1
Exhibit 10.1
September 17, 1997
FINAL
Xx. Xxxx Xxxx
XXXX LIGHTING, INC.
0000 Xxxxxxxxxx Xxxxxx
Xxxxxx, XX 00000
Dear Xx. Xxxx:
This binding letter of intent outlines the basic economic terms of the
agreement by Advanced Lighting Technologies, Inc. ("ADLT") to acquire all of the
outstanding capital stock of Ruud Lighting, Inc. ("RLI").
Subject to the preparation and execution of final, definitive agreements
and ancillary documents satisfactory in form and substance to the parties and
their counsel, we understand the principal terms of our agreement to include the
following:
1. STRUCTURE AND PURCHASE PRICE. At the Closing (as defined below), ADLT
will acquire all of the outstanding shares of RLI capital stock, by
merger or purchase, for compensation consisting of (a) $35.5 million in
cash and (b) three million shares of ADLT common stock (collectively,
the "Purchase Price"). The transaction will be fully taxable at closing.
Notwithstanding anything contained herein to the contrary, if the per
share Market Value of the ADLT common stock as of Closing (calculated
using the average of the closing prices on the Nasdaq National Market as
of the ten consecutive trading days immediately prior to Closing) equals
less than $23 per share, ADLT, RLI or the RLI Shareholders holding a
majority of the outstanding RLI common stock may elect not to proceed
with the sale described herein.
18
2
2. SHAREHOLDERS' EQUITY. At Closing, shareholders' equity in RLI, as
reported by the statement of net worth required below, shall equal
$15,563,592. The cash portion of the purchase price shall increase by an
amount equaling the sum, if any, by which shareholders' equity in RLI at
Closing exceeded $15,563,592; the cash portion of the purchase price
shall decrease by an amount equaling the sum, if any, by which
shareholders' equity in RLI at Closing equaled less than $15,563,592. By
February 15, 1998, RLI shall deliver to ADLT audited financial
statements as of November 30, 1997 and a statement of net worth as of
Closing, both prepared in accordance with GAAP except as provided in
section 19 below. By February 28, 1998, the parties shall pay to each
other the amount, if any, necessary to effect the cash Purchase Price
adjustment required by the second sentence of this section 2.
3. PRE-CLOSING TRANSACTIONS. RLI may make tax-free distributions to the RLI
shareholders (the "RLI Shareholders") from its accumulated adjustment
account existing as of the date hereof. RLI may also distribute to the
RLI Shareholders RLI's earnings during calendar year and fiscal year
1997 (the "Earnings Distribution"). Such distributions shall not exceed
the total of (a) an amount which, together with all distributions made
from December 1, 1996 to the date hereof, does not exceed the net income
of RLI for the twelve months ended November 30, 1997 (as determined in
accordance with generally accepted accounting principles ("GAAP")
consistently applied) and (b) $1.5 million (which is the amount of the
total of the anticipated rebate adjustment, the anticipated LIFO
adjustment and the tax on the anticipated RLI income for December 1997).
The RLI Shareholders shall be responsible for the payment of all taxes
payable on such earnings. Except as recited in section 2 above, the
Purchase Price shall not be decreased or otherwise affected by the
payment of the Earnings Distribution.
4. CLOSING. Closing of the purchase described herein shall occur on January
2, 1998 (the "Closing"), with effect as of January 1, 1998, or, if
later, the earliest practicable date following satisfaction of all
conditions to closing; provided however, Closing shall occur no later
than January 20, 1998.
19
3
5. MANAGEMENT. Upon Closing, RLI will become a direct or indirect
subsidiary of ADLT. After the Closing and until the ADLT annual
shareholders' meeting in 2000, Xxxx Xxxx ("Xx. Xxxx") shall serve as
Vice Chairman of ADLT and CEO of RLI and shall be appointed to serve on
the board of directors of ADLT. He will serve on the executive committee
of the ADLT's board. Xx. Xxxx shall be entitled to nominate an
additional director of ADLT to serve a term expiring in 1999, such
nominee shall not be a past or present employee of RLI or ADLT and such
appointment to the board shall be subject to the approval of the
existing board of directors of ADLT, which approval the board shall not
unreasonably withhold.
6. EMPLOYMENT AGREEMENTS AND AGREEMENTS NOT TO COMPETE. Xx. Xxxx, Xxx
Xxxxxx and Xxx Xxxxxxx will each enter into three-year employment
agreements with ADLT, reciting the principal terms of his employment
with ADLT and prohibiting him from competing with ADLT for three years
following the termination of his employment by ADLT. Xxxxx Xxxx,
Xxxxxxxxxxx Xxxx and Xxxxx Xxxxxxx shall each enter into employment
agreements with ADLT for a minimum term of one year on terms reasonably
acceptable to the parties.
7. CONDUCT OF RLI'S BUSINESS. Prior to Closing, RLI shall operate its
business in the ordinary course, and, without the prior consent of ADLT,
shall not:
(a) Except as recited in section 3 hereof, pay any dividends or make any
distributions to shareholders, except RLI shall be permitted to
distribute to its shareholders real property which is not used in
RLI's business, and which is not subject to current development
plans for RLI's business or it may sell any such real property and
distribute to its shareholders the net proceeds of such sale;
(b) Take any action which would cause a material breach of any
representation or warranty of RLI or its shareholders in the
definitive agreement;
(c) Enter into any material agreement with any shareholder of any
affiliate of RLI or any shareholder of RLI; or
20
4
(d) Make or commit to any individual capital expenditure in excess of
$200,000 or enter into any contract outside the ordinary course of
business.
8. CONDUCT OF ADLT'S BUSINESS. Prior to Closing, ADLT and its affiliates
shall operate their businesses in the ordinary course and, without the
prior consent of RLI, shall not:
(a) issue any shares of capital stock in ADLT or grant any options to
purchase such capital stock other than as already existing and
approved in ADLT's stock option plans (including the 1997 Billion
Dollar Incentive Award Plan approved by the board for the submission
to shareholders at the annual meeting);
(b) pay any dividends or make any distributions to shareholders, other
than dividends or distributions from a subsidiary to a parent
corporation;
(c) sell, transfer or convey, or enter an agreement to sell, transfer or
convey, all or a material portion of the assets of ADLT or of any
affiliate except in the ordinary course of business; provided,
however, that assets relating to fiber optic lighting systems may be
transferred to ADLT's proposed joint venture with Rohm and Xxxx
Company;
(d) take any action which would cause a material breach of any
representation or warranty of ADLT in the definitive agreement; or
(e) enter into any material agreement with any shareholder of any
affiliate of ADLT or any shareholder of ADLT.
9. DUE DILIGENCE.
(a) RLI Obligations. RLI shall grant access to ADLT, its accountants,
its counsel and its advisors to all of the facilities and books and
records of RLI in order to conduct a due
21
5
diligence examination of RLI. Such access shall be subject in all
respects to our letter dated July 17, 1997 regarding
confidentiality. In addition, the due diligence process shall be
conducted to the extent possible during regular business hours and
with minimal disruption of the business of RLI;
(b) ADLT Obligations. ADLT shall grant access to RLI, its accountants,
its counsel and its advisers to all of the facilities and books and
records of ADLT in order to conduct a due diligence examination of
ADLT. Such access shall be subject to a confidentiality letter
similar in all respects to the existing letter dated July 17, 1997
between ADLT and RLI with such changes as may be necessary to
reflect the confidentiality obligations relating to a public
company. In addition, the due diligence process shall be conducted
to the extent possible during regular business hours and with
minimum disruption of the business of ADLT.
10. ENVIRONMENTAL ISSUES. ADLT will conduct a Phase I environmental audit
of the real property of RLI using a mutually-acceptable environmental
consultant. RLI and ADLT shall each receive a copy of the preliminary
report for review and comment. If the results of the final agreed upon
audit recommend further on-site testing, ADLT may request that such
tests be performed. RLI may, in its sole discretion, permit or prohibit
such further tests; provided, however that if RLI prohibits further
tests, ADLT may terminate this letter of intent and the transaction
contemplated hereby. ADLT shall bear the costs of all such testing.
11. REPRESENTATIONS AND WARRANTIES. Each party shall be required to make
representations and warranties regarding the conduct of its business
prior to the Closing. These representations and warranties will include,
without limiting the possible warranties which may be required,
representations as to (the following shall apply equal to both RLI and
ADLT unless specifically stated to the contrary below):
(a) The organization and good standing of the entity and its
subsidiaries;
22
6
(b) Authority of the party to enter into the transaction and to conduct
its business;
(c) The fact that the shareholders entering the definitive agreement are
the only shareholders of RLI;
(d) Compliance of RLI's fiscal 1996 and 1997 audited financial
statements with GAAP (except as specifically stated herein), and
shareholders' equity at November 30, 1996 of not less that
$15,563,592;
(e) No distributions by RLI after November 30, 1996 in excess of amounts
described in section 3 above;
(f) Inventories and receivables (including maintenance of adequate
inventory and receivable of quality and quantity at not less than
historical levels) and trade payables (including amounts not in
excess of historical levels);
(g) Matters necessary for compliance with securities law, including
registration and financial reporting requirements;
(h) Absence of material litigation;
(i) Transactions with related parties;
(j) Compliance with laws, including environmental and tax laws;
(k) Material contracts;
(l) Intellectual property:
(m) Employee benefits, and
(n) Absence of material adverse events.
12. DEFINITIVE PURCHASE AGREEMENT. Following execution of this letter of
intent, RLI and ADLT will promptly commence, and use their best efforts
to complete, the negotiation, preparation and execution
23
7
of a definitive purchase agreement and ancillary documents on or prior
to October 31, 1997, and shall diligently commence preparation of all
ancillary documents and preparation of materials necessary to obtain all
consents required to complete the transaction.
13. CONDITIONS TO CLOSING. In addition to the provisions recited in this
letter of intent, consummation of the acquisition will be subject to
satisfaction of the following conditions on or before Closing or the
date indicated below, if earlier:
(a) Preparation and execution of a definitive agreement and ancillary
documents reasonably acceptable to the parties;
(b) Evidence reasonably satisfactory to the party which would be harmed
thereby that there are no material breaches of any representations
and warranties of RLI, the RLI shareholders or ADLT, as applicable;
(c) Evidence reasonably satisfactory to ADLT of completion by RLI and
its shareholders in all material respects of all covenants required
to be completed by them prior to the Closing;
(d) Evidence reasonably satisfactory to ADLT of RLI's receipt of all
material consents and approvals to the transaction required under
any of RLI's material contracts;
(e) Within 45 days of the execution of this letter, ADLT shall have (i)
obtained approval by its board of directors of the transaction
described and (ii) received and provided a copy to RLI of any
required consent of ADLT's existing lender (or in the event ADLT
refinances its existing loan facilities, or obtains a new loan to
finance this transaction, consent by ADLT's principal lender or
lenders) which is required to consummate the transaction;
(f) Receipt of all necessary governmental approvals or consents,
including termination of the applicable waiting period under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976;
24
8
(g) No injunction, order or decree of any county or governmental
authority shall have been issued, the effect of which is to prevent
or materially condition the consummation of the transactions
contemplated hereby;
(h) Evidence reasonably satisfactory to RLI of receipt by the RLI
Shareholders of the Purchase Price;
(i) Evidence reasonably satisfactory to RLI of completion by ADLT in all
material respects of all covenants required to be completed by it
prior to the Closing;
(j) Evidence reasonably satisfactory to RLI that no material adverse
change has occurred in the business operations, financial condition
or prospects of ADLT.
(k) The results of the "due diligence" investigations performed by RLI
and ADLT shall have reasonably satisfied such parties.
(l) Reasonable satisfaction with the results of the "due diligence"
investigation by each party, provided that, if a party shall have
failed to provide access and materials as reasonably requested to
allow completion of such investigation by October 24, 1997, the
other party may notify the defaulting party of the failure to
satisfy this condition and, unless satisfied on or before October
31, 1997, may elect not to close hereunder.
14. EMPLOYEE BENEFITS. Subject to the ADLT due diligence review, ADLT will
maintain in force RLI employee benefit plans for a minimum of one year,
unless ADLT can provide improved benefit plans acceptable to RLI
management. ADLT will pursue a consolidation of all domestic
subsidiaries' benefits plans. ADLT intends that this consolidation will
include RLI as soon as practicable. ADLT believes this consolidated plan
will provide improved benefits to all ADLT companies, including RLI.
15. STOCK OPTION PLAN. ADLT shall implement a stock option plan pursuant to
which current RLI employees and directors shall receive compensatory,
market value option grants at the time of Closing to
25
9
purchase approximately 800,000 shares of ADLT common stock. Such options
will be granted in accordance with the direction of the CEO of RLI and
be subject to forfeiture consistent with the terms and conditions
consistent with ADLT's existing stock option plans.
16. RESTRICTIONS ON ADLT COMMON STOCK TRANSFER. The common stock portion of
the purchase price will constitute a private sale and will not be
registered pursuant to the Securities Act of 1933. Each shareholder will
be required to agree to fulfill all steps reasonably necessary to
preserve the applicable exemptions from registration. In addition, each
shareholder will agree not to transfer any shares issued to such
shareholder as a portion of the Purchase Price for a period of two years
following the Closing. Notwithstanding the foregoing, the RLI
Shareholders shall be permitted to make charitable gifts and transfers
to other permitted transferees (so long as such transfers are in
compliance with applicable securities laws) after the Closing so long as
such transferees agree to be bound by the two-year transfer restriction.
Upon the expiration of two years following Closing (the "restricted
period"), such shareholders and transferees may transfer such common
stock in accordance with securities laws. Each common stock certificate
issued will bear a legend reciting the restrictions on transfer. Upon
expiration of the restricted period, ADLT shall remove any legend
reciting any restriction which no longer applies.
17. REGISTRATION RIGHTS. Any RLI Shareholder, and any transferee of any RLI
Shareholder (the "Ruud block"), will be entitled to "piggyback"
registration rights with respect to ADLT common stock received as a
result of the transaction on all registrations of ADLT shares after the
Restricted Period. Such "piggyback rights" will entitle the Ruud block
to sell shares in registered public offerings which include sales by
ADLT shareholders, participating on a pro rata basis with (a) the other
affiliated selling shareholders and (b) such other shareholders which
may then be entitled to participate in such offering. ADLT shall bear
all expenses (other than underwriters' commissions and discounts)
arising in connection with such registration.
26
10
18. ADLT LOANS TO RLI SHAREHOLDERS. ADLT will, in April 1999, make
nonrecourse loans available to the RLI Shareholders up to an amount
equal to the excess of (a) the aggregate amount of taxes payable by the
RLI Shareholders on their 1998 taxable income which could have been
deferred had the exchange of ADLT stock for RLI stock been structured as
tax free over (b) $5 million. Such loans shall be secured solely by a
pledge of a portion of the ADLT stock acquired by such RLI Shareholder
and shall bear interest at the annual rate of 7%. On or before Closing,
the parties shall calculate the amount of the tax which will be payable
by each RLI Shareholder to determine the amount of the loan
corresponding to each RLI Shareholder.
19. CLOSING STATEMENT OF NET WORTH. RLI shall, with the assistance of its
accountants, prepare a statement of closing net worth of RLI (the
"Statement of Net Worth") prepared as of December 31, 1997. The
Statement of Net Worth shall be prepared as recited in section 3 above
(including exceptions permitting inventory stated at its FIFO basis and
accruing unreceived rebates relating to 1997).
20. PROCEDURES WITH RESPECT TO TAX ISSUES.
(a) APPRAISALS. In connection with the use of any discount to value the
ADLT shares transferred to the RLI Shareholders (whether for book
accounting or tax purposes), ADLT and RLI shall obtain an appraiser
reasonably satisfactory to each of the parties to appraise the value
of the ADLT stock transferred and the reasonableness of the
discount. Such appraisal shall value the shares for purposes of the
RLI Shareholder's tax liability and for purposes of valuing the
goodwill acquired in the transaction. ADLT shall bear all costs and
expense arising in connection with such appraisal.
ADLT and RLI shall obtain an appraisal, by an appraiser reasonably
satisfactory to each, for the value of the assets of RLI, which
value the parties shall use in the calculation of the tax impact
upon them (in making an Internal Revenue Code, section 338(h)(10)
election, etc.). ADLT shall bear all costs and expenses arising in
connection with such appraisal.
27
11
(b) Indemnification. ADLT agrees to indemnify RLI and the RLI
Shareholders from any and all costs, losses and expenses arising in
any attempt by the Internal Revenue Service or Wisconsin Department
of Revenue or other taxing authority to tax the proceeds of the
transaction in an amount greater than the amount of tax calculated
by ADLT in its presentations to RLI and the RLI Shareholders. Such
costs and expenses shall include, without limitation, reasonable
attorneys' fees incurred in defending against a claim by the
Internal Revenue Service, Department of Revenue or other taxing
authority (whether or not successful), any losses, penalties or
interest (but not additional taxes) payable in the event of an
adverse determination, and any and all other costs and expenses.
21. LIFE INSURANCE. Prior to January 1, 1998, Xx. Xxxx may purchase, and the
parties agree to permit Xx. Xxxx to purchase, at its cash surrender
value, the $2,000,000 life insurance policy presently owned by RLI on
the life of Xx. Xxxx.
22. EXPENSES. ADLT shall be responsible for all of its costs and expenses in
connection with this letter, the agreement and the transaction. RLI
shall be responsible for all of the costs and expenses of RLI and the
RLI Shareholders in connection with this letter, the agreement and the
transaction.
23 PUBLICITY. RLI recognizes that ADLT is a public company and is required
by law to announce major corporate developments. ADLT and RLI will issue
a joint press release announcing the execution of this letter of intent
(which release will occur no sooner than September 18, 1997) and will
make such other disclosures as the parties mutually agree subject in all
cases to ADLT's public disclosure obligations as ADLT and its counsel
reasonably determine.
24 EXCLUSIVE NEGOTIATIONS. Until the later of execution of the definitive
agreement or December 31, 1997, RLI shall not, nor shall it give
authorization or permission to any of its shareholders to institute,
continue or otherwise entertain or maintain negotiations or
28
12
discussions with any other person, firm or corporation with respect to
the sale of all, or substantially all, the capital stock, business or
assets of RLI. RLI and the RLI Shareholders understand and agree that
the definitive agreement will contain a provision substantially similar
to this paragraph prohibiting negotiations and discussions prior to
Closing or the termination of the definitive agreement.
This letter evidences our mutual and respective understanding to negotiate
in good faith and proceed, as quickly as possible, with the preparation of
definitive agreements and ancillary documents within the conceptual frame work
described herein.
If this letter adequately reflects the intention of RLI and its primary
shareholders, please sign the enclosed copy where indicated below.
ADLT looks forward to working with RLI and its management to continue to
build the leading innovator in the HID lighting business!
Very truly yours,
ADVANCED LIGHTING TECHNOLOGIES, INC.
By /s/ Xxxxx X. Xxxxxxx
-------------------------------------
Xxxxx X. Xxxxxxx
President
MW2\23438
Accepted and Agreed this 17th day of
September, 1997.
/s/ Xxxx Xxxx
---------------------------------------
Xxxx Xxxx as President of Xxxx Xxxxxxxx, Inc.
and as its majority shareholder
29
