<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------------
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended June 30, 1999
or
________TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-27202
------------------------------------
ADVANCED LIGHTING TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
OHIO 34-1803229
(State or other jurisdiction of incorporation or (I.R.S. Employer Identification No.)
organization)
32000 AURORA ROAD, SOLON, OHIO 44139
(Address of principal executive offices) (Zip Code)
440/519-0500
(Registrant's telephone number, including area code)
</TABLE>
------------------------------------
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
$.001 Par Value
Indicate by check ([X]) whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No ______
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant as of August 31, 1999 was $102,330,873.
There were 20,294,679 shares of the Registrant's Common Stock, $.001 par
value per share, outstanding as of August 31, 1999.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's Proxy Statement for use at the Annual
Shareholders Meeting on December 16, 1999 are incorporated by reference into
Part III of this Form 10-K to the extent stated herein.
<PAGE> 2
INDEX
ADVANCED LIGHTING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Cautionary Statement Regarding Forward Looking Statements............... 2
Risk Factors............................................................ 2
PART I
Item 1. Business.................................................... 9
Item 2. Properties.................................................. 23
Item 3. Legal Proceedings........................................... 24
Item 4. Submission of Matters to a Vote of Security Holders......... 24
PART II
Item 5. Market for Registrant's Common Equity and Related
Shareholder Matters....................................... 25
Item 6. Selected Financial Data..................................... 26
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations................................. 29
Item 7A. Quantitative and Qualitative Disclosures about Market
Risk...................................................... 49
Item 8. Financial Statements and Supplementary Data................. 49
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................. 50
PART III
Item 10. Directors and Executive Officers of the Registrant.......... 50
Item 11. Executive Compensation...................................... 50
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................ 50
Item 13. Certain Relationships and Related Transactions.............. 50
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K....................................................... 50
SIGNATURES.............................................................. 55
</TABLE>
1
<PAGE> 3
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This Report contains statements which constitute forward looking statements
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These statements appear in a number of
places in this Report and include statements regarding the intent, belief or
current expectations of Advanced Lighting Technologies, Inc. and its
subsidiaries (the "Company"), its directors or its officers with respect to,
among other things: (i) the Company's financing plans; (ii) trends affecting the
Company's financial condition or results of operations; (iii) continued growth
of the metal halide lighting market; (iv) the Company's operating strategy and
growth strategy; (v) potential acquisitions or joint ventures by the Company;
(vi) the declaration and payment of dividends; and (vii) 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 Report, 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.
RISK FACTORS
You should consider carefully the following factors, as well as the other
information that we include or incorporate by reference in this report, in
evaluating an investment in our securities. To make the discussion of these
factors easier to read, when we discuss the Company we refer to it as "we."
METAL HALIDE LAMPS, OUR PRIMARY PRODUCT, MUST GAIN WIDER MARKET ACCEPTANCE
We derive almost all of our net sales and income from selling metal halide
materials, systems and components, and production equipment. Our current
operations and growth strategy are focused on the metal halide lighting
industry. Metal halide is the newest of all commercial lighting technologies.
Metal halide lamp sales represented approximately 8% of domestic lamp sales in
1998 compared to fluorescent and incandescent lamps which represented
approximately 86% of the same market. We attribute our success to the increased
acceptance of metal halide lighting in commercial and industrial uses. Our
future results are dependent upon continued growth of metal halide lighting for
these and other uses. 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. Metal halide
products may not continue to gain market share within the overall lighting
market or competitors may introduce better lighting technologies, displacing
metal halide lighting in the market. Either of these occurrences could have a
material adverse effect on our business and our results of operations.
GENERAL ELECTRIC COMPANY'S INVESTMENT IN THE COMPANY REQUIRES APPROVAL UNDER
ANTITRUST LAW
On September 28, 1999, General Electric Company ("GE") executed a
definitive agreement to invest over $20 million in shares of our convertible
preferred stock, in addition to their existing ownership of 2.6% of our common
stock. However, the investment is subject to certain closing conditions. We
believe that all closing conditions have been satisfied or are within our
control, other than the consent to the transaction pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act. Our representatives and GE have
been discussing this matter with the appropriate authorities and we believe that
this approval will be obtained very quickly. However, no assurance can be given
that the approval will be obtained. If the GE investment is not made promptly,
it could adversely affect our banking relationships, our liquidity and our
common stock price.
GENERAL ELECTRIC COMPANY'S RELATIONSHIP WITH US COULD AFFECT OUR RELATIONSHIP
WITH OTHER LIGHTING COMPANIES AND LIMIT OUR ABILITY TO GROW
The GE investment would improve our balance sheet and is expected to
increase our operating flexibility. In addition, we anticipate that this will
strengthen our supplier-customer relationship with GE. However, we do not
2
<PAGE> 4
yet know if this increased investment would have an adverse affect on our
relationship with other major companies in the lighting business. The Company
has not experienced any adverse impact from these other companies since the
March 1999 public announcement of the agreement in principle regarding the
investment. Pursuant to the terms of the GE investment agreement, GE will have
the right, by converting its preferred shares and exercising warrants, to
acquire approximately 4 million of our common shares. If the Company fails to
maintain the required ratio of earnings before interest and taxes to interest
charges for two different measurement periods, GE would obtain the right to
purchase and vote additional shares of our stock and, upon failure for a third
measurement period, to acquire voting control of the Company. The existence of a
large block of shares which could effectively control our shareholder votes, or
which could be sold in public or private sales, may limit our ability to obtain
financing in the future from other sources, including public offerings or
private sale of our common stock.
GENERAL ELECTRIC COMPANY'S RIGHTS COULD LIMIT OUR FINANCIAL ALTERNATIVES
After the GE investment, GE would have the right to make us redeem their
preferred stock after five years. GE also would have the right to make us redeem
their preferred stock if our shareholders don't approve matters related to the
GE transaction, if the necessary governmental approvals are not granted in
connection with GE's rights to acquire more of our shares in the future, or if
we take certain actions, including issuing additional common shares and
borrowing more than a total of $210 million. The existence of these limits may
reduce the ability of the Company to obtain financing in the future. If we have
to redeem the preferred stock after the GE investment, our financial resources
will be reduced. Under certain circumstances, redeeming the preferred stock
would cause a default under the indenture governing our Senior Notes due 2008,
with a principal amount of $100,000,000. Although GE cannot make us redeem their
preferred stock if such a default would occur, the failure to redeem GE's
preferred stock after GE makes a request for redemption could adversely affect
our relationship with GE.
OPERATING WITHOUT ADDITIONAL CASH RESOURCES COULD AFFECT OUR OPERATIONS AND
GROWTH
In the last half of fiscal 1999, we instituted cost reduction measures
intended to allow our operations to produce more cash revenues than we spend on
operations. We have spent more money on our operations than the revenues our
operations have generated in each of our last three fiscal years and have spent
more money on operations and investing in our business than our operations have
generated in each of our last four fiscal years. While we believe we are now
generating more cash in our operations than we are spending on operations, we
can't assure investors that the cost-saving measures will continue to generate
positive cash flow from our operations in the future. In addition, we are not
currently generating sufficient cash in our business to make the investments in
our future growth which we would like. Our ability to borrow additional money
under our $60 million revolving and term credit facility which we entered into
on May 21, 1999 ("Credit Facility") is limited. In order to have enough cash for
future operations and growth, we must generate greater net cash flow and/or
demonstrate our ability to achieve acceptable financial results in order to
increase our access to additional cash resources from lenders and investors.
OUR LOAN TO MR. HELLMAN MAY AFFECT OUR CAPITAL RESOURCES
On October 8, 1998, we made a $9 million loan to Wayne R. Hellman, our
Chairman and CEO. See "Certain Transactions." The loan is due on October 6,
1999. Mr. Hellman has paid interest accrued on the loan through October 6, 1999.
If Mr. Hellman doesn't repay the loan in accordance with its terms, it could
materially and adversely affect our ability to obtain money from lenders and
investors. If we take action to make Mr. Hellman pay the loan, it may hurt Mr.
Hellman's performance, which could hurt our operations.
OUR DEGREE OF INDEBTEDNESS COULD LIMIT OUR ABILITY TO GROW AND REACT TO CHANGES
IN MARKET CONDITIONS
At June 30, 1999, we had approximately $161.0 million of total indebtedness
outstanding and $77.4 million of shareholders' equity. At June 30, 1999, we also
had $6.1 million available (subject to borrowing base compliance and other
limitations) to be drawn under our Credit Facility (which was then a $75 million
facility).
3
<PAGE> 5
The indentures under which we have issued and may issue our debt securities
permit us and our subsidiaries to incur substantial amounts of additional
indebtedness in the future. The degree to which we are leveraged could have
important consequences to holders of our securities, including the following:
our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or other purposes may be
limited; and
our flexibility in planning for or reacting to changes in market
conditions may be limited, causing us to be more vulnerable in the event
of a downturn in our business.
OUR ABILITY TO DEVELOP AND BROADEN PRODUCT LINES IS IMPORTANT FOR OUR BUSINESS
We have recently broadened our systems and components product line. The
marketing efforts and strategies for such product extensions are quite different
from those we have used for our historical operations. We may not be successful
in adding new products to our current product categories or in developing new
categories of products. If we are unable to successfully add new products or
develop new product categories, this could adversely affect our financial
results.
OUR BUSINESS SUCCESS HAS BEEN BASED ON NEW PRODUCTS AND NEW PRODUCTS ARE
DIFFICULT TO INTRODUCE SUCCESSFULLY
We attribute our historical success, in large part, to the introduction of
new products in each of our product lines to meet the requirements of our
customers. Our future success will depend upon our continued ability to develop
and introduce innovative products. Even though we spent significant amounts on
research and development in fiscal 1999 and in prior years, we may not be able
to develop or introduce innovative products in the future. Even if a new product
is developed for a particular type of lighting fixture or use, the product may
not be commercially successful in the lighting market. In addition, competitors
occasionally have followed our introduction of successful products with similar
product offerings. As a result of these and other factors, we may not continue
to be successful in introducing new products. If we are unable to successfully
introduce new products, this inability could adversely affect our financial
results.
OUR SIGNIFICANT PAST GROWTH AND FUTURE GROWTH OBJECTIVES STRAIN OUR RESOURCES
We have experienced significant growth in recent years. This has placed a
strain on our management, employees, finances and operations. We have set
aggressive growth objectives for our net sales and net income which may continue
to strain our resources. These objectives may be increasingly difficult to
achieve. To achieve these objectives, we will seek to develop new products and
new uses for our products and seek to expand our distribution capabilities. We
will also seek to acquire and/or invest in related businesses inside and outside
of the United States. Any of our efforts in pursuit of these objectives may
expose us to risks that could adversely affect our results of operations and
financial condition. To manage growth effectively, we must continue to implement
changes in many aspects of our business, expand our information systems,
increase the capacity and productivity of our materials, components, systems and
production equipment operations, develop our metal halide systems capability and
hire, develop, train and manage an increasing number of managerial, production
and other employees. We have made and will continue to make certain of our
product line extensions through acquisitions. The success of these acquisitions
will depend on the integration of the acquired operations with our existing
operations. If we are unable to anticipate or manage growth effectively, our
operating results could be adversely affected. Likewise, if we are unable to
successfully integrate acquired operations and manage expenses and risks
associated with integrating the administration and information systems of
acquired companies, our operating results could be adversely affected.
WE MAY NOT BE ABLE TO REALIZE BENEFITS FROM ACQUISITIONS AND INVESTMENTS
In order to implement our business strategy, we will from time-to-time
consider expansion of our products and services through joint ventures,
strategic partnerships and acquisitions of, and/or investments in, other
business entities. We have no agreement or understanding with any significant
prospective acquisition or investment candidate in respect of a specific
transaction, but we are engaged in preliminary discussions with
4
<PAGE> 6
certain candidates at the date of this report. We cannot be certain that any
agreement will result from such discussions or that we will be able to identify,
acquire or manage future acquisition candidates profitably. In addition, we
cannot be certain as to the timing or amount of any return or anticipated
benefits that we might realize on any acquisition or investment.
Acquisitions or investments could require us to commit funds, which could
reduce our future liquidity. Our possible future acquisitions or investments
could result in additional debt, contingent liabilities and amortization
expenses related to goodwill and other intangible assets, as well as write-offs
of unsuccessful acquisitions, any or all of which could materially adversely
affect our performance, and, therefore, holders of our securities. We have made
several acquisitions since January 1997, including our largest acquisition to
date, Ruud Lighting, Inc. ("Ruud Lighting"), the effect of which has been to
almost double our revenues on a pro forma basis. There can be no assurance that
we will be able to integrate these acquisitions or to manage our expanded
operations effectively. In addition, since that date we have made substantial
investments in entities that we do not and will not be able to control. We may
find it difficult or impossible to realize cash flows from such investments, or
to liquidate such investments, which could adversely affect the holders of our
securities.
THE EXTENT OF OUR INTERNATIONAL BUSINESS OPERATIONS COULD HURT OUR PERFORMANCE
We have derived, and expect to derive in the future, a substantial portion
of our net sales from our international business. Revenues from customers
outside of the United States represented approximately 37% of our net sales for
fiscal 1999. Our international joint ventures and operations and our 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. We have granted and will grant our joint ventures and operations in
foreign countries rights to use our technology. While we will attempt to protect
our 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.
Approximately 25% of our net sales in fiscal 1999 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 our business and results of
operations and, therefore, holders of our securities. We currently do not hedge
our foreign currency exposure.
WE MAY NOT BE ABLE TO PROTECT OUR IMPORTANT PATENTS AND TRADE SECRETS AND OTHERS
MAY ENFORCE RIGHTS AGAINST US
We rely primarily on trade secret, trademark and patent laws to protect our
rights to certain aspects of our products, including proprietary manufacturing
processes and technologies, product research, concepts and trademarks. These
rights are important to the success of our products and our competitive
position. The actions that we take to protect our proprietary rights may not be
adequate to prevent imitation of our products, processes or technology. Our
proprietary information may become known to competitors; we may not be able to
effectively protect our rights to unpatented proprietary information; and others
may independently develop substantially equivalent or better products that do
not infringe on our intellectual property rights. Other parties may assert
rights in, and ownership of, our patents and other proprietary rights.
In recent years, we have successfully taken legal action to enjoin
misappropriation of trade secrets by other parties. Any increase in the level of
activities involving misappropriation of our trade secrets or other intellectual
property rights could require us to increase significantly the resources devoted
to such efforts. In addition, an adverse determination in litigation could
subject us to the loss of our rights to a particular trade secret, trademark or
patent, could require us to grant licenses to third parties, could prevent us
from manufacturing, selling or using certain aspects of our products, or could
subject us to substantial liability. Any of these occurrences could have a
material adverse effect on our results of operations.
5
<PAGE> 7
IF WE LOSE OUR KEY PERSONNEL, IT WOULD ADVERSELY AFFECT OUR BUSINESS
We are highly dependent on the continued services of Wayne R. Hellman, our
founder, Chairman, Chief Executive Officer, and principal shareholder. We and
Mr. Hellman have entered into an employment agreement providing for a term
ending December 31, 2003. We are also highly dependent on the services of Alan
J. Ruud, our Vice Chairman and a principal shareholder. We and Mr. Ruud 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 our business and, in turn, to investors in our
securities. We maintain "key man" life insurance with respect to Mr. Hellman, in
the amount of $10 million, and Mr. Ruud, in the amount of $2 million.
CONTROL OF OUR STOCK BY PRINCIPAL SHAREHOLDERS MAY ALLOW THEM TO INFLUENCE
SIGNIFICANTLY SHAREHOLDER DECISIONS
Mr. Hellman individually owns approximately 9.5% of the outstanding shares
of our common stock and, individually and in other capacities, has the power to
vote a total of 19.4% of the outstanding shares of common stock (or
approximately 16.9% of the shareholder voting power assuming the GE investment
is completed). Mr. Ruud individually owns approximately 10.2% of the outstanding
shares of common stock and, individually and as a voting trustee, has the power
to vote a total of approximately 17.6% of the outstanding shares of common stock
(or approximately 15.3% of the shareholder voting power assuming the GE
investment is completed). After the GE investment, GE would own shares of our
preferred stock with voting power equivalent to approximately 13% of our common
stock and GE owns approximately 2.6% of our common stock. This would give GE
approximately 15.3% of total shareholder voting power, subject to increase upon
exercise of warrants to purchase common stock. After the GE investment, in
addition to GE's ownership, under certain circumstances GE may in the future
gain the right to vote shares owned or voted by Mr. Hellman and Mr. Ruud. As a
result, although GE, Mr. Hellman and Mr. Ruud have no arrangement or
understanding of any kind with each other as to the current voting of their
shares (except Mr. Ruud has agreed to vote his shares in favor of two proposals
at our 1999 Annual Meeting), either GE, Mr. Hellman or Mr. Ruud, or any
combination 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 our Articles of Incorporation, mergers, share
exchanges, the sale of all or substantially all of our assets, going-private
transactions and other fundamental transactions.
IF GE OR ANOTHER INVESTOR CAN VOTE MORE THAN 35% OF OUR STOCK, WE MAY HAVE TO
REPAY LOANS
If GE, or any investor or group of investors, other than Mr. Hellman or his
family, get the right to vote more than 35% of our stock, our Credit Facility
banks will have the right to demand payment under our revolving and term loans
and we will have to offer to repurchase our Senior Notes due 2008 (currently
totaling $100 million) at a purchase price of 101% of the face amount thereof,
together with unpaid interest. These provisions may make it more difficult for
someone to take us over. We can't be sure that we will have adequate resources
to meet our obligations relating to these loans and notes if an investor gains a
35% voting interest. Even if we can meet these obligations, if we have to repay
the Credit Facility banks and repurchase our Senior Notes, it could hurt our
ability to finance operations and future growth.
OUR STOCK PRICE HAS VARIED WIDELY
Our common stock first became publicly traded in December 1995. After the
initial public offering, the stock price rose substantially from the initial
public offering price of $10 per share. The price of our common stock has varied
widely. In October 1998, the closing price of our stock reached as low as
$4.875. Such wide variation and the possibility of wide variation in the future
may make it difficult for us to sell additional shares of stock at prices which
we believe reflect the value of our stock or make it difficult to sell stock at
all. If we can't sell stock to obtain the money we need, it may be difficult to
operate and grow.
6
<PAGE> 8
ENVIRONMENTAL REGULATIONS COULD STRAIN OUR RESOURCES
Our 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. We believe that our business operations
and facilities are being operated in compliance in all material respects with
applicable environmental, 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 we could
incur material costs or liabilities. In addition, we could be required to make
potentially significant expenditures to comply with evolving environmental,
health and safety laws, regulations or requirements that may be adopted or
imposed in the future. The imposition of significant environmental liabilities
on us could have a material adverse effect on our business and financial
results.
OUR PRIMARY COMPETITORS ARE MORE ESTABLISHED AND HAVE MORE RESOURCES
We compete with respect to our 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 we do. In addition, many of these competitors'
products utilize technology that has been broadly accepted in the marketplace
(i.e., incandescent and fluorescent lighting) and is better known to consumers
than is our metal halide technology. We compete with GE, Philips Electronics
N.V. ("Philips") and Siemens A.G.'s OSRAM/Sylvania, Inc. subsidiary ("Sylvania")
in the sale of metal halide lamps. We estimate, based on published industry
data, 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 ours, are distributed and sold. Our component
products and systems also face strong competition, particularly in the power
supply market, in which our two largest competitors each have a larger market
share than we do. Our competitors may increase their focus on metal halide
materials, systems and components, and expand their product lines to compete
with our products. Any such increase or expansion could have a material adverse
effect on our business and financial results.
WE SELL PRODUCTS TO OUR COMPETITORS AND PURCHASE COMPONENTS FROM OUR COMPETITORS
Notwithstanding the fact that we compete with GE, Philips and Sylvania in
the sale of certain of our products, we purchase a significant quantity of raw
materials and private label lamps from these three companies (aggregating $18.5
million in fiscal 1999, of which $13.5 million was from GE) and derive
significant revenue from sales of our materials, components, and systems to each
of these three companies (aggregating $18.8 million in fiscal 1999, of which
$4.6 million was to GE). Any significant change in our 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 our business and financial results and, in
turn, holders of our securities.
OUR AGREEMENTS WITH CREDITORS IMPOSE RESTRICTIONS THAT COULD IMPEDE OUR GROWTH
The Credit Facility and the indenture relating to our Senior Notes Due 2008
contain certain restrictive covenants, including, among others:
covenants limiting our ability and certain of our subsidiaries' ability
to incur additional indebtedness, pay dividends, make certain
investments, consummate certain asset sales, enter into transactions
with affiliates and incur liens; and
covenants imposing restrictions on the ability of certain subsidiaries
to pay dividends or make certain payments to us, merge or consolidate
with any other person or sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all of our assets.
Although the covenants are subject to various exceptions which are designed
to allow us and our subsidiaries to operate without undue restraint, such
restrictions could adversely affect our ability to finance our future
7
<PAGE> 9
operations or capital needs or engage in other business activities which may be
in our interest. In addition, the Credit Facility requires that we maintain
specified financial ratios. Our growth will depend in part upon our ability to
fund acquisitions and investments, any of which may make it more difficult to
maintain financial ratios. Our ability to comply with such provisions may be
affected by events beyond our 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 payment
of the entire debt. Such an event would adversely affect us and holders of our
securities. As a growth company, we may need to amend or replace the Credit
Facility prior to its maturity on May 21, 2002.
OUR DATA SYSTEMS AND THOSE OF OUR SUPPLIERS AND CUSTOMERS MUST BECOME YEAR 2000
COMPLIANT FOR US TO TRANSITION INTO THE NEXT MILLENIUM
We use and depend on data processing systems and software to conduct our
business. The data processing systems and software include those that we have
developed and maintained as well as the purchased software which is run on
in-house computer networks. We have initiated a review and assessment of all
hardware and software to determine whether it will function properly in the year
2000. To date, our vendors that have been contacted have indicated that their
hardware or software is or will be year 2000 compliant in time frames that meet
our requirements. We presently believe that costs associated with the compliance
efforts will not have a significant impact on our ongoing results of operations
although there can be no assurance in this regard. We also have initiated
communications with our 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 our results of operations.
8
<PAGE> 10
PART I
ITEM 1. BUSINESS
SUMMARY
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") and engaged in some aspect
of the metal halide lighting business. Unless the context otherwise requires,
the "Company" refers to Advanced Lighting Technologies, Inc., its subsidiaries
and the Predecessors. Industry data in this Report with respect to the lighting
industry 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 superior energy efficient 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 14% since 1993, although growth has varied
substantially from year to year. The Company's strong market position, new
product development capabilities, strategic acquisitions 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 51%
to $188.5 million in fiscal 1999 from $54.6 million in fiscal 1996. The Company
has experienced growth in net sales in each of the past six years, and the
Company's sales from continuing operations increased 15% to $188.5 million in
fiscal 1999 from $163.9 million in fiscal 1998.
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'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
9
<PAGE> 11
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 CHART
Vertical Integration from Materials through Systems
Products for Manufacturers Products for End Users Innovative Products
MATERIALS Metal Halide
Systems
LAMPS Produced by the New
Company Applications
POWER SUPPLIES Commercial/
Industrial/ -Fiber Optics
CONTROLS Outdoor -Residential
Replacement Parts Applications -Headlights
OPTICS/COATINGS Sold to End Users -Projection TV
EQUIPMENT Metal Halide Systems
Produced by
Third Parties
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 3% since 1993, domestic metal halide lamp
sales have grown at a compound annual rate of approximately 14% over the same
period, making metal halide the fastest growing segment of the approximately
$2.8 billion domestic lamp market. In 1998, metal halide accounted for
approximately 8% 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, 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.
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
10
<PAGE> 12
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").
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 totaling $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.
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 were completed in fiscal 1998
and 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 high-intensity discharge ("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
11
<PAGE> 13
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.
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.
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 the
Company estimates represents approximately 32% of U.S. lighting fixture sales.
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 original equipment manufacturer ("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 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 approximated $200 million in 1998, 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 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. Despite the recent financial crisis
in the Pacific Rim, international markets represent long-term 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.
12
<PAGE> 14
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 in the long term.
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 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, in recent years, acquisitions and strategic investments. The
Company's acquisitions and investments have been made in businesses that, when
combined with the Company's existing capabilities and metal halide focus, are
intended to 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 Item 1. "Business -- Background of the Company -- Recent Acquisitions and
Strategic Investments." To the extent its capital resources allow, the Company
will consider other possible acquisition and strategic investment opportunities.
OPERATING STRATEGY
The Company focuses its resources primarily on designing, manufacturing and
marketing metal halide materials, system components, and systems. 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. The Company's recent decision
to temporarily cease manufacture and sale of turnkey lamp production equipment
groups has not altered this strategy. The Company has retained key personnel in
the consolidation of equipment operations at its Solon facility.
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), and magnetic and
electronic power supplies (through the acquisitions of Ballastronix, Inc.
("Ballastronix") and Parry Power Supply Ltd. ("Parry")). The Company is
broadening its materials manufacturing capabilities to include filtering and
optical coatings for lighting applications, through its acquisition of DSI in
January 1998. 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.
13
<PAGE> 15
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 January 1998 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.
LONG-TERM 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 long-term growth strategy include:
Introduce New Products and Systems
The Company believes it has introduced a majority of the 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 is beginning 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
14
<PAGE> 16
express delivery. In addition, this interaction with customers provides the
Company with the opportunity to market additional metal halide products.
Participate in International Markets
The Company intends to capitalize on opportunities in 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 and regions in which the Company directly
markets products are the United Kingdom, Western Europe, 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 has sold production equipment or has entered into
joint ventures with local lamp manufacturers. Purchasers of production equipment
have become customers for the Company's metal halide salts and other materials.
The Company has existing joint ventures in India, China, Korea and Japan.
Penetrate the Residential Lighting Market
The Company believes that residential and consumer applications will
represent a promising 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; and (ii) developing the use of metal halide
fiber optic systems.
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 arena lighting -- general lighting
- -- architectural area -- commercial downlighting -- industrial highbays
lighting -- airport and railway -- tunnel lighting
- -- general industrial station lighting -- indirect indoor sports
lighting -- gas station canopy and office lighting
- -- billboard and sign lighting -- parking garage lighting
lighting -- interior downlighting -- security lighting
- -- site lighting -- decorative lighting -- landscape lighting
- -- soffit lighting -- retail store
- -- hazardous location downlighting and track
lighting lighting
- -- accent lighting
</TABLE>
The Company also designs, manufactures and sells 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
15
<PAGE> 17
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 high pressure sodium ("HPS") lighting and, most recently, to
develop and supply a new amalgam for fluorescent applications.
With the January 1998 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
antireflection 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.
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.
In fiscal 1999, the Company introduced its new line of Uni-Form(R)pulse
start products. Uni-Form(R) pulse start products are a new generation of metal
halide components and systems which permit (a) increased light output with lower
power utilization, (b) faster starting, (c) a quicker restart of lamps which
have been recently turned off, and (d) better color uniformity.
Through Venture Lighting Power Systems, North America (f/k/a Ballastronix),
the Company's Canadian subsidiary which manufactures magnetic power supplies,
and Venture Lighting Europe (f/k/a Parry Power Systems), the Company's United
Kingdom subsidiary which manufactures magnetic and electronic power supplies for
HID lighting systems, the Company currently offers over 400 power supply
products. The Company also offers electronic controls for metal halide lighting
systems.
A metal halide lighting system consists of a fixture, 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 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
16
<PAGE> 18
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.
Production Equipment
Due to economic conditions in general, especially outside the United
States, and as a result of the Company's cash preservation strategy, the
Company's equipment manufacturing operation in Bellevue, Ohio has been closed.
Machinery, equipment and research and development facilities necessary to allow
the Company to continue manufacturing and support of lamp production equipment,
at reduced levels, has been moved to the Company's Solon, Ohio facility. The
Company has temporarily ceased the manufacture and sale of turnkey lamp
production manufacturing groups.
The Company has been the only manufacturer and marketer of turnkey metal
halide lamp production equipment groups. A metal halide 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 sold 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 had leveraged its
manufacturing expertise by selling lamp production equipment groups in
international markets to independent companies or to joint ventures with local
lamp manufacturers. In connection with each lamp production equipment group
sale, the Company provided lamp designs and specifications, trained the
purchaser in production and created a customer for its materials products.
With its January 1998 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.
International Sales
International sales aggregated $68.9 million (34% of net sales) for fiscal
1999, $78.8 million (48% of net sales) for fiscal 1998 and $41.0 million (47% of
net sales) for fiscal 1997. For more detailed information regarding the
Company's international operations, see Note R to "Notes to Consolidated
Financial Statements," included in Item 8.
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 $31.5 million or 7.2% of net sales
from continuing operations into research and development over the last three
full fiscal years. In fiscal 1999 the Company invested $17.1 million (9.1% of
net sales) in research and development; in fiscal 1998, $9.3 million (5.7% of
net sales); and in fiscal 1997, $5.1 million (6.0% of net sales). Such
expenditures have enabled the Company to develop new applications for metal
halide lighting, improve the quality of its materials, and introduce new
specialized products, such as the Uni-Form(R) pulse start products. Uni-Form(R)
pulse start products are a new generation of metal halide components and systems
which permit
17
<PAGE> 19
(a) increased light output with lower power utilization, (b) faster starting,
(c) a quicker restart of lamps which have been recently turned off, and (d)
better color uniformity. 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. The Company expects efforts in this area to become
increasingly important as the Company seeks to develop new fiber optic
applications and utilizes the capability of Ruud Lighting to manufacture and
directly market HID lighting systems.
MARKETING AND DISTRIBUTION
Commercial Products
The marketing and distribution of the Company's diverse range of commercial
products varies by individual product and by product category, as described
below. All sales data are exclusive of intercompany sales.
Materials
The Company markets materials (metal halide and other salts) directly to
all high intensity discharge lamp manufacturers, primarily GE, Philips and
Sylvania for use in their manufacture of lamps. 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. The other lamp components manufactured by the
Company are used primarily in the manufacture of its own lamps; however, some
outside sales are made to other lamp manufacturers. The principal customers for
the thin-film coating products of the Company include major lamp manufacturers.
In addition, the Company markets its thin-film coatings to government suppliers
for use in aerospace applications and to jewelry manufacturers. Sales of
materials accounted for approximately 12.3% of the Company's revenues in fiscal
1999, 11.4% in 1998 and 14.1% in 1997.
System Components
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 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.
18
<PAGE> 20
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.
Sales of system components accounted for approximately 47.8% of the Company's
revenues in fiscal 1999, 59.0% in fiscal 1998 and 74.3% in fiscal 1997.
Systems
The Company's commercial lighting systems are marketed primarily under the
trade name "Ruud Lighting." Ruud Lighting markets and distributes its products
primarily by direct marketing to lighting contractors. By marketing complete
metal halide systems, the Company believes it may capture a greater market share
in the metal halide industry. As a direct marketer of these commercial lighting
systems, Ruud Lighting should enable the Company's new systems and technologies
(embedded with the Company's system components) to gain wider acceptance in the
marketplace. Ruud Lighting works closely with lighting contractors and is able
to efficiently assist them in implementing these new systems and technologies.
Commercial systems accounted for approximately 35.6% of the Company's revenues
in fiscal 1999 and 20.1% in 1998. Prior to the Ruud Lighting acquisition in
January 1998, the Company had no significant sales of commercial lighting
systems.
Production Equipment
The Company's production equipment is manufactured for internal use and is
marketed to existing companies for turnkey production of thin-film coatings.
Until the recent temporary cessation, the Company also marketed turnkey lamp
production equipment groups to existing companies and its joint venture
partners. The Company also markets production equipment to its joint venture
partners. External sales of production equipment accounted for approximately
4.3% of the Company's revenues in fiscal 1999, 9.5% in fiscal 1998 and 11.4% in
fiscal 1997.
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; and (ii) developing the use of metal halide fiber optic systems
through a joint venture.
19
<PAGE> 21
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 Solon facility also houses
the remaining production equipment research and development operations and
reduced production capability.
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 80
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 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 facility is
ISO 9001-registered. The paint finishing facility is six 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.
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(R) 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.
20
<PAGE> 22
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
Osram-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 believes it has no competitors in the
United States. In overseas markets, one lamp manufacturer produces metal halide
salts, principally for its own use. The competition in salts is based on the
technological ability to develop salt formulation for customers and product
uniformity and purity. The Company believes it is the leading producer of salts
because it is the leader in uniformity and purity. In other materials
categories, the Company's chief competition is internal production by GE,
Philips and Sylvania. The competition in these products is based primarily on
price and delivery, with some competition based on technological ability to
create solutions for unique applications. The Company's products compete most
effectively for external sales where they are created for unique applications.
DSI has one or two principal competitors in each of its markets (lighting,
coating equipment and government/aerospace). The Company believes that
competition in thin film coatings is generally based on quality of coatings,
technological expertise to design and deliver customized coating solutions and
customer service. The Company believes that it competes successfully on the
basis of all three of these measures. 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.
System 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.
The Company does not believe that the foreign lamp manufacturers to whom
the Company has sold 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.
21
<PAGE> 23
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 acquisitions, Ballastronix and Parry, has been in HID
magnetic power supplies for use primarily in metal halide applications.
Competition in power supplies has traditionally depended on price and delivery,
which has resulted in the failure to develop power supplies to optimize metal
halide lighting systems. The Company's power supply operations intend to compete
on the ability to deliver power supplies which are designed to enhance
performance of metal halide lighting systems.
Systems
Lighting systems compete on the basis of system cost, operating cost,
quality of light and service. The Company feels that metal halide systems
compete effectively against other technologies in each of these areas in many
application. Although the lighting systems market is highly fragmented, 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.
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 Item 3. "Legal Proceedings."
ENVIRONMENTAL REGULATION
The Company's operations are subject to federal, state, local and foreign
laws and regulations governing, among other things, emissions to air, discharge
to waters and the generation, handling, storage, transportation, treatment and
disposal of waste and other materials as well as laws relating to occupational
health and safety. The Company believes that its business, operations and
facilities are being operated in compliance in all material respects with
applicable environmental and health and safety laws and regulations, many of
which provide for substantial fines and criminal sanctions for violations.
However, the operations of manufacturing plants entail risks in these areas,
which could potentially result in significant expenditures in order to comply
with evolving environmental and health and safety laws, regulations or
requirements that may be adopted or imposed in the future.
In 1993, the Company entered into a consent decree with the City of Solon
Sewer District ("Solon") with respect to the discharge of mercury into the sewer
system from its Solon, Ohio plant operations. The Company instituted procedures
to comply with this consent decree, and the consent decree expired by its terms
due to the Company's operation within required discharge limits for the period
required by the decree. Routine monthly sampling of the effluent by City of
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
22
<PAGE> 24
mercury discharges within required limits. In March 1999, there was a single
instance which showed mercury discharges above the required limits. The Company
has reviewed and updated its plan intended to prevent intermittently exceeding
Solon's mercury standards. 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 1999, fiscal 1998 and fiscal 1997 attributable to
compliance with such legislation were not material.
EMPLOYEES
As of June 30, 1999, the Company had approximately 1,731 full-time
employees, consisting of employees engaged in the designing, manufacturing and
marketing of materials (81 employees), system components (956 employees),
systems (634 employees) and production equipment (15 employees) and 45 employees
in corporate/administrative services. 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.
ITEM 2. PROPERTIES
The Company's headquarters are located in Solon, Ohio, and the Company
maintains manufacturing facilities in California, Ohio, Illinois, Wisconsin,
Rhode Island, Nova Scotia, Canada and Draycott, England. Set forth below is
certain information with respect to the Company's principal facilities as of
June 30, 1999:
<TABLE>
<CAPTION>
APPROXIMATE
SQUARE OWNED/
FACILITY LOCATION ACTIVITIES FOOTAGE LEASED
----------------- ---------- ----------- ------
<S> <C> <C> <C>
NORTH AMERICA
Racine, Wisconsin.................... Office, manufacturing, finishing, 440,000 Owned
distribution warehouse
Solon, Ohio.......................... Office, systems components 330,000 Owned
manufacturing, distribution warehouse
Urbana, Illinois..................... Materials manufacturing 62,000 Owned
Santa Rosa, California............... Office, manufacturing 23,000 Owned
20,000 Leased
Amherst, Nova Scotia, Canada......... Office, power supply manufacturing, 45,000 Owned
warehouse
Middletown, Rhode Island............. Office, fixture manufacturing 37,000 Owned
Mississauga, Ontario, Canada......... Distribution warehouse, office 13,000 Leased
OTHER
Draycott, England.................... Office, power supply manufacturing, 125,000 Owned
warehouse
Wantirna South, Victoria,
Australia.......................... Distribution warehouse, office 33,000 Owned
Mitcham, Victoria, Australia......... Distribution warehouse, office 15,000 Leased
Florence, Italy...................... Office, fixture assembly, warehouse 10,000 Leased
</TABLE>
The owned facilities are subject to mortgages in the following approximate
outstanding amounts as of June 30, 1999: Racine -- $10.3 million; Solon -- $4.7
million; Santa Rosa -- $1.2 million; Urbana -- $620,000; and, Amherst --
$35,000. The aggregate annual rental cost of the leased facilities is
approximately $700,000, and the average remaining lease term is 1.6 years.
The Company has vacated its equipment manufacturing facility in Bellevue,
Ohio. The Company currently leases approximately 77,000 square feet at a cost of
$42,000 per month under a lease which extends to November 2005. The Company is
seeking ways to mitigate this liability including termination, buyout or
23
<PAGE> 25
sublease. An accrual has been made as part of special charges to provide for the
estimated cost of exiting this lease agreement.
ITEM 3. LEGAL PROCEEDINGS
In April and May 1999, three class action suits were filed in the United
States District Court, Northern District of Ohio, by certain alleged
shareholders of the Company on behalf of themselves and purported classes
consisting of Company shareholders, other than the defendants and their
affiliates, who purchased stock during the period from December 30, 1997 through
September 30, 1998 or various portions thereof. The named defendants are the
Company and Wayne R. Hellman, its Chairman and Chief Executive Officer. The
lawsuits are now pending, in an action captioned In Re Advanced Lighting
Technologies Securities Litigation (99 CV 836), before a single judge who has
required the plaintiffs to file a single consolidated complaint on or before
September 30, 1999. The complaints allege generally that certain disclosures
attributed to the Company contained misstatements and omissions alleged to be
violations of Section 10(b) of the Securities Act of 1934 and Rule 10b-5,
including claims for "fraud on the market" arising from alleged
misrepresentations and omissions with respect to the Company's financial
performance and prospects and alleged violations of generally accepted
accounting principles by improperly recognizing revenues. The complaints seek
certification of their respective purported classes, unspecified compensatory
and punitive damages, pre- and post-judgment interest and attorneys' fees and
costs. The Company and Mr. Hellman believe that these claims lack merit and they
intend to vigorously defend these actions.
Excluding the case noted above, the Company does not have pending any
litigation which, 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 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. The competitor
believes certain of DSI's equipment may infringe on the competitor's patented
process. Dialogue is currently in process between the parties that may result in
a mutually amicable resolution. Further, the competitor has taken no further
action at the date of this Report. In the event 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
24
<PAGE> 26
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
The Common Stock is quoted on the Nasdaq National Market under the symbol
"ADLT." The following table sets forth for the periods indicated the range of
high and low closing sale prices for the Common Stock, as reported on the Nasdaq
National Market:
<TABLE>
<CAPTION>
HIGH LOW
------- -------
<S> <C> <C>
Fiscal Year Ending June 30, 1998
First Quarter............................................. $27.000 $22.875
Second Quarter............................................ 26.500 18.250
Third Quarter............................................. 27.000 18.250
Fourth Quarter............................................ 29.938 20.875
Fiscal Year Ended June 30, 1999
First Quarter............................................. 27.250 8.500
Second Quarter............................................ 10.625 4.875
Third Quarter............................................. 10.313 6.750
Fourth Quarter............................................ 9.000 5.813
</TABLE>
As of August 31, 1999, there were approximately 300 record holders of the
Company's Common Stock. The Company has never declared or paid a cash dividend.
The terms of the Credit Facility prohibit the payment of dividends, other than
dividends consisting of Company stock, without the consent of the lending banks.
The Indenture limits the payment of cash dividends by the Company to certain
amounts determined by the Company's earnings and equity investment in the
Company after March 31, 1998. In addition, financial covenants, including
ratios, contained in the Credit Facility, may limit payment of dividends
indirectly.
The Company does not intend to declare or pay any cash dividends for the
foreseeable future and intends to retain earnings, if any, for the future
operation and expansion of the Company's business.
25
<PAGE> 27
ITEM 6. SELECTED FINANCIAL DATA
The following table contains certain selected financial data and is
qualified by the more detailed Consolidated Financial Statements and Notes
thereto of the Company. 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 in Items 7 and 8 below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DOLLAR AMOUNTS)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................. $188,484 $163,893 $85,645 $54,636 $40,767
Costs and expenses:
Cost of sales....................... 128,492 95,341 45,703 29,164 21,899
Marketing and selling............... 42,025 25,746 15,165 8,656 6,381
Research and development............ 17,123 9,319 5,097 2,894 1,673
General and administrative.......... 20,114 10,851 7,133 6,152 5,452
Settlement of claims(1)(2).......... -- -- 771 2,732 --
Fiber optic joint venture formation
costs............................ -- 212 286 -- --
Purchased in-process research and
development(3)................... -- 18,220 -- -- --
Special charges(3).................. 27,309 15,918 -- -- --
Amortization of intangible assets... 2,773 1,665 397 90 55
Restructuring(4).................... -- -- -- -- (121)
-------- -------- ------- ------- -------
Income (loss) from operations......... (49,352) (13,379) 11,093 4,948 5,428
Interest income (expense), net........ (12,723) (2,365) (668) (1,316) (2,074)
Loss from equity investment(5)........ (6,318) (501) -- -- --
-------- -------- ------- ------- -------
Income (loss) from continuing
operations before income taxes and
extraordinary charge and cumulative
effect of accounting change......... (68,393) (16,245) 10,425 3,632 3,354
Income taxes.......................... 2,972 1,802 2,869 965 212
-------- -------- ------- ------- -------
Income (loss) from continuing
operations before extraordinary
charge and cumulative effect of
accounting change................... (71,365) (18,047) 7,556 2,667 3,142
Loss from discontinued operations, net
of income taxes..................... (9,043) (7,292) (452) (150) --
-------- -------- ------- ------- -------
Income (loss) before extraordinary
charge and cumulative effect of
accounting change................... (80,408) (25,339) 7,104 2,517 3,142
Extraordinary charge, net of
applicable income tax benefits(6)... (902) (604) -- (135) (253)
Cumulative effect for change in
accounting(7)....................... (2,443) -- -- -- --
-------- -------- ------- ------- -------
Net income (loss)..................... $(83,753) $(25,943) $ 7,104 $ 2,382 $ 2,889
======== ======== ======= ======= =======
Earnings (loss) per
share -- diluted(8):
Income (loss) from continuing
operations....................... $ (3.53) $ (.99) $ .55 $ .14 $ .10
Loss from discontinued operations... (.45) (.40) (.03) (.02) --
Extraordinary charge................ (.04) (.04) -- (.01) (.03)
Cumulative effect for change in
accounting....................... (.12) -- -- -- --
-------- -------- ------- ------- -------
Net earnings (loss) per
share -- diluted.................... $ (4.14) $ (1.43) $ .52 $ .11 $ .07
======== ======== ======= ======= =======
Shares used for computing per share
amounts -- diluted.................. 20,232 18,195 13,558 9,479 7,818
======== ======== ======= ======= =======
</TABLE>
26
<PAGE> 28
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents and
short-term investments............ $ 4,180 $ 22,267 $ 8,273 $ 1,682 $ 1,030
Working capital (deficit)........... 18,629 77,637 42,380 17,341 (870)
Total assets........................ 284,506 328,569 134,838 56,297 29,402
Total long-term debt................ 152,496 117,332 35,908 11,034 8,853
Total shareholders' equity
(deficit)......................... 77,441 170,837 66,032 26,594 (1,035)
</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) Fiscal 1999 results include special charges related to the Company's plans
to accelerate its focus on metal halide products, insulate it from
deteriorating economic conditions in the Pacific Rim, exit its noncore
products, integrate fully its core and acquired U.S. operations to produce
profitable growth and reduce its use of cash. Specific initiatives by the
Company included principally: (a) limiting further Pacific Rim expansion,
(b) changing global lamp manufacturing strategy, (c) restructuring marketing
operations in North America and Europe, (d) accelerating exit from noncore
product lines, (e) consolidating equipment manufacturing operations, (f)
reducing corporate and administrative overhead, and (g) evaluating
long-lived assets. The amounts are classified in the fiscal 1999 statement
of operations as: cost of sales -- $1,508 and, special charges -- $27,309.
Fiscal 1998 results 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
$17,984 principally relating to the rationalization of the Company's global
power supply operations, principally: (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 fiscal 1998 statement of operations as: cost of sales --
$2,066; purchased in-process research and development -- $18,220; and,
special charges -- $15,918.
(4) In fiscal 1994, the Company recorded a provision of $852 for the costs,
principally inventory and equipment write-downs, in connection with exiting
a product line unrelated to lighting. In fiscal 1995, the disposition plan
was revised, resulting in a reduction of the original estimate by $121.
(5) In fiscal 1999, the loss from equity investments includes a pretax noncash
write-down of $5,883 related to the Company's investment in the Unison joint
venture.
(6) In fiscal 1999, the Company incurred an extraordinary loss on the early
extinguishment of debt of $902. In fiscal 1998, the Company incurred an
extraordinary loss on the early extinguishment of debt of $604. See Item 7.
"Management's Discussion and Analysis of Financial Condition and Results of
Operations." In fiscal
27
<PAGE> 29
1996, the Company incurred an extraordinary loss on the early extinguishment
of debt of $135. In fiscal 1995, the Company incurred an extraordinary loss
on the early extinguishment of debt of $253.
(7) In fiscal 1999, the Company recorded $2,443 as a cumulative change in
accounting principle relating to the write-off of start-up costs in
accordance with the American Institute of Certified Public Accountants'
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, and required
that the Company expense all previously capitalized start-up costs and
organization costs as a cumulative effect of a change in accounting
principle.
(8) Net earnings per share is based upon the income attributable to holders of
Common Stock. Such income has been decreased by preferred stock dividends
and increases in the value of warrants aggregating $1,350 ($.14 per share)
in fiscal 1996 and $2,360 ($.30 per share) in fiscal 1995.
28
<PAGE> 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(Dollars in thousands, except per share data amounts)
The following discussion should be read in connection with the Company's
Consolidated Financial Statements and Notes thereto included in Item
8 -- Financial Statements and Supplementary Data.
GENERAL
The Company designs, manufactures and markets metal halide lighting
products, including materials, systems and components. 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. With the January 1998 acquisition
of Deposition Sciences, Inc.("DSI"), the Company also manufactures and markets
turnkey deposition equipment to produce thin film coatings for a variety of
applications. Systems, components and materials revenue is recognized when
products are shipped, and deposition 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 $31,539 on research and development, representing 7.2% of aggregate
net sales from continuing operations over that period. Such expenditures have
enabled the Company to develop new applications for metal halide lighting,
improve the quality of its materials, and introduce new specialized products,
such as the Uni-Form(R) pulse start products. Uni-Form(R) pulse start products
are a new generation of metal halide components and systems which permit (a)
increased light output with lower power utilization, (b) faster starting, (c) a
quicker restart of lamps which have been recently turned off, and (d) better
color uniformity. 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. In January 1998, the Company acquired Ruud Lighting, Inc.
and DSI. These acquisitions enabled the Company to complete the assembly of the
necessary operations to take a leadership role in the development, manufacturing
and marketing of new and better systems in the growing metal halide lighting
industry. See Item 1. "Background of the Company -- Recent Acquisitions and
Strategic Investments" above and " -- Liquidity and Capital Resources" below.
RECENT DEVELOPMENTS
GENERAL ELECTRIC COMPANY INVESTMENT
On September 28, 1999, GE entered into a definitive agreement to make an
investment in the Company of $20,554. The Company's management believes that all
closing conditions have been satisfied or are within the Company's control,
other than the approval of the transaction pursuant to the Hart-Scott-Rodino
Antitrust Improvements Act. Representatives of the Company and GE have been
discussing this matter with the appropriate authorities and believe that this
approval will be obtained very quickly. However, no assurance can be given that
the approval will be obtained.
The additional capital resources provided by the agreed investment by GE
are expected to provide additional flexibility to pursue opportunities in the
metal halide business. In addition, at the time of the investment, GE and the
Company will enter into a five year, renewable agreement for the supply of metal
halide salts to GE. The Company and GE are in discussions with respect to other
supply arrangements. The Company anticipates that the GE investment and the
expansion which it will permit will result in an expanded supplier-customer
relationship with GE, enhancing the Company's earnings and competitive position
in the metal halide marketplace.
The GE investment will include 761,250 shares of the Company's
newly-created Series A Stock convertible at any time into 3,045,000 shares of
Company Common Stock (subject to adjustment). GE also will receive a
29
<PAGE> 31
Warrant (the "Initial Warrant") to purchase an additional 1,000,000 shares of
Common Stock of the Company, which will be immediately exercisable. GE has been
a holder of 535,887 shares of Company Common Stock since the Company's initial
public offering in 1995. The Series A Stock, Common Stock issuable on exercise
of the Initial Warrant and the Common Stock held by GE represent (after giving
effect to the shares issued on exercise of the Initial Warrant) approximately
18.9% of the voting power and equity ownership of the Company. See "Terms of the
Series A Stock" and "Terms of the Initial Warrant."
The proceeds of the GE transaction are expected to be applied principally
to the reduction of short-term liabilities and outstanding amounts under the
Company's Credit Facility, and to have the effect of increasing available
borrowings under the Company's Credit Facility.
The following summaries of the terms of the Series A Stock, the Terms of
the Initial Warrant and Additional Terms of the GE Transaction are summaries of
the definitive documents in connection with the GE investment.
Terms of the Series A Stock
The Series A Stock is a newly authorized series of preferred stock of the
Company to be created for issuance in the GE transaction. 761,250 shares of
Series A Stock will be authorized and issued to GE at the time of its
investment. The Series A Stock will have a liquidation preference of $27 per
share, plus an amount equal to 8% per annum from the date of issuance to the
date of payment ("Liquidation Preference Amount").
Each outstanding share of Series A Stock will be convertible at any time
into four shares (subject to adjustment as described below) of Common Stock of
the Company. Prior to conversion, holders of Series A Stock will be entitled to
vote in all shareholder matters together with the holders of Company Common
Stock as a single class. In any such vote, the holders of Series A Stock will be
entitled to four votes (equal to the number of shares of Common Stock into which
the Series A Stock held may initially be converted).
The Company will be required to redeem any shares of Series A Stock which
have not been converted or retired on September 30, 2010. Any such redemption
would be made at the Liquidation Preference Amount. In addition, holders of the
Series A Stock may require the Company to redeem their shares of Series A Stock
by giving notice to the Company on or before September 30, 2004. If such notice
is given, the Company will be required make such redemption on or prior to
September 30, 2005. In addition, holders of Series A Stock will be entitled to
require the Company to redeem the Series A Stock following the occurrence of any
of the following events (each a "Triggering Event"): (1) failure of the
shareholders of the Company to approve, at the 1999 annual meeting, proposals
necessary for exercise of any rights to acquire beneficial ownership of
additional shares of Common Stock as described in "Additional Terms of the GE
Transaction"; (2) failure of the Company and GE to obtain any HSR Approval (as
defined below) required in connection with GE's exercise of any rights to
acquire beneficial ownership of additional shares of Common Stock as described
in "Additional Terms of the GE Transaction"; or (3) any action by the Company to
give effect to certain major corporate actions, including actions to merge, sell
all or a substantial portion of its assets (other than in the ordinary course of
business), issue capital stock, incur or have outstanding indebtedness for
borrowed money in excess of $210,000. Upon the occurrence of a Triggering Event,
the holders of the Series A Stock may require the Company to redeem their shares
of Series A Stock by giving notice to the Company within 90 days following the
Triggering Event. If such notice is given, the Company will be required to make
such redemption within one year following such notice. Any such redemption would
be made at the Liquidation Preference Amount. Under the terms of the bank's
revolving credit facility and the indenture (the "Indenture") relating to the
Company's Senior Notes due 2008, the redemption of the Series A Stock would
currently constitute an event of default, permitting acceleration of the related
indebtedness. If prior consent of the banks is obtained, the redemption is
permitted under the credit facility. Payments for the redemption of equity
securities are "Restricted Payments" under the Indenture. The total of all
"Restricted Payments" under the Indenture (with exceptions not applicable to
stock redemption) cannot exceed one-half total of consolidated net earnings of
the Company (excluding consideration of certain unusual items) from April 1,
1998 (taken as a single period) plus the amount of proceeds received from sales
of non-redeemable stock. As of June 30, 1999, the Company had a net loss,
excluding extraordinary items, of $78,660 for the period. Until this deficit has
been cured, the Company cannot redeem the Series A Stock without causing an
event of default with respect to the Senior Notes. In addition, the Indenture
prohibits Restricted
30
<PAGE> 32
Payments (with exceptions not applicable to stock redemptions) at any time where
the ratio of EBITDA to Interest Expense for the preceding four fiscal quarters
does not exceed 2.5:1.
Subject to approval by Company shareholders, if the Company fails to make
any redemption as required (subject to permitted deferrals in the event that
such redemption would cause an event of default with respect to certain
indebtedness of the Company), the conversion ratio of the Series A Stock would
be increased from four shares of Common Stock to eight shares of Common Stock
per share of Series A Stock. In addition, also subject to the approval of
Company shareholders, the conversion ratio will be subject to adjustment to
prevent dilution of the interest of GE by the issuance of Common Stock after the
closing of the GE transaction. Except for issuance of shares under existing
employee benefit plans, and certain other enumerated exceptions, any shares of
Common Stock issued at a price below $6.75 per share, or, if higher, below the
then current market price, would result in adjustment of the conversion ratio.
Any adjustment in the conversion ratio would not affect the voting power
represented by shares of Series A Stock prior to conversion.
Upon liquidation, each share of Series A Stock will be entitled to be paid
the Liquidation Preference Amount prior to any payment or distribution to the
holders of Company Common Stock. Following such payment, holders of Series A
Stock will be entitled to a proportional share of any distribution to holders of
Company Common Stock based on the number of shares of Common Stock into which
the Series A Stock could have been converted at the time of the liquidation.
Terms of the Initial Warrant
The Initial Warrant will entitle the holder to purchase shares of Company
Common Stock at $.01 per share. The Initial Warrant will be immediately
exercisable for 1,000,000 shares (subject to adjustment) of Common Stock. The
number of shares subject to the Initial Warrant will be subject to adjustment,
after approval by Company shareholders, at any time prior to exercise if the
Company issues Common Stock at a price below $6.75 per share or, if higher,
below the then current market price.
Additional Terms of the GE Transaction
In addition to GE's initial investment, under certain circumstances, GE
will be entitled to make additional investments in the Company and receive the
right to vote additional shares of Company Common Stock. The exercise of certain
of these rights is subject to applicable law, including the Ohio Control Share
Acquisition Act and the Hart-Scott-Rodino Antitrust Improvements Act of 1976
("HSR Approval"). GE and the Company will enter into a Contingent Warrant
Agreement ("Contingent Warrant Agreement"). The Contingent Warrant Agreement
identifies certain occurrences which will entitle GE to exercise these rights.
Upon the Second Occurrence (defined below), if it occurs, GE would be
required to exercise in full the Initial Warrant. In addition, GE would receive
the right to vote the number of shares then owned by Wayne R. Hellman and
Hellman, LTD. pursuant to proxies granted by Messrs. Hellman and Ruud. GE would
receive the right to vote the number of shares as to which Mr. Hellman then has
voting power pursuant to the Hellman Voting Trust or Irrevocable Proxies granted
with respect to shares removed from the Hellman Voting Trust (all shares voted
by Mr. Hellman, currently approximately 3.9 million shares, are referred to
collectively as the "Hellman Shares"). GE would also have an option, at the then
current market price, to purchase from Messrs. Hellman and Ruud, the number of
shares of Common Stock which, together with the shares owned by GE, would
represent 25% of the voting power of the Company. The Company would also be
required to grant to GE an additional warrant (the "First Contingent Warrant")
to purchase shares of Company Common Stock at the then current market price. The
number of shares subject to the First Contingent Warrant would be equal to the
number of shares required to allow GE to have a majority of the voting power of
the Company, assuming GE had effective proxies with respect to all shares as to
which Messrs. Hellman and Ruud then have voting power. The exercise of the First
Contingent Warrant, the options on shares held by Messrs. Hellman and Ruud, and
effectiveness of GE's proxy with respect to any such shares, is subject to prior
compliance with the Ohio Control Share Acquisition Act (which condition would be
fulfilled by shareholder approval to be sought at the Company's annual meeting)
and HSR Approval (which requires the Company and GE to provide information to
the federal government to allow it to determine whether to contest an increase
by GE to an interest in the Company in excess of 25% pursuant to
31
<PAGE> 33
antitrust law). If the proxies become effective after the Second Occurrence, GE
will have the proxies to vote the number of Hellman Shares and will be entitled
to exercise approximately 35% of the then outstanding voting power of the
Company (assuming that none of the Hellman Shares have been transferred by the
beneficial owners and no issuance of additional shares by the Company other than
pursuant to the GE transaction) or approximately 34% of the voting power of the
Company on a fully diluted basis. GE has not indicated that it will acquire
additional shares of Company Common Stock. However, if GE were to acquire
additional shares of Common Stock (other than shares subject to effective
proxies as described above or shares obtained on the exercise of the First
Contingent Warrant), or if the number of outstanding shares on a fully diluted
basis were reduced, GE could obtain in excess of 35% of the voting power of the
Company on a fully diluted basis. In addition, if a substantial number
(currently approximately 300,000 shares) of Hellman Shares were transferred
(other than to GE) prior to the Second Occurrence, and if GE exercised the First
Contingent Warrant, GE would acquire in excess of 35% of the voting power of the
Company on a fully diluted basis. If GE were to acquire in excess of 35% of the
voting power of the Company on a fully diluted basis, the terms of the Indenture
relating to the Senior Notes would require that the Company offer to repurchase
the $100,000 principal amount of outstanding Senior Notes due 2008 at a price of
101% of the principal amount thereof, plus accrued interest ("Offer to
Repurchase Notes").
Upon the Third Occurrence (defined below), GE would receive the right to
vote the number of shares then owned by Mr. Ruud, and the right to vote the
number of shares as to which Mr. Ruud then has voting power pursuant to the Ruud
Voting Trust or Irrevocable Proxies granted with respect to shares removed from
the Ruud Voting Trust, currently approximately 3.6 million shares (the "Ruud
Shares"). The effectiveness of this right requires that the conditions for the
effectiveness of the proxies following the Second Occurrence have been
satisfied, and that any additional provisions of the Ohio Control Share
Acquisition Act required with respect to proxies or the Ruud Shares be
satisfied. If the proxies on the Ruud Shares become effective after the Third
Occurrence, GE will have the right to vote the Ruud Shares and will be entitled
to exercise approximately 48.4% of the then outstanding voting power of the
Company (assuming that none of the Hellman Shares or the Ruud Shares have been
sold by the beneficial owners, no exercise by GE of the Contingent Warrants and
no issuance of additional shares by the Company other than pursuant to the GE
transaction). If the Company has not already made an Offer to Purchase Notes, it
will be required to make the offer upon effectiveness of the proxy on the Ruud
Shares. In addition, GE will receive an additional warrant (the "Second
Contingent Warrant") which will entitle GE to purchase additional shares of
Common Stock at the then current market price. The number of shares subject to
the Second Contingent Warrant will be the number of shares necessary to give GE
50% plus one vote of the voting power of the Company (including the exercise of
all outstanding Warrants, shares subject to irrevocable proxies, the shares
subject to the Second Contingent Warrant and all proxies held with respect to
Hellman Shares and Ruud Shares). Subject to shareholder approval, after the
Third Occurrence, if the Company issues additional shares of Common Stock to
anyone other than GE, GE will be entitled to purchase, on the same terms given
to the third party, the number of shares required to maintain GE's voting power.
The basis for GE's additional rights will be the failure of the Company to
maintain a 2.0:1 ratio of EBITDA (as defined) to Interest Expense (as defined)
over the applicable measurement periods. The first measurement period is the six
months ended December 31, 1999. Thereafter, the measurement periods are the six
months ending on the last day of each successive fiscal quarter until September
30, 2010. The first failure to maintain the required ratio would be the "First
Occurrence," the second such failure would be the "Second Occurrence" and the
third such failure would be the "Third Occurrence." However, after the First
Occurrence, if the Company maintains the required ratio in the three fiscal
quarters immediately prior to the measurement period in which a failure occurs,
a Second Occurrence or Third Occurrence, as the case may be, would not be
effective, if the Company maintained the required ratio for the measurement
period immediately following the measurement period in which such occurrence
would otherwise have been effective. Under the terms of the transaction, EBITDA
consists of net earnings, plus interest expense, plus depreciation and
amortization, plus income taxes, less extraordinary gains and gains from asset
sales plus extraordinary losses and losses from asset sales. Interest Expense
consists of interest expense (net of interest income) calculated in accordance
with generally accepted accounting principles, but excludes amortization of
deferred financing costs not exceeding $125 in any fiscal quarter.
32
<PAGE> 34
BANK CREDIT FACILITY
In May 1999, the Company replaced its existing Credit Facility with a
$50,000 revolving credit loan and $25,000 term loan provided by several
financial institutions. Subsequent to June 30, 1999 the Company reduced its
commitment to a $60,000 facility. Proceeds from the facility were used to repay
the Company's existing credit facility and certain other long-term debt. The
revolving credit loan has a three-year term expiring in May 2002. Interest rates
on revolving credit loans outstanding are based, at the Company's option, on
LIBOR plus 2.75% or the agent bank's prime rate. Availability of borrowings is
determined by the Company's eligible accounts receivable and inventories. The
term loan has a five-year term expiring in May 2004. The Company pays monthly
principal payments that total $3,576 annually, with the unpaid balance due at
maturity. Interest rates on the term loan are based, at the Company's option, on
LIBOR plus 3.25% or the agent bank's prime rate.
The Bank Credit Facility contains certain affirmative and negative
covenants customary for this type of agreement, prohibits cash dividends, and
includes financial covenants with respect to the coverage of certain fixed
charges. The principal security for the revolving credit loan is substantially
all of the personal property of the Company and each of its North American and
United Kingdom subsidiaries. The term loan is secured by substantially all of
the Company's machinery and equipment and is cross-collateralized and secured
with the revolving credit loan.
FISCAL 1999 SPECIAL CHARGES
The Company has implemented plans resulting in changes to its operations
intended to accelerate and intensify the Company's focus on its metal halide
products, insulate it from deteriorating economic conditions in the Pacific Rim
and the anticipated decline of noncore products, integrate fully its core and
acquired U.S. operations to produce profitable growth, and reduce and redirect
its use of cash resources. This came in response to a reduction in the Company's
revenues in the first quarter of fiscal 1999 as compared to the fourth quarter
of fiscal 1998 and due to economic conditions in general, especially outside the
United States. To implement this strategy, the Company has taken or is taking
the following actions:
Limiting Pacific Rim Expansion. In recognition of the near-term effects of
the crisis in Asian capital markets, the Company modified its expansion plans in
the Pacific Rim and is acting to limit its exposure by limiting further
investment in Pacific Rim ventures. The Company evaluated its existing foreign
investments and joint ventures in the Pacific Rim region and wrote-off
investments of $475. In addition, future contract commitments totaling $1,160
were accrued in connection with the Company's decision to limit its exposure in
the Pacific Rim area.
The Company has retained several lamp manufacturing equipment groups, which
were originally expected to be shipped to Asia pursuant to equipment contracts
with Pacific Rim companies. The decision to terminate the foreign equipment
contracts resulted in a reversal of sales of $14,961 and cost of sales of $6,413
in the second quarter, which were previously recorded under the percentage of
completion method. This reversal reduced operating income by $8,548 ($.42 per
share). Had the sales related to the terminated equipment contracts not been
reversed, reported sales and cost of sales would have been as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 1999
------------------------
SALES COST OF SALES
-------- -------------
<S> <C> <C>
As reported................................................. $188,484 $128,492
Pro forma................................................... 203,445 134,905
</TABLE>
Changing Global Lamp Manufacturing Strategy. The Company revised its
current global lamp manufacturing strategy to reduce the overall cost of its
lamps, including moving some production to the manufacturing facilities of
certain foreign joint ventures. With this change in its global manufacturing
strategy the Company discontinued a major program that was in progress to
increase its U.S. lamp manufacturing capability and productivity. This decision
resulted in abandoning and disposing of fixed assets of $7,841, the majority of
which had not been placed in service. Substantially all of these fixed assets
were disposed of prior to June 30, 1999. The impact of suspending depreciation
related to these fixed assets was not material to depreciation expense for the
33
<PAGE> 35
year. Further, certain joint venture investments of $465 made for the purpose of
developing additional lamp production were terminated as these specific
investments were not considered integral to the Company's future manufacturing
strategy.
In addition, to reduce costs related to its lamp production activities, the
Company has consolidated its Bellevue, Ohio specialty lamp manufacturing
operations into its Solon lamp manufacturing facility. The cost to close this
facility, including $328 in severance and benefits for terminated employees, was
$708.
Restructuring Marketing Operations in North America and Europe. The Company
restructured its marketing operations in Canada to eliminate certain
distribution channels and centers. Warehouses in Toronto and Vancouver have been
closed and $338 recorded to cover primarily future lease commitments for these
facilities. OEM and plant growth sales channels have been retained and serviced
out of Amherst, Nova Scotia, while aftermarket lamp sales are being serviced
through a distributor. The Company incurred shutdown costs, including $132 in
severance and benefits for terminated employees, of $279 to close its marketing
facilities in Canada.
The Company also restructured its marketing operations in Europe and the
U.K. to make them more cost efficient. The restructuring of marketing operations
in the U.K. resulted in selling its subsidiaries in France and Germany and
recognizing a loss on the sale of these subsidiaries of $559. Costs related to
the shut-down of these facilities, including $184 in severance and benefits for
terminated employees, and streamlining remaining operations amounted to $873.
Accelerating Exit from Noncore Products Lines. The Company has eliminated
the remaining non-metal halide product lines being sold by its Canadian
operations. The Company has sold these product lines and inventory to a third
party. Revenues related to the noncore product lines approximated $4,100 for
fiscal 1999.
Consolidating Equipment Manufacturing Operation into Solon, Ohio Facility.
The Company's equipment manufacturing operation in Bellevue, Ohio has been
closed. Machinery, equipment and research and development facilities necessary
to allow the Company to continue manufacturing and support of lamp production
equipment, at reduced levels, has been moved to the Company's Solon, Ohio
facility. The Company has temporarily ceased the manufacturing and sale of
turnkey lamp production equipment groups.
In connection with closing its equipment manufacturing facility in
Bellevue, Ohio, $642 of fixed assets, primarily leaseholds and equipment, were
abandoned and written-off. In addition, the Company recorded $2,449 for a future
lease commitment on this manufacturing facility and $1,139 for shut-down costs,
including $642 in severance and benefits for terminated employees.
Reducing Corporate and Administrative Overhead. The Company was increasing
its corporate and administrative staff levels to support its aggressive growth
goals. In light of its focus on internal growth, instead of continued
acquisitions and joint ventures, the Company reduced its corporate and
administrative overhead, including a significant reduction in staff levels and
benefit programs.
Severance and employee benefits for corporate and administrative staff,
including the termination of an employee benefit program, resulted in total
costs of $3,779 enterprise-wide. The Company has a $586 liability recorded at
June 30, 1999 to cover unpaid severance and employee benefit costs.
All of the above actions resulted in the termination of approximately 240
employees at substantially all locations. All terminated employees have left the
company and will be paid by December 31, 1999.
Evaluation of Long-Lived Assets. Certain long-lived assets, principally
related to fixed assets and investments were evaluated for impairment in value.
Fair value for these assets was based on whether the carrying amount of the
asset was recoverable. Based on this analysis, an impairment loss of $3,830 and
$1,544 was recognized for certain long-term assets and investments. All
long-term assets were disposed by June 30, 1999. The impact of suspending
depreciation related to these long-lived assets was not material to depreciation
expense for the year.
Reducing Capital Expenditures. Previously announced plans to spend
approximately $20,000 on capital expansion, primarily production equipment, and
approximately $14,500 on facilities improvements in fiscal 1999
34
<PAGE> 36
were substantially reduced. Capital expenditures for the third quarter of fiscal
1999 totaled $2,982, and capital expenditures for the fourth quarter of fiscal
1999 were approximately $800.
Future cash outlays are anticipated to be completed by December 31, 1999,
excluding certain lease commitments that could continue through fiscal year
2005. The Company will continue to evaluate its strategy and cost structure and
adjust its organization to reflect the changing business environment.
The cost related to the actions noted above are included in special charges
of $28,817 ($1.42 per share) for fiscal 1999. The charges are classified in the
consolidated statement of operations as cost of sales ($1,508) and special
charges ($27,309). In connection with these actions, the Company incurred
additional costs of $596 and $764 related to cost of sales and research and
development expense for transactions with affiliates.
FISCAL 1999 IMPLEMENTATION COSTS
Certain of the actions resulting in fiscal 1999 special charges also caused
substantial implementation costs, which are not included in the special charges
classification. Three manufacturing sites were consolidated into one, which
together with employee terminations, resulted in severe workforce disruption.
The Company also incurred costs to relocate and consolidate its marketing
operations in North America and transition its marketing operations in Europe.
The launch of the Company's Uni-Form(R) pulse start products resulted in
substantial quality, rework and productivity issues. In addition, the Company
also undertook other initiatives enterprise-wide in fiscal 1999 that resulted in
nonrecurring costs that are not expected to continue in fiscal 2000.
Specifically, the Company began the implementation of new information systems
resulting in various installation costs in fiscal 1999. In addition, during
fiscal 1999 the Company incurred one-time costs to establish a sales office in
Japan to sell its metal halide materials to lamp manufacturers in the Pacific
Rim.
DISCONTINUED OPERATIONS, MICROSUN BUSINESS
Microsun Technologies, Inc. was identified in March 1998 for disposition
through a plan to distribute to ADLT shareholders all of the ownership of
Microsun Technologies, Inc. in a tax-free spin-off transaction estimated to be
completed by December 1998. Because of the deterioration of the capital markets
and the inability to raise capital necessary to spin-off the Microsun business,
in December 1998, the Company revised its plan for the disposition to wind-down
the operations, close the manufacturing facilities and liquidate the assets of
Microsun. During fiscal 1998, a loss on disposal of $9,100 (net of income tax
benefits of $3,086) for operating losses through the planned date of spin-off
was recorded. During fiscal 1999, an additional loss on disposal of $9,043 was
recorded, which included $2,796 for additional operating losses during the
phase-out period, $3,134 related to the write-down and disposal of assets and
costs related to shut-down and severance and a deferred tax asset valuation
allowance of $3,113.
At June 30, 1999, the plan of wind-down had been accomplished, the
manufacturing facilities closed and substantially all assets had been disposed.
Accordingly, there were no remaining discontinued operations accrued losses
associated with Microsun at June 30, 1999.
FISCAL 1998 SPECIAL CHARGES
During fiscal 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 $18,220 for purchased in-process research and development,
determined by an independent valuation, relating to the DSI acquisition.
The special charges also include $17,984 principally relating to the
Company's decision to refocus and restructure its recently acquired global power
supply operations to focus on opportunities in metal halide. With the January
1998 acquisition of Ruud Lighting, the Company accelerated this rationalization
of its existing power supply manufacturing operations and distribution
activities in order to capitalize on new opportunities not
35
<PAGE> 37
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 $2,066 million
write-down of inventory which is classified in cost of sales.
In addition, the charges cover the cost of consolidating 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.
After an income tax benefit of $5,015, these charges reduced net income by
$31,189, or $1.71 diluted earnings per share for fiscal 1998.
See "Notes to Consolidated Financial Statements," included in Item 8.
UPDATE ON IN-PROCESS RESEARCH AND DEVELOPMENT
In connection with the January 1998 purchase of Deposition Sciences, Inc.
("DSI"), the Company allocated $18,220 of the $24,100 purchase price to
in-process research and development projects. This allocation represented the
estimated fair value based on risk-adjusted cash flows related to the incomplete
research and development projects. At the date of acquisition, the development
of these projects had not yet reached technological feasibility and had no
alternative future uses. Accordingly, these costs were expensed as of the
acquisition date. DSI's in-process research and development value is comprised
of five primary research and development programs, which were in-process at the
time of the acquisition.
The MicroDyn/Automation Project is intended to improve the coating process
of optical thin-films to both rigid and flexible surfaces so that the process
can be used in a wider array of applications. The Plastics (Acrylic) Coating
Project is designed to produce a method for applying thin-film coatings to
plastics or other similar materials that cannot withstand the heat and pressure
generated during the standard coating process. The goal of the Deposition
Material Development Project is to develop new thin-film materials that can be
used in coatings and to improve existing coating materials. The Lighting
Projects are intended to develop improvements to existing lighting technologies
by using coatings to improve efficiency and increase the longevity of lamp life.
The Fiber Optic Project is intended to improve telecommunications by providing
optical thin-film coatings that are used in conjunction with optical fibers to
increase the transmission capacity of the fiber. Completion of the first of
these projects may occur in fiscal 2000 and the final project is projected for
completion in 2003.
Remaining development efforts for these programs are highly complex and
include the development and advancement of the necessary physics and chemistry,
various stages of academic and computer simulation, prototype design and
testing, refinement, initial small-scale deployment, further refinement and
eventually full-scale market introduction. As such, the projects are generally
considered to have effective lives of three-to-five years during which time the
science, technology, and processes are researched, designed, developed, and
tested.
Certain projects within the in-process research and development programs
will, if successful, begin to bear results in 2000, but will not be fully
complete for two to three years thereafter. Annual Company expenditures to
complete these projects included $800 in fiscal 1998, $1,800 in fiscal 1999, and
are estimated at $2,600 and $1,600 in 2000 and 2001, respectively. These
estimates are subject to change, given the uncertainties of the development
process, and no assurance can be given that deviations from these estimates will
not occur. Additionally, even if successfully completed, these projects will
require maintenance research and development after they have reached a state of
technological and commercial feasibility. In addition to usage of DSI's internal
cash flows, ADLT will likely provide a substantial amount of funding to complete
the DSI programs.
Management believes the Company has a reasonable chance of successfully
completing each of the major research and development programs. However, there
is substantial risk associated with the completion of the projects and there is
no steadfast assurance that each will meet with either technological or
commercial success.
36
<PAGE> 38
The delay or outright failure of the DSI in-process research and development may
materially impact the Company's financial condition.
At June 30, 1999, significant progress had been achieved on each of the
primary in-process research and development efforts that were underway at DSI as
of the acquisition date. In general, the Company believes that DSI's research
and development efforts are on track with management's plans at the time the
transaction occurred. DSI is continuing to invest heavily in the development of
new technologies and projects that were underway at the consummation of the
transaction. Through June 30, 1999, no significant adjustments have been made in
the economic assumptions or expectations which underlie the Company's
acquisition decision and related purchase accounting. All of the cited
in-process research and development projects are active, and DSI is advancing
the science and technology at a rate consistent with both DSI and ADLT
expectations. At June 30, 1999, programs ranged in completion from 50 to 70
percent complete and the Company estimates the costs to complete these projects
to be $4,300.
37
<PAGE> 39
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of net sales, the
components of the Company's Consolidated Statements of Operations for the
indicated periods:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------
1999 1998 1997
----- ----- -----
<S> <C> <C> <C>
Net sales................................................... 100.0% 100.0% 100.0%
Costs and expenses:
Cost of sales............................................. 68.2 58.2 53.4
Marketing and selling..................................... 22.3 15.7 17.7
Research and development.................................. 9.1 5.7 6.0
General and administrative................................ 10.6 6.6 8.3
Fiber optic joint venture formation costs................. -- 0.1 0.3
Purchased in-process research & development............... -- 11.1 --
Special charges........................................... 14.5 9.7 --
Settlement of claim....................................... -- -- 0.9
Amortization of intangible assets......................... 1.5 1.0 0.4
----- ----- -----
Income (loss) from operations............................... (26.2) (8.1) 13.0
Other income (expense):
Interest expense.......................................... (7.3) (2.4) (1.8)
Interest income........................................... 0.6 0.9 1.0
Loss from equity investments.............................. (3.4) (0.3) --
----- ----- -----
Income (loss) from continuing operations before income
taxes, extraordinary charge and cumulative effect of
accounting change......................................... (36.3) (9.9) 12.2
Income taxes................................................ 1.6 1.1 3.4
----- ----- -----
Income (loss) from continuing operations before
extraordinary charge and cumulative effect of accounting
change.................................................... (37.9) (11.0) 8.8
Loss from discontinued operations, net of income tax
benefits.................................................. (4.8) (4.4) (0.5)
----- ----- -----
Income (loss) before extraordinary charge and cumulative
effect of accounting change............................... (42.7) (15.4) 8.3
Extraordinary charge from early extinguishment of debt, net
of income tax benefits.................................... (0.4) (0.4) --
Cumulative effect of change in accounting principle......... (1.3) -- --
----- ----- -----
Net income (loss)........................................... (44.4)% (15.8)% 8.3%
===== ===== =====
</TABLE>
Factors which have affected the results of operations and net income during
fiscal 1999 as compared to fiscal 1998 are discussed below.
OVERVIEW OF THE RESULTS OF OPERATIONS -- FISCAL 1999 COMPARED TO FISCAL 1998
The Company's operations for fiscal 1999 resulted in a loss from continuing
operations before extraordinary charge and cumulative effect of change in
accounting principle of $71,365 compared to a loss from continuing operations
before extraordinary charge of $18,047 for fiscal 1998. The Company realized a
net loss of $83,753 for fiscal 1999, compared to a net loss of $25,943 for
fiscal 1998.
The following factors should be considered in comparing the Company's
continuing operations for fiscal 1999 and fiscal 1998:
- Results for fiscal 1999 include $28,817 in special charges ($1.42 per
share) and the effect of termination of equipment contracts of $8,548
($42. per share).
- Results for fiscal 1998 include $17,984 in special charges ($0.99 per
share) and $18,220 of purchased in-process research and development
($1.00 per share).
38
<PAGE> 40
After excluding the above charges, the Company's operating activities would
have resulted in a loss from continuing operations before income taxes and
extraordinary charge of $31,028 for fiscal 1999, as compared to income from
continuing operations before income taxes and extraordinary charges of $19,959
for fiscal 1998.
FISCAL 1999 COMPARED WITH FISCAL 1998
Net sales. Net sales increased 24.1% to $203,445 for the fiscal year ended
June 30, 1999 from $163,893 for the fiscal year ended June 30, 1998, excluding
the effect of termination of equipment contracts noted above. Net sales,
excluding lamp equipment sales and terminated equipment contracts, rose 32.4% to
$200,474 for fiscal 1999 from $151,368 for fiscal 1998.
Results for fiscal 1999 reflect continued growth in the sales of the
Company's core U.S. metal halide operations, which was offset by reductions in
overseas sales and in non-metal halide products. The Company's metal halide
sales for fiscal 1999 increased 15% (17% increase in the United States) from
fiscal 1998, excluding acquisitions, lamp equipment sales and the effect of
termination of equipment contracts. Metal halide sales grew to 74% of total
sales from 71% a year earlier, excluding lamp equipment sales and the effect of
termination of equipment contracts. The Company's core metal halide materials
business, a key indicator of industry trends, was up 9% from fiscal 1998.
Geographically, these sales of materials were up 5% in the U.S. and grew 16%
outside the U.S.
Sales outside the U.S. declined 8%, excluding acquisitions, lamp equipment
sales and the effect of termination of equipment contracts. The Company
attributes the soft overseas market to difficult international economic
environment in fiscal 1999. Sales of non-metal halide products, an area where
the Company has been strategically reducing its presence, declined 27% excluding
acquisitions and equipment sales.
Sales increases, excluding acquisitions, lamp equipment sales and the
effect of termination of equipment contracts, were driven by increased volume in
the Company's materials, components and systems. Pricing in the metal halide
lighting business is competitive, and prices for the Company's products have
remained flat or declined slightly. The introduction of new products has helped
to stabilize the Company's product pricing.
Costs and Expenses. The Company's restructuring efforts in fiscal 1999
resulted in a significant disruption of the ongoing business of the Company, and
as a result, a significant increase in its costs and expenses. The biggest
single area of increased costs over fiscal 1998 occurred as a result of the
consolidation of the lamp and equipment operations. Three manufacturing sites
were consolidated into one, which together with employee terminations, resulted
in severe workforce disruption. Simultaneously, the Company attempted to
accelerate production of new products such as Uni-Form(R) pulse start and began
the implementation of new information systems. Largely as a result of these
initiatives, the Company incurred significantly higher costs related to quality,
rework and productivity issues, which are not included within the special
charges classification.
Cost of Sales. Cost of sales increased 43.0% to $133,397 in fiscal 1999
from $93,275 in fiscal 1998, excluding the $6,413 reduction in cost of sales in
fiscal 1999 related to the effect of termination of equipment contracts
discussed above and inventory write-downs related to special charges of $1,508
in fiscal 1999 and $2,066 in fiscal 1998. The increase was primarily
attributable to higher sales levels and to the disruption caused by the
Company's restructuring activities noted above. As a percentage of net sales,
excluding the effect of termination of equipment contracts and inventory
write-downs, cost of sales increased to 65.6% in fiscal 1999 from 56.9% in
fiscal 1998. The Company believes that the benefit of its restructuring actions,
together with its ongoing efforts to cut costs, should begin to gradually reduce
the Company's cost of sales as a percentage of sales to 60% or less within the
next twelve months.
Marketing and Selling Expenses. Marketing and selling expenses increased
63.2% to $42,025 in fiscal 1999 from $25,746 in fiscal 1998. As a percentage of
net sales, excluding the effect of termination of equipment contracts, marketing
and selling expenses increased to 20.6% in fiscal 1999 from 15.7% in fiscal
1998. This increase is a result of increased expenses incurred in connection
with the launch of the Company's Uni-Form(R) pulse start products, increased
expenses involved in opening new markets to the Company's products, and
increased product promotional costs. The Company anticipates the sales of
Uni-Form(R) pulse start products and
39
<PAGE> 41
sales into new markets should increase and that the level of marketing and
selling expenses will decline gradually over the next several quarters to
approximately 17% to 18% of sales.
Research and Development Expenses. Research and development expenses
increased 83.7% to $17,123 in fiscal 1999 from $9,319 in fiscal 1998. This
increase arose from increased spending for the: (i) expansion of the new line of
Uni-Form(R) pulse start products (with improved energy efficiency, quicker
starting and restarting and a more compact arc source, which improves the light
and reduces material costs) intended to replace many first generation metal
halide lamps in industrial and commercial applications; (ii) development and
testing of electronic power supply systems; (iii) development of new materials
for the world's major lighting manufacturers; and, (iv) research and development
efforts aimed at improving the coating process of optical thin-films to broaden
the applications, developing new thin-film materials, and using coatings to
develop improvements to lighting and telecommunications technologies. As a
percentage of net sales, excluding the effect of termination of equipment
contracts, research and development expenses increased to 8.4% in fiscal 1999
from 5.7% in fiscal 1998. The Company anticipates this level of expense to
decline gradually over the next several quarters to approximately 7%.
General and Administrative Expenses. General and administrative expenses
increased 85.4% to $20,114 in fiscal 1999 from $10,851 in fiscal 1998. The
increase in general and administrative expenses of $9,263 relates to an overall
increase in the size and complexity of the Company and relates in part to
fully-integrating its core and acquired U.S. operations and the implementation
of new information systems. Expense increases primarily reflect legal,
accounting and consulting fees; personnel and related costs; travel;
communications costs; relocation costs; and equipment depreciation and rent. As
a percentage of net sales, excluding the effect of termination of equipment
contracts, general and administrative expenses increased to 9.9% in fiscal 1999
from 6.6% in fiscal 1998.
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"). In connection with this joint venture, the
Company incurred $212 of formation and development costs which was charged to
operations during fiscal 1998.
Purchased Research & Development. In connection with its acquisition of DSI
in January 1998, the Company acquired in-process research and development valued
at $18,220. In accordance with generally accepted accounting principles, the
entire amount has been recorded as an expense in fiscal 1998.
Special Charges. See discussion of special charges under "Recent
Developments" and Note K of "Notes to Consolidated Financial Statements" for
further discussion.
Amortization of Intangible Assets. Amortization expense increased to $2,773
in fiscal 1999 from $1,665 in fiscal 1998 due to the amortization of goodwill
and other intangible assets related to the January 1998 acquisitions of Ruud
Lighting and Deposition Sciences.
Income (Loss) from Operations. As a result of the aforementioned factors,
during fiscal 1999, the Company incurred a loss from operations of $49,352, as
compared to a loss from operations of $13,379 during fiscal 1998. Excluding the
special charges and the effect of termination of equipment contracts mentioned
above, the loss from operations in fiscal 1999 was $11,987. In fiscal 1998,
income from operations was $22,825, excluding purchased in-process research and
development of $18,220 and special charges of $17,984.
Interest Expense. Interest expense increased to $13,845 in fiscal 1999, as
compared to $3,801 in fiscal 1998. This increase was primarily the result of the
higher average debt outstanding.
Interest Income. Interest income decreased to $1,122 in fiscal 1999 from
$1,436 in fiscal 1998. This decrease is attributable to lower average cash
equivalents and short-term investments in the fiscal 1999 as compared to fiscal
1998, partially offset by $520 in interest earnings from the $9,000 loan to an
officer.
40
<PAGE> 42
Loss from Equity Investments. The loss from equity investments represents
$109 of earnings from the Company's investment in Fiberstars, Inc., a marketer
and distributor of fiber optic lighting products, offset by a pretax noncash
write-down of $5,883 related to the Company's investment in the Unison joint
venture and a $544 loss from the Company's investment in Venture Lighting Japan,
a manufacturer and marketer of metal halide lamps in Japan.
Loss from Continuing Operations before Income Taxes, Extraordinary Charge
and Cumulative Effect of Change in Accounting Principle. As a result of the
aforementioned factors, during the fiscal 1999, the Company incurred a loss from
continuing operations before income taxes, extraordinary charge and cumulative
effect of change in accounting principle of $68,393, as compared to a loss from
continuing operations before income taxes and extraordinary charges of $16,245
during fiscal 1998. Excluding the total special charges and the effect of
termination of equipment contracts mentioned above, the Company incurred a loss
from continuing operations before income taxes, extraordinary charge and
cumulative effect of change in accounting principle of $31,028 during fiscal
1999. In fiscal 1998, income from continuing operations before income taxes and
extraordinary charges was $19,959, excluding purchased in-process research and
development of $18,220 and special charges of $17,984.
Income Taxes. At June 30, 1999, the Company had net operating loss
carryforwards ("NOLs") of $57,309 available to reduce future United States
federal taxable income, which expire in 2008 through 2019.
The Company also has research and development credit carryforwards for tax
purposes of approximately $3,006, which expire in 2005 through 2019.
Additionally, in conjunction with the Alternative Minimum Tax ("AMT") rules, the
Company had available AMT credit carryforwards for tax purposes of approximately
$162, which may be used indefinitely to reduce regular federal income taxes.
Also, at June 30, 1999, the Company had foreign net operating loss
carryforwards for tax purposes totaling $5,209 that expire in 2000 to 2005 and
$10,587 that have no expiration dates.
For fiscal 1999, the Company reported a pretax loss from continuing
operations, including special charges, of $68,393; and a pretax loss on the
discontinued operations of the Microsun business of $9,043; an extraordinary
charge from the early extinguishment of debt of $902; and, a cumulative effect
of change in accounting for start-up costs of $2,443, all of which created
$80,781 of operating losses and future tax deductions for financial reporting
purposes. Accordingly, at June 30, 1999, the Company has recorded a valuation
allowance for deferred tax assets of $30,322 related to all NOLs, tax credits
and net deductible tax differences.
Loss from Discontinued Operations. See discussion of loss from discontinued
operations under "Discontinued Operations, Microsun Business" and Note L of
"Notes to Consolidated Financial Statements" for further discussion.
Extraordinary Charge. The Company recorded a $902 extraordinary charge
during fiscal 1999 and a $604 extraordinary charge (net of applicable income
taxes of $311) during fiscal 1998, representing costs associated with the early
extinguishment of debt.
Cumulative Effect of Change in Accounting Principle. The Company recorded a
cumulative effect of a change in accounting principle of $2,443 ($.12 per
diluted common share) related to the adoption of the American Institute of
Certified Public Accountants Statement of Position 98-5, "Reporting on the Costs
of Start-Up Activities."
OVERVIEW OF THE RESULTS OF OPERATIONS -- FISCAL 1998 COMPARED TO FISCAL 1997
The Company's operations for fiscal 1998 resulted in a loss from continuing
operations before extraordinary charge of $18,047 compared to income from
continuing operations before extraordinary charge of $7,556 for fiscal 1997. The
Company realized a net loss of $25,943 for fiscal 1998, compared to net income
of $7,104 for fiscal 1997.
41
<PAGE> 43
The following factors should be considered in comparing the Company's
continuing operations for fiscal 1998 and fiscal 1997:
- Results for fiscal 1998 include $17,984 in special charges ($.99 per
share) and $18,220 of purchased in-process research and development
($1.00 per share).
- Results for fiscal 1997 include a nonrecurring charge of $771 ($.06 per
share) in settlement of a claim.
After excluding the above charges, the Company's operating activities would
have resulted in income from continuing operations before income taxes and
extraordinary charge of $19,959 for fiscal 1998, a 78.3% increase over the
$11,196 of income from continuing operations before income taxes and
extraordinary charge that would have been reported for fiscal 1997.
FISCAL 1998 COMPARED WITH FISCAL 1997
Net sales. Net sales increased 91.4% to $163,893 for the fiscal year ended
June 30, 1998 from $85,645 for the fiscal year ended June 30, 1997. The increase
in system components, materials and systems ($72,357) was primarily attributable
to increased unit volume, including a $25,419 increase from the Company's power
supply subsidiaries acquired in the second half of fiscal 1997 and a $32,384
increase from the Company's Ruud Lighting subsidiary, which was acquired on
January 2, 1998. The increase in equipment sales ($5,891) resulted from an
increase in equipment contracts-in-progress, as compared with the number of
contracts-in-progress during fiscal 1997.
Cost of Sales. Cost of sales increased 108.6% to $95,341 in fiscal 1998
from $45,703 in fiscal 1997. As a percentage of net sales, cost of sales
increased to 58.2% for fiscal 1998 from 53.4% for fiscal 1997. Cost of sales
included a $2,066 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 104.1%
to $93,275, or 56.9% 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
69.8% to $25,746 for fiscal 1998, compared with $15,165 for fiscal 1997.
Marketing and selling expenses, as a percentage of net sales, decreased to 15.7%
during fiscal 1998, from 17.7% during 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, partially offset by increased
expenses in connection with the launch of the Company's Pulse Start(TM)
products.
Research and Development Expenses. Research and development expenses
increased 82.8% to $9,319 in fiscal 1998 from $5,097 in fiscal 1997. This
increase arose from increased spending for the: (i) expansion of the line of new
lamps (with improved energy efficiency, quicker starting and restarting and a
more compact arc source, which improves the light and reduces material costs)
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 5.7% in fiscal 1998 from 6.0% in fiscal 1997.
General and Administrative Expenses. General and administrative expenses
increased 52.1% to $10,851 in fiscal 1998 from $7,133 in fiscal 1997. As a
percentage of net sales, general and administrative expenses decreased to 6.6%
in fiscal 1998 from 8.3% in 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
42
<PAGE> 44
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 of formation and development costs which was charged
to operations during fiscal 1998, in addition to $286 of such costs which were
charged to operations during fiscal 1997.
Purchased Research & Development. In connection with its acquisition of DSI
in January 1998, the Company acquired in-process research and development valued
at $18,220. In accordance with generally accepted accounting principles, the
entire amount has been recorded as an expense in fiscal 1998.
Special Charges. During the third quarter of fiscal 1998, the Company
recorded special charges related to the Company's decision to refocus and
restructure its recently acquired global power supply operations to focus on
opportunities in metal halide. With the January 1998 acquisition of Ruud
Lighting, Inc., the Company accelerated this 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 $2,066 write-down of inventory which is classified in
cost of sales. Additionally, the special charges, which total $17,984 (including
the $2,066 write-down of inventory discussed above), cover the elimination of
certain nonfocus product lines, the cost of consolidating 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 in an out-of-court settlement of a claim brought by certain former
common shareholders of a predecessor of the Company. The charge of $771 ($.06
per share) represents the $475 settlement plus legal and other directly-related
costs, net of insurance recoveries.
Amortization of Intangible Assets. Amortization expense increased to $1,665
in fiscal 1998 from $397 in fiscal 1997 due to the amortization of goodwill and
other intangible assets related to the acquisitions of Ruud Lighting and
Deposition Sciences which were completed in January 1998.
Income (Loss) from Operations. The Company incurred a loss from operations
of $13,379 during fiscal 1998 as compared to income from operations of $11,093
during fiscal 1997. Excluding the special charges, purchased in-process research
and development, and nonrecurring charge for the settlement noted above, income
from operations for fiscal 1998 increased to $22,825, a 92.4% increase over the
income from operations of $11,864 for fiscal 1997. As a percentage of net sales,
income from operations excluding these items remained at 13.9% in both years.
Interest Expense. Interest expense increased to $3,801 during fiscal 1998
as compared to $1,513 during fiscal 1997. This increase resulted primarily from
the higher average debt outstanding during fiscal 1998 as compared to fiscal
1997.
Interest Income. Interest income increased to $1,436 in fiscal 1998 as
compared to $845 in fiscal 1997. This increase is attributable to higher average
cash equivalents and short-term investments during fiscal 1998 as compared to
fiscal 1997.
Loss from equity investments. Loss from equity investments for fiscal 1998
resulted from recognition of the Company's proportionate share of losses
recorded by equity investees accounted for by the equity method. There were no
comparable amounts in fiscal 1997.
Income (Loss) from Continuing Operations before Income Taxes and
Extraordinary Charge. The Company incurred a loss from continuing operations
before income taxes and extraordinary charge of $16,245 during fiscal 1998 as
compared to income from continuing operations before income taxes and
extraordinary charge of $10,425 during fiscal 1997. Excluding the special
charges, purchased in-process research and development, and nonrecurring charge
for the settlement noted above, income from continuing operations before income
taxes and extraordinary charge for fiscal 1998 increased to $19,959, a 78.3%
increase over the income from continuing
43
<PAGE> 45
operations before income taxes and extraordinary charge of $11,196 for fiscal
1997. As a percentage of net sales, income from continuing operations before
income taxes and extraordinary charge excluding these items decreased to 12.2%
in fiscal 1998 from 13.1% in fiscal 1997.
Income Taxes. The Company recorded income tax expense of $1,802 for fiscal
1998 as compared to $2,869 for fiscal 1997. As a percentage of income (loss)
from continuing operations before income taxes and extraordinary items, the
effective income tax rate was 11.2% in fiscal 1998 as compared to 27.5% in
fiscal 1997.
A number of items affect the comparability of the fiscal 1998 and fiscal
1997 effective tax rates. The most significant of these items in fiscal 1998 are
the nondeductibility of purchased research and development of $18,220 and
certain of the Company's special charges, offset by research and development tax
credits. The most significant item reducing the effective tax rate in fiscal
1997 from the Company's statutory rate was the adjustment of deferred tax
liabilities, which reduced the Company's tax provision by $1,000. See Note J to
"Notes to Consolidated Financial Statements," included in Item 8, for further
information.
At June 30, 1998, the Company had United States net operating loss
carryforwards ("NOLs") for tax purposes of approximately $1,960 to offset future
taxable income. The domestic NOLs expire in fiscal years 2008 through 2011. In
addition, the Company had foreign tax loss carryforwards of $579 with various
expiration dates.
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 $7,292
represents the total of MicroSun's loss from operations in fiscal 1998 and
estimated operating losses through the intended date of the spin-off.
Extraordinary Charge. The Company recorded a $604 extraordinary charge (net
of applicable income tax benefits of $311) in fiscal 1998, representing costs
associated with the early extinguishment of debt.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal financial requirements are for 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 stock.
Cash Decreased $18,087 During Fiscal 1999. Uses of cash consisted of
$12,075 used in operating activities, $28,628 used in investing activities, and
$7,288 used in discontinued operations. These uses of cash were offset by net
financing activities of $29,904.
Net Cash Used in Operating Activities. Net cash used in operating
activities totaled $12,075 in fiscal 1999 as compared to $7,511 in fiscal 1998.
Net cash provided by operating activities totaled $1,542 in the last nine months
of fiscal 1999. The Company intends to manage its cash resources to generate
positive cash flow from operating activities in fiscal 2000 and beyond.
Inventory levels decreased $4,674, excluding the effect of noncash special
charges and terminated equipment contracts, as a result of the Company's efforts
to manage its inventory levels more effectively. Accounts payable and accrued
expenses increased $3,843, excluding the items noted above, as a result of the
Company's efforts to manage the timing of its cash disbursements.
Net Cash Used in Investment Activities. During fiscal 1999, investing
activities used $28,628 of cash including $21,844 for capital expenditures,
$4,390 related to the purchases of businesses and $2,394 related to investments
in affiliates.
Capital expenditures, primarily for production equipment and leasehold and
facility improvements, totaled $21,844 in fiscal 1999 as compared to $31,105 in
fiscal 1998. Capital expenditures in fiscal 1999 related to
44
<PAGE> 46
facilities enhancements, primarily at the Company's headquarters in Solon, Ohio,
and at several of its subsidiaries, and additional machinery and equipment to
improve production processes, which should result in increased productivity and
capacity in the production of lamps, power supplies and other lighting system
products.
The Company has modified its current growth and capital expansion plans due
to the present limited availability of cash resources. Specifically, the Company
will limit its capital expenditures for at least the next twelve months and, as
a result, the Company has postponed certain capital equipment and, for all
practical purposes, facilities expenditures have been completed.
As a result of the Company's decision to terminate joint venture equipment
contracts, approximately $6,500 of new production equipment is available for
installation at the Company's Solon, Ohio lamp manufacturing facility. The
Company estimates its maintenance level for capital expenditures will
approximate $6,000 to $8,000 over the next twelve months. Future capital
expenditures beyond this level will be discretionary, as the Company presently
has sufficient operating capacities to support several years of sales growth at
its historical rates.
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 in January 1998, 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 $14,500 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 $35,500 in cash.
Net Cash Provided by Financing Activities. During fiscal 1999, net
financing activities provided cash of $29,904, which included $5,456 of cash
provided from net borrowings under the Company's revolving credit facilities,
net borrowings of long-term debt and capital leases of $32,651 and a loan to an
officer of $9,000.
On January 2, 1998, the Company replaced its then existing loan agreement
and other borrowings in North America with a Credit Facility subsequently
replaced in May 1999. Proceeds from this facility were used to finance the
$35,500 cash portion of the Ruud Lighting acquisition and the $14,500 cash
portion of the Deposition Sciences acquisition. Proceeds were also used to repay
$19,200 of existing and outstanding North American bank borrowings of ADLT, Ruud
Lighting and DSI.
On March 13, 1998, the Company sold $100,000 of 8% Senior Notes due March
15, 2008, resulting in net proceeds of $96,150. Approximately $76,300 of the net
proceeds of the Senior Notes were used to repay amounts outstanding under the
Credit Facility, thereby lengthening the average term of the Company's debt,
most of which had been incurred to finance the acquisitions of Ruud Lighting and
DSI. From September 14, 1998 until completion of a registered exchange offer to
existing noteholders, the Senior Notes bear interest at 8.5%. The offer is
expected to be completed within 45 days following effectiveness of the Company's
related registration statement.
Pursuant to a loan agreement dated October 8, 1998, between the Company and
its Chairman and Chief Executive Officer (the "CEO"), the Company has loaned
$9,000 to its CEO for a one-year term at an interest rate of 8%. The loan was
made following approval by the Company's Board of Directors. The proceeds of the
loan were used by the Company's CEO to reduce the principal balance outstanding
of a margin account loan, which is secured by 2,053,070 shares of the Company's
Common Stock owned by the CEO and a related entity. In
45
<PAGE> 47
connection with the loan, the Company's Board of Directors asked for and
received the CEO's agreement to extend the term of his employment agreement to
December 31, 2003. The loan agreement prohibits the CEO from encumbering his
shares of the Company's Common Stock in any manner except pursuant to the
existing agreements governing the CEO's margin account, without the consent of
the Company's Board of Directors.
Ability to Advance Future Operations. The Company has begun to implement,
and will continue to implement, changes in its operations and investment
activities intended to reduce the use of its cash resources to a level at or
below the cash flow generated by its operations and investments.
The Company's working capital (current assets less current liabilities) at
June 30, 1999 was $18,629, resulting in a working capital ratio of current
assets to current liabilities of 1.3 to 1.0, as compared to $77,637 or 3.1 to
1.0 at June 30, 1998. As of June 30, 1999, the Company had $4,180 in cash and
cash equivalents and short-term investments.
The interest-bearing obligations of the Company totaled $161,039 as of June
30, 1999, and consisted of: $37,468 of borrowings under the Bank Credit
Facility; $100,000 of 8% Senior Notes; mortgages of $18,443; a promissory note
due to an affiliate of $3,000; borrowing of a foreign subsidiary of $221;
capital leases of $1,401; and, other obligations of $506.
In May 1999, the Company replaced its existing Credit Facility with a
$50,000 revolving credit loan and $25,000 term loan provided by several
financial institutions. Subsequent to June 30, 1999 the Company reduced its
commitment to a $40,000 revolver and $20,000 term loan. Proceeds from the
facility were used to repay the Company's existing credit facility and certain
other long-term debt. The revolving credit loan has a three-year term expiring
in May 2002. Interest rates on loans outstanding are based, at the Company's
option, on LIBOR plus 2.75% or the agent bank's prime rate. Availability of
borrowings is determined by the Company's eligible accounts receivable and
inventories. The Company had unused availability of $6,080 as of June 30, 1999.
The term loan has a five-year term expiring in May 2004. The Company pays
monthly principal payments of $298, with the unpaid balance due at maturity.
Interest rates on the term loan are based, at the Company's option, on LIBOR
plus 3.25% or the agent bank's prime rate.
The Bank Credit Facility contains certain affirmative and negative
covenants customary for this type of agreement, prohibits cash dividends, and
includes financial covenants with respect to the coverage of certain fixed
charges. The principal security for the revolving credit loan is substantially
all of the personal property of the Company and each of its North American and
United Kingdom subsidiaries. The term loan is secured by substantially all of
the Company's machinery and equipment and is cross-collateralized and secured
with the revolving credit loan.
The Company's implementation of the cost reduction and cash flow
enhancement initiatives including consolidation of equipment and lamp-making
operations, reductions in capital expenditures, consolidation of international
operations, reduction of corporate expenses, and overall workforce reductions
should favorably impact the future cash flow of the Company. The Company intends
to manage its expenditures to generate positive cash flow in fiscal 2000 and
beyond.
The Company believes that the available cash, cash flow from operations,
and the initiatives outlined above, along with the GE investment and
availability under its existing Bank Credit Facility, will enable the Company to
fund its operations for at least the next 12 months. Nevertheless, the Company
can provide no assurance that the GE investment can be completed.
MARKET RISK DISCLOSURES
Market Risk Disclosures. The following discussion about the Company's
market risk disclosures involves forward looking statements. Actual results
could differ materially from those projected in the forward looking statements.
The Company is exposed to market risk related to changes in interest rates and
foreign currency exchange rates. The Company does not use derivative financial
instruments for speculative or trading purposes.
Interest Rate Sensitivity. The following table provides information about
the Company's debt obligations and financial instruments that are sensitive to
changes in interest rates. For debt obligations, the table presents
46
<PAGE> 48
principle cash flows and related weighted-average interest rates by expected
maturity dates. Weighted-average variable rates are based on implied forward
rates as derived from published spot rates. For interest rate swaps, the table
presents notional amounts and weighted-average interest rates by contractual
maturity dates.
<TABLE>
<CAPTION>
JUNE 30, FAIR VALUE
------------------------------------- JUNE 30,
2000 2001 2002 2003 2004 THEREAFTER TOTAL 1999
(DOLLARS IN MILLIONS) ----- ----- ----- ----- ----- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Liabilities
Long-term Debt, including
Current Portion
Fixed Rate...................... $ 0.9 $ 0.9 $ 0.7 $ 0.4 $ 0.4 $105.7 $109.0 $106.2
Average Interest Rate........... 8.5% 8.5% 8.5% 8.5% 8.5% 8.5%
Variable Rate................... $ 7.4 $ 4.4 $17.2 $ 4.3 $18.0 $ 0.5 $ 51.8 $ 51.8
Average Interest Rate........... 8.1% 8.6% 8.8% 8.8% 8.9% 10.0%
Interest Rate Derivative
Financial Instruments Related to
Debt
Interest Rate Swaps
Pay fixed, notional amount...... -- -- -- -- $10.0 -- $ 10.0 $ (0.2)
Average Pay Rate................ 6.6% 6.6% 6.6% 6.6% 6.6%
Average Receive Rate............ 5.7% 6.2% 6.4% 6.5% 6.6%
</TABLE>
The Company is obligated under its Credit Facility to limit its exposure to
fluctuating interest rates for a minimum of $10,000. During fiscal 1999, the
Company terminated two interest rate swaps with notional amounts of $25,000
each, and entered into an interest rate swap with a notional amount of $10,000,
as set forth in the table above. The notional amount is used to calculate the
contractual cash flow to be exchanged and does not represent exposure to credit
loss. If this agreement was settled at June 30, 1999, the Company would pay
approximately $200.
Liabilities at June 30, 1998, included $111,000 of fixed-rate debt and
$7,200 of variable-rate debt. Interest rates on the fixed-rate debt to maturity
ranged from 7.9% to 8.1%, while interest rates on the variable-rate debt to
maturity was LIBOR plus 1% to 2%. The Company terminated during fiscal 1999 two
interest rate swaps that were in place at June 30, 1998.
Foreign Currency Exchange Risk. The Company currently does not hedge its
foreign currency exposure and, therefore, has not entered into any forward
foreign exchange contracts to hedge foreign currency transactions.
The Company has operations outside the United States with foreign-currency
denominated assets and liabilities, primarily denominated in pounds sterling,
Australian dollars, and Canadian dollars. Because the Company has
foreign-currency denominated assets and liabilities, financial exposure may
result, primarily from the timing of transactions and the movement of exchange
rates. The unhedged foreign currency balance sheet exposures as of June 30, 1999
are not expected to result in a significant impact on earnings or cash flows.
Revenues from customers outside the United States represented approximately
34% of net sales during fiscal 1999. As the Company has expanded its
international operations, its sales and expenses denominated in foreign
currencies have expanded and that trend is expected to continue. Thus, certain
sales and expenses have been, and are expected to be subject to the effect of
foreign currency fluctuations and these fluctuations may have an impact on
margins.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The Company has not yet adopted FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." FAS 133 requires that all derivatives, such
as interest rate exchange agreements (swaps), be recognized on the balance sheet
at fair value. Derivatives which are not hedges must be adjusted to fair value
through the results of operations. Derivatives determined to be hedges will be
adjusted to fair value through either the results of operations or other
comprehensive income, depending on the nature of the hedge. The Company is
required to adopt FAS No. 133, as subsequently amended by FAS No. 137, on July
1, 2000. The impact, if any,
47
<PAGE> 49
on net income, comprehensive income and financial position will depend on the
amount, timing and nature of any agreements entered into by the Company.
IMPACT OF INFLATION
Although inflation has slowed in recent years, it continues to be a factor
in our economy. However, management does not believe that inflation has or will
have a significant impact on its operations. Although the Company has not raised
prices significantly in recent years, it has been able to lower overall costs
sufficiently to offset inflation.
YEAR 2000 READINESS
State of Readiness. During the past three fiscal years, the Company has
been actively involved in finding and correcting the Year 2000 problems within
its information technology structure. The information system correction process
is essentially complete. The Company maintains its critical information
technology systems in close cooperation with its suppliers. The Company is not
currently operating any legacy systems that are no longer being supported by the
original supplier.
The most critical noninformation technology systems, such as robots and
other numerically controlled equipment, are relatively new and are being
upgraded and maintained with the help of the Company's various suppliers. To
date, the Company's investigation of these systems has revealed only minor Year
2000 problems which were quickly corrected and the Company does not expect to
find any further problems.
Each operating unit's purchasing and production control departments are in
the process of analyzing the unit's key third-party dependencies and working
with each of these key suppliers to determine the suppliers' Year 2000 status.
The Company has had reasonable success in obtaining reliable Year 2000
compliance certifications. The Company continues to be concerned with the
potential loss of energy (electricity and natural gas) at its facilities
worldwide, with the most vulnerable facilities presently preparing contingency
plans to protect their plant and equipment.
Costs. The Company has had only limited expenditures related to Year 2000
issues, consisting principally of personnel costs incurred in the scope of
normal operations. In addition, software replacements and upgrades in the
ordinary course of business have enhanced the Company's Year 2000 readiness
without incremental costs. The Company is in the final stages of its projects
and does not anticipate that future Year 2000 costs related to information
technology operations will be significantly beyond the scope of normal
operations.
The Company is in the process of implementing contingency plans to protect
it from Year 2000 failures. These plans are mostly complete and will result in
limited additional expenditures. Primarily these expenditures have been in the
form of increased inventory and the addition of some generating and auxiliary
heating equipment to protect facilities. The Company anticipates that additional
total costs will not have a material impact on the ongoing results of
operations.
Risks. In the early weeks of 2000, the Company may experience some random
supply chain disruptions that may affect its ability to produce and distribute
key products. These disruptions will be material if the United States
experiences significant interruptions in basic services, such as the electric
power grid, natural gas, telephone service or the banking systems. And while
recent data on the readiness of the electric power utilities have been
increasingly more positive, the Company's highest level of contingency planning
is being focused in this area.
Contingency Plans. The Company, through its various purchasing and
production control departments, is in the process of developing contingency
plans at each of its worldwide operations. These plans will be particularly
focused on preparing the operation for the inability of key third-party
suppliers to perform their normal functions. Of critical importance will be the
development of alternative suppliers, the enhancements of on-hand materials and
the augmentation of the most critical finished goods. Facilities in very cold
climates are preparing to minimize the potential effects of the loss of
electricity.
Completion. Based on management's assessment of current progress, the
Company believes it will complete the limited amount of Year 2000 modifications
and contingency plans that remain before the end of
48
<PAGE> 50
1999. The Company is in close contact with its key hardware and software
suppliers, and will implement any future updates shortly after they are
released. The Company can give no assurance that the Company's Year 2000
preparations will prevent disruptions in its business resulting from Year 2000
problems of the Company, its suppliers or its customers, or that costs to the
Company of its preparations or any disruptions will not be material.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The information set forth under the subcaption "Market Risk Disclosures"
contained in Item 7. "Management's Discussion and Analysis of Financial
Condition and Results of Operations" is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ANNUAL REPORT ON FORM 10-K
ITEM 8, ITEM 14(a)(1) AND (2), (c) AND (d)
LIST OF FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES
FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
CERTAIN EXHIBITS
FINANCIAL STATEMENT SCHEDULES
YEAR ENDED JUNE 30, 1999
ADVANCED LIGHTING TECHNOLOGIES, INC.
SOLON, OHIO
49
<PAGE> 51
LIST OF FINANCIAL STATEMENTS AND FINANCIAL
STATEMENT SCHEDULES
FORM 10-K--ITEM 14(a)(1) AND (2), (c) AND (d)
ADVANCED LIGHTING TECHNOLOGIES, INC.
The following consolidated financial statements of Advanced Lighting
Technologies, Inc. are included in Item 8:
Audited Consolidated Financial Statements:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Grant Thornton LLP, Independent Auditors..... F-2
Report of Ernst & Young LLP, Independent Auditors...... F-3
Consolidated Balance Sheets as of June 30, 1999 and
1998.................................................. F-4
Consolidated Statements of Operations for the Years
Ended June 30, 1999, 1998 and 1997.................... F-5
Statements of Consolidated Shareholders' Equity for the
Years Ended June 30, 1999, 1998 and 1997.............. F-6
Consolidated Statements of Cash Flows for the Years
Ended June 30, 1999, 1998 and 1997.................... F-7
Notes to Consolidated Financial Statements............. F-8
</TABLE>
Financial Statement Schedules:
None
All schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable and therefore have been omitted.
F-1
<PAGE> 52
REPORT OF GRANT THORNTON LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
ADVANCED LIGHTING TECHNOLOGIES, INC.
We have audited the accompanying consolidated balance sheet of Advanced
Lighting Technologies, Inc. as of June 30, 1999, and the related consolidated
statements of operations, shareholders' equity and cash flows, for the year then
ended. 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 audit.
We conducted our audit 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 audit provides 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, 1999, and the consolidated
results of its operations and its cash flows for the year then ended, in
conformity with generally accepted accounting principles.
/s/ GRANT THORNTON LLP
Cleveland, Ohio
September 24, 1999 (except for Note U,
as to which the date is September 28, 1999)
F-2
<PAGE> 53
REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND SHAREHOLDERS
ADVANCED LIGHTING TECHNOLOGIES, INC.
We have audited the accompanying consolidated balance sheet of Advanced
Lighting Technologies, Inc. as of June 30, 1998, and the related consolidated
statements of operations, shareholders' equity and cash flows, for each of the
two years in the period ended June 30, 1998. 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, 1998, and the consolidated
results of its operations and its cash flows for each of the two years in the
period ended June 30, 1998, in conformity with generally accepted accounting
principles.
/s/ ERNST & YOUNG LLP
Cleveland, Ohio
September 28, 1998, except for the sixth
paragraph of Note C, as to
which the date is March 15, 1999
F-3
<PAGE> 54
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
JUNE 30, JUNE 30,
1999 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 3,830 $ 21,917
Short-term investments.................................... 350 350
Trade receivables, less allowances of $1,257 and $375..... 25,485 40,779
Receivables from related parties.......................... 48 1,034
Inventories:
Finished goods......................................... 24,275 29,556
Raw materials and work-in-process...................... 16,501 15,184
-------- --------
40,776 44,740
Prepaid expenses.......................................... 2,354 3,200
Deferred taxes............................................ -- 2,192
-------- --------
Total current assets........................................ 72,843 114,212
Property, plant and equipment:
Land and buildings........................................ 38,364 31,429
Production machinery and equipment........................ 53,508 52,235
Other equipment........................................... 6,413 --
Furniture and fixtures.................................... 20,426 18,316
-------- --------
118,711 101,980
Less accumulated depreciation............................. 16,263 11,952
-------- --------
102,448 90,028
Deferred taxes.............................................. -- 2,892
Receivables from related parties............................ 5,048 3,157
Net assets associated with discontinued operations.......... -- 5,193
Investments in affiliates................................... 13,475 20,591
Other assets................................................ 6,586 8,878
Intangible assets........................................... 32,695 34,377
Excess of cost over net assets of businesses acquired,
net....................................................... 51,411 49,241
-------- --------
$284,506 $328,569
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt..... $ 8,543 $ 1,960
Accounts payable.......................................... 23,310 14,967
Payables to related parties............................... 1,126 618
Employee-related liabilities.............................. 3,781 3,259
Accrued income and other taxes............................ 904 2,729
Other accrued expenses.................................... 16,550 13,042
-------- --------
Total current liabilities................................... 54,214 36,575
Long-term debt.............................................. 152,496 117,332
Other liabilities........................................... 355 766
Deferred taxes.............................................. -- 3,059
Shareholders' equity
Preferred stock, $.001 par value, 1,000 shares authorized,
no shares issued....................................... -- --
Common stock, $.001 par value, 80,000 shares authorized,
20,278 shares issued and outstanding as of June 30,
1999 and 20,189 shares issued and outstanding as of
June 30, 1998.......................................... 20 20
Paid-in-capital........................................... 190,654 189,828
Accumulated other comprehensive income (loss)............. (949) --
Loan receivable from officer.............................. (9,520) --
Retained earnings (deficit)............................... (102,764) (19,011)
-------- --------
77,441 170,837
-------- --------
$284,506 $328,569
======== ========
</TABLE>
See notes to consolidated financial statements
F-4
<PAGE> 55
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DOLLAR AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
Net sales................................................. $188,484 $163,893 $85,645
Costs and expenses:
Cost of sales........................................... 128,492 95,341 45,703
Marketing and selling................................... 42,025 25,746 15,165
Research and development................................ 17,123 9,319 5,097
General and administrative.............................. 20,114 10,851 7,133
Fiber optic joint venture formation costs............... -- 212 286
Purchased research and development...................... -- 18,220 --
Special charges......................................... 27,309 15,918 --
Settlement of claim..................................... -- -- 771
Amortization of intangible assets....................... 2,773 1,665 397
-------- -------- -------
Income (loss) from operations............................. (49,352) (13,379) 11,093
Other income (expense):
Interest expense........................................ (13,845) (3,801) (1,513)
Interest income......................................... 1,122 1,436 845
Loss from equity investments............................ (6,318) (501) --
-------- -------- -------
Income (loss) from continuing operations before income
taxes, extraordinary charge and cumulative effect of
accounting change....................................... (68,393) (16,245) 10,425
Income taxes.............................................. 2,972 1,802 2,869
-------- -------- -------
Income (loss) from continuing operations before
extraordinary charge and cumulative effect of accounting
change.................................................. (71,365) (18,047) 7,556
Discontinued operations
Loss from operations of discontinued business (net of
income tax benefits of $719 in 1998 and $172 in
1997)................................................ -- (1,278) (452)
Loss on disposal of discontinued business, including
provision for operating losses during phase-out
period of $2,796 in 1999 and $9,100 in 1998 (net of
income tax benefits of $3,086 in 1998)............... (9,043) (6,014) --
-------- -------- -------
Income (loss) before extraordinary charge and cumulative
effect of accounting change............................. (80,408) (25,339) 7,104
Extraordinary charge from early extinguishment of debt,
net of income tax benefits.............................. (902) (604) --
Cumulative effect of change in accounting for start-up
costs................................................... (2,443) -- --
-------- -------- -------
Net income (loss)......................................... $(83,753) $(25,943) $ 7,104
======== ======== =======
Earnings (loss) per share -- Basic:
Income (loss) from continuing operations................ $ (3.53) $ (.99) $ .57
Loss from discontinued operations....................... (.45) (.40) (.03)
Extraordinary charge.................................... (.04) (.04) --
Cumulative effect of accounting change.................. (.12) -- --
-------- -------- -------
Earnings (loss) per share -- Basic........................ $ (4.14) $ (1.43) $ .54
======== ======== =======
Earnings (loss) per share -- Diluted:
Income (loss) from continuing operations................ $ (3.53) $ (.99) $ .55
Loss from discontinued operations....................... (.45) (.40) (.03)
Extraordinary charge.................................... (.04) (.04) --
Cumulative effect of accounting change.................. (.12) -- --
-------- -------- -------
Earnings (loss) per share -- Diluted...................... $ (4.14) $ (1.43) $ .52
======== ======== =======
Weighted average shares outstanding:
Basic................................................... 20,232 18,195 13,269
======== ======== =======
Diluted................................................. 20,232 18,195 13,558
======== ======== =======
</TABLE>
See notes to consolidated financial statements
F-5
<PAGE> 56
ADVANCED LIGHTING TECHNOLOGIES, INC.
STATEMENTS OF CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE THREE YEARS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
ACCUMULATED LOAN
COMMON STOCK COMPREHENSIVE OTHER RECEIVABLE RETAINED
------------------- PAID-IN INCOME COMPREHENSIVE FROM EARNINGS
SHARES PAR VALUE CAPITAL (LOSS) INCOME (LOSS) OFFICER (DEFICIT) TOTAL
------- --------- -------- ------------- ------------- ---------- --------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JULY 1, 1996... 10,845 $11 $ 26,755 $ -- $ -- $ -- $ (172) $26,594
Net income................ -- -- -- -- -- 7,104 7,104
Net proceeds from public
offering of common
shares.................. 2,452 2 30,089 30,091
Issuance of shares in
connection with
purchases of
businesses.............. 88 -- 1,537 -- -- -- -- 1,537
Stock options exercised... 50 -- 706 -- -- -- -- 706
------ --- -------- -------- ----- ------- --------- -------
BALANCE AT JUNE 30,
1997.................... 13,435 13 59,087 -- -- -- 6,932 66,032
Net loss.................. -- -- -- -- -- (25,943) (25,943)
Net proceeds from public
offering of common
shares.................. 3,000 3 69,317 -- -- -- -- 69,320
Issuance of shares in
connection with
purchases of
businesses.............. 3,646 4 59,655 -- -- -- -- 59,659
Stock options exercised... 98 -- 1,570 -- -- -- -- 1,570
Stock purchases by
employees............... 10 -- 199 -- -- -- -- 199
------ --- -------- -------- ----- ------- --------- -------
BALANCE AT JUNE 30,
1998.................... 20,189 20 189,828 -- -- -- (19,011) 170,837
Net loss.................. (83,753) (83,753) (83,753)
Loan to officer........... (9,520) (9,520)
Issuance of shares in
connection with the
purchase of a
business................ 2 -- 29 -- -- -- -- 29
Stock options exercised... 18 -- 279 -- -- -- -- 279
Stock issued pursuant to
employee benefit plan... 41 -- 312 -- -- -- -- 312
Stock purchases by
employees............... 28 -- 206 -- -- -- -- 206
Other comprehensive income
(loss):
Foreign currency
translation
adjustment............ (949) (949)
--------
Other comprehensive income
(loss).................. (949) (949)
------ --- -------- -------- ----- ------- --------- -------
Comprehensive income
(loss).................. $(84,702)
========
BALANCE AT JUNE 30,
1999.................... 20,278 $20 $190,654 $(949) $(9,520) $(102,764) $77,441
====== === ======== ===== ======= ========= =======
</TABLE>
See notes to consolidated financial statements
F-6
<PAGE> 57
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE YEARS ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income (loss) from continuing operations.................. $(71,365) $(18,047) $ 7,556
Adjustments to reconcile income (loss) from continuing
operations to net cash used in operating activities:
Depreciation.......................................... 6,335 3,384 2,151
Amortization.......................................... 2,773 1,665 397
Provision for doubtful accounts....................... 882 65 28
Special charges and terminated equipment contracts.... 34,119 17,984 --
Deferred income taxes................................. 3,584 (2,294) 419
Loss from equity investments.......................... 6,318 -- --
Purchased research and development.................... -- 18,220 --
Changes in operating assets and liabilities, excluding
effects of acquisitions and discontinued operations:
Trade receivables................................. (153) (9,876) (10,562)
Inventories....................................... 4,674 (7,410) (10,838)
Prepaids and other assets......................... (1,348) (7,609) (2,442)
Accounts payable and accrued expenses............. 3,843 (3,896) 10,032
Other............................................. (1,737) 303 1,373
-------- -------- --------
Net cash used in continuing operating
activities.................................... (12,075) (7,511) (1,886)
INVESTING ACTIVITIES
Capital expenditures...................................... (21,844) (16,598) (14,287)
(Purchase) sale of short-term investments, net............ -- 3,725 (4,075)
Purchases of businesses................................... (4,390) (50,706) (14,960)
Investments in affiliates................................. (2,394) (5,276) (2,827)
Use of net proceeds from public offering:
Capital expenditures.................................... -- (14,507) (2,080)
Investments in affiliates............................... -- (6,780) (4,101)
-------- -------- --------
Net cash used in investing activities........... (28,628) (90,142) (42,330)
FINANCING ACTIVITIES
Proceeds from revolving credit facility................... 216,977 319,786 92,001
Payments of revolving credit facility..................... (211,521) (312,213) (60,822)
Net proceeds from long-term debt.......................... 36,622 96,790 16,326
Payments of long-term debt and capital leases............. (3,971) (19,267) (8,159)
Issuance of common stock.................................. 797 1,769 706
Loan to officer........................................... (9,000) -- --
Net proceeds from public offering......................... -- 69,320 30,091
Use of net proceeds from public offering:
Payment of long-term debt and revolving credit
facility.............................................. -- (33,000) (16,800)
Payment of trade payables............................... -- -- (3,035)
-------- -------- --------
Net cash provided by financing activities....... 29,904 123,185 50,308
Net cash used in discontinued operations........ (7,288) (7,813) (3,576)
-------- -------- --------
Increase (Decrease) in cash and cash equivalents............ (18,087) 17,719 2,516
Cash and cash equivalents, beginning of year................ 21,917 4,198 1,682
-------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR...................... $ 3,830 $ 21,917 $ 4,198
======== ======== ========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid............................................. $ 12,241 $ 2,128 $ 1,375
Income taxes paid (refunds received), net................. (1,660) 2,829 81
Capitalized interest...................................... 645 1,118 455
Noncash transactions:
Equipment acquired through capital leases............... 77 376 1,683
Property acquired by assuming mortgage.................. -- 4,807 --
Cumulative effect of change in accounting principle..... 2,443 -- --
Extraordinary loss on early extinguishment of debt...... 902 604 --
Stock issued for purchases of businesses................ 29 59,659 1,537
Detail of acquisitions:
Assets acquired......................................... $ 10,143 $138,799 $ 23,033
Liabilities assumed..................................... 5,659 26,295 6,142
Stock issued for purchase of business................... 29 59,659 1,537
-------- -------- --------
Cash paid............................................... 4,455 52,845 15,354
Less cash acquired...................................... 65 2,139 394
-------- -------- --------
Net cash paid for acquisitions.......................... $ 4,390 $ 50,706 $ 14,960
======== ======== ========
</TABLE>
See notes to consolidated financial statements
F-7
<PAGE> 58
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1999
(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, which include 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.
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.
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 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.
F-8
<PAGE> 59
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company provides credit in the normal course of business, primarily to
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 include 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 40 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..................... 10 - 40 years
Patents, trademarks and tradenames.......................... 17 - 40 years
Other intangibles........................................... 10 - 40 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. During the fiscal year ended June
30, 1998, an impairment loss of $9,354 was charged to expense and classified as
"Special Charges", which are further discussed at Note K. Accumulated
amortization was $4,135 and $2,524 at June 30, 1999 and 1998, 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 revenues on production equipment contracts 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.
F-9
<PAGE> 60
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Stock Compensation Arrangements
In accordance with Statement of Financial Accounting Standards ("FAS") No.
123, "Accounting and Disclosure of Stock-Based Compensation," the Company
accounts for stock compensation arrangements using the intrinsic value based
method in APB Opinion No. 25 "Accounting for Stock Issued to Employees," and
discloses the effect on net income (loss) and earnings (loss) per share of the
fair value based method in FAS No. 123.
Accounting Change -- Costs of Start-Up Activities
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 SOP requires
that costs related to start-up activities (defined as those one-time activities
related to opening a new facility, introducing a new product or service,
conducting business in a new territory, conducting business with a new class of
customer or beneficiary, initiating a new process in an existing facility,
commencing some new operation and organizing a new entity) be expensed as
incurred and is effective for fiscal years beginning after December 31, 1998.
The Company has elected to adopt the provisions of this SOP in fiscal year 1999,
the effect of which ($2,443 or $.12 per diluted common share) is reflected as a
cumulative effect of change in accounting principle.
New Accounting Standards
In fiscal 1999, the Company adopted Statement of Financial Accounting
Standards ("FAS") No. 130, "Reporting Comprehensive Income" and FAS No. 131
"Disclosures about Segments of an Enterprise and Related Information."
The Company has not yet adopted FAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." FAS 133 requires that all derivatives, such
as interest rate exchange agreements (swaps), be recognized on the balance sheet
at fair value. Derivatives which are not hedges must be adjusted to fair value
through the results of operations. Derivatives determined to be hedges will be
adjusted to fair value through either the results of operations or other
comprehensive income, depending on the nature of the hedge. The Company is
required to adopt FAS No. 133, as subsequently amended by FAS No. 137, on July
1, 2000. The impact, if any, on net income, comprehensive income and financial
position will depend on the amount, timing and nature of any agreements entered
into by the Company.
Financial Statement Presentation Changes
Certain amounts for prior years have been reclassified to conform to the
current year reporting presentation.
C. ACQUISITIONS
During fiscal 1999, 1998 and 1997, 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 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.
On September 15, 1998, the Company acquired all of the capital stock
outstanding of Ruud Lighting Europe, Srl. ("RLE"), located in Florence, Italy.
RLE assembles and directly markets, in Europe and the Middle East,
high-intensity discharge ("HID") lighting systems, with a strong focus on metal
halide installations, for commercial, industrial, outdoor and related lighting
applications. The total purchase price consisted of $930 in
F-10
<PAGE> 61
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
cash. The purchase price resulted in an excess of cost over net assets acquired
of $1,329, which is being amortized over 20 years.
On August 31, 1998, the Company acquired all the assets and liabilities of
Venture Lighting New Zealand ("VLNZ"), located in Auckland, New Zealand. VLNZ
was the exclusive distributor of the Company's products in New Zealand. The
total purchase price consisted of $225 in cash and 2,000 shares of the Company's
Common Stock. The purchase price resulted in an excess of cost over net assets
acquired of $562, which is being amortized over 20 years.
On July 8, 1998, the Company acquired all of the capital stock outstanding
of Kramer Lighting, Inc. ("Kramer"), located in Middleton, Rhode Island, and
purchased the land and building of Kramer from an affiliate of Kramer. Kramer
manufactures and directly markets HID lighting systems, with a strong focus on
metal halide installations, for commercial, industrial, outdoor, and related
lighting applications. The total purchase price consisted of $2,612 in cash. The
purchase price resulted in an excess of cost over net assets acquired of $2,466,
which is being amortized over 25 years.
On January 2, 1998, the Company acquired all of the capital stock
outstanding of Ruud Lighting, Inc. ("Ruud"), located in Racine, Wisconsin. Ruud
manufactures and directly markets 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 $49,950). The excess of
the purchase price over the net tangible assets acquired was allocated to
various intangible assets such as trade name ($13,013), customer service
infrastructure ($16,915) and excess of cost over net assets acquired ($46,690),
all of which are being amortized over 40 years.
During 1999, the Company received a comment letter from the Securities and
Exchange Commission ("SEC") related to the Company's Form 10-K for the year
ended June 30, 1998. In response to the SEC's view related to the valuation of
the three million shares of restricted common stock issued in connection with
the acquisition of Ruud Lighting, Inc., the value of the shares was restated and
increased to $49,950, which resulted in an increase in the excess of cost over
net assets of businesses acquired of $16,928. The effect of the restatement on
the June 30, 1998 financial statements follows:
<TABLE>
<CAPTION>
AS RESTATED AS PREVIOUSLY REPORTED
----------- ----------------------
<S> <C> <C>
Balance Sheet
Excess of cost over net assets of business acquired,
net.................................................... $ 49,241 $ 32,524
Paid-in-capital........................................... 189,828 172,900
Retained earnings (deficit)............................... (19,011) (18,800)
Statement of Operations
Amortization of intangible assets......................... $ 1,665 $ 1,454
Loss before extraordinary charge.......................... 25,339 25,128
Net loss.................................................. 25,943 25,732
Per share loss -- basic and diluted
Before extraordinary charge............................ 1.39 1.38
Net loss............................................... 1.43 1.41
</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 of $22,060 was
F-11
<PAGE> 62
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
allocated to in-process research and development ("R&D") ($18,220) and
intangible assets ($3,840). Intangibles consist of trade names and assembled
workforce, 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. The in-process R&D write-off reduced earnings per share
by $1.00 in fiscal 1998.
On January 31, 1998, the Company acquired the remaining 50% partnership
interest (the Company acquired the first 50% as part of its acquisition of Ruud
Lighting) in Ruud Lighting Australia Pty Ltd. ("RLA"), the exclusive distributor
of the Ruud Lighting's products in Australia, for $82 and 5,292 shares of the
Company's Common Stock (valued at $108). The purchase resulted in an excess of
cost over net assets acquired of $338, which is being amortized over 20 years.
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 HID
lighting systems, based in the United Kingdom. The purchase price resulted in an
excess of cost over net assets acquired of $1,121. The remaining unamortized
excess of cost over net assets acquired was written off due to their impairment
in fiscal 1998 and are recorded as part of the special charges discussed at Note
K.
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. In fiscal 1998, the unamortized excess of
cost over net assets acquired was determined to be impaired and accordingly, was
included as a component of the special charges discussed in Note K.
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 was less than $30.00 during the month of June 1998. Based on
the June 1998 stock price, an additional 5,933 shares were issued under the
terms of the purchase agreement. Advanced Cable Lite Corporation designs,
manufactures and sells fiber optic and fiber optic lighting systems. The Company
contributed Advanced Cable Lite Corporation to the Unison Fiber Optics Lighting
Systems LLC, a joint venture with Rohm and Haas Company which is described
further in Note D.
D. FIBER OPTICS JOINT VENTURE
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 to the worldwide
lighting market. In consideration for a 50% interest in Unison, the Company
contributed its subsidiary, Advanced Cable Lite Corporation, $2,000 in cash,
other fiber optic lighting system assets and is obligated to contribute an
additional $3,000 in cash under a note due January 1, 2000. The Company
accounted for its investment in Unison under the equity method.
F-12
<PAGE> 63
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The transaction had the following noncash impact of increasing (decreasing)
the Company's December 31, 1997 condensed consolidated balance sheet:
<TABLE>
<S> <C>
Investments in affiliates................................... $4,592
Working capital, net........................................ (505)
Property, plant and equipment, net.......................... (53)
Other assets................................................ (51)
Excess of cost over net assets of businesses acquired,
net....................................................... (983)
Long-term debt.............................................. 3,000
</TABLE>
In connection with this joint venture, the Company incurred $212 of
formation and development costs which were charged to operations during the
first quarter of fiscal 1998 and $286 of such costs which were charged to
operations during the fourth quarter of fiscal 1997.
During the fourth quarter of fiscal 1999, the Company began an effort to
restructure its investment, considering the joint venture's financial condition,
and reviewed various strategic alternatives, including possible ownership
changes. In connection with the restructuring and review process, the Company
concluded that sufficient uncertainty existed regarding the ultimate recovery of
the investment. As a result, the Company revalued its investment to $569 and
recorded a pretax noncash write-down of $5,883, which is reflected in the
consolidated statement of operations as a loss from equity investments.
E. 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 (26% as of June 30, 1999). Accordingly, the Company changed
its method of carrying the investment to equity from cost in the quarter ended
March 31, 1998.
Pursuant to its agreements with Rohm and Haas, Rohm and Haas has the right
to request that the Company divest its interest in Fiberstars. Upon such
request, the Company agrees to complete such divestiture within two years
subject to reasonable extension upon consent of Rohm and Haas.
F. 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 has equipped and is operating
a metal halide lamp manufacturing facility in Japan. During the fourth quarter
of fiscal 1998, the Company changed its method of accounting for the investment
to equity from cost, with the results of operations of this investment being
insignificant in prior quarters. During the second quarter of fiscal 1999, the
Company exchanged its common stock interest for nonvoting preferred stock and
also purchased additional nonvoting preferred stock in Koto. As a result, the
Company changed its method of accounting for its investment in Koto to the lower
of cost or net realizable value.
G. FINANCING ARRANGEMENTS
Short-term debt consisted of the following:
F-13
<PAGE> 64
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Trade facility........................................ $ 221 $ 506
Short-term credit facility............................ -- 483
Installment loan...................................... -- 62
-------- -------
221 1,051
Current portion of long-term debt..................... 8,322 909
-------- -------
$ 8,543 $ 1,960
======== =======
</TABLE>
The Company, on behalf of a foreign subsidiary, maintains a multioption
borrowing facility with a foreign bank that includes a trade facility with
borrowing capacity of $601 and a short-term credit facility that matured in
August 1998. The trade facility, along with other borrowings with the foreign
bank, are collateralized with substantially all the assets of the subsidiary.
This facility 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, and ranged from 5.25% to 8.26% in fiscal 1999. The weighted
average interest rate on the trade facility was approximately 7.80% and 7.75%
during fiscal 1999 and fiscal 1998. The weighted average interest rate on the
short-term credit facility was 7.27% and 7.63% during fiscal 1999 and 1998.
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1999 1998
-------- --------
<S> <C> <C>
Senior unsecured 8% notes, due March 2008............ $100,000 $100,000
Bank Credit Facility -- term loan.................... 24,702 --
Bank Credit Facility -- revolving credit loan........ 12,766 --
Credit Facility...................................... -- 6,084
Mortgage notes payable............................... 18,443 7,323
Promissory note, due January 2000.................... 3,000 3,000
Obligations under capital leases..................... 1,401 1,608
Other................................................ 506 226
-------- --------
160,818 118,241
Less current portion............................... 8,322 909
-------- --------
$152,496 $117,332
======== ========
</TABLE>
On May 21, 1999, the Company replaced its existing Credit Facility with a
$50,000 revolving credit loan and a $25,000 term loan provided by several
financial institutions ("Bank Credit Facility"). Subsequent to June 30, 1999,
the Company reduced the Bank Credit Facility to a $60,000 facility. Proceeds
from the Bank Credit Facility were used to repay the Company's existing Credit
Facility and certain other long-term debt.
The revolving credit loan has a three-year term expiring in May 2002.
Interest rates on loans outstanding are based, at the Company's option, on LIBOR
plus 2.75% or the agent bank's prime rate. The Company is also obligated to pay
a commitment fee of .375% on the unused portion of the loan. Availability of
borrowings under the revolving credit loan is determined by the Company's
eligible accounts receivable and inventories. The term loan has a five-year term
expiring in May 2004. The Company pays monthly principal payments that total
$3,576 annually, with the unpaid balance due at maturity. Interest rates on the
term loan are based, at the Company's option, on LIBOR plus 3.25% or the agent
bank's prime rate. The Bank Credit Facility contains certain
F-14
<PAGE> 65
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
affirmative and negative covenants customary for this type of agreement,
prohibits cash dividends, and includes a financial covenant with respect to the
coverage of certain fixed charges. The principal security for the revolving
credit loan is substantially all of the personal property of the Company and
each of its North American and United Kingdom subsidiaries. The term loan is
secured by substantially all the Company's machinery and equipment and is cross
collateralized and secured with the revolving credit loan.
On March 13, 1998, the Company sold $100,000 of Senior Notes due March
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. Until the completion of
a registered exchange offer to existing noteholders, the Senior Notes bear
interest at 8.5%. The offer is expected to be completed within 45 days following
the effectiveness of the Company's related registration statement. There are no
sinking fund requirements. Approximately $76,300 of the net proceeds from the
senior notes were used to repay amounts outstanding under an existing 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. The Notes
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,
engage in mergers and consolidations.
Mortgages payable consisted of ten separate notes at various rates of
interest, ranging from 7.3% to 9.5%, and at June 30, 1999 were collateralized by
land and buildings with a net carrying value of $23,525.
On December 31, 1997, the Company executed an 8% promissory note in the
amount of $3,000, due January 1, 2000, in partial consideration for a 50%
interest in Unison Fiber Optic Systems LLC, a joint venture with Rohm and Haas
Company that focuses on the manufacture and sale of fiber optic lighting systems
to the worldwide lighting market.
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 $2,045 at June 30, 1999, are included in
the consolidated balance sheet as machinery and equipment.
Aggregate maturities of long-term debt (including capital lease
obligations) for the five fiscal years subsequent to June 30, 1999, were as
follows: 2000 -- $8,322; 2001 -- $5,252; 2002 -- $17,879; 2003 -- $4,705; and
2004 -- $18,388.
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.
The Company is obligated under its Bank Credit Facility to limit its
exposure to fluctuating interest rates for a minimum of $10,000. During fiscal
1999, the Company entered into an interest rate swap agreement that expires in
May 2004 and has a notional amount of $10,000 with a fixed pay rate of 6.63% and
a receive rate of LIBOR. The swap agreement is a contract to exchange floating
rate for fixed interest payments quarterly over the life of the agreement
without the exchange of the underlying notional amounts. The notional amount of
the interest rate agreement is used to measure interest to be paid or received
and does not represent the amount of exposure to credit loss. The net cash
amounts paid or received on the agreement are recognized as an adjustment to
interest expense. If these agreements were settled at June 30, 1999, the Company
would have paid approximately $200.
F-15
<PAGE> 66
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The Company uses standby letters of credit to satisfy certain security
deposits with service providers, to make borrowings, and as security for a loan
to a foreign investee. These letters are irrevocable and expire within 12 months
of issuance. Standby letters of credit outstanding as of June 30, 1999 were
$464. Historically, the Company has not experienced any significant claims
against these financial instruments. Management does not expect any material
losses to result from these off-balance-sheet instruments because performance is
not expected to be required, and therefore, is of the opinion that the fair
value of these instruments is zero.
H. SHAREHOLDERS' EQUITY
Shareholders' Equity
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 a 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, the Company's joint venture with
Rohm and Haas, and the remainder was used for working capital purposes.
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.
Employee Stock Options
The Company's 1995 Incentive Award Plan and 1998 Incentive Award Plan
provide for the granting of "A" and "B" incentive stock options to purchase
common stock of the Company. The "A" options become exercisable based on stock
price or 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. The
Company's 1997 Billion Dollar Market Capitalization Incentive Award Plan
provides for the granting of incentive stock options to purchase common stock of
the Company. The options become exercisable when the Company's market
capitalization, excluding the impact of stock issued in completing acquisitions,
reaches one billion dollars or after six years, whichever comes first. All
options have been granted at market value on the date of grant and expire ten
years from the date of grant. At June 30, 1999, the Company had 3,133,540 shares
reserved for future issuance upon exercise of stock options granted under the
option plans.
Information related to stock options for the years ended June 30 are as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---------------------- ---------------------- --------------------
WEIGHTED- WEIGHTED- WEIGHTED-
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
OPTIONS PRICE OPTIONS PRICE OPTIONS PRICE
---------- --------- ---------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning of year........ 2,601,347 $18.24 914,214 $14.38 791,850 $12.33
Granted............................... 682,600 10.18 1,939,689 19.56 228,150 19.73
Exercised............................. (18,590) 15.13 (97,209) 11.57 (50,661) 10.32
Forfeited............................. (513,491) 17.68 (155,347) 16.16 (55,125) 10.63
---------- ---------- --------
Outstanding, end of year.............. 2,751,866 16.36 2,601,347 18.24 914,214 14.38
========== ========== ========
Weighted-average fair value of options
granted during the year............. $ 4.69 -- $ 8.69 -- $ 6.62 --
</TABLE>
F-16
<PAGE> 67
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table summarizes additional information concerning
outstanding and exercisable options at June 30, 1999:
<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>
$ 6.94 to 9.99 524,700 9.9 years $ 7.04 -- --
10.00 to 15.99 257,642 6.8 years 10.06 190,267 $10.06
16.00 to 22.99 1,665,999 8.3 years 18.89 442,657 18.55
23.00 to 26.00 303,525 8.7 years 23.97 57,530 24.00
--------- -------
2,751,866 690,454
========= =======
</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 Standard
No. 123, "Accounting for Stock-Based Compensation", net income and earnings per
share would be as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
----------------------------
1999 1998 1997
-------- -------- ------
<S> <C> <C> <C>
Net income (loss) as reported.................. $(83,753) $(25,943) $7,104
Pro forma...................................... (85,763) (27,595) 6,540
Earnings (loss) per share as reported.......... (4.14) (1.43) 0.52
Pro forma...................................... (4.24) (1.52) 0.48
</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 1999, 1998 and 1997, respectively: expected volatility of 54%,
38% and 30%; risk-free interest rates of 5.61%, 5.78%, and 6.41%; and expected
lives of 4 years, 5 years, and 4 years with no dividend yield.
Employee Stock Purchase Plan
The Company's 1997 Employee Stock Purchase Plan authorized and made
available for sale to employees, at a discount of 15%, a total of 100,000 shares
of the Company's Common Stock. The Plan provides substantially all employees who
have completed six months of service an opportunity to purchase shares through
payroll deductions, up to 10% of eligible compensation.
The purchase price of each share is 85% of the month-end closing market
price of the Company's Common Stock. Employees purchased 41,233 shares in fiscal
1999 and 9,577 shares of stock in fiscal 1998. At June 30, 1999, 49,190 shares
were available for future purchases.
Shares Issued Pursuant to Defined Contribution Plan
Beginning in February 1999, pursuant to the terms of the Company's 401(k)
Retirement and Savings Plan, the Company partially matches, with its Common
Stock, the contributions made by employees to their plan accounts. The Company
has authorized and made available for contribution a total of 100,000 shares of
Common
F-17
<PAGE> 68
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Stock, and contributed 28,107 shares in fiscal 1999. At June 30, 1999, 71,893
shares were available for future contributions.
I. 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 4% of eligible employee earnings. Contributions charged to income for the
defined contribution plans, including expense associated with the Common Stock
issuances related to the 401(k) Retirement and Savings Plan described in Note H,
were $1,218 in fiscal 1999, $465 in fiscal 1998 and $373 in fiscal 1997.
J. INCOME TAXES
Income (loss) from continuing operations before income taxes, extraordinary
charges and cumulative effect of change in accounting principle were
attributable to the following sources:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
United States...................................... $(62,730) $ (9,290) $ 9,548
Foreign............................................ (5,663) (6,955) 877
-------- -------- -------
Totals............................................. $(68,393) $(16,245) $10,425
======== ======== =======
</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.
Income taxes have been provided as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
---------------------------
1999 1998 1997
------ ------- ------
<S> <C> <C> <C>
Current:
Federal.............................................. $ 669 $ 2,917 $1,545
State and local...................................... 219 372 550
Foreign.............................................. (253) 807 355
------ ------- ------
635 4,096 2,450
Deferred:
Federal.............................................. 339 (176) 313
State and local...................................... (94) (228) 149
Foreign.............................................. 2,092 (1,890) (43)
------ ------- ------
2,337 (2,294) 419
------ ------- ------
$2,972 $ 1,802 $2,869
====== ======= ======
</TABLE>
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, 1999 and 1998 are as follows:
F-18
<PAGE> 69
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------
1999 1998
-------- -------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards.......................... $21,317 $ 892
Research and development tax credits...................... 3,006 --
Tax under financial reporting accruals.................... -- 1,212
Intangible amortization................................... -- 486
Tax under financial reporting special charges, equity
write-down and discontinued operations................. 8,454 1,718
Tax under financial reporting inventory reserves.......... -- 252
Other..................................................... 2,266 524
------- ------
35,043 5,084
Deferred tax liabilities:
Tax over financial reporting depreciation................. 4,721 2,720
Other..................................................... -- 339
------- ------
4,721 3,059
------- ------
Net deferred tax assets (liabilities) before valuation
allowance................................................. 30,322 2,025
Valuation allowance......................................... (30,322) --
------- ------
Net deferred tax assets (liabilities)....................... $ -- $2,025
======= ======
</TABLE>
The statutory federal income tax rate and the effective income tax rate are
reconciled as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------
1999 1998 1997
----- ----- ------
<S> <C> <C> <C>
Statutory tax rate........................................ (35.0)% (35.0)% 35.0%
State and local income taxes, net of federal benefit...... 0.2 0.6 3.6
Nondeductible purchased research and development.......... -- 39.8 --
Research and development tax credit....................... (0.8) (4.1) --
Effect of foreign taxes................................... 2.3 (1.4) (1.4)
Nondeductible foreign special charges..................... 0.3 9.8 --
Net operating loss carryforward........................... -- -- (2.8)
Valuation allowance....................................... 37.5 -- --
Adjustment of deferred tax liabilities.................... -- -- (10.9)
Other..................................................... (0.8) 1.4 4.0
----- ----- ------
Effective tax rate........................................ 3.7% 11.1% 27.5%
===== ===== ======
</TABLE>
Income taxes paid (net of refunds) were $(1,660) in fiscal 1999, $3,129 in
fiscal 1998, and $81 in fiscal 1997.
At June 30, 1999, the Company had net operating loss carryforwards ("NOLs")
of $57,309 available to reduce future United States federal taxable income,
which expire 2008 through 2019.
The Company also had research and development credit carryforwards for tax
purposes of approximately $3,006, which expire 2005 through 2019. Additionally,
in conjunction with the Alternative Minimum Tax
F-19
<PAGE> 70
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
("AMT") rules, the Company had available AMT credit carryforwards for tax
purposes of approximately $162, which may be used indefinitely to reduce regular
federal income taxes.
Also, at June 30, 1999, the Company had foreign net operating loss
carryforwards for tax purposes totaling $5,209 that expire in 2000 to 2005 and
$10,587 that have no expiration dates.
For fiscal 1999, the Company reported a pretax loss from continuing
operations, including special charges, of $68,393; and a pretax loss on the
discontinued operations of the Microsun business of $9,043; an extraordinary
charge from the early extinguishment of debt of $902; and, a cumulative effect
of change in accounting for start-up costs of $2,443, all of which created
$80,781 of operating losses and future tax deductions for financial reporting
purposes. Accordingly, at June 30, 1999, the Company has recorded a valuation
allowance for deferred tax assets of $30,322 related to all NOLs, tax credits
and net deductible tax differences.
K. SPECIAL CHARGES AND TERMINATED EQUIPMENT CONTRACTS
During the year ended June 30, 1999, the Company recorded special charges
related to significant changes in its operations, which are intended to
accelerate and intensify the Company's focus on its metal halide products.
The special charges principally relate to the execution of the Company's
shift in strategic direction and include: limiting Pacific Rim expansion;
changing global lamp manufacturing strategy; restructuring marketing operations
in North America and Europe; accelerating an exit from noncore product lines;
reducing excess overhead including staffing reductions; consolidating an
equipment manufacturing operation into the Company's Solon, Ohio facility and
significantly reducing the size of the operation; and, reducing capital
expenditures.
The special charges were determined in accordance with formal plans
developed by the Company's management and approved by the Company's Board of
Directors using the best information available to it at the time. Actions
associated with closing facilities began in the second quarter and were
substantially completed by the end of fiscal 1999. Employees were terminated
enterprise-wide from almost all areas and units of the Company. Assets related
to the above actions are no longer in use and have been sold or were
written-down to their estimated fair values. The amounts the Company will
ultimately incur may change as the Company's plans are executed and actions are
completed.
Details of the actions and related special charges recorded during fiscal
1999 are summarized as follows:
F-20
<PAGE> 71
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
BALANCE AS OF
CHARGED TO CHARGES JUNE 30,
DESCRIPTION CASH/NONCASH OPERATIONS UTILIZED 1999
----------- -------------- ---------- -------- -------------
<S> <C> <C> <C> <C>
Limit Pacific Rim Expansion:
Severance............................... Cash $ 642 $ 492 $ 150
Lease/contract cancellations............ Cash/Noncash 3,841 488 3,353
Write-down of assets.................... Noncash 2,237 2,237 --
Shut-down costs of facilities........... Cash 497 493 4
Change in Global Manufacturing Strategy:
Severance............................... Cash 328 328 --
Write-down of assets.................... Noncash 8,502 8,502 --
Shut-down costs of facilities........... Cash 380 380 --
Program cancelation..................... Cash 128 -- 128
Restructure Marketing Operations in North
America and Europe:
Severance............................... Cash 317 287 30
Lease/contract cancellations............ Cash 436 110 326
Write-down of assets.................... Noncash 1,701 1,701 --
Shut-down costs of facilities........... Cash 738 664 74
Reduce Staffing Requirements.............. Cash/Noncash 2,262 1,761 501
Terminate Management Benefit Program...... Cash/Noncash 1,516 1,430 86
Exit Noncore Inventory Products........... Noncash 261 261 --
Write-off Long-Lived Assets............... Cash/Noncash 4,611 4,562 49
Other..................................... Cash 420 267 153
------- ------- ------
$28,817 $23,963 $4,854
======= ======= ======
</TABLE>
The special charges for fiscal 1999 of $28,817 are classified in the
consolidated statement of operations as cost of goods sold ($1,508) and special
charges ($27,309). The Company incurred additional costs of $596 and $764, as
described in Note O, related to the above actions. All actions required by the
plans are expected to be completed by December 31, 1999.
In conjunction with limiting its Pacific Rim expansion, the Company
terminated production equipment contracts related to the completion of four lamp
manufacturing equipment groups. Accordingly, in the quarter ended December 31,
1998, the Company reversed previously recognized sales of $14,961 and cost of
sales of $6,413 related to these contracts, which were accounted for under the
percentage-of-completion method.
These special charges reduced net income by $37,365, or $1.85 diluted
earnings per share for fiscal 1999.
During fiscal 1998, the Company recorded special charges related to an
assessment of the Company's global power supply operations.
The special charges of $17,984 principally relate to the Company's decision
to refocus and restructure its recently acquired global power supply operations
to focus exclusively on opportunities in metal halide. With the January 1998
acquisition of Ruud Lighting, Inc., the Company accelerated this 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 $2,066 write-down of inventory which is
classified in cost of sales. In addition, the charges cover the cost of
F-21
<PAGE> 72
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
consolidating 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 special charges for fiscal 1998 of $17,984 in the statement of
operations are classified as cost of sales ($2,066) and special charges
($15,918).
<TABLE>
<CAPTION>
YEAR ENDED
JUNE 30, 1998
---------------------- BALANCE AS OF
CHARGED TO CHARGES JUNE 30,
DESCRIPTION CASH/NONCASH OPERATIONS UTILIZED 1998
----------- ------------ ---------- -------- -------------
<S> <C> <C> <C> <C>
Asset write-downs:
Inventories............................... Noncash $ 2,066 $ 2,066 $ --
Intangibles............................... Noncash 9,354 9,354 --
Fixed assets.............................. Noncash 3,056 3,056 --
Other assets.............................. Noncash 2,184 2,184 --
Contractual commitments and other
accruals.................................. Cash 1,209 496 713
Other....................................... Cash 115 115 --
------- ------- ------
$17,984 $17,271 $ 713
======= ======= ======
</TABLE>
The $713 balance, as of June 30, 1998, was utilized during 1999.
The write-down of intangible assets primarily represent the excess of the
purchase price over the fair value of the net assets acquired and costs
allocated to tradenames, know-how, and other specifically identifiable
intangibles arising from business combinations. Asset write-downs for the
impairment of long-lived intangibles and fixed assets were determined in
accordance with Statement of Financial Accounting Standards No. 121.
After an income tax benefit of $5,015, these special charges reduced net
income by $12,969, or $.71 diluted earnings per share for fiscal 1998.
L. DISCONTINUED OPERATIONS, MICROSUN BUSINESS
Microsun Technologies, Inc. was identified in March 1998 for disposition
through a plan to distribute to ADLT shareholders all of the ownership of
Microsun Technologies, Inc. in a tax-free spin-off transaction estimated to be
completed by December 1998. Because of the deterioration of the capital markets
and the inability to raise capital necessary to spin-off the Microsun business,
in December 1998, the Company revised its plan for the disposition to wind-down
the operations, close the manufacturing facilities and liquidate the assets of
Microsun. During fiscal 1998, a loss on disposal of $9,100 (net of income tax
benefits of $3,086) for operating losses through the planned date of spin-off
was recorded. During fiscal 1999, an additional loss on disposal of $9,043 was
recorded, which included $2,796 for additional operating losses during the
phase-out period, $3,134 related to the write-down and disposal of assets and
costs related to shut-down and severance, and a deferred tax asset valuation
allowance of $3,113.
Summary operating information for Microsun for fiscal 1999, 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.
F-22
<PAGE> 73
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
--------------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Sales.................................................... $4,719 $4,456 $ 845
Costs and expenses....................................... 9,538 13,530 1,469
------ ------ ------
Loss before income taxes................................. 4,819 9,074 624
Deferred income tax benefit (expense).................... (3,113) 3,113 172
------ ------ ------
Net loss................................................. $7,932 $5,961 $ 452
====== ====== ======
</TABLE>
Operating losses from the measurement date (March 31, 1998) through June
30, 1999 were $11,896.
At June 30, 1999, the plan of wind-down had been accomplished, the
manufacturing facilities closed and substantially all assets had been disposed.
Accordingly, there were no remaining discontinued operations accrued losses
associated with Microsun at June 30, 1999.
M. SETTLEMENT OF CLAIMS
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-23
<PAGE> 74
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
N. EARNINGS PER SHARE
Earnings (loss) per share is computed as follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
------------------------------
1999 1998 1997
-------- -------- ------
<S> <C> <C> <C>
Income available to common shareholders:
Income (loss) from continuing operations................. $(71,365) $(18,047) $7,556
======== ======== ======
Net income (loss)........................................ $(83,753) $(25,943) $7,104
======== ======== ======
Weighted average shares -- Basic:
Outstanding at beginning of period....................... 20,189 13,435 10,844
Issued pursuant to public offering....................... -- 2,942 2,327
Issued in acquisitions................................... 2 1,768 41
Issued for exercise of stock options..................... 17 47 22
Issued pursuant to employee stock purchase plan.......... 19 3 --
Issued pursuant to 401(k) plan........................... 5 -- --
Issuable in connection with an acquisition............... -- -- 35
-------- -------- ------
Basic weighted average shares......................... 20,232 18,195 13,269
======== ======== ======
Weighted average shares -- Diluted:
Basic from above......................................... 20,232 18,195 13,269
Effect of stock options.................................. -- -- 289
-------- -------- ------
Diluted weighted average shares....................... 20,232 18,195 13,558
======== ======== ======
Earnings (loss) per share -- Basic:
Income (loss) from continuing operations................. $ (3.53) $ (.99) $ .57
Loss from discontinued operations........................ (.45) (.40) (.03)
Extraordinary charge..................................... (.04) (.04) --
Cumulative effect of change in accounting principle...... (.12) -- --
-------- -------- ------
Earnings (loss) per share -- Basic....................... $ (4.14) $ (1.43) $ .54
======== ======== ======
Earnings (loss) per share -- Diluted:
Income (loss) from continuing operations................. $ (3.53) $ (.99) $ .55
Loss from discontinued operations........................ (.45) (.40) (.03)
Extraordinary charge..................................... (.04) (.04) --
Cumulative effect of change in accounting principle...... (.12) -- --
-------- -------- ------
Earnings (loss) per share -- Diluted..................... $ (4.14) $ (1.43) $ .52
======== ======== ======
</TABLE>
O. RELATED PARTY TRANSACTIONS
Pursuant to a loan agreement dated October 8, 1998, between the Company and
its Chairman and Chief Executive Officer (the "CEO"), the Company has loaned
$9,000 to its CEO for a one-year term at an interest rate of 8%. The loan was
made following approval by the Company's Board of Directors. The proceeds of the
loan were used by the Company's CEO to reduce the principal balance outstanding
of a margin account loan, which is secured by 2,053,070 shares of the Company's
Common Stock owned by the CEO and a related entity. In connection with the loan,
the Company's Board of Directors asked for and received the CEO's agreement to
extend the term of his employment agreement to December 31, 2003. The loan
agreement prohibits the CEO
F-24
<PAGE> 75
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
from encumbering his shares of the Company's Common Stock in any manner except
pursuant to the existing agreements governing the CEO's margin account, without
the consent of the Company's Board of Directors. As of June 30, 1999, $520 of
interest was accrued on the loan.
In connection with the fiscal 1999 actions described in Note K, the Company
recognized $596 in cost of sales for the write-down of specialty inventory and
$764 in research and development expenses related to transactions with
affiliates. During fiscal 1999, the Company also recognized a $700 provision for
uncollectible advances and receivables related to transactions with affiliates.
During January 1996, the Company entered into a six-year Aircraft Operating
Agreement ("Agreement") with an unrelated company to charter certain airplanes
for service into locations which are not adequately served by commercial
carriers. The unrelated company leases the airplanes from an affiliate of the
Company owned by certain officers of the Company. These officers have guaranteed
the repayment of $11,200 of indebtedness incurred by the affiliate to purchase
the airplanes. The Company's minimum annual commitments under the Agreement are
$911. During May 1998, the Company began to charter another airplane from
another unrelated company. This unrelated company also leases the airplane from
an affiliate of the Company owned by certain officers of the Company. These
officers have guaranteed the repayment of $6,400 of indebtedness incurred by the
affiliate to purchase the airplane. Fees paid by the Company under these
arrangements were $1,616 in fiscal 1999, $2,161 in fiscal 1998, and $554 in
fiscal 1997.
The Company paid a director of the Company $100 in fiscal 1999, $129 in
fiscal 1998, and $79 in fiscal 1997 for consulting services.
The Company sold lamps, lamp components, and lamp production equipment to
an overseas company aggregating $625 in fiscal 1999, $1,254 in fiscal 1998, and
$3,853 in fiscal 1997. An executive officer and director of the overseas company
became a Director of the Company in January 1996.
During fiscal 1996, one of the Company's subsidiaries sold the assets of
its nonlamp product line to an affiliate of the Company owned principally by
certain officers of the Company for an amount equal to the carrying amount of
such assets as of June 30, 1995. As of June 30, 1999 and 1998, the Company had
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. Total principal and accrued
interest at June 30, 1999 was $284.
P. COMMITMENTS
The Company leases buildings and certain equipment under noncancelable
operating lease agreements. Total rent expense was $1,878 in 1999, $1,495 in
1998, and $1,478 in 1997. Future minimum lease commitments, as of June 30, 1999,
were as follows:
<TABLE>
<S> <C>
YEAR:
Fiscal 2000................................................. $1,946
Fiscal 2001................................................. 1,837
Fiscal 2002................................................. 1,486
Fiscal 2003................................................. 1,319
Fiscal 2004................................................. 894
Thereafter.................................................. 756
------
Minimum lease payments...................................... $8,238
======
</TABLE>
F-25
<PAGE> 76
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Q. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the quarterly results of operations for the
years ended June 30, 1999 and 1998.
<TABLE>
<CAPTION>
FISCAL 1999, THREE MONTHS ENDED
-----------------------------------------------
JUN 30(A) MAR 31(B) DEC 31(C) SEP 30
---------- --------- --------- -------
<S> <C> <C> <C> <C>
Net sales....................................... $ 50,160 $ 50,022 $ 37,944 $50,358
Gross profit.................................... 14,053 17,346 7,871 20,722
Income (loss) from operations................... (21,402) (4,163) (26,916) 3,129
Income (loss) from continuing operations before
extraordinary charge and cumulative effect of
accounting change............................. (30,019) (7,722) (33,806) 182
Loss from discontinued operations............... (2,877) -- (6,166) --
Net income (loss)............................... $ (36,241) $ (7,722) $(39,972) $ 182
========== ======== ======== =======
Earnings (loss) per share -- Basic.............. $ (1.79) $ (.38) $ (1.98) $ .01
========== ======== ======== =======
Earnings (loss) per share -- Diluted............ $ (1.79) $ (.38) $ (1.98) $ .01
========== ======== ======== =======
Price Range of Common Stock:
High.......................................... $ 9.000 $ 10.313 $ 10.625 $27.250
Low........................................... $ 5.813 $ 6.750 $ 4.875 $ 8.500
</TABLE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED FISCAL 1998
-----------------------------------------------
JUN 30 MAR 31(D) DEC 31 SEP 30
---------- --------- --------- -------
<S> <C> <C> <C> <C>
Net sales....................................... $ 53,002 $ 49,075 $31,879 $29,937
Gross profit.................................... 23,902 18,627 13,412 12,611
Income (loss) from operations................... 7,369 (29,362) 4,458 4,156
Income (loss) from continuing operations before
extraordinary charge.......................... 4,191 (28,059) 3,033 2,788
Loss from discontinued operations, net of tax
benefits...................................... -- (6,753) (241) (298)
Net income (loss)............................... $ 4,191 $(35,416) $ 2,792 $ 2,490
========== ======== ======= =======
Earnings (loss) per share -- Basic.............. $ .21 $ (1.78) $ .17 $ .15
========== ======== ======= =======
Earnings (loss) per share -- Diluted............ $ .20 $ (1.78) $ .17 $ .15
========== ======== ======= =======
Price Range of Common Stock:
High.......................................... $ 29.938 $ 27.000 $26.500 $27.000
Low........................................... $ 20.875 $ 18.250 $18.250 $22.875
</TABLE>
- ---------------
(a) Fourth Quarter 1999 -- Net income was reduced by: (a) charges of $12,972
consisting of $700 in cost of sales and special charges of $12,272; (b) a
$700 provision for uncollectible advances and receivables related to
transactions with affiliates; (c) a pretax noncash write-down of $5,883,
related to the Company's investment in Unison; (d) extraordinary charge
from the early extinguishment of debt of $902; and, (e) a $2,443 cumulative
effect of a change in accounting principle.
(b) Third Quarter 1999 -- Net income was reduced by $1,745 of special charges.
F-26
<PAGE> 77
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(c) Second Quarter 1999 -- Net income was reduced by: (a) $8,548 from the
reversal of $14,961 in sales and $6,413 in cost of sales related to the
termination of lamp equipment contracts; (b) charges of $15,238 consisting
of: $1,182 in cost of sales ($374 with an affiliate), $764 of research and
development with an affiliate, and $13,292 of special charges; and, (c)
establishment of deferred tax valuation allowance of $3,515.
(d) Third Quarter 1998 -- Net income was reduced by the write-off of purchased
research and development and special charges, net of income tax benefits,
of $32,056.
R. SEGMENT AND GEOGRAPHIC INFORMATION
The Company operates in a single business segment: the design, manufacture
and sales of metal halide lighting products including materials, system
components, systems and production equipment.
Net sales by country, based on the location of the business unit, for
fiscal 1999, 1998 and 1997 follows:
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-------------------------------
1999 1998 1997
-------- -------- -------
<S> <C> <C> <C>
United States....................................... $136,721 $107,287 $59,689
Canada.............................................. 20,524 29,427 14,406
United Kingdom...................................... 19,998 20,287 5,786
Australia........................................... 10,092 6,892 5,764
Other............................................... 1,149 -- --
-------- -------- -------
$188,484 $163,893 $85,645
======== ======== =======
</TABLE>
Long-lived assets by country, based on the location of the asset, as of
June 30, 1999 and 1998 follows:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1999 1998
-------- -------
<S> <C> <C>
United States............................................... $ 90,769 $80,825
Canada...................................................... 2,845 2,709
United Kingdom.............................................. 6,396 6,120
Australia................................................... 1,760 300
Other....................................................... 678 74
-------- -------
$102,448 $90,028
======== =======
</TABLE>
In fiscal 1999, 1998 and 1997, no single customer accounted for 10% or more
of the Company's net sales.
S. 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 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 purchase, the Company relocated
its world headquarters to the facility.
F-27
<PAGE> 78
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
JUNE 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
T. CONTINGENCY
In April and May 1999, three class action suits were filed in the United
States District Court, Northern District of Ohio, by certain alleged
shareholders of the Company on behalf of themselves and purported classes
consisting of Company shareholders, other than the defendants and their
affiliates, who purchased stock during the period from December 30, 1997 through
September 30, 1998 or various portions thereof. The named defendants are the
Company and its Chairman and Chief Executive Officer ("CEO"). The lawsuits are
now pending before a single judge who has required the plaintiffs to file a
single consolidated complaint on or before September 30, 1999. The complaints
allege generally that certain disclosures attributed to the Company contained
misstatements and omissions alleged to be violations of Section 10(b) of the
Securities Act of 1934 and Rule 10b-5, including claims for "fraud on the
market" arising from alleged misrepresentations and omissions with respect to
the Company's financial performance and prospects and alleged violations of
generally accepted accounting principles by improperly recognizing revenues. The
complaints seek certification of their respective purported classes, unspecified
compensatory and punitive damages, pre- and post-judgment interest and
attorneys' fees and costs. The Company and its CEO believe that these claims
lack merit and they intend to vigorously defend these actions.
U. SUBSEQUENT EVENT
During September 1999, General Electric Company ("GE") executed a
definitive agreement to make an investment in the Company of $20,554. In
exchange for the investment, GE will receive 761,250 shares of the Company's
newly-created Series A Stock convertible at any time into 3,045,000 shares of
Company Common Stock (subject to adjustment as described below). GE also will
receive a Warrant (the "Initial Warrant") to purchase an additional 1,000,000
shares of Company Common Stock, which is immediately exercisable at $.01 per
share. GE has been a holder of 535,887 shares of Company Common Stock since the
Company's initial public offering in 1995. The Series A Stock, Common Stock
issuable on exercise of the Initial Warrant and the Common Stock held by GE will
represent (after giving effect to the shares issued on exercise of the Initial
Warrant) approximately 18.9% of the voting power and equity ownership of the
Company after the GE investment. The proceeds of the transaction will be applied
principally to the reduction of short-term liabilities and outstanding amounts
under the Company's Bank Credit Facility.
The Series A Stock will have a liquidation preference of $27 per share,
plus an amount equal to 8% per annum from the date of issuance to the date of
payment ("Liquidation Preference Amount"). The Company will be required to
redeem any shares of Series A Stock which have not been converted or retired on
September 30, 2010. In addition, GE may, by notice, require the Company to
redeem the outstanding Series A Stock, within one year following: September 30,
2004, failure of the transaction to get required approvals or the occurrence of
corporate events. If the Company fails to maintain certain financial ratios, GE
will have the right to a combination of subscription rights to additional shares
and proxies with respect to shares voted by certain officers of the Company
which would give GE the ability to obtain the majority of the voting power of
the Company.
The transaction will be completed only after termination of the
Hart-Scott-Rodino waiting period as required under antitrust laws.
F-28
<PAGE> 79
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
On April 5, 1999 the Company filed a Current Report on Form 8-K dated March
29, 1999, reporting under Item 4 the resignation of the Company's independent
auditors, Ernst & Young LLP.
On May 24, 1999 the Company filed a Current Report on Form 8-K dated May
17, 1999, reporting under Item 4 the engagement of the Company's new independent
auditors, Grant Thornton LLP.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is incorporated herein by reference to
the Registrant's definitive Proxy Statement relating to its 1999 Annual
Shareholders Meeting ("Proxy Statement"), under the captions "Nominees,"
"Continuing Directors and Executive Officers," and "Compliance With Section
16(a) of the Securities Exchange Act of 1934." This Proxy Statement will be
filed with the SEC prior to October 28, 1999.
ITEM 11. EXECUTIVE COMPENSATION
The information contained under the caption "Compensation" in the Proxy
Statement is included by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information contained under the caption "Certain Holders of Voting
Securities" in the Proxy Statement is included by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information contained under the caption "Other Transactions With
Directors And Officers" in the Proxy Statement is included by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) and (2). The following consolidated financial statements of Advanced
Lighting Technologies, Inc. are included in Item 8:
Report of Grant Thornton LLP, Independent Auditors
Consolidated Balance Sheets as of June 30, 1999 and 1998
Consolidated Statements of Operations for the Years Ended June 30, 1999,
1998 and 1997
Statements of Consolidated Shareholders' Equity for the Years Ended June
30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the Years Ended June 30, 1999,
1998 and 1997
Notes to Consolidated Financial Statements
Financial Statement Schedules:
(2) The following Financial Statement Schedules are included in Item 14(d):
None. All schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable and therefore have been
omitted.
50
<PAGE> 80
(3) List of Exhibits (Exhibits available upon request)
<TABLE>
<CAPTION>
SEQUENTIAL PAGE NUMBER/
EXHIBIT NO. TITLE INCORPORATED BY REFERENCE
- ----------- ----- -------------------------
<C> <S> <C>
2.1 Stock Purchase Agreement among Advanced Lighting
Technologies, Inc., Ruud Lighting, Inc. and Alan J. Ruud,
Theodore O. Sokoly, Donald Wandler, Christopher A. Ruud and
Cynthia A. Johnson (Form 10 Q/A Exhibit 2.1)............... (10)
2.2 Agreement and Plan of Reorganization among Advanced
Lighting Technologies, Inc., Advanced Acquisitions, Inc.,
Deposition Sciences, Inc., and Lee Bartolomei, Frances and
John Aguilera, Jr. 1992 Trust, Michael Robbins, James
Brosnan and Norman Boling dated as of January 9, 1998...... (11)
3.1 Amended and Restated Articles of Incorporation............. (1)
3.2 Code of Regulations........................................ (2)
4.1 Reference is made to Exhibits 3.1 and 3.2..................
4.2 Form of Stock Certificate of Common Stock of the Company... (2)
4.3 Indenture between Advanced Lighting Technologies, Inc. and
The Bank of New York as Trustee dated as of March 18, 1998
(Form 10-Q/A Exhibit 4.3).................................. (10)
4.4 First Supplemental Indenture dated September 25, 1998
between Advanced Lighting Technologies, Inc. and The Bank
of New York amending the Indenture dated March 18, 1998
(Form 10-Q/A No. 2 Exhibit 4.1)............................ (14)
4.5 Registration Rights Agreement dated as of March 18, 1998
between the Registrant and Morgan Stanley & Co.,
Incorporated (Form S-4 Exhibit 4.2)........................ (16)
4.6 Form of Security for 8% Senior Notes due 2008 originally
issued by Advanced Lighting Technologies, Inc. on March 18,
1998 (Form S-4 Exhibit 4.3)................................ (16)
4.7 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 (Form S-4 Exhibit 4.4).... (16)
9.1 Form of Voting Trust Agreement dated as of October 10, 1995
by and among the Company, Wayne R. Hellman, Louis S. Fisi,
David L. Jennings, Robert S. Roller, Juris Sulcs, James F.
Sarver, Brian A. Hellman and Lisa Hellman, as amended
December 20, 1995 ("Hellman Voting Trust")................. (3)
9.2 Form of Irrevocable Proxy relating to shares formerly held
under the Hellman Voting Trust............................. (3)
9.3 Form of Voting Trust Agreement dated as of January 2, 1998
by and among the Company, Alan J. Ruud, Donald Wandler,
Theodore Sokoly, Christopher Ruud and Cynthia Johnson (the
"Rudd Voting Trust") and Form of Irrevocable Proxy relating
to shares formerly held under the Ruud Voting Trust........ (9)
10.1 Employment Agreement dated as of January 2, 1998 among Ruud
Lighting, Inc., Advanced Lighting Technologies, Inc., and
Alan J. Ruud............................................... (11)
</TABLE>
51
<PAGE> 81
<TABLE>
<CAPTION>
SEQUENTIAL PAGE NUMBER/
EXHIBIT NO. TITLE INCORPORATED BY REFERENCE
- ----------- ----- -------------------------
<C> <S> <C>
10.2 Aircraft Lease Agreement between LightAir, Ltd., an Ohio
limited liability company, of which Wayne R. Hellman owns
80% of the membership interests and Louis S. Fisi owns 20%
of the membership interests, and Levetz Investments, Inc.,
an unrelated corporation engaged in the business of
chartering aircraft and otherwise providing general
aviation services ("Levetz Investments"), dated as of
January 22, 1996 (Form 10-Q Exhibit 10.1).................. (7)
10.3 Aircraft Operating Agreement between Levetz Investments and
Venture Lighting International, Inc., a wholly-owned
subsidiary of the Company, dated as of January 22, 1996
(Form 10-Q Exhibit 10.2)................................... (7)
10.4 Aircraft Operating Agreement between Levetz Investments and
APL Engineered Materials, Inc., a wholly-owned subsidiary
of the Company, dated as of January 22, 1996 (Form 10-Q
Exhibit 10.3).............................................. (7)
10.5 Aircraft Dry Lease Agreement dated as of May 27, 1997 by
and between LightAir, Ltd. and Advanced Lighting
Technologies, Inc. (Registration Statement Exhibit
10.26)..................................................... (8)
10.6 Employment Agreement dated as of February 12, 1998 between
Advanced Lighting Technologies, Inc. and Nicholas R. Sucic
(Form 10-Q/A Exhibit 10.5)................................. (10)
10.7 Loan Agreement dated as of October 8, 1998 between Advanced
Lighting Technologies, Inc. and Wayne R. Hellman (Form
10-Q/A Exhibit 10.1)....................................... (12)
10.8 Secured Promissory Note of Wayne R. Hellman dated as of
October 8, 1998 in the amount of $9,000,000 to Advanced
Lighting Technologies, Inc. at the rate of 8% per annum
(Form 10-Q/A Exhibit 10.2)................................. (12)
10.9 Amended and Restated Employment Agreement between Wayne R.
Hellman and Advanced Lighting Technologies, Inc. dated as
of October 8, 1998 (Form 10-Q/A Exhibit 10.4).............. (12)
10.10 Copy of the Company's Amended and Restated 1995 Incentive
Award Plan (Registration Statement Exhibit 10.1 and
10.1/A).................................................... (2)
10.11 Copy of the Company's 1997 Billion Dollar Market
Capitalization Incentive Award Plan........................
10.12 Copy of the Company's Amended and Restated 1998 Incentive
Award Plan.................................................
10.13 Credit Agreement by and among the Company and certain of
its subsidiaries and PNC Bank, National Association, as
agent for certain other banks dated as of May 21, 1999.....
10.14 Collateral Assignment of Split-Dollar Insurance Agreement
dated July 10, 1993 by and between Louis S. Fisi, as
employee, and Venture Lighting International, Inc., a
wholly-owned subsidiary of the Company.....................
10.15 Collateral Assignment of Split-Dollar Insurance Agreement
dated December 7, 1993 by and between Louis S. Fisi, as
employee, and H & F Management, Inc., a wholly-owned
subsidiary of the Company..................................
10.16 Collateral Assignment of Split-Dollar Insurance Agreement
dated July 10, 1993 by and between Wayne R. Hellman, as
employee, and Venture Lighting International, Inc., a
wholly-owned subsidiary of the Company.....................
</TABLE>
52
<PAGE> 82
<TABLE>
<CAPTION>
SEQUENTIAL PAGE NUMBER/
EXHIBIT NO. TITLE INCORPORATED BY REFERENCE
- ----------- ----- -------------------------
<C> <S> <C>
10.17 Collateral Assignment of Split-Dollar Insurance Agreement
dated December 7, 1993 by and between Wayne R. Hellman, as
employee, and H & F Management, Inc., a wholly-owned
subsidiary of the Company..................................
10.18 Market Clearance Side Letter dated May 21, 1999, by and
among PNC Bank, National Association; PNC Capital Markets,
Inc., Advanced Lighting Technologies, Inc.; Ballastronix,
Incorporated; Canadian Lighting Systems Holding
Incorporated; Parry Power Systems Limited; and Venture
Lighting Europe Ltd........................................
10.19 Credit Agreement between Advanced Lighting Technologies,
Inc., the institutions named therein and National City
Bank, as Administrative Agent, dated as of January 2, 1998
(Form 10-Q/A Exhibit 10.2) (Replaced, see 10.13)........... (10)
10.20 Amendment No. 1 dated as of February 26, 1998 to Credit
Agreement between Advanced Lighting Technologies, Inc., the
lending institutions named therein and National City Bank,
as Administrative Agent, dated as of January 2, 1998 (Form
10-Q/A Exhibit 10.3) (Replaced, see 10.13)................. (10)
10.21 Amendment No. 2 dated as of May 13, 1998 to Credit
Agreement between Advanced Lighting Technologies, Inc., the
lending institutions named therein and National City Bank,
as Administrative Agent, dated as of January 2, 1998
(Replaced, see 10.13)...................................... (6)
10.22 Letter Amendment, dated as of September 1, 1998, among
Advanced Lighting Technologies, Inc., National City Bank
and other financial institutions, to the Credit Agreement
dated as of January 2, 1998 (Form 10-Q/A Exhibit 10.2)
(Replaced, see 10.13)...................................... (14)
10.23 Consolidated Amendment No. 1 to Credit Agreement dated
September 10, 1998 among Advanced Lighting Technologies,
Inc., National City Bank, and other financial institutions
amending the Credit Agreement dated January 2, 1998 (Form
10-Q/A Exhibit 10.1) (Replaced, see 10.13)................. (14)
10.24 Letter Amendment dated as of December 22, 1998 amending the
Credit Agreement dated January 2, 1998, among Advanced
Lighting Technologies, Inc., National City Bank, and other
financial institutions (Form 10-Q/A Exhibit 10.3)
(Replaced, see 10.13)...................................... (12)
10.25 Consolidated Amendment No. 2 to Credit Agreement, dated as
of February 12, 1999, amending the Credit Agreement dated
January 2, 1998, among Advanced Lighting Technologies,
Inc., National City Bank, and other financial institutions
(Form 8-K Exhibit 10.5) (Replaced, see 10.13).............. (13)
10.26 Fee Letter in connection with Consolidated Amendment No. 2
dated February 16, 1999 from Advanced Lighting
Technologies, Inc. to the Administrative Agent and the
Lenders (Form 8-K Exhibit 10.6) (Replaced, see 10.13)...... (13)
11 Statement of Computation of Per Share Earnings.............
12 Statement Regarding Computation of Ratios..................
16.0 Letter regarding Change in Certifying Accountant........... (15)
21.0 Subsidiaries of the Registrant as of June 30, 1999.........
23.1 Consent of Grant Thornton LLP..............................
</TABLE>
53
<PAGE> 83
<TABLE>
<CAPTION>
SEQUENTIAL PAGE NUMBER/
EXHIBIT NO. TITLE INCORPORATED BY REFERENCE
- ----------- ----- -------------------------
<C> <S> <C>
23.2 Consent of Ernst & Young LLP...............................
24.1 Powers of Attorney.........................................
27 Financial Data Schedule....................................
</TABLE>
- ---------------
(1) Incorporated by reference to Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended December 31,
1996.
(2) Incorporated by reference to referenced Exhibit in Company's Registration
Statement on Form S-1, Registration No. 33-97902, effective December
11,1995.
(3) Incorporated by reference to Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended March 31,
1996.
(4) Incorporated by reference to Exhibit 2.1 in Company's Current Report on
Form 8-K dated January 2, 1998.
(5) Intentionally omitted.
(6) Incorporated by reference to Exhibit 10.1 to Company's Current Report on
Form 8-K dated April 21, 1998 and filed May 5, 1998.
(7) Incorporated by reference to referenced Exhibit in Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended December 31, 1995.
(8) Incorporated by reference to referenced Exhibit in Company's Registration
Statement on Form S-1, Registration No. 333-28529, effective July 1, 1997.
(9) Incorporated by reference to Exhibit 1 to Schedule 13D filed by Alan Ruud,
et al., January 12, 1998.
(10) Incorporated by reference to referenced Exhibits in Company's Quarterly
Report on Form 10-Q/A for the Quarterly Period ended March 31, 1998 filed
on March 15, 1999.
(11) Incorporated by reference to Exhibit of the same number in Company's Annual
Report on Form 10-K/A No. 2 for the Annual Period ended June 30, 1998 filed
March 16, 1999.
(12) Incorporated by reference to referenced Exhibit in Company's Quarterly
Report on Form 10-Q/A for the Quarterly Period ended December 31, 1998
filed March 15, 1999.
(13) Incorporated by reference to referenced Exhibit in Company's Current Report
on Form 8-K dated February 16, 1999 and filed on February 23, 1999.
(14) Incorporated by reference to referenced Exhibit in Company's Quarterly
Report on Form 10-Q/A No. 2 for the Quarterly Period ended September 30,
1998 filed March 15, 1999.
(15) Incorporated by reference to Exhibit of the same number on Company's
Current Report on Form 8-K dated March 29, 1999 and filed April 5, 1999.
(16) Incorporated by reference to referenced Exhibit in Company's Registration
Statement on Form S-4, Registration No. 333-58609 filed July 7, 1998.
(b). Reports on Form 8-K.
During the quarter ended June 30, 1999, the Company filed two Reports on
Form 8-K.
On April 5, 1999 the Company filed a Current Report dated March 29, 1999,
reporting under Item 4 the resignation of the Company's independent auditors,
Ernst & Young LLP.
On May 24, 1999 the Company filed a Current Report dated May 17, 1999,
reporting under Item 4 the engagement of the Company's new independent auditors,
Grant Thornton LLP.
(c). Exhibits.
The exhibits to this Form 10-K are submitted as a separate section of this
Report. See Exhibit Index.
(d). Financial Statement Schedules
None.
54
<PAGE> 84
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this Report to be signed on its
behalf by the undersigned, thereunto duly authorized.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ LOUIS S. FISI
------------------------------------
Louis S. Fisi
Executive Vice President
Date: September 28, 1999
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WAYNE R. HELLMAN Chief Executive Officer and September 28, 1999
- --------------------------------------------- Director
Wayne R. Hellman
/s/ NICHOLAS R. SUCIC Chief Financial Officer, September 28, 1999
- --------------------------------------------- Vice President and Treasurer
Nicholas R. Sucic (Chief Accounting Officer)
/s/ FRANCIS H. BEAM Director September 28, 1999
- ---------------------------------------------
Francis H. Beam
/s/ JOHN R. BUERKLE Director September 28, 1999
- ---------------------------------------------
John R. Buerkle
/s/ THEODORE A. FILSON Director September 28, 1999
- ---------------------------------------------
Theodore A. Filson
/s/ LOUIS S. FISI Director September 28, 1999
- ---------------------------------------------
Louis S. Fisi
/s/ SUSUMA HARADA Director September 28, 1999
- ---------------------------------------------
Susuma Harada
/s/ ALAN J. RUUD Director September 28, 1999
- ---------------------------------------------
Alan J. Ruud
/s/ A GORDON TUNSTALL Director September 28, 1999
- ---------------------------------------------
A Gordon Tunstall
</TABLE>
- ---------------
* The undersigned, by signing his name hereto, does hereby execute this Report
on behalf of the above indicated directors of Advanced Lighting Technologies,
Inc. pursuant to Powers of Attorney executed by each such director appointing
the undersigned as attorney-in-fact and filed with the Securities and Exchange
Commission.
By:
--------------------------------------
Louis S. Fisi
Attorney-in-Fact
55
<PAGE> 85
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
EXHIBITS TO
FORM 10-K
ADVANCED LIGHTING TECHNOLOGIES, INC.
<PAGE> 86
<TABLE>
<CAPTION>
SEQUENTIAL PAGE NUMBER/
EXHIBIT NO. TITLE INCORPORATED BY REFERENCE
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C>
2.1 Stock Purchase Agreement among Advanced Lighting
Technologies, Inc., Ruud Lighting, Inc. and Alan J. Ruud,
Theodore O. Sokoly, Donald Wandler, Christopher A. Ruud
and Cynthia A. Johnson (Form 10 Q/A Exhibit 2.1) (10)
2.2 Agreement and Plan of Reorganization among Advanced
Lighting Technologies, Inc., Advanced Acquisitions, Inc.,
Deposition Sciences, Inc., and Lee Bartolomei, Frances and
John Aguilera, Jr. 1992 Trust, Michael Robbins, James Brosnan
and Norman Boling dated as of January 9, 1998 (11)
3.1 Amended and Restated Articles of Incorporation (1)
3.2 Code of Regulations (2)
4.1 Reference is made to Exhibits 3.1 and 3.2
4.2 Form of Stock Certificate of Common Stock of the Company (2)
4.3 Indenture between Advanced Lighting Technologies, Inc. and
The Bank of New York as Trustee dated as of March 18, 1998
(Form 10-Q/A Exhibit 4.3) (10)
4.4 First Supplemental Indenture dated September 25, 1998 between
Advanced Lighting Technologies, Inc. and The Bank of New York
amending the Indenture dated March 18, 1998
(Form 10-Q/A No. 2 Exhibit 4.1) (14)
4.5 Registration Rights Agreement dated as of March 18, 1998 between
the Registrant and Morgan Stanley & Co., Incorporated
(Form S-4 Exhibit 4.2) (16)
4.6 Form of Security for 8% Senior Notes due 2008 originally issued by
Advanced Lighting Technologies, Inc. on March 18, 1998
(Form S-4 Exhibit 4.3) (16)
4.7 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 (Form S-4 Exhibit 4.4) (16)
9.1 Form of Voting Trust Agreement dated as of October 10, 1995
by and among the Company, Wayne R. Hellman, Louis S. Fisi,
David L. Jennings, Robert S. Roller, Juris Sulcs, James F. Sarver,
Brian A. Hellman and Lisa Hellman, as amended
December 20, 1995 ("Hellman Voting Trust") (3)
9.2 Form of Irrevocable Proxy relating to shares formerly held
under the Hellman Voting Trust (3)
</TABLE>
<PAGE> 87
<TABLE>
<CAPTION>
SEQUENTIAL PAGE NUMBER/
EXHIBIT NO. TITLE INCORPORATED BY REFERENCE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
9.3 Form of Voting Trust Agreement dated as of January 2, 1998 by
and among the Company, Alan J. Ruud, Donald Wandler,
Theodore Sokoly, Christopher Ruud and Cynthia Johnson (the
"Rudd Voting Trust") and Form of Irrevocable Proxy relating to
shares formerly held under the Ruud Voting Trust (9)
10.1 Employment Agreement dated as of January 2, 1998 among Ruud
Lighting, Inc., Advanced Lighting Technologies, Inc., and Alan
J. Ruud (11)
10.2 Aircraft Lease Agreement between LightAir, Ltd., an Ohio
limited liability company, of which Wayne R. Hellman owns 80%
of the membership interests and Louis S. Fisi owns 20% of the
membership interests, and Levetz Investments, Inc., an
unrelated corporation engaged in the business of chartering
aircraft and otherwise providing general aviation services
("Levetz Investments"), dated as of January 22, 1996
(Form 10-Q Exhibit 10.1) (7)
10.3 Aircraft Operating Agreement between Levetz Investments and
Venture Lighting International, Inc., a wholly-owned subsidiary
of the Company, dated as of January 22, 1996 (Form 10-Q
Exhibit 10.2) (7)
10.4 Aircraft Operating Agreement between Levetz Investments and
APL Engineered Materials, Inc., a wholly-owned subsidiary of
the Company, dated as of January 22, 1996 (Form 10-Q Exhibit 10.3) (7)
10.5 Aircraft Dry Lease Agreement dated as of May 27, 1997 by and
between LightAir, Ltd. and Advanced Lighting Technologies, Inc.
(Registration Statement Exhibit 10.26) (8)
10.6 Employment Agreement dated as of February 12, 1998 between
Advanced Lighting Technologies, Inc. and Nicholas R. Sucic
(Form 10-Q/A Exhibit 10.5) (10)
10.7 Loan Agreement dated as of October 8, 1998 between Advanced
Lighting Technologies, Inc. and Wayne R. Hellman
(Form 10-Q/A Exhibit 10.1) (12)
10.8 Secured Promissory Note of Wayne R. Hellman dated as of
October 8, 1998 in the amount of $9,000,000 to Advanced
Lighting Technologies, Inc. at the rate of 8% per annum
(Form 10-Q/A Exhibit 10.2) (12)
10.9 Amended and Restated Employment Agreement between
Wayne R. Hellman and Advanced Lighting Technologies, Inc.
dated as of October 8, 1998 (Form 10-Q/A Exhibit 10.4) (12)
10.10 Copy of the Company's Amended and Restated 1995 Incentive
Award Plan (Registration Statement Exhibit 10.1 and 10.1/A) (2)
</TABLE>
<PAGE> 88
<TABLE>
<CAPTION>
SEQUENTIAL PAGE NUMBER/
EXHIBIT NO. TITLE INCORPORATED BY REFERENCE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.11 Copy of the Company's 1997 Billion Dollar Market Capitalization
Incentive Award Plan
10.12 Copy of the Company's Amended and Restated 1998 Incentive
Award Plan
10.13 Credit Agreement by and among the Company and certain of its
subsidiaries and PNC Bank, National Association, as agent for
certain other banks dated as of May 21, 1999
10.14 Collateral Assignment of Split-Dollar Insurance Agreement
dated July 10, 1993 by and between Louis S. Fisi, as employee,
and Venture Lighting International, Inc., a wholly-owned
subsidiary of the Company
10.15 Collateral Assignment of Split-Dollar Insurance Agreement
dated December 7, 1993 by and between Louis S. Fisi, as
employee, and H & F Management, Inc., a wholly-owned
subsidiary of the Company
10.16 Collateral Assignment of Split-Dollar Insurance Agreement dated
July 10, 1993 by and between Wayne R. Hellman, as employee, and
Venture Lighting International, Inc., a wholly-owned subsidiary of the
Company
10.17 Collateral Assignment of Split-Dollar Insurance Agreement
dated December 7, 1993 by and between Wayne R. Hellman, as
employee, and H & F Management, Inc., a wholly-owned
subsidiary of the Company
10.18 Market Clearance Side Letter dated May 21, 1999, by and among
PNC Bank, National Association; PNC Capital Markets, Inc.,
Advanced Lighting Technologies, Inc.; Ballastronix,
Incorporated; Canadian Lighting Systems Holding Incorporated;
Parry Power Systems Limited; and Venture Lighting Europe Ltd.
10.19 Credit Agreement between Advanced Lighting Technologies,
Inc., the institutions named therein and National City Bank,
as Administrative Agent, dated as of January 2, 1998
(Form 10-Q/A Exhibit 10.2) (Replaced, see 10.13) (10)
10.20 Amendment No. 1 dated as of February 26, 1998 to Credit
Agreement between Advanced Lighting Technologies, Inc., the
lending institutions named therein and National City Bank, as
Administrative Agent, dated as of January 2, 1998
(Form 10-Q/A Exhibit 10.3) (Replaced, see 10.13) (10)
10.21 Amendment No. 2 dated as of May 13, 1998 to Credit Agreement
between Advanced Lighting Technologies, Inc., the lending
institutions named therein and National City Bank, as
Administrative Agent, dated as of January 2, 1998
(Replaced, see 10.13) (6)
</TABLE>
<PAGE> 89
<TABLE>
<CAPTION>
SEQUENTIAL PAGE NUMBER/
EXHIBIT NO. TITLE INCORPORATED BY REFERENCE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.22 Letter Amendment, dated as of September 1, 1998, among Advanced
Lighting Technologies, Inc., National City Bank and other financial
institutions, to the Credit Agreement dated as of January 2, 1998
(Form 10-Q/A Exhibit 10.2) (Replaced, see 10.13) (14)
10.23 Consolidated Amendment No. 1 to Credit Agreement dated
September 10, 1998 among Advanced Lighting Technologies, Inc.,
National City Bank, and other financial institutions amending the
Credit Agreement dated January 2, 1998 (Form 10-Q/A Exhibit 10.1)
(Replaced, see 10.13) (14)
10.24 Letter Amendment dated as of December 22, 1998 amending the
Credit Agreement dated January 2, 1998, among Advanced
Lighting Technologies, Inc., National City Bank, and other
financial institutions (Form 10-Q/A Exhibit 10.3) (Replaced, see 10.13) (12)
10.25 Consolidated Amendment No. 2 to Credit Agreement, dated as of
February 12, 1999, amending the Credit Agreement dated
January 2, 1998, among Advanced Lighting Technologies, Inc.,
National City Bank, and other financial institutions
(Form 8-K Exhibit 10.5) (Replaced, see 10.13) (13)
10.26 Fee Letter in connection with Consolidated Amendment No. 2 dated
February 16, 1999 from Advanced Lighting Technologies, Inc. to
the Administrative Agent and the Lenders
(Form 8-K Exhibit 10.6) (Replaced, see 10.13) (13)
11 Statement of Computation of Per Share Earnings
12 Statement Regarding Computation of Ratios
16.0 Letter regarding Change in Certifying Accountant (15)
21.0 Subsidiaries of the Registrant as of June 30, 1999
23.1 Consent of Grant Thornton LLP
23.2 Consent of Ernst & Young LLP
24.1 Powers of Attorney
27 Financial Data Schedule
</TABLE>
- --------------------------------
(1) Incorporated by reference to Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended December
31, 1996.
(2) Incorporated by reference to referenced Exhibit in Company's
Registration Statement on Form S-1, Registration No. 33-97902,
effective December 11, 1995.
<PAGE> 90
<TABLE>
<CAPTION>
SEQUENTIAL PAGE NUMBER/
EXHIBIT NO. TITLE INCORPORATED BY REFERENCE
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
(3) Incorporated by reference to Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended March 31,
1996.
(4) Incorporated by reference to Exhibit 2.1 in Company's Current Report
on Form 8-K dated January 2, 1998.
(5) Intentionally ommited.
(6) Incorporated by reference to Exhibit 10.1 to Company's Current Report
on Form 8-K dated April 21, 1998 and filed May 5, 1998.
(7) Incorporated by reference to referenced Exhibit in Company's Quarterly
Report on Form 10-Q for the Quarterly Period ended December 31, 1995.
(8) Incorporated by reference to referenced Exhibit in Company's
Registration Statement on Form S-1, Registration No. 333-28529,
effective July 1, 1997.
(9) Incorporated by reference to Exhibit 1 to Schedule 13D filed by Alan
Ruud, et al., January 12, 1998.
(10) Incorporated by reference to referenced Exhibits in Company's Quarterly
Report on Form 10-Q/A for the Quarterly Period ended March 31, 1998
filed on March 15, 1999.
(11) Incorporated by reference to Exhibit of the same number in Company's
Annual Report on Form 10-K/A No. 2 for the Annual Period ended June 30,
1998 filed March 16, 1999.
(12) Incorporated by reference to referenced Exhibit in Company's Quarterly
Report on Form 10-Q/A for the Quarterly Period ended December 31, 1998
filed March 15, 1999.
(13) Incorporated by reference to referenced Exhibit in Company's Current
Report on Form 8-K dated February 16, 1999 and filed on February 23, 1999.
(14) Incorporated by reference to referenced Exhibit in Company's Quarterly
Report on Form 10-Q/A No. 2 for the Quarterly Period ended
September 30, 1998 filed March 15, 1999.
(15) Incorporated by reference to Exhibit of the same number on Company's
Current Report on Form 8-K dated March 29, 1999 and filed April 5, 1999.
(16) Incorporated by reference to referenced Exhibit in Company's
Registration Statement on Form S-4, Registration No. 333-58609 filed
July 7, 1998.
</TABLE>
<PAGE> 1
EXHIBIT 10.11
SEPTEMBER 25, 1997
ADVANCED LIGHTING TECHNOLOGIES, INC.
1997 BILLION DOLLAR MARKET CAPITALIZATION INCENTIVE AWARD PLAN
SECTION 1. PURPOSE.
The purpose of this 1997 Billion Dollar Market Capitalization Incentive
Award Plan (the "Plan") is to provide an incentive to selected key employees,
advisors, consultants, and directors of Advanced Lighting Technologies, Inc.
(together with any successor thereto, the "Company") and its Affiliates (as
defined below) to grow the market capitalization of the Company to $1 Billion,
thereby enhancing the value of the Company for the benefit of its shareholders,
and to enhance the ability of the Company and its Affiliates to attract and
retain exceptionally qualified individuals upon whom, in large measure, the
sustained progress, growth and profitability of the Company depend. The Plan
will be submitted for approval by the shareholders of the Company within 12
months from the date of its adoption by the Board of Directors.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or through
one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, as
determined by the Committee.
(b) "Award" shall mean any Option or Restricted Stock granted under
the Plan.
(c) "Award Agreement" shall mean any Option Award, Restricted Stock
Award, or other written agreement, contract, or other instrument or
document evidencing any Award granted under the Plan.
(d) "Capitalized Value" shall mean the Fair Market Value of a Share
multiplied by the number of fully paid, issued and outstanding Shares,
determined as of the close of business on any date; provided, however, that
the number of fully paid, issued and outstanding Shares for the purpose of
calculating "Capitalized Value" shall not include Shares issued in any
merger transaction or as consideration for the acquisition of shares or
assets of a third party after August 4, 1997, as such number may be
adjusted pursuant to Section 4(b) of this Plan.
(e) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(f) "Committee" shall mean a committee of the Board of Directors of
the Company designated by such Board to administer the Plan and composed of
not less than three (3) directors, except that with regard to any Award to
an executive officer or director of the Company, "Committee" shall mean the
entire Board of Directors.
(g) "Employee" shall mean any key employee of the Company or of any
Affiliate as designated by the Committee.
(h) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair
market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee.
(i) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of
Section 422 of the Code, or any successor provision thereto.
(j) "Non-Employee Participant" shall mean any advisor, consultant or
director of the Company or any Affiliate designated to be granted an Award
(other than an Incentive Stock Option) under the Plan.
(k) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
(l) "Option" shall mean an option granted under Section 6(a) of the
Plan.
A-1
<PAGE> 2
(m) "Participant" shall mean an Employee or Non-Employee Participant
designated to be granted an Award under the Plan.
(n) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
governmental or political subdivision thereof.
(o) "Released Securities" shall mean securities that were Restricted
Securities with respect to which all applicable restrictions have expired,
lapsed, or been waived.
(p) "Restricted Securities" shall mean Awards of Restricted Stock or
other awards under which issued and outstanding Shares are held subject to
certain restrictions.
(q) "Restricted Stock" shall mean any Share granted under Section 6(b)
of the Plan.
(r) "Section 16" shall mean Section 16 of the Securities Exchange Act
of 1934, as amended.
(s) "Shares" shall mean the shares of Common Stock of the Company,
$.001 par value, and such other securities or property as may become the
subject of Awards, or become subject to Awards, pursuant to an adjustment
made under Section 4(b) of the Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered solely by the Committee. Subject to the
terms of the Plan and applicable law, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards, or other property, or cancelled, forfeited or
suspended, and the method or methods by which Awards may be settled, exercised,
cancelled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award under the Plan
shall be deferred either automatically or at the election of the holder thereof
or of the Committee; (vii) interpret and administer the Plan and any instrument
or agreement relating to, or Award made under, the Plan; (viii) establish,
amend, suspend, or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan; and (ix)
make any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time, and shall be final, conclusive, and binding upon all Persons, including
the Company, any Affiliate, any Participant, any holder or beneficiary of any
Award, any shareholders, and any employee of the Company or of any Affiliate.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) Shares Available. Subject to adjustment as provided in Section 4(b):
(i) Calculation of Number of Shares Available. The number of Shares
available for granting Awards under the Plan shall be 800,000 Shares,
subject to adjustment as provided in Section 4(b). Further, if, after the
effective date of the Plan, any Shares covered by an Award granted under
the Plan, or to which such an Award relates, are forfeited, or if an Award
otherwise terminates without the delivery of Shares or of other
consideration, then the Shares covered by such Award, or to which such
Award relates, or the number of Shares otherwise counted against the
aggregate number of Shares available under the Plan with respect to such
Award, to the extent of any such forfeiture or termination, shall again be,
or shall become, available for granting Awards under the Plan.
(ii) Accounting for Awards. For purposes of this Section 4, the
number of Shares covered by an Award shall be counted on the date of grant
of such Award against the aggregate number of Shares available for granting
Awards under the Plan; provided, however, that Awards that operate in
tandem
A-2
<PAGE> 3
with (whether granted simultaneously with or at a different time from), or
that are substituted for, other Awards may be counted or not counted under
procedures adopted by the Committee in order to avoid double counting. Any
Shares that are delivered by the Company, and any Awards that are granted
by, or become obligations of, the Company, through the assumption by the
Company or any Affiliate of, or in substitution for, outstanding awards
previously granted by an acquired company shall not, except in the case of
Awards granted to Participants who are officers or directors of the Company
for purposes of Section 16 of the Securities Exchange Act of 1934, as
amended, be counted against the Shares available for granting Awards under
the Plan.
(iii) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued Shares or of Treasury Shares.
(b) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property) recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
(or other securities or property) which thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or other securities or property)
subject to outstanding award, or, if deemed appropriate, make provision for a
cash payment to the holder of an outstanding Award; provided, however, in each
case, that with respect to Awards of Incentive Stock Options no such adjustment
shall be authorized to the extent that such authority would cause the Plan to
violate Section 422 of the Code or any successor provision thereto; and provided
further, however, that the number of Shares subject to any Award denominated in
Shares shall always be a whole number.
SECTION 5. ELIGIBILITY.
Any Employee, consultant or director of the Company or of any Affiliate
shall be eligible to be designated a Participant.
SECTION 6. AWARDS.
(a) Options. The Committee is hereby authorized to grant Incentive Stock
Options and/or Non-Qualified Stock Options to Participants with the following
terms and conditions and with such additional terms and conditions, in either
case not inconsistent with the provisions of the Plan, as the Committee shall
determine:
(i) Exercise Price for Options. The purchase price per Share
purchasable under an Option shall be the Fair Market Value per Share on the
date of grant of such Option.
(ii) Option Term. The term of each Option shall be fixed by the
Committee.
(iii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, and
the method or methods by which, and the form or forms, including, without
limitation, cash, Shares, other Awards, or other property, or any
combination thereof, having a Fair Market Value on the exercise date equal
to the relevant exercise price, in which, payment of the exercise price
with respect thereto may be made or deemed to have been made; provided,
however, that no Option may be exercised prior to six months after its date
of grant.
(iv) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code, or any successor provisions thereto, and any
regulations promulgated thereunder. An Incentive Stock Option may be
granted only to
A-3
<PAGE> 4
an Employee and no Incentive Stock Option may be granted to any owner of
ten percent or more of the total combined voting power of the Company and
its Affiliates. To the extent the aggregate Fair Market Value of Shares
(determined as of the date of the Award) with respect to which Incentive
Stock Options otherwise would become exercisable for the first time by a
Participant during any calendar year under all plans of the Company and its
Affiliates, exceeds $100,000, the Options which exceed such limit shall not
become exercisable until the next succeeding calendar year in which the
$100,000 limit is not exceeded.
(b) Restricted Stock.
(i) Issuance. The Committee is hereby authorized to grant Awards of
Restricted Stock to Participants.
(ii) Restrictions. Shares of Restricted Stock shall be subject to
such restrictions as the Committee may impose (including, without
limitation, any limitation on the right to vote a Share of Restricted Stock
or the right to receive any dividend or other right or property), which
restrictions may lapse separately or in combination at such time or times,
in such installments or otherwise, as the Committee may deem appropriate.
(iii) Registration. Any Restricted Stock granted under the Plan may
be evidenced in such manner as the Committee may deem appropriate,
including, without limitation, book-entry registration or issuance of a
stock certificate or certificates. In the event any stock certificate is
issued in respect of Shares of Restricted Stock granted under the Plan,
such certificate shall be registered in the name of the Participant and
shall bear an appropriate legend referring to the terms, conditions, and
restrictions applicable to such Restricted Stock.
(iv) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment (as determined under criteria established by
the Committee) for any reason during such restriction period as may be set
forth in the Award, all Shares of Restricted Stock held by an Employee
shall be forfeited and reacquired by the Company; provided, however, that
the Committee may, when it finds that a waiver would be in the best
interests of the Company, waive in whole or in part any or all remaining
restrictions with respect to Shares of Restricted Stock. Unrestricted
Shares, evidenced in such manner as the Committee shall deem appropriate,
shall be delivered to the holder of Restricted Stock promptly after such
Restricted Stock shall become Released Securities.
(c) General.
(i) Consideration for Awards. Awards may be granted for no cash
consideration or such cash consideration as may be required by applicable
law. Awards also may be granted for cash or such other consideration as the
Committee may deem appropriate.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award or any award granted
under any other plan of the Company or any Affiliate. Awards granted in
addition to or in tandem with other Awards may be granted either at the
same time as or at a different time from the grant of such other Awards.
(iii) Forms of Payment under Awards. Subject to the terms of the Plan
and any applicable Award Agreement, payments or transfers to be made by the
Company or an Affiliate upon the grant, exercise, or payment of an Award
may be made in such form or forms as the Committee shall determine,
including, without limitation, cash, Shares, other securities, other
Awards, or other property, or any combination thereof, and may be made in a
single payment or transfer, in installments, or on a deferred basis, in
each case in accordance with rules and procedures established by the
Committee. Such rules and procedures may include, without limitation,
provisions for the payment or crediting of reasonable interest on
installment or deferred payments.
A-4
<PAGE> 5
(iv) Limits on Transfer of Awards. No Award (other than Released
Securities), and no right under any such Award, shall be assignable,
alienable, saleable, or transferable by a Participant otherwise than by
will or by the laws of descent and distribution (or, in the case of an
Award of Restricted Securities, only to the Company); provided, however,
that, if so determined by the Committee, a Participant may, in the manner
established by the Committee, designate a beneficiary or beneficiaries to
exercise the rights of the Participant, and to receive any property
distributable, with respect to any Award upon the death of the Participant.
Each Award, and each right under any Award, shall be exercisable, during
the Participant's lifetime, only by the Participant or, if permissible
under applicable law, by the Participant's guardian or legal
representative. No Award (other than Released Securities), and no right
under any such Award, may be pledged, alienated, attached, or otherwise
encumbered, and any purported pledge, alienation, attachment, or
encumbrance thereof shall be void and unenforceable against the Company or
any Affiliate.
(v) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided, however, that in no event
shall the term of any Incentive Stock Option exceed a period of ten years
from the date of its grant.
(vi) Section 16 Six Month Limitations. If necessary to comply with
Section 16 and the rules promulgated thereunder only, any equity security
issued pursuant to the Plan may not be sold for at least six months after
acquisition, and any derivative security issued pursuant to the Plan will
not be exercisable for six months from its date of grant. Terms used in the
preceding sentence shall, for the purposes of such sentence only, have the
meanings, if any, assigned or attributed to them under Section 16 and the
rules promulgated thereunder.
(vii) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan, or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange or over the counter market upon which such
Shares or other securities are then listed or traded, and any applicable
federal or state securities laws, and the Committee may cause a legend or
legends to be put on any certificates to make appropriate reference to such
restrictions.
SECTION 7. AMENDMENT AND TERMINATION.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. The Board of Directors of the Company may
amend, alter, suspend, discontinue, or terminate the Plan, including, without
limitation, any amendment, alteration, suspension, discontinuation, or
termination that would impair the rights of any Participant, or any other holder
or beneficiary of any Award theretofore granted, without the consent of any
shareholders, Participant, other holder or beneficiary of an Award, or other
person; provided, however, that, notwithstanding any other provision of the Plan
or any Award Agreement, without the approval of the shareholders of the Company
no such amendment, alteration, suspension, discontinuation, or termination shall
be made that would:
(i) increase the total number of Shares available for Awards under the
Plan, except as provided in Section 4 hereof; or
(ii) permit Options or Restricted Stock to be granted with per Share
grant, purchase, or exercise prices of less than the Fair Market Value of a
Share on the date of grant thereof, except to the extent permitted under
Section 6(a) hereof.
(b) Amendments to Awards. Unless otherwise provided in the Award
Agreement, the Committee may waive any conditions or rights under, amend any
terms of, or amend, alter, suspend, discontinue, or terminate,
A-5
<PAGE> 6
any Award theretofore granted, prospectively or retroactively, without the
consent of any relevant Participant or holder or beneficiary of an Award.
(c) Adjustments of Awards upon Certain Acquisitions. In the event the
Company or any Affiliate shall assume outstanding employee awards or the
right or obligation to make future such awards in connection with the
acquisition of another business or another corporation or business entity,
the Committee may make such adjustments, not inconsistent with the terms of
the Plan, in the terms of Awards as it shall deem appropriate in order to
achieve reasonable comparability or other equitable relationship between
the assumed awards and the Awards granted under the Plan as so adjusted.
(d) Adjustments of Awards upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee shall be authorized to make adjustments
in the terms and conditions of, and the criteria included in, Awards in
recognition of unusual or nonrecurring events (including, without
limitation, the events described in Section 4(b) hereof) affecting the
Company, any Affiliate, or the financial statements of the Company or any
Affiliate, or the changes in applicable laws, regulations, or accounting
principles, whenever the Committee determines that such adjustments are
appropriate in order to prevent dilution or enlargement of the benefits or
potential benefits to be made available under the Plan.
(e) Correction of Defects, Omissions, and Inconsistencies. The
Committee may correct any defect, supply any omission, or reconcile any
inconsistency in the Plan or any Award in the manner and to the extent it
shall deem desirable to carry the Plan into effect.
SECTION 8. GENERAL PROVISIONS.
(a) No Rights to Awards. No Employee, Non-Employee Participant or other
Person shall have any claim to be granted any Award under the Plan, and there is
no obligation for uniformity of treatment of Employees, Non-Employee
Participants, or holders or beneficiaries of Awards under the Plan. The terms
and conditions of Awards need not be the same with respect to each recipient.
(b) Delegation. The Committee may delegate to one or more officers or
managers of the Company or any Affiliate, or a committee of such officers or
managers, the authority, subject to such terms and limitations as the Committee
shall determine, to grant Awards to, or to cancel, modify, waive rights with
respect to, alter, discontinue, suspend, or terminate Awards held by, salaried
Employees who are not officers or directors of the Company, for purposes of
Section 16 of the Securities Exchange Act of 1934, as amended.
(c) Withholding. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made under any
Award or under the Plan the amount (in cash, Shares, other securities, other
Awards, or other property) of withholding taxes due in respect of an Award, its
exercise, or any payment or transfer under such Award or under the Plan and to
take such other action as may be necessary in the opinion of the Company or
Affiliate to satisfy all obligations for the payment of such taxes.
(d) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(e) No Right to Employment. The grant of an Award shall not be construed
as giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may at any time dismiss a
Participant from employment, free from any liability, or any claim under the
Plan, unless otherwise expressly provided in the Plan or in any Award Agreement.
(f) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Ohio and applicable federal law.
A-6
<PAGE> 7
(g) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provisions shall be stricken as to such
jurisdiction, Person, or Award, and the remainder of the Plan and any such Award
shall remain in full force and effect.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of an unsecured general creditor of the Company or any
Affiliate.
(i) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares, or whether such fractional Shares or any
rights thereto shall be cancelled, terminated, or otherwise eliminated.
(j) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 9. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the date of its approval by the Board of
Directors of the Company, but no Awards shall be exercised unless and until the
Plan has been approved by the shareholders of the Company, which approval shall
be within twelve (12) months after the date the Plan is adopted by the Board.
SECTION 10. TERM OF THE PLAN.
No Award shall be granted under the Plan after July 31, 2007. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award theretofore granted may extend beyond such date, and the
authority of the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award, or to waive any conditions or rights under any such
Award, and the authority of the Board of Directors of the Company to amend the
Plan, shall extend beyond such date.
A-7
<PAGE> 1
EXHIBIT 10.12
AS AMENDED AND RESTATED APRIL 21, 1998
AMENDED AND RESTATED
ADVANCED LIGHTING TECHNOLOGIES, INC.
1998 INCENTIVE AWARD PLAN
SECTION 1. PURPOSE.
The purposes of this Amended and Restated Advanced Lighting Technologies,
Inc. 1998 Incentive Award Plan (the "Plan") are to encourage selected employees,
advisors, consultants, and directors of Advanced Lighting Technologies, Inc.
(together with any successor thereto, the "Company") and its Affiliates (as
defined below) to acquire a proprietary interest in the growth and performance
of the Company, to generate an increased incentive to contribute to the
Company's future success and prosperity, thus enhancing the value of the Company
for the benefit of its shareholders, and to enhance the ability of the Company
and its Affiliates to attract and retain exceptionally qualified individuals
upon whom, in large measure, the sustained progress, growth and profitability of
the Company depend. The Plan will be submitted for approval by the shareholders
of the Company at the next annual shareholders' meeting.
SECTION 2. DEFINITIONS.
As used in the Plan, the following terms shall have the meanings set forth
below:
(a) "Affiliate" shall mean (i) any entity that, directly or through
one or more intermediaries, is controlled by the Company and (ii) any
entity in which the Company has a significant equity interest, as
determined by the Committee.
(b) " 'A' Option" shall mean an "A" Option granted under Section 6(a)
of the Plan.
(c) "Award" shall mean any "A" Option or "B" Option granted under the
Plan.
(d) "Award Agreement" shall mean any written agreement, contract, or
other instrument or document evidencing any Award granted under the Plan.
(e) " 'B' Option" shall mean a "B" Option granted under Section 6(a)
of the Plan.
(f) "Code" shall mean the Internal Revenue Code of 1986, as amended
from time to time.
(g) "Committee" shall mean a committee of the Board of Directors of
the Company designated by such Board to administer the Plan and composed of
not less than three (3) directors.
(h) "Employee" shall mean any employee of the Company or of any
Affiliate.
(i) "Fair Market Value" shall mean, with respect to any property
(including, without limitation, any Shares or other securities), the fair
market value of such property determined by such methods or procedures as
shall be established from time to time by the Committee.
(j) "Incentive Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is intended to meet the requirements of
Section 422 of the Code, or any successor provision thereto.
(k) "Non-Employee Participant" shall mean any advisor, consultant or
director of the Company or any Affiliate designated to be granted an Award
(other than an Incentive Stock Option) under the Plan and eligible to be a
Participant under Section 5 of the Plan.
(l) "Non-Qualified Stock Option" shall mean an option granted under
Section 6(a) of the Plan that is not intended to be an Incentive Stock
Option.
(m) "Option" shall mean an "A" Option or a "B" Option.
(n) "Participant" shall mean any Employee or Non-Employee Participant
designated to be granted an Award under the Plan.
A-1
<PAGE> 2
(o) "Person" shall mean any individual, corporation, partnership,
association, joint-stock company, trust, unincorporated organization, or
governmental or political subdivision thereof.
(p) "Section 16" shall mean Section 16 of the Securities Exchange Act
of 1934, as amended.
(q) "Shares" shall mean the shares of Common Stock of the Company,
$.001 par value, and such other securities or property as may become the
subject of Awards, or become subject to Awards, pursuant to an adjustment
made under Section 4(b) of the Plan.
SECTION 3. ADMINISTRATION.
The Plan shall be administered solely by the Committee. Subject to the
terms of the Plan and applicable law, the Committee shall have full power and
authority to: (i) designate Participants; (ii) determine the type or types of
Awards to be granted to each Participant under the Plan; (iii) determine the
number of Shares to be covered by Awards; (iv) determine the terms and
conditions of any Award; (v) determine whether, to what extent, and under what
circumstances Awards may be settled or exercised in cash, Shares, other
securities, other Awards, or other property, or canceled, forfeited or
suspended, and the method or methods by which Awards may be settled, exercised,
canceled, forfeited, or suspended; (vi) determine whether, to what extent, and
under what circumstances cash, Shares, other securities, other Awards, other
property, and other amounts payable with respect to an Award under the Plan
shall be deferred either automatically or at the election of the holder thereof
or of the Committee; (vii) interpret and administer the Plan and any instrument
or agreement relating to, or Award made under, the Plan; (viii) establish,
amend, suspend, or waive such rules and regulations and appoint such agents as
it shall deem appropriate for the proper administration of the Plan; and (ix)
make any other determination and take any other action that the Committee deems
necessary or desirable for the administration of the Plan. Unless otherwise
expressly provided in the Plan, all designations, determinations,
interpretations, and other decisions under or with respect to the Plan or any
Award shall be within the sole discretion of the Committee, may be made at any
time, and shall be final, conclusive, and binding upon all Persons, including
the Company, any Affiliate, any Participant, any holder or beneficiary of any
Award, any shareholders, and any employee of the Company or of any Affiliate.
SECTION 4. SHARES AVAILABLE FOR AWARDS.
(a) Shares Available. Subject to adjustment as provided in Section 4(b):
(i) Calculation of Number of Shares Available. The number of Shares
available for granting Awards under the Plan shall be 1,500,000 Shares,
subject to adjustment as provided in Section 4(b). Further if, after the
effective date of the Plan, any Shares covered by an Award granted under
the Plan, or to which such an Award relates, are forfeited, or if an Award
otherwise terminates without the delivery of Shares or of other
consideration, then the Shares covered by such Award, or to which such
Award relates, or the number of Shares otherwise counted against the
aggregate number of Shares available under the Plan with respect to such
Award, to the extent of any such forfeiture or termination, shall again be,
or shall become, available for granting Awards under the Plan.
(ii) Accounting for Awards. For purposes of this Section 4, the
number of Shares covered by an Award shall be counted on the date of grant
of such Award against the aggregate number of Shares available for granting
Awards under the Plan; provided, however, that Awards that operate in
tandem with (whether granted simultaneously with or at a different time
from), or that are substituted for, other Awards may be counted or not
counted under procedures adopted by the Committee in order to avoid double
counting. Any Shares that are delivered by the Company, and any Awards that
are granted by, or become obligations of, the Company, through the
assumption by the Company or any Affiliate of, or in substitution for,
outstanding awards previously granted by an acquired company shall not,
except in the case of Awards granted to Participants who are officers or
directors of the Company for purposes of Section 16, be counted against the
Shares available for granting Awards under the Plan.
(iii) Sources of Shares Deliverable Under Awards. Any Shares
delivered pursuant to an Award may consist, in whole or in part, of
authorized and unissued Shares or of Treasury Shares.
A-2
<PAGE> 3
(b) Adjustments. In the event that the Committee shall determine that any
dividend or other distribution (whether in the form of cash, Shares, other
securities, or other property) recapitalization, stock split, reverse stock
split, reorganization, merger, consolidation, split-up, spin-off, combination,
repurchase, or exchange of Shares or other securities of the Company, issuance
of warrants or other rights to purchase Shares or other securities of the
Company, or other similar corporate transaction or event affects the Shares such
that an adjustment is determined by the Committee to be appropriate in order to
prevent dilution or enlargement of the benefits or potential benefits intended
to be made available under the Plan, then the Committee shall, in such manner as
it may deem equitable, adjust any or all of (i) the number and type of Shares
(or other securities or property) which thereafter may be made the subject of
Awards, (ii) the number and type of Shares (or other securities or property)
subject to outstanding award, or, if deemed appropriate, make provision for a
cash payment to the holder of an outstanding Award; provided, however, in each
case, that with respect to Awards of Incentive Stock Options no such adjustment
shall be authorized to the extent that such authority would cause the Plan to
violate Section 422 of the Code or any successor provision thereto; and provided
further, however, that the number of Shares subject to any Award denominated in
Shares shall always be a whole number.
SECTION 5. ELIGIBILITY.
Any Employee, advisor, consultant or director of the Company or of any
Affiliate, shall be eligible to be designated a Participant; provided however,
no officer or director of the Company shall be eligible to be designated a
Participant unless the shareholders of the Company shall have approved the Plan
in accordance with the Company's Regulations.
SECTION 6. AWARDS.
(a) Options. The Committee is hereby authorized to grant "A" Options and
"B" Options to Participants with the following terms and conditions and with
such additional terms and conditions, in either case not inconsistent with the
provisions of the Plan, as the Committee shall determine:
(i) Exercise Price for "A" Options. The purchase price per Share
purchasable under an "A" Option shall be the Fair Market Value per Share on
the date of grant of such "A" Options.
(ii) Exercise Price for "B" Options. The purchase price per Share
purchasable under a "B" Option shall be determined by the Committee;
provided, however, that such purchase price shall not be less than the Fair
Market Value of a Share on the date of grant of such "B" Option (or, if the
Committee so determines, in the case of any "B" Option retroactively
granted in tandem with or in substitution for another Award, on the date of
grant of such Award).
(iii) Option Term. The term of each Option shall be fixed by the
Committee.
(iv) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, and
the method or methods by which, and the form or forms, including, without
limitation, cash, Shares, other Awards, or other property, or any
combination thereof, having a Fair Market Value on the exercise date equal
to the relevant exercise price, in which, payment of the exercise price
with respect thereto may be made or deemed to have been made; provided,
however, that no Option may be exercised prior to six months after its date
of grant.
(v) Incentive Stock Options. The terms of any Incentive Stock Option
granted under the Plan shall comply in all respects with the provisions of
Section 422 of the Code, or any successor provisions thereto, and any
regulations promulgated thereunder. An Incentive Stock Option may be
granted only to an Employee and no Incentive Stock Option may be granted to
any owner of ten percent or more of the total combined voting power of the
Company and its Affiliates. The aggregate Fair Market Value, determined as
of the date of the Award, of Shares subject to an Incentive Stock Option
which are exercisable for the first by an Employee during any calendar year
(under all plans of the Company and its Affiliates) shall not exceed
$100,000.
A-3
<PAGE> 4
(b) General.
(i) Consideration for Awards. Awards may be granted for no cash
consideration or such cash consideration as may be required by applicable
law. Awards also may be granted for cash or such other consideration as the
Committee may deem appropriate.
(ii) Awards May Be Granted Separately or Together. Awards may, in the
discretion of the Committee, be granted either alone or in addition to, in
tandem with, or in substitution for any other Award or any award granted
under any other plan of the Company or any Affiliate. Awards granted in
addition to or in tandem with other Awards may be granted either at the
same time as or at a different time from the grant of such other Awards.
(iii) Limits on Transfer of Awards. No Award and no right under any
such Award, shall be assignable, alienable, saleable, or transferable by a
Participant otherwise than by will or by the laws of descent and
distribution; provided, however, that, if so determined by the Committee, a
Participant may, in the manner established by the Committee, designate a
beneficiary or beneficiaries to exercise the rights of the Participant, and
to receive any property distributable with respect to any Award upon the
death of the Participant. Each Award, and each right under any Award, shall
be exercisable, during the Participant's lifetime, only by the Participant
or, if permissible under applicable law, by the Participant's guardian or
legal representative. No Award, and no right under any such Award, may be
pledged, alienated, attached, or otherwise encumbered, and any purported
pledge, alienation, attachment, or encumbrance thereof shall be void and
unenforceable against the Company or any Affiliate.
(iv) Term of Awards. The term of each Award shall be for such period
as may be determined by the Committee; provided, however, that in no event
shall the term of any Incentive Stock Option exceed a period of ten years
from the date of its grant.
(v) Section 16 Six Month Limitations. If necessary to comply with
Section 16 and its rules only, any equity security issued pursuant to the
Plan may not be sold for at least six months after acquisition and any
derivative security issued pursuant to the Plan will not be exercisable for
six months from its date of grant. Terms used in the preceding sentence
shall, for the purposes of such sentence only, have the meanings, if any,
assigned or attributed to them under Section 16 and the rules promulgated
thereunder.
(vi) Share Certificates. All certificates for Shares or other
securities delivered under the Plan pursuant to any Award or the exercise
thereof shall be subject to such stop transfer orders and other
restrictions as the Committee may deem advisable under the Plan, or the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange or over the counter market upon which such
Shares or other securities are then listed or traded, and any applicable
federal or state securities laws, and the Committee may cause a legend or
legends to be put on any certificates to make appropriate reference to such
restrictions.
SECTION 7. AMENDMENT AND TERMINATION.
Except to the extent prohibited by applicable law and unless otherwise
expressly provided in an Award Agreement or in the Plan:
(a) Amendments to the Plan. Subject to the last sentence of this Section
7(a), the Board of Directors of the Company may amend, alter, suspend,
discontinue, or terminate the Plan, without the consent of any shareholders,
Participant, other holder or beneficiary of an Award, or other person; provided,
however, that, notwithstanding any other provision of the Plan or any Award
Agreement, no such amendment, alteration, suspension, discontinuation, or
termination shall be made, without the approval of the shareholders of the
Company within twelve (12) months from the date thereof, that would:
(i) increase the total number of Shares available for Awards under the
Plan, except as provided in Section 4 hereof; or
A-4
<PAGE> 5
(ii) permit Options to be granted with per Share grant, purchase, or
exercise prices of less than the Fair Market Value of a Share on the date
of grant thereof, except to the extent permitted under Section 6(a) hereof.
No amendment, alteration, suspension, discontinuation or termination shall in
any manner adversely affect any outstanding Option without the prior written
consent of the Participant holding the Option.
(b) Amendments to Awards. Unless otherwise provided in the Award Agreement,
the Committee may waive any conditions or rights under, amend any terms of, or
amend, alter, suspend, discontinue, or terminate, any Award theretofore granted,
prospectively or retroactively, without the consent of any relevant Participant
or holder or beneficiary of an Award.
(c) Adjustments of Awards upon Certain Acquisitions. In the event the
Company or any Affiliate shall assume outstanding employee awards or the right
or obligation to make future such awards in connection with the acquisition of
another business or another corporation or business entity, the Committee may
make such adjustments, not inconsistent with the terms of the Plan, in the terms
of Awards as it shall deem appropriate in order to achieve reasonable
comparability or other equitable relationship between the assumed awards and the
Awards granted under the Plan as so adjusted.
(d) Adjustments of Awards upon the Occurrence of Certain Unusual or
Nonrecurring Events. The Committee shall be authorized to make adjustments in
the terms and conditions of, and the criteria included in, Awards in recognition
of unusual or nonrecurring events (including, without limitation, the events
described in Section 4(b) hereof) affecting the Company, any Affiliate, or the
financial statements of the Company or any Affiliate, or the changes in
applicable laws, regulations, or accounting principles, whenever the Committee
determines that such adjustments are appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits to be made available under the
Plan.
(e) Correction of Defects, Omissions, and Inconsistencies. The Committee
may correct any defect, supply any omission, or reconcile any inconsistency in
the Plan or any Award in the manner and to the extent it shall deem desirable to
carry the Plan into effect.
SECTION 8. GENERAL PROVISIONS.
(a) No Rights to Awards. No Employee, Non-Employee Participant or other
Person shall have any claim to be granted any Award under the Plan, and there is
no obligation for uniformity of treatment of Employees, Non-Employee
Participants, or holders or beneficiaries of Awards under the Plan. The terms
and conditions of Awards need not be the same with respect to each recipient.
(b) Delegation. The Committee may delegate to one or more officers or
managers of the Company or any Affiliate, or a committee of such officers or
managers, the authority, subject to such terms and limitations as the Committee
shall determine, to grant Awards to, or to cancel, modify, waive rights with
respect to, alter, discontinue, suspend, or terminate Awards held by, Salaried
Employees who are not officers or directors of the Company, for purposes of
Section 16.
(c) Withholding. The Company or any Affiliate shall be authorized to
withhold from any Award granted or any payment due or transfer made under any
Award or under the Plan the amount (in cash, Shares, other securities, other
Awards, or other property) of withholding taxes due in respect of an Award, its
exercise, or any payment or transfer under such Award or under the Plan and to
take such other action as may be necessary in the opinion of the Company or
Affiliate to satisfy all obligations for the payment of such taxes.
(d) No Limit on Other Compensation Arrangements. Nothing contained in the
Plan shall prevent the Company or any Affiliate from adopting or continuing in
effect other or additional compensation arrangements, and such arrangements may
be either generally applicable or applicable only in specific cases.
(e) No Right to Employment. The grant of an Award shall not be construed as
giving a Participant the right to be retained in the employ of the Company or
any Affiliate. Further, the Company or an Affiliate may
A-5
<PAGE> 6
at any time dismiss a Participant from employment, free from any liability, or
any claim under the Plan, unless otherwise expressly provided in the Plan or in
any Award Agreement.
(f) Governing Law. The validity, construction, and effect of the Plan and
any rules and regulations relating to the Plan shall be determined in accordance
with the laws of the State of Ohio and applicable federal law.
(g) Severability. If any provision of the Plan or any Award is or becomes
or is deemed to be invalid, illegal, or unenforceable in any jurisdiction, or as
to any Person or Award, or would disqualify the Plan or any Award under any law
deemed applicable by the Committee, such provision shall be construed or deemed
amended to conform to applicable laws, or if it cannot be so construed or deemed
amended without, in the determination of the Committee, materially altering the
intent of the Plan or the Award, such provisions shall be stricken as to such
jurisdiction, Person, or Award, and the remainder of the Plan and any such Award
shall remain in full force and effect.
(h) No Trust or Fund Created. Neither the Plan nor any Award shall create
or be construed to create a trust or separate fund of any kind or a fiduciary
relationship between the Company or any Affiliate and a Participant or any other
Person. To the extent that any Person acquires a right to receive payments from
the Company or any Affiliate pursuant to an Award, such right shall be no
greater than the right of an unsecured general creditor of the Company or any
Affiliate.
(i) No Fractional Shares. No fractional Shares shall be issued or
delivered pursuant to the Plan or any Award, and the Committee shall determine
whether cash, other securities, or other property shall be paid or transferred
in lieu of any fractional Shares, or whether such fractional Shares or any
rights thereto shall be canceled, terminated, or otherwise eliminated.
(j) Headings. Headings are given to the Sections and subsections of the
Plan solely as a convenience to facilitate reference. Such headings shall not be
deemed in any way material or relevant to the construction or interpretation of
the Plan or any provision thereof.
SECTION 9. EFFECTIVE DATE OF THE PLAN.
The Plan shall be effective as of the later of (a) the effective date of
its approval by the Board of Directors of the Company or (b) January 2, 1998.
SECTION 10. TERM OF THE PLAN.
No Award shall be granted under the Plan after January 2, 2008. However,
unless otherwise expressly provided in the Plan or in an applicable Award
Agreement, any Award theretofore granted may extend beyond such date, and the
authority of the Committee to amend, alter, adjust, suspend, discontinue, or
terminate any such Award, or to waive any conditions or rights under any such
Award, and the authority of the Board of Directors of the Company to amend the
Plan, shall extend beyond such date.
A-6
<PAGE> 1
Exhibit 10.13
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
dated as of May 21, 1999
among
ADVANCED LIGHTING TECHNOLOGIES, INC.,
as U.S. Borrower,
and
BALLASTRONIX INCORPORATED
CANADIAN LIGHTING SYSTEMS HOLDING, INCORPORATED ,
as Canadian Borrowers,
and
PARRY POWER SYSTEMS LIMITED,
VENTURE LIGHTING EUROPE LTD.,
as UK Borrowers,
and
VARIOUS FINANCIAL INSTITUTIONS,
as Banks,
and
PNC BANK, NATIONAL ASSOCIATION,
as Agent
- --------------------------------------------------------------------------------
<PAGE> 2
TABLE OF CONTENTS
PAGE NO.
--------
ARTICLE I. DEFINITIONS ................................................. 1
ARTICLE II. AMOUNT AND TERMS OF CREDIT .................................. 24
SECTION 2.1. AMOUNT AND NATURE OF CREDIT ................... 24
SECTION 2.2. CONDITIONS TO LOANS AND LETTERS TO CREDIT ..... 33
SECTION 2.3. JOINT AND SEVERAL LIABILITY ................... 35
SECTION 2.4. MAXIMUM LIABILITY ............................. 36
SECTION 2.5. PAYMENT ON NOTES, ETC ......................... 36
SECTION 2.6. PREPAYMENT .................................... 39
SECTION 2.7. FACILITY AND OTHER FEES ....................... 41
SECTION 2.8. REDUCTION OF COMMITMENT ....................... 41
SECTION 2.9. COMPUTATION OF INTEREST AND FEES .............. 42
SECTION 2.10. MANDATORY PAYMENT ............................. 43
SECTION 2.11. CANADIAN REVOLVING CREDIT COMMITMENT .......... 44
ARTICLE III. ADDITIONAL PROVISIONS RELATING TO EURODOLLAR
LOANS; INCREASED CAPITAL TAXES ........................ 45
SECTION 3.1. RESERVES OR DEPOSIT REQUIREMENTS, ETC. ........ 45
SECTION 3.2. TAX LAW, ETC. ................................. 45
SECTION 3.3. FIXED RATE LOANS UNAVAILABLE OR
INTEREST RATE UNASCERTAINABLE ................. 46
SECTION 3.4. INDEMNITY ..................................... 47
SECTION 3.5. CHANGES IN LAW RENDERING FIXED RATE LOANS
UNLAWFUL ...................................... 47
SECTION 3.6. FUNDING ....................................... 47
ARTICLE IV. CONDITIONS PRECEDENT ........................................ 48
SECTION 4.1. NOTES ......................................... 48
SECTION 4.2. GUARANTIES OF PAYMENT ......................... 48
SECTION 4.3. U.S. BORROWER GUARANTY OF PAYMENT ............. 48
SECTION 4.4. SECURITY AGREEMENT ............................ 48
SECTION 4.5. COLLATERAL ASSIGNMENT ......................... 49
SECTION 4.6. PLEDGE AGREEMENT .............................. 49
SECTION 4.7 OFFICER'S CERTIFICATE, RESOLUTIONS,
ORGANIZATIONAL DOCUMENTS ...................... 49
SECTION 4.8. LEGAL OPINIONS ................................ 49
SECTION 4.9. GOOD STANDING CERTIFICATES .................... 49
SECTION 4.10. AGENT FEE LETTER; CLOSING AND LEGAL FEES ...... 49
i
<PAGE> 3
SECTION 4.11. FINANCING STATEMENTS AND LIEN SEARCHES ........ 49
SECTION 4.12. EXISTING CREDIT AGREEMENTS .................... 50
SECTION 4.13. INDENTURE ..................................... 50
SECTION 4.14. EVIDENCE OF REAL ESTATE FINANCING ............. 50
SECTION 4.15. INSURANCE CERTIFICATES ........................ 50
SECTION 4.16. INTEREST RATE PROTECTION ...................... 50
SECTION 4.17. LANDLORDS' AND MORTGAGEES' WAIVERS ............ 50
SECTION 4.18. COLLATERAL AUDIT AND EQUIPMENT APPRAISAL ...... 51
SECTION 4.19. CASH COLLATERAL AND OTHER ACCOUNTS ............ 51
SECTION 4.20. ASSIGNMENT OF LIFE INSURANCE POLICY ........... 51
SECTION 4.21. BORROWERS' CERTIFICATE ........................ 51
SECTION 4.22. NO MATERIAL ADVERSE CHANGE .................... 51
SECTION 4.23. MISCELLANEOUS ................................. 51
ARTICLE V. COVENANTS ..................................................... 51
SECTION 5.1. INSURANCE ..................................... 51
SECTION 5.2. MONEY OBLIGATIONS ............................. 51
SECTION 5.3. FINANCIAL STATEMENTS .......................... 51
SECTION 5.4. FINANCIAL RECORDS ............................. 54
SECTION 5.5. FRANCHISES .................................... 55
SECTION 5.6. ERISA COMPLIANCE .............................. 55
SECTION 5.7. FIXED CHARGE COVERAGE RATIO;
MINIMUM EXCESS AVAILABILITY ................... 55
SECTION 5.8. BORROWING ..................................... 56
SECTION 5.9. LIENS ......................................... 57
SECTION 5.10. REGULATIONS U and X ........................... 58
SECTION 5.11. INVESTMENTS AND LOANS ......................... 58
SECTION 5.12. MERGER AND SALE OF ASSETS ..................... 59
SECTION 5.13. ACQUISITIONS .................................. 60
SECTION 5.14. NOTICE ........................................ 60
SECTION 5.15. ENVIRONMENTAL COMPLIANCE ...................... 60
SECTION 5.16. AFFILIATE TRANSACTIONS ........................ 60
SECTION 5.17. USE OF PROCEEDS ............................... 61
SECTION 5.18. CORPORATE NAMES ............................... 61
SECTION 5.19. AMENDMENT OF ORGANIZATIONAL DOCUMENTS ......... 61
SECTION 5.20. CAPITAL DISTRIBUTIONS ......................... 61
SECTION 5.21. INDENTURE PAYMENTS ............................ 61
SECTION 5.22. SUBSIDIARIES CREATED, ACQUIRED OR HELD
SUBSEQUENT TO CLOSING DATE .................... 61
ii
<PAGE> 4
ARTICLE VI. REPRESENTATIONS AND WARRANTIES ............................. 62
SECTION 6.1. CORPORATE EXISTENCE; FOREIGN
QUALIFICATIONAL; SUBSIDIARIES ................. 62
SECTION 6.2. CORPORATE AUTHORITY ........................... 62
SECTION 6.3. COMPLIANCE WITH LAWS .......................... 63
SECTION 6.4. LITIGATION AND ADMINISTRATIVE PROCEEDINGS ..... 63
SECTION 6.5. LOCATION ...................................... 63
SECTION 6.6. TITLE OF ASSETS ............................... 64
SECTION 6.7. LIENS AND SECURITY INTERESTS .................. 64
SECTION 6.8. TAX RETURNS ................................... 64
SECTION 6.9. ENVIRONMENTAL LAWS ............................ 64
SECTION 6.10. CONTINUED BUSINESS ............................ 65
SECTION 6.11. EMPLOYEE BENEFITS PLANS ....................... 65
SECTION 6.12. CONSENTS OR APPRAISALS ........................ 66
SECTION 6.13. SOLVENCY ...................................... 66
SECTION 6.14. FINANCIAL STATEMENTS .......................... 67
SECTION 6.15. REGULATIONS ................................... 67
SECTION 6.16. MATERIAL AGREEMENTS ........................... 67
SECTION 6.17. INTELLECTUAL PROPERTY ......................... 67
SECTION 6.18. INSURANCE ..................................... 68
SECTION 6.19. ACCURATE AND COMPLETE STATEMENTS .............. 68
SECTION 6.20. INDENTURE ..................................... 68
SECTION 6.21. NEW CREDIT FACILITY ........................... 68
SECTION 6.22. YEAR 2000 COMPLIANCE .......................... 68
SECTION 6.23. DEFAULTS ...................................... 68
ARTICLE VII. EVENTS OF DEFAULT .......................................... 69
SECTION 7.1. PAYMENTS ...................................... 69
SECTION 7.2. SPECIAL COVENANTS ............................. 69
SECTION 7.3. OTHER COVENANTS ............................... 69
SECTION 7.4. REPRESENTATIONS AND WARRANTIES ................ 69
SECTION 7.5. CROSS DEFAULT ................................. 69
SECTION 7.6. ERISA DEFAULT ................................. 69
SECTION 7.7. CHANGE IN CONTROL ............................. 69
SECTION 7.8. MONEY JUDGMENT ................................ 70
SECTION 7.9. MATERIAL ADVERSE CHANGE ....................... 70
SECTION 7.10. VALIDITY OF LOAN DOCUMENTS .................... 70
SECTION 7.11. INDENTURE ..................................... 70
SECTION 7.12. SOLVENCY ...................................... 70
ARTICLE VIII. REMEDIES UPON DEFAULT ..................................... 71
SECTION 8.1. OPTIONAL DEFAULTS ............................. 71
SECTION 8.2. AUTOMATIC DEFAULTS ............................ 71
iii
<PAGE> 5
SECTION 8.3. LETTERS OF CREDIT ............................. 71
SECTION 8.4. OFFSETS ....................................... 71
SECTION 8.5. EQUALIZATION PROVISION ........................ 72
ARTICLE IX. THE AGENT ................................................... 74
SECTION 9.1. APPOINTMENT AND AUTHORIZATION ................. 74
SECTION 9.2. NOTE HOLDERS .................................. 74
SECTION 9.3. CONSULTATION WITH COUNSEL ..................... 74
SECTION 9.4. DOCUMENTS ..................................... 74
SECTION 9.5. AGENT AND AFFILIATES .......................... 74
SECTION 9.6. KNOWLEDGE OF DEFAULT .......................... 74
SECTION 9.7. ACTION BY AGENT ............................... 74
SECTION 9.8. NOTICES, DEFAULT, ETC ......................... 74
SECTION 9.9. INDEMNIFICATION OF AGENT ...................... 74
SECTION 9.10. SUCCESSOR AGENT ............................... 74
ARTICLE X. MISCELLANEOUS ................................................ 74
SECTION 10.1. BANKS' INDEPENDENT INVESTIGATION .............. 74
SECTION 10.2. NO WAIVER; CUMULATIVE REMEDIES ................ 76
SECTION 10.3. AMENDMENTS, CONSENTS .......................... 76
SECTION 10.4. NOTICES ....................................... 77
SECTION 10.5. COSTS, EXPENSES AND TAXES ..................... 77
SECTION 10.6. INDEMNIFICATION ............................... 77
SECTION 10.7. OBLIGATIONS SEVERAL; NO FIDUCIARY
OBLIGATIONS ................................... 78
SECTION 10.8. EXECUTION IN COUNTERPARTS ..................... 79
SECTION 10.9. BINDING EFFECT; BORROWERS' ASSIGNMENT ......... 79
SECTION 10.10. BANK ASSIGNMENTS/PARTICIPATIONS ............... 79
SECTION 10.11. SEVERABILITY OF PROVISIONS; CAPTIONS .......... 82
SECTION 10.12. ENTIRE AGREEMENT .............................. 82
SECTION 10.13. GOVERNING LAW; SUBMISSION TO JURISDICTION ..... 82
SECTION 10.14. LEGAL REPRESENTATION OF PARTIES ............... 82
SECTION 10.15. NO CROSS COLLATERALIZATION .................... 82
SECTION 10.14. SEVERABILITY OF PROVISIONS; CAPTIONS .......... 82
SECTION 10.15. INVESTMENT PURPOSE ............................ 82
SCHEDULE 1 ............................................. 86
SCHEDULE 2 ............................................. 87
EXHIBIT A .............................................. 88
EXHIBIT B .............................................. 90
EXHIBIT C .............................................. 92
EXHIBIT D .............................................. 95
iv
<PAGE> 6
EXHIBIT E .............................................. 97
EXHIBIT F .............................................. 99
EXHIBIT G .............................................. 100
EXHIBIT H .............................................. 101
v
<PAGE> 7
This CREDIT AGREEMENT (as it may from time to time be amended, restated
or otherwise modified, this "Agreement") is made effective as of the 21st day of
May, 1999, among ADVANCED LIGHTING TECHNOLOGIES, INC., an Ohio corporation,
32000 Aurora Road, Solon, Ohio 44139 ("U.S. Borrower"), and BALLASTRONIX
INCORPORATED, a corporation organized under the laws of the Province of Nova
Scotia, 10 Chandler Road, P. O. Box 250, Amherst, Nova Scotia B4H 3Z2, CANADIAN
LIGHTING SYSTEMS HOLDING, INCORPORATED, a corporation organized under the laws
of the Province of Nova Scotia, 10 Chandler Road, P.O. Box 250, Amherst, Nova
Scotia B4H 3Z2 (collectively, "Canadian Borrowers", and individually, "Canadian
Borrower"), PARRY POWER SYSTEMS LIMITED (Company No. 3341889), incorporated
under the laws of England, whose registered office is situated at Victoria Mills
Draycott, Derby DE72 3PW, England, VENTURE LIGHTING EUROPE LTD. (Company No.
2833448), incorporated under the laws of England, whose registered office is
situated at Victoria Mills Draycott, Derby DE72 3PW, England (collectively, "UK
Borrowers", and individually, "UK Borrower"; and together with U.S. Borrower and
Canadian Borrowers, collectively, "Borrowers", and individually, "Borrower"),
the financial institutions named in SCHEDULE 1 attached hereto and made a part
hereof (collectively, "Banks", and individually, "Bank") and PNC BANK, NATIONAL
ASSOCIATION, 2 PNC Plaza, 620 Liberty Avenue, Pittsburgh, PA 15222, as agent for
the Banks under this Agreement ("Agent").
WITNESSETH:
WHEREAS, Borrowers and the Banks desire to contract for the
establishment of credits in the aggregate principal amounts hereinafter set
forth, to be made available to Borrowers upon the terms and subject to the
conditions hereinafter set forth;
NOW, THEREFORE, it is mutually agreed as follows:
ARTICLE I. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings:
"1934 Act" shall mean the Securities Exchange Act of 1934, as amended.
"Acquisition" shall mean any transaction or series of related
transactions for the purpose of or resulting, directly or indirectly, in (a) the
acquisition of all or substantially all of the assets of any Person, or any
business or division of any Person, (b) the acquisition of in excess of fifty
percent (50%) of the stock (or other equity interest) of any Person, or (c) the
acquisition of another Person (other than a Company) by a merger or
consolidation or any other combination with such Person.
"Advantage" shall mean any payment (whether made voluntarily or
involuntarily, by offset of any deposit or other indebtedness or otherwise)
received by any Bank in respect of the Debt, if such payment results in that
Bank having less than its pro rata share (based upon its Commitment Percentage
or, in the case of an Equalization Event pursuant to the terms of Section 8.5
hereof, based
<PAGE> 8
upon its Equalization Percentage, as defined in Section 8.5 hereof) of the Debt
then outstanding, than was the case immediately before such payment.
"Affiliate" shall mean any Person, directly or indirectly, controlling,
controlled by or under common control with a Company and "control" (including
the correlative meanings, the terms "controlling", "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
Company, whether through the ownership of voting securities, by contract or
otherwise.
"Agent Fee Letter" shall mean the Agent Fee Letter from U.S. Borrower
to Agent, dated as of the Closing Date.
"Applicable Margin" shall mean:
(a) for the period from the Closing Date until the Equity Event has
occurred, (i) two hundred fifty (250) basis points for Revolving Loans, and (ii)
three hundred (300) basis points for the Term Loan; and
(b) commencing on the day that the Equity Event has occurred and
thereafter, (i) two hundred twenty-five (225) basis points for Revolving Loans,
and (ii) two hundred seventy-five (275) basis points for the Term Loan.
"Assignment Agreement" shall mean an Assignment and Acceptance
Agreement in the form of EXHIBIT H hereof.
"Assignment of Life Insurance Policy" shall mean the Assignment of Life
Insurance Policy on the life of Wayne R. Hellman, in form and substance
satisfactory to Agent and the Banks, executed and delivered on the Closing Date
by U.S. Borrower, as the same may be from time to time amended, restated or
otherwise modified.
"Base Rate" shall mean a rate per annum equal to the greater of (a) the
Prime Rate or (b) one-half of one percent (1/2%) in excess of the Federal Funds
Effective Rate. Any change in the Base Rate shall be effective immediately from
and after such change in the Base Rate.
"Base Rate Loan" shall mean a U.S. Base Rate Loan, Canadian Base Rate
Loan or UK Base Rate Loan.
"Borrowers' Certificate" shall mean a certificate, substantially in the
form of EXHIBIT F hereof.
"Business Day" shall mean a day of the year on which banks are not
required or authorized to close in Cleveland, Ohio; and (a) if the applicable
Business Day relates to any Eurodollar Loan, on which dealings are carried on in
the London interbank eurodollar market, or (b) if the applicable
2
<PAGE> 9
Business Day relates to any Canadian Revolving Loan, on which banks are not
required or authorized to close in Toronto, Ontario, Canada.
"CAD Equivalent" shall mean the amount denominated in CAD, as of any
date of determination, that could be purchased with the amount of Dollars at the
most favorable spot exchange rate quoted by Agent at approximately 11:00 A.M.
(Cleveland, Ohio time) on such date.
"Canadian Affiliate" shall mean a financial institution organized under
the laws of Canada, or a province or territory thereof.
"Canadian Bank" or "Canadian Banks" shall mean, with respect to each
Canadian Bank, collectively (a) a Bank that is designated as a Canadian Bank on
SCHEDULE 1 hereto (but that is organized under the laws of the United States, or
a state thereof) (a "Designated Bank"), and (b) the Canadian Affiliate of such
Designated Bank; provided that (i) any Canadian Revolving Loan made by such
Canadian Bank or Canadian Letter of Credit issued by or participated in by such
Canadian Bank shall be actually made, issued or participated in, as the case may
be, by such Canadian Affiliate, (ii) any U.S. Revolving Loans or UK Revolving
Loans made, or U.S. Letters of Credit or UK Letters of Credit issued by or
participated in, by such Canadian Bank shall be actually made, issued or
participated in, as the case may be, by such Designated Bank, and (iii) the
Commitment Percentage and the Revolving Credit Commitment for such Canadian Bank
shall each be deemed to apply to such Canadian Affiliate and Designated Bank
collectively.
"Canadian Base Rate" shall mean the per annum interest rate established
from time to time by Canadian Correspondent Bank as Canadian Correspondent
Bank's "prime rate" or similar index, whether or not such rate is publicly
announced; the Canadian Base Rate may not be the lowest interest rate charged by
Canadian Correspondent Bank for commercial or other extensions of credit. Each
change in the Canadian Base Rate shall be effective immediately from and after
such change.
"Canadian Base Rate Loan" shall mean a Revolving Loan in Canadian
Dollars described in subsection 3 of Section 2.1A hereof on which Canadian
Borrowers shall pay interest at a rate based on the Canadian Base Rate.
"Canadian Borrowing Base" shall mean an amount not in excess of the sum
of the following: (a) eighty-five percent (85%) of the aggregate amount due and
owing on Eligible Receivables of each Canadian Borrower, plus (b) the lesser of
(i) (A) fifty-five percent (55%) of Eligible Raw Materials of each Canadian
Borrower, plus (B) sixty-five percent (65%) of the aggregate of the Eligible
Inventory of each Canadian Borrower, or (ii) the CAD Equivalent, at any time of
determination, of Three Million Dollars ($3,000,000); provided, however that the
amount of the Canadian Borrowing Base may be increased or decreased by Agent and
the Banks at any time and from time to time, in the exercise of their sole
discretion and each Canadian Borrower consents to any such increases or
decreases and acknowledges that decreasing the amount of the Canadian Borrowing
Base or increasing the reserves may limit or restrict Canadian Revolving Loans
requested by Canadian Borrowers.
3
<PAGE> 10
"Canadian Correspondent Bank" shall mean The Bank of Nova Scotia, or
such other financial institution organized under the laws of Canada (or any
province thereof) as may be designated by Agent from time to time.
"Canadian Dollars" and "CAD" shall mean the lawful currency of Canada.
"Canadian Domestic Rate" shall mean, for any Interest Period with
respect to a Canadian Fixed Rate Loan, the per annum rate of interest determined
by Agent in accordance with its usual procedures (which determination shall be
conclusive absent manifest error) as of approximately 10:00 A.M. (Cleveland,
Ohio time) on the date of such Canadian Fixed Rate Loan, as provided by Reuters
and designated as the "Bankers Acceptance Rate" in Schedule B on page CDMM (or
any similar company or service that provides rate quotations comparable to those
currently provided by such companies) as the rate for CAD deposits in
immediately available funds with a maturity comparable to such Interest Period.
In the event that such rate quotation is not available or determinable for any
reason, then the rate shall be determined by Agent as of approximately 11:00
A.M. (Cleveland, Ohio time) on the date of such Canadian Fixed Rate Loan, to be
the average (rounded upwards, if necessary, to the nearest one sixteenth of one
percent (1/16th of 1%)) of the per annum rates at which CAD deposits in
immediately available funds in an amount comparable to such Canadian Fixed Rate
Loan and with a maturity comparable to such Interest Period are offered to the
prime banks by leading banks in the London interbank market.
"Canadian Exposure" shall mean, at any time, the sum of (a) the Dollar
Equivalent of the aggregate principal amount of all Canadian Revolving Loans
outstanding, and (b) the Canadian Letter of Credit Exposure.
"Canadian Fixed Rate Loan" shall mean a Revolving Loan in Canadian
Dollars described in subsection 3 of Section 2.1A hereof on which Canadian
Borrowers shall pay interest at a rate based on the Canadian Domestic Rate.
"Canadian Letter of Credit" shall mean any sight commercial documentary
letter of credit or any standby letter of credit that shall be issued by a
Fronting Bank for the benefit of a Canadian Borrower, including amendments
thereto, if any, and shall have an expiration date no later than the earlier of
(a) one (1) year after its date of issuance or (b) thirty (30) days prior to the
last day of the Commitment Period.
"Canadian Letter of Credit Commitment" shall mean the commitment of the
Fronting Bank, on behalf of the Canadian Banks, to issue Letters of Credit in an
aggregate outstanding face amount which shall never exceed the CAD Equivalent
(at any time of determination) of One Million Dollars ($1,000,000), during the
Commitment Period, on the terms and conditions set forth in subsection 3(b) of
Section 2.1A hereof.
"Canadian Letter of Credit Exposure" shall mean the Dollar Equivalent
of the sum of (a) the aggregate undrawn face amount of all issued and
outstanding Canadian Letters of Credit, and (b) the aggregate draws made on
Canadian Letters of Credit that are not yet reimbursed by Canadian
4
<PAGE> 11
Borrowers or converted to Canadian Revolving Loans pursuant to subsection 3(b)
of Section 2.1A hereof.
"Canadian Revolving Credit Commitment" shall mean the obligation
hereunder of the Canadian Bank to make Canadian Revolving Loans and to
participate in the issuance of Canadian Letters of Credit up to an aggregate
principal amount outstanding at any time equal to the lesser of (a) the CAD
Equivalent, at any time of determination, of Six Million Dollars ($6,000,000),
or (b) the Canadian Borrowing Base (or such lesser amount as shall be determined
pursuant to Section 2.8 hereof).
"Canadian Revolving Credit Note" shall mean any Canadian Revolving
Credit Note executed and delivered pursuant to subsection 3 of Section 2.1A
hereof.
"Canadian Revolving Loan" shall mean a Canadian Base Rate Loan or
Canadian Fixed Rate Loan.
"Capital Distribution" shall mean a payment made, liability incurred or
other consideration given for the purchase, acquisition, redemption or
retirement of any capital stock or other equity interest of any Company or as a
dividend, return of capital or other distribution (other than any stock
dividend, stock split or other equity distribution payable only in capital stock
or other equity of the Company in question) in respect of any Company's capital
stock or other equity interest.
"Capital Expenditures" shall mean, for any period, the amount of
capital expenditures as determined on a Consolidated basis and in accordance
with GAAP.
"Capital Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or nonvoting) in equity of such Person, whether outstanding on
the Indenture Closing Date or the Closing Date or issued thereafter, including,
without limitation, all Common Stock and Preferred Stock.
"Cash Flow" shall mean, for any period, on a Consolidated basis and in
accordance with GAAP, the sum of (a) Earnings Before Interest and Taxes for such
period, plus (b) depreciation and amortization that were deducted in determining
Consolidated Net Income for such period, minus (c) Capital Expenditures for such
period, minus (d) provisions for Taxes.
"Change of Control" shall mean such time as:
(a) (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 Securities Exchange Act of 1934) of more than
thirty-five percent (35%) of the total voting power of the Voting Stock of U.S.
Borrower on a fully diluted basis and (B) such ownership represents a greater
percentage of the total voting power of the Voting Stock of U.S. Borrower, on a
fully diluted basis, than may then be voted by the Existing Stockholders on such
date; or (ii) individuals who on the Indenture Closing Date constituted the
Board of Directors (together with any new or successor
5
<PAGE> 12
directors whose election by the Board of Directors or whose nomination by the
Board of Directors for election by U.S. Borrower'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;
(b) the full time active employment of Wayne R. Hellman as chief
executive officer of U.S. Borrower shall be voluntarily terminated by U.S.
Borrower or Wayne R. Hellman (other than by reason of death or disability),
unless a successor acceptable to the Required Banks shall have been appointed or
elected and actually taken office within three (3) months following any such
termination, in which case the name of such successor shall be substituted for
the name of the individual he or she replaces for purposes of this clause (b);
(c) the shareholders of U.S. Borrower approve (i) a merger or
consolidation of U.S. Borrower with any other Person, other than a merger or
consolidation that would result in the Voting Stock of U.S. Borrower outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted or exchanged for voting securities of the
surviving or resulting entity) more than seventy-five percent (75%) of the
combined voting power of the Voting Stock of U.S. Borrower or such surviving or
resulting entity outstanding after such merger or consolidation, or (ii) a
merger or consolidation effected to implement a recapitalization of U.S.
Borrower (or similar transaction), other than any such transaction in which no
Person or group (as hereinabove defined) not excepted from the provisions of
clause (i) above acquires more than thirty-five (35%) of the voting power, on a
fully diluted basis, of U.S. Borrower's then outstanding Voting Stock; or
(d) the shareholders of U.S. Borrower approve a plan of complete
liquidation of U.S. Borrower or an agreement or agreements for the sale or
disposition by U.S. Borrower of all or substantially all of the assets of U.S.
Borrower.
"Closing Date" shall mean the effective date of this Agreement.
"Code" shall mean the Internal Revenue Code of 1986, as amended,
together with the rules and regulations promulgated thereunder.
"Collateral Assignment and Security Agreement" shall mean a Collateral
Assignment and Security Agreement, in form and substance satisfactory to Agent
and the Banks, executed and delivered on or after the Closing Date by a Company,
wherein such Company has granted to Agent, for the benefit of the applicable
Banks, a security interest in and an assignment of all intellectual property
owned by such Company, as the same may be from time to time amended, restated or
otherwise modified.
"Commitment" shall mean the obligation hereunder of the Banks to make
Loans and participate in the issuance of Letters of Credit, pursuant to the
Revolving Credit Commitments and the Term Loan Commitments up to the Total
Commitment Amount, during the Commitment Period.
6
<PAGE> 13
"Commitment Percentage" shall mean, for each Bank, the percentage set
forth opposite such Bank's name under the column headed "Commitment Percentage"
as described in SCHEDULE 1 hereto.
"Commitment Period" shall mean the period from the Closing Date to May
21, 2002, or such earlier date on which the Commitment shall have been
terminated pursuant to Article VIII hereof.
"Common Stock" shall mean, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's equity, other than Preferred
Stock of such Person, whether outstanding on the Indenture Closing Date or the
Closing Date or issued thereafter, including, without limitation, all series and
classes of such common stock.
"Company" shall mean a Borrower or a Subsidiary.
"Companies" shall mean all Borrowers and all Subsidiaries.
"Compliance Certificate" shall mean a certificate, substantially in the
form of EXHIBIT G hereof.
"Consolidated" shall mean the resultant consolidation of the financial
statements of U.S. Borrower and its Subsidiaries in accordance with GAAP,
including principles of consolidation consistent with those applied in
preparation of the consolidated financial statements referred to in Section 6.13
hereof.
"Consolidated Net Income" shall mean for any period, the net income (or
loss), without deduction for minority interests, of U.S. Borrower on a
Consolidated basis for such period taken as a single accounting period and
determined in conformity with GAAP, provided that there shall be excluded
therefrom (a) the income (or loss) of any Person accrued prior to the date it
becomes a Subsidiary or is merged into or consolidated with U.S. Borrower or any
of its Subsidiaries or on which its assets are acquired by U.S. Borrower or any
of its Subsidiaries, and (b) the income of any Subsidiary to the extent that the
declaration or payment of dividends or similar distributions by that Subsidiary
of that income is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule or
governmental regulation applicable to that Subsidiary.
"Controlled Group" shall mean a Company and each Person required to be
aggregated with a Company under Code Sections 414(b), (c), (m) or (o).
"Customer" shall mean the account debtor with respect to any Receivable
and/or the prospective purchaser of goods, services or both with respect to any
contract or contract right, and/or any Person that enters into or proposes to
enter into any contract or other arrangement with a Person, pursuant to which
such Person is to deliver any personal property or perform any services.
"Debt" shall mean, collectively, (a) all Indebtedness incurred by
Borrowers to Agent or the Banks pursuant to this Agreement and includes the
principal of and interest on all Notes; (b) each
7
<PAGE> 14
extension, renewal or refinancing thereof in whole or in part; (c) the facility
fees, other fees and any prepayment fees payable hereunder; and (d) all
Indebtedness consisting of Related Expenses.
"Default Rate" shall mean (a) with respect to Canadian Revolving Loans,
a rate per annum equal to two percent (2%) in excess of the Canadian Base Rate
from time to time in effect, and (b) in all other circumstances, a rate per
annum equal to two percent (2%) in excess of the Base Rate from time to time in
effect.
"Derived Canadian Fixed Rate" shall mean a rate per annum equal to the
sum of the Applicable Margin plus the Canadian Domestic Rate.
"Derived Eurodollar Rate" shall mean a rate per annum equal to the sum
of the Applicable Margin plus the Eurodollar Rate.
"Derived UK Fixed Rate" shall mean a rate per annum equal to the sum of
the Applicable Margin plus the Eurodollar Rate.
"Designated Lending Office" shall mean (a) the office of Canadian
Correspondent Bank with respect to Canadian Revolving Loans and other amounts
payable in CAD, and (b) the main office of Agent with respect to all other Loans
and amounts payable hereunder.
"Disclosure Statement" shall mean the Disclosure Statement executed and
delivered by Borrowers concurrently with the execution and delivery of this
Agreement.
"Dollar" and the sign "$" shall mean lawful money of the United States
of America.
"Dollar Equivalent" of a Canadian Revolving Loan or any other amount
stated in CAD shall mean the Dollar equivalent of such amount, determined by
Agent on the basis of its spot rate at approximately 10:00 A.M. (Cleveland, Ohio
time) on the date two (2) Business Days before the date of such determination,
for the purchase of CAD with Dollars for delivery on the date of such
determination. Agent shall notify each Canadian Borrower of the Dollar
Equivalent of such Canadian Revolving Loan at the time that Dollar Equivalent is
determined.
"Domestic Subsidiary" shall mean a Subsidiary organized under the laws
of a state of the United States (other than Ruud Australia LLC, a Wisconsin
limited liability company, and Advanced Lighting Technologies, Australia Inc.,
an Ohio corporation).
"Earnings Before Interest and Taxes" shall mean for any period the sum
of (a) Consolidated Net Income (or loss) for such period (excluding
extraordinary gains but not extraordinary losses), (b) Total Interest Expense,
and (c) provisions for Taxes (to the extent such provisions for Taxes are
greater than zero).
"Eligible Inventory" shall mean all Inventory of a Company, other than
Work-In-Process, valued at the lower of cost or market value, determined on a
first-in-first-out method; provided that Eligible Inventory shall not include
Inventory that (a) is in the possession of a bailee or third party
8
<PAGE> 15
or held by such Company or a third party on consignment unless waivers from such
bailee or third party, and requisite filings, as may be required by Agent, have
been obtained and made, (b) is in Agent's opinion, damaged, obsolete, slow
moving or unmerchantable, (c) is not subject to a perfected, first priority
security interest in favor of Agent for the benefit of the Banks, (d) does not
conform to all material standards imposed by any governmental agency, division
or department thereof which has regulatory authority over such goods or the use
or sale thereof, or (e) Agent shall deem ineligible based on such considerations
as Agent may from time to time, in its sole discretion, deems appropriate;
provided, however, that for purposes of determining the Canadian Borrowing Base,
the UK Borrowing Base and the U.S. Borrowing Base, all raw materials shall be
excluded from Eligible Inventory.
"Eligible Raw Materials" shall mean a Company's raw materials to the
extent the same would constitute Eligible Inventory but for the proviso
contained therein, as classified in accordance with GAAP, but does not include
any packaging materials or miscellaneous items.
"Eligible Receivable" shall mean each Receivable of a Company arising
in the ordinary course of such Company's business and which Agent, in its sole
discretion, shall deem to be an Eligible Receivable, based on such
considerations as Agent may from time to time deem appropriate, including,
without limitation, whether the Receivable is subject to a perfected, first
priority security interest and no other Lien, except as permitted pursuant to
Section 5.9 hereof, and is evidenced by an invoice or other documentary evidence
satisfactory to Agent. In addition, no Receivable shall be an Eligible
Receivable if:
(a) it arises out of a sale made by such Company to an Affiliate of
such Company or to a Person controlled by an Affiliate of such Company;
(b) it is due or unpaid more than sixty (60) days after the due date,
not to exceed ninety (90) days after the original invoice date;
(c) fifty percent (50%) or more of the Receivables from such Customer
are not deemed Eligible Receivables hereunder; provided, that such percentage
may, in Agent's sole discretion, be increased or decreased from time to time;
(d) any covenant, representation or warranty contained in this
Agreement or in any other Loan Document with respect to such Receivable is
inaccurate in any material respect or otherwise has been breached;
(e) the Customer shall (i) apply for, suffer, or consent to the
appointment of, or the taking of possession by, a receiver, custodian, trustee
or liquidator of itself or of all or a substantial part of its property or call
a meeting of its creditors, (ii) admit in writing its inability, or be generally
unable, to pay its debts as they become due or cease operations of its present
business, (iii) make a general assignment for the benefit of creditors, (iv)
commence a voluntary case under any state or federal bankruptcy laws or the
insolvency laws of any other country or jurisdiction (as now or hereafter in
effect), (v) be adjudicated a bankrupt or insolvent, (vi) file a petition
seeking to take advantage of any other law providing for the relief of debtors,
(vii) acquiesce to, or fail to have dismissed, any
9
<PAGE> 16
petition which is filed against it in any involuntary case under such bankruptcy
or insolvency laws, or (viii) take any action for the purpose of effecting any
of the foregoing;
(f) (i) with respect to a Company located in the United States, the
sale is to a Customer outside the continental United States or Canada, unless
the sale is on letter of credit, guaranty or acceptance terms or otherwise
insured, in each case acceptable to Agent, in its sole discretion, and (ii) with
respect to a Company located in a jurisdiction outside of the United States, the
sale is to a Customer (other than a Customer in the United States) outside such
jurisdiction, unless the sale is on letter of credit, guaranty, acceptance terms
or otherwise insured, in each case acceptable to Agent, in its sole discretion;
(g) the sale to the Customer is on a bill-and-hold, guaranteed sale,
sale-and-return, sale on approval, consignment or any other repurchase or return
basis or is evidenced by chattel paper;
(h) Agent believes, in its sole judgment, that collection of such
Receivable is insecure or that such Receivable may not be paid by reason of the
Customer's financial inability to pay;
(i) the Customer is (i) the United States, any state or any department,
agency or instrumentality of any of them, unless the applicable Company assigns
its right to payment of such Receivable to Agent pursuant to the Assignment of
Claims Act of 1940, as amended (31 U.S.C. Sub-Section 3727 ET SEQ. and 41 U.S.C.
Sub-Section 15 ET SEQ.) or has otherwise complied with other applicable statutes
or ordinances, or (ii) any other government (or department, agency or
instrumentality thereof), unless the applicable Company assigns its right to
payment of such Receivable to Agent and provides to Agent a first priority
perfected Lien, or otherwise evidences that Agent has a first priority perfected
Lien, in such Receivable for the benefit of the Banks enforceable against the
Customer; provided, at Agent's sole discretion, up to fifty percent (50%) of all
Deposition Sciences, Inc. United States receivables outstanding as of the
Closing Date may be included without compliance with the foregoing assignment
provision;
(j) the goods giving rise to such Receivable have not been shipped and
delivered to and accepted by the Customer or the services giving rise to such
Receivable have not been performed by such Company and accepted by the Customer
or the Receivable otherwise does not represent a final sale;
(k) the Receivables of the Customer exceed a credit limit determined by
Agent, in its sole discretion, and communicated to Borrowers, to the extent such
Receivable exceeds such limit;
(l) to the extent the Receivable is subject to any offset, deduction,
defense, dispute, or counterclaim, the Customer is also a creditor or supplier
of such Company or the Receivable is contingent in any respect or for any
reason; provided, at Agent's sole discretion, receivables of General Electric
Company subject to offset, deduction, defease, dispute or counterclaim may be
included in whole or in part without reduction;
(m) such Company has made an agreement with the Customer for a
deduction therefrom, but only to the amount of the deduction, except for
discounts or allowances made in the ordinary
10
<PAGE> 17
course of business for prompt payment, all of which discounts or allowances are
reflected in the calculation of the face value of each respective invoice
related thereto;
(n) any return, rejection or repossession of the merchandise has
occurred;
(o) such Receivable is not payable to such Company; or
(p) such Receivable is not otherwise satisfactory to Agent as
determined by Agent in the exercise of its sole discretion.
"Environmental Laws" shall mean all provisions of law, statutes,
ordinances, rules, regulations, permits, licenses, judgments, writs,
injunctions, decrees, orders, awards and standards promulgated by the government
of the United States or other jurisdiction or by any state or municipality
thereof or by any court, agency, instrumentality, regulatory authority or
commission of any of the foregoing concerning health, safety and protection of,
or regulation of the discharge of substances into, the environment.
"Equity Event" shall mean the date on which (a) U.S. Borrower shall
have received the General Electric Equity and (b) the proceeds of the General
Electric Equity shall have been applied to the repayment of the Debt pursuant to
Section 2.10 hereof.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended from time to time, and the regulations promulgated pursuant thereto.
"ERISA Event" shall mean, as to U.S. Borrower or any U.S. Guarantor:
(a) the existence of any condition or event with respect to an Plan that
presents a risk of the imposition of an excise tax or any other material
liability on a Company or of the imposition of a Lien on any material portion of
the assets of a Company; (b) a Controlled Group member has engaged in a
nonexempt "prohibited transaction" (as defined under ERISA Section 406 or Code
Section 4975) or a breach of a fiduciary duty under ERISA that could result in
material liability to a Company; (c) a Controlled Group member has applied for a
waiver from the minimum funding requirements of Code Section 412 or ERISA
Section 302 or a Controlled Group member is required to provide security under
Code Section 401(a)(29) or ERISA Section 307; (d) a Reportable Event has
occurred with respect to any Pension Plan as to which notice is required to be
provided to the PBGC; (e) a Controlled Group member has withdrawn from a
Multiemployer Plan in a "complete withdrawal" or a "partial withdrawal" (as such
terms are defined in ERISA Sections 4203 and 4205, respectively); (f) a
Multiemployer Plan is in or is likely to be in reorganization under ERISA
Section 4241; (g) a Plan (and any related trust) which is intended to be
qualified under Code Sections 401 and 501 fails to be so qualified or any "cash
or deferred arrangement" under any such Plan fails to meet the requirements of
Code Section 401(k); (h) the PBGC takes any steps to terminate a Pension Plan or
appoint a trustee to administer a Pension Plan, or a Controlled Group member
takes steps to terminate a Pension Plan; (i) a Controlled Group member or a Plan
fails to satisfy any requirements of law applicable to a Plan; (j) a material
claim, action, suit, audit or investigation is pending or threatened with
respect to a Plan, other than a routine claim for benefits; or (k) a Controlled
Group
11
<PAGE> 18
member incurs or is expected to incur any material liability for post-retirement
benefits under any Welfare Plan, other than as required by ERISA Section 601,
ET. SEQ. or Code Section 4980B.
"Eurocurrency Reserve Percentage" shall mean, for any Interest Period
in respect of any Eurodollar Loan, as of any date of determination, the
aggregate of the then stated maximum reserve percentages (including any
marginal, special, emergency or supplemental reserves), expressed as a decimal,
applicable to such Interest Period (if more than one such percentage is
applicable, the daily average of such percentages for those days in such
Interest Period during which any such percentage shall be so applicable) by the
Board of Governors of the Federal Reserve System, any successor thereto, or any
other banking authority, domestic or foreign, to which a Bank may be subject in
respect to eurocurrency funding (currently referred to as "Eurocurrency
Liabilities" in Regulation D of the Federal Reserve Board) or in respect of any
other category of liabilities including deposits by reference to which the
interest rate on Eurodollar Loans is determined or any category of extension of
credit or other assets that include the Eurodollar Loans. For purposes hereof,
such reserve requirements shall include, without limitation, those imposed under
Regulation D of the Federal Reserve Board and the Eurodollar Loans shall be
deemed to constitute Eurocurrency Liabilities subject to such reserve
requirements without benefit of credits for proration, exceptions or offsets
which may be available from time to time to any Bank under said Regulation D.
"Eurodollar Loan" shall mean a Loan described in Section 2.1 hereof on
which U.S. Borrower shall pay interest at a rate based on the Eurodollar Rate.
"Eurodollar Rate" shall mean, for any Interest Period with respect to a
Eurodollar Loan, the quotient (rounded upwards, if necessary, to the nearest one
sixteenth of one percent (1/16th of 1%)) of: (a) the per annum rate of interest,
determined by Agent in accordance with its usual procedures (which determination
shall be conclusive absent manifest error) as of approximately 11:00 A.M.
(London time) two (2) Business Days prior to the beginning of such Interest
Period pertaining to such Eurodollar Loan, as provided by Telerate Service,
Bloomberg's or Reuters (or any other similar company or service that provides
rate quotations comparable to those currently provided by such companies as the
rate in the London interbank market) for Dollar deposits in immediately
available funds with a maturity comparable to such Interest Period, DIVIDED BY
(b) a number equal to 1.00 MINUS the Reserve Percentage. In the event that such
rate quotation is not available for any reason, then the rate (for purposes of
clause (a) hereof) shall be the rate, determined by Agent as of approximately
11:00 A.M. (London time) two (2) Business Days prior to the beginning of such
Interest Period pertaining to such Eurodollar Loan, to be the average (rounded
upwards, if necessary, to the nearest one sixteenth of one percent (1/16th of
1%)) of the per annum rates at which Dollar deposits in immediately available
funds in an amount comparable to such Eurodollar Loan and with a maturity
comparable to such Interest Period are offered to the prime banks by leading
banks in the London interbank market. The Eurodollar Rate shall be adjusted
automatically on and as of the effective date of any change in the Eurocurrency
Reserve Percentage.
"Event of Default" shall mean an event or condition that constitutes an
event of default as defined in Article VII hereof.
12
<PAGE> 19
"Excess Cash Flow" shall mean, on an annual basis as provided in
Section 2.10(f) hereof, on a Consolidated basis, Cash Flow less the sum of (a)
interest paid for such period, (b) scheduled maturities of Long-Term
Indebtedness for such period, (c) unfinanced Capital Expenditures for such
period, and (d) Taxes paid for such period.
"Existing Stockholders" shall mean (a) Wayne R. Hellman, (b) 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
(c) any "group" (within the meaning of Sections 13(d) and 14(d)(2) of the
Exchange Act) that includes parties specified in clauses (a) or (b) 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.
"Facility Fee Rate" shall mean three-eighths of one percent (3/8%).
"Federal Funds Effective Rate" shall mean, for any day, the rate per
annum (rounded upward to the nearest one one-hundredth of one percent (1/100 of
1%)) announced by the Federal Reserve Bank of New York (or any successor) on
such day as being the weighted average of the rates on overnight federal funds
transactions arranged by federal funds brokers on the previous trading day, as
computed and announced by such Federal Reserve Bank (or any successor) in
substantially the same manner as such Federal Reserve Bank computes and
announces the weighted average it refers to as the "Federal Funds Effective
Rate" as of the Closing Date.
"Financial Officer" shall mean any of the following officers: chief
executive officer, president, chief financial officer or treasurer.
"Fixed Charge Coverage Ratio" shall mean, for any period, on a
Consolidated basis, the ratio of (a) Cash Flow to (b) Senior Debt Payments for
such period.
"Fixed Rate Loan" shall mean a Eurodollar Loan, a Canadian Fixed Rate
Loan or a UK Fixed Rate Loan.
"Foreign Subsidiary" shall mean Ballastronix Incorporated, Parry Power
Systems Ltd. and any other Subsidiary of any Company incorporated or organized,
as the case may be, outside of the United States.
"Fronting Bank" shall mean, as to any Letter of Credit transaction
hereunder, Agent as issuer of the Letter of Credit, or, in the event that Agent
is unable to issue a Letter of Credit, such other Bank as shall agree to issue
the Letter of Credit in its own name, but on behalf of the Banks (or, with
respect to a Canadian Letter of Credit, on behalf of the Canadian Banks).
"GAAP" shall mean generally accepted accounting principles in the
United States as in effect from time to time, which shall include the
promulgated standards thereof by the Financial Accounting Standards Board,
applied by U.S. Borrower on a consistent basis.
13
<PAGE> 20
"General Electric Equity" shall mean the proceeds of the sale of all
outstanding shares of U.S. Borrower's proposed Series A Preferred Stock to
General Electric Company for an aggregate purchase price of at least Twenty
Million Five Hundred Thousand Dollars ($20,500,000), less reasonable transaction
expenses, a listing of which shall be provided to Agent, together with the
issuance, and exercise, if any, of warrants to purchase an additional 1,000,000
shares of U.S. Borrower's Common Stock.
"Guarantor" shall mean a Person that pledges its credit or property in
any manner for the payment or other performance of the indebtedness, contract or
other obligation of another and includes (without limitation) any guarantor
(whether of payment or of collection), surety, co-maker, endorser or Person that
agrees conditionally or otherwise to make any purchase, loan or investment in
order thereby to enable another to prevent or correct a default of any kind.
"Guarantor of Payment" shall mean each U.S. Guarantor, or any other
Person that shall deliver a Guaranty of Payment to Agent subsequent to the
Closing Date.
"Guaranty of Payment" shall mean a Guaranty of Payment, Deed of
Guaranty and Indemnity Agreement or other similar document or instrument, in
form and substance satisfactory to Agent and the Banks, executed and delivered
on or after the Closing Date by U.S. Borrower or a Guarantor of Payment, as the
same may be from time to time amended, restated or otherwise modified.
"Hedge Agreement" shall mean any hedge agreement, interest rate swap,
cap, collar or floor agreement, or other interest rate management device entered
into by a Borrower with Agent or any of the Banks in connection with the
obligations incurred under this Agreement.
"Indebtedness" shall mean (without duplication), for any Company
(excluding in all cases trade payables and accrued expenses, in each case
arising in the ordinary course of business by such Company), (a) all obligations
to repay borrowed money, direct or indirect, incurred, assumed, or guaranteed,
(b) all obligations for the deferred purchase price of capital assets, (c) all
obligations under conditional sales or other title retention agreements, (d) all
obligations (contingent or otherwise) under any letter of credit, banker's
acceptance, currency swap agreement, interest rate swap, cap, collar or floor
agreement or other interest rate management device, (e) all synthetic leases,
(f) all capitalized leases in accordance with GAAP, (g) all obligations of such
Company with respect to asset securitization financing programs to the extent
that there is recourse against such Company or such Company is liable
(contingent or otherwise) under any such program, (h) all obligations to advance
funds to, or to purchase assets, property or services from, any other Person in
order to maintain the financial condition of such Person, and (i) any other
transaction (including forward sale or purchase agreements) having the
commercial effect of a borrowing of money entered into by such Company to
finance its operations or capital requirements.
"Indenture" shall mean that certain Indenture between Advanced Lighting
Technologies, Inc., as issuer, and The Bank of New York, as trustee, dated as of
March 18, 1998, as amended and as the same may, with the prior written consent
of Agent which shall not be unreasonably withheld, from time to time be further
amended, restated, supplemented or otherwise modified.
14
<PAGE> 21
"Indenture Closing Date" shall mean March 18, 1998.
"Interest Adjustment Date" shall mean the last day of each Interest
Period.
"Interest Period" shall mean:
(a) with respect to any Eurodollar Loan, the period commencing on the
date such Eurodollar Loan is made and ending on the last day of such period, as
selected by U.S. Borrower pursuant to the provisions hereof, and, thereafter,
each subsequent period commencing on the last day of the immediately preceding
Interest Period and ending on the last day of such period, as selected by U.S.
Borrower pursuant to the provisions hereof. The duration of each Interest Period
for any Eurodollar Loan shall be one (1) month, two (2) months, or three (3)
months, in each case as U.S. Borrower may select upon notice, as set forth in
Section 2.2 hereof, provided that (i) if U.S. Borrower fails to so select the
duration of any Interest Period, U.S. Borrower shall be deemed to have converted
such Eurodollar Loan to a U.S. Base Rate Loan at the end of the then current
Interest Period; and (ii) U.S. Borrower may not select any Interest Period for a
Eurodollar Loan that ends after any date when principal is due on such
Eurodollar Loan;
(b) with respect to any Canadian Fixed Rate Loan, the period commencing
on the date such Canadian Fixed Rate Loan is made and ending on the last day of
such period, as selected by Canadian Borrowers pursuant to the provisions hereof
and, thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of such period,
as selected by Canadian Borrowers pursuant to the provisions hereof. The
duration of each Interest Period for a Canadian Fixed Rate Loan shall be one (1)
month, two (2) months or three (3) months, in each case as Canadian Borrowers
may select upon notice, as set forth in Section 2.2 hereof, and further provided
that: (i) if Canadian Borrowers fail to so select the duration of any Interest
Period with respect to a Canadian Fixed Rate Loan, Canadian Borrowers shall be
deemed to have converted such Canadian Fixed Rate Loan to a Canadian Base Rate
Loan at the end of the then current Interest Period, and (ii) Canadian Borrowers
may not select any Interest Period for a Canadian Fixed Rate Loan that ends
after any date when principal is due on such Canadian Fixed Rate Loan; and
(c) with respect to any UK Fixed Rate Loan, the period commencing on
the date such UK Fixed Rate Loan is made and ending on the last day of such
period, as selected by UK Borrowers pursuant to the provisions hereof and,
thereafter, each subsequent period commencing on the last day of the immediately
preceding Interest Period and ending on the last day of such period, as selected
by UK Borrowers pursuant to the provisions hereof. The duration of each Interest
Period for a UK Fixed Rate Loan shall be one (1) month, two (2) months or three
(3) months, in each case as UK Borrowers may select upon notice, as set forth in
Section 2.2 hereof, and further provided that: (i) if UK Borrowers fail to so
select the duration of any Interest Period with respect to a UK Fixed Rate Loan,
UK Borrowers shall be deemed to have converted such UK Fixed Rate Loan to a UK
Base Rate Loan at the end of the then current Interest Period, and (ii) UK
Borrowers may not select any Interest Period for a UK Fixed Rate Loan that ends
after any date when principal is due on such UK Fixed Rate Loan.
15
<PAGE> 22
"Inventory" shall mean, with respect to any Person, all of such
Person's now owned or hereafter acquired goods, merchandise and other personal
property, wherever located, to be furnished under any contract of service or
held for sale or lease, all raw materials, work-in-process, finished goods and
materials and supplies of any kind, nature or description, which are or might be
used or consumed in such Person's business or used in selling or furnishing such
goods, merchandise and other personal property, and all documents of title or
other documents representing them.
"Letter of Credit" shall mean any U.S. Letter of Credit, Canadian
Letter of Credit or UK Letter of Credit.
"Lien" shall mean any mortgage, security interest, lien, charge,
encumbrance on, pledge or deposit of, or conditional sale or other title
retention agreement with respect to any property (real or personal) or asset.
"Loan" or "Loans" shall mean the credit extended to Borrowers by the
Banks in accordance with Section 2.1A or B hereof.
"Loan Documents" shall mean this Agreement, the Agent Fee Letter, each
of the Notes, each of the Guaranties of Payment, each Security Document, all
documentation relating to each Letter of Credit and any other documents relating
to any of the foregoing, as any of the foregoing may from time to time be
amended, restated or otherwise modified or replaced.
"Long-Term Indebtedness" shall mean Indebtedness of the Companies that,
in accordance with GAAP, would be classified upon the balance sheet of the
Companies as long-term liabilities.
"Material Adverse Effect" shall mean a material adverse effect on (a)
the business, operations, property, condition (financial or otherwise) or
prospects of any Borrower, (b) the business, operations, property, condition
(financial or otherwise) or prospects of any Company other than a Borrower that
(i) has assets at such time comprising five percent (5%) or more of the
Consolidated assets of U.S. Borrower and its Subsidiaries, or (ii) whose
operations in the current fiscal year are expected to, or whose operations in
the most recent fiscal year did (or would have if such Company had been a
Subsidiary for the entire fiscal year), represent five percent (5%) or more of
the Consolidated earnings before interest, taxes, depreciation and amortization
of U.S. Borrower and its Subsidiaries for such fiscal year, or (c) the business,
operations, property, condition (financial or otherwise) or prospects of U.S.
Borrower and its Subsidiaries taken as a whole.
"Maximum Amount" shall mean, for each Bank, the amount set forth
opposite such Bank's name under the column headed "Maximum Amount" as listed on
SCHEDULE 1 hereto.
"Maximum Revolving Credit Commitment Amount" shall mean Fifty Million
Dollars ($50,000,000) (or such lesser amount as shall be determined pursuant to
Section 2.8 hereof).
"Maximum Term Loan Commitment Amount" shall mean Twenty Five Million
Dollars ($25,000,000).
16
<PAGE> 23
"Moody's" shall mean Moody's Investors Service, Inc., or any successor
to such company.
"Multiemployer Plan" shall mean a Pension Plan that is subject to the
requirements of Subtitle E of Title IV of ERISA.
"Note" shall mean any Revolving Credit Note, any Canadian Revolving
Credit Note, any UK Revolving Credit Note or any Term Note, or any other note
delivered pursuant to this Agreement.
"Notice of Loan" shall mean a Notice of Loan in the form of EXHIBIT E
hereof.
"Obligor" shall mean (a) a Person whose credit or any of whose property
is pledged to the payment of the Debt and includes, without limitation, any
Guarantor, and (b) any signatory to a Related Writing.
"PBGC" shall mean the Pension Benefit Guaranty Corporation, or its
successor.
"Pension Plan" shall mean a Plan that is a "pension plan" (within the
meaning of ERISA Section 3(2)).
"Permitted Disposition" shall mean the sale, lease, transfer or other
disposition of assets by any Borrower or any Subsidiary to any Person (other
than, for purposes of this definition, to a Borrower or a Guarantor of Payment)
other than in the ordinary course of business so long as the aggregate amount of
all such assets sold, leased, transferred or otherwise disposed of by all
Borrowers and Subsidiaries does not exceed One Million Dollars ($1,000,000)
during any fiscal year of U.S. Borrower.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, unincorporated organization, corporation, limited
liability company, institution, trust, estate, government or other agency or
political subdivision thereof or any other entity.
"Plan" shall mean (a) an "employee benefit plan" (within the meaning of
ERISA Section 3(3)) that a Controlled Group member at any time sponsors,
maintains, contributes to, has liability with respect to or has an obligation to
contribute to such plan, (b) any pension, employee benefit or welfare plan
governed by Canadian or provincial laws or regulations, including, without
limitation, any such plan under the Pension Benefit Act Nova Scotia and plans
administered pursuant to applicable provincial health tax, workers' compensation
and unemployment insurance legislation, or (c) any such plan subject to
requirements under the laws of the United Kingdom similar to those referenced in
(a) or (b) above.
"Pledge Agreement" shall mean a Pledge Agreement or Charge over Shares,
in form and substance satisfactory to Agent and the Banks, executed and
delivered to Agent and the Banks by a Company, on or after the Closing Date, as
the same may be from time to time amended, restated or otherwise modified.
17
<PAGE> 24
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated,
whether voting or non-voting) of such Person's preferred or preference equity,
whether outstanding on the Indenture Closing Date or the Closing Date or issued
thereafter, including, without limitation, all series and classes of such
preferred or preference stock.
"Prime Rate" shall mean the interest rate established from time to time
by Agent as Agent's prime rate, whether or not such rate is publicly announced;
the Prime Rate may not be the lowest interest rate charged by Agent for
commercial or other extensions of credit. Each change in the Prime Rate shall be
effective immediately from and after such change.
"Receivable" shall mean an account, contract right, instrument,
document, chattel paper, general intangible relating to accounts, drafts and
acceptances, and all other forms of obligations owing to a Person arising out of
or in connection with the sale or lease of Inventory or the rendition of
services, all guarantees and other security therefor, whether secured or
unsecured, now existing or hereafter created.
"Related Expenses" shall mean any and all costs, liabilities, and
expenses (including, without limitation, losses, damages, penalties, claims,
actions, reasonable attorneys' fees, legal expenses, judgments, suits, and
disbursements) incurred by, imposed upon, or asserted against, Agent or the
Banks in any attempt by Agent or the Required Banks: (a) to obtain, preserve,
perfect, or enforce any security interest evidenced by this Agreement or any
Related Writing; (b) to obtain payment, performance, and observance of any and
all of the Debt; (c) to maintain, insure, audit, collect, preserve, repossess,
and dispose of any of the collateral securing the Debt or any thereof,
including, without limitation, costs and expenses for appraisals, assessments,
and audits of any Borrower or any such collateral; or (d) incidental or related
to (a) through (c) above, including, without limitation, interest thereupon from
the date incurred, imposed, or asserted until paid at the Default Rate.
"Related Writing" shall mean the Loan Documents and any other
assignment, mortgage, security agreement, guaranty agreement, subordination
agreement, financial statement, audit report or other writing furnished by
Borrowers, any Subsidiary or any Obligor, or any of their respective officers,
to Agent or the Banks pursuant to or otherwise in connection with this
Agreement.
"Reportable Event" shall mean a reportable event as that term is
defined in Title IV of ERISA, except actions of general applicability by the
Secretary of Labor under Section 110 of such Act.
"Required Banks" shall mean the holders of at least sixty-six and
two-thirds percent (66-2/3%) of the Total Commitment Amount, or, if there is any
borrowing hereunder, the holders of at least sixty-six and two-thirds percent
(66-2/3%) of the aggregate amount of Dollars outstanding under the Notes.
"Revolving Credit Commitment" shall mean the obligation hereunder,
during the Commitment Period (but, with respect to the Canadian Revolving Credit
Commitment, subject to the provisions of Section 2.11 hereof), of (a) each Bank
to participate in the making of U.S.
18
<PAGE> 25
Revolving Loans pursuant to the U.S. Revolving Credit Commitment up to an
aggregate amount set forth opposite such Bank's name under the column headed
"Revolving Commitment Amount" as set forth on SCHEDULE 1 hereto, (b) each
Canadian Bank to participate in the making of Canadian Revolving Loans and the
issuance of Canadian Letters of Credit pursuant to the Canadian Revolving Credit
Commitment up to an aggregate amount set forth opposite such Canadian Bank's
name under the column headed "Canadian Revolving Credit Commitment Amount" as
set forth on SCHEDULE 1 hereto, (c) each Bank to participate in the making of UK
Revolving Loans and the issuance of UK Letters of Credit pursuant to the UK
Revolving Credit Commitment up to an aggregate amount set forth opposite such
Bank's name under the column headed "UK Revolving Credit Commitment Amount" as
set forth on SCHEDULE 1 hereto, and (d) each Bank to participate in the issuance
of U.S. Letters of Credit pursuant to the U.S. Letter of Credit Commitment
"Revolving Credit Exposure" shall mean, at any time, the sum of (a) the
U.S. Revolving Exposure, (b) the UK Exposure, (c) the Canadian Exposure, and (d)
the U.S. Letter of Credit Exposure.
"Revolving Credit Note" shall mean any Revolving Credit Note executed
and delivered pursuant to subsection 1 of Section 2.1A hereof.
"Revolving Loan" shall mean a U.S. Revolving Loan, a Canadian Revolving
Loan or a UK Revolving Loan granted to a Borrower by the appropriate Banks in
accordance with Section 2.1A hereof.
"SEC" shall mean the United States Securities and Exchange Commission.
"Security Agreement" shall mean a Security Agreement, mortgage
debenture or other similar document or instrument, in form and substance
satisfactory to Agent and the Banks, executed and delivered by a Company to
Agent on behalf of the Banks, on or after the Closing Date, as the same may be
from time to time amended, restated or otherwise modified.
"Security Documents" shall mean each of the Security Agreements, each
of the Pledge Agreements, each of the Collateral Assignment and Security
Agreements, the Assignment of Life Insurance Policy, each U.C.C. financing
statement or similar filing as to the United Kingdom or Canada executed in
connection herewith, and any other documents relating to any of the foregoing,
as any of the foregoing may from time to time be amended, restated or otherwise
modified or replaced.
"Senior Debt Payments" shall mean, for any period, on a Consolidated
basis, (a) Total Interest Expense, plus (b) an amount equal to the payments due
in accordance with the scheduled maturities of principal on the Term Loan, plus
(c) all cash paid with respect to any other Indebtedness, less (d) the payment
to Unison Fiber Optic Lighting Systems, LLC to the extent reserved against
availability under the Revolving Credit Commitment.
"Standard & Poor's" shall mean Standard & Poor's Ratings Group, a
division of McGraw-Hill, Inc., or any successor to such company.
19
<PAGE> 26
"Subsidiary" shall mean (a) a corporation more than fifty percent (50%)
of the Voting Stock (or voting power of all outstanding Voting Stock) of which
is owned, directly or indirectly, by U.S. Borrower or by one or more other
subsidiaries of U.S. Borrower or by U.S. Borrower and one or more subsidiaries
of Borrower, (b) a partnership or limited liability company of which U.S.
Borrower, one or more other subsidiaries of U.S. Borrower, or U.S. Borrower and
one or more subsidiaries of U.S. Borrower, directly or indirectly, is a general
partner or managing member, as the case may be, or otherwise has the power to
direct the policies, management and affairs thereof, or (c) any other Person
(other than a corporation) in which U.S. Borrower, one or more other
subsidiaries of U.S. Borrower or U.S. Borrower and one or more subsidiaries of
U.S. Borrower, directly or indirectly, has at least a majority ownership
interest or the power to direct the policies, management and affairs thereto.
"Taxes" shall mean all federal, state and local income taxes.
"Term Loan" shall mean the Loan granted to U.S. Borrower by the Banks
in accordance with Section 2.1B hereof.
"Term Loan Commitment" shall mean the obligation hereunder of each Bank
to participate in the making of the Term Loan, up to the amount set forth
opposite such Bank's name under the column headed "Term Loan Commitment Amount"
as set forth on SCHEDULE 1 hereto.
"Term Note" shall mean the Term Notes executed and delivered pursuant
to Section 2.1B hereof.
"Total Commitment Amount" shall mean the principal amount of
Seventy-Five Million Dollars ($75,000,000) (or such lesser amount as shall be
determined pursuant to Section 2.8 hereof).
"Total Interest Expense" shall mean, for any period, (a) total interest
expense (including that which is attributable to capitalized leases, in
accordance with GAAP) of U.S. Borrower on a Consolidated basis with respect to
all outstanding Indebtedness of U.S. Borrower and its Subsidiaries including,
without limitation, all commissions, discounts and other fees and charges owed
with respect to letters of credit and net costs under Hedge Agreements, but
excluding, however, any amortization of deferred financing costs, all as
determined in accordance with GAAP, minus (b) gross interest income of U.S.
Borrower on a Consolidated basis, all as determined in accordance with GAAP.
"Total Unused Credit Availability" shall mean, at any time, the
difference between (a) the sum of (i) the amount of the Revolving Credit
Commitment, (ii) the amount of the Dollar Equivalent of the Canadian Revolving
Credit Commitment and (iii) the amount of the UK Revolving Credit Commitment,
minus (b) the Revolving Credit Exposure.
"UK Base Rate Loan" shall mean a Revolving Loan described in subsection
2 of Section 2.1A hereof on which UK Borrowers shall pay interest at a rate
based on the Base Rate.
20
<PAGE> 27
"UK Borrowing Base" shall mean an amount not in excess of the sum of
the following: (a) eighty-five percent (85%) of the aggregate amount due and
owing on Eligible Receivables of each UK Borrower, plus (b) the lesser of (i)
(A) fifty-five percent (55%) of Eligible Raw Materials of each UK Borrower, plus
(B) sixty-five percent (65%) of the aggregate of the Eligible Inventory of each
UK Borrower, or (ii) Three Million Dollars ($3,000,000); provided, however, that
the amount of the UK Borrowing Base may be increased or decreased by Agent and
the Banks at any time and from time to time, in the exercise of their sole
discretion and each UK Borrower consents to any such increases or decreases and
acknowledges that decreasing the amount of the UK Borrowing Base or increasing
the reserves may limit or restrict UK Revolving Loans requested by UK Borrowers.
"UK Exposure" shall mean, at any time, the sum of (a) the aggregate
principal amount of all UK Revolving Loans outstanding, and (b) the UK Letter of
Credit Exposure.
"UK Fixed Rate Loan" shall mean a Revolving Loan described in
subsection 2 of Section 2.1A hereof on which UK Borrowers shall pay interest at
a rate based on the Eurodollar Rate.
"UK Letter of Credit" shall mean any sight commercial documentary
letter of credit or any standby letter of credit that shall be issued by a
Fronting Bank for the benefit of a UK Borrower, including amendments thereto, if
any, and shall have an expiration date no later than the earlier of (a) one (1)
year after its date of issuance or (b) thirty (30) days prior to the last day of
the Commitment Period.
"UK Letter of Credit Commitment" shall mean the commitment of the
Fronting Bank, on behalf of the Banks, to issue Letters of Credit in an
aggregate outstanding face amount of up to One Million Dollars ($1,000,000),
during the Commitment Period, on the terms and conditions set forth in
subsection 2(b) of Section 2.1A hereof.
"UK Letter of Credit Exposure" shall mean the sum of (a) the aggregate
undrawn face amount of all issued and outstanding UK Letters of Credit, and (b)
the aggregate draws made on UK Letters of Credit that are not yet reimbursed by
UK Borrowers or converted to UK Revolving Loans pursuant to subsection 2(b) of
Section 2.1A hereof.
"UK Revolving Credit Commitment" shall mean the obligation hereunder of
the Banks to make UK Revolving Loans and to participate in the making of UK
Letters of Credit up to an aggregate principal amount outstanding at any time
equal to the lesser of (a) Six Million Dollars ($6,000,000), or (b) the UK
Borrowing Base (or such lesser amount as shall be determined pursuant to Section
2.8 hereof).
"UK Revolving Credit Note" shall mean any UK Revolving Credit Note
executed and delivered pursuant to subsection 2 of Section 2.1A hereof.
"UK Revolving Loan" shall mean a UK Base Rate Loan or UK Fixed Rate
Loan.
21
<PAGE> 28
"Unmatured Event of Default" shall mean an event or condition that
constitutes, or which with the lapse of any applicable grace period or the
giving of notice or both would constitute, an Event of Default and that has not
been waived by the Required Banks in writing.
"U.S. Base Rate Loan" shall mean a Loan described in subsection 1 of
Section 2.1A hereof on which U.S. Borrower shall pay interest at a rate based on
the Base Rate.
"U.S. Borrowing Base" shall mean an amount not in excess of the sum of
the following: (a) eighty-five percent (85%) of the aggregate amount due and
owing on Eligible Receivables of U.S. Borrower and each U.S. Guarantor, plus (b)
the lesser of (i) (A) fifty-five percent (55%) of Eligible Raw Materials of U.S.
Borrower and each U.S. Guarantor, plus (B) sixty-five percent (65%) of the
aggregate of the cost or market value (whichever is lower) of the Eligible
Inventory of U.S. Borrower and each U.S. Guarantor, or (ii) Twenty-Five Million
Dollars ($25,000,000); provided, however that the amount of the U.S. Borrowing
Base may be increased or decreased by Agent and the Banks at any time and from
time to time, in the exercise of their reasonable discretion and U.S. Borrower
consents to any such increases or decreases and acknowledges that decreasing the
amount of the U.S. Borrowing Base or increasing the reserves may limit or
restrict U.S. Revolving Loans requested by U.S. Borrower.
"U.S. Guarantor" shall mean each of the Companies listed on SCHEDULE 2
hereto and each other Domestic Subsidiary that shall execute and deliver a
Guaranty of Payment on or after the Closing Date.
"U.S. Letter of Credit" shall mean any sight commercial documentary
letter of credit or any standby letter of credit that shall be issued by a
Fronting Bank for the benefit of U.S. Borrower or a U.S. Guarantor, including
amendments thereto, if any, and shall have an expiration date no later than the
earlier of (a) one (1) year after its date of issuance or (b) thirty (30) days
prior to the last day of the Commitment Period.
"U.S. Letter of Credit Commitment" shall mean the commitment of the
Fronting Bank, on behalf of the Banks, to issue U.S. Letters of Credit in an
aggregate outstanding face amount of up to Three Million Dollars ($3,000,000),
during the Commitment Period, on the terms and conditions set forth in
subsection 4 of Section 2.1A hereof.
"U.S. Letter of Credit Exposure" shall mean the sum of (a) the
aggregate undrawn face amount of all issued and outstanding U.S. Letters of
Credit, and (b) the aggregate draws made on U.S. Letters of Credit that are not
yet reimbursed by U.S. Borrower or converted to U.S. Revolving Loans pursuant to
subsection 4 of Section 2.1A hereof.
"U.S. Revolving Credit Commitment" shall mean the obligation hereunder
of the Banks to make U.S. Revolving Loans up to an aggregate principal amount
outstanding at any time equal to the lesser of (a) the Maximum Revolving Credit
Commitment Amount, or (b) the U.S. Borrowing Base (or such lesser amount as
shall be determined pursuant to Section 2.8 hereof).
22
<PAGE> 29
"U.S. Revolving Exposure" shall mean, at any time, the aggregate
principal amount of all U.S. Revolving Loans outstanding.
"U.S. Revolving Loan" shall mean a U.S. Base Rate Loan or Eurodollar
Loan.
"Voting Stock" shall mean 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 under limited circumstances).
"Welfare Plan" shall mean a Plan that is a "welfare plan" within the
meaning of ERISA Section 3 (l).
"Wholly-Owned Subsidiary" shall mean, with respect to any Person, any
corporation, limited liability company or other entity all of the securities or
other ownership interest, of which having ordinary voting power to elect a
majority of the board of directors or other persons performing similar functions
are at the time directly or indirectly owned by such Person.
"Work-In-Process" shall mean that portion of Inventory comprised of
products and/or goods being manufactured and/or assembled by a Person but not
yet completed.
Any accounting term not specifically defined in this Article I shall
have the meaning ascribed thereto by GAAP.
The foregoing definitions shall be applicable to the singular and
plurals of the foregoing defined terms.
The use of the term "sole discretion" or "sole opinion" herein shall
mean the exercise of discretion other than in an arbitrary or capricious manner.
ARTICLE II. AMOUNT AND TERMS OF CREDIT
SECTION 2.1. AMOUNT AND NATURE OF CREDIT. Subject to the terms and
conditions of this Agreement, each Bank shall participate to the extent
hereinafter provided in making Loans to and issuing Letters of Credit at the
request of Borrowers in such aggregate amount as Borrowers shall request
pursuant to the Commitment; provided, however, that in no event shall the
aggregate principal amount of all Loans and Letters of Credit outstanding under
this Agreement (including, in respect of any amount in CAD, the Dollar
Equivalent thereof at any date of determination) be in excess of the Total
Commitment Amount.
Each Bank, for itself and not one for any other, agrees to participate
in U.S. Revolving Loans and UK Revolving Loans made and U.S. Letters of Credit
and UK Letters of Credit issued hereunder during the Commitment Period on such
basis that (a) immediately after the completion of any U.S. Revolving Loan or UK
Revolving Loan, or issuance of a U.S. Letter of Credit or UK Letter of
23
<PAGE> 30
Credit, the aggregate principal amount then outstanding on the Notes issued to
such Bank, when combined with such Bank's pro rata share of the U.S. Letter of
Credit Exposure and UK Letter of Credit Exposure, and, with respect to the
Canadian Banks, the Canadian Exposure, shall not be in excess of the Maximum
Amount for such Bank, and (b) such aggregate principal amount outstanding on the
Notes issued to such Bank (other than the Canadian Banks) shall represent that
percentage of the aggregate principal amount then outstanding on all Notes
(other than the Canadian Revolving Credit Note) held by all Banks (including the
Notes held by such Bank) which is such Bank's Commitment Percentage.
Each Canadian Bank, for itself and not one for any other, agrees,
during the Commitment Period, to participate in making Canadian Revolving Loans
to and issuing Canadian Letters of Credit for the benefit of Canadian Borrowers
in such amount as Canadian Borrowers shall request pursuant to the Canadian
Revolving Credit Commitment, on the terms and conditions set forth below.
Each borrowing (other than Canadian Revolving Loans) from the Banks
hereunder shall be made pro rata according to the Banks' respective Commitment
Percentages; each borrowing of Canadian Revolving Loans shall be made solely by
the Canadian Banks, pro rata according to the Canadian Banks' respective
Commitment Percentage with respect to Canadian Revolving Loans. The Loans may be
made as Revolving Loans and as a Term Loan, and Letters of Credit may be issued,
as follows:
A. Revolving Credit.
1. U.S. Revolving Loans.
Subject to the terms and conditions of this Agreement, during the
Commitment Period, the Banks shall make a U.S. Revolving Loan or U.S. Revolving
Loans to U.S. Borrower in such amount or amounts as U.S. Borrower may from time
to time request, but not exceeding in aggregate principal amount at any time
outstanding hereunder the aggregate amount of the Revolving Credit Commitments,
when such U.S. Revolving Loans are combined with the Revolving Credit Exposure.
U.S. Borrower shall have the option, subject to the terms and conditions set
forth herein, to borrow U.S. Revolving Loans, maturing on the last day of the
Commitment Period, by means of any combination of (a) U.S. Base Rate Loans, or
(b) Eurodollar Loans.
U.S. Borrower shall pay interest on the unpaid principal amount of U.S.
Base Rate Loans outstanding from time to time from the date thereof until paid
at the Base Rate from time to time in effect. Interest on such U.S. Base Rate
Loans shall be payable, commencing June 1, 1999, and on the 1st day of each
succeeding month thereafter, and at the maturity thereof.
U.S. Borrower shall pay interest on the unpaid principal amount of each
Eurodollar Loan outstanding from time to time, from the date thereof until paid,
at the Derived Eurodollar Rate, fixed in advance for each Interest Period as
herein provided for each such Interest Period. Interest on such Eurodollar Loans
shall be payable on each Interest Adjustment Date with respect to an Interest
Period (provided that if an Interest Period exceeds three (3) months, the
interest must be paid every three (3) months, commencing three (3) months from
the beginning of such Interest Period).
24
<PAGE> 31
At the request of U.S. Borrower, subject to the notice and other
provisions of Section 2.2 hereof, the Banks shall convert U.S. Base Rate Loans
to Eurodollar Loans at any time and shall convert Eurodollar Loans to U.S. Base
Rate Loans on any Interest Adjustment Date.
The obligation of U.S. Borrower to repay the U.S. Base Rate Loans and
the Eurodollar Loans made by each Bank and to pay interest thereon shall be
evidenced by a Revolving Credit Note of U.S. Borrower in the form of EXHIBIT A
hereto, dated the Closing Date, and payable to the order of such Bank in the
principal amount of its Revolving Credit Commitment, or, if less, the aggregate
unpaid principal amount of Revolving Loans made hereunder by such Bank. Subject
to the provisions of this Agreement, U.S. Borrower shall be entitled under this
subsection 1 of Section 2.1A to borrow funds, repay the same in whole or in part
and re-borrow hereunder at any time and from time to time during the Commitment
Period.
2. UK Credit Facility.
(a) UK Revolving Loans.
Subject to the terms and conditions of this Agreement, during
the Commitment Period, the Banks shall make a UK Revolving Loan or UK
Revolving Loans to UK Borrowers in such amount or amounts as UK
Borrowers may from time to time request. UK Borrowers shall not request
a UK Revolving Loan (and the Banks shall not be obligated to make a UK
Revolving Loan) if, after giving effect thereto, (i) the UK Exposure
would exceed the amount of the UK Revolving Credit Commitment, or (ii)
the sum of (A) the UK Exposure, (B) the U.S. Revolving Exposure, (C)
the Canadian Exposure and (D) the U.S. Letter of Credit Exposure would
exceed the aggregate amount of the Revolving Credit Commitments.
UK Borrowers shall have the option, subject to the terms and
conditions set forth herein, to borrow UK Revolving Loans, maturing on
the last day of the Commitment Period, by means of any combination of
(i) UK Base Rate Loans, or (ii) UK Fixed Rate Loans.
UK Borrowers shall pay interest on the unpaid principal amount
of UK Base Rate Loans outstanding from time to time from the date
thereof until paid at the Base Rate from time to time in effect.
Interest on such UK Base Rate Loans shall be payable, commencing June
1, 1999, and on the 1st day of each succeeding month thereafter, and at
the maturity thereof.
UK Borrowers shall pay interest on the unpaid principal amount
of each UK Fixed Rate Loan outstanding from time to time, from the date
thereof until paid, at the Derived UK Fixed Rate, fixed in advance for
each Interest Period as herein provided for each such Interest Period.
Interest on such UK Fixed Rate Loans shall be payable on each Interest
Adjustment Date with respect to an Interest Period (provided that if an
Interest Period exceeds three (3) months, the interest must be paid
every three (3) months, commencing three (3) months from the beginning
of such Interest Period).
25
<PAGE> 32
At the request of UK Borrowers, subject to the notice and
other provisions of Section 2.2 hereof, the Banks shall convert UK Base
Rate Loans to UK Fixed Rate Loans at any time and shall convert UK
Fixed Rate Loans to UK Base Rate Loans on any Interest Adjustment Date.
The obligation of UK Borrowers to repay the UK Base Rate Loans
and the UK Fixed Rate Loans made by each Bank and to pay interest
thereon shall be evidenced by a UK Revolving Credit Note of UK
Borrowers in the form of EXHIBIT B hereto, dated the Closing Date, and
payable to the order of such Bank in the principal amount of its UK
Revolving Credit Commitment, or, if less, the aggregate unpaid
principal amount of UK Revolving Loans made hereunder by such Bank.
Subject to the provisions of this Agreement, UK Borrowers shall be
entitled under this subsection 2 of Section 2.1A to borrow funds, repay
the same in whole or in part and re-borrow hereunder at any time and
from time to time during the Commitment Period.
(b) UK Letters of Credit.
Subject to the terms and conditions of this Agreement, during
the Commitment Period, Agent (or such other Bank as shall agree to be
the Fronting Bank) shall, in its own name, but only as Agent for the
Banks, issue such UK Letters of Credit for the account of a UK
Borrower, as such UK Borrower may from time to time request. No UK
Borrower shall request any UK Letter of Credit (and neither Agent nor
any Fronting Bank shall be obligated to issue any UK Letter of Credit)
if, after giving effect thereto, (i) the UK Letter of Credit Exposure
would exceed the UK Letter of Credit Commitment, (ii) the UK Exposure
would exceed the amount of the UK Revolving Credit Commitment, or (iii)
the sum of (A) the UK Exposure, (B) the U.S. Revolving Exposure, (C)
the Canadian Exposure and (D) the U.S. Letter of Credit Exposure would
exceed the aggregate amount of the Revolving Credit Commitments. The
issuance of each UK Letter of Credit shall confer upon each Bank the
benefits and liabilities of a participation consisting of an undivided
pro rata interest in the UK Letter of Credit to the extent of that
Bank's Commitment Percentage.
Each request for a UK Letter of Credit shall be delivered to
Agent (and the Fronting Bank, if the Fronting Bank is a Bank other than
Agent) not later than 11:00 A.M. (Cleveland, Ohio time) three (3)
Business Days prior to the day upon which the UK Letter of Credit is to
be issued. Each such request shall be in a form acceptable to Agent
(and the Fronting Bank, if the Fronting Bank is a Bank other than
Agent) and shall specify the face amount thereof, whether such UK
Letter of Credit is a commercial documentary or a standby Letter of
Credit, the account party, the beneficiary, the intended date of
issuance, the expiry date thereof, and the nature of the transaction to
be supported thereby. Concurrently with each such request, the UK
Borrower for whose benefit the Letter of Credit is to be issued, shall
execute and deliver to Agent an appropriate application and agreement,
being in the standard form of the Fronting Bank for such letters of
credit, as amended to conform to the provisions of this Agreement if
required by Agent. Agent shall give each Bank notice of each such
request for a UK Letter of Credit.
26
<PAGE> 33
In respect of each UK Letter of Credit and the drafts
thereunder, if any, issued for the account of a UK Borrower, UK
Borrowers agree (i) to pay to Agent, for the pro rata benefit of the
Banks, (A) with respect to each UK Letter of Credit that is a standby
letter of credit, a commission based upon the face amount of the UK
Letter of Credit, which shall be paid quarterly in arrears, on the
first day of each July, October, January and April, at a rate per annum
equal to (1) the then current Applicable Margin for UK Fixed Rate Loans
(i.e. the Applicable Margin for UK Fixed Rate Loans in effect on the
date such UK Letter of Credit is issued and, as to each quarterly
payment thereafter, the Applicable Margin for UK Fixed Rate Loans in
effect on the date of such quarterly payment), times (2) the average
undrawn face amount of such UK Letter of Credit during such fiscal
quarter, and (B) with respect to each UK Letter of Credit that is a
commercial documentary letter of credit, a non-refundable commission
based upon the face amount of the UK Letter of Credit, which shall be
paid on the date that any draw is made on a UK Letter of Credit, in an
amount equal to (1) the then current Applicable Margin for UK Fixed
Rate Loans, times (2) the amount drawn under the UK Letter of Credit;
(ii) to pay to Agent, for the sole account of the Fronting Bank, an
additional UK Letter of Credit fee, which shall be paid on each date
that such UK Letter of Credit is issued or renewed at the rate of
one-eighth percent (1/8 of 1%) of the face amount of such UK Letter of
Credit; and (iii) to pay to Agent for the sole account of the Fronting
Bank, such other issuance, amendment, negotiation, draw, acceptance,
telex, courier, postage and similar transactional fees as are generally
charged by the Fronting Bank under its fee schedule as in effect from
time to time.
Whenever a UK Letter of Credit is drawn, UK Borrowers shall
immediately reimburse the Fronting Bank for the amount drawn. In the
event that the amount drawn is not reimbursed by UK Borrowers within
one (1) Business Day of the drawing of such UK Letter of Credit, at the
sole option of Agent (and the Fronting Bank, if the Fronting Bank is a
Bank other than Agent), UK Borrowers shall be deemed to have requested
a UK Revolving Loan, subject to the provisions of subsection 2(a) of
Section 2.1A in the amount drawn. Such UK Revolving Loan shall be
evidenced by the UK Revolving Credit Notes. Each Bank agrees to make a
UK Revolving Loan on the date of such notice, subject to no conditions
precedent whatsoever. Each Bank acknowledges and agrees that its
obligation to make a UK Revolving Loan pursuant to subsection 2(a) of
Section 2.lA when required by this subsection 2(b) of Section 2.1A is
absolute and unconditional and shall not be affected by any
circumstance whatsoever, including, without limitation, the occurrence
and continuance of an Unmatured Event of Default or Event of Default,
and that its payment to Agent, for the account of the Fronting Bank, of
the proceeds of such UK Revolving Loan shall be made without any
offset, abatement, recoupment, counterclaim, withholding or reduction
whatsoever and whether or not such Bank's UK Revolving Credit
Commitment shall have been reduced or terminated. UK Borrowers
irrevocably authorize and instruct Agent to apply the proceeds of any
borrowing pursuant to this subsection 2(b) of Section 2.1A to
reimburse, in full, the Fronting Bank for the amount drawn on such
Letter of Credit. Each such UK Revolving Loan shall be deemed to be a
UK Base Rate Loan unless otherwise requested by and available to UK
Borrowers hereunder. Each Bank is hereby authorized to record on its
records relating to its UK Revolving Credit Note such Bank's pro rata
share of the amounts paid and not reimbursed on the UK Letters of
Credit.
27
<PAGE> 34
3. Canadian Credit Facility.
(a) Canadian Revolving Loans.
Subject to the terms and conditions of this Agreement, during
the Commitment Period (but subject to Section 2.11 hereof), the
Canadian Banks shall make a Canadian Revolving Loan or Canadian
Revolving Loans to Canadian Borrowers in such amount or amounts as,
Canadian Borrowers may from time to time request. Canadian Borrowers
shall not request a Canadian Revolving Loan (and the Canadian Banks
shall not be obligated to make a Canadian Revolving Loan) if, after
giving effect thereto, (a) the Canadian Exposure would exceed the
Dollar Equivalent of the Canadian Revolving Credit Commitment, or (b)
the sum of (i) the UK Exposure, (ii) the U.S. Revolving Exposure, (iii)
the Canadian Exposure and (iv) the U.S. Letter of Credit Exposure would
exceed the aggregate amount of the Revolving Credit Commitments.
Canadian Borrowers shall have the option, subject to the terms
and conditions set forth herein, to borrow Canadian Revolving Loans,
maturing on the last day of the Commitment Period, by means of any
combination of (a) Canadian Base Rate Loans, or (b) Canadian Fixed Rate
Loans.
Canadian Borrowers shall pay interest in CAD on the unpaid
principal amount of Canadian Base Rate Loans outstanding from time to
time from the date thereof until paid at the Canadian Base Rate from
time to time in effect. Interest on such Canadian Base Rate Loans shall
be payable, commencing June 1, 1999, and on the 1st day of each
succeeding month thereafter, and at the maturity thereof.
Canadian Borrowers shall pay interest in CAD on the unpaid
principal amount of each Canadian Fixed Rate Loan outstanding from time
to time, from the date thereof until paid, at the Derived Canadian
Fixed Rate, fixed in advance for each Interest Period as herein
provided for each such Interest Period. Interest on such Canadian Fixed
Rate Loans shall be payable on each Interest Adjustment Date with
respect to an Interest Period (provided that if an Interest Period
exceeds three (3) months, the interest must be paid every three (3)
months, commencing three (3) months from the beginning of such Interest
Period).
At the request of Canadian Borrowers, subject to the notice
and other provisions of Section 2.2 hereof, the Canadian Banks shall
convert Canadian Base Rate Loans to Canadian Fixed Rate Loans at any
time and shall convert Canadian Fixed Rate Loans to Canadian Base Rate
Loans on any Interest Adjustment Date.
The obligation of Canadian Borrowers to repay the Canadian
Base Rate Loans and the Canadian Fixed Rate Loans made by each Canadian
Bank and to pay interest thereon shall be evidenced by a Canadian
Revolving Credit Note of Canadian Borrowers in the form of EXHIBIT C
hereto, dated the Closing Date, and payable to the order of such
Canadian Bank in the principal amount (as determined, originally, on
the Closing Date and as may be further determined in accordance with
the next sentence) of its pro rata share of the Canadian
28
<PAGE> 35
Revolving Credit Commitment, or, if less, the aggregate unpaid
principal amount of Canadian Revolving Loans made hereunder by such
Canadian Bank. If, in the sole opinion of Agent, the amount of the
Canadian Revolving Credit Commitment changes significantly after the
Closing Date as a result of currency fluctuations since the Closing
Date, the Canadian Borrowers shall, upon request of Agent, whenever
made, execute new Canadian Revolving Credit Notes in the then amount of
each Bank's pro rata share of the Canadian Revolving Credit Commitment.
The Canadian Bank shall not be obligated to make Canadian Revolving
Loans upon the receipt of a borrowing request if the Canadian Exposure
would then exceed the Dollar Equivalent, as determined on the date of
such request, of the aggregate face amounts of the Canadian Revolving
Credit Notes.
Subject to the provisions of this Agreement, Canadian
Borrowers shall be entitled under this subsection 3 of Section 2.1A to
borrow funds, repay the same in whole or in part and re-borrow
hereunder at any time and from time to time during the Commitment
Period.
(b) Canadian Letters of Credit.
Subject to the terms and conditions of this Agreement, during
the Commitment Period, such Canadian Bank as shall agree to be the
Fronting Bank for such Canadian Letter of Credit shall, in its own
name, but only as agent for the Canadian Banks, issue such Canadian
Letters of Credit for the account of a Canadian Borrower, as such
Canadian Borrower may from time to time request. No Canadian Borrower
shall request any Canadian Letter of Credit (and no Fronting Bank shall
be obligated to issue any Canadian Letter of Credit) if, after giving
effect thereto, (i) the Canadian Letter of Credit Exposure would exceed
the Dollar Equivalent, as determined at the time of the request, of the
Canadian Letter of Credit Commitment, (ii) the Canadian Exposure would
exceed the Dollar Equivalent, as determined at the time of the request,
of the amount of the Canadian Revolving Credit Commitment, or (iii) the
sum of (A) the Canadian Exposure, (B) the U.S. Revolving Exposure, (C)
the UK Exposure and (D) the U.S. Letter of Credit Exposure would exceed
the aggregate amount of the Revolving Credit Commitments. The issuance
of each Letter of Credit shall confer upon each Canadian Bank the
benefits and liabilities of a participation consisting of an undivided
pro rata interest in the Canadian Letter of Credit to the extent of
that Canadian Bank's percentage of the Canadian Revolving Credit
Commitment.
Each request for a Canadian Letter of Credit shall be
delivered to Agent not later than 11:00 A.M. (Cleveland, Ohio time)
three (3) Business Days prior to the day upon which the Canadian Letter
of Credit is to be issued. Each such request shall be in a form
acceptable to Agent and shall specify the face amount thereof, whether
such Canadian Letter of Credit is a commercial documentary or a standby
Letter of Credit, the account party, the beneficiary, the intended date
of issuance, the expiry date thereof, and the nature of the transaction
to be supported thereby. Concurrently with each such request, the
Canadian Borrower for whose benefit the Letter of Credit is to be
issued, shall execute and deliver to Agent an appropriate application
and agreement, being in the standard form of the Fronting Bank for such
letters of credit, as amended to conform to the provisions of this
Agreement if required by Agent.
29
<PAGE> 36
Agent shall give each Canadian Bank notice of each such request for a
Canadian Letter of Credit.
In respect of each Canadian Letter of Credit and the drafts
thereunder, if any, issued for the account of a Canadian Borrower,
Canadian Borrowers agree (i) to pay to Agent, for the pro rata benefit
of the Canadian Banks, (A) with respect to each Canadian Letter of
Credit that is a standby letter of credit, a commission based upon the
face amount of the Canadian Letter of Credit, which shall be paid
quarterly in arrears, on the first day of each July, October, January
and April, in an amount per annum equal to (1) the then current
Applicable Margin for Canadian Fixed Rate Loans (i.e. the Applicable
Margin for Canadian Fixed Rate Loans in effect on the date such
Canadian Letter of Credit is issued and, as to each quarterly payment
thereafter, the Applicable Margin for Canadian Fixed Rate Loans in
effect on the date of such quarterly payment), times (2) the average
undrawn face amount of such Canadian Letter of Credit during such
fiscal quarter, and (B) with respect to each Canadian Letter of Credit
that is a commercial documentary letter of credit, a nonrefundable
commission based upon the face amount of the Canadian Letter of Credit,
which shall be paid on the date that any draw is made on a Canadian
Letter of Credit, in an amount equal to (1) the then current Applicable
Margin for Canadian Fixed Rate Loans, times (2) the amount drawn under
the Canadian Letter of Credit; (ii) to pay to Agent, for the sole
account of the Fronting Bank, an additional Canadian Letter of Credit
fee, which shall be paid on each date that such Canadian Letter of
Credit is issued or renewed at the rate of one-eighth percent (1/8 of
1%) of the face amount of such Canadian Letter of Credit; and (iii) to
pay to Agent for the sole account of the Fronting Bank, such other
issuance, amendment, negotiation, draw, acceptance, telex, courier,
postage and similar transactional fees as are generally charged by the
Fronting Bank under its fee schedule as in effect from time to time.
Whenever a Canadian Letter of Credit is drawn, Canadian
Borrowers shall immediately reimburse the Fronting Bank for the amount
drawn. In the event that the amount drawn is not reimbursed by Canadian
Borrowers within one (1) Business Day of the drawing of such Canadian
Letter of Credit, at the sole option of Agent and the Fronting Bank,
Canadian Borrowers shall be deemed to have requested a Canadian
Revolving Loan, subject to the provisions of subsection 3(a) of Section
2.1A in the amount drawn. Such Canadian Revolving Loan shall be
evidenced by the Canadian Revolving Credit Notes. Each Canadian Bank
agrees to make a Canadian Revolving Loan on the date of such notice,
subject to no conditions precedent whatsoever. Each Canadian Bank
acknowledges and agrees that its obligation to make a Canadian
Revolving Loan pursuant to subsection 3(a) of Section 2.lA when
required by this subsection 3(b) of Section 2.1A is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including, without limitation, the occurrence and continuance of an
Unmatured Event of Default or Event of Default, and that its payment to
Agent, for the account of the Fronting Bank, of the proceeds of such
Canadian Revolving Loan shall be made without any offset, abatement,
recoupment, counterclaim, withholding or reduction whatsoever and
whether or not such Canadian Bank's Canadian Revolving Credit
Commitment shall have been reduced or terminated. Canadian Borrowers
irrevocably authorize and instruct Agent to apply the proceeds of any
borrowing pursuant to this subsection 3(b) of Section 2.1A to
reimburse, in full, the Fronting Bank for
30
<PAGE> 37
the amount drawn on such Canadian Letter of Credit. Each such Canadian
Revolving Loan shall be deemed to be a Canadian Base Rate Loan unless
otherwise requested by and available to Canadian Borrowers hereunder.
Each Canadian Bank is hereby authorized to record on its records
relating to its Canadian Revolving Credit Note such Canadian Bank's pro
rata share of the amounts paid and not reimbursed on the Canadian
Letters of Credit.
4. U.S. Letters of Credit.
Subject to the terms and conditions of this Agreement, during the
Commitment Period, Agent (or such other Bank as shall agree to be the Fronting
Bank) shall, in its own name, but only as Agent for the Banks, issue such U.S.
Letters of Credit for the account of U.S. Borrower or any U.S. Guarantor, as
U.S. Borrower may from time to time request. U.S. Borrower shall not request any
U.S. Letter of Credit (and neither Agent nor any Fronting Bank shall be
obligated to issue any U.S. Letter of Credit) if, after giving effect thereto,
(a) the U.S. Letter of Credit Exposure would exceed the Letter of Credit
Commitment, or (b) the Revolving Credit Exposure would exceed the Total
Commitment Amount. The issuance of each U.S. Letter of Credit shall confer upon
each Bank the benefits and liabilities of a participation consisting of an
undivided pro rata interest in the U.S. Letter of Credit to the extent of that
Bank's Commitment Percentage.
Each request for a U.S. Letter of Credit shall be delivered to Agent
(and the Fronting Bank, if the Fronting Bank is a Bank other than Agent) not
later than 11:00 A.M. (Cleveland, Ohio time) three (3) Business Days prior to
the day upon which the U.S. Letter of Credit is to be issued. Each such request
shall be in a form acceptable to Agent (and the Fronting Bank, if the Fronting
Bank is a Bank other than Agent) and shall specify the face amount thereof,
whether such U.S. Letter of Credit is a commercial documentary or a standby U.S.
Letter of Credit, the account party, the beneficiary, the intended date of
issuance, the expiry date thereof, and the nature of the transaction to be
supported thereby. Concurrently with each such request, U.S. Borrower, and any
U.S. Guarantor for whose benefit the U.S. Letter of Credit is to be issued,
shall execute and deliver to Agent an appropriate application and agreement,
being in the standard form of the Fronting Bank for such letters of credit, as
amended to conform to the provisions of this Agreement if required by Agent.
Agent shall give each Bank notice of each such request for a U.S. Letter of
Credit.
In respect of each U.S. Letter of Credit and the drafts thereunder, if
any, whether issued for the account of U.S. Borrower or a U.S. Guarantor, U.S.
Borrower agrees (a) to pay to Agent, for the pro rata benefit of the Banks, (i)
with respect to each U.S. Letter of Credit that is a standby letter of credit, a
commission based upon the face amount of the U.S. Letter of Credit, which shall
be paid quarterly in arrears, on the first day of each July, October, January
and April, at a rate per annum equal to (A) the then current Applicable Margin
for Eurodollar Loans (i.e. the Applicable Margin for Eurodollar Loans in effect
on the date such U.S. Letter of Credit is issued and, as to each quarterly
payment thereafter, the Applicable Margin for Eurodollar Loans in effect on the
date of such quarterly payment), times (B) the average undrawn face amount of
such U.S. Letter of Credit during such fiscal quarter, and (ii) with respect to
each U.S. Letter of Credit that is a commercial documentary letter of credit, a
nonrefundable commission based upon the face amount of the U.S. Letter of
Credit, which shall be paid on the date that any draw is made on a U.S. Letter
of Credit, in an amount equal to (A) the then current Applicable Margin for
Eurodollar Loans, times (B) the
31
<PAGE> 38
amount drawn under the U.S. Letter of Credit; (b) to pay to Agent, for the sole
account of the Fronting Bank, an additional U.S. Letter of Credit fee, which
shall be paid on each date that such U.S. Letter of Credit is issued or renewed
at the rate of one-eighth percent (1/8 of 1%) of the face amount of such U.S.
Letter of Credit; and (c) to pay to Agent for the sole account of the Fronting
Bank, such other issuance, amendment, negotiation, draw, acceptance, telex,
courier, postage and similar transactional fees as are generally charged by the
Fronting Bank under its fee schedule as in effect from time to time.
Whenever a U.S. Letter of Credit is drawn, U.S. Borrower shall
immediately reimburse the Fronting Bank for the amount drawn. In the event that
the amount drawn is not reimbursed by U.S. Borrower within one (1) Business Day
of the drawing of such U.S. Letter of Credit, at the sole option of Agent (and
the Fronting Bank, if the Fronting Bank is a Bank other than Agent), U.S.
Borrower shall be deemed to have requested a U.S. Revolving Loan, subject to the
provisions of subsection 1 of Section 2.1A in the amount drawn. Such U.S.
Revolving Loan shall be evidenced by the Revolving Credit Notes. Each Bank
agrees to make a U.S. Revolving Loan on the date of such notice, subject to no
conditions precedent whatsoever. Each Bank acknowledges and agrees that its
obligation to make a U.S. Revolving Loan pursuant to subsection 1 of Section
2.lA when required by this subsection 4 of Section 2.1A is absolute and
unconditional and shall not be affected by any circumstance whatsoever,
including, without limitation, the occurrence and continuance of an Unmatured
Event of Default or Event of Default, and that its payment to Agent, for the
account
of the Fronting Bank, of the proceeds of such U.S. Revolving Loan shall be made
without any offset, abatement, recoupment, counterclaim, withholding or
reduction whatsoever and whether or not such Bank's Revolving Credit Commitment
shall have been reduced or terminated. U.S. Borrower irrevocably authorizes and
instructs Agent to apply the proceeds of any borrowing pursuant to this
subsection 4 to reimburse, in full, the Fronting Bank for the amount drawn on
such U.S. Letter of Credit. Each such U.S. Revolving Loan shall be deemed to be
a Base Rate Loan unless otherwise requested by and available to U.S. Borrower
hereunder. Each Bank is hereby authorized to record on its records relating to
its Revolving Credit Note such Bank's pro rata share of the amounts paid and not
reimbursed on the U.S. Letters of Credit.
B. Term Loan.
Subject to the terms and conditions of this Agreement, the Banks shall
make a five (5) year Term Loan to U.S. Borrower on the Closing Date, in the
Maximum Term Loan Commitment Amount. To evidence the Term Loan, U.S. Borrower
shall execute and deliver to each Bank a Term Note, dated the Closing Date, and
in the form of EXHIBIT D hereto. The Term Loan shall be payable in fifty-nine
(59) consecutive monthly installments of Two Hundred Ninety-Seven Thousand Six
Hundred Nineteen Dollars ($297,619) each, commencing June 1, 1999, and
continuing on the first day of each succeeding month thereafter through April 1,
2004, with the last payment to be paid on May 1, 2004 in the amount of the then
remaining balance of the Term Loan. U.S. Borrower shall notify Agent, consistent
with the applicable notice provisions of Section 2.2 hereof, whether the Term
Loan will be a U.S. Base Rate Loan or a Eurodollar Loan. The Term Loan may be a
mixture of a U.S. Base Rate Loan and Eurodollar Loans. The Banks, at the request
of U.S. Borrower, subject to the applicable notice and other provisions of
Section 2.2 hereof, shall convert a U.S. Base Rate
32
<PAGE> 39
Loan to a Eurodollar Loan at any time and shall convert a Eurodollar Loan to a
U.S. Base Rate Loan on any Interest Adjustment Date.
If the Term Loan is a U.S. Base Rate Loan, U.S. Borrower shall pay
interest on the unpaid principal amount thereof outstanding from time to time
from the date thereof until paid, commencing June 1, 1999, and continuing on the
first day of each succeeding month thereafter and at the maturity thereof, at
the Base Rate from time to time in effect.
If the Term Loan is a Eurodollar Loan, U.S. Borrower shall pay interest
on the unpaid principal amount of each Eurodollar Loan outstanding from time to
time from the date thereof until paid, fixed in advance for each Interest Period
as herein provided for each such Interest Period. Interest on such Eurodollar
Loans shall be at the Derived Eurodollar Rate, payable on each Interest
Adjustment Date with respect to an Interest Period (provided that if an Interest
Period exceeds three (3) months, the interest must be paid every three (3)
months, commencing three (3) months from the beginning of such Interest Period).
SECTION 2.2. CONDITIONS TO LOANS AND LETTERS OF CREDIT. The obligation
of the Banks to make, convert or continue any Loan, and of Agent (or a Fronting
Bank) to issue any Letter of Credit hereunder is conditioned, in the case of
each borrowing, conversion, continuation or issuance hereunder, upon:
(a) all conditions precedent as listed in Article IV hereof shall have
been satisfied;
(b) with respect to any U.S. Revolving Loan or the Term Loan, receipt
by Agent of a Notice of Loan from U.S. Borrower, such notice to be received by
11:00 A.M. (Cleveland, Ohio time) on the proposed date of borrowing or
conversion with respect to a U.S. Base Rate Loan, and, with respect to the
making, conversion or continuation of any Eurodollar Loans, by 11:00 A.M.
(Cleveland, Ohio time) three (3) Business Days prior to the proposed date of
borrowing, conversion or continuation. Agent shall notify each Bank of the date,
amount and Interest Period (if applicable) promptly upon the receipt of such
notice, and, in any event, by 2:00 P.M. (Cleveland, Ohio time) on the date such
notice is received. On the date that any such Loan is to be made, each Bank
shall provide Agent at the Designated Lending Office, not later than 3:00 P.M.
(Cleveland, Ohio time), with the Dollar amount in federal or other immediately
available funds, required of it;
(c) with respect to any UK Revolving Loan, receipt by Agent of a Notice
of Loan by a UK Borrower, such notice to be received by 11:00 A.M. (Cleveland,
Ohio time) on the proposed date of borrowing or conversion with respect to a UK
Base Rate Loan, and, with respect to the making, conversion or continuation of
any UK Fixed Rate Loans, by 11:00 A.M. (Cleveland, Ohio time) three (3) Business
Days prior to the proposed date of borrowing, conversion or continuation. Agent
shall notify each Bank of the date, amount and Interest Period (if applicable)
promptly upon the receipt of such notice, and, in any event, by 2:00 P.M.
(Cleveland, Ohio time) on the date such notice is received. On the date that any
such UK Revolving Loan is to be made, each Bank shall provide Agent, at the
Designated Lending Office not later than 3:00 P.M. (Cleveland, Ohio time), with
the Dollar amount in federal or other immediately available funds, required of
it;
33
<PAGE> 40
(d) with respect to any Canadian Revolving Loan, receipt by Agent of a
Notice of Loan from a Canadian Borrower, such notice to be received by 11:00
A.M. (Cleveland, Ohio time) on the proposed date of borrowing or conversion with
respect to a Canadian Base Rate Loan, and, with respect to the making,
conversion or continuation of any Canadian Fixed Rate Loans, by 11:00 A.M.
(Cleveland, Ohio time) three (3) Business Days prior to the proposed date of
borrowing, conversion or continuation. Agent shall notify each Canadian Bank of
the date, amount and Interest Period (if applicable) promptly upon the receipt
of such notice, and, in any event, by 2:00 P.M. (Cleveland, Ohio time) on the
date such notice is received. On the date that any such Canadian Revolving Loan
is to be made, each Canadian Bank shall provide Agent, at the Designated Lending
Office not later than 3:00 P.M. (Cleveland, Ohio time), with the CAD amount in
immediately available funds required of it;
(e) with respect to Letters of Credit, satisfaction of the notice
provisions set forth in subsection 2(b), 3(b) or 4 of Section 2.1A hereof, as
appropriate;
(f) each request of (i) U.S. Borrower for a U.S. Base Rate Loan shall
be in an amount of not less than Five Hundred Thousand Dollars ($500,000),
increased by increments of One Hundred Thousand Dollars ($100,000), and a
Eurodollar Loan shall be in an amount of not less than Five Million Dollars
($5,000,000), increased by increments of Five Hundred Thousand Dollars
($500,000), (ii) a UK Borrowers for a UK Base Rate Loan shall be in an amount of
not less than Five Hundred Thousand Dollars ($500,000), increased by increments
of One Hundred Thousand Dollars ($100,000), and a UK Fixed Rate Loan shall be in
an amount of not less than One Million Dollars ($1,000,000), increased by
increments of Five Hundred Thousand Dollars ($500,000), and (iii) a Canadian
Borrower for a Canadian Base Rate Loan shall be in an amount of not less than
the CAD Equivalent, as determined at the time of the request, of One Million
Dollars ($1,000,000), increased by increments of the CAD Equivalent, as
determined at the time of the request, of One Hundred Thousand Dollars
($100,000), and a Canadian Fixed Rate Loan shall be in an amount of not less
than the CAD Equivalent, as determined at the time of the request, of One
Million Dollars ($1,000,000), increased by increments of the CAD Equivalent, as
determined at the time of the request, of One Hundred Thousand Dollars
($100,000);
(g) the fact that no Unmatured Event of Default or Event of Default
shall then exist or immediately after the making, conversion or continuation of
the Loan or issuance of the Letter of Credit would exist; and
(h) the fact that each of the representations and warranties contained
in Article VI hereof shall be true and correct in all material respects with the
same force and effect as if made on and as of the date of the making, conversion
or continuation of the Loan, or the issuance of the Letter of Credit, except to
the extent that any thereof expressly relate to an earlier date.
At no time shall (a) U.S. Borrower request that Eurodollar Loans be
outstanding for more than five (5) different Interest Periods at any time; (b)
UK Borrowers request that UK Fixed Rate Loans be outstanding for more than three
(3) different Interest Period at any time; and (c) Canadian Borrowers request
that Canadian Fixed Rate Loans be outstanding for more than two (2) different
Interest Period at any time.
34
<PAGE> 41
Each request by any Borrower for the making, conversion or continuation
of a Loan, or the issuance of a Letter of Credit hereunder shall be deemed to be
a representation and warranty by such Borrower of the date of such request as to
the facts specified in (g) and (h) above.
Each request for a Fixed Rate Loan shall be irrevocable and binding on
the applicable Borrower or Borrowers, as the case may be, and such Borrower or
Borrowers shall indemnify Agent and the appropriate Banks against any loss or
expense incurred by Agent or such Banks as a result of any failure by such
Borrower or Borrowers to consummate such transaction including, without
limitation, any loss (including loss of anticipated profits) or expense incurred
by reason of liquidation or re-employment of deposits or other funds acquired by
such Banks to fund such Fixed Rate Loan. A certificate as to the amount of such
loss or expense submitted by the Banks to the appropriate Borrower or Borrowers
shall be conclusive and binding for all purposes, absent manifest error.
SECTION 2.3. JOINT AND SEVERAL LIABILITY.
(a) Each request by a Canadian Borrower for the making, conversion or
continuation of a Canadian Revolving Loan shall be deemed to be a joint and
several request by all Canadian Borrowers. Each Canadian Borrower hereby
authorizes any other Canadian Borrower to request a Canadian Revolving Loan
hereunder and agrees that it is receiving or will receive a direct pecuniary and
commercial benefit therefor. Each Canadian Borrower acknowledges and agrees that
the Canadian Banks are providing the Canadian Revolving Credit Commitment for
Canadian Borrowers at the request of each Canadian Borrower and with the
understanding that each Canadian Borrower is and shall remain fully liable,
jointly and severally, for payment in full of all Canadian Revolving Loans and
other Indebtedness and obligations incurred by Canadian Borrowers in connection
with the Canadian Revolving Credit Commitment.
(b) Each request by a UK Borrower for the making, conversion or
continuation of a UK Revolving Loan shall be deemed to be a joint and several
request by all UK Borrowers. Each UK Borrower hereby authorizes any other UK
Borrower to request a UK Revolving Loan hereunder and agrees that it is
receiving or will receive a direct pecuniary and commercial benefit therefor.
Each UK Borrower acknowledges and agrees that the Banks are providing the UK
Revolving Credit Commitment for the UK Borrowers at the request of each UK
Borrower and with the understanding that each UK Borrower is and shall remain
fully liable, jointly and severally, for payment in full of all UK Revolving
Loans and other Indebtedness and obligations incurred by UK Borrowers in
connection with the UK Revolving Credit Commitment.
SECTION 2.4. MAXIMUM LIABILITY. Anything in Section 2.3 hereof to the
contrary notwithstanding, to the extent that mandatory applicable law
(including, but not limited to, applicable laws pertaining to fraudulent
conveyance or fraudulent transfer) otherwise would render the full amount of any
Canadian Borrower's or UK Borrower's obligations hereunder invalid or
unenforceable, such Canadian Borrower's or UK Borrower's, as the case may be,
obligations hereunder shall be limited to the maximum amount which does not
result in such invalidity or unenforceability.
35
<PAGE> 42
SECTION 2.5. PAYMENT ON NOTES, ETC.
(a) PAYMENTS IN DOLLARS. With respect to any U.S. Revolving Loan, UK
Revolving Loan or the Term Loan, all payments (including prepayments) to Agent
of the principal of or interest on such Loan shall be made in Dollars at the
Designated Lending Office. Payments must be received at the Designated Lending
Office not later than 11:00 A.M. (Cleveland, Ohio time) to be deemed to have
been made and received on that day.
(b) PAYMENTS IN CAD. All payments (including prepayments) of principal
and interest on any Canadian Revolving Loan, any reimbursements with respect to
any Canadian Letter of Credit, and any other payment with respect to the
Canadian Revolving Credit Commitment shall be made in same day CAD funds at the
appropriate Designated Lending Office for the benefit of the Canadian Banks. All
such payments shall be remitted by Canadian Borrowers to the appropriate
Designated Lending Office not later than 11:00 A.M. (Cleveland, Ohio time) on
the due date thereof in same day funds. In the event that such payment is due on
a date when such Designated Lending Office is not open for business, then such
payment shall be made on the next preceding day upon which such Designated
Lending Office is open for business. Payments must be received at the Designated
Lending Office not later than 11:00 A.M. (Cleveland, Ohio time) to be deemed to
have been made and received on that day.
(c) OTHER PAYMENTS. With respect to any other payment to Agent and the
Banks that is not covered by subsection (a) and (b) hereof, such other payment,
including but not limited to principal, interest, fees or any other amount owed
by any Borrower under this Agreement, shall be made in Dollars. Payments
described in this subsection (c) must be received by Agent not later than 12:00
P.M. (Cleveland, Ohio time) to be deemed to have been made and received on that
day.
(d) APPLICATION OF PAYMENTS. Borrowers recognize that the amounts
evidenced by checks, notes, drafts or any other items of payment relating to
and/or proceeds of certain collateral for the Loans hereunder may not be
collectible by Agent on the date received. In consideration of Agent's agreement
to conditionally credit Borrowers' respective accounts as of the Business Day on
which Agent receives those items of payment in accordance with the time periods
set forth above, Borrowers agree that, in computing the amounts payable under
this Agreement, all items of payment shall be deemed applied by Agent on account
of the Debt one (1) Business Day after the Business Day that Agent receives such
payments via wire transfer or electronic depository check. Agent is not,
however, required to credit Borrowers' respective accounts for the amount of any
item of payment that is unsatisfactory to Agent, and Agent may charge Borrowers'
respective accounts for the amount of any item of payment credited to such
account that is returned to Agent unpaid.
(e) PAYMENTS NET OF TAXES.
(i) GENERAL PROVISIONS. All payments under this Agreement
shall be made absolutely net of, without deduction or offset for, and
altogether free and clear of, any and all present and future taxes,
levies, deductions, charges and withholdings and all liabilities with
respect thereto, under the laws of the United States of America or any
foreign jurisdiction (or any state or political subdivision thereof),
excluding income and franchise
36
<PAGE> 43
taxes imposed on any Bank (and withholding relating thereto) under the
laws of the United States of America, the United Kingdom or Canada or
any other foreign jurisdiction (or any state or political subdivision
thereof). If any Borrower is compelled by law to deduct any such taxes
or levies (other than such excluded taxes) or to make any such other
deductions, charges or withholdings, then such Borrower shall pay such
additional amounts as may be necessary in order that the net payments
after such deduction, and after giving effect to any United States or
foreign jurisdiction (or any state or political subdivision thereof)
income taxes required to be paid by the Banks in respect of such
additional amounts, shall equal the amount of interest provided in
Section 2.1 hereof for each Loan plus any principal then due.
(ii) FOREIGN FACILITIES. In addition, and specifically with
respect to the Canadian Revolving Credit Commitment and the UK
Revolving Credit Commitment:
(A) All payments on account of principal, if any, and
interest shall be made without set-off or counterclaim and,
unless otherwise required by law, shall be made free and clear
of and without deduction for withholding tax or similar tax,
present or future, imposed by any taxing authority in Canada,
the United Kingdom or otherwise (in this subsection (ii)
hereof, a Tax). If a Borrower is required to withhold or pay
any Tax, it shall make the required withholding and payment in
accordance with and within the time allowed by law, and shall
nonetheless pay to the appropriate Bank such additional
amounts as are necessary to cause such Bank actually to
receive in full all amounts (after taking account of any
further deduction or withholding which is required to be made
as a consequence of the payment of such additional amounts) on
account of principal and interest or other fees or amounts
owing to it hereunder, as if such Tax had not been paid. As
soon as practicable after the date any Tax becomes due and
payable, such Borrower shall give to such Bank the original or
a copy of a receipt for the payment of the Tax, or if such
receipts are not issued by or received from the taxing
authority to which the Tax was paid, a certificate of an
officer of such Borrower, confirming the date and amount of
the payment so made and reasonable details of the calculation
of the amount due.
(B) Such Borrower shall indemnify and save such Bank
harmless from and against any claim, liability, loss, cost,
expense (including without limitation legal, accounting and
other professional fees, and interest and penalty charges or
fines imposed by any taxing authority in respect of or arising
from non-payment of such Tax) to which such Bank may be
exposed or which it may incur, by reason of such Borrower's
failure to make punctual payment of any amount required to be
paid to a taxing authority pursuant to subsection (A) hereof.
(C) In the event and in each case that such Bank
receives a credit against its income tax payable in any
jurisdiction in respect of such Tax or such Tax is refunded to
such Bank either in whole or in part by any taxing authority
in Canada, the United Kingdom or otherwise, an amount equal to
such credit or refund shall promptly be refunded by such Bank
to such Borrower.
37
<PAGE> 44
(D) If with respect to any particular tax year of
such Bank, such Bank has not received sufficient tax credits
and/or refunds so that the full amount payable by such
Borrower under subsection (A) hereof can be refunded, such
Bank shall provide to such Borrower within ninety (90) days of
the end of each such tax year of such Bank a certificate of an
officer of such Bank certifying as to the amount of the
credits available and the amount of withholding tax which it
was unable to utilize as a credit against its income tax
payable in all jurisdictions in such year.
(f) PAYMENTS TO BANKS. Upon Agent's receipt of payments hereunder,
Agent shall immediately distribute to each Bank its ratable share, if any, of
the amount of principal, interest, and facility and other fees received by it
for the account of such Bank. Payments received by Agent in Dollars shall be
delivered to the Banks in immediately available funds. Payments received at the
Designated Lending Office in CAD shall be delivered to the Canadian Banks in
same day funds. Each Bank shall record any principal, interest or other payment,
the principal amounts of the Loans, the type of currency for each Loan, all
prepayments and the applicable dates, including Interest Periods, with respect
to the Loans made and payments received by such Bank, by such method as such
Bank may generally employ; provided, however, that failure to make any such
entry shall in no way detract from the obligations of the respective Borrowers
under each such Note. The aggregate unpaid amount of Loans, types of Loans and
Interest Periods with respect to such Loans set forth on the records of Agent
shall be rebuttably presumptive evidence of the principal and interest owing and
unpaid on each Note.
(g) TIMING OF PAYMENTS. Whenever any payment to be made hereunder,
including, without limitation, any payment to be made on any Note, shall be
stated to be due on a day that is not a Business Day, such payment shall be made
on the next succeeding Business Day and such extension of time shall in each
case be included in the computation of the interest payable on such Note;
provided, however, that, with respect to any Fixed Rate Loan, if the next
succeeding Business Day falls in the succeeding calendar month, such payment
shall be made on the preceding Business Day and the relevant Interest Period
shall be adjusted accordingly.
SECTION 2.6. PREPAYMENT.
(a) RIGHT TO PREPAY.
(i) U.S. Borrower shall have the right, at any time or from
time to time, to prepay, on a pro rata basis for all of the Banks, all
or any part of the principal amount of the Revolving Credit Notes or
Term Notes then outstanding, as designated by U.S. Borrower, plus
interest accrued on the amount so prepaid to the date of such
prepayment and any prepayment fees payable in connection therewith
under subsection (b) hereof
(ii) Canadian Borrowers shall have the right, at any time or
from time to time, to prepay all or any part of the principal amount of
the Canadian Revolving Credit Notes then outstanding, as designated by
Canadian Borrowers, plus interest accrued on the amount so prepaid to
the date of such prepayment and any prepayment fees payable in
connection therewith under subsection (b) hereof; and
38
<PAGE> 45
(iii) UK Borrowers shall have the right, at any time or from
time to time, to prepay all or any part of the principal amount of the
UK Revolving Credit Notes then outstanding, as designated by UK
Borrowers, plus interest accrued on the amount so prepaid to the date
of such prepayment and any prepayment fees payable in connection
therewith under subsection (b) hereof.
(b) PREPAYMENT FEES.
(i) (A) If U.S. Borrower terminates the Revolving Credit
Commitment on or prior to the date that is three (3) years from the
Closing Date, then U.S. Borrower shall pay a prepayment fee to Agent,
for the pro rata benefit of the Banks, in an amount equal to two
percent (2%) times the Maximum Revolving Credit Commitment Amount, or
(B) if U.S. Borrower terminates the Term Loan Commitment on or prior to
the date that is three (3) years from the Closing Date, then U.S.
Borrower shall pay a prepayment fee to Agent, for the pro rata benefit
of the Banks, in an amount equal to two percent (2%) times the Maximum
Term Loan Commitment Amount; provided, however, that so long as Agent
remains Agent under any replacement credit facility, then the
prepayment fees set forth in this Section 2.6(b)(i) shall not apply;
(ii) Without limiting anything else herein, in any case of
prepayment of a Eurodollar Loan, U.S. Borrower agrees that if the
reinvestment rate, as quoted by the money desk of Agent ("Reinvestment
Rate"), shall be lower than the Eurodollar Rate applicable to the
Eurodollar Loan that is intended to be prepaid (hereinafter, "Last
Eurodollar"), then U.S. Borrower shall, upon written notice by Agent,
promptly pay to Agent, for the benefit of the Banks, in immediately
available funds, a prepayment fee equal to the product of (A) a rate
(the "Prepayment Rate") which shall be equal to the difference between
the Last Eurodollar and the Reinvestment Rate, times (B) the principal
amount of the Eurodollar Loan that is to be prepaid, times (C) (i) the
number of days remaining in the Interest Period of the Eurodollar Loan
that is to be prepaid divided by (ii) three hundred sixty (360). In
addition, U.S. Borrower shall immediately pay directly to Agent, for
the account of the Banks, the amount of any additional costs or
expenses (including, without limitation, reasonable or standard costs
of telex, wires, or cables) incurred by Agent or the Banks in
connection with the prepayment, upon U.S. Borrower's receipt of a
written statement from Agent;
(iii) Without limiting anything else herein, in the case of
prepayment of a Canadian Fixed Rate Loan, Canadian Borrowers agree that
if the reinvestment rate for CAD funds, as quoted by the money desk of
Agent ("CAD Reinvestment Rate"), shall be lower than the Canadian
Domestic Rate applicable to the Canadian Fixed Rate Loan that is
intended to be prepaid (hereinafter, "Last CAD Rate"), then Canadian
Borrowers shall, upon written notice by Agent, promptly pay to Agent at
the appropriate Designated Lending Office, for the benefit of the
Canadian Banks, in immediately available funds, a prepayment fee equal
to the product of (A) a rate (the "Prepayment Rate") which shall be
equal to the difference between the Last CAD Rate and the CAD
Reinvestment Rate, times (B) the principal amount of the Canadian Fixed
Rate Loan that is to be prepaid, times (C) (1) the
39
<PAGE> 46
number of days remaining in the Interest Period of the Canadian Fixed
Rate Loan which is to be prepaid divided by (2) three hundred sixty
(360); and
(iv) Without limiting anything else herein, in any case of
prepayment of a Eurodollar Loan, UK Borrowers agree that if the
reinvestment rate, as quoted by the money desk of Agent ("Reinvestment
Rate"), shall be lower than the Eurodollar Rate applicable to the
Eurodollar Loan that is intended to be prepaid (hereinafter, "Last
Eurodollar"), then UK Borrowers shall, upon written notice by Agent,
promptly pay to Agent, for the benefit of the Banks, in immediately
available funds, a prepayment fee equal to the product of (A) a rate
(the "Prepayment Rate") which shall be equal to the difference between
the Last Eurodollar and the Reinvestment Rate, times (B) the principal
amount of the Eurodollar Loan that is to be prepaid, times (C) (1) the
number of days remaining in the Interest Period of the Eurodollar Loan
that is to be prepaid divided by (2) three hundred sixty (360). In
addition, UK Borrowers shall immediately pay directly to Agent, for the
account of the Banks, the amount of any additional costs or expenses
(including, without limitation, reasonable or standard costs of telex,
wires, or cables) incurred by Agent or the Banks in connection with the
prepayment, upon UK Borrowers' receipt of a written statement from
Agent;
(c) PREPAYMENT OF TERM LOAN. Each prepayment of the Term Loan shall be
applied to the principal installments thereof in the inverse order of their
respective maturities.
(d) MINIMUM AMOUNT. Each prepayment of a Fixed Rate Loan shall be in
the aggregate principal sum of not less than One Million Dollars ($1,000,000),
except in the case of a mandatory prepayment pursuant to Section 2.10 or Article
III hereof.
(e) NOTICE OF PREPAYMENT. U.S. Borrower, Canadian Borrowers or UK
Borrowers, as the case may be, shall give Agent notice of prepayment of any Base
Rate Loan by not later than 11:00 A.M. (Cleveland, Ohio time) on the Business
Day such prepayment is to be made and written notice of the prepayment of any
Fixed Rate Loan not later than 1:00 P.M. (Cleveland, Ohio time) three (3)
Business Days before the Business Day on which such prepayment is to be made.
SECTION 2.7. FACILITY AND OTHER FEES.
(a) U.S. Borrower shall pay to Agent, for the ratable account of the
Banks, as a consideration for the Revolving Credit Commitments hereunder, a
facility fee from the Closing Date until the last day of the Commitment Period
equal to (i) the Facility Fee Rate times (ii) (A) the Maximum Revolving Credit
Commitment Amount, less (B) the average aggregate principal amount of all
Revolving Loans (including the Dollar Equivalent of all Canadian Revolving
Loans) outstanding for the time period for which such payment is being made,
less (C) the average aggregate amount of all issued and outstanding Letters of
Credit (including the Dollar Equivalent of all Canadian Letters of Credit) for
the time period for which such payment is being made. The facility fee shall be
payable, in arrears, on July 1, 1999, and on the first day of each October,
January, April and July thereafter and on the last day of the Commitment Period.
40
<PAGE> 47
(b) U.S. Borrower shall pay to Agent, for the sole benefit of Agent,
all fees set forth in the Agent Fee Letter.
SECTION 2.8. REDUCTION OF COMMITMENT.
(a) U.S. Borrower may at any time or from time to time permanently
reduce in whole or ratably in part the U.S. Revolving Credit Commitment to an
amount not less than the U.S. Revolving Exposure, by giving Agent not fewer than
three (3) Business Days' notice, provided that any such partial reduction shall
be in an aggregate amount, for all of the Banks, of Five Million Dollars
($5,000,000), or any integral multiple thereof. Agent shall promptly notify each
Bank of the date of each such reduction and such Bank's proportionate share
thereof. If required by Agent, the Borrowers, the Banks and Agent shall execute
an amendment to this Agreement to make any conforming changes deemed necessary
or appropriate by Agent as a result of any such reduction of the U.S. Revolving
Credit Commitment. After each such reduction, the facility fees payable with
respect to the Revolving Credit Commitments shall be calculated upon the
Revolving Credit Commitments of the Banks as so reduced.
(b) Canadian Borrowers may at any time or from time to time permanently
reduce in whole or ratably in part the Canadian Revolving Credit Commitment to
an amount not less than the Canadian Exposure, by giving Agent not fewer than
three (3) Business Days' notice, provided that any such partial reduction shall
be in an aggregate amount of One Million Dollars ($1,000,000), or any integral
multiple thereof. Agent shall promptly notify each Canadian Bank of the date of
each such reduction. If required by Agent, the Borrowers, the Banks and Agent
shall execute an amendment to this Agreement to make any conforming changes
deemed necessary or appropriate by Agent as a result of any such reduction of
the Canadian Revolving Credit Commitment.
(c) UK Borrowers may at any time or from time to time permanently
reduce in whole or ratably in part the UK Revolving Credit Commitment to an
amount not less than the UK Exposure, by giving Agent not fewer than three (3)
Business Days' notice, provided that any such partial reduction shall be in an
aggregate amount, for all of the Banks, of One Million Dollars ($1,000,000), or
any integral multiple thereof. Agent shall promptly notify each Bank of the date
of each such reduction and such Bank's proportionate share thereof. If required
by Agent, the Borrowers, the Banks and Agent shall execute an amendment to this
Agreement to make any conforming changes deemed necessary or appropriate by
Agent as a result of any such reduction of the UK Revolving Credit Commitment.
(d) If the Borrowers reduce in whole the Commitment, on the effective
date of such reduction (U.S. Borrower, Canadian Borrowers and UK Borrowers
having prepaid in full the unpaid principal balance, if any, of the appropriate
Notes, together with all interest and facility and other fees accrued and
unpaid, and provided that no U.S. Letter of Credit Exposure, Canadian Letter of
Credit Exposure or UK Letter of Credit Exposure shall exist), all of the Notes
shall be delivered to Agent marked "Canceled" and Agent shall redeliver such
Notes to the appropriate Borrowers. Any partial reduction in the U.S. Revolving
Credit Commitment, the Canadian Revolving Credit Commitment or the UK Revolving
Credit Commitment, as the case may be, shall be effective during the remainder
of the Commitment Period.
41
<PAGE> 48
SECTION 2.9. COMPUTATION OF INTEREST AND FEES; DEFAULT RATE. Interest
on Loans and facility and other fees and charges hereunder shall be computed on
the basis of a year having three hundred sixty (360) days and calculated for the
actual number of days elapsed. Anything herein to the contrary notwithstanding,
if an Event of Default shall occur hereunder, (a) the principal of each Note and
the unpaid interest thereon shall bear interest, until paid, at the Default
Rate; and (b) the fee for the aggregate undrawn face amount of all issued and
outstanding Letters of Credit shall be increased to two percent (2%) in excess
of the then applicable fee from time to time in effect pursuant to subsection
2(b), 3(b) or 4 of Section 2.1A hereof, as applicable. In no event shall the
rate of interest hereunder exceed the maximum rate allowable by law. In
addition, with respect to the Canadian Revolving Credit Commitment, each rate of
interest calculated or payable under this Agreement that is calculated with
reference to a period (the "deemed interest period") that is less than the
actual number of days in the calendar year of calculation is, for the purposes
of the Interest Act (Canada), equivalent to a rate based on a calendar year
calculated by multiplying such rate interest by the actual number of days in the
calendar year of calculation and dividing by the number of days in the deemed
interest period.
SECTION 2.10. MANDATORY PAYMENT.
(a) If the Revolving Credit Exposure at any time exceeds the Maximum
Revolving Credit Commitment Amount, U.S. Borrower shall, as promptly as
practicable, but in no event later than the next Business Day, prepay an
aggregate principal amount of Revolving Loans sufficient to bring the Revolving
Credit Exposure within the Maximum Revolving Credit Commitment Amount.
(b) If the U.S. Revolving Exposure at any time exceeds the U.S.
Revolving Credit Commitment, U.S. Borrower shall, as promptly as practicable,
but in no event later than the next Business Day, prepay an aggregate principal
amount of U.S. Revolving Loans sufficient to bring the U.S. Revolving Exposure
within the aggregate amount of the U.S. Revolving Credit Commitment.
(c) If the Canadian Exposure at any time exceeds the Dollar Equivalent
of the Canadian Revolving Credit Commitment (whether due to currency
fluctuations or any other reason whatsoever), Canadian Borrowers shall, as
promptly as practicable, but in no event later than the next Business Day,
prepay an aggregate principal amount of Canadian Revolving Loans sufficient to
bring the Canadian Exposure within the Canadian Revolving Credit Commitment.
(d) If the UK Exposure at any time exceeds the UK Revolving Credit
Commitment, UK Borrowers shall, as promptly as practicable, but in no event
later than the next Business Day, prepay an aggregate principal amount of UK
Revolving Loans sufficient to bring the UK Exposure within the UK Revolving
Credit Commitment.
(e) Upon receipt by U.S. Borrower of the General Electric Equity, U.S.
Borrower shall, within five (5) Business Days of U.S. Borrower's receipt
thereof, apply such proceeds (i) as a prepayment towards the outstanding
principal amount of the Term Loan and the balance, if any, shall be applied as a
prepayment towards the aggregate amount of U.S. Revolving Loans then
outstanding, or (ii) as a prepayment towards the aggregate amount of U.S.
Revolving Loans then outstanding and
42
<PAGE> 49
the balance (or if there are no U.S. Revolving Loans then outstanding) shall be
applied as a prepayment towards the outstanding principal amount of the Term
Loan.
(f) U.S. Borrower shall prepay the outstanding principal amount of the
Term Loan in an amount equal to fifty percent (50%) of Excess Cash Flow for each
fiscal year commencing with the fiscal year ending June 30, 2000, payable thirty
(30) days after delivery of the financial statements to Agent pursuant to
Section 5.3(a) hereof for such fiscal year, but in any event not later than one
hundred twenty (120) days after the end of each such fiscal year.
(g) With respect to any Permitted Disposition pursuant to Section
5.12(c) hereof, (i) U.S. Borrower shall apply the proceeds of any such Permitted
Disposition as a prepayment towards the outstanding principal amount of the Term
Loan and the balance of such proceeds, if any, shall be applied as a prepayment
towards the aggregate amount of U.S. Revolving Loans then outstanding, (ii) a
Canadian Borrower shall apply the proceeds of any such Permitted Disposition as
a prepayment towards the aggregate amount of Canadian Revolving Loans then
outstanding, and (iii) a UK Borrower shall apply the proceeds of any such
Permitted Disposition as a prepayment towards the aggregate amount of UK
Revolving Loans then outstanding. The provisions of this Section 2.10(g) shall
not apply to deminimis dispositions involving less than Two Hundred Fifty
Thousand Dollars ($250,000) in the aggregate for all Companies during any fiscal
year.
(h) Any prepayment of a Fixed Rate Loan pursuant to this Section 2.10
shall be subject to the prepayment fees set forth in Section 2.6(b)(ii), (iii)
and (iv) hereof. Any prepayment of the Term Loan pursuant to this Section 2.10
shall be applied to the principal installments thereof in the inverse order of
their respective maturities. Notwithstanding anything to the contrary herein,
any prepayment pursuant to Sections 2.10(e), (f) or (g) shall not require the
payment of the prepayment fee set forth in Section 2.6(b)(i) hereof.
SECTION 2.11. CANADIAN REVOLVING CREDIT COMMITMENT. Borrowers
acknowledge that, as of the Closing Date, no "Canadian Bank" exists hereunder to
make Canadian Revolving Loans or issue Canadian Letters of Credit pursuant to
the Canadian Revolving Credit Commitment. Despite the lack of a "Canadian Bank"
hereunder, and with the understanding by Borrowers that one (1) or more of the
Companies may incur adverse tax consequences as a result thereof, Borrowers
desire that Canadian Borrowers utilize the Canadian Commitment and have
requested of the Banks, and the Banks hereby agree, that, on an interim basis
only, until such time as a "Canadian Bank" shall become a Canadian Bank
hereunder, the Banks that are not Canadian Banks will make the Canadian
Revolving Loans and Agent (or a Fronting Bank if Agent is not the Fronting Bank)
will issue Canadian Letters of Credit hereunder. Such interim Canadian Revolving
Loans (a) as are Canadian Base Rate Loans shall bear interest at the Base Rate
from time to time in effect and (b) as are Canadian Fixed Rate Loans shall bear
interest at the Derived Canadian Fixed Rate from time to time in effect, with
the Canadian Domestic Rate to be determined in accordance with the last sentence
of the definition of Canadian Domestic Rate, but shall for all other purposes
hereunder and under the other Loan Documents, be Canadian Revolving Loans. More
specifically, Borrowers agree with Agent and the Banks that the Canadian
Revolving Loans made to Canadian Borrowers and Canadian Letters of Credit issued
at the request of Canadian Borrowers by or on behalf of all of the Banks on an
interim basis as described above shall be secured by all of the
43
<PAGE> 50
Collateral, as defined in the Security Documents executed by the Canadian
Borrowers, regardless of the fact that those Security Documents refer to the
extending of credit by "the Canadian Banks". The Canadian Borrowers shall
execute a Canadian Revolving Credit Note payable to each Bank in the CAD
Equivalent (as determined on the Closing Date, but subject to the second
sentence of the 6th paragraph of subsection 2.1(3)(a) of Section 2.1A hereof) of
the amount of each Bank's Commitment Percentage of the maximum amount of the
Canadian Revolving Credit Commitment. In addition, all indemnifications of the
Canadian Banks by Canadian Borrowers shall be applicable to the Banks making the
Canadian Revolving Loans and participating in the issuance of Canadian Letters
of Credit to the extent of the Canadian Revolving Credit Commitment.
Furthermore, at such time as a Canadian Bank becomes a Bank hereunder, (a) each
Borrower agrees with Agent and the Banks that, in the event that such Canadian
Bank requires an amendment to this Agreement in order to clarify and conform the
interest rate and similar terms used in this Agreement with the normal
procedures and term (including interest rate) typically used by such Canadian
Bank, then each Borrower, Agent and the Banks shall promptly execute such
amendment agreement, and (b) each Canadian Borrower agrees, upon request of
Agent, to execute new Canadian Revolving Credit Notes in form and substance
satisfactory to Agent and the Canadian Banks.
ARTICLE III. ADDITIONAL PROVISIONS RELATING TO EURODOLLAR
LOANS; INCREASED CAPITAL; TAXES.
SECTION 3.1. RESERVES OR DEPOSIT REQUIREMENTS, ETC. If, at any time,
any law, treaty or regulation (including, without limitation, Regulation D of
the Board of Governors of the Federal Reserve System) or the interpretation
thereof by any governmental authority charged with the administration thereof or
any central bank or other fiscal, monetary or other authority shall impose
(whether or not having the force of law), modify or deem applicable any reserve
and/or special deposit requirement (other than reserves included in the
Eurocurrency Reserve Percentage, the effect of which is reflected in the
interest rate(s) of the Fixed Rate Loan(s) in question) against assets held by,
or deposits in or for the amount of any Fixed Rate Loan by, any Bank, and the
result of the foregoing is to increase the cost (whether by incurring a cost or
adding to a cost) to such Bank of making or maintaining hereunder such Fixed
Rate Loan or to reduce the amount of principal or interest received by such Bank
with respect to such Fixed Rate Loan, then, upon demand by such Bank, the
appropriate Borrowers shall pay to such Bank from time to time on Interest
Adjustment Dates with respect to such Fixed Rate Loan, as additional
consideration hereunder, additional amounts sufficient to fully compensate and
indemnify such Bank for such increased cost or reduced amount, assuming (which
assumption such Bank need not corroborate) such additional cost or reduced
amount was allocable to such Fixed Rate Loan. A certificate as to the increased
cost or reduced amount as a result of any event mentioned in this Section 3.1,
setting forth the calculations therefor, shall be promptly submitted by such
Bank to the appropriate Borrower or Borrowers and shall, in the absence of
manifest error, be conclusive and binding as to the amount thereof.
Notwithstanding any other provision of this Agreement, after any such demand for
compensation by any Bank, the applicable Borrower or Borrowers, upon at least
three (3) Business Days' prior written notice to such Bank through Agent, may
prepay any affected Fixed Rate Loan in full or convert such Fixed Rate Loan to a
Base Rate Loan regardless of the Interest Period thereof. Any such prepayment or
conversion shall be subject to the prepayment fees set forth in Section 2.6
hereof.
44
<PAGE> 51
Each Bank shall notify the appropriate Borrowers as promptly as practicable
(with a copy thereof delivered to Agent) of the existence of any event that will
likely require the payment by such Borrowers of any such additional amount under
this Section.
SECTION 3.2. TAX LAW, ETC. In the event that by reason of any law,
regulation or requirement or in the interpretation thereof by an official
authority, or the imposition of any requirement of any central bank whether or
not having the force of law, any Bank shall, with respect to this Agreement or
any transaction under this Agreement, be subjected to any tax, levy, impost,
charge, fee, duty, deduction or withholding of any kind whatsoever (other than
any tax imposed upon the total net income of such Bank) and if any such measures
or any other similar measure shall result in an increase in the cost to such
Bank of making or maintaining any Fixed Rate Loan or in a reduction in the
amount of principal, interest or facility fee receivable by such Bank in respect
thereof, then such Bank shall promptly notify the appropriate Borrowers stating
the reasons therefor. The applicable Borrowers shall thereafter pay to such
Bank, upon demand from time to time on Interest Adjustment Dates with respect to
such Fixed Rate Loan, as additional consideration hereunder, such additional
amounts as shall fully compensate such Bank for such increased cost or reduced
amount. A certificate as to any such increased cost or reduced amount, setting
forth the calculations therefor, shall be submitted by such Bank to the
appropriate Borrowers and shall, in the absence of manifest error, be conclusive
and binding as to the amount thereof.
If any Bank receives such additional consideration from any Borrower
pursuant to this Section 3.2, such Bank shall use reasonable efforts to obtain
the benefits of any refund, deduction or credit for any taxes or other amounts
on account of which such additional consideration has been paid and shall
reimburse such Borrower to the extent, but only to the extent, that such Bank
shall receive a refund of such taxes or other amounts together with any interest
thereon or an effective net reduction in taxes or other governmental charges
(including any taxes imposed on or measured by the total net income of such
Bank) of the United States or any state or subdivision thereof by virtue of any
such deduction or credit, after first giving effect to all other deductions and
credits otherwise available to such Bank. If, at the time any audit of such
Bank's income tax return is completed, such Bank determines, based on such
audit, that it was not entitled to the full amount of any refund reimbursed to
any Borrower as aforesaid or that its net income taxes are not reduced by a
credit or deduction for the full amount of taxes reimbursed to any Borrower as
aforesaid, such Borrower, upon demand of such Bank, shall promptly pay to such
Bank the amount so refunded to which such Bank was not so entitled, or the
amount by which the net income taxes of such Bank were not so reduced, as the
case may be.
Notwithstanding any other provision of this Agreement, after any such
demand for compensation by any Bank, the appropriate Borrowers, upon at least
three (3) Business Days' prior written notice to such Bank through Agent, may
prepay any affected Fixed Rate Loan in full or convert such Fixed Rate Loan to a
Base Rate Loan regardless of the Interest Period of any thereof. Any such
prepayment or conversion shall be subject to the prepayment fees set forth in
Section 2.6 hereof.
45
<PAGE> 52
SECTION 3.3. FIXED RATE LOANS UNAVAILABLE OR INTEREST RATE
UNASCERTAINABLE. In respect of any Fixed Rate Loan, in the event that Agent
shall have determined that dollar deposits of the relevant amount for the
relevant Interest Period for such Fixed Rate Loan are not available to Agent in
the applicable eurodollar or CAD market, as the case may be, or that, by reason
of circumstances affecting such market, adequate and reasonable means do not
exist for ascertaining the interest rate applicable to such Interest Period, as
the case may be, Agent shall promptly give notice of such determination to the
affected Borrowers and (a) any notice of a new Fixed Rate Loan (or conversion of
an existing Loan to a Fixed Rate Loan) previously given by such Borrowers and
not yet borrowed (or converted, as the case may be) shall be deemed a notice to
make the appropriate Base Rate Loan, and (b) the affected Borrowers shall be
obligated either to prepay, or to convert to a Base Rate Loan, any outstanding
Fixed Rate Loan on the last day of the then current Interest Period with respect
thereto.
SECTION 3.4. INDEMNITY. Without prejudice to any other provisions of
this Article III, each Borrower hereby agrees to indemnify each Bank against any
loss or expense which such Bank may sustain or incur as a consequence of any
default by such Borrower in payment when due of any amount hereunder in respect
of any Fixed Rate Loan, including, but not limited to, any loss of profit,
premium or penalty incurred by such Bank in respect of funds borrowed by it for
the purpose of making or maintaining such Fixed Rate Loan, as determined by such
Bank in the exercise of its sole but reasonable discretion; PROVIDED, HOWEVER,
that no Borrower shall be liable for any loss or expense caused by the gross
negligence or willful misconduct of any Bank. A certificate as to any such loss
or expense shall be promptly submitted by such Bank to the appropriate Borrowers
and shall, in the absence of manifest error, be conclusive and binding as to the
amount thereof.
SECTION 3.5. CHANGES IN LAW RENDERING FIXED RATE LOANS UNLAWFUL. If at
any time any new law, treaty or regulation, or any change in any existing law,
treaty or regulation, or any interpretation thereof by any governmental or other
regulatory authority charged with the administration thereof, shall make it
unlawful for any Bank to fund any Fixed Rate Loan that it is committed to make
hereunder with moneys obtained in the eurodollar market, the commitment of such
Bank to fund such Fixed Rate Loan shall, upon the happening of such event
forthwith be suspended for the duration of such illegality, and such Bank shall
by written notice to the affected Borrowers and Agent declare that its
commitment with respect to such Fixed Rate Loan has been so suspended and, if
and when such illegality ceases to exist, such suspension shall cease and such
Bank shall similarly notify Borrowers and Agent. If any such change shall make
it unlawful for any Bank to continue in effect the funding in the applicable
eurodollar market of any Fixed Rate Loan previously made by it hereunder, such
Bank shall, upon the happening of such event, notify Borrowers, Agent and the
other Banks thereof in writing stating the reasons therefor, and the appropriate
Borrowers shall, on the earlier of (a) the last day of the then current Interest
Period or (b) if required by such law, regulation or interpretation, on such
date as shall be specified in such notice, either convert such Fixed Rate Loan
to a Base Rate Loan or prepay such Fixed Rate Loan to the Banks in full. Any
such prepayment or conversion shall be subject to the prepayment fees described
in Section 2.6 hereof.
SECTION 3.6. FUNDING. Each Bank may, but shall not be required to, make
Fixed Rate Loans hereunder with funds obtained outside the United States.
46
<PAGE> 53
SECTION 3.7. CAPITAL ADEQUACY. If any Bank shall have determined, after
the Closing Date, that the adoption of any applicable law, rule, regulation or
guideline regarding capital adequacy, or any change therein, or any change in
the interpretation or administration thereof by any governmental authority,
central bank or comparable agency charged with the interpretation or
administration thereof, or compliance by any Bank (or its lending office) with
any request or directive regarding capital adequacy (whether or not having the
force of law) of any such authority, central bank or comparable agency, has or
would have the effect of reducing the rate of return on such Bank's capital (or
the capital of its holding company) as a consequence of its obligations
hereunder to a level below that which such Bank (or its holding company) could
have achieved but for such adoption, change or compliance (taking into
consideration such Bank's policies or the policies of its holding company with
respect to capital adequacy) by an amount deemed by such Bank to be material,
then from time to time, within fifteen (15) days after demand by such Bank (with
a copy to Agent), Borrowers shall pay to such Bank such additional amount or
amounts as shall compensate such Bank (or its holding company) for such
reduction. Each Bank shall designate a different lending office if such
designation will avoid the need for, or reduce the amount of, such compensation
and will not, in the judgment of such Bank, be otherwise disadvantageous to such
Bank. A certificate of any Bank claiming compensation under this Section and
setting forth the additional amount or amounts to be paid to it hereunder shall
be conclusive in the absence of manifest error. In determining such amount, such
Bank may use any reasonable averaging and attribution methods. Failure on the
part of any Bank to demand compensation for any reduction in return on capital
with respect to any period shall not constitute a waiver of such Bank's rights
to demand compensation for any reduction in return on capital in such period or
in any other period. The protection of this Section shall be available to each
Bank regardless of any possible contention of the invalidity or inapplicability
of the law, regulation or other condition which shall have been imposed.
ARTICLE IV. CONDITIONS PRECEDENT
The obligation of the Banks to make the first Loan and of the Fronting
Bank to issue the first Letter of Credit is subject to Borrowers satisfying each
of the following conditions:
SECTION 4.1. NOTES. U.S. Borrower shall have executed and delivered to
each Bank its Revolving Credit Note and its Term Note, Canadian Borrowers shall
have executed and delivered to each Bank its Canadian Revolving Credit Note, and
UK Borrowers shall have executed and delivered to each Bank its UK Revolving
Credit Note.
SECTION 4.2. GUARANTIES OF PAYMENT. Each U.S. Guarantor shall have
executed and delivered to Agent, for the benefit of the Banks, a Guaranty of
Payment.
SECTION 4.3. U.S. BORROWER GUARANTY OF PAYMENT. U.S. Borrower shall
have executed and delivered to Agent, for the benefit of the Banks, the
Guaranties of Payment with respect to the Canadian Revolving Credit Commitment
and the UK Revolving Credit Commitment.
47
<PAGE> 54
SECTION 4.4. SECURITY AGREEMENTS. Each Borrower and each U.S. Guarantor
shall have executed and delivered to Agent, for the benefit of the Banks, a
Security Agreement and such other documents as may be required by Agent to
create or perfect the Liens of Agent in the assets of each Borrower and each
Guarantor of Payment, for the benefit of the Banks.
SECTION 4.5. COLLATERAL ASSIGNMENT AND SECURITY AGREEMENTS. Each
Borrower and Guarantor of Payment, as requested, shall have executed and
delivered to Agent, for the benefit of the Banks, a Collateral Assignment and
Security Agreement.
SECTION 4.6. PLEDGE AGREEMENTS. U.S. Borrower shall have executed and
delivered to Agent, for the benefit of the Banks, the Pledge Agreement with
respect to the stock of the Companies listed on Schedule 4.6 of the Disclosure
Statement, together with delivery of the share certificates referenced therein
and the appropriate stock powers.
SECTION 4.7. OFFICER'S CERTIFICATE, RESOLUTIONS, ORGANIZATIONAL
DOCUMENTS. Each Borrower and U.S. Guarantor shall have delivered to Agent an
officer's certificate certifying the names of the officers of such Borrower or
U.S. Guarantor authorized to sign the Loan Documents to which such Borrower or
U.S. Guarantor, as the case may be, is a party, together with the true
signatures of such officers, and certified copies of (a) the resolutions of the
board of directors of each Borrower and U.S. Guarantor evidencing approval of
the execution and delivery of the Loan Documents and the execution of other
Related Writings to which such Borrower or U.S. Guarantor, as the case may be,
is a party, and (b) the Articles (or Certificate) of Incorporation and
Regulations (Bylaws) (or equivalent organizational or constitutional and
governing documents) and all amendments thereto of each Borrower and U.S.
Guarantor.
SECTION 4.8. LEGAL OPINIONS. Agent and each of the Banks shall have
received opinions of counsel for each Borrower and Guarantor of Payment, in form
and substance satisfactory to Agent and the Banks.
SECTION 4.9. GOOD STANDING CERTIFICATES. Agent and each of the Banks
shall have received a good standing certificate (or foreign equivalent) for each
Borrower and Guarantor of Payment, issued on or about the Closing Date by the
Secretary of State (or foreign equivalent) in the jurisdiction where such
Borrower or Guarantor of Payment is organized and in each jurisdiction where
such Borrower or such Guarantor of Payment conducts a material amount of
business.
SECTION 4.10. AGENT FEE LETTER; CLOSING AND LEGAL FEES. U.S. Borrower
shall have (a) executed and delivered to Agent the Agent Fee Letter, (b) paid to
Agent the fees described in the Agent Fee Letter, and (c) paid all legal fees
and expenses of Agent in connection with the preparation and negotiation of the
Loan Documents.
SECTION 4.11. FINANCING STATEMENTS AND LIEN SEARCHES. With respect to
the property owned or leased by each Borrower and each U.S. Guarantor, U.S.
Borrower shall have caused to be delivered to Agent: (a) U.C.C. and Personal
Property Security Act financing and registration statements satisfactory to
Agent; (b) the results of U.C.C. and Personal Property Security
48
<PAGE> 55
Act lien searches, satisfactory to Agent; (c) the results of federal and state
tax lien and judicial lien searches, satisfactory to Agent; and (d) U.C.C. and
Personal Property Security Act termination statements reflecting termination of
all financing and registration statements previously filed by any other party
having a security interest in any part of the collateral or any other property
securing the Debt.
SECTION 4.12. EXISTING CREDIT AGREEMENTS. U.S. Borrower shall have
delivered to Agent evidence in form and substance satisfactory to Agent that (a)
U.S. Borrower has terminated the Credit Agreement among U.S. Borrower, National
City Bank, as administrative agent, and the lending institutions a party
thereto, dated as of January 2, 1998, as amended, which termination shall be
deemed to have occurred upon payment in full of all indebtedness outstanding
thereunder, and (b) Ballastronix Incorporated and Advanced Lighting
Technologies, Canada, Inc. has terminated the credit facility with NBD Bank,
Canada, dated as of January 2, 1998, which termination shall be deemed to have
occurred upon payment in full of all indebtedness outstanding thereunder.
SECTION 4.13. INDENTURE. With respect to the Indenture, U.S. Borrower
shall have provided to Agent (a) a certificate to the effect that no Default, as
defined in the Indenture, exists under the Indenture, and (b) a copy of the
Indenture and all ancillary documents related thereto, certified by an officer
of U.S. Borrower as being true and complete.
SECTION 4.14. EVIDENCE OF REAL ESTATE FINANCING. U.S. Borrower shall
have delivered to Agent evidence, in form and substance satisfactory to Agent,
that U.S. Borrower has entered into an agreement to obtain financing, the terms
of which shall be acceptable to Agent, in the amount of Ten Million Five Hundred
Thousand Dollars ($10,500,000) and the security for such Indebtedness shall be
limited to real property owned by Ruud Lighting, Inc. and located in Racine,
Wisconsin.
SECTION 4.15. INSURANCE CERTIFICATES. U.S. Borrower and each other
Borrower, as appropriate, shall have delivered to Agent evidence of insurance,
in form and substance satisfactory to Agent, of adequate personal property and
liability insurance of each Borrower and each U.S. Guarantor, with Agent listed
as mortgagee, loss payee and additional insured for the benefit of the Banks.
SECTION 4.16. INTEREST RATE PROTECTION. U.S. Borrower shall have
provided evidence that U.S. Borrower has entered into a Hedge Agreement, on
terms and conditions satisfactory to Agent, with respect to the Indebtedness
evidenced by the Term Notes.
SECTION 4.17. LANDLORDS' AND MORTGAGEES' WAIVERS. U.S. Borrower shall
have delivered a landlord's waiver and mortgagee's waiver, if applicable, each
in form and substance satisfactory to Agent, for each location not owned by a
Borrower or a Guarantor of Payment where any of the collateral or other property
securing any part of the Debt is located; provided that if such waiver is not
received on the Closing Date, availability under the Revolving Credit Commitment
shall be reduced by an amount equal to three (3) months lease or mortgage
49
<PAGE> 56
payments, as applicable, for each non-complying location until such time as the
appropriate landlord's waiver or mortgagee's waiver shall have been received by
Agent.
SECTION 4.18. COLLATERAL AUDIT AND EQUIPMENT APPRAISAL. Agent shall
have received the results of a collateral audit, equipment appraisal and such
other appraisals as Agent may deem necessary, results of which shall be
satisfactory to Agent.
SECTION 4.19. CASH COLLATERAL AND OTHER ACCOUNTS. Each U.S. Borrower
and each U.S. Guarantor shall have established such cash collateral and other
accounts as may be required by Agent and shall have executed and delivered, or
cause to be executed and delivered, such lockbox agreements and blocked account
agreements as Agent shall require.
SECTION 4.20. ASSIGNMENT OF LIFE INSURANCE POLICY. U.S. Borrower shall
have executed and delivered to Agent for the benefit of the Banks the Assignment
of Life Insurance Policy in an amount of not less than Eight Million Dollars
($8,000,000).
SECTION 4.21. BORROWERS' CERTIFICATE. Agent shall have received an
initial Borrowers Certificate, dated as of the Closing Date, that shall evidence
that the Total Unused Credit Availability will be at least Ten Million Dollars
($10,000,000) on the Closing Date (after taking into account the making of the
Loans and issuing of the Letters of Credit to be made and issued, respectively,
on the Closing Date).
SECTION 4.22. NO MATERIAL ADVERSE CHANGE. No material adverse change,
in the opinion of Agent, shall have occurred in the financial condition,
operations or prospects of the Companies since December 31, 1998.
SECTION 4.23. MISCELLANEOUS. Each Borrower and each Guarantor shall
have provided such other items and shall have satisfied such other conditions as
may be reasonably required by Agent or the Banks.
ARTICLE V. COVENANTS
Each Borrower agrees that so long as the Commitment remains in effect
and thereafter until the principal of and interest on all Notes and all other
payments and fees due hereunder shall have been paid in full, each Borrower
shall perform and observe, and shall cause each Subsidiary, as applicable, to
perform and observe, each of the following provisions:
SECTION 5.1. INSURANCE. Each Company shall at all times maintain
insurance upon all of its personal and real property in such form, written by
such companies, in such amounts, for such period, and against such risks as may
be acceptable to Agent, with provisions satisfactory to Agent, for payment of
all losses thereunder to Agent, for the benefit of the Banks, and such Company
as their interests may appear (loss payable endorsement in favor of Agent, for
the benefit of the Banks), and, if required by Agent, each Borrower shall
deposit the policies with Agent. Any such policies of insurance shall provide
for no fewer than thirty (30) days prior written notice of
50
<PAGE> 57
cancellation to Agent and the Banks. Any sums received by Agent, for the benefit
of the Banks, in payment of insurance losses, returns, or unearned premiums
under the policies may, at the option of Agent, be applied upon any applicable
(as determined by Agent) portion of the Debt, whether or not the same is then
due and payable, or may be delivered to the Company that owns the damaged
property for the purpose of replacing, repairing, or restoring the insured
property. Agent is hereby authorized to act as attorney-in-fact for each
Borrower in obtaining, adjusting, settling and canceling such insurance and
indorsing any drafts. In the event of failure to provide such insurance as
herein provided, Agent may, at its option, provide such insurance and U.S.
Borrower shall pay to Agent, upon demand, the cost thereof. Should U.S. Borrower
fail to pay such sum to Agent upon demand, interest shall accrue thereon, from
the date of demand until paid in full, at the Default Rate. Within ten (10) days
of any Bank's written request, the Company to which such request was delivered
shall furnish to such Bank such information about such Company's insurance as
such Bank may from time to time reasonably request, which information shall be
prepared in form and detail satisfactory to such Bank and certified by a
Financial Officer of such Company.
SECTION 5.2. MONEY OBLIGATIONS. Each Company shall pay in full (a)
prior in each case to the date when penalties would attach, all taxes,
assessments and governmental charges and levies (except only those so long as
and to the extent that the same shall be contested in good faith by appropriate
and timely proceedings and for which adequate accruals have been established in
accordance with GAAP) for which it may be or become liable or to which any or
all of its properties may be or become subject; (b) all of its wage obligations
to its employees in compliance with, as applicable, the Fair Labor Standards Act
(29 U.S.C. 206-207) or any comparable provisions of Canadian or United Kingdom
law, including, without limitation, PAYE and National Insurance Legislation; and
(c) all of its other obligations calling for the payment of money (except only
those so long as and to the extent that the same shall be contested in good
faith and for which adequate accruals have been established in accordance with
GAAP) before such payment becomes overdue.
SECTION 5.3. FINANCIAL STATEMENTS. U.S. Borrower shall furnish to each
Bank:
(a) Annual Financial Statements. As soon as available and in any event
within ninety (90) days after the close of each fiscal year of U.S. Borrower,
the Consolidated and consolidating balance sheets of U.S. Borrower and its
Subsidiaries as at the end of such fiscal year and the related Consolidated and
consolidating statements of income, of stockholder's equity and of cash flows
for such fiscal year, in each case setting forth comparative figures for the
preceding fiscal year, all in reasonable detail and accompanied by:
(i) the opinion with respect to such Consolidated financial
statements of independent public accountants of recognized national
standing selected by U.S. Borrower, and reasonably acceptable to Agent,
which opinion shall be unqualified and shall (A) state that such
accountants audited such Consolidated financial statements in
accordance with generally accepted auditing standards, that such
accountants believe that such audit provides a reasonable basis for
their opinion, and that in their opinion such consolidated financial
statements present fairly, in all material respects, the Consolidated
financial position of U.S.
51
<PAGE> 58
Borrower and its Subsidiaries as at the end of such fiscal year and the
Consolidated results of their operations and cash flows for such fiscal
year in conformity with GAAP, or (B) contain such statements as are
customarily included in unqualified reports of independent accountants
in conformity with the recommendations and requirements of the American
Institute of Certified Public Accountants (or any successor
organization); and
(ii) a certificate of or letter from such independent
accountants containing certified computations with respect to
compliance with the provisions of Section 5.7 of this Agreement and
stating whether or not their examination of such financial statements
has disclosed the existence, during the fiscal year covered by such
financial statements, of any condition or event which constitutes an
Unmatured Event of Default or Event of Default, and if their
examination has disclosed any such condition or event, specifying the
nature and period of existence thereof (which certificate or letter may
contain such statements as are customarily included in similar
certifications of independent accountants in conformity with the
recommendations and requirements of the American Institute of Certified
Public Accountants (or any successor organization)).
(b) Quarterly Financial Statements. As soon as available and in any
event within forty-five (45) days after the close of each of the first three (3)
quarterly accounting periods in each fiscal year of U.S. Borrower, the unaudited
condensed Consolidated and consolidating balance sheets of U.S. Borrower and its
Subsidiaries as at the end of such quarterly period and the related unaudited
condensed Consolidated and consolidating statements of income and of cash flows
for such quarterly period, and setting forth, in the case of such unaudited
Consolidated statements of income and of cash flows, comparative figures for the
related periods in the prior fiscal year, and which Consolidated financial
statements shall be certified on behalf of U.S. Borrower by a Financial Officer
of U.S. Borrower, subject to changes resulting from normal year-end audit
adjustments.
(c) Officer's Compliance Certificates. At the time of the delivery of
the financial statements provided for in Sections 5.3(a) and (b) above, a
Compliance Certificate on behalf of U.S. Borrower signed by a Financial Officer
of U.S. Borrower to the effect that, to the best knowledge of U.S. Borrower, no
Unmatured Event of Default or Event of Default exists or, if any Unmatured Event
of Default or Event of Default does exist, specifying the nature and extent
thereof.
(d) Monthly Financial Statements. As soon as available and in any event
within thirty (30) days after the close of each month during each fiscal year of
U.S. Borrower, the unaudited Consolidated and consolidating balance sheets of
U.S. Borrower and its Subsidiaries as at the end of such month and the related
unaudited Consolidated and consolidating statements of income and of cash flows
for such month, and setting forth comparative figures for prior periods, in the
form customarily prepared by U.S. Borrower for internal review by senior
management.
(e) Budget. Not later than ninety (90) days after the commencement of
each fiscal year of U.S. Borrower and its Subsidiaries, a Consolidated budget in
reasonable detail as requested by Agent or the Required Banks, setting forth,
with appropriate discussion, the forecasted balance sheet, income statement,
operating cash flows and capital expenditures of U.S. Borrower and its
52
<PAGE> 59
Subsidiaries for the period covered thereby, and the principal assumptions upon
which forecasts and budget are based.
(f) SEC Reports and Registration Statements. Promptly upon transmission
thereof or other filing with the SEC, copies of all registration statements
(other than the exhibits thereto and any registration statement on Form S-8 or
its equivalent) and annual, quarterly or current reports that U.S. Borrower or
any of its Subsidiaries files with the SEC.
(g) Auditors' Internal Control Comment Letters, etc. Promptly upon
receipt thereof, a copy of each letter or memorandum commenting on internal
accounting controls, which is submitted to U.S. Borrower or any Subsidiary by
its independent accountants in connection with any annual or interim audit made
by them of the books of U.S. Borrower or any Subsidiary.
(h) Notice of Default, Litigation or Certain Matters Involving Major
Customers or Suppliers. Promptly, and in any event within three (3) Business
Days, in the case of clause (i) below, or five (5) Business Days, in the case of
clause (ii) or (iii) below, after a Borrower or any Subsidiary obtains knowledge
thereof, notice of:
(i) the occurrence of any event that constitutes an Unmatured
Event of Default or Event of Default, which notice shall specify the
nature thereof, the period of existence thereof and what action such
Borrower proposes to take with respect thereto,
(ii) any litigation or governmental or regulatory proceeding
pending against Borrower or any of its Subsidiaries which is likely to
have a Material Adverse Effect or a Material Adverse Effect on the
ability of a Borrower to perform its obligations hereunder or under any
other Loan Document, and
(iii) any significant adverse change (in a Borrower's
reasonable judgment) in a Borrower's or any Subsidiary's relationship
with, or any significant event or circumstance which is in such
Borrower's reasonable judgment likely to significantly and adversely
affect such Borrower's or any Subsidiary's relationship with, any
customer (or related group of customers) representing more than 10% of
such Borrower's or Subsidiary's consolidated revenues during its most
recent fiscal year (provided the same is not nominal or deminimis
considering the Companies taken as a whole), or (B) any supplier that
is significant to a Borrower and its Subsidiaries taken as a whole.
(i) Within ten (10) days of Agent's or any Bank's written request, such
other information about the financial condition, properties and operations of
any Company as Agent or such Bank may from time to time reasonably request,
which information shall be submitted in form and detail satisfactory to Agent or
such Bank and certified by a Financial Officer of the Company or Companies in
question.
SECTION 5.4. FINANCIAL RECORDS. Each Company shall at all times
maintain true and complete records and books of account including, without
limiting the generality of the foregoing, appropriate accruals for possible
losses and liabilities and at all reasonable times (during
53
<PAGE> 60
normal business hours and upon notice to such Company) permit Agent or any of
the Banks to examine such Company's books and records and to make excerpts
therefrom and transcripts thereof.
SECTION 5.5. FRANCHISES. Each Company shall preserve and maintain at
all times its existence, rights and franchises.
SECTION 5.6. ERISA COMPLIANCE. Neither U.S. Borrower nor any U.S.
Guarantor shall incur any material accumulated funding deficiency within the
meaning of ERISA, or any material liability to the PBGC, established thereunder
in connection with any Plan. U.S. Borrower shall furnish to the Banks (a) as
soon as possible and in any event within thirty (30) days after any Company
knows or has reason to know that, as applicable, any Reportable Event or other
violation or event requiring notice under applicable statutes or regulations
with respect to any Plan has occurred, a statement of the Financial Officer of
such Company, setting forth details as to such Reportable Event or other
violation or event requiring notice under applicable statutes or regulations and
the action that such Company proposes to take with respect thereto, together
with a copy of any notice given to the PBCG or other governing authority, if a
copy of such notice is available to such Company, and (b) promptly after receipt
thereof, a copy of any notice such Company, or any member of the Controlled
Group, as applicable, may receive from, as applicable, the PBGC, the Internal
Revenue Service or other governing authority with respect to any Plan
administered by such Company; provided, that this latter clause shall not apply
to notices of general application promulgated by the PBGC, the Internal Revenue
Service or other governing authority. U.S. Borrower shall promptly notify the
Banks of any material taxes assessed, proposed to be assessed or which U.S.
Borrower have reason to believe may be assessed against a Company by the
Internal Revenue Service or other governing authority with respect to any Plan.
As used in this Section "material" means the measure of a matter of significance
which shall be determined as being an amount equal to five percent (5%) of the
Consolidated Net Worth (as hereinafter defined) of the Companies. As soon as
practicable, and in any event within twenty (20) days, after any Company becomes
aware that, as applicable, an ERISA Event or event which may cause a material
liability to a Company has occurred, such Company shall provide Agent and the
Banks with notice of such ERISA Event or such other event with a certificate by
a Financial Officer of such Company setting forth the details of the event and
the action such Company or another Controlled Group member proposes to take with
respect thereto. U.S. Borrower shall, at the request of Agent or any Bank,
deliver or cause to be delivered to Agent or such Bank, as the case may be, true
and correct copies of any documents relating to the Plan of any Company. As used
herein, "Consolidated Net Worth" shall mean, at any date, the Consolidated
stockholders' equity of the Companies, determined as of such date in accordance
with GAAP.
SECTION 5.7 FIXED CHARGE COVERAGE RATIO; MINIMUM EXCESS AVAILABILITY.
(a) U.S. Borrower shall not suffer or permit at any time the Fixed
Charge Coverage Ratio, based upon the Consolidated financial statements of U.S.
Borrower for the most recently completed four (4) fiscal quarters (except as
otherwise specified in (i), (ii) and (iii) hereof), to be: (i) for the fiscal
quarter ending September 30, 1999, .75 to 1.00 (only for the quarter ending
September 30, 1999); (ii) for the six (6) months ending December 31, 1999, .85
to 1.00; (iii) for the
54
<PAGE> 61
nine (9) months ending March 31, 2000, .90 to 1.00; and (iv) for the fiscal year
ending June 30, 2000 and thereafter, 1.00 to 1.00; provided, however, that,
anything in this Section 5.7(a) to the contrary notwithstanding, from and after
the date the Fixed Charge Coverage Ratio equals or exceeds 1.00 to 1.00 for the
most recently completed four (4) fiscal quarters, such ratio shall not be
permitted to be below 1.00 to 1.00 at any time thereafter.
(b) The Total Unused Credit Availability shall be at least (i) Ten
Million Dollars ($10,000,000) on the Closing Date (after the making of the Loans
and issuing of the Letters of Credit to be made and issued, respectively, on the
Closing Date) and thereafter for a period of ninety (90) days, and (ii) Fifteen
Million Dollars ($15,000,000) on the ninetieth day after the Closing Date and at
all times thereafter; provided, however, commencing September 30, 1999, that the
requirements of this Section 5.7(b) shall terminate at such time as the Fixed
Charge Coverage Ratio equals or exceeds 1.00 to 1.00 for the most recently
completed four (4) fiscal quarters.
SECTION 5.8. BORROWING. No Company shall, without the prior written
consent of Agent and the Required Banks, create, incur or have outstanding any
obligation for borrowed money or any Indebtedness of any kind; provided, that
this Section shall not apply to:
(a) the Loans and any other Indebtedness incurred to Agent or the Banks
pursuant to this Agreement;
(b) One Million Dollars ($1,000,000) of borrowings in the aggregate for
U.S. Borrower and U.S. Guarantors;
(c) any loans or capital leases to a Company for the purchase or lease
of assets, which loans or leases are secured by the assets being purchased or
leased, so long as the aggregate principal amount of all such loans or leases
does not exceed Five Million Dollars ($5,000,000) at any time outstanding;
(d) the Indebtedness set forth in SCHEDULE 5.8 to the Disclosure
Statement;
(e) the Indebtedness incurred pursuant to the Indenture, so long as
there is no increase therein after the Closing Date;
(f) (i) loans, advances and guarantees to a Company from a Company so
long as each Company receiving such loans, advances or guarantees is a Borrower
or Guarantor of Payment or (ii) loans, advances and guarantees by a Subsidiary
which is not a Borrower or a Guarantor of Payment to a Wholly Owned Subsidiary
of the U.S. Borrower;
(g) Indebtedness under any Hedge Agreement; or
(h) Indebtedness of Foreign Subsidiaries (other than United Kingdom or
Canadian Subsidiaries, Rudd Australia LLC or Advanced Lighting Technologies,
Australia Inc.) in an aggregate amount at any time outstanding, for all of the
foregoing Subsidiaries, not in excess of One Million Dollars ($1,000,000).
55
<PAGE> 62
SECTION 5.9. LIENS. No Company shall, without the prior written consent
of Agent and the Required Banks, create, assume or suffer to exist any Lien upon
any of its property or assets, whether now owned or hereafter acquired; provided
that this Section shall not apply to the following:
(a) Liens for taxes not yet due or that are being actively contested in
good faith by appropriate proceedings and for which adequate accruals have been
established in accordance with GAAP;
(b) other statutory Liens incidental to the conduct of its business or
the ownership of its property and assets that (i) were not incurred in
connection with the borrowing of money or the obtaining of advances or credit,
and (ii) do not in the aggregate materially detract from the value of its
property or assets or materially impair the use thereof in the operation of its
business;
(c) Liens on property or assets of a Subsidiary to secure obligations
of such Subsidiary to a Borrower or a Guarantor of Payment;
(d) the Liens set forth on SCHEDULE 5.9 to the Disclosure Statement;
(e) Liens on fixed assets securing the loans or capital leases pursuant
to Section 5.8 (c) or (d) hereof, provided that such Lien only attaches to the
property being acquired or leased;
(f) any mortgage, security interest or Lien securing only Indebtedness
incurred to Agent, for the benefit of the Banks;
(g) easements, rights-of-way or other minor defects or irregularities
in title to real property owned by a Company not interfering in any material
respect with the use of such property in the business of any Company;
(h) Liens ratably securing Indenture obligations approved by the
Required Banks, in their sole discretion;
(i) Liens securing Indebtedness permitted by Sections 5.8(b) and (h)
hereof; or
(j) Liens arising out of title retention provisions in a supplier's
standard conditions for supply of goods required in the order of the usual
course of trading.
No Company shall enter into any contract or agreement (other than the Indenture
and as set forth on SCHEDULE 5.9 to the Disclosure Statement) that would
prohibit Agent or the Banks from acquiring a security interest, mortgage or
other Lien on, or a collateral assignment of, any of the property or assets of a
Company.
SECTION 5.10. REGULATIONS U AND X. To the extent applicable, no Company
shall take any action that would result in any non-compliance of the Loans with
Regulations U and X of the Board of Governors of the Federal Reserve System.
56
<PAGE> 63
SECTION 5.11. INVESTMENTS AND LOANS. No Company shall, without the
prior written consent of Agent and the Required Banks, (a) create, acquire or
hold any Subsidiary, (b) make or hold any investment in any stocks, bonds or
securities of any kind, (c) be or become a party to any joint venture or other
partnership, (d) make or keep outstanding any advance or loan to any Person, or
(e) be or become a Guarantor of any kind, except guarantees securing only
Indebtedness of the Companies incurred or permitted pursuant to this Agreement;
provided, that this Section shall not apply to:
(i) any endorsement of a check or other medium of payment for deposit
or collection through normal banking channels or similar transaction in the
normal course of business;
(ii) any investment in direct obligations of the United States of
America or in certificates of deposit issued by a member bank of the Federal
Reserve System;
(iii) any investment in commercial paper or securities which at the
time of such investment is assigned the highest quality rating in accordance
with the rating systems employed by either Moody's or Standard & Poor's;
(iv) investments, loans or guarantees listed on SCHEDULE 5.11 to the
Disclosure Statement and the holding of Subsidiaries listed on SCHEDULE 6.1 to
the Disclosure Statement;
(v) (i) loans, investments, advances and guarantees to a Company from a
Company so long as each Company receiving such loans, investments, advances or
guarantees is a Borrower or Guarantor of Payment or (ii) loans, advances or
guarantees by a Subsidiary which is not a Borrower or a Guarantor of Payment to
a Wholly Owned Subsidiary of U.S. Borrower or investments by such a Subsidiary
in any Wholly Owned Subsidiary of U.S.
Borrower.
(vi) any guaranty of the Indebtedness permitted pursuant to Section 5.8
hereof;
(vii) any advance or loan to an officer or employee of a Borrower or a
Subsidiary made in the ordinary course of such Company's business, so long as
all such advances and loans from all Companies aggregate not more than the
maximum principal sum of One Million Dollars ($1,000,000) at any time
outstanding;
(viii) the loan from U.S. Borrower to Wayne R. Hellman, outstanding on
the Closing Date in the principal amount of Nine Million Dollars ($9,000,000),
provided that such loan shall be paid in full on October 6, 1999;
(ix) at any time after the occurrence of the Equity Event, other
investments of the type referenced in (a), (b) or (c) referenced in the lead in
hereto in Affiliates or other Persons with whom a Company participates in a
joint venture or similar relationship as of the date hereof not exceeding Six
Million Dollars ($6,000,000) in the aggregate for all Companies (but with no
individual investment exceeding Three Million Dollars ($3,000,000)); provided
that, immediately after giving effect thereto, the Total Unused Credit
Availability shall be at least Fifteen Million Dollars ($15,000,000); or
57
<PAGE> 64
(x) at any time after the occurrence of the Equity Event, other
guarantees not exceeding Two Million Dollars ($2,000,000) in the aggregate for
all Companies at any time; provided that, immediately after giving effect
thereto, the Total Unused Credit Availability shall be at least Fifteen Million
Dollars ($15,000,000).
SECTION 5.12. MERGER AND SALE OF ASSETS. No Company, without the prior
written consent of Agent and the Required Banks, shall merge, amalgamate or
consolidate with any other Person, or sell, lease or transfer or otherwise
dispose of any assets to any Person other than in the ordinary course of
business, except that this Section 5.12 shall not prohibit transactions
permitted under Section 5.11(v) and that if no Unmatured Event of Default or
Event of Default shall then exist or immediately thereafter shall begin to
exist:
(a) any Subsidiary (other than a Borrower) may merge with (i) a
Borrower (provided that such Borrower shall be the continuing or surviving
Person) or (ii) any one or more Guarantors of Payment, provided that either (A)
the continuing or surviving Person shall be a Wholly-Owned Subsidiary that is a
Guarantor of Payment, or (B) after giving effect to any merger pursuant to this
sub-clause (ii), a Borrower and/or one or more Wholly-Owned Subsidiaries that
are Guarantors of Payment shall own not less than the same percentage of the
outstanding Voting Stock (or voting power of all outstanding Voting Stock) of
the continuing or surviving Person as such Borrower and/or one or more
Wholly-Owned Subsidiaries (which are Guarantors of Payment) owned of the merged
Subsidiary immediately prior to such merger;
(b) any Subsidiary (other than a Borrower) may sell, lease, transfer or
otherwise dispose of any of its assets to (i) a Borrower, (ii) any Wholly-Owned
Subsidiary that is a Guarantor of Payment, or (iii) any Guarantor of Payment, of
which a Borrower and/or one or more Wholly-Owned Subsidiaries, that are
Guarantors of Payment, shall own not less than the same percentage of Voting
Stock (or voting power of all outstanding Voting Stock) as a Borrower and/or one
or more Wholly-Owned Subsidiaries (which are Guarantors of Payment) then own of
the Subsidiary making such sale, lease, transfer or other disposition;
(c) any Company may effect a Permitted Disposition; and
(d) any Canadian Borrower may merge with another Canadian Borrower or
any UK Borrower may merge with another UK Borrower.
SECTION 5.13. ACQUISITIONS. After the Closing Date, no Borrower or
Subsidiary shall effect an Acquisition.
SECTION 5.14. NOTICE. U.S. Borrower shall cause a Financial Officer to
promptly notify Agent and the Banks whenever any Unmatured Event of Default or
Event of Default may occur hereunder or any representation or warranty made in
Article VI hereof or elsewhere in this Agreement or in any Related Writing may
for any reason cease in any material respect to be true and complete.
58
<PAGE> 65
SECTION 5.15. ENVIRONMENTAL COMPLIANCE. Each Company shall comply in
all respects with any and all Environmental Laws applicable to it including,
without limitation, all Environmental Laws in jurisdictions in which any Company
owns or operates a facility or site, arranges for disposal or treatment of
hazardous substances, solid waste or other wastes, accepts for transport any
hazardous substances, solid waste or other wastes or holds any interest in real
property or otherwise, except to the extent non-compliance will not result in a
Material Adverse Effect. Borrowers shall furnish to the Banks, promptly after
receipt thereof, a copy of any notice any Company may receive from any
governmental authority or private Person or otherwise that any material
litigation or proceeding pertaining to any environmental, health or safety
matter has been filed or is threatened against such Company, any real property
in which such Company holds any interest or any past or present operation of
such Company. No Company shall allow the release or disposal of hazardous waste,
solid waste or other wastes on, under or to any real property in which any
Company holds any interest or performs any of its operations, in violation of
any Environmental Law applicable to it to the extent the same may result in a
Material Adverse Effect. As used in this Section, "litigation or proceeding"
means any demand, claim, notice, suit, suit in equity action, administrative
action, investigation or inquiry whether brought by any governmental authority
or private Person or otherwise. Borrowers shall defend, indemnify and hold Agent
and the Banks harmless against all costs, expenses, claims, damages, penalties
and liabilities of every kind or nature whatsoever (including attorneys fees)
arising out of or resulting from the noncompliance of any Company with any
Environmental Law applicable to it.
SECTION 5.16. AFFILIATE TRANSACTIONS. No Company shall, or shall permit
any Subsidiary to, directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
a Company on terms that are less favorable to such Company or such Subsidiary,
as the case may be, than those that might be obtained at the time in a
transaction with a non-Affiliate; provided, however, that the foregoing shall
not prohibit (a) the payment of customary and reasonable directors' fees to
directors who are not employees of a Company or any Affiliate of a Company, or
(b) any transaction between a Borrower or a U.S. Guarantor and an Affiliate (if
a Borrower or Guarantor of Payment) which such Borrower reasonably determines in
good faith is beneficial to such Borrower and its Affiliates as a whole and
which is not entered into for the purpose of hindering the exercise by Agent or
the Banks of their rights or remedies under this Agreement.
SECTION 5.17. USE OF PROCEEDS. U.S. Borrower's use of the proceeds of
the Revolving Credit Notes shall be for working capital and general corporate
purposes of Borrowers and their Subsidiaries and the proceeds of the Term Notes
shall be solely for the retirement of existing Indebtedness. Canadian Borrowers'
use of proceeds of the Canadian Revolving Credit Notes shall be solely for
working capital and other general corporate purposes of Canadian Borrowers and
their Subsidiaries. UK Borrowers' use of proceeds of the UK Revolving Credit
Notes shall be solely for working capital and other general corporate purposes
of UK Borrowers and their Subsidiaries and such proceeds shall not be used for a
purpose that is prohibited by Sections 151-158 of the Companies Act 1985.
59
<PAGE> 66
SECTION 5.18. CORPORATE NAMES. No Borrower or Guarantor of Payment
shall change its corporate name, unless, in each case, such Company shall
provide Agent with at least thirty (30) days prior written notice thereof.
SECTION 5.19. AMENDMENT OF ORGANIZATIONAL DOCUMENTS. No Borrower or
Guarantor of Payment shall amend its Articles of Incorporation, or charter or
constitutional or equivalent documents without the prior written consent of
Agent; provided, however, that U.S. Borrower may amend its Articles of
Incorporation to provide for the designation of a series of preferred stock in
connection with the Equity Event.
SECTION 5.20. CAPITAL DISTRIBUTIONS. U.S. Borrower shall not pay or
commit itself to pay Capital Distributions at any time.
SECTION 5.21. INDENTURE PAYMENTS. U.S. Borrower shall not make any
prepayment, redemption, defeasance or covenant defeasance of any kind with
respect to the Indebtedness evidence by the Indenture; PROVIDED, HOWEVER, that
so long as there does not exist, nor immediately thereafter shall begin to
exist, an Unmatured Event of Default or an Event of Default, U.S. Borrower may
make payments of interest required by the terms and conditions of the Indenture.
SECTION 5.22. SUBSIDIARIES CREATED, ACQUIRED OR HELD SUBSEQUENT TO
CLOSING DATE.
(a) Subject to Section 5.22(b) hereof, each Subsidiary created,
acquired or held subsequent to the Closing Date (i) shall immediately execute
and deliver to Agent for the benefit of the Banks a Guaranty of Payment and such
Security Documents as Agent shall require and shall deliver to Agent and the
Banks such corporate governance and authorization documents and an opinion of
counsel as may be deemed necessary or advisable by Agent; provided, however,
that no Foreign Subsidiary shall be required to execute or deliver any Guaranty
of Payment or Security Document so long as the execution thereof will cause or
result in an adverse tax consequence to any Company; and (ii) U.S. Borrower or
the appropriate Borrower or Guarantor of Payment shall deliver to Agent, for the
benefit of the Banks, the share certificates, or other evidence of equity
interest, of such Subsidiary pursuant to the terms of the Pledge Agreement
executed by such Borrower or such Guarantor of Payment; provided however, that
no Company shall be required to pledge more than sixty-five (65%) of the
outstanding shares of stock or other equity interest of any Foreign Subsidiary
as security for the obligations of U.S. Borrower or the U.S. Guarantors under
this Agreement so long as the pledge thereof will cause or result in an adverse
tax consequence to any Company.
(b) Notwithstanding anything in subsection (a) hereof to the contrary,
a Subsidiary shall not be required to comply with the requirements of such
subsection so long as (i) the total assets of such Subsidiary are less than the
amount of One Hundred Thousand Dollars ($100,000), and (ii) the aggregate of the
total assets of all such Subsidiaries with total asset values of less than One
Hundred Thousand Dollars ($100,000) does not exceed the aggregate amount of Two
Hundred Fifty Thousand Dollars ($250,000); provided, that in the event that the
total assets of any Subsidiary which has not complied with the requirements of
subsection (a) above are at any time equal to or greater than One
60
<PAGE> 67
Hundred Thousand Dollars ($100,000), Borrowers shall provide Agent and the Banks
with prompt written notice of such asset value.
ARTICLE VI. REPRESENTATIONS AND WARRANTIES
Each Borrower represents and warrants that the statements set forth in
this Article VI are true, correct and complete.
SECTION 6.1. CORPORATE EXISTENCE; FOREIGN QUALIFICATION; SUBSIDIARIES.
(a) Each Borrower and Guarantor of Payment is an entity duly organized,
validly existing and in good standing under the laws of its state or other
jurisdiction of organization and is duly qualified and authorized to do business
and is in good standing as a foreign entity in each jurisdiction where the
character of its property or its business activities makes such qualification
necessary, except where the failure to so qualify would not have a Material
Adverse Effect.
(b) SCHEDULE 6.1 of the Disclosure Statement sets forth (i) the state
(or other jurisdiction) of organization of each Borrower, and (ii) each state
(or other jurisdiction) in which each Borrower is qualified to do business.
(c) SCHEDULE 6.1 of the Disclosure Statement sets forth (i) each
Company, (ii) such Company's state (or other jurisdiction) of organization, and
(iii) the direct or indirect ownership of U.S. Borrower in such Company.
SECTION 6.2. CORPORATE AUTHORITY. Each Borrower and Guarantor of
Payment has the right and power and is duly authorized and empowered to enter
into, execute and deliver the Loan Documents to which it is a party and to
perform and observe the provisions of the Loan Documents. The Loan Documents to
which each Borrower and Guarantor of Payment is a party have been duly
authorized and approved by such Borrower's or Guarantor of Payment's Board of
Directors (or other governing body) and are the valid and binding obligations of
such Company, enforceable against such Company in accordance with their
respective terms. The execution, delivery and performance of the Loan Documents
will not conflict with nor result in any breach in any of the provisions of, or
constitute a default under, or result in the creation of any Lien (other than
Liens permitted under Section 5.9 of this Agreement) upon any assets or property
of any Borrower and Guarantor of Payment under the provisions of such Borrower's
or Guarantor of Payment's Articles of Incorporation or Bylaws (or equivalent
organizational, constitutional, as applicable to it, and governing documents) or
any agreement to which such Company is a party or by which its assets are
subject or bound, except to the extent such conflict or breach would not have a
Material Adverse Effect.
61
<PAGE> 68
SECTION 6.3. COMPLIANCE WITH LAWS. Each Borrower and Guarantor of
Payment:
(a) holds permits, certificates, licenses, orders, registrations,
franchises, authorizations, and other approvals from federal, state, provincial,
local, and foreign governmental and regulatory bodies necessary for the conduct
of its business and is in compliance with all applicable laws applicable to it
relating thereto, except to the extent the failure to do so would not have a
Material Adverse Effect;
(b) is in compliance with all federal, state, provincial, local, or
foreign applicable statutes, rules, regulations, and orders applicable to it
including, without limitation, those relating to environmental protection,
occupational safety and health, and equal employment practices, except to the
extent the failure to do so would not have a Material Adverse Effect; and
(c) is not in violation of or in default under any agreement to which
it is a party or by which its assets are subject or bound, except to the extent
such violation or default would not have a Material Adverse Effect.
SECTION 6.4. LITIGATION AND ADMINISTRATIVE PROCEEDINGS. Except as
disclosed on SCHEDULE 6.4 of the Disclosure Statement, as to any of which, if
determined adversely, would involve in excess of Two Hundred Fifty Thousand
Dollars ($250,000) individually or in the aggregate respecting the assets,
property, business, operations or condition (financial or otherwise) of any
Company, there are (a) no lawsuits, actions, investigations, or other
proceedings pending or threatened against any Company, or in respect of which
any Company may have any liability, in any court or before any governmental
authority, arbitration board, or other tribunal, (b) no orders, writs,
injunctions, judgments, or decrees of any court or government agency or
instrumentality to which any Company is a party or by which the property or
assets of any Company are bound, and (c) no grievances, disputes, or
controversies outstanding with any union or other organization of the employees
of any Company, or threats of work stoppage, strike, or pending demands for
collective bargaining.
SECTION 6.5. LOCATION. SCHEDULE 6.5 of the Disclosure Statement sets
forth (a) the location of the chief executive office and the principal place of
business of each Borrower and Guarantor of Payment, (b) each location where each
Borrower and Guarantor of Payment has places of business or maintains inventory,
equipment or records concerning such Company's accounts, and (c) each state or
other location where each Borrower or Guarantor of Payment owns any real
property.
SECTION 6.6. TITLE TO ASSETS. Each Borrower and Guarantor of Payment
has good title to and ownership of all property it purports to own, which
property is free and clear of all Liens, except those permitted under Section
5.9 hereto.
SECTION 6.7. LIENS AND SECURITY INTERESTS. On and after the Closing
Date, except for Liens permitted pursuant to Section 5.9 hereof, (a) there is no
financing statement or other evidence of a Lien outstanding covering any
property (real or personal) of any Borrower or
62
<PAGE> 69
Guarantor of Payment other than a financing statement in favor of Agent, on
behalf of the Banks; (b) there is no mortgage outstanding covering any real
property of any Borrower or Guarantor of Payment; and (c) no real or personal
property of any Borrower or Guarantor of Payment is subject to any security
interest or Lien of any kind other than any security interest or Lien which may
be granted to Agent, on behalf of the Banks. Except as set forth on SCHEDULE 6.7
of the Disclosure Statement, no Borrower or Guarantor of Payment has entered
into any contract or agreement which exists on or after the Closing Date that
would prohibit Agent or the Banks from acquiring a security interest, mortgage
or other Lien on, or a collateral assignment of, any of the property (real or
personal) or assets of any Borrower or Guarantor of Payment.
SECTION 6.8. TAX RETURNS. All federal, state, provincial, local and, if
applicable, foreign tax returns and other reports required by law to be filed in
respect of the income, business, properties and employees of each Company have
been filed and all taxes, assessments, fees and other governmental charges which
are due and payable have been paid, except as otherwise permitted herein or the
failure to do so does not and will not cause or result in a Material Adverse
Effect. The provision for taxes on the books of each Company (including the
Consolidated and individual accruals, as the case may be) is adequate for all
years not closed by applicable statutes and for the current fiscal year.
SECTION 6.9. ENVIRONMENTAL LAWS. Each Company is in compliance with any
and all Environmental Laws applicable to it, including, without limitation, all
Environmental Laws in all jurisdictions in which any Company owns or operates,
or has owned or operated, a facility or site, arranges or has arranged for
disposal or treatment of hazardous substances, solid waste or other wastes,
accepts or has accepted for transport any hazardous substances, solid waste or
other wastes or holds or has held any interest in real property or otherwise,
except to the extent failure to comply would not have a Material Adverse Effect.
No litigation or proceeding arising under, relating to or in connection with any
Environmental Law applicable to it is pending or, to the best knowledge of each
Company, threatened, against any Company, any real property in which any Company
holds or has held an interest or any past or present operation of any Company.
No release, threatened release or disposal of hazardous waste, solid waste or
other wastes is occurring, or has occurred (other than those that are currently
being cleaned up in accordance with Environmental Laws applicable to it), on,
under or to any real property in which any Company holds any interest or
performs any of its operations, in violation of any Environmental Law applicable
to it, except to the extent the same would not have a Material Adverse Effect.
As used in this Section, "litigation or proceeding" means any demand, claim,
notice, suit, suit in equity, action, administrative action, investigation or
inquiry whether brought by any governmental authority or private Person or
otherwise.
SECTION 6.10. CONTINUED BUSINESS. There exists no actual, pending, or,
to each Borrowers' and Guarantor of Payments' knowledge, any threatened
termination, cancellation or limitation of, or any modification or change in the
business relationship of any Borrower or Guarantor of Payment and any customer
or supplier, or any group of customers or suppliers, whose purchases or
supplies, individually or in the aggregate, are material to the business of any
Borrower or Guarantor of Payment, and there exists no present condition or state
of facts or circumstances which would affect any Company in any respect or
prevent a Company from conducting such
63
<PAGE> 70
business or the transactions in substantially the same manner in which it was
previously conducted, except to the extent the same would not cause a Material
Adverse Effect.
SECTION 6.11. EMPLOYEE BENEFITS PLANS.
(a) As to U.S. Borrower and U.S. Guarantors, SCHEDULE 6.11 of the
Disclosure Statement identifies each Plan. No ERISA Event has occurred or is
expected to occur with respect to a U.S. Plan. Full payment has been made of all
amounts which a Controlled Group member is required, under applicable law or
under the governing documents, to have been paid as a contribution to or a
benefit under each Plan. The liability of each Controlled Group member with
respect to each Plan has been fully funded based upon reasonable and proper
actuarial assumptions, has been fully insured, or has been fully reserved for on
its financial statements. No changes have occurred or are expected to occur that
would cause a material increase in the cost of providing benefits under the
Plan. With respect to each Plan that is intended to be qualified under Code
Section 401(a): (a) the Plan and any associated trust operationally comply in
all material respects with the applicable requirements of Code Section 401(a),
(b) the Plan and any associated trust have been amended to comply with all such
requirements as currently in effect, other than those requirements for which a
retroactive amendment can be made within the "remedial amendment period"
available under Code Section 401(b) (as extended under Treasury Regulations and
other Treasury pronouncements upon which taxpayers may rely), (c) the Plan and
any associated trust have received a favorable determination letter or will file
for and subsequently receive a favorable determination letter, from the Internal
Revenue Service stating that the Plan qualifies under Code Section 401(a), that
the associated trust qualifies under Code Section 501(a) and, if applicable,
that any cash or deferred arrangement under the Plan qualifies under Code
Section 401(k), unless the Plan was first adopted at a time for which the
above-described "remedial amendment period" has not yet expired, (d) the Plan
currently satisfies the requirements of Code Section 410(b), without regard to
any retroactive amendment that may be made within the above-described "remedial
amendment period", and (e) no contribution made to the Plan is subject to an
excise tax under Code Section 4972. With respect to any Pension Plan, the
"accumulated benefit obligation" of Controlled Group members with respect to the
Pension Plan (as determined in accordance with Statement of Accounting Standards
No. 87, "Employers' Accounting for Pensions") does not exceed the fair market
value of Pension Plan assets. The aggregate potential amount of liability that
would result if all Controlled Group members withdrew from all Multiemployer
Plans in a "complete withdrawal" (within in the meaning of ERISA Section 4203)
would not exceed Two Hundred Fifty Thousand Dollars ($250,000).
(b) As to Canadian Borrowers and UK Borrowers, all Plans are identified
on SCHEDULE 6.11 of the Disclosure Statement. All obligations of Canadian
Borrowers and UK Borrowers under their respective Plans, pursuant to the
requirements of the Pension Benefits Act (Nova Scotia) (as to the Canadian
Borrowers) and all other statutes, laws and regulations applicable to or
governing such Plans, have been fully funded and paid to date. Canadian
Borrowers and UK Borrowers, as the case may be, are not aware of, and have
received no notices of, any violation of any statute, law or regulation
applicable to their Plans, respectively.
SECTION 6.12. CONSENTS OR APPROVALS. No consent, approval or
authorization of, or filing, registration or qualification with, any
governmental authority or any other
64
<PAGE> 71
Person is required to be obtained or completed by any Borrower or any Guarantor
of Payment in connection with the execution, delivery or performance of any of
the Loan Documents, which has not already been obtained or completed.
SECTION 6.13. SOLVENCY.
(a) U.S. Borrower has received consideration which is the reasonable
equivalent value of the obligations and liabilities that U.S. Borrower has
incurred to the Banks. U.S. Borrower is not insolvent as defined in any
applicable state or federal statute, nor will U.S. Borrower be rendered
insolvent by the execution and delivery of the Loan Documents to Agent and the
Banks. U.S. Borrower is not engaged or about to engage in any business or
transaction for which the assets retained by it are or will be an unreasonably
small amount of capital, taking into consideration the obligations to Agent and
the Banks incurred hereunder. U.S. Borrower does not intend to, nor does it
believe that it will, incur debts beyond its ability to pay such debts as they
mature.
(b) Each Canadian Borrower has received consideration which is the
reasonable equivalent value of the obligations and liabilities that such
Canadian Borrower has incurred to the Canadian Banks. No Canadian Borrower is
insolvent as defined in any applicable state or federal statute or applicable
foreign law or regulation, nor will any Canadian Borrower be rendered insolvent
by the execution and delivery of the Loan Documents to Agent and the Canadian
Banks. No Canadian Borrower is engaged or about to engage in any business or
transaction for which the assets retained by it are or will be an unreasonably
small amount of capital, taking into consideration the obligations to Agent and
the Canadian Banks incurred hereunder. No Canadian Borrower intends to, nor does
it believe that it will, incur debts beyond its ability to pay such debts as
they mature.
(c) Each UK Borrower has received consideration which is the reasonable
equivalent value of the obligations and liabilities that such UK Borrower has
incurred to the Banks. No UK Borrower is insolvent as defined in any applicable
state or federal statute or applicable foreign law or regulation, nor will any
UK Borrower be rendered insolvent by the execution and delivery of the Loan
Documents to Agent and the Banks. No UK Borrower is engaged or about to engage
in any business or transaction for which the assets retained by it are or will
be an unreasonably small amount of capital, taking into consideration the
obligations to Agent and the Banks incurred hereunder. No UK Borrower intends
to, nor does it believe that it will, incur debts beyond its ability to pay such
debts as they mature.
SECTION 6.14. FINANCIAL STATEMENTS. The Consolidated financial
statements of U.S. Borrower for the fiscal year ended June 30, 1998 and the
interim financial statements for the fiscal quarter ended March 31, 1999,
furnished to Agent and the Banks, are true and complete, have been prepared in
accordance with GAAP, and fairly present the financial condition of U.S.
Borrower and its Subsidiaries as of the dates of such financial statements and
the results of their operations for the periods then ended. Since the dates of
those statements, except as set forth on SCHEDULE 6.14, there has been no
material adverse change in any Company's financial condition, properties or
business.
65
<PAGE> 72
SECTION 6.15. REGULATIONS. U.S. Borrower is not engaged principally or
as one of its important activities, in the business of extending credit for the
purpose of purchasing or carrying any "margin stock" (within the meaning of
Regulation U of the Board of Governors of the Federal Reserve System of the
United States of America). Neither the granting of any Loan (or any conversion
thereof) nor the use of the proceeds of any Loan will violate, or be
inconsistent with, the provisions of Regulation U or X of said Board of
Governors. Neither the granting of any Loan (or any conversion thereof) nor the
use of proceeds of any UK Revolving Loan or UK Letter of Credit will be used for
a purpose which is prohibited by applicable laws, including Sections 151-158 of
the Companies Act 1985.
SECTION 6.16. MATERIAL AGREEMENTS. Except as disclosed on SCHEDULE 6.16
hereto, no Borrower or Guarantor of Payment is a party to any (a) debt
instrument; (b) lease (capital, operating or otherwise), whether as lessee or
lessor thereunder; (c) contract, commitment, agreement, or other arrangement
involving the purchase or sale of any inventory by it, or the license of any
right to or by it; (d) contract, commitment, agreement, or other arrangement
with any of its "Affiliates" (as such term is defined in the Securities Exchange
Act of 1934, as amended); (e) management or employment contract or contract for
personal services with any of its Affiliates which is not otherwise terminable
at will or on less than ninety (90) days' notice without liability; (f)
collective bargaining agreement; or (g) other contract, agreement,
understanding, or arrangement which, as to subsections (a) through (f), above,
if violated, breached, or terminated for any reason, would have or would be
reasonably expected to have a Material Adverse Effect.
SECTION 6.17. INTELLECTUAL PROPERTY. Each Borrower and Guarantor of
Payment owns, possesses, or has the right to use all of the patents, patent
applications, trademarks, service marks, copyrights, licenses, and rights with
respect to the foregoing necessary for the conduct of its business without any
known conflict with the rights of others except to the extent the failure to
have any such licenses or rights would not have a Material Adverse Effect.
SCHEDULE 6.17 of the Disclosure Statement sets forth all intellectual property
owned by each Borrower and Guarantor of Payment, setting forth in detail a
description of such intellectual property and the owner thereof.
SECTION 6.18. INSURANCE. Each Borrower and Guarantor of Payment
maintains with financially sound and reputable insurers insurance with coverage
and limits as required by law and as is customary with persons engaged in the
same businesses as the Companies. SCHEDULE 6.18 of the Disclosure Statement sets
forth all insurance carried by each Borrower and Guarantor of Payment, setting
forth in detail the amount and type of such insurance.
SECTION 6.19. ACCURATE AND COMPLETE STATEMENTS. Neither the Loan
Documents nor any written statement made by any Company in connection with any
of the Loan Documents contains any untrue statement of a material fact or omits
a material fact necessary to make the statements contained therein or in the
Loan Documents not misleading. After due inquiry by Borrowers, there is no known
fact that any Company has not disclosed to Agent and the Banks which has or
would have a Material Adverse Effect.
SECTION 6.20. INDENTURE. (a) No Event of Default (as defined in the
Indenture) or Default (as defined in the Indenture) exists, nor will any such
Event of Default or Default exist
66
<PAGE> 73
immediately after the granting of any Loan, under the Indenture or any agreement
executed by U.S. Borrower in connection therewith; and (b) this Agreement is the
"Credit Facility" as defined in the Indenture or is otherwise permitted under
Section 4.03(a)(ix) of the Indenture.
SECTION 6.21. NEW CREDIT FACILITY. This Agreement (a) shall constitute
the "Credit Facility" (as defined in the Indenture) or is otherwise permitted
under Section 4.03(a)(ix) of the Indenture and (b) shall be deemed to be a
replacement of the Credit Agreement dated as of January 2, 1998, as amended,
among Borrower, National City Bank, as administrative agent and the lending
institutions a party thereto or otherwise be permitted under Section 4.03(a)(ix)
of the Indenture.
SECTION 6.22. YEAR 2000 COMPLIANCE. All of each Borrower's computer
hardware and software shall provide the following functions: (a) consistently
handle date information on or before and after January 1, 2000, including, but
not limited to, accepting date input, providing date output and performing
calculations on dates or portion of dates; (b) function accurately in accordance
with the specifications of such computer hardware or software and without
interruption on or before and after January 1, 2000, without any change in
operations associated with the advent of the new century; (c) respond to
two-digit date input in a way that resolves any ambiguity as to century in a
disclosed, defined and predetermined manner on or before and after January 1,
2000; and (d) store and provide output of date information in ways that are
unambiguous as to century on or before and after January 1, 2000.
SECTION 6.23. DEFAULTS. No Unmatured Event of Default or Event of
Default exists hereunder, nor will any begin to exist immediately after the
execution and delivery hereof.
ARTICLE VII. EVENTS OF DEFAULT
Each of the following shall constitute an Event of Default hereunder:
SECTION 7.1. PAYMENTS. If the principal of or interest on any Note or
any facility or other fee shall not be paid in full punctually when due and
payable.
SECTION 7.2. SPECIAL COVENANTS. If any Company (to the extent
applicable) shall (a) fail or omit to perform and observe Sections 5.1 or 5.5 to
the extent material to the Companies taken as a whole, or (b) fail or omit to
perform and observe in any respect Sections 5.7, 5.8, 5.9, 5.11, 5.12, 5.13,
5.18, 5.20, 5.21 or 5.22 hereof.
SECTION 7.3. OTHER COVENANTS. If any Company shall fail or omit to
perform and observe any agreement or other provision (other than those referred
to in Sections 7.1 or 7.2 hereof) contained or referred to in this Agreement or
any Related Writing that is on such Company's part, as the case may be, to be
complied with, and that Unmatured Event of Default shall not have been fully
corrected within twenty (20) days after the giving of written notice thereof to
U.S. Borrower or such Company by Agent or any Bank that the specified Unmatured
Event of Default is to be remedied.
67
<PAGE> 74
SECTION 7.4. REPRESENTATIONS AND WARRANTIES. If any representation,
warranty or statement made in or pursuant to this Agreement or any Related
Writing or any other material information furnished by any Company to the Banks
or any thereof or any other holder of any Note, shall be false or erroneous in
any material respect.
SECTION 7.5. CROSS DEFAULT. If any Company shall (a) default in the
payment of principal or interest due and owing upon any other obligation for
borrowed money beyond any period of grace provided with respect thereto or in
the performance or observance of any other agreement, term or condition
contained in any agreement under which such obligation is created, if the effect
of such default is to allow the acceleration of the maturity of such
Indebtedness or to permit the holder thereof to cause such Indebtedness to
become due prior to its stated maturity, or (b) otherwise be obligated to
prepay, repay, redeem, defease or otherwise offer to prepay or repay prior to
the stated maturity date thereof any such obligations including, without
limitation, obligations under the Indenture or the notes issued pursuant
thereto, provided the aggregate of all such obligations under (a) and (b) above
for all Companies equals or exceeds Two Hundred Fifty Thousand Dollars
($250,000).
SECTION 7.6. ERISA DEFAULT. The occurrence of one or more ERISA Events
which (a) the Required Banks determine could have a Material Adverse Effect, or
(b) results in a Lien on any of the assets of U.S. Borrower or any U.S.
Guarantor.
SECTION 7.7. CHANGE IN CONTROL. If any Change in Control shall occur.
SECTION 7.8. MONEY JUDGMENT. A final judgment or order for the payment
of money shall be rendered against any Company by a court of competent
jurisdiction, which remains unpaid or unstayed and undischarged for a period
(during which execution shall not be effectively stayed) of thirty (30) days
after the date on which the right to appeal has expired, provided that the
aggregate of all such judgments, for all such Companies, shall exceed Two
Hundred Fifty Thousand Dollars ($250,000).
SECTION 7.9. MATERIAL ADVERSE CHANGE. (a) The forced liquidation value
of the collateral for the Debt, considered as an entirety, shall in the
reasonable written opinion of Agent or the Required Banks delivered to U.S.
Borrower substantially decline or (b) any other objective event or circumstance
shall occur or exist after the Closing Date which, in the reasonable opinion of
Agent or the Required Banks, (i) casts reasonable and substantial doubt upon any
Borrower's ability to (A) repay all or any part of the Debt in accordance with
its terms or (B) refinance the Debt, or (ii) has resulted in a Material Adverse
Effect based upon (A) the most recent financial statements delivered pursuant to
Section 5.3 hereof or (B) any other objective and verifiable event or
circumstance.
SECTION 7.10. VALIDITY OF LOAN DOCUMENTS. (a) Any material provision,
in the sole opinion of Agent, of any Loan Document shall at any time for any
reason cease to be valid, binding and enforceable against any Borrower or
Guarantor of Payment; (b) the validity, binding effect or enforceability of any
Loan Document against any Borrower or Guarantor of Payment shall be contested by
any Company or any other Obligor; (c) any Borrower or Guarantor
68
<PAGE> 75
of Payment shall deny that it has any or further liability or obligation
thereunder; or (d) any Loan Document shall be terminated, invalidated or set
aside, or be declared ineffective or inoperative or in any way cease to give or
provide to Agent and the Banks the benefits purported to be created thereby.
SECTION 7.11. INDENTURE. If (a) an Event of Default (as defined in the
Indenture) or Default (as defined in the Indenture) shall occur under the
Indenture or any agreement executed by U.S. Borrower in connection therewith; or
(b) this Agreement shall cease to be deemed the "Credit Facility" as defined in
the Indenture or the facilities hereunder not be permitted under Section
4.03(a)(ix) of the Indenture.
SECTION 7.12. SOLVENCY. If any Company shall (a) discontinue business,
(b) generally not pay its debts as such debts become due, (c) make a general
assignment for the benefit of creditors, (d) apply for or consent to the
appointment of a receiver, a custodian, a trustee, an interim trustee or
liquidator of all or a substantial part of its assets, (e) be adjudicated a
debtor or have entered against it an order for relief under Title 11 of the
United States Code, as the same may be amended from time to time, or other
applicable statute for jurisdictions outside of the United States, as the case
may be, (f) file a voluntary petition in bankruptcy or file a petition or an
answer seeking reorganization or an arrangement with creditors or seeking to
take advantage of any other law (whether federal, state or, if applicable, other
jurisdiction) relating to relief of debtors, or admit (by answer, by default or
otherwise) the material allegations of a petition filed against it in any
bankruptcy, reorganization, insolvency or other proceeding (whether federal,
state or, if applicable, other jurisdiction) relating to relief of debtors, (g)
suffer or permit to continue unstayed and in effect for thirty (30) consecutive
days any judgment, decree or order entered by a court of competent jurisdiction,
which approves a petition seeking its reorganization or appoints a receiver,
custodian, trustee, interim trustee or liquidator of all or a substantial part
of its assets, or (h) take, or omit to take, any action in order thereby to
effect any of the foregoing.
SECTION 7.13. UK BORROWER SOLVENCY. If (a) any UK Borrower or any
Subsidiary of a UK Borrower shall (i) take any corporate action for or other
formal steps are taken or legal or other proceedings started or a petition is
presented for its winding up administration dissolution or reorganization (other
than for the purposes of a bona fide solvent scheme of reconstruction previously
approved in writing by Agent and the Required Banks, or, in respect of a
petition or other proceedings for its winding up only, where such action is
taken on grounds which such UK Borrower (or Subsidiary thereof) shall reasonably
demonstrate to Agent and the Required Banks to be vexatious or unwarranted and
such petition is withdrawn or dismissed or such proceedings are withdrawn or
stayed within fourteen (14) days and prior to their advertisement) or for the
appointment of a provisional liquidator, receiver, administrator, trustee or
similar officer of all or any material part of its assets, (ii) be or become or
admits in writing its inability to pay its debts as they fall due as that
expression is defined in Section 123 of the Insolvency Act 1986, (iii) cease or
threaten to cease to carry on all or any substantial part of its business, (b) a
moratorium in respect of all or any of the debts of any UK Borrower or any
Subsidiary of a UK Borrower or a composition or arrangement readjustment or
rescheduling with all or any class of creditors of any UK Borrower or Subsidiary
thereof is proposed, agreed, applied for, ordered or declared, (c) a receiver or
administrative receiver is appointed in respect of any UK Borrower or any
Subsidiary thereof or in
69
<PAGE> 76
respect of all or any material part of its assets or if the security created by
any Lien created by any UK Borrower or any Subsidiary thereof over all or any
material part of its undertaking, assets, rights or remedies become enforceable
or any step is taken to enforce such Lien, or (d) any distress execution
attachment or other process is carried out or otherwise affects any assets of
any UK Borrower or Subsidiary thereof and is not discharged within three (3)
days.
ARTICLE VIII. REMEDIES UPON DEFAULT
Notwithstanding any contrary provision or inference herein or
elsewhere,
SECTION 8.1. OPTIONAL DEFAULTS. If any Event of Default referred to in
Section 7.1, 7.2., 7.3, 7.4, 7.5, 7.6, 7.7, 7.8, 7.9 , 7.10, 7.11 or 7.13 hereof
shall occur, the Required Banks shall have the right, in their discretion, by
directing Agent, on behalf of the Banks, to give written notice to Borrowers,
to:
(a) terminate the Commitment and the credits hereby established, if not
previously terminated, and, immediately upon such election, the obligations of
Banks, and each thereof, to make any further Loan and the obligation of Agent or
any Fronting Bank to issue any Letter of Credit hereunder immediately shall be
terminated, and/or
(b) accelerate the maturity of all of the Debt (if the Debt is not
already due and payable), whereupon all of the Debt shall become and thereafter
be immediately due and payable in full without any presentment or demand and
without any further or other notice of any kind, all of which are hereby waived
by Borrowers.
SECTION 8.2. AUTOMATIC DEFAULTS. If any Event of Default referred to in
Section 7.12 hereof shall occur:
(a) all of the Commitment and the credits hereby established shall
automatically and immediately terminate, if not previously terminated, and no
Bank thereafter shall be under any obligation to grant any further Loan, nor
shall Agent or any Fronting Bank be obligated to issue any Letter of Credit
hereunder, and
(b) the principal of and interest then outstanding on all Notes, and
all of the Debt shall thereupon become and thereafter be immediately due and
payable in full (if the Debt is not already due and payable), all without any
presentment, demand or notice of any kind, which are hereby waived by Borrowers.
SECTION 8.3. LETTERS OF CREDIT. If the maturity of the Notes is
accelerated pursuant to Sections 8.1 or 8.2 hereof, U.S. Borrower shall
immediately deposit with Agent, as security for each Borrower's and U.S.
Guarantor's obligations to reimburse Agent and the Banks for any then
outstanding Letters of Credit, cash equal to the sum of One Hundred Five percent
(105%) of the aggregate undrawn balance of any then outstanding Letters of
Credit. Agent and the Banks are hereby authorized, at their option, to deduct
any and all such amounts from any deposit balances
70
<PAGE> 77
then owing by any Bank to or for the credit or account of U.S. Borrower or any
Domestic Subsidiary, as security for any Company's obligations to reimburse
Agent and the Banks for any then outstanding Letters of Credit.
SECTION 8.4. OFFSETS. If there shall occur or exist any Event of
Default referred to in Section 7.12 hereof or if the maturity of the Notes is
accelerated pursuant to Section 8.1 or 8.2 hereof, each Bank shall have the
right at any time to set off against, and to appropriate and apply toward the
payment of, any and all Debt then owing by a Borrower to that Bank (including,
without limitation, any participation purchased or to be purchased pursuant to
Section 8.5 hereof), whether or not the same shall then have matured, any and
all deposit balances and all other indebtedness then held or owing by that Bank
to or for the credit or account of such Borrower, all without notice to or
demand upon any Borrower or any other Person, all such notices and demands being
hereby expressly waived by each Borrower.
SECTION 8.5. EQUALIZATION PROVISION.
(a) Each Bank agrees with the other Banks that if it, at any time,
shall obtain any Advantage over the other Banks, or any thereof, in respect of
the Debt (except as to the Canadian Revolving Credit Commitment and under
Article III hereof), it shall purchase from such other Banks, for cash and at
par, such additional participation in the Debt as shall be necessary to nullify
the Advantage.
(b) Each Canadian Bank agrees with the other Canadian Banks that if it,
at any time, shall obtain any Advantage over the other Canadian Banks, or any
thereof, in respect of the Canadian Revolving Credit Commitment, the Canadian
Revolving Loans, the Canadian Letters of Credit or any of the obligations
incurred in connection with the Canadian Revolving Credit Commitment (except
under Article III hereof), it shall purchase from such other Canadian Banks, for
cash and at par, such additional participation in the obligations incurred
pursuant to the Canadian Revolving Credit Commitment as shall be necessary to
nullify the Advantage.
(c) Except as set forth in Section 2.11 of this Agreement, only the
Canadian Banks shall be obligated, upon the terms and conditions set forth in
this Agreement, to fund Canadian Revolving Loans and participate in the issuance
of Canadian Letters of Credit; provided that, anything in this Agreement to the
contrary notwithstanding, upon the earlier of (i) the occurrence of an Event of
Default specified in Section 7.12 hereof, or (ii) the acceleration of the Debt
pursuant to Section 8.2 hereof (hereinafter, a "Equalization Event"), each Bank
agrees with the other Banks that if it, at any time, shall obtain any Advantage
over the other Banks, or any thereof, in respect of the Debt (except under
Article III hereof) then outstanding (as calculated, with respect to the
outstanding Canadian Revolving Loans, the Canadian Letters of Credit and any
other amounts outstanding with respect to the Canadian Revolving Credit
Commitment, using the Dollar Equivalent in effect on the Equalization Date, as
hereinafter defined), then such Bank having an Advantage shall purchase from the
other Banks, including the Canadian Banks, for cash and at par, such additional
participation in the Debt as shall be necessary to nullify the Advantage. As
used herein, "Equalization Date" shall mean the date that the Equalization Event
occurs.
71
<PAGE> 78
(e) Each Bank further agrees with the other Banks that if it any time
shall receive any payment for or on behalf of any Borrower or any Indebtedness
owing by such Borrower to that Bank by reason of offset of any deposit or other
Indebtedness, it will apply such payment first to any and all Indebtedness owing
by such Borrower to that Bank pursuant to this Agreement (including, without
limitation, any participation purchased or to be purchased pursuant to this
Section or any other Section of this Agreement). Each Borrower agrees that any
Bank so purchasing a participation from the other Banks or any thereof pursuant
to this Section may exercise all its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Bank was a
direct creditor of such Borrower in the amount of such participation.
ARTICLE IX. THE AGENT
The Banks authorize PNC Bank, National Association and PNC Bank,
National Association hereby agrees to act as agent for the Banks in respect of
this Agreement upon the terms and conditions set forth elsewhere in this
Agreement, and upon the following terms and conditions:
SECTION 9.1. APPOINTMENT AND AUTHORIZATION. Each Bank hereby
irrevocably appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers hereunder as are delegated to Agent by the
terms hereof, together with such powers as are reasonably incidental thereto.
Neither Agent nor any of its directors, officers, attorneys or employees shall
be liable for any action taken or omitted to be taken by it or them hereunder or
in connection herewith, except for its or their own gross negligence or willful
misconduct.
SECTION 9.2. NOTE HOLDERS. Agent may treat the payee of any Note as the
holder thereof until written notice of transfer shall have been filed with it,
signed by such payee and in form satisfactory to Agent.
SECTION 9.3. CONSULTATION WITH COUNSEL. Agent may consult with legal
counsel selected by it and shall not be liable for any action taken or suffered
in good faith by it in accordance with the opinion of such counsel.
SECTION 9.4. DOCUMENTS. Agent shall not be under any duty to examine
into or pass upon the validity, effectiveness, genuineness or value of any Loan
Documents or any other Related Writing furnished pursuant hereto or in
connection herewith or the value of any collateral obtained hereunder, and Agent
shall be entitled to assume that the same are valid, effective and genuine and
what they purport to be.
SECTION 9.5. AGENT AND AFFILIATES. With respect to the Loans, Agent
shall have the same rights and powers hereunder as any other Bank and may
exercise the same as though it were not Agent, and Agent and its affiliates may
accept deposits from, lend money to and generally engage in any kind of business
with any Company or any affiliate thereof.
SECTION 9.6. KNOWLEDGE OF DEFAULT. It is expressly understood and
agreed that Agent shall be entitled to assume that no Unmatured Event of Default
or Event of Default has
72
<PAGE> 79
occurred and is continuing, unless Agent has been notified by a Bank in writing
that such Bank believes that an Unmatured Event of Default or Event of Default
has occurred and is continuing and specifying the nature thereof.
SECTION 9.7. ACTION BY AGENT. So long as Agent shall be entitled,
pursuant to Section 9.6 hereof, to assume that no Unmatured Event of Default or
Event of Default shall have occurred and be continuing, Agent shall be entitled
to use its discretion with respect to exercising or refraining from exercising
any rights which may be vested in it by, or with respect to taking or refraining
from taking any action or actions which it may be able to take under or in
respect of, this Agreement. Agent shall incur no liability under or in respect
of this Agreement by acting upon any notice, certificate, warranty or other
paper or instrument believed by it to be genuine or authentic or to be signed by
the proper party or parties, or with respect to anything which it may do or
refrain from doing in the reasonable exercise of its judgment, or which may seem
to it to be necessary or desirable in the premises.
SECTION 9.8. NOTICES, DEFAULT, ETC. In the event that Agent shall have
acquired actual knowledge of any Unmatured Event of Default or Event of Default,
Agent shall promptly notify the Banks and shall take such action and assert such
rights under this Agreement as the Required Banks shall direct and Agent shall
inform the other Banks in writing of the action taken. Agent may take such
action and assert such rights as it deems to be advisable, in its discretion,
for the protection of the interests of the holders of the Notes.
SECTION 9.9. INDEMNIFICATION OF AGENT. The Banks agree to indemnify
Agent (to the extent not reimbursed by Borrowers), ratably according to their
respective Commitment Percentages from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by or asserted against Agent in its capacity as agent in any way
relating to or arising out of this Agreement or any Loan Document or any action
taken or omitted by Agent with respect to this Agreement or any Loan Document,
provided that no Bank shall be liable for any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorney fees) or disbursements resulting from Agent's gross
negligence, willful misconduct or from any action taken or omitted by Agent in
any capacity other than as agent under this Agreement.
SECTION 9.10. SUCCESSOR AGENT. Agent may resign as agent hereunder by
giving not fewer than thirty (30) days' prior written notice to Borrowers and
the Banks. If Agent shall resign under this Agreement, then either (a) the
Required Banks shall appoint from among the Banks a successor agent for the
Banks (with the consent of Borrowers so long as an Event of Default has not
occurred and which consent shall not be unreasonably withheld), or (b) if a
successor agent shall not be so appointed and approved within the thirty (30)
day period following Agent's notice to the Banks of its resignation, then Agent
shall appoint a successor agent who shall serve as agent until such time as the
Required Banks appoint a successor agent. Upon its appointment, such successor
agent shall succeed to the rights, powers and duties as agent, and the term
"Agent" shall mean such successor effective upon its appointment, and the former
agent's rights, powers and duties
73
<PAGE> 80
as agent shall be terminated without any other or further act or deed on the
part of such former agent or any of the parties to this Agreement.
ARTICLE X. MISCELLANEOUS
SECTION 10.1. BANKS' INDEPENDENT INVESTIGATION. Each Bank, by its
signature to this Agreement, acknowledges and agrees that Agent has made no
representation or warranty, express or implied, with respect to the
creditworthiness, financial condition, or any other condition of any Company or
with respect to the statements contained in any information memorandum furnished
in connection herewith or in any other oral or written communication between
Agent and such Bank. Each Bank represents that it has made and shall continue to
make its own independent investigation of the creditworthiness, financial
condition and affairs of the Companies in connection with the extension of
credit hereunder, and agrees that Agent has no duty or responsibility, either
initially or on a continuing basis, to provide any Bank with any credit or other
information with respect thereto (other than such notices as may be expressly
required to be given by Agent to the Banks hereunder), whether coming into its
possession before the granting of the first Loans hereunder or at any time or
times thereafter.
SECTION 10.2. NO WAIVER; CUMULATIVE REMEDIES. No omission or course of
dealing on the part of Agent, any Bank or the holder of any Note in exercising
any right, power or remedy hereunder or under any of the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy hereunder or under any of the
Loan Documents. The remedies herein provided are cumulative and in addition to
any other rights, powers or privileges held by operation of law, by contract or
otherwise.
SECTION 10.3. AMENDMENTS, CONSENTS.
(a) No amendment, modification, termination, or waiver of any provision
of any Loan Document nor consent to any variance therefrom, shall be effective
unless the same shall be in writing and signed by the Required Banks and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given. Anything herein to the contrary
notwithstanding, unanimous consent of the Banks shall be required with respect
to (i) any increase in the Commitment hereunder, (ii) the extension of maturity
of the Notes, the payment date of principal and interest thereunder, or the
payment of facility or other fees or amounts payable hereunder, (iii) any
reduction in the rate of interest on the Notes, or in any amount of principal or
interest due on any Note, or the payment of facility or other fees hereunder or
any change in the manner of pro rata application of any payments made by
Borrowers to the Banks hereunder, (iv) any change in any percentage voting
requirement, voting rights, or the Required Banks definition in this Agreement,
(v) the release of any Guarantor of Payment or of any collateral securing any
part of the Debt, or (vi) any amendment to this Section 10.3 or Section 8.5
hereof. Notice of amendments or consents ratified by the Banks hereunder shall
immediately be forwarded by Borrowers to all Banks. Each Bank or other holder of
a Note shall be bound by any amendment, waiver or consent obtained as authorized
by this Section, regardless of its failure to agree thereto. Any amendment to
this
74
<PAGE> 81
Agreement or any other Loan Document shall further require the consent of any
Borrower that is a party thereto.
(b) In the event that Agent requests the consent of a Bank pursuant to
this Section 10.3 and such Bank shall not respond or reply to Agent in writing
within ten (10) days of delivery of such request, such Bank shall be deemed to
have consented to matter that was the subject of the request. In the event that
Agent requests the consent of a Bank pursuant to this Section 10.3 and such
consent is denied, then Agent may, at its option, require such Bank to assign
its interest in the Loans to any other Bank or Banks so designated by Agent or
to any other Person designated by Agent (the "Designated Bank"), for a price
equal to the then outstanding principal amount thereof plus accrued and unpaid
interest and fees due such Bank, which interest and fees shall be paid when
collected from the Borrowers. In the event Agent elects to require the Bank to
assign its interest to a Designated Bank, Agent or the Designated Bank will so
notify such Bank in writing within forty-five (45) days following such Bank's
denial, and such Bank will assign its interest to the Designated Bank no later
than five (5) days following receipt of such notice pursuant to a Commitment
Transfer Supplement executed by such Bank, the Designated Lender and Agent.
SECTION 10.4. NOTICES. All notices, requests, demands and other
communications provided for hereunder shall be in writing and, if to a Borrower,
mailed or delivered to it, addressed to it at the address specified on the
signature pages of this Agreement, if to a Bank, mailed or delivered to it,
addressed to the address of such Bank specified on the signature pages of this
Agreement, or, as to each party, at such other address as shall be designated by
such party in a written notice to each of the other parties. All notices,
statements, requests, demands and other communications provided for hereunder
shall be deemed to be given or made when delivered or forty-eight (48) hours
after being deposited in the mails with postage prepaid by registered or
certified mail, addressed as aforesaid, or sent by facsimile with telephonic
confirmation of receipt.
SECTION 10.5. COSTS, EXPENSES AND TAXES. U.S. Borrower agrees to pay on
demand all costs and expenses of Agent, including but not limited to, (a)
administration, travel and out-of-pocket expenses, including but not limited to
attorneys' fees and expenses, of Agent in connection with the preparation,
negotiation and closing of the Loan Documents and the administration of the Loan
Documents, the collection and disbursement of all funds hereunder and the other
instruments and documents to be delivered hereunder, (b) extraordinary expenses
of Agent in connection with the administration of the Loan Documents and the
other instruments and documents to be delivered hereunder, (c) the reasonable
fees and out-of-pocket expenses of special counsel for the Banks, with respect
to the foregoing, and of local counsel, if any, who may be retained by said
special counsel with respect thereto, and (d) all costs and expenses of Agent
and the Banks, including reasonable attorneys' fees, in connection with the
restructuring or enforcement of the Debt, the Loan Documents or any Related
Writing. In addition, (i) U.S. Borrower, (ii) Canadian Borrowers, to the extent
relating to the Canadian Revolving Credit Commitment, the Canadian Revolving
Loans, the Canadian Letters of Credit or any Canadian Borrower, and (iii) UK
Borrowers, to the extent relating to the UK Revolving Credit Commitment, the UK
Revolving Loans, the UK Letters of Credit or any UK Borrower shall pay any and
all stamp and other taxes and fees payable or determined to be payable in
connection with the execution and delivery of the Loan Documents, and the other
instruments and documents to be delivered hereunder, and agrees to hold Agent
and
75
<PAGE> 82
each Bank harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes or fees.
SECTION 10.6. INDEMNIFICATION.
(a) U.S. Borrower agrees to defend, indemnify and hold harmless Agent
and the Banks from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses (including
attorney fees) or disbursements of any kind or nature whatsoever which may be
imposed on, incurred by or asserted against Agent or any Bank in connection with
any investigative, administrative or judicial proceeding (whether or not such
Bank or Agent shall be designated a party thereto) or any other claim by any
Person relating to or arising out of any Loan Document or any actual or proposed
use of proceeds of the Loans or any of the Debt, or any activities of any
Company or Obligor or any of their respective affiliates; provided that no Bank
nor Agent shall have the right to be indemnified under this Section for its own
gross negligence or willful misconduct as determined by a court of competent
jurisdiction. All obligations provided for in this Section 10.6 shall survive
any termination of this Agreement.
(b) Each Canadian Borrower agrees, to the extent relating to the
Canadian Revolving Credit Commitment, the Canadian Revolving Loans, the Canadian
Letters of Credit or any Canadian Borrower, to defend, indemnify and hold
harmless Agent and the Canadian Banks from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses (including attorney fees) or disbursements of any kind or nature
whatsoever which may be imposed on, incurred by or asserted against Agent or the
Canadian Banks in connection with any investigative, administrative or judicial
proceeding (whether or not the Canadian Banks or Agent shall be designated a
party thereto) or any other claim by any Person relating to or arising out of
the Canadian Revolving Credit Commitment, the Canadian Revolving Loans, the
Canadian Letters of Credit, any activities of any Canadian Borrower or any
actual or proposed use of proceeds of the Canadian Revolving Loans, the Canadian
Letters of Credit, or any of the Indebtedness or other obligations incurred in
connection with the Canadian Revolving Credit Commitment; provided that neither
the Canadian Banks nor Agent shall have the right to be indemnified under this
Section for its own gross negligence or willful misconduct as determined by a
court of competent jurisdiction. All obligations provided for in this Section
10.6 shall survive any termination of this Agreement.
(c) Each UK Borrower agrees, to the extent relating to the UK Revolving
Credit Commitment, the UK Revolving Loans, the UK Letters of Credit or any UK
Borrower, to defend, indemnify and hold harmless Agent and the Banks from and
against any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses (including attorney fees) or
disbursements of any kind or nature whatsoever which may be imposed on, incurred
by or asserted against Agent or the Banks in connection with any investigative,
administrative or judicial proceeding (whether or not the Banks or Agent shall
be designated a party thereto) or any other claim by any Person relating to or
arising out of the UK Revolving Credit Commitment, the UK Revolving Loans, the
UK Letters of Credit, any activities of any UK Borrower or any actual or
proposed use of proceeds of the UK Revolving Loans, the UK Letters of Credit, or
any of the Indebtedness or other obligations incurred in connection with the UK
Revolving Credit Commitment; provided that no Bank or Agent shall have the right
to be indemnified under this Section for its own gross
76
<PAGE> 83
negligence or willful misconduct as determined by a court of competent
jurisdiction. All obligations provided for in this Section 10.6 shall survive
any termination of this Agreement.
SECTION 10.7. OBLIGATIONS SEVERAL; NO FIDUCIARY OBLIGATIONS. The
obligations of the Banks hereunder are several and not joint. Nothing contained
in this Agreement and no action taken by Agent or the Banks pursuant hereto
shall be deemed to constitute the Banks a partnership, association, joint
venture or other entity. No default by any Bank hereunder shall excuse the other
Banks from any obligation under this Agreement; but no Bank shall have or
acquire any additional obligation of any kind by reason of such default. The
relationship among Borrowers and the Banks with respect to the Loan Documents
and the Related Writings is and shall be solely that of debtors and creditors,
respectively, and neither Agent nor any Bank has any fiduciary obligation toward
any Borrower with respect to any such documents or the transactions contemplated
thereby.
SECTION 10.8. EXECUTION IN COUNTERPARTS. This Agreement may be executed
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed and delivered shall be deemed to be
an original and all of which taken together shall constitute but one and the
same agreement.
SECTION 10.9. BINDING EFFECT; BORROWERS' ASSIGNMENT. This Agreement
shall become effective when it shall have been executed by each Borrower, Agent
and each Bank and thereafter shall be binding upon and inure to the benefit of
each Borrower, Agent and each of the Banks and their respective successors and
assigns, except that no Borrower shall have the right to assign its rights
hereunder or any interest herein without the prior written consent of Agent and
all of the Banks.
SECTION 10.10. BANK ASSIGNMENTS/PARTICIPATIONS.
A. Assignments of Commitments. Each Bank shall have the right at any
time or times to assign to another financial institution, without recourse, all
or a percentage of all of the following: (a) that Bank's Commitment, (b) all
Loans made by that Bank, (c) that Bank's Notes, and (d) that Bank's interest in
any Letter of Credit and any participation purchased pursuant to subsection 4 of
Section 2.1A or 8.5 hereof; provided, however, that a Canadian Bank shall only
have the right to make an assignment to another Canadian Bank. In the case of
each assignment under this Agreement after the initial syndication of the
Commitment, the assignor and the assignee shall comply with the following
requirements:
(i) Prior Consent. No assignment may be consummated pursuant
to this Section 10.10 without the prior written consent of U.S.
Borrower and Agent (other than an assignment by any Bank to any
affiliate of such Bank which affiliate is either wholly-owned by such
Bank or is wholly-owned by a Person that wholly owns, either directly
or indirectly, such Bank), which consent of U.S. Borrower and Agent
shall not be unreasonably withheld; provided, however, that, U.S.
Borrower's consent shall not be required if, at the time of the
proposed assignment, any Unmatured Event of Default or Event of Default
shall then exist. Anything herein to the contrary notwithstanding, any
Bank may at any time make a collateral
77
<PAGE> 84
assignment of all or any portion of its rights under the Loan Documents
to a Federal Reserve Bank, and no such assignment shall release such
assigning Bank from its obligations hereunder;
(ii) Minimum Amount. Each such assignment shall be in a
minimum amount of the lesser of Ten Million Dollars ($10,000,000) of
the assignor's Commitment and interest herein or the entire amount of
the assignor's Commitment and interest herein;
(iii) Assignment Fee; Assignment Agreement. Unless the
assignment shall be to an affiliate of the assignor or the assignment
shall be due to merger of the assignor or for regulatory purposes,
either the assignor or the assignee shall remit to Agent, for its own
account, an administrative fee of Two Thousand Five Hundred Dollars
($2,500). Unless the assignment shall be due to merger of the assignor
or a collateral assignment for regulatory purposes, the assignor shall
(A) cause the assignee to execute and deliver to Borrowers and Agent an
Assignment Agreement, and (B) execute and deliver, or cause the
assignee to execute and deliver, as the case may be, to Agent such
additional amendments, assurances and other writings as Agent may
reasonably require; and
(iv) Non-U.S. Assignee. If the assignment is to be made to an
assignee which is organized under the laws of any jurisdiction other
than the United States or any state thereof, the assignor Bank shall
cause such assignee, at least five (5) Business Days prior to the
effective date of such assignment, (A) to represent to the assignor
Bank (for the benefit of the assignor Bank, Agent and Borrowers) that
under applicable law and treaties no taxes will be required to be
withheld by Agent, Borrowers or the assignor with respect to any
payments to be made to such assignee in respect of the Loans hereunder,
(B) to furnish to the assignor (and, in the case of any assignee
registered in the Register (as defined below), Agent and Borrowers)
either (1) U.S. Internal Revenue Service Form 4224 or U.S. Internal
Revenue Service Form 1001 or (2) United States Internal Revenue Service
Form W-8 or W-9, as applicable (wherein such assignee claims
entitlement to complete exemption from U.S. federal withholding tax on
all interest payments hereunder), and (C) to agree (for the benefit of
the assignor, Agent and Borrowers) to provide the assignor Bank (and,
in the case of any assignee registered in the Register, Agent and
Borrowers) a new Form 4224 or Form 1001 or Form W-8 or W-9, as
applicable, upon the expiration or obsolescence of any previously
delivered form and comparable statements in accordance with applicable
U.S. laws and regulations and amendments duly executed and completed by
such assignee, and to comply from time to time with all applicable U.S.
laws and regulations with regard to such withholding tax exemption.
Upon satisfaction of the requirements specified in clauses (i) through
(iv) above, Borrowers shall execute and deliver (A) to Agent, the assignor and
the assignee, any consent or release (of all or a portion of the obligations of
the assignor) required to be delivered by Borrowers in connection with the
Assignment Agreement, and (B) to the assignee, an appropriate Note or Notes.
After delivery of the new Note or Notes, the assignor's Note or Notes being
replaced shall be returned to Borrowers marked "replaced".
78
<PAGE> 85
Upon satisfaction of the requirements of set forth in (i) through (iv),
and any other condition contained in this Section 10.10A, (A) the assignee shall
become and thereafter be deemed to be a "Bank" for the purposes of this
Agreement, (B) in the event that the assignor's entire interest has been
assigned, the assignor shall cease to be and thereafter shall no longer be
deemed to be a "Bank" and (C) the signature pages hereto and SCHEDULE 1 hereof
shall be automatically amended, without further action, to reflect the result of
any such assignment.
Agent shall maintain at its address referred to in Section 10.4 hereof
a copy of each Assignment Agreement delivered to it and a register (the
"Register") for the recordation of the names and addresses of the Banks and the
Commitment of, and principal amount of the Loans owing to, each Bank from time
to time. The entries in the Register shall be conclusive, in the absence of
manifest error, and Borrowers, Agent and the Banks may treat each financial
institution whose name is recorded in the Register as the owner of the Loan
recorded therein for all purposes of this Agreement. The Register shall be
available for inspection by any Borrower or Bank at any reasonable time and from
time to time upon reasonable prior notice.
B. Sale of Participations. Each Bank shall have the right at any time
or times, without the consent of Agent or any Borrower, to sell one or more
participations or sub-participations to a financial institution, as the case may
be, in all or any part of (a) that Bank's Commitment, (b) that Bank's Commitment
Percentage, (c) any Loan made by that Bank, (d) any Note delivered to that Bank
pursuant to this Agreement, and (e) that Bank's interest in any Letter of Credit
and any participation, if any, purchased pursuant to Section 2.1A or 8.5 hereof
or this Section 10.10B.
The provisions of Article III and Section 10.6 shall inure to the
benefit of each purchaser of a participation or sub-participation and Agent
shall continue to distribute payments pursuant to this Agreement as if no
participation has been sold.
If any Bank shall sell any participation or sub-participation, that
Bank shall, as between itself and the purchaser, retain all of its rights
(including, without limitation, rights to enforce against Borrowers the Loan
Documents and the Related Writings) and duties pursuant to the Loan Documents
and the Related Writings, including, without limitation, that Bank's right to
approve any waiver, consent or amendment pursuant to Section 10.3, except if and
to the extent that any such waiver, consent or amendment would:
(i) reduce any fee or commission allocated to the participation or
sub-participation, as the case may be,
(ii) reduce the amount of any principal payment on any Loan
allocated to the participation or sub-participation, as the
case may be, or reduce the principal amount of any Loan so
allocated or the rate of interest payable thereon, or
(iii) extend the time for payment of any amount allocated to the
participation or sub-participation, as the case may be.
79
<PAGE> 86
No participation or sub-participation shall operate as a delegation of
any duty of the seller thereof. Under no circumstance shall any participation or
sub-participation be deemed a novation in respect of all or any part of the
seller's obligations pursuant to this Agreement.
SECTION 10.11. SEVERABILITY OF PROVISIONS; CAPTIONS. Any provision of
this Agreement that is prohibited or unenforceable in any jurisdiction shall, as
to such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction. The several captions to Sections and subsections herein are
inserted for convenience only and shall be ignored in interpreting the
provisions of this Agreement.
SECTION 10.12. ENTIRE AGREEMENT. This Agreement, any Note and any other
Loan Document or other agreement, document or instrument attached hereto or
executed on or as of the Closing Date integrate all the terms and conditions
mentioned herein or incidental hereto and supersede all oral representations and
negotiations and prior writings with respect to the subject matter hereof.
SECTION 10.13. GOVERNING LAW; SUBMISSION TO JURISDICTION. This
Agreement, each of the Notes and any Related Writing shall be governed by and
construed in accordance with the laws of the State of Ohio (except as to the
filing of financing statements or their equivalent outside of the State of Ohio,
in which case the laws of the filing jurisdiction shall apply) and the
respective rights and obligations of Borrowers and the Banks shall be governed
by Ohio law, without regard to principles of conflict of laws. Each Borrower
hereby irrevocably submits to the non-exclusive jurisdiction of any Ohio state
or federal court sitting in Cleveland, Ohio, over any action or proceeding
arising out of or relating to this Agreement, the Debt or any Related Writing,
and each Borrower hereby irrevocably agrees that all claims in respect of such
action or proceeding may be heard and determined in such Ohio state or federal
court. Each Borrower, on behalf of itself and its Subsidiaries, hereby
irrevocably waives, to the fullest extent permitted by law, any objection it may
now or hereafter have to the laying of venue in any action or proceeding in any
such court as well as any right it may now or hereafter have to remove such
action or proceeding, once commenced, to another court on the grounds of FORUM
NON CONVENIENS or otherwise. Each Borrower agrees that a final, nonappealable
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
SECTION 10.14. LEGAL REPRESENTATION OF PARTIES. The Loan Documents were
negotiated by the parties with the benefit of legal representation and any rule
of construction or interpretation otherwise requiring this Agreement or any
other Loan Document to be construed or interpreted against any party shall not
apply to any construction or interpretation hereof or thereof.
SECTION 10.15. NO CROSS COLLATERALIZATION. For the avoidance of doubt,
the parties hereto agree that (i) collateral securing the Debt of the U.S.
Borrower shall not constitute security for any other obligation hereunder,
including without limitation any Canadian Loan, Canadian Letter of Credit, UK
Loan or UK Letter of Credit; (ii) collateral securing Debt of Canadian Borrowers
under Canadian Loans or Canadian Letters of Credit shall not constitute security
for any
80
<PAGE> 87
other obligation hereunder, including without limitation Debt of the U.S.
Borrower or the UK Borrowers; (iii) collateral securing Debt of the UK Borrowers
under UK Loans or UK Letters of Credit shall not constitute security for any
other obligation hereunder, including without limitation Debt of the U.S.
Borrower or the Canadian Borrowers; and (iv) collateral securing the guarantee
obligations of any Guarantor hereunder under its Guaranty of Payment shall
constitute security only for such Guaranty of Payment of such Guarantor and no
other obligation. Notwithstanding the foregoing and in all events, the Capital
Stock of Parry Power Systems Limited shall be deemed, and is permitted, to be
collateral securing the Debt of the U.S. Borrower.
[Remainder of page left intentionally blank]
81
<PAGE> 88
SECTION 10.16. JURY TRIAL WAIVER. EACH BORROWER, AGENT AND EACH OF THE
BANKS WAIVE ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE,
WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG BORROWERS, AGENT AND THE
BANKS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION WITH, RELATED TO, OR
INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR AGREEMENT EXECUTED OR
DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED THERETO. THIS
WAIVER SHALL NOT IN ANY WAY AFFECT, WAIVE, LIMIT, AMEND OR MODIFY AGENT'S OR ANY
BANK'S ABILITY TO PURSUE REMEDIES PURSUANT TO ANY CONFESSION OF JUDGMENT OR
COGNOVIT PROVISION CONTAINED IN ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT AMONG BORROWERS, AGENT AND THE BANKS, OR ANY THEREOF.
U.S. BORROWER:
Address: 3200 Aurora Road ADVANCED LIGHTING
Solon, Ohio 44139 TECHNOLOGIES, INC.
Attention: Treasurer
By: /s/ Nicholas R. Sucic
---------------------------
Title: Treasurer
------------------------
CANADIAN BORROWERS:
Address: 10 Chandler Road CANADIAN LIGHTING SYSTEMS
P.O. Box 250 HOLDING, INCORPORATED
Amherst, Nova Scotia BH4 3Z2
Attention: Treasurer
By: /s/ R.G. Douglas Oulton
---------------------------
Title: Secretary
------------------------
Address: 10 Chandler Road BALLASTRONIX INCORPORATED
P.O. Box 250
Amherst, Nova Scotia BH4 3Z2 By: /s/ R.G. Douglas Oulton
---------------------------
Attention: Treasurer Title: Assistant Secretary
------------------------
82
<PAGE> 89
UK BORROWERS:
Address: Victoria Mills PARRY POWER SYSTEMS
Draycott LIMITED
Derby DE72 3PW England
Attention: Treasurer
By: /s/ W. Ian Wilkinson
---------------------------
Title: Director
------------------------
Address: Victoria Mills VENTURE LIGHTING
Draycott EUROPE LTD.
Derby DE72 3PW England
Attention: Treasurer
By: /s/ R.M. Heyworth
---------------------------
Title: Director
------------------------
AGENT AND THE BANKS:
Address: PNC Bank, National Association PNC BANK, NATIONAL
2 PNC Plaza ASSOCIATION, as Agent and
620 Liberty Avenue, 18th Floor as a Bank
Pittsburgh, PA 15222
Attention: Richard Muse, Jr. By: /s/ Douglas K. Winget
---------------------------
Douglas K. Winget,
Vice President
83
<PAGE> 90
EXHIBIT A
REVOLVING CREDIT NOTE
$__________ Cleveland, Ohio
May ___, 1999
FOR VALUE RECEIVED, the undersigned, ADVANCED LIGHTING TECHNOLOGIES,
INC. ("U.S. Borrower") promises to pay on the last day of the Commitment Period,
as defined in the Credit Agreement (as hereinafter defined), to the order of
_________ ("Bank") at the Main Office of PNC BANK, NATIONAL ASSOCIATION, as
Agent, 2 PNC Plaza, 620 Liberty Avenue, Pittsburgh, PA 15222, the principal sum
of
..................................................................... DOLLARS
or the aggregate unpaid principal amount of all U.S. Revolving Loans made by
Bank to U.S. Borrower pursuant to subsection 1 of Section 2.1A of the Credit
Agreement, whichever is less, in lawful money of the United States of America.
As used herein, "Credit Agreement" means the Credit Agreement dated as of May
__, 1999, among U.S. Borrower, certain Subsidiaries as Canadian Borrowers and
certain Subsidiaries as UK Borrowers, the banks named therein and PNC Bank,
National Association, as Agent, as the same may from time to time be amended,
restated or otherwise modified. Capitalized terms used herein shall have the
meanings ascribed to them in the Credit Agreement.
U.S. Borrower also promises to pay interest on the unpaid principal
amount of each U.S. Revolving Loan from time to time outstanding, from the date
of such U.S. Revolving Loan until the payment in full thereof, at the rates per
annum which shall be determined in accordance with the provisions of subsection
1 of Section 2.1A of the Credit Agreement. Such interest shall be payable on
each date provided for in such subsection 1 of Section 2.1A; provided, however,
that interest on any principal portion which is not paid when due shall be
payable on demand.
The portions of the principal sum hereof from time to time representing
U.S. Base Rate Loans and Eurodollar Loans, and payments of principal of any
thereof, shall be shown on the records of Bank by such method as Bank may
generally employ; provided, however, that failure to make any such entry shall
in no way detract from U.S. Borrower's obligations under this Note.
If this Note shall not be paid at maturity, whether such maturity
occurs by reason of lapse of time or by operation of any provision for
acceleration of maturity contained in the Credit Agreement, the principal hereof
and the unpaid interest thereon shall bear interest, until paid, at a rate per
annum equal to the Default Rate. All payments of principal of and interest on
this Note shall be made in immediately available funds.
This Note is one of the Revolving Credit Notes referred to in the
Credit Agreement. Reference is made to the Credit Agreement for a description of
the right of the undersigned to
86
<PAGE> 91
anticipate payments hereof, the right of the holder hereof to declare this Note
due prior to its stated maturity, and other terms and conditions upon which this
Note is issued.
Except as expressly provided in the Credit Agreement, U.S. Borrower
expressly waives presentment, demand, protest and notice of any kind.
The undersigned authorizes any attorney at law at any time or times
after the maturity hereof (whether maturity occurs by lapse of time or by
acceleration) to appear in any state or federal court of record in the United
States of America, to waive the issuance and service of process, to admit the
maturity of this Note and the nonpayment thereof when due, to confess judgment
against the undersigned in favor of the holder of this Note for the amount then
appearing due, together with interest and costs of suit, and thereupon to
release all errors and to waive all rights of appeal and stay of execution. The
foregoing warrant of attorney shall survive any judgment, and if any judgment be
vacated for any reason, the holder hereof nevertheless may thereafter use the
foregoing warrant of attorney to obtain an additional judgment or judgments
against the undersigned. The undersigned agrees that Agent or the Banks'
attorney may confess judgment pursuant to the foregoing warrant of attorney. The
undersigned further agrees that the attorney confessing judgment pursuant to the
foregoing warrant of attorney may receive a legal fee or other compensation from
Agent or the Banks.
ADVANCED LIGHTING TECHNOLOGIES,
INC.
By:______________________________
Title:___________________________
================================================================================
"WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT
OR ANY OTHER CAUSE."
================================================================================
87
<PAGE> 92
EXHIBIT B
UK REVOLVING CREDIT NOTE
$_____________ Cleveland, Ohio
May __, 1999
FOR VALUE RECEIVED, the undersigned, PARRY POWER SYSTEMS LIMITED
(Company No. 3341889) and VENTURE LIGHTING EUROPE LTD. (Company No. 2833448)
(collectively "UK Borrowers", and individually "UK Borrower"), jointly and
severally, promise to pay on the last day of the Commitment Period, as defined
in the Credit Agreement (as hereinafter defined), to the order of _________
("Bank") at the Designated Lending Office, as defined in the Credit Agreement,
the principal sum of
.................................................................. DOLLARS
or the aggregate unpaid principal amount of all UK Revolving Loans made by Bank
to UK Borrowers pursuant to subsection 2 of Section 2.1A of the Credit
Agreement, whichever is less, in lawful money of the United States of America.
As used herein, "Credit Agreement" means the Credit Agreement dated as of May
__, 1999, among Advanced Lighting Technologies, Inc., as U.S. Borrower, UK
Borrowers and certain Subsidiaries as Canadian Borrowers, the banks named
therein and PNC Bank, National Association, as Agent, as the same may from time
to time be restated, amended or otherwise modified. Capitalized terms used
herein shall have the meanings ascribed to them in the Credit Agreement.
UK Borrowers also promise to pay interest on the unpaid principal
amount of each UK Revolving Loan from time to time outstanding, from the date of
such UK Revolving Loan until the payment in full thereof, at the rates per annum
which shall be determined in accordance with the provisions of subsection 2 of
Section 2.1A of the Credit Agreement. Such interest shall be payable on each
date provided for in such subsection 2 of Section 2.1A; provided, however, that
interest on any principal portion which is not paid when due shall be payable on
demand.
The portions of the principal sum hereof from time to time representing
UK Base Rate Loans and UK Fixed Rate Loans, and payments of principal thereof,
shall be shown on the records of Bank by such method as Bank may generally
employ; provided, however, that failure to make any such entry shall in no way
detract from the obligations of UK Borrowers under this Note.
If this Note shall not be paid at maturity, whether such maturity
occurs by reason of lapse of time or by operation of any provision for
acceleration of maturity contained in the Credit Agreement, the principal hereof
and the unpaid interest thereon shall bear interest, until paid, at a rate per
annum which shall be the Default Rate. All payments of principal of and interest
on this Note shall be made in immediately available funds.
This Note is one of the UK Revolving Credit Notes referred to in the
Credit Agreement. Reference is made to the Credit Agreement for a description of
the right of the undersigned to
88
<PAGE> 93
anticipate payments hereof, the right of the holder hereof to declare this Note
due prior to its stated maturity, and other terms and conditions upon which this
Note is issued.
Except as expressly provided in the Credit Agreement, each UK Borrower
expressly waives presentment, demand, protest and notice of any kind.
The undersigned authorizes any attorney at law at any time or times
after the maturity hereof (whether maturity occurs by lapse of time or by
acceleration) to appear in any state or federal court of record in the United
States of America, to waive the issuance and service of process, to admit the
maturity of this Note and the nonpayment thereof when due, to confess judgment
against the undersigned in favor of the holder of this Note for the amount then
appearing due, together with interest and costs of suit, and thereupon to
release all errors and to waive all rights of appeal and stay of execution. The
foregoing warrant of attorney shall survive any judgment, and if any judgment be
vacated for any reason, the holder hereof nevertheless may thereafter use the
foregoing warrant of attorney to obtain an additional judgment or judgments
against the undersigned. The undersigned agrees that Agent or the Banks'
attorney may confess judgment pursuant to the foregoing warrant of attorney. The
undersigned further agrees that the attorney confessing judgment pursuant to the
foregoing warrant of attorney may receive a legal fee or other compensation from
Agent or the Banks.
PARRY POWER SYSTEMS LIMITED
By:____________________________________
Title:_________________________________
and____________________________________
Title:_________________________________
VENTURE LIGHTING EUROPE LIMITED
By:____________________________________
Title:_________________________________
and____________________________________
Title:_________________________________
================================================================================
"WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT
OR ANY OTHER CAUSE."
================================================================================
89
<PAGE> 94
EXHIBIT C
CANADIAN REVOLVING CREDIT NOTE
CAD$__________ Cleveland, Ohio
May ___, 1999
FOR VALUE RECEIVED, the undersigned, BALLASTRONIX INCORPORATED and
CANADIAN LIGHTING SYSTEMS HOLDING, INCORPORATED (collectively "Canadian
Borrowers", and individually "Canadian Borrower"), jointly and severally,
promise to pay on the last day of the Commitment Period, as defined in the
Credit Agreement (as hereinafter defined), to the order of _________ ("Canadian
Bank") at the Designated Lending Office, as defined in the Credit Agreement, the
principal sum of
................................................................ CAD DOLLARS
or the aggregate unpaid principal amount of all Canadian Revolving Loans made by
Canadian Bank to Canadian Borrowers pursuant to subsection 3 of Section 2.1A of
the Credit Agreement, whichever is less, in lawful money of Canada. As used
herein, "Credit Agreement" means the Credit Agreement dated as of May __, 1999,
among Advanced Lighting Technologies, Inc., as U.S. Borrower, Canadian Borrowers
and certain Subsidiaries as UK Borrowers, the banks named therein and PNC Bank,
National Association, as Agent, as the same may from time to time be restated,
amended or otherwise modified. Capitalized terms used herein shall have the
meanings ascribed to them in the Credit Agreement.
Canadian Borrowers also promise to pay interest on the unpaid principal
amount of each Canadian Revolving Loan from time to time outstanding, from the
date of such Canadian Revolving Loan until the payment in full thereof, at the
rates per annum which shall be determined in accordance with the provisions of
subsection 3 of Section 2.1A of the Credit Agreement. Such interest shall be
payable on each date provided for in such subsection 3 of Section 2.1A;
provided, however, that interest on any principal portion which is not paid when
due shall be payable on demand.
The portions of the principal sum hereof from time to time representing
Canadian Base Rate Loans and Canadian Fixed Rate Loans, and payments of
principal thereof, shall be shown on the records of Canadian Bank by such method
as Canadian Bank may generally employ; provided, however, that failure to make
any such entry shall in no way detract from the obligations of Canadian
Borrowers under this Note.
If this Note shall not be paid at maturity, whether such maturity
occurs by reason of lapse of time or by operation of any provision for
acceleration of maturity contained in the Credit Agreement, the principal hereof
and the unpaid interest thereon shall bear interest, until paid, at a rate per
annum which shall be the Default Rate. All payments of principal of and interest
on this Note shall be made in immediately available funds.
90
<PAGE> 95
This Note is one of the Canadian Revolving Credit Notes referred to in
the Credit Agreement. Reference is made to the Credit Agreement for a
description of the right of the undersigned to anticipate payments hereof, the
right of the holder hereof to declare this Note due prior to its stated
maturity, and other terms and conditions upon which this Note is issued.
Except as expressly provided in the Credit Agreement, each Canadian
Borrower expressly waives presentment, demand, protest and notice of any kind.
This Note shall be governed by and construed in accordance with the
laws of the State of Ohio and the respective rights and obligations of Canadian
Borrower and Canadian Bank shall be governed by Ohio law, without regard to
principles of conflict of laws. Each Canadian Borrower hereby irrevocably
submits to the non-exclusive jurisdiction of any Ohio state or federal court
sitting in Cleveland, Ohio, over any action or proceeding arising out of or
relating to this Note, and each Canadian Borrower hereby irrevocably agrees that
all claims in respect of such action or proceeding may be heard and determined
in such Ohio state or federal court. Each Canadian Borrower, on behalf of itself
and its Subsidiaries, hereby irrevocably waives, to the fullest extent permitted
by law, any objection it may now or hereafter have to the laying of venue in any
action or proceeding in any such court as well as any right it may now or
hereafter have to remove such action or proceeding, once commenced, to another
court on the grounds of FORUM NON CONVENIENS or otherwise. Each Canadian
Borrower agrees that a final, nonappealable judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgement or in any other manner provided by law.
EACH CANADIAN BORROWER WAIVES ANY RIGHT TO HAVE A JURY PARTICIPATE IN
RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE, AMONG
BORROWERS, AGENT AND THE BANKS, OR ANY THEREOF, ARISING OUT OF, IN CONNECTION
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN
CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT OR
AGREEMENT
91
<PAGE> 96
EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS RELATED
THERETO.
BALLASTRONIX INCORPORATED
By:___________________________________
Title:________________________________
and___________________________________
Title:________________________________
CANADIAN LIGHTING SYSTEMS
HOLDING, INCORPORATED
By:___________________________________
Title:________________________________
and___________________________________
Title:________________________________
92
<PAGE> 97
EXHIBIT D
TERM NOTE
$_____________ Cleveland, Ohio
May __, 1999
FOR VALUE RECEIVED, the undersigned, ADVANCED LIGHTING TECHNOLOGIES,
INC. ("U.S. Borrower") promises to pay to the order of _________ ("Bank") at the
Main Office of PNC BANK, NATIONAL ASSOCIATION, Agent, 2 PNC Plaza, 620 Liberty
Avenue, Pittsburgh, PA 15222 the principal sum of
.................................................................... DOLLARS
in lawful money of the United States of America in sixty (60) consecutive
monthly installments, as described in Section 2.1B of the Credit Agreement, as
hereinafter defined, commencing June 1, 1999, and continuing on the 1st day of
each succeeding month thereafter through April 1, 2004, with the last payment to
be paid on May 1, 2004, in the amount of the then remaining balance of the Term
Loan. As used herein, "Credit Agreement" means the Credit Agreement dated as of
May __, 1999, among U.S. Borrower, certain Subsidiaries as Canadian Borrowers
and certain Subsidiaries as UK Borrowers, the banks named therein and PNC Bank,
National Association, as Agent, as the same may from time to time be amended,
restated or otherwise modified. Capitalized terms used herein shall have the
meanings ascribed to them in the Credit Agreement.
U.S. Borrower also promises to pay interest on the unpaid principal
amount of the Term Loan from time to time outstanding, from the date of the Term
Loan until the payment in full thereof, at the rates per annum which shall be
determined in accordance with the provisions of Section 2.1B of the Credit
Agreement. Such interest shall be payable on each date provided for in such
Section 2.1B; provided, however, that interest on any principal portion which is
not paid when due shall be payable on demand.
The portions of the principal sum hereof from time to time representing
U.S. Bases Rate Loans and Eurodollar Loans, and payments of principal of either
thereof, shall be shown on the records of Bank by such method as Bank may
generally employ; provided, however, that failure to make any such entry shall
in no way detract from U.S. Borrower's obligations under this Note.
If this Note shall not be paid at maturity, whether such maturity
occurs by reason of lapse of time or by operation of any provision for
acceleration of maturity contained in the Credit Agreement, the principal hereof
and the unpaid interest thereon shall bear interest, until paid, at a rate per
annum equal to the Default Rate. All payments of principal of and interest on
this Note shall be made in immediately available funds.
This Note is one of the Term Notes referred to in the Credit Agreement.
Reference is made to the Credit Agreement for a description of the right of the
undersigned to anticipate payments
93
<PAGE> 98
hereof, the right of the holder hereof to declare this Note due prior to its
stated maturity, and other terms and conditions upon which this Note is issued.
Except as expressly provided in the Credit Agreement, U.S. Borrower
expressly waives presentment, demand, protest and notice of any kind.
The undersigned authorizes any attorney at law at any time or times
after the maturity hereof (whether maturity occurs by lapse of time or by
acceleration) to appear in any state or federal court of record in the United
States of America, to waive the issuance and service of process, to admit the
maturity of this Note and the nonpayment thereof when due, to confess judgment
against the undersigned in favor of the holder of this Note for the amount then
appearing due, together with interest and costs of suit, and thereupon to
release all errors and to waive all rights of appeal and stay of execution. The
foregoing warrant of attorney shall survive any judgment, and if any judgment be
vacated for any reason, the holder hereof nevertheless may thereafter use the
foregoing warrant of attorney to obtain an additional judgment or judgments
against the undersigned. The undersigned agrees that Agent or the Banks'
attorney may confess judgment pursuant to the foregoing warrant of attorney. The
undersigned further agrees that the attorney confessing judgment pursuant to the
foregoing warrant of attorney may receive a legal fee or other compensation from
Agent or the Banks.
ADVANCED LIGHTING TECHNOLOGIES,
INC.
By:_______________________________________
Title:____________________________________
================================================================================
"WARNING -- BY SIGNING THIS PAPER YOU GIVE UP YOUR RIGHT TO NOTICE AND COURT
TRIAL. IF YOU DO NOT PAY ON TIME A COURT JUDGMENT MAY BE TAKEN AGAINST YOU
WITHOUT YOUR PRIOR KNOWLEDGE AND THE POWERS OF A COURT CAN BE USED TO COLLECT
FROM YOU REGARDLESS OF ANY CLAIMS YOU MAY HAVE AGAINST THE CREDITOR WHETHER FOR
RETURNED GOODS, FAULTY GOODS, FAILURE ON HIS PART TO COMPLY WITH THE AGREEMENT
OR ANY OTHER CAUSE."
================================================================================
94
<PAGE> 99
EXHIBIT E
NOTICE OF LOAN
________________________, 19___
PNC Bank, National Association
1375 East 9th Street
Cleveland, Ohio 44114
Attention:____________________
Ladies and Gentlemen:
The undersigned, __________________, refers to the Credit Agreement,
dated as of ______, 199_ ("Credit Agreement", the terms defined therein being
used herein as therein defined), among the undersigned, certain other Borrowers,
as defined in the Credit Agreement, the Banks, as defined in the Credit
Agreement, and PNC Bank, National Association, as Agent, and hereby gives you
notice, pursuant to Section 2.2 of the Credit Agreement that the undersigned
hereby requests a Loan under the Credit Agreement, and in connection therewith
sets forth below the information relating to the Loan (the "Proposed Loan") as
required by Section 2.2 of the Credit Agreement:
(a) The Borrower requesting the Loan is
__________________________.
(b) The Business Day of the Proposed Loan is __________, 19__.
(c) The amount of the Proposed Loan is $_______________.
(d) The Proposed Loan is to be a U.S. Revolving Loan___/Canadian
Revolving Loan___/ UK Revolving Loan___. (Check one.)
(e) The Proposed Loan is to be a Base Rate Loan ____ /Fixed Rate
Loan ___. (Check one.)
(f) If the Proposed Loan is a Fixed Rate Loan, the Interest Period
requested is one month ___, two months ___, or three
months___.
(Check one.)
The undersigned hereby certifies that the following statements are true
on the date hereof, and will be true on the date of the Proposed Loan:
(i) the representations and warranties contained in each Loan
Document are correct in all material respects, before and after giving
effect to the Proposed Loan and the application of the proceeds
therefrom, as though made on and as of such date;
95
<PAGE> 100
(ii) no event has occurred and is continuing, or would result
from such Proposed Loan, or the application of proceeds therefrom,
which constitutes an Unmatured Event of Default or Event of Default;
and
(iii) the conditions set forth in Section 2.2 and Article IV
of the Credit Agreement have been satisfied.
Very truly yours,
________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
96
<PAGE> 101
EXHIBIT F
BORROWERS' CERTIFICATE
[TO BE PROVIDED BY BANK]
97
<PAGE> 102
EXHIBIT G
COMPLIANCE CERTIFICATE
For Fiscal Quarter ended ____________________
THE UNDERSIGNED HEREBY CERTIFY THAT:
(1) I am the duly elected Chief Financial Officer of ADVANCED LIGHTING
TECHNOLOGIES, INC., an Ohio corporation ("U.S. Borrower", and together with each
of the other Borrowers, as defined in the Credit Agreement (as hereinafter
defined), "Borrowers");
(2) I am familiar with the terms of that certain Credit Agreement,
dated as of May ___, 1999, among the Borrowers, the Banks, as defined in the
Credit Agreement, and PNC Bank, National Association, as Agent (as the same may
be from time to time amended, restated or otherwise modified, the "Credit
Agreement", the terms defined therein and not otherwise defined in this
Certificate being used herein as therein defined), and the terms of the other
Loan Documents, and we have made, or have caused to be made under our
supervision, a review in reasonable detail of the transactions and condition of
Borrowers and their Subsidiaries during the accounting period covered by the
attached financial statements;
(3) The review described in paragraph (2) above did not disclose, and I
have no knowledge of, the existence of any condition or event which constitutes
or constituted an Unmatured Event of Default or Event of Default, at the end of
the accounting period covered by the attached financial statements or as of the
date of this Certificate;
(4) The representations and warranties made by Borrowers contained in
each Loan Document are true and correct in all material respects as though made
on and as of the date hereof; and
(5) Set forth on Attachment I hereto are calculations of the Fixed
Charge Coverage Ratio set forth in Section 5.7 of the Credit Agreement, which
calculations show compliance with the terms thereof.
IN WITNESS WHEREOF, I have signed this certificate the ___ day of
_________, 19___.
______________________________________
(Signature)
Title:________________________________
98
<PAGE> 103
EXHIBIT H
FORM OF
ASSIGNMENT AND ACCEPTANCE AGREEMENT
This Assignment and Acceptance Agreement (this "Assignment Agreement")
between ______________________ (the "Assignor") and ______________________ (the
"Assignee") is dated as of ________, ____. The parties hereto agree as follows:
1. PRELIMINARY STATEMENT. Assignor is a party to a Credit Agreement,
dated as of May __, 1999 (which, as it may from time to time be amended,
restated or otherwise modified is herein called the "Credit Agreement"), among
ADVANCED LIGHTING TECHNOLOGIES, INC., as U.S. Borrower, certain Subsidiaries as
Canadian Borrowers and certain Subsidiaries as UK Borrowers (collectively,
"Borrowers", and, individually, "Borrower'), the banking institutions named on
SCHEDULE 1 thereto (collectively, "Banks" and, individually, "Bank"), and PNC
BANK, NATIONAL ASSOCIATION, as agent for the Banks ("Agent"). Capitalized terms
used herein and not otherwise defined herein shall have the meanings attributed
to them in the Credit Agreement.
2. ASSIGNMENT AND ASSUMPTION. Assignor hereby sells and assigns to
Assignee, and Assignee hereby purchases and assumes from Assignor, an interest
in and to Assignor's rights and obligations under the Credit Agreement,
effective as of the Assignment Effective Date (as hereinafter defined), equal to
the percentage interest specified on ANNEX 1 hereto (hereinafter, "Assignee's
Percentage") of Assignor's right, title and interest in and to (a) the
Commitment of Assignor as set forth on ANNEX 1 (hereinafter, "Assigned Amount"),
(b) any Loan made by Assignor which is outstanding on the Assignment Effective
Date, (c) Assignor's interest in any Letter of Credit, as defined in the Credit
Agreement, which is issued and outstanding on the Assignment Effective Date, (d)
any Note delivered to Assignor pursuant to the Credit Agreement, and (e) the
Credit Agreement and the other Related Writings. After giving effect to such
sale and assignment and on and after the Assignment Effective Date, Assignee
shall be deemed to have a "Commitment Percentage" under the Credit Agreement
equal to the Commitment Percentage set forth in subsections I.C on ANNEX 1
hereto.
3. ASSIGNMENT EFFECTIVE DATE. The Assignment Effective Date (the
"Assignment Effective Date") shall be two (2) Business Days (or such other time
agreed to by Agent) after the following conditions precedent have been
satisfied:
(a) receipt by Agent of this Assignment Agreement, including ANNEX 1
hereto, properly executed by Assignor and Assignee and accepted and consented to
by Agent and, if necessary pursuant to the provisions of Section 10.10(A)(i) of
the Credit Agreement, by Borrowers;
(b) receipt by Agent from Assignor of a fee of Two Thousand Five
Hundred Dollars ($2,500), in accordance with Section 10.10A of the Credit
Agreement;
99
<PAGE> 104
(c) receipt by Agent from Assignee of an administrative questionnaire,
or other similar document, which shall include (i) the address for notices under
the Credit Agreement, (ii) the address of its Lending Office, (iii) wire
transfer instructions for delivery of funds by Agent, (iv) and such other
information as Agent shall request; and
(d) receipt by Agent from Assignor or Assignee of any other information
required pursuant to Section 10.10 of the Credit Agreement or otherwise
necessary to complete the transaction contemplated hereby.
4. PAYMENT OBLIGATIONS. In consideration for the sale and assignment of
Loans hereunder, Assignee shall pay Assignor, on the Assignment Effective Date,
an amount in Dollars equal to Assignee's Percentage. Any interest, fees and
other payments accrued prior to the Assignment Effective Date with respect to
the Assigned Amount shall be for the account of Assignor. Any interest, fees and
other payments accrued on and after the Assignment Effective Date with respect
to the Assigned Amount shall be for the account of Assignee. Each of Assignor
and Assignee agrees that it will hold in trust for the other part any interest,
fees or other amounts which it may receive to which the other party is entitled
pursuant to the preceding sentence and to pay the other party any such amounts
which it may receive promptly upon receipt thereof.
5. CREDIT DETERMINATION; LIMITATIONS ON ASSIGNOR'S LIABILITY. Assignee
represents and warrants to Assignor, Borrowers, Agent and the other Banks (a)
that it is capable of making and has made and shall continue to make its own
credit determinations and analysis based upon such information as Assignee
deemed sufficient to enter into the transaction contemplated hereby and not
based on any statements or representations by Assignor, (b) Assignee confirms
that it meets the requirements to be an assignee as set forth in Section 10.10
of the Credit Agreement; (c) Assignee confirms that it is able to fund the Loans
and the Letters of Credit as required by the Credit Agreement; and (d) Assignee
agrees that it will perform in accordance with their terms all of the
obligations which by the terms of the Credit Agreement and the Related Writings
are required to be performed by it as a Bank thereunder. It is understood and
agreed that the assignment and assumption hereunder are made without recourse to
Assignor and that Assignor makes no representation or warranty of any kind to
Assignee and shall not be responsible for (i) the due execution, legality,
validity, enforceability, genuineness, sufficiency or collectability of the
Credit Agreement or any Related Writings, (ii) any representation, warranty or
statement made in or in connection with the Credit Agreement or any of the
Related Writings, (iii) the financial condition or creditworthiness of any
Borrower or any Guarantor, (iv) the performance of or compliance with any of the
terms or provisions of the Credit Agreement or any of the Related Writings, (v)
inspecting any of the property, books or records of any Borrower, or (vi) the
validity, enforceability, perfection, priority, condition, value or sufficiency
of any collateral securing or purporting to secure the Loans or Letters of
Credit. Neither Assignor nor any of its officers, directors, employees, agents
or attorneys shall be liable for any mistake, error of judgment, or action taken
or omitted to be taken in connection with the Loans, the Letters of Credit, the
Credit Agreement or the Related Writings, except for its or their own bad faith
or willful misconduct. Assignee appoints Agent to take such action as agent on
its behalf and to exercise such powers under the Credit Agreement as are
delegated to Agent by the terms thereof.
100
<PAGE> 105
6. INDEMNITY. Assignee agrees to indemnify and hold Assignor harmless
against any and all losses, cost and expenses (including, without limitation,
attorneys' fees) and liabilities incurred by Assignor in connection with or
arising in any manner from Assignee's performance or non-performance of
obligations assumed under this Assignment Agreement.
7. SUBSEQUENT ASSIGNMENTS. After the Assignment Effective Date,
Assignee shall have the right pursuant to Section 10.10 of the Credit Agreement
to assign the rights which are assigned to Assignee hereunder, provided that (a)
any such subsequent assignment does not violate any of the terms and conditions
of the Credit Agreement, any of the Related Writings, or any law, rule,
regulation, order, writ, judgment, injunction or decree and that any consent
required under the terms of the Credit Agreement or any of the Related Writings
has been obtained, (b) the assignee under such assignment from Assignee shall
agree to assume all of Assignee's obligations hereunder in a manner satisfactory
to Assignor and (c) Assignee is not thereby released from any of its obligations
to Assignor hereunder.
8. REDUCTIONS OF AGGREGATE AMOUNT OF COMMITMENTS. If any reduction in
the Total Commitment Amount occurs between the date of this Assignment Agreement
and the Assignment Effective Date, the percentage of the Total Commitment Amount
assigned to Assignee shall remain the percentage specified in Section 1 hereof
and the dollar amount of the Commitment of Assignee shall be recalculated based
on the reduced Total Commitment Amount.
9. ACCEPTANCE OF AGENT; NOTICE BY ASSIGNOR. This Assignment Agreement
is conditioned upon the acceptance and consent of Agent and, if necessary
pursuant to Section 10.10A of the Credit Agreement, upon the acceptance and
consent of Borrowers; provided, that the execution of this Assignment Agreement
by Agent and, if necessary, by Borrowers is evidence of such acceptance and
consent.
10. ENTIRE AGREEMENT. This Assignment Agreement embodies the entire
agreement and understanding between the parties hereto and supersede all prior
agreements and understandings between the parties hereto relating to the subject
matter hereof.
11. GOVERNING LAW. This Assignment Agreement shall be governed by the
internal law, and not the law of conflicts, of the State of Ohio.
12. NOTICES. Notices shall be given under this Assignment Agreement in
the manner set forth in the Credit Agreement. For the purpose hereof, the
addresses of the parties hereto (until notice of a change is delivered) shall be
the address set forth under each party's name on the signature pages hereof.
101
<PAGE> 106
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
ASSIGNOR:
Address: ______________________ _________________________________
______________________
______________________
Attn:_________________ By:______________________________
Phone: _______________ Title: __________________________
Fax:__________________
ASSIGNEE:
Address: ______________________ ________________________________
______________________
______________________
Attn:_________________ By:______________________________
Phone: _______________ Title: __________________________
Fax:__________________
Accepted and Consented to this ___ day
of ____________, ____:
PNC BANK, NATIONAL ASSOCIATION,
as Agent
By: __________________________
Title:________________________
Accepted and Consented to this ___ day
of ____________, ____:
[ADD SIGNATURES OF BORROWERS]
102
<PAGE> 107
ANNEX 1
TO
ASSIGNMENT AND ACCEPTANCE AGREEMENT
On and after ___________, 199_ (the "Assignment Effective Date"), the
Commitment of Assignee, and, if this is less than an assignment of all of
Assignor's interest, Assignor, shall be as follows:
I. ASSIGNEE'S COMMITMENT
A. Assignee's Percentage __________%
B. Assigned Amount $__________
C. Assignee's Commitment Percentage
under the Credit Agreement __________%
II. ASSIGNOR'S COMMITMENT
A. Assignor's Commitment Percentage
under the Credit Agreement __________%
B. Assignor's Commitment Amount
under the Credit Agreement $__________
103
<PAGE> 1
Exhibit 10.14
COLLATERAL ASSIGNMENT
SPLIT-DOLLAR INSURANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the 10th day of July,
1993, by and between VENTURE LIGHTING INTERNATIONAL, INC.,an Ohio corporation
(the "Corporation") and LOUIS S. FlSI (the "Employee").
WITNESSETH:
-----------
WHEREAS, the Employee is employed by the Corporation and has performed
his duties in an efficient and capable manner;
WHEREAS, the Corporation is desirous of retaining the services of the
Employee;
WHEREAS, the Corporation is desirous of assisting the Employee in
paying for life insurance on his own life;
WHEREAS, the Corporation has determined that this assistance can best
be provided under a "split-dollar" arrangement;
WHEREAS, the Employee has applied for and is the owner of insurance
policy number Z104081 in the face amount of One Million Dollars ($1,000,000),
(referred to as the "Policy") which has been issued by The New England (the
"Insurer");
WHEREAS, the Corporation and the Employee agree to make the Policy
subject to this Split-Dollar Agreement;
WHEREAS, the Employee has assigned the Policy to the Corporation as
collateral for amounts to be advanced by the Corporation under this Agreement
by an instrument of assignment, dated as of July 10, 1993 (the "Assignment");
and
WHEREAS, it is now understood and agreed that this Split-Dollar
Agreement is to be effective as of the date on which the Policy was assigned to
the Corporation.
NOW, THEREFORE, for value received and in consideration of the premises
and mutual covenants contained herein, the parties agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of the Agreement, the following terms will have the
meanings set forth below:
1. "Cash Surrender Value of the Policy" will mean the Cash Value of the
Policy less any Policy loans outstanding (including interest accrued to date)
and less any Surrender Charges.
2. "Cash Value of the Policy" will mean the total of the Policy's
share of the elected sub-accounts and the amounts of any assets transferred to
the general investment account, as calculated according to the provisions of the
Policy.
<PAGE> 2
3. "Corporation's Interest in the Policy" will mean the lesser of (i)
the Cash Value of the Policy; or (ii) premiums theretofore paid by the
Corporation regarding the Policy less the economic benefit taxable to the
Employee as described in Article II.
4. "Employee's Vested Interest in the Cash Value of the Policy" will
mean, with regard to and only upon termination of Employee's employment with the
Corporation, the Cash Value of the Policy.
5. "Loan Value of the Policy" will mean:
(a) prior to Employee's termination of employment with the Corporation,
the amount which, with loan interest, will equal 90 percent of the Cash Value of
the Policy, projected with interest at a rate equivalent to 4.5 percent per year
compounded monthly to the next policy anniversary (or, if earlier, to the next
premium due date); less the Employee's Vested Interest in the Cash Value of the
Policy and the Surrender Charges on the next loan interest due date as if the
Employee had terminated his employment with the Corporation as of such due date;
or
(b) after Employee's termination of employment with the Corporation,
the amount which with loan interest will equal 90 percent of the Cash Value of
the Policy, projected at a 4.5 percent annual rate to the next policy
anniversary (or the next premium date, if earlier); less the Surrender Charges
on the next loan interest due date.
ARTICLE II.
ALLOCATION OF PREMIUMS
The Corporation will pay all premiums on the Policy when due. The
economic benefit taxable to the Employee regarding the premiums paid by the
Corporation will be computed in accordance with IRS Revenue Rulings 64-328,
1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, as in effect on the effective date
of this Agreement.
ARTICLE III.
WAIVER OF PREMIUM RIDER
The Employee may add a rider to the Policy for his own benefit or, upon
request by the Corporation, the Employee may add a rider to the Policy for the
benefit of the Corporation. Any additional premium for any waiver of premium
rider which is added to the Policy shall be paid by the parties in the same
proportion as they are required to contribute to the premiums due each year and
upon the same terms as are set forth in Article II. The Employee has the right
as owner of the Policy to apply policy dividends in such manner as the Employee
may from time to time determine. In the event that the Employee shall elect to
apply dividends to purchase additional paid-up insurance, the term "Policy" as
used herein shall include such additional paid-up insurance.
ARTICLE IV.
PAYMENT OF PREMIUMS
Any premium or portion thereof which is payable by the Employee under
any Article of this Agreement may at the election of the Employee be deducted
from the cash compensation
-2-
<PAGE> 3
otherwise payable to him and the Corporation agrees to transmit that premium or
portion, along with any premium or portion thereof payable by it, to the Insurer
on or before the premium due date.
ARTICLE V.
RIGHTS IN THE POLICY
The Employee may exercise all rights, options and privileges of
ownership in the Policy except those granted to the Corporation in the
Assignment. The Corporation will have those rights in the Policy given to it in
the Assignment except as hereinafter modified. The Corporation will not without
the written consent of the Employee assign its rights in the Policy, other than
for the purpose of obtaining a loan against the Policy, to anyone other than the
Employee. The Corporation will not take any action in dealing with the Insurer
that would impair any right or interest of the Employee in the Policy. The
Corporation will have the right to borrow from the Insurer, and to secure that
loan by the Policy, an amount which, together with the unpaid interest accrued
thereon, will at no time exceed the Loan Value of the Policy.
ARTICLE VI.
RIGHTS TO THE PROCEEDS AT DEATH
Upon the death of the Employee while this Agreement is in force, the
Corporation will, without delay, take whatever action is necessary and required
of it to collect the proceeds of the Policy from the Insurer. Upon collection of
the Policy proceeds, the Corporation will promptly pay the excess of the Policy
proceeds over the Corporation's Interest in the Policy and forward the balance
to the beneficiary designated by the Employee under the terms of the Policy.
ARTICLE VII.
DISABILITY
If at any time the Policy contains a rider providing for the waiver of
premiums in the event of the Employee's disability, then, in the event of the
Employee's Total Disability, as defined in the rider, which begins while the
rider is in force and which continues for at least six months, the Employee will
pay to the Corporation the excess, if any, and the Corporation will release its
interest in the Policy to the Employee. Upon release by the Corporation of all
of its interest in the Policy, the Employee will thereafter own the Policy free
from the Assignment and from this Agreement but subject to any Policy loans and
interest thereon as well as the Current Loan Balance.
ARTICLE VIII.
TERMINATION OF AGREEMENT
This Agreement may be terminated at any time while the Employee is
living by written notice thereof by either the Corporation or the Employee to
the other; and, in any event, this Agreement will terminate upon termination of
the Employee's employment.
-3-
<PAGE> 4
ARTICLE IX.
EMPLOYEE RIGHTS UPON TERMINATION
1. Upon termination of this Agreement for any reason other than death
of the Employee, The Employee shall be eligible to receive from the Corporation
benefits equal to the Employee's Vested Interest in the Cash Value of the
Policy.
2. Upon termination of this Agreement, the Employee agrees to transfer
all of his right, title and interest in the Policy to the Corporation, by
executing such documents as are necessary to transfer such right, title and
interest to the Corporation as of the date of termination. The Corporation will
thereafter be able to deal with the Policy in any way that it may see fit.
3. Notwithstanding anything to the contrary contained hereinabove,
should the Employee terminate his or her employment with the Corporation, the
Employee shall not, for a period of three (3) years thereafter, within the
continental United States, enter the employ of any person or organization
engaged in or about to become engaged in the research or development,
manufacturing, purchasing, accounting, engineering, merchandising, marketing,
leasing, selling on a wholesale basis or servicing any product which is a single
ended, screw base metal halide lamp for general lighting applications.
ARTICLE X.
STATUS OF AGREEMENT V. COLLATERAL ASSIGNMENT
As between the Employee and the Corporation, this Agreement will take
precedence over any provisions of the Assignment. The Corporation agrees not to
exercise any right possessed by it under the Assignment except in conformity
with this Agreement.
ARTICLE XI.
PLAN MANAGEMENT
For the purposes of the Employee Retirement Income Security Act of 1974
("ERISA"), the Corporation will be the "Named Fiduciary" and "Plan
Administrator" of the split-dollar life insurance plan (the "Plan") for which
this agreement is hereby designated the written plan instrument. The
Corporation's board of directors may authorize a person or group of persons to
fulfill the responsibilities of the Corporation as Plan Administrator. The
Named Fiduciary or the Plan Administrator may employ others to render advice
with regard to its responsibilities under this Plan. The Named Fiduciary may
also allocate fiduciary responsibilities to others and may exercise any other
powers necessary for the discharge of its duties to the extent not in conflict
with ERISA.
ARTICLE XII.
CLAIMS PROCEDURE
1. FILING CLAIMS. Any insured, beneficiary or other individual
(hereinafter "Claimant") entitled to benefits under the Plan or under the Policy
will file a claim request with the Plan Administrator with respect to benefits
under the Plan with The New England with respect to benefits under the Policy.
The Plan Administrator will, upon written request of the Claimant, make
available copies of any claim forms or instructions provided by The New England
or advise the Claimant where such forms or instructions may be obtained.
-4-
<PAGE> 5
2. NOTIFICATION TO CLAIMANT. If a claim request is wholly or partially
denied, the Plan Administrator will furnish to the Claimant a notice of the
decision within ninety (90) days in writing and in a manner calculated to be
understood by the Claimant, which notice will contain the following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent Plan provisions upon which the
denial is based;
(c) A description of any additional material or information necessary
for the Claimant to perfect the Claim and an explanation of why such material or
information is necessary; and
(d) An explanation of the Plan's claims review procedure describing the
steps to be taken by a claimant who wishes to submit his claim for review.
In the case of benefits which are provided under the Policy, the
initial decision on the claims will be made by The New England.
3. REVIEW PROCEDURE. A Claimant or his authorized representative may
with respect to any denied claim:
(a) Request a review upon written application filed within sixty (60)
days after receipt by the Claimant of written notice of the denial of his claim;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
Any request or submission will be in writing and will be directed to
the Named Fiduciary (or its designee). The Named Fiduciary (or its designee)
will have the sole responsibility for the review of any denied claim and will
take all steps appropriate in the light of its findings.
4. DECISION ON REVIEW. The Named Fiduciary (or its designee) will
render a decision upon review. If special circumstances (such as the need to
hold a hearing or any matter pertaining to the denied claim) warrant additional
time, the decision will be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the request for review. Written
notice of any such extension will be furnished to the Claimant prior to the
commencement of the extension. The decision on review will be in writing and
will include specific reasons for the decision, written in a manner calculated
to be understood by the Claimant, as well as specific references to the
pertinent provisions of the Plan on which the decision is based. If the decision
on the review is not furnished to the Claimant with the time limits prescribed
above, the claim will be deemed denied on review.
ARTICLE XIII.
SATISFACTION OF CLAIM
The Employee agrees that his rights and interests, and the rights and
interests of any persons taking under or through him, will be completely
satisfied upon compliance by the Corporation with the provisions of this
agreement.
-5-
<PAGE> 6
ARTICLE XIV.
AMENDMENT AND ASSIGNMENT
This Agreement may be altered, amended or modified, including the
addition of any extra policy provisions, by a written instrument signed by the
Corporation and the Employee. Either party may, subject to the limitations of
Article V, assign its interest and obligations under this Agreement, provided,
however, that any assignment will be subject to the terms of this Agreement.
ARTICLE XV.
POSSESSION OF POLICY
The Corporation will keep possession of the Policy. The Corporation
agrees from time to time to make the Policy available to the Employee or to the
Insurer for the purpose of endorsing or filing any change of beneficiary on the
Policy but the Policy will promptly be returned to the Corporation.
ARTICLE XVI.
GOVERNING LAW
This Agreement sets forth the entire Agreement of the parties hereto,
and any and all prior agreements, to the extent inconsistent herewith, are
hereby superseded. This Agreement will be governed by the laws of the State of
Ohio.
ARTICLE XVII.
INTERPRETATION
Where appropriate in this Agreement, words used in the singular will
include the plural and words used in the masculine will include the feminine
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals, the Corporation by its duly authorized officer, on the day and year first
above written.
VENTURE LIGHTING INTERNATIONAL, INC.
By: /s/ Louis S. Fisi
----------------------------------
Name: LOUIS S. FISI
--------------------------------
Its: SECRETARY
---------------------------------
By: /s/ Louis S. Fisi
----------------------------------
Louis S. Fisi
Employee
-6-
<PAGE> 1
Exhibit 10.15
COLLATERAL ASSIGNMENT
SPLIT-DOLLAR INSURANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the 7th day of December,
1993, by and between H&F MANAGEMENT, INC., an Ohio corporation (the
"Corporation") and LOUIS S. FISI (the "Employee").
WITNESSETH:
-----------
WHEREAS, the Employee is employed by the Corporation and has performed
his duties in an efficient and capable manner;
WHEREAS, the Corporation is desirous of retaining the services of the
Employee;
WHEREAS, the Corporation is desirous of assisting the Employee in
paying for life insurance on his own life;
WHEREAS, the Corporation has determined that this assistance can best
be provided under a "split-dollar" arrangement;
WHEREAS, the Employee has applied for and is the owner of insurance
policy number Z104082 in the face amount of One Million Seven Hundred and Fifty
Thousand Dollars ($1,750,000), (referred to as the "Policy") which has been
issued by The New England (the "Insurer");
WHEREAS, the Corporation and the Employee agree to make the Policy
subject to this Split-Dollar Agreement;
WHEREAS, the Employee has assigned the Policy to the Corporation as
collateral for amounts to be advanced by the Corporation under this Agreement
by an instrument of assignment, dated as of December 7, 1993 (the "Assignment");
and
WHEREAS, it is now understood and agreed that this Split-Dollar
Agreement is to be effective as of the date on which the Policy was assigned to
the Corporation.
NOW,THEREFORE, for value received and in consideration of the premises
and mutual covenants contained herein, the parties agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of the Agreement, the following terms will have the
meanings set forth below:
1. "Cash Surrender Value of the Policy" will mean the Cash Value of the
Policy less any Policy loans outstanding (including interest accrued to date)
and less any Surrender Charges.
2. "Cash Value of the Policy" will mean the total of the Policy's share
of the elected sub-accounts and the amounts of any assets transferred to the
general investment account, as calculated according to the provisions of the
Policy.
<PAGE> 2
3. "Corporation's Interest in the Policy" will mean the lesser of (i)
the Cash Value of the Policy; (ii) or premiums theretofore paid by the
Corporation regarding the Policy less the economic benefit taxable to the
Employee as described in Article II.
4. "Employee's Vested Interest in the Cash Value of the Policy" will
mean:
(a) with regard to any retirement of the Employee, the Cash Value of
the Policy less the Corporation's Interest in the Policy; plus,
(b) (i) if the Employee terminates employment with the Corporation
prior to age sixty-five (65), the Corporation's Interest in the Policy upon the
date of termination of Employee's employment or retirement multiplied by the
appropriate percentage as indicated in the following table:
CASH VALUE VESTING SCHEDULE
Prior to October 1, 1997 0%
October 1, 1997 50%
October 1, 1998 60%
October 1, 1999 70%
October 1, 2000 80%
October 1, 2001 90%
October 1, 2002 100%
(ii) if the Employee terminates employment with the Corporation on
or after reaching the age of sixty-five (65), the Corporation's Interest in the
Policy upon the date of termination of Employee's employment or retirement.
5. "Loan Value of the Policy" will mean:
(a) prior to Employee's termination of employment with the Corporation,
the amount which, with loan interest, will equal 90 percent of the Cash Value of
the Policy, projected with interest at a rate equivalent to 4.5 percent per year
compounded monthly to the next policy anniversary (or, if earlier, to the next
premium due date; less the Employee's Vested Interest in the Cash Value of the
Policy and the Surrender Charges on the next loan interest due date; or
(b) after Employee's termination of employment with the Corporation,
the amount which with loan interest will equal 90 percent of the Cash Value of
the Policy, projected at a 4.5 percent annual rate to the next policy
anniversary (or the next premium date, if earlier); less the Surrender Charges
on the next loan interest due date.
ARTICLE II.
ALLOCATION OF PREMIUMS
The Corporation will pay all premiums on the Policy when due. The
economic benefit taxable to the Employee regarding the premiums paid by the
Corporation will be computed in accordance with IRS Revenue Rulings 64-328,
1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, as in effect on the effective date
of this Agreement.
-2-
<PAGE> 3
ARTICLE III.
WAIVER OF PREMIUM RIDER
The Employee may add a rider to the Policy for his own benefit or, upon
request by the Corporation, the Employee may add a rider to the Policy for the
benefit of the Corporation Any additional premium for any waiver of premium
rider which is added to the Policy shall be paid by the parties in the same
proportion as they are required to contribute to the premiums due each year and
upon the same terms as are set forth in Article II. The Employee has the right
as owner of the Policy to apply policy dividends in such manner as the Employee
may from time to time determine. In the event that the Employee shall elect to
apply dividends to purchase additional paid-up insurance, the term "Policy" as
used herein shall include such additional paid-up insurance.
ARTICLE IV.
PAYMENT OF PREMIUMS
Any premium or portion thereof which is payable by the Employee under
any Article of this Agreement may at the election of the Employee be deducted
from the cash compensation otherwise payable to him and the Corporation agrees
to transmit that premium or portion, along with any premium or portion thereof
payable by it, to the Insurer on or before the premium due date.
ARTICLE V.
RIGHTS IN THE POLICY
The Employee may exercise all rights, options and privileges of
ownership in the Policy except those granted to the Corporation in the
Assignment. The Corporation will have those rights in the Policy given to it in
the Assignment except as hereinafter modified. The Corporation will not without
the written consent of the Employee assign its rights in the Policy, other than
for the purpose of obtaining a loan against the Policy, to anyone other than the
Employee. The Corporation will not take any action in dealing with the Insurer
that would impair any right or interest of the Employee in the Policy. The
Corporation will have the right to borrow from the Insurer, and to secure that
loan by the Policy, an amount which, together with the unpaid interest accrued
thereon, will at no time exceed the Loan Value of the Policy.
ARTICLE VI.
RIGHTS TO THE PROCEEDS AT DEATH
Upon the death of the Employee while this Agreement is in force, the
Corporation will, without delay, take whatever action is necessary and required
of it to collect the proceeds of the Policy from the Insurer. Upon collection of
the Policy proceeds, the Corporation will promptly pay the excess of the Policy
proceeds over the Corporation's Interest in the Policy and forward the balance
to the beneficiary designated by the Employee under the terms of the Policy.
ARTICLE VII.
DISABILITY
If at any time the Policy contains a rider providing for the waiver of
premiums in the event of the Employee's disability, then, in the event of the
Employee's Total Disability, as defined in the rider, which begins while the
rider is in force and which continues for at least six months, the
-3-
<PAGE> 4
Employee will pay to the Corporation the excess, if any, and the Corporation
will release its interest in the Policy to the Employee. Upon release by the
Corporation of all of its interest in the Policy, the Employee will thereafter
own the Policy free from the Assignment and from this Agreement but subject to
any Policy loans and interest thereon as well as the Current Loan Balance.
ARTICLE VIII.
TERMINATION OF AGREEMENT
This Agreement may be terminated at any time while the Employee is
living by written notice thereof by either the Corporation or the Employee to
the other; and, in any event, this Agreement will terminate upon termination of
the Employee's employment.
ARTICLE IX.
EMPLOYEE RIGHTS UPON TERMINATION
1. Upon termination of this Agreement for any reason other than death
of the Employee, The Employee shall be eligible to receive from the Corporation
benefits equal to the Employee's Vested Interest in the Cash Value of the
Policy.
2. Upon termination of this Agreement, the Employee agrees to transfer
all of his right, title and interest in the Policy to the Corporation, by
executing such documents as are necessary to transfer such right, title and
interest to the Corporation as of the date of termination. The Corporation will
thereafter be able to deal with the Policy in any way that it may see fit.
3. Notwithstanding anything to the contrary contained hereinabove,
should the Employee terminate his or her employment with the Corporation, the
Employee shall not, for a period of three (3) years thereafter, within the
continental United States, enter the employ of any person or organization
engaged in or about to become engaged in the research or development,
manufacturing, purchasing, accounting, engineering, merchandising, marketing,
leasing, selling on a wholesale basis or servicing any product which is a single
ended, screw base metal halide lamp for general lighting applications.
ARTICLE X.
STATUS OF AGREEMENT V. COLLATERAL ASSIGNMENT
As between the Employee and the Corporation, this Agreement will take
precedence over any provisions of the Assignment. The Corporation agrees not to
exercise any right possessed by it under the Assignment except in conformity
with this Agreement.
ARTICLE XI.
PLAN MANAGEMENT
For the purposes of the Employee Retirement Income Security Act of 1974
("ERISA"), the Corporation will be the "Named Fiduciary" and "Plan
Administrator" of the split-dollar life insurance plan (the "Plan") for which
this agreement is hereby designated the written plan instrument. The
Corporation's board of directors may authorize a person or group of persons to
fulfill the responsibilities of the Corporation as Plan Administrator. The Named
Fiduciary or the Plan Administrator may employ others to render advice with
regard to its responsibilities under this Plan. The Named Fiduciary may
-4-
<PAGE> 5
also allocate fiduciary responsibilities to others and may exercise any other
powers necessary for the discharge of its duties to the extent not in conflict
with ERISA.
ARTICLE XII.
CLAIMS PROCEDURE
1. FILING CLAIMS. Any insured, beneficiary or other individual
(hereinafter "Claimant") entitled to benefits under the Plan or under the Policy
will file a claim request with the Plan Administrator with respect to benefits
under the Plan with The New England with respect to benefits under the Policy.
The Plan Administrator will, upon written request of the Claimant, make
available copies of any claim forms or instructions provided by The New England
or advise the Claimant where such forms or instructions may be obtained.
2. NOTIFICATION TO CLAIMANT. If a claim request is wholly or partially
denied, the Plan Administrator will furnish to the Claimant a notice of the
decision within ninety (90) days in writing and in a manner calculated to be
understood by the Claimant, which notice will contain the following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent Plan provisions upon which the
denial is based;
(c) A description of any additional material or information necessary
for the Claimant to perfect the Claim and an explanation of why such material or
information is necessary; and
(d) An explanation of the Plan's claims review procedure describing the
steps to be taken by a claimant who wishes to submit his claim for review.
In the case of benefits which are provided under the Policy, the
initial decision on the claims will be made by The New England.
3. REVIEW PROCEDURE. A Claimant or his authorized representative may
with respect to any denied claim:
(a) Request a review upon written application filed within sixty (60)
days after receipt by the Claimant of written notice of the denial of his claim;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
Any request or submission will be in writing and will be directed to
the Named Fiduciary (or its designee). The Named Fiduciary (or its designee)
will have the sole responsibility for the review of any denied claim and will
take all steps appropriate in the light of its findings.
4. DECISION ON REVIEW. The Named Fiduciary (or its designee) will
render a decision upon review. If special circumstances (such as the need to
hold a hearing or any matter pertaining to the denied claim) warrant additional
time, the decision will be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the request for review. Written
notice of any such extension will be furnished to the Claimant prior to the
commencement of the extension. The
-5-
<PAGE> 6
decision on review will be in writing and will include specific reasons for the
decision, written in a manner calculated to be understood by the Claimant, as
well as specific references to the pertinent provisions of the Plan on which the
decision is based. If the decision on the review is not furnished to the
Claimant with the time limits prescribed above, the claim will be deemed denied
on review.
ARTICLE XIII.
SATISFACTION OF CLAIM
The Employee agrees that his rights and interests, and the rights and
interests of any persons taking under or through him, will be completely
satisfied upon compliance by the Corporation with the provisions of this
agreement.
ARTICLE XIV.
AMENDMENT AND ASSIGNMENT
This Agreement may be altered, amended or modified, including the
addition of any extra policy provisions, by a written instrument signed by the
Corporation and the Employee. Either party may, subject to the limitations of
Article V, assign its interest and obligations under this Agreement, provided,
however, that any assignment will be subject to the terms of this Agreement.
ARTICLE XV.
POSSESSION OF POLICY
The Corporation will keep possession of the Policy. The Corporation
agrees from time to time to make the Policy available to the Employee or to the
Insurer for the purpose of endorsing or filing any change of beneficiary on the
Policy but the Policy will promptly be returned to the Corporation.
ARTICLE XVI.
GOVERNING LAW
This Agreement sets forth the entire Agreement of the parties hereto,
and any and all prior agreements, to the extent inconsistent herewith, are
hereby superseded. This Agreement will be governed by the laws of the State of
Ohio.
ARTICLE XVII.
INTERPRETATION
Where appropriate in this Agreement, words used in the singular will
include the plural and words used in the masculine will include the feminine
(Signatures on Page 7)
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals, the Corporation by its duly authorized officer, on the day and year first
above written.
H & F MANAGEMENT, INC.
By: /s/ Louis S. Fisi
--------------------------------
Name: LOUIS S. FISI
------------------------------
Its: SECRETARY
-------------------------------
By: /s/ Louis S. Fisi
--------------------------------
Louis S. Fisi
Employee
-7-
<PAGE> 1
Exhibit 10.16
COLLATERAL ASSIGNMENT
SPLIT-DOLLAR INSURANCE AGREEMENT
THIS AGREEMENT is made and entered into as of the 10th day of July,
1993, by and between VENTURE LIGHTING INTERNATIONAL, INC., an Ohio corporation
(the "Corporation") and WAYNE R. HELLMAN (the "Employee").
WITNESSETH:
WHEREAS, the Employee is employed by the Corporation and has performed
his duties in an efficient and capable manner;
WHEREAS, the Corporation is desirous of retaining the services of the
Employee;
WHEREAS, the Corporation is desirous of assisting the Employee in
paying for life insurance on his own life;
WHEREAS, the Corporation has determined that this assistance can best
be provided under a "split-dollar" arrangement;
WHEREAS, the Employee has applied for and is the owner of insurance
policy number 8595590 in the face amount of Two Million Dollars ($2,000,000),
(referred to as the "Policy") which has been issued by The New England (the
"Insurer");
WHEREAS, the Corporation and the Employee agree to make the Policy
subject to this Split-Dollar Agreement;
WHEREAS, the Employee has assigned the Policy to the Corporation as
collateral for amounts to be advanced by the Corporation under this Agreement
by an instrument of assignment, dated as of July 10, 1993 (the "Assignment");
and
WHEREAS, it is now understood and agreed that this Split-Dollar
Agreement is to be effective as of the date on which the Policy was assigned to
the Corporation.
NOW, THEREFORE, for value received and in consideration of the premises
and mutual covenants contained herein, the parties agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of the Agreement, the following terms will have the
meanings set forth below:
1. "Cash Surrender Value of the Policy" will mean the Cash Value of the
Policy less any Policy loans outstanding (including interest accrued to date)
and less any Surrender Charges.
2. "Cash Value of the Policy" will mean the total of the Policy's share
of the elected sub-accounts and the amounts of any assets transferred to the
general investment account, as calculated according to the provisions of the
Policy.
<PAGE> 2
3. "Corporation's Interest in the Policy" will mean the lesser of (i)
the Cash Value of the Policy; or (ii) premiums theretofore paid by the
Corporation regarding the Policy less the economic benefit taxable to the
Employee as described in Article II.
4. "Employee's Vested Interest in the Cash Value of the Policy" will
mean, with regard to and only upon termination of Employee's employment with the
Corporation, the Cash Value of the Policy.
5. "Loan Value of the Policy" will mean:
(a) prior to Employee's termination of employment with the Corporation,
the amount which, with loan interest, will equal 90 percent of the Cash Value of
the Policy, projected with interest at a rate equivalent to 4.5 percent per year
compounded monthly to the next policy anniversary (or, if earlier, to the next
premium due date); less the Employee's Vested Interest in the Cash Value of the
Policy and the Surrender Charges on the next loan interest due date as if the
Employee had terminated his employment with the Corporation as of such due date;
or
(b) after Employee's termination of employment with the Corporation,
the amount which with loan interest will equal 90 percent of the Cash Value of
the Policy, projected at a 4.5 percent annual rate to the next policy
anniversary (or the next premium date, if earlier); less the Surrender Charges
on the next loan interest due date.
ARTICLE II.
ALLOCATION OF PREMIUMS
The Corporation will pay all premiums on the Policy when due. The
economic benefit taxable to the Employee regarding the premiums paid by the
Corporation will be computed in accordance with IRS Revenue Rulings 64-328,
1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, as in effect on the effective date
of this Agreement.
ARTICLE III.
WAIVER OF PREMIUM RIDER
The Employee may add a rider to the Policy for his own benefit or, upon
request by the Corporation, the Employee may add a rider to the Policy for the
benefit of the Corporation. Any additional premium for any waiver of premium
rider which is added to the Policy shall be paid by the parties in the same
proportion as they are required to contribute to the premiums due each year and
upon the same terms as are set forth in Article II. The Employee has the right
as owner of the Policy to apply policy dividends in such manner as the Employee
may from time to time determine. In the event that the Employee shall elect to
apply dividends to purchase additional paid-up insurance, the term "Policy" as
used herein shall include such additional paid-up insurance.
ARTICLE IV.
PAYMENT OF PREMIUMS
Any premium or portion thereof which is payable by the Employee under
any Article of this Agreement may at the election of the Employee be deducted
from the cash compensation
-2-
<PAGE> 3
otherwise payable to him and the Corporation agrees to transmit that premium or
portion, along with any premium or portion thereof payable by it, to the Insurer
on or before the premium due date.
ARTICLE V.
RIGHTS IN THE POLICY
The Employee may exercise all rights, options and privileges of
ownership in the Policy except those granted to the Corporation in the
Assignment. The Corporation will have those rights in the Policy given to it in
the Assignment except as hereinafter modified. The Corporation will not without
the written consent of the Employee assign its rights in the Policy, other than
for the purpose of obtaining a loan against the Policy, to anyone other than the
Employee. The Corporation will not take any action in dealing with the Insurer
that would impair any right or interest of the Employee in the Policy. The
Corporation will have the right to borrow from the Insurer, and to secure that
loan by the Policy, an amount which, together with the unpaid interest accrued
thereon, will at no time exceed the Loan Value of the Policy.
ARTICLE VI.
RIGHTS TO THE PROCEEDS AT DEATH
Upon the death of the Employee while this Agreement is in force, the
Corporation will, without delay, take whatever action is necessary and required
of it to collect the proceeds of the Policy from the Insurer. Upon collection of
the Policy proceeds, the Corporation will promptly pay the excess of the Policy
proceeds over the Corporation's Interest in the Policy and forward the balance
to the beneficiary designated by the Employee under the terms of the Policy.
ARTICLE VII.
DISABILITY
If at any time the Policy contains a rider providing for the waiver of
premiums in the event of the Employee's disability, then, in the event of the
Employee's Total Disability, as defined in the rider, which begins while the
rider is in force and which continues for at least six months, the Employee will
pay to the Corporation the excess, if any, and the Corporation will release its
interest in the Policy to the Employee. Upon release by the Corporation of all
of its interest in the Policy, the Employee will thereafter own the Policy free
from the Assignment and from this Agreement but subject to any Policy loans and
interest thereon as well as the Current Loan Balance.
ARTICLE VIII.
TERMINATION OF AGREEMENT
This Agreement may be terminated at any time while the Employee is
living by written notice thereof by either the Corporation or the Employee to
the other; and, in any event, this Agreement will terminate upon termination of
the Employee's employment.
-3-
<PAGE> 4
ARTICLE IX.
EMPLOYEE RIGHTS UPON TERMINATION
1. Upon termination of this Agreement for any reason other than death
of the Employee, The Employee shall be eligible to receive from the Corporation
benefits equal to the Employee's Vested Interest in the Cash Value of the
Policy.
2. Upon termination of this Agreement, the Employee agrees to transfer
all of his right, title and interest in the Policy to the Corporation, by
executing such documents as are necessary to transfer such right, title and
interest to the Corporation as of the date of termination. The Corporation will
thereafter be able to deal with the Policy in any way that it may see fit.
3. Notwithstanding anything to the contrary contained hereinabove,
should the Employee terminate his or her employment with the Corporation, the
Employee shall not, for a period of three (3) years thereafter, within the
continental United States, enter the employ of any person or organization
engaged in or about to become engaged in the research or development,
manufacturing, purchasing, accounting, engineering, merchandising, marketing,
leasing, selling on a wholesale basis or servicing any product which is a single
ended, screw base metal halide lamp for general lighting applications.
ARTICLE X.
STATUS OF AGREEMENT V. COLLATERAL ASSIGNMENT
As between the Employee and the Corporation, this Agreement will take
precedence over any provisions of the Assignment. The Corporation agrees not to
exercise any right possessed by it under the Assignment except in conformity
with this Agreement.
ARTICLE XI.
PLAN MANAGEMENT
For the purposes of the Employee Retirement Income Security Act of 1974
("ERISA"), the Corporation will be the "Named Fiduciary" and "Plan
Administrator" of the split-dollar life insurance plan (the "Plan") for which
this agreement is hereby designated the written plan instrument. The
Corporation's board of directors may authorize a person or group of persons to
fulfill the responsibilities of the Corporation as Plan Administrator. The
Named Fiduciary or the Plan Administrator may employ others to render advice
with regard to its responsibilities under this Plan. The Named Fiduciary may
also allocate fiduciary responsibilities to others and may exercise any other
powers necessary for the discharge of its duties to the extent not in conflict
with ERISA.
ARTICLE XII.
CLAIMS PROCEDURE
1. FILING CLAIMS. Any insured, beneficiary or other individual
(hereinafter "Claimant") entitled to benefits under the Plan or under the Policy
will file a claim request with the Plan Administrator with respect to benefits
under the Plan with The New England with respect to benefits under the Policy.
The Plan Administrator will, upon written request of the Claimant, make
available copies of any claim forms or instructions provided by The New England
or advise the Claimant where such forms or instructions may be obtained.
-4-
<PAGE> 5
2. NOTIFICATION TO CLAIMANT. If a claim request is wholly or partially
denied, the Plan Administrator will furnish to the Claimant a notice of the
decision within ninety (90) days in writing and in a manner calculated to be
understood by the Claimant, which notice will contain the following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent Plan provisions upon which the
denial is based;
(c) A description of any additional material or information necessary
for the Claimant to perfect the Claim and an explanation of why such material or
information is necessary; and
(d) An explanation of the Plan's claims review procedure describing the
steps to be taken by a claimant who wishes to submit his claim for review.
In the case of benefits which are provided under the Policy, the
initial decision on the claims will be made by The New England.
3. REVIEW PROCEDURE. A Claimant or his authorized representative may
with respect to any denied claim:
(a) Request a review upon written application filed within sixty(60)
days after receipt by the Claimant of written notice of the denial of his claim;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
Any request or submission will be in writing and will be directed to
the Named Fiduciary (or its designee). The Named Fiduciary (or its designee)
will have the sole responsibility for the review of any denied claim and will
take all steps appropriate in the light of its findings.
4. DECISION ON REVIEW. The Named Fiduciary (or its designee) will
render a decision upon review. If special circumstances (such as the need to
hold a hearing or any matter pertaining to the denied claim) warrant additional
time, the decision will be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the request for review. Written
notice of any such extension will be furnished to the Claimant prior to the
commencement of the extension. The decision on review will be in writing and
will include specific reasons for the decision, written in a manner calculated
to be understood by the Claimant, as well as specific references to the
pertinent provisions of the Plan on which the decision is based. If the decision
on the review is not furnished to the Claimant with the time limits prescribed
above, the claim will be deemed denied on review.
ARTICLE XIII.
SATISFACTION OF CLAIM
The Employee agrees that his rights and interests, and the rights and
interests of any persons taking under or through him, will be completely
satisfied upon compliance by the Corporation with the provisions of this
agreement.
-5-
<PAGE> 6
ARTICLE XIV.
AMENDMENT AND ASSIGNMENT
This Agreement may be altered, amended or modified, including the
addition of any extra policy provisions, by a written instrument signed by the
Corporation and the Employee. Either party may, subject to the limitations of
Article V, assign its interest and obligations under this Agreement, provided,
however, that any assignment will be subject to the terms of this Agreement.
ARTICLE XV.
POSSESSION OF POLICY
The Corporation will keep possession of the Policy. The Corporation
agrees from time to time to make the Policy available to the Employee or to the
Insurer for the purpose of endorsing or filing any change of beneficiary on the
Policy but the Policy will promptly be returned to the Corporation.
ARTICLE XVI.
GOVERNING LAW
This Agreement sets forth the entire Agreement of the parties hereto,
and any and all prior agreements, to the extent inconsistent herewith, are
hereby superseded. This Agreement will be governed by the laws of the State of
Ohio.
ARTICLE XVII.
INTERPRETATION
Where appropriate in this Agreement, words used in the singular will
include the plural and words used in the masculine will include the feminine
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals, the Corporation by its duly authorized officer, on the day and year first
above written.
VENTURE LIGHTING INTERNATIONAL, INC.
By: /s/ Wayne R. Hellman
----------------------------------
Name: Wayne R. Hellman
--------------------------------
Its: President
--------------------------------
By: /s/ Wayne R. Hellman
----------------------------------
Wayne R. Hellman
Employee
-6-
<PAGE> 1
Exhibit 10.17
COLLATERAL ASSIGNMENT
SPLIT-DOLLAR INSURANCE AGREEMENT-
THIS AGREEMENT is made and entered into as of the 7th day of December,
1993, by and between H&F MANAGEMENT, INC., an Ohio corporation (the
"Corporation") and WAYNE R. HELLMAN (the "Employee").
WITNESSETH
WHEREAS, the Employee is employed by the Corporation and has performed
his duties in an efficient and capable manner;
WHEREAS, the Corporation is desirous of retaining the services of the
Employee;
WHEREAS, the Corporation is desirous of assisting the Employee in
paying for life insurance on his own life;
WHEREAS, the Corporation has determined that this assistance can best
be provided under a "split-dollar" arrangement;
WHEREAS, the Employee has applied for and is the owner of insurance
policy number Z104066 in the face amount of Two Million One Hundred Seventy Five
Thousand Dollars ($2,175,000), (referred to as the "Policy") which has been
issued by The New England (the "Insurer");
WHEREAS, the Corporation and the Employee agree to make the Policy
subject to this Split-Dollar Agreement;
WHEREAS, the Employee has assigned the Policy to the Corporation as
collateral for amounts to be advanced by the Corporation under this Agreement
by an instrument of assignment, dated as of December 7, 1993 (the "Assignment");
and
WHEREAS, it is now understood and agreed that this Split-Dollar
Agreement is to be effective as of the date on which the Policy was assigned to
the Corporation.
NOW, THEREFORE, for value received and in consideration of the premises
and mutual covenants contained herein, the parties agree as follows:
ARTICLE I.
DEFINITIONS
For purposes of the Agreement, the following terms will have the
meanings set forth below:
1. "Cash Surrender Value of the Policy" will mean the Cash Value of the
Policy less any Policy loans outstanding (including interest accrued to date)
and less any Surrender Charges.
2. "Cash Value of the Policy" will mean the total of the Policy's share
of the elected sub-accounts and the amounts of any assets transferred to the
general investment account, as calculated according to the provisions of the
Policy.
<PAGE> 2
3. "Corporation's Interest in the Policy" will mean the lesser of (i)
the Cash Value of the Policy; or (ii) premiums theretofore paid by the
Corporation regarding the Policy less the economic benefit taxable to the
Employee as described in Article II.
4. "Employee's Vested Interest in the Cash Value of the Policy" will
mean:
(a) with regard to any retirement of the Employee, the Cash Value of
the Policy less the Corporation's Interest in the Policy; plus,
(b) (i) if the Employee terminates employment with the Corporation
prior to age sixty-five (65), the Corporation's Interest in the Policy upon the
date of termination of Employee's employment or retirement multiplied by the
appropriate percentage as indicated in the following table:
CASH VALUE VESTING SCHEDULE
Prior to October 1, 1997 0%
October 1, 1997 50%
October 1, 1998 60%
October 1, 1999 70%
October 1, 2000 80%
October 1, 2001 90%
October 1, 2002 100%
(ii) if the Employee terminates employment with the Corporation on or
after reaching the age of sixty-five (65), the Corporation's Interest in the
Policy upon the date of termination of Employee's employment or retirement.
5. "Loan Value of the Policy" will mean:
(a) prior to Employee's termination of employment with the Corporation,
the amount which, with loan interest, will equal 90 percent of the Cash Value of
the Policy, projected with interest at a rate equivalent to 4.5 percent per year
compounded monthly to the next policy anniversary (or, if earlier, to the next
premium due date; less the Employee's Vested Interest in the Cash Value of the
Policy and the Surrender Charges on the next loan interest due date; or
(b) after Employee's termination of employment with the Corporation,
the amount which with loan interest will equal 90 percent of the Cash Value of
the Policy, projected at a 4.5 percent annual rate to the next policy
anniversary (or the next premium date, if earlier); less the Surrender Charges
on the next loan interest due date.
ARTICLE II.
ALLOCATION OF PREMIUMS
The Corporation will pay all premiums on the Policy when due. The
economic benefit taxable to the Employee regarding the premiums paid by the
Corporation will be computed in accordance with IRS Revenue Rulings 64-328,
1964-2 C.B. 11, and 66-110, 1966-1 C.B. 12, as in effect on the effective date
of this Agreement.
-2-
<PAGE> 3
ARTICLE III.
WAIVER OF PREMIUM RIDER
The Employee may add a rider to the Policy for his own benefit or, upon
request by the Corporation, the Employee may add a rider to the Policy for the
benefit of the Corporation. Any additional premium for any waiver of premium
rider which is added to the Policy shall be paid by the parties in the same
proportion as they are required to contribute to the premiums due each year and
upon the same terms as are set forth in Article II. The Employee has the right
as owner of the Policy to apply policy dividends in such manner as the Employee
may from time to time determine. In the event that the Employee shall elect to
apply dividends to purchase additional paid-up insurance, the term "Policy" as
used herein shall include such additional paid-up insurance.
ARTICLE IV.
PAYMENT OF PREMIUMS
Any premium or portion thereof which is payable by the Employee under
any Article of this Agreement may at the election of the Employee be deducted
from the cash compensation otherwise payable to him and the Corporation agrees
to transmit that premium or portion, along with any premium or portion thereof
payable by it, to the Insurer on or before the premium due date.
ARTICLE V.
RIGHTS IN THE POLICY
The Employee may exercise all rights, options and privileges of
ownership in the Policy except those granted to the Corporation in the
Assignment. The Corporation will have those rights in the Policy given to it in
the Assignment except as hereinafter modified. The Corporation will not without
the written consent of the Employee assign its rights in the Policy, other than
for the purpose of obtaining a loan against the Policy, to anyone other than the
Employee. The Corporation will not take any action in dealing with the Insurer
that would impair any right or interest of the Employee in the Policy. The
Corporation will have the right to borrow from the Insurer, and to secure that
loan by the Policy, an amount which, together with the unpaid interest accrued
thereon, will at no time exceed the Loan Value of the Policy.
ARTICLE VI.
RIGHTS TO THE PROCEEDS AT DEATH
Upon the death of the Employee while this Agreement is in force, the
Corporation will, without delay, take whatever action is necessary and required
of it to collect the proceeds of the Policy from the Insurer. Upon collection of
the Policy proceeds, the Corporation will promptly pay the excess of the Policy
proceeds over the Corporation's Interest in the Policy and forward the balance
to the beneficiary designated by the Employee under the terms of the Policy.
ARTICLE VII.
DISABILITY
If at any time the Policy contains a rider providing for the waiver of
premiums in the event of the Employee's disability, then, in the event of the
Employee's Total Disability, as defined in the rider, which begins while the
rider is in force and which continues for at least six months, the
-3-
<PAGE> 4
Employee will pay to the Corporation the excess, if any, and the Corporation
will release its interest in the Policy to the Employee. Upon release by the
Corporation of all of its interest in the Policy, the Employee will thereafter
own the Policy free from the Assignment and from this Agreement but subject to
any Policy loans and interest thereon as well as the Current Loan Balance.
ARTICLE VIII.
TERMINATION OF AGREEMENT
This Agreement may be terminated at any time while the Employee is
living by written notice thereof by either the Corporation or the Employee to
the other; and, in any event, this Agreement will terminate upon termination of
the Employee's employment.
ARTICLE IX.
EMPLOYEE RIGHTS UPON TERMINATION
1. Upon termination of this Agreement for any reason other than death
of the Emp1oyee, The Employee shall be eligible to receive from the Corporation
benefits equal to the Employee's Vested Interest in the Cash Value of the
Policy.
2. Upon termination of this Agreement, the Employee agrees to transfer
all of his right, title and interest in the Policy to the Corporation, by
executing such documents as are necessary to transfer such right, title and
interest to the Corporation as of the date of termination. The Corporation
will thereafter be able to deal with the Policy in any way that it may see fit.
3. Notwithstanding anything to the contrary contained hereinabove,
should the Employee terminate his or her employment with the Corporation, the
Employee shall not, for a period of three (3) years thereafter, within the
continental United States, enter the employ of any person or organization
engaged in or about to become engaged in the research or development,
manufacturing, purchasing, accounting, engineering, merchandising, marketing,
leasing, selling on a wholesale basis or servicing any product which is a single
ended, screw base metal halide lamp for general lighting applications.
ARTICLE X.
STATUS OF AGREEMENT V. COLLATERAL ASSIGNMENT
As between the Employee and the Corporation, this Agreement will take
precedence over any provisions of the Assignment. The Corporation agrees not to
exercise any right possessed by it under the Assignment except in conformity
with this Agreement.
ARTICLE XI.
PLAN MANAGEMENT
For the purposes of the Employee Retirement Income Security Act of 1974
("ERISA"), the Corporation will be the "Named Fiduciary" and "Plan
Administrator" of the split-dollar life insurance plan (the "Plan") for which
this agreement is hereby designated the written plan instrument. The
Corporation's board of directors may authorize a person or group of persons to
fulfill the responsibilities of the Corporation as Plan Administrator. The Named
Fiduciary or the Plan Administrator may employ others to render advice with
regard to its responsibilities under this Plan. The Named Fiduciary may
-4-
<PAGE> 5
also allocate fiduciary responsibilities to others and may exercise any other
powers necessary for the discharge of its duties to the extent not in conflict
with ERISA.
ARTICLE XII.
CLAIMS PROCEDURE
1. FILING CLAIMS. Any insured, beneficiary or other individual
(hereinafter "Claimant") entitled to benefits under the Plan or under the Policy
will file a claim request with the Plan Administrator with respect to benefits
under the Plan with The New England with respect to benefits under the Policy.
The Plan Administrator will, upon written request of the Claimant, make
available copies of any claim forms or instructions provided by The New England
or advise the Claimant where such forms or instructions may be obtained.
2. NOTIFICATION TO CLAIMANT. If a claim request is wholly or partially
denied, the Plan Administrator will furnish to the Claimant a notice of the
decision within ninety (90) days in writing and in a manner calculated to be
understood by the Claimant, which notice will contain the following information:
(a) The specific reason or reasons for the denial;
(b) Specific reference to pertinent Plan provisions upon which the
denial is based;
(c) A description of any additional material or information necessary
for the Claimant to perfect the Claim and an explanation of why such material or
information is necessary; and
(d) An explanation of the Plan's claims review procedure describing the
steps to be taken by a claimant who wishes to submit his claim for review.
In the case of benefits which are provided under the Policy, the
initial decision on the claims will be made by The New England.
3. REVIEW PROCEDURE. A Claimant or his authorized representative may
with respect to any denied claim:
(a) Request a review upon written application filed within sixty (60)
days after receipt by the Claimant of written notice of the denial of his claim;
(b) Review pertinent documents; and
(c) Submit issues and comments in writing.
Any request or submission will be in writing and will be directed to
the Named Fiduciary (or its designee). The Named Fiduciary (or its designee)
will have the sole responsibility for the review of any denied claim and will
take all steps appropriate in the light of its findings.
4. DECISION ON REVIEW. The Named Fiduciary (or its designee) will
render a decision upon review. If special circumstances (such as the need to
hold a hearing or any matter pertaining to the denied claim) warrant additional
time, the decision will be rendered as soon as possible, but not later than one
hundred twenty (120) days after receipt of the request for review. Written
notice of any such extension will be furnished to the Claimant prior to the
commencement of the extension. The
-5-
<PAGE> 6
decision on review will be in writing and will include specific reasons for the
decision, written in a manner calculated to be understood by the Claimant, as
well as specific references to the pertinent provisions of the Plan on which the
decision is based. If the decision on the review is not furnished to the
Claimant. with the time limits prescribed above, the claim will be deemed denied
on review.
ARTICLE XIII.
SATISFACTION OF CLAIM
The Employee agrees that his rights and interests, and the rights and
interests of any persons taking under or through him, will be completely
satisfied upon compliance by the Corporation with the provisions of this
agreement.
ARTICLE XIV.
AMENDMENT AND ASSIGNMENT
This Agreement may be altered, amended or modified, including the
addition of any extra policy provisions, by a written instrument signed by the
Corporation and the Employee. Either party may, subject to the limitations of
Article V, assign its interest and obligations under this Agreement, provided,
however, that any assignment will be subject to the terms of this Agreement.
ARTICLE XV.
POSSESSION OF POLICY
The Corporation will keep possession of the Policy. The Corporation
agrees from time to time to make the Policy available to the Employee or to the
Insurer for the purpose of endorsing or filing any change of beneficiary on the
Policy but the Policy will promptly be returned to the Corporation.
ARTICLE XVI.
GOVERNING LAW
This Agreement sets forth the entire Agreement of the parties hereto,
and any and all prior agreements, to the extent inconsistent herewith, are
hereby superseded. This Agreement will be governed by the laws of the State of
Ohio.
ARTICLE XVII.
INTERPRETATION
Where appropriate in this Agreement, words used in the singular will
include the plural and words used in the masculine will include the feminine
(Signatures on Page 7)
-6-
<PAGE> 7
IN WITNESS WHEREOF, the parties have hereunto set their hands and
seals, the Corporation by its duly authorized officer, on the day and year first
above written.
H & F MANAGEMENT, INC.
By: /s/ Wayne R. Hellman
-----------------------------------
Name: Wayne R. Hellman
---------------------------------
Its: President
----------------------------------
By: /s/ Wayne R. Hellman
-----------------------------------
Wayne R. Hellman
Employee
-7-
<PAGE> 1
EXHIBIT 10.18
May 21, 1999
Advanced Lighting Technologies, Inc.
32000 Aurora Road
Solon, Ohio 44139
Ballastronix Incorporated
10 Chandler Road
P. O. Box 250
Amherst, Nova Scotia BH4 3Z2
Canadian Lighting Systems Holding, Incorporated
10 Chandler Road
P. O. Box 250
Amherst, Nova Scotia BH4 3Z2
Parry Power Systems Limited
Victoria Mills Draycott
Derby DE72 3PW
England
Venture Lighting Europe Ltd.
Victoria Mills Draycott
Derby DE72 3PW
England
Gentlemen:
Contemporaneously herewith, Advanced Lighting Technologies, Inc. and
certain of its foreign subsidiaries (collectively, "Borrower") are entering into
a Credit Agreement (the "Credit Agreement") with PNC Bank, National Association
("PNC"), as a bank and as agent for the banks to become parties to the Credit
Agreement, pursuant to which the banks are establishing revolving credits and a
term loan in the aggregate principal amount of $75,000,000 (the "Facilities").
Borrower has requested PNC to provide Borrower with an underwritten
commitment for the entire amount of the Facilities under circumstances in which
it is contemplated that following the date on which the Credit Agreement shall
have become effective (the "Closing Date"), PNC would act as agent bank for the
Facilities and also act as syndication agent on behalf of Borrower in arranging
commitments of other lenders. PNC's targeted participation in the Facilities is
$25,000,000, although PNC has no obligation or commitment to hold precisely this
amount.
<PAGE> 2
PNC is willing to provide the entire principal amount of the Facilities
upon the terms and subject to the conditions set forth or referred to in this
letter and otherwise in accordance with the Credit Agreement. While PNC's
commitment under the Credit Agreement is not contingent on syndication, the
syndication of the indicated portion of PNC's commitment is an integral part of
this transaction for both PNC and Borrower. PNC, together with PNC Capital
Markets, Inc. (hereinafter collectively referred to as "PNC"), intends to
arrange a syndicate of lenders (the "Lenders") selected by PNC in its sole
discretion, but in consultation with Borrower.
Borrower will take all such action as PNC may reasonably request to
assist it in forming a syndicate. Such assistance shall include (a) providing
PNC, promptly upon request, with all information that is available to Borrower
and deemed necessary by PNC, including information and projections prepared by
Borrower or its advisors, and direct contact between Borrower's senior officers
and representatives on the one hand, and the proposed Lenders on the other hand,
at times and places as PNC may reasonably request, and (b) assisting PNC, upon
request, in the preparation of a confidential information memorandum and other
marketing materials to be used in connection with the syndication.
It is possible that (due to market factors associated with the
transaction, the interest rate margins, the amount of facility or closing fees,
the financial condition of Borrower or unforseen circumstances) PNC may have
difficulty syndicating the Facilities. In such event PNC shall be entitled, in
its sole discretion, after consultation with Borrower, to change the pricing,
structure and terms, or any thereof, of the Facilities, or any of the loan
documents executed in connection therewith; provided that PNC agrees not to
require any change in the Total Commitment Amount, as defined in the Credit
Agreement.
Borrower agrees to reimburse PNC from time to time for all reasonable
out-of-pocket expenses (including professional fees, expenses, disbursements and
other charges of counsel for PNC) incurred in connection with the syndication.
It is expressly intended that the provisions set forth in this letter shall
survive execution of the Credit Agreement and Loan Documents, as defined in the
Credit Agreement. This letter shall be deemed to be a Related Writing, as
defined in the Credit Agreement. This letter shall be construed in accordance
with Ohio law, without regard to conflicts of law provisions.
If the foregoing correctly sets forth the agreement of the parties
hereto, please indicate your acceptance of the terms hereof by signing in the
appropriate space below. This letter may be executed in any number of
counterparts, by different parties hereto in separate counterparts and by
facsimile signature, each of which when so executed and delivered shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement.
<PAGE> 3
JURY TRIAL WAIVER. EACH OF THE PARTIES HERETO HEREBY WAIVE ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE, AMONG THE PARTIES, OR ANY THEREOF, ARISING OUT OF, IN
CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH THIS AGREEMENT OR ANY NOTE OR OTHER INSTRUMENT, DOCUMENT
OR AGREEMENT EXECUTED OR DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS
RELATED THERETO.
PNC BANK, NATIONAL ASSOCIATION PNC CAPITAL MARKETS, INC.
By: /s/ Douglas K. Winget By: /s/ Jeffery M. Doherty
--------------------------------- -------------------------------
Title: Vice President Title: Marketing Director
------------------------------ ----------------------------
Each of the undersigned hereby agree, as of the date set forth above, to the
terms set forth herein and agree to be bound thereby:
ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ Nicholas R. Sucic
----------------------------------
Title: Treasurer
-------------------------------
BALLASTRONIX INCORPORATED
By: /s/ R.G. Douglas Oulton
----------------------------------
Title: Assistant Secretary
-------------------------------
CANADIAN LIGHTING SYSTEMS HOLDING INCORPORATED
By: /s/ R.G. Douglas Oulton
----------------------------------
Title: Secretary
-------------------------------
PARRY POWER SYSTEMS LIMITED
By: /s/ Nadina S. Wallis
----------------------------------
Title: Director
-------------------------------
VENTURE LIGHTING EUROPE LTD.
By: /s/ W. Ian Wilkinson
----------------------------------
Title: Director
-------------------------------
<PAGE> 1
EXHIBIT 11
ADVANCED LIGHTING TECHNOLOGIES, INC.
EXHIBIT 11 -- STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DOLLAR AMOUNTS)
<TABLE>
<CAPTION>
Year Ended June 30,
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Income (loss) from continuing operations
before extraordinary charge attributable
to common shareholders $(71,365) $(18,047) $ 7,556
Loss from discontinued operations (9,043) (7,292) (452)
Extraordinary charge, net of tax benefits (902) (604) --
Cumulative change in accounting principle (2,443) -- --
-------- -------- --------
Net income (loss) attributable
to common shareholders $(83,753) $(25,943) $ 7,104
======== ======== ========
Weighted average shares -- Basic:
Outstanding at beginning of period 20,189 13,435 10,844
Issued pursuant to public offering -- 2,942 2,327
Issued in acquisitions 2 1,768 41
Issued for exercise of stock options 17 47 22
Issued pursuant to
employee stock purchase plan 19 3 --
Issued pursuant to employee benefit plan 5 -- --
Issuable in connection with an acquisition -- -- 35
-------- -------- --------
Weighted average shares -- Basic 20,232 18,195 13,269
======== ======== ========
Weighted average shares -- Diluted:
Basic from above 20,232 18,195 13,269
Effect of stock options -- -- 289
-------- -------- --------
Weighted average shares -- Diluted 20,232 18,195 13,558
======== ======== ========
Earnings (loss) per share -- Basic:
Loss from continuing operations $ (3.53) $ (.99) $ .57
Loss from discontinued operations (.45) (.40) (.03)
Extraordinary charge (.04) (.04) --
Cumulative change in accounting principle (.12) -- --
-------- -------- --------
Earnings (loss) per share -- Basic $ (4.14) $ (1.43) $ .54
======== ======== ========
Earnings (loss) per share -- Diluted:
Loss from continuing operations $ (3.53) $ (.99) $ .55
Loss from discontinued operations (.45) (.40) (.03)
Extraordinary charge (.04) (.04) --
Cumulative change in accounting principle (.12) -- --
-------- -------- --------
Earnings (loss) per share -- Diluted $ (4.14) $ (1.43) $ .52
======== ======== ========
</TABLE>
<PAGE> 1
Exhibit 12
ADVANCED LIGHTING TECHNOLOGIES, INC.
EXHIBIT 12 -- STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
YEAR ENDED JUNE 30,
-----------------------------------------------------------------------
1999 1998 1997 1996 1995
------------- ------------ ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Consolidated pretax income (loss)
from continuing operations $ (68,393) $ (16,245) $ 10,425 $ 3,632 $ 3,354
Interest 13,845 3,801 1,513 1,548 2,107
Increase in value of warrants - - - 1,350 2,302
Interest portion of rent expense 626 498 492 297 204
Preferred stock dividend requirements
of majority-owned subsidiaries - - - - 62
------------- ------------ ------------ ------------- ------------
EARNINGS (LOSS) $ (53,922) $ (11,946) $ 12,430 $ 6,827 $ 8,029
============= ============ ============ ============= ============
Interest $ 13,845 $ 3,801 $ 1,513 $ 1,548 $ 2,107
Increase in value of warrants - - - 1,350 2,302
Interest capitalized 645 1,118 455 98 9
Interest portion of rent expense 626 498 492 297 204
Preferred stock dividend requirements
of majority-owned subsidiaries - - - - 62
------------- ------------ ------------ ------------- ------------
FIXED CHARGES $ 15,116 $ 5,417 $ 2,460 $ 3,293 $ 4,684
============= ============ ============ ============= ============
RATIO OF EARNINGS TO FIXED CHARGES - - 5.1 2.1 1.7
============= ============ ============ ============= ============
</TABLE>
For purposes of calculating the unaudited ratio of earnings to fixed charges,
earnings consists 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. Earnings were
inadequate to cover fixed charge requirements by $69,038 in fiscal 1999 and by
$17,363 in fiscal 1998.
<PAGE> 1
Exhibit 21
ADVANCED LIGHTING TECHNOLOGIES, INC.
EXHIBIT 21 -- SUBSIDIARIES OF THE REGISTRANT AS OF JUNE 30, 1999
The following is a list of significant subsidiaries of Advanced
Lighting Technologies, Inc., all of which are organized under the laws of the
State of Ohio, except where indicated:
ADLT Realty Corp. I, Inc.
Advanced Lighting, Inc.
Advanced Lighting Technologies Australia, Inc.
APL Engineered Materials, Inc.
Deposition Sciences, Inc.
H&F Management, Inc.
HID Recycling, Inc.
Lighting Resources International, Inc.
Lighting Systems Leasing, Inc.
Metal Halide Controls, Inc.
Metal Halide Technologies, Inc.
Microsun Technologies, Inc.
Specialty Discharge Lighting, Inc.
Venture Lighting International, Inc.
Advanced Lighting Systems, Inc.
(organized under the laws of the State of Arizona)
Advanced Lighting Technologies Canada, Inc.
(organized under the laws of Ontario, Canada)
Advanced Lighting Technologies Europe Limited
(organized under the laws of the United Kingdom)
Advanced Lighting Technologies FSC
(organized under the laws of Barbados)
Advanced Lighting Technologies (NZ) Ltd.
(organized under the laws of New Zealand)
Ballastronix (Delaware), Inc.
(organized under the laws of the State of Delaware)
Canadian Lighting Systems Holding, Incorporated
(organized under the laws of Nova Scotia, Canada)
Kramer Lighting, Inc.
(organized under the laws of the Commonwealth of
Massachusetts)
Pacific Lighting, Inc.
(organized under the laws of the British Virgin Islands)
Parry Power Systems Limited
(organized under the laws of the United Kingdom)
Ruud Lighting, Inc.
(organized under the laws of the State of Wisconsin)
Venture Lighting Europe Limited
(organized under the laws of the United Kingdom)
Venture Lighting Power Systems, North America, Inc. f/k/a Ballastronix
Incorporated (organized under the laws of Nova Scotia, Canada)
<PAGE> 1
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-34642) pertaining to the Amended and Restated Advanced Lighting
Technologies, Inc. 1995 Incentive Award Plan, in the Registration Statement
(Form S-8 No. 333-22159) pertaining to the Advanced Lighting Technologies, Inc.
Employee Stock Purchase Plan, in the Registration Statements (Form S-8 No.
333-45689 and 333-69641) pertaining to the Amended and Restated Advanced
Lighting Technologies, Inc. 1998 Incentive Award Plan, in the Registration
Statement (Form S-8 No. 333-45695) pertaining to the Advanced Lighting
Technologies, Inc. 1997 Billion Dollar Market Capitalization Incentive Award
Plan, in the Registration Statement (Form S-4 No. 333-58609) pertaining to the
Company's 8% Senior Notes due 2008, in the Registration Statement (Form S-3 No.
333-58613) pertaining to the Company's securities and securities of ADLT Trust I
and in the Registration Statement (Form S-4 No. 333-58621) pertaining to the
Company's securities of our report dated September 24, 1999, except for Note U,
as to which the date is September 28, 1999, with respect to the consolidated
financial statements of Advanced Lighting Technologies, Inc. as of June 30,
1999 and for the year then ended, included in this Annual Report (Form 10-K)
for the year ended June 30, 1999.
/s/ Grant Thornton LLP
Cleveland, Ohio
September 28, 1999
<PAGE> 1
Exhibit 23.2
Consent of Independent Auditors
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 33-34642) pertaining to the Amended and Restated Advanced Lighting
Technologies, Inc. 1995 Incentive Award Plan, in the Registration Statement
(Form S-8 No. 333-22159) pertaining to the Advanced Lighting Technologies, Inc.
Employee Stock Purchase Plan, in the Registration Statements (Form S-8 No.
333-45689 and 333-69641) pertaining to the Amended and Restated Advanced
Lighting Technologies, Inc. 1998 Incentive Award Plan, in the Registration
Statement (Form S-8 No. 333-45695) pertaining to the Advanced Lighting
Technologies, Inc. 1997 Billion Dollar Market Capitalization Incentive Award
Plan, in the Registration Statement (Form S-4 No. 333-58609) pertaining to the
Company's 8% Senior Notes due 2008, in the Registration Statement (Form S-3 No.
333-58613) pertaining to the Company's securities and securities of ADLT Trust I
and in the Registration Statement (Form S-4 No. 333-58621) pertaining to the
Company's securities of our report dated September 28, 1998, except for the
sixth paragraph of Note C, as to which the date is March 15, 1999, with respect
to the consolidated financial statements of Advanced Lighting Technologies,
Inc. as of June 30, 1998 and for each of the two years in the period ended June
30, 1998, included in this Annual Report (Form 10-K) for the year ended June
30, 1999.
/s/ Ernst & Young LLP
Cleveland, Ohio
September 24, 1999
<PAGE> 1
Exhibit 24.1
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Wayne R.
Hellman and/or Louis S. Fisi his attorney-in-fact, with the power of
substitution, for him in his capacity as director of Advanced Lighting
Technologies, Inc., to sign the Form 10-K Annual Report for the fiscal year
ending on June 30, 1999, and any amendments thereto, and to file the same with
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission, hereby ratifying and confirming all that
said attorney-in-fact or his substitute or substitutes may do or cause to be
done by virtue hereof.
SIGNATURE TITLE DATE
- -------------------------------------------------------------------------------
/s/ Francis H. Beam Director September 28, 1999
- -------------------------
Francis H. Beam
/s/ John R. Buerkle Director September 28, 1999
- -------------------------
John R. Buerkle
/s/ Theodore A. Filson Director September 28, 1999
- -------------------------
Theodore A. Filson
/s/ Louis S. Fisi Director September 28, 1999
- -------------------------
Louis S. Fisi
/s/ Susuma Harada Director September 28, 1999
- -------------------------
Susuma Harada
/s/ Wayne R. Hellman Director September 28, 1999
- -------------------------
Wayne R. Hellman
/s/ Alan J. Ruud Director September 28, 1999
- -------------------------
Alan J. Ruud
/s/ A Gordon Tunstall Director September 28, 1999
- -------------------------
A Gordon Tunstall
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ADVANCED
LIGHTING TECHNOLOGIES, INC. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEAR ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-01-1998
<PERIOD-END> JUN-30-1999
<CASH> 3,830
<SECURITIES> 350
<RECEIVABLES> 31,838
<ALLOWANCES> 1,257
<INVENTORY> 40,776
<CURRENT-ASSETS> 72,843
<PP&E> 118,711
<DEPRECIATION> 16,263
<TOTAL-ASSETS> 284,506
<CURRENT-LIABILITIES> 54,214
<BONDS> 152,496
0
0
<COMMON> 20
<OTHER-SE> 77,421
<TOTAL-LIABILITY-AND-EQUITY> 284,506
<SALES> 188,484
<TOTAL-REVENUES> 188,484
<CGS> 128,492
<TOTAL-COSTS> 128,492
<OTHER-EXPENSES> 108,462
<LOSS-PROVISION> 882
<INTEREST-EXPENSE> (13,845)
<INCOME-PRETAX> (68,393)
<INCOME-TAX> (2,972)
<INCOME-CONTINUING> (71,365)
<DISCONTINUED> (9,043)
<EXTRAORDINARY> (902)
<CHANGES> (2,443)
<NET-INCOME> (83,753)
<EPS-BASIC> (4.14)
<EPS-DILUTED> (4.14)
</TABLE>
