According to the Company’s FORM 10-Q for the quarterly period ended March 31, 2003, on January 17, 2003, the Federal Court judge presiding over all pending shareholder litigation, described below, entered a final order approving settlement of the litigation and dismissing all of the plaintiffs’ claims with prejudice. The settlement included a payment of $8.4 million in cash, all of which was paid by the Company’s insurance carriers. The settlement does not constitute any admission of wrongdoing on the part of the Company or the individual defendants.
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. The named defendants in the case – styled In re Advanced Lighting Technologies, Inc. Securities Litigation, Master File No. 1:99CV836, were the Company and its Chairman and Chief Executive Officer (CEO).
The First Amended Class Action Complaint alleged 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 sought certification of the purported class, unspecified compensatory and punitive damages, pre- and post-judgment interest and attorneys’ fees and costs.
The original complaint alleges that defendants' false and misleading statements about strong sales of Advanced Lighting's existing metal halide lighting products, about the strong continuing growth of the metal halide market for the next several years, which would result in 40% EPS growth for Advanced Lighting during 1998-1999, and the Company's false financial results, allowed Advanced Lighting to raise $100 million in a debt offering on 3/13/98, and inflated its stock to a Class Period high of $29-15/16. Defendant Hellman took advantage of this inflated price by using inflated Advanced Lighting shares as collateral to secure a $12+ million loan. On 9/30/98, Advanced Lighting revealed that, due to weak demand, its financial results were going to be much worse than earlier forecast and its stock fell in one day to $7-1/2, a 75% drop from its Class Period high of $29-15/16.