<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
- --- ACT OF 1934
For the quarterly period ended December 31, 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>
<CAPTION>
<S> <C>
OHIO 34-1803229
- -----------------------------------------------------------------------------------------------------
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
32000 AURORA ROAD, SOLON, OHIO 44139
- -----------------------------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
</TABLE>
440 / 519-0500
- --------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
There were 20,373,738 shares of the Registrant's Common Stock, $.001 par value
per share, outstanding as of January 20, 2000.
<PAGE> 2
INDEX
ADVANCED LIGHTING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
PAGE
NO.
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets --
December 31, 1999 and June 30, 1999 ............................ 2
Condensed Consolidated Statements of Operations --
Three months and six months
ended December 31, 1999 and 1998 ............................... 3
Condensed Statement of Consolidated Shareholders' Equity --
Six months ended December 31, 1999.............................. 4
Condensed Consolidated Statements of Cash Flows --
Six months ended December 31, 1999 and 1998..................... 5
Notes to Condensed Consolidated Financial Statements................. 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations......................................... 15
Item 3. Quantitative and Qualitative Disclosures about Market Risk............... 34
PART II OTHER INFORMATION
Item 1. Legal Proceedings........................................................ 35
Item 2. Changes in Securities and Use of Proceeds................................ 35
Item 5. Other Information........................................................ 35
Item 6. Exhibits and Reports on Form 8-K......................................... 36
SIGNATURES................................................................................. 38
EXHIBIT INDEX.............................................................................. 39
</TABLE>
<PAGE> 3
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
(Unaudited) (Audited)
DECEMBER 31, JUNE 30,
1999 1999
------------ -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,064 $ 3,830
Short-term investments -- 350
Trade receivables, less allowances of $1,065 and $1,257 33,461 25,485
Receivables from related parties 242 48
Inventories:
Finished goods 22,896 24,275
Raw materials and work-in-process 18,795 16,501
--------- ---------
41,691 40,776
Prepaid expenses 2,436 2,354
--------- ---------
Total current assets 79,894 72,843
Property, plant and equipment:
Land and buildings 43,301 42,646
Production machinery and equipment 52,050 49,226
Other equipment 6,413 6,413
Furniture and fixtures 20,720 20,426
--------- ---------
122,484 118,711
Less accumulated depreciation 19,852 16,263
--------- ---------
102,632 102,448
Receivables from related parties 6,937 5,048
Investments in affiliates 15,420 13,475
Other assets 6,499 6,586
Intangible assets 32,174 32,695
Excess of cost over net assets of businesses acquired, net 50,784 51,411
--------- ---------
$ 294,340 $ 284,506
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current portion of long-term debt $ 8,480 $ 8,543
Accounts payable 23,324 23,310
Payables to related parties 4,291 1,126
Employee-related liabilities 3,779 3,781
Accrued income and other taxes 942 904
Other accrued expenses 15,104 16,905
--------- ---------
Total current liabilities 55,920 54,569
Long-term debt 138,887 152,496
Preferred stock, $.001 par value, per share; 1,000 shares authorized;
761 Series A convertible redeemable shares issued and outstanding at
December 31, 1999 (redemption value -- $20,965 at December 31, 1999) 15,806 --
Common shareholders' equity:
Common stock, $.001 par value, per share; 80,000 shares authorized;
20,368 shares issued and outstanding as of December 31, 1999 and
20,278 shares issued and outstanding as of June 30, 1999 20 20
Paid-in-capital 195,906 190,654
Accumulated other comprehensive income (loss) (463) (949)
Loan receivable from officer (9,170) (9,520)
Retained earnings (deficit) (102,566) (102,764)
--------- ---------
83,727 77,441
--------- ---------
$ 294,340 $ 284,506
========= =========
</TABLE>
See notes to condensed consolidated financial statements
2
<PAGE> 4
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except per share dollar amounts)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------ ------------------------
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 59,885 $ 39,704 $ 116,065 $ 90,991
Costs and expenses:
Cost of sales 36,852 31,448 71,696 62,352
Marketing and selling 10,617 12,151 20,792 21,552
Research and development 3,483 5,597 6,978 9,562
General and administrative 4,086 5,338 8,121 9,843
Special charges -- 16,273 -- 16,273
Amortization of intangible assets 672 678 1,347 1,343
--------- --------- --------- ---------
Income (loss) from operations 4,175 (31,781) 7,131 (29,934)
Other income (expense):
Interest expense (3,323) (3,440) (7,113) (6,181)
Interest income 214 328 434 566
Income (loss) from equity investments 35 (272) 85 (461)
--------- --------- --------- ---------
Income (loss) from continuing operations
before income taxes and cumulative
effect of accounting change 1,101 (35,165) 537 (36,010)
Income taxes 121 3,267 339 3,093
--------- --------- --------- ---------
Income (loss) from continuing operations
before cumulative effect of accounting change 980 (38,432) 198 (39,103)
Recontinuance of previously discontinued operations -- (1,540) -- (687)
Cumulative effect of accounting change -- -- -- (2,443)
--------- --------- --------- ---------
Net income (loss) $ 980 $ (39,972) $ 198 $ (42,233)
========= ========= ========= =========
Earnings (loss) per share -- basic:
Income (loss) from continuing operations $ .02 $ (1.90) $ (.02) $ (1.93)
Recontinuance of previously discontinued operations -- (.08) -- (.04)
Cumulative effect of accounting change -- -- -- (.12)
--------- --------- --------- ---------
Earnings (loss) per share -- basic $ .02 $ (1.98) $ (.02) $ (2.09)
========= ========= ========= =========
Earnings (loss) per share -- diluted:
Income (loss) from continuing operations $ .02 $ (1.90) $ (.02) $ (1.93)
Recontinuance of previously discontinued operations -- (.08) -- (.04)
Cumulative effect of accounting change -- -- -- (.12)
--------- --------- --------- ---------
Earnings (loss) per share -- diluted $ .02 $ (1.98) $ (.02) $ (2.09)
========= ========= ========= =========
Weighted average shares outstanding:
Basic 20,351 20,222 20,318 20,215
========= ========= ========= =========
Diluted 21,297 20,222 20,800 20,215
========= ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements
3
<PAGE> 5
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED STATEMENT OF CONSOLIDATED SHAREHOLDERS' EQUITY (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, 1999
(in thousands)
<TABLE>
<CAPTION>
ACCUMULATED LOAN
COMMON STOCK COMPREHENSIVE OTHER RECEIVABLE RETAINED
PREFERRED ----------------- PAID-IN INCOME COMPREHENSIVE FROM EARNINGS
STOCK SHARES PAR VALUE CAPITAL (LOSS) INCOME (LOSS) OFFICER (DEFICIT) TOTAL
--------- ------ --------- ------- ------------- ------------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at July 1,
1999 -- 20,278 $ 20 $ 190,654 -- $ (949) $ (9,520) $(102,764) $ 77,441
Net income -- -- -- -- $ 198 -- -- 198 198
Net Proceeds from
issuance of preferred
shares and warrant $ 15,203 -- -- 5,000 -- -- -- -- 20,203
Preferred shares
accretion $ 603 -- -- (603) -- -- -- -- --
Interest on loan to
officer -- -- -- -- -- -- (370) -- (370)
Interest payment
received -- -- -- -- -- -- 720 -- 720
Issuance of shares
in connection
with the purchase
of a business -- 40 -- 535 -- -- -- -- 535
Stock issued pursuant
to employee benefit
plan -- 32 -- 220 -- -- -- -- 220
Stock purchases
by employees -- 18 -- 100 -- -- -- -- 100
Other comprehensive
income (loss):
Foreign currency
translation
adjustment 486
---------
Other comprehensive
income (loss) 486 486 486
--------- -------- --------- --------- --------- --------- --------- --------- ---------
Comprehensive
income (loss) $ 684
=========
BALANCE AT
DECEMBER 31, 1999 $ 15,806 20,368 $ 20 $ 195,906 $ (463) $ (9,170) $(102,566) $ 99,533
========= ======== ========= ========= ======== ========= ========= =========
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE> 6
ADVANCED LIGHTING TECHNOLOGIES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED DECEMBER 31,
----------------------------
1999 1998
---------- -----------
<S> <C> <C>
Operating activities
Net income (loss) $ 198 $ (42,233)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation 3,631 3,271
Amortization 1,347 1,343
Provision for doubtful accounts 97 136
(Income) loss from equity investments (85) 461
Deferred income taxes -- 3,429
Special charges -- 25,629
Cumulative effect of accounting change -- 2,443
Changes in operating assets and liabilities:
Trade receivables (7,835) (3,979)
Inventories 190 (5,879)
Prepaids and other assets (2,265) (2,309)
Accounts payable and accrued expenses 1,590 3,068
Payments related to special charge accruals (1,506) (1,670)
Other 968 (1,529)
--------- ---------
Net cash used in operating activities (3,670) (17,819)
INVESTING ACTIVITIES
Capital expenditures (2,878) (17,956)
Sale of short-term investments 350 --
Purchases of businesses (30) (5,024)
Investments in affiliates (1,920) (3,298)
--------- ---------
Net cash used in investing activities (4,478) (26,278)
FINANCING ACTIVITIES
Proceeds from revolving credit facility 95,318 156,624
Payments of revolving credit facility (103,254) (113,724)
Proceeds from long-term debt -- 868
Payments of long-term debt and capital leases (6,205) (2,685)
Issuance of preferred stock and stock purchase warrant 20,203 --
Loan to officer -- (9,000)
Issuance of common stock 320 438
--------- ---------
Net cash provided by financing activities 6,382 32,521
--------- ---------
Decrease in cash and cash equivalents (1,766) (11,576)
Cash and cash equivalents, beginning of period 3,830 22,167
--------- ---------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 2,064 $ 10,591
========= =========
Supplemental cash flow information
Interest paid $ 7,313 $ 5,070
Income taxes paid -- 211
Capitalized interest 196 458
Detail of acquisitions:
Assets acquired $ 868 $ 9,688
Liabilities assumed (262) (4,570)
Stock issued (535) (29)
--------- ---------
Cash paid 71 5,089
Less cash acquired (41) (65)
--------- ---------
Net cash paid for acquisition $ 30 $ 5,024
========= =========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE> 7
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
DECEMBER 31, 1999
(Dollar amounts in thousands)
A. ORGANIZATION
Advanced Lighting Technologies, Inc. (the "Company" or "ADLT") is an
innovation-driven designer, manufacturer and marketer of metal halide lighting
products, including materials, system components, systems, and production
equipment.
B. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions for Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all the information and
disclosures required by generally accepted accounting principles for complete
financial statements. In the opinion of management, the financial statements
include all material adjustments necessary for a fair presentation, consisting
of normal recurring accruals. For further information, refer to the consolidated
financial statements and notes thereto included in the Company's annual report
on Form 10-K for the year ended June 30, 1999. Operating results for the three
months and six months ended December 31, 1999 are not necessarily indicative of
the results that may be expected for the full-year ending June 30, 2000.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect reported amounts and related disclosures. Actual results could differ
from those estimates.
Accounting Change - Cost of Start-Up Activities
During the fourth quarter of fiscal 1999, the Company adopted Statement of
Position ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities,"
effective July 1, 1998. The first six months of fiscal 1999 have been restated
to reflect the cumulative effect of accounting change.
New Accounting Standards
The Company has not yet adopted Statement of Financial Accounting Standards
("FAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities."
FAS No. 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.
6
<PAGE> 8
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1999
(Dollar amounts in thousands)
B. BASIS OF PRESENTATION (CONTINUED)
Financial Statement Presentation Changes
Certain amounts for prior periods have been reclassified to conform to the
current period reporting presentation.
C. COMPREHENSIVE INCOME
Statement of Financial Accounting Standards (FAS) No. 130, "Reporting
Comprehensive Income," requires disclosure of comprehensive income and its
components. FAS No. 130 requires companies to report, in addition to net income,
other components of comprehensive income, which for the Company includes foreign
currency translation adjustments.
For the three- and six-months ended December 31, 1999, the Company's
comprehensive income was $1,118 and $684, respectively. For the three- and
six-months ended December 31, 1998, the Company's comprehensive loss was
$(40,184) and $(42,179), respectively.
D. 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.
7
<PAGE> 9
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1999
(Dollar amounts in thousands)
E. SENIOR NOTES OFFERING
On March 13, 1998, the Company sold $100,000 of Senior Notes due March 15, 2008,
resulting in net proceeds of approximately $96,150. The Notes have an annual
coupon rate of 8% and are redeemable at the Company's option, in whole or in
part, on or after March 15, 2003 at certain preset redemption prices. In
addition, at any time prior to March 15, 2001, the Company may redeem up to 35%
of the aggregate principal amount of the Notes at 108% of par with the proceeds
of one or more public equity offerings. Interest on the Senior Notes is payable
semiannually on March 15 and September 15 of each year beginning on September
15, 1998. There are no sinking fund requirements.
From September 14, 1998, 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.
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.
F. GENERAL ELECTRIC COMPANY INVESTMENT
In October 1999, General Electric Company ("GE") completed an investment in the
Company of $20,554. In exchange for the investment, GE received 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
received a Warrant (the "Initial Warrant") to purchase an additional 1,000,000
shares of Company Common Stock (subject to adjustment), 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 represent (after giving effect to the shares issued on exercise
of the Initial Warrant) approximately 18.8% of the voting power and equity
ownership of the Company. The proceeds of the transaction were applied
principally to the reduction of short-term liabilities and outstanding amounts
under the Company's Bank Credit Facility.
The Series A Stock has a liquidation preference of $27 per share, plus an amount
equal to 8% per annum compounded annually from the date of issuance to the date
of payment. The Company is 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 either September 30, 2004, or the occurrence of certain
corporate events.
8
<PAGE> 10
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1999
(Dollar amounts in thousands)
F. GENERAL ELECTRIC COMPANY INVESTMENT (CONTINUED)
If the Company fails to maintain certain financial ratios over certain
measurement periods, GE will have the right to acquire a combination of
subscription rights to additional shares and proxies with respect to shares
voted by certain officers of the Company, giving GE the ability to obtain the
majority of the voting power of the Company. The first measurement period was
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 basis for GE's additional rights will be the failure of the Company to
maintain a 2.0 to 1.0 ratio of EBITDA to Interest Expense over the applicable
measurement periods. 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 up to a maximum of $125 in any fiscal quarter. The ratio for the six
months ended December 31, 1999, was 1.9 to 1.0 (1.61 to 1.0 for the quarter
ended September 30, 1999 and 2.23 to 1.0 for the quarter ended December 31,
1999) and, therefore, the "First Occurrence" has taken place.
There is no contractual effect of the First Occurrence other than to make a
"Second Occurrence" possible in the following measurement periods. If the
Company maintains a 2.0 to 1.0 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.
A Second Occurrence would: (i) give GE the ability to vote the number of
shares currently voted by the Chief Executive Officer ("CEO") of the Company,
approximately 3.9 million shares, (ii) give GE the option to purchase shares
from the CEO and the President of the Company which, together with the shares
owned by GE, would represent 25% of the voting power of the Company, and (iii)
require the Company to grant GE an additional warrant to purchase shares, at the
then current market price, presently approximating 197,762 shares. The ability
to vote the shares, purchase shares or obtain the warrant would be dependent
upon compliance with antitrust laws. GE is not required to purchase additional
shares of the Company. If GE obtains approval and obtains in excess of 35% of
the voting power of the Company, the terms of the Indenture relating to the
Company's 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, and the Company's
banks will have the ability to demand payment of the Bank Credit Facility. Upon
a Third Occurrence, GE would have the right to vote shares currently voted by
the President and be granted a warrant to purchase (at the then current market
price) additional shares of Common Stock sufficient in number to give GE 50%
plus one vote of the voting power of the Company.
9
<PAGE> 11
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1999
(Dollar amounts in thousands)
G. RELATED PARTY TRANSACTION
Pursuant to a loan agreement dated October 8, 1998, between the Company and its
Chairman and Chief Executive Officer (the "CEO"), the Company 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 outstanding principal balance 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 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.
The CEO has paid accrued interest of $720 on the loan through October 6, 1999.
The principal on the loan was due on October 6, 1999. On January 25, 2000, the
Board agreed that Mr. Hellman would not be required to repay the loan until
October 6, 2000. However, if the price of the Company's Common Stock reaches $12
per share (a level which the directors believe would permit repayment of the
CEO's margin loan and refinancing with another lender), the Board and the CEO
will discuss earlier repayment of all or a portion of the loan. The directors
have informed the CEO that the Company may require immediate payment of the loan
if the Company requires the payment to prevent an unacceptable strain on cash
resources.
H. SPECIAL CHARGES AND TERMINATED EQUIPMENT CONTRACTS
At December 31, 1999, the Company had a special charges accrual principally
related to the execution of the Company's fiscal 1999 plans related to its shift
in strategic direction intended to accelerate and intensify the Company's focus
on its metal halide products. The fiscal 1999 special charges related to:
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. All actions required by the plans
are expected to be substantially completed by March 31, 2000. The amounts
the Company will ultimately incur may change as the Company's plans are
executed and actions are completed.
10
<PAGE> 12
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1999
(Dollar amounts in thousands)
H. SPECIAL CHARGES AND TERMINATED EQUIPMENT CONTRACTS (CONTINUED)
Details of the activity in the remaining accruals related to the fiscal 1999
special charges for the six months ended December 31, 1999 are summarized as
follows:
<TABLE>
<CAPTION>
BALANCE AS OF CHARGES BALANCE AS OF
DESCRIPTION CASH/NONCASH JUNE 30, 1999 UTILIZED DEC. 31, 1999
------------------------------------ -------------- ---------------- ------------- ----------------
<S> <C> <C> <C> <C>
Lease/contract cancellations Cash/Noncash $ 3,689 $ 1,418 $ 2,271
Staffing reductions Cash/Noncash 681 296 385
Program cancelation Cash 128 83 45
Terminate management benefit program Cash/Noncash 86 83 3
Shut-down costs of facilities Cash 78 73 5
Write-off long-lived assets Cash/Noncash 49 49 --
Other Cash 143 93 50
---------------- ------------- ----------------
$ 4,854 $ 2,095 $ 2,759
================ ============= ================
</TABLE>
The special charges for fiscal 1999 included costs related to the actions
described above and also include $2,981 related to the wind-down of portable
fixture manufacturing operations, which are described in Note I "Discontinued
Operations Subsequently Retained." Total special charges for the six-months
ended December 31, 1999 of $17,081 are classified in the consolidated statement
of operations as cost of sales ($808) and special charges ($16,273).
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 second quarter of fiscal
1999, 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.
I. DISCONTINUED OPERATIONS SUBSEQUENTLY RETAINED
Microsun Technologies, Inc. ("Microsun") was identified in March 1998 for
disposition through a plan to distribute to ADLT shareholders all of the
ownership of Microsun 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,
the Company concluded that it would wind-down the operations, close the
manufacturing facilities and liquidate the assets of Microsun. 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.
11
<PAGE> 13
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1999
(Dollar amounts in thousands)
I. DISCONTINUED OPERATIONS SUBSEQUENTLY RETAINED (CONTINUED)
In October 1999, management decided, with the approval of the Board of
Directors, to retain the Microsun business -- the portable lighting fixture
products business that uses metal halide lighting technology -- as part of the
Company's continuing operation. The decision to retain the business was based on
management's belief that, among other reasons, the market demand for Microsun
products remains substantial; the market potential will be expanded as the
Microsun portable lighting fixtures will be marketed and sold along with other
existing lines of products for residential use in an e-commerce format
("Microsun.com"); and the Microsun business will use the fulfillment
capabilities and infrastructure of existing ADLT businesses.
In retaining the Microsun business, the Company concentrates on assembling
fixtures produced by subcontractors, thereby eliminating the need for the
machinery, equipment and facilities that were used in the previous operation.
The assembly process is performed at existing ADLT businesses utilizing existing
facilities and operations. The Company utilizes the customer service systems and
personnel of an existing ADLT business, as well as the Internet at
http://www.microsun.com, to receive, process and fill orders. Therefore, the
Microsun business has been retained but without the use of the manufacturing
processes or assets used in the previous operations.
In accordance with the accounting requirements for recontinuance, the
accompanying financial statements have been reclassified to present Microsun
within continuing operations. The net amount charged to the income statement
consisted of the following:
<TABLE>
<CAPTION>
Period Ended December 31, 1998
------------------------------
Three months Six months
------------ ----------
<S> <C> <C>
Reclassification of discontinued
operations to continuing operations $ 4,626 $ 5,479
Discontinued operations provision (6,166) (6,166)
------------ ----------
Recontinuance of previously discontinued
operations $ (1,540) $ (687)
============ ==========
</TABLE>
The $4,626 reclassified to continuing operations for the three months ended
December 31, 1998 consisted of a loss from operations of $1,645 and write-downs
to net realizable value of $2,981 in connection with the decision in November
1998 to wind-down the Microsun business related to fixed assets ($1,449) and
other assets ($1,532). These write-downs are classified in special charges. The
$5,479 reclassified to continuing operations for the six months ended December
31, 1998, consisted of a loss from operations of $2,498 and write-downs of
$2,981.
12
<PAGE> 14
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1999
(Dollar amounts in thousands)
J. 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. A First Amended Class Action Complaint, consolidating
the three lawsuits, was filed on September 30, 1999, and the action is now
pending before a single judge. The named defendants in the case - styled In re
Advanced Lighting Technologies, Inc. Securities Litigation, Master File No.
1:99CV836, pending before the United States District Court, Northern District of
Ohio - are the Company and its Chairman and Chief Executive Officer.
The First Amended Class Action Complaint alleges generally that certain
disclosures attributed to the Company contained misstatements and omissions
alleged to be violations of Section 10(b) of the Securities Exchange 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, among other things, improperly recognizing revenue and
improper inventory accounting. The Complaint seeks certification of the
purported class, unspecified compensatory and punitive damages, pre- and
post-judgment interest and attorneys' fees and costs.
The Company and the CEO believe that these claims lack merit and on November 15,
1999, the Company and CEO filed a Motion to Dismiss the Complaint. The Company
and the CEO intend to continue to vigorously defend against these actions.
13
<PAGE> 15
ADVANCED LIGHTING TECHNOLOGIES, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- CONTINUED
DECEMBER 31, 1999
(Dollar amounts in thousands)
K. EARNINGS PER SHARE
The following table summarizes the basic and diluted per share computations for
income (loss) from continuing operations and net income (loss) for the three and
six month periods ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
---------------------- -----------------------
1999 1998 1999 1998
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Income (loss) from continuing operations
before cumulative effect of accounting change $ 980 $(38,432) $ 198 $(39,103)
Less: Preferred shares accretion (603) -- (603) --
-------- -------- -------- --------
Income (loss) from continuing operations before cumulative
effect of accounting change attributable to common shareholders $ 377 $(38,432) $ (405) $(39,103)
======== ======== ======== ========
Net income (loss) $ 980 $(39,972) $ 198 $(42,233)
Less: Preferred shares accretion (603) -- (603) --
-------- -------- -------- --------
Net income (loss) attributable to common shareholders $ 377 $(39,972) $ (405) $(42,233)
======== ======== ======== ========
Weighted average shares -- Basic:
Outstanding at beginning of period 20,302 20,215 20,278 20,190
Issued in acquisitions 40 2 20 1
Issued for exercise of stock options -- -- -- 17
Issued pursuant to employee stock purchase plan 4 5 7 7
Issued pursuant to 401(k) plan 5 -- 13 --
-------- -------- -------- --------
Weighted average shares -- Basic 20,351 20,222 20,318 20,215
======== ======== ======== ========
Weighted average shares -- Diluted:
Basic from above 20,351 20,222 20,318 20,215
Effect of warrant issued 946 473
Effect of stock options -- -- 9 --
-------- -------- -------- --------
Weighted average shares -- Diluted 21,297 20,222 20,800 20,215
======== ======== ======== ========
Earnings (loss) per share attributed to common shareholders
-- Basic
Income (loss) from continuing operations before
cumulative effect of accounting change attributable to common
shareholders $ . 02 $ (1.90) $ (.02) $ (1.93)
Recontinuance of previously discontinued operations -- (.08) -- (.04)
Cumulative effect of change in accounting for start-up costs -- -- -- (.12)
-------- -------- -------- --------
Net income (loss) attributable to common shareholders --
basic $ .02 $ (1.98) $ (.02) $ (2.09)
======== ======== ======== ========
Earnings (loss) per share attributed to common shareholders
-- Diluted
Income (loss) from continuing operations before
cumulative effect of accounting change attributable to
common shareholders $ .02 $ (1.90) $ (.02) $ (1.93)
Recontinuance of previously discontinued operations -- (.08) -- (.04)
Cumulative effect of change in accounting for start-up costs -- -- -- (.12)
-------- -------- -------- --------
Net income (loss) attributable to common shareholders --
diluted $ .02 $ (1.98) $ (.02) $ (2.09)
======== ======== ======== ========
</TABLE>
14
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS. (Dollar amounts in thousands)
This report on Form 10-Q may contain forward-looking statements that involve
risks and uncertainties, including the timely development and market acceptance
of new products, the timely and successful implementation of cost reduction and
cash flow initiatives, the impact of the initiatives on relationships with
customers, suppliers and employees, the ability to provide adequate incentives
to retain and attract key employees, the integration of acquired operations, the
impact of competitive products and pricing, and other risks which are detailed
in the Company's Form 10-K for the fiscal year ended June 30, 1999, in
particular, see "Risk Factors." For this purpose, any statement contained herein
that is not a statement of historical fact may be deemed to be a forward-looking
statement. Without limiting the foregoing, the words "believes," "anticipates,"
"plans," "expects," and similar expressions are intended to identify
forward-looking statements. The Company's actual results may differ materially
from those indicated by such forward-looking statements based on the factors
outlined above.
The following is management's discussion and analysis of certain significant
factors which have affected the results of operations and should be read in
conjunction with the accompanying unaudited Condensed Consolidated Financial
Statements and notes thereto.
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 $34,327 on research and development, representing 7.7% 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, which 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.
15
<PAGE> 17
RECENT DEVELOPMENTS
GENERAL ELECTRIC COMPANY INVESTMENT
On October 6, 1999, General Electric Company ("GE") completed an investment in
the Company of $20,554. The following description of the investment updates the
similar description of the transaction in the Company's Form 10-Q/A for the
quarter ended September 30, 1999.
The additional capital resources provided by the GE investment are expected to
provide additional flexibility to pursue opportunities in the metal halide
business. In addition, GE and the Company have entered 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 includes 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 received a Warrant (the "Initial Warrant") to
purchase an additional 1,000,000 shares of Common Stock of the Company (subject
to adjustment), which is 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 18.8% of
the voting power and equity ownership of the Company. See "Terms of the Series A
Stock" and "Terms of the Initial Warrant." Pursuant to the terms of the Stock
Purchase Agreement, GE provided the Company with candidates for the Company's
Board of Directors who are not directors, officers, employees or 10%
shareholders of GE. The Company is required to cause the number of such
candidates serving on the Board to be equal to the greater of 20% of the number
of members of the Board or the number of members which most nearly corresponds
to GE's percentage ownership interest in the Company. In December 1999, the
Company appointed two GE candidates to the Board of Directors.
The proceeds of the GE transaction have been applied principally to the
reduction of short-term liabilities and outstanding amounts under the Company's
Credit Facility, and 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 created for issuance in the GE transaction. 761,250 shares of Series A
Stock have been authorized and issued to GE. The Series A Stock has a
liquidation preference of $27 per share, plus an amount equal to 8% per annum
compounded annually from the date of issuance to the date of payment
("Liquidation Preference Amount").
16
<PAGE> 18
Each outstanding share of Series A Stock is 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 are 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 are 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 is 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 to 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"; or (2)
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 of the
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 December
31, 1999, the Company had a net loss, excluding extraordinary items, of $80,150
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 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 to
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 October 6,
1999. Except for issuance of shares under existing employee benefit plans, and
certain other
17
<PAGE> 19
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 entitles the holder to purchase shares of Company Common
Stock at $.01 per share. The Initial Warrant is 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 entered 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.
18
<PAGE> 20
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 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"), and the Company's
banks will have the ability to demand payment of the Bank Credit Facility.
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 Repurchase Notes,
it will be required to make the offer upon effectiveness of the proxy on the
Ruud Shares and the Company's banks will have the ability to demand payment of
the Bank Credit Facility. 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.
19
<PAGE> 21
The basis for GE's additional rights will be the failure of the Company to
maintain a 2.0 to 1.0 ratio of EBITDA (as defined) to Interest Expense (as
defined) over the applicable measurement periods. The first measurement period
was 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." The
ratio for the six months ended December 31, 1999, was 1.9 to 1.0 and, therefore,
the First Occurrence has taken place. 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.
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 up to a
maximum of $125 in any fiscal quarter.
The Company also entered into a number of other agreements with GE in connection
with the transaction. The Company has entered into a standard registration
rights agreement which will require the Company, upon GE's request, to register
the sale of the shares of Company Common Stock issued in connection with the
investment. If GE were to require such registration and sell a substantial
number of shares, it could adversely affect the market price of Company shares
and the ability of the Company to sell equity securities.
In addition to the proxies granted to GE by Messrs. Hellman and Ruud, Messrs.
Hellman and Ruud have granted to GE a first refusal right on the sale of their
shares. This agreement requires that if Messrs. Hellman and Ruud, or Hellman
Ltd., wish to sell shares of Company stock, they must first offer the shares to
GE on the same terms. The effect of sales of Company stock by Messrs. Hellman
and Ruud and Hellman Ltd. to third parties would be to increase the number of
shares which GE would have to buy from the Company pursuant to the Contingent
Warrants to obtain voting control of the Company. After issuance of the Second
Contingent Warrant, such sales would eliminate GE's contractual right to achieve
complete voting control. In addition, upon a Second Occurrence, GE will have an
option to purchase shares from Messrs. Hellman and Ruud which would permit GE to
raise its ownership to 25% of the outstanding shares of Company Common Stock.
The Company's annual meeting is scheduled for February 17, 2000. If the
Company's shareholders approve the proposals presented at the meeting regarding
the GE Transaction, all items described above as being subject to shareholder
approval will have received the required shareholder approval.
EXPANSION OF OPERATIONS IN INDIA
Subsequent to December 31, 1999, the Company obtained controlling, majority
interest in its lamp manufacturing joint venture in India. By acquiring its
joint venture partners' investment interests, the Company will effectively
increase its combined ownership to approximately 90%. In conjunction with this
increased investment, the Company has shipped approximately $3,000 worth of new
metal halide lamp-making equipment and is expanding its facility in Chennai
(Madras), India.
20
<PAGE> 22
The Indian joint venture was created in March 1998 and began operations in
January 1999. The Tamilnadu Industrial Development Corporation Limited (TIDCO, a
governmental enterprise) in Chennai will remain as the Company's minority
partner.
The Chennai factory offers a very beneficial cost structure while meeting the
Company's product quality standards. The Company believes that in the third
quarter of fiscal 2000, the Chennai operation should be producing at an annual
rate of approximately one million metal halide units. By the end of the calendar
year 2000, the Company projects an annual production rate of over two million
units, or approximately $25,000 worth of potential product sales. The products
produced in the Indian facility will be used around the world and will consist
of both the Company's new Uni-Form(R) pulse start products as well as
more-mature metal halide lamp types.
DISCONTINUED OPERATIONS SUBSEQUENTLY RETAINED
Microsun Technologies, Inc. ("Microsun") was identified in March 1998 for
disposition through a plan to distribute to ADLT shareholders all of the
ownership of Microsun 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,
the Company concluded that it would wind-down the operations, close the
manufacturing facilities and liquidate the assets of Microsun. 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.
In October 1999, management decided, with the approval of the Board of
Directors, to retain the Microsun business -- the portable lighting fixture
products business that uses metal halide lighting technology -- as part of the
Company's continuing operation. The decision to retain the business was based on
management's belief that, among other reasons, the market demand for Microsun
products remains substantial; the market potential will be expanded as the
Microsun portable lighting fixtures will be marketed and sold along with other
existing lines of products for residential use in an e-commerce format
("Microsun.com"); and the Microsun business will use the fulfillment
capabilities and infrastructure of existing ADLT businesses.
In retaining the Microsun business, the Company concentrates on assembling
fixtures produced by subcontractors, thereby eliminating the need for the
machinery, equipment and facilities that were used in the previous operation.
The assembly process is performed at existing ADLT businesses utilizing existing
facilities and operations. The Company utilizes the customer service systems and
personnel of an existing ADLT business, as well as the Internet at
http://www.microsun.com, to receive, process and fill orders. Therefore, the
Microsun business has been retained but without the use of the manufacturing
processes or assets used in the previous operations.
21
<PAGE> 23
In accordance with the accounting requirements for recontinuance, the
accompanying financial statements have been reclassified to present Microsun
within continuing operations. The net amount charged to the income statement
consisted of the following:
<TABLE>
<CAPTION>
Period Ended December 31, 1998
------------------------------
Three months Six months
------------ ----------
<S> <C> <C>
Reclassification of discontinued
operations to continuing operations $ 4,626 $ 5,479
Discontinued operations provision (6,166) (6,166)
------------ ----------
Recontinuance of previously discontinued
operations $ (1,540) $ (687)
============ ==========
</TABLE>
The $4,626 reclassified to continuing operations for the three months ended
December 31, 1998 consisted of a loss from operations of $1,645 and write-downs
to net realizable value of $2,981 in connection with the decision in November
1998 to wind-down the Microsun business related to fixed assets ($1,449) and
other assets ($1,532). These write-downs are classified in special charges. The
$5,479 reclassified to continuing operations for the six months ended December
31, 1998, consisted of a loss from operations of $2,498 and write-downs of
$2,981.
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.
UPDATE ON IN-PROCESS RESEARCH AND DEVELOPMENT
The Company's research and development projects acquired in connection with the
January 1998 acquisition of Deposition Sciences, Inc. are generally progressing
in line with the estimates set forth in the Company's 1999 Annual Report on Form
10-K.
22
<PAGE> 24
RESULTS OF OPERATIONS - SELECTED ITEMS AS A PERCENTAGE OF NET SALES
The following table sets forth, as a percentage of net sales, certain items in
the Company's Condensed Consolidated Statements of Operations for the indicated
periods:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
December 31, December 31,
------------------ -----------------
1999 1998 1999 1998
----- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales 100% 100% 100% 100%
Costs and expenses:
Cost of sales 61.5 79.2 61.8 68.5
Marketing and selling 17.8 30.6 17.9 23.7
Research and development 5.8 14.1 6.0 10.5
General and administrative 6.8 13.4 7.0 10.8
Special charges -- 41.0 -- 17.9
Amortization of intangible assets 1.1 1.7 1.2 1.5
---- ------ ---- ----
Income (loss) from operations 7.0 (80.0) 6.1 (32.9)
Other income (expense):
Interest expense (5.6) (8.7) (6.1) (6.8)
Interest income 0.3 0.8 0.4 0.6
Income (loss) from equity investments 0.1 (0.7) 0.1 (0.5)
---- ------ ---- ----
Income (loss) from continuing operations
before income taxes and cumulative
effect of accounting change 1.8 (88.6) 0.5 (39.6)
Income taxes 0.2 8.2 0.3 3.4
---- ------ ---- ----
Income (loss) from continuing operations
before cumulative effect of accounting change 1.6 (96.8) 0.2 (43.0)
Recontinuance of previously discontinued operations -- (3.9) -- (0.7)
Cumulative effect of accounting change -- -- -- (2.7)
---- ------ ---- ----
Net income (loss) 1.6% (100.7%) 0.2% (46.4%)
==== ====== ==== ====
</TABLE>
Factors which have affected the results of operations for the second quarter and
first six months of fiscal 2000 as compared to the second quarter and first six
months of fiscal 1999 are discussed below.
OVERVIEW OF THE RESULTS OF OPERATIONS - SECOND QUARTER FISCAL 2000 COMPARED TO
SECOND QUARTER FISCAL 1999
The Company's operations for the second quarter of fiscal 2000 resulted in
income from continuing operations of $980 compared to a loss from continuing
operations of $38,432 for the second quarter of fiscal 1999.
23
<PAGE> 25
During the second quarter of fiscal 1999, the Company recorded special charges
of $14,100 related to significant changes in its operations, which were intended
to accelerate and intensify the Company's focus on its metal halide products.
The special charges principally related to the execution of the Company's shift
in strategic direction and included: 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 its operation; and, reducing capital
expenditures. In addition, the Company incurred special charges of $2,981
related to the wind-down of portable fixture manufacturing operations, which are
described in the section "Discontinued Operations Subsequently Retained." The
special charges for the second quarter of fiscal 1999 of $17,081 are classified
in the consolidated statement of operations as cost of sales ($808) and special
charges ($16,273).
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 second quarter of fiscal
1999, 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.
QUARTER ENDED DECEMBER 31, 1999 COMPARED WITH QUARTER ENDED DECEMBER 31, 1998
Net sales. Net sales increased 50.8% to $59,885 in the second quarter of fiscal
2000 from $39,704 in the second quarter of fiscal 1999. Commercial and
industrial sales increased 12.7% to $59,249 in the second quarter of fiscal 2000
as compared to $52,560 in the second quarter of fiscal 1999. Sales of Microsun
residential product decreased to $636 in the second quarter of fiscal 2000 from
$1,760 in the second quarter of fiscal 1999 due to the decision to wind-down the
portable residential fixture manufacturing operations in the second quarter of
fiscal 1999. No lamp equipment sales were recorded in the second quarter of
fiscal 2000 due to the cessation of these sales in the second quarter of fiscal
1999. The second quarter of fiscal 1999 includes the reversal of $14,961 in lamp
equipment sales due to the termination of equipment contracts noted above,
offset by $357 of lamp equipment sales.
Fiscal 2000 second quarter commercial and industrial sales (which exclude the
residential and lamp equipment amounts discussed above), reflect continued
growth in the sales of the Company's core U.S. metal halide operations, in
non-metal halide products, and in overseas sales. The Company's commercial and
industrial metal halide sales increased 15% (11% increase in the United States)
from the year ago period. The Company's core metal halide materials business, a
key indicator of industry trends, was up 61% from fiscal 1999. Geographically,
these sales of materials were up 38% in the U.S. and grew 102% outside the U.S.
The Company does not anticipate growth in materials sales to approach these
rates in the second half of fiscal 2000, but does expect materials sales to
continue to show strong growth.
Commercial and industrial sales outside the U.S. increased 29%. The Company
attributes the increase in international sales primarily to increased sales of
its materials and optical coatings, especially in the Pacific Rim. Sales of
non-metal halide products grew 6%, representing strong sales of the Company's
materials, particularly thin-film optical coating materials.
24
<PAGE> 26
Sales increases 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.
The Company expects to see continued strong sales performance throughout fiscal
2000. It also believes that its expanded relationship with GE Lighting, along
with its own e-commerce initiatives, could add a significant amount of revenues.
However, the Company expects to reduce and manage its operating expense ratios
with the goal of generating profits irrespective of its revenue growth. The
Company has returned to profitability in the second quarter of fiscal 2000 and
believes its prospects for continued profitability are good.
Cost of Sales. Cost of sales increased 17.2% to $36,852 in the second quarter of
fiscal 2000 from $31,448 in the second quarter of fiscal 1999. As a percentage
of net sales, cost of sales decreased to 61.5% from 79.2%. The Company's
restructuring efforts in the second quarter of fiscal 1999 resulted in a
significant disruption of the ongoing business of the Company, and as a result,
a significant increase in its costs of sales. The biggest single area of
increased costs 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
extensive, new information systems. Largely as a result of these initiatives,
the Company incurred significantly higher costs related to quality, rework and
productivity issues.
Cost of sales in the second quarter of fiscal 1999 included a credit of $6,413
related to the termination of equipment contracts and $808 related to the exit
of nonfocus product lines. Excluding these items, cost of sales decreased to
$36,852 in the second quarter of fiscal 2000 from $37,053 in the second quarter
of fiscal 1999. The abnormally high level of cost of sales in fiscal 1999 was
primarily a result of the production problems noted above in the second quarter
of fiscal 1999 as compared to a more normalized cost of sales amount in the
second quarter of fiscal 2000. As a percentage of net sales, excluding the
effect of the terminated equipment contracts and special charges, cost of sales
decreased to 61.5% in the second quarter of fiscal 2000 from 67.8% in the second
quarter of fiscal 1999.
Marketing and Selling Expenses. Marketing and selling expenses decreased 12.6%
to $10,617 in the second quarter of fiscal 2000 from $12,151 in the second
quarter of fiscal 1999. The reduction in marketing and selling expenses is
primarily due to a change in the manner in which the company is selling its
residential portable lighting fixtures. In the second quarter of fiscal 1999,
the company was utilizing newspaper ads in major metropolitan newspapers and
catalogues to sell these fixtures. As described earlier in the section
"Discontinued Operations Subsequently Retained," the Company is now utilizing
the customer service systems and personnel of an existing ADLT business, as well
as the Internet at http://www.microsun.com, to receive, process and fill orders,
which has resulted in a reduction in marketing and selling expenses. As a
percentage of net sales, excluding the effect of the terminated equipment
contracts in fiscal 1999, marketing and selling expenses decreased to 17.8% in
the second quarter of fiscal 2000 from 22.2% in the second quarter of fiscal
1999.
Research and Development Expenses. Research and development expenses decreased
37.8% to $3,483 in the second quarter of fiscal 2000 from $5,597 in the second
quarter of fiscal 1999. Research and
25
<PAGE> 27
development expenses are incurred related to: (i) expansion of the new line of
Uni-Form (R) pulse start 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; (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. The
decrease in research and development was primarily a result of a reduction in
spending related to the development of Uni-Form(R) pulse start lamps and the
Company's efforts to control the level of its research and development spending.
As a percentage of net sales, excluding the effect of the terminated equipment
contracts in fiscal 1999, research and development expenses decreased to 5.8% in
the second quarter of fiscal 2000 from 10.2% in the second quarter of fiscal
1999.
General and Administrative Expenses. General and administrative expenses
decreased 23.5% to $4,086 in the second quarter of fiscal 2000 from $5,338 in
the second quarter of fiscal 1999. The decrease reflects the Company's efforts
to control general and administrative costs and was primarily related to
reductions in salaries and benefits and travel costs. As a percentage of net
sales, excluding the effect of the terminated equipment contracts in fiscal
1999, general and administrative expenses decreased to 6.8% in the second
quarter of fiscal 2000 from 9.8% in the second quarter of fiscal 1999.
Special Charges. See discussion of special charges above.
Amortization of Intangible Assets. Amortization expense remained relatively
constant at $672 in the second quarter of fiscal 2000 compared to $678 in the
second quarter of fiscal 1999. Amortization expense relates primarily to the
amortization of goodwill and other intangible assets related to the January 1998
acquisitions of Ruud Lighting, Inc. and Deposition Sciences, Inc.
Income (Loss) from Operations. As a result of the items noted above, income from
operations in the second quarter of fiscal 2000 was $4,175 as compared to a loss
from operations in the second quarter of fiscal 1999 of $31,781. Income from
operations represented 7.0% of sales in fiscal 2000.
Interest Expense. Interest expense decreased to $3,323 in the second quarter of
fiscal 2000 from $3,440 in the second quarter of fiscal 1999. This decrease
resulted primarily from the lower average debt outstanding during the second
quarter of fiscal 2000 as compared to the second quarter of fiscal 1999,
resulting from the bank loan repayments made possible by the receipt of the GE
investment proceeds.
Interest Income. Interest income decreased to $214 in the second quarter of
fiscal 2000 from $328 in the second quarter of fiscal 1999. This decrease is
attributable to lower average cash equivalents and short-term investments in the
second quarter of fiscal 2000 as compared to the second quarter of fiscal 1999.
Income (Loss) from Equity Investments. The income from equity investments in the
second quarter of fiscal 2000 represents $35 of earnings from the Company's
investment in Fiberstars, Inc., a marketer and distributor of fiber optic
lighting products. The loss from equity investments in fiscal 1999 represents
$30 of earnings from the Company's investment in Fiberstars, Inc., offset by a
$302 loss from the Company's investment in Venture Lighting Japan, a
manufacturer and marketer of metal halide lamps in Japan.
26
<PAGE> 28
Income (Loss) from Continuing Operations before Income Taxes. The Company had
income from continuing operations before income taxes of $1,101 during the
second quarter of fiscal 2000 as compared to a loss from continuing operations
before income taxes of $35,165 during the second quarter of fiscal 1999.
Income Taxes. Income tax expense was $121 for the second quarter of fiscal 2000
as compared to $3,267 in the second quarter of fiscal 1999. The income tax
expense in the second quarter of fiscal 2000 relates primarily to certain of the
Company's foreign operations.
For the second quarter of fiscal 1999, the Company reported a pretax loss from
continuing operations, including special charges, of $35,165, which created
operating losses and future tax deductions for financial reporting purposes.
Accordingly, at December 31, 1998, the Company recorded a valuation allowance
for deferred tax assets related to all NOLs, tax credits and net deductible tax
differences at December 31, 1998 in the amount of $15,503.
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 varying amounts from 2008 to 2019.
The Company also has research and development credit carryforwards for tax
purposes of approximately $3,006, which expire in varying amounts from 2005 to
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 varying amounts from 2000 to
2005 and $10,587 that have no expiration dates.
Recontinuance of Previously Discontinued Operations. See "Discontinued
Operations Subsequently Retained" and Note I of "Notes to Condensed Consolidated
Financial Statements (Unaudited)" for further discussion.
Cumulative Effect of Accounting Change. During the fourth quarter of fiscal
1999, the Company adopted Statement of Position ("SOP") 98-5, "Reporting on the
Costs of Start-Up Activities," effective July 1, 1998. The first quarter of
fiscal 1999 has been restated to reflect the cumulative effect of the accounting
change of $2,443.
SIX MONTHS ENDED DECEMBER 31, 1999 COMPARED WITH SIX MONTHS ENDED DECEMBER 31,
1998
Net sales. Net sales increased 27.6% to $116,065 in the first six months of
fiscal 2000 from $90,991 in the first six months of fiscal 1999. Commercial and
industrial sales increased 14.7% to $115,097 in the first half of fiscal 2000 as
compared to $100,352 in the first half of fiscal 1999. Sales of Microsun
residential product decreased to $968 in the first half of fiscal 2000 from
$2,689 in the first half of fiscal 1999 due to the decision to wind-down the
portable residential fixture manufacturing operations in the second quarter of
fiscal 1999. No lamp equipment sales were recorded in the first half of
fiscal 2000 due to the cessation of these sales in the second quarter of fiscal
1999. The first half of fiscal 1999 includes the reversal of $14,961 in lamp
equipment sales due to the termination of equipment contracts noted above,
offset by $2,911 of lamp equipment sales.
27
<PAGE> 29
Fiscal 2000 second quarter commercial and industrial sales (which exclude the
residential and lamp equipment amounts discussed above), reflect continued
growth in the sales of the Company's core U.S. metal halide operations, in
non-metal halide products, and in overseas sales. The Company's commercial and
industrial metal halide sales increased 13% (12% increase in the United States)
from the year ago period. The Company's core metal halide materials business, a
key indicator of industry trends, was up 46% from fiscal 1999. Geographically,
these sales of materials were up 28% in the U.S. and grew 76% outside the U.S.
The Company does not anticipate growth in materials sales to approach these
rates in the second half of fiscal 2000, but does expect materials sales to
continue to show strong growth.
Commercial and industrial sales outside the U.S. increased 22%. The Company
attributes the increase in international sales to increased sales of its
materials and optical coatings, especially in the Pacific Rim. Sales of
non-metal halide products grew 19% representing strong sales of the Company's
materials, particularly thin-film optical coating materials.
Sales increases 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.
The Company expects to see continued strong sales performance throughout fiscal
2000. It also believes that its expanded relationship with GE Lighting, along
with its own e-commerce initiatives, could add a significant amount of revenues.
However, the Company expects to reduce and manage its operating expense ratios
with the goal of generating profits irrespective of its revenue growth. The
Company has returned to profitability in the second quarter of fiscal 2000 and
believes it prospects for continued profitability are good.
Cost of Sales. Cost of sales increased 15.0% to $71,696 in the first six months
of fiscal 2000 from $62,352 in the first six months of fiscal 1999. As a
percentage of net sales, cost of sales decreased to 61.8% in the first six
months of fiscal 2000 from 68.5% in the first six months of fiscal 1999. The
Company's restructuring efforts in the second quarter of 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 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
extensive, new information systems. Largely as a result of these initiatives,
the Company incurred significantly higher costs related to quality, rework and
productivity issues.
Cost of sales in the first six months of fiscal 1999 include a credit of $6,413
related to the termination of equipment contracts and $808 of inventory
write-downs related to the exit of nonfocus product lines. Excluding these
items, cost of sales increased 5.5% to $71,696 in the first six months of fiscal
2000 from $67,957 in the first six months of fiscal 1999. The abnormally high
level of cost of sales in fiscal 1999 was primarily a result of the production
problems noted above in the second quarter of fiscal 1999 as compared to a more
normalized cost of sales amount in the second quarter of fiscal 2000. As a
percentage of net sales, excluding the effect of the terminated equipment
contracts and inventory write-downs, cost of sales decreased to 61.8% in the
first six months of fiscal 2000 from 64.1% in the first six months of fiscal
1999.
28
<PAGE> 30
Marketing and Selling Expenses. Marketing and selling expenses decreased 3.5% to
$20,792 in the first six months of fiscal 2000 from $21,552 in the first six
months of fiscal 1999. Marketing and selling expenses for the first six months
of fiscal 2000 increased in proportion to the increase in net sales (excluding
the equipment sales reversal of $14,961 in fiscal 1999). Offsetting this
increase was a reduction in marketing and selling expenses related to a change
in the manner in which the Company is selling its residential portable lighting
fixtures. In the first six months of fiscal 1999, the Company was utilizing
newspaper ads in major metropolitan newspapers and catalogues to sell these
fixtures. As described in the section "Discontinued Operations Subsequently
Retained," the Company is now utilizing the customer service systems and
personnel of an existing ADLT business, as well as the Internet at
http://www.microsun.com, to receive, process and fill orders, which has resulted
in a reduction in marketing and selling expenses. As a percentage of net sales,
excluding the effect of the terminated equipment contracts in fiscal 1999,
marketing and selling expenses decreased to 17.9% in the first six months of
fiscal 2000 from 20.3% in the first six months of fiscal 1999.
Research and Development Expenses. Research and development expenses decreased
27.0% to $6,978 in the first six months of fiscal 2000 from $9,562 in the first
six months of fiscal 1999. Research and development expenses are incurred
related to: (i) expansion of the new line of Uni-Form(R) pulse start 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;
(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. The decrease in research and development was
primarily a result of a reduction in spending related to the development of
Uni-Form(R) pulse start lamps and the Company's efforts to control the level of
its research and development spending. As a percentage of net sales, excluding
the effect of the terminated equipment contracts in fiscal 1999, research and
development expenses decreased to 6.0% in the first six months of fiscal 2000
from 9.0% in the first six months of fiscal 1999.
General and Administrative Expenses. General and administrative expenses
decreased 17.5% to $8,121 in the first six months of fiscal 2000 from $9,843 in
the first six months of fiscal 1999. The decrease reflects the Company's efforts
to control general and administrative costs and was primarily related to
reductions in salaries and benefits and travel costs. As a percentage of net
sales, excluding the effect of the terminated equipment contracts in the first
six months of fiscal 1999, general and administrative expenses decreased to 7.0%
in the first six months of fiscal 2000 from 9.3% in the first six months of
fiscal 1999.
Special Charges. See discussion of special charges above.
Amortization of Intangible Assets. Amortization expense remained relatively
constant at $1,347 in the first six months of fiscal 2000 from $1,343 in the
first six months of fiscal 1999. Amortization expense relates primarily to the
amortization of goodwill and other intangible assets related to the January 1998
acquisitions of Ruud Lighting, Inc. and Deposition Sciences, Inc.
29
<PAGE> 31
Income (Loss) from Operations. As a result of the items noted above, income from
operations in the second quarter of fiscal 2000 was $7,131 as compared to a loss
from operations in the second quarter of fiscal 1999 of 29,934. Income from
operations represented 6.1% of sales in fiscal 2000.
Interest Expense. Interest expense increased to $7,113 in the first six months
of fiscal 2000 from $6,181 in the first six months of fiscal 1999. This increase
resulted primarily from the higher average debt outstanding during the first six
months of fiscal 2000 as compared to the first six months of fiscal 1999.
Interest Income. Interest income decreased to $434 in the first six months of
fiscal 2000 from $566 in the first six months of fiscal 1999. This decrease is
attributable to lower average cash equivalents and short-term investments in
fiscal 2000 as compared to fiscal 1999, offset by an increase of approximately
$200 in interest income from the loan to officer.
Income (Loss) from Equity Investments. The income from equity investments in the
first six months of fiscal 2000 represents $85 of earnings from the Company's
investment in Fiberstars, Inc., a marketer and distributor of fiber optic
lighting products. The loss from equity investments in fiscal 1999 represents
$83 of earnings from the Company's investment in Fiberstars, Inc., offset by a
$544 loss from the Company's investment in Venture Lighting Japan, a
manufacturer and marketer of metal halide lamps in Japan.
Income (loss) from Continuing Operations before Income Taxes. The Company had
income from continuing operations before income taxes of $537 during the first
six months of fiscal 2000 as compared to a loss from continuing operations
before income taxes of $36,010 during the first six months of fiscal 1999.
Income Taxes. Income tax expense was $339 for the first six months of fiscal
2000 as compared to $3,093 in the first six months of fiscal 1999. The income
tax expense in the first six months of fiscal 2000 relates primarily to certain
of the Company's foreign operations.
For the second quarter of fiscal 1999, the Company reported a pretax loss from
continuing operations, including special charges, of $35,165, which created
operating losses and future tax deductions for financial reporting purposes.
Accordingly, at December 31, 1998, the Company recorded a valuation allowance
for deferred tax assets related to all NOLs, tax credits and net deductible tax
differences at December 31, 1998 in the amount of $15,503.
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 varying amounts from 2008 to 2019.
The Company also has research and development credit carryforwards for tax
purposes of approximately $3,006, which expire in varying amounts from 2005 to
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 varying amounts from 2000 to
2005 and $10,587 that have no expiration dates.
30
<PAGE> 32
Recontinuance of Previously Discontinued Operations. See "Discontinued
Operations Subsequently Retained" and Note I of "Notes to Condensed Consolidated
Financial Statements (Unaudited)" for further discussion.
Cumulative Effect of Accounting Change. During the fourth quarter of fiscal
1999, the Company adopted Statement of Position ("SOP") 98-5, "Reporting on the
Costs of Start-Up Activities," effective July 1, 1998. The first six months of
fiscal 1999 have been restated to reflect the cumulative effect of the
accounting change of $2,443.
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 $1,766 during the first six months of fiscal 2000. Uses of cash
consisted of $3,670 used in operating activities and $4,478 used in investing
activities. These uses of cash were offset by net financing activities of
$6,382.
Net cash used in operating activities. Net cash used in operating activities
totaled $3,670 during the first six months of fiscal 2000 as compared to $17,819
in the first six months of fiscal 1999. The increase in trade receivables of
$7,835 was the most significant usage, and was primarily a result of the
increase in sales. In spite of this usage of cash in the first six months, the
Company intends to manage its cash resources to generate positive cash flow from
operating activities for the full fiscal year 2000 and beyond. In the second
quarter of fiscal 2000, the Company generated net cash from operating activities
of $1,299.
Net cash used in investment activities. During the first six months of fiscal
2000, investing activities used $4,478 of cash, which was primarily represented
by a $2,878 usage for capital expenditures and a $1,920 investment in
affiliates, offset by a $350 source of funds from the sale of a short-term
investment.
Capital expenditures, primarily for production equipment and leasehold and
facility improvements, totaled $2,878 during the first six months of fiscal 2000
as compared to $17,956 during the first six months of fiscal 1999. Capital
expenditures in fiscal 2000 related to 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 the acquisition of certain capital equipment
and, for all practical purposes, facilities expenditures have been completed.
31
<PAGE> 33
As a result of the Company's decision to terminate joint venture equipment
contracts in the quarter ended December 31, 1998, 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 the first six months of fiscal
2000, net financing activities provided cash of $6,382, which included $20,203
of cash provided from the investment from GE, offset by net repayments of
borrowings under the Company's revolving credit facilities of $7,936 and net
repayments of long-term debt and capital leases of $6,205.
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
Company's existing 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 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
32
<PAGE> 34
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.
The CEO paid accrued interest of $720 on the loan through October 6, 1999. The
principal on the loan was due on October 6, 1999. On January 25, 2000, the Board
agreed that Mr. Hellman would not be required to repay the loan until October 6,
2000. However, if the price of the Company's Common Stock reaches $12 per share
(a level which the directors believe would permit repayment of the CEO's margin
loan and refinancing with another lender), the Board and the CEO will discuss
earlier repayment of all or a portion of the loan. The directors have informed
the CEO that the Company may require immediate payment of the loan if the
Company requires the payment to prevent an unacceptable strain on cash
resources.
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
December 31, 1999 was $23,974, resulting in a working capital ratio of current
assets to current liabilities of 1.4 to 1.0, as compared to $18,274 or 1.3 to
1.0 at June 30, 1999. As of December 31, 1999, the Company had $2,064 in cash
and cash equivalents.
The interest-bearing obligations of the Company totaled $147,367 as of December
31, 1999, and consisted of: $24,235 of borrowings under the Bank Credit
Facility; $100,000 of 8% Senior Notes; mortgages of $17,046; a promissory note
due to an affiliate of $3,000; borrowings of a foreign subsidiary of $2,009;
and, capital leases of $1,077.
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.
Following the GE investment on October 6, 1999, the proceeds were applied to
reduce the term loan to $20,000 and the remainder of the proceeds were applied
to the revolving credit loan. 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.
33
<PAGE> 35
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 availability under its existing Bank
Credit Facility, will enable the Company to fund its operations for at least the
next 12 months. Beyond this time, the Company believes a return to profitability
and positive cash flow from operations, its strategic relationship with GE, and
the growth in the popularity and applications for metal halide products and
systems should enable the Company to access additional capital resources, as
needed.
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, on net income, comprehensive income and financial
position will depend on the amount, timing and nature of any agreements entered
into by the Company.
FOREIGN CURRENCY
Approximately 34% of the Company's 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 the Company. The Company
currently does not hedge its foreign currency exposure.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
During the six months ended December 31, 1999, there have been no material
changes in the reported market risks presented in the Company's Annual Report on
Form 10-K for the year ended June 30, 1999.
34
<PAGE> 36
PART II. OTHER INFORMATION
Except as noted below, the items in Part II are inapplicable or, if applicable,
would be answered in the negative. These items have been omitted and no other
reference is made thereto.
ITEM 1. LEGAL PROCEEDINGS
The information included in Note J of the "Notes to Condensed Consolidated
Financial Statements (Unaudited)" included in this Report on Form 10-Q/A is
hereby incorporated by reference.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On October 1, 1999, the Company acquired the remaining 50% of Lighting Sciences,
Inc. ("LSI") which it did not already own. LSI is located in Phoenix, Arizona.
The acquisition was accomplished by a merger of the other shareholder of LSI
into a wholly-owned subsidiary of the Company. The other LSI shareholder, a
corporation, was owned by a revocable trust for the President and founder of LSI
and his wife. The trust received 40,000 shares of Common Stock and will have the
right to receive up to an additional 40,000 shares of Common Stock or cash if
the value of the shares issued is less than $800,000 at June 30, 2000. The
transaction was exempt from registration under the Act pursuant to Section 4(2).
The Common Stock was issued to the other shareholder of LSI, which was certified
to be an "accredited investor," as defined in Rule 501 under the Act. The trust
made customary representations and warranties, including acknowledgement of the
requirements of Rule 144 and the ability to evaluate the investment and bear the
economic risk, and the share certificate bears a restrictive legend.
ITEM 5. OTHER INFORMATION
Pursuant to a loan agreement dated October 8, 1998, between the Company and its
Chairman and Chief Executive Officer (the "CEO"), the Company 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 outstanding principal balance 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 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.
The CEO has paid accrued interest of $720 on the loan through October 6, 1999.
The principal on the loan was due on October 6, 1999. On January 25, 2000, the
Board agreed that Mr. Hellman would not be required to repay the loan until
October 6, 2000. However, if the price of the Company's Common Stock reaches $12
per share (a level which the directors believe would permit repayment of the
CEO's margin loan and refinancing with another lender), the Board and the CEO
will discuss earlier repayment of all or a portion of the loan. The directors
have informed the CEO that the Company may require immediate payment of the loan
if the Company requires the payment to prevent an unacceptable strain on cash
resources.
35
<PAGE> 37
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE NUMBER/
EXHIBIT INCORPORATED
NUMBER TITLE BY REFERENCE
- ------- ----- ------------
<S> <C> <C>
3.1 Second Amended and Restated Articles of Incorporation (1)
3.2 Certificate of Adoption of Amended and Restated Articles of
Incorporation of the Company filed as of October 6, 1999, with
the Ohio Secretary of State relating to the Series A Convertible
Preferred Shares (2)
3.3 Code of Regulations (3)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2 Registration Rights Agreement dated as of September 30, 1999, by and (2)
between the Company and General Electric Company
10.1 Assignment and Acceptance Agreement by and among the Company,
PNC Bank, National Association and National City Commercial
Finance, Inc., dated as of November 2, 1999
10.2 Assignment and Acceptance Agreement by and among the Company,
PNC Bank, National Association and Sovereign Bank, dated as of
November 2, 1999
10.3 Third Amendment 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 November 2, 1999, and amending
the Credit Agreement by and among the same parties, dated as of
May 21, 1999
10.4 Series A1 Warrant to Purchase Common Shares of the Company issued (4)
To General Electric Company dated as of October 6, 1999
10.5 Stock Purchase Agreement by and between the Company and General (2)
Electric Company dated as of September 28, 1999
10.6 Contingent Warrant Agreement dated as of September 30, 1999, by and (2)
among the Company; General Electric Company; Wayne R. Hellman,
individually and as voting trustee under Voting Trust Agreement
dated October 10, 1995; Hellman, Ltd.; and Alan J. Ruud,
individually and as voting trustee under Voting Trust Agreement
dated January 2, 1998
</TABLE>
36
<PAGE> 38
<TABLE>
<CAPTION>
SEQUENTIAL
PAGE NUMBER/
EXHIBIT INCORPORATED
NUMBER TITLE BY REFERENCE
- ------- ----- ------------
<S> <C> <C>
10.7 Lamp Materials Purchase Agreement by and among the Company; (5)
General Electric Company, acting through its GE Lighting business;
and APL Engineered Materials, Inc. dated as of September 30, 1999
10.8 Patent and Technical Assistance Agreement by and among the Company; (6)
APL Engineered Materials, Inc.; and General Electric Company, acting
through its GE Lighting business dated as of September 30, 1999
10.9 Mutual Release and Indemnification Agreement by and between
the Company and Louis S. Fisi, dated as of December 31, 1999
10.10 Consulting Agreement by and between the Company and
Louis S. Fisi, dated as of December 31, 1999
12 Statement Re: Computation of Ratio of Earnings to Fixed Charges
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 Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended September 30,
1999
(3) Incorporated by reference to Exhibit 3.2 in Company's Registration
Statement on Form S-1, Registration No. 33-97902, effective December 11,
1995.
(4) Incorporated by reference to Exhibit 10.7 in Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended September 30, 1999.
(5) Incorporated by reference to Exhibit 10.8 in Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended September 30, 1999.
(6) Incorporated by reference to Exhibit 10.9 in Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended September 30, 1999.
(b) Reports on Form 8-K.
No reports on Form 8-K have been filed during the quarter ended December 31,
1999.
37
<PAGE> 39
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
ADVANCED LIGHTING TECHNOLOGIES, INC.
Date: February 14, 2000 By: /s/ Wayne R. Hellman
--------------------
Wayne R. Hellman
Chief Executive Officer
Date: February 14, 2000 By: /s/ Nicholas R. Sucic
---------------------
Nicholas R. Sucic
Chief Financial Officer
38
<PAGE> 40
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS PAGE NO.
- ------- ----------------------- --------
<S> <C> <C>
3.1 Second Amended and Restated Articles of Incorporation (1)
3.2 Certificate of Adoption of Amended and Restated Articles of (2)
Incorporation of the Company filed as of October 6, 1999, with the Ohio
Secretary of State relating to the Series A Convertible Preferred Shares
3.3 Code of Regulations (3)
4.1 Reference is made to Exhibits 3.1, 3.2 and 3.3
4.2 Registration Rights Agreement dated as of September 30, 1999, by and (2)
between the Company and General Electric Company
10.1 Assignment and Acceptance Agreement by and among the Company,
PNC Bank, National Association and National City Commercial
Finance, Inc., dated as of November 2, 1999
10.2 Assignment and Acceptance Agreement by and among the Company,
PNC Bank, National Association and Sovereign Bank, dated as of
November 2, 1999
10.3 Third Amendment 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 November 2, 1999, and amending
the Credit Agreement by and among the same parties, dated as of
May 21, 1999
10.4 Series A1 Warrant to Purchase Common Shares of the Company issued (4)
to General Electric Company dated as of October 6, 1999
10.5 Stock Purchase Agreement by and between the Company and General (2)
Electric Company dated as of September 28, 1999
10.6 Contingent Warrant Agreement dated as of September 30, 1999, by and (2)
among the Company; General Electric Company; Wayne R. Hellman,
individually and as voting trustee under Voting Trust Agreement dated
October 10, 1995; Hellman, Ltd.; and Alan J. Ruud, individually and as
voting trustee under Voting Trust Agreement dated January 2, 1998
10.7 Lamp Materials Purchase Agreement by and among the Company; (5)
General Electric Company, acting through its GE Lighting business; and
APL Engineered Materials, Inc. dated as of September 30, 1999
</TABLE>
39
<PAGE> 41
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS PAGE NO.
- ------- ----------------------- --------
<S> <C> <C>
10.8 Patent and Technical Assistance Agreement by and among the Company; (6)
APL Engineered Materials, Inc.; and General Electric Company, acting
through its GE Lighting business dated as of September 30, 1999
10.9 Mutual Release and Indemnification Agreement by and between
the Company and Louis S. Fisi, dated as of December 31, 1999
10.10 Consulting Agreement by and between the Company and
Louis S. Fisi, dated as of December 31, 1999
12 Statement Re: Computation of Ratio of Earnings to Fixed Charges
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 Exhibit of the same number in Company's
Quarterly Report on Form 10-Q for the Quarterly Period ended September 30,
1999.
(3) Incorporated by reference to Exhibit 3.2 in Company's Registration
Statement on Form S-1, Registration No. 33-97902, effective December 11,
1995.
(4) Incorporated by reference to Exhibit 10.7 in Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended September 30, 1999.
(5) Incorporated by reference to Exhibit 10.8 in Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended September 30, 1999.
(6) Incorporated by reference to Exhibit 10.9 in Company's Quarterly Report on
Form 10-Q for the Quarterly Period ended September 30, 1999.
40
<PAGE> 1
Exhibit 10.1
[National City]
ASSIGNMENT AND ACCEPTANCE AGREEMENT
This Assignment and Acceptance Agreement (this "Assignment Agreement")
between PNC BANK, NATIONAL ASSOCIATION (the "Assignor") and NATIONAL CITY
COMMERCIAL FINANCE, INC. ("Assignee") is dated as of November 2, 1999. The
parties hereto agree as follows:
1. PRELIMINARY STATEMENT. Assignor is a party to a Credit Agreement,
dated as of May 21, 1999 (which, as amended and as it may from time to time be
further 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 that are defined in the Credit
Agreement 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 hereto (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 subsection
I.B on ANNEX 1 hereto.
3. ASSIGNMENT EFFECTIVE DATE. The Assignment Effective Date (the
"Assignment Effective Date") shall be November 2, 1999, provided that the
following conditions precedent shall 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 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
<PAGE> 2
(c) 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 to Assignor, on the Assignment Effective
Date, an amount in Dollars equal to Assignee's Percentage of the aggregate
amount of Loans outstanding on the Assignment Effective Date. 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 to 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 that
it (a) 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) meets the
requirements to be an assignee as set forth in Section 10.10 of the Credit
Agreement; (c) is able to fund the Loans and the Letters of Credit as required
by the Credit Agreement; and (d) 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 Writing, (ii) any
representation, warranty or statement made in or in connection with the Credit
Agreement or any Related Writing, (iii) the financial condition or
creditworthiness of any Borrower or Guarantor, (iv) the performance of or
compliance with any of the terms or provisions of the Credit Agreement or any
Related Writing, (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 affiliates,
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.
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
2
<PAGE> 3
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 Related Writing, 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 Related Writing 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.
[Remainder of page intentionally left blank.]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this Assignment
Agreement by their duly authorized officers as of the date first above written.
<TABLE>
<S> <C>
ASSIGNOR:
Address: 620 Liberty Avenue PNC BANK, NATIONAL ASSOCIATION
Pittsburgh PA 15222
Attn: Richard Muse Jr., By: /s/ Richard Muse, Jr.
Vice President -----------------------------------------
Phone: 412-762-4471 Richard Muse, Jr., Vice President
Fax: 412-768-4369
ASSIGNEE:
Address: ________________________ NATIONAL CITY COMMERCIAL
________________________ FINANCE, INC.
Attn:___________________
Phone:__________________ By: /s/ Christina M. Lucas
Fax:____________________ -----------------------------------------
Christina M. Lucas, Vice President
Accepted and Consented to as of the 2nd Accepted and Consented to as of the 2nd
day of November, 1999: day of November, 1999:
PNC BANK, NATIONAL ASSOCIATION, ADVANCED LIGHTING
as Agent TECHNOLOGIES, INC.
By: /s/ Richard Muse, Jr. By: /s/ Nicholas R. Sucic
-------------------------------------- -----------------------------------------
Richard Muse, Jr., Vice President Nicholas R. Sucic, Vice President
</TABLE>
4
<PAGE> 5
ANNEX 1
TO
ASSIGNMENT AND ACCEPTANCE AGREEMENT
On and after November 2, 1999 (the "Assignment Effective Date"), the
Commitment of Assignee and, after taking into account all other assignments of
Assignor taking place on the Assignment Effective Date, Assignor shall be as
follows:
<TABLE>
<S> <C>
I. ASSIGNEE'S COMMITMENT
A. Assigned Amount $13,000,000
B. Assignee's Commitment Percentage
under the Credit Agreement 21.67%
II. ASSIGNOR'S COMMITMENT
A. Assignor's Commitment Percentage
under the Credit Agreement 41.67%
B. Assignor's Commitment Amount
under the Credit Agreement $25,000,000
</TABLE>
5
<PAGE> 1
Exhibit 10.2
[Sovereign]
ASSIGNMENT AND ACCEPTANCE AGREEMENT
This Assignment and Acceptance Agreement (this "Assignment
Agreement") between PNC BANK, NATIONAL ASSOCIATION (the "Assignor") and
SOVEREIGN BANK ("Assignee") is dated as of November 2, 1999. The parties hereto
agree as follows:
1. PRELIMINARY STATEMENT. Assignor is a party to a Credit
Agreement, dated as of May 21, 1999 (which, as amended and as it may from time
to time be further 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 that are defined in the Credit
Agreement 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 hereto (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 subsection
I.B on ANNEX 1 hereto.
3. ASSIGNMENT EFFECTIVE DATE. The Assignment Effective Date
(the "Assignment Effective Date") shall be November 2, 1999, provided that the
following conditions precedent shall 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 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
<PAGE> 2
(c) 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 to Assignor, on the Assignment
Effective Date, an amount in Dollars equal to Assignee's Percentage of the
aggregate amount of Loans outstanding on the Assignment Effective Date. 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 to 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 that it (a) 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) meets the
requirements to be an assignee as set forth in Section 10.10 of the Credit
Agreement; (c) is able to fund the Loans and the Letters of Credit as required
by the Credit Agreement; and (d) 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 Writing, (ii) any
representation, warranty or statement made in or in connection with the Credit
Agreement or any Related Writing, (iii) the financial condition or
creditworthiness of any Borrower or Guarantor, (iv) the performance of or
compliance with any of the terms or provisions of the Credit Agreement or any
Related Writing, (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 affiliates,
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.
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
2
<PAGE> 3
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 Related Writing, 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 Related Writing
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.
[Remainder of page intentionally left blank.]
3
<PAGE> 4
IN WITNESS WHEREOF, the parties hereto have executed this
Assignment Agreement by their duly authorized officers as of the date first
above written.
<TABLE>
<S> <C>
ASSIGNOR:
Address: 620 Liberty Avenue PNC BANK, NATIONAL ASSOCIATION
Pittsburgh PA 15222
Attn: Richard Muse Jr., By: /s/ Richard Muse, Jr.
Vice President -----------------------------------------
Phone: 412-762-4471 Richard Muse, Jr., Vice President
Fax: 412-768-4369
ASSIGNEE:
Address: ________________________ SOVEREIGN BANK
________________________
Attn:___________________ By: /s/ Michelle A. Walcoff
Phone:__________________ -----------------------------------------
Fax:____________________ Michelle A. Walcoff, Vice President
Accepted and Consented to as of the 2nd Accepted and Consented to as of the 2nd
day of November, 1999: day of November, 1999:
PNC BANK, NATIONAL ASSOCIATION, ADVANCED LIGHTING
as Agent TECHNOLOGIES, INC.
By: /s/ Richard Muse, Jr. By: /s/ Richard Muse, Jr.,
-------------------------------------- -----------------------------------------
Richard Muse, Jr., Vice President Richard Muse, Jr., Vice President
</TABLE>
4
<PAGE> 5
ANNEX 1
TO
ASSIGNMENT AND ACCEPTANCE AGREEMENT
On and after November 2, 1999 (the "Assignment Effective
Date"), the Commitment of Assignee and, after taking into account all other
assignments of Assignor taking place on the Assignment Effective Date, Assignor
shall be as follows:
<TABLE>
<S> <C>
I. ASSIGNEE'S COMMITMENT
A. Assigned Amount $10,000,000
B. Assignee's Commitment Percentage
under the Credit Agreement 16.66%
II. ASSIGNOR'S COMMITMENT
A. Assignor's Commitment Percentage
under the Credit Agreement 41.67%
B. Assignor's Commitment Amount
under the Credit Agreement $25,000,000
</TABLE>
5
<PAGE> 1
Exhibit 10.3
THIRD AMENDMENT AGREEMENT
This Third Amendment Agreement is effective as of the 2nd day of
November, 1999, by and among ADVANCED LIGHTING TECHNOLOGIES, INC., an Ohio
corporation ("U.S. Borrower"), VENTURE LIGHTING POWER SYSTEMS, NORTH AMERICA
INC. (f.k.a. Ballastronix Incorporated), a corporation organized under the laws
of the Province of Nova Scotia, CANADIAN LIGHTING SYSTEMS HOLDING, INCORPORATED,
a corporation organized under the laws of the Province of Nova Scotia
(collectively, "Canadian Borrowers" and, individually, "Canadian Borrower"),
PARRY POWER SYSTEMS LIMITED (Company No. 2833448, f.k.a. Venture Lighting Europe
Ltd.), incorporated under the laws of England, VENTURE LIGHTING EUROPE LTD.
(Company No. 3341889, f.k.a. Parry Power Systems Limited), incorporated under
the laws of England (collectively, "UK Borrowers" and, individually, "UK
Borrower"; and together with U.S. Borrower and Canadian Borrowers, collectively,
"Borrowers" and, individually, "Borrower"), the banking institutions listed on
Schedule 1 (as amended herein) to the Credit Agreement, as hereinafter defined
("Banks"), and PNC BANK, NATIONAL ASSOCIATION, as agent for the Banks ("Agent"):
WHEREAS, Borrowers, Agent and the Banks are parties to a certain Credit
Agreement dated as of May 21, 1999, as amended, that provides, among other
things, for loans aggregating Sixty Million Dollars ($60,000,000), all upon
certain terms and conditions stated therein ("Credit Agreement");
WHEREAS, Borrowers, Agent and the Banks desire to amend the Credit
Agreement to modify certain provisions thereof; and
WHEREAS, each term used herein shall be defined in accordance with the
Credit Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants herein contained and for other valuable considerations, Borrowers,
Agent and the Banks hereby agree as follows:
1. Article II of the Credit Agreement is hereby amended to delete
Section 2.11 therefrom in its entirety and to insert in place thereof the
following:
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, until such time, if any, 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
<PAGE> 2
of Credit hereunder. Such Canadian Revolving Loans shall for all
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 as described above shall be secured
by all of the 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 amount of each Bank's Commitment Percentage
of the 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, if any, 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.
2. The Credit Agreement is hereby amended to delete Schedule 1 thereto
in its entirety and to insert in place thereof a new Schedule 1 in the form of
Schedule 1 attached hereto.
3. Concurrently with the execution of this Third Amendment Agreement,
Agent hereby agrees to deliver to Borrowers a Waiver in the form of EXHIBIT A
attached hereto.
4. Concurrently with the execution of this Third Amendment Agreement,
Borrowers shall:
(a) cause each Guarantor of Payment to consent and agree to and
acknowledge the terms of this Third Amendment Agreement;
(b) deliver such other documents as may reasonably be required by
Agent in connection with this Third Amendment Agreement; and
(c) pay all legal fees and expenses of Agent in connection with
this Third Amendment Agreement.
5. Borrowers hereby represent and warrant to Agent and the Banks that
(a) each Borrower has the legal power and authority to execute and deliver this
Third Amendment Agreement; (b) the officers executing this Third Amendment
Agreement have been duly authorized
2
<PAGE> 3
to execute and deliver the same and bind such Borrower with respect to the
provisions hereof; (c) the execution and delivery hereof by Borrowers and the
performance and observance by Borrowers of the provisions hereof do not violate
or conflict with the organizational agreements of any Borrower or any law
applicable to any Borrower or result in a breach of any provision of or
constitute a default under any other agreement, instrument or document binding
upon or enforceable against any Borrower; (d) no Unmatured Event of Default or
Event of Default exists under the Credit Agreement, nor will any occur
immediately after the execution and delivery of this Third Amendment Agreement
or by the performance or observance of any provision hereof; (e) neither
Borrower nor any Guarantor of Payment is aware of any claim or offset against,
or defense or counterclaim to, any of Borrowers' or any Guarantor of Payment's
obligations or liabilities under the Credit Agreement or any Related Writing;
and (f) this Third Amendment Agreement constitutes a valid and binding
obligation of each Borrower in every respect, enforceable in accordance with its
terms.
6. Each reference that is made in the Credit Agreement or any other
writing to the Credit Agreement shall hereafter be construed as a reference to
the Credit Agreement as amended hereby. Except as herein otherwise specifically
provided, all provisions of the Credit Agreement shall remain in full force and
effect and be unaffected hereby. This Third Amendment Agreement is a Related
Writing as defined in the Credit Agreement.
7. Each Borrower and each Guarantor of Payment, by signing below,
hereby waives and releases Agent and each of the Banks and their respective
directors, officers, employees, attorneys, affiliates and subsidiaries from any
and all claims, offsets, defenses and counterclaims of which any Borrower and
any Guarantor of Payment is aware, such waiver and release being with full
knowledge and understanding of the circumstances and effect thereof and after
having consulted legal counsel with respect thereto.
8. This Third Amendment Agreement 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.
9. The rights and obligations of all parties hereto shall be governed
by the laws of the State of Ohio, without regard to principles of conflicts of
laws.
[Remainder of page intentionally left blank.]
3
<PAGE> 4
10. JURY TRIAL WAIVER. BORROWERS, 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 ANY BORROWER, 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.
ADVANCED LIGHTING TECHNOLOGIES,
INC.
<TABLE>
<S> <C>
By: /s/ Nicholas R. Sucic
---------------------------------------
Nicholas R. Sucic, Vice President
VENTURE LIGHTING POWER SYSTEMS, CANADIAN LIGHTING SYSTEMS
NORTH AMERICA INC. (f.k.a. Ballastronix HOLDING, INCORPORATED
Incorporated)
By: /s/ R. G. Douglas Oulton By: /s/ R. G. Douglas Oulton
---------------------------------- ----------------------------------
Title: VP Finance Title: VP Finance
------------------------------- -------------------------------
PARRY POWER SYSTEMS LIMITED VENTURE LIGHTING EUROPE LTD.
By: /s/ W. Ian Wilkinson By: /s/ R. M. Heyworth
---------------------------------- ----------------------------------
Title: Director Title: Director
------------------------------- -------------------------------
PNC BANK, NATIONAL ASSOCIATION, BANKBOSTON, N.A., as a Bank
as Agent and as a Bank
By: /s/ Richard Muse, Jr. By: /s/ Paul Crimlisk
---------------------------------- -----------------------------------
Richard Muse, Jr., Vice President Paul Crimlisk, Vice President
NATIONAL CITY COMMERCIAL SOVEREIGN BANK
FINANCE, INC.
By: /s/ Christina M. Lucas By: /s/ Michelle A. Walcoff
----------------------------------- -----------------------------------
Christina M. Lucas, Vice President Michelle A. Walcoff, Vice President
</TABLE>
4
<PAGE> 5
SCHEDULE 1
<TABLE>
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
Canadian
Revolving Credit Revolving Credit UK Revolving
Financial Commitment Commitment Commitment Credit Commitment
Institution Percentage Amount Amount Amount
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
<S> <C> <C> <C> <C>
PNC Bank, National 41.66667% $16,666,666.66 $1,666,666.66 $2,500,000.00
Association
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
BankBoston, N.A. 20.00000% $8,000,000.00 $800,000.00 $1,200,000.00
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
National City 21.66667% $8,666,666.67 $866,666.67 $1,300,000.00
Commercial Finance,
Inc.
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
Sovereign Bank 16.66666% $6,666,666.67 $666,666.67 $1,000,000.00
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
Total 100% $40,000,000.00 $4,000,000.00 $6,000,000.00
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
Maximum Revolving $40,000,000.00
Credit Commitment
Amount
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
Maximum Term Loan
Commitment Amount
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
Total Commitment
Amount
- ----------------------- ----------------------- --------------------- ---------------------- ---------------------
</TABLE>
<TABLE>
- ----------------------- ---------------------- ---------------------
Term Loan
Financial Commitment
Institution Amount Maximum Amount
- ----------------------- ---------------------- ---------------------
<S> <C> <C>
PNC Bank, National $8,333,333.34 $25,000,000.00
Association
- ----------------------- ---------------------- ---------------------
BankBoston, N.A. $4,000,000.00 $12,000,000.00
- ----------------------- ---------------------- ---------------------
National City $4,333,333.33 $13,000,000.00
Commercial Finance,
Inc.
- ----------------------- ---------------------- ---------------------
Sovereign Bank $3,333,333.33 $10,000,000.00
- ----------------------- ---------------------- ---------------------
Total $20,000,000.00 $60,000,000.00
- ----------------------- ---------------------- ---------------------
Maximum Revolving
Credit Commitment
Amount
- ----------------------- ---------------------- ---------------------
Maximum Term Loan $20,000,000.00
Commitment Amount
- ----------------------- ---------------------- ---------------------
Total Commitment $60,000,000.00
Amount
- ----------------------- ---------------------- ---------------------
</TABLE>
5
<PAGE> 6
EXHIBIT A
WAIVER
------
This Waiver is executed as of the 2nd day of November, 1999, by PNC
Bank, National Association and BankBoston, N.A., under a certain Credit
Agreement dated May 21, 1999, as amended, among Advanced Lighting Technologies,
Inc., Venture Lighting Power Systems, North America Inc., Canadian Lighting
Systems Holding, Incorporated, Parry Power Systems Limited, Venture Lighting
Europe Ltd. (collectively, "Borrowers"), PNC Bank, National Association, as
agent, and the banking institutions listed on Schedule 1 to the Credit Agreement
(the "Credit Agreement"). Capitalized terms used herein have the meanings
ascribed thereto in the Credit Agreement.
WHEREAS, Borrowers, for the period from September 29, 1999 to October
6, 1999, failed to maintain the Total Unused Credit Availability as required by
Section 5.7(b) of the Credit Agreement;
WHEREAS, the failure to maintain such Total Unused Credit Availability
in accordance with Section 5.7(b) of the Credit Agreement is a default under the
Credit Agreement (the "Minimum Availability Default"); and
WHEREAS, Agent, on behalf of the Banks, has agreed to waive such
default as provided herein.
NOW, THEREFORE:
1. Agent hereby waives the Minimum Availability Default for the periods
specified above.
2. This Waiver is limited to the express terms hereof, and nothing
contained in this Waiver shall be deemed to establish a course of dealing
between Agent and the Banks, on one hand, and the Borrowers, on the other.
Neither Agent nor any of the Banks have any further obligation to waive any
other defaults or Events of Default or future defaults or Events of Default.
The undersigned has executed this Waiver as of the date and year first
above written.
BANKBOSTON, N.A., PNC BANK, NATIONAL ASSOCIATION,
as a Bank as Agent and as a Bank
By:_______________________ By:______________________________________
Title:____________________ Title:___________________________________
6
<PAGE> 7
GUARANTOR ACKNOWLEDGMENT
------------------------
Each of the undersigned consents and agrees to and acknowledges the
terms of the foregoing Third Amendment Agreement. Each of the undersigned
further agrees that the obligations of each of the undersigned pursuant to the
Guaranty of Payment executed by each of the undersigned shall remain in full
force and effect and be unaffected hereby.
ADLT Realty Corp. I, Inc.
ADLT Services, Inc.
Advanced Lighting, Inc.
Advanced Lighting Systems, Inc.
APL Engineered Materials, Inc.
Ballastronix (Delaware), Inc.
Bio Light, Inc.
Bright Ideas Advertising and Design, Inc.
Energy Efficient Products, Inc.
HID Recycling, Inc.
Light Resources International, Inc.
Metal Halide Controls, Inc.
Metal Halide Technologies, Inc.
Microsun Technologies, Inc.
Specialty Discharge Lighting, Inc.
Venture Lighting International, Inc.
By: /s/ Nicholas R. Sucic
------------------------------------------
Nicholas R. Sucic, Vice President of
each of the companies listed above
Deposition Sciences, Inc.
Kramer Lighting, Inc.
Ruud Lighting, Inc.
By: /s/ Nicholas R. Sucic
------------------------------------------
Nicholas R. Sucic, signing for each
of companies listed above by Power
of Attorney
7
<PAGE> 1
Exhibit 10.9
MUTUAL RELEASE AND
INDEMNIFICATION AGREEMENT
This Mutual Release and Indemnification Agreement (the
"AGREEMENT") is made and entered into this 31ST day of December, 1999 by and
between Advanced Lighting Technologies, Inc., an Ohio corporation ("ADLT") and
Louis S. Fisi ("FISI").
WHEREAS, ADLT and Fisi have entered into a Consulting
Agreement dated as of the date hereof for a period of Duration from January 1,
2000 to June 30, 2004 (the "CONSULTING PERIOD"); and
WHEREAS, prior to entering the Consulting Agreement, ADLT
employed Fisi as a full-time employee and executive officer and pursuant to his
executive compensation received certain benefits under a split dollar insurance
program; and
WHEREAS, ADLT and Fisi mutually desire to terminate Fisi's
employment and to resolve all rights and obligations of the parties hereof
pursuant to the terms of this Agreement.
NOW THEREFORE, the parties hereto, for good and valuable
consideration, the sufficiency of which is hereby acknowledged, agree as
follows:
1. TERMINATION. ADLT and Fisi hereby mutually terminate Fisi's
employment by ADLT effective as of December 31, 1999 (the "TERMINATION DATE")
2. COMPENSATION; CERTAIN ADDITIONAL BENEFITS. In connection
with Fisi's termination and as additional consideration for the release of any
claims that Fisi may have against ADLT related to his employment relationship,
ADLT has transferred to Fisi all right, title and interest in and to each, every
and all benefits under certain split dollar insurance contracts and policies and
agrees to release, indemnify and hold Fisi harmless against any claims for
premiums, death benefits, costs, encumbrances or rights of offset under the
split dollar agreements. ADLT and Fisi hereby agree that said consideration is
compensation for services rendered to ADLT by Fisi and for the confidentiality
covenant and the non-competition covenants set forth in Sections 3 and 5,
respectively, herein below.
3. CONFIDENTIALITY.
(a) For valuable consideration provided in Section 2 hereof,
Fisi shall not disclose, divulge, discuss, copy or otherwise use or suffer to be
used any confidential and secret information with regard to the business,
operations, customer lists, properties, accounts, books and records, data,
operating results, sales, know-how, techniques for sales, marketing, products,
customers, agreements with customers, suppliers, costs and financial data,
memoranda, methods, devices, equipment, processes, procedures, formulas, pricing
and other similar corporate properties of ADLT or its subsidiaries (collectively
"Trade Secrets"). Fisi hereby recognizes and agrees that the Trade Secrets are
valuable, special and unique assets of ADLT's business and that the disclosure
or improper use of such Trade Secrets shall cause serious and irreparable injury
to ADLT, unless and until such information is in or shall enter the public
domain; provided, however, that if the same is
<PAGE> 2
in or shall enter the public domain as the result of Fisi's act, then Fisi shall
continue to keep such Trade Secrets secret and confidential.
(b) On or before the Termination Date, Fisi shall return any
and all documents containing any Trade Secrets to ADLT.
(c) Fisi shall not disclose the contents and substance of this
Agreement to any natural person or legal entity except that Fisi is permitted to
disclose the terms of this Agreement to members of Fisi's immediate family, and
his financial, legal and tax-planning advisors, as necessary. In the event that
Fisi reveals the material terms of this Agreement to members of his immediate
family, and/or to his advisors, said person or person shall be instructed that
this is a private settlement and that the terms of this Agreement may not be
revealed to any other person for any reason whatsoever during the term of this
Agreement. As a matter of course, Fisi may disclose the terms of this Agreement
in response to any inquiry by the Internal Revenue Service or other taxing
authority.
(d) Fisi agrees that he will not contact any employee or
representatives of ADLT regarding this Agreement, nor discuss its content or the
events regarding the termination of his employment. In the event ADLT determines
that Fisi has violated this provision of non-contact, all contracts with and
offers of ADLT of benefits beyond the date of termination shall be terminated or
withdrawn.
(e) Fisi acknowledges that he has signed and delivered to ADLT
a confidentiality agreement, and that Fisi shall continue to abide by the terms
and conditions of such confidentiality agreement.
(f) The obligations of Fisi under this Section 3 shall survive
the termination of this Agreement.
4. MUTUAL RELEASES, INDEMNIFICATIONS, AND COVENANTS NOT TO
SUE.
(a) Fisi, for the valuable consideration provided in Section 2
hereof, with the intention of binding him, his agents, assigns, attorneys and
his heirs, executors, administrators and personal representatives, hereby
expressly releases and forever discharges ADLT and its successors, assigns and
all related entities, and all the shareholders, agents, employees, directors,
officers and representatives of all said entities from all claims, expenses,
and/or damages under any federal or state statute and/or constitution and for
all claims, demands, damages, actions, causes of action, or suits at law or in
equity of whatsoever kind or nature which any person or corporation bound hereby
can, shall or may have by reason of any matter, cause or thing whatsoever
arising prior to the date hereof, even though now unexpected and unknown,
including without limitation, any claim for back pay, damages (consequential,
incidental, compensatory, punitive or liquidated), attorney fees or costs
arising out of or relating to:
(i) the employment relation between Fisi and ADLT, including
ADLT's obligation under any split dollar insurance contracts or policies;
2
<PAGE> 3
(ii) the possession, taking, controlling, using, wasting,
losing or in any way accounting for property of ADLT by Fisi; and
(iii) any and all claims against ADLT or against Fisi whether
known or unknown relating to anything or event prior to the date hereof.
Fisi further covenants not to sue, or hereafter pursue or
prosecute any claim whatsoever which in any way relates to or arises from the
matters described in Sections 4(a) (i), (ii) or (iii). Fisi will indemnify and
hold harmless ADLT, its successors, assigns and all related entities, and the
shareholders, agents, employees, officers and representatives of all of said
entities from any such claims, including but not limited to Title VII of the
Civil Rights Act of 1964, or the Age Discrimination in Employment Act, Ohio Age
Discrimination Act, severance pay, sick leave, holiday pay, vacation pay, life
insurance, medical insurance, or any other fringe benefits of ADLT, or workers'
compensation or disability claims.
(b) Subject to and conditioned upon Fisi's compliance with
Sections 3 and 5 hereof, ADLT, for the valuable consideration undertaken by Fisi
and recited in Section 2 hereof, with the intention of binding it, and its
successors, assigns and all related entities, and the shareholders, agents,
employees, officers and representatives of all said entities, does hereby
expressly release and forever discharge Fisi, his agents, assigns, attorneys,
heirs, executors, administrators and personal representatives from all claims,
expenses and/or damages under any federal or state statute and/or constitution
and for all claims, demands, damages, actions, causes of action, or suits at law
or in equity of whatsoever kind or nature which any person or corporation bound
hereby can, shall or may have by reason of any matter, cause or thing whatsoever
arising prior to the date hereof, event though now unexpected and unknown,
including without limitation, any claim for back pay, damages (consequential,
incidental, compensatory, punitive, or liquidated), attorney fees or costs in
arising out of or relating to:
(i) The employment relation between Fisi and ADLT, including
ADLT's obligation under any split dollar insurance contract or policy; and
(ii) The possession, taking, controlling, using, wasting,
losing or in any way accounting for property of ADLT by Fisi; and,
(iii) Any and all claims against ADLT or against Fisi whether
known or unknown relating to anything or event prior to the date hereof.
ADLT further covenants not to sue, or hereafter pursue or
prosecute any claim whatsoever which in any way relates to or arises from the
matters described in Sections 4 (b) (i), (ii) and (iii). ADLT will indemnify and
hold harmless Fisi, his agents, assigns, attorneys, heirs, executors,
administrators and personal representatives, from any such claims. ADLT shall
likewise indemnify and hold Fisi harmless for any obligations of ADLT to pay the
premiums and otherwise maintain the split dollar life insurance policies in the
name of Fisi as insured and hereby agrees to maintain such policies until the
obligations thereunder are satisfied.
3
<PAGE> 4
(c) This Agreement is both individually and jointly effective
as to all persons and corporations hereby released and all other persons, firms,
corporations or entities succeeding to it, him, or them from all claims,
expenses and/or damages under any federal or state statute and/or constitution
and for all claims, demands, damages, actions, causes of action, or suits at law
or in equity of whatsoever kind or nature which any person or corporation bound
hereby can, shall or may have by reason of any matter, cause or thing whatsoever
arising prior to the date hereof, even though now unexpected and unknown,
including without limitation, any claim for back pay, damages (consequential,
incidental, compensatory, punitive or liquidated), attorney fees or costs
arising out of or relating to:
(i) The employment relation between Fisi and ADLT, including
ADLT's obligation under any split dollar insurance contract or policy; and,
(ii) The possession, taking, controlling, using, wasting,
losing or in any way accounting for property of ADLT by Fisi; and,
(iii) Any and all claims against ADLT or against Fisi whether
known or unknown relating to anything or event prior to the date hereof.
(d) It is intended that this release and discharge shall be
broadly construed to encompass any and all claims one party herein may have, on
its part, against any other party, on its part, and specification of the claims
herein is by way of example and is not to be construed to limit the effect of
this release and discharge.
5. NON-COMPETITION AND RELATED MATTERS.
(a) NON-COMPETE. Fisi agrees that, for a period of one (1)
year beginning after the Consulting Period and continuing through June 30, 2005,
Fisi will not render services within the continent of North America, directly or
indirectly, individually or collectively, own, manage, operate, join or control,
or participate in the ownership, management, operation or control of, or act as
an employee, or agent to any Conflicting Organization.
(b) ACKNOWLEDGMENT OF REASONABLENESS AND SEVERABILITY. Fisi
acknowledges and agrees that the type and periods of restrictions imposed in
this Agreement are fair and reasonable, and that such restrictions are intended
solely to protect the legitimate interest of ADLT, rather than to prevent Fisi
from earning a livelihood. Fisi recognizes that ADLT competes with other
organizations in the business of designing, marketing and manufacturing metal
halide lamps and any other work as may have been required or defined by the
Board of Directors, and that his access to Confidential Information and other
proprietary information could be used to the detriment of ADLT. In the event
that any restriction set forth in this Agreement is determined to be overly
broad with respect to scope, time or geographic coverage, Fisi agrees that such
a restriction or restrictions should be modified and narrowed, either by a court
or by an arbitrator mutually agreeable to the parties hereof, so as to preserve
and protect the legitimate interests of ADLT as described in this Agreement, and
without negotiating or impairing any other restrictions, covenants, or
agreements set forth herein.
4
<PAGE> 5
(c) DEFINITIONS. As used herein, the following terms shall
have the following meanings:
(i) "BUSINESS" shall mean the primary business
of ADLT which is the design, manufacture and marketing of metal halide fixtures,
lamps and components thereto.
(ii) "CONFIDENTIAL INFORMATION" shall mean
information in any form, which is generally not known to the public, and/or is
proprietary to ADLT, including without limitation trade secret information about
the Business, and also including information relating to research, development,
manufacture, purchasing, accounting, engineering (in any form, including
software designs), marketing, merchandising, selling, leasing, servicing,
finance and business systems and techniques and information used by the ADLT or
received by ADLT on a confidential basis from any third party, and customer
lists. All information disclosed to Fisi, or to which Fisi has access, whether
originated by Fisi or by others, during the period of his relationship with
ADLT, which Fisi on a reasonable basis believe to be Confidential Information,
or which is treated by ADLT as being Confidential Information, shall be presumed
to be Confidential Information.
(iii) "CONFLICTING BUSINESS" shall mean any
business, process, system or service of any person or organization other than
ADLT, in existence or under development, which is the same as or similar to or
competes with, or has a usage allied to, the business or any process, system or
service concerning the Business (in either sales or non-sales capacity), or
about which Fisi acquires Confidential Information.
(iv) "CONFLICTING ORGANIZATION" shall mean any
person or organization which is engaged in or about to become engaged in,
research on or development, marketing, leasing, selling or servicing of a
Conflicting Business.
6. CONTINUED SERVICES OF FISI. Beginning on the Termination
Date, Fisi shall perform and complete various projects pursuant to the terms of
the Consulting Agreement entered into on date even herewith.
7. FISI'S REPRESENTATIONS AND WARRANTIES. Fisi represents and
warrants to ADLT the following:
(a) The execution of this Agreement by Fisi shall constitute
acknowledgment of his separation from employment as of the Termination Date
together with termination of his status as an officer of various ADLT
subsidiaries.
(b) The consideration given to Fisi hereunder does not
constitute an admission on the part of ADLT in any claim advanced or which could
be advanced based on events prior to the date hereof, and Fisi hereby expressly
releases and discharges ADLT from any such claims and all claims recited at
Section 4. Liability of any and all persons and/or corporations released hereby
is expressly denied by Fisi.
8. ENFORCEMENT OF THIS AGREEMENT. In the event of any breach
by either of the parties of any of the terms, covenants, provisions, obligations
and/or conditions of this Agreement, the injured party shall be entitled, if
such party so elects: (i) to institute and prosecute proceedings
5
<PAGE> 6
in any court of competent jurisdiction, either at law or in equity, to obtain
damages for the breach of any of the terms, covenants, provisions, obligations
or conditions of this Agreement; and (ii) to take any and all other action and
seek any and all other remedies available at law or in equity in addition to the
actions and remedies set forth in this Agreement. The taking of any action or
the seeking of any remedy by either the parties pursuant to this Agreement shall
not be exclusive of nor constitute the waiver of any other action or remedy
available at law or in equity to either of the parties.
9. MISCELLANEOUS.
(a) This is the full agreement between the parties hereto and
the terms are contractual. Any oral or written understandings or agreements
between the parties relating to the subject matter herein are integrated into
and superseded by this Agreement. Executed counterparts of this document are
considered originals.
(b) Any party may waive or excuse the failure of any party to
perform any of the provisions of this Agreement; provided, however, that any
such waiver shall not preclude the enforcement of this Agreement in whole or
part. Such waiver shall be in a writing signed by the party waiving such
performance.
(c) The parties to this Agreement expressly waive and
relinquish all rights and benefits afforded by any federal, state, and/or local
statute, law, or regulation regarding a prohibition and/or limitation concerning
general releases. The parties do so understanding the significance and
consequence of such specific waiver.
(d) The parties acknowledge that the actual damage that ADLT
could or might suffer as a result of any material breach of the provisions
contained in this Agreement would be difficult, if not impossible, to calculate
and therefore this Agreement shall be enforceable by injunction in a court of
competent jurisdiction.
(e) This Agreement shall interpreted and construed in
accordance with the laws of the State of Ohio.
(f) It is further understood and agreed that the execution of
this Agreement and the payment hereunder does not constitute an admission of
fault or responsibility for any claims relating to the termination of Fisi's
employment, and it will not be used as an element of evidence in any civil
action.
(g) If a court of competent jurisdiction should determine that
any provision of this Agreement is invalid or unenforceable, such determination
shall not affect the validity or enforceability of the other provisions of this
Agreement, which provisions are severable. If any provision of this Agreement
shall be unenforceable, invalid, or void to any extent for any reason, such
provision shall remain in force and effect to the maximum extent allowable, if
any, and the enforceability of the remaining provisions of this Agreement shall
not be affected thereby.
(h) This Agreement shall be binding upon and inure to the
benefit of the parties and their respective successors in interest and assigns.
6
<PAGE> 7
10. ACKNOWLEDGMENT BY FISI.
(a) Fisi hereby acknowledges that he has read the foregoing
Agreement, and understands the contents thereof, including but not limited to
Fisi's release against ADLT, and states that he has studied and considered the
provisions herein and that he voluntarily signs this Agreement as his own free
act and deed.
(b) NOTICE: READ BEFORE YOU SIGN. THIS AGREEMENT CONTAINS A
RELEASE. YOU ARE HEREBY ADVISED THAT YOU SHOULD CONSULT AN ATTORNEY.
Fisi affirms that he is entering into this Agreement knowingly
and voluntarily in order to receive the consideration described above. Fisi
understands that ADLT would not provide such consideration without his voluntary
consent to this Agreement. In making his decision, Fisi recognizes that he has
the right to seek advice and counsel from others, including an attorney. Fisi
acknowledges that he has had the opportunity to seek independent legal counsel
concerning the meaning and effect of this Agreement. Fisi has seven (7) days
following the execution of this Agreement to revoke said Agreement. This
Agreement shall not become effective or enforceable until this seven (7) day
revocation period has expired. If Fisi revokes this Agreement, he shall do so in
writing and shall return this document to Company and all terms of the Agreement
shall be void and of no force and effect.
[Signatures on next page]
7
<PAGE> 8
WITNESS the due execution hereof as of the day and year first above
written.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ Wayne R. Hellman
-------------------------------------------
Name: Wayne R. Hellman
-------------------------------------------
Its: Chairman, Chief Executive Officer
-------------------------------------------
Address: 32000 Aurora Road
Solon, Ohio 44139
/s/ LOUIS S. FISI
-----------------------------------------------------
LOUIS S. FISI, Individually
Address: 3486 Muirwood Lane
Richfield, Ohio 44286
8
<PAGE> 1
Exhibit 10.10
CONSULTING AGREEMENT
This Consulting Agreement (the "AGREEMENT") is made and entered into
this 31st day of December 1999, and effective as of the 1st day of January 2000
(the "Effective Date") by and between ADVANCED LIGHTING TECHNOLOGIES, INC., an
Ohio corporation and its successors and assigns ("ADLT") and LOUIS S. FISI (the
"CONSULTANT").
WHEREAS, ADLT is a public company which is engaged in the
business of developing and manufacturing various lighting products and systems;
and
WHEREAS, the Consultant has had extensive experience as an
executive officer of ADLT and other industrial companies as well as an extensive
accounting background; and is able to assist ADLT in various on-going projects.
NOW THEREFORE, the parties hereto, for valid consideration,
the sufficiency of which is hereby acknowledged, agree as follows:
1. TERM. This Agreement shall commence on the Effective Date
hereof and shall, unless earlier terminated pursuant to Section 6, hereof,
terminate on June 30, 2004 (the "TERM").
2. SERVICES BY CONSULTANT. Consultant hereby acknowledges and
agrees that he shall devote his best efforts and diligently perform the projects
assigned by ADLT's Management (as defined below) to him and accepted by him in
writing pursuant to the terms of this Agreement.
(a) Consultant shall execute and perform various specific
assignments for ADLT from time to time as determined by its Chairman, Wayne
Hellman ("Management"), and such other assignments as may be reasonably
requested. Such assignments shall include but not be limited to the following:
(i) act as the litigation coordinator between ADLT and its
counsel regarding the pending shareholders' class action
lawsuits; and
(ii) act as advisor for simplification of ADLT's corporate and
business structure.
(b) After July 1, 2000, in the event ADLT's Management
proposes that Consultant execute and perform substantial and significant special
assignments which are beyond the scope of this Agreement, Consultant shall be
paid on a per project basis for such special assignments, which amount shall be
determined upon agreement of Management and Consultant.
(c) Consultant shall execute and perform his duties as a
director of ADLT outside the scope of this Agreement. ADLT and Consultant agree
that Consultant shall serve the remainder of his current term as a director of
ADLT. In addition, Management and ADLT through its Board of Directors, nominate
Consultant to a new three-year term ending at ADLT's annual meeting for
<PAGE> 2
2003. Consultant shall receive the standard compensation and reimbursements of
non-employee directors for such duties, including grants of stock options of
20,000 shares of ADLT common stock which options shall vest 5,000 per year
beginning upon the effective date of this Agreement and continuing annually
through the duration of his Class II directorship.
3. COMPENSATION; CERTAIN ADDITIONAL BENEFITS.
(a) During the Term of this Agreement, ADLT shall pay to
Consultant, for the services rendered by Consultant hereunder and the
non-compete agreement contained in Section 5 below, Ninety Three Thousand
Dollars ($93,000.00) from the Effective Date through June 30, 2000, payable on
January 1, 2000; thereafter, at the rate of $93,000 per year from July 1, 2000
until June 30, 2004, payable in equal monthly installments.
(b) In addition to the compensation to be paid to the
Consultant as set forth in Section 3(a) above, ADLT agrees to provide the
Consultant with the following benefits during the Term of this Agreement:
(i) Payment of Social Security self insurance tax (including
medicare) on or with respect to amounts payable to Consultant
in connection with this Agreement;
(ii) All health, medical and dental insurance coverage
(including dependent) shall continue through June 30, 2004,
including an annual physical examination;
(iii) The use of an office, a computer and computer support,
and secretarial services, as needed, and home phone and fax
services;
(iv) Payment of disability insurance premiums on behalf of
Consultant for the Term of this Agreement.
(v) The addition of Consultant's participation in ADLT's stock
option plan as is currently in effect and as amended during
the term of this Agreement, provided that such participation
by Consultant will not adversely affect the qualification of
such plan under any applicable laws, regulations or rules; and
(vi) Reimbursement for customary and reasonable out-of-pocket
expenses incurred by Consultant in connection with his
services provided under this Agreement.
4. CONFIDENTIALITY.
(a) Commencing upon the execution of this Agreement,
Consultant shall not disclose, divulge, discuss, copy or otherwise use or suffer
to be used any confidential and secret information with regard to the business,
operations, customer lists, properties, accounts, books and
2
<PAGE> 3
records, data, operating results, sales, know-how, techniques for sales,
marketing, products, customers, agreements with customers, suppliers, costs and
financial data, memoranda, methods, devices, equipment, processes, procedures,
formulas, pricing and other similar corporate properties of ADLT or its
subsidiaries (collectively "Trade Secrets"). Consultant hereby recognizes and
agrees that the Trade Secrets are valuable, special and unique assets of ADLT's
business and that the disclosure or improper use of such Trade Secrets shall
cause serious and irreparable injury to ADLT, unless and until such information
is in or shall enter the public domain; provided, however, that if the same is
in or shall enter the public domain as the result of Consultant's act, then
Consultant shall continue to keep such Trade Secrets secret and confidential.
(b) On or before the end of the Term of this Agreement,
Consultant shall return any and all documents containing any Trade Secrets to
ADLT.
(c) Consultant shall not disclose the contents and substance
of this Agreement to any natural person or legal entity except that Consultant
is permitted to disclose the terms of this Agreement to members of Consultant's
immediate family, and his financial, legal and tax-planning advisors, as
necessary. In the event that Consultant reveals the material terms of this
Agreement to members of his immediate family, and/or to his advisors, said
person or person shall be instructed that this is a private settlement and that
the terms of this Agreement may not be revealed to any other person for any
reason whatsoever during the term of this Agreement. As a matter of course,
Consultant may disclose the terms of this Agreement in response to any inquiry
by the Internal Revenue Service or other taxing authority.
(d) Consultant agrees that he will not contact any employee or
representatives of ADLT regarding this Agreement, nor discuss its content or the
events regarding the termination of his employment. In the event ADLT determines
that Consultant has violated this provision of non-contact, all contracts with
and offers of ADLT of benefits beyond the date of termination shall be
terminated or withdrawn.
(e) Consultant acknowledges that he has signed and delivered
to ADLT a confidentiality agreement, and that Consultant shall continue to abide
by the terms and conditions of such confidentiality agreement.
(f) The obligations of Consultant under this Section shall
survive the termination of this Agreement.
5. NON-COMPETITION AND RELATED MATTERS
(a) NON-COMPETITION. Consultant agrees that during the Term of
this Agreement, he will not render services within the continent of North
America, directly or indirectly, individually or collectively, own, manage,
operate, join or control, or participate in the ownership, management, operation
or control of, or act as an employee, agent or consultant to, any Conflicting
Organization.
3
<PAGE> 4
(b) ACKNOWLEDGMENT OF REASONABLENESS AND SEVERABILITY.
Consultant acknowledges and agrees that the type and periods of restrictions
imposed in this Agreement are fair and reasonable, and that such restrictions
are intended solely to protect the legitimate interest of ADLT, rather than to
prevent Consultant from earning a livelihood. Consultant recognizes that ADLT
competes with other organizations in the business of designing, marketing and
manufacturing metal halide lamps and any other work as may have been required or
defined by the Board of Directors, and that his access to Confidential
Information and other proprietary information could be used to the detriment of
ADLT. In the event that any restriction set forth in this Agreement is
determined to be overly broad with respect to scope, time or geographic
coverage, Consultant agrees that such a restriction or restrictions should be
modified and narrowed, either by a court or by, so as to preserve and protect
the legitimate interests of ADLT as described in this Agreement, and without
negating or impairing any other restrictions or agreements set forth herein.
(c) DEFINITIONS. The following capitalized terms shall
have the meanings ascribed to them below:
(i) "BUSINESS" shall mean the primary business of
ADLT which is the design, manufacture and marketing
of metal halide fixtures, lamps and components
thereto.
(ii) "CONFIDENTIAL INFORMATION" shall mean
information in any form, which is generally not known
to the public, and/or is proprietary to ADLT,
including without limitation trade secret information
about the Business, and also including information
relating to research, development, manufacture,
purchasing, accounting, engineering (in any form,
including software designs), marketing,
merchandising, selling, leasing, servicing, finance
and business systems and techniques and information
used by the ADLT or received by ADLT on a
confidential basis from any third party, and customer
lists. All information disclosed to Consultant, or to
which Consultant has access, whether originated by
Consultant or by others, during the period of his
relationship with ADLT, which Consultant on a
reasonable basis believe to be Confidential
Information, or which is treated by ADLT as being
Confidential Information, shall be presumed to be
Confidential Information.
(iii) "CONFLICTING BUSINESS" shall mean any business,
process, system or service of any person or
organization other than ADLT, in existence or under
development, which is the same as or similar to or
competes with, or has a usage allied to, the business
or any process, system or service concerning the
Business (in either sales or non-sales capacity), or
about which Consultant acquires Confidential
Information.
4
<PAGE> 5
(iv) "CONFLICTING ORGANIZATION" shall mean any person
or organization which is engaged in or about to
become engaged in, research on or development,
marketing, leasing, selling or servicing of a
Conflicting Business.
6. TERMINATION.
(a) This Agreement shall terminate upon the earlier of (i) a
material breach by either party, provided, however, that Consultant's failure to
accept a project pursuant to Section 2 above shall not be considered a breach,
and provided, further, that the non-breaching party has allowed at least 30 days
after notice of such breach for the breaching party to cure, or (ii) expiration
of the Term.
(b) Upon termination hereof, and other than as set forth in
Section 3(b)(vii) herein above, all obligations of ADLT to the Consultant
hereunder shall cease.
7. MISCELLANEOUS.
(a) Neither party hereto shall assign any of its rights or
delegate any of its duties hereunder without the express prior written consent
of the other party, except that a change in ownership of ADLT shall not be
deemed to be an assignment.
(b) This Agreement is binding on each of the parties hereto,
including each party's heirs, successors and assigns.
(c) This Agreement shall be governed by the laws of the State
of Ohio.
5
<PAGE> 6
(d) All notices shall be served by being sent by facsimile
transmission or posted by first class mail to the address of the party set out
below or to such other address as either party may notify to the other in
writing from time to time.
WITNESS the due execution hereof as of the day and year first above
written.
ADVANCED LIGHTING TECHNOLOGIES, INC.
By: /s/ Wayne R. Hellman
-------------------------------------------
Name: Wayne R. Hellman
-------------------------------------------
Its: Chairman, Chief Executive Officer
-------------------------------------------
Address: 32000 Aurora Road
Solon, Ohio 44139
/s/ LOUIS S. FISI
-----------------------------------------------------
LOUIS S. FISI, Individually
Address: 3486 Muirwood Lane
Richfield, Ohio 44286
6
<PAGE> 1
Exhibit 12
ADVANCED LIGHTING TECHNOLOGIES, INC.
EXHIBIT 12 -- STATEMENT RE: COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
(In thousands)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
--------------------- ----------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Consolidated pretax income
from continuing operations $ 1,101 $(35,165) $ 537 $(36,010)
Interest expense 3,323 3,440 7,113 6,181
Interest portion of rent expense 145 167 280 303
-------- -------- -------- --------
EARNINGS $ 4,569 $(31,558) $ 7,930 $(29,526)
======== ======== ======== ========
Interest expense $ 3,323 $ 3,440 $ 7,113 $ 6,181
Interest capitalized 180 249 196 458
Interest portion of rent expense 145 167 280 303
Preferred shares accretion 603 -- 603 --
-------- -------- -------- --------
FIXED CHARGES $ 4,251 $ 3,856 $ 8,192 $ 6,942
======== ======== ======== ========
RATIO OF EARNINGS TO FIXED CHARGES 1.1 -- -- --
======== ======== ======== ========
</TABLE>
For purposes of calculating the unaudited ratio of earnings to fixed charges,
earnings consist of income (loss) from continuing operations before provision
for income taxes plus fixed charges. Fixed charges consist of interest charges
and amortization of debt issuance costs, whether expensed or capitalized, that
portion of rental expense that is representative of interest, and preferred
shares accretion. In the six months ended December 31, 1999, earnings were
inadequate to cover fixed charge requirements by $262. In the three months ended
December 31, 1998, earnings were inadequate to cover fixed charge requirements
by $35,414. In the six months ended December 31, 1998, earnings were inadequate
to cover fixed charge requirements by $36,468.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Advanced
Lighting Technologies, Inc. Condensed Consolidated Financial Statements for the
six months ended December 31, 1999 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 2,064
<SECURITIES> 0
<RECEIVABLES> 41,705
<ALLOWANCES> 1,065
<INVENTORY> 41,691
<CURRENT-ASSETS> 79,894
<PP&E> 122,484
<DEPRECIATION> 19,852
<TOTAL-ASSETS> 294,340
<CURRENT-LIABILITIES> 55,920
<BONDS> 138,887
0
15,806
<COMMON> 20
<OTHER-SE> 83,707
<TOTAL-LIABILITY-AND-EQUITY> 294,340
<SALES> 116,065
<TOTAL-REVENUES> 116,065
<CGS> 71,696
<TOTAL-COSTS> 71,696
<OTHER-EXPENSES> 37,238
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,113
<INCOME-PRETAX> 537
<INCOME-TAX> 339
<INCOME-CONTINUING> 198
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 198
<EPS-BASIC> (0.02)
<EPS-DILUTED> (0.02)
</TABLE>
