EXHIBIT 10.5
SETTLEMENT AGREEMENT
This Settlement Agreement (this "Agreement") is made and entered into
this 5th day of January, 2004, by and among Advanced Lighting Technologies, Inc.
("ADLT," whether before or after the effective date of the Plan (as defined
below)), Xxxxx X. Xxxxxxx ("Xxxxxxx"), and Saratoga Lighting Holdings LLC
("Saratoga"). The above-named persons and entities are sometimes hereinafter
collectively referred to as the "Parties" an individually referred to as a
"Party."
RECITALS
1. On February 5, 2003, ADLT and various of its affiliates
(collectively, the "Debtors") each filed a voluntary petition for relief under
chapter 11 of title 11 of the United States Code. The Debtors' bankruptcy cases
are jointly administered in the United States Bankruptcy Court for the Northern
District of Illinois, Eastern Division (the "Bankruptcy Court") under Xxxx Xx.
00 X 00000.
2. Beginning in October 1998, ADLT made a series of loans to
Xxxxxxx (the "Xxxxxxx Loan") so that he could avoid forced liquidation of a
substantial block of his ADLT stock. ADLT determined that such a forced
liquidation of Xxxxxxx'x substantial ADLT stock holdings would, among other
things, have a deleterious effect on ADLT shareholders and that making the
Xxxxxxx Loan was thus in the best interest of its shareholders. With respect to
the Xxxxxxx Loan, ADLT acted at all times through a unanimous vote of its
independent directors properly exercising their informed business judgment.
3. The Parties documented the Xxxxxxx Loan through a series of
agreements and subsequent amendments, including the following: Loan Agreement
between Xxxxxxx and ADLT dated on or about October 8, 1998, and all related loan
documents, including, without limitation, Secured Promissory Note, Security
Agreement, Real Estate Mortgages, Collateral
Assignment of Contract and Allonge No. 2 to Promissory Note From 00 Xxxxx
Xxxxxx, Xxx., as thereafter amended by (a) that certain First Amendment to Loan
Agreement, Secured Promissory Note and Security Agreement dated on or about
November 22, 2000; (b) that certain Second Amendment to Loan Agreement, Secured
Promissory Note and Security Agreement dated on or about March 15, 2001; and (c)
that certain Third Amendment to Loan Agreement, Secured Promissory Note and
Security Agreement dated on or about July 26, 2002 (collectively, the "Xxxxxxx
Loan Documents"). Pursuant to the Xxxxxxx Loan Documents, the Xxxxxxx Loan
matures on July 31, 2007. ADLT has a perfected security interest in
substantially all of Xxxxxxx'x personal assets.
4. As of June 30, 2003, Xxxxxxx owed ADLT approximately
$15,647,000, consisting of principal of approximately $12,789,000 and interest
of approximately $2,858,000.
5. Xxxxxxx has challenged ADLT's right to enforce the Xxxxxxx
Loan Documents in several respects. Xxxxxxx has informed ADLT that, absent some
other resolution, he intends to file for personal bankruptcy in order to
discharge the Xxxxxxx Loan to the extent that it exceeds his net worth
(excluding the Xxxxxxx Loan itself). Xxxxxxx has also asserted that the Xxxxxxx
Loan Documents are legally unenforceable and has retained legal counsel to
pursue such asserted defenses to the Xxxxxxx Loan.
6. As a part of its reorganization, ADLT, along with Saratoga,
believe it is appropriate to resolve the dispute regarding the Xxxxxxx Loan. To
that end, ADLT, Saratoga, and Xxxxxxx reached an agreement in principle that the
Xxxxxxx Loan Documents would be modified to reduce the amount of the outstanding
indebtedness owed by Xxxxxxx to an amount (the "Designated Amount") equal to the
difference between (1) the fair market value of Xxxxxxx'x personal assets and
(2) the amounts owing to other secured creditors of Xxxxxxx that
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hold mortgages, liens and/or security interests in Xxxxxxx'x property on a
priority senior to ADLT's liens and security interests.
7. The Parties also anticipate that Xxxxxxx will partially prepay
the Xxxxxxx Loan on or before the effective date of the Plan (as defined below),
by transferring his interest in certain assets to ADLT, as follows: First,
Xxxxxxx will transfer to ADLT his interest in H&F V, LLC ("H&F V"). The Parties
anticipate that H&F V will be merged into ADLT's subsidiary and co-debtor, APL
Engineered Materials, Inc. ("APL"), after the effective date of the Plan. At the
time of such merger, through intercompany book transfers between ADLT and APL,
ADLT will be credited for the value of that interest, and certain third parties
will receive from APL cash on account of their interests in H&F V. Second,
Xxxxxxx will transfer to ADLT the proceeds from his settlement with Prudential
of approximately $1,331,000 (the "Prudential Proceeds"). Finally, Xxxxxxx will
transfer to ADLT his rights under a loan owed to Xxxxxxx by Xxxxx Xxxx (the
"Fisi Loan"). These three transfers will occur independently of the
determination of the Designated Amount.
8. On behalf of ADLT, a special committee of independent
directors (the "Independent Directors") has conducted a through investigation of
ADLT's ability to recover the full amount of the Xxxxxxx Loan. As part of that
investigation, ADLT, acting through the Independent Directors, retained Xxxxx
Xxxxxxx Xxxx & Company Securities, Inc. ("BGL") and certain MAI real estate
appraisers to provide professional valuations of the collateral securing the
Xxxxxxx Loan. As a result of this investigation and their review of the
situation, the Independent Directors determined that the Designated Amount is
$4,144,500.00.
9. The Independent Directors also concluded that while they
believe the defenses to the Xxxxxxx Loan Documents proffered by Xxxxxxx and his
counsel are likely without merit, that fully litigating these issues would
nevertheless require incurring substantial
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collection and litigation costs. Moreover, the Independent Directors concluded
that perpetuation of the dispute with ADLT's Chief Executive Officer and founder
would have a detrimental impact on ADLT's future performance.
10. On August 15, 2003, Saratoga purchased all of the preferred
and common equity interests in ADLT held by The General Electric Company.
11. The Debtors and Saratoga are co-sponsors of the Fourth Amended
Plan of Reorganization dated December 8, 2003 (the "Plan"). Under the Plan,
Saratoga would become ADLT's sole equity holder. ADLT has consulted with
Saratoga regarding the terms of this Agreement, and Saratoga has informed ADLT
that it fully supports and agrees to the terms of this Agreement.
12. Although not a part of the Settlement Agreement, ADLT,
Saratoga and Xxxxxxx have discussed the terms of Xxxxxxx'x payment of the
Designated Amount. ADLT, Saratoga and Xxxxxxx contemplate that Xxxxxxx will use
certain proceeds of a retention bonus to be paid him under his employment
agreement, itself to be approved as part of the Plan, to pay a substantial
portion of the Designated Amount. As further provided in his employment
agreement, ADLT will pay the retention bonus, provided that Xxxxxxx has not
resigned or been terminated for cause by ADLT on such dates. To the extent that
the Xxxxxxx Loan is not paid in full with the proceeds of Xxxxxxx'x retention
bonus, the remaining unpaid balance will be paid in accord with the provisions
of the Xxxxxxx Loan Documents, including the requirement that the after-tax
proceeds of any performance bonuses to be received by Xxxxxxx from ADLT will be
used to reduce the unpaid balance of the Xxxxxxx Loan.
13. The Parties have agreed, subject to Bankruptcy Court approval,
to compromise their disputes as set forth below.
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AGREEMENT
NOW THEREFORE, for good and valuable consideration, the receipt,
adequacy and sufficiency of which is acknowledged, the Parties agree as follows:
1. Incorporation of Recitals. Each of the Parties represents and
warrants that each of the above Recitals is true and correct to the best of such
Party's knowledge, information and belief, and such Recitals are incorporated
herein as part of this Agreement.
2. Bankruptcy Court Approval. The Parties expressly acknowledge
that this Agreement is subject to approval by the Bankruptcy Court, and agree to
use their best efforts and good faith to obtain such approval. Pursuant thereto,
the Debtors promptly shall file a motion pursuant to Bankruptcy Rule 9019
requesting that the Bankruptcy Court approve this Agreement (the "Settlement
Motion").
3. Confirmation and Effectiveness of the Plan as Conditions
Precedent. The Parties expressly acknowledge and agree that this Agreement is
made on the conditions that: (a) the Bankruptcy Court confirms the Plan and (b)
the Plan becomes effective (i.e., is substantially consummated). In the event
that the Plan is not confirmed or does not become effective the Parties agree
that this Agreement will be a nullity.
4. Effective Date. The "Effective Date" of this Agreement shall
be the later of either (a) the eleventh (11th) day after the Bankruptcy Court
enters a final, non-appealable order granting the Settlement Motion and
authorizing ADLT to enter into this Agreement, or (b) the date that the Plan
becomes effective.
5. Disclosure of All Material Assets. Xxxxxxx hereby represents
and warrants that as part of the good faith negotiation of this Agreement, that
he has provided to ADLT a complete and accurate statement of his personal
financial condition, including a description of all material personal assets.
Without limiting the generality of the foregoing,
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Xxxxxxx represents and warrants to ADLT, Saratoga and the Bankruptcy Court that
he has disclosed all material assets in which he holds any interest whatsoever.
For each such interest, Xxxxxxx represents and warrants that the values he
attributed to such interests are reasonable estimates of the fair market value
of such interests and are offered in good faith. Further, Xxxxxxx represents and
warrants that for each liability that Xxxxxxx has identified that he owes, he is
in fact the obligor that is liable for such amounts, and that the amounts listed
by Xxxxxxx are accurate and complete representations of the amounts he owes.
Xxxxxxx acknowledges that breach of the warranties described in this paragraph
may subject him to both civil liability and applicable penalties for perjury as
such warranties are being made to the Bankruptcy Court in addition to the
Parties.
6. Amended Loan Agreement. The Parties agree to enter into an
"Amended Loan Agreement" substantially the same as the one attached to this
Agreement as Exhibit 1, entitled "Fourth Amendment to Loan Agreement, Secured
Promissory Note and Security Agreement." The Amended Loan Agreement shall modify
the Xxxxxxx Loan Documents by reducing the outstanding amount of the Xxxxxxx
Loan to the Designated Amount of $4,144,500. All amounts in excess of the
Designated Amount owing under the Xxxxxxx Loan Documents will be discharged as
uncollectable as of the Effective Date. Other than the modifications effected by
the Amended Loan Agreement, the Xxxxxxx Loan Documents will remain in full force
and effect. Without limiting the generality of the foregoing, ADLT's mortgages,
liens and/or security interests in Xxxxxxx'x personal assets will remain in
place.
7. Transfer of Interests in H&F V, the Prudential Proceeds and
the Fisi Loan. The Parties agree that to the extent Xxxxxxx'x interests in and
to H&F V, the Prudential Proceeds and the Fisi Loan have not occurred prior to
the effective date of this Agreement, the Parties will promptly take all steps
reasonably necessary to effect the transfers of such interests.
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8. Reaffirmation of Validity and Enforceability of the Xxxxxxx
Loan Documents. Xxxxxxx expressly acknowledges, agrees and reaffirms the
validity and enforceability of all of the Xxxxxxx Loan Documents as modified by
the Amended Loan Agreement, and waives any and all defenses that he has asserted
or could assert to defeat ADLT's right to enforce the Xxxxxxx Loan Documents, as
modified by the Amended Loan Agreement.
9. Release in Favor of ADLT. Except for the obligations of ADLT
expressly set forth in this Agreement, Xxxxxxx, on behalf of himself and all
current, former or future agents, affiliates, representatives, attorneys,
financial consultants, advisors, trustees, beneficiaries, spouses, successors,
predecessors, assigns, and any other persons acting on his behalf, release,
disclaim, and discharge ADLT, and its respective parent companies, subsidiaries,
affiliates, agents, representatives, attorneys, financial consultants, advisors,
trustees, beneficiaries, subtrusts, officers, directors, managers, shareholders,
members, employees, partners, spouses, successors, predecessors, assigns, and
any other persons acting on its behalf, from any and all claims, demands, suits,
rights or causes of action or damages, expenses, attorneys' fees, penalties,
interest, costs, injunctive relief or any other relief available in law or
equity that Xxxxxxx has asserted, or presently could assert, against ADLT
relating to the Xxxxxxx Loan and the Hellman Loan Documents.
10. Release in Favor of Xxxxxxx. Except for the obligations of
Xxxxxxx expressly set forth in this Agreement, including, without limitation,
obligations under the Xxxxxxx Loan Documents, as modified by the Amended Loan
Agreement, ADLT, on behalf of itself and its current, former or future agents,
parent companies, subsidiaries, affiliates, representatives, attorneys,
financial consultants, advisors, trustees, beneficiaries, spouses, successors,
predecessors, assigns, and any other persons acting on its behalf, release,
disclaim,
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and discharge Hellman and his agents, representatives, attorneys, financial
consultants, advisors, trustees, beneficiaries, employees, partners, spouses,
successors, predecessors, assigns, and any other persons acting on his behalf,
from any and all claims, demands, suits, rights or causes of action or damages,
expenses, attorneys' fees, penalties, interest, costs, injunctive relief or any
other relief available in law or equity, that they have asserted, or presently
could assert, against Xxxxxxx related to the Xxxxxxx Loan and the Xxxxxxx Loan
Documents. Nothing herein shall be construed as releasing Xxxxxxx from his
obligations under the Xxxxxxx Loan Documents as modified by the Amended Loan
Agreement.
11. Additional Documents and Acts. Each Party shall execute or
procure and deliver to the other Parties such additional documents and shall
perform such acts as shall reasonably be necessary to evidence or effectuate the
terms of this Agreement, including, without limitation, such documents and acts
relating to the transfers of Xxxxxxx'x interests in H&F V, the Prudential
Proceeds and the Fisi Loan.
12. Headings. The paragraph headings used in this Agreement are
for convenience of reference only and do not in any way limit or amplify the
terms and provisions hereof.
13. Complete Agreement. This Agreement, the Amended Loan
Agreement, any additional documents executed in connection with this Agreement
and the Xxxxxxx Loan Documents constitute a single, integrated written contract
that expresses the entire agreement of the Parties with respect to the matters
contained herein and supersedes all negotiations, prior discussions and
preliminary agreements, either oral or written. Any modification of this
Agreement shall be effective only if it is in writing, is signed by the Party to
be charged or otherwise adversely affected by it, and is approved by a final,
non-appealable order of the Bankruptcy Court.
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14. Counterpart Signatures. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which, when taken together, shall constitute one and the same instrument. This
Agreement shall constitute a binding, enforceable agreement after all Parties
have signed and executed this Agreement and after the Bankruptcy Court has
entered a final, non-appealable order approving this Agreement.
15. Time of Essence. Time and strict and punctual performance are
of the essence with respect to each provision of this Agreement.
16. Partial Invalidity. Each provision of this Agreement shall be
valid and enforceable to the fullest extent permitted by law. If any provision
of this Agreement or the application of such provision to any person or
circumstance shall, to any extent, be invalid or unenforceable, the remainder of
this Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected by such invalidity or unenforceability, unless such provision or such
application of such provision is essential to this Agreement.
17. Interpretation of Agreement. In interpreting this Agreement,
each of the Parties expressly agrees that the Agreement was prepared by all of
the Parties jointly, and that no ambiguity shall be resolved against any Party
on the basis that it was responsible, or primarily responsible, for having
drafted the Agreement. In addition, each of the Parties acknowledges that it did
not execute this Agreement under duress and was represented by competent counsel
in connection with this Agreement. Further, whenever the context so requires:
(a) all words used in the singular shall be construed to have been used in the
plural (and vice versa); (b) each gender shall be construed to include any other
genders; (c) the word "person" shall be construed to include a natural person, a
corporation, a firm, a joint venture, a trust, an estate, or any other entity,
and (d) the words "and" as well as "or" shall be construed either disjunctively
or
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conjunctively as necessary to bring within the scope of any provision of this
Agreement any person, right, obligation or concept which might otherwise be
construed to be outside the scope of such provision.
18. No Waiver. No delay or omission in the exercise of any right
or remedy shall impair such right or remedy or be construed as a waiver. A
consent to or approval of any act shall not be deemed to waive or render
unnecessary consent to or approval of any other or subsequent act. Any waiver of
a default under this Agreement must be in writing and shall not be a waiver of
any other default concerning the same or any other provision of this Agreement.
19. Governing Law. This Agreement, and all of the documents and
instruments executed and delivered in connection with this Agreement, shall be
governed by and construed under the internal laws of the State of Ohio (without
regard to conflicts of law rules), except to the extent that a Party may have
greater rights or remedies under federal law, in which case the choice of Ohio
law shall not deprive the Party of its rights and remedies as may be available
under federal law.
20. Authority to Execute Agreement. Each person or entity
executing this Agreement represents that he/she/it is authorized to execute this
Agreement. Each person executing this Agreement on behalf of an entity
represents that he or she is authorized to execute this Agreement on behalf of
such entity.
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IN WITNESS WHEREOF, the Parties or their duly authorized
representatives have executed this Agreement, consisting of 11 pages (including
signature pages).
Advanced Lighting Technologies, Inc. /s/ Xxxxx X. Xxxxxxx
--------------------------------
Xxxxx X. Xxxxxxx
By: /s/ Xxxxxxxxxxx X. Xxxxxx
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Its: Vice President and Chief Accounting
Officer
Saratoga Lighting Holdings, LLC
By: Saratoga Management Company, LLC as
Managing Member
By: /s/ Xxxxxxxxx X. Xxxxxxxx
---------------------------------------
Xxxxxxxxx X. Xxxxxxxx
Its: Executive Committee Member
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