and not withdrawn as, if and when the Company gives oral or
written notice to the Exchange Agent of the Company's acceptance of such Old
Notes for exchange pursuant to the Exchange Offer. The Exchange Agent will act
as agent for the Company for the purpose of receiving tenders of Old Notes,
Letters of Transmittal and related documents, and as agent for tendering holders
for the purpose of receiving Old Notes, Letters of Transmittal and related
documents and transmitting
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<PAGE> 68
New Notes to validly tendering holders. Such exchange will be made promptly
after the Expiration Date. If, for any reason whatsoever, acceptance for
exchange or the exchange of any Old Notes tendered pursuant to the Exchange
Offer is delayed (whether before or after the Company's acceptance for exchange
of Old Notes) or the Company extends the Exchange Offer or is unable to accept
for exchange or exchange Old Notes tendered pursuant to the Exchange Offer,
then, without prejudice to the Company's rights set forth herein, the Exchange
Agent may, nevertheless, on behalf of the Company and subject to Rule 14e-1(c)
under the Exchange Act, retain tendered Old Notes and such Old Notes may not be
withdrawn except to the extent tendering holders are entitled to withdrawal
rights as described under "-- Withdrawal Rights."
Pursuant to the Letter of Transmittal, a holder of Old Notes will warrant
and agree in the Letter of Transmittal that it has full power and authority to
tender, exchange, sell, assign and transfer Old Notes, that the Company will
acquire good, marketable and unencumbered title to the tendered Old Notes, free
and clear of all liens, restrictions, charges and encumbrances, and the Old
Notes tendered for exchange are not subject to any adverse claims or proxies.
The holder also will warrant and agree that it will, upon request, execute and
deliver any additional documents deemed by the Company or the Exchange Agent to
be necessary or desirable to complete the exchange, sale, assignment, and
transfer of the Old Notes tendered pursuant to the Exchange Offer.
PROCEDURES FOR TENDERING OLD NOTES
VALID TENDER. Except as set forth below, in order for Old Notes to be
validly tendered pursuant to the Exchange Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees and any other required documents, must be received by the
Exchange Agent at one of its addresses set forth under "-- Exchange Agent," and
either (i) tendered Old Notes must be received by the Exchange Agent, or (ii)
such Old Notes must be tendered pursuant to the procedures for book-entry
transfer set forth below and a book-entry confirmation must be received by the
Exchange Agent, in each case on or prior to the Expiration Date, or (ii) the
guaranteed delivery procedures set forth below must be complied with.
If less than all of the Old Notes are tendered, a tendering holder should
fill in the amount of Old Notes being tendered in the appropriate box on the
Letter of Transmittal. The entire amount of Old Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated.
THE METHOD OF DELIVERY OF CERTIFICATES, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, IS AT THE OPTION AND SOLE RISK OF THE TENDERING
HOLDER, AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE
EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL, RETURN RECEIPT
REQUESTED, PROPERLY INSURED, OR AN OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
BOOK-ENTRY TRANSFER. The Exchange Agent will establish an account with
respect to the Old Notes at DTC for purposes of the Exchange Offer within two
business days after the date of this Prospectus. Any financial institution that
is a participant in DTC's book-entry transfer facility system may make a
book-entry delivery of the Old Notes by causing DTC to transfer such Old Notes
into the Exchange Agent's account at DTC in accordance with DTC's procedures for
transfers. However, although delivery of Old Notes may be effected through
book-entry transfer into the Exchange Agent's account at DTC, the Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, with
any required signature guarantees and any other required documents, must in any
case be delivered to and received by the Exchange Agent at its address set forth
under "-- Exchange Agent" on or prior to the Expiration Date, or the guaranteed
delivery procedure set forth below must be complied with.
DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S PROCEDURES DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
SIGNATURE GUARANTEES. Certificates for the Old Notes need not be endorsed
and signature guarantees on the Letter of Transmittal are unnecessary unless (a)
a certificate for the Old Notes is registered in a name other than that of the
person surrendering the certificate or (b) such registered holder completes the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
in the Letter of Transmittal. In the case of
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(a) or (b) above, such certificates for Old Notes must be duly endorsed or
accompanied by a properly executed bond power, with the endorsement or signature
on the bond power and on the Letter of Transmittal guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution," including (as such terms are defined therein): (i) a
bank; (ii) a broker, dealer, municipal securities broker or dealer or government
securities broker or dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association (an
"Eligible Institution"), unless surrendered on behalf of such Eligible
Institution. See Instruction 1 to the Letter of Transmittal.
GUARANTEED DELIVERY. If a holder desires to tender Old Notes pursuant to
the Exchange Offer and the certificates for such Old Notes are not immediately
available or time will not permit all required documents to reach the Exchange
Agent on or before the Expiration Date, or the procedures for book-entry
transfer cannot be completed on a timely basis, such Old Notes may nevertheless
be tendered, provided that all of the following guaranteed delivery procedures
are complied with:
(i) such tenders are made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form accompanying the Letter of Transmittal,
is received by the Exchange Agent, as provided below, on or prior to the
Expiration Date; and
(iii) the certificates (or a book-entry confirmation) representing all
tendered Old Notes, in proper form for transfer, together with a properly
completed and duly executed Letter of Transmittal (or facsimile thereof),
with any required signature guarantees and any other documents required by
the Letter of Transmittal, are received by the Exchange Agent within three
New York Stock Exchange trading days after the date of execution of such
Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be delivered by hand, or transmitted
by facsimile or mail to the Exchange Agent and must include a guarantee by an
Eligible Institution in the form set forth in such notice.
Notwithstanding any other provision hereof, the delivery of New Notes in
exchange for Old Notes tendered and accepted for exchange pursuant to the
Exchange Offer will in all cases be made only after timely receipt by the
Exchange Agent of Old Notes, or of a book-entry confirmation with respect to
such Old Notes, and a properly completed and duly executed Letter of Transmittal
(or facsimile thereof), together with any required signature guarantees and any
other documents required by the Letter of Transmittal. Accordingly, the delivery
of New Notes might not be made to all tendering holders at the same time, and
will depend upon when Old Notes, book-entry confirmations with respect to Old
Notes and other required documents are received by the Exchange Agent.
The Company's acceptance for exchange of Old Notes tendered pursuant to any
of the procedures described above will constitute a binding agreement between
the tendering holder and the Company upon the terms and subject to the
conditions of the Exchange Offer.
DETERMINATION OF VALIDITY. All questions as to the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Old Notes will be determined by the Company, in its sole
discretion, whose determination shall be final and binding on all parties. The
Company reserves the absolute right, in its sole and absolute discretion, to
reject any and all tenders determined by it not to be in proper form or the
acceptance of which, or exchange for, may, in the view of counsel to the
Company, be unlawful. The Company also reserves the absolute right, subject to
applicable law, to waive any of the conditions of the Exchange Offer as set
forth under "-- Certain Conditions to the Exchange Offer" or any condition or
irregularity in any tender of Old Notes of any particular holder whether or not
similar conditions or irregularities are waived in the case of other holders.
The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal and the instructions thereto) will be
final and binding. No tender of Old Notes will be deemed to have been validly
made until all irregularities with respect to such tender have been cured or
waived. Neither the Company, any affiliates or assigns of the Company, the
Exchange Agent nor any other person shall be under any
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duty to give any notification of any irregularities in tenders or incur any
liability for failure to give any such notification.
If any Letter of Transmittal, endorsement, bond power, power of attorney,
or any other document required by the Letter of Transmittal is signed by a
trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
such person should so indicate when signing and, unless waived by the Company,
proper evidence satisfactory to the Company, in its sole discretion, of such
person's authority to so act must be submitted.
A beneficial owner of Old Notes that are held by or registered in the name
of a broker, dealer, commercial bank, trust company or other nominee or
custodian is urged to contact such entity promptly if such beneficial holder
wishes to participate in the Exchange Offer.
RESALES OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance of the Commission as set forth in
certain interpretive letters addressed to third parties in other transactions.
However, the Company has not sought its own interpretive letter and there can be
no assurance that the staff of the Division of Corporation Finance of the
Commission would make a similar determination with respect to the Exchange Offer
as it has in such interpretive letters to third parties. Based on these
interpretations by the staff of the Division of Corporation Finance, and subject
to the two immediately following sentences, the Company believes that New Notes
issued pursuant to this Exchange Offer in exchange for Old Notes may be offered
for resale, resold and otherwise transferred by a holder thereof (other than a
holder who is a broker-dealer) without further compliance with the registration
and prospectus delivery requirements of the Securities Act, provided that such
New Notes are acquired in the ordinary course of such holder's business and that
such holder is not participating, and has no arrangement or understanding with
any person to participate, in a distribution (within the meaning of the
Securities Act) of such New Notes. However, any holder of Old Notes who is an
"affiliate" of the Company or who intends to participate in the Exchange Offer
for the purpose of distributing New Notes, or any broker-dealer who purchased
Old Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act, (a) will not be able to rely on
the interpretations of the staff of the Division of Corporation Finance of the
Commission set forth in the above-mentioned interpretive letters, (b) will not
be permitted or entitled to tender such Old Notes in the Exchange Offer and (c)
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any sale or other transfer of such Old Notes
unless such sale is made pursuant to an exemption from such requirements. In
addition, as described below, if any broker-dealer holds Old Notes acquired for
its own account as a result of market-making or other trading activities and
exchanges such Old Notes for New Notes, then such broker-dealer must deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resales of such New Notes.
Each holder of Old Notes who wishes to exchange Old Notes for New Notes in
the Exchange Offer will be required to represent that (i) it is not an
"affiliate" of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) if such holder is not
a broker-dealer, such holder is not engaged in, and does not intend to engage
in, a distribution (within the meaning of the Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Old Notes for its own
account as the result of market-making activities or other trading activities
and must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. Based on the position taken by the staff of the
Division of Corporation Finance of the Commission in the interpretive letters
referred to above, the Company believes that broker-dealers who acquired Old
Notes for their own accounts as a result of market-making activities or other
trading activities ("Participating Broker-Dealers") may fulfill their prospectus
delivery requirements with respect to the New Notes received upon exchange of
such Old Notes (other than Old Notes which represent an unsold allotment from
the original sale of the Old Notes) with a prospectus meeting the
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<PAGE> 71
requirements of the Securities Act, which may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of distribution
with respect to the resale of such New Notes. Accordingly, this Prospectus, as
it may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes where such Old
Notes were acquired by such Participating Broker-Dealer for its own account as a
result of market-making or other trading activities. Subject to certain
provisions set forth in the Registration Rights Agreement, the Company has
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Notes for a period ending 90 days after the Expiration Date (subject to
extension under certain limited circumstances described below) or, if earlier,
when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "Plan of Distribution." Any Participating Broker-Dealer who
is an "affiliate" of the Company may not rely on such interpretive letters and
must comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction.
In that regard, each Participating Broker-Dealer who surrenders Old Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Participating Broker-Dealer will suspend the sale of New
Notes pursuant to this Prospectus until the Company has amended or supplemented
this Prospectus to correct such misstatement or omission and has furnished
copies of the amended or supplemented Prospectus to such Participating
Broker-Dealer or the Company has given notice that the sale of the New Notes may
be resumed, as the case may be. If the Company gives such notice to suspend the
sale of the New Notes, it shall extend the 90-day period referred to above
during which Participating Broker-Dealers are entitled to use this Prospectus in
connection with the resale of New Notes by the number of days during the period
from and including the date of the giving of such notice to and including the
date when Participating Broker-Dealers shall have received copies of the amended
or supplemented Prospectus necessary to permit resales of the New Notes or to
and including the date on which the Company has given notice that the sale of
New Notes may be resumed, as the case may be.
WITHDRAWAL RIGHTS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time on or prior to the Expiration Date.
In order for a withdrawal to be effective, a written, telegraphic, telex or
facsimile transmission of such notice of withdrawal must be timely received by
the Exchange Agent at one of its addresses set forth under "--Exchange Agent" on
or prior to the Expiration Date. Any such notice of withdrawal must specify the
name of the person who tendered the Old Notes to be withdrawn, the aggregate
principal amount of Old Notes to be withdrawn, and (if certificates for such Old
Notes have been tendered) the name of the registered holder of the Old Notes as
set forth on the Old Notes, if different from that of the person who tendered
such Old Notes. If Old Notes have been delivered or otherwise identified to the
Exchange Agent, then prior to the physical release of such Old Notes, the
tendering holder must submit the serial numbers shown on the particular Old
Notes to be withdrawn and the signature on the notice of withdrawal must be
guaranteed by an Eligible Institution, except in the case of Old Notes tendered
for the account of an Eligible Institution. If Old Notes have been tendered
pursuant to the procedures for book-entry transfer set forth in "-- Procedures
for Tendering Old Notes," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Old Notes, in
which case a notice of withdrawal will be effective if delivered to the Exchange
Agent by written, telegraphic, telex or facsimile transmission. Withdrawals of
tenders of Old Notes may not be rescinded. Old Notes properly withdrawn will not
be deemed validly tendered for purposes of the Exchange Offer, but may be
retendered at any subsequent time on or prior to the Expiration Date by
following any of the procedures described above under "-- Procedures for
Tendering Old Notes."
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All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company, the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned to the holder thereof promptly after
withdrawal.
INTEREST ON THE NEW NOTES
Each New Note will bear interest at the rate of 8.00% per annum from the
most recent date to which interest has been paid or duly provided for on the Old
Note surrendered in exchange for such New Note or, if no interest has been paid
or duly provided for on such Old Note, from March 18, 1998. Interest on the New
Notes will be payable semiannually on March 15 and September 15 of each year,
commencing on the first such date following the original issuance date of the
New Notes.
Holders of Old Notes whose Old Notes are accepted for exchange will not
receive accrued interest on such Old Notes for any period from and after the
last Interest Payment Date to which interest has been paid or duly provided for
on such Old Notes prior to the original issue date of the New Notes or, if no
such interest has been paid or duly provided for, will not receive any accrued
interest on such Old Notes, and will be deemed to have waived the right to
receive any interest on such Old Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after March 18, 1998.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provisions of the Exchange Offer, or any
extension of the Exchange Offer, the Company will not be required to accept for
exchange, or to exchange, any Old Notes for any New Notes and, as described
below, may terminate the Exchange Offer (whether or not any Old Notes have
theretofore been accepted for exchange) or may waive any conditions to or amend
the Exchange Offer, if any of the following events or conditions have occurred
or exists or have not been satisfied:
(a) the Exchange Offer, or the making of any exchange by a holder,
violates any applicable law or any applicable interpretation of the staff
of the Commission;
(b) any action or proceeding shall have been instituted or threatened
in any court or by or before any governmental agency or body with respect
to the Exchange Offer which, in the Company's judgment, would reasonably be
expected to impair the ability of the Company to proceed with the Exchange
Offer;
(c) any law, statute, rule or regulation shall have been adopted or
enacted which, in the Company's judgment, would reasonably be expected to
impair the ability of the Company to proceed with the Exchange Offer;
(d) a banking moratorium shall have been declared by United States
federal or Ohio or New York state authorities which, in the Company's
judgment, would reasonably be expected to impair the ability of the Company
to proceed with the Exchange Offer;
(e) trading on the New York Stock Exchange or generally in the United
States over-the-counter market shall have been suspended by order of the
Commission or any other governmental authority which, in the Company's
judgment, would reasonably be expected to impair the ability of the Company
to proceed with the Exchange Offer; or
(f) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Registration
Statement or proceedings shall have been initiated or, to the knowledge of
the Company, threatened for that purpose.
If the Company determines in its sole and absolute discretion that any of
the foregoing events or conditions has occurred or exists or has not been
satisfied, the Company may, subject to applicable law, terminate the Exchange
Offer (whether or not any Old Notes have theretofore been accepted for exchange)
or may waive any such condition or otherwise amend the terms of the Exchange
Offer in any respect. If such waiver or amendment
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constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered holders of the Old Notes, and the Company will
extend the Exchange Offer to the extent required by Rule 14e-1 under the
Exchange Act.
EXCHANGE AGENT
The Bank of New York has been appointed as Exchange Agent for the Exchange
Offer. Delivery of the Letters of Transmittal and any other required documents,
questions, requests for assistance, and requests for additional copies of this
Prospectus or of the Letter of Transmittal should be directed to the Exchange
Agent as follows:
<TABLE>
<S> <C>
BY MAIL: BY OVERNIGHT DELIVERY OR HAND:
- --------------------------------------------- ---------------------------------------------
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street
New York, New York 10286 Corporate Trust Services Window
Attn: Reorganization Section, Ground Level
7E: Odell Romeo New York, New York 10286
(Registered or Certified Mail Recommended) Attn: Reorganization Section,
7E: Odell Romeo
</TABLE>
TO CONFIRM BY TELEPHONE OR FOR INFORMATION:
(212) 815-6337
FACSIMILE TRANSMISSIONS:
(212) 815-6339 (ELIGIBLE INSTITUTION ONLY)
Delivery to other than one of the above addresses or facsimile numbers will not
constitute a valid delivery.
FEES AND EXPENSES
The Company has agreed to pay the Exchange Agent reasonable and customary
fees for its services and will reimburse it for its reasonable out-of-pocket
expenses in connection therewith. The Company will also pay brokerage houses and
other custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding copies of this Prospectus and related documents
to the beneficial owners of Old Notes, and in handling or tendering for their
customers.
Holders who tender their Old Notes for exchange will not be obligated to
pay any transfer taxes in connection therewith. If, however, New Notes are to be
delivered to, or are to be issued in the name of, any person other than the
registered holder of the Old Notes tendered, or if a transfer tax is imposed for
any reason other than the exchange of Old Notes in connection with the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered holder or any other persons) will be payable by the tendering holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes will
be billed directly to such tendering holder.
The Company will not make any payment to brokers, dealers or others
soliciting acceptances of the Exchange Offer.
DESCRIPTION OF THE NEW NOTES
The Old Notes were issued and the New Notes are to be issued under an
Indenture, to be dated as of March 18, 1998, between the Company, as issuer, and
The Bank of New York, as trustee (the "Trustee"). Copies of the Indenture and
the forms of certificates evidencing the Old and New Notes have been filed as an
exhibit to the Registration Statement and are incorporated herein by reference.
The following summary of certain provisions of the Indenture and the Notes does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, all the provisions of the Indenture, including the definitions
of certain terms therein and
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those terms made a part of the Indenture by the Trust Indenture Act of 1939, as
amended. For definitions of certain capitalized terms used in the following
summary, see " -- Certain Definitions."
The Old Notes and the New Notes will constitute a single series of debt
securities under the Indenture. If the Exchange Offer is consummated, Holders of
the Old Notes who do not exchange their Old Notes for New Notes will vote
together with the Holders of New Notes for all relevant purposes under the
Indenture. In that regard, the Indenture requires that certain actions by the
holders thereunder (including acceleration following an Event of Default) must
be taken, and certain rights must be exercised, by specified minimum percentages
of the aggregate principal amount of the outstanding Notes. In determining
whether Holders of the requisite percentage in principal amount have given any
notice, consent or waiver or taken any other action permitted under the
Indenture, any Old Notes which remain outstanding after the Exchange Offer will
be aggregated with the New Notes and the Holders of such Old Notes and New Notes
will vote together as a single series for all such purposes. Accordingly, all
references herein to specified percentages in aggregate principal amount of the
outstanding Notes shall be deemed to mean, at any time after the Exchange Offer
is consummated, such percentage in aggregate principal amount of the Old Notes
and New Notes then outstanding.
The New Notes and the Old Notes are sometimes referred to as, collectively,
the "Notes" and, individually, a "Note."
GENERAL
The Notes will be unsecured unsubordinated obligations of the Company,
initially limited to $100 million aggregate principal amount, and will mature on
March 15, 2008. Each Note will bear interest at 8.00% per annum from March 18,
1998 or from the most recent Interest Payment Date to which interest has been
paid or provided for, payable semiannually (to Holders of record at the close of
business on the March 1 or September 1 immediately preceding Interest Payment
Date) on March 15 and September 15 of each year, commencing with the first
Interest Payment Date occurring after the date of original issuance of such
Note.
Each Note will cease to bear interest from the maturity date or any
redemption date unless, upon due presentation, payment of principal is
improperly withheld or refused. In such event, the relevant Note shall continue
to bear interest at the rate per annum shown on the front cover page hereof
(both before and after judgment) until the day on which all sums due in respect
of such Note up to that day are received by or on behalf of the relevant Holder.
Interest on the Notes will be calculated on the basis of a 360-day year of
twelve 30-day months and, in the case of an incomplete month, the number of days
elapsed.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially will
be the corporate trust office of the Trustee at 101 Barclay Street, New York,
New York 10286); provided that, at the option of the Company, payment of
interest may be made by check mailed to the Holders at their addresses as they
appear in the Security Register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 of principal amount and any integral multiple thereof.
See "--Book-Entry; Delivery and Form." No service charge will be made for any
registration of transfer or exchange of Notes, but the Company may require
payment of a sum sufficient to cover any transfer tax or other similar
governmental charge payable in connection therewith.
Subject to the covenants described below under "Covenants" and applicable
law, the Company may issue additional Notes under the Indenture. The New Notes
offered hereby together with the Old Notes and any additional Notes subsequently
issued would be treated as a single class for all purposes under the Indenture.
Subject to applicable law, the Trustee and the paying agents shall pay to
the Company upon written request any monies held by them for the payment of
principal or interest that remains unclaimed for two years, and, thereafter,
Holders entitled to such monies must look to the Company for payment as general
creditors.
The Company may at any time purchase New Notes in the open market or
otherwise at any price.
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OPTIONAL REDEMPTION
The Notes will be redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after March 15, 2003 and prior to
maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is on or prior to the Redemption Date to receive interest due on an
Interest Payment Date), if redeemed during the 12-month period commencing March
15, of the years set forth below:
<TABLE>
<CAPTION>
YEAR REDEMPTION PRICE
- ---- ----------------
<S> <C>
2003........................................................ 104.000%
2004........................................................ 102.667
2005........................................................ 101.333
2006 and thereafter......................................... 100.000
</TABLE>
In addition, at any time and from time to time prior to March 15, 2001, the
Company may redeem up to 35% of the principal amount of the Notes with the
proceeds to the Company from one or more Public Equity Offerings, at any time or
from time to time in part, at a Redemption Price (expressed as a percentage of
principal amount) of 108%, plus accrued and unpaid interest to the Redemption
Date (subject to the rights of Holders of record on the relevant Regular Record
Date that is prior to the Redemption Date to receive interest due on an Interest
Payment Date); provided that after any such redemption Notes representing at
least 65% of the Notes originally issued remain outstanding and that notice of
such redemption is mailed within 60 days of such Public Equity Offering.
In the case of any partial redemption, selection of the Notes for
redemption will be made by the Trustee in compliance with the requirements of
the principal national securities exchange or automated quotation system, if
any, on which the Notes are listed or, if the Notes are not listed on a national
securities exchange or automated quotation system, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate; provided that no Note of $1,000 in principal amount or less shall
be redeemed in part. If any Note is to be redeemed in part only, the notice of
redemption relating to such Note shall state the portion of the principal amount
thereof to be redeemed. A new Note in principal amount equal to the unredeemed
portion thereof will be issued in the name of the Holder thereof upon
cancellation of the original Note. Such new Notes can be obtained at the offices
of the paying agents and transfer agents.
SINKING FUND
There will be no sinking fund payments for the Notes.
RANKING
The Notes will be unsecured senior indebtedness ranking pari passu with
existing and future unsubordinated unsecured indebtedness and senior in right of
payment to all subordinated indebtedness of the Company. The Notes will be
effectively subordinated to all secured indebtedness of the Company and its
subsidiaries with respect to the collateral securing such indebtedness, and the
New Notes will be effectively subordinated to all liabilities of the Company's
subsidiaries, including trade payables. At March 31, 1998, the Company had
approximately $119.8 million of indebtedness outstanding, including
approximately $9.2 million of indebtedness of the Company's subsidiaries, and
the Company's subsidiaries had approximately $31.6 million of additional
liabilities. At March 31, 1998, the Company and its subsidiaries also had $77.7
million available (subject to financial ratio compliance and other limitations)
to be drawn under the Credit Facility, which is secured by substantially all of
the personal property of the Company and each of its North American subsidiaries
and a pledge of stock of each of the Company's principal subsidiaries. See "Risk
Factors -- Leverage" and "-- Priority of Secured Creditors; Holding Company
Structure."
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CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
covenants and other provisions of the Indenture and the Notes. Reference is made
to the Indenture and the Notes for the full definition of all terms as well as
any other capitalized term used herein for which no definition is provided.
"Acquired Indebtedness" means Indebtedness of a Person existing at the time
such Person becomes a Restricted Subsidiary or assumed in connection with an
Asset Acquisition by a Restricted Subsidiary and not Incurred in connection
with, or in anticipation of, such Person becoming a Restricted Subsidiary or
such Asset Acquisition; provided that Indebtedness of such Person which is
redeemed, defeased, retired or otherwise repaid at the time of or immediately
upon consummation of the transactions by which such Person becomes a Restricted
Subsidiary or such Asset Acquisition shall not be Acquired Indebtedness.
"Adjusted Consolidated Net Income" means, for any period, the aggregate net
income (or loss) of the Company and its Restricted Subsidiaries for such period
determined in conformity with GAAP; provided that the following items shall be
excluded in computing Adjusted Consolidated Net Income (without duplication):
(i) the net income of any Person that is not a Restricted Subsidiary, except to
the extent of the amount of dividends or other distributions actually paid to
the Company or any of its Restricted Subsidiaries by such Person during such
period; (ii) solely for the purposes of calculating the amount of Restricted
Payments that may be made pursuant to clause (C) of the first paragraph of the
"Limitation on Restricted Payments" covenant described below (and in such case,
except to the extent includable pursuant to clause (i) above), the net income
(or loss) of any Person accrued prior to the date it becomes a Restricted
Subsidiary or is merged into or consolidated with the Company or any of its
Restricted Subsidiaries or all or substantially all of the property and assets
of such Person are acquired by the Company or any of its Restricted
Subsidiaries; (iii) the net income of any Restricted Subsidiary to the extent
that the declaration or payment of dividends or similar distributions by such
Restricted Subsidiary of such net income is not at the time permitted by the
operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary; (iv) any gains or losses (on an after-tax basis)
attributable to Asset Sales; (v) except for purposes of calculating the amount
of Restricted Payments that may be made pursuant to clause (C) of the first
paragraph of the "Limitation on Restricted Payments" covenant described below,
any amount paid or accrued as dividends on Preferred Stock of the Company or any
Restricted Subsidiary owned by Persons other than the Company and any of its
Restricted Subsidiaries; and (vi) all extraordinary gains and extraordinary
losses (on an after-tax basis).
"Adjusted Consolidated Net Tangible Assets" means the total amount of
assets of the Company and its Restricted Subsidiaries (less applicable
depreciation, amortization and other valuation reserves), except to the extent
resulting from write-ups of capital assets (excluding write-ups in connection
with accounting for acquisitions in conformity with GAAP), after deducting
therefrom (i) all current liabilities of the Company and its Restricted
Subsidiaries (excluding intercompany items) and (ii) all goodwill, trade names,
trademarks, patents, unamortized debt discount and expense and other like
intangibles, all as set forth on the most recent quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries,
prepared in conformity with GAAP and filed with the Commission or provided to
the Trustee pursuant to the "Commission Reports and Reports to Holders"
covenant.
"Affiliate" means, as applied to any Person, any other Person directly or
indirectly controlling, controlled by, or under direct or indirect common
control with, such Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"Asset Acquisition" means (i) an investment by the Company or any of its
Restricted Subsidiaries in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged into or consolidated with the
Company or any of its Restricted Subsidiaries; provided that such Person's
primary business is related, ancillary or complementary to the businesses of the
Company and its Restricted Subsidiaries on the date of such investment or (ii)
an acquisition by the Company or any of its Restricted Subsidiaries of the
property and assets of any Person other than the Company or any of its
Restricted Subsidiaries that constitute
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substantially all of a division or line of business of such Person; provided
that the property and assets acquired are related, ancillary or complementary to
the businesses of the Company and its Restricted Subsidiaries on the date of
such acquisition.
"Asset Disposition" means the sale or other disposition by the Company or
any of its Restricted Subsidiaries (other than to the Company or another
Restricted Subsidiary) of (i) all or substantially all of the Capital Stock of
any Restricted Subsidiary or (ii) all or substantially all of the assets that
constitute a division or line of business of the Company or any of its
Restricted Subsidiaries.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or sale-leaseback transaction) in one transaction
or a series of related transactions by the Company or any of its Restricted
Subsidiaries to any Person other than the Company or any of its Restricted
Subsidiaries of (i) all or any of the Capital Stock of any Restricted
Subsidiary, (ii) all or substantially all of the property and assets of an
operating unit or business of the Company or any of its Restricted Subsidiaries
or (iii) any other property and assets (other than the Capital Stock or other
Investment in an Unrestricted Subsidiary) of the Company or any of its
Restricted Subsidiaries outside the ordinary course of business of the Company
or such Restricted Subsidiary and, in each case, that is not governed by the
provisions of the Indenture applicable to mergers, consolidations and sales of
assets of the Company; provided that "Asset Sale" shall not include (a) sales or
other dispositions of inventory, receivables and other current assets, (b)
sales, transfers or other dispositions of assets constituting a Restricted
Payment permitted to be made under the "Limitation on Restricted Payments"
covenant, or (c) sales or other dispositions of assets for consideration at
least equal to the fair market value of the assets sold or disposed of, to the
extent that the consideration received would satisfy clause (B) of the
"Limitation on Asset Sales" covenant.
"Average Life" means, at any date of determination with respect to any debt
security, the quotient obtained by dividing (i) the sum of the products of (a)
the number of years from such date of determination to the dates of each
successive scheduled principal payment of such debt security and (b) the amount
of such principal payment by (ii) the sum of all such principal payments.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated, whether
voting or non-voting) in equity of such Person, whether outstanding on the
Closing Date or issued thereafter, including, without limitation, all Common
Stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) of which the discounted present value
of the rental obligations of such Person as lessee, in conformity with GAAP, is
required to be capitalized on the balance sheet of such Person.
"Capitalized Lease Obligations" means the discounted present value of the
rental obligations under a Capitalized Lease.
"Change of Control" means such time as (i) (a) a "person" or "group"
(within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act) becomes
the ultimate "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act) of more than 35% of the total voting power of the Voting Stock of the
Company on a fully diluted basis and (b) such ownership represents a greater
percentage of the total voting power of the Voting Stock of the Company, on a
fully diluted basis, than may then be voted by the Existing Stockholders on such
date; or (ii) individuals who on the Closing Date constitute the Board of
Directors (together with any new or successor directors whose election by the
Board of Directors or whose nomination by the Board of Directors for election by
the Company's stockholders was approved by a vote of at least two-thirds of the
members of the Board of Directors on the date of their election or nomination)
cease for any reason to constitute a majority of the members of the Board of
Directors then in office.
"Closing Date" means the date on which the Old Notes were originally issued
under the Indenture.
"Consolidated EBITDA" means, for any period, Adjusted Consolidated Net
Income for such period plus, to the extent such amount was deducted in
calculating such Adjusted Consolidated Net Income, (i) Consolidated Interest
Expense, (ii) income taxes (other than income taxes (either positive or
negative) attributable to extraordinary gains or losses or Asset Sales or Asset
Dispositions), (iii) depreciation expense, (iv) amortization
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expense and (v) all other non-cash items reducing Adjusted Consolidated Net
Income (other than items that will require cash payments and for which an
accrual or reserve is, or is required by GAAP to be, made), less all non-cash
items increasing Adjusted Consolidated Net Income, all as determined on a
consolidated basis for the Company and its Restricted Subsidiaries in conformity
with GAAP; provided that, if any Restricted Subsidiary is not a Wholly Owned
Restricted Subsidiary, Consolidated EBITDA shall be reduced (to the extent not
otherwise reduced in accordance with GAAP) by an amount equal to (A) the amount
of the Adjusted Consolidated Net Income attributable to such Restricted
Subsidiary multiplied by (B) the percentage ownership interest in the income of
such Restricted Subsidiary not owned on the last day of such period by the
Company or any of its Restricted Subsidiaries.
"Consolidated Interest Expense" means, for any period, the aggregate amount
of interest in respect of Indebtedness (including, without limitation,
amortization of original issue discount on any Indebtedness and the interest
portion of any deferred payment obligation, calculated in accordance with the
effective interest method of accounting; all commissions, discounts and other
fees and charges owed with respect to letters of credit and bankers' acceptance
financing; the net costs associated with Interest Rate Agreements; and
Indebtedness that is Guaranteed or secured by the Company or any of its
Restricted Subsidiaries) and all but the principal component of rentals in
respect of Capitalized Lease Obligations paid, accrued or scheduled to be paid
or to be accrued by the Company and its Restricted Subsidiaries during such
period; excluding, however, (i) any amount of such interest of any Restricted
Subsidiary if the net income of such Restricted Subsidiary is excluded in the
calculation of Adjusted Consolidated Net Income pursuant to clause (iii) of the
definition thereof (but only in the same proportion as the net income of such
Restricted Subsidiary is excluded from the calculation of Adjusted Consolidated
Net Income pursuant to clause (iii) of the definition thereof) and (ii) any
premiums, fees and expenses (and any amortization thereof) payable in connection
with the offering of the Notes, all as determined on a consolidated basis
(without taking into account Unrestricted Subsidiaries) in conformity with GAAP.
"Consolidated Net Worth" means, at any date of determination, stockholders'
equity as set forth on the most recently available quarterly or annual
consolidated balance sheet of the Company and its Restricted Subsidiaries (which
shall be as of a date not more than 90 days prior to the date of such
computation and which shall not take into account Unrestricted Subsidiaries),
less any amounts attributable to Disqualified Stock or any equity security
convertible into or exchangeable for Indebtedness, the cost of treasury stock
and the principal amount of any promissory notes receivable from the sale of the
Capital Stock of the Company or any of its Restricted Subsidiaries, each item to
be determined in conformity with GAAP (excluding the effects of foreign currency
exchange adjustments under Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 52).
"Credit Facility" means the Credit Facility dated as of January 2, 1998, as
amended on February 26, 1998, among the Company and the lenders party thereto
and any other lenders or borrowers from time to time party thereto, collateral
documents, instruments and agreements executed in connection therewith and any
amendments, supplements, substitutions, modifications, extensions, renewals,
restatements, replacement, refinancings or refundings thereof.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement.
"Default" means any event that is, or after notice or the passage of time
or both would be, an Event of Default.
"Disqualified Stock" means any class or series of Capital Stock of any
Person that by its terms or otherwise is (i) required to be redeemed prior to
the Stated Maturity of the Notes, (ii) redeemable at the option of the holder of
such class or series of Capital Stock at any time prior to the Stated Maturity
of the Notes or (iii) convertible into or exchangeable for Capital Stock
referred to in clause (i) or (ii) above or Indebtedness having a scheduled
maturity prior to the Stated Maturity of the Notes; provided that any Capital
Stock that would not constitute Disqualified Stock but for provisions thereof
giving holders thereof the right to require such Person to repurchase or redeem
such Capital Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Stated Maturity of the Notes shall not constitute
Disqualified Stock if the "asset sale" or "change of control" provisions
applicable to such Capital Stock are no more favorable to the holders of such
Capital Stock than the
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provisions contained in "Limitation on Asset Sales" and "Repurchase of Notes
upon a Change of Control" covenants described below and such Capital Stock
specifically provides that such Person will not repurchase or redeem any such
stock pursuant to such provision prior to the Company's repurchase of such Notes
as are required to be repurchased pursuant to the "Limitation on Asset Sales"
and "Repurchase of Notes upon a Change of Control" covenants described below.
"Eligible Accounts Receivable" means at the time of reference thereto
accounts receivable as set forth on the most recent consolidated balance sheet
filed pursuant to the "Commission Reports and Reports to Holders" covenant, less
accounts receivable of Unrestricted Subsidiaries as of the date of such balance
sheet.
"Eligible Inventory" means at the time of reference thereto inventory as
set forth on the most recent consolidated balance sheet filed pursuant to the
"Commission Reports and Reports to Holders" covenant, less inventory of
Unrestricted Subsidiaries as of the date of such balance sheet.
"Existing Stockholders" means (i) Mr. Wayne R. Hellman, (ii) any trust to
the extent that any member of Wayne R. Hellman's family has "beneficial" (as
defined in Rule 13d-3 under the Exchange Act) ownership of the res thereof and
(iii) any "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act) that includes parties specified in clauses (i) or (ii) above if
such parties "beneficially own" (within the meaning of Rule 13d-3 under the
Exchange Act) Voting Stock representing a majority of the voting power of the
Voting Stock owned by such group.
"Fair market value" means the price that would be paid in an arm's-length
transaction between an informed and willing seller under no compulsion to sell
and an informed and willing buyer under no compulsion to buy, as determined in
good faith by the Board of Directors, whose determination shall be conclusive if
evidenced by a Board Resolution.
"Foreign Subsidiaries" means Ballastronix Inc., Parry Power Systems, Ltd.
and any other Subsidiary of the Company incorporated or organized, as the case
may be, outside of the United States of America.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Closing Date, including, without limitation,
those set forth in the opinions and pronouncements of the Accounting Principles
Board of the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as approved by a significant segment of the
accounting profession. All ratios and computations contained or referred to in
the Indenture shall be computed in conformity with GAAP applied on a consistent
basis, except that calculations made for purposes of determining compliance with
the terms of the covenants and with other provisions of the Indenture shall be
made without giving effect to (i) the amortization of any expenses incurred in
connection with the offering of the Notes and (ii) except as otherwise provided,
the amortization of any amounts required or permitted to be amortized by
Accounting Principles Board Opinion Nos. 16 and 17, as subsequently modified or
amended, or the write-off of such amounts.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness of any other Person and,
without limiting the generality of the foregoing, any obligation, direct or
indirect, contingent or otherwise, of such Person (i) to purchase or pay (or
advance or supply funds for the purchase or payment of) such Indebtedness of
such other Person (whether arising by virtue of partnership arrangements, or by
agreements to keep well, to purchase assets, goods, securities or services
(unless such purchase arrangements are on arm's-length terms and are entered
into in the ordinary course of business), to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into for purposes
of assuring in any other manner the obligee of such Indebtedness of the payment
thereof or to protect such obligee against loss in respect thereof (in whole or
in part); provided that the term "Guarantee" shall not include endorsements for
collection or deposit in the ordinary course of business. The term "Guarantee"
used as a verb has a corresponding meaning.
"Incur" means, with respect to any Indebtedness, to incur, create, issue,
assume, Guarantee or otherwise become liable for or with respect to, or become
responsible for, the payment of, contingently or otherwise, such Indebtedness,
including an "Incurrence" of Acquired Indebtedness; provided that neither the
accrual of interest nor the accretion of original issue discount shall be
considered an Incurrence of Indebtedness.
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"Indebtedness" means, with respect to any Person at any date of
determination (without duplication), (i) all indebtedness of such Person for
borrowed money, (ii) all obligations of such Person evidenced by bonds,
debentures, notes or other similar instruments, (iii) all obligations of such
Person in respect of letters of credit or other similar instruments (including
reimbursement obligations with respect thereto, but excluding obligations with
respect to letters of credit (including trade letters of credit) securing
obligations (other than obligations described in (i) or (ii) above or (v), (vi)
or (vii) below) entered into in the ordinary course of business of such Person
to the extent such letters of credit are not drawn upon or, if drawn upon, to
the extent such drawing is reimbursed no later than the third Business Day
following receipt by such Person of a demand for reimbursement), (iv) all
obligations of such Person to pay the deferred and unpaid purchase price of
property or services, which purchase price is due more than six months after the
date of placing such property in service or taking delivery and title thereto or
the completion of such services, except Trade Payables, (v) all Capitalized
Lease Obligations, (vi) all Indebtedness of other Persons secured by a Lien on
any asset of such Person, whether or not such Indebtedness is assumed by such
Person; provided that the amount of such Indebtedness shall be the lesser of (A)
the fair market value of such asset at such date of determination and (B) the
amount of such Indebtedness, (vii) all Indebtedness of other Persons Guaranteed
by such Person to the extent such Indebtedness is Guaranteed by such Person and
(viii) to the extent not otherwise included in this definition, obligations
under Currency Agreements and Interest Rate Agreements. The amount of
Indebtedness of any Person at any date shall be the outstanding balance at such
date of all unconditional obligations as described above and, with respect to
contingent obligations, the maximum liability upon the occurrence of the
contingency giving rise to the obligation, provided (A) that the amount
outstanding at any time of any Indebtedness issued with original issue discount
is the face amount of such Indebtedness less the remaining unamortized portion
of the original issue discount of such Indebtedness at such time as determined
in conformity with GAAP, (B) that money borrowed and set aside at the time of
the Incurrence of any Indebtedness in order to prefund the payment of the
interest on such Indebtedness shall not be deemed to be "Indebtedness" and (C)
that Indebtedness shall not include any liability for federal, state, local or
other taxes.
"Interest Coverage Ratio" means, on any Transaction Date, the ratio of (i)
the aggregate amount of Consolidated EBITDA for the then most recent four fiscal
quarters prior to such Transaction Date for which reports have been filed with
the Commission pursuant to the "Commission Reports and Reports to Holders"
covenant (the "Four Quarter Period") to (ii) the aggregate Consolidated Interest
Expense during such Four Quarter Period. In making the foregoing calculation,
(A) pro forma effect shall be given to any Indebtedness Incurred or repaid
during the period (the "Reference Period") commencing on the first day of the
Four Quarter Period and ending on the Transaction Date (other than Indebtedness
Incurred or repaid under a revolving credit or similar arrangement to the extent
of the commitment thereunder (or under any predecessor revolving credit or
similar arrangement) in effect on the last day of such Four Quarter Period
unless any portion of such Indebtedness is projected, in the reasonable judgment
of the senior management of the Company, to remain outstanding for a period in
excess of 12 months from the date of the Incurrence thereof), in each case as if
such Indebtedness had been Incurred or repaid on the first day of such Reference
Period; (B) Consolidated Interest Expense attributable to interest on any
Indebtedness (whether existing or being Incurred) computed on a pro forma basis
and bearing a floating interest rate shall be computed as if the rate in effect
on the Transaction Date (taking into account any Interest Rate Agreement
applicable to such Indebtedness if such Interest Rate Agreement has a remaining
term in excess of 12 months or, if shorter, at least equal to the remaining term
of such Indebtedness) had been the applicable rate for the entire period; (C)
pro forma effect shall be given to Asset Dispositions and Asset Acquisitions
(including giving pro forma effect to the application of proceeds of any Asset
Disposition) that occur during such Reference Period as if they had occurred and
such proceeds had been applied on the first day of such Reference Period; and
(D) pro forma effect shall be given to asset dispositions and asset acquisitions
(including giving pro forma effect to the application of proceeds of any asset
disposition) that have been made by any Person that has become a Restricted
Subsidiary or has been merged with or into the Company or any Restricted
Subsidiary during such Reference Period and that would have constituted Asset
Dispositions or Asset Acquisitions had such transactions occurred when such
Person was a Restricted Subsidiary as if such asset dispositions or asset
acquisitions were Asset Dispositions or Asset Acquisitions that occurred on the
first day of such Reference Period; provided that to the extent that clause (C)
or (D) of this sentence requires that pro forma effect be given to an Asset
Acquisition or Asset Disposition, such pro forma calculation shall be based upon
the
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four full fiscal quarters immediately preceding the Transaction Date of the
Person, or division or line of business of the Person, that is acquired or
disposed for which financial information is available, as determined by the
Company.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future agreement, interest rate option agreement, interest rate
swap agreement, interest rate cap agreement, interest rate collar agreement,
interest rate hedge agreement, option or future contract or other similar
agreement or arrangement.
"Investment" in any Person means any direct or indirect advance, loan or
other extension of credit (including, without limitation, by way of Guarantee or
similar arrangement; but excluding advances to customers in the ordinary course
of business that are, in conformity with GAAP, recorded as accounts receivable
on the balance sheet of the Company or its Restricted Subsidiaries) or capital
contribution to (by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of others), or any
purchase or acquisition of Capital Stock, bonds, notes, debentures or other
similar instruments issued by, such Person and shall include (i) the designation
of a Restricted Subsidiary as an Unrestricted Subsidiary and (ii) the fair
market value of the Capital Stock (or any other Investment), held by the Company
or any of its Restricted Subsidiaries, of (or in) any Person that has ceased to
be a Restricted Subsidiary, including without limitation, by reason of any
transaction permitted by clause (iii) of the "Limitation on the Issuance and
Sale of Capital Stock of Restricted Subsidiaries" covenant; provided that the
fair market value of the Investment remaining in any Person that has ceased to
be a Restricted Subsidiary shall be deemed not to exceed the aggregate amount of
Investments previously made in such Person valued at the time such Investments
were made less the net reduction of such Investments. For purposes of the
definition of "Unrestricted Subsidiary" and the "Limitation on Restricted
Payments" covenant described below, (i) "Investment" shall include the fair
market value of the assets (net of liabilities (other than liabilities to the
Company or any of its Restricted Subsidiaries)) of any Restricted Subsidiary at
the time that such Restricted Subsidiary is designated an Unrestricted
Subsidiary, (ii) the fair market value of the assets (net of liabilities (other
than liabilities to the Company or any of its Restricted Subsidiaries)) of any
Unrestricted Subsidiary at the time that such Unrestricted Subsidiary is
designated a Restricted Subsidiary shall be considered a reduction in
outstanding Investments and (iii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time of
such transfer.
"Investment Grade Securities" means debt securities or debt instruments
with (A) a final maturity no later than one year after date of acquisition
thereof and (B) a rating of BBB+ or higher by S&P or Baa1 or higher by Moody's
or the equivalent of such rating by such rating organization, or, if no rating
of S&P or Moody's then exists, the equivalent of such rating by any other
nationally recognized statistical rating organization (as defined in Rule 436
under the Securities Act) designated by the Company, but excluding any debt
securities or instruments constituting loans or advances among the Company and
its Subsidiaries.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including, without limitation, any conditional sale or other
title retention agreement or lease in the nature thereof or any agreement to
give any security interest).
"MicroSun" means Microsun Technologies, Inc., an Ohio corporation.
"Moody's" means Moody's Investors Service, Inc. and its successors.
"Net Cash Proceeds" means, (a) with respect to any Asset Sale, the proceeds
of such Asset Sale in the form of cash or cash equivalents, including payments
in respect of deferred payment obligations (to the extent corresponding to the
principal, but not interest, component thereof) when received in the form of
cash or cash equivalents (except to the extent such obligations have recourse to
the Company or any Restricted Subsidiary) and proceeds from the conversion of
other property received when converted to cash or cash equivalents, net of (i)
brokerage commissions and other fees and expenses (including fees and expenses
of counsel and investment bankers) related to such Asset Sale, (ii) provisions
for all taxes (whether or not such taxes will actually be paid or are payable)
as a result of such Asset Sale without regard to the consolidated results of
operations of the Company and its Restricted Subsidiaries, taken as a whole,
(iii) payments made to repay Indebtedness or any other obligation outstanding at
the time of such Asset Sale that either (A) is secured by a Lien on the property
or
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assets sold or (B) is required to be paid as a result of such sale and (iv)
appropriate amounts to be provided by the Company or any Restricted Subsidiary
as a reserve against any liabilities associated with such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale, all as determined
in conformity with GAAP and (b) with respect to any issuance or sale of Capital
Stock, the proceeds of such issuance or sale in the form of cash or cash
equivalents, including payments in respect of deferred payment obligations (to
the extent corresponding to the principal, but not interest, component thereof)
when received in the form of cash or cash equivalents (except to the extent such
obligations have recourse to the Company or any Restricted Subsidiary) and
proceeds from the conversion of other property received when converted to cash
or cash equivalents, net of attorney's fees, accountants' fees, underwriters' or
placement agents' fees, discounts or commissions and brokerage, consultant and
other fees incurred in connection with such issuance or sale and net of taxes
paid or payable as a result thereof.
"Offer to Purchase" means an offer to purchase Notes by the Company from
the Holders commenced by mailing a notice to the Trustee for delivery to each
Holder stating: (i) the covenant pursuant to which the offer is being made and
that all Notes validly tendered will be accepted for payment on a pro rata
basis; (ii) the purchase price and the date of purchase (which shall be a
Business Day no earlier than 30 days nor later than 60 days from the date such
notice is mailed) (the "Payment Date"); (iii) that any Note not tendered will
continue to accrue interest pursuant to its terms; (iv) that, unless the Company
defaults in the payment of the purchase price, any Note accepted for payment
pursuant to the Offer to Purchase shall cease to accrue interest on and after
the Payment Date; (v) that Holders electing to have a Note purchased pursuant to
the Offer to Purchase will be required to surrender the Note, together with the
form entitled "Option of the Holder to Elect Purchase" on the reverse side of
the Note completed, to the Paying Agent at the address specified in the notice
prior to the close of business on the Business Day immediately preceding the
Payment Date; (vi) that Holders will be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the third
Business Day immediately preceding the Payment Date, facsimile transmission or
letter setting forth the name of such Holder, the principal amount of Notes
delivered for purchase and a statement that such Holder is withdrawing his
election to have such Notes purchased; and (vii) that Holders whose Notes are
being purchased only in part will be issued new Notes equal in principal amount
to the unpurchased portion of the Notes surrendered; provided that each Note
purchased and each new Note issued shall be in a principal amount of $1,000 or
integral multiples thereof. On the Payment Date, the Company shall (i) accept
for payment on a pro rata basis (with any rounding determined by the Company to
be reasonable) Notes or portions thereof tendered pursuant to an Offer to
Purchase; (ii) deposit with the Paying Agent money sufficient to pay the
purchase price of all Notes or portions thereof so accepted; and (iii) deliver,
or cause to be delivered, to the Trustee all Notes or portions thereof so
accepted together with an Officers' Certificate specifying the Notes or portions
thereof accepted for payment by the Company. The Paying Agent shall promptly
mail to the Holders of Notes so accepted payment in an amount equal to the
purchase price, and the Trustee shall promptly authenticate and mail to such
Holders a new Note equal in principal amount to any unpurchased portion of the
Note surrendered; provided that each Note purchased and each new Note issued
shall be in a principal amount of $1,000 or integral multiples thereof (with any
rounding determined by the Company to be reasonable). The Company will publicly
announce the results of an Offer to Purchase as soon as practicable after the
Payment Date. The Trustee shall act as the Paying Agent for an Offer to
Purchase. The Company will comply with Rule 14e-1 under the Exchange Act and any
other securities laws and regulations thereunder to the extent such laws and
regulations are applicable, in the event that the Company is required to
repurchase Notes pursuant to an Offer to Purchase.
"Permitted Investment" means (i) an Investment in the Company or a
Restricted Subsidiary or a Person which will, upon the making of such
Investment, become a Restricted Subsidiary or be merged or consolidated with or
into or transfer or convey all or substantially all its assets to, the Company
or a Restricted Subsidiary; provided that such person's primary business is
related, ancillary or complementary to the businesses of the Company and its
Restricted Subsidiaries on the date of such Investment; (ii) Temporary Cash
Investments; (iii) payroll, travel and similar advances to cover matters that
are expected at the time of such advances ultimately to be treated as expenses
in accordance with GAAP; (iv) stock, obligations or securities received in
satisfaction of judgments; (v) an Investment in any Person consisting solely of
the transfer to such Person of an Investment in another Person that is not a
Restricted Subsidiary; (vi) Investment Grade Securities; and (vii) Interest Rate
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Agreements and Currency Agreements designed solely to protect the Company or its
Restricted Subsidiaries against fluctuations in interest rates or foreign
currency exchange rates; (viii) Investments, not to exceed $30 million at any
one time outstanding (and for purposes of this clause (viii) an Investment shall
be deemed to be outstanding in the amount of the excess (but not, in any event,
less than zero) of the amount of such Investment on the date or dates made, less
the return of capital to the Company and its Restricted Subsidiaries with
respect to such Investment); and (ix) Investments, to the extent the
consideration therefor consists of Capital Stock (other than Disqualified Stock)
of the Company or net cash proceeds from the sale of such Capital Stock, if such
Capital Stock was issued or sold within 90 days of the making of such
Investment.
"Permitted Liens" means (i) Liens for taxes, assessments, governmental
charges or claims that are being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (ii) statutory and common law Liens of landlords and
carriers, warehousemen, mechanics, suppliers, materialmen, repairmen or other
similar Liens arising in the ordinary course of business and with respect to
amounts not yet delinquent or being contested in good faith by appropriate legal
proceedings promptly instituted and diligently conducted and for which a reserve
or other appropriate provision, if any, as shall be required in conformity with
GAAP shall have been made; (iii) Liens incurred or deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (iv) Liens incurred or deposits
made to secure the performance of tenders, bids, leases, statutory or regulatory
obligations, bankers' acceptances, surety and appeal bonds, government
contracts, performance and return-of-money bonds and other obligations of a
similar nature incurred in the ordinary course of business (exclusive of
obligations for the payment of borrowed money); (v) easements, rights-of-way,
municipal and zoning ordinances and similar charges, encumbrances, title defects
or other irregularities that do not materially interfere with the ordinary
course of business of the Company or any of its Restricted Subsidiaries; (vi)
Liens (including extensions and renewals thereof) upon real or personal property
acquired after the Closing Date; provided that (a) such Lien is created solely
for the purpose of securing Indebtedness Incurred, in accordance with the
"Limitation on Indebtedness" covenant described below, to finance the cost
(including the cost of improvement or construction) of the item of property or
assets subject thereto and such Lien is created prior to, at the time of or
within six months after the later of the acquisition, the completion of
construction or the commencement of full operation of such property or to
refinance Indebtedness previously so secured, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost and (c) any
such Lien shall not extend to or cover any property or assets other than such
item of property or assets and any improvements on such item; (vii) leases or
subleases granted to others that do not materially interfere with the ordinary
course of business of the Company and its Restricted Subsidiaries, taken as a
whole; (viii) Liens encumbering property or assets under construction arising
from progress or partial payments by a customer of the Company or its Restricted
Subsidiaries relating to such property or assets; (ix) any interest or title of
a lessor in the property subject to any Capitalized Lease or operating lease;
(x) Liens arising from filing Uniform Commercial Code financing statements
regarding leases; (xi) Liens on property of, or on shares of Capital Stock or
Indebtedness of, any Person existing at the time such Person becomes, or becomes
a part of, any Restricted Subsidiary; provided that such Liens do not extend to
or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets acquired; (xii) Liens in favor of the Company
or any Restricted Subsidiary; (xiii) Liens arising from the rendering of a final
judgment or order against the Company or any Restricted Subsidiary that does not
give rise to an Event of Default; (xiv) Liens securing reimbursement obligations
with respect to letters of credit that encumber documents and other property
relating to such letters of credit and the products and proceeds thereof; (xv)
Liens in favor of customs and revenue authorities arising as a matter of law to
secure payment of customs duties in connection with the importation of goods;
(xvi) Liens encumbering customary initial deposits and margin deposits, and
other Liens that are within the general parameters customary in the industry and
incurred in the ordinary course of business, in each case, securing Indebtedness
under Interest Rate Agreements and Currency Agreements and forward contracts,
options, future contracts, futures options or similar agreements or arrangements
designed solely to protect the Company or any of its Restricted Subsidiaries
from fluctuations in interest rates, currencies or the price of commodities;
(xvii) Liens arising out of conditional sale, title retention, consignment or
similar arrangements for the sale of goods entered into by the Company or any of
its Restricted
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Subsidiaries in the ordinary course of business in accordance with the past
practices of the Company and its Restricted Subsidiaries prior to the Closing
Date; and (xviii) Liens on or sales of receivables.
"Public Equity Offering" means an underwritten public offering of Common
Stock by the Company pursuant to an effective registration statement under the
Securities Act.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Significant Subsidiary" means, at any date of determination, any
Restricted Subsidiary that, together with its Subsidiaries, (i) for the most
recent fiscal year of the Company, accounted for more than 10% of the
consolidated revenues of the Company and its Restricted Subsidiaries or (ii) as
of the end of such fiscal year, was the owner of more than 10% of the
consolidated assets of the Company and its Restricted Subsidiaries, all as set
forth on the most recently available consolidated financial statements of the
Company for such fiscal year, as determined by the Company.
"S&P" means Standard & Poor's Ratings Services and its successors.
"Stated Maturity" means, (i) with respect to any debt security, the date
specified in such debt security as the fixed date on which the final installment
of principal of such debt security is due and payable and (ii) with respect to
any scheduled installment of principal of or interest on any debt security, the
date specified in such debt security as the fixed date on which such installment
is due and payable.
"Subsidiary" means, with respect to any Person, any corporation,
association or other business entity of which more than 50% of the voting power
of the outstanding Voting Stock is owned, directly or indirectly, by such Person
and one or more other Subsidiaries of such Person.
"Temporary Cash Investment" means any of the following: (i) direct
obligations of the United States of America or any agency thereof or obligations
fully and unconditionally guaranteed by the United States of America or any
agency thereof, (ii) time deposit accounts, certificates of deposit and money
market deposits maturing within one year of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized by
the United States of America, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50 million (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) commercial paper, maturing not more than 270 days after the
date of acquisition, issued by a corporation (other than an Affiliate of the
Company) organized and in existence under the laws of the United States of
America, any state thereof or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's or "A-1" (or higher) according
to S&P, and (v) securities with maturities of one year or less from the date of
acquisition issued or fully and unconditionally guaranteed by any state,
commonwealth or territory of the United States of America, or by any political
subdivision or taxing authority thereof, and rated at least BBB+ by S&P or Baa1
by Moody's and (vi) time deposit accounts, certificates of deposits and money
market deposits aggregating no more than $10 million at any one time
outstanding, issued by one of the five largest (based on assets on the most
recent December 31 for which data is available) banks organized under the laws
of the country in which the Foreign Subsidiary marking the deposit referred to
above is organized, if such bank is not under material government intervention.
"Trade Payables" means, with respect to any Person, any accounts payable or
any other indebtedness or monetary obligation to trade creditors created,
assumed or Guaranteed by such Person or any of its Subsidiaries arising in the
ordinary course of business in connection with the acquisition of goods or
services, in each case required to be paid within one year.
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"Transaction Date" means, with respect to the Incurrence of any
Indebtedness by the Company or any of its Restricted Subsidiaries, the date such
Indebtedness is to be Incurred and, with respect to any Restricted Payment, the
date such Restricted Payment is to be made.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by the
Board of Directors in the manner provided below; and (ii) any Subsidiary of an
Unrestricted Subsidiary. The Board of Directors may designate any Restricted
Subsidiary (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary owns any
Capital Stock of, or owns or holds any Lien on any property of, the Company or
any Restricted Subsidiary; provided that (A) any Guarantee by the Company or any
Restricted Subsidiary of any Indebtedness of the Subsidiary being so designated
shall be deemed an "Incurrence" of such Indebtedness and an "Investment" by the
Company or such Restricted Subsidiary (or both, if applicable) at the time of
such designation; (B) either (I) the Subsidiary to be so designated has total
assets of $1,000 or less or (II) if such Subsidiary has assets greater than
$1,000, such designation would be permitted under the "Limitation on Restricted
Payments" covenant described below and (C) if applicable, the Incurrence of
Indebtedness and the Investment referred to in clause (A) of this proviso would
be permitted under the "Limitation on Indebtedness" and "Limitation on
Restricted Payments" covenants described below. The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided
that (x) no Default or Event of Default shall have occurred and be continuing at
the time of or after giving effect to such designation and (y) all Liens and
Indebtedness of such Unrestricted Subsidiary outstanding immediately after such
designation would, if Incurred at such time, have been permitted to be Incurred
(and shall be deemed to have been Incurred) for all purposes of the Indenture.
Any such designation by the Board of Directors shall be evidenced to the Trustee
by promptly filing with the Trustee a copy of the Board Resolution giving effect
to such designation and an Officers' Certificate certifying that such
designation complied with the foregoing provisions.
"Voting Stock" means with respect to any Person, Capital Stock of any class
or kind having the power to vote for the election of directors, managers or
other voting members of the governing body of such Person (not including,
however, any Capital Stock having such right to vote only upon the happening of
certain events or under limited circumstances).
"Wholly Owned" means, with respect to any Subsidiary of any Person, the
ownership of all of the outstanding Capital Stock of such Subsidiary (other than
any director's qualifying shares or Investments by foreign nationals mandated by
applicable law) by such Person or one or more Wholly Owned Subsidiaries of such
Person.
COVENANTS
Limitation on Indebtedness
(a) The Company will not, and will not permit any of its Restricted
Subsidiaries to, Incur any Indebtedness (other than the Notes and Indebtedness
existing on March 18, 1998); provided that the Company may Incur Indebtedness
if, after giving effect to the Incurrence of such Indebtedness and the receipt
and application of the proceeds therefrom, the Interest Coverage Ratio would be
greater than 2.5:1.
Notwithstanding the foregoing, the Company and any Restricted Subsidiary
(except as specified below) may Incur each and all of the following: (i)
Indebtedness of the Company under the Credit Facility or any other agreement in
an aggregate principal amount outstanding at any time not to exceed $100
million, less any amount of such Indebtedness permanently repaid as provided
under the "Limitation on Asset Sales" covenant described below; (ii)
Indebtedness owed (A) to the Company evidenced by an unsubordinated promissory
note or (B) to any Restricted Subsidiary; provided that any event which results
in any such Restricted Subsidiary ceasing to be a Restricted Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or another
Restricted Subsidiary) shall be deemed, in each case, to constitute an
Incurrence of such Indebtedness not permitted by this clause (ii); (iii)
Indebtedness issued in exchange for, or the net proceeds of which are used to
refinance or refund, then outstanding Indebtedness (other than Indebtedness
Incurred under clause (i), (ii), (iv), (vi), (vii), (viii), (ix), (x) or (xii)
of this paragraph) and any refinancings thereof in an amount not to exceed the
amount so refinanced or refunded (plus premiums, accrued interest, fees and
expenses); provided that
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Indebtedness the proceeds of which are used to refinance or refund the Notes or
Indebtedness that is pari passu with, or subordinated in right of payment to,
the Notes shall only be permitted under this clause (iii) if (A) in case the
Notes are refinanced in part or the Indebtedness to be refinanced is pari passu
with the Notes, such new Indebtedness, by its terms or by the terms of any
agreement or instrument pursuant to which such new Indebtedness is outstanding,
is expressly made pari passu with, or subordinate in right of payment to, the
remaining Notes, (B) in case the Indebtedness to be refinanced is subordinated
in right of payment to the Notes, such new Indebtedness, by its terms or by the
terms of any agreement or instrument pursuant to which such new Indebtedness is
issued or remains outstanding, is expressly made subordinate in right of payment
to the Notes at least to the extent that the Indebtedness to be refinanced is
subordinated to the Notes and (C) such new Indebtedness, determined as of the
date of Incurrence of such new Indebtedness, does not mature prior to the Stated
Maturity of the Indebtedness to be refinanced or refunded, and the Average Life
of such new Indebtedness is at least equal to the remaining Average Life of the
Indebtedness to be refinanced or refunded; and provided further that in no event
may Indebtedness of the Company be refinanced by means of any Indebtedness of
any Restricted Subsidiary pursuant to this clause (iii); (iv) Indebtedness (A)
in respect of performance, surety or appeal bonds provided in the ordinary
course of business, (B) under Currency Agreements and Interest Rate Agreements;
provided that such agreements (x) are designed solely to protect the Company or
its Restricted Subsidiaries against fluctuations in foreign currency exchange
rates or interest rates and (y) do not increase the Indebtedness of the obligor
outstanding at any time other than as a result of fluctuations in foreign
currency exchange rates or interest rates or by reason of fees, indemnities and
compensation payable thereunder; and (C) arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credit, surety bonds or performance bonds securing any
obligations of the Company or any of its Restricted Subsidiaries pursuant to
such agreements, in any case Incurred in connection with the disposition of any
business, assets or Restricted Subsidiary (other than Guarantees of Indebtedness
Incurred by any Person acquiring all or any portion of such business, assets or
Restricted Subsidiary for the purpose of financing such acquisition), in a
principal amount not to exceed the gross proceeds actually received by the
Company or any Restricted Subsidiary in connection with such disposition; (v)
Indebtedness of the Company, to the extent the net proceeds thereof are promptly
(A) used to purchase Notes tendered in an Offer to Purchase made as a result of
a Change in Control or (B) deposited to defease the Notes as described below
under "Defeasance"; (vi) Guarantees of the Notes and Guarantees of Indebtedness
of the Company by any Restricted Subsidiary provided the Guarantee of such
Indebtedness is permitted by and made in accordance with the "Limitation on
Issuance of Guarantees by Restricted Subsidiaries" covenant described below;
(vii) Indebtedness of the Company, not to exceed $15 million in any fiscal year
of the Company, Incurred to finance capital expenditures; (viii) Indebtedness of
the Company in an aggregate principal amount outstanding at any time not to
exceed the sum of 80% of Eligible Accounts Receivable and 60% of Eligible
Inventory; (ix) Indebtedness of Foreign Subsidiaries in an aggregate principal
amount outstanding at any time not to exceed the greater of (A) $20 million and
(B) one-third of Consolidated EBITDA for the then most recent four fiscal
quarters covered by filings made pursuant to the "Commission Reports and Reports
to Holders" covenant; (x) Indebtedness of Restricted Subsidiaries, not to exceed
$10.5 million, secured by real property of such Restricted Subsidiaries; (xi)
Acquired Indebtedness, provided that, pro forma for the transactions in which
such Acquired Indebtedness is Incurred, the Interest Coverage Ratio would be no
less than 2.5:1; and (xi) Indebtedness of the Company (in addition to
Indebtedness permitted under clauses (i) through (xi) above) in an aggregate
principal amount outstanding at any time not to exceed $70 million, less any
amount of such Indebtedness permanently repaid as provided under the "Limitation
on Asset Sales" covenant described below.
(b) Notwithstanding any other provision of this "Limitation on
Indebtedness" covenant, the maximum amount of Indebtedness that the Company or a
Restricted Subsidiary may Incur pursuant to this "Limitation on Indebtedness"
covenant shall not be deemed to be exceeded, with respect to any outstanding
Indebtedness due solely to the result of fluctuations in the exchange rates of
currencies.
(c) For purposes of determining any particular amount of Indebtedness under
this "Limitation on Indebtedness" covenant, (i) Indebtedness Incurred under the
Credit Facility on or prior to the Closing Date shall be treated as Incurred
pursuant to clause (i) of the second paragraph of this "Limitation on
Indebtedness" covenant, (ii) Guarantees, Liens or obligations with respect to
letters of credit supporting Indebtedness otherwise included in the
determination of such particular amount shall not be included and (iii) any
Liens granted pursuant
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to the equal and ratable provisions referred to in the "Limitation on Liens"
covenant described below shall not be treated as Indebtedness. For purposes of
determining compliance with this "Limitation on Indebtedness" covenant, in the
event that an item of Indebtedness meets the criteria of more than one of the
types of Indebtedness described in the above clauses (other than Indebtedness
referred to in clause (i) of the preceding sentence), the Company, in its sole
discretion, shall classify, and from time to time may reclassify, such item of
Indebtedness and only be required to include the amount and type of such
Indebtedness in one of such clauses.
Limitation on Restricted Payments
(a) The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, (i) declare or pay any dividend or make any distribution
on or with respect to its Capital Stock (other than (x) dividends or
distributions payable solely in shares of its Capital Stock (other than
Disqualified Stock) or in options, warrants or other rights to acquire shares of
such Capital Stock and (y) pro rata dividends or distributions on Common Stock
of Restricted Subsidiaries held by minority stockholders) held by Persons other
than the Company or any of its Restricted Subsidiaries, (ii) purchase, redeem,
retire or otherwise acquire for value any shares of Capital Stock of (A) the
Company or an Unrestricted Subsidiary (including options, warrants or other
rights to acquire such shares of Capital Stock) held by any Person or (B) a
Restricted Subsidiary (including options, warrants or other rights to acquire
such shares of Capital Stock) held by any Affiliate of the Company (other than a
Wholly Owned Restricted Subsidiary) or any holder (or any Affiliate of such
holder) of 5% or more of the Capital Stock of the Company, (iii) make any
voluntary or optional principal payment, or voluntary or optional redemption,
repurchase, defeasance, or other acquisition or retirement for value, of
Indebtedness of the Company that is subordinated in right of payment to the
Notes or (iv) make any Investment, other than a Permitted Investment, in any
Person (such payments or any other actions described in clauses (i) through (iv)
above being collectively "Restricted Payments") if, at the time of, and after
giving effect to, the proposed Restricted Payment: (A) a Default or Event of
Default shall have occurred and be continuing, (B) except in the case of an
Investment, the Company could not Incur at least $1.00 of Indebtedness under the
first paragraph of the "Limitation on Indebtedness" covenant or (C) the
aggregate amount of all Restricted Payments (the amount, if other than in cash,
to be determined in good faith by the Board of Directors, whose determination
shall be conclusive and evidenced by a Board Resolution; provided that
Restricted Payments, to the extent made solely in Capital Stock other than
Disqualified Stock, shall for purposes of this clause (C) be deemed to be in an
amount equal to zero) made after the Closing Date shall exceed the sum of (1)
50% of the aggregate amount of the Adjusted Consolidated Net Income (or, if the
Adjusted Consolidated Net Income is a loss, minus 100% of the amount of such
loss) (determined by excluding income resulting from transfers of assets by the
Company or a Restricted Subsidiary to an Unrestricted Subsidiary) accrued on a
cumulative basis during the period (taken as one accounting period) beginning on
the first day of the fiscal quarter immediately following the Closing Date and
ending on the last day of the last fiscal quarter preceding the Transaction Date
for which reports have been filed with the Commission or provided to the Trustee
pursuant to the "Commission Reports and Reports to Holders" covenant plus (2)
the aggregate Net Cash Proceeds received by the Company after the Closing Date
from the issuance and sale permitted by the Indenture of its Capital Stock
(other than Disqualified Stock) to a Person who is not a Subsidiary of the
Company, including an issuance or sale permitted by the Indenture of
Indebtedness of the Company for cash subsequent to the Closing Date upon the
conversion of such Indebtedness into Capital Stock (other than Disqualified
Stock) of the Company, or from the issuance to a Person who is not a Subsidiary
of the Company of any options, warrants or other rights to acquire Capital Stock
of the Company (in each case, exclusive of any Disqualified Stock or any
options, warrants or other rights that are redeemable at the option of the
holder, or are required to be redeemed, prior to the Stated Maturity of the
Notes) plus (3) an amount equal to the net reduction in outstanding Investments
(other than reductions in outstanding Permitted Investments) in any Person
resulting from payments of interest on Indebtedness, dividends, repayments of
loans or advances, or other transfers of assets, in each case to the Company or
any Restricted Subsidiary or from the Net Cash Proceeds from the sale of any
such Investment (except, in each case, to the extent any such payment or
proceeds are included in the calculation of Adjusted Consolidated Net Income),
or from redesignations of Unrestricted Subsidiaries as Restricted Subsidiaries
(valued in each case as provided in the definition of "Investments"), not to
exceed, in each case, the amount of Investments previously made by the Company
or any Restricted Subsidiary in such Person or Unrestricted Subsidiary. The
amount of any Investment "outstanding" at any time shall be deemed to
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be equal to the amount of such Investment on the date made, less the return of
capital to the Company and its Restricted Subsidiaries with respect to such
Investment (up to the amount of such Investment on the date made).
Notwithstanding anything herein to the contrary, Investments made through the
transfer of equipment shall be valued at the book value at the time of
Investment with respect to such equipment.
(b) The foregoing provision shall not be violated by reason of: (i) the
payment of any dividend within 60 days after the date of declaration thereof if,
at said date of declaration, such payment would comply with the foregoing
paragraph; (ii) the redemption, repurchase, defeasance or other acquisition or
retirement for value of Indebtedness that is subordinated in right of payment to
the Notes including premium, if any, and accrued and unpaid interest, with the
proceeds of, or in exchange for, Indebtedness Incurred under clause (iii) of the
second paragraph of part (a) of the "Limitation on Indebtedness" covenant; (iii)
the repurchase, redemption or other acquisition of Capital Stock of the Company
or an Unrestricted Subsidiary (or options, warrants or other rights to acquire
such Capital Stock) in exchange for, or out of the proceeds of a substantially
concurrent offering of, shares of Capital Stock (other than Disqualified Stock)
of the Company (or options, warrants or other rights to acquire such Capital
Stock); (iv) the making of any principal payment or the repurchase, redemption,
retirement, defeasance or other acquisition for value of Indebtedness of the
Company which is subordinated in right of payment to the Notes in exchange for,
or out of the proceeds of, a substantially concurrent offering of, shares of the
Capital Stock (other than Disqualified Stock) of the Company (or options,
warrants or other rights to acquire such Capital Stock); (v) payments or
distributions, to dissenting stockholders pursuant to applicable law, pursuant
to or in connection with a consolidation, merger or transfer of assets that
complies with the provisions of the Indenture applicable to mergers,
consolidations and transfers of all or substantially all of the property and
assets of the Company; or (vi) dividends consisting of rights to purchase Common
Stock, or consisting of Common Stock, of MicroSun; provided that the balance
sheet value of MicroSun's assets, net of intangible assets, does not exceed $10
million as of the date of such dividend; provided that, except in the case of
clauses (i) and (iii), no Default or Event of Default shall have occurred and be
continuing or occur as a consequence of the actions or payments set forth
therein.
(c) Each Restricted Payment permitted pursuant to paragraph (b) of this
"Limitation on Restricted Payments" covenant (other than the Restricted Payment
referred to in clause (ii) thereof, an exchange of Capital Stock for Capital
Stock or Indebtedness referred to in clause (iii) or (iv) thereof and an
Investment referred to in clause (vi) thereof), and the Net Cash Proceeds from
any issuance of Capital Stock referred to in clauses (iii) and (iv) thereof,
shall be included in calculating whether the conditions of clause (C) of the
first paragraph of this "Limitation on Restricted Payments" covenant have been
met with respect to any subsequent Restricted Payments. In the event the
proceeds of an issuance of Capital Stock of the Company are used for the
redemption, repurchase or other acquisition of the Notes, or Indebtedness that
is pari passu with the Notes, then the Net Cash Proceeds of such issuance shall
be included in clause (C) of the first paragraph of this "Limitation on
Restricted Payments" covenant only to the extent such proceeds are not used for
such redemption, repurchase or other acquisition of Indebtedness.
Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries
The Company will not, and will not permit any Restricted Subsidiary to,
create or otherwise cause or suffer to exist or become effective any consensual
encumbrance or restriction of any kind on the ability of any Restricted
Subsidiary to (i) pay dividends or make any other distributions permitted by
applicable law on any Capital Stock of such Restricted Subsidiary owned by the
Company or any other Restricted Subsidiary, (ii) pay any Indebtedness owed to
the Company or any other Restricted Subsidiary, (iii) make loans or advances to
the Company or any other Restricted Subsidiary or (iv) transfer any of its
property or assets to the Company or any other Restricted Subsidiary.
The foregoing provisions shall not restrict any encumbrances or
restrictions: (i) existing on the Closing Date in the Credit Facility, the
Indenture or any other agreements in effect on the Closing Date, and any
extensions, refinancings, renewals or replacements of such agreements; provided
that the encumbrances and restrictions in any such extensions, refinancings,
renewals or replacements are no less favorable in any material respect to the
Holders than those encumbrances or restrictions that are then in effect and that
are being extended, refinanced, renewed or replaced; (ii) existing under or by
reason of applicable law; (iii) with respect to any Person or the
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property or assets of such Person acquired by the Company or any Restricted
Subsidiary, existing at the time of such acquisition and not incurred in
contemplation thereof, which encumbrances or restrictions are not applicable to
any Person or the property or assets of any Person other than such Person or the
property or assets of such Person so acquired; (iv) in the case of clause (iv)
of the first paragraph of this "Limitation on Dividend and Other Payment
Restrictions Affecting Restricted Subsidiaries" covenant, (A) that restrict in a
customary manner the subletting, assignment or transfer of any property or asset
that is a lease, license, conveyance or contract or similar property or asset,
(B) existing by virtue of any transfer of, agreement to transfer, option or
right with respect to, or Lien on, any property or assets of the Company or any
Restricted Subsidiary not otherwise prohibited by the Indenture or (C) arising
or agreed to in the ordinary course of business, not relating to any
Indebtedness, and that do not, individually or in the aggregate, detract from
the value of property or assets of the Company or any Restricted Subsidiary in
any manner material to the Company or any Restricted Subsidiary; (v) with
respect to a Restricted Subsidiary and imposed pursuant to an agreement that has
been entered into for the sale or disposition of all or substantially all of the
Capital Stock of, or property and assets of, such Restricted Subsidiary; or (vi)
encumbrances or restrictions relating solely to Foreign Subsidiaries that
support Indebtedness Incurred under clause (ix) of the second paragraph of
paragraph (a) of the "Limitation on Indebtedness" covenant. Nothing contained in
this "Limitation on Dividend and Other Payment Restrictions Affecting Restricted
Subsidiaries" covenant shall prevent the Company or any Restricted Subsidiary
from (1) creating, incurring, assuming or suffering to exist any Liens otherwise
permitted in the "Limitation on Liens" covenant or (2) restricting the sale or
other disposition of property or assets of the Company or any of its Restricted
Subsidiaries that secure Indebtedness of the Company or any of its Restricted
Subsidiaries.
Limitation on the Issuance and Sale of Capital Stock of Restricted
Subsidiaries
The Company will not sell, and will not permit any Restricted Subsidiary,
directly or indirectly, to issue or sell, any shares of Capital Stock of a
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) except (i) to the Company or a Wholly Owned
Restricted Subsidiary; (ii) issuances of director's qualifying shares or sales
to foreign nationals of shares of Capital Stock of foreign Restricted
Subsidiaries, to the extent required by applicable law; or (iii) if, immediately
after giving effect to such issuance or sale, such Restricted Subsidiary would
no longer constitute a Restricted Subsidiary and any Investment in such Person
remaining after giving effect to such issuance or sale would have been permitted
to be made under the "Limitation on Restricted Payments" covenant if made on the
date of such issuance or sale (iv) the issuance or sale of Common Stock of any
Restricted Subsidiaries if the proceeds thereof are applied in accordance with
the "Limitation on Asset Sales" covenant.
Limitation on Issuances of Guarantees by Restricted Subsidiaries
The Company will not permit any Restricted Subsidiary, directly or
indirectly, to Guarantee any Indebtedness of the Company which is pari passu
with or subordinate in right of payment to the Notes ("Guaranteed
Indebtedness"), unless (i) such Restricted Subsidiary simultaneously executes
and delivers a supplemental indenture to the Indenture providing for a Guarantee
(a "Subsidiary Guarantee") of payment of the Notes by such Restricted Subsidiary
and (ii) such Restricted Subsidiary waives and will not in any manner whatsoever
claim or take the benefit or advantage of, any rights of reimbursement,
indemnity or subrogation or any other rights against the Company or any other
Restricted Subsidiary as a result of any payment by such Restricted Subsidiary
under its Subsidiary Guarantee; provided that this paragraph shall not be
applicable to any Guarantee of any Restricted Subsidiary (x) that existed at the
time such Person became a Restricted Subsidiary and was not Incurred in
connection with, or in contemplation of, such Person becoming a Restricted
Subsidiary or (y) of the Indebtedness Incurred under the Credit Facility. If the
Guaranteed Indebtedness is (A) pari passu with the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be pari passu with, or subordinated to, the
Subsidiary Guarantee or (B) subordinated to the Notes, then the Guarantee of
such Guaranteed Indebtedness shall be subordinated to the Subsidiary Guarantee
at least to the extent that the Guaranteed Indebtedness is subordinated to the
Notes.
Notwithstanding the foregoing, any Subsidiary Guarantee by a Restricted
Subsidiary may provide by its terms that it shall be automatically and
unconditionally released and discharged upon (i) any sale, exchange or
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transfer, to any Person not an Affiliate of the Company, of all of the Company's
and each other Restricted Subsidiary's Capital Stock in, or all or substantially
all the assets of, such Restricted Subsidiary (which sale, exchange or transfer
is not prohibited by the Indenture) or (ii) the release or discharge of the
Guarantee which resulted in the creation of such Subsidiary Guarantee, except a
discharge or release by or as a result of payment under such Guarantee.
Limitation on Transactions with Shareholders and Affiliates
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, enter into, renew or extend any transaction (including,
without limitation, the purchase, sale, lease or exchange of property or assets,
or the rendering of any service) with any holder (or any Affiliate of such
holder other than an entity that is an Affiliate solely by reason of being a
Subsidiary of the Company) of 5% or more of any class of Capital Stock of the
Company or with any Affiliate of the Company or any Restricted Subsidiary,
except upon fair and reasonable terms no less favorable to the Company or such
Restricted Subsidiary than could be obtained, at the time of such transaction
or, if such transaction is pursuant to a written agreement, at the time of the
execution of the agreement providing therefor, in a comparable arm's-length
transaction with a Person that is not such a holder or an Affiliate.
The foregoing limitation does not limit, and shall not apply to (i)
transactions (A) approved by a majority of the disinterested members of the
Board of Directors or (B) for which the Company or a Restricted Subsidiary
delivers to the Trustee a written opinion of a nationally recognized firm having
expertise in the specific area which is the subject of such determination
stating that the transaction is fair to the Company or such Restricted
Subsidiary from a financial point of view; (ii) any transaction solely between
the Company and any of its Wholly Owned Restricted Subsidiaries or solely
between Wholly Owned Restricted Subsidiaries; (iii) the payment of reasonable
and customary regular fees to directors of the Company who are not employees of
the Company; (iv) any payments or other transactions pursuant to any tax-sharing
agreement between the Company and any other Person with which the Company files
a consolidated tax return or with which the Company is part of a consolidated
group for tax purposes; (v) any Restricted Payments not prohibited by the
"Limitation on Restricted Payments" covenant; or (vi) any issuance of securities
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans or incentive plans approved by the Board of Directors.
Notwithstanding the foregoing, any transaction or series of related transactions
covered by the first paragraph of this "Limitation on Transactions with
Shareholders and Affiliates" covenant and not covered by clauses (ii) through
(v) of this paragraph, the aggregate amount of which (until after the Stated
Maturity of the Notes) exceeds $1 million in value, must be approved or
determined to be fair in the manner provided for in clause (i)(A) or (B) above.
Limitation on Liens
The Company will not, and will not permit any Restricted Subsidiary to,
create, incur, assume or suffer to exist any Lien on any of its assets or
properties of any character, or any shares of Capital Stock or Indebtedness of
any Restricted Subsidiary, without making effective provision for all of the
Notes and all other amounts due under the Indenture to be directly secured
equally and ratably with (or, if the obligation or liability to be secured by
such Lien is subordinated in right of payment to the Notes, prior to) the
obligation or liability secured by such Lien.
The foregoing limitation does not apply to (i) Liens existing on the
Closing Date, including Liens securing obligations under the Credit Facility;
(ii) Liens granted after the Closing Date on any assets or Capital Stock of the
Company or its Restricted Subsidiaries created in favor of the Holders; (iii)
Liens with respect to the assets of a Restricted Subsidiary granted by such
Restricted Subsidiary to the Company or a Wholly Owned Restricted Subsidiary to
secure Indebtedness owing to the Company or such other Restricted Subsidiary;
(iv) Liens securing Indebtedness which is Incurred to refinance secured
Indebtedness which is permitted to be Incurred under the second paragraph of the
"Limitation on Indebtedness" covenant; provided that such Liens do not extend to
or cover any property or assets of the Company or any Restricted Subsidiary
other than the property or assets securing the Indebtedness being refinanced;
(v) Liens on any property or assets of a Restricted Subsidiary securing
Indebtedness of such Restricted Subsidiary permitted under the "Limitation on
Indebtedness" covenant;
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(vi) Liens with respect to real property to secure Indebtedness Incurred
pursuant to clause (x) of the second paragraph under clause (a) of the
"Limitation on Indebtedness" covenant; or (vii) Permitted Liens.
Limitation on Sale-Leaseback Transactions
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any sale-leaseback transaction involving any of its assets or
properties whether now owned or hereafter acquired, whereby the Company or a
Restricted Subsidiary sells or transfers such assets or properties and then or
thereafter leases such assets or properties or any part thereof or any other
assets or properties which the Company or such Restricted Subsidiary, as the
case may be, intends to use for substantially the same purpose or purposes as
the assets or properties sold or transferred.
The foregoing restriction does not apply to any sale-leaseback transaction
if (i) the lease is for a period, including renewal rights, of not in excess of
three years; (ii) the lease secures or relates to industrial revenue or
pollution control bonds; (iii) the transaction is solely between the Company and
any Wholly Owned Restricted Subsidiary or solely between Wholly Owned Restricted
Subsidiaries; or (iv) the Company or such Restricted Subsidiary, within 12
months after the sale or transfer of any assets or properties is completed,
applies an amount not less than the net proceeds received from such sale in
accordance with clause (A) or (B) of the first paragraph of the "Limitation on
Asset Sales" covenant described below.
Limitation on Asset Sales
The Company will not, and will not permit any Restricted Subsidiary to,
consummate any Asset Sale, unless (i) the consideration received by the Company
or such Restricted Subsidiary is at least equal to the fair market value of the
assets sold or disposed of and (ii) at least 75% of the consideration received
consists of cash or Temporary Cash Investments. In the event and to the extent
that the Net Cash Proceeds received by the Company or any of its Restricted
Subsidiaries from one or more Asset Sales occurring on or after the Closing Date
in any period of 12 consecutive months exceed 10% of Adjusted Consolidated Net
Tangible Assets (determined as of the date closest to the commencement of such
12-month period for which a consolidated balance sheet of the Company and its
Subsidiaries has been filed with the Commission pursuant to the "Commission
Reports and Reports to Holders" covenant), then the Company shall or shall cause
the relevant Restricted Subsidiary to (i) within twelve months after the date
Net Cash Proceeds so received exceed 10% of Adjusted Consolidated Net Tangible
Assets (A) apply an amount equal to such excess Net Cash Proceeds to permanently
repay unsubordinated Indebtedness of the Company, or any Restricted Subsidiary
providing a Subsidiary Guarantee pursuant to the "Limitation on Issuances of
Guarantees by Restricted Subsidiaries" covenant described above or Indebtedness
of any other Restricted Subsidiary, in each case owing to a Person other than
the Company or any of its Restricted Subsidiaries or (B) invest an equal amount,
or the amount not so applied pursuant to clause (A) (or enter into a definitive
agreement committing to so invest within 12 months after the date of such
agreement), in property or assets (other than current assets) of a nature or
type or that are used in a business (or in a company having property and assets
of a nature or type, or engaged in a business) similar or related to the nature
or type of the property and assets of, or the business of, the Company and its
Restricted Subsidiaries existing on the date of such investment and (ii) apply
(no later than the end of the 12-month period referred to in clause (i)) such
excess Net Cash Proceeds (to the extent not applied pursuant to clause (i)) as
provided in the following paragraph of this "Limitation on Asset Sales"
covenant. The amount of such excess Net Cash Proceeds required to be applied (or
to be committed to be applied) during such 12-month period as set forth in
clause (i) of the preceding sentence and not applied as so required by the end
of such period shall constitute "Excess Proceeds."
Notwithstanding the foregoing, to the extent that any or all of the Net
Cash Proceeds of any Asset Sale of assets based outside the United States are
prohibited or delayed by applicable local law from being repatriated to the
United States and such Net Cash Proceeds are not actually applied in accordance
with the foregoing paragraphs, the Company shall not be required to apply the
portion of such Net Cash Proceeds so affected but may permit the applicable
Restricted Subsidiaries to retain such portion of the Net Cash Proceeds so long,
but only so long, as the applicable local law will not permit repatriation to
the United States (the Company hereby agreeing to cause the applicable
Restricted Subsidiary to promptly take all actions required by the applicable
local law to permit such repatriation) and once such repatriation of any such
affected Net Cash Proceeds is
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permitted under the applicable local law, such repatriation will be immediately
effected and such repatriated Net Cash Proceeds will be applied in the manner
set forth in this covenant as if the Asset Sale had occurred on such date;
provided that to the extent that the Company has determined in good faith that
repatriation of any or all of the Net Cash Proceeds of such Asset Sale would
have a material adverse tax cost consequence, the Net Cash Proceeds so affective
may be retained by the applicable Restricted Subsidiary for so long as such
material adverse tax cost event would continue.
If, as of the first day of any calendar month, the aggregate amount of
Excess Proceeds not theretofore subject to an Offer to Purchase pursuant to this
"Limitation on Asset Sales" covenant totals at least $20 million, the Company
must commence, not later than the fifteenth Business Day of such month, and
consummate an Offer to Purchase from the Holders on a pro rata basis an
aggregate principal amount of Notes equal to the Excess Proceeds on such date,
at a purchase price equal to 100% of the principal amount of the Notes, plus, in
each case, accrued interest (if any) to the Payment Date.
REPURCHASE OF NOTES UPON A CHANGE OF CONTROL
The Company must commence, within 30 days of the occurrence of a Change of
Control, and consummate an Offer to Purchase for all Notes then outstanding, at
a purchase price equal to 101% of the principal amount thereof, plus accrued
interest (if any) to the Payment Date.
There can be no assurance that the Company will have sufficient funds
available at the time of any Change of Control to make any debt payment
(including repurchases of Notes) required by the foregoing covenant (as well as
may be contained in other securities of the Company which might be outstanding
at the time). The above covenant requiring the Company to repurchase the Notes
will, unless consents are obtained, require the Company to repay all
indebtedness then outstanding which by its terms would prohibit such Note
repurchase, either prior to or concurrently with such Note repurchase.
COMMISSION REPORTS AND REPORTS TO HOLDERS
Whether or not the Company is required to file reports with the Commission,
the Company shall file with the Commission all such reports and other
information as it would be required to file with the Commission by Sections
13(a) or 15(d) under the Securities Exchange Act of 1934 if it were subject
thereto. The Company shall supply the Trustee and each Holder or shall supply to
the Trustee for forwarding to each such Holder, without cost to such Holder,
copies of such reports and other information.
EVENTS OF DEFAULT
The following events will be defined as "Events of Default" in the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) default in the performance or breach of the provisions of the
Indenture applicable to mergers, consolidations and transfers of all or
substantially all of the assets of the Company or the failure to make or
consummate an Offer to Purchase in accordance with the "Limitation on Asset
Sales" or "Repurchase of Notes upon a Change of Control" covenant; (d) the
Company defaults in the performance of or breaches any other covenant or
agreement in the Indenture or under the Notes (other than a default specified in
clause (a), (b) or (c) above) and such default or breach continues for a period
of 30 consecutive days after written notice by the Trustee or the Holders of 25%
or more in aggregate principal amount of the Notes; (e) there occurs with
respect to any issue or issues of Indebtedness of the Company or any Significant
Subsidiary having an outstanding principal amount of $10 million or more in the
aggregate for all such issues of all such Persons, whether such Indebtedness
exists on the Closing Date or shall thereafter be created, (I) an event of
default that has caused the holder thereof to declare such Indebtedness to be
due and payable prior to its Stated Maturity and such Indebtedness shall not
have been discharged in full or such acceleration shall not have been rescinded
or annulled within 30 days of such acceleration and/or (II) the failure to make
a principal payment at the final (but not any interim) fixed maturity and such
defaulted payment shall not have been made, waived or extended within 30 days of
such payment default; (f) any final judgment or order (not
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covered by insurance) for the payment of money in excess of $10 million in the
aggregate for all such final judgments or orders against all such Persons
(treating any deductibles, self-insurance or retention as not so covered) shall
be rendered against the Company or any Significant Subsidiary and shall not be
paid or discharged, and there shall be any period of 30 consecutive days
following entry of the final judgment or order that causes the aggregate amount
for all such final judgments or orders outstanding and not paid or discharged
against all such Persons to exceed $10 million during which a stay of
enforcement of such final judgment or order, by reason of a pending appeal or
otherwise, shall not be in effect; (g) a court having jurisdiction in the
premises enters a decree or order for (A) relief in respect of the Company or
any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or (h) the Company or any Significant Subsidiary (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors.
If an Event of Default (other than an Event of Default specified in clause
(g) or (h) above that occurs with respect to the Company) occurs and is
continuing under the Indenture, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Notes, then outstanding, by written notice to
the Company (and to the Trustee if such notice is given by the Holders), may,
and the Trustee at the request of such Holders shall, declare the principal of,
premium, if any, and accrued interest on the Notes to be immediately due and
payable. Upon a declaration of acceleration, such principal of, premium, if any,
and accrued interest shall be immediately due and payable. In the event of a
declaration of acceleration because an Event of Default set forth in clause (e)
above has occurred and is continuing, such declaration of acceleration shall be
automatically rescinded and annulled if the event of default triggering such
Event of Default pursuant to clause (e) shall be remedied or cured by the
Company or the relevant Significant Subsidiary or waived by the holders of the
relevant Indebtedness within 60 days after the declaration of acceleration with
respect thereto. If an Event of Default specified in clause (g) or (h) above
occurs with respect to the Company, the principal of, premium, if any, and
accrued interest on the Notes then outstanding shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder. The Holders of at least a majority in principal
amount of the outstanding Notes by written notice to the Company and to the
Trustee, may waive all past defaults and rescind and annul a declaration of
acceleration and its consequences if (i) all existing Events of Default, other
than the nonpayment of the principal of, premium, if any, and interest on the
Notes that have become due solely by such declaration of acceleration, have been
cured or waived and (ii) the rescission would not conflict with any judgment or
decree of a court of competent jurisdiction. For information as to the waiver of
defaults, see "-- Modification and Waiver."
The Holders of at least a majority in aggregate principal amount of the
outstanding Notes may direct the time, method and place of conducting any
proceeding for any remedy available to the Trustee or exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse to follow any
direction that conflicts with law or the Indenture, that may involve the Trustee
in personal liability, or that the Trustee determines in good faith may be
unduly prejudicial to the rights of Holders of Notes not joining in the giving
of such direction and may take any other action it deems proper that is not
inconsistent with any such direction received from Holders of Notes. A Holder
may not pursue any remedy with respect to the Indenture or the Notes unless: (i)
the Holder gives the Trustee written notice of a continuing Event of Default;
(ii) the Holders of at least 25% in aggregate principal amount of outstanding
Notes make a written request to the Trustee to pursue the remedy; (iii) such
Holder or Holders offer the Trustee indemnity satisfactory to the Trustee
against any costs, liability or expense; (iv) the Trustee does not comply with
the request within 60 days after receipt of the request and the offer of
indemnity; and (v) during such 60-day period, the Holders of a majority in
aggregate principal amount of the outstanding Notes do not give the Trustee a
direction that is inconsistent with the request. However, such
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limitations do not apply to the right of any Holder of a Note to receive payment
of the principal of, premium, if any, or interest on, such Note or to bring suit
for the enforcement of any such payment, on or after the due date expressed in
the Notes, which right shall not be impaired or affected without the consent of
the Holder.
The Indenture will require certain officers of the Company to certify, on
or before a date not more than 120 days after the end of each fiscal year, that
a review has been conducted of the activities of the Company and its Restricted
Subsidiaries and the Company's and its Restricted Subsidiaries' performance
under the Indenture and that the Company has fulfilled all obligations
thereunder, or, if there has been a default in the fulfillment of any such
obligation, specifying each such default and the nature and status thereof. The
Company will also be obligated to notify the Trustee of any default or defaults
in the performance of any covenants or agreements under the Indenture.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company will not consolidate with, merge with or into, or sell, convey,
transfer, lease or otherwise dispose of all or substantially all of its property
and assets (as an entirety or substantially an entirety in one transaction or a
series of related transactions) to, any Person or permit any Person to merge
with or into the Company unless: (i) the Company shall be the continuing Person,
or the Person (if other than the Company) formed by such consolidation or into
which the Company is merged or that acquired or leased such property and assets
of the Company shall be a corporation organized and validly existing under the
laws of the United States of America or any jurisdiction thereof and shall
expressly assume, by a supplemental indenture, executed and delivered to the
Trustee, all of the obligations of the Company on all of the Notes and under the
Indenture; (ii) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; (iii) immediately
after giving effect to such transaction on a pro forma basis, the Company or any
Person becoming the successor obligor of the Notes shall have a Consolidated Net
Worth equal to or greater than the Consolidated Net Worth of the Company
immediately prior to such transaction; (iv) immediately after giving effect to
such transaction on a pro forma basis the Company, or any Person becoming the
successor obligor of the Notes, as the case may be, could Incur at least $1.00
of Indebtedness under the first paragraph of the "Limitation on Indebtedness"
covenant; provided that this clause (iv) shall not apply to a consolidation,
merger or sale of all (but not less than all) of the assets of the Company if
all Liens and Indebtedness of the Company or any Person becoming the successor
obligor on the Notes, as the case may be, and its Restricted Subsidiaries
outstanding immediately after such transaction would, if Incurred at such time,
have been permitted to be Incurred (and all such Liens and Indebtedness, other
than Liens and Indebtedness of the Company and its Restricted Subsidiaries
outstanding immediately prior to the transaction, shall be deemed to have been
Incurred) for all purposes of the Indenture; and (v) the Company delivers to the
Trustee an Officers' Certificate (attaching the arithmetic computations to
demonstrate compliance with clauses (iii) and (iv)) and Opinion of Counsel, in
each case stating that such consolidation, merger or transfer and such
supplemental indenture complies with this provision and that all conditions
precedent provided for herein relating to such transaction have been complied
with; provided, however, that clauses (iii) and (iv) above do not apply if, in
the good faith determination of the Board of Directors of the Company, whose
determination shall be evidenced by a Board Resolution, the principal purpose of
such transaction is to change the state of incorporation of the Company; and
provided further that any such transaction shall not have as one of its purposes
the evasion of the foregoing limitations.
DEFEASANCE
Defeasance and Discharge. The Indenture will provide that the Company will
be deemed to have paid and will be discharged from any and all obligations in
respect of the Notes on the 123rd day after the deposit referred to below, and
the provisions of the Indenture will no longer be in effect with respect to the
Notes (except for, among other matters, certain obligations to register the
transfer or exchange of the Notes, to replace stolen, lost or mutilated Notes,
to maintain paying agencies and to hold monies for payment in trust) if, among
other things, (A) the Company has deposited with the Trustee, in trust, money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, (B) the Company
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has delivered to the Trustee (i) either (x) an Opinion of Counsel to the effect
that Holders will not recognize income, gain or loss for federal income tax
purposes as a result of the Company's exercise of its option under this
"Defeasance" provision and will be subject to federal income tax on the same
amount and in the same manner and at the same times as would have been the case
if such deposit, defeasance and discharge had not occurred, which Opinion of
Counsel must be based upon (and accompanied by a copy of) a ruling of the
Internal Revenue Service to the same effect unless there has been a change in
applicable federal income tax law after the Closing Date such that a ruling is
no longer required or (y) a ruling directed to the Trustee received from the
Internal Revenue Service to the same effect as the aforementioned Opinion of
Counsel and (ii) an Opinion of Counsel to the effect that the creation of the
defeasance trust does not violate the Investment Company Act of 1940 and after
the passage of 123 days following the deposit, the trust fund will not be
subject to the effect of Section 547 of the United States Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law, (C) immediately after giving
effect to such deposit on a pro forma basis, no Event of Default, or event that
after the giving of notice or lapse of time or both would become an Event of
Default, shall have occurred and be continuing on the date of such deposit or
during the period ending on the 123rd day after the date of such deposit, and
such deposit shall not result in a breach or violation of, or constitute a
default under, any other agreement or instrument to which the Company or any of
its Subsidiaries is a party or by which the Company or any of its Subsidiaries
is bound and (D) if at such time the Notes are listed on a national securities
exchange, the Company has delivered to the Trustee an Opinion of Counsel to the
effect that the Notes will not be delisted as a result of such deposit,
defeasance and discharge.
Defeasance of Certain Covenants and Certain Events of Default. The
Indenture further will provide that the provisions of the Indenture will no
longer be in effect with respect to clauses (iii) and (iv) under "Consolidation,
Merger and Sale of Assets" and all the covenants described herein under
"Covenants," clause (c) under "Events of Default" with respect to such clauses
(iii) and (iv) under "Consolidation, Merger and Sale of Assets," clause (d)
under "Events of Default" with respect to such other covenants and clauses (e)
and (f) under "Events of Default" shall be deemed not to be Events of Default
upon, among other things, the deposit with the Trustee, in trust, of money
and/or U.S. Government Obligations that through the payment of interest and
principal in respect thereof in accordance with their terms will provide money
in an amount sufficient to pay the principal of, premium, if any, and accrued
interest on the Notes on the Stated Maturity of such payments in accordance with
the terms of the Indenture and the Notes, the satisfaction of the provisions
described in clauses (B)(ii), (C) and (D) of the preceding paragraph and the
delivery by the Company to the Trustee of an Opinion of Counsel to the effect
that, among other things, the Holders will not recognize income, gain or loss
for federal income tax purposes as a result of such deposit and defeasance of
certain covenants and Events of Default and will be subject to federal income
tax on the same amount and in the same manner and at the same times as would
have been the case if such deposit and defeasance had not occurred.
Defeasance and Certain Other Events of Default. In the event the Company
exercises its option to omit compliance with certain covenants and provisions of
the Indenture with respect to the Notes as described in the immediately
preceding paragraph and the Notes are declared due and payable because of the
occurrence of an Event of Default that remains applicable, the amount of money
and/or U.S. Government Obligations on deposit with the Trustee will be
sufficient to pay amounts due on the Notes at the time of their Stated Maturity
but may not be sufficient to pay amounts due on the Notes at the time of the
acceleration resulting from such Event of Default. However, the Company will
remain liable for such payments.
MODIFICATION AND WAIVER
Modifications and amendments of the Indenture may be made by the Company
and the Trustee with the consent of the Holders of not less than a majority in
aggregate principal amount of the outstanding Notes; provided, however, that no
such modification or amendment may, without the consent of each Holder affected
thereby, (i) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, (ii) reduce the principal amount of, or premium, if
any, or interest on, any Note, (iii) change the place or currency of payment of
principal of, or premium, if any, or interest on, any Note, (iv) impair the
right to institute suit for the enforcement of any payment on or after the
Stated Maturity (or, in the case of a redemption, on or after the Redemption
Date) of any Note, (v) reduce the above-stated percentage of outstanding Notes
the consent of whose
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Holders is necessary to modify or amend the Indenture, (vi) waive a default in
the payment of principal of, premium, if any, or interest on the Notes or (vii)
reduce the percentage or aggregate principal amount of outstanding Notes the
consent of whose Holders is necessary for waiver of compliance with certain
provisions of the Indenture or for waiver of certain defaults.
NO PERSONAL LIABILITY OF INCORPORATORS, STOCKHOLDERS, OFFICERS, DIRECTORS, OR
EMPLOYEES
The Indenture provides that no recourse for the payment of the principal
of, premium, if any, or interest on any of the Notes or for any claim based
thereon or otherwise in respect thereof, and no recourse under or upon any
obligation, covenant or agreement of the Company in the Indenture, or in any of
the Notes or because of the creation of any Indebtedness represented thereby,
shall be had against any incorporator, stockholder, officer, director, employee
or controlling person of the Company or of any successor Person thereof. Each
Holder, by accepting the Notes, waives and releases all such liability.
CONCERNING THE TRUSTEE
The Indenture provides that, except during the continuance of a Default,
the Trustee will not be liable, except for the performance of such duties as are
specifically set forth in such Indenture. If an Event of Default has occurred
and is continuing, the Trustee will use the same degree of care and skill in its
exercise of the rights and powers vested in it under the Indenture as a prudent
person would exercise under the circumstances in the conduct of such person's
own affairs.
The Indenture and provisions of the Trust Indenture Act of 1939, as
amended, incorporated by reference therein contain limitations on the rights of
the Trustee, should it become a creditor of the Company, to obtain payment of
claims in certain cases or to realize on certain property received by it in
respect of any such claims, as security or otherwise. The Trustee is permitted
to engage in other transactions; provided, however, that if it acquires any
conflicting interest, it must eliminate such conflict or resign.
BOOK-ENTRY; DELIVERY AND FORM
The New Notes will be represented by a permanent global Note in definitive,
fully registered form without interest coupons (the "Global Note") and will be
deposited with the Trustee as custodian for, and registered in the name of a
nominee of, DTC. Except as set forth below, owners of beneficial interests in a
Global Note will not be entitled to receive physical delivery of Certificated
Notes (as defined below).
Ownership of beneficial interests in the Global Note will be limited to
persons who have accounts with DTC ("participants") or persons who hold
interests through participants. Ownership of beneficial interests in the Global
Note will be shown on, and the transfer of that ownership will be effected only
through, records maintained by DTC or its nominee (with respect to interests of
participants) and the records of participants (with respect to interests of
persons other than participants).
So long as DTC, or its nominee, is the registered owner or holder of the
Global Note, DTC or such nominee, as the case may be, will be considered the
sole owner or holder of the New Notes represented by the Global Note for all
purposes under the Indenture and the New Notes. No beneficial owner of an
interest in the Global Note will be able to transfer that interest except in
accordance with DTC's applicable procedures, in addition to those provided for
under the Indenture.
Payments of the principal of, and interest on, the Global Note will be made
to DTC or its nominee, as the case may be, as the registered owner thereof.
Neither the Company, the Trustee nor any Paying Agent will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Note or
for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
The Company expects that DTC or its nominee, upon receipt of any payment of
principal or interest in respect of the Global Note, will credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of the Global Note as shown on the records of
DTC or its nominee. The Company also expects that payments by participants to
owners of beneficial interests in such
95
<PAGE> 97
Global Note held through such participants will be governed by standing
instructions and customary practices, as is now the case with securities held
for the accounts of customers registered in the names of nominees for such
customers. Such payments will be the responsibility of such participants.
Transfers between participants in DTC will be effected in the ordinary way
in accordance with DTC rules and will be settled in same-day funds.
The Company expects that DTC will take any action permitted to be taken by
a holder of Notes (including the presentation of New Notes for exchange as
described below) only at the direction of one or more participants to whose
account the DTC interests in the Global Note is credited and only in respect of
such portion of the aggregate principal amount of Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the New Notes, DTC will exchange the Global Note
for Certificated Notes, which it will distribute to its participants and which
may be legended as set forth under the heading "Transfer Restrictions."
The Company understands that: DTC is a limited purpose trust company
organized under the laws of the State of New York, a "banking organization"
within the meaning of New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the Uniform Commercial
Code and a "Clearing Agency" registered pursuant to the provisions of Section
17A of the Exchange Act. DTC was created to hold securities for its participants
and facilitate the clearance and settlement of securities transactions between
participants through electronic book-entry changes in accounts of its
participants, thereby eliminating the need for physical movement of certificates
and certain other organizations. Indirect access to the DTC system is available
to others such as banks, brokers, dealers and trust companies that clear through
or maintain a custodial relationship with a participant, either directly or
indirectly ("indirect participants").
Although DTC is expected to follow the foregoing procedures in order to
facilitate transfers of interests in the Global Note among participants of DTC,
it is under no obligation to perform or continue to perform such procedures, and
such procedures may be discontinued at any time. Neither the Company nor the
Trustee will have any responsibility for the performance by DTC or its
participants or indirect participants of their respective obligations under the
rules and procedures governing their operations.
If DTC is at any time unwilling or unable to continue as a depositary for
the Global Note and a successor depositary is not appointed by the Company
within 90 days, the Company will issue Certificated New Notes.
DESCRIPTION OF THE OLD NOTES
The terms of the Old Notes are identical in all material respects to the
New Notes, except that (i) the Old Notes have not been registered under the
Securities Act, are subject to certain restrictions on transfer and are entitled
to certain registration rights under the Registration Rights Agreement (which
rights will terminate upon consummation of the Exchange Offer, except to the
extent that the Initial Purchaser may have certain registration rights under
limited circumstances); and (ii) the New Notes will not provide for any increase
in the interest rate thereon. In that regard, the Old Notes provide that, in the
event that the Exchange Offer is not consummated or a shelf registration
statement (the "Shelf Registration Statement") with respect to the resale of the
Old Notes is not declared effective on or prior to September 18, 1998, the
interest rate on the Old Notes will increase by 0.50% per annum following
September 18, 1998; provided, however, that if the Company requests holders of
Old Notes to provide certain information called for by the Registration Rights
Agreement for inclusion in any such Shelf Registration Statement, then Old Notes
owned by holders who do not deliver such information to the Company or who do
not provide comments on the Shelf Registration Statement when required pursuant
to the Registration Rights Agreement will not be entitled to any such increase
in the interest rate. Upon the consummation of the Exchange Offer or the
effectiveness of a Shelf Registration Statement, as the case may be, after
September 18, 1998, the interest rate on any Old Notes which remain outstanding
will be reduced, from the date of such consummation or effectiveness, as the
case may be, to 8% per annum and the Old Notes will not thereafter be entitled
to any increase in the interest rate thereon. The New Notes are not entitled to
any such increase in the interest rate thereon. In addition, the Old Notes and
the New Notes will constitute a single series of debt securities under the
Indenture. See "Description of the New Notes -- General." Accordingly, holders
of Old
96
<PAGE> 98
Notes should review the information set forth under "Risk Factors -- Certain
Consequences of a Failure to Exchange Old Notes" and "Description of the New
Notes."
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following summary describes certain United States Federal income tax
considerations to holders of the New Notes who are subject to U.S. net income
tax with respect to the New Notes ("U.S. persons") and who will hold the New
Notes as capital assets. There can be no assurance that the U.S. Internal
Revenue Service (the "IRS") will take a similar view of the purchase, ownership
or disposition of the New Notes. This discussion is based upon the provisions of
the Internal Revenue Code of 1986, as amended, and regulations, rulings and
judicial decisions now in effect, all of which are subject to change. It does
not include any description of the tax laws of any state, local or foreign
governments or any estate or gift tax considerations that may be applicable to
the New Notes or holders thereof. It does not discuss all aspects of U.S.
Federal income taxation that may be relevant to a particular investor in light
of his particular investment circumstances or to certain types of investors
subject to special treatment under the U.S. Federal income tax laws (for
example, dealers in securities or currencies, S corporations, life insurance
companies, tax-exempt organizations, taxpayers subject to the alternative
minimum tax and non-U.S. persons) and also does not discuss New Notes held as a
hedge against currency risks or as part of a straddle with other investments or
as part of a "synthetic security" or other integrated investment (including a
"conversion transaction") comprised of a New Note and one or more other
investments, or situations in which the functional currency of the holders is
not the U.S. dollar.
Holders of Old Notes contemplating acceptance of the Exchange Offer should
consult their own tax advisors with respect to their particular circumstances
and with respect to the effects of state, local or foreign tax laws to which
they may be subject.
EXCHANGE OF NOTES
The exchange of Old Notes for New Notes should not be a taxable event to
holders for U.S. Federal income tax purposes. The exchange of Old Notes for the
New Notes pursuant to the Exchange Offer should not be treated as an "exchange"
for U.S. Federal income tax purposes because the terms of the New Notes should
not be considered to differ significantly from the terms of the Old Notes and
because the exchange is occurring pursuant to the terms of the Old Notes. If,
however, the exchange of the Old Notes for the New Notes were treated as an
exchange for U.S. Federal income tax purposes, such exchange should constitute a
tax-free recapitalization for U.S. Federal income tax purposes in which a holder
would not recognize gain or loss. Accordingly, a holder should have the same
adjusted basis and holding period in the New Notes as it had in the Old Notes
immediately before the exchange.
INTEREST ON THE NOTES
A holder of a Note will be required to report as ordinary interest income
for U.S. Federal income tax purposes interest earned on the Note in accordance
with the holder's regular method of tax accounting.
DISPOSITION OF NEW NOTES
A holder's tax basis for a New Note or an Old Note generally will be the
holder's purchase price for the Old Note. Upon the sale, exchange, redemption,
retirement or other disposition of a Note, a holder will recognize gain or loss
equal to the difference (if any) between the amount realized (except for amounts
attributable to accrued but unpaid interest) and the holder's tax basis in the
Note sold, exchanged, redeemed, retired or disposed of. Such gain or loss will
be long-term capital gain or loss if the Note has been held for more than one
year and otherwise will be short-term capital gain or loss (with certain
exceptions to the characterization as capital gain if the New Note was acquired
at a market discount). The Taxpayer Relief Act of 1997 (the "1997 Tax Act")
reduced the maximum rates on long-term capital gains recognized on capital
assets held by individual taxpayers for more than eighteen months as of the date
of disposition. The capital gains rate for capital assets held by individual
taxpayers for more than twelve months but less than eighteen months was not
changed by the 1997 Tax Act.
97
<PAGE> 99
BACKUP WITHHOLDING
A holder of a Note may be subject to backup withholding at the rate of 31%
with respect to interest paid on the Note and proceeds from the sale, exchange,
redemption or retirement of the Note, unless such holder (a) is a corporation or
comes within certain other exempt categories and, when required, demonstrates
that fact or (b) provides a correct taxpayer identification number, certifies as
to no loss of exemption from backup withholding and otherwise complies with
applicable requirements of the backup withholding rules. A holder of a Note who
does not provide the Company with his correct taxpayer identification number may
be subject to penalties imposed by the IRS.
A holder of a Note who is not a U.S. person will generally be exempt from
backup withholding and information reporting requirements, but may be required
to comply with certification and identification procedures in order to obtain an
exemption from backup withholding and information reporting.
Any amount paid as backup withholding will be creditable against the
holder's U.S. Federal income tax liability.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account in
connection with the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Notes. This Prospectus, as
it may be amended or supplemented from time to time, may be used by
Participating Broker-Dealers during the period referred to below in connection
with resales of New Notes received in exchange for Old Notes if such Old Notes
were acquired by such Participating Broker-Dealers for their own accounts as a
result of market-making activities or other trading activities. The Company has
agreed that this Prospectus, as it may be amended or supplemented from time to
time, may be used by a Participating Broker-Dealer in connection with resales of
such New Notes for a period ending 90 days after the Expiration Date (subject to
extension under certain limited circumstances described herein) or, if earlier,
when all such New Notes have been disposed of by such Participating
Broker-Dealer. See "The Exchange Offer -- Resales of New Notes."
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. New Notes received by broker-dealers for their own
accounts in connection with the Exchange Offer may be sold from time to time in
one or more transactions in the over-the-counter market, in negotiated
transactions, through the writing of options on the New Notes or a combination
of such methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or at negotiated prices. Any
such resale may be made directly to purchasers or to or through brokers or
dealers who may receive compensation in the form of commissions or concessions
from any such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account in connection with the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act, and any profit on any
such resale of New Notes and any commissions or concessions received by any such
persons may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that by acknowledging that it will deliver and
by delivering a prospectus, a broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act.
LEGAL MATTERS
Certain legal matters in connection with the validity of the Notes offered
hereby will be passed upon for the Company by Cowden, Humphrey & Sarlson Co.,
L.P.A., Cleveland, Ohio, counsel to the Company, and Brown & Wood LLP, New York,
New York, special counsel to the Company. Brown & Wood LLP will rely as to
certain matters of Ohio law upon the opinion of Cowden, Humphrey & Sarlson Co.,
L.P.A.
98
<PAGE> 100
INDEPENDENT AUDITORS
The consolidated financial statements of Advanced Lighting Technologies,
Inc. and subsidiaries as of June 30, 1997 and 1996 and for each of the three
years in the period ended June 30, 1997 included in this Prospectus and the
financial statements of Ruud Lighting, Inc. as of November 30, 1997 and 1996 and
for each of the three years in the period ended November 30, 1997 included in
this Prospectus have been audited by Ernst & Young LLP, independent auditors as
stated in their reports appearing herein.
99
<PAGE> 101
[THIS PAGE INTENTIONALLY LEFT BLANK]
100
<PAGE> 102
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ADVANCED LIGHTING TECHNOLOGIES, INC.
Audited Consolidated Financial Statements:
Report of Ernst & Young LLP, Independent Auditors......... F-2
Consolidated Balance Sheets as of June 30, 1997 and
1996................................................... F-3
Consolidated Statements of Operations for the Years Ended
June 30, 1997, 1996 and 1995........................... F-4
Statements of Consolidated Shareholders' Equity for the
Years Ended June 30, 1997, 1996 and 1995............... F-5
Consolidated Statements of Cash Flows for the Years Ended
June 30, 1997, 1996 and 1995........................... F-6
Notes to Consolidated Financial Statements................ F-7
Unaudited Consolidated Financial Statements:
Condensed Consolidated Balance Sheets as of March 31, 1998
(Unaudited) and June 30, 1997.......................... F-23
Condensed Consolidated Statements of Operations
(Unaudited) for the Nine Months Ended March 31, 1998
and 1997............................................... F-24
Condensed Statement of Consolidated Shareholders' Equity
(Unaudited) for the Nine Months Ended March 31, 1998... F-25
Condensed Consolidated Statements of Cash Flows
(Unaudited) for the Nine Months Ended March 31, 1998
and 1997............................................... F-26
Notes to Condensed Consolidated Financial Statements
(Unaudited)............................................ F-27
RUUD LIGHTING, INC.
Audited Financial Statements:
Report of Ernst & Young LLP, Independent Auditors......... F-32
Balance Sheets as of November 30, 1997 and 1996........... F-33
Statements of Income for the Years Ended November 30,
1997, 1996 and 1995.................................... F-34
Statements of Shareholders Equity for the Years Ended
November 30, 1997, 1996 and 1995....................... F-35
Statements of Cash Flows for the Years Ended November 30,
1997, 1996 and 1995.................................... F-36
Notes to Financial Statements............................. F-37
</TABLE>
F-1
<PAGE> 103
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
Board of Directors and Shareholders
Advanced Lighting Technologies, Inc.
We have audited the accompanying consolidated balance sheets of Advanced
Lighting Technologies, Inc. as of June 30, 1997 and 1996, and the related
consolidated statements of operations, shareholders' equity and cash flows, for
each of the three years in the period ended June 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 consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Advanced Lighting Technologies, Inc. as of June 30, 1997 and 1996, and the
consolidated results of its operations and its cash flows for each of the three
years in the period ended June 30, 1997, in conformity with generally accepted
accounting principles.
/s/ Ernst & Young LLP
Cleveland, Ohio
September 25, 1997, except earnings per share
amounts and Notes J, O and U as to which
the date is March 30, 1998
F-2
<PAGE> 104
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 4,198 $ 1,682
Short-term investments.................................... 4,075 --
Trade receivables, less allowances of $315 and $287....... 28,916 13,736
Receivables from related parties.......................... 346 98
Inventories:
Finished goods......................................... 21,143 10,344
Raw materials and work-in-progress..................... 7,982 2,363
-------- --------
29,125 12,707
Prepaid expenses.......................................... 1,363 526
Deferred taxes............................................ 2,566 3,517
-------- --------
Total current assets........................................ 70,589 32,266
Property, plant and equipment:
Land and buildings........................................ 6,143 2,304
Machinery and equipment................................... 32,712 17,298
Furniture and fixtures.................................... 7,704 2,994
-------- --------
46,559 22,596
Less accumulated depreciation............................. 8,558 6,359
-------- --------
38,001 16,237
Deferred taxes.............................................. 535 231
Receivables from related parties............................ 1,209 913
Investments in affiliates................................... 7,565 638
Other assets................................................ 8,954 2,447
Excess of cost over net assets of businesses acquired,
net....................................................... 7,985 3,565
-------- --------
$134,838 $ 56,297
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term debt and current portion of long-term debt..... $ 3,731 $ 972
Accounts payable.......................................... 15,773 8,790
Payables to related parties............................... 699 434
Employee-related liabilities.............................. 2,674 1,859
Accrued income and other taxes............................ 1,689 263
Other accrued expenses.................................... 3,643 2,607
-------- --------
Total current liabilities................................... 28,209 14,925
Long-term debt.............................................. 35,908 11,034
Other liabilities........................................... 463 161
Deferred taxes.............................................. 4,226 3,583
Shareholders' equity
Common stock.............................................. 13 11
Paid-in-capital........................................... 59,087 26,755
Retained earnings (deficit)............................... 6,932 (172)
-------- --------
66,032 26,594
-------- --------
$134,838 $ 56,297
======== ========
</TABLE>
See notes to consolidated financial statements
F-3
<PAGE> 105
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1997 1996 1995
-------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE
DOLLAR AMOUNTS)
<S> <C> <C> <C>
Net sales................................................... $85,645 $ 54,636 $40,767
Costs and expenses:
Cost of sales............................................. 45,703 29,164 21,899
Marketing and selling..................................... 15,165 8,656 6,381
Research and development.................................. 5,097 2,894 1,673
General and administrative................................ 7,133 6,152 5,452
Fiber optic joint venture formation costs................. 286 -- --
Settlement of claims...................................... 771 2,732 --
Amortization of intangible assets......................... 397 90 55
Restructuring............................................. -- -- (121)
------- -------- -------
Income from operations...................................... 11,093 4,948 5,428
Other income (expense):
Interest expense.......................................... (1,513) (1,548) (2,107)
Interest income........................................... 845 232 33
------- -------- -------
Income from continuing operations before income taxes and
extraordinary charge...................................... 10,425 3,632 3,354
Income taxes................................................ 2,869 965 212
------- -------- -------
Income from continuing operations before extraordinary
charge.................................................... 7,556 2,667 3,142
Loss from discontinued operations, net of income tax
benefits.................................................. (452) (150) --
------- -------- -------
Income before extraordinary charge.......................... 7,104 2,517 3,142
Extraordinary charge from early extinguishment of debt, net
of income tax benefits.................................... -- (135) (253)
------- -------- -------
NET INCOME.................................................. $ 7,104 $ 2,382 $ 2,889
======= ======== =======
Earnings (loss) per share - Basic:
Income from continuing operations......................... $ .57 $ .14 $ .11
Loss from discontinued operations......................... (.03) (.02) --
Extraordinary charge...................................... -- (.01) (.04)
------- -------- -------
EARNINGS PER SHARE - BASIC.................................. $ .54 $ .11 $ .07
======= ======== =======
Earnings (loss) per share - Diluted:
Income from continuing operations......................... $ .55 $ .14 $ .10
Loss from discontinued operations......................... (.03) (.02) --
Extraordinary charge...................................... -- (.01) (.03)
------- -------- -------
EARNINGS PER SHARE - DILUTED................................ $ .52 $ .11 $ .07
======= ======== =======
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 106
ADVANCED LIGHTING TECHNOLOGIES, INC.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JUNE 30, 1997
<TABLE>
<CAPTION>
PREFERRED COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS TOTAL
--------- ------ ------- -------- -------
(DOLLAR AMOUNTS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1994....................... $ 2,175 $ 359 $ -- $(1,369) $ 1,165
Net income.................................... -- -- -- 2,889 2,889
Redemption of preferred stock................. (2,125) -- -- (663) (2,788)
Change in value of warrants................... -- -- -- (2,302) (2,302)
Capitalization of subsidiary.................. -- 1 -- -- 1
------- ----- ------- ------- -------
BALANCE AT JUNE 30, 1995...................... 50 360 -- (1,445) (1,035)
Net income.................................... -- -- -- 2,382 2,382
Activities prior to initial public offering of
stock:
Purchases of common stock................... -- 147 -- -- 147
Redemption of preferred and common stock.... (50) (252) -- (1,109) (1,411)
Stock options exercised..................... -- 10 -- -- 10
Exchange of subsidiary companies stock for
parent company stock..................... -- (259) 259 -- --
Noncash claim settlement.................... -- -- 2,732 -- 2,732
Activities subsequent to initial public
offering of stock:
Net proceeds from initial public offering of
2,900,000 shares......................... -- 3 23,927 -- 23,930
Issuance of common stock in exchange for
warrants and other consideration......... -- 1 (1,350) -- (1,349)
Exchange of subsidiary company stock for
parent company stock..................... -- -- 313 -- 313
Issuance of shares in connection with
purchase of business..................... -- 1 874 -- 875
------- ----- ------- ------- -------
BALANCE AT JUNE 30, 1996...................... -- 11 26,755 (172) 26,594
Net income.................................... -- -- -- 7,104 7,104
Net proceeds from public offering of 2,452,050
shares...................................... -- 2 30,089 -- 30,091
Stock options exercised....................... -- -- 706 -- 706
Issuance of shares in connection with
purchases of businesses..................... -- -- 1,537 -- 1,537
------- ----- ------- ------- -------
BALANCE AT JUNE 30, 1997...................... $ -- $ 13 $59,087 $ 6,932 $66,032
======= ===== ======= ======= =======
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 107
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
------------------------------
1997 1996 1995
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 7,104 $ 2,382 $ 2,889
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization........................... 2,579 1,638 1,399
Provision for doubtful accounts......................... 28 43 32
Deferred income taxes................................... 419 695 (959)
Noncash claim settlement................................ -- 2,732 --
Extraordinary charge.................................... -- 135 253
Restructuring........................................... -- -- 286
Changes in operating assets and liabilities (excluding
the effects of purchased businesses):
Trade receivables..................................... (10,890) (4,057) (2,338)
Inventories........................................... (12,174) (4,128) (986)
Prepaid expenses and other assets..................... (2,995) (3,032) (412)
Accounts payable and accrued expenses................. 10,373 4,930 4,369
Other liabilities..................................... 1,373 (12) (69)
-------- -------- --------
Net cash (used in) provided by operating
activities.......................................... (4,183) 1,326 4,464
INVESTING ACTIVITIES
Capital expenditures...................................... (16,015) (5,050) (1,530)
Purchase of short-term investments, net................... (4,075) -- --
Purchases of businesses................................... (14,960) (3,075) --
Investments in affiliates................................. (2,827) -- --
Use of net proceeds from public offering:
Capital expenditures.................................... (2,080) -- --
Investments in affiliates............................... (4,101) -- --
-------- -------- --------
Net cash used in investing activities............... (44,058) (8,125) (1,530)
FINANCING ACTIVITIES
Proceeds from revolving credit facility................... 92,001 10,580 24,630
Payments of revolving credit facility..................... (60,822) (8,192) (24,088)
Proceeds from long-term debt.............................. 16,775 22,362 1,726
Payments of long-term debt and capital leases............. (8,159) (19,453) (4,776)
Issuance of common stock.................................. 706 157 --
Redemption of common stock................................ -- (311) --
Borrowings for preferred stock redemption and dividends... -- -- 2,788
Redemption of preferred stock and dividends............... -- (1,100) (2,788)
Other..................................................... -- -- (59)
Net proceeds from public offering......................... 30,091 23,930 --
Use of net proceeds from public offering:
Payment of long-term debt............................... -- (3,350) --
Payment of revolving credit facility.................... (16,800) (4,429) --
Redemption of warrants.................................. -- (6,199) --
Payment of trade payables............................... (3,035) (4,447) --
Payment of note......................................... -- (1,541) --
Other................................................... -- (556) --
-------- -------- --------
Net cash provided by (used in) financing
activities.......................................... 50,757 7,451 (2,567)
-------- -------- --------
Increase in cash and cash equivalents....................... 2,516 652 367
Cash and cash equivalents, beginning of year................ 1,682 1,030 663
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR.............. $ 4,198 $ 1,682 $ 1,030
======== ======== ========
Supplemental Cash Flow Information:
Interest paid............................................. $ 1,375 $ 1,112 $ 1,688
Capitalized interest...................................... 455 98 9
Income taxes paid......................................... 81 375 280
Noncash transactions:
Equipment acquired through capital leases............... 1,683 149 145
Stock issued for purchases of businesses................ 1,537 1,188 --
Detail of acquisitions:
Assets acquired......................................... $ 23,033 $ 9,904 $ --
Liabilities assumed..................................... 6,142 5,546 --
Stock issued............................................ 1,537 1,188 --
-------- -------- --------
Cash paid............................................... 15,354 3,170 --
Less cash acquired.................................... 394 95 --
-------- -------- --------
Net cash paid for acquisitions.......................... $ 14,960 $ 3,075 $ --
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 108
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
A. ORGANIZATION
Advanced Lighting Technologies, Inc. (the "Company") is an
innovation-driven designer, manufacturer and marketer of metal halide lighting
products, including materials, system components, systems, and production
equipment.
The Company was formed on May 19, 1995 for the purpose of acquiring
ownership, primarily by merger (the "Combination"), of 17 affiliated operating
corporations that were previously under common ownership and management (the
"Predecessors"), each one of which is engaged in an aspect of the metal halide
lighting business. More specifically, the Combination was principally effected
through a series of nonmonetary mergers or stock exchanges in which the
shareholders of the former companies received shares of the Company. The
Combination has been accounted for as a reorganization of entities under common
control. Historical financial statements of each of the Predecessors for periods
prior to the Combination have been combined. Certain adjustments have been
recorded primarily to eliminate intercompany transactions that would have been
required had the Company been a consolidated entity during such periods.
B. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its majority-owned subsidiaries, after elimination of all significant
intercompany accounts and transactions and related revenues and expenses.
Investments in 50% or less owned companies and joint ventures over which the
Company has the ability to exercise significant influence are accounted for
under the equity method. All other investments and investments of less than 20%
are accounted for under the cost method.
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 amounts reported in the
consolidated financial statements and notes. Actual results could differ from
those estimates.
Translation of Foreign Currency
The functional currency of consolidated subsidiaries outside of the United
States is the local currency. All assets and liabilities of foreign subsidiaries
are translated into United States dollars at year-end exchange rates while
revenues and expenses are translated at weighted-average exchange rates in
effect during the year. The resulting translation adjustments were not
significant in all years presented.
Cash Equivalents
The Company considers all highly-liquid investments with a maturity of
three months or less when purchased to be cash equivalents.
Short-Term Investments
Short-term investments are recorded at fair market value, which
approximates cost.
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ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration
of credit risks consist primarily of temporary cash and cash equivalents,
short-term investments and trade receivables. The Company invests its excess
cash primarily in a high quality institutional money-market portfolio and high
quality securities and limits the amount of credit exposure to any one financial
institution.
The Company provides credit in the normal course of business, primarily
from major manufacturers and distributors in the lighting industry and,
generally, collateral or other security is not required. The Company conducts
ongoing credit evaluations of its customers and maintains allowances for
potential credit losses which, when realized, have been within the range of
management's expectations. Credit risk on trade receivables is minimized as a
result of the large and diverse nature of the Company's worldwide customer base.
Inventories
Inventories are valued at the lower of cost (first-in, first-out method) or
market.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. The cost of
self-constructed assets includes related materials, labor, overhead and
interest. Repair and maintenance costs are expensed as incurred.
Depreciation is computed for financial reporting purposes by the
straight-line method based on the estimated useful lives of the assets, both
those owned and under capital lease, as follows: buildings, 15 to 30 years;
machinery and equipment, 5 to 25 years; furniture and fixtures, 5 to 15 years;
and, leasehold improvements, the lease periods.
Intangible Assets
Intangible assets are amortized using the straight-line method over the
following lives:
<TABLE>
<S> <C>
Excess of cost over net assets acquired................... 15 -- 25 years
Patents, trademarks and tradenames........................ 3 -- 17 years
Other intangibles......................................... 7 -- 15 years
</TABLE>
The Company examines the carrying value of its intangible assets when
indicators of impairment are present. When the undiscounted cash flows are not
sufficient to recover the assets' carrying amount, an impairment loss would be
charged to expense in the period identified. No such event has been identified.
Accumulated amortization was $720 and $314 at June 30, 1997 and 1996,
respectively.
Revenue Recognition
Revenues from the sale of metal halide materials, system components (lamps,
power supplies, system controls, fiber optic cable) and systems are recognized
when products are shipped and production equipment revenues are recognized under
the percentage of completion method.
Advertising Expense
External costs incurred in providing media advertising and promoting
products are expensed the first time the advertising or promotion takes place.
Research and Development
Research and development costs, primarily the development of new products
and modifications of existing products, are charged to expense as incurred.
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ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Stock Compensation Arrangements
The Company accounts for its stock compensation arrangements under the
provisions of APB Opinion No. 25 "Accounting for Stock Issued to Employees." The
Company has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No. 123, "Accounting and Disclosure of Stock-Based
Compensation." These provisions require the Company to disclose pro forma net
income as if compensation expense related to grants of stock options were
recognized based on fair value accounting rules.
Financial Statement Presentation Changes
Certain amounts for prior years have been reclassified to conform to the
current year reporting presentation.
C. ACQUISITIONS
During fiscal 1997 and 1996, the Company completed the following business
combinations, all of which were accounted for by the purchase method and,
accordingly, results of operations for the acquired businesses have been
included in the consolidated statement of income from their respective dates of
acquisition. Assets acquired and liabilities assumed have been recorded at fair
value based on best estimates available. Pro forma financial information is not
presented because the impact is not significant to the results of operations.
On June 2, 1997, the Company purchased for approximately $8,500, the system
component manufacturing and operating assets of W. J. Parry & Co. (Nottingham)
Ltd. ("Parry"), a manufacturer and marketer of magnetic power supplies for high
intensity discharge lighting systems. The purchase price resulted in an excess
of cost over net assets acquired of $1,121, which is being amortized over 25
years.
On February 11, 1997, the Company acquired the outstanding shares of
Ballastronix, Inc., a company focused on designing, manufacturing and marketing
of electromagnetic power supplies for metal halide lighting systems. The
purchase price consisted of $5,511 in cash and 38,024 shares of the Company's
Common Stock (valued at $562). The purchase price resulted in an excess of cost
over net assets acquired of $2,018 which is being amortized over 25 years.
On January 31, 1997, the Company completed the purchase of certain assets
of Web Design Associates, Inc., a company engaged in consumer product design and
development for approximately $600 in cash. The purchase price resulted in an
excess of cost over net assets acquired of $526, which is being amortized over
15 years.
During December 1996, the Company acquired all the assets (and assumed
certain liabilities) of Cable Lite Corporation in exchange for 50,000 shares of
the Company's Common Stock (valued at $975), with up to an additional 50,000
shares of Common Stock contingently issuable if the per share market price of
the Company's stock is less than $30.00 during the month of June 1998. The
purchase price resulted in an excess of cost over net assets acquired of $1,073,
which is being amortized over 25 years. Advanced Cable Lite Corporation designs,
manufactures and sells fiber optic and fiber optic lighting systems.
On June 28, 1996, the Company acquired the net assets of Venture Lighting
Australia Pty Ltd ("VLA"), a leading lamp marketing organization in Australia,
for $100 and 76,923 shares of the Company's Common Stock (valued at $875). VLA
has been the exclusive agent for the Company's products in Australia since 1987.
The purchase resulted in an excess of cost over net assets acquired of $1,698,
which is being amortized over 20 years.
On March 25, 1996, the Company acquired the net assets of Spectro Electric,
Inc., ("Spectro") for $1,636 and 34,783 shares of the Company's Common Stock
(valued at $500). Spectro (renamed Advanced Lighting Technologies, Canada, Inc.)
distributes the Company's products in the Canadian market and has facilities in
Toronto, Vancouver, Calgary and Montreal. The purchase resulted in an excess of
cost over net assets acquired of $72, which is being amortized over 20 years.
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ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
On February 5, 1996, the Company acquired the net assets of Current
Industries, Inc. ("Current") of Oceanside, New York for $1,689. Current designs,
manufacturers and markets specialized electrical and electromagnetic lighting
control systems used in metal halide and other high intensity discharge lighting
systems. The purchase resulted in an excess of cost over net assets acquired of
$1,456, which is being amortized over 25 years.
On July 1, 1995, and February 9, 1996 the Company acquired all of the
outstanding common stock of Venture Lighting-UK ("VLI-UK"), for 50,000 shares of
the Company's Common Stock (valued at $313). VLI-UK was the exclusive
distributor of the Company's products in the United Kingdom. The purchase
resulted in an excess of cost over net assets acquired of $675, which is being
amortized over 20 years.
D. INVESTMENT IN JOINT VENTURE
On April 2, 1997, the Company invested approximately $3,800 of cash in
exchange for a 30% interest in Koto Luminous Co., Ltd. ("Koto"), the Company's
sole agent in Japan. Subsequent to the date of investment, Koto, a marketer and
distributor of metal halide lamps, began doing business under the name Venture
Lighting Japan. Using the proceeds of the investment and an additional
investment by an affiliate, Venture Lighting Japan will equip and operate a
metal halide lamp manufacturing facility in Japan, which is expected to be
operational in October 1997. The Company accounts for this investment under the
cost method.
E. CONSUMER PRODUCT ADVERTISING COSTS
In connection with the Company's metal halide lamp systems for the
residential and consumer markets, beginning with the sale of portable lamps in
March 1997, the Company implemented a direct marketing program which resulted in
$398 of advertising and promotion costs, which have been included in the loss
from discontinued operations during the fourth quarter of fiscal 1997.
F. FIBER OPTICS JOINT VENTURE FORMATION COSTS
On May 6, 1997, the Company entered into a joint development agreement with
Rohm and Haas Company ("Rohm and Haas"), for the development of advanced fiber
optic cable systems using metal halide lamps. The Company is presently
negotiating with Rohm and Haas to form a joint venture focused on the
manufacture and sale of fiber optic cable and illuminators and fiber optic
lighting systems. No assurance can be given that the negotiations will be
successfully completed, that the joint venture will be formed or that the joint
venture, if formed, will successfully develop or commercialize products. If the
expected joint venture is formed, the Company will contribute $5,000 cash, its
subsidiary, Advanced Cable Lite Corporation, and other fiber optic system
assets. In connection with this proposed joint venture, the Company incurred
$286 of formation and development costs which were charged to operations during
the fourth quarter of fiscal 1997.
G. FINANCING ARRANGEMENTS
Short-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------
1997 1996
------ ------
<S> <C> <C>
Multioption credit facility................................. $ 711 $ 790
Trade facility.............................................. 253 --
Revolving line of credit.................................... 1,391 --
------ ------
2,355 790
Current portion of long-term debt........................... 1,376 182
------ ------
$3,731 $ 972
====== ======
</TABLE>
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ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
In June 1996, the Company on behalf of a foreign subsidiary, entered into a
multioption credit facility with a foreign bank that provides a short-term
credit line of $1,200 and is collateralized with certain operating assets
($3,128 at June 30, 1997) and a $750 standby letter of credit. Amounts borrowed
and related interest are payable quarterly. The foreign bank also provides a
trade facility which allows the foreign subsidiary to issue documentary letters
of credit for imports and term-trade finance for importing its inventory. The
interest rate of this facility varies, depending upon the denomination of the
currency advanced. The weighted average interest rate on the multioption credit
facility was 9.33% and 7.89% during fiscal 1997 and fiscal 1996. The weighted
average interest rate of the trade facility was 7.58% during fiscal 1997.
A newly-acquired foreign subsidiary of the Company entered into a revolving
line of credit agreement with a bank, prior to acquisition, to finance its
working capital needs. This facility allows the subsidiary to borrow an amount
that approximates $2,900. The agreement matured at June 30, 1997, but the bank
agreed to extend the borrowing on a month-to-month basis. The bank has the right
to cancel any unutilized portion available under the agreement at any time.
Advances under the facility bear interest at the bank's prime rate plus 0.5% per
annum. During fiscal 1997, the weighted average interest rate incurred on the
revolving loan facility was 5.25%.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
------------------
1997 1996
------- --------
<S> <C> <C>
Revolving credit and security agreements.................... $24,754 $ 9,924
Term note................................................... 8,000 --
Mortgage notes payable...................................... 2,499 985
Obligations under capital leases............................ 1,598 195
Other....................................................... 433 112
------- --------
37,284 11,216
Less current portion...................................... 1,376 182
------- --------
$35,908 $ 11,034
======= ========
</TABLE>
In July 1997, the Company repaid approximately $33,000 of amounts then
outstanding under the Revolving Credit and Security Agreements, as amended, and
a portion of the Term Note using proceeds from a Common Stock offering completed
in July 1997. Excluding the July 1997 amounts repaid, the aggregate maturities
of long-term debt (including capital lease obligations) for the five fiscal
years subsequent to June 30, 1997, were as follows: 1998 -- $1,376;
1999 -- $713; 2000 -- $1,115; 2001 -- $689; and 2002 -- $502.
In March 1996, the Company entered into a three-year domestic Revolving
Credit and Security Agreement (the "Loan Agreement") with a bank. The Loan
Agreement permits working capital advances to the Company in aggregate amounts
equal to the lesser of: (i) $25,000 less the current outstanding amount of the
advances under the Capex Facility (defined below) (the "Maximum Revolving Loan
Amount") or (ii) an amount based on eligible receivables and inventory (the
"Working Capital Facility"). The unpaid principal balance of the Working Capital
Facility (together with accrued interest thereon) is payable in March 1999.
Advances under the Working Capital Facility bear interest at the option of the
Company at a rate per annum (the "Working Capital Interest Rate") equal to: (i)
the higher of (a) the prime rate minus 0.5% or (b) the Federal Funds Rate; or
(ii) the average LIBOR plus 2.5%. Under the terms of the Loan Agreement, the
bank may make advances in excess of the applicable percentages of eligible
receivables and inventory, provided that, if such excess amounts remain
outstanding for five or more days in any calendar month, all outstanding
advances bear interest at the Working Capital Interest Rate plus 0.5% for such
month. At June 30, 1997, the interest rate of the Working Capital Facility was
8.00%.
The Company is able to obtain advances under the Loan Agreement up to
$5,000 to permit the Company to finance permitted capital expenditures (the
"Capex Facility"), which bear interest at a rate per annum equal to the
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ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
higher of (a) the prime rate plus 0.5% or (b) the Federal Funds Rate plus 1.0%.
The unpaid principal balance of the Capex Facility (together with accrued
interest thereon) is payable in March 1999. The bank has also agreed to issue
letters of credit in an amount of up to $5,000, at anytime, provided the
outstanding letters of credit and working capital advances do not exceed the
Maximum Revolving Loan Amount. At June 30, 1997 no amounts were outstanding
under the Capex Facility, and $4,234 was available through letters of credit.
In July 1996, a foreign subsidiary of the Company entered into a similar
Revolving Credit and Security Agreement with a foreign affiliate of the bank
(the "Foreign Loan Agreement"). Pursuant to the Foreign Loan Agreement, the bank
has agreed to extend working capital advances in the aggregate amount equal to
the lesser of (i) the United States dollar equivalent of approximately $3,000 in
the local currency (Canadian dollars) or (ii) an amount based on eligible
receivables and inventory. All amounts advanced under the Foreign Loan Agreement
reduce, by the United States dollar value of outstanding amounts, the Maximum
Revolving Loan Amount available to the Company under the Loan Agreement. The
unpaid principal balance of the Foreign Loan Agreement (together with accrued
interest thereon) is payable in March 1999. Advances under the Foreign Loan
Agreement bear interest at the rate per annum set at a formula intended to
approximate that of the Loan Agreement.
The provisions of the Loan Agreement contain certain restrictive covenants
concerning the incurrence of indebtedness and liens, capital expenditures,
investments, guarantees of the indebtedness of others, providing loans to
others, the sale of assets, and prohibit the payment of dividends. In addition,
the Company must maintain certain working capital, leverage, cash flow, debt,
and tangible net worth ratios.
In February 1997, the Company borrowed $8,400, for its acquisition of
Parry, under a twenty-six month term note from the same bank that provided the
Revolving Credit and Security Agreement. Interest accrues on the note at a rate
equal to the higher of the prime rate or 0.5% over the Federal Funds Rate (rate
approximated 8.5% at June 30, 1997). The Company pays monthly principal
installments of $100 plus accrued interest for the first 25 months of the loan
term with a final payment of $5,900 plus accrued interest due March 24, 1999.
The Company leases certain equipment under agreements which are classified
as capital leases. The lease agreements have varying terms and the leased
assets, with a net carrying value of $1,819 at June 30, 1997, are included in
the consolidated balance sheet as machinery and equipment.
Mortgages payable consisted of six separate notes at various rates of
interest, ranging from 7.5% to 9.75%, and at June 30, 1997 were collateralized
by land and buildings with a net carrying value of $4,405.
During fiscal 1996, the company recorded an extraordinary loss of $135 (net
of applicable income tax benefits of $91) for the write-off of deferred
financing costs related to the early extinguishment of debt. In October 1994,
the Company refinanced certain of its borrowings, which resulted in an
extraordinary loss on the early extinguishment of debt of $253 (net of
applicable income tax benefits of $168).
The fair value of debt, based on market rates and maturity dates,
approximates carrying value. Debt issuance costs, classified with other assets,
are being amortized over the terms of the related debt.
H. SHAREHOLDERS' EQUITY
Shareholders' Equity
The Company's authorized capital stock consists of 80 million shares of
Common Stock having a par value of $.001 per share and 1 million shares of
preferred stock having a par value of $.001 per share. At June 30, 1997 and
1996, there were 13,435,394 and 10,844,659 shares of Common Stock issued and
outstanding, respectively, and no shares of preferred stock were issued and
outstanding.
On July 1, 1997, the Company issued 3,000,000 shares of its Common Stock in
a public offering at $24.75 a share. Net proceeds, after offering costs,
amounted to approximately $70,530, of which $33,000 was used to pay
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ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
down existing bank debt and $2,835 was used for the purchase of 630,111 shares
of the common stock of Fiberstars, Inc., increasing the Company's ownership to
19.6% of Fiberstars. The remainder of the net proceeds will be used for capital
expenditures and general corporate purposes, including investments in joint
ventures.
On July 16, 1996, the Company issued 2,452,000 shares of its Common Stock
in a public offering at $13.50 a share. Net proceeds, after offering costs,
amounted to $30,091.
On December 12, 1995, the Company completed an initial public offering and
issued 2,900,000 shares of its Common Stock. Prior to the initial public
offering, shares of the Predecessors were exchanged for 7,281,849 shares of
Common Stock of the Company; and 535,887 shares were issued to a warrant holder
in exchange for the warrants. During 1996, the Company issued 126,923 shares of
Common Stock in connection with certain acquisitions, and at June 30, 1997,
34,783 shares of Common Stock were issuable in connection with an acquisition.
The common stock authorized, issued and outstanding as of June 30, 1995
represents the aggregate of the Predecessors' common stocks. The shares
authorized, issued and outstanding of the individual issues of common stock of
the Predecessors are not presented as the information is not meaningful. At June
30, 1995, the Company had 892,500 preferred shares outstanding (without par
value). In August 1995, the Company redeemed such preferred shares for $1,012.
Employee Stock Options
The Company's 1995 Incentive Award Plan provides for granting of "A" and
"B" incentive stock options to purchase common stock of the Company. The "A"
options become exercisable over one-to-five years from the date of grant
depending on the Company's operating performance. The "B" options become
exercisable at the rate of 25% after one year, 35% after two years, and 40%
after three years. All "A" and "B" options have been granted at market value on
the date of grant and expire ten years from the date of grant. At June 30, 1997,
the Company had 949,339 shares reserved for future issuance upon exercise of
stock options granted under the Incentive Award Plan.
Information related to stock options at June 30 under the Incentive Award
Plan follows:
<TABLE>
<CAPTION>
1997 1996
------------------- -------------------
WEIGHTED- WEIGHTED-
AVERAGE AVERAGE
EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE
------- ------ ------- ------
<S> <C> <C> <C> <C>
Outstanding, beginning of year......................... 791,850 $12.33 -- --
Granted................................................ 228,150 19.73 814,350 $12.26
Exercised.............................................. (50,661) 10.32 -- --
Forfeited.............................................. (55,125) 10.63 (22,500) 10.00
------- -------
Outstanding, end of year............................... 914,214 14.38 791,850 12.33
======= =======
Weighted-average fair value of options granted during
the year............................................. $ 6.62 -- $ 3.77 --
</TABLE>
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<PAGE> 115
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The following table summarizes additional information concerning
outstanding and exercisable options at June 30, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------- -------------------
WEIGHTED-
AVERAGE WEIGHTED- WEIGHTED-
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE CONTRACTUAL EXERCISE EXERCISE
PRICES OPTIONS LIFE PRICE OPTIONS PRICE
- ------------------------------------------ ------- --------- ------ ------- ------
<S> <C> <C> <C> <C> <C>
$10.00 to 16.00........................... 439,827 8.9 years $10.09 59,377 $10.05
16.00 to 23.00........................... 474,387 9.3 years 18.36 61,800 17.00
------- -------
914,214 121,177 13.60
======= =======
</TABLE>
If the Company had elected to report compensation expense for the Incentive
Award Plan based on the fair value at the grant dates for all awards consistent
with the methodology prescribed by Statement of Financial Accounting Standards
No. 123, "Accounting for Stock-Based Compensation", net income and earnings per
share would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net income as reported.............................. $7,104 $2,382
Pro forma........................................... 6,540 2,208
Diluted earnings per share as reported.............. $ .52 $ .11
Pro forma .48 .09
</TABLE>
The fair values of the stock options used to calculate the pro forma net
income and pro forma earnings per share were estimated using the Black-Scholes
option pricing model with the following weighted-average assumptions used for
grants in fiscal 1997 and 1996, respectively: expected volatility of 30% and
25%, risk-free interest rates of 6.41% and 6.06%, and expected lives of 4 years
in both periods with no dividend yield.
I. REDEEMABLE STOCK PURCHASE WARRANTS
Warrants issued in connection with a financing entered into during 1994
were redeemed in December 1995 for $3,000 plus 5.0% of the Company's then
existing common stock. Warrants issued in connection with a financing entered
into during 1990 were redeemed by the Company for $3,199 in March 1996.
J. INCOME TAXES
Income from continuing operations before income taxes and extraordinary
charges were attributable to the following sources:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1997 1996 1995
------- ------ ------
<S> <C> <C> <C>
United States..................................... $ 9,548 $3,291 $3,354
Foreign........................................... 877 341 --
------- ------ ------
Total............................................. $10,425 $3,632 $3,354
======= ====== ======
</TABLE>
The provision for income taxes is computed using the liability method and
is based on applicable federal and state statutory rates adjusted for permanent
differences between financial and taxable income.
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ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
Income taxes from continuing operations have been provided as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
<S> <C> <C> <C>
Current:
Federal............................................... $1,545 $ (83) $ 776
State and local....................................... 550 281 160
Foreign............................................... 355 72 --
------ ------ ------
2,450 270 936
Deferred:
Federal............................................... 313 485 (538)
State and local....................................... 149 167 (186)
Foreign............................................... (43) 43 --
------ ------ ------
419 695 (724)
------ ------ ------
Income taxes from continuing operations............... $2,869 $ 965 $ 212
====== ====== ======
</TABLE>
The income tax provision for periods prior to the Combination has been
calculated as if the Company filed a consolidated tax return.
Deferred income taxes reflect the tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
Significant components of the Company's net deferred tax assets and
liabilities at June 30, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
------- ------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $ 1,536 $2,882
AMT carryforward.......................................... 262 208
Payroll-related and other accrued expenses................ 768 630
Other..................................................... 535 304
------- ------
3,101 4,024
Deferred tax liabilities:
Depreciation.............................................. 2,989 3,380
Other..................................................... 1,238 203
------- ------
4,227 3,583
------- ------
Net deferred tax assets (liabilities) before valuation
allowance................................................. (1,126) 441
Valuation allowance......................................... -- (276)
------- ------
Net deferred tax assets (liabilities)....................... $(1,126) $ 165
======= ======
</TABLE>
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ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
The statutory federal income tax rate and the effective income tax rate are
reconciled as follows:
<TABLE>
<CAPTION>
1997 1996 1995
----- ----- -----
<S> <C> <C> <C>
Statutory rate.............................................. 35.0% 35.0% 35.0%
State and local income taxes net of federal benefit......... 3.6 9.2 1.0
Net operating loss carryforwards............................ (2.8) (56.4) (31.0)
Adjustment of deferred tax liabilities...................... (10.9) -- --
Nondeductible settlement of a claim......................... -- 30.9 --
Other....................................................... 2.6 7.8 1.3
----- ----- -----
Effective tax rate.......................................... 27.5% 26.5% 6.3%
===== ===== =====
</TABLE>
Income taxes paid (net of refunds) pertaining to both continuing and
discontinued operations were $81 in 1997, $375 in 1996 and $280 in 1995.
At June 30, 1997, the Company had United States net operating loss
carryforwards ("NOLs") for tax purposes of approximately $4,500 to offset future
taxable income. These NOLs expire in the fiscal years 2006 through 2011.
Alternative minimum tax paid through June 30, 1997 of $262 is available as a
credit with an unlimited carryforward period.
K. EMPLOYEE BENEFITS
The Company has defined contribution elective savings and retirement plans
that cover substantially all full-time employees in its domestic and foreign
subsidiaries. The Company matches the contributions of participating employees
on the basis of the percentages specified in the respective plans, ranging from
1% to 2% of eligible employee earnings. Contributions charged to income for the
defined contribution plans were $373 in fiscal 1997 and $250 in each of fiscal
1996 and fiscal 1995.
L. SETTLEMENT OF A CLAIM
On March 1, 1996, a former common shareholder of a Predecessor asserted a
claim in the United States District Court for the Northern District of Ohio
against the Chief Executive Officer and a director of the Company, and the
Executive Vice President and a director of the Company, and subsequently, a
claim against the Company. The claim alleged that certain misrepresentations
and/or omissions were made to the former common shareholder in connection with:
(i) the Company's purchase of his equity interest effected by a merger of a
Predecessor into the Company, as to which the former common shareholder waived
his statutory appraisal rights and (ii) the purchase by the Chief Executive
Officer of the former common shareholder's beneficial interest in a trust
controlled by the Chief Executive Officer. The former common shareholder alleged
that the misrepresentations and/or omissions caused direct damages which
exceeded $900. The suit also claimed punitive damages in an undetermined amount
believed by the former common shareholder to exceed $2,700. On August 23, 1996,
another former common shareholder filed similar claims against the Chief
Executive Officer and Executive Vice President and the Company seeking direct
damages of $400 and punitive damages of $1,200. The Chief Executive Officer, the
Executive Vice President and the Company denied all of the allegations and
vigorously defended against the claims.
On November 29, 1996, the Company, the Chief Executive Officer and the
Executive Vice President reached an out-of-court settlement of both former
common shareholders' claims. The charge of $771 represents the settlement of
$475 plus legal and other directly-related costs, net of insurance recoveries.
F-16
<PAGE> 118
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
M. NONCASH SETTLEMENT OF CLAIM
On October 27, 1995, several former preferred shareholders of the Company's
lamp manufacturing subsidiary, whose shares were redeemed in August 1995 (prior
to the Combination), asserted a claim against certain officers of the Company.
On November 15, 1995, such officers entered into a settlement agreement with the
former preferred shareholders, whereby such officers and certain other
shareholders transferred, from their personal holdings, an aggregate of 273,185
shares of the Company's common stock to the former preferred shareholders. Since
the settlement resulted in a transfer of personal shares held by such officers,
there was no dilution of the ownership interest of shareholders of the Company.
The settlement was recorded as a noncash expense and paid-in-capital of the
Company.
N. RESTRUCTURING CHARGES
In June 1994, one of the Company's subsidiaries provided for the costs,
principally inventory and equipment write-downs, to exit its nonlamp product
line. During 1995, the disposition plan was revised resulting in a reduction of
$121 in the estimated costs to exit the nonlamp product line. During 1996, the
assets of the nonlamp product line were sold to an affiliate of the Company for
an amount equal to the carrying amount of such assets as of June 30, 1995. As of
June 30, 1996 and 1997, the Company has an 8.5% note from the affiliate for $220
related to the sale of the assets of the nonlamp product line which is recorded
as a long-term receivable from related parties in the consolidated balance
sheet.
F-17
<PAGE> 119
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
O. EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (FAS) No. 128, "Earnings per Share." FAS No.
128 replaced the previously reported primary and fully-diluted earnings per
share with basic earnings per share and diluted earnings per share. Unlike
primary earnings per share, basic earnings per share excludes any dilutive
effects of options. Diluted earnings per share is very similar to the previously
reported fully-diluted earnings per share. The Company adopted FAS No. 128 in
the second quarter of 1998. Prior year amounts have been restated to comply with
FAS No. 128.
Basic and dilutive earnings per share is computed as follows:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
<S> <C> <C> <C>
Income available to common shareholders:
Income from continuing operations......................... $ 7,556 $ 2,667 $ 3,142
Less: Preferred stock dividends (1)....................... -- -- 58
Increase in warrants' value (2)........................ -- 1,350 2,302
------- ------- -------
Income from continuing operations attributable to common
shareholders........................................... $ 7,556 $ 1,317 $ 782
======= ======= =======
Net income................................................ $ 7,104 $ 2,382 $ 2,889
Less: Preferred stock dividends (1)....................... -- -- 58
Increase in warrants' value (2)........................ -- 1,350 2,302
------- ------- -------
Net income attributable to common shareholders............ $ 7,104 $ 1,032 $ 529
======= ======= =======
Weighted average shares:
Basic:
Outstanding at beginning of period..................... 10,844 7,282 7,282
Issued pursuant to public offering..................... 2,327 1,601 --
Issued upon conversion of warrant...................... -- 296 --
Issued in acquisitions................................. 41 -- --
Issued for exercise of stock options................... 22 -- --
Issued during the period in exchange of subsidiary
stock................................................. -- 20 --
Issuable in connection with an acquisition............. 35 8 --
------- ------- -------
Basic weighted average shares........................ 13,269 9,207 7,282
======= ======= =======
Diluted:
Basic from above....................................... 13,269 9,207 7,282
Effect of options...................................... 289 272 536
------- ------- -------
Diluted weighted average shares...................... 13,558 9,479 7,818
======= ======= =======
Earnings (loss) per share:
Basic:
Income from continuing operations...................... $ .57 $ .14 $ .11
Loss from discontinued operations...................... (.03) (.02) --
Extraordinary charge................................... -- (.01) (.04)
------- ------- -------
Earnings per share--Basic.............................. $ .54 $ .11 $ .07
======= ======= =======
Diluted:
Income from continuing operations...................... $ .55 $ .14 $ .10
Loss from discontinued operations...................... (.03) (.02) --
Extraordinary charge................................... -- (.01) (.03)
------- ------- -------
Earnings per share--Diluted............................ $ .52 $ .11 $ .07
======= ======= =======
</TABLE>
- ---------------
(1) The preferred stock dividends represent cumulative dividends in arrears. No
dividends were declared on the preferred stock in any of the years
presented. The cumulative dividends in arrears were paid to the preferred
shareholders when the related preferred shares were redeemed in October
1994.
(2) The warrants were redeemed in fiscal 1996.
F-18
<PAGE> 120
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
P. RELATED PARTY TRANSACTIONS
Prior to the initial public offering, management fees paid by the Company
to an affiliate were $764 in fiscal 1996 and $831 in fiscal 1995.
During January 1996, the Company entered into a six-year Aircraft Operating
Agreement ("Agreement") with an unrelated company to charter an airplane for
service into locations which are not adequately served by commercial carriers.
The unrelated company leases the airplane from an affiliate of the Company owned
by certain officers of the Company. These officers have guaranteed the repayment
of $1.7 million of indebtedness incurred by the affiliate to purchase the
airplane. The Company's minimum annual commitments under the Agreement are $261.
Fees paid by the Company under this agreement were $554 in fiscal 1997 and
$244 in fiscal 1996.
The Company paid a director of the Company $79 during fiscal 1997 and $100
in fiscal years 1996 and 1995 for consulting services.
The Company sold lamps, lamp components, and lamp production equipment to
an overseas company aggregating $3,853 in fiscal 1997, $2,363 in fiscal 1996 and
$650 in fiscal 1995. An executive officer and director of the overseas company
became a Director of the Company in January 1996.
Q. COMMITMENTS
The Company leases buildings and certain equipment under noncancelable
operating lease agreements. Total rent expense was $1,478 in 1997, $893 in 1996
and $613 in 1995. Future minimum lease commitments, as of June 30, 1997, were as
follows:
<TABLE>
<CAPTION>
YEAR:
-----
<S> <C>
1998.................................................... $1,645
1999.................................................... 1,495
2000.................................................... 1,293
2001.................................................... 1,169
2002.................................................... 785
Thereafter.............................................. 687
------
Minimum lease
payments $7,074
======
</TABLE>
Estimated costs to complete construction in progress at June 30, 1997 were
$3,593.
F-19
<PAGE> 121
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
R. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended June 30, 1997 and 1996.
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL 1997
------------------------------------------
JUN 30(a) MAR 31 DEC 31(d) SEP 30
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales...................................... $25,354 $22,034 $19,948 $18,309
Gross profit................................... 11,997 10,232 9,330 8,383
Income from operations......................... 3,596 3,202 1,874 2,421
Income from continuing operations before
extraordinary charge......................... 2,812 1,970 1,212 1,562
Loss from discontinued operations, net of
income tax benefits.......................... (211) (88) (61) (92)
Net income..................................... $ 2,601 $ 1,882 $ 1,151 $ 1,470
======= ======= ======= =======
Earnings per share--Basic...................... $ .19 $ .14 $ .09 $ .11
======= ======= ======= =======
Earnings per share--Diluted.................... $ .19 $ .14 $ .08 $ .11
======= ======= ======= =======
Price Range of Common Stock:
High......................................... $26.500 $27.250 $25.250 $19.875
Low.......................................... $19.000 $22.000 $16.375 $13.125
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL 1996
------------------------------------------
JUN 30 (b) MAR 31 DEC 31(d) SEP 30
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales...................................... $17,341 $13,786 $12,037 $11,472
Gross profit (b)............................... 8,133 6,382 5,615 5,342
Income (loss) from operations (b).............. 2,265 1,923 (851) 1,611
Income (loss) from continuing operations before
extraordinary charge......................... 1,627 1,516 (1,400) 924
Loss from discontinued operations, net of
income tax benefits.......................... (68) (29) (53) --
Income (loss) before extraordinary charge...... 1,559 1,487 (1,453) 924
Net income..................................... $ 1,559 $ 1,455 $(1,556) $ 924
======= ======= ======= =======
Basic earnings (loss) per share:
Before extraordinary charge.................. $ .14 $ .14 $ (.35) $ .13
Extraordinary charge......................... -- (.00) (.01) --
------- ------- ------- -------
Basic earnings (loss) per share................ $ .14 $ .14 $ (.36) $ .13
======= ======= ======= =======
Diluted earnings (loss) per share:
Before extraordinary charge.................. $ .14 $ .14 $ (.33) $ .12
Extraordinary charge......................... -- (.00) (.01) --
------- ------- ------- -------
Diluted earnings (loss) per share.............. $ .14 $ .14 $ (.34) $ .12
======= ======= ======= =======
Price Range of Common Stock:
High...................................... $18.125 $14.375 $10.188 (c)
Low....................................... $12.625 $ 8.500 $10.000 (c)
</TABLE>
- ---------------
(a) Fourth Quarter 1997 -- Net income was increased by $1,000 for a change in
accounting estimate related to income taxes.
(b) Fourth Quarter 1996 -- Capitalization of overhead variances increased gross
profit and income from operations by approximately $300.
(c) Second Quarter 1996 -- The Company completed its initial public offering on
December 12, 1995.
(d) See Notes L and M regarding claims settlements.
F-20
<PAGE> 122
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
S. INDUSTRY SEGMENT AND GEOGRAPHIC FINANCIAL AREA INFORMATION
The Company operates in a single industry, on a global basis: the design,
manufacture and sales of metal halide lighting products including materials,
components, systems and production equipment.
Information concerning the Company's operations in different geographic
areas at June 30, 1997 and for the year then ended follows:
<TABLE>
<CAPTION>
NORTH UNITED OTHER
AMERICA KINGDOM FOREIGN ELIMINATIONS CONSOLIDATED
-------- ------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales to unaffiliated customers........ $ 74,095 $ 5,786 $5,764 $ -- $ 85,645
Transfers between geographic areas......... 3,424 -- -- (3,424) --
-------- ------- ------ -------- --------
Net sales.................................. $ 77,519 $ 5,786 $5,764 $ (3,424) $ 85,645
======== ======= ====== ======== ========
Operating profit........................... $ 10,811 $ 347 $ 270 $ (335) $ 11,093
Identifiable assets........................ 130,363 14,937 4,895 (15,357) 134,838
</TABLE>
- ---------------
The information presented above may not be indicative of the results of
operations if the geographic areas were independent organizations. Transfers
between geographic areas and other geographic transactions are made at
established transfer prices. Operating profit by geographic segment is net sales
less operating costs, excluding interest and income taxes. Net sales generated
by the foreign operations or identifiable assets of foreign operations were less
than 10% of related consolidated totals for fiscal 1996 and 1995.
Export sales from the Company's United States operations, which did not
exceed 10% of consolidated sales to any individual country, amounted to $16,696,
$12,129 and $6,442 in fiscal 1997, 1996 and 1995, respectively.
In fiscal 1997 and fiscal 1995 no single customer accounted for 10% or more
of the Company's net sales, while approximately $5,689, or 10%, of fiscal 1996
net sales were made to one customer.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Reporting Disaggregated Information
about a Business Enterprise". The statement requires a "management" approach to
reporting financial and descriptive information about a Company's operating
segments. The Company must adopt this statement in the first quarter of fiscal
1999. Management is currently studying the potential effect of adopting this
statement.
T. SUBSEQUENT EVENTS
In July 1997, the Company issued 3,000,000 shares of its Common Stock in a
public offering. A portion of the net proceeds from this offering were used to
repay substantially all amounts outstanding under its Revolving Credit and
Security Agreement and its $8,400 term note. The early extinguishment of this
debt will result in an extraordinary charge against the first quarter fiscal
1998 earnings of approximately $500 net of applicable estimated income tax
benefits.
In September 1997, the Company announced the signing of a letter of intent
to acquire Ruud Lighting, Inc. for $35,500 and 3 million shares of the Company's
Common Stock. The Company intends to complete this acquisition through a
combination of available cash from its July 1997 offering and additional bank
financing.
U. DISCONTINUED OPERATIONS, SPIN-OFF OF MICROSUN BUSINESS
In March 1998, the Company approved a plan to distribute to its
shareholders all of the ownership of Microsun Technologies, Inc., a wholly-owned
subsidiary responsible for development, design, assembly, marketing and
distribution of metal halide portable fixtures for residential and hospitality
uses, in a spin-off
F-21
<PAGE> 123
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
transaction which is expected to be tax-free. The Company believes the spin-off
will enable the Company and MicroSun to devote the resources necessary to
develop their individual core strategies in pursuit of their unique growth
objectives.
Summary operating information for MicroSun for the years ended June 30,
1997 and 1996, is presented below for informational purposes only and does not
necessarily reflect what the results of operations would have been had MicroSun
operated as a stand-alone entity.
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30,
---------------
1997 1996
------ -----
<S> <C> <C>
Sales....................................................... $ 845 $ --
Costs and expenses.......................................... 1,469 205
------ -----
Loss before income taxes.................................... 624 205
Income tax benefit.......................................... 172 55
------ -----
Net loss.................................................... $ (452) $(150)
====== =====
</TABLE>
The estimated date of disposition extends to December 31, 1998 pending the
determination of the spin-off as tax-free. As a result of the Board of
Directors' approval to spin-off the MicroSun business, the consolidated
financial statements of ADLT have been adjusted and restated to reflect the
results of operations of MicroSun as a discontinued operation in accordance with
generally accepted accounting principles.
F-22
<PAGE> 124
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
1998 1997
----------- --------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 30,621 $ 4,198
Short-term investments.................................... 4,075 4,075
Trade receivables, less allowances of $397 and $315....... 38,433 28,916
Receivables from related parties.......................... 1,087 346
Inventories:
Finished goods......................................... 28,599 21,143
Raw materials and work-in-process...................... 12,862 7,982
-------- --------
41,461 29,125
Prepaid expenses.......................................... 3,018 1,363
Deferred taxes............................................ 5,995 2,566
-------- --------
Total current assets........................................ 124,690 70,589
Property, plant and equipment:
Land and buildings........................................ 27,816 6,143
Machinery and equipment................................... 49,731 32,712
Furniture and fixtures.................................... 15,119 7,704
-------- --------
92,666 46,559
Less accumulated depreciation............................. 10,869 8,558
-------- --------
81,797 38,001
Deferred taxes.............................................. 2,050 535
Receivables from related parties............................ 2,532 1,209
Net assets associated with discontinued operations -- Note
K......................................................... 2,358 --
Investments in affiliates................................... 21,902 7,565
Intangible assets........................................... 34,485 4,737
Other assets................................................ 7,445 4,217
Excess of cost over net assets of businesses acquired,
net....................................................... 31,440 7,985
-------- --------
$308,699 $134,838
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt..... $ 2,247 $ 3,731
Accounts payable.......................................... 15,761 15,773
Payables to related parties............................... 731 699
Employee-related liabilities.............................. 3,670 2,674
Accrued income and other taxes............................ 3,377 1,689
Other accrued expenses.................................... 11,258 3,643
-------- --------
Total current liabilities................................... 37,044 28,209
Long-term debt.............................................. 117,520 35,908
Other liabilities........................................... 866 463
Deferred taxes.............................................. 4,491 4,226
Shareholders' equity
Common stock.............................................. 20 13
Paid-in-capital........................................... 171,854 59,087
Retained earnings (deficit)............................... (23,096) 6,932
-------- --------
148,778 66,032
-------- --------
$308,699 $134,838
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-23
<PAGE> 125
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DOLLAR AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
MARCH 31, MARCH 31,
------------------ ------------------
1998 1997 1998 1997
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Net sales............................................... $ 49,075 $22,034 $110,891 $60,291
Costs and expenses:
Cost of sales -- Note I............................... 30,448 11,801 66,241 32,299
Marketing and selling................................. 7,523 3,784 16,854 10,299
Research and development.............................. 2,848 1,291 6,069 3,851
General and administrative............................ 3,087 1,855 7,307 5,378
Fiber optic joint venture formation costs............. -- -- 212 --
Purchased in-process research & development--Note I... 18,220 -- 18,220 --
Special charges -- Note I............................. 15,700 15,700 --
Settlement of claim................................... -- -- -- 771
Amortization of intangible assets..................... 505 101 930 195
-------- ------- -------- -------
Income (loss) from operations........................... (29,256) 3,202 (20,642) 7,498
Other income (expense):
Interest expense...................................... (1,325) (392) (1,649) (749)
Interest income....................................... 274 283 1,079 610
Loss from equity investment........................... (2) -- (2) --
-------- ------- -------- -------
Income (loss) from continuing operations before income
taxes and extraordinary charge........................ (30,309) 3,093 (21,214) 7,359
Income taxes............................................ (2,356) 1,123 918 2,616
-------- ------- -------- -------
Income (loss) from continuing operations before
extraordinary charge.................................. (27,953) 1,970 (22,132) 4,743
Loss from discontinued operations, net of income tax
benefits -- Note K.................................... (6,753) (88) (7,292) (241)
-------- ------- -------- -------
Income (loss) before extraordinary charge............... (34,706) 1,882 (29,424) 4,502
Extraordinary charge from early extinguishment of debt,
net of income tax benefits -- Note E.................. (604) -- (604) --
-------- ------- -------- -------
NET INCOME (LOSS)....................................... $(35,310) $ 1,882 $(30,028) $ 4,502
======== ======= ======== =======
Earnings per share -- Basic:
Income (loss) from continuing operations.............. $ (1.40) $ .15 $ (1.26) $ .36
Loss from discontinued operations..................... (.34) (.01) (.42) (.02)
Extraordinary charge.................................. (.03) -- (.03) --
-------- ------- -------- -------
EARNINGS PER SHARE -- BASIC............................. $ (1.77) $ .14 $ (1.71) $ .34
======== ======= ======== =======
Earnings per share -- Diluted
Income (loss) from continuing operations.............. $ (1.40) $ .14 $ (1.26) $ .35
Loss from discontinued operations..................... (.34) -- (.42) (.02)
Extraordinary charge.................................. (.03) -- (.03) --
-------- ------- -------- -------
EARNINGS PER SHARE -- DILUTED........................... $ (1.77) $ .14 $ (1.71) $ .33
======== ======= ======== =======
Weighted average shares outstanding
Basic................................................. 19,917 13,438 17,540 13,205
======== ======= ======== =======
Diluted............................................... 19,917 13,802 17,540 13,503
======== ======= ======== =======
</TABLE>
See notes to condensed consolidated financial statements.
F-24
<PAGE> 126
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
NINE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
COMMON STOCK RETAINED
------------------ PAID-IN EARNINGS
SHARES PAR VALUE CAPITAL (DEFICIT) TOTAL
------ --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1997.................... 13,435 $13 $ 59,087 $ 6,932 $ 66,032
Net loss................................... -- -- -- (30,028) (30,028)
Net proceeds from public offering of common
shares................................... 3,000 3 69,317 -- 69,320
Issuance of shares in connection with
purchases of businesses.................. 3,600 4 42,619 -- 42,623
Stock options exercised.................... 70 -- 831 -- 831
------ --- -------- -------- --------
BALANCE AT MARCH 31, 1998.................. 20,105 $20 $171,854 $(23,096) $148,778
====== === ======== ======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-25
<PAGE> 127
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
MARCH 31,
---------------------
1998 1997
-------- --------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss)......................................... $(30,028) $ 4,502
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Purchased in-process research and development........... 18,220 --
Depreciation and amortization........................... 3,335 1,829
Provision for discontinued operations................... 9,100 --
Special charges......................................... 18,500 --
Deferred income taxes................................... (5,750) 1,782
Extraordinary loss...................................... 604 --
Changes in operating assets and liabilities:
Trade receivables..................................... (8,063) (9,400)
Inventories........................................... (5,673) (5,612)
Prepaids and other assets............................. (15,008) (2,430)
Accounts payable and accrued expenses................. (3,384) 2,869
Other liabilities..................................... 84 (74)
-------- --------
Net cash used in operating activities.............. (18,063) (6,534)
INVESTING ACTIVITIES
Capital expenditures...................................... (7,058) (11,589)
Purchase of short-term investments........................ -- (10,229)
Purchases of businesses................................... (50,441) (6,595)
Investments in affiliates................................. (4,343) (1,023)
Use of net proceeds from public offering:
Capital expenditures.................................... (14,507) --
Investment in joint venture with Rohm & Haas Company.... (2,000) --
Acquisition of minority interest in Fiberstars, Inc..... (4,780) --
-------- --------
Net cash used in investing activities.............. (83,129) (29,436)
FINANCING ACTIVITIES
Proceeds from revolving credit facility................... 313,196 65,189
Payments of revolving credit facility..................... (305,237) (47,344)
Proceeds from long-term debt.............................. 104,353 14,822
Payments of long-term debt and capital leases............. (21,848) (5,896)
Issuance of common stock.................................. 831 434
Net proceeds from public offering......................... 69,320 30,091
Use of net proceeds from public offering (excluding
$11,199 used for working capital purposes for the nine
months ended March 31, 1998):
Payment of long-term debt............................... (7,400) --
Payment of revolving credit facility.................... (25,600) (16,800)
-------- --------
Net cash provided by financing activities.......... 127,615 40,496
-------- --------
Increase in cash and cash equivalents....................... 26,423 4,526
Cash and cash equivalents, beginning of period.............. 4,198 1,682
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD........... $ 30,621 $ 6,208
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Interest paid............................................. $ 1,673 $ 684
Income taxes paid......................................... 2,280 81
Capitalized interest...................................... 680 206
Noncash transactions:
Equipment acquired through capital leases............... 376 1,004
Property acquired by assuming mortgage.................. 4,807 --
Stock issued for purchases of businesses................ 42,623 1,537
Detail of acquisitions:
Assets acquired......................................... $120,972 $ 14,212
Liabilities assumed..................................... (26,149) (5,688)
Stock issued............................................ (42,623) (1,537)
-------- --------
Cash paid............................................... 52,200 6,987
Less cash acquired.................................... (1,759) (392)
-------- --------
Net cash paid for acquisition........................... $ 50,441 $ 6,595
======== ========
</TABLE>
See notes to condensed consolidated financial statements.
F-26
<PAGE> 128
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
MARCH 31, 1998
(DOLLAR AMOUNTS IN THOUSANDS)
A. ORGANIZATION
Advanced Lighting Technologies, Inc. (the "Company" or "ADLT") is an
innovation-driven designer, manufacturer and marketer of metal halide lighting
products, including materials, system components, systems, and production
equipment.
B. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions for Form 10-Q and
Article 10 of Regulation S-X. Accordingly, they do not include all the
information and disclosures required by generally accepted accounting principles
for complete financial statements. In the opinion of management, the financial
statements include all material adjustments necessary for a fair presentation,
including adjustments of a normal and recurring nature as well as the special
charges described in Note I. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended June 30, 1997. Operating results for the three
months or nine months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the full-year ending June 30, 1998.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions in certain circumstances that affect amounts reported in the
consolidated financial statements and notes. Actual results could differ from
those estimates.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position ("SOP") 98-5, "Reporting on the Costs of Start-Up
Activities." SOP 98-5 provides authoritative guidance on accounting for and
financial reporting of start-up costs and organization costs. The Company is
required to adopt the SOP on July 1, 1999 (though earlier application is
encouraged) and, upon adoption, expense all previously capitalized start-up
costs and organization costs as a cumulative effect of a change in accounting
principle. Management is reviewing its capitalization policies and determining
the impact that the adoption of this SOP is expected to have on its consolidated
results of operations and financial position.
C. ISSUANCE OF COMMON STOCK
In July 1997, the Company issued three million shares of its Common Stock
in a public offering, resulting in net proceeds of $69,320. Approximately
$33,000 of the net proceeds from this offering were used to repay substantially
all amounts outstanding under its Revolving Credit and Security Agreement and
its Term Note (the "Loan Agreement"). Of the remaining net proceeds, $14,507 was
used for capital expenditures, primarily production equipment and leasehold
improvements, $4,780 was used to purchase 29% of Fiberstars, Inc., a company
specializing in the marketing and distribution of fiber optic lighting products,
$2,000 was contributed to Unison Fiber Optics Lighting Systems LLC, the
Company's joint venture with Rohm and Haas Company, and $11,199 was used for
working capital purposes for the nine months ended March 31, 1998.
D. ACQUISITIONS
During the nine months ended March 31, 1998, the Company completed the
following business combinations, both of which were accounted for by the
purchase method and, accordingly, results of operations for the acquired
businesses have been included in the condensed consolidated statement of
operations from their respective dates of acquisition. Assets acquired and
liabilities assumed have been recorded at fair value based on appraisals and the
best estimates available.
F-27
<PAGE> 129
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
On January 2, 1998, the Company acquired all of the capital stock
outstanding (the "Stock") of Ruud Lighting, Inc. ("Ruud"), located in Racine,
Wisconsin. Ruud 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 purchase
price consisted of $35,500 in cash and three million shares of the Company's
Common Stock (valued at $33,023). The excess of the purchase price over the net
tangible assets acquired was allocated as $29,928 to various intangible assets
such as trade name and customer service infrastructure and $29,031 to the excess
of cost over net assets acquired ("goodwill"), which are being amortized over 40
years.
The following unaudited pro forma results of operations give effect to the
acquisition of Ruud Lighting as if it had occurred on July 1, 1996. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of the results of operations which would have resulted
had the acquisition occurred on July 1, 1996, or which may result in the future.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------
MARCH 31, MARCH 31,
1998 1997
--------- ---------
<S> <C> <C>
Net sales................................................... $ 147,052 $111,681
Income (loss) from continuing operations before
extraordinary charge...................................... (28,551) 6,238
Net income (loss)........................................... (29,155) 6,238
Earnings (loss) per share -- diluted:
Before extraordinary charge............................... $ (1.63) $ .38
Net income................................................ $ (1.66) $ .38
</TABLE>
On January 28, 1998, the Company completed the acquisition of Deposition
Sciences, Inc.("DSI"), of Santa Rosa, California. DSI is the leader in the
development of sophisticated thin film deposition systems (equipment) and
coatings for lighting applications, with particular emphasis on coatings for
metal halide lighting systems. The purchase price consisted of $14,500 in cash
and 599,717 shares of the Company's Common Stock (valued at $9,600). The excess
of the purchase price over the net tangible assets acquired was allocated as
$18,220 to in-process research and development ("R&D") and $3,840 to intangible
assets. Intangibles consist of trade names, assembled workforce and goodwill,
and are amortized over 10 years. Purchased in-process R&D includes the value of
products in the development stage and not considered to have reached
technological feasibility and, in accordance with generally accepted accounting
principles, was capitalized but immediately written-off subsequent to the
acquisition of DSI.
E. REVOLVING BANK CREDIT FACILITY
On January 2, 1998, the Company replaced its existing Loan Agreement and
other borrowings in North America with an $85,000 revolving credit facility
provided by several North American financial institutions ("Bank Credit
Facility"). Proceeds from this facility were partially used to finance the
$35,500 cash portion of the Ruud purchase price and the $14,500 cash portion of
the DSI purchase price. Proceeds were also used to repay $19,200 of existing and
outstanding North American bank borrowings of ADLT, Ruud and DSI.
The facility has a three-year term expiring in December 2000, extendable
annually for a three-year term. Interest rates on loans outstanding are based,
at the Company's option, on LIBOR (plus .625% to 1.75%) or the agent bank's
prime rate. The Company is also obligated to pay commitment fees of between .20%
and .375% on the unused portion of the facility. The facility contains certain
affirmative and negative covenants customary for this type of agreement,
prohibits cash dividends, and includes financial covenants with respect to
interest coverage, cash flow and tangible net worth. The principal security for
the facility is substantially all of the personal property of the Company and
each of its North American subsidiaries and a pledge of stock of each of the
Company's principal subsidiaries.
F-28
<PAGE> 130
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
The early extinguishment of debt under the Loan Agreement resulted in a
noncash write-off of deferred financing costs and an extraordinary charge
amounting to $604, net of applicable income tax benefits of $311, in the three
months ended March 31, 1998.
F. SENIOR NOTES OFFERING
On March 13, 1998, the Company sold $100,000 of Senior Notes due March 15,
2008, resulting in net proceeds of approximately $96,150. The Notes have an
annual coupon of 8% and are redeemable at the Company's option, in whole or in
part, on or after March 15, 2003 at certain preset redemption prices. In
addition, at any time prior to March 15, 2001, the Company may redeem up to 35%
of the aggregate principal amount of the Notes at 108% of par with the proceeds
of one or more public equity offerings. Interest on the Senior Notes is payable
semiannually on March 15 and September 15 of each year beginning on September
15, 1998. There are no sinking fund requirements.
The Indenture contains covenants that, among other things, limit the
ability of the Company and its Restricted Subsidiaries (as defined therein) to
incur indebtedness, pay dividends, prepay subordinated indebtedness, repurchase
capital stock, make investments, create liens, engage in transactions with
stockholders and affiliates, sell assets and, with respect to the Company only,
engage in mergers and consolidations.
Approximately $76,300 of the net proceeds from the Senior Notes were used
to repay amounts outstanding under the Bank Credit Facility, thereby lengthening
the term of the Company's debt, most of which had been incurred to finance the
acquisitions of Ruud Lighting and DSI.
G. PURCHASE OF CORPORATE HEADQUARTERS
During March 1998, the Company purchased land and building in Solon, Ohio
for $7,758, which includes the assumption of an existing mortgage of
approximately $4,800. The mortgage has a 9.39% interest rate, a prepayment
penalty that approximates $1,000, requires monthly amortizing payments and a
final term payment of $4,100 due in June 2006. Prior to the purchase, a portion
of the property was leased and used by the Company for system components
manufacturing and office space. Subsequent to the purchase, the Company
relocated its world headquarters to the facility. The Company has invested and
intends to invest additional amounts for expanded manufacturing, sales and
training facilities.
H. ADDITIONAL INVESTMENT IN FIBERSTARS, INC.
During July 1997, the Company purchased an equity interest in Fiberstars,
Inc., a marketer and distributor of fiber optic lighting products. At December
31, 1997, the Company owned approximately 669,000 common shares, or 19.6% of
Fiberstars' shares outstanding. On February 11, 1998, the Company increased its
equity ownership to approximately 1,023,000 common shares, or 29% of Fiberstars'
shares outstanding. Accordingly, the Company has changed its method of carrying
the investment to equity from cost in the quarter ended March 31, 1998. The
Company can not purchase additional shares of Fiberstars without the consent of
the board of directors of Fiberstars.
I. SPECIAL CHARGES
During the three months ended March 31, 1998, the Company recorded special
charges related to the purchase price allocation for Deposition Sciences Inc.
("DSI") and an assessment of the Company's global power supply operations.
The Company completed the acquisition of DSI in January 1998. The special
charges include $18,220 for purchased in-process research and development,
determined by an independent valuation, relating to the DSI acquisition.
F-29
<PAGE> 131
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
The special charges also include $18,500 principally relating to the
rationalization of the Company's global power supply operations. With the
January 1998 acquisition of Ruud Lighting, Inc., the Company accelerated the
rationalization of its existing power supply manufacturing operations and
distribution activities in order to capitalize on new opportunities not
previously available. This assessment resulted in (a) the discontinuance of
certain power supply products at the Company's power supply facilities and (b)
the write-down of certain intangible and fixed assets.
In addition, the charges cover the consolidation and rationalization cost
of distribution activities and facilities, the write-down of assets in
connection with the implementation of new information systems and a reassessment
of investments resulting from a change in expansion strategy arising from the
Ruud Lighting acquisition.
The special charges were determined in accordance with formal plans
developed by the Company's management using the best information available to it
at the time and, subsequently, approved by the Company's Board of Directors. The
amounts the Company may ultimately incur may change as the plans are executed.
The amounts are classified in the March 31, 1998 statement of operations
as: cost of sales--$2,800; purchased in-process research and
development--$18,220; and, special charges--$15,700. The activity impacting the
accrual related to special charges is summarized in the following table:
<TABLE>
<CAPTION>
CHARGED BALANCE AS OF
TO CHARGES MARCH 31,
OPERATIONS UTILIZED 1998
---------- -------- -------------
<S> <C> <C> <C>
Inventories................................................. $ 2,800 $ 91 $2,709
Asset write-downs:
Intangibles............................................... 8,942 8,942 -0-
Fixed assets.............................................. 2,650 1,004 1,646
Other assets.............................................. 2,393 2,070 323
Contractual commitments and other accruals.................. 1,600 473 1,127
Other....................................................... 115 115 -0-
------- ------- ------
$18,500 $12,695 $5,805
======= ======= ======
</TABLE>
Intangible assets primarily represent the excess of the purchase price of
acquisition over the fair market value of the net assets acquired ("goodwill")
and other costs allocated to tradenames, know-how, and other specifically
identifiable intangibles arising from business acquisitions. Asset writedowns
for the impairment of long-lived intangibles and fixed assets were determined in
accordance with Financial Accounting Standards No. 121.
Actions required by the plans are expected to be completed by June 30,
1999. Cash outlays to complete the balance of the Company's initiative to
rationalize the Company's global power supply operations are estimated to be
approximately $1,300.
The March 31, 1998 balance of the accrual for special charges is classified
within the balance sheet as follows:
<TABLE>
<S> <C>
Inventories................................................. $2,709
Property, plant, and equipment.............................. 1,646
Other assets................................................ 323
Other accrued expenses...................................... 1,127
------
$5,805
======
</TABLE>
After an income tax benefit of $4,664, these special charges reduced net
income by $32,056, or $1.61 diluted earnings per share for the three months
ended March 31, 1998.
F-30
<PAGE> 132
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
J. INCOME TAXES
The provision for income taxes differs from the amount computed by applying
the statutory federal income tax rate to loss before income taxes as a result of
the difference between the financial reporting and tax bases of (a) the net
assets of Deposition Sciences, Inc. reflected in the March 31, 1998 statement of
operations as purchased in-process research and development and (b) a portion of
the special charges related asset write-downs.
K. DISCONTINUED OPERATIONS, SPIN-OFF OF MICROSUN BUSINESS
In March 1998, the Company approved a plan to distribute to its
shareholders all of the ownership of Microsun Technologies, Inc. (MicroSun), the
subsidiary primarily responsible for development, design, assembly and marketing
of metal halide portable fixtures for residential and hospitality uses, in a
spin-off transaction which is expected to be tax-free. The Company believes the
creation of two separate companies will enable the Company and MicroSun to
devote the resources necessary to develop their core strategies in pursuit of
their growth objectives.
Summary operating information for MicroSun for the three month and nine
month periods ended March 31, 1998 and 1997, is presented below for
informational purposes only and does not necessarily reflect what the results of
operations would have been had MicroSun operated as a stand-alone entity.
<TABLE>
<CAPTION>
THREE MONTHS NINE MONTHS
ENDED MARCH 31, ENDED MARCH 31,
------------------ ------------------
1998 1997 1998 1997
------- ----- ------- -----
<S> <C> <C> <C> <C>
Sales............................................... $ 1,610 $ 300 $ 2,764 $ 485
Costs and expenses.................................. 2,765 437 4,761 861
------- ----- ------- -----
Loss before income taxes............................ (1,155) (137) (1,997) (376)
Income tax benefit.................................. (416) (49) (719) (135)
------- ----- ------- -----
Net loss............................................ $ (739) $ (88) $(1,278) $(241)
======= ===== ======= =====
</TABLE>
Operating losses through the intended date of the spin-off follow:
<TABLE>
<CAPTION>
BEFORE INCOME INCOME
TAXES TAX BENEFITS NET
------------- ------------ ------
<S> <C> <C> <C>
Operating losses for the nine months ended March 31, 1998... $ 1,997 $ 719 $1,278
Estimated operating losses from April 1, 1998 to December
31, 1998.................................................. 9,100 3,086 6,014
------- ------ ------
Operating losses through spin-off........................... $11,097 $3,805 $7,292
======= ====== ======
</TABLE>
The estimated date of disposition extends to December 31, 1998 pending the
determination of the spin-off as tax-free. As a result of the Board of
Directors' approval to spin-off the MicroSun business, the consolidated
financial statements of ADLT have been adjusted and restated to reflect the
results of operations of MicroSun as a discontinued operation in accordance with
generally accepted accounting principles.
F-31
<PAGE> 133
REPORT OF ERNST & YOUNG LLP, 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
Cleveland, Ohio
December 19, 1997
F-32
<PAGE> 134
RUUD LIGHTING, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
NOVEMBER 30
----------------------
1997 1996
-------- --------
(IN THOUSANDS, EXCEPT
SHARE AMOUNTS)
<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
======= =======
</TABLE>
See notes to financial statements
F-33
<PAGE> 135
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
======= ======= =======
</TABLE>
See notes to financial statements
F-34
<PAGE> 136
RUUD LIGHTING, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
YEARS ENDED
NOVEMBER 30, 1997, 1996 AND 1995
-------------------------------------
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>
See notes to financial statements
F-35
<PAGE> 137
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
======== ======= =======
</TABLE>
See notes to financial statements
F-36
<PAGE> 138
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>
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.
F-37
<PAGE> 139
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THIS EXCHANGE
OFFER AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE DELIVERY OF
THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE
AN IMPLICATION THAT THERE HAS NOT BEEN ANY CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION
IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO OR TO ANYONE TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................. 4
Incorporation of Certain Documents by
Reference............................ 4
Summary................................ 6
Risk Factors........................... 15
Background of the Company.............. 22
Use of Proceeds........................ 24
Capitalization......................... 25
Unaudited Pro Forma Financial Data..... 26
Selected Financial Data................ 29
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 32
Business............................... 42
Management............................. 58
Certain Transactions................... 60
Principal Shareholders................. 63
Description of Certain Indebtedness.... 64
The Exchange Offer..................... 64
Description of the New Notes........... 72
Description of the Old Notes........... 96
Certain United States Federal Income
Tax Considerations................... 97
Plan of Distribution................... 98
Legal Matters.......................... 98
Independent Auditors................... 99
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
======================================================
======================================================
ADVANCED LIGHTING
TECHNOLOGIES, INC.
ADVANCED LOGO
OFFER TO EXCHANGE ITS
8.00% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8.00% SENIOR NOTES DUE 2008
---------------------------
PROSPECTUS
---------------------------
, 1998
======================================================
<PAGE> 140
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Reference is made to Section 1701.59 of the Ohio Revised Code, which
eliminates the personal liability in damages of a director for violations of the
director's fiduciary duty, except if it is proved by clear and convincing
evidence that his action or failure to act involved acts or omissions undertaken
with deliberate intent to cause injury to the corporation or with reckless
disregard for the best interests of the corporation. This statute does not
affect the liability of directors pursuant to Section 1701.95 of the Ohio
Revised Code (providing for liability of directors for unlawful payment of
dividends or unlawful distribution of assets).
Reference is made to Section 1701.13 of the Ohio Revised Code, which
provides that a corporation may indemnify directors and officers as well as
other employees and individuals against expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement in connection with specified
actions, suits or proceedings, whether civil, criminal, administrative or
investigative other than an action by or in the name of the corporation (a
"derivative action") if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation and,
with respect to any criminal action or proceeding, had no reasonable cause to
believe their conduct was unlawful. A similar standard is applicable in the case
of derivative actions, except that indemnification only extends to expenses
(including attorneys' fees) incurred in connection with defense or settlement of
such action, and the statute requires court approval before there can be any
indemnification where the person seeking indemnification has been found liable
to the corporation. The statute provides that it is not exclusive of other
indemnification that may be granted by a corporation's articles of
incorporation, code of regulations, disinterested director vote, shareholder
vote, agreement or otherwise.
Reference is made to Article Seven of the Code of Regulations (by-laws) of
the Company contained in Exhibit 3.2 hereto which provides for the
indemnification of directors and officers to the fullest extent permitted by
Ohio law.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
4.1 Indenture dated as of March 18, 1998 between the Registrant
and The Bank of New York, as trustee (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the Quarterly Period ended March 31, 1998).
4.2 Registration Rights Agreement, dated as of March 18, 1998,
between the Registrant and Morgan Stanley & Co.
Incorporated.
4.3 Form of Security for 8% Senior Notes due 2008 originally
issued by Advanced Lighting Technologies, Inc. on March 18,
1998.
4.4 Form of Security for 8% Senior Notes due 2008 to be issued
by Advanced Lighting Technologies, Inc. and registered under
the Securities Act of 1933.
5.1 Opinion of Cowden, Humphrey & Sarlson Co., L.P.A.
5.2 Opinion of Brown & Wood LLP.
12 Statement re computation of ratio of earnings to fixed
charges.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cowden, Humphrey & Sarlson Co., L.P.A. (included
in Exhibit 5.2).
23.3 Consent of Brown & Wood LLP (included in Exhibit 5.2).
24 Powers of Attorney.
25 Statement of eligibility of trustee.
27.1 Financial data schedule.
27.2 Financial data schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
II-1
<PAGE> 141
(b) Financial Statement Schedules.
Schedules have been omitted since the information is not applicable, not
required or is included in the financial statements or notes thereto.
ITEM 22. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement through the date
of responding to the request.
The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired or involved therein, that was not the subject of and
included in the registration statement when it became effective.
The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE> 142
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CLEVELAND, STATE OF OHIO,
ON JULY 7, 1998.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ WAYNE R. HELLMAN
-------------------------------------
Wayne R. Hellman,
Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ Wayne R. Hellman Chief Executive Officer and Director July 7, 1998
- ------------------------------------------------
Wayne R. Hellman
/s/ Alan J. Ruud Vice Chairman and Director July 7, 1998
- ------------------------------------------------
Alan J. Ruud
/s/ Louis S. Fisi Executive Vice President and Director July 7, 1998
- ------------------------------------------------
Louis S. Fisi
/s/ Nicholas R. Sucic Chief Financial Officer, Vice President July 7, 1998
- ------------------------------------------------ and Treasurer (Chief Accounting
Nicholas R. Sucic Officer)
/s/ Theodore A. Filson Director July 7, 1998
- ------------------------------------------------
Theodore A. Filson
/s/ Francis H. Beam Director July 7, 1998
- ------------------------------------------------
Francis H. Beam
/s/ Susuma Harada Director July 7, 1998
- ------------------------------------------------
Susuma Harada
/s/ A Gordon Tunstall Director July 7, 1998
- ------------------------------------------------
A Gordon Tunstall
/s/ John R. Buerkle Director July 7, 1998
- ------------------------------------------------
John R. Buerkle
</TABLE>
II-3
<PAGE> 143
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C> <C>
4.1 Indenture dated as of March 18, 1998 between the Registrant
and The Bank of New York, as trustee (incorporated by
reference to Exhibit 10.4 to the Company's Quarterly Report
on Form 10-Q for the Quarterly Period ended March 31, 1998).
4.2 Registration Rights Agreement, dated as of March 18, 1998,
between the Registrant and Morgan Stanley & Co.
Incorporated.
4.3 Form of Security for 8% Senior Notes due 2008 originally
issued by Advanced Lighting Technologies, Inc. on March 18,
1998.
4.4 Form of Security for 8% Senior Notes due 2008 to be issued
by Advanced Lighting Technologies, Inc. and registered under
the Securities Act of 1933.
5.1 Opinion of Cowden, Humphrey & Sarlson Co., L.P.A.
5.2 Opinion of Brown & Wood LLP.
12 Statement re computation of ratio of earnings to fixed
charges.
23.1 Consent of Ernst & Young LLP, Independent Auditors.
23.2 Consent of Cowden, Humphrey & Sarlson Co., L.P.A. (included
in Exhibit 5.2).
23.3 Consent of Brown & Wood LLP (included in Exhibit 5.2).
24 Powers of Attorney.
25 Statement of eligibility of trustee.
27.1 Financial data schedule.
27.2 Financial data schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Exchange Agent Agreement.
</TABLE>
<PAGE> 1
Exhibit 4.2
REGISTRATION RIGHTS AGREEMENT
Dated March 13, 1998
between
ADVANCED LIGHTING TECHNOLOGIES, INC.
and
MORGAN STANLEY & CO. INCORPORATED
<PAGE> 2
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made
and entered into March 13, 1998, between ADVANCED LIGHTING TECHNOLOGIES, INC.,
an Ohio corporation (the "Company"), and MORGAN STANLEY & CO.
INCORPORATED (the "Placement Agent").
This Agreement is made pursuant to the Placement Agreement
dated March 13, 1998, between the Company and the Placement Agent (the
"Placement Agreement"), which provides for the sale by the Company to the
Placement Agent of an aggregate of $100,000,000 principal amount of the
Company's 8% Senior Notes Due 2008 (the "Securities"). In order to induce the
Placement Agent to enter into the Placement Agreement, the Company has agreed to
provide to the Placement Agent and its direct and indirect transferees the
registration rights set forth in this Agreement. The execution of this Agreement
is a condition to the closing under the Placement Agreement.
In consideration of the foregoing, the parties hereto agree
and all other Holders (as defined below) of Registrable Securities (as defined
below) from time to time, by their acceptance thereof, shall be conclusively
deemed to have agreed, as follows:
1. DEFINITIONS.
As used in this Agreement, the following capitalized defined
terms shall have the following meanings:
"1933 ACT" shall mean the Securities Act of 1933, as amended
from time to time.
"1934 ACT" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"CLOSING DATE" shall mean the Closing Date as defined in the
Placement Agreement.
"COMPANY" shall have the meaning set forth in the preamble and
shall also include the Company's successors.
"EXCHANGE OFFER" shall mean the exchange offer by the Company
of Exchange Securities for Registrable Securities pursuant to Section
2(a) hereof.
<PAGE> 3
2
"EXCHANGE OFFER REGISTRATION" shall mean a registration under
the 1933 Act effected pursuant to Section 2(a) hereof.
"EXCHANGE OFFER REGISTRATION STATEMENT" shall mean an exchange
offer registration statement on Form S-4 (or, if applicable, on another
appropriate form) and all amendments and supplements to such
registration statement, in each case including the Prospectus contained
therein, all exhibits thereto and all material incorporated by
reference therein.
"EXCHANGE SECURITIES" shall mean 8% Senior Notes due 2008
issued by the Company under the Indenture containing terms identical to
the Securities (except that (i) interest thereon shall accrue from the
last date on which interest was paid on the Securities or, if no such
interest has been paid, from March 18, 1998 and (ii) the Exchange
Securities will not contain restrictions on transfer) and to be offered
to Holders of Securities in exchange for Securities pursuant to the
Exchange Offer.
"HOLDER" shall mean the Placement Agent, for so long as it
owns any Registrable Securities, and each of its successors, assigns
and direct and indirect transferees who become registered owners of
Registrable Securities under the Indenture; provided that for purposes
of Sections 4 and 5 of this Agreement, the term "Holder" shall include
Participating Broker-Dealers (as defined in Section 4(a)).
"INDENTURE" shall mean the Indenture relating to the
Securities dated as of March 18, 1998 between the Company and The Bank
of New York, as trustee, and as the same may be amended from time to
time in accordance with the terms thereof.
"MAJORITY HOLDERS" shall mean the Holders of a majority of the
aggregate principal amount of outstanding Registrable Securities;
PROVIDED that whenever the consent or approval of Holders of a
specified percentage of Registrable Securities is required hereunder,
Registrable Securities held by the Company or any of its affiliates (as
such term is defined in Rule 405 under the 1933 Act) (other than the
Placement Agent or subsequent Holders of Registrable Securities if such
subsequent holders are deemed to be such affiliates solely by reason of
their holding of such Registrable Securities) shall not be counted in
determining whether such consent or approval was given by the Holders
of such required percentage or amount.
"PERSON" shall mean an individual, partnership, limited
liability company, corporation, trust or unincorporated organization,
or a government or agency or political subdivision thereof.
"PLACEMENT AGENT" shall have the meaning set forth in the
preamble.
<PAGE> 4
3
"PLACEMENT AGREEMENT" shall have the meaning set forth in the
preamble.
"PROSPECTUS" shall mean the prospectus included in a
Registration Statement, including any preliminary prospectus, and any
such prospectus as amended or supplemented by any prospectus
supplement, including a prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by
a Shelf Registration Statement, and by all other amendments and
supplements to such prospectus, and in each case including all material
incorporated by reference therein.
"REGISTRABLE SECURITIES" shall mean the Securities; provided,
however, that the Securities shall cease to be Registrable Securities
(i) when a Registration Statement with respect to such Securities shall
have been declared effective under the 1933 Act and such Securities
shall have been disposed of pursuant to such Registration Statement,
(ii) when such Securities have been sold to the public pursuant to Rule
144(k) (or any similar provision then in force, but not Rule 144A)
under the 1933 Act, (iii) when such Securities shall have ceased to be
outstanding or (iv) when all of the outstanding Securities shall have
become freely tradeable without registration pursuant to Rule 144(k)
under the 1933 Act, PROVIDED that upon request of any Holder the
Company will deliver to such Holder certificates evidencing such
Holder's Securities without the legends restricting the transfer
thereof.
"REGISTRATION EXPENSES" shall mean any and all expenses
incident to performance of or compliance by the Company with this
Agreement, including without limitation: (i) all SEC, stock exchange or
National Association of Securities Dealers, Inc. ("NASD") registration
and filing fees, (ii) all fees and expenses incurred in connection with
compliance with state securities or blue sky laws (including reasonable
fees and disbursements of one firm of legal counsel for any
underwriters or Holders in connection with blue sky qualification of
any of the Exchange Securities or Registrable Securities), (iii) all
expenses of any Persons in preparing or assisting in preparing, word
processing, printing and distributing any Registration Statement, any
Prospectus, any amendments or supplements thereto, any underwriting
agreements, securities sales agreements and other documents relating to
the performance of and compliance with this Agreement, (iv) all rating
agency fees, (v) all fees and disbursements relating to the
qualification of the Indenture under applicable securities laws, (vi)
the fees and disbursements of the Trustee and its counsel, (vii) the
fees and disbursements of counsel for the Company and, in the case of a
Shelf Registration Statement, the fees and disbursements of one counsel
for the Holders (which counsel shall be selected by the Placement Agent
or, in the event the Placement Agent is not a Holder, by the Majority
Holders) and (viii) the fees and disbursements of the independent
public accountants of the Company, including the expenses of any
special audits or "cold
<PAGE> 5
4
comfort" letters required by or incident to such performance and
compliance, but excluding fees and expenses of counsel to the
underwriters (other than fees and expenses set forth in clause (ii)
above) or the Holders and underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of
Registrable Securities by a Holder.
"REGISTRATION STATEMENT" shall mean any registration
statement of the Company that covers any of the Exchange Securities or
Registrable Securities pursuant to the provisions of this Agreement and
all amendments and supplements to any such Registration Statement,
including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material
incorporated by reference therein.
"SEC" shall mean the Securities and Exchange Commission.
"SECURITIES" shall have the meaning set forth in the preamble.
"SHELF REGISTRATION" shall mean a registration effected
pursuant to Section 2(b) hereof.
"SHELF REGISTRATION STATEMENT" shall mean a "shelf"
registration statement of the Company pursuant to the provisions of
Section 2(b) of this Agreement which covers all of the Registrable
Securities (but no other securities unless approved by the Holders
whose Registrable Securities are covered by such Shelf Registration
Statement) on an appropriate form under Rule 415 under the 1933 Act, or
any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, in each case including the Prospectus contained therein,
all exhibits thereto and all material incorporated by reference
therein.
"TRUSTEE" shall mean the trustee with respect to the
Securities under the Indenture.
"UNDERWRITER" shall have the meaning set forth in Section 3
hereof.
"UNDERWRITTEN REGISTRATION" or "UNDERWRITTEN OFFERING" shall
mean a registration in which Registrable Securities are sold to an
Underwriter for reoffering to the public.
2. REGISTRATION UNDER THE 1933 ACT.
<PAGE> 6
5
(a) To the extent not prohibited by any applicable law or
applicable interpretation of the Staff of the SEC, the Company shall use its
reasonable best efforts to cause to be filed an Exchange Offer Registration
Statement covering the offer by the Company to the Holders to exchange all of
the Registrable Securities for Exchange Securities and, when such Registration
Statement has been declared effective by the SEC, to have such Registration
Statement remain effective until the closing of the Exchange Offer. The Company
shall commence the Exchange Offer promptly after the Exchange Offer Registration
Statement has been declared effective by the SEC and use its best efforts to
have the Exchange Offer consummated not later than 60 days after such effective
date. The Company shall commence the Exchange Offer by mailing the related
exchange offer Prospectus and accompanying documents to each Holder stating, in
addition to such other disclosures as are required by applicable law:
(i) that the Exchange Offer is being made pursuant to this
Registration Rights Agreement and that all Registrable Securities
validly tendered will be accepted for exchange;
(ii) the dates during which Holders may tender Registrable
Securities pursuant to the Exchange Offer (which shall be a period of
at least 20 business days from the date such notice is mailed) (the
"Exchange Dates");
(iii) that any Registrable Security not duly and validly
tendered or duly and validly withdrawn will remain outstanding and
continue to accrue interest, but will not retain any rights under this
Registration Rights Agreement;
(iv) that Holders electing to have a Registrable Security
exchanged pursuant to the Exchange Offer will be required to surrender
such Registrable Security, together with the enclosed letter of
transmittal, to the institution and at the address (located in the
Borough of Manhattan, The City of New York) specified in the notice
prior to the close of business on the last Exchange Date; and
(v) that Holders will be entitled to withdraw their election,
not later than the close of business on the last Exchange Date, by
sending to the institution and at the address (located in the Borough
of Manhattan, The City of New York) specified in the notice a telegram,
facsimile transmission or letter setting forth the name of such Holder,
the principal amount of Registrable Securities delivered for exchange
and a statement that such Holder is withdrawing such Holder's election
to have such Securities exchanged.
As soon as practicable after the last Exchange Date, the
Company shall:
<PAGE> 7
6
(i) accept for exchange Registrable Securities or portions
thereof validly tendered and not validly withdrawn pursuant to the
Exchange Offer; and
(ii) deliver, or cause to be delivered, to the Trustee for
cancellation all Registrable Securities or portions thereof so accepted
for exchange by the Company; and
(iii) issue, and cause the Trustee to promptly authenticate
and mail to each Holder, an Exchange Security equal in principal amount
to the principal amount of the Registrable Securities surrendered by
such Holder.
The Company shall use its reasonable best efforts to complete the Exchange Offer
as provided above and shall comply with the applicable requirements of the 1933
Act, the 1934 Act and other applicable laws and regulations in connection with
the Exchange Offer. The Exchange Offer shall not be subject to any conditions,
other than that the Exchange Offer does not violate applicable law or any
applicable interpretation of the Staff of the SEC. The Company shall inform the
Placement Agent of the names and addresses of the Holders to whom the Exchange
Offer is made, and the Placement Agent shall have the right, subject to
applicable law, to contact such Holders and otherwise facilitate the tender of
Registrable Securities pursuant to the Exchange Offer.
(b) In the event that (i) the Company determines that the
Exchange Offer Registration provided for in Section 2(a) above is not available
or may not be consummated as soon as practicable after the last Exchange Date
because it would violate applicable law or the applicable interpretations of the
Staff of the SEC, (ii) the Exchange Offer is not for any other reason
consummated by the date that is 180 days after March 18, 1998 or (iii) the
Exchange Offer has been completed and in the reasonable opinion of counsel for
the Placement Agent a Registration Statement must be filed and a Prospectus must
be delivered by the Placement Agent in connection with any offering or sale of
Registrable Securities, the Company shall use its reasonable best efforts to
cause to be filed as soon as practicable after such determination, date or
notice of such opinion of counsel is given to the Company, as the case may be, a
Shelf Registration Statement providing for the sale by the Holders of all of the
Registrable Securities and to have such Shelf Registration Statement declared
effective by the SEC. In the event the Company is required to file a Shelf
Registration Statement solely as a result of the matters referred to in clause
(iii) of the preceding sentence, the Company shall use its reasonable best
efforts to file and have declared effective by the SEC both an Exchange Offer
Registration Statement pursuant to Section 2(a) with respect to all Registrable
Securities and a Shelf Registration Statement (which may be a combined
Registration Statement with the Exchange Offer Registration Statement) with
respect to offers and sales of Registrable Securities held by the Placement
Agent after completion of the Exchange Offer. The Company agrees to use its
reasonable best efforts to keep the Shelf Registration Statement continuously
effective until the
<PAGE> 8
7
expiration of the period referred to in Rule 144(k) with respect to the
Registrable Securities or such shorter period that will terminate when all of
the Registrable Securities covered by the Shelf Registration Statement have
been sold pursuant to the Shelf Registration Statement. The Company further
agrees to supplement or amend the Shelf Registration Statement if required by
the rules, regulations or instructions applicable to the registration form used
by the Company for such Shelf Registration Statement or by the 1933 Act or by
any other rules and regulations thereunder for shelf registration or if
reasonably requested by a Holder with respect to information relating to such
Holder, and to use its best efforts to cause any such amendment to become
effective and such Shelf Registration Statement to become usable as soon as
thereafter practicable. The Company agrees to furnish to the Holders of
Registrable Securities copies of any such supplement or amendment promptly
after its being used or filed with the SEC.
(c) The Company shall pay all Registration Expenses in
connection with the registration pursuant to Section 2(a) and Section 2(b). Each
Holder (including the Placement Agent) shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
such Holder's Registrable Securities pursuant to the Shelf Registration
Statement.
(d) An Exchange Offer Registration Statement pursuant to
Section 2(a) hereof or a Shelf Registration Statement pursuant to Section 2(b)
hereof will not be deemed to have become effective unless it has been declared
effective by the SEC; PROVIDED, HOWEVER, that, if, after it has been declared
effective, the offering of Registrable Securities pursuant to a Shelf
Registration Statement is interfered with by any stop order, injunction or other
order or requirement of the SEC or any other governmental agency or court, such
Registration Statement will be deemed not to have become effective during the
period of such interference until the offering of Registrable Securities
pursuant to such Registration Statement may legally resume. In the event the
Exchange Offer is not consummated and the Shelf Registration Statement is not
declared effective on or prior to the date that is 180 days after March 18,
1998, the interest rate on the Securities will be increased by 0.5% per annum
commencing the date that is 180 days after March 18, 1998, until the Exchange
Offer is consummated or the Shelf Registration Statement is declared effective
by the SEC; provided that in the case of a Shelf Registration Statement, if the
Company is unable to cause such Shelf Registration Statement to become effective
because Holders of Registrable Securities have not provided information with
respect to themselves as required by law to be included therein pursuant to the
Company's request as provided herein, such 0.5% increase in the interest rate
shall be payable only to Holders that have furnished such information required
by law to be included therein to the Company pursuant to its request hereunder
from but excluding the date such information is provided to the Company to but
excluding the date the Shelf Registration Statement is declared effective by the
SEC.
<PAGE> 9
8
(e) Without limiting the remedies available to the Placement
Agent and the Holders, the Company acknowledges that any failure by the Company
to comply with its obligations under Section 2(a) and Section 2(b) hereof may
result in material irreparable injury to the Placement Agent or the Holders for
which there is no adequate remedy at law, that it will not be possible to
measure damages for such injuries precisely and that, in the event of any such
failure, the Placement Agent or any Holder may obtain such relief as may be
required to specifically enforce the Company's obligations under Section 2(a)
and Section 2(b) hereof.
3. REGISTRATION PROCEDURES.
In connection with the obligations of the Company with respect
to the Registration Statements pursuant to Section 2(a) and Section 2(b) hereof,
the Company shall as expeditiously as possible:
(a) prepare and file with the SEC a Registration Statement on
the appropriate form under the 1933 Act, which form (x) shall be
selected by the Company and (y) shall, in the case of a Shelf
Registration, be available for the sale of the Registrable Securities
by the selling Holders thereof and (z) shall comply as to form in all
material respects with the requirements of the applicable form and
include all financial statements required by the SEC to be filed
therewith, and use its reasonable best efforts to cause such
Registration Statement to become effective and remain effective in
accordance with Section 2 hereof;
(b) to the extent permitted or required by law, prepare and
file with the SEC such amendments and post-effective amendments to each
Registration Statement as may be necessary to keep such Registration
Statement effective for the applicable period and cause each Prospectus
to be supplemented by any required prospectus supplement and, as so
supplemented, to be filed pursuant to Rule 424 under the 1933 Act; to
keep each Prospectus current during the period described under Section
4(3) and Rule 174 under the 1933 Act that is applicable to transactions
by brokers or dealers with respect to the Registrable Securities or
Exchange Securities;
(c) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, to a single firm of legal counsel for
the Holders (including the Placement Agent) and to each Underwriter of
an Underwritten Offering of Registrable Securities, if any, and their
counsel, without charge, as many copies of each Prospectus, including
each preliminary Prospectus, and any amendment or supplement thereto
and such other documents as such Holder or Underwriter may reasonably
request, in order to facilitate the public sale or other disposition of
the Registrable Securities; and the Company consents to the use of such
Prospectus and any amendment or supplement thereto in
<PAGE> 10
9
accordance with applicable law by each of the selling Holders of
Registrable Securities and any such Underwriters in connection with the
offering and sale of the Registrable Securities covered by and in the
manner described in such Prospectus or any amendment or supplement
thereto in accordance with applicable law;
(d) use its reasonable best efforts to register or qualify the
Registrable Securities under all applicable state securities or "blue
sky" laws of such jurisdictions as any Holder of Registrable Securities
covered by a Registration Statement shall reasonably request in writing
by the time the applicable Registration Statement is declared effective
by the SEC, to cooperate with such Holders in connection with any
filings required to be made with the NASD and do any and all other acts
and things which may be reasonably necessary or advisable to enable
such Holder to consummate the disposition in each such jurisdiction of
such Registrable Securities owned by such Holder; PROVIDED, HOWEVER,
that the Company shall not be required to (i) qualify as a foreign
corporation or as a dealer in securities in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d),
(ii) file any general consent to service of process or (iii) subject
itself to taxation in any such jurisdiction if it is not so subject;
(e) in the case of a Shelf Registration, notify each Holder of
Registrable Securities, a single firm of legal counsel for the Holders
(including the Placement Agent) promptly and, if requested by any such
Holder or counsel, confirm such advice in writing (i) when a
Registration Statement has become effective and when any post-effective
amendment thereto has been filed and becomes effective, (ii) of any
request by the SEC or any state securities authority for amendments and
supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the SEC or any state securities
authority of any stop order suspending the effectiveness of a
Registration Statement or the initiation of any proceedings for that
purpose, (iv) if, between the effective date of a Registration
Statement and the closing of any sale of Registrable Securities covered
thereby, the representations and warranties of the Company contained in
any underwriting agreement, securities sales agreement or other similar
agreement, if any, relating to the offering cease to be true and
correct in all material respects or if the Company receives any
notification with respect to the suspension of the qualification of the
Registrable Securities for sale in any jurisdiction or the initiation
of any proceeding for such purpose, (v) of the happening of any event
during the period a Shelf Registration Statement is effective which
makes any statement made in such Registration Statement or the related
Prospectus untrue in any material respect or which requires the making
of any changes in such Registration Statement or Prospectus in order to
make the statements therein not misleading and (vi) of any
<PAGE> 11
10
determination by the Company that a post-effective amendment to a
Registration Statement would be appropriate;
(f) make every reasonable effort to obtain the withdrawal of
any order suspending the effectiveness of a Registration Statement at
the earliest possible moment and provide immediate notice to each
Holder of the withdrawal of any such order;
(g) in the case of a Shelf Registration, furnish to each
Holder of Registrable Securities, without charge, at least one
conformed copy of each Registration Statement and any post-effective
amendment thereto (without documents incorporated therein by reference
or exhibits thereto, unless requested);
(h) in the case of a Shelf Registration, cooperate with the
selling Holders of Registrable Securities to facilitate the timely
preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends and
enable such Registrable Securities to be in such denominations
(consistent with the provisions of the Indenture) and registered in
such names as the selling Holders may reasonably request at least one
business day prior to the closing of any sale of Registrable
Securities;
(i) in the case of a Shelf Registration, upon the occurrence
of any event contemplated by Section 3(e)(v) hereof, use its reasonable
best efforts to prepare and file with the SEC a supplement or
post-effective amendment to a Registration Statement or the related
Prospectus or any document incorporated therein by reference or file
any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, such Prospectus will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company
agrees to notify the Holders to suspend use of the Prospectus as
promptly as practicable after the occurrence of such an event, and the
Holders hereby agree to suspend use of the Prospectus until the Company
has amended or supplemented the Prospectus to correct such misstatement
or omission;
(j) a reasonable time prior to the filing of any Registration
Statement, any Prospectus, any amendment to a Registration Statement or
amendment or supplement to a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a Prospectus
after initial filing of a Registration Statement, provide a reasonable
number of copies of such document to the Placement Agent and its
counsel (and, in the case of a Shelf Registration Statement, the
Holders (including the Placement Agent) and a single firm of legal
counsel for the Holders) and make such of the representatives of the
Company as shall be reasonably requested by the
<PAGE> 12
11
Placement Agent or its counsel (and, in the case of a Shelf
Registration Statement, the Holders and a single firm of legal counsel
for the Holders) available for discussion of such document, and shall
not at any time file or make any amendment to the Registration
Statement, any Prospectus or any amendment of or supplement to a
Registration Statement or a Prospectus or any document which is to be
incorporated by reference into a Registration Statement or a
Prospectus, of which the Placement Agent and its counsel (and, in the
case of a Shelf Registration Statement, the Holders and a single firm
of legal counsel for the Holders) shall not have previously been
advised and furnished a copy or to which the Placement Agent or its
counsel (and, in the case of a Shelf Registration Statement, the
Holders and a single firm of legal counsel for the Holders) shall have
reasonably objected in a reasonably timely manner;
(k) obtain a CUSIP number for all Exchange Securities or
Registrable Securities, as the case may be, not later than the
effective date of a Registration Statement;
(l) cause the Indenture to be qualified under the Trust
Indenture Act of 1939, as amended (the "TIA"), in connection with the
registration of the Exchange Securities or Registrable Securities, as
the case may be, cooperate with the Trustee and the Holders to effect
such changes to the Indenture as may be required for the Indenture to
be so qualified in accordance with the terms of the TIA and execute,
and use its best efforts to cause the Trustee to execute, all documents
as may be required to effect such changes and all other forms and
documents required to be filed with the SEC to enable the Indenture to
be so qualified in a timely manner;
(m) in the case of a Shelf Registration, make available for
inspection by a representative of the Holders of the Registrable
Securities, any Underwriter participating in any disposition pursuant
to such Shelf Registration Statement, and one firm of attorneys and one
firm of accountants designated by the Majority Holders, at reasonable
times and in a reasonable manner, all financial and other records,
pertinent documents and properties of the Company, and cause the
respective officers, directors and employees of the Company to supply
all information reasonably requested by any such representative,
Underwriter, attorney or accountant in connection with a Shelf
Registration Statement;
(n) in the case of a Shelf Registration, use its best efforts
to cause all Registrable Securities to be listed on any securities
exchange or any automated quotation system on which similar securities
issued by the Company are then listed if requested by the Majority
Holders, to the extent such Registrable Securities satisfy applicable
listing requirements;
<PAGE> 13
12
(o) use its reasonable best efforts to cause the Exchange
Securities or Registrable Securities, as the case may be, to be rated
by two nationally recognized statistical rating organizations (as such
term is defined in Rule 436(g)(2) under the 1933 Act);
(p) if reasonably requested by any Holder of Registrable
Securities covered by a Registration Statement, (i) promptly
incorporate in a Prospectus supplement or post-effective amendment such
information with respect to such Holder as such Holder reasonably
requests to be included therein and (ii) make all required filings of
such Prospectus supplement or such post-effective amendment as soon as
the Company has received notification of the matters to be incorporated
in such filing; and
(q) in the case of a Shelf Registration, enter into such
customary agreements and take all such other actions in connection
therewith (including those requested by the Holders of a majority of
the Registrable Securities being sold) in order to expedite or
facilitate the disposition of such Registrable Securities including,
but not limited to, an Underwritten Offering and in such connection,
(i) to the extent possible, make such representations and warranties to
the Holders and any Underwriters of such Registrable Securities with
respect to the business of the Company and its subsidiaries, the
Registration Statement, Prospectus and documents incorporated by
reference or deemed incorporated by reference, if any, in each case, in
form, substance and scope as are customarily made by issuers to
underwriters in underwritten offerings and confirm the same if and when
requested, (ii) obtain opinions of counsel to the Company (which
counsel and opinions, in form, scope and substance, shall be reasonably
satisfactory to the Holders and such Underwriters and their respective
counsel) addressed to each selling Holder and Underwriter of
Registrable Securities, covering the matters customarily covered in
opinions requested in underwritten offerings, (iii) obtain "cold
comfort" letters from the independent certified public accountants of
the Company (and, if necessary, any other certified public accountant
of any subsidiary of the Company, or of any business acquired by the
Company for which financial statements and financial data are or are
required to be included in the Registration Statement) addressed to
each selling Holder and Underwriter of Registrable Securities, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters in connection with
underwritten offerings, and (iv) deliver such documents and
certificates as may be reasonably requested by the Holders of a
majority in principal amount of the Registrable Securities being sold
or the Underwriters, and which are customarily delivered in
underwritten offerings, to evidence the continued validity of the
representations and warranties of the Company made pursuant to clause
(i) above and to evidence compliance with any customary conditions
contained in an underwriting agreement.
<PAGE> 14
13
In the case of a Shelf Registration Statement, the Company may
require each Holder of Registrable Securities to furnish to the Company such
information regarding the Holder and the proposed distribution by such Holder of
such Registrable Securities as the Company may from time to time reasonably
request in writing.
In the case of a Shelf Registration Statement, each Holder
agrees that, upon receipt of any notice from the Company of the happening of any
event of the kind described in Section 3(e)(v) hereof, such Holder will
forthwith discontinue disposition of Registrable Securities pursuant to a
Registration Statement until such Holder's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 3(i) hereof, and, if
so directed by the Company, such Holder will deliver to the Company (at its
expense) all copies in its possession, other than permanent file copies then in
such Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice. If the Company shall give any
such notice to suspend the disposition of Registrable Securities pursuant to a
Registration Statement, the Company shall extend the period during which the
Registration Statement shall be maintained effective pursuant to this Agreement
by the number of days during the period from and including the date of the
giving of such notice to and including the date when the Holders shall have
received copies of the supplemented or amended Prospectus necessary to resume
such dispositions. The Company may give any such notice only twice during any
365 day period and any such suspensions may not exceed 30 days for each
suspension and there may not be more than two suspensions in effect during any
365 day period.
The Holders of Registrable Securities covered by a Shelf
Registration Statement who desire to do so may sell such Registrable Securities
in an Underwritten Offering. In any such Underwritten Offering, the investment
banker or investment bankers and manager or managers (the "Underwriters") that
will administer the offering will be selected by the Majority Holders of the
Registrable Securities included in such offering.
Notwithstanding anything in this Agreement to the contrary,
the Placement Agent and the Holders shall be entitled to have separate counsel
in the event that representation of both parties by the same counsel would be
inappropriate due to actual or potential differing interests between them.
4. PARTICIPATION OF BROKER-DEALERS IN EXCHANGE OFFER.
(a) The Staff of the SEC has taken the position that any
broker-dealer that receives Exchange Securities for its own account in the
Exchange Offer in exchange for Securities that were acquired by such
broker-dealer as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), may be deemed to be an "underwriter"
<PAGE> 15
14
within the meaning of the 1933 Act and must deliver a prospectus meeting the
requirements of the 1933 Act in connection with any resale of such Exchange
Securities.
The Company understands that it is the Staff's position that
if the Prospectus contained in the Exchange Offer Registration Statement
includes a plan of distribution containing a statement to the above effect and
the means by which Participating Broker-Dealers may resell the Exchange
Securities, without naming the Participating Broker-Dealers or specifying the
amount of Exchange Securities owned by them, such Prospectus may be delivered by
Participating Broker-Dealers to satisfy their prospectus delivery obligation
under the 1933 Act in connection with resales of Exchange Securities for their
own accounts, so long as the Prospectus otherwise meets the requirements of the
1933 Act.
(b) In light of the above, notwithstanding the other
provisions of this Agreement, the Company agrees that the provisions of this
Agreement as they relate to a Shelf Registration shall also apply to an Exchange
Offer Registration to the extent, and with such reasonable modifications thereto
as may be, reasonably requested by the Placement Agent or by one or more
Participating Broker-Dealers, in each case as provided in clause (ii) below, in
order to expedite or facilitate the disposition of any Exchange Securities by
Participating Broker-Dealers consistent with the positions of the Staff recited
in Section 4(a) above; PROVIDED that:
(i) the Company shall not be required to amend or supplement
the Prospectus contained in the Exchange Offer Registration Statement,
as would otherwise be contemplated by Section 3(i), for a period
exceeding 90 days after the last Exchange Date (as such period may be
extended pursuant to the ante-penultimate paragraph of Section 3 of
this Agreement) and Participating Broker-Dealers shall not be
authorized by the Company to deliver and shall not deliver such
Prospectus after such period in connection with the resales
contemplated by this Section 4; and
(ii) the application of the Shelf Registration procedures set
forth in Section 3 of this Agreement to an Exchange Offer Registration,
to the extent not required by the positions of the Staff of the SEC or
the 1933 Act and the rules and regulations thereunder, will be in
conformity with the reasonable request to the Company by the Placement
Agent or with the reasonable request in writing to the Company by one
or more broker-dealers who certify to the Placement Agent and the
Company in writing that they anticipate that they will be Participating
Broker-Dealers; and PROVIDED FURTHER that, in connection with such
application of the Shelf Registration procedures set forth in Section 3
to an Exchange Offer Registration, the Company shall be obligated (x)
to deal only with one entity representing the Participating
Broker-Dealers, which shall be Morgan Stanley & Co. Incorporated unless
it elects not to act as such representative, (y) to pay the fees and
expenses of only one counsel representing the Participating
<PAGE> 16
15
Broker-Dealers, which shall be counsel to the Placement Agent unless
such counsel elects not to so act and (z) to cause to be delivered only
one, if any, "cold comfort" letter, if requested by Morgan Stanley &
Co. Incorporated, with respect to the Prospectus in the form existing
on the last Exchange Date and with respect to each subsequent amendment
or supplement, if any, effected during the period specified in clause
(i) above.
(c) The Placement Agent shall have no liability to the Company
or any Holder with respect to any request that it may make pursuant to Section
4(b) above.
5. INDEMNIFICATION AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless the
Placement Agent, each Holder and each Person, if any, who controls the Placement
Agent or any Holder within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act, or is under common control with, or is controlled
by, the Placement Agent or any Holder, from and against all losses, claims,
damages and liabilities (including, without limitation, any legal or other
expenses reasonably incurred by the Placement Agent, any Holder or any such
controlling or affiliated Person in connection with defending or investigating
any such action or claim) caused by any untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement (or any
amendment thereto) pursuant to which Exchange Securities or Registrable
Securities were registered under the 1933 Act, including all documents
incorporated therein by reference, or caused by any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, or caused by any untrue statement or
alleged untrue statement of a material fact contained in any Prospectus (as
amended or supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to state
therein a material fact necessary to make the statements therein in light of the
circumstances under which they were made not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any such untrue statement
or omission or alleged untrue statement or omission based upon information
relating to the Placement Agent or any Holder furnished to the Company in
writing by Morgan Stanley & Co. Incorporated or any selling Holder expressly for
use therein. In connection with any Underwritten Offering permitted by Section
3, the Company will also indemnify the Underwriters, if any, selling brokers,
dealers and similar securities industry professionals participating in the
distribution, their officers and directors and each Person who controls such
Persons (within the meaning of the 1933 Act and the 1934 Act) to the same extent
as provided above with respect to the indemnification of the Holders, if
requested in connection with any Registration Statement.
(b) Each Holder agrees, severally and not jointly, to
indemnify and hold harmless the Company, the Placement Agent and the other
selling Holders, and each of their
<PAGE> 17
16
respective directors, officers who sign the Registration Statement and each
Person, if any, who controls the Company, the Placement Agent and any other
selling Holder within the meaning of either Section 15 of the 1933 Act or
Section 20 of the 1934 Act to the same extent as the foregoing indemnity from
the Company to the Placement Agent and the Holders, but only with reference to
information relating to such Holder furnished to the Company in writing by such
Holder expressly for use in any Registration Statement (or any amendment
thereto) or any Prospectus (or any amendment or supplement thereto).
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any Person in respect of which
indemnity may be sought pursuant to either paragraph (a) or paragraph (b) above,
such Person (the "indemnified party") shall promptly notify the Person against
whom such indemnity may be sought (the "indemnifying party") in writing and the
indemnifying party, upon request of the indemnified party, shall retain counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party and any others the indemnifying party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel, but the fees and expenses of such counsel shall be at the expense
of such indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed to the retention of such counsel or (ii) the
named parties to any such proceeding (including any impleaded parties) include
both the indemnifying party and the indemnified party and representation of both
parties by the same counsel would be inappropriate due to actual or potential
differing interests between them. It is understood that the indemnifying party
shall not, in connection with any proceeding or related proceedings in the same
jurisdiction, be liable for (a) the fees and expenses of more than one separate
firm (in addition to any local counsel) for the Placement Agent and all Persons,
if any, who control the Placement Agent within the meaning of either Section 15
of the 1933 Act or Section 20 of the 1934 Act, (b) the fees and expenses of more
than one separate firm (in addition to any local counsel) for the Company, its
directors, its officers who sign the Registration Statement and each Person, if
any, who controls the Company within the meaning of either such Section and (c)
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all Holders and all Persons, if any, who control any Holders within
the meaning of either such Section, and that all such fees and expenses shall be
reimbursed as they are incurred. In such case involving the Placement Agent and
Persons who control the Placement Agent, such firm shall be designated in
writing by Morgan Stanley & Co. Incorporated. In such case involving the Holders
and such Persons who control Holders, such firm shall be designated in writing
by the Majority Holders. In all other cases, such firm shall be designated by
the Company. The indemnifying party shall not be liable for any settlement of
any proceeding effected without its written consent but, if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time
<PAGE> 18
17
an indemnified party shall have requested an indemnifying party to reimburse the
indemnified party for fees and expenses of counsel as contemplated by the second
and third sentences of this paragraph, the indemnifying party agrees that it
shall be liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30 days after
receipt by such indemnifying party of the aforesaid request and (ii) such
indemnifying party shall not have reimbursed the indemnified party for such fees
and expenses of counsel in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
proceeding in respect of which such 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 claims that are the subject matter of such
proceeding.
(d) If the indemnification provided for in paragraph (a) or
paragraph (b) of this Section 5 is unavailable to an indemnified party or
insufficient in respect of any losses, claims, damages or liabilities, then each
indemnifying party under such paragraph, in lieu of indemnifying such
indemnified party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative fault
of the indemnifying party or parties on the one hand and of the indemnified
party or parties on the other hand in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations. The relative fault of the
Company and the Holders shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company, on the one hand, or by or on behalf of the Holders, on
the other, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission. The Holders'
respective obligations to contribute pursuant to this Section 5(d) are several
in proportion to the respective principal amount of Registrable Securities of
such Holder that were registered pursuant to a Registration Statement.
(e) The Company and each Holder agree that it would not be
just or equitable if contribution pursuant to this Section 5 were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to in paragraph (d) above. The
amount paid or payable by an indemnified party as a result of the losses,
claims, damages and liabilities referred to in paragraph (d) above shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 5, no Holder shall be required to indemnify or
contribute any amount in excess of the amount by which the total price at which
Registrable Securities were sold by such Holder exceeds the amount of any
<PAGE> 19
18
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any Person who was not
guilty of such fraudulent misrepresentation. The remedies provided for in this
Section 5 are not exclusive and shall not limit any rights or remedies which may
otherwise be available to any indemnified party at law or in equity.
The indemnity and contribution provisions contained in this
Section 5 shall remain operative and in full force and effect regardless of (i)
any termination of this Agreement, (ii) any investigation made by or on behalf
of the Placement Agent, any Holder or any Person controlling the Placement Agent
or any Holder, or by or on behalf of the Company, its officers or directors or
any Person controlling the Company, (iii) acceptance of any of the Exchange
Securities and (iv) any sale of Registrable Securities pursuant to a Shelf
Registration Statement.
6. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company has not entered
into, and on or after the date of this Agreement will not enter into, any
agreement which is inconsistent with the rights granted to the Holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The rights granted to the Holders hereunder do not in any way
conflict with and are not inconsistent with the rights granted to the holders of
the Company's other issued and outstanding securities under any such agreements.
(b) AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given unless the Company has obtained the written consent of Holders
of at least a majority in aggregate principal amount of the outstanding
Registrable Securities affected by such amendment, modification, supplement,
waiver or consent; PROVIDED, HOWEVER, that no amendment, modification,
supplement, waiver or consent to any departure from the provisions of Section 5
hereof shall be effective as against any Holder of Registrable Securities unless
consented to in writing by such Holder. Notwithstanding anything in this
Agreement to the contrary, this Agreement may be amended, modified or
supplemented, and waivers and consents to departures from the provisions hereof
may be given, by written agreement signed by the Company and Morgan Stanley &
Co. Incorporated to the extent that any such amendment, modification, supplement
waiver or consent is, in their reasonable judgment, necessary or appropriate to
comply with applicable law (including any interpretation of the staff of the
SEC) or any change therein.
(c) NOTICES. All notices and other communications provided for
or permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail,
<PAGE> 20
19
telex, telecopier, or any courier guaranteeing overnight delivery (i) if to a
Holder, at the most current address given by such Holder to the Company by means
of a notice given in accordance with the provisions of this Section 6(c), which
address initially is, with respect to the Placement Agent, the address set forth
in the Placement Agreement; and (ii) if to the Company, initially at the
Company's address set forth in the Placement Agreement and thereafter at such
other address, notice of which is given in accordance with the provisions of
this Section 6(c).
All such notices and communications shall be deemed to have
been duly given: at the time delivered by hand, if personally delivered; five
business days after being deposited in the mail, postage prepaid, if mailed;
when answered back, if telexed; when receipt is acknowledged, if telecopied; and
on the next business day if timely delivered to an air courier guaranteeing
overnight delivery.
Copies of all such notices, demands, or other communications
shall be concurrently delivered by the Person giving the same to the Trustee, at
the address specified in the Indenture.
(d) SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors, assigns and transferees of each
of the parties, including, without limitation and without the need for an
express assignment, subsequent Holders; PROVIDED that nothing herein shall be
deemed to permit any assignment, transfer or other disposition of Registrable
Securities in violation of the terms of the Placement Agreement or the
Indenture. If any transferee of any Holder shall acquire Registrable Securities,
in any manner, whether by operation of law or otherwise, such Registrable
Securities shall be held subject to all of the terms of this Agreement, and by
taking and holding such Registrable Securities such Person shall be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement and such Person shall be entitled to receive the
benefits hereof. The Placement Agent (in its capacity as Placement Agent) shall
have no liability or obligation to the Company with respect to any failure by a
Holder to comply with, or any breach by any Holder of, any of the obligations of
such Holder under this Agreement.
(e) PURCHASES AND SALES OF SECURITIES. The Company shall not,
and shall use its best efforts to cause its affiliates (as defined in Rule 405
under the 1933 Act) not to, purchase and then resell or otherwise transfer any
Securities.
(f) THIRD PARTY BENEFICIARY. The Holders shall be third party
beneficiaries to the agreements made hereunder between the Company, on the one
hand, and the Placement Agent, on the other hand, and shall have the right to
enforce such agreements directly to the
<PAGE> 21
20
extent it deems such enforcement necessary or advisable to protect its rights or
the rights of Holders hereunder.
(g) COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(i) GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York.
(j) SEVERABILITY. In the event that any one or more of the
provisions contained herein, or the application thereof in any circumstance, is
held invalid, illegal or unenforceable, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions contained herein shall not be affected or impaired thereby.
<PAGE> 22
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first written above.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By:________________________________
Name:
Title:
Confirmed and accepted as of
the date first above written:
MORGAN STANLEY & CO. INCORPORATED
By________________________________
Name:
Title:
<PAGE> 1
Exhibit 4.3
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), AND ACCORDINGLY, MAY NOT BE
OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR
BENEFIT OF, U.S. PERSONS EXCEPT AS SET FORTH IN THE FOLLOWING SENTENCE.
BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS THAT (A) IT IS A
"QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER THE
SECURITIES ACT) OR (B) IT IS AN INSTITUTIONAL "ACCREDITED INVESTOR" (AS
DEFINED IN RULE 501(a)(1), (2), (3) OR (7) OF REGULATION D UNDER THE
SECURITIES ACT) (AN "INSTITUTIONAL ACCREDITED INVESTOR") OR (C) IT IS
NOT A U.S. PERSON AND IS ACQUIRING THIS NOTE IN AN OFFSHORE TRANSACTION
IN COMPLIANCE WITH REGULATION S UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT, WITHIN THE TIME PERIOD REFERRED TO UNDER RULE 144(k)
UNDER THE SECURITIES ACT AS IN EFFECT ON THE DATE OF TRANSFER OF THIS
NOTE, RESELL OR OTHERWISE TRANSFER THIS NOTE EXCEPT (A) TO THE COMPANY
OR ANY SUBSIDIARY THEREOF, (B) TO A QUALIFIED INSTITUTIONAL BUYER IN
COMPLIANCE WITH RULE 144A UNDER THE SECURITIES ACT, (C) INSIDE THE
UNITED STATES TO AN INSTITUTIONAL ACCREDITED INVESTOR THAT, PRIOR TO
SUCH TRANSFER, FURNISHES TO THE TRUSTEE A SIGNED LETTER CONTAINING
CERTAIN REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON
TRANSFER OF THIS NOTE (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM
THE TRUSTEE), AND, IF SUCH TRANSFER IS IN RESPECT OF AN AGGREGATE
PRINCIPAL AMOUNT OF LESS THAN $100,000, AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH TRANSFER IS IN COMPLIANCE WITH THE
SECURITIES ACT, (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E)
PURSUANT TO THE EXEMPTION FROM REGISTRATION PROVIDED BY RULE 144 UNDER
THE SECURITIES ACT (IF AVAILABLE) OR (F) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT AND (3) AGREES THAT IT
WILL DELIVER TO EACH PERSON TO WHOM THIS NOTE IS TRANSFERRED A NOTICE
SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION WITH ANY
TRANSFER OF THIS NOTE WITHIN THE TIME PERIOD REFERRED TO ABOVE, THE
HOLDER MUST CHECK THE APPROPRIATE BOX SET FORTH ON THE REVERSE HEREOF
RELATING TO THE MANNER OF SUCH TRANSFER AND SUBMIT THIS CERTIFICATE TO
THE TRUSTEE. IF THE PROPOSED TRANSFEREE IS AN INSTITUTIONAL ACCREDITED
INVESTOR, THE HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE
TRUSTEE AND THE COMPANY SUCH CERTIFICATIONS, LEGAL OPINIONS OR OTHER
INFORMATION AS EITHER OF THEM MAY REASONABLY REQUIRE TO CONFIRM THAT
SUCH TRANSFER IS BEING MADE PURSUANT TO AN EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE TRANSACTION",
"UNITED STATES" AND "U.S. PERSON" HAVE THE MEANINGS GIVEN TO THEM BY
REGULATION S UNDER THE SECURITIES ACT. THE INDENTURE CONTAINS A
PROVISION REQUIRING THE TRUSTEE TO REFUSE TO
1
<PAGE> 2
REGISTER ANY TRANSFER OF THIS NOTE IN VIOLATION OF THE
FOREGOING RESTRICTIONS.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL NOTE
SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS
SET FORTH IN SECTION 2.08 OF THE INDENTURE.
2
<PAGE> 3
ADVANCED LIGHTING TECHNOLOGIES, INC.
8% Senior Note due 2008
CUSIP
$
ADVANCED LIGHTING TECHNOLOGIES, INC., an Ohio corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to CEDE & CO., or its
registered assigns, the principal sum of ONE HUNDRED MILLION DOLLARS
($100,000,000) on March 15, 2008.
Interest Payment Dates: March 15 and September 15,
commencing September 15, 1998.
Regular Record Dates: March 1 and September 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
3
<PAGE> 4
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
ADVANCED LIGHTING TECHNOLOGIES,
INC.
By:
-----------------------------------------
Name:
Title:
By:
-----------------------------------------
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 8% Senior Notes due 2008 described in the within-mentioned
Indenture.
Date: March 18, 1998 THE BANK OF NEW YORK
as Trustee
By:
--------------------------------------
Authorized Signatory
4
<PAGE> 5
[REVERSE SIDE OF NOTE]
ADVANCED LIGHTING TECHNOLOGIES, INC.
8% Senior Note due 2008
1. PRINCIPAL AND INTEREST.
The Company will pay the principal of this Note on March 15, 2008.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
If an exchange offer (the "Exchange Offer") registered under the
Securities Act is not consummated and a shelf registration statement (the "Shelf
Registration Statement") under the Securities Act with respect to resales of the
Notes is not declared effective by the Commission, on or before 180 days after
March 18, 1998 in accordance with the terms of the Registration Rights Agreement
dated March 13, 1998 between the Company and Morgan Stanley & Co. Incorporated,
the annual interest rate borne by the Notes shall be increased by 0.5% from the
rate shown above accruing from 180 days after March 18, 1998, payable in cash
semiannually, in arrears, on each Interest Payment Date, commencing September
15, 1998 until the Exchange Offer is consummated or the Shelf Registration
Statement is declared effective; provided that in the case of a Shelf
Registration Statement, if the Company is unable to cause such Shelf
Registration Statement to become effective because Holders of Notes have not
provided information with respect to themselves required by law to be included
therein pursuant to the Company's request in accordance with the Registration
Rights Agreement, such 0.5% increase in the interest rate shall be payable only
to Holders that have furnished such information required by law to be included
therein to the Company pursuant to its request in accordance with Registration
Rights Agreement from but excluding the date such information is provided to the
Company to but excluding the date the Shelf Registration Statement is declared
effective by the Commission. The Holder of this Note is entitled to the benefits
of such Registration Rights Agreement.
5
<PAGE> 6
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from March 18, 1998.
Interest will be computed on the basis of a 360-day year of twelve 30-day months
and, in the case of an incomplete month, the number of days elapsed based on a
30-day month.
The Company shall pay interest on overdue principal and premium, if
any, to the extent lawful, at a rate per annum that is 2% in excess of the rate
otherwise payable.
2. METHOD OF PAYMENT.
The Company will pay interest (except defaulted interest) on the
principal amount of this Note as provided above on each March 15 and September
15, commencing September 15, 1998 to the persons who are Holders (as reflected
in the Security Register at the close of business on the March 1 or September 1
in each case whether or not a Business Day, immediately preceding the related
Interest Payment Date), in each case, even if the Note is canceled on
registration of transfer or registration of exchange after such record date;
provided that, with respect to the payment of principal, the Company will make
payment to the Holder that surrenders this Note to a Paying Agent on or after
the Maturity hereof.
The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. However, the Company may pay
principal, premium, if any, and interest by its check payable in such money. It
may mail an interest check to a Holder's registered address (as reflected in the
Security Register). If a payment date is a date other than a Business Day at a
place of payment, payment may be made at that place on the next succeeding day
that is a Business Day and no interest shall accrue for the intervening period.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.
4. INDENTURE; LIMITATIONS.
6
<PAGE> 7
The Company issued the Notes under an Indenture dated as of March 18,
1998 (the "Indenture"), between the Company and The Bank of New York, trustee
(the "Trustee"). Capitalized terms herein are used as defined in the Indenture
unless otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the Trust Indenture Act for a statement of all such terms.
To the extent permitted by applicable law, in the event of any inconsistency
between the terms of this Note and the terms of the Indenture, the terms of the
Indenture shall control.
The Notes are general unsecured obligations of the Company.
The Company may, subject to Article Four of the Indenture and
applicable law, issue additional Notes under the Indenture.
5. OPTIONAL REDEMPTION.
The Notes are redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after March 15, 2003 and prior to
Maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing March 15 of the
years set forth below:
<TABLE>
<CAPTION>
Year Redemption Price
---- ----------------
<C> <C>
2003........................................ 104.000%
2004........................................ 102.667
2005........................................ 101.333
2006 and thereafter......................... 100.000
</TABLE>
At any time and from time to time prior to March 15, 2001, the Company
may redeem up to 35% of the principal amount of the Notes with the proceeds of
one or more Public Equity Offerings, at any time or from time to time in part,
at a Redemption Price (expressed as a percentage of principal amount) of 108%,
plus accrued and unpaid interest to the Redemption Date (subject to the rights
of Holders of record on the relevant Regular Record
7
<PAGE> 8
Date that is prior to the Redemption Date to receive interest due on an Interest
Payment Date); provided that after any such redemption Notes representing at
least 65% of the Notes originally issued remain Outstanding and that notice of
such redemption is mailed within 60 days of the relevant Public Equity Offering.
Notes in original denominations larger than $1,000 may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
6. REPURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Payment Date").
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at its last address as it appears in
the Security Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part. On and after the Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the purchase price.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.
8. PERSONS DEEMED OWNERS.
8
<PAGE> 9
A Holder shall be treated as the owner of a Note for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its written request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
10. DISCHARGE PRIOR TO MATURITY.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to Maturity, the Company will be
discharged from the Indenture and the Notes, except in certain circumstances for
certain provisions thereof, and (b) to the Stated Maturity, the Company will be
discharged from certain covenants set forth in the Indenture.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then Outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then Outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
12. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, suffer to exist restrictions on the
ability of Restricted Subsidiaries to make certain payments to the Company,
issue Capital Stock of Restricted Subsidiaries, Guarantee Indebtedness of the
Company, engage in transactions with Affiliates, suffer to
9
<PAGE> 10
exist or incur Liens, enter into sale-leaseback transactions, use the proceeds
from Asset Sales, or merge, consolidate or transfer substantially all of its
assets. Within 45 days after the end of each fiscal quarter (90 days after the
end of the last fiscal quarter of each year), the Company shall deliver to the
Trustee an Officers' Certificate stating whether or not the signers thereof know
of any Default or Event of Default under such restrictive covenants.
13. SUCCESSOR PERSONS.
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
14. DEFAULTS AND REMEDIES.
Any of the following events constitutes an "Event of Default" under the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) default in the performance or breach of Article Five of the Indenture
or the failure to make or consummate an Offer to Purchase in accordance with
Section 4.11 or 4.12 of the Indenture; (d) default in the performance of or
breach of any covenant or agreement of the Company in the Indenture or under the
Notes (other than a default specified in clause (a), (b) or (c) above), and such
default or breach continues for a period of 30 consecutive days after written
notice by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then Outstanding; (e) there occurs with respect to any issue
or issues of Indebtedness of the Company or any Significant Subsidiary having an
outstanding principal amount of $10 million or more in the aggregate for all
such issues of all such Persons, whether such Indebtedness exists on the Closing
Date or shall hereafter be created, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (f) any
final judgment or order (not covered by
10
<PAGE> 11
insurance) for the payment of money in excess of $10 million in the aggregate
for all such final judgments or orders against all such Persons (treating any
deductibles, self-insurance or retention as not so covered) shall be rendered
against the Company or any Significant Subsidiary and shall not be paid or
discharged, and there shall be any period of 30 consecutive days following entry
of the final judgment or order that causes the aggregate amount for all such
final judgments or orders outstanding and not paid or discharged against all
such Persons to exceed $10 million during which a stay of enforcement of such
final judgment or order, by reason of a pending appeal or otherwise, shall not
be in effect; (g) a court having jurisdiction in the premises enters a decree or
order for (A) relief in respect of the Company or any Significant Subsidiary in
an involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, (B) appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator or similar official of the Company or
any Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) the winding up or
liquidation of the affairs of the Company or any Significant Subsidiary and, in
each case, such decree or order shall remain unstayed and in effect for a period
of 60 consecutive days; or (h) the Company or any Significant Subsidiary (A)
commences a voluntary case under any applicable bankruptcy, insolvency or other
similar law now or hereafter in effect, or consents to the entry of an order for
relief in an involuntary case under any such law, (B) consents to the
appointment of or taking possession by a receiver, liquidator, assignee,
custodian, trustee, sequestrator or similar official of the Company or any
Significant Subsidiary or for all or substantially all of the property and
assets of the Company or any Significant Subsidiary or (C) effects any general
assignment for the benefit of creditors.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then Outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Company occurs and is continuing, the Notes automatically become
due and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then
11
<PAGE> 12
Outstanding may direct the Trustee in its exercise of any trust or power.
15. TRUSTEE DEALINGS WITH THE COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
16. NO RECOURSE AGAINST OTHERS.
No incorporator or any past, present or future partner, stockholder,
other equityholder, officer, director, employee or controlling person, as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
17. AUTHENTICATION.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
18. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish a copy of the Indenture to any Holder upon
written request and without charge. Requests may be made to Advanced Lighting
Technologies, Inc., 2307 East Aurora Road, Suite One, Twinsburg, OH 44087;
Attention: Nicholas R. Sucic.
19. GOVERNING LAW.
The Indenture and this Note shall be governed by the laws of the State
of New York excluding (to the greatest extent
12
<PAGE> 13
permissible by law) any rule of law that would cause the application of the laws
of any jurisdiction other than the State of New York.
13
<PAGE> 14
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
- ----------------------------------
_____________________________________________________________________________
_____________________________________________________________________________
Please print or typewrite name and address including zip code of
assignee
_______________________________________________________________________________
_______________________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably
constituting and appointing____________________________________________________
__________________________________ attorney to transfer said Note on
the books of the Company with full power of substitution in the
premises.
[THE FOLLOWING PROVISION TO BE INCLUDED ON ALL NOTES OTHER
THAN EXCHANGE NOTES, NOTES RESOLD PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT, UNLEGENDED OFFSHORE GLOBAL NOTES AND
UNLEGENDED OFFSHORE PHYSICAL NOTES]
In connection with any transfer of this Note occurring prior to the
date which is the earlier of (i) the date the Shelf Registration Statement is
declared effective or (ii) the end of the period referred to in Rule 144(k)
under the Securities Act, the undersigned confirms that without utilizing any
general solicitation or general advertising that:
[Check One]
[ ] (a) this Note is being transferred in compliance with the
exemption from registration under the Securities Act of 1933
provided by Rule 144A thereunder.
or
[ ] (b) this Note is being transferred other than in accordance
with (a) above and documents are being furnished which comply
with the conditions of transfer set forth in this Note and the
Indenture.
14
<PAGE> 15
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Note in the name of any Person other than the
Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.08 of the Indenture shall have
been satisfied.
Date:_________________
________________________________________________________________________________
NOTICE: The signature to this
assignment must correspond with the
name as written upon the face of the
within-mentioned instrument in every
particular, without alteration or
any change whatsoever.
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this Note
for its own account or an account with respect to which it exercises sole
investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933 and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated:
------------------------------------ ------------------------------
NOTICE: To be executed by an
executive officer
15
<PAGE> 16
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.11 or 4.12 of the Indenture, check the Box:
9
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.11 or 4.12 of the Indenture, state the amount:
$___________________.
Date:_____________
Your Signature:
---------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Note)
Signature Guarantee: ______________________________
16
<PAGE> 1
Exhibit 4.4
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, TO THE COMPANY OR ITS AGENT FOR
REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE
ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER ENTITY
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE DEPOSITORY TRUST
COMPANY (AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL NOTE SHALL BE LIMITED TO TRANSFERS IN WHOLE,
BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR THEREOF OR
SUCH SUCCESSOR'S NOMINEE.
<PAGE> 2
ADVANCED LIGHTING TECHNOLOGIES, INC.
8% Senior Notes due 2008
CUSIP
ADVANCED LIGHTING TECHNOLOGIES, INC., an Ohio corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to CEDE & CO., or its
registered assigns, the principal sum of ($ ) on March 15,
2008.
Interest Payment Dates: March 15 and September 15,
commencing September 15, 1998.
Regular Record Dates: March 1 and September 1.
Reference is hereby made to the further provisions of this Note set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
<PAGE> 3
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
ADVANCED LIGHTING TECHNOLOGIES,
INC.
By:
-----------------------------------------
Name:
Title:
By:
------------------------------------------
Name:
Title:
(Trustee's Certificate of Authentication)
This is one of the 8% Senior Notes due 2008 described in the within-mentioned
Indenture.
Date: , 1998 THE BANK OF NEW YORK
as Trustee
By:
------------------------------------------
Authorized Signatory
<PAGE> 4
4
[REVERSE SIDE OF NOTE]
ADVANCED LIGHTING TECHNOLOGIES, INC.
8% Senior Notes due 2008
1. PRINCIPAL AND INTEREST.
The Company will pay the principal of this Note on March 15, 2008.
The Company promises to pay interest on the principal amount of this
Note on each Interest Payment Date, as set forth below, at the rate per annum
shown above.
Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from , 1998.
Interest will be computed on the basis of a 360-day year of twelve 30-day months
and, in the case of an incomplete month, the number of days elapsed based on a
30- day month.
The Company shall pay interest on overdue principal and premium, if
any, to the extent lawful, at a rate per annum that is 2% in excess of the rate
otherwise payable.
2. METHOD OF PAYMENT.
The Company will pay interest (except defaulted interest) on the
principal amount of this Note as provided above on each March 15 and September
15, commencing , 1998 to the persons who are Holders (as reflected in the
Security Register at the close of business on the March 1 or September 1 in each
case whether or not a Business Day, immediately preceding the related Interest
Payment Date), in each case, even if the Note is canceled on registration of
transfer or registration of exchange after such record date; provided that, with
respect to the payment of principal, the Company will make payment to the Holder
that surrenders this Note to a Paying Agent on or after the Maturity hereof.
The Company will pay principal, premium, if any, and as provided above,
interest in money of the United States that at the time of payment is legal
tender for payment of public and
<PAGE> 5
5
private debts. However, the Company may pay principal, premium, if any, and
interest by its check payable in such money. It may mail an interest check to a
Holder's registered address (as reflected in the Security Register). If a
payment date is a date other than a Business Day at a place of payment, payment
may be made at that place on the next succeeding day that is a Business Day and
no interest shall accrue for the intervening period.
3. PAYING AGENT AND REGISTRAR.
Initially, the Trustee will act as authenticating agent, Paying Agent
and Registrar. The Company may change any authenticating agent, Paying Agent or
Registrar without notice. The Company, any Subsidiary or any Affiliate of any of
them may act as Paying Agent, Registrar or co-Registrar.
4. INDENTURE; LIMITATIONS.
The Company issued the Notes under an Indenture dated as of March 18,
1998 (the "Indenture"), between the Company and The Bank of New York, trustee
(the "Trustee"). Capitalized terms herein are used as defined in the Indenture
unless otherwise indicated. The terms of the Notes include those stated in the
Indenture and those made part of the Indenture by reference to the Trust
Indenture Act. The Notes are subject to all such terms, and Holders are referred
to the Indenture and the Trust Indenture Act for a statement of all such terms.
To the extent permitted by applicable law, in the event of any inconsistency
between the terms of this Note and the terms of the Indenture, the terms of the
Indenture shall control.
The Notes are general unsecured obligations of the Company.
The Company may, subject to Article Four of the Indenture and
applicable law, issue additional Notes under the Indenture.
<PAGE> 6
6
5. OPTIONAL REDEMPTION.
The Notes are redeemable, at the Company's option, in whole or in part,
at any time or from time to time, on or after March 15, 2003 and prior to
Maturity, upon not less than 30 nor more than 60 days' prior notice mailed by
first class mail to each Holder's last address, as it appears in the Security
Register, at the following Redemption Prices (expressed in percentages of
principal amount), plus accrued and unpaid interest, if any, to the Redemption
Date (subject to the right of Holders of record on the relevant Regular Record
Date that is prior to the Redemption Date to receive interest due on an Interest
Payment Date), if redeemed during the 12-month period commencing March 15 of the
years set forth below:
<TABLE>
<CAPTION>
Year Redempti
---- --------
on Price
--------
<S> <C>
2003.......................................... 104.000%
2004.......................................... 102.667
2005.......................................... 101.333
2006 and thereafter........................... 100.000
</TABLE>
At any time and from time to time prior to March 15, 2001, the Company
may redeem up to 35% of the principal amount of the Notes with the proceeds of
one or more Public Equity Offerings, at any time or from time to time in part,
at a Redemption Price (expressed as a percentage of principal amount) of 108%,
plus accrued and unpaid interest to the Redemption Date (subject to the rights
of Holders of record on the relevant Regular Record Date that is prior to the
Redemption Date to receive interest due on an Interest Payment Date); provided
that after any such redemption Notes representing at least 65% of the Notes
originally issued remain Outstanding and that notice of such redemption is
mailed within 60 days of the relevant Public Equity Offering.
Notes in original denominations larger than $1,000 may be redeemed in
part. On and after the Redemption Date, interest ceases to accrue on Notes or
portions of Notes called for redemption, unless the Company defaults in the
payment of the Redemption Price.
<PAGE> 7
7
6. REPURCHASE UPON CHANGE OF CONTROL.
Upon the occurrence of any Change of Control, each Holder shall have
the right to require the repurchase of its Notes by the Company in cash pursuant
to the offer described in the Indenture at a purchase price equal to 101% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase (the "Payment Date").
A notice of such Change of Control will be mailed within 30 days after
any Change of Control occurs to each Holder at its last address as it appears in
the Security Register. Notes in original denominations larger than $1,000 may be
sold to the Company in part. On and after the Payment Date, interest ceases to
accrue on Notes or portions of Notes surrendered for purchase by the Company,
unless the Company defaults in the payment of the purchase price.
7. DENOMINATIONS; TRANSFER; EXCHANGE.
The Notes are in registered form without coupons in denominations of
$1,000 of principal amount and multiples of $1,000 in excess thereof. A Holder
may register the transfer or exchange of Notes in accordance with the Indenture.
The Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Notes selected for redemption. Also, it need not register the
transfer or exchange of any Notes for a period of 15 days before the day of
mailing of a notice of redemption of Notes selected for redemption.
8. PERSONS DEEMED OWNERS.
A Holder shall be treated as the owner of a Note for all purposes.
9. UNCLAIMED MONEY.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its written request. After that, Holders entitled
to the money must look to the Company for payment, unless an abandoned property
law designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
<PAGE> 8
8
10. DISCHARGE PRIOR TO MATURITY.
If the Company deposits with the Trustee money or U.S. Government
Obligations sufficient to pay the then outstanding principal of, premium, if
any, and accrued interest on the Notes (a) to Maturity, the Company will be
discharged from the Indenture and the Notes, except in certain circumstances for
certain provisions thereof, and (b) to the Stated Maturity, the Company will be
discharged from certain covenants set forth in the Indenture.
11. AMENDMENT; SUPPLEMENT; WAIVER.
Subject to certain exceptions, the Indenture or the Notes may be
amended or supplemented with the consent of the Holders of at least a majority
in principal amount of the Notes then Outstanding, and any existing default or
compliance with any provision may be waived with the consent of the Holders of
at least a majority in principal amount of the Notes then Outstanding. Without
notice to or the consent of any Holder, the parties thereto may amend or
supplement the Indenture or the Notes to, among other things, cure any
ambiguity, defect or inconsistency and make any change that does not materially
and adversely affect the rights of any Holder.
12. RESTRICTIVE COVENANTS.
The Indenture imposes certain limitations on the ability of the Company
and its Restricted Subsidiaries, among other things, to Incur additional
Indebtedness, make Restricted Payments, suffer to exist restrictions on the
ability of Restricted Subsidiaries to make certain payments to the Company,
issue Capital Stock of Restricted Subsidiaries, Guarantee Indebtedness of the
Company, engage in transactions with Affiliates, suffer to exist or incur Liens,
enter into sale-leaseback transactions, use the proceeds from Asset Sales, or
merge, consolidate or transfer substantially all of its assets. Within 45 days
after the end of each fiscal quarter (90 days after the end of the last fiscal
quarter of each year), the Company shall deliver to the Trustee an Officers'
Certificate stating whether or not the signers thereof know of any Default or
Event of Default under such restrictive covenants.
13. SUCCESSOR PERSONS.
<PAGE> 9
9
When a successor person or other entity assumes all the obligations of
its predecessor under the Notes and the Indenture, the predecessor person will
be released from those obligations.
14. DEFAULTS AND REMEDIES.
Any of the following events constitutes an "Event of Default" under the
Indenture: (a) default in the payment of principal of (or premium, if any, on)
any Note when the same becomes due and payable at maturity, upon acceleration,
redemption or otherwise; (b) default in the payment of interest on any Note when
the same becomes due and payable, and such default continues for a period of 30
days; (c) default in the performance or breach of Article Five of the Indenture
or the failure to make or consummate an Offer to Purchase in accordance with
Section 4.11 or 4.12 of the Indenture; (d) default in the performance of or
breach of any covenant or agreement of the Company in the Indenture or under the
Notes (other than a default specified in clause (a), (b) or (c) above), and such
default or breach continues for a period of 30 consecutive days after written
notice by the Trustee or the Holders of at least 25% in aggregate principal
amount of the Notes then Outstanding; (e) there occurs with respect to any issue
or issues of Indebtedness of the Company or any Significant Subsidiary having an
outstanding principal amount of $10 million or more in the aggregate for all
such issues of all such Persons, whether such Indebtedness exists on the Closing
Date or shall hereafter be created, (I) an event of default that has caused the
holder thereof to declare such Indebtedness to be due and payable prior to its
Stated Maturity and such Indebtedness has not been discharged in full or such
acceleration has not been rescinded or annulled within 30 days of such
acceleration and/or (II) the failure to make a principal payment at the final
(but not any interim) fixed maturity and such defaulted payment shall not have
been made, waived or extended within 30 days of such payment default; (f) any
final judgment or order (not covered by insurance) for the payment of money in
excess of $10 million in the aggregate for all such final judgments or orders
against all such Persons (treating any deductibles, self-insurance or retention
as not so covered) shall be rendered against the Company or any Significant
Subsidiary and shall not be paid or discharged, and there shall be any period of
30 consecutive days following entry of the final judgment or order that causes
the aggregate amount for all such final judgments or orders outstanding and not
paid or discharged against all such Persons to exceed $10 million during which a
stay of enforcement of such final judgment or order, by reason of a pending
appeal or
<PAGE> 10
10
otherwise, shall not be in effect; (g) a court having jurisdiction in the
premises enters a decree or order for (A) relief in respect of the Company or
any Significant Subsidiary in an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, (B)
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) the winding up or liquidation of the affairs of
the Company or any Significant Subsidiary and, in each case, such decree or
order shall remain unstayed and in effect for a period of 60 consecutive days;
or (h) the Company or any Significant Subsidiary (A) commences a voluntary case
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect, or consents to the entry of an order for relief in an
involuntary case under any such law, (B) consents to the appointment of or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of the Company or any Significant Subsidiary or
for all or substantially all of the property and assets of the Company or any
Significant Subsidiary or (C) effects any general assignment for the benefit of
creditors.
If an Event of Default, as defined in the Indenture, occurs and is
continuing, the Trustee may, and at the direction of the Holders of at least 25%
in aggregate principal amount of the Notes then Outstanding shall, declare all
the Notes to be due and payable. If a bankruptcy or insolvency default with
respect to the Company occurs and is continuing, the Notes automatically become
due and payable. Holders may not enforce the Indenture or the Notes except as
provided in the Indenture. The Trustee may require indemnity satisfactory to it
before it enforces the Indenture or the Notes. Subject to certain limitations,
Holders of at least a majority in principal amount of the Notes then Outstanding
may direct the Trustee in its exercise of any trust or power.
15. TRUSTEE DEALINGS WITH THE COMPANY.
The Trustee under the Indenture, in its individual or any other
capacity, may make loans to, accept deposits from and perform services for the
Company or its Affiliates and may otherwise deal with the Company or its
Affiliates as if it were not the Trustee.
<PAGE> 11
11
16. NO RECOURSE AGAINST OTHERS.
No incorporator or any past, present or future partner, stockholder,
other equityholder, officer, director, employee or controlling person, as such,
of the Company or of any successor Person shall have any liability for any
obligations of the Company under the Notes or the Indenture or for any claim
based on, in respect of or by reason of, such obligations or their creation.
Each Holder by accepting a Note waives and releases all such liability. The
waiver and release are part of the consideration for the issuance of the Notes.
17. AUTHENTICATION.
This Note shall not be valid until the Trustee or authenticating agent
signs the certificate of authentication on the other side of this Note.
18. ABBREVIATIONS.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish a copy of the Indenture to any Holder upon
written request and without charge. Requests may be made to Advanced Lighting
Technologies, Inc., 32000 East Aurora Road, Solon, OH 44139;
Attention: Nicholas R. Sucic.
19. GOVERNING LAW.
The Indenture and this Note shall be governed by the laws of the State
of New York excluding (to the greatest extent permissible by law) any rule of
law that would cause the application of the laws of any jurisdiction other than
the State of New York.
<PAGE> 12
12
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby
sell(s), assign(s) and transfer(s) unto
INSERT TAXPAYER IDENTIFICATION NO.
_______________________________________________________________________________
_______________________________________________________________________________
Please print or typewrite name and address including zip code of
assignee
________________________________________________________________________________
________________________________________________________________
the within Note and all rights thereunder, hereby irrevocably
constituting and appointing____________________________________________________
_____________________________ attorney to transfer said Note on
the books of the Company with full power of substitution in the
premises.
<PAGE> 13
13
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Note purchased by the Company pursuant to
Section 4.11 or 4.12 of the Indenture, check the Box:
If you wish to have a portion of this Note purchased by the Company
pursuant to Section 4.11 or 4.12 of the Indenture, state the amount:
$___________________.
Date:__________________________
Your Signature:
(Sign exactly as your name appears on
the other side of this Note)
Signature Guarantee: ______________________________
<PAGE> 1
EXHIBIT 5.1
[Letterhead of COWDEN, HUMPHREY & SARLSON CO., L.P.A.]
July 7, 1998
Advanced Lighting Technologies, Inc.
32000 Aurora Road
Solon, Ohio 44139
Dear Sirs:
We have acted as counsel for Advanced Lighting Technologies, Inc. (the
"Company"), an Ohio corporation, in connection with the preparation and filing
with the Securities and Exchange Commission, of a registration statement on Form
S-4 (The Registration Statement") in connection with the proposed issuance of up
to $100,000,000 aggregate principal amount of the Company's 8% Senior Notes due
2008 (the "Notes") registered under the Securities Act of 1933, as amended, in
exchange for up to $100,000,000 aggregate principal amount of the Company's
outstanding 8% Senior Notes due 2008. The Notes are issuable under an Indenture,
dated as of March 18, 1998 (the "Indenture"), between the Company and The Bank
of New York, as trustee (the "Trustee").
In rendering the opinions below, we have examined originals or copies
certified or otherwise identified to our satisfaction of all such records of the
Company, agreements and other instruments, certificates of public officials,
certificates of officers and representatives of the Company and such other
documents as we have deemed necessary as a basis of the opinions expressed
below. In our examination we have assumed and have not verified that the
signatures on all documents which we have examined are genuine, that the Notes
will conform to the form of the Notes included in the Indenture, the
authenticity of all documents submitted to us as originals and the conformity
with authentic original documents of all documents submitted to us as copies. As
to various question of fact material to such opinion we have, when relevant
facts were not independently established, relied upon certificates of officers
of the Company and other appropriate persons and statements contained in the
Registration Statement.
Based on the foregoing, and having regard to legal considerations we
deem relevant, we are of the opinion that:
1. The execution and delivery of the Indenture and Notes have been duly
authorized by all necessary actions of the Company.
2. When the Notes have been duly executed and delivered by the Company
and when the Notes have been authenticated by the Trustee and delivered against
surrender and cancellation of a like aggregate principal amount of outstanding
8% Senior Notes due 2008 as contemplated in the Registration Rights Agreement
between the Company and the Placement Agent named therein as described in the
Prospectus included in the Registration Statement, the Notes will constitute
legal, valid and binding obligations of the Company, entitled to the benefits
of, and subject to the provisions of, the Indenture, except to the extent that
enforcement thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws now or hereafter in effect relating to or
affecting enforcement of creditors' rights generally and except as enforcement
thereof is subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
In giving the foregoing opinions we have with your permission relied,
without independent investigation, as to matters relating to the laws of the
State of New York on the opinion of Brown & Wood LLP, special counsel to the
Company, a copy of which opinion is included in the Registration Statement as
<PAGE> 2
Exhibit 5.2. Except insofar as we have relied on such opinion, we express no
opinion other than as to the federal laws of the United States of America and
the law of the State of Ohio.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the reference to us under heading "Legal Matters"
in the Prospectus included in the Registration Statement; we consent also to the
reliance by Brown & Wood LLP on this opinion as to matters of Ohio law in
rendering their opinion of even date herewith filed as Exhibit 5.2 to the
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended.
Very truly yours,
/s/ COWDEN, HUMPHREY & SARLSON CO., L.P.A.
<PAGE> 1
EXHIBIT 5.2
[LETTERHEAD OF BROWN & WOOD LLP]
July 7, 1998
Advanced Lighting Technologies, Inc.
32000 Aurora Road
Solon, Ohio 44139
Dear Sirs:
We have acted as special counsel for Advanced Lighting Technologies,
Inc. (the "Company"), an Ohio corporation, in connection with the preparation
and filing with the Securities and Exchange Commission, of a registration
statement on Form S-4 (The Registration Statement") in connection with the
proposed issuance of up to $100,000,000 aggregate principal amount of the
Company's 8% Senior Notes due 2008 (the "Notes") registered under the Securities
Act of 1933, as amended, in exchange for up to $100,000,000 aggregate principal
amount of the Company's outstanding 8% Senior Notes due 2008. The Notes are
issuable under an Indenture, dated as of March 18, 1998 (the "Indenture"),
between the Company and The Bank of New York, as trustee (the "Trustee").
In the above capacity and for the purpose of rendering the opinion set
forth below, we have examined originals or copies, certified or otherwise
identified to our satisfaction, of all such corporate records, agreements,
identified to our satisfaction, of all such corporate records, agreements,
documents and other instruments of the Company, including the Indenture, and
such certificates or comparable documents of public officials and of officers
and representatives of the Company, and have made such other and further
investigations as we have deemed necessary or appropriate for the purpose of
rendering the opinion set forth below. In our examination, we have assumed,
without investigation or independent verification, (i) the legal capacity of all
natural persons, (ii) the genuineness of all signatures, (iii) the authority of
all signatories, (iv) the authenticity and completeness of all documents
submitted to us as originals and (v) the conformity to authentic, original
documents of all documents submitted to us as certified, conformed or
photostatic copies. As to any other facts material to the opinions expressed
herein that have not been independently established or verified by us, we have
relied upon certificates of officers of the Company and certificates of public
officials and statements contained in the Registration Statement.
We are qualified to practice law in the State of New York. We express
no opinion as to, and for the purposes of the opinions set forth herein, we have
conducted no investigation of, and do not purport to be experts on, any laws
other than the laws of the State of New York, and, to the extent expressly set
forth herein, the federal laws of the United States of America. In rendering the
opinion set forth below, we have with your permission relied, without
independent investigation, as to matters relating to the laws of the State of
Ohio on the opinion of Cowden, Humphrey & Sarlson Co., L.P.A., counsel to the
Company, a copy of which opinion is included in the Registration Statement as
Exhibit 5.1.
Based upon the foregoing examination, and subject to the assumptions,
limitations, qualifications and exceptions set forth herein, we are of the
opinion that, when the Notes have been executed and delivered by the Company,
authenticated by the Trustee and delivered against surrender and cancellation of
a like aggregate principal amount of outstanding 8% Senior Notes due 2008 as
contemplated in the Registration Rights Agreement between the Company and the
Placement Agent named therein as described in the Prospectus included in the
Registration Statement, the Notes will constitute legal, valid and binding
obligations of the Company, entitled to the benefits of, and subject to the
provisions of, the Indenture, except to the extent that enforcement thereof may
be limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to or affecting enforcement of
creditors' rights generally and except as enforcement thereof is subject to
general principles of equity (regardless of whether enforcement is considered in
a proceeding in equity or at law).
<PAGE> 2
We hereby consent to the filing of this opinion as Exhibit 5.2 to the
Registration Statement and to the reference to this firm under the heading
"Legal Matters" in the Prospectus included in the Registration Statement; we
consent also to the reliance by Cowden, Humphrey & Sarlson Co., L.P.A. on this
opinion as to matters of New York law in rendering their opinion of even date
herewith filed as Exhibit 5.1 to the Registration Statement. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required under Section 7 of the Securities Act of 1933, as amended.
Very truly yours,
/s/ BROWN & WOOD LLP
<PAGE> 1
Advanced Lighting Technologies, Inc.
Exhibit 12 -- Statement Re: Computation Of Ratio Of Earnings To Fixed Charges
and Preferred Stock Dividends:
<TABLE>
<CAPTION>
(In Thousands)
Nine Months Ended
Pro Forma March 31, Pro Forma
Nine Months Ended ---------------------- Year Ended
March 31, 1998 1998 1997 June 30, 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Consolidated pretax income (loss) from
continuing operations ............. (22,837) $(21,214) $ 7,359 $ 10,703
Interest ............................ 6,485 1,649 749 8,620
Increase in value of warrants ....... -- -- -- --
Interest portion of rent expense .... 474 474 393 492
Preferred stock dividend
requirements of majority-owned
subsidiaries ....................... -- -- -- --
-------- -------- -------- --------
Earnings ....................... $(15,878) $(19,091) $ 8,501 $ 19,815
======== ======== ======== ========
Interest ............................ 6,485 $ 1,649 $ 749 $ 8,620
Increase in value of warrants ....... -- -- -- --
Interest capitalized ................ 680 680 206 455
Interest portion of rent expense .... 474 474 393 492
Preferred stock dividend
requirements of majority-owned
subsidiaries ....................... -- -- -- --
-------- -------- -------- --------
Fixed charges .................. $ 7,639 $ 2,803 $ 1,348 9,567
======== ======== ======== ========
Ratio of earnings to fixed charges .. -- -- 6.3 2.1
======== ======== ======== ========
<CAPTION>
Year Ended June 30,
-------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Consolidated pretax income (loss) from
continuing operations ............ $10,425 $ 3,632 $ 3,354 $ 1,277 $(6,334)
Interest ........................... 1,513 1,548 2,107 2,113 901
Increase in value of warrants ...... -- 1,350 2,302 -- 961
Interest portion of rent expense ... 492 297 204 193 159
Preferred stock dividend
requirements of majority-owned
subsidiaries ...................... -- -- 62 180 171
------- ------- ------- ------- -------
Earnings ...................... $12,430 $ 6,827 $ 8,029 $ 3,763 $(4,142)
======= ======= ======= ======= =======
Interest ........................... $ 1,513 $ 1,548 $ 2,107 $ 2,113 $ 901
Increase in value of warrants ...... -- 1,350 2,302 -- 961
Interest capitalized ............... 455 98 9 9 12
Interest portion of rent expense ... 492 297 204 193 159
Preferred stock dividend
requirements of majority-owned
subsidiaries ...................... -- -- 62 180 171
------- ------- ------- ------- -------
Fixed charges ................. $ 2,460 $ 3,293 $ 4,684 $ 2,495 $ 2,204
======= ======= ======= ======= =======
Ratio of earnings to fixed charges . 5.1 2.1 1.7 1.5 --
======= ======= ======= ======= =======
</TABLE>
For purposes of calculating the unaudited ratio of earnings to fixed charges,
earnings consist of income (loss) from continuing operations before provision
for income taxes plus fixed charges. Fixed charges consist of interest charges
and amortization of debt issuance costs, whether expensed or capitalized, and
that portion of rental expense that is representative of interest. In the nine
months ended March 31, 1998, earnings were inadequate to cover fixed charge
requirements by $21,894. In fiscal 1993, earnings were inadequate to cover fixed
charge requirements by $6,346. After giving effect to the transactions described
under "Unaudited Pro Forma Financial Data," earnings for the nine months ended
March 31, 1998, would be inadequate to cover fixed charge requirements by
$23,517.
<PAGE> 1
Exhibit 23.1
Consent of Ernst & Young LLP, Independent Auditors
We consent to the reference to our firm under the caption "Independent Auditors"
and to the use of our report dated September 25, 1997 (except earnings per share
amounts and Notes J, O and U, as to which the date is March 30, 1998), with
respect to the consolidated financial statements of Advanced Lighting
Technologies, Inc., and to the use of our report dated December 19, 1997 with
respect to the financial statements of Ruud Lighting, Inc. in the Registration
Statement (Form S-4 No. 333- ) and related Prospectus of Advanced Lighting
Technologies, Inc. for the registration of $100,000,000 of 8% Senior Notes due
2008.
/s/ Ernst & Young LLP
Cleveland, Ohio
July 6, 1998
<PAGE> 1
Exhibit 24
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Wayne R. Hellman and/or Louis S. Fisi his attorney-in-fact, with the power of
substitution, for him in any and all capacities, to sign the Form S-4
Registration Statement, any amendments thereto or any new registration
statement filed pursuant to Rule 464 and amendments thereto, and to file the
same with exhibits thereto and other documents in connection therewith, with
the Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute or substitutes may do or cause to be
done by virtue hereof.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Alan J. Ruud Vice Chairman July 7, 1998
- ---------------------- and Director
Alan J. Ruud
/s/ Louis S. Fisi Executive Vice President, July 7, 1998
- ---------------------- Secretary and Director
Louis S. Fisi
/s/ Theodore A. Filson Director July 7, 1998
- ----------------------
Theodore A. Filson
/s/ Francis H. Beam Director July 7, 1998
- ----------------------
Francis H. Beam
/s/ Susumu Harada Director July 7, 1998
- ----------------------
Susumu Harada
/s/ A Gordon Tunstall Director July 7, 1998
- ----------------------
A Gordon Tunstall
/s/ John R. Buerkle Director July 7, 1998
- ----------------------
John R. Buerkle
</TABLE>
<PAGE> 1
Exhibit 25
================================================================================
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
----------------------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
48 Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
----------------------
ADVANCED LIGHTING TECHNOLOGIES, INC.
(Exact name of obligor as specified in its charter)
Ohio 34-1803229
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
32000 Aurora Road
Solon, OH 44139
(Address of principal executive offices) (zip code)
----------------------
8% Senior Notes due 2008
(Title of the indenture securities)
===============================================================================
<PAGE> 2
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE
TRUSTEE:
(A) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006,
and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
(B) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7a-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND 17
C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which
contains the authority to commence business and a grant of
powers to exercise corporate trust powers. (Exhibit 1 to
Amendment No. 1 to Form T-1 filed with Registration Statement
No. 33-6215, Exhibits 1a and 1b to Form T-1 filed with
Registration Statement No. 33-21672 and Exhibit 1 to Form T-1
filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
-2-
<PAGE> 3
6. The consent of the Trustee required by Section 321(b) of the
Act. (Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee
published pursuant to law or to the requirements of its
supervising or examining authority.
- 3 -
<PAGE> 4
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its behalf
by the undersigned, thereunto duly authorized, all in The City of New York, and
State of New York, on the 2nd day of July, 1998.
THE BANK OF NEW YORK
By: /s/ Mary Jane Schmalzel
-----------------------------
Name: Mary Jane Schmalzel
Title: Vice President
<PAGE> 5
Exhibit 7
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business December 31,
1997, published in accordance with a call made by the Federal Reserve Bank of
this District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
<S> <C>
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depos-
itory institutions:
Noninterest-bearing balances and
currency and coin ................. $ 5,742,986
Interest-bearing balances .......... 1,342,769
Securities:
Held-to-maturity securities ........ 1,099,736
Available-for-sale securities ...... 3,882,686
Federal funds sold and Securities pur-
chased under agreements to resell..... 2,568,530
Loans and lease financing
receivables:
Loans and leases, net of unearned
income .................35,019,608
LESS: Allowance for loan and
lease losses ..............627,350
LESS: Allocated transfer risk
reserve..........................0
Loans and leases, net of unearned
income, allowance, and reserve 34,392,258
Assets held in trading accounts ...... 2,521,451
Premises and fixed assets (including
capitalized leases) ................ 659,209
Other real estate owned .............. 11,992
Investments in unconsolidated
subsidiaries and associated
companies .......................... 226,263
Customers' liability to this bank on
acceptances outstanding ............ 1,187,449
Intangible assets .................... 781,684
Other assets ......................... 1,736,574
-----------
Total assets ......................... $56,153,587
===========
LIABILITIES
Deposits:
In domestic offices ................ $27,031,362
Noninterest-bearing ......11,899,507
Interest-bearing .........15,131,855
In foreign offices, Edge and
Agreement subsidiaries, and IBFs ... 13,794,449
Noninterest-bearing .........590,999
Interest-bearing .........13,203,450
Federal funds purchased and Securities
sold under agreements to repurchase. 2,338,881
Demand notes issued to the U.S.
Treasury ........................... 173,851
Trading liabilities .................. 1,695,216
Other borrowed money:
With remaining maturity of one year
or less .......................... 1,905,330
With remaining maturity of more than
one year through three years...... 0
With remaining maturity of more than
three years ...................... 25,664
Bank's liability on acceptances exe-
cuted and outstanding .............. 1,195,923
Subordinated notes and debentures .... 1,012,940
Other liabilities .................... 2,018,960
-----------
Total liabilities .................... 51,192,576
-----------
EQUITY CAPITAL
Common stock ......................... 1,135,284
Surplus .............................. 731,319
Undivided profits and capital
reserves ........................... 3,093,726
Net unrealized holding gains
(losses) on available-for-sale
securities ......................... 36,866
Cumulative foreign currency transla-
tion adjustments ................... ( 36,184)
------------
Total equity capital ................. 4,961,011
------------
Total liabilities and equity
capital ............................ $56,153,587
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of Governors
of the Federal Reserve System and is true to the best of my knowledge and
belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
Thomas A. Renyi |
Alan R. Griffith | Directors
J. Carter Bacot |
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADVANCED
LIGHTING TECHNOLOGIES, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED
JUNE 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> OTHER
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 1,682
<SECURITIES> 0
<RECEIVABLES> 15,034
<ALLOWANCES> 287
<INVENTORY> 12,707
<CURRENT-ASSETS> 32,266
<PP&E> 22,596
<DEPRECIATION> 6,359
<TOTAL-ASSETS> 56,297
<CURRENT-LIABILITIES> 14,925
<BONDS> 11,034
0
0
<COMMON> 11
<OTHER-SE> 26,583
<TOTAL-LIABILITY-AND-EQUITY> 56,297
<SALES> 54,636
<TOTAL-REVENUES> 54,636
<CGS> 29,164
<TOTAL-COSTS> 46,866
<OTHER-EXPENSES> 2,732
<LOSS-PROVISION> 43
<INTEREST-EXPENSE> 1,548
<INCOME-PRETAX> 3,632
<INCOME-TAX> 965
<INCOME-CONTINUING> 2,667
<DISCONTINUED> 150
<EXTRAORDINARY> 135
<CHANGES> 0
<NET-INCOME> 2,382
<EPS-PRIMARY> .11
<EPS-DILUTED> .11
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION FROM ADVANCED LIGHTING
TECHNOLOGIES, INC. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,
1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-START> JUL-01-1996
<PERIOD-END> JUN-30-1997
<CASH> 4,198
<SECURITIES> 4,075
<RECEIVABLES> 30,786
<ALLOWANCES> 315
<INVENTORY> 29,125
<CURRENT-ASSETS> 70,589
<PP&E> 46,559
<DEPRECIATION> 8,558
<TOTAL-ASSETS> 134,838
<CURRENT-LIABILITIES> 28,209
<BONDS> 35,908
0
0
<COMMON> 13
<OTHER-SE> 66,019
<TOTAL-LIABILITY-AND-EQUITY> 134,838
<SALES> 85,645
<TOTAL-REVENUES> 85,645
<CGS> 45,703
<TOTAL-COSTS> 73,098
<OTHER-EXPENSES> 771
<LOSS-PROVISION> 28
<INTEREST-EXPENSE> 1,513
<INCOME-PRETAX> 10,425
<INCOME-TAX> 2,869
<INCOME-CONTINUING> 7,556
<DISCONTINUED> 452
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,104
<EPS-PRIMARY> 0.54
<EPS-DILUTED> 0.52
</TABLE>
<PAGE> 1
Exhibit 99.1
LETTER OF TRANSMITTAL
ADVANCED LIGHTING TECHNOLOGIES, INC.
ADVANCED LIGHTING TECHNOLOGIES, INC.
OFFER TO EXCHANGE ITS
8% SENIOR NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OF ITS OUTSTANDING
8% SENIOR NOTES DUE 2008
PURSUANT TO THE PROSPECTUS DATED , 1998
(AS THE SAME MAY BE AMENDED OR SUPPLEMENTED, THE "PROSPECTUS")
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON , 1998,
OR ON SUCH LATER DATE OR TIME TO WHICH
THE COMPANY
MAY EXTEND THE EXCHANGE OFFER (THE "EXPIRATION DATE").
TENDERS MAY BE WITHDRAWN PRIOR TO 5:00 P.M.,
NEW YORK CITY TIME, ON THE EXPIRATION DATE.
The Exchange Agent For The Exchange Offer Is:
The Bank of New York
BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York
101 Barclay Street
Corporate Trust Services Window
Ground Level
New York, NY 10286
Attn: Reorganization Section,
7E: Odell Romeo
(Registered or Certified Mail
Recommended)
BY MAIL:
The Bank of New York
101 Barclay Street, 7E
New York, NY 10286
Attn: Reorganization Section,
7E: Odell Romeo
(Registered or Certified Mail
Recommended)
CONFIRM BY TELEPHONE: (212) 815-6337
FACSIMILE TRANSMISSIONS: (212) 815-6339
(ELIGIBLE INSTITUTIONS ONLY)
<PAGE> 2
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID DELIVERY.
Capitalized terms used but not defined herein shall have the same
meaning given them in the Prospectus. As used herein, the term "Holder" means a
holder of 8% Senior Notes Due 2008 (the "Old Notes"), including any participant
("DTC Participant") in the book-entry transfer facility system of The Depository
Company Company ("DTC") whose name appears on a security position listing as the
owner of the Old Notes. As used herein, the term "Certificates" means physical
certificates representing Old Notes.
To participate in the Exchange Offer (as defined below), Holders must
tender by (a) book-entry transfer pursuant to the procedures set forth in the
Prospectus under "The Exchange Offer-Procedures for Tendering Old Notes," or (b)
forwarding Certificates herewith.
Holders who are DTC Participants tendering by book-entry transfer must
execute such tender through the Automated Tender Offer Program ("ATOP") of DTC.
A Holder using ATOP should transmit its acceptance to DTC on or prior to the
Expiration Date. DTC will verify such acceptance, execute a book-entry transfer
of the tendered Old Notes into the Exchange Agent's account at DTC and then send
to the Exchange Agent confirmation of such book-entry transfer (a "book-entry
confirmation"), including an agent's message ("Agent's Message") confirming that
DTC has received an express acknowledgment from such Holder that such Holder has
received and agrees to be bound by this Letter of Transmittal and that the
Company may enforce this Letter of Transmittal against such Holder. The
book-entry confirmation must be received by the Exchange Agent in order for the
tender relating thereto to be effective. Book-entry transfer to DTC in
accordance with DTC's procedures does not constitute delivery of the book-entry
confirmation to the Exchange Agent.
If the tender is not made through ATOP, Certificates, as well as this
Letter of Transmittal (or facsimile thereof), properly completed and duly
executed, with any required signature guarantees, and any other documents
required by this Letter of Transmittal, must be received by the Exchange Agent
at its address set forth herein on or prior to the Expiration Date in order for
such tender to be effective.
Holders of Old Notes who cannot complete the procedures for delivery by
book-entry transfer of such Old Notes on a timely basis or who cannot deliver
their Certificates for such Old Notes and all other required documents to the
Exchange Agent on or prior to the Expiration Date, must, in order to participate
in the Exchange Offer, tender their Old Notes according to the guaranteed
delivery procedures set forth in the Prospectus under "The Exchange
Offer--Procedures for Tendering Old Notes."
THE METHOD OF DELIVERY OF THE BOOK-ENTRY CONFIRMATION OR CERTIFICATES,
THIS LETTER OF TRANSMITTAL, AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION
AND SOLE RISK OF THE TENDERING HOLDER, AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY
SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
<PAGE> 3
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
====================================================================================================================
DESCRIPTION OF OLD NOTES
====================================================================================================================
If blank, please print name and Old Notes tendered
address of registered holder. (Attach additional list if necessary)
================================== -------------------------- -------------------------- ===========================
<S> <C> <C> <C>
Certificate Aggregate Principal Principal Amount of
Number(s) Amount of Old Notes Tendered
Old Notes (if less than all)**
-------------------------- -------------------------- ---------------------------
-------------------------- -------------------------- ---------------------------
-------------------------- -------------------------- ---------------------------
-------------------------- -------------------------- ---------------------------
-------------------------- -------------------------- ---------------------------
-------------------------- -------------------------- ---------------------------
-------------------------- -------------------------- ---------------------------
TOTAL AMOUNT TENDERED
====================================================================================================================
* Need not be completed by book-entry holders.
** Old Notes may be tendered in whole or in part in mimum principal amounts of $1,000 and integral multiples
of $1,000 in excess thereof. All Old Notes held shall be deemed tendered unless a lesser number is
specified in this column. See Instruction 4.
====================================================================================================================
</TABLE>
<PAGE> 4
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
[ ] CHECK HERE IF TENDERED OLD NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC,
AND COMPLETE THE FOLLOWING:
Name of Tendering Institution_________________________________________________
DTC Account Number____________________________________________________________
Transaction Code Number_______________________________________________________
[ ] CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY
IF TENDERED OLD NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT, AND COMPLETE
THE FOLLOWING:
Name of Registered Holder(s)_______
Window Ticket Number (if any)_______
Date of Execution of Notice of Guaranteed Delivery_______
Name of Institution which Guaranteed Delivery_______
If Guaranteed Delivery is to be made By Book-Entry Transfer:
Name of Tendering Institution_______
DTC Account Number_______
Transaction Code Number_______
[ ] CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OLD NOTES FOR
YOUR OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING ACTIVITIES
AND WISH TO RECEIVE TEN ADDITIONAL COPIES OF THE PROSPECTUS AND TEN
COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO.
Name:________________________________________________________________________
Address:_____________________________________________________________________
<PAGE> 5
Ladies and Gentlemen:
The undersigned hereby tenders to Advanced Lighting Technologies, Inc.,
an Ohio corporation (the "Company"), the above described aggregate principal
amount of the Company's Old Notes in exchange for a like aggregate principal
amount of the Company's 8% Senior Notes Due 2008 (the "New Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), upon the terms and subject to the conditions set forth in the Prospectus,
receipt of which is hereby acknowledged, and in this Letter of Transmittal
(which, together with the Prospectus, constitute the "Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Old Notes tendered herewith in accordance with the terms and
conditions of the Exchange Offer (including, if the Exchange Offer is extended
or amended, the terms and conditions of any such extension or amendment), the
undersigned hereby sells, assigns and transfers to or upon the order of the
Company all right, title and interest in and to such Old Notes as are being
tendered herewith. The undersigned hereby irrevocably constitutes and appoints
the Exchange Agent as its agent and attorney-in-fact (with full knowledge that
the Exchange Agent is also acting as agent of the Company in connection with the
Exchange Offer) with respect to the tendered Old Notes, with full power of
substitution (such power of attorney being deemed to be an irrevocable power
coupled with an interest) subject only to the right of withdrawal described in
the Prospectus, to (i) deliver Certificates for Old Notes to the Company
together with all accompanying evidences of transfer and authenticity to, or
upon the order of, the Company, upon receipt by the Exchange Agent, as the
undersigned's agent, of the New Notes to be issued in exchange for such Old
Notes, (ii) present Certificates for such Old Notes for transfer, and to
transfer the Old Notes on the books of the Company, and (iii) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Old Notes, all in accordance with the terms and
conditions of the Exchange Offer.
THE UNDERSIGNED HEREBY REPRESENTS AND WARRANTS THAT THE UNDERSIGNED HAS
FULL POWER AND AUTHORITY TO TENDER, EXCHANGE, SELL, ASSIGN AND TRANSFER THE OLD
NOTES TENDERED HEREBY AND THAT, WHEN THE SAME ARE ACCEPTED FOR EXCHANGE, THE
COMPANY WILL ACQUIRE GOOD, MARKETABLE AND UNENCUMBERED TITLE THERETO, FREE AND
CLEAR OF ALL LIENS, RESTRICTIONS, CHARGES AND ENCUMBRANCES, AND THAT THE OLD
NOTES TENDERED HEREBY ARE NOT SUBJECT TO ANY ADVERSE CLAIMS OR PROXIES. THE
UNDERSIGNED WILL, UPON REQUEST, EXECUTE AND DELIVER ANY ADDITIONAL DOCUMENTS
DEEMED BY THE COMPANY OR THE EXCHANGE AGENT TO BE NECESSARY OR DESIRABLE TO
COMPLETE THE EXCHANGE, ASSIGNMENT AND TRANSFER OF THE OLD NOTES TENDERED HEREBY,
AND THE UNDERSIGNED WILL COMPLY WITH ITS OBLIGATIONS UNDER THE REGISTRATION
AGREEMENT. THE UNDERSIGNED HAS READ AND AGREES TO ALL OF THE TERMS OF THE
EXCHANGE OFFER.
The name(s) and address(es) of the registered Holder(s) of the Old
Notes tendered hereby should be printed in the box entitled "Description of Old
Notes" above, if they are not already set forth in such box, as they appear on
the Certificates representing such Old Notes or on the records of DTC, as the
case may be. The Certificate number(s) of any such Certificates and the
principal amount of such Old Notes should be specified in such box as indicated
therein.
The undersigned understands that tenders of Old Notes pursuant to any
one of the procedures described in "The Exchange Offer--Procedures for Tendering
Old Notes" in the Prospectus and in the instructions attached hereto will, upon
the Company's acceptance for exchange of such tendered Old Notes, constitute a
binding agreement between the undersigned, the Company upon the terms and
subject to the conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth
in the Prospectus, the Company may not be required to accept for exchange any of
the Old Notes tendered hereby.
Unless otherwise indicated in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the New Notes be issued
in the name(s) of the undersigned or credited to the account at DTC indicated
above in the case of a book-entry transfer of Old Notes.
If any Old Notes are submitted for more Old Notes than are tendered or
accepted for exchange, then, without expense to the tendering Holder, promptly
following the expiration or termination of the Exchange Offer, such
non-exchanged or non-tendered Old Notes will, if evidenced by Certificates, be
returned, or will, if evidenced by book-entry, be credited to the account at DTC
indicated above. If applicable, substitute Certificates representing
non-exchanged Old Notes will be issued to the
<PAGE> 6
undersigned or nonexchanged Old Notes will be credited to the account at DTC
indicated above in the case of a book-entry transfer of Old Notes.
Unless otherwise indicated under "Special Delivery Instructions,"
certificates for Old Notes and for New Notes will be delivered to the
undersigned at the address shown below the undersigned's signature.
BY TENDERING OLD NOTES AND EXECUTING THIS LETTER OF TRANSMITTAL, THE
UNDERSIGNED HEREBY REPRESENTS AND AGREES THAT (1) THE UNDERSIGNED IS NOT AN
"AFFILIATE" (AS DEFINED IN RULE 144 UNDER THE SECURITIES ACT) OF THE COMPANY,
(2) ANY NEW NOTES TO BE RECEIVED BY THE UNDERSIGNED ARE BEING ACQUIRED IN THE
ORDINARY COURSE OF ITS BUSINESS, (3) THE UNDERSIGNED HAS NO ARRANGEMENT OR
UNDERSTANDING WITH ANY PERSON TO PARTICIPATE IN A DISTRIBUTION (WITHIN THE
MEANING OF THE SECURITIES ACT) OF NEW NOTES TO BE RECEIVED IN THE EXCHANGE
OFFER, AND (4) IF THE UNDERSIGNED IS NOT A BROKER-DEALER, THE UNDERSIGNED IS NOT
ENGAGED IN, AND DOES NOT INTEND TO ENGAGE IN, A DISTRIBUTION (WITHIN THE MEANING
OF THE SECURITIES ACT) OF SUCH NEW NOTES. BY TENDERING OLD NOTES PURSUANT TO THE
EXCHANGE OFFER AND EXECUTING THIS LETTER OF TRANSMITTAL, A HOLDER OF OLD NOTES
THAT IS A BROKER-DEALER REPRESENTS AND AGREES, CONSISTENT WITH CERTAIN
INTERPRETIVE LETTERS ISSUED BY THE STAFF OF THE DIVISION OF CORPORATION FINANCE
OF THE SECURITIES AND EXCHANGE COMMISSION TO THIRD PARTIES, THAT (1) SUCH OLD
NOTES ARE HELD BY SUCH BROKER-DEALER ONLY AS A NOMINEE, OR (2) SUCH OLD NOTES
WERE ACQUIRED BY IT FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING ACTIVITIES
OR OTHER TRADING ACTIVITIES AND IT WILL DELIVER THE PROSPECTUS MEETING THE
REQUIREMENTS OF THE SECURITIES ACT IN CONNECTION WITH ANY RESALE OF SUCH NEW
NOTES (PROVIDED THAT, BY SO ACKNOWLEDGING AND BY DELIVERING THE PROSPECTUS, IT
WILL NOT BE DEEMED TO ADMIT THAT IT IS AN "UNDERWRITER" WITHIN THE MEANING OF
THE SECURITIES ACT).
THE COMPANY HAS AGREED THAT, SUBJECT TO THE PROVISIONS OF THE
REGISTRATION RIGHTS AGREEMENT, THE PROSPECTUS MAY BE USED IN CONNECTION WITH
RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD NOTES BY A BROKER-DEALER WHO
ACQUIRED OLD NOTES FOR ITS OWN ACCOUNT AS A RESULT OF MARKET-MAKING OR OTHER
TRADING ACTIVITIES (A "PARTICIPATING BROKER-DEALER") FOR A PERIOD ENDING 90 DAYS
AFTER THE EXPIRATION DATE (SUBJECT TO EXTENSION UNDER CERTAIN LIMITED
CIRCUMSTANCES DESCRIBED IN THE PROSPECTUS) OR, IF EARLIER, WHEN ALL SUCH NEW
NOTES HAVE BEEN DISPOSED OF BY SUCH PARTICIPATING BROKER-DEALER. IN THAT REGARD,
EACH PARTICIPATING BROKER-DEALER, BY TENDERING SUCH OLD NOTES AND EXECUTING THIS
LETTER OF TRANSMITTAL OR BY TENDERING THROUGH BOOK-ENTRY TRANSFER IN LIEU
THEREOF, AGREES THAT, UPON RECEIPT OF NOTICE FROM THE COMPANY OF THE OCCURRENCE
OF ANY EVENT OR THE DISCOVERY OF ANY FACT WHICH MAKES ANY STATEMENT CONTAINED OR
INCORPORATED BY REFERENCE IN THE PROSPECTUS UNTRUE IN ANY MATERIAL RESPECT OR
WHICH CAUSES THE PROSPECTUS TO OMIT TO STATE A MATERIAL FACT NECESSARY IN ORDER
TO MAKE THE STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE THEREIN, IN LIGHT
OF THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING OR OF THE
OCCURRENCE OF CERTAIN OTHER EVENTS SPECIFIED IN THE REGISTRATION RIGHTS
AGREEMENT, SUCH PARTICIPATING BROKER-DEALER WILL SUSPEND THE SALE OF NEW NOTES
PURSUANT TO THE PROSPECTUS UNTIL (1) THE COMPANY HAS AMENDED OR SUPPLEMENTED THE
PROSPECTUS TO CORRECT SUCH MISSTATEMENT OR OMISSION AND HAVE FURNISHED COPIES OF
THE AMENDED OR SUPPLEMENTED PROSPECTUS TO THE PARTICIPATING BROKER-DEALER OR (2)
THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF THE NEW NOTES MAY BE RESUMED, AS
THE CASE MAY BE. IF THE COMPANY GIVES SUCH NOTICE TO SUSPEND THE SALE OF THE NEW
NOTES, THEY SHALL EXTEND THE 90-DAY PERIOD REFERRED TO ABOVE DURING WHICH
PARTICIPATING BROKER-DEALERS ARE ENTITLED TO USE THE PROSPECTUS IN CONNECTION
WITH THE RESALE OF NEW NOTES BY THE NUMBER OF DAYS DURING THE PERIOD FROM AND
INCLUDING THE DATE OF THE GIVING OF SUCH NOTICE TO AND INCLUDING THE DATE ON
WHICH (1) PARTICIPATING BROKER-DEALERS SHALL HAVE RECEIVED COPIES OF THE
SUPPLEMENTED OR AMENDED PROSPECTUS NECESSARY TO PERMIT RESALES OF THE NEW NOTES
OR (2) THE COMPANY HAS GIVEN NOTICE THAT THE SALE OF NEW NOTES MAY BE RESUMED,
AS THE CASE MAY BE.
AS A RESULT, A PARTICIPATING BROKER-DEALER WHO INTENDS TO USE THE
PROSPECTUS IN CONNECTION WITH RESALES OF NEW NOTES RECEIVED IN EXCHANGE FOR OLD
NOTES PURSUANT TO THE EXCHANGE OFFER MUST NOTIFY THE COMPANY, OR CAUSE THE
COMPANY TO BE NOTIFIED, ON OR PRIOR TO THE EXPIRATION DATE, THAT IT IS A
PARTICIPATING BROKER-DEALER. SUCH NOTICE MAY BE GIVEN IN
<PAGE> 7
THE SPACE PROVIDED ABOVE OR MAY BE DELIVERED TO THE EXCHANGE AGENT AT THE
ADDRESS SET FORTH IN THE PROSPECTUS UNDER "THE EXCHANGE OFFER-EXCHANGE AGENT."
Holders whose Old Notes are accepted for exchange on or prior to
September 1, 1998 will not receive Distributions on such Old Notes and the
undersigned hereby waives the right to receive any Distributions on such Old
Notes accumulated from and including March 18, 1998. Accordingly, holders of New
Notes as of the close of business on the record date for the payment of
Distributions on September 15, 1998 will be entitled to Distributions
accumulated from and including March 18, 1998.
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Old Notes tendered hereby. All authority
herein conferred or agreed to be conferred in this Letter of Transmittal shall
survive the death or incapacity of the undersigned and any obligation of the
undersigned hereunder shall be binding upon the heirs, executors,
administrators, personal representatives, trustees in bankruptcy, legal
representatives, successors and assigns of the undersigned. Except as stated in
the Prospectus, this tender is irrevocable.
THE UNDERSIGNED, BY COMPLETING THE BOX ENTITLED "DESCRIPTION OF OLD
NOTES" ABOVE AND SIGNING THIS LETTER, WILL BE DEEMED TO HAVE TENDERED THE OLD
NOTES AS SET FORTH IN SUCH BOX.
<PAGE> 8
HOLDER(S) SIGN HERE
(SEE ATTACHED INSTRUCTIONS 2, 5 AND 6)
(PLEASE COMPLETE SUBSTITUTE FORM W-9 ON THE LAST PAGE)
(NOTE: SIGNATURE(S) MUST BE GUARANTEED IF REQUIRED BY INSTRUCTION 2)
Must be signed by registered Holder(s) exactly as name(s) appear(s) on
Certificate(s) for the Old Notes hereby tendered or on the records of DTC, as
the case may be, or by any person(s) authorized to become the registered
Holder(s) by endorsements and documents transmitted herewith (including such
opinions of counsel, certifications and other information as may be required by
the Company to comply with the restrictions on transfer applicable to the Old
Notes). If signature is by an attorney-in-fact, executor, administrator,
trustee, guardian, officer of a corporation or another acting in a fiduciary
capacity or representative capacity, set forth the signatory's full title. See
Instruction 5.
(SIGNATURE(S) OF HOLDER(S))
Date ________________________, 1998
Name(s)_______________________________________________________________________
(PLEASE PRINT)
Capacity (full title)_________________________________________________________
Address_______________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number_________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
<PAGE> 9
GUARANTEE OF SIGNATURE(S)
(SEE ATTACHED INSTRUCTIONS 2 AND 5)
(AUTHORIZED SIGNATURE)
Date__________________, 1998
Name of Firm__________________________________________________________________
Capacity (full title)_________________________________________________________
(PLEASE PRINT)
Address_______________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number_________________________________________________
<PAGE> 10
SPECIAL ISSUANCE INSTRUCTIONS
(SEE ATTACHED INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if certificates for New Notes or non-tendered or
nonexchanged Old Notes are to be issued in the name of someone other than the
registered Holder(s) of the Old Notes whose name(s) appear(s) above.
Issue
[ ] Non-tendered or non-exchanged Old Notes to:
[ ] New Notes to:
Name(s)________________________________________________________________________
Address________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number______________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
<PAGE> 11
SPECIAL ISSUANCE INSTRUCTIONS
(SEE ATTACHED INSTRUCTIONS 1, 5 AND 6)
To be completed ONLY if certificates for New Notes or non-tendered or
nonexchanged Old Notes are to be sent to someone other than the registered
Holder(s) of the Old Notes whose name(s) appear(s) at an address other than that
above.
Mail
[ ] Non-tendered or non-exchanged Old Notes to:
[ ] New Notes to:
Name(s)_______________________________________________________________________
Address_______________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and
Telephone Number______________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER(S))
<PAGE> 12
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. BOOK-ENTRY TRANSFER; DELIVERY OF LETTER OF TRANSMITTAL AND
CERTIFICATES; GUARANTEED DELIVERY PROCEDURES. To tender in the Exchange Offer,
Holders must tender by (a) forwarding Certificates herewith or (b) book-entry
transfer pursuant to the procedures set forth in "The Exchange Offer--Procedures
for Tendering Old Notes" in the Prospectus. Holders who are DTC Participants
tendering by book-entry transfer must execute such tender through DTC's ATOP
system. A Holder using ATOP should transmit its acceptance to DTC on or prior to
the Expiration Date. DTC will verify such acceptance, execute a book-entry
transfer of the tendered Old Notes into the Exchange Agent's account at DTC and
then send to the Exchange Agent a book-entry confirmation, including an Agent's
Message confirming that DTC has received an express acknowledgment from such
Holder that such Holder has received and agrees to be bound by this Letter of
Transmittal and that the Company may enforce this Letter of Transmittal against
such Holder. The book-entry confirmation must be received by the Exchange Agent
in order for the tender relating thereto to be effective. Book-entry transfer to
DTC in accordance with DTC's procedure does not constitute delivery of the
book-entry confirmation to the Exchange Agent.
IF THE TENDER IS NOT MADE THROUGH ATOP, CERTIFICATES, AS WELL AS THIS
LETTER OF TRANSMITTAL (OR FACSIMILE THEREOF), PROPERLY COMPLETED AND DULY
EXECUTED, WITH ANY REQUIRED SIGNATURE GUARANTEES, AND ANY OTHER DOCUMENTS
REQUIRED BY THIS LETTER OF TRANSMITTAL, MUST BE RECEIVED BY THE EXCHANGE AGENT
AT ITS ADDRESS SET FORTH HEREIN ON OR PRIOR TO THE EXPIRATION DATE IN ORDER FOR
SUCH TENDER TO BE EFFECTIVE.
Old Notes may be tendered in whole or in part in a principal amount of
$1,000 and integral multiples thereof.
Holders who wish to tender their Old Notes and (i) whose Old Notes are
not immediately available or (ii) who cannot deliver their Old Notes, this
Letter of Transmittal and all other required documents to the Exchange Agent on
or prior to the Expiration Date or (iii) who cannot complete the procedures for
delivery by book-entry transfer on a timely basis, may tender their Old Notes by
properly completing and duly executing a notice to the Exchange Agent
guaranteeing delivery to the Exchange Agent of either certificates representing
the Old Notes or a book-entry confirmation in compliance with the requirements
set forth in the Prospectus (the "Notice of Guaranteed Delivery"), pursuant to
the guaranteed delivery procedures set forth in the Prospectus under "The
Exchange Offer--Procedures for Tendering Old Notes--Guaranteed Delivery."
Pursuant to such procedures: (i) such tender must be made by or through an
Eligible Institution (as defined below); (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form accompanying
this Letter of Transmittal, must be received by the Exchange Agent on or prior
to the Expiration Date; and (iii) (a) a book-entry confirmation or (b) the
certificates representing all tendered Old Notes, in proper form for transfer,
together with a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), with any required signature guarantees and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent within three New York Stock Exchange trading days after the date
of execution of such Notice of Guaranteed Delivery, all as provided in the
Prospectus under "The Exchange Offer--Procedures for Tendering Old
Notes--Guaranteed Delivery".
A Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice. For Old Notes to be
properly tendered pursuant to the guaranteed delivery procedure, the Exchange
Agent must receive a Notice of Guaranteed Delivery on or prior to the Expiration
Date. As used herein and in the Prospectus, "Eligible Institution" means a firm
or other entity identified in Rule 17Ad-15 under the Exchange Act as "an
eligible guarantor institution," including (as such terms are defined therein)
(i) a bank; (ii) a broker, dealer, municipal securities broker or dealer or
government securities broker or dealer; (iii) a credit union; (iv) a national
securities exchange, registered securities association or clearing agency; or
(v) a savings association that is a participant in a Securities Transfer
Association.
THE METHOD OF DELIVERY OF THE BOOK-ENTRY CONFIRMATION OR CERTIFICATES,
THIS LETTER OF TRANSMITTAL, AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION
AND SOLE RISK OF THE TENDERING HOLDER AND THE DELIVERY WILL BE DEEMED MADE ONLY
WHEN ACTUALLY RECEIVED BY THE EXCHANGE AGENT. IF DELIVERY IS BY MAIL, REGISTERED
MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR OVERNIGHT DELIVERY
SERVICE IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
<PAGE> 13
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering Holder, by book-entry transfer through ATOP or execution
of a Letter of Transmittal (or facsimile thereof), waives any right to receive
any notice of the acceptance of such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
(i) this Letter of Transmittal is signed by the registered Holder(s) of
Old Notes tendered herewith, unless such Holder(s) has completed either the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" above, or
(ii) such Old Notes are tendered for the account of a firm that is an
Eligible Institution.
In all other cases, an Eligible Institution must guarantee the
signature(s) on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Old Notes" is inadequate, the Certificate number(s) and/or the
principal amount of Old Notes and any other required information should be
listed on a separate signed schedule which is attached to this Letter of
Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Old Notes will be
accepted in principal amounts of $1,000 and integral multiples thereof. If less
than all the Old Notes are to be tendered, fill in the principal amount of Old
Notes that are to be tendered in the box entitled "Principal Amount of Old Notes
Tendered." If applicable, new Certificate(s) for the Old Notes that were not
tendered will be sent to the address designated herein by such Holder promptly
after the Expiration Date. All Old Notes represented by Certificates delivered
to the Exchange Agent will be deemed to have been tendered unless otherwise
indicated.
Except as otherwise provided herein, tenders of Old Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to such date, a written or facsimile
transmission of such notice of withdrawal must be timely received by the
Exchange Agent at one of its addresses set forth above or in the Prospectus on
or prior to such date. Any such notice of withdrawal must specify the name of
the person who tendered the Old Notes to be withdrawn, the aggregate principal
amount of Old Notes to be withdrawn, and, if any Certificates for Old Notes have
been tendered, the name of the registered Holder of the Old Notes as set forth
on any such Certificates, if different from that of the person who tendered such
Old Notes. If Certificates for the Old Notes have been delivered or otherwise
identified to the Exchange Agent, then prior to the physical release of such
Certificates, the tendering Holder must submit the serial numbers shown on the
particular Certificates to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case of
Old Notes tendered for the account of an Eligible Institution. If Old Notes have
been tendered pursuant to the procedures for book-entry transfer set forth in
the Prospectus under "The Exchange Offer--Procedures for Tendering Old Notes,"
the notice of withdrawal must specify the name and number of the account at DTC
to be credited with the withdrawal of Old Notes. Withdrawals of tenders of Old
Notes may not be rescinded. Old Notes properly withdrawn will not be deemed
validly tendered for purposes of the Exchange Offer, but may be retendered at
any subsequent time on or prior to the Expiration Date by following any of the
procedures described herein.
All questions as to the validity, form and eligibility (including time
of receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
Neither the Company, any affiliates or assigns of the Company or the Exchange
Agent nor any other person shall be under any duty to give any notification of
any irregularities in any notice of withdrawal or incur any liability for
failure to give any such notification. Any Old Notes which have been tendered
but which are withdrawn will be returned or transferred by book-entry, as the
case may be, to the Holder thereof without cost to such Holder promptly after
withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS.
If this Letter of Transmittal is signed by the registered Holder(s) of the Old
Notes tendered hereby, the signature(s) must correspond exactly with the name(s)
as written on the face of the Certificate(s) for such Old Notes, without
alteration, enlargement or any change whatsoever, or as recorded in DTC's
book-entry transfer facility system, as the case may be.
<PAGE> 14
If any Certificates tendered hereby are owned of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Old Notes are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Certificates. If
any tendered Old Notes are registered in different names in several book-entry
accounts, proper procedures for book-entry transfer must be followed for each
account.
If this Letter of Transmittal or any Certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and must submit proper
evidence satisfactory to the Company in its sole discretion, of each such
person's authority so to act.
When this Letter of Transmittal is signed by the registered Holder(s)
of the Old Notes listed and transmitted hereby, or book-entry transfer is
effectuated by such Holder(s), no endorsement(s) of Certificate(s) or separate
bond power(s) are required except if New Notes are to be issued in the name of a
person other than the registered Holder(s). If such exception applies,
signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered Holder(s) of the Old Notes listed, the Certificate(s) must be
endorsed or accompanied by appropriate bond powers, signed exactly as the
name(s) of the registered Holder(s) appear(s) on the Certificates, and also must
be accompanied by such opinions of counsel, certifications and other information
as the Company may require in accordance with the restrictions on transfer
applicable to the Old Notes. In such event, signatures on such Certificates or
bond powers must be guaranteed by an Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If New Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if New Notes are to be sent to someone other than the signer of
this Letter of Transmittal or to an address other than that shown above, the
appropriate boxes on this Letter of Transmittal should be completed. Old Notes
not exchanged will be returned, if evidenced by Certificates, by mail or, if
tendered by book-entry transfer, by crediting the account at DTC indicated above
in Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion,
all questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Old Notes, which
determination shall be final and binding on all parties. The Company reserves
the absolute right to reject any and all tenders determined by either of them
not to be in proper form or the acceptance of which, or exchange for which, may
in the view of counsel to the Company be unlawful. The Company also reserves the
absolute right, subject to applicable law, to waive any of the conditions of the
Exchange Offer set forth in the Prospectus under "The Exchange Offer--Conditions
to the Exchange Offer" or any conditions or irregularity in any tender of Old
Notes of any particular Holder whether or not similar conditions or
irregularities are waived in the case of other Holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) will be final and binding. No
tender of Old Notes will be deemed to have been validly made until all
irregularities with respect to such tender have been cured or waived. Neither
the Company, any affiliates or assigns of the Company, the Exchange Agent nor
any other person shall not be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front cover of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and this
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under U.S. Federal
income tax law, a Holder whose tendered Old Notes are accepted for exchange is
required to provide the Exchange Agent with such Holder's correct taxpayer
identification number ("TIN") on Substitute Form W-9 below. If the Exchange
Agent is not provided with the correct TIN, the Internal Revenue Service (the
"IRS") may subject the Holder or other payee to a $50 penalty. In addition,
payments to such Holders or other payees with respect to Old Notes exchanged
pursuant to the Exchange Offer may be subject to 31% backup withholding.
<PAGE> 15
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering Holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
Holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60-day period following the date of the Substitute Form W-9.
If the Holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60-day period
will be remitted to the Holder and no further amounts shall be retained or
withheld from payments made to the Holder thereafter. If, however, the Holder
has not provided the Exchange Agent with its TIN within such 60-day period,
amounts withheld will be remitted to the IRS as backup withholding. In addition,
31% of all payments made thereafter will be withheld and remitted to the IRS
until a correct TIN is provided.
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Old Notes or of the last transferee appearing on the transfers attached to,
or endorsed on, the Old Notes. If the Old Notes are registered in more than one
name or are not in the name of the actual owner, consult the enclosed
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidance on which number to report.
Certain Holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to these backup
withholding and reporting requirements. Such Holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
Holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax.
Rather, the U.S. Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional or contingent
tenders will be accepted. All tendering Holders, by execution of this Letter of
Transmittal, shall waive any right to receive notice of the acceptance of Old
Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is
obligated to give notice of any defect or irregularity with respect to any
tender of Old Notes nor shall any of them incur any liability for failure to
give any such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Old Notes have been lost, destroyed or stolen, the Holder should
promptly notify the Exchange Agent. The Holder will then be instructed as to the
steps that must be taken in order to replace the Certificate(s). This Letter of
Transmittal and related documents cannot be processed until the procedures for
replacing lost, destroyed or stolen Certificate(s) have been followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Old Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, New Notes are to be delivered to, or are to be issued in
the name of, any person other than the Holder of the Old Notes tendered, or if a
transfer tax is imposed for any reason other than the exchange of Old Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the Holder or any other persons) will be payable by the
tendering Holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted with this Letter of Transmittal, the amount of such
transfer taxes will be billed directly to such tendering Holder.
<PAGE> 16
IMPORTANT: BOOK-ENTRY CONFIRMATION OR THIS LETTER OF
TRANSMITTAL (OR FACSIMILE THEREOF) AND ALL OTHER
REQUIRED DOCUMENTS MUST BE RECEIVED BY THE
EXCHANGE AGENT ON OR PRIOR TO THE EXPIRATION DATE.
<PAGE> 17
TO BE COMPLETED BY ALL TENDERING SECURITYHOLDERS
(SEE INSTRUCTION 9)
PAYOR'S NAME: BANKERS TRUST COMPANY
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
SUBSTITUTE Part 1-PLEASE PROVIDE YOUR TIN IN THE BOX TIN:
AT RIGHT AND CERTIFY BY SIGNING AND Social Security Number or
Form W-9 DATING BELOW: Employer Identification Number
Department of the Treasury
Internal Revenue Service
Payer's Request for
Taxpayer
Identification Number
("TIN")
and Certification
---------------------------------------------------------------------------------------
Part 2-TIN Applied For
---------------------------------------------------------------------------------------
CERTIFICATION-UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) The number shown on this form is my
correct taxpayer identification number
(or I am waiting for a number to be
issued to me).
(2) I am not subject to backup withholding
either because (i) I am exempt from
backup withholding, (ii) I have not been
notified by the Internal Revenue Service
("IRS") that I am subject to backup
withholding as a result of a failure to
report all interest or dividends, or
(iii) the IRS has notified me that I am
no longer subject to backup withholding,
and
(3) any other information provided on this form
is true and correct. The Internal Revenue
Service does not require you consent to
any provision of this document other than
the certifications required to
avoid backup withholding.
SIGNATURE DATE
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
You must cross out item (3) in Part (2) above if you have been notified by the
IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return and you have not been notified by the
IRS that you are no longer subject to backup withholding.
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY IN CERTAIN CIRCUMSTANCES
RESULT IN BACKUP WITHHOLDING OF 31% OF ANY AMOUNTS PAID TO YOU
PURSUANT TO THE EXCHANGE OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES
FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM
W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX
IN PART 2 OF THE SUBSTITUTE FORM W-9
<PAGE> 18
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
payments made to me on account of the New Notes shall be retained until I
provide a taxpayer identification number to the Exchange Agent and that, if I do
not provide my taxpayer identification number within 60 days, such retained
amounts shall be remitted to the Internal Revenue Service as backup withholding
and 31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a taxpayer
identification number.
- -----------------------------------------------------------------------------
Signature(s) Date
<PAGE> 1
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
FOR TENDER OF
8% SENIOR NOTES DUE 2008
OF
ADVANCED LIGHTING TECHNOLOGIES, INC.
This Notice of Guaranteed Delivery, or one substantially equivalent to
this form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the 8% Senior Notes Due 2008, of Advanced Lighting
Technologies, Inc. (the "Old Notes") are not immediately available, (ii) Old
Notes, the Letter of Transmittal and all other required documents cannot be
delivered to The Bank of New York (the "Exchange Agent") on or prior to the
Expiration Date (as defined in the Prospectus referred to below) or (iii) the
procedures for delivery by book-entry transfer cannot be completed on a timely
basis. This Notice of Guaranteed Delivery may be delivered by hand, overnight
courier or mail, or transmitted by facsimile transmission, to the Exchange
Agent. See "The Exchange Offer--Procedures for Tendering Old Notes" in the
Prospectus. In addition, in order to utilize the guaranteed delivery procedure
to tender Old Notes pursuant to the Exchange Offer, a completed, signed and
dated Letter of Transmittal relating to the Old Notes (or facsimile thereof)
must also be received by the Exchange Agent on or prior to the Expiration Date.
Capitalized terms not defined herein have the meanings assigned to them in the
Prospectus.
The Exchange Agent For The Exchange Offer Is:
The Bank of New York
By Mail:
The Bank of New York
101 Barclay Street, 7E
New York, NY 10286
Attn: Reorganization Section,
7E: Odell Romeo
(Registered or Certified Mail
Recommended)
By Hand or Overnight Delivery
The Bank of New York
101 Barclay Street
Corporate Trust Services Window
Ground Level
New York, NY 10286
Attn: Reorganization Section,
7E: Odell Romeo
(Registered or Certified Mail
Recommended)
Confirm by Telephone: (212) 815-6337
Facsimile Transmissions: (212) 815-6339
(ELIGIBLE INSTITUTIONS ONLY)
<PAGE> 2
Delivery of this Notice of Guaranteed Delivery to an address other than
as set forth above or transmission of this Notice of Guaranteed Delivery via
facsimile to a number other than as set forth above will not constitute a valid
delivery.
This Notice of Guaranteed Delivery is not to be used to guarantee
signatures. If a signature on a Letter of Transmittal is required to be
guaranteed by an "Eligible Institution" under the instructions thereto, such
signature guarantee must appear in the applicable space provided in the
signature box on thet Letter of Transmittal.
<PAGE> 3
Ladies and Gentlemen:
The undersigned hereby tenders to Advanced Lighting Technologies, Inc.,
and Ohio corporation (the "Company"), upon the terms and subject to the
conditions set forth in the Prospectus dated , 1998 (as the same may be amended
or supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Old Notes set forth
below pursuant to the guaranteed delivery procedures set forth in the Prospectus
under the caption "The Exchange Offer--Procedures for Tendering Old Notes."
Aggregate Principal Amount:____________________________________________________
Name(s) of Registered Holder(s):_______________________________________________
_______________________________________________
Amount Tendered: $_______________
Certificate No(s) (if available):______________________________________________
______________________________________________
*Total Principal Amount Represented by Old Notes Certificate(s):
$__________________
If Old Notes will be tendered by book-entry transfer, provide the following
information:
DTC Account Number:_______________
Date:____________________
- -----------
* Must be in principal amounts of $1,000 and any integral multiple thereof.
2
<PAGE> 4
All authority herein conferred or agreed to be conferred shall survive
the death or incapacity of the undersigned and every obligation of the
undersigned hereunder shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned.
PLEASE SIGN HERE:
X______________________ ____________________________________
X______________________ ____________________________________
Signature(s) of Owner(s)
or Authorized Signatory
Area Code and Telephone Number:_______________________________________________
This Notice of Guaranteed Delivery must be signed by the holder(s) of
the Old Notes as their name(s) appear(s) on certificates for Old Notes or on a
security position listing, or by person(s) authorized to become registered
holder(s) by endorsement and documents transmitted with this Notice of
Guaranteed Delivery. If signature is by a trustee, executor, administrator,
guardian, attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title below.
Please print name(s) and address(es):
Name(s):_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
Capacity:______________________________________________________________________
Address(es):___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
3
<PAGE> 5
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15
under the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, municipal securities dealer,
government securities broker or government securities dealer; (iii) a credit
union; (iv) a national securities exchange, registered securities association or
clearing agency; or (v) a savings association that is a participant in a
Securities Transfer Association recognized program (each of the foregoing being
referred to as an "Eligible Institution"), hereby guarantees to deliver to the
Exchange Agent, at one of its addresses set forth above, either the Old Notes
tendered hereby in proper form for transfer, or confirmation of the book-entry
transfer of such Old Notes to the Exchange Agent's account at The Depository
Trust Company, pursuant to the procedures for book-entry transfer set forth in
the Prospectus, in either case together with one or more properly completed and
duly executed Letter(s) of Transmittal (or facsimile thereof) and any other
required documents within three business days after the date of execution of
this Notice of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal and the Old Notes tendered hereby to the Exchange Agent within the
time period set forth above and that failure to do so could result in a
financial loss to the undersigned.
Name of Firm______________________ Authorized Signature_______________________
Address___________________________ Title______________________________________
__________________________________ ___________________________________________
Zip Code (Please Type or Print)
Area Code and Telephone No._______________________ Dated:_____________________
NOTE: DO NOT SEND CERTIFICATES FOR OLD NOTES WITH THIS FORM. CERTIFICATES FOR
OLD NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF TRANSMITTAL.
4
<PAGE> 1
Exhibit 99.3
, 1998
The Bank of New York
101 Barclay Street, Floor 21 West
New York, NY 10286
Ladies and Gentlemen:
Advanced Lighting Technologies, Inc., an Ohio corporation (the
"Company"), hereby appoints THE BANK OF NEW YORK to act as exchange agent (the
"Exchange Agent") in connection with an exchange offer by the Company to
exchange up to and including $100,000,000 aggregate principal amount of the
Company's 8% Senior Notes due 2008 (the "New Notes"), which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for a like
aggregate principal amount of the Company's outstanding 8% Senior Notes due 2008
(the "Old Notes"). The terms and conditions of the exchange offer are set forth
in a Prospectus dated , 1998 (as the same may be amended or
supplemented from time to time, the "Prospectus") and in the related Letter of
Transmittal, which together constitute the "Exchange Offer." The registered
holders of the Old Notes and the New Notes (together, the "Notes") are
hereinafter referred to as the "Holders." Capitalized terms used herein and not
defined shall have the respective meanings assigned thereto in the Prospectus.
The Exchange Offer is expected to be commenced by the Company on or
about , 1998. The Letter of Transmittal accompanying the Prospectus (or,
in the case of book-entry securities, the ATOP system) is to be used by the
Holders of the Original Notes to accept the Exchange Offer and contains
instructions with respect to (i) the delivery of certificates for Old Notes
tendered in connection therewith and (ii) the book-entry transfer of Old Notes
to the Exchange Agent's account.
The Exchange Offer shall expire at 5:00 p.m. New York City time, on
, 1998, or on such later date or time to which the Company may extend the
Exchange Offer from time to time by giving oral (to be confirmed in writing) or
written notice to the Exchange Agent before 9:00 a.m., New York City time, on
the business day following the previously scheduled Expiration Date.
The Company expressly reserves the right to amend or terminate the
Exchange Offer, and not to accept for exchange any Old Notes not theretofore
accepted for exchange, based upon any conditions of the Exchange Offer described
in the Prospectus. The Company will give oral (to be confirmed in writing) or
written notice of any amendment, termination or nonacceptance of Old Notes to
the Exchange Agent promptly after any amendment, termination or nonacceptance.
<PAGE> 2
On the basis of the representations, warranties and agreements of the
Company and the Exchange Agent contained herein and subject to the terms and
conditions hereof, the following sets forth the agreement between the Company
and the Exchange Agent for the Exchange Offer:
1. APPOINTMENT AND DUTIES AS EXCHANGE AGENT.
a. The Company hereby authorizes and appoints The Bank of New York to
act as Exchange Agent in connection with the Exchange Offer and The Bank of New
York agrees to act as Exchange Agent in connection with the Exchange Offer. As
Exchange Agent, The Bank of New York will perform those services as are
specifically set forth in the section of the Prospectus captioned "The Exchange
Offer" and as are outlined herein.
b. The Company acknowledges and agrees that The Bank of New York has
been retained pursuant to this Agreement to act solely as Exchange Agent in
connection with the Exchange Offer, and in such capacity, the Exchange Agent
shall perform such duties in good faith.
c. The Exchange Agent will establish an account with respect to the Old
Notes at The Depository Trust Company ("DTC") for the purposes of the Exchange
Offer within two business days after the date of the Prospectus, and any
financial institution that is a participant in DTC's system may make book-entry
delivery of the Old Notes by causing DTC to transfer such Old Notes into the
Exchange Agent's account in accordance with DTC's procedure for such transfer.
d. The Exchange Agent will examine each of the Letters of Transmittal
and certificates for Old Notes and any book-entry confirmations and any other
documents delivered or mailed to the Exchange Agent by or for Holders of the Old
Notes to ascertain whether: (i) the Letters of Transmittal and any such other
documents are duly executed and properly completed in accordance with the
instructions set forth therein and that such book-entry confirmations are in due
and proper form and contain the information required to be set forth therein,
(ii) the Old Notes have otherwise been properly tendered, and (iii) Holders have
provided their correct Tax Identification Number or required certification.
Determination of all questions as to validity, form, eligibility and acceptance
for exchange of any Old Notes shall be made by the Company, whose determination
shall be final and binding. In each case where the Letters of Transmittal or any
other documents have been improperly completed or executed or where book-entry
confirmations are not in due and proper form or omit certain information, or any
of the certificates for Old Notes are not in proper form for transfer or some
other irregularity in connection with the tender of the Old Notes exists, the
Exchange Agent will endeavor to advise the tendering Holders of the irregularity
and to take any other action may be necessary or advisable as to cause such
irregularity to be corrected. Notwithstanding the foregoing, the Exchange Agent
shall not incur any liability for failure to give any such notification.
e. With the approval of any person designated in writing by the Company
(a "Designated Officer") (such approval, if given orally, to be confirmed in
writing) or any other party designated by any Designated Officer, the Exchange
Agent is authorized to waive any irregularities in connection with any tender of
Old Notes pursuant to the Exchange Offer.
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<PAGE> 3
f. Tenders of Old Notes may be made only as set forth in the Letter of
Transmittal and in the section of the Prospectus captioned "The Exchange Offer"
and Old Notes shall be considered properly tendered only when tendered in
accordance with the procedures set forth therein. Notwithstanding the provisions
of this paragraph, Old Notes which any Designated Officer shall approve (such
approval, if given orally, to be confirmed in writing) as having been properly
tendered shall be considered to be properly tendered.
g. The Exchange Agent shall advise the Company with respect to any Old
Notes received after 5:00 p.m., New York City time, on the Expiration Date and
accept their instructions with respect to disposition of such Old Notes.
h. The Exchange Agent shall accept tenders:
(a) in cases where the Old Notes are registered in two
or more names only if signed by all named Holders;
(b) in cases where the signing person (as indicated on the
Letter of Transmittal) is acting in a fiduciary or a
representative capacity only when proper evidence of such
person's authority so to act is submitted; and
(c) from persons other than the Holder of Old Notes provided
that customary transfer requirements, including any applicable
transfer taxes, are fulfilled.
The Exchange Agent shall accept partial tenders of Old Notes where so
indicated and as permitted in the Letter of Transmittal and deliver certificates
for Old Notes to the transfer agent for split-up and return any untendered Old
Notes or Old Notes which have not been accepted by the Company to the Holder (or
such other person as may be designated in the Letter of Transmittal) as promptly
as practicable after expiration or termination of the Exchange Offer.
i. Upon satisfaction or waiver of all of the conditions to the Exchange
Offer, the Company will notify the Exchange Agent (such notice if given orally,
to be confirmed in writing) of its acceptance, promptly after the Expiration
Date, of all Old Notes properly tendered and the Exchange Agent, on behalf of
the Company, will exchange such Old Notes for New Notes and cause such Old Notes
to be canceled. Delivery of New Notes will be made on behalf of the Company by
the Exchange Agent at the rate of $1,000 principal amount of Old Notes tendered
promptly after notice (such notice if given orally, to be confirmed in writing)
of acceptance of said Old Notes by the Company; provided, however, that in all
cases, Old Notes tendered pursuant to the Exchange Offer will be exchanged only
after timely receipt by the Exchange Agent of certificates for such Old Notes
(or confirmation of book-entry transfer into the Exchange Agent's account at
DTC), a properly completed and duly executed Letter of Transmittal (or facsimile
thereof) or Agent's Message in lieu thereof), with any required signature
guarantees and any other required documents. You shall issue New Notes only in
Principal Amounts of $1,000 or integral multiples thereof.
j. Tenders pursuant to the Exchange Offer are irrevocable, except that,
subject to the terms and the conditions set forth in the Prospectus and the
Letter of Transmittal, Old Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time on or prior to the Expiration Date.
3
<PAGE> 4
k. The Company shall not be required to exchange any Old Notes tendered
if any of the conditions set forth in the Exchange Offer are not met. Notice of
any decision by the Company not to exchange any Old Notes tendered shall be
given by the Company orally (and confirmed in writing) to the Exchange Agent.
l. If, pursuant to the Exchange Offer, the Company does not accept for
exchange all or part of the Old Notes tendered because of an invalid tender, the
occurrence of certain other events set forth in the Prospectus under the caption
"The Exchange Offer - Certain Conditions to the Exchange Offer" or otherwise,
the Exchange Agent shall promptly after the expiration or termination of the
Exchange Offer return such certificates for unaccepted Old Notes (or effect
appropriate book-entry transfer), together with any related required documents
and the Letters of Transmittal relating thereto that are in the Exchange Agent's
possession, to the persons who deposited such certificates.
m. Certificates for reissued Old Notes, unaccepted Old Notes or for New
Notes shall be forwarded by first-class mail.
n. The Exchange Agent is not authorized to pay or offer to pay any
concessions, commissions or solicitation fees to any broker, dealer, commercial
bank, trust company or other persons or to engage or use any person to solicit
tenders.
o. As Exchange Agent, The Bank of New York:
(i) shall have no duties or obligations other than those
specifically set forth in the section of the Prospectus
captioned "The Exchange Offer," (such portion of the
Prospectus attached hereto as Annex I) the Letter of
Transmittal (attached hereto as Annex II) or herein or as may
be subsequently agreed to in writing;
(ii) will make no representations and will have no
responsibilities as to the validity, value or genuineness of
any of the certificates for the Old Notes deposited pursuant
to the Exchange Offer, and will not be required to and will
make no representation as to the validity, value or
genuineness of the Exchange Offer;
(iii) shall not be obligated to take any legal action
hereunder which might in the Exchange Agent's reasonable
judgment involve any expense or liability, unless the
Exchange Agent shall have been furnished with reasonable
indemnity;
(iv) may reasonably rely on and shall be protected in acting
in reliance upon any certificate, instrument, opinion, notice,
letter, telegram or other document or security delivered to
the Exchange Agent and reasonably believed by the Exchange
Agent to be genuine and to have been signed by the proper
party or parties;
(v) may reasonably act upon any tender, statement, request,
agreement or other instrument whatsoever not only as to its
due execution and validity and effectiveness of its
provisions, but also as to the truth and accuracy of any
information contained therein, which the Exchange Agent
believes in good faith
4
<PAGE> 5
to be genuine and to have been signed or represented by a
proper person or persons;
(vi) may rely on and shall be protected in acting upon written
or oral instructions from any Designated Officer;
(vii) may consult with its own counsel with respect to any
questions relating to the Exchange Agent's duties and
responsibilities and the advice of such counsel shall be full
and complete authorization and protection in respect of any
action taken, suffered or omitted to be taken by the Exchange
Agent hereunder in good faith and in accordance with the
advice or opinion of such counsel;
(viii) shall not advise any person tendering Old Notes
pursuant to the Exchange Offer as to whether to tender or
refrain from tendering all or any portion of its Old Notes or
as to the market value, decline or appreciation in market
value of any Old Notes or as to the market value of the new
Notes; and
(ix) the Exchange Agent shall take such action as may from
time to time be requested by the Company to furnish copies of
the Prospectus, Letter of Transmittal and the Notice of
Guaranteed Delivery, or such other forms as may be approved
from time to time by the Company, to all persons requesting
such documents and to accept and comply with telephone
requests for information relating to the procedures for
accepting (or withdrawing from) the Exchange Offer. The
Company will furnish you with copies of such documents at your
request.
p. The Exchange Agent shall advise by facsimile transmission or
telephone and promptly thereafter confirm in writing to the Company and such
other persons as the Company may request, daily (and more frequently during the
week immediately preceding the Expiration Date and if otherwise requested), up
to and including the Expiration Date, the aggregate principal amount of Old
Notes which have been tendered pursuant to the Exchange Offer and the items
received by the Exchange Agent pursuant to the Exchange Offer and this
Agreement, reporting separately and cumulatively as to items properly received
and items improperly received. In addition, the Exchange Agent will also
provide, and cooperate in making available to the Company or any such other
persons as requested from time to time, such other information in its possession
as the Company may reasonably request. Such cooperation shall include, without
limitation, the granting by the Exchange Agent to the Company, and such persons
as the Company may request, of access to those persons on the Exchange Agent's
staff who are responsible for receiving tenders, in order to ensure that
immediately prior to the Expiration Date the Company shall have received
information in sufficient detail to enable the Company to decide whether to
extend the Exchange Offer. The Exchange Agent shall prepare a final list of all
persons whose tenders were accepted, the aggregate principal amount of Old Notes
tendered and the aggregate principal amount of Old Notes accepted and deliver
said list to the Company.
q. Letters of Transmittal, book-entry confirmation and Notices of
Guaranteed Delivery shall be stamped by the Exchange Agent as to the date and
time of receipt thereof and shall be preserved by the Exchange Agent for a
period of time at least equal to the period of time
5
<PAGE> 6
the Exchange Agent preserves other records pertaining to the transfer of
securities, or one year, whichever is longer, and thereafter shall be delivered
by the Exchange Agent to the Company. The Exchange Agent shall dispose of unused
Letters of Transmittal and other surplus materials by returning them to the
Company.
r. The Exchange Agent hereby expressly waives any lien, encumbrance or
right of set-off whatsoever that the Exchange Agent may have respect to funds
deposited with it for the payment of transfer taxes by reasons of amounts, if
any, borrowed by the Company, of any of its or their subsidiaries or affiliates
pursuant to any loan or credit agreement with the Exchange Agent or for
compensation owed to the Exchange Agent hereunder or for any other matter.
s. The Exchange Agent hereby acknowledges receipt of the Prospectus and
the Letter of Transmittal and the Notice of Guaranteed Delivery and further
acknowledges that it has examined each of them. Any inconsistency between this
Agreement, on the one hand, and the Prospectus, the Letter of Transmittal and
the Notice of Guaranteed Delivery (as they may be amended or supplemented from
time to time), on the other hand, shall be resolved in favor of the latter three
documents, except with respect to the duties, liabilities and indemnification of
the Exchange Agent which shall be controlled by this Agreement.
2. COMPENSATION
For services rendered as Exchange Agent hereunder, the Exchange Agent
shall be entitled to such compensation as is set forth on Schedule I attached
hereto.
3. INDEMNIFICATION
a. The Company hereby agrees to indemnify and hold harmless the
Exchange Agent against and from any and all costs, losses, liabilities and
expenses (including reasonable counsel fees and disbursements) arising out of or
in connection with any act, omission, delay or refusal made by the Exchange
Agent in reliance upon any signature, endorsement, assignment, certificate,
order, request, notice, instruction or other instrument or document reasonably
believed by the Exchange Agent to be valid, genuine and sufficient and in
accepting any tender or effecting any transfer of Old Notes reasonably believed
by the Exchange Agent in good faith to be authorized, and in delaying or
refusing in good faith to accept any tenders or effect any transfer of Old
Notes. Anything in this Agreement to the contrary notwithstanding, the Company
shall not be liable for indemnification or otherwise for any loss, liability,
cost or expense to the extent arising out of the Exchange Agent's bad faith,
negligence or willful misconduct. In no case shall the Company be liable under
this indemnity with respect to any claim against the Exchange Agent until the
Company shall be notified by the Exchange Agent, by letter, of the written
assertion of a claim against the Exchange Agent or of any other action commenced
against the Exchange Agent, promptly after the Exchange Agent shall have
received any such written assertion or notice of commencement of action. The
Company shall be entitled to participate at its own expense in the defense of
any such claim or other action, and, if the Company so elects, the Company may
assume the defense of any pending or threatened action to enforce any such
claim. In the event that the Company shall assume the defense of any such suit
or threatened action in respect of which indemnification may be sought
hereunder, the Company shall not be liable for the fees and expenses incurred
thereafter of any additional counsel retained
6
<PAGE> 7
by the Exchange Agent so long as the Exchange Agent consents to the Company's
retention of counsel, which consent may not be unreasonably withheld; provided,
however, that the Company shall not be entitled to assume the defense of any
such action if the named parties to such action include the Company and the
Exchange Agent and representation of the parties by the same legal counsel
would, in the written opinion of counsel for the Exchange Agent, be
inappropriate due to actual or potential conflicting interests among them. It is
understood that the Company shall not be liable under this paragraph for the
fees and disbursements of more than one legal counsel for the Exchange Agent. In
the event that the Company shall assume the defense of any such suit with
counsel reasonably acceptable to the Exchange Agent, the Company shall not
thereafter be liable for the fees and expenses of any counsel retained by the
Exchange Agent.
b. The Exchange Agent agrees that, without the prior written consent of
the Company, it will not settle, compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding in respect of
which indemnification could be sought in accordance with the indemnification
provision of this Agreement (whether or not the Exchange Agent, the Company or
any of their directors, officers and controlling persons is an actual or
potential party to such claim, action or proceeding), unless such settlement,
compromise or consent includes an unconditional release of the Company and its
directors, officers and controlling persons from all liability arising out of
such claim, action or proceeding.
4. TAX INFORMATION
a. The Exchange Agent shall arrange to comply with all requirements
under the tax laws of the United States, including those relating to missing Tax
Indemnification Numbers, and shall file any appropriate reports with the
Internal Revenue Service. The Company understands that the Exchange Agent is
required, in certain instances, to deduct 31% with respect to interest paid on
the New Notes and proceeds from the sale, exchange, redemption or retirement of
the New Notes from Holders who have not supplied their correct Taxpayer
Identification Number or required certification. Such funds will be turned over
to the Internal Revenue Service in accordance with applicable regulations. The
Exchange Agent shall notify the Company of any Holder who has failed to supply
such Taxpayer Identification Number or certification.
b. The Exchange Agent shall notify the Company of the amount of any
transfer taxes payable in respect of the exchange of Old Notes and, upon receipt
of written approval from the Company, the Exchange Agent shall deliver or cause
to be delivered, in a timely manner to each governmental authority to which any
transfer taxes are payable in respect of the exchange of Old Notes, its check in
the amount of all transfer taxes so payable, and the Company shall reimburse the
Exchange Agent for the amount of any and all transfer taxes payable in respect
of the exchange of Old Notes; provided, however, that the Exchange Agent shall
reimburse the Company for amounts refunded to the Exchange Agent in respect of
you payment of any such transfer taxes, as such time as such refund is received
by the Exchange Agent.
5. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York applicable to contracts
executed in and to be performed in that state without regard to conflicts of
laws principles.
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<PAGE> 8
6. NOTICES. Any communication or notice provided for hereunder shall be in
writing and shall be given (and shall be deemed to have been given upon receipt)
by delivery in person, telecopy, or overnight delivery or by registered or
certified mail (postage prepaid, return receipt requested) to the applicable
party at the address indicated below:
If to the Company:
Advanced Lighting Technologies, Inc.
32000 Aurora Road
Solon, Ohio 44139
Telephone: (440)519-0500
Telecopy: (440) 542-4325
Attention: Chief Financial Officer
If to the Exchange Agent:
The Bank of New York
101 Barclay Street, Floor 21 West
New York, NY 10286
Telephone: (212) 835-5359
Telecopy: (212) 815-5915
Attention: Corporate Trust Trustee Administration
or, as to each party, at such other address as shall be designated by such party
in a written notice complying as to delivery with the terms of this Section.
7. PARTIES IN INTEREST. This Agreement shall be binding upon and inure solely to
the benefit of each party hereto and their successors and assigns and noting in
this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or by
reason of this Agreement. Without limitation to the foregoing, the parties
hereto expressly agree that no Holder of Old Notes or New Notes shall have any
right, benefit or remedy of any nature whatsoever under or by reason of this
Agreement.
8. COUNTERPARTS; SEVERABILITY. This Agreement may be executed in one or more
counterparts, and each of such counterparts shall together constitute one and
the same agreement. If any term or other provision of this Agreement or the
application thereto is invalid, illegal or incapable of being enforced by any
rule of law, or public policy, all other provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the agreements contained herein is not affected in any manner
adverse to any party. Upon such determination that any term or provision or the
application thereof is invalid, illegal or unenforceable, 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 a mutually acceptable
manner in order that the agreements contained herein may be performed as
originally contemplated to the fullest extent possible.
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<PAGE> 9
9. CAPTIONS. The descriptive headings contained in this Agreement are included
for convenience of reference only and shall not affect in any way the meaning or
interpretation of this Agreement.
10. ENTIRE AGREEMENT; AMENDMENT. This Agreement constitutes the entire
understanding of the parties hereto with respect to the subject matter hereof.
This Agreement may not be amended or modified nor may any provision hereof be
waived except in writing signed by each party to be bound thereby.
11. TERMINATION. This Agreement shall terminate upon the earlier of (a) the 90th
day following the expiration, withdrawal, or termination of the Exchange Offer,
(b) the close of business on the date of actual receipt of written notice by the
Exchange Agent from the Company stating that this Agreement is terminated, (c)
one year following the date of this Agreement, or (d) the time and date on which
this Agreement shall be terminated by mutual consent of the parties hereto.
Notwithstanding the foregoing, Paragraphs 2, 3 and 4 shall survive termination
of this Agreement.
9
<PAGE> 10
Kindly indicate the Exchange Agent's acceptance of the foregoing
provisions by signing in the space provided below for that purpose and returning
to the Company a copy of this Agreement so signed, whereupon this Agreement
shall constitute a binding agreement among the Exchange Agent and the Company.
Very truly yours,
ADVANCED LIGHTING TECHNOLOGIES, INC.
By:_________________________________
Name:
Title:
Accepted and agreed to as of
the date first written above:
THE BANK OF NEW YORK
By:__________________
Name:
Title:
10
<PAGE> 11
SCHEDULE I
THE BANK OF NEW YORK
FEE SCHEDULE
EXCHANGE AGENT SERVICES
I. Exchange Agency
---------------
A fee for the receipt of exchanged Old Notes of Advanced Lighting
Technologies, Inc. will be charged at $_____ per Letter of Transmittal.
The total charge will be subject to a minimum of $______ and maximum of
$______.
This fee covers examination and execution of all required
documentation, receipt of transmittal letters, reporting as required to
the Company and communication with DTC.
II. Miscellaneous
-------------
Fees for services not specifically covered in this schedule will be
assessed in amounts commensurate with the services rendered.
____________, 1998
11
