<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 17, 1997
REGISTRATION NO. 333-33285
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
STONERIDGE, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
OHIO 3714 34-1598949
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER IDENTIFICATION
INCORPORATION) CLASSIFICATION CODE NUMBER) NUMBER)
</TABLE>
9400 EAST MARKET STREET
WARREN, OHIO 44484
(330) 856-2443
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
CLOYD J. ABRUZZO
STONERIDGE, INC.
9400 EAST MARKET STREET
WARREN, OHIO 44484
(330) 856-2443
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------
Copies of all correspondence to:
<TABLE>
<S> <C>
AVERY S. COHEN, ESQ. HOWARD S. LANZNAR, ESQ.
BAKER & HOSTETLER LLP LAWRENCE D. LEVIN, ESQ.
3200 NATIONAL CITY CENTER KATTEN MUCHIN & ZAVIS
1900 EAST NINTH STREET 525 W. MONROE STREET, SUITE 1600
CLEVELAND, OHIO 44114 CHICAGO, ILLINOIS 60661-3693
(216) 621-0200 (312) 902-5200
</TABLE>
------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE AGGREGATE AMOUNT OF
BEING REGISTERED REGISTERED(1) PER SHARE(2) OFFERING PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C> <C>
Common Shares, without par value.......... 7,262,500 $17.00 $ 123,462,500 $ 37,413(3)
</TABLE>
(1) Includes up to 877,500 shares which may be purchased by the Underwriters to
cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a).
(3) The Company paid a fee of $37,576 with the initial filing of the
Registration Statement.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
================================================================================
<PAGE> 2
EXPLANATORY NOTE
This Registration Statement covers the registration of and contains a form
of prospectus relating to each of (i) an offering in the United States and
Canada (the "U.S. Offering") of 5,557,500 Common Shares of Stoneridge, Inc.
(which number includes 877,500 shares subject to the U.S. Underwriters'
overallotment option), and (ii) a concurrent international offering outside the
United States and Canada (the "International Offering" and together with the
U.S. Offering, the "Offering") of 1,170,000 Common Shares of Stoneridge, Inc.
The prospectuses will be identical in all respects except that each will contain
different front cover pages.
This Registration Statement also covers the registration of and contains a
form of prospectus (the "Company Prospectus") relating to the offering (the
"Company Offering") of Common Shares directly by the Company to certain
directors, executive officers and other management employees of the Company. The
amount of the Company Offering will not be less than $6.5 million. Based on an
assumed initial public offering price of $16.00 per share (less $1.08 per share
of assumed underwriting discounts and commissions), the minimum Company Offering
would be 435,657 Common Shares. The Company Prospectus is identical in all
respects to the other prospectuses except for (i) the front cover page of the
Company Prospectus and (ii) the fact that the information in "Underwriters" is
not applicable to purchases pursuant to the Company Prospectus. The alternative
pages for the prospectuses are included herein.
If required pursuant to Rule 424(b) of the General Rules and Regulations
under the Securities Act of 1933, the prospectuses in the forms in which they
are used after the Registration Statement becomes effective will be filed with
the Securities and Exchange Commission.
<PAGE> 3
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
PROSPECTUS (Subject to Completion)
Issued September 17, 1997
5,850,000 Shares
STONERIDGE, INC.
COMMON SHARES
------------------
All of the 5,850,000 Common Shares offered hereby are being offered by the
Company. Of the 5,850,000 Common Shares being offered, 4,680,000 shares are
being offered initially in the United States and Canada by the U.S. Underwriters
and 1,170,000 shares are being offered initially outside the United States and
Canada by the International Underwriters. Prior to the Offering there has been
no public market for the Common Shares of the Company. Between approximately
$81,000,000 and $85,000,000 of the net proceeds of the Offering will be used to
make a distribution of previously taxed but undistributed earnings to the
Company's pre-Offering shareholders. See "S Corporation Distribution and
Management Reinvestment." It is currently anticipated that the initial public
offering price per Common Share will be between $15 and $17. See "Underwriters"
for a discussion of the factors to be considered in determining the initial
public offering price.
In addition to the 5,850,000 Common Shares being offered hereby, 435,657 Common
Shares are being offered directly by the Company concurrently herewith to
certain directors, executive officers and other management employees of the
Company. See "S Corporation Distribution and Management Reinvestment."
Upon completion of the Offering, the Company's executive officers,
directors and their families will collectively own approximately 68%
of the outstanding Common Shares of the Company. Consequently, these
persons will be able to determine the outcome of any matter
subject to a vote of the Company's shareholders, including the
election of directors.
------------------------
THE COMMON SHARES HAVE BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "SRI."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total(3)........................... $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at
$1,200,000.
(3) The Company has granted the U.S. Underwriters an option exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
877,500 additional Common Shares at the price to public, less
underwriting discounts and commissions for the purpose of covering
overallotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriters."
------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Katten Muchin & Zavis, counsel for the Underwriters. It is expected that
delivery of the Common Shares will be made on or about October , 1997 at the
offices of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment
therefor in immediately available funds.
------------------
MORGAN STANLEY DEAN WITTER DONALDSON, LUFKIN & JENRETTE
Securities Corporation
, 1997
<PAGE> 4
The Company's Prospectus contains a two page gate fold after the front
cover page. In the center of the gate fold there are pictures of a heavy duty
truck, just to the left of center, a four-by-four sports utility vehicle, just
to the right of center, and in between the two vehicles, the control panel of a
heavy duty truck. Surrounding these three pictures are twelve boxes (1 1/2" by
2") on the left, right and bottom outer edges of the gate fold which contain
pictures of the Company's principal products. On the top of the gate fold on the
left hand side in large type is the word "Stoneridge" and the sentence, in
smaller type, "Stoneridge is a leading independent supplier of highly engineered
electrical and electronic components, modules and systems for the automotive,
medium and heavy duty truck and agricultural vehicle markets." The twelve
picture boxes are indexed A through L. The pictures in the center of the boxes
are also indexed A through L to indicate the approximate location in the
particular vehicle (or control panel) where the Company's products are
incorporated. Box A is a picture of various power distribution products with the
caption, Power Distribution Systems (Wiring Systems, Circuit Protectors,
Connectors, Bussed Electrical Centers); Box B is a picture of various multiplex
modules with the captions Multiplex Modules (Vehicle Electronic Control Units,
Instrumentation, Door Multiplex systems); Box C is a picture of various modular
assemblies with the caption Modular Assemblies (Instrument Panels, Seat
Assemblies, Refrigeration Controls); Box D is a picture of various
instrumentation with the caption Instrumentation (Electronic Instrument Panels,
Clusters, Gauges, Integrated Digital Displays); Box E is a picture of various
customer activated switches with the caption Customer Activated Switches
(Ignition, Mirror, Headlamp); Box F is a picture of various information displays
with the caption Information Displays (Diagnostic Recorders, Maintenance Data
Storage, Operator Performance Monitoring); Box G is a picture of various
actuator products with the caption Actuators (Power Door Lock and Four Wheel
Drive); Box H is a picture of various hidden switches with the caption Hidden
Switches (Door Ajar, Dome Light, Anti-theft); Box I is a picture of various
electronic instrumentation and display modules with the caption Electronic
Instrumentation and Display Modules (Digital Displays, Power Converters,
Application Specific Modules); Box K is a picture of various power distribution
products with the caption Power Distribution (Wiring Systems, Custom Connectors,
Wiring Harnesses); Box J is a picture of various customer actuated switches with
the caption Customer Actuated Switches (Headlights, Rear Defroster, Heated Seat)
and Box L a picture of various power train switches and the caption Power Train
Switches (Clutch, Brake, Auto-Stick, Transmission).
<PAGE> 5
NO PERSON IS AUTHORIZED IN CONNECTION WITH ANY OFFERING MADE HEREBY TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR BY ANY UNDERWRITER.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN
OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY BY ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER
ANY CIRCUMSTANCE CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
------------------------
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE COMMON SHARES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
------------------------
For investors outside the United States: No action has been or will be
taken in any jurisdiction by the Company or any Underwriter that would permit a
public offering of the Common Shares or possession or distribution of this
Prospectus in any jurisdiction where action for that purpose is required, other
than in the United States. Persons into whose possession this Prospectus comes
are required by the Company and the Underwriters to inform themselves about and
to observe any restrictions as to the Offering of the Common Shares and the
distribution of this Prospectus.
------------------------
In this Prospectus, references to (i) the "Company" includes Stoneridge,
Inc. and its subsidiaries, unless the context otherwise requires and (ii)
"dollar" and "$" are to United States dollars, and the term "United States" or
"U.S." means the United States of America, its states, its territories, its
possessions and all areas subject to its jurisdiction.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................................................................... 3
Risk Factors.......................................................................... 8
The Company........................................................................... 12
Use of Proceeds....................................................................... 13
S Corporation Distribution and Management Reinvestment................................ 14
Dividend Policy....................................................................... 14
Capitalization........................................................................ 15
Dilution.............................................................................. 16
Selected Financial Data............................................................... 17
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 19
Business.............................................................................. 27
Management............................................................................ 39
Principal Shareholders................................................................ 44
Certain Transactions.................................................................. 46
Description of Capital Shares......................................................... 47
Shares Eligible for Future Sale....................................................... 49
Certain United States Federal Tax Consequences for Non-U.S. Holders of Common
Shares.............................................................................. 51
Underwriters.......................................................................... 53
Experts............................................................................... 56
Legal Matters......................................................................... 56
Additional Information................................................................ 56
Index to Financial Statements......................................................... F-1
</TABLE>
------------------------
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON SHARES.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING,
AND MAY BID FOR, AND PURCHASE, COMMON SHARES IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITERS."
2
<PAGE> 6
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such differences include, but are not limited to, those discussed in "Risk
Factors." The following summary is qualified in its entirety by, and should be
read in conjunction with, the more detailed information and financial statements
(including the notes thereto) appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes (i) no exercise
of the Underwriters' overallotment option, (ii) the issuance of 435,657 Common
Shares in the Company Offering (as defined herein), (iii) the recapitalization
of the Company's Class A and Class B Common Shares into a single class of Common
Shares to be effected prior to the Combined Offering as described under the
heading "Description of Capital Shares" and (iv) completion of the Berifors
acquisition and the issuance of 757,063 Common Shares in connection therewith as
described under the heading "The Company."
THE COMPANY
The Company is a leading independent designer and manufacturer of highly
engineered electrical and electronic components, modules and systems principally
for the automotive, medium and heavy duty truck and agricultural vehicle
markets. The Company's products interface with a vehicle's mechanical and
electrical systems to activate equipment and accessories, display and monitor
vehicle performance, and control and distribute electrical power and signals.
The Company has a leading market position in the design and manufacture of
electrical and electronic modules and systems for the medium and heavy duty
truck and agricultural vehicle markets. In the automotive market, the Company
produces specially designed and engineered electrical and electronic component
parts and modules, typically on a sole-source basis. The Company's engineers and
designers work closely with customers to design, develop and manufacture
components, modules and systems to address specific vehicle requirements. The
Company, together with its predecessors, has long-standing relationships with
its major customers, including General Motors Corporation (since 1931), Ford
Motor Company (since 1930), Deere & Company (since 1965), and Navistar
International Corporation (since 1941). Approximately 72% of the Company's 1996
net sales and 66% of net sales for the first six months of 1997 were derived
from the automotive market, and approximately 27% of the Company's 1996 net
sales and 33% of net sales for the first six months of 1997 were derived from
the medium and heavy duty truck and agricultural vehicle markets.
The Company's four principal product categories are:
- Power Distribution Products. The Company designs and manufactures
electrical power and signal distribution components, modules and systems,
including fully integrated automotive and truck wiring systems and highly
engineered products, such as power distribution panels, for the
automotive, medium and heavy duty truck and agricultural vehicle markets.
Power distribution systems regulate, coordinate and direct the operation
of the entire electrical system within a vehicle or compartment. A
significant portion of the Company's current power distribution business
consists of contract manufacturing of wire harnesses for a division of
General Motors. See "Business -- Contract Manufacturing."
- Switch Products. The Company designs and manufactures integrated
electronic and electromechanical switch products which include hidden
switches and customer-activated switches. These switches transmit a
signal to a control device which activates specific functions. Hidden
switches are those switches which are not typically seen by vehicle
passengers but are utilized to activate or deactivate selected functions
such as brake lights, cruise control functions and electronic safety
features related to air bag and anti-lock braking systems.
Customer-activated switches are used by a vehicle's operator or
passengers to manually activate headlights, rear defrosters, heated seats
and other accessories. The Company sells these products principally to
the automotive market.
- Instrumentation and Information Display Products. The Company designs
and manufactures electronic instrument clusters, driver message centers,
power conversion products, multiplexed modules and electrical systems and
electronic switch modules. These products collect, store and display
vehicle information, such as speed, pressure, maintenance data, trip
information, operator performance, temperature, distance traveled, and
driver messages related to vehicle performance.
3
<PAGE> 7
These products utilize state-of-the-art hardware, software and
multiplexing technology and are sold principally to the medium and heavy
duty truck and agricultural vehicle markets.
- Actuator Products. The Company designs and manufactures
electromechanical actuator products that enable users to deploy power
functions in a vehicle and can be designed to integrate switching and
control functions. These products include power door lock and
four-wheel-drive actuators and are sold principally to the automotive
market.
These four product categories accounted for 52%, 29%, 11% and 8%, respectively,
of the Company's 1996 net sales, and 47%, 26%, 10% and 17% of the Company's net
sales for the first six months of 1997.
The Company believes that it is the leading North American manufacturer of
(i) power and signal distribution systems for the agricultural vehicle market
and (ii) driver instrumentation and information display systems for the medium
and heavy duty truck markets. In the automotive market, where the Company
focuses on component and module design and manufacturing, the Company believes
it is the largest manufacturer of pedal assembly, chassis and door mounted
hidden switches in North America and Europe. In addition to the Company's
leading market positions, it is typically the sole supplier of products
designed, developed and manufactured by the Company for specific vehicle
platforms.
Demand for the Company's products has grown as electrical and electronic
content in vehicles has increased. The Company has benefited as original
equipment manufacturers ("OEMs") added more electrical features and
sophisticated electronics, such as driver information displays, safety systems
and comfort features. Increased use of these features on vehicles causes greater
utilization of the products designed and manufactured by the Company. According
to a report by The Economist Intelligence Unit, average electrical and
electronic content per vehicle is expected to increase from $863 in 1995 to
$1,230 in 2000, a compound annual growth rate of 7.3%.
The Company seeks to grow primarily by leveraging its strong market
positions and technical and manufacturing capabilities to provide highly
engineered electrical and electronic components, modules and systems to selected
segments of the markets it serves. To achieve this goal the Company intends to:
(i) focus on higher value-added systems and modules; (ii) expand new product
development to increase vehicle and platform penetration; (iii) expand
penetration of international markets; and (iv) pursue strategic acquisitions and
alliances.
The Company was founded in 1965 and until 1987 conducted its business
primarily as a contract manufacturer of wire harnesses. In 1987, the Company
embarked on a strategy to design and manufacture highly engineered electrical
and electronic products and diversify its portfolio of products through
acquisitions. The Company's significant acquisitions include: (i) Joseph Pollak
Corporation ("Pollak"), a manufacturer of electronic and electromechanical
switch products in 1988; (ii) the Transportation Electronic Division ("TED") of
General Instruments, a manufacturer of power conversion modules and
sophisticated instrumentation components, modules and systems in 1992; and (iii)
the actuator business of Kelsey-Hayes Company ("Kelsey-Hayes") in 1995. In 1996,
seeking to leverage its capabilities and diversify its OEM customer base, the
Company acquired approximately 45% of Berifors AB ("Berifors"), a Sweden-based
manufacturer of electronic display panels and instrumentation for the European
truck and commercial vehicle markets. Effective upon the completion of the
Offering, the Company expects to acquire an additional 51% of the outstanding
stock of Berifors and will have an option to acquire the remaining 4% stake in
1998. As a result of this acquisition, the Company will be a worldwide supplier
of instrumentation displays for heavy duty trucks to Mercedes Benz, Volvo and
Scania. As discussed under "Risk Factors -- Reliance on Major Customers;
Discontinuance of Certain Contract Manufacturing Business" and "The Company," a
division of General Motors has notified the Company that it is discontinuing all
outsourcing of its wire harness requirements under contract manufacturing
arrangements. As a result, the Company expects to exit its contract
manufacturing business by approximately 1999, at which time the Company will
generate substantially all of its net sales and profits from the design and
manufacture of highly engineered electrical and electronic products.
The Company's principal executive offices are located at 9400 East Market
Street, Warren, Ohio 44484, and its telephone number is (330) 856-2443.
4
<PAGE> 8
THE OFFERING
<TABLE>
<S> <C>
Common Shares offered:
U.S. Offering............................... 4,680,000 shares
International Offering...................... 1,170,000 shares
Company Offering............................ 435,657 shares(1)
Common Shares to be outstanding
after the Offering.......................... 21,445,287 shares(2)
Use of proceeds............................... Between approximately $81.0 million and $85.0
million to pay the S Corporation Distribution
and the remainder to repay bank debt. See
"Use of Proceeds."
New York Stock Exchange symbol................ SRI
</TABLE>
- ---------------
(1) The Company is offering Common Shares directly to certain directors,
executive officers and other management employees of the Company at the
initial public offering price set forth on the cover page of this
Prospectus, less underwriting discounts and commissions (the "Company
Offering"). The amount of the Company Offering will not be less than $6.5
million. Based on an assumed initial public offering price of $16.00 per
share (less $1.08 per share of assumed underwriting discounts and
commissions), the minimum Company Offering would be 435,657 Common Shares.
As used herein, the term "Combined Offering" includes both the Company
Offering and the underwritten initial public offering. See "S Corporation
Distribution and Management Reinvestment."
(2) Includes 757,063 Common Shares expected to be issued in the Berifors
acquisition. See "The Company -- Acquisitions."
S CORPORATION DISTRIBUTION AND MANAGEMENT REINVESTMENT
The Company has been treated as an S corporation for federal income tax
purposes. Similar elections were made in states providing for conforming laws.
As a result, the Company currently pays no federal income tax and virtually no
state income tax, and the earnings of the Company are subject to taxation
directly at the shareholder level. Effective with the Offering, the Company's S
corporation status will be terminated, and the Company will become subject to
corporate income taxation as a C corporation.
The Company intends to pay to existing shareholders a distribution of
substantially all of its previously undistributed S corporation taxable income
as of the date of termination of its status as an S corporation (the "S
Corporation Distribution"). The previously undistributed S corporation taxable
income was taxed at the shareholder level in the year the income was earned. It
is not possible at this time to determine the exact amount of the S Corporation
Distribution. The Company currently estimates that undistributed S corporation
taxable income as of the termination of the Company's S corporation status will
be between approximately $81.0 million and $85.0 million. The Company
anticipates distributing substantially all of the S Corporation Distribution in
connection with the Offering. The remaining balance of the S Corporation
Distribution is anticipated to be paid with cash from operations after
completion of the Company's 1997 income tax returns.
Of the $81.0 million to $85.0 million S Corporation Distribution, certain
directors, executive officers and other management employees of the Company (the
"Management Investors"), who are pre-Offering shareholders, will receive
approximately $8.0 million of the S Corporation Distribution. Concurrent with
the Offering, the Management Investors will purchase Common Shares at the
initial public offering price, less underwriting discounts and commissions,
directly from the Company in the Company Offering (the "Management
Reinvestment"). The amount of the Company Offering will not be less than $6.5
million. Based on an assumed initial public offering price of $16.00 per share
(less $1.08 per share of assumed underwriting discounts and commissions), the
minimum Company Offering would be 435,657 Common Shares. After the Offering, the
Management Reinvestment and the Berifors acquisition, executive officers,
directors and their families collectively will own approximately 68% of the
Company's outstanding Common Shares and will collectively be able to control the
outcome of all matters requiring a vote of shareholders.
5
<PAGE> 9
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
The following table sets forth summary historical and pro forma financial
data for the Company and should be read in conjunction with the financial
statements and notes related thereto and other financial information included
elsewhere herein. The summary historical financial data for the years ended
December 31, 1994, 1995 and 1996 are derived from the Company's financial
statements, which were audited by Arthur Andersen LLP, the Company's independent
accountants. The summary historical financial data for the years ended December
31, 1992 and 1993 are derived from the unaudited combined financial statements
of the Company, which financial statements have been prepared by the Company on
a basis consistent with the Company's audited financial statements. The summary
historical and pro forma financial data for the six-month periods ended June 30,
1996 and 1997 are derived from unaudited financial statements. The unaudited
interim period financial statements for 1996 and 1997 have been prepared by the
Company on a basis consistent with the Company's audited financial statements
and, in the opinion of management, include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the Company's
results of operations for such periods and its financial condition as of the
dates presented.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------------ ------------------
1992(1)(2) 1993(1)(2) 1994(2) 1995(3) 1996(3)(4) 1996 1997
---------- ---------- -------- -------- ---------- -------- --------
UNAUDITED UNAUDITED
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales......................... $175,586 $187,413 $225,531 $278,043 $363,748 $178,965 $218,787
Gross profit...................... 44,190 47,480 60,557 66,331 75,606 37,626 53,177
Operating income.................. 15,958 15,610 28,015 28,822 28,912 13,317 27,965
Interest expense, net............. 2,686 2,221 2,344 2,014 4,317 1,861 1,863
Income before income taxes........ 13,272 13,389 25,671 26,808 24,595 11,456 27,835
Net income........................ $ 9,755 $ 8,995 $ 26,666 $ 26,154 $ 24,071 $ 11,193 $ 27,510
======== ======== ======== ======== ======== ======= ========
PRO FORMA DATA:
Income before income taxes........ $ 24,595 $ 27,835
Provision for income taxes(5)..... 10,295 11,586
-------- --------
Pro forma net income.............. $ 14,300 $ 16,249
======== ========
OTHER DATA:
Product development expense....... $ 4,342 $ 5,096 $ 5,997 $ 6,664 $ 9,263 $ 5,499 $ 6,011
Capital expenditures.............. 12,369 5,669 9,046 14,767 14,083 10,159 6,373
Depreciation and amortization..... 6,251 6,696 6,870 7,979 9,966 5,118 6,138
EBITDA(6)......................... 22,209 22,306 34,885 36,801 38,878 18,435 35,836
Cash flows provided by (used in):
Operating activities............ 11,171 12,740 25,492 29,370 25,271 9,754 35,929
Investing activities............ (2,487) (3,069) (6,446) (33,567) (18,067) (18,535) (3,869)
Financing activities............ (9,567) 9,641 (18,226) 3,407 (7,129) 8,499 (32,410)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(7) AS ADJUSTED(8)
-------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................................................. $ 38,459 $(33,684) $ 48,343
Total assets..................................................... 183,829 188,186 209,905
Long-term debt, less current portion............................. 34,109 31,595 27,049
Shareholders' equity............................................. 99,743 23,646 121,841
</TABLE>
- ---------------
(Footnotes on following page)
6
<PAGE> 10
(Footnotes from prior page)
(1) The combined financial data presented for 1992 and 1993 includes the
combined results of operations and financial position of Stoneridge, Inc.,
Alphabet, Inc. ("Alphabet") and Alphastac, Inc. ("Alphastac/Pollak"). All
intercompany transactions and balances were eliminated from the combined
financial statements of these entities.
(2) Effective January 1, 1994, Alphabet and Alphastac/Pollak were merged into
Stoneridge, Inc. The merger was accounted for as a pooling of interest as
the merged entities were related through common ownership. Prior to the
merger, the Company and Alphabet were taxed as S corporations for federal
and, where qualified, state income tax purposes. Alphastac/Pollak was taxed
as a C corporation for federal and state income tax purposes prior to the
merger. Accordingly, the combined operating data includes Alphastac/Pollak's
recorded provisions for income taxes of $3.5 million and $4.4 million in
1992 and 1993, respectively. In conjunction with the merger on January 1,
1994, the Company recognized income of $1.4 million in the provision for
income taxes as a result of the elimination of Alphastac/Pollak deferred tax
liabilities.
(3) In 1995, the Company acquired the actuator business of Kelsey-Hayes. This
acquisition was accounted for as a purchase. The results of operations and
financial position reflect this acquisition as of November 1, 1995. In
connection with the acquisition, the Company entered into a transitional
services agreement with the seller for commercial and process engineering
support. The term of the transitional services agreement extended from
November 1995 through October 1996. In connection with the transitional
services agreement, the Company recognized expenses of $0.9 million and $4.3
million in 1995 and 1996, respectively, including $2.9 million during the
six-month period ended June 30, 1996. No additional expenses have been
incurred since the expiration of the transitional services agreement. In
addition, costs of approximately $1.0 million were incurred in 1995 in
connection with the closure and sale of a contract manufacturing facility.
(4) On April 30, 1996, the Company purchased approximately 45% of the
outstanding stock of Berifors. This investment was accounted for under the
equity method. The results of operations and financial position reflect the
investment in Berifors since April 30, 1996. In addition, 1996 operating
income was adversely impacted by (i) approximately $1.0 million of start-up
expenses associated with the relocation of switch production from the Boston
and Stoughton, Massachusetts, locations to a new facility in Canton,
Massachusetts, including costs associated with the reconfiguration and
relocation of the production lines, and (ii) approximately $0.6 million of
costs associated with the closure of a power distribution production
facility.
(5) Upon completion of the Offering, the Company will be taxed as a C
corporation for federal and state income tax purposes. Accordingly, pro
forma net income reflects federal and state income taxes as if the Company
had been a C corporation based on the tax rates that were in effect during
the periods reported. See "S Corporation Distribution and Management
Reinvestment."
(6) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents operating income plus depreciation and amortization. EBITDA
should not be considered as an alternative measure of net income, as an
indicator of cash flows from operating, investing, and financing activities
as determined in accordance with generally accepted accounting principles,
or as a measure of the Company's liquidity or ability to meet all cash
needs, but is presented to provide additional information related to the
Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(7) Reflects an assumed $83.0 million S Corporation Distribution, an assumed
$6.5 million Management Reinvestment pursuant to the Company Offering, the
exercise of options to purchase 438,119 Common Shares prior to the Offering
and the reinstatement of $4.4 million and $6.5 million of current deferred
income tax assets and long-term deferred income tax liabilities,
respectively, as a result of the termination of the Company's status as an S
corporation.
(8) Gives effects to the issuance of the Common Shares in the Combined Offering
and the application of the net proceeds therefrom as described in "Use of
Proceeds," and the issuance of 757,063 Common Shares in connection with the
acquisition of the remaining 55% of the outstanding shares of Berifors. The
Pro Forma As Adjusted Balance Sheet Data reflects the Company's investment
in Berifors using the consolidation method.
7
<PAGE> 11
RISK FACTORS
Prospective investors should consider, in addition to the information set
forth elsewhere in this Prospectus, the following matters in evaluating the
Company and the Common Shares offered hereby.
RELIANCE ON MAJOR CUSTOMERS; DISCONTINUANCE OF CERTAIN CONTRACT MANUFACTURING
BUSINESS
The Company is dependent on a small number of principal customers for a
significant percentage of its net sales. In 1996, General Motors, Ford and Deere
accounted for 39%, 18% and 10%, respectively, of the Company's net sales. The
loss of any significant portion of its sales to these customers or any other
significant customers would have a material adverse impact on the financial
condition and results of operations of the Company. The contracts the Company
has entered into with many of its customers provide for supplying the customers'
requirements for a particular model, rather than for manufacturing a specific
quantity of products. Such contracts range from one year to the life of the
model, which is generally three to seven years. Therefore, the loss of a
contract for a major model or a significant decrease in demand for certain key
models or group of related models sold by any of the Company's major customers
could have a material adverse impact on the Company. The Company also competes
to supply products for successor models and is subject to the risk that the
customer will not select the Company to produce products on any such model,
which could have a material adverse impact on the financial condition and
results of operations of the Company.
A division of General Motors has notified the Company that it is
discontinuing all outsourcing of its wire harness requirements under contract
manufacturing arrangements. The Company believes that by 1999 the General Motors
division will produce in-house substantially all of its wire harnesses
requirements previously supplied by the Company, although no assurance can be
given that such sales by the Company will not end at an earlier date. The
Company's net sales under this arrangement totaled approximately $105.6 million
and $48.8 million for 1996 and for the first six months of 1997, respectively,
or approximately 28.9% and 22.3% of total net sales for such periods. Sales
under this arrangement contributed approximately $7.2 million and $3.4 million
in operating income for 1996 and for the first six months of 1997, respectively,
or 24.9% and 12.1% of total operating income for such periods. There can be no
assurance that the Company will be able to offset reductions in its sales and
operating profits resulting from the reduction in sales to the General Motors
division. See "Business -- Contract Manufacturing."
INDUSTRY CYCLICALITY AND SEASONALITY
The markets for the Company's products have historically been cyclical.
Because the Company's products are used principally in the production of
vehicles for the automotive, heavy duty truck and agricultural vehicle markets,
its sales and therefore its results of operations are significantly dependent on
the general state of the economy and other factors which affect these markets. A
decline in automotive, heavy duty truck and agricultural vehicle production
could adversely impact the Company. In 1996, approximately 72% of the Company's
net sales were made to the automotive market and approximately 27% were derived
from medium and heavy duty truck and agricultural vehicle markets.
Demand for the Company's products has been seasonal. The Company typically
experiences decreased net sales during the third calendar quarter of each year
due to the impact of scheduled OEM plant shutdowns in July for vacations and new
model changeovers. The fourth quarter is also impacted by plant shutdowns for
the holidays. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Quarterly Information."
OEM SUPPLIER CONSOLIDATION
Since the early 1980s the OEM supply industry has undergone a significant
consolidation as OEMs sought to lower costs, improve quality and increasingly
purchase complete systems and modules rather than separate components. As a
result of these competitive pressures, there can be no assurance that the
Company will be able to increase or maintain gross margins on product sales to
OEMs.
8
<PAGE> 12
ACQUISITION STRATEGY
A substantial portion of the Company's growth in sales and earnings has
been generated from acquisitions and subsequent improvements in the performance
of the businesses acquired. The Company expects to continue a strategy of
identifying and acquiring businesses with complementary products or services.
There can be no assurance that the Company will continue to identify suitable
acquisition and joint venture candidates, obtain financing necessary to complete
and support such acquisitions or acquire businesses on satisfactory terms, or
that any business acquired by the Company, including Berifors, will be
successfully integrated with the Company's operations or prove to be profitable.
The Company could incur substantial indebtedness in connection with its
acquisition strategy. Covenant restrictions relating to such indebtedness could
restrict the Company's ability to pay dividends, fund capital expenditures,
consummate additional acquisitions and could significantly increase the
Company's interest expense. The Company anticipates that acquisitions will occur
in new geographic markets. Any failure to achieve successful integration of such
acquisitions could have a material adverse impact on the financial condition and
results of operations of the Company. See "Business -- Growth Strategy."
COMPETITION
Markets for the Company's products are highly competitive. Quality,
service, price, timely delivery, and technological innovation are the primary
elements of competition. Many of the Company's competitors are more diversified
and have greater financial and other resources than the Company. In addition,
with respect to certain of its products, some of the Company's competitors are
divisions of its OEM customers. There can be no assurance that the Company's
business will not be adversely affected by competition or that the Company will
be able to maintain its profitability if the competitive environment changes.
See "Business -- Markets and Competition."
TECHNOLOGICAL CHANGE
The Company's products are subject to changing technology, which could
place the Company at a competitive disadvantage relative to alternative products
introduced by competitors. The Company's success will depend on its ability to
continue to meet customers' changing specifications with respect to performance,
cost, quality and service by implementing and sustaining competitive
technological advances. The Company's business may therefore require, from time
to time, significant additional capital expenditures and investment in research
and development and manufacturing and management information systems. There can
be no assurance that the Company will be able to achieve the technological
advances or introduce new products that may be necessary to remain competitive.
The inability of the Company to continuously improve existing products and to
develop new products and to achieve technological advances could have a material
adverse impact on the financial condition and results of operations of the
Company. See "Business -- Design and Engineering."
LABOR RELATIONS
As of June 30, 1997, the Company, including Berifors, had approximately
4,000 employees, approximately 1,100 of whom were salaried and the balance of
whom were paid on an hourly basis. Except for certain employees located in
Chihuahua, Mexico, and Orebro and Stockholm, Sweden, the Company's employees are
not represented by a union. There can be no assurance that additional employees
of the Company will not be covered by collective bargaining agreements in the
future or that any of the Company's facilities will not experience a work
stoppage or other labor disruption. Any prolonged labor disruption involving the
Company's employees or employees of the Company's customers, most of whom are
covered by collective bargaining agreements, could have a material adverse
impact on the financial condition and results of operations of the Company. See
"Business -- Employees."
9
<PAGE> 13
ENVIRONMENTAL AND OTHER REGULATIONS
The Company's operations are subject to various federal, state, local and
foreign laws and regulations governing, among other things, emissions to air,
discharge to waters and the generation, handling, storage, transportation,
treatment and disposal of waste and other materials. The Company believes that
its business, operations and facilities have been and are being operated in
compliance in all material respects with applicable environmental and health and
safety laws and regulations, many of which provide for substantial fines and
criminal sanctions for violations. The operation of the Company's manufacturing
facilities entails risks and there can be no assurance that the Company will not
incur material costs or liabilities in connection with these operations. In
addition, potentially significant expenditures could be required in order to
comply with evolving environmental and health and safety laws, regulations or
requirements that may be adopted or imposed in the future.
In addition, although the Company intends to conduct "Phase I"
environmental testing in connection with acquisitions in the United States of
acquired businesses and additional testing (if deemed appropriate under the
circumstances) in order to minimize the risks of encountering material
environmental problems resulting from such acquisitions, there can be no
assurance that the Company will not discover material unanticipated
environmental problems requiring significant expenditures for corrective action
or remediation following such acquisitions. See "Business -- Environmental
Matters."
DEPENDENCE ON KEY PERSONNEL
The Company's success will depend, in part, on the efforts of its executive
officers and other key employees, including Cloyd J. Abruzzo, Kevin P. Bagby,
Sten Forseke, Gerald V. Pisani and David L. Thomas. In addition, the future
success of the Company will depend on, among other factors, the Company's
ability to continue to attract and retain qualified personnel, particularly
engineering personnel. The Company does not have employment agreements with, or
"key man" life insurance on, any of its employees. The loss of the services of
any of its key employees or the failure to attract or retain employees could
have a material adverse effect on the financial condition and results of
operations of the Company. See "Management."
PRODUCT LIABILITY
The Company is subject to the risk of exposure to product liability claims
in the event that the failure of any of its products results in personal injury
or death, and there can be no assurance that the Company will not experience
material product liability losses in the future. In addition, if any of the
Company's products prove to be defective, the Company may be required to
participate in a government-imposed or OEM-instituted recall involving such
products. The Company maintains insurance against such product liability claims,
but there can be no assurance that such coverage will be adequate for
liabilities ultimately incurred or that it will continue to be available on
terms acceptable to the Company. A successful claim brought against the Company
that exceeds available insurance coverage or a requirement to participate in any
product recall could have a material adverse impact on the financial condition
and results of operations of the Company. See "Business -- Litigation."
RISKS ASSOCIATED WITH FOREIGN OPERATIONS
Giving pro forma effect to the Berifors acquisition, international sales
accounted for approximately 9% of the Company's 1996 net sales and international
assets accounted for approximately 16% of the Company's assets as of December
31, 1996. International sales and operations are subject to significant risks,
including political and economic instability, restrictive trade policies,
economic conditions in local markets, the imposition of product tariffs and the
burden of complying with a wide variety of international and U.S. export laws.
Additionally, to the extent any portion of the Company's net sales and expenses
are denominated in currencies other than U.S. dollars, changes in exchange rates
could have a material adverse impact on the financial condition and results of
operations of the Company. Less than one percent of the Company's net sales and
expenses for 1996 and the first six months of 1997 are denominated in currencies
other than U.S. dollars. The Company does not currently engage in currency
hedging programs.
10
<PAGE> 14
CONTROL BY PRINCIPAL SHAREHOLDERS
Following the completion of the Combined Offering and assuming completion
of the Berifors acquisition, D.M. Draime, Draime family members and family
trusts (collectively, the "Draime Family") are expected to own approximately 61%
of the outstanding Common Shares (or approximately 58% if the Underwriters'
overallotment option is exercised in full). As a result of such ownership, the
Draime Family will be able to elect all of the directors of the Company and to
control the Company's affairs. See "Principal Shareholders."
DILUTION
The initial public offering price is substantially higher than the net pro
forma as adjusted tangible book value per share of the Common Shares.
Accordingly, purchasers of the Common Shares offered hereby will incur immediate
and substantial dilution in tangible book value per share of the Common Shares
of $12.54, assuming an initial public offering price of $16.00 per Common Share.
See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
Immediately upon consummation of the Combined Offering, the Company will
have outstanding 21,445,287 Common Shares (22,322,787 if the Underwriters
exercise in full their overallotment option). Of such Common Shares 6,285,657
(7,163,157 if the Underwriters exercise in full their overallotment option) will
have been sold in the Combined Offering and will be freely transferable without
restriction or further registration under the Securities Act of 1933, as amended
(the "Securities Act"), except for any of those Common Shares owned at any time
by an "affiliate" of the Company within the meaning of Rule 144 under the
Securities Act, which sales will be subject to the volume limitations and
certain other restrictions set forth in Rule 144. The sale of any substantial
number of Common Shares following the Combined Offering could have a material
adverse impact on the market price of the Common Shares. The Company and its
directors, officers and current shareholders have agreed not to sell, offer for
sale, or otherwise dispose of any Common Shares, subject to certain exceptions,
for a period of 180 days from the date of this Prospectus without the prior
written consent of Morgan Stanley & Co. Incorporated. Upon expiration of the 180
days, an aggregate of approximately 14 million Common Shares will be eligible
for sale by existing shareholders, subject in the case of affiliates to the
volume and manner of sale limitations imposed by Rule 144. See "Shares Eligible
for Future Sale" and "Underwriters."
DETERMINATION OF OFFERING PRICE AND ABSENCE OF PUBLIC MARKET
Prior to the Combined Offering, there has been no public market for the
Common Shares. Consequently, the initial public offering price has been
determined by negotiation among the Company and the Representatives of the
Underwriters based upon factors described under the caption "Underwriters." The
stock market has experienced, and is likely to experience in the future,
significant price and volume fluctuations which could adversely affect the
market price of the Common Shares without regard to the operating performance of
the Company. In addition, the Company believes that factors such as changes in
earnings estimates by analysts, quarterly fluctuations in the financial results
of the Company or its competitors, general conditions in the industry, the
overall economy and the financial markets could cause the price of the Common
Shares to fluctuate substantially. There can be no assurance that an active
trading market in the Common Shares will develop subsequent to the Combined
Offering or, if developed, that it will be sustained. See "Underwriters."
ANTI-TAKEOVER PROVISIONS
Certain provisions in the Company's Second Amended and Restated Articles of
Incorporation and its Amended and Restated Code of Regulations could have the
effect of making more difficult or discouraging an acquisition of the Company
deemed undesirable by its Board of Directors. These include the existence of
authorized but unissued preferred shares containing such terms as the Board of
Directors may approve, which could be issued by the Company's Board of Directors
without shareholder approval. In addition, certain provisions of Ohio law could
have the effect of deterring hostile takeovers or delaying, deterring or
preventing
11
<PAGE> 15
a change in control of the Company, including transactions in which shareholders
might otherwise receive a premium for their shares over current market prices.
See "Description of Capital Shares -- Certain Provisions of Ohio Law."
FORWARD-LOOKING STATEMENTS
This Prospectus contains forward-looking statements that involve
substantial known and unknown risks and uncertainties. Such forward-looking
statements are based on the beliefs of the Company's management as well as on
assumptions made by and information currently available to the Company at the
time such statements were made. When used in this Prospectus, the words
"anticipate," "believe," "estimate," "expect," "intend" and similar expressions,
as they relate to the Company, are intended to identify forward-looking
statements. Prospective investors are cautioned that any such forward-looking
statement is not a guarantee of future performance and involves risks and
uncertainties, and that actual results may differ materially from those in the
forward-looking statement as a result of various factors. Actual results could
differ materially from those expressed or implied in the forward-looking
statements.
THE COMPANY
The Company was formed in 1965 as a manufacturer of wire harnesses for the
agricultural vehicle market. Following expansion in 1977 into the automotive
market, sales increased from approximately $1.6 million in 1976 to $105.4
million in 1987, with approximately 90% of the Company's 1987 sales being
derived from the Company's contract manufacturing arrangement with a division of
General Motors. In 1987, the Company began to transition away from contract
manufacturing into a value-added designer and manufacturer of highly engineered
products by developing internal engineering capabilities and pursuing an
acquisition program to expand product offerings. See "Business -- Contract
Manufacturing."
ACQUISITIONS
In October 1988, the Company acquired Pollak, a leading manufacturer of
electronic and electromechanical switch products. In February 1992, the Company
acquired TED, a manufacturer of electronic instrumentation components, modules
and systems. In November 1995, the Company acquired the business, machinery and
equipment, intellectual property rights and purchase contracts of the actuator
business of Kelsey-Hayes. In April 1996, seeking to leverage its capabilities
and diversify its OEM customer base, the Company acquired approximately 45% of
Berifors, a Sweden-based manufacturer of electronic display panels and
instrumentation for the European truck and commercial vehicle markets. These
acquisitions were financed through credit facilities existing at the time of
acquisition. As a result, interest expense increased accordingly. See Note 5 of
the Notes to the Company's Financial Statements included herein, for a
discussion of the covenants in the current credit facility.
The Company expects to acquire, through a share exchange, the remaining 55%
of the outstanding stock of Berifors which it does not own for an aggregate of
757,063 Common Shares, which Common Shares will represent approximately 3.5% of
the Company's outstanding Common Shares after the Offering. The Company expects
to issue 704,563 Common Shares in exchange for 51% of the outstanding stock of
Berifors concurrent with and contingent upon completion of the Offering. The
Company will have an option to acquire the remaining 4% of the outstanding
Berifors stock by the issuance of 52,500 Common Shares which it expects to
exercise in April 1998. As a result of this acquisition, the Company will be a
worldwide supplier of instrumentation displays for heavy duty trucks to Mercedes
Benz, Volvo and Scania. Berifors had net sales of $26.1 million and $36.1
million for 1995 and 1996, respectively, and total assets of $11.4 million and
$15.2 million as of December 31, 1995 and 1996, respectively.
PROPOSED ACQUISITION
The Company periodically evaluates acquisition opportunities in both
domestic and international markets and expects to continue to do so in the
future. The Company has entered into a letter of intent to acquire 50% of the
stock of a Brazilian electronic components business which specializes in vehicle
security devices. The
12
<PAGE> 16
letter of intent provides for a purchase price of approximately $17.0 million,
subject to certain adjustments and contingencies, including the Company's
satisfactory completion of business, legal, accounting and environmental due
diligence reviews, negotiation of a definitive acquisition agreement, and
approval of the transaction by the Company's Board of Directors. There can be no
assurance that the Company will enter into a definitive acquisition agreement or
consummate such acquisition. The Company expects to use borrowings under its
credit facility to fund the acquisition. As of August 30, 1997, the aggregate
debt outstanding under the Company's credit facility was approximately $23.2
million. Giving pro forma effect on August 30, 1997 to the Offering, the
outstanding amount under the credit facility would have been approximately $11.1
million. The Company intends to continue to pursue strategic acquisitions and
alliances in both domestic and international markets. See "Use of Proceeds,"
"Business -- Competitive Advantages -- International Presence" and
"Business -- Growth Strategy -- Expand Penetration of International Markets" and
"-- Pursue Strategic Acquisitions and Alliances."
RECENT JOINT VENTURES
On August 25, 1997, the Company entered into two joint venture agreements
and a cooperation agreement with Connecto AB, a Swedish manufacturer of power
distribution systems. Pursuant to the terms of the agreements, during the fourth
quarter of 1997 the Company expects to pay approximately $2.4 million for a 60%
interest in a Brazilian joint venture and $1.1 million for a 40% interest in a
European joint venture. The joint ventures will establish production facilities
in Brazil and Europe for the purpose of manufacturing and selling power
distribution systems in South America and Europe, respectively. In addition, the
joint ventures will pursue sales and marketing efforts for other products and
services of the joint venture partners. The Company expects to finance its
investments in the joint ventures through borrowings under the Company's credit
facility. The cooperation agreement provides for the sharing of information and
technical know-how in product development.
USE OF PROCEEDS
The net proceeds to the Company from the Combined Offering are estimated to
be approximately $92.6 million (approximately $105.7 million if the
Underwriters' overallotment option is exercised in full), assuming an initial
public offering price of $16.00 per share and after deducting underwriting
discounts and commissions and estimated offering expenses.
The Company intends to use approximately $83.0 million of the net proceeds
to fund the S Corporation Distribution and approximately $9.6 million to repay
indebtedness under the Company's $125 million credit facility. The credit
facility expires on June 30, 2002 and requires interest to be paid quarterly at
the Company's option at either (i) the prime rate or (ii) LIBOR plus 0.75% to
2.0%, depending upon the Company's fixed charge coverage ratio. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 5 of Notes to the
Company's Financial Statements.
On September 15, 1997, approximately $94.3 million was available under the
Company's $125 million credit facility. It is anticipated that the Company will
use amounts available under its bank credit facility for working capital and
general corporate purposes, including possible acquisitions. See "Risk
Factors -- Acquisition Strategy," "The Company -- Proposed Acquisition" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
13
<PAGE> 17
S CORPORATION DISTRIBUTION AND MANAGEMENT REINVESTMENT
The Company has been treated as an S corporation for federal income tax
purposes. Similar elections were made in states providing for conforming laws.
As a result, the Company currently pays no federal income tax and virtually no
state income tax, and the earnings of the Company are subject to taxation
directly at the shareholder level. Effective with the Offering, the Company's S
corporation status will be terminated, and the Company will become subject to
corporate income taxation as a C corporation. Upon completion of the Offering,
current deferred tax assets of $4.4 million and noncurrent deferred tax
liabilities of $6.5 million (each estimated as of September 30, 1997) will be
recorded with an offsetting charge to net income. This one-time net charge of
$2.1 million is expected to reduce net income for the third quarter of 1997. No
additional adverse tax consequences to the Company are expected to result from
termination of its S corporation status.
The Company intends to pay to existing shareholders, on a pro rata basis
based on their pre-Offering ownership percentages, a distribution of
substantially all of its previously undistributed S corporation taxable income
as of the date of termination of its status as an S corporation (the "S
Corporation Distribution"). The previously undistributed S corporation taxable
income was taxed at the shareholder level in the year the income was earned. It
is not possible at this time to determine the exact amount of the S Corporation
Distribution. The Company currently estimates that undistributed S corporation
taxable income as of the termination of the Company's S corporation status will
be between approximately $81.0 million and $85.0 million. The Company
anticipates distributing substantially all the S Corporation Distribution in
connection with the Offering. The remaining balance of the S Corporation
Distribution is anticipated to be paid after completion of the Company's 1997
income tax returns.
Of the $81.0 million to $85.0 million S Corporation Distribution, the
Management Investors, who are pre-Offering shareholders, will receive
approximately $8.0 million of the S Corporation Distribution. Concurrent with
the Offering, the Management Investors will purchase Common Shares at the
initial offering price, less underwriting discounts and commissions, directly
from the Company in the Management Reinvestment pursuant to the Company
Offering. The amount of the Company Offering will not be less than $6.5 million.
Based on an assumed initial public offering price of $16.00 per share (less
$1.08 per share of assumed underwriting discounts and commissions), the minimum
Company Offering would be 435,657 Common Shares. The Management Investors
include Cloyd J. Abruzzo, Kevin P. Bagby, Richard E. Cheney, Avery S. Cohen,
Sheldon J. Epstein, Earl L. Linehan, Gerald V. Pisani, David L. Thomas and
thirteen other pre-Offering shareholders.
The Company may also make a distribution to its existing shareholders
following the Offering in the event that S corporation taxable income is
thereafter increased due to any Internal Revenue Service audit. The Company
expects to enter into an indemnification agreement with existing shareholders
with respect to any income tax attributable to periods prior to the termination
of the Company's S corporation status. Purchasers of Common Shares in the
Offering will not participate in the S Corporation Distribution or any future S
Corporation Distributions.
DIVIDEND POLICY
After payment of the S Corporation Distribution, all future earnings of the
Company are expected to be retained for use in its business. The Company does
not anticipate paying any cash dividends on its Common Shares in the foreseeable
future. The payment of future dividends will be at the sole discretion of the
Company's Board of Directors and will depend on, among other things, future
earnings, capital requirements, contractual restrictions, the general financial
condition of the Company, and general business conditions. The Company's credit
facility imposes limitations on the amounts of dividends that can be paid. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources" and Note 5 of the Notes to the
Company's Financial Statements.
14
<PAGE> 18
CAPITALIZATION
The following table sets forth as of June 30, 1997 the Company's (i) actual
capitalization, (ii) pro forma capitalization giving effect to the
recapitalization of the Common Shares to be effected prior to the Offering, the
exercise of options to purchase 438,119 Common Shares prior to the Offering, an
assumed $83.0 million S Corporation Distribution, an assumed $6.5 million
Management Reinvestment pursuant to the Company Offering, and the reinstatement
of approximately $2.1 million of net deferred income tax liabilities resulting
from the termination of the Company's S corporation status, and (iii) pro forma
capitalization as adjusted to reflect the sale of Common Shares in the Combined
Offering at an assumed initial public offering price of $16.00 per share (after
deduction of underwriting discounts and estimated expenses of the Combined
Offering), the application of the estimated net proceeds therefrom and the
issuance of 757,063 Common Shares for the acquisition of the remaining 55% of
the outstanding stock of Berifors. This table should be read in conjunction with
the historical financial statements of the Company and the notes thereto which
are included elsewhere in the Prospectus. See "Use of Proceeds," "Selected
Financial Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Description of Capital Shares."
<TABLE>
<CAPTION>
JUNE 30, 1997
--------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(UNAUDITED, DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Short-term debt:
Current portion of long-term debt....................... $ 200 $ 200 $ 200
-------- --------- ---------
Total short-term debt.............................. $ 200 $ 200 $ 200
======== ========= =========
Long-term debt:
Term loans.............................................. $ 3,928 $ 3,928 $ 8,964
Revolving credit facility............................... 30,181 27,667 18,085
-------- --------- ---------
Total long-term debt............................... 34,109 31,595 27,049
-------- --------- ---------
Shareholders' equity:
Preferred shares, without par value; to be authorized:
5,000,000 shares; issued and outstanding: none....... -- -- --
Class A common shares, without par value; authorized:
32,724 shares (actual); issued and outstanding:
15,465 shares (actual)............................... -- -- --
Class B common shares, without par value; authorized:
87,276 shares (actual); issued and outstanding:
84,937 shares (actual)............................... -- -- --
Common shares, without par value; authorized: 60,000,000
shares pro forma and pro forma as adjusted; issued
and outstanding: 14,838,224 shares pro forma and
21,445,287 shares pro forma as adjusted.............. -- -- --
Additional paid-in capital.............................. 9,370 23,646 121,841
Retained earnings....................................... 90,373 -- --
-------- --------- ---------
Total shareholders' equity......................... 99,743 23,646 121,841
-------- --------- ---------
Total capitalization............................ $133,852 $ 55,241 $ 148,890
======== ========= =========
</TABLE>
15
<PAGE> 19
DILUTION
The aggregate net tangible book value of the Company as of June 30, 1997
was $62.6 million, or $2.92 per Common Share.
Assuming the sale of 6,285,657 Common Shares in the Combined Offering at an
assumed initial public offering price of $16.00 per share and the application of
the net proceeds therefrom to fund the S Corporation Distribution and repay
debt, the issuance of 757,063 Common Shares to acquire the remaining 55% of
Berifors, the issuance of 438,119 Common Shares in connection with the exercise
of stock options prior to the Offering and assuming the change in the Company's
tax status, the pro forma aggregate net tangible book value of the Company at
June 30, 1997 would have been $74.1 million, or $3.46 per Common Share. This
represents an immediate increase in net tangible book value of $.54 per Common
Share to existing shareholders and an immediate dilution of $12.54 per share to
investors purchasing Common Shares in the Combined Offering. "Dilution per
share" represents the difference between the price per share to be paid by new
investors and the pro forma net tangible book value per share after the Combined
Offering. The following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.................. $16.00
Net tangible book value per share at June 30, 1997(1).......... $ 2.92
Increase attributable to price paid by investors in the
Combined Offering........................................... 4.32
Decrease attributable to S Corporation Distribution............ (3.87)
Increase attributable to the Berifors acquisition.............. .07
Increase attributable to the exercise of stock options......... .12
Decrease attributable to change in tax status, net............. (.10)
-------
-
Pro forma as adjusted net tangible book value per share after
the Combined Offering....................................... 3.46
-------
-
Dilution in net tangible book value per share to new
investors(2)................................................... $12.54
========
Assuming the Underwriters' overallotment option is exercised in full, pro forma
as adjusted net tangible book value upon completion of the Combined Offering would
be $3.91 per share, the immediate increase in pro forma as adjusted net tangible
book value of shares owned by existing stockholders would be $.99 per share, and the
immediate dilution to new investors in the Combined Offering would be $12.09 per
share.
</TABLE>
- ---------------
(1) Net tangible book value (deficit) per share is determined by dividing the
net tangible book value of the Company by the number of outstanding Common
Shares. Net tangible book value is calculated as total assets, less
goodwill, patents, trademarks and other intangible assets (net of
amortization) and total liabilities.
(2) Dilution is determined by subtracting pro forma net tangible book value per
share from the assumed initial public offering price per share paid by
investors in the Combined Offering.
The following table summarizes as of June 30, 1997 (based on the
assumptions set forth above regarding the Offering), the number of Common Shares
purchased from the Company, the total consideration paid to the Company (equal,
in the case of the existing shareholders, to the original consideration for the
Common Shares held by them plus additional contributions made by them in respect
of the Common Shares), and the average price per share paid by the existing
shareholders and by the investors purchasing Common Shares in the Combined
Offering (based on an assumed initial public offering price of $16.00 per
share). The Management Investors will purchase Common Shares at the initial
public offering price, less underwriting discounts and commissions, directly
from the Company in the Company Offering. See "Principal Shareholders."
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
---------------------- ------------------------ AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 14,402,567 67.2% $ 17,146,000 13.2% $ 1.19
New investors..................... 5,850,000 27.3% 93,600,000 72.4% 16.00
Management Investors.............. 435,657 2.0% 6,500,000 5.0% 14.92
Berifors acquisition.............. 757,063 3.5% 12,113,000 9.4% 16.00
---------- --- ----------- ---
Total........................... 21,445,287 100% $129,359,000 100%
========== === =========== ===
</TABLE>
16
<PAGE> 20
SELECTED FINANCIAL DATA
The following table sets forth selected historical and pro forma data for
the Company and should be read in conjunction with the financial statements and
notes related thereto and other financial information included elsewhere herein.
The selected historical data for the years ended December 31, 1994, 1995 and
1996 are derived from the Company's financial statements, which were audited by
Arthur Andersen LLP, the Company's independent accountants. The selected
historical data for the years ended December 31, 1992 and 1993 are derived from
the combined financial statements of the Company. The combined financial
statements of the Company have been prepared by the Company on a basis
consistent with the Company's audited financial statements. The selected
financial data for the six-month periods ended June 30, 1996 and 1997 are
derived from unaudited interim period financial statements. The unaudited
interim period financial statements for 1996 and 1997 have been prepared by the
Company on a basis consistent with the Company's audited financial statements
and, in the opinion of management, include all adjustments (consisting of only
normal recurring adjustments) necessary for a fair presentation of the Company's
results of operations for such period and financial condition for such date.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
-------------------------------------------------------- --------------------
1992(1)(2) 1993(1)(2) 1994(2) 1995(3) 1996(3)(4) 1996 1997
---------- ---------- --------- -------- ----------- -------- ----------
UNAUDITED UNAUDITED
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $175,586 $187,413 $ 225,531 $278,043 $ 363,748 $178,965 $ 218,787
Gross profit....................... 44,190 47,480 60,557 66,331 75,606 37,626 53,177
Operating income................... 15,958 15,610 28,015 28,822 28,912 13,317 27,965
Interest expense, net.............. 2,686 2,221 2,344 2,014 4,317 1,861 1,863
Income before income taxes......... 13,272 13,389 25,671 26,808 24,595 11,456 27,835
Net income......................... $ 9,755 $ 8,995 $ 26,666 $ 26,154 $ 24,071 $ 11,193 $ 27,510
======== ======== ========= ======== ======== ======== ========
PRO FORMA DATA:
Income before income taxes......... $ 24,595 $ 27,835
Provision for income taxes(5)...... 10,295 11,586
-------- --------
Pro forma net income............... $ 14,300 $ 16,249
======== ========
Pro forma net income per
share(6)......................... $ .56 $ .64
======== ========
Weighted average number of shares
outstanding(6)................... 25,469,474 25,469,474
OTHER DATA:
Product development expense........ $ 4,342 $ 5,096 $ 5,997 $ 6,664 $ 9,263 $ 5,499 $ 6,011
Capital expenditures............... 12,369 5,669 9,046 14,767 14,083 10,159 6,373
Depreciation and amortization...... 6,251 6,696 6,870 7,979 9,966 5,118 6,138
EBITDA(7).......................... 22,209 22,306 34,885 36,801 38,878 18,435 35,836
Cash flows provided by (used in):
Operating activities............. 11,171 12,740 25,492 29,370 25,271 9,754 35,929
Investing activities............. (2,487) (3,069) (6,446) (33,567) (18,067) (18,535) (3,869)
Financing activities............. (9,567) 9,641 (18,226) 3,407 (7,129) 8,499 (32,410)
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-------------------------------------
DECEMBER 31, PRO FORMA
---------------------------------------------------- AS
1992 1993 1994 1995 1996 ACTUAL PRO FORMA(8) ADJUSTED(9)
-------- -------- -------- -------- -------- -------- ------------ -----------
UNAUDITED
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...... $ 16,887 $ 21,246 $ 30,654 $ 34,851 $ 39,957 $ 38,459 $(33,684) $ 48,343
Total assets......... 122,447 130,162 119,915 172,298 178,487 183,829 188,186 209,905
Long-term debt, less
current portion.... 35,459 29,784 28,845 47,999 51,156 34,109 31,595 27,049
Shareholders'
equity............. 46,283 49,946 63,112 73,720 84,633 99,743 23,646 121,841
</TABLE>
- ---------------
(Footnotes on following page)
17
<PAGE> 21
(Footnotes from prior page)
(1) The combined financial data presented for 1992 and 1993 includes the
combined results of operations and financial position of Stoneridge, Inc.,
Alphabet and Alphastac/Pollak. All intercompany transactions and balances
were eliminated from the combined financial statements of these entities.
(2) Effective January 1, 1994, Alphabet and Alphastac/Pollak were merged into
the Company. The merger was accounted for as a pooling of interests as the
merged entities were related through common ownership. Prior to the merger,
the Company and Alphabet were taxed as S corporations for federal and, where
qualified, state income tax purposes. Alphastac/Pollak was taxed as a C
corporation for federal and state income tax purposes prior to the merger.
Accordingly, the combined operating data includes Alphastac/Pollak's
recorded provisions for income taxes of $3.5 million and $4.4 million in
1992 and 1993, respectively. In conjunction with the merger on January 1,
1994, the Company recognized income of $1.4 million in the provision for
income taxes as a result of the elimination of Alphastac/Pollak deferred tax
liabilities.
(3) In 1995, the Company acquired the actuator business of Kelsey-Hayes. This
acquisition was accounted for as a purchase. The results of operations and
financial position reflect this acquisition as of November 1, 1995. In
connection with the acquisition, the Company entered into a transitional
services agreement with the seller for commercial and process engineering
support. The term of the transitional services agreement extended from
November 1995 through October 1996. In connection with the transitional
services agreement, the Company recognized expenses of $0.9 million and $4.3
million in 1995 and 1996, respectively, including $2.6 million during the
six-month period ended June 30, 1996. No additional expenses have been
incurred since the expiration of the transitional services agreement. In
addition, costs of approximately $1.0 million were charged against 1995
operating income in connection with the closure and sale of a contract
manufacturing facility.
(4) On April 30, 1996, the Company purchased approximately 45% of the
outstanding stock of Berifors. This investment was accounted for under the
equity method. The results of operations and financial position reflect the
investment in Berifors since April 30, 1996. In addition, 1996 operating
income was adversely impacted by (i) approximately $1.0 million of start-up
expenses associated with the relocation of switch production from the Boston
and Stoughton, Massachusetts, locations to a new facility in Canton,
Massachusetts, including costs associated with the reconfiguration and
relocation of the production lines, and (ii) approximately $0.6 million of
costs associated with the closure of a power distribution production
facility.
(5) Upon completion of the Offering, the Company will be taxed as a C
corporation for federal and state income tax purposes. Accordingly, pro
forma net income reflects federal and state income taxes as if the Company
had been a C corporation based on the tax rates that were in effect during
the periods reported. See "S Corporation Distribution and Management
Reinvestment."
(6) Pro forma net income per share has been calculated by dividing pro forma net
income by the weighted average Common Shares outstanding (13,964,448), the
number of Common Shares to be issued in connection with the Offering
(5,850,000), the number of Common Shares issued in connection with the
exercise of stock options prior to the Offering (438,119) and the number of
Common Shares to be issued in connection with the Management Reinvestment
(435,657). Also included in pro forma weighted average Common Shares
outstanding are 4,781,250 Common Shares which the Company is assumed to have
issued to pay the S Corporation Distribution. Although such shares will not
actually be issued, due to the S Corporation Distribution being paid from
proceeds from the Offering, Securities and Exchange Commission rules require
the inclusion of the shares in determining pro forma earnings per share.
(7) Earnings before interest, taxes, depreciation and amortization ("EBITDA")
represents operating income plus depreciation and amortization. EBITDA
should not be considered as an alternative measure of net income, as an
indicator of cash flows from operating, investing, and financing activities
as determined in accordance with generally accepted accounting principles,
or as a measure of the Company's liquidity or ability to meet all cash
needs, but is presented to provide additional information related to the
Company's debt service capability. EBITDA should not be considered in
isolation or as a substitute for other measures of financial performance or
liquidity.
(8) Reflects an assumed $83.0 million S Corporation Distribution, an assumed
$6.5 million Management Reinvestment pursuant to the Company Offering, the
exercise of options to purchase 438,119 Common Shares prior to the Offering
and the reinstatement of $4.4 million and $6.5 million of current deferred
income tax assets and long-term deferred income tax liabilities,
respectively, as a result of the termination of the Company's status as an S
corporation.
(9) Gives effect to the issuance of the Common Shares in the Combined Offering
and the application of the net proceeds therefrom as described in "Use of
Proceeds" and the issuance of 757,063 Common Shares in connection with the
acquisition of the remaining 55% of the outstanding stock of Berifors. The
Pro Forma As Adjusted Balance Sheet Data reflects the Company's investment
in Berifors using the consolidation method.
18
<PAGE> 22
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company is a leading independent designer and manufacturer of highly
engineered electrical and electronic components, modules and systems principally
for the automotive, medium and heavy duty truck and agricultural vehicle
markets. The Company's products interface with a vehicle's mechanical and
electrical systems to activate, regulate, display and monitor vehicle
performance, and control and distribute electrical power and signals. The
Company's four principal product categories are power distribution products,
switch products, instrumentation and information display products, and actuator
products. Such product categories accounted for 52%, 29%, 11% and 8%,
respectively, of 1996 net sales and 47%, 26%, 10% and 17%, respectively, of net
sales for the first six months of 1997. Approximately 72% of the Company's 1996
net sales and 66% of net sales for the first six months of 1997 were derived
from the automotive market, and approximately 27% of the Company's 1996 net
sales and 33% of net sales for the first six months of 1997 were derived from
the medium and heavy duty truck and agricultural vehicle markets. The Company
operates only in the transportation products industry.
The Company has completed several acquisitions, each of which was financed
by borrowings. The Company acquired Pollak, a manufacturer of electronic and
electromechanical switch products in 1988. In addition, the Company acquired
TED, a manufacturer of power conversion modules and sophisticated
instrumentation components, modules and systems in 1992. The Company acquired
the actuator business (including all related machinery and equipment,
intellectual property rights and purchase contracts) of Kelsey-Hayes in November
1995 for $18.8 million. The acquisition was accounted for as a purchase and was
financed through the Company's revolving credit facility. In addition, the
Company entered into a transitional services agreement with Kelsey-Hayes related
to commercial and process engineering support provided by Kelsey-Hayes in
connection with the purchase of the actuator business. A total of $5.2 million
in transitional services expenses was incurred, of which $0.9 million was
recognized in 1995 and $4.3 million in 1996. No such expenses were incurred in
1997, nor does the Company anticipate incurring any such expenses in the future.
In April 1996, the Company purchased approximately 45% of the outstanding common
stock of Berifors for $8.8 million in cash. The initial investment has been
accounted for under the equity method of accounting. Effective upon the
completion of the Offering, the Company expects to acquire the remaining 55% of
the outstanding common stock by issuing Common Shares and will use the
consolidation method of accounting for the acquisition.
The Company supplies a division of General Motors with wire harnesses
pursuant to a contract manufacturing arrangement. The volume of wire harnesses
produced by the Company under this contract manufacturing arrangement has
declined each year since 1987 principally as a result of decreased sales volume
for certain of the customer's vehicle models. The Company was notified in 1995
that as General Motors' vehicle electrical systems are redesigned, the General
Motors division intended to in-source all of its wire harness needs. The Company
believes that by 1999 this General Motors division will in-source substantially
all wire harness requirements previously supplied by the Company. No assurance
can be given that these sales by the Company will not end at an earlier date.
Prior to 1995, the Company assembled wire harnesses with material provided by
the customer with the Company recording sales revenue on shipments based on the
value added in the manufacturing and assembly process. In October 1994, the
General Motors division requested that the Company begin to purchase certain
materials for the assembly of the wire harness product. As a result of this
change, and despite the continued decline in the volume of wire harnesses
provided, net sales under the contract manufacturing arrangement increased by
$28.0 million in 1995 and $40.0 million in 1996. Included in the 1995 and 1996
net sales increases were an $11.1 million and $13.3 million decline in the
production volume of contract manufactured wire harnesses, respectively.
The Company generally begins working on products awarded for new or
redesigned vehicle models two to five years prior to the OEM marketing of such
vehicle models to the public. During such period, the Company incurs (i) costs
related to the design and engineering of such product, (ii) costs related to the
production of the tools used to manufacture the new product, and (iii) start-up
costs associated with the initial production of such product. In general, design
and engineering costs are expensed in the period incurred unless they are
19
<PAGE> 23
reimbursed by the customer, in which case they are capitalized and amortized
over the expected life of such product. Costs incurred in the production of the
tools are generally capitalized and reimbursed by the customer prior to
production or, to the extent not reimbursed, amortized over the life of the
program. Start-up costs, which are generally incurred 30 to 60 days immediately
prior to and immediately after initial production, are expensed as incurred.
The most significant component of cost of goods sold is material cost.
Excluding the increased material cost associated with the change in the contract
manufacturing relationship with a division of General Motors, the cost of
materials has been, and is expected to remain, relatively stable as a percent of
cost of goods sold as most materials are generally available from multiple
suppliers and are not subject to significant price fluctuations. Direct labor
costs represent a relatively small percentage of cost of goods sold and have
remained relatively consistent due to the Company's practice of automating the
production of high volume products and using manufacturing locations which have
lower labor costs to produce labor-intensive products. Indirect production
support labor costs in contrast tend to vary with the level of production.
The Company's selling, general and administrative ("SG&A") expenses consist
of compensation and benefits, marketing costs, product development costs,
administrative costs, overhead, and depreciation and amortization. Marketing
costs include advertising, promotion, certain occupancy costs and other routine
costs (travel, office supplies and telecommunications). Administrative costs
consist principally of information technology, accounting, human resources,
professional fees, certain occupancy costs, and other routine costs. Product
development costs include advanced design, product analysis, computer-aided
design ("CAD"), testing, modeling and process technology expenses.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, the percentage
of net sales represented by the items reflected in the Company's Statement of
Operations.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
------------------------ ---------------
1994 1995 1996 1996 1997
------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Net sales........................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold............................... 73.1 76.1 79.2 79.0 75.7
----- ----- ----- ----- -----
Gross profit..................................... 26.9 23.9 20.8 21.0 24.3
SG&A expenses.................................... 14.5 13.5 12.8 13.6 11.5
----- ----- ----- ----- -----
Operating income................................. 12.4 10.4 8.0 7.4 12.8
Interest expense, net............................ 1.0 0.7 1.2 1.0 0.9
Other expense (income)........................... 0.0 0.0 0.0 0.0 (0.8)
----- ----- ----- ----- -----
Income before income taxes....................... 11.4 9.7 6.8 6.4 12.7
Provision (credit) for income taxes.............. (0.4) 0.2 0.2 0.1 0.1
----- ----- ----- ----- -----
Net income....................................... 11.8% 9.5% 6.6% 6.3% 12.6%
===== ===== ===== ===== =====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales for the first six months of 1997 increased by $39.8
million, or 22.3%, to $218.8 million from $179.0 million for the same period in
1996. Sales of actuator products increased by $31.8 million to $36.8 million
from $5.0 million due to the introduction of a new four wheel drive actuator
product and increased sales of door lock actuator products. Full production of
door lock actuator products was not reached until approximately November 1996.
Sales of power distribution products increased by $10.4 million, or 24.1%, due
to increased market penetration in the medium and heavy duty truck and
agricultural vehicle markets, resulting in increased sales of $6.1 million and
$3.9 million, respectively. Sales of instrumentation and information displays
increased by $3.7 million, or 19.1%, due to the introduction of new information
clusters for the medium and heavy duty truck market. Sales of switch products
increased by $3.1 million, or 5.7%, reflecting higher production levels in the
light truck market and new product
20
<PAGE> 24
introductions. These increases were partially offset by a sales decrease of $9.1
million under contract manufacturing arrangements.
Cost of Goods Sold. Cost of goods sold for the first six months of 1997
increased by $24.3 million, or 17.2%, to $165.6 million from $141.3 million for
the same period in 1996. As a percentage of net sales, cost of goods sold
decreased to 75.7% in 1997 from 79.0% in 1996 while the corresponding gross
profit margin increased to 24.3% from 21.0% in 1996. The improvement in gross
profit margin resulted primarily from improved operating leveraging of certain
fixed costs associated with increased actuator product sales. In addition,
increased efficiencies resulting from higher production of power distribution
and instrumentation and information display products and reduced fixed costs
resulting from the consolidation of two power distribution/contract
manufacturing facilities also contributed to the increase in gross margin.
Selling, General and Administrative Expenses. SG&A expenses for the first
six months of 1997 increased by $0.9 million, or 3.7%, to $25.2 million from
$24.3 million for the same period in 1996. As a percentage of net sales, SG&A
expenses decreased to 11.5% for the first six months of 1997 from 13.6% for the
same period in 1996. SG&A expenses increased $1.6 million due to the launch of
the actuator product line which included certain development, marketing and
administration costs. Other marketing support and administrative overhead costs
increased an additional $1.6 million due to higher sales levels. In addition,
development and design costs of medium and heavy duty truck instrumentation and
information display products increased $0.5 million. These increases were offset
by a $2.9 million decrease in expenses due to the expiration of the transition
services agreement in October 1996.
Interest Expense. Interest expense was nearly identical for the first six
months of 1997 and 1996.
Other Income. Other income of $1.7 million for the first six months of
1997 represents a gain on the sale of certain transportation equipment. The
Company received cash proceeds of $2.3 million from the sale that was used to
retire a note payable collateralized by such transportation equipment.
Income Before Income Taxes. As a result of the foregoing, income before
income taxes increased by $16.4 million for the first six months in 1997 to
$27.8 million from $11.4 million for the same period in 1996.
Provision for Income Taxes. Prior to the Offering, the Company was an S
corporation for federal and, where qualified, state income tax purposes.
Accordingly, the Company recognized income taxes of $0.3 million and $0.2
million for foreign income and state franchise taxes for the first six months of
1997 and 1996, respectively. Had the Company been subject to federal and state
income taxes at the corporate level, the Company would have recorded provisions
for income taxes of $11.6 million and $4.8 million for the first six months of
1997 and 1996, respectively.
Net Income. As a result of the foregoing, net income increased by $16.3
million, or 145.8%, to $27.5 million of the first six months in 1997 from $11.2
million for the same period in 1996. Had the Company been subject to federal and
state income taxes at the corporate level, the Company's net income would have
been $16.2 million and $6.7 million for the first six months of 1997 and 1996,
respectively.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Net Sales. Net sales for 1996 increased by $85.7 million, or 30.8%, to
$363.7 million from $278.0 million in 1995. Of this increase, $53.4 million was
due to materials purchased for contract manufacturing (previously supplied by
the customer) with a division of General Motors. Such increase was partially
offset by a 20.3% decline in unit volume, or $13.3 million of net sales. The
acquisition of the actuator business in 1995 increased 1996 net sales by
approximately $29.5 million. In addition, increased market penetration related
to switch products and power distribution products resulted in increased sales
of $12.4 million and $8.7 million, respectively. Partially offsetting these
increases, net sales of power distribution, instrumentation and information
displays product lines decreased by $15.9 million as a result of lower OEM
production volumes of medium and heavy duty trucks and a decline in the market
share of an automotive
21
<PAGE> 25
OEM customer. Net sales of power distribution products to the agricultural
vehicle market increased by $5.6 million.
Cost of Goods Sold. Cost of goods sold for 1996 increased by $76.4
million, or 36.1%, to $288.1 million from $211.7 million in 1995. As a
percentage of net sales, cost of goods sold increased to 79.2% in 1996 from
76.1% in 1995, while the corresponding gross profit margin decreased to 20.8% in
1996 from 23.9% in 1995. The change in the contract manufacturing arrangement
with the division of General Motors caused a reduction in gross profit margin of
1.7%. Gross profit was adversely impacted by start-up inefficiencies and $1.0
million of expenses associated with the relocation of switch production to the
Company's new Canton, Massachusetts facility. The remaining decrease was related
to the decline in volume of instrumentation and information displays and power
distribution product lines.
Selling, General and Administrative Expenses. SG&A expenses for 1996
increased by $9.2 million, or 24.5%, to $46.7 million from $37.5 million in
1995. As a percentage of net sales, SG&A expenses decreased to 12.8% in 1996
from 13.5% in 1995 because the change in the contract manufacturing arrangement
with a division of General Motors had minimal effect on SG&A expenses. The
transitional services agreement expense related to the commercial and process
engineering support for the relocation of the actuator business increased SG&A
expenses by $4.3 million in 1996 compared to $0.9 million in 1995. These costs
were incurred from November 1995 to October 1996. Product development and
engineering costs increased by $2.6 million, or 39.0%, as a result of costs
associated with the launch of power distribution systems and instrument displays
for a medium duty vehicle, the launch of the four-wheel-drive and new doorlock
actuator products and development costs associated with products to be launched
in 1998. Costs associated with marketing and technical resource enhancements to
provide improved customer support accounted for $1.4 million of the increase in
SG&A expenses.
Interest Expense. Interest expense for 1996 increased by $2.3 million, to
$4.3 million from $2.0 million in 1995. The increase was due to additional
borrowings to finance the acquisition of the actuator products business in
November 1995 and the initial investment in Berifors in April 1996. In addition,
the average borrowing rate increased to 7.4% in 1996 from 7.0% in 1995.
Income Before Income Taxes. As a result of the foregoing, income before
income taxes decreased by $2.2 million, or 8.2%, to $24.6 million in 1996 from
$26.8 million in 1995.
Provision for Income Taxes. Prior to the Offering, the Company was an S
corporation for federal and, where qualified, state income tax purposes.
Accordingly, the Company recognized provisions for income taxes of $0.5 million
and $0.7 million for foreign income and state franchise taxes in 1996 and 1995,
respectively. Had the Company been subject to federal and state income taxes at
the corporate level, the Company would have recognized provisions for income
taxes of approximately $10.3 million in 1996.
Net Income. As a result of the foregoing, net income decreased by $2.1
million, or 8.0%, to $24.1 million in 1996 from $26.2 million in 1995. Had the
Company been subject to federal and state income taxes at the corporate level,
the Company's net income for 1996 would have been $14.3 million.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Net Sales. Net sales for 1995 increased by $52.5 million, or 23.3%, to
$278.0 million from $225.5 million in 1994. Of this increase, $39.1 million was
due to the previously discussed changes in the contract manufacturing
relationship, which was partially offset by a 30% decline in unit volume, or
$11.1 million in net sales, in product shipped under the arrangement. Switch and
power distribution product sales increased $28.9 million as a result of new
product sales and increased market share of existing products in the automotive
and agricultural markets. A reduction in net sales of $0.5 million was due to
the phaseout of certain non-core instrumentation and information display
products.
Cost of Goods Sold. Cost of goods sold for 1995 increased by $46.7
million, or 28.3%, to $211.7 million from $165.0 million in 1994. As a
percentage of net sales, cost of goods sold increased to 76.1% in 1995 from
22
<PAGE> 26
73.1% in 1994, causing the gross profit margin to decrease to 23.9% in 1995 from
26.9% in 1994. The change in the contract manufacturing arrangement with the
division of General Motors caused a decrease in gross profit margin of 3.4%.
Other items impacting gross profit margin were an unfavorable shift in the sales
mix of switch products, a favorable shift in the sales mix of power distribution
products, and the decline in volume of certain instrumentation and information
display products.
Selling, General and Administrative Expenses. SG&A expenses for 1995
increased by $5.0 million, or 15.3%, to $37.5 million from $32.5 million in
1994. As a percentage of net sales, SG&A expenses decreased to 13.5% in 1995
from 14.5% in 1994 because the change in the contract manufacturing arrangement
previously discussed had minimal effect on SG&A expenses. The overall increase
resulted from the expansion of product engineering and design capabilities
related to instrumentation and information display products, $0.9 million of
transitional services expenses associated with the acquisition of the actuator
business in November 1995, and one-time costs associated with quality and
engineering initiatives, and higher support costs resulting from the expansion
of the Chihuahua, Mexico facility. The closure and sale of a contract
manufacturing facility in 1995 increased SG&A expenses by $1.0 million.
Interest Expense. Interest expense for 1995 decreased by $0.3 million, or
14.1%, to $2.0 million from $2.3 million in 1994. The decrease was due to a
lower average outstanding indebtedness.
Income Before Income Taxes. As a result of the foregoing, income before
income taxes increased by $1.1 million, or 4.4%, to $26.8 million in 1995 from
$25.7 million in 1994.
Provision for Income Taxes. Prior to the Offering, the Company was an S
corporation for federal and, where qualified, state income tax purposes.
Accordingly, the Company recognized income tax provisions of $0.7 million and
$0.5 million for foreign income and state franchise taxes in 1995 and 1994,
respectively. In addition, the Company recognized income of $1.5 million in 1994
related to the elimination of deferred income taxes for a subsidiary that was
previously taxed at the corporate level.
Net Income. As a result of the foregoing, net income decreased by $0.5
million, or 1.9%, to $26.2 million in 1995 from $26.7 million in 1994.
QUARTERLY INFORMATION
The following table presents selected unaudited quarterly results for each
quarter of 1995 and 1996 and the first two quarters of 1997. The financial data
is derived from the unaudited financial statements of the Company which have
been prepared by the Company on a basis consistent with the Company's audited
financial statements included elsewhere in this Prospectus and, in the opinion
of management, include all adjustments (consisting of only normal recurring
adjustments) necessary for a fair presentation of the Company's results of
operations for such periods. These operating results are not necessarily
indicative of future performance.
23
<PAGE> 27
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------------------ ------------------------------------------ -------------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales........ $ 71.1 $67.8 $ 57.0 $82.1 $ 83.5 $94.4 $ 89.8 $96.1 $108.0 $110.8
Cost of goods
sold........... 51.4 51.1 43.9 65.2 64.9 75.6 71.7 75.9 82.1 83.5
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross profit..... 19.7 16.7 13.1 16.9 18.6 18.8 18.1 20.2 25.9 27.3
SG&A expenses.... 8.3 8.9 8.3 12.0 12.0 12.1 11.8 10.9 12.2 13.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating
income......... 11.4 7.8 4.8 4.9 6.6 6.7 6.3 9.3 13.7 14.3
Interest expense,
net............ 0.5 0.5 0.5 0.5 1.1 0.8 1.0 1.4 0.9 1.0
Other expense
(income)....... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.7) 0.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Income before
income taxes... 10.9 7.3 4.3 4.4 5.5 5.9 5.3 7.9 14.5 13.3
Provision for
income taxes... 0.0 0.0 0.0 0.7 0.1 0.1 0.2 0.1 0.1 0.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Net income....... $ 10.9 $ 7.3 $ 4.3 $ 3.7 $ 5.4 $ 5.8 $ 5.1 $ 7.8 $ 14.4 $ 13.1
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
STATEMENT OF OPERATIONS DATA
AS A PERCENTAGE OF NET SALES:
Net sales........ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods
sold........... 72.3 75.4 77.0 79.4 77.8 80.1 79.8 79.0 76.0 75.4
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Gross margin..... 27.7 24.6 23.0 20.6 22.2 19.9 20.2 21.0 24.0 24.6
SG&A expenses.... 11.7 13.1 14.6 14.6 14.3 12.8 13.2 11.3 11.3 11.7
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Operating
income......... 16.0 11.5 8.4 6.0 7.9 7.1 7.0 9.7 12.7 12.9
Interest expense,
net............ 0.7 0.7 0.9 0.6 1.3 0.9 1.1 1.5 0.9 0.9
Other expense
(income)....... 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 (1.6) 0.0
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Income before
income taxes... 15.3 10.8 7.5 5.4 6.6 6.2 5.9 8.2 13.4 12.0
Provision for
income taxes... 0.0 0.0 0.0 0.9 0.1 0.1 0.2 0.1 0.1 0.2
------ ----- ------ ----- ------ ----- ------ ----- ------ -----
Net income....... 15.3% 10.8% 7.5% 4.5% 6.5% 6.1% 5.7% 8.1% 13.3% 11.8%
====== ===== ====== ===== ====== ===== ====== ===== ====== =====
</TABLE>
Substantially all of the Company's sales and earnings are derived from the
automotive, medium and heavy duty truck and agricultural vehicle markets. As a
result, the Company's financial performance is typically the weakest in the
third quarter and, to a lesser extent, the fourth quarter due to the impact of
scheduled OEM plant shutdowns and holidays.
After the three-month period ending March 31, 1995, gross margin began to
decline due to lower sales volume and higher costs related to product launches
and the relocation of certain manufacturing operations. Beginning in 1995, the
Company's net sales and gross margin were impacted as the Company began to
purchase materials used in its contract manufacturing operations. Of the
Company's net sales increase in the three months ended December 31, 1995 and the
full years 1995 and 1996, $23.6 million, $39.1 million and $53.4 million,
respectively, were associated with the cost of these additional materials
purchased by the Company.
Certain one time items have also impacted the Company's quarterly results
of operations. During the three-month period ended December 31, 1995, the
Company incurred approximately $1.0 million in expenses in connection with the
closing and sale of a contract manufacturing facility. In November 1995, the
Company acquired the actuator business of Kelsey-Hayes, which increased SG&A
expenses as a result of a transitional services agreement related to the
acquisition of Kelsey-Hayes. The Company recognized expenses of $0.9 million and
$4.3 million in 1995 and 1996, respectively, in connection with such agreement.
Such expenses were incurred from November 1995 to October 1996. Throughout 1996,
the Company incurred a total of approximately $1.0 million of expenses in
connection with the relocation of switch product manufacturing to Canton,
Massachusetts. In the period ended March 31, 1997, the Company recognized a $1.7
million gain on the sale of certain transportation equipment.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have been, and are anticipated to
continue to be, cash flow from operations and borrowings under the Company's
credit facility.
24
<PAGE> 28
Net cash provided by operating activities was $25.3 million, $29.4 million
and $25.5 million, in 1996, 1995, and 1994, respectively. The decrease in cash
provided by operating activities in 1996 of $4.1 million compared to 1995 was
caused by an increase in working capital and other operating assets of $4.4
million and lower net income of $2.1 million, offset by an increase in
depreciation and amortization of $2.0 million and a non-cash charge for
compensation expense under the Company's stock option plan of $0.4 million. The
increase in working capital was primarily due to increased sales levels of power
distribution systems and switch products. In addition, the purchase of the
actuator product line did not include working capital associated with the
business. As a result, the Company generated working capital to support the sale
of these products. The increase in depreciation and amortization in 1996 was the
result of a full year of depreciation on the actuator business machinery and
equipment. The increase in cash provided by operating activities in 1995 of $3.9
million compared to 1994 was caused by a $1.8 million reduction in working
capital and other operating asset requirements, and increases in non-cash
operating charges of $2.6 million, partially offset by a decline in net income
of $0.5 million. The reduction in working capital requirements was the result of
programs designed to reduce inventory levels and correspondingly improve
through-put. Increases in non-cash operating expenses were due to two months of
depreciation for the actuator business machinery and equipment, increases in
depreciation expense associated with switch products, and the elimination in
1994 of deferred income taxes for Alphastac/Pollak.
Net cash used by investing activities was $18.1 million, $33.6 million and
$6.4 million in 1996, 1995 and 1994, respectively. In 1996, investing activities
included capital expenditures of $14.1 million and the investment of $8.8
million in Berifors, partially offset by cash proceeds of $4.8 million from the
dispositions of two of the Company's facilities. In 1996, the Company's capital
expenditures were primarily related to machinery and equipment for process
improvement, the expansion of actuator production, and other capacity expansion.
Investing activities in 1995 were comprised of the $18.8 million acquisition of
the actuator business and capital expenditures of $14.8 million. In 1995, the
Company's capital expenditures included approximately $7.6 million for the new
Canton, Massachusetts, facility and the expansion of the Chihuahua, Mexico,
facility. The Canton facility was built to support the growth of the Company's
switch product business, and the Chihuahua facility was constructed to support
growth in the power distribution business. Machinery and equipment purchases of
approximately $7.2 million were related to process improvement and, to a lesser
extent, new business requirements. In 1994, investing activities included
capital expenditures of $9.0 million for machinery and equipment to manufacture
new power distribution systems and switch products, offset by $2.6 million of
cash proceeds received from the disposition of a contract manufacturing
facility. The Company estimates that it will incur approximately $14.6 million
of capital expenditures in 1997. The Company intends to continue to finance its
capital expenditures from operating cash flow and funding under its credit
facility. These capital expenditures will be used primarily for the purchase of
machinery and equipment to support new business awards, enhance information
technology systems, finance continued cost reduction efforts through automation,
and finance Berifors' business expansion.
Net cash used by financing activities was $7.1 million and $18.2 million in
1996 and 1994, respectively, while net cash provided by financing activities was
$3.4 million in 1995. Cash distributions were $13.2 million, $15.5 million and
$13.6 million in 1996, 1995 and 1994, respectively, and were paid primarily to
shareholders to satisfy income tax liabilities resulting from the Company's S
corporation status.
As a result of the foregoing operating, investing and financing activities,
net borrowings increased $5.8 million and $19.0 million in 1996 and 1995,
respectively, while net borrowings decreased $4.6 million in 1994.
Net cash provided by operating activities was $35.9 million for the first
six months of 1997 and $9.8 million for the same period in 1996. The increase in
cash provided by operating activities for the six month period ended June 30,
1997 of $26.1 million as compared to the same period in 1996 was attributable to
$16.3 million of higher net income (including the effect of a gain on the sale
of fixed assets of $1.7 million in 1997), a $10.4 million decrease in working
capital and other operating assets, and an increase in depreciation and
amortization of $1.0 million. Net cash used by investing activities was $3.9
million and $18.5 million for the first six months of 1997 and 1996,
respectively. In the six month period ended June 30, 1997, investing activities
included capital expenditures of $6.4 million, partially offset by the proceeds
on the sale of certain
25
<PAGE> 29
transportation equipment of $2.5 million. For the same period of 1996 investing
activities included capital expenditures of $10.2 million and the investment in
Berifors of $8.8 million, partially offset by cash proceeds on the sale of fixed
assets of $0.5 million. Net cash used by financing activities was $32.4 million
for the first six months of 1997, while net cash provided by financing
activities was $8.5 million for the first six months of 1996. Cash distributions
were $12.6 million and $6.4 million for June 30, 1997 and 1996, respectively,
and were paid primarily to satisfy income tax liabilities resulting from the
Company's S corporation status. As a result of the foregoing operating,
investing and financing activities, net borrowings decreased $17.5 million in
the six months ended June 30, 1997, while net borrowings increased $15.0 million
for the six months ended June 30, 1996.
The Company has a $125.0 million unsecured credit facility (of which $30.7
million was outstanding as of September 15, 1997), which expires on June 30,
2002. The maximum amount of borrowings that may be made under the facility was
increased from $80.0 million to $125.0 million on September 15, 1997. Interest
on the credit facility is payable at the Company's option at either the prime
rate or LIBOR plus 0.75% to 2.0%. Currently the Company is borrowing at LIBOR
plus 1.0%. The Company intends to use approximately $9.6 million of the net
proceeds from the Combined Offering to repay debt outstanding under the credit
facility. The credit facility contains various covenants which require the
Company to maintain certain financial ratios, including minimum liquidity, net
worth and fixed charge coverage. The Company was in compliance with all
covenants as of December 31, 1996 and June 30, 1997. The Company has entered
into two interest rate swap agreements with notional amounts of $25.0 and $20.0
million. The interest rate swap agreements exchange the variable interest rate
on the credit facility for fixed rates. The Company does not use derivatives for
speculative or profit motivated purposes.
The Company believes the net proceeds from the sale of Common Shares in the
Combined Offering and funds generated by the Company's operations, together with
funds available under the proposed new credit agreement, will provide the
Company with sufficient liquidity and capital resources for working capital,
capital expenditures and other needs for at least the next 24 months. However,
any significant acquisitions for cash may require additional debt or equity
financing.
INFLATION
Management believes that the Company's operations have not been adversely
affected by inflation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Concurrent with the Offering, the Company will be treated as a C
corporation for federal and state income tax purposes. Following termination of
its status as an S corporation, the Company will be subject to federal and state
income taxation on United States income. All pro forma income tax data have been
calculated utilizing the provisions of Statement of Financial Accounting
Standards No. 109 (SFAS 109) "Accounting for Income Taxes." In accordance with
SFAS 109, estimated net deferred tax liabilities of $2.1 million will be
recorded with an offsetting charge to net income. This one-time charge will be
recorded as income tax expense in the third quarter of 1997.
The Company adopted SFAS 121, "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" in 1996. SFAS 121 requires
long-lived assets and certain identifiable intangible assets to be reviewed for
impairment whenever circumstances indicate that the carrying amount of an asset
may not be recoverable. The adoption of this standard did not have a significant
impact on the financial condition and operating results of the Company.
SFAS No. 123, "Accounting for Stock-Based Compensation" encourages, but
does not require, a fair value-based method of accounting for employee stock
options, the sale of stock under employee stock purchase plans or similar equity
instruments. The Company has elected to continue to measure compensation cost
under Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued
to Employees" as was previously required, and to comply, to the extent
applicable, with pro forma disclosure of net income and earnings per share as if
the fair value-based method of accounting had been applied.
26
<PAGE> 30
BUSINESS
OVERVIEW
Stoneridge is a leading independent designer and manufacturer of highly
engineered electrical and electronic components, modules and systems for the
automotive, medium and heavy duty truck and agricultural vehicle markets. The
Company's products interface with a vehicle's mechanical and electrical systems
to activate equipment and accessories, display and monitor vehicle performance,
and control and distribute electrical power and signals. The Company has a
leading market position in the design and manufacture of electrical and
electronic modules and systems for the medium and heavy duty truck and
agricultural vehicle markets. In the automotive market, the Company designs and
manufactures specially designed and engineered electrical and electronic
components and modules, typically on a sole-source basis. The Company's
engineers and designers work closely with customers to design, develop and
manufacture components, modules and systems to address specific vehicle
requirements. The Company has long-standing relationships with its major
customers, including General Motors (since 1931), Ford (since 1930), Deere
(since 1965) and Navistar (since 1941). Approximately 72% of the Company's 1996
net sales and 66% of net sales for the first six months of 1997 were derived
from the automotive market, and approximately 27% of the Company's 1996 net
sales and 33% of net sales for the first six months of 1997 were derived from
the medium and heavy duty truck and agricultural vehicle markets.
The Company's four principal product categories are:
- Power Distribution Products. The Company designs and manufactures
electrical power and signal distribution components, modules and systems,
including fully integrated automotive and truck wiring systems and highly
engineered products, such as power distribution panels, for the
automotive, medium and heavy duty truck and agricultural vehicle markets.
Power distribution systems regulate, coordinate and direct the operation
of the entire electrical system within a vehicle or compartment. A
significant portion of the Company's current power distribution business
consists of contract manufacturing of wire harnesses for a division of
General Motors. See "Business -- Contract Manufacturing."
- Switch Products. The Company designs and manufactures integrated
electronic and electromechanical switch products which include hidden
switches and customer-activated switches. These switches transmit a
signal to a control device which activates specific functions. Hidden
switches are those switches which are not typically seen by vehicle
passengers but are utilized to activate or deactivate selected functions
such as brake lights, cruise control functions and electronic safety
features related to air bag and anti-lock braking systems.
Customer-activated switches are used by a vehicle's operator or
passengers to manually activate headlights, rear defrosters, heated seats
and other accessories. The Company sells these products principally to
the automotive market.
- Instrumentation and Information Display Products. The Company designs
and manufactures electronic instrument clusters, driver message centers,
power conversion products, multiplexed modules and electrical systems and
electronic switch modules. These products collect, store and display
vehicle information such as speed, pressure, maintenance data, trip
information, operator performance, temperature, distance traveled, and
driver messages related to vehicle performance. These products utilize
state-of-the-art hardware, software and multiplexing technology and are
sold principally to the medium and heavy duty truck and agricultural
vehicle markets.
- Actuator Products. The Company designs and manufactures
electromechanical actuator products that enable users to deploy power
functions in a vehicle and can be designed to integrate switching and
control functions. These products include power door lock and
four-wheel-drive actuators and are sold principally to the automotive
market.
These four product categories accounted for 52%, 29%, 11% and 8%, respectively,
of the Company's 1996 net sales, and 47%, 26%, 10% and 17% of the Company's net
sales for the first six months of 1997.
The Company believes that it is the leading North American manufacturer of
(i) power and signal distribution systems for the agricultural vehicle market
and (ii) driver instrumentation and information display systems for the medium
and heavy duty truck markets. In the automotive market, where the Company
focuses on component and module design and manufacturing, the Company believes
it is the largest
27
<PAGE> 31
manufacturer of pedal assembly, chassis and door-mounted hidden switches in
North America and Europe. In addition to the Company's leading market positions,
it is typically the sole supplier of products designed, developed and
manufactured by the Company for specific vehicle platforms.
CONTRACT MANUFACTURING
The Company was formed in 1965 as a manufacturer of wire harnesses for the
agricultural vehicle market. Following an expansion in 1977 into the automotive
market, sales increased from approximately $1.6 million in 1976 to $105.4
million in 1987, with approximately 90% of the Company's 1987 sales being
derived from the Company's contract manufacturing arrangement with a division of
General Motors. Initially under the contract manufacturing arrangement, the
Company supplied facilities and labor required to assemble wire harnesses to the
specifications of, and from raw materials supplied by, the division of General
Motors. In mid-1994, the division of General Motors requested that the Company
begin purchasing the materials used in the production of wire harnesses. Of the
Company's net sales for 1995, 1996 and the six months ended June 30, 1997, $39.1
million, $83.9 million and $38.8 million, respectively, were associated with the
cost of these additional materials purchased by the Company. Contract
manufacturing accounted for approximately 17%, 23%, 29% and 22% of the Company's
net sales for 1994, 1995, 1996 and the six months ended June 30, 1997,
respectively. The increase in 1994 to 1996 was primarily attributable to the
Company's purchases of raw materials described above. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
The Company was notified in 1995 that as General Motors' vehicle electrical
systems are redesigned, the General Motors division intended to in-source all of
its wire harness needs. The Company believes that by 1999 this General Motors
division will in-source substantially all wire harness requirements previously
supplied by the Company. However, no assurance can be given that net sales to
the General Motors division will not end at an earlier date. The volume of wire
harnesses produced by the Company for the General Motors division has declined
each year since 1987. Three Company facilities previously utilized solely for
contract manufacturing have been closed and the properties sold. In addition,
one of the Company's facilities in Mexico has been transitioned from a contract
manufacturing to a full-service facility. Currently, only one of the Company's
facilities remains dedicated to contract manufacturing. See "The Company."
INDUSTRY TRENDS
The Company's performance and growth are related to certain trends within
the automotive and medium and heavy duty truck markets, including the
consolidation of the component supply industry, the increase in global sourcing
and the increase in vehicle electronic content.
Supplier Consolidation and Focus on System and Module Sourcing. The OEM
supply industry has been experiencing significant consolidation as OEMs, in
seeking to lower costs and improve quality, are increasingly purchasing complete
systems and modules rather than separate component parts. As a result, OEMs have
been actively reducing their supplier base and are more frequently awarding
long-term, sole-source supply arrangements to suppliers which offer broad
product lines, higher value-added products, system and module product
capability, low costs and reliable service. The Company believes this trend will
continue for the foreseeable future and should provide the Company with
opportunities, based on its competitive strengths, to further expand its
customer base and increase its market penetration with current customers.
Global Sourcing. Regions such as Asia, Latin America, and Eastern Europe
are expected to experience significant growth in vehicle demand over the next
several years. Many OEMs are planning to increase their sales in emerging
markets in a cost-effective manner by developing vehicles which can be designed
in one vehicle center to a single global standard but produced and sold in
several geographic markets, thereby allowing OEMs to reduce design costs, take
advantage of low-cost manufacturing locations and improve product quality and
consistency. As a result, OEMs increasingly are requiring their key suppliers to
have the capability to manufacture in multiple geographic markets.
Increasing Vehicle Electronic Content. OEMs of automobiles, medium and
heavy duty trucks, and agricultural vehicles, are increasingly incorporating
more electronic components, such as driver information
28
<PAGE> 32
displays, instrumentation, safety systems and comfort features, into their
products. Increased utilization of systems and features on vehicles causes
greater utilization of the products designed and manufactured by the Company.
According to a report by The Economist Intelligence Unit, average
electrical and electronic content per vehicle is expected to increase from $863
in 1995 to $1,230 in 2000.
COMPETITIVE ADVANTAGES
Management believes that the Company's growth and financial performance are
the result of certain competitive advantages the Company has attained in the
markets it serves. These competitive advantages are derived from a bundling of
several technical and commercial capabilities including the following.
PRODUCT AND PROCESS DESIGN CAPABILITY
The Company's wide range of products and its engineering expertise in
electrical and electronic architecture enable the Company to create integrated
engineered solutions to satisfy OEMs' specific application needs. To deliver
cost-effective solutions for OEMs, the Company deploys multifunctional teams
which include design and process engineers, program management specialists and
quality, procurement and marketing personnel. Such teams ensure that products
meet customer needs and can be manufactured cost-effectively in a just-in-time
environment. Combined product and process designs enable the Company to maintain
a lean manufacturing environment which minimizes cost and optimizes reliability
while reducing warranty and service costs over the intended product life. The
Company has recently upgraded its CAD/CAM systems, including three-dimensional
color graphics, and the ability to interface with customer CAD systems. Using
computer-aided design, and flexible manufacturing and multifunctional teams, the
Company can cost-effectively manufacture products in both high and low volume
environments depending on a given customer's specific needs. To ensure quality,
all products are fully tested both electronically and functionally. The Company
emphasizes Total Quality Management to continuously reduce costs, improve
quality and eliminate non-value-added elements of the manufacturing process.
ALIGNMENT WITH CUSTOMERS AND SUPPLIERS
The Company works with OEMs and provides full-service support capabilities
to its customers throughout the product development process from concept design
through the design and implementation of the manufacturing processes. All
facilities utilize electronic data interchange (EDI) of commercial and
engineering data. In addition, Company applications engineers work on-site at
major customers' design centers. The Company also works closely with its major
suppliers to ensure compatible component design, quality, low-cost production,
and simultaneous exchange of production data. These alignments and the Company's
dedication to customer service have resulted in long-term relationships with the
Company's primary customers and suppliers.
INTERNATIONAL PRESENCE
In April 1996, the Company acquired approximately 45% of Berifors, a
Sweden-based manufacturer of electronic display panels and instrumentation for
the European truck and commercial vehicle markets. With the investment in
Berifors, the Company has increased its international presence. The Company
operates manufacturing facilities in the United States, Mexico and Sweden and
maintains sales engineering offices in the United States, United Kingdom,
Germany and Brazil. These facilities and the Berifors acquisition allow the
Company to increasingly provide a global sourcing capability to its customers.
For example, the Company was recently chosen to supply instrument panel systems
for Volvo in Europe, the United States and Brazil. The Company believes that it
would not have been selected had it not been for the Company's presence in each
of these markets. The Company continues to pursue strategic alliances, joint
ventures and acquisitions throughout the world. See "-- Growth
Strategy -- Expand Penetration of International Markets."
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<PAGE> 33
LEAN MANUFACTURING
To enhance manufacturing effectiveness, the Company has adopted lean
manufacturing initiatives, including cost-effective automation, semiautomated
cell manufacturing where appropriate, Total Quality Management and continuous
improvement. These efforts throughout the Company have resulted in enhanced
productivity and product quality and reduced inventory costs. Manufacturing
flexibility enables the Company's facilities to produce high or low volume
components, modules and systems in a cost-effective manner and strengthens the
Company's ability to meet the just-in-time and in-line sequence delivery
schedules of many of its customers.
GROWTH STRATEGY
The Company seeks to grow primarily by leveraging its strong market
positions and technical and manufacturing capabilities to provide highly
engineered electrical and electronic components, modules and systems to the
selected segments of the markets it serves. To achieve this goal the Company
intends to: (i) focus on higher value-added systems and modules, (ii) expand new
product development to increase vehicle platform penetration, (iii) expand
penetration of international markets, and (iv) pursue strategic acquisitions and
alliances.
FOCUS ON HIGHER VALUE-ADDED SYSTEMS AND MODULES
OEMs are increasingly seeking suppliers capable of manufacturing complete
modules and systems for a vehicle rather than suppliers that produce only the
component parts which comprise a module or system. Systems manufacturing offers
OEMs the opportunity for significant cost savings and improved product quality
and consistency. By capitalizing on the Company's existing product portfolio and
through the combination of multifunctional electrical and electronic products,
the Company intends to continue to expand its capabilities to provide additional
integrated modules and systems.
EXPAND NEW PRODUCT DEVELOPMENT TO INCREASE VEHICLE PLATFORM PENETRATION
In order to increase its vehicle platform penetration, the Company has
invested, and intends to continue to invest, significant amounts in its
technology and design capabilities. The Company's product development
expenditures were $9.3 million, or 3.6%, of non-contract manufacturing sales in
1996. These development efforts have strengthened the Company's ability to
provide higher value-added products and systems, and have resulted in the
introduction of new products such as the four-wheel-drive actuator (shift on
demand) and the auto-stick (which enables a driver to manually shift an
automatic transmission using a unique electronic switch). The Company's
technical centers in Massachusetts, Michigan, Ohio, Mexico and Sweden develop
and test both new and existing products and concepts. In addition, through its
advanced technologies group comprised of dedicated engineers, the Company
concentrates on the development of its next generation of products. To further
increase vehicle platform penetration, the Company has developed collaborative
relationships with the design and engineering departments of its key OEM
customers. These collaborative efforts have resulted both in the development of
new and complementary products and the enhancement of existing products.
EXPAND PENETRATION OF INTERNATIONAL MARKETS
In 1996, approximately two-thirds of total worldwide vehicle production
occurred outside North America. To meet OEMs' increasing preference for
suppliers with global capabilities, the Company expects to expand its
manufacturing operations into new geographic markets and pursue strategic
acquisitions and alliances. Consistent with this strategy, the Company believes
the Berifors acquisition will expand its ability to serve its customers in
Europe. The Company has a preferred partner agreement with the switch division
of Labinal, a leading European automotive supplier, which provides for
cooperation and exchange of expertise with respect to the design, development,
manufacture and marketing of electrical switches. Pursuant to the agreement, the
parties agree to offer each other a right of first refusal to participate in any
proposed joint projects involving switches in Europe and North America. In
addition, Berifors has a technology agreement with Kansei
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<PAGE> 34
Corporation, a leading Japanese automotive instrumentation company. The Company
believes that increased international sales will allow the Company to mitigate
the effects of cyclical downturns in a given geographic region and further
diversify the Company's OEM customer base.
PURSUE STRATEGIC ACQUISITIONS AND ALLIANCES
Strategic acquisitions and alliances have been, and the Company believes
will continue to be, an important element in the Company's growth worldwide and
in its efforts to capitalize on trends in the Company's markets. The Company has
demonstrated the ability to successfully integrate and operate acquired
companies through structured business planning, focused product development,
improved operating efficiency and the implementation of merit-based reward
systems. Many of the markets in which the Company competes are highly
fragmented, and the Company believes that numerous potential acquisitions and
alliance opportunities are available and may permit the Company to (i)
complement its range of product offerings, (ii) enhance its ability to supply
existing products internationally, and (iii) broaden its ability to offer
integrated systems to its customers in the heavy duty truck and agricultural
vehicle markets. The Company also seeks to align itself with regional and
international suppliers who offer complementary product lines in order to
achieve efficiencies in research and development and capital investment, as well
as enhanced systems capabilities.
PRODUCTS
The Company's products include vehicle electrical power and distribution
systems, electronic and electrical switch products, electronic instrumentation
and information display products, including European instrumentation and
information display products manufactured by Berifors, and actuator products.
The following table sets forth the approximate composition by product group
represented by a percentage of the Company's net sales for the three fiscal
years ended December 31, 1994, 1995, and 1996 and the six months ended June 30,
1996 and 1997:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- ----------------------------
ACTUAL PRO FORMA(1) ACTUAL PRO FORMA(1)
-------------------------- ------------ ------------- ------------
PRODUCT CATEGORY 1994 1995 1996 1996 1996 1997 1997
- -------------------------------- ---- ---- -------- ------------ ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Power Distribution Systems:
Contract Manufacturing (GM)... 17% 23% 29% 26% 32% 22% 20%
Other Power Distribution
Systems.................... 29 28 23 21 24 25 23
Switch Products................. 33 33 29 27 30 26 24
Instrumentation and Information
Display Products:
North America and other.... 21 16 11 10 11 10 10
Europe..................... -- -- -- 9 -- -- 7
Actuator Products............... -- -- 8 7 3 17 16
--- --- ------- --------- --- --- ---------
Total......................... 100% 100% 100% 100% 100% 100% 100%
=== === ======= ========= === === =========
</TABLE>
- ---------------
(1) Gives pro forma effect to the Berifors acquisition as if it had occurred on
January 1, 1996. See "The Company -- Acquisitions."
POWER DISTRIBUTION SYSTEMS
Power distribution systems coordinate and direct the operations of the
entire electrical system within a vehicle or compartment. The Company designs
and manufactures integrated power distribution systems and modular assemblies.
The Company has the ability to design the entire electrical system within a
vehicle and to manufacture the system using a wide range of component parts
purchased from qualified suppliers. Power distribution systems incorporate
wiring, circuit protectors, connection components and terminals for a wide
variety of vehicles and applications. Such systems are highly complex and are
essential to the regulation, distribution, and delivery of appropriate amounts
of power to perform all electrical and electronic functions within a vehicle,
including audio, power train (including engine and transmission systems),
lighting, navigational, safety and instrumentation systems.
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<PAGE> 35
Power distribution systems contain fuses, circuit breakers and relays and
are responsible for the regulation and distribution of electrical power
throughout a vehicle. Specifically, power is channeled from the vehicle's
electrical power source and routed in appropriate amounts to all vehicle
electrical activities such as ignition, lighting, information displays, and
brakes, power windows and locks, and refrigeration systems.
The Company's modular assemblies combine numerous electrical components
integrated into cost-effective modular designs that can be readily installed
into a vehicle. For example, the Company manufactures integrated armrest control
centers that incorporate a power distribution system, switches to operate power
accessories, wiring between the power source and the switches, connectors and
the associated plastic cabinetry. Other fully integrated power distribution
modules produced by the Company include instrument panels, seat assemblies and
refrigeration control centers.
SWITCH PRODUCTS
The Company designs and manufactures integrated electronic and
electromechanical switch products which include hidden switches and
customer-activated switches. These switches transmit a signal to a control
device which activates or deactivates specific functions. The Company believes
it is the largest supplier of pedal assembly, chassis and door mounted hidden
switches used in vehicle production in North America and Europe. Hidden switches
are those switches which are not typically seen by vehicle passengers but are
utilized to activate or deactivate selected functions such as activating brake
lights, cruise control functions, electronic safety features related to air bag
and anti-lock braking systems, and power train functions. Customer-activated
switches are used by a vehicle's passenger to manually activate headlights, rear
defrosters, heated seats and other accessories. Such switches require a high
level of engineering and durability, given their frequent and consistent use.
Customer-activated switches are manually controlled by a vehicle operator or
passenger and are typically located in the passenger compartment of the vehicle.
The Company produces switches that activate headlights, rear defrosters,
heated seats, and other accessories. The Company's switches are frequently
combined with other electrical and electronic products of the Company to create
integrated modules or systems.
INSTRUMENTATION AND INFORMATION DISPLAY PRODUCTS
Utilizing state-of-the-art hardware, software and multiplexing technology,
the Company designs and manufactures electronic instrument clusters, driver
message centers, power conversion products, multiplexed modules and electrical
systems and electronic switch modules. These products collect, store and display
vehicle information, such as speed, pressure, maintenance data, trip
information, operator performance, temperature, distance traveled, and driver
messages related to vehicle performance. Electronic instrument clusters collect
diagnostic information from sensors and electronic control units (engine,
transmission and ABS) located throughout a vehicle. This information is
processed by microprocessors and displayed with analog pointers, liquid crystal,
vacuum fluorescent and electroluminescent displays. Driver message centers
obtain and manipulate data from various sensors and controllers within a vehicle
and display information in multilingual text format using liquid crystal, vacuum
fluorescent and electroluminescent technology. Power conversion products for
instrumentation and lighting convert 12-volt DC battery power to the DC and AC
voltages needed to power displays effectively and with consistent brightness.
Multiplexed modules are designed to be used in vehicle doors, engine brake
control systems, vehicle instrumentation modules and systems and other
electronic products within a vehicle. Multiplexing is a method of transmitting
several sets of data in sequence along the same wire or cable to an electronic
switch module which processes and distributes multiple pieces of information to
appropriate destinations within a vehicle. The multiplexing process reduces the
amount of wiring and sensors a vehicle must have thereby reducing overall
vehicle cost.
ACTUATOR PRODUCTS
The Company designs and manufactures electromechanical actuator products.
These products enable users to deploy power functions in a vehicle and can be
designed to integrate switching and control functions. These products include
power doorlock and four-wheel-drive actuators. Often operating in harsh
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<PAGE> 36
environments, these components must be waterproof and temperature tolerant.
Actuators are often designed to incorporate switching and electronic control
functions, thereby increasing the value to the customer and, in most cases,
reducing function cost and increasing reliability. The primary product designs
couple power motors with custom-engineered mechanical gears to generate specific
levels of torque, mechanical motion, response time and sound. Electromechanical
actuators can be designed to incorporate logic switching and electronic
functions within the actuator itself, thereby minimizing the number of discrete
components necessary to meet a customer's specific application requirements.
A power doorlock actuator utilizes a fractional horsepower-motor, a compact
gear train and an inertial clutch device to lock or unlock a vehicle's doors.
The Company's four-wheel-drive actuator, when activated by a switch signal from
the driver, enables "on-the-fly" shifting into and out of four-wheel-drive.
CUSTOMERS AND SALES
The Company sells its products principally to OEMs in the automotive,
medium and heavy duty truck, agricultural vehicle and other vehicle markets. The
Company's largest customers are General Motors, Ford and Deere. The following is
a summary of the Company's customers that accounted for at least 2% of the
Company's net sales in any of the past three years, during the six months ended
June 30, 1997, or pro forma for 1996 or the six months ended June 30, 1997,
assuming Berifors was acquired by the Company on January 1, 1996.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
------------------------------------
SIX MONTHS
ACTUAL PRO FORMA ENDED JUNE 30, 1997
----------------------- --------- --------------------
CUSTOMER 1994 1995 1996 1996(1) ACTUAL PRO FORMA
- ------------------------------------------- ----- ----- ----- --------- ------- ----------
<S> <C> <C> <C> <C> <C> <C>
General Motors (contract manufacturing).... 16.6% 23.4% 28.9% 26.4% 22.3% 20.4%
General Motors............................. 13.4 12.1 10.2 9.3 11.2 10.3
Ford....................................... 13.3 12.6 18.4 16.8 22.3 20.6
Deere...................................... 10.3 10.6 9.6 8.8 10.5 9.7
Navistar................................... 8.7 7.5 5.4 4.9 7.9 7.3
Volvo...................................... 6.8 6.1 3.0 5.2 3.4 5.3
Chrysler................................... 2.6 3.4 4.1 3.8 4.0 3.7
Bosch...................................... 1.6 1.6 2.6 2.4 2.9 2.6
Carrier.................................... 3.7 3.0 2.4 2.2 2.2 2.0
Freightliner............................... 1.2 1.0 2.0 1.8 2.5 2.3
ITT Automotive............................. 1.9 2.6 1.6 1.4 0.8 0.7
Ericsson................................... 0.0 0.0 0.0 3.0 0.0 1.5
Other...................................... 19.9 16.1 11.8 14.0 10.0 13.6
----- ----- ----- ----- ----- -----
Total.................................... 100.0% 100.0% 100.0% 100.0% 100% 100%
===== ===== ===== ===== ===== =====
</TABLE>
- ---------------
(1) Gives pro forma effect to the completion of the Berifors acquisition as if
it had occurred on January 1, 1996 as described in "The Company --
Acquisitions."
The Company is typically awarded contracts for particular vehicle models
and model renewals with terms ranging from one to seven years. On platforms
served, the Company believes it supplies significantly all of its products on a
sole-sourced basis. Contracts do not generally require minimum purchases and
certain contracts are subject to annual renewal. The Company sells to its
customers principally through integrated customer-focused teams that typically
consist of an account manager and several applications engineers. Account
managers have overall responsibility for specific client relationships and work
with applications engineers to provide customers with highly specialized
technical service during the design and product development stages, as well as
subsequent program management during the life of particular vehicle models.
Applications engineers have specialized expertise in one or more of the
Company's major product groups and work directly with customers to address
specific customer product needs through component, module or system
customization or the design of entirely new products. The Company operates six
dedicated sales offices near major customers in Chicago, Detroit, Portland,
Oregon, Frankfurt, Sao Paulo and Stockholm. The Company believes that by
locating sales and technical offices close to its customers' operations, it is
better able to
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<PAGE> 37
develop collaborative relationships with its customers. As of June 30, 1997, the
Company (excluding Berifors) employed 57 persons in its sales and marketing
departments.
The following table presents an overview of the major vehicle models for
which the Company (excluding Berifors) is producing components, modules or
systems in 1997:
<TABLE>
<CAPTION>
AUTOMOTIVE MEDIUM AND HEAVY DUTY TRUCK & AGRICULTURAL
- ---------------------------------- ------------------------------------------
<S> <C> <C>
CHRYSLER: Taurus DEERE:
Breeze Thunderbird Combine (Models -- 93-96)
Caravan Town Car Four-Wheel Drive (Series
Cherokee Tracer 9000)
Concorde Villager MR Tractor (Series 7000)
Dakota Windstar Scimitar (Series 8000)
Dodge N-Truck
Intrepid GM: FREIGHTLINER:
Neon Astro Class 5, 6, 7 (medium duty)
Ram Aurora Class 8 (heavy duty)
Sebring Bonneville
Stratus C/K Pickup MACK TRUCK:
T-300 Utility Camaro Class 8 (heavy duty)
Viper Cavalier
Vision Delta 88 MERCEDES BENZ
Voyager Firebird BRAZIL & MEXICO:
Wrangler Grand Am Class 5, 6 (medium duty)
Grand Prix
FORD: LeSabre NAVISTAR:
Bronco Park Avenue Class 5, 6, 7 (bus/medium
Continental S-10 duty)
Cougar Safari Class 8 (heavy duty)
Crown Victoria Seville STS/SLS
Econoline Skylark PACCAR:
Escort Sportvan Class 8 (heavy duty)
Expedition Suburban
Explorer Sunfire VOLVO TRUCK CORPORATION:
F-Series Tahoe Class 7, 8 (heavy duty)
Pickup Yukon
Grand Marquis
Mark VIII MAZDA:
Mountaineer B2000
Mustang Quest
Navigator
Ranger
Sable
</TABLE>
DESIGN AND ENGINEERING
The Company believes that engineering expertise and new product development
are key factors in successfully obtaining new business and in maintaining strong
relationships with existing customers. The Company's formal program management
activities utilize customer-dedicated teams, which have full design,
development, test and commercial responsibilities under the operational control
of a single manager. Each new product program is monitored for cost, timing, and
quality until it is successfully launched and in production. The Company's
advanced technology group explores and develops next-generation technology.
The Company operates technical centers in Boston and Canton, Massachusetts,
Warren, Ohio, Ciudad Juarez, Mexico, and Stockholm, Sweden. These technical
centers are responsible for the product design and
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<PAGE> 38
manufacturing process. The Company's CAD systems are capable of sharing data
with the Company's customers' systems and allow the Company to improve the
function, fit and performance of its products within vehicles. The Company also
utilizes CAD links with its manufacturing facilities to maintain and enhance a
cost-effective synchronous design and manufacturing capability.
MANUFACTURING
The Company seeks to design, implement and operate manufacturing processes
and techniques that allow the Company to produce high quality products in a
cost-effective and timely manner. Utilizing computer-aided design and flexible
manufacturing techniques, the Company cost effectively produces high quality
products in both high and low volume manufacturing environments depending on a
given customer's needs. In addition, the Company has the capability to
manufacture a broad range of products from relatively simple components to
highly engineered complete modules and systems. A majority of the Company's
manufacturing facilities are ISO 9000 and QS 9000 certified and the Company
expects the remainder of its facilities will be certified by December 31, 1997.
ISO 9000 is a quality assurance certification issued by an independent
organization accredited by the International Standards Organization. QS-9000 is
a system of fundamental quality expectations established by Chrysler, Ford,
General Motors and certain truck manufacturers. These programs emphasize
increasing quality through continuous improvement, defect prevention and the
reduction in variation and waste in the supply chain. These certifications are
becoming increasingly important in obtaining contracts from OEMs.
Power distribution systems are manufactured using a several-step process.
Initially, different diameters of wire are processed and cut to a specified
length using an automated system, and components such as terminals, connectors
and seals are attached as appropriate. The second stage of the manufacturing
process entails sonic welding, molding and the sub-assembly of complex circuits.
Depending on the nature of the power distribution system being produced, the
third stage of manufacturing entails attaching components such as clips, clamps,
coverings, fuses, relays, circuit breakers, diodes, capacitors and other
devices, including subassemblies, as required by the customer to complete the
power distribution system. Final assembly takes place either on a stationary
board or a paced conveyor system, depending on the volume of a given product
being produced and its complexity. Where cost-effective, the Company
incorporates automated manufacturing techniques. All final products are fully
tested, both electronically and functionally, to ensure quality of all
components. The Company manufactures power distribution systems in approximately
12 vehicle compartment families such as audio, power train (including engine and
transmission systems), lighting, navigational systems and instrumentation
systems and other categories. Once completed, the power distribution system
coordinates and directs the operation of the entire electrical system within a
vehicle or compartment.
The Company produces switches and actuators utilizing various manufacturing
processes depending on the product volume and design complexity needed by a
customer. For high volume products, the Company typically utilizes synchronous
palletized conveyors with pick-and-place assembly automation which eliminates
direct assembly labor and improves quality. This automated assembly process
includes 100% computer-controlled quality and consistency verification gates
that check each step of the manufacturing process and test the finished product
to assure conformance with customer specifications. Lower volume switch and
actuator products use semiautomated assembly cells supplemented with manual
labor when automation of such manufacturing processes is less cost-effective.
Both semi and fully automated assembly processes utilize various fastening
techniques such as ultrasonic welding, riveting, staking or brackening to
complete the product assembly process. The Company's switch and actuator
products incorporate approximately 6 to 50 separate components, depending on the
complexity of the product being produced. Such components are typically
purchased from outside vendors. The Company currently manufactures approximately
2,000 switch and 50 actuator products.
The manufacturing of instrumentation and information displays entails using
through-hole and surface mount technology to mount electronic components into
printed circuit boards. These boards are scanned with infrared light to adhere
such components to the board in a desired configuration. Connectors,
transformers and other larger components are subsequently incorporated into the
printed circuit boards manually. Once all
35
<PAGE> 39
additional components have been added, each board is wave-soldered to provide
the necessary electrical connections. The final printed circuit board is
attached to an instrument cluster or display housing. Additional components such
as pointers, light pipes, movements and stepped motors are assembled onto a
gauge and then calibrated for accuracy. Gauge lenses, rear shields and labels
are added, in line sequence as appropriate, to the instrument cluster and
information displays and the completed module or system is tested using
computer-based automatic vision testing to ensure performance to customer
specifications. The Company's flexible manufacturing capabilities facilitates
just-in-time and in-line-sequences delivery schedules for many of its customers.
The Company manufactures approximately 150 different instrumentation and
information display modules and systems or variations of such systems.
MARKETS AND COMPETITION
Markets in which the Company competes are highly competitive. The Company
competes primarily based on quality, service, price, timely delivery and
technological innovation. The Company's competitors include divisions of certain
OEM customers and independent manufacturers of wire harnesses, actuators,
switches and other products. Many of the Company's principal competitors are
larger and have greater financial and other resources than the Company. There
can be no assurance that competitors will not be able to take actions, including
developing new technology or products or offering prolonged reduced pricing,
which could adversely affect the Company.
The Company competes for new business both at the beginning of the
development of new models and upon the redesign of existing models. New model
development generally begins two to five years before the marketing of such
models to the public. Once a supplier has been selected to provide parts for a
new program, an OEM usually will continue to purchase those parts from the
selected supplier for the life of the program, although not necessarily for any
model redesigns.
PRODUCTION MATERIALS
The principal production materials used in the Company's manufacturing
processes include wire, cable, plastic housings, and certain electrical
components such as fuses, relays, and connectors. The Company generally
purchases such materials subject to annual contracts. Such materials are readily
available from multiple sources, but the Company generally establishes
collaborative relationships with a qualified supplier for each of its key
production materials in order to lower costs and enhance service and quality.
PATENTS AND INTELLECTUAL PROPERTY
The Company maintains and has pending various U.S. and foreign patents and
other rights to intellectual property relating to its business, which it
believes are appropriate to protect the Company's interests in existing
products, new inventions, manufacturing processes and product developments. The
Company does not believe any single patent is material to its business, nor
would the expiration or invalidity of any patent have a material adverse effect
on its business or its ability to compete. The Company is not currently engaged
in any infringement litigation, nor are there any claims pending by or against
the Company.
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<PAGE> 40
PROPERTIES
The Company (excluding Berifors properties) currently owns or leases nine
manufacturing facilities, which together contain approximately one million
square feet of manufacturing space. The following table provides information
regarding the Company's facilities:
<TABLE>
<CAPTION>
OWNED/ SQUARE
LOCATION USE LEASED STATUS FOOTAGE
- ------------------------------ -------------------------------------- ------------- -------
<S> <C> <C> <C>
Arlington Heights, Illinois Sales/Engineering Office Leased 1,000
Boston, Massachusetts Division Office & Manufacturing;
Actuator Products Owned 166,100
Canton, Massachusetts Division Office & Manufacturing;
Switch Products Owned 126,500
Cortland, Ohio Engineering Office Leased 11,400
El Paso, Texas Office/Warehouse; Instrument and
Information Display Products and Power
Distribution Products Leased 22,400
Greenwood, South Carolina(1) Manufacturing; Power Distribution
Products Leased 56,000
Kent, Ohio Manufacturing; Power Distribution
Products Owned 70,000
Mebane, North Carolina Manufacturing; Power Distribution
Products Leased 51,000
Northhampton, Massachusetts Sales/Engineering Office Leased 200
Orwell, Ohio Manufacturing; Power Distribution
Products Owned 72,000
Portland, Indiana Manufacturing; Power Distribution
Products Owned 196,000
Southfield, Michigan Sales/Engineering Office Leased 4,200
Warren, Ohio Corporate Office Owned 7,500
Warren, Ohio Division Office Leased 15,300
Chihuahua, Mexico Manufacturing; Power Distribution
Products Owned 133,000
Eschborn, Germany Sales/Engineering Office Leased 100
Juarez, Mexico Manufacturing; Instrument and
Information Display Products Owned 178,000
Sao Paulo, Brazil Sales/Engineering Office Leased 200
</TABLE>
- ---------------
(1) Plant idled in first quarter of 1997.
Berifors leases a production facility in Orebro, Sweden, a technical center
in Bromma, Sweden, and sales offices in Munich, Germany and Stuttgart, Germany.
EMPLOYEES
As of June 30, 1997, the Company, including Berifors, had approximately
4,000 employees, approximately 1,100 of whom were salaried and the balance of
whom were paid on an hourly basis. Except for certain employees located in
Chihuahua, Mexico, and Orebro and Stockholm, Sweden, the Company's employees are
not represented by a union. The Company believes that its relations with its
employees are excellent. The Company believes strongly in employee education and
sponsors a number of educational opportunities and programs for its employees.
ENVIRONMENTAL MATTERS
Under various federal, state and local laws, ordinances, and regulations,
an owner or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on, under or in the
property. This liability may be imposed without regard to whether the owner or
operator knew of, or was responsible for, the presence of the hazardous or toxic
substances. Furthermore, a person that arranges for the disposal of a hazardous
substance at another property or transports a hazardous substance for disposal
or treatment at another property may be liable for the costs of removal or
remediation of hazardous substances at that property, regardless of whether the
person owns or operates that property. The costs of any such
37
<PAGE> 41
remediation or removal may be substantial, and the presence of any such
substance, or the failure promptly to remediate any such substance, may
adversely affect the property owner's ability to sell or lease the property or
to borrow using it as collateral. Other federal, state and local laws,
ordinances and regulations require abatement or removal of certain
asbestos-containing materials, impose certain worker protection and notification
requirements, and govern emissions of and exposure to asbestos fibers in the
air. Other federal, state and local laws, ordinances, and regulations and the
common law impose on owners and operators certain requirements regarding
conditions and activities that may affect human health or the environment. These
conditions and activities include, for example, the presence of lead in drinking
water, the presence of lead-containing paint in occupied structures, and the
ownership or operation of underground storage tanks. Failure to comply with
applicable requirements could result in difficulty in the lease or sale of any
affected property or the imposition of monetary penalties, in addition to the
costs required to achieve compliance and potential liability to third parties.
The Company may be potentially liable for such costs or claims in connection
with the ownership or operation of its properties.
The Company believes it conducts all its operations in compliance in all
material respects with the applicable environmental and occupational health and
safety laws. As is the case with manufacturers in general, if a release of
hazardous substances occurs on or from the Company's properties or at any
associated off-site disposal location, if contamination from prior activities is
discovered at any of the Company's properties, or if noncompliance with
environmental regulations or permits is discovered, the Company may be held
liable and the amount of such liability could be material.
The Company regularly conducts an environmental assessment consistent with
recognized standards of due diligence on properties and businesses which it
acquires. To date, these assessments have not identified contamination in
respect to acquired properties that would be reasonably likely to result in a
material adverse effect on the Company's business, results of operations, or
financial condition. As a general rule, the Company intends to use such
assessments as part of the evaluation of proposed acquisitions. However, there
can be no assurance that environmental assessments have identified, or will in
the future identify, all material liabilities relating to the Company's
properties and businesses, that any indemnification agreements that can be
negotiated will cover all potential liabilities, or that changes in cleanup
requirements or subsequent events at the Company's properties or at off-site
locations will not result in significant costs to the Company.
None of the Company's properties are the subject of any local, state or
federal inquiry or investigation involving compliance with any environmental
regulations.
LITIGATION
The Company has no pending litigation which it believes will have a
material adverse impact upon the Company. The Company is subject to the risk of
exposure to product liability claims in the event that the failure of any of its
products causes personal injury or death to users of the Company's products, and
there can be no assurance that the Company will not experience any material
product liability losses in the future. In addition, if any of the Company's
products prove to be defective, the Company may be required to participate in a
government-imposed or OEM-instituted recall involving such products. The Company
maintains insurance against such liability claims.
38
<PAGE> 42
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information concerning the directors
and executive officers of the Company. The directors named below have been
elected to serve until the next annual meeting of shareholders or until their
successors are duly elected and qualified. Executive officers of the Company
serve at the pleasure of the Board of Directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------ --- ------------------------------------------------------
<S> <C> <C>
D.M. Draime 64 Chairman of the Board of Directors, Assistant
Secretary and Director
Cloyd J. Abruzzo 47 President, Chief Executive Officer, Assistant
Treasurer and Director
Kevin P. Bagby 46 Chief Financial Officer and Treasurer
Sten Forseke 38 Vice President of the Company(1) and Managing Director
of Berifors
Gerald V. Pisani 57 Vice President of the Company and President of Pollak
Engineered Products Group
David L. Thomas 48 Vice President of the Company and President of
Alphabet Group
Avery S. Cohen 60 Secretary and Director
Richard E. Cheney 76 Director
Sheldon J. Epstein 59 Director
Earl L. Linehan 56 Director
</TABLE>
- ---------------
(1) Effective upon the acquisition of Berifors as described under "The
Company -- Acquisitions."
D.M. Draime, founder of the Company, has served as Chairman of the Board of
Directors of the Company and its predecessors since 1965 and as a director of
the Company since 1988.
Cloyd J. Abruzzo has served as President and Chief Executive Officer of the
Company or its predecessors since June 1993 and as a director of the Company
since 1993. From 1984 to June 1993, Mr. Abruzzo was the Vice President and Chief
Financial Officer of the Company or its predecessor. Mr. Abruzzo serves as a
director of Second National Bank of Warren.
Kevin P. Bagby has served as Vice President and Chief Financial Officer
since joining the Company in July 1995. Mr. Bagby was employed by Kelsey-Hayes
as Director of Business Analysis from June 1994 to July 1995 and as Director of
Finance for the Foundation Brakes Business Unit from January 1991 to June 1994.
Sten Forseke has served as the co-founder and Managing Director of Berifors
since 1988.
Gerald V. Pisani has served as Vice President of the Company since 1989 and
President of the Pollak Engineered Products Group since 1985.
David L. Thomas has served as Vice President of the Company and President
of the Company's Alphabet Group since 1989.
Avery S. Cohen has served as Secretary and a director of the Company since
1988. He has been a partner in the law firm of Baker & Hostetler LLP since 1993.
From 1989 to 1993, Mr. Cohen was a partner with the law firm of Benesch,
Friedlander, Coplan & Aronoff.
Richard E. Cheney has served as a director of the Company since 1988. From
1992 to 1993, he was Chairman Emeritus of Hill & Knowlton, Inc. and from 1987 to
1990 was Chairman of the Board of Directors of Hill & Knowlton, Inc., a public
relations firm. Mr. Cheney serves as a director of Rowe Furniture, Inc.,
Chattem, Inc., and Alpine Lace Brands, Inc.
39
<PAGE> 43
Sheldon J. Epstein has served as a director of the Company since 1988. He
has been the managing member of Epstein, Woods & Dwyer, P.L.C., an independent
public accounting firm, since 1995. From 1992 to 1994, Mr. Epstein was the
managing partner of Epstein, Rehbock & Applebaum, an independent public
accounting firm.
Earl L. Linehan has served as a director of the Company since 1988. Since
1983, he has been the President of Woodbrook Capital Inc., a venture capital and
investment firm. Since 1988, he has served as Chairman of Strescon Industries,
Inc., a concrete manufacturer.
COMMITTEES OF THE BOARD OF DIRECTORS
The Company's Board of Directors has Audit, Compensation and Stock Option
Committees. Each of these committees is comprised of the Company's three outside
directors, Messrs. Cheney, Epstein and Linehan. Members of each committee serve
at the pleasure of the Board.
Audit Committee. The Company's Audit Committee makes recommendations
concerning the engagement of independent public accountants, reviews with the
independent public accountants the plans and results of the audit engagement,
approves professional services provided by the independent public accountants,
reviews the independence of the independent public accountants, considers the
range of audit and nonaudit fees, reviews the independent public accountants'
management letters and the Company's responses, reviews the adequacy of the
Company's internal accounting controls, and reviews major accounting or
reporting changes.
Compensation Committee. The Company's Compensation Committee reviews
employment, development, reassignment and compensation matters involving
corporate officers and other executive level employees, including issues
relating to salary, bonus and incentive arrangements.
Stock Option Committee. The Company's Stock Option Committee administers
the Company's Long-Term Incentive Plan.
INDEMNIFICATION
The Company's Code of Regulations provides for the indemnification of
directors and officers of the Company to the maximum extent permitted by Ohio
law and for the advancement of expenses incurred in connection with the defense
of any action, suit or proceeding that he was a party to by reason of the fact
that he is or was a director of the Company upon the receipt of an undertaking
to repay such amount unless it is ultimately determined that the director is
entitled to indemnification. The Company maintains a directors' and officers'
insurance policy which insures the officers and directors of the Company from
any claim arising out of an alleged wrongful act by such persons in their
respective capacities as officers and directors of the Company.
COMPENSATION OF DIRECTORS
Each member of the Company's Board of Directors who is not an employee of
the Company receives an annual fee of $16,000 for serving as a director of the
Company and receives a fee of $1,000 for each Board meeting attended. There is
no additional fee received for attending committee meetings. Directors who are
also employees of the Company do not receive any additional compensation for
their services as directors. The Company reimburses out-of-pocket expenses
incurred by all directors in connection with attending Board and committee
meetings.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION.
During the fiscal year ended December 31, 1996, Avery S. Cohen, a partner
in Baker & Hostetler LLP, which provides legal services to the Company, and D.M.
Draime served as members of the Company's compensation committee. Following the
Offering, the Compensation Committee will not include Messrs. Cohen or Draime or
any person who has been an executive officer of the Company.
40
<PAGE> 44
LONG-TERM INCENTIVE PLAN
The Company's Board of Directors adopted the Company's Long-Term Incentive
Plan (the "Plan") on August 5, 1997. The Plan will be submitted for the approval
of the Company's shareholders prior to consummation of the Offering. The purpose
of the Plan is to enable the Company to attract, retain and reward key employees
of the Company and its affiliates and to strengthen the mutuality of interest
between such key employees and the Company's shareholders. Grants of incentive
or nonqualified share options, restricted shares, deferred shares, share
purchase rights, share appreciation rights in tandem with options ("SARs"),
other share-based awards, or any combination thereof, may be issued under the
Plan to officers and key employees who are responsible for or contribute to the
management, growth or profitability of the business of the Company and its
affiliates. The Stock Option Committee administers the Plan and is responsible
for determining the type, amount and timing of grants and awards. The members of
the Stock Option Committee are not eligible to participate in the Plan. The
Company has reserved 1,000,000 Common Shares for issuance under the Plan. No
participant in the Plan may be granted stock options or other share awards in
any calendar year for more than 300,000 Common Shares. In connection with the
Offering, the Company expects to grant options to purchase an aggregate of
500,000 Common Shares to officers and other management employees with an
exercise price equal to the initial public offering price. The options will vest
two years after the date of grant. Options are expected to be granted to the
Named Executive Officers as follows: Mr. Abruzzo -- 200,000; Mr.
Pisani -- 100,000; Mr. Bagby -- 50,000; and Mr. Thomas -- 25,000.
The term of each option granted under the Plan may not exceed ten years
from the date of grant, and the exercise price of share options may not be less
than 100% of the fair market value (as defined in the Plan) of the shares on the
date the option is granted. The Stock Option Committee may grant tandem SARs to
any person granted an option under the Plan. Each tandem SAR will represent the
right to receive, in cash or shares as the Stock Option Committee determines, a
distribution in an amount equal to the excess of the fair market value of the
option shares (to which the SAR corresponds) on the date of exercise over the
exercise price for those shares. Each tandem SAR expires at the same time as its
corresponding option. The exercise of an option will result in an immediate
forfeiture of its corresponding SAR, and the exercise of an SAR will cause an
immediate forfeiture of its corresponding option. The Plan provides that all
options and tandem SARs will become exercisable on a change in control (as
defined in the Plan) of the Company.
The Stock Option Committee may award Common Shares under the Long-Term
Incentive Plan and may place restrictions on the transfer or defer the date of
receipt of those shares. Each award will specify any applicable restrictions or
deferral date, the duration of those restrictions, and the time at which the
restrictions lapse. Participants may be required to deposit shares with the
Company during the period of any restrictions. The Stock Option Committee may
also grant share purchase rights for which the purchase price may not be less
than 100% of the fair market value (as defined in the Plan) on the date of
grant.
The Stock Option Committee may grant other awards of shares and other
awards that are valued or otherwise based on the Company's Common Shares. The
Plan provides for vesting, exercise or forfeiture of rights granted under the
Plan on death, disability, termination of employment or a change of control. The
Board of Directors may modify, suspend or terminate the Plan as long as it does
not impair the rights of any participant.
41
<PAGE> 45
EXECUTIVE COMPENSATION
Summary of Cash and Certain Other Compensation. The following table sets
forth information with respect to all compensation earned by the chief executive
officer and the other four most highly compensated executive officers of the
Company (each a "Named Executive Officer") for services rendered during the year
ended December 31, 1996. The Company does not have employment agreements with
any of its employees.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION NUMBER OF
------------------------------------ SECURITIES
OTHER ANNUAL UNDERLYING
SALARY BONUS COMPENSATION OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) (#) COMPENSATION(1)
- ---------------------------- ---- -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Cloyd J. Abruzzo, 1996 $204,000 $250,000 $ 10,142 -- --
President and Chief
Executive Officer 1995 192,000 200,000 9,624 -- --
1994 180,000 180,000 9,274 -- --
D.M. Draime, 1996 $189,600 $250,000 $ 9,359 -- $ 174,157
Chairman of the Board of
Directors 1995 189,600 700,000 6,324 -- 174,990
1994 189,600 750,000 8,449 -- 177,263
Gerald V. Pisani, 1996 $159,000 $140,000 $ 7,589 -- --
President of Pollak Group 1995 159,000 130,000 6,324 -- --
1994 150,000 115,000 5,974 -- --
David L. Thomas, 1996 $144,000 $110,000 $ 4,712 -- --
President of Alphabet
Group 1995 132,000 108,000 3,300 -- --
1994 132,000 100,000 3,300 -- --
Kevin P. Bagby, 1996 $120,000 $ 65,000 $ 945 34,771 --
Chief Financial Officer(2) 1995 55,000 40,000 445 -- --
</TABLE>
- ---------------
(1) Represents the aggregate amount of life insurance premiums paid by the
Company on a split-dollar life insurance policy. See "Certain Transactions."
(2) Mr. Bagby's employment with the Company commenced in July 1995.
Option Grants. The following table sets forth information regarding grants
of share options made to the Named Executive Officers during 1996:
OPTION GRANTS IN 1996
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES PERCENTAGE OF
UNDERLYING TOTAL OPTIONS
OPTIONS GRANTED TO
GRANTED EMPLOYEES IN EXERCISE PRICE EXPIRATION
NAME (#) FISCAL YEAR PER SHARE DATE
- ----------------------------------------------------- --------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Cloyd J. Abruzzo..................................... -- -- -- --
D.M. Draime.......................................... -- -- -- --
Gerald V. Pisani..................................... -- -- -- --
David L. Thomas...................................... -- -- -- --
Kevin P. Bagby....................................... 34,771(1) 7.9% $ 5.74 (1)
</TABLE>
- ---------------
(1) On June 30, 1996, the Company granted an option (the "Option") to Kevin P.
Bagby to purchase 34,771 Class B Common Shares of the Company (the "Option
Shares"). The Option, which had no expiration date, gave Mr. Bagby the right
to purchase the Option Shares at a purchase price of $5.74 per share. Mr.
Bagby exercised the Option on August 7, 1997.
42
<PAGE> 46
Option Holdings. The following table sets forth information with respect
to the options exercised by executive officers of the Company during 1996 and
the aggregate number and value of shares underlying unexercised options held by
each Named Executive Officer as of December 31, 1996:
AGGREGATED OPTION EXERCISES IN 1996
AND 1996 YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AS OF AS OF
ACQUIRED DECEMBER 31, 1996 DECEMBER 31, 1996($)
ON VALUE -------------------------- --------------------------
NAME EXERCISE(#) REALIZED($) EXERCISABLE/ UNEXERCISABLE EXERCISABLE/ UNEXERCISABLE
- -------------------------------- ----------- ----------- ------------ ------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
Cloyd J. Abruzzo................ -- -- -- -- -- --
D.M. Draime..................... -- -- -- -- -- --
Gerald V. Pisani................ -- -- -- -- -- --
David L. Thomas................. 69,547 $ 90,065(1) -- -- -- --
Kevin P. Bagby.................. -- -- -- 34,771 -- $30,950(1)
</TABLE>
- ---------------
(1) These values are based on the deemed fair market value of the option shares
at December 31, 1996 (based on the price at which the Company had the right
to acquire the shares under certain circumstances), less the exercise prices
payable for such shares.
43
<PAGE> 47
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Shares as of September 15, 1997 (assuming the
recapitalization described in Description of Capital Shares) by (i) each of the
Company's directors and Named Executive Officers, (ii) each person who is known
by the Company to beneficially own five percent or more of the outstanding
Common Shares, and (iii) all of the directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO THE OWNED AFTER THE
COMBINED OFFERING COMBINED OFFERING
--------------------- ---------------------
NAME(1) NUMBER PERCENT NUMBER PERCENT
- ----------------------------------------------------- ---------- ------- ----------- -------
<S> <C> <C> <C> <C>
D.M. Draime(2)....................................... 7,004,628 48.6% 7,004,628 32.7%
Scott N. Draime(3)................................... 2,312,989 16.0 2,312,989 10.8
Jeffrey P. Draime(4)................................. 1,903,521 13.2 1,903,521 8.9
Cloyd J. Abruzzo(5).................................. 1,840,656 12.8 2,014,393 9.4
Rebecca M. Gang(6)................................... 1,290,435 9.0 1,290,435 6.0
Avery S. Cohen(7)(8)................................. 532,694 3.7 546,125 2.5
Sheldon J. Epstein(8)................................ 408,214 2.8 421,645 1.9
Gerald V. Pisani(9).................................. 336,447 2.3 466,400 2.2
David L. Thomas...................................... 69,542 * 96,403 *
Kevin P. Bagby....................................... 34,771 * 48,202 *
Richard E. Cheney.................................... 34,771 * 48,202 *
Earl L. Linehan...................................... 34,771 * 48,202 *
Sten Forseke......................................... -- -- 352,031 1.6
All directors and executive officers of the Company
as a group (10 persons)............................ 10,296,494 71.5% 11,046,231 51.5%
</TABLE>
- ---------------
* Less than one percent.
(1) Unless otherwise indicated, the beneficial owner has sole voting and
investment power over such shares. The information regarding the beneficial
ownership of Common Shares owned after the Combined Offering includes Common
Shares acquired pursuant to the Management Reinvestment. See "S Corporation
Distribution and Management Reinvestment."
(2) Includes 1,363,456 Common Shares held by Mr. Draime as executor of the
Estate of Steven A. Draime and 5,641,172 Common Shares held in trust for the
benefit of Mr. Draime of which Mr. Draime is trustee. The address of Mr.
Draime is 9400 East Market Street, Warren, Ohio 44484.
(3) Includes 818,240 Common Shares held in trust for the benefit of Scott N.
Draime of which Scott N. Draime is trustee, 124,481 Common Shares held in
trust for the benefit of Scott N. Draime, of which Avery S. Cohen and
Sheldon J. Epstein are co-trustees, 1,022,554 Common Shares held in trusts
for the benefit of Jeffrey P. Draime's and Rebecca M. Gang's children of
which Scott N. Draime is trustee, and 347,714 shares held in trust for the
benefit of Scott N. Draime of which Cloyd J. Abruzzo is trustee. The address
of Scott N. Draime is 9400 East Market Street, Warren, Ohio 44484.
(4) Includes 886,114 Common Shares held in trust for the benefit of Jeffrey P.
Draime of which Jeffrey P. Draime is trustee, 124,481 Common Shares held in
trust for the benefit of Jeffrey P. Draime, of which Avery S. Cohen and
Sheldon J. Epstein are co-trustees, 545,212 Common Shares held in trusts for
the benefit of Scott N. Draime's children, and 347,714 shares held in trust
for the benefit of Jeffrey P. Draime of which Cloyd J. Abruzzo is trustee.
The address of Jeffrey P. Draime is 9400 East Market Street, Warren, Ohio
44484.
(5) Includes 299,590 Common Shares held in trust for the benefit of Cloyd J.
Abruzzo of which Mr. Abruzzo is trustee, an aggregate of 1,390,856 Common
Shares held in trusts for the benefit of D.M. Draime's children and
grandchildren of which Mr. Abruzzo is trustee and an aggregate of 150,210
Common Shares held in trusts for the benefit of Cloyd J. Abruzzo's children
of which Arthur Abruzzo, Cloyd J. Abruzzo's brother, is trustee. The address
of Cloyd J. Abruzzo is 9400 East Market Street, Warren, Ohio 44484.
44
<PAGE> 48
(6) Includes 124,481 Common Shares held in trust for the benefit of Rebecca M.
Gang of which Avery S. Cohen and Sheldon J. Epstein are co-trustees and
347,714 shares shares held in trust for the benefit of Rebecca M. Gang of
which Cloyd J. Abruzzo is trustee. The address of Rebecca M. Gang is 9400
East Market Street, Warren, Ohio 44484.
(7) Includes 124,481 Common Shares held under the Ohio Transfer to Minors Act
for the benefit of William M. Draime and John A. Draime of which Mr. Cohen
is custodian.
(8) Includes 373,443 Common Shares held in separate trusts for the benefit of
Scott N. Draime, Jeffrey P. Draime and Rebecca M. Gang of which Mr. Cohen
and Mr. Epstein are co-trustees.
(9) Includes 166,902 Common Shares held in separate trusts for the benefit of
Gerald V. Pisani's children, of which Gerald V. Pisani's wife is the
trustee.
45
<PAGE> 49
CERTAIN TRANSACTIONS
TRANSACTIONS WITH DIRECTORS
The Company believes that all of its past and current transactions with
affiliates have been made and entered into on terms neither materially more nor
materially less favorable to the Company than those available from unaffiliated
third parties. The Company has adopted a policy that future transactions with
affiliates will be submitted for approval by a majority of the Company's
disinterested directors.
Chip Supply, Inc. D.M. Draime and certain of his family members own in the
aggregate 60.0%, and Cloyd J. Abruzzo owns 1.17%, of Chip Supply, Inc., a
Florida corporation ("Chip"). From January 1, 1996 to September 30, 1996, Chip
leased a building located in Orlando, Florida from the Company. During this
lease period, the Company received lease payments in the aggregate amount of
$235,200. On September 30, 1996, the Company sold the leased building to Chip
for $2.2 million. Chip borrowed funds to purchase the building. Prior to
September 15, 1997, the Company guaranteed the repayment of such loan to Chip.
On June 30, 1997 the outstanding principal amount of the loan was approximately
$2.1 million. Prior to September 15, 1997, the Company was also the guarantor
for a $500,000 standby letter of credit issued in connection with this loan. As
of July 31, 1997, there was no outstanding balance on the standby letter of
credit.
Alphabet Greenwood Facility. D.M. Draime is the sole owner of the Alphabet
Division facility located in Greenwood, South Carolina. The Company leases the
facility from Mr. Draime pursuant to a lease expiring on September 15, 2004. In
each of 1994, 1995 and 1996, the Company made lease payments to Mr. Draime in
the aggregate amount of $157,200. In February 1997, the Company restructured its
operations and terminated its use of the Greenwood facility. The Company
continues to make lease payments to Mr. Draime, and the Greenwood property is
for sale.
Hunters Square. D.M. Draime is a 25% owner of Hunters Square, Inc., an
Ohio corporation ("HSI"), which owns Hunters Square, a shopping mall located in
Warren, Ohio. The Company leases office space in Hunters Square for use as the
headquarters of the Alphabet Division. The Company pays all maintenance, tax and
insurance costs related to the operation of the office. Lease payments made by
the Company to HSI in 1994, 1995 and 1996 were $118,763, $153,576 and $189,547,
respectively. The Company continues to make lease payments as required under the
lease agreement which terminates in June 2002.
Technaflow, Inc. D.M. Draime, together with certain of his family members,
owns 97.46%, and Cloyd J. Abruzzo owns 2.54%, of Technaflow, Inc., an Ohio
corporation. The Company provides management services to Technaflow, Inc.,
including the review of operations and strategic initiatives, and has received a
management fee of $300,000 annually from Technaflow, Inc. The Company has also
paid the salary of the president of Technaflow, Inc., Wayne Reichard. Mr.
Reichard was paid a salary of $177,912, $181,900 and $180,459 by the Company in
1994, 1995 and 1996, respectively. Effective September 1, 1997, all salary and
benefits for Mr. Reichard are being paid by Technaflow, Inc. and the annual
management fee paid to the Company was reduced to $60,000.
Industrial Development Associates LP. Earl Linehan and D.M. Draime, as
limited partners, own 11.81% and 10.00%, respectively, of Industrial Development
Associates ("IDA"), a Maryland limited partnership real estate development
company in which the Company is a 30% general partner. Alphabet, a division of
the Company, has entered into a lease agreement with IDA pursuant to which the
Alphabet Division leases a facility located in Mebane, North Carolina, until
June 15, 2001. Alphabet is responsible for all maintenance, taxes and insurance.
Alphabet made lease payments to IDA of $107,606, $103,372, and $111,631 for
1994, 1995, and 1996, respectively. In addition, Alphabet subleases warehouse
space in the same industrial park as the Mebane facility from Baumgartner, Inc.
Baumgartner, Inc. leases the space from IDA. Alphabet made sub-lease payments to
Baumgartner, Inc. of $74,622, and $78,577 in 1995 and 1996, respectivley.
Relationship with Counsel. Avery S. Cohen, a Director of the Company, is a
partner in Baker & Hostetler LLP, a law firm which has served as general outside
counsel for the Company since 1993 and is expected to continue to do so in the
future.
46
<PAGE> 50
Insurance on the Life of D.M. Draime. The Company paid the premiums on a
$12.0 million insurance policy on the life of D.M. Draime. From 1993 through
1996, the Company had paid aggregate premiums in the amount of $662,800 on this
policy. Under the policy, upon the death of Mr. Draime the estate of Mr. Draime
will receive the amount of the life insurance policy less the aggregate amount
of the premiums paid by the Company, which amount will be paid to the Company.
Upon or prior to the completion of the Offering, the Company will be reimbursed
for the premiums paid on this policy by or on behalf of Mr. Draime.
Shareholder Agreements. The Company, D.M. Draime and certain of the
shareholders and persons owning options to purchase shares of the Company have
entered into shareholder or share restriction agreements. Such agreements will
terminate upon the consummation of the Offering.
DESCRIPTION OF CAPITAL SHARES
As of September 1, 1997, the Company's authorized capital shares consisted
of 32,724 Class A Common Shares, without par value (Voting), and 87,276 Class B
Common Shares, without par value (Nonvoting) of which 15,465 and 87,837 shares,
respectively, were issued and outstanding. In addition, 250 Class B Common
Shares were reserved for issuance upon the exercise of options held by one
employee. In anticipation of the Combined Offering, the Board of Directors and
the current shareholders of the Company will adopt the Company's Second Amended
and Restated Articles of Incorporation (the "Articles of Incorporation") to
authorize a single class of 60 million Common Shares, without par value, and
five million preferred shares, without par value ("Preferred Shares"). Effective
upon the filing of such amendment, each of the then existing Class A Common
Shares and Class B Common Shares will be recapitalized into 139.0856 Common
Shares. Except as otherwise expressly stated, all references in this Prospectus
to the Company's Articles of Incorporation or its capital shares (including the
Common Shares) are to such after effectiveness of such amendment and
recapitalization. Immediately following completion of the Combined Offering,
there are expected to be 21,445,287 Common Shares outstanding (22,322,787 Common
Shares if the Underwriters' overallotment option is exercised in full),
1,000,000 Common Shares reserved for issuance pursuant to the Plan and no
preferred shares outstanding.
COMMON SHARES
Holders of Common Shares are entitled to one vote per share on all matters
submitted to a vote of the shareholders. Holders do not have the right to
cumulate their votes in the election of directors. Subject to the rights of
holders of Preferred Shares, holders of Common Shares are entitled to receive
dividends if, as and when dividends are declared from time to time by the
Company's Board of Directors out of assets legally available therefor. Upon
liquidation, dissolution or winding up of the Company, the holders of Common
Shares are entitled to share ratably in all assets of the Company after payment
of liabilities and accrued but unpaid dividends and liquidation preferences on
any outstanding Preferred Shares. The Common Shares have no preemptive or
conversion rights and are not subject to further calls or assessment by the
Company. There are no redemption or sinking fund provisions applicable to the
Common Shares. The Common Shares being sold by the Company in the Combined
Offering, when sold to the Underwriters and the Management Investors in the
manner described in this Prospectus will be, and all currently outstanding
Common Shares of the Company are, duly authorized, validly issued, fully paid
and nonassessable.
PREFERRED SHARES
The Articles of Incorporation authorize the Board of Directors of the
Company to fix the number of Preferred Shares and determine the designation of
any series of the authorized Preferred Shares and to determine or alter the
rights, preferences, privileges and restrictions granted or imposed upon any
unissued series of Preferred Shares. As of the date of this Prospectus, the
Company has not issued any Preferred Shares. The issuance of Preferred Shares
could have the effect of delaying or preventing a change in control of the
Company. The Company has no present intention to issue Preferred Shares.
47
<PAGE> 51
CERTAIN PROVISIONS OF OHIO LAW
Section 1701.59 of the Ohio Revised Code (the "Ohio Code") provides, with
certain limited exceptions, that a director shall be held liable in damages for
any action he takes or fails to take as a director only if it is proved by clear
and convincing evidence that his action or failure to act involved an act or
omission undertaken with deliberate intent to cause injury to the corporation or
with reckless disregard for its best interest. In addition, Section 1701.59 of
the Ohio Code provides that a director of an Ohio corporation, in determining
what he reasonably believes to be in the best interests of the corporation,
shall consider the interests of the corporation's shareholders and may consider,
in his discretion, any of the following: (1) the interests of the corporation's
employees, suppliers, creditors and customers; (2) the economy of the State of
Ohio and the nation; (3) community and societal considerations; and (4) the
long-term as well as short-term interests of the corporation and its
shareholders, including the possibility that these interests may be best served
by the continued independence of the corporation.
The Ohio Code also authorizes Ohio corporations to indemnify officers and
directors from liability if the officer or director acted in good faith and in a
manner reasonably believed by the officer or director to be in or not opposed to
the best interests of the corporation and, with respect to any criminal actions,
if the officer or director had no reason to believe his action was unlawful. In
the case of an action by or on behalf of a corporation, indemnification may not
be made (i) if the person seeking indemnification is adjudged liable for
negligence or misconduct, unless the court in which such action was brought
determines such person is fairly and reasonably entitled to indemnification or
(ii) if liability asserted against such person concerns certain unlawful
distributions. The indemnification provisions of the Ohio Code require
indemnification if a director or officer has been successful on the merits or
otherwise in defense of any action, suit or proceeding that he was a party to by
reason of the fact that he is or was a director or officer of the corporation.
The indemnification authorized under Ohio law is not exclusive and is in
addition to any other rights granted to officers and directors under the
articles of incorporation or code of regulations of the corporation or any
agreement between officers and director and the corporation. The Company's Code
of Regulations provides for the indemnification of directors and officers of the
Company to the maximum extent permitted by Ohio law as authorized by the Board
of Directors of the Company, and for the advancement of expenses incurred in
connection with the defense of any action, suit or proceeding that he was a
party to by reason of the fact that he is or was a director of the Company upon
the receipt of an undertaking to repay such amount unless it is ultimately
determined that the director is entitled to indemnification. A corporation may
purchase and maintain insurance or furnish similar protection on behalf of any
officer or director against any liability asserted against him and incurred by
him in his capacity, or arising out of the status, as an officer or director,
whether or not the corporation would have the power to indemnify him against
such liability under the Ohio Code.
Chapter 1704 of the Ohio Code prohibits certain mergers, dispositions and
acquisitions of assets, issuances or purchases of securities, liquidations or
dissolutions, or reclassifications of the then outstanding shares of an Ohio
corporation with 50 or more shareholders (an issuing public corporation)
involving, or for the benefit of, certain holders of shares representing 10% or
more of the voting power (other than a current 10% shareholder that does not
increase its present proportional interest) (an "Interested Shareholder"),
unless (a) the applicable transaction is approved by the directors of the
Company prior to the shareholder becoming an Interested Shareholder, (b) the
acquisition of 10% of the voting power is approved by the directors prior to the
shareholder becoming an Interested Shareholder, or (c) the transaction involves
an Interested Shareholder who has been such for at least three years and the
transaction is approved by holders of two-thirds of the voting power of the
Company (or a lesser proportion provided in the articles of incorporation) and
the holders of a majority of the voting power not held by the Interested
Shareholder or certain minimum price and form of consideration requirements are
met.
Section 1701.041 of the Ohio Code regulates control bids for corporations
in Ohio having certain concentrations of Ohio shareholders and permits the Ohio
Division of Securities to suspend a control bid if certain information is not
provided to offerees. A control bid includes the purchase or offer to purchase
any equity security of the Company from a resident of Ohio if, after the
purchase of that security, the offeror would be directly or indirectly the
beneficial owner of more than 10% of any class of issued and outstanding equity
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<PAGE> 52
securities of the Company. Section 1707.043 of the Ohio Code, the so-called
"green mail disgorgement" statute, provides an Ohio corporation, or in certain
circumstances the shareholders of an Ohio corporation, the right to recover
profits realized under certain circumstances by persons who dispose of
securities of a corporation within 18 months of proposing to acquire such
corporation.
Under Section 1701.831 of the Ohio Code, the acquisition of shares
entitling the holder to exercise certain levels of voting power of the Company
(one-fifth or more, one-third or more, or a majority) can be made only with the
prior authorization of (i) the holders of at least a majority of the total
voting power of the Company and (ii) the holders of at least a majority of the
total voting power held by shareholders other than the proposed acquiror,
officers of the Company elected or appointed by the directors, and directors of
the Company who are also employees of the Company and excluding certain shares
that are transferred after the announcement of the proposed acquisition and
prior to the vote with respect to the proposed acquisition.
It is possible that the foregoing provisions, as well as the ability of the
Board to issue Preferred Shares, will discourage other persons from making a
tender offer for or acquisition of substantial amounts of the Company's Common
Shares, or may delay changes in control or management of the Company.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for the Common Shares is National City
Bank.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of the Combined Offering, the Company will have
outstanding 21,445,287 Common Shares, assuming no exercise of the Underwriters'
overallotment option. The Common Shares sold in the Combined Offering will be
freely tradeable (other than by an "affiliate" of the Company as such term is
defined in the Securities Act) without restriction or further registration under
the Securities Act. All of the remaining 15,159,630 outstanding shares are
"restricted securities" as the term is defined in Rule 144 (the "Restricted
Shares"), and may not be sold in the public market except in compliance with the
registration requirements of the Securities Act or pursuant to an exemption from
registration under Rules 144 or 701 under the Securities Act, which are
summarized below.
Each of the Company and the directors, executive officers and the other
shareholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ended 180 days after the date hereof, subject to certain
exceptions, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any option,
right or warrant to purchaser or otherwise transfer or dispose of, directly or
indirectly, any Common Shares or any securities convertible into or exchangeable
for Common Shares or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Common Shares, whether any such transaction described in clause
(i) or (ii) above is to be settled by delivery of Common Shares or such other
securities, or otherwise. The number of outstanding shares subject to the lockup
arrangements that will be available for sale in the public market, subject to
compliance with Rule 144 upon expiration of the 180-day lockup period, will be
approximately 14 million shares. See "Underwriters."
In general, under Rule 144 as currently in effect, a person who has (or
persons whose shares are aggregated who have) beneficially owned shares for at
least one year, including an "affiliate," as that term is defined below, would
be entitled to sell, within any three-month period, that number of shares that
does not exceed the greater of (i) 1% of the then outstanding number of shares
and (ii) the average weekly trading volume of the shares during the four
calendar weeks preceding that sale. Sales pursuant to Rule 144 are also subject
to certain manner-of-sale restrictions, notice requirements and the availability
of information about the Company. A person who is not deemed an "affiliate" of
the Company, and who has beneficially owned shares for at least two years, is
entitled to sell such shares under Rule 144 without regard to the limitations
described above. As defined in Rule 144, an "affiliate" of an issuer is a person
who directly, or indirectly through the use of one or more intermediaries,
controls, or is controlled by, or is under common control with, that issuer.
Upon
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<PAGE> 53
completion of the Combined Offering, approximately 14 million of the Restricted
Shares will be eligible for sale under Rule 144, subject to the limitations
described above and subject to the 180-day lock-up period, and an additional
438,113 Common Shares and 757,063 Common Shares will be eligible for sale under
Rule 144, subject to the limitations described above, in August 1998 and October
1998, respectively.
In addition, any employee, officer or director of or consultant of the
Company who purchased his or her shares pursuant to a written compensatory plan
or contract may be entitled to rely on the resale provisions of Rule 701. Rule
701 permits affiliates to sell their Rule 701 shares under Rule 144 without
complying with the holding period requirements of Rule 144 without having to
comply with the public information, volume limitation or notice provisions of
Rule 144.
Prior to the date of this Prospectus, there has been no public market for
the Common Shares. Trading of the Common Shares is expected to commence
following the completion of the Combined Offering. No prediction can be made as
to the effect, if any, that future sales of shares or the availability of shares
for future sale will have on the market price prevailing from time to time.
Sales of substantial amounts of Common Shares (including shares issued on the
exercise of options), or the perception that such sales could occur, could
adversely affect the market price of the Common Shares.
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<PAGE> 54
CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
FOR NON-U.S. HOLDERS OF COMMON SHARES
The following discussion concerns certain United States federal income and
estate tax consequences of the ownership and disposition of Common Shares
applicable to Non-U.S. Holders of shares of the Common Shares. For purposes of
this discussion, a "Non-U.S. Holder" is any person or entity other than (i) a
citizen or resident of the United States, (ii) a corporation, partnership, or
other entity created or organized in the United States or under the laws of the
United States or of any State, or (iii) an estate or trust whose income is
includable in gross income for United States federal income tax purposes,
regardless of its source. This discussion (i) does not consider any specific
facts or circumstances that may apply to a particular Non-U.S. Holder in light
of his or her particular circumstances, (ii) is based on current law which is
subject to change (possibly on a retroactive basis), (iii) does not address all
aspects of federal income and estate taxation, and (iv) does not deal with
foreign, state, or local consequences that may be relevant to Non-U.S. Holders.
Accordingly, each prospective investor is urged to consult its own tax advisor
regarding the United States federal, state, local and non-U.S. income, estate,
and other tax consequences of holding and disposing of shares of Common Shares.
DIVIDENDS
If dividends are paid to a Non-U.S. Holder, such Holder will be subject,
except as described below, to United States withholding tax at a 30% rate or a
lower rate specified by an applicable tax treaty. To determine the applicability
of a tax treaty providing for a lower rate of withholding, dividends paid to an
address in a foreign country generally are presumed under current Treasury
Regulations to be paid to a resident of that country, absent knowledge that such
presumption is not warranted. However, under Proposed Treasury Regulations that
have not yet been put into effect, to claim the benefit of a lower rate of
withholding specified in a treaty, Non-U.S. Holders of Common Shares would be
required to file certain forms with the payor of the dividends. A Non-U.S.
Holder eligible for a rate of United States withholding tax pursuant to a tax
treaty may obtain a refund of any excess amounts withheld by filing an
appropriate claim for refund.
Dividends will not be subject to withholding if they are either (i)
effectively connected with a trade or business carried on by the Non-U.S Holder
within the United States, or (ii) attributable to a United States permanent
establishment maintained by the Non-U.S. Holder to which a tax treaty applies,
and the Non-U.S. Holder files certain forms with the payor of dividends.
Dividends effectively connected with such a trade or business or attributable to
such a permanent establishment will generally be subject to United States
federal income tax at regular rates and, in the case of a Non-U.S. Holder that
is a corporation, may be subject to the branch profits tax at a rate of 30% (or
lower rate specified by an applicable tax treaty).
GAIN ON DISPOSITION
A Non-U.S. Holder generally will not be subject to United States federal
income or withholding tax on any gain recognized on a sale or other disposition
of Common Shares unless (i) the Company is or has been a "U.S. real property
holding corporation," as defined in Section 897(c)(2) of the Code, for United
States federal income tax purposes (which the Company does not believe that it
is or is likely to become) and the Non-U.S. Holder disposing of the Common
Shares owned, directly or constructively, at any time during the five-year
period preceding the disposition, more than five percent of outstanding Common
Shares; (ii) the gain is effectively connected with the conduct of a trade or
business within the United States carried on by the Non-U.S. Holder or, if a tax
treaty applies, attributable to a permanent establishment maintained within the
United States by a Non-U.S. Holder; (iii) in the case of a Non-U.S. Holder who
is an individual, the holder holds the Common Shares as a capital asset and is
present in the United States for 183 days or more during the taxable year of the
disposition, and either (A) such Non-U.S. Holder has a "tax home," for U.S.
federal income tax purposes, in the United States, and the gain from the
disposition is not attributable to an office or other fixed place of business
maintained by such Non-U.S. Holder in a foreign country, or (B) the gain from
the disposition is attributable to an office or fixed place of business
maintained by such Non-U.S. Holder in the United States; or (iv) the Non-U.S.
Holder is subject to tax pursuant to provisions of the Code applicable to
certain United States expatriates.
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<PAGE> 55
ESTATE TAX
Common Shares owned or treated as owned by an individual Non-U.S. Holder at
the date of death will be includable in the individual's gross estate for United
States federal estate tax purposes unless an applicable tax treaty provides
otherwise, and may be subject to United States federal estate tax.
BACKUP WITHHOLDING AND INFORMATION REPORTING
The Company must report annually to the Internal Revenue Service and to
each Non-U.S. Holder the amount of dividends paid to, and the tax withheld with
respect to, each Non-U.S. holder. These reporting requirements apply regardless
of whether withholding was reduced or eliminated by an applicable tax treaty.
Copies of these information returns also may be made available under the
provisions of a specific treaty or agreement to the tax authorities in the
country in which the Non-U.S. Holder resides. Under current Treasury Regulations
United States backup withholding (which generally is a withholding requirement
imposed at the rate of 31% on certain payments to persons that fail to furnish
the information required under the United States information reporting
requirements) will generally not apply to dividends paid on Common Shares to a
Non-U.S. Holder at an address outside the United States. However, under Proposed
Treasury Regulations that have not yet been put into effect, dividends paid on
Common Shares to a Non-U.S. Holder would be subject to backup withholding unless
certain forms are filed with the payor of the dividends.
The payment of the proceeds from the disposition of Common Shares by a
Non-U.S. Holder to or through the United States office of a broker will be
subject to information reporting and backup withholding unless the owner
certifies, among other things, its name, address and status as a Non-U.S. Holder
under penalties of perjury or otherwise establishes an exemption. The payment of
the proceeds from the disposition of Common Shares to or through a non-U.S.
office of a non-U.S. broker will not be subject to backup withholding and will
generally not be subject to information reporting. However, unless the broker
has documentary evidence in its files that the owner is a Non-U.S. Holder,
information reporting (but not backup withholding) will apply to dispositions
through a non- U.S. office of a Non-U.S. broker that is a United States person,
a United States "controlled foreign corporation" for United States federal
income tax purposes, or a person 50% or more of whose gross income from all
sources for a certain three-year period was effectively connected with a United
States trade or business. Under Proposed Treasury Regulations, backup
withholding would also apply to proceeds from dispositions of Common Shares if
the broker has actual knowledge that the payee is a United States person.
The backup withholding and information reporting rules currently are under
review by the Treasury Department, and their application to Common Shares is
likely to change.
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<PAGE> 56
UNDERWRITERS
Under the terms and subject to the conditions contained in an Underwriting
Agreement dated the date hereof (the "Underwriting Agreement"), the U.S.
Underwriters named below for whom Morgan Stanley & Co. Incorporated, and
Donaldson, Lufkin & Jenrette Securities Corporation are acting as U.S.
Representatives, and the International Underwriters named below for whom Morgan
Stanley & Co. International Limited, and Donaldson, Lufkin & Jenrette Securities
Corporation are acting as International Representatives, have severally agreed
to purchase, and the Company has agreed to sell to them, severally, the
respective number of Common Shares set forth opposite the names of such
Underwriters below:
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
U.S. Underwriters:
Morgan Stanley & Co. Incorporated.......................................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
---------
Subtotal................................................................ 4,680,000
---------
International Underwriters:
Morgan Stanley & Co. International Limited..............................
Donaldson, Lufkin & Jenrette Securities Corporation.....................
---------
Subtotal................................................................ 1,170,000
---------
Total................................................................ 5,850,000
=========
</TABLE>
The U.S. Underwriters and the International Underwriters, and the U.S.
Representatives and the International Representatives, are collectively referred
to as the "Underwriters" and the "Representatives," respectively. The
Underwriting Agreement provides that the obligations of the several Underwriters
to pay for and accept delivery of the Common Shares offered hereby are subject
to the approval of certain legal matters by their counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the Common
Shares offered hereby (other than those covered by the U.S. Underwriters'
overallotment option described below) if any such shares are taken.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented and agreed that, with certain exceptions: (i)
it is not purchasing any Shares (as defined herein) for the account of anyone
other than a United States or Canadian Person (as defined herein) and (ii) it
has not offered or sold, and will not offer or sell, directly or indirectly, any
Shares or distribute any prospectus relating to the Shares outside the United
States or Canada or to anyone other than a United States or Canadian Person.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that, with certain
exceptions: (i) it is not purchasing any Shares for the account of any United
States or Canadian Person and (ii) it has not offered or sold, and will not
offer or sell, directly or indirectly, any Shares or distribute any prospectus
relating to the Shares in the United States or Canada or to any United States or
Canadian Person. With respect to any Underwriter that is a U.S. Underwriter and
an International Underwriter, the foregoing representations and agreements (i)
made by it in its capacity as a U.S. Underwriter apply only to it in its
capacity as a U.S. Underwriter and (ii) made by it in its capacity as an
International Underwriter apply only to it in its capacity as an International
Underwriter. The foregoing limitations do not apply to stabilization
transactions or to certain other transactions specified in the Agreement between
U.S. and International Underwriters. As used herein, "United States or Canadian
Person" means any national or resident of the United States or Canada, or any
corporation, pension, profit-sharing or other trust or other entity organized
under the laws of the United States or Canada or of any political subdivision
thereof (other than a branch located outside the United States and
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<PAGE> 57
Canada of any United States or Canadian Person), and includes any United States
or Canadian branch of a person who is otherwise not a United States or Canadian
Person. All Common Shares to be purchased by the Underwriters under the
Underwriting Agreement are referred to herein as the "Shares."
Pursuant to the Agreement between U.S. and International Underwriters,
sales may be made between the U.S. Underwriters and International Underwriters
of any number of Shares as may be mutually agreed. The per share price of any
Shares so sold shall be the public offering price set forth on the cover page
hereof, in United States dollars, less an amount not greater than the per share
amount of the concession to dealers set forth below.
Pursuant to the Agreement between U.S. and International Underwriters, each
U.S. Underwriter has represented that it has not offered or sold, and has agreed
not to offer or sell, any Shares, directly or indirectly, in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and has
represented that any offer or sale of Shares in Canada will be made only
pursuant to an exemption from the requirement to file a prospectus in the
province or territory of Canada in which such offer or sale is made. Each U.S.
Underwriter has further agreed to send to any dealer who purchases from it any
of the Shares a notice stating in substance that, by purchasing such Shares,
such dealer represents and agrees that it has not offered or sold, and will not
offer or sell, directly or indirectly, any of such Shares in any province or
territory of Canada or to, or for the benefit of, any resident of any province
or territory of Canada in contravention of the securities laws thereof and that
any offer or sale of Shares in Canada will be made only pursuant to an exemption
from the requirement to file a prospectus in the province or territory of Canada
in which such offer or sale is made, and that such dealer will deliver to any
other dealer to whom it sells any of such Shares a notice containing
substantially the same statement as is contained in this sentence.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has represented and agreed that (i) it has not offered
or sold and, prior to the date six months after the closing date for the sale of
the Shares to the International Underwriters, will not offer or sell, any Shares
to persons in the United Kingdom except to persons whose ordinary activities
involve them in acquiring, holding, managing or disposing of investments (as
principal or agent) for the purposes of their businesses or otherwise in
circumstances which have not resulted and will not result in an offer to the
public in the United Kingdom within the meaning of the Public Offers of
Securities Regulations 1995; (ii) it has complied and will comply with all
applicable provisions of the Financial Services Act 1986 with respect to
anything done by it in relation to the Shares in, from or otherwise involving
the United Kingdom; and (iii) it has only issued or passed on and will only
issue or pass on in the United Kingdom any document received by it in connection
with the offering of the Shares to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 or is a person to whom such document may otherwise
lawfully be issued or passed on.
Pursuant to the Agreement between U.S. and International Underwriters, each
International Underwriter has further represented that it has not offered or
sold, and has agreed not to offer or sell, directly or indirectly, in Japan or
to or for the account of any resident thereof, any of the Shares acquired in
connection with the distribution contemplated hereby, except for offers or sales
to Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law. Each
International Underwriter has further agreed to send to any dealer who purchases
from it any of the Shares a notice stating in substance that, by purchasing such
Shares, such dealer represents and agrees that it has not offered or sold, and
will not offer or sell, any of such Shares, directly or indirectly, in Japan or
to or for the account of any resident thereof except for offers or sales to
Japanese International Underwriters or dealers and except pursuant to any
exemption from the registration requirements of the Securities and Exchange Law
and otherwise in compliance with applicable provisions of Japanese law, and that
such dealer will send to any other dealer to whom it sells any of such Shares a
notice containing substantially the same statement as is contained in this
sentence.
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<PAGE> 58
The Underwriters initially propose to offer part of the Common Shares
directly to the public at the public offering price set forth on the cover page
hereof and part to certain dealers at a price that represents a concession not
in excess of $ a share under the public offering price. Any Underwriter
may allow, and such dealers may reallow, a concession not in excess of
$ a share to other Underwriters or to certain dealers. After the
initial offering of the Common Shares, the offering price and other selling
terms may from time to time be varied by the Representatives.
The Company has granted to the U.S. Underwriters an option, exercisable for
30 days from the date of this Prospectus, to purchase up to an aggregate of
additional Common Shares at the public offering price set forth on the cover
page hereof, less underwriting discounts and commissions. The U.S. Underwriters
may exercise such option solely for the purpose of covering overallotments, if
any, made in connection with the offering of the Common Shares offered hereby.
To the extent such option is exercised, each U.S. Underwriter will become
obligated, subject to certain conditions, to purchase approximately the same
percentage of such additional Common Shares as the number set forth next to such
U.S. Underwriter's name in the preceding table bears to the total number of
Common Shares set forth next to the names of all U.S. Underwriters in the
preceding table.
The Underwriters have informed the Company that they do not intend sales to
discretionary accounts to exceed five percent of the total number of Common
Shares offered by them.
The Common Shares have been approved for listing on the New York Stock
Exchange, subject to official notice of issuance, under the symbol "SRI."
Each of the Company and the directors, executive officers and the other
shareholders of the Company has agreed that, without the prior written consent
of Morgan Stanley & Co. Incorporated on behalf of the Underwriters, and subject
to certain exceptions it, will not, during the period ending 180 days after the
date of this Prospectus, (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase or otherwise transfer or dispose of,
directly or indirectly, any Common Shares or any securities convertible into or
exercisable or exchangeable for Common Shares or (ii) enter into any swap or
other arrangement that transfers to another, in whole or in part, any of the
economic consequences of ownership of the Common Shares, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Shares or such other securities, in cash or otherwise. The
restrictions described in this paragraph do not apply to (x) the sale of Shares
to the Underwriters, (y) the issuance by the Company of Common Shares upon the
exercise of an option or a warrant or the conversion of a security outstanding
on the date of this Prospectus of which the Underwriters have been advised in
writing or (z) transactions by any person other than the Company relating to
Common Shares or other securities acquired in open market transactions after the
completion of the offering of the Shares.
In order to facilitate the Offering of the Common Shares, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Shares. Specifically, the Underwriters may overallot in
connection with the Offering, creating a short position in the Common Shares for
their own account. In addition, to cover overallotments or to stabilize the
price of the Common Shares, the Underwriters may bid for, and purchase, Common
Shares in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an Underwriter or a dealer for distributing the
Common Shares in the offering, if the syndicate repurchases previously
distributed Common Shares in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Shares above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
At the request of the Company, the Underwriters have reserved for sale up
to 300,000 of the Common Shares offered hereby for sale at the initial offering
price to certain officers and employees of the Company. The number of Common
Shares available for sale to the general public will be reduced to the extent
such
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<PAGE> 59
persons purchase such reserved shares. Any reserved shares which are not so
purchased will be offered by the Underwriters to the general public on the same
basis as the other shares offered hereby. All purchasers of the Common Shares
reserved pursuant to this paragraph who are also directors or executive officers
of the Company will be required to enter into agreements identical to those
described above restricting the transferability of such shares for a period of
180 days after the date of this Prospectus.
PRICING OF THE OFFERING
Prior to the Offering, there has been no public market for the Common
Shares. The initial public offering price will be determined by negotiations
between the Company and the U.S. Representatives. Among the factors to be
considered in determining the initial public offering price will be the future
prospects of the Company and its industry in general, sales, earnings and
certain other financial operating information of the Company in recent periods,
and the price-earnings ratios, price-sales ratios, market prices of securities
and certain financial and operating information of companies engaged in
activities similar to those of the Company. The estimated initial public
offering price range set forth on the cover page of this Preliminary Prospectus
is subject to change as a result of market conditions and other factors.
EXPERTS
The audited financial statements and schedule of the Company, included in
this Prospectus and elsewhere in the Registration Statement, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in giving said reports.
LEGAL MATTERS
The validity of the issuance of the Common Shares offered hereby will be
passed upon for the Company by Baker & Hostetler LLP, Cleveland, Ohio. Avery S.
Cohen, secretary and a director of the Company and the beneficial owner of
532,694 Common Shares, is a partner in Baker & Hostetler LLP and is expected to
purchase an additional 13,431 Common Shares in the Management Reinvestment.
Certain legal matters will be passed upon for the Underwriters by Katten Muchin
& Zavis, Chicago, Illinois.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (of which this Prospectus is a part) under the Securities Act with respect
to the Common Shares offered hereby. This Prospectus does not contain all of the
information contained in the Registration Statement (certain portions of which
have been omitted as permitted by the rules and regulations of the Commission),
and reference is made to the Registration Statement and the exhibits thereto for
further information with respect to the Company and the Common Shares to which
this Prospectus relates. Statements contained herein concerning the provisions
of any contract, agreement or other document are not necessarily complete
(although such statements constitute the information which is required to be
stated herein or which is material to investors), and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement for a more complete description of the matter involved,
and each such statement is qualified in its entirety by such reference. The
Registration Statement, including the exhibits and schedules filed therewith,
may be inspected at the public reference facilities maintained by the Commission
at 450 Fifth Street, N.W., Washington, D.C. 20549 and at the regional offices of
the Commission located at 7 World Trade Center, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60606. You can
request copies of these documents, upon payment of a duplication fee, by writing
to the Commission. Please call the Commission at 1-800-SEC-0330 for further
information on the operation of the public reference rooms. The Commission also
maintains a Web site (address http://www.sec.gov) that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission.
The Company intends to furnish its shareholders with annual reports
containing consolidated financial statements audited by its independent
certified public accountants and with quarterly reports containing unaudited
condensed consolidated financial statements for each of the first three quarters
of each fiscal year.
56
<PAGE> 60
STONERIDGE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Public Accountants............................................ F-2
Consolidated Balance Sheets as of December 31, 1995 and 1996 and June 30, 1997...... F-3
Consolidated Statements of Income for the Years Ended December 31, 1994, 1995 and
1996 and for the Six Months Ended June 30, 1996 and 1997.......................... F-4
Consolidated Statements of Shareholders' Equity for the Years Ended December 31,
1994, 1995 and 1996 and for the Six Months Ended June 30, 1997.................... F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996 and for the Six Months Ended June 30, 1996 and 1997...................... F-6
Notes to Consolidated Financial Statements.......................................... F-7
Schedule II -- Valuation and Qualifying Accounts.................................... F-18
</TABLE>
F-1
<PAGE> 61
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
Stoneridge, Inc.:
We have audited the accompanying consolidated balance sheets of Stoneridge, Inc.
(an Ohio corporation) and Subsidiaries as of December 31, 1995 and 1996 and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Stoneridge, Inc. and
Subsidiaries as of December 31, 1995 and 1996, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the index to
financial statements and included on page F-17 of this Prospectus is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. The schedule has been subjected to the auditing
procedures applied in the audit of the basic financial statements and, in our
opinion, fairly states in all material respects the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Cleveland, Ohio,
March 24, 1997 (except with respect to the
matters discussed in Notes 5, 9, 11 and 14
as to which the date is September 15, 1997).
F-2
<PAGE> 62
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31, PRO FORMA
-------------------- JUNE 30, JUNE 30, 1997
1995 1996 1997 (NOTE 12)
-------- -------- -------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents...................... $ 282 $ 357 $ 7 $ 7
Accounts receivable, less allowance for
doubtful accounts of $453, $265, and $287... 49,477 46,783 51,753 51,753
Inventories.................................... 26,428 30,158 31,135 31,135
Deferred income taxes.......................... -- -- -- 4,357
Prepaid expenses and other..................... 9,243 5,357 5,541 5,541
-------- -------- -------- --------
Total current assets........................ 85,430 82,655 88,436 92,793
-------- -------- -------- --------
Property, Plant and Equipment, net............... 54,767 55,200 55,721 55,721
Other Assets:
Goodwill and other intangibles, net............ 31,860 30,769 30,193 30,193
Investments and other.......................... 241 9,863 9,479 9,479
-------- -------- -------- --------
Total Assets..................................... $172,298 $178,487 $183,829 $188,186
======== ======== ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt.............. $ 311 $ 3,001 $ 200 $ 200
Accounts payable............................... 34,219 21,365 26,251 26,251
Accrued expenses and other..................... 16,049 17,232 23,526 23,526
Accrued shareholder distributions.............. -- 1,100 -- 76,500
-------- -------- -------- --------
Total current liabilities................... 50,579 42,698 49,977 126,477
-------- -------- -------- --------
Long-Term Debt, net of current portion........... 47,999 51,156 34,109 31,595
Deferred Income Taxes............................ -- -- -- 6,468
-------- -------- -------- --------
Total long term liabilities................. 47,999 51,156 34,109 38,063
-------- -------- -------- --------
Shareholders' Equity:
Common shares, without par value, 60,000,000
authorized, 13,908,560 issued and
outstanding at December 31, 1995 and
13,964,448 outstanding at December 31, 1996
and June 30, 1997, stated at................ -- -- -- --
Additional paid-in capital..................... 7,958 9,195 9,370 23,646
Retained earnings.............................. 65,762 75,438 90,373 --
-------- -------- -------- --------
73,720 84,633 99,743 23,646
-------- -------- -------- --------
Total Liabilities and Shareholders' Equity $172,298 $178,487 $183,829 $188,186
======== ======== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements are
an integral part of these consolidated balance sheets.
F-3
<PAGE> 63
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except for per share data)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
-------------------------------- --------------------
1994 1995 1996 1996 1997
-------- -------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales.............................. $225,531 $278,043 $363,748 $178,965 $218,787
Costs and Expenses:
Cost of goods sold................... 164,974 211,712 288,142 141,339 165,610
Selling, general and administrative
expenses.......................... 32,542 37,509 46,694 24,309 25,212
-------- -------- -------- -------- --------
Operating income................ 28,015 28,822 28,912 13,317 27,965
Gain on sale of fixed assets......... -- -- -- -- (1,733)
Interest expense, net................ 2,344 2,014 4,317 1,861 1,863
-------- -------- -------- -------- --------
Income Before Income Taxes............. 25,671 26,808 24,595 11,456 27,835
-------- -------- -------- -------- --------
Provision for Income Taxes:
State and local income taxes......... 460 654 524 263 325
Income tax benefit from the
elimination of deferred federal
income taxes...................... (1,455) -- -- -- --
-------- -------- -------- -------- --------
(995) 654 524 263 325
-------- -------- -------- -------- --------
Net Income............................. $ 26,666 $ 26,154 $ 24,071 $ 11,193 $ 27,510
======== ======== ======== ======== ========
PRO FORMA INCOME DATA (NOTE 12)
(UNAUDITED):
Income before income taxes............. $ 24,595 $ 27,835
Pro forma adjustment -- Income taxes... 10,295 11,586
-------- --------
Pro forma net income................... $ 14,300 $ 16,249
-------- --------
Pro forma net income per share......... $ .56 $ .64
======== ========
Pro forma weighted average shares
outstanding.......................... 25,469 25,469
======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-4
<PAGE> 64
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
ADDITIONAL
PAID-IN RETAINED
CAPITAL EARNINGS TOTAL
---------- -------- --------
<S> <C> <C> <C>
BALANCE, DECEMBER 31, 1993.................................. $7,958 $ 41,988 $ 49,946
Net income................................................ -- 26,666 26,666
Distributions declared.................................... -- (13,500) (13,500)
------ -------- --------
BALANCE, DECEMBER 31, 1994.................................. 7,958 55,154 63,112
Net income................................................ -- 26,154 26,154
Distributions declared.................................... -- (15,546) (15,546)
------ -------- --------
BALANCE, DECEMBER 31, 1995.................................. 7,958 65,762 73,720
Net income................................................ -- 24,071 24,071
Stock options exercised, net.............................. 225 -- 225
Compensation expense from stock option plans.............. 450 -- 450
Capital contribution...................................... 562 -- 562
Distributions declared.................................... -- (14,395) (14,395)
------ -------- --------
BALANCE, DECEMBER 31, 1996.................................. 9,195 75,438 84,633
Net income (unaudited).................................... -- 27,510 27,510
Compensation expense from stock option plans
(unaudited)............................................ 175 -- 175
Distributions declared (unaudited)........................ -- (12,575) (12,575)
------ -------- --------
BALANCE, JUNE 30, 1997 (UNAUDITED).......................... $9,370 $ 90,373 $ 99,743
====== ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-5
<PAGE> 65
STONERIDGE, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED FOR THE SIX MONTHS
DECEMBER 31, ENDED JUNE 30,
----------------------------- --------------------
1994 1995 1996 1996 1997
------- ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
OPERATING ACTIVITIES:
Net income............................... $26,666 $26,154 $24,071 $ 11,193 $ 27,510
Adjustments to reconcile net income to
net cash from operating activities --
Depreciation and amortization......... 6,870 7,979 9,966 5,118 6,138
Gain on sale of fixed assets.......... -- -- -- -- (1,733)
Compensation expense for stock option
plans............................... -- -- 450 -- 175
Income tax benefit from the
elimination of deferred federal
income taxes........................ (1,455) -- -- -- --
Changes in operating assets and
liabilities --
Accounts receivable, net............ (4,898) (18,504) 2,694 7,525 (4,195)
Inventories......................... (6,442) (4,495) (3,730) (3,414) (1,031)
Prepaid expenses and other assets... 1,796 (4,609) 4,599 706 (456)
Other assets, net................... (145) 23 (1,014) 3 (332)
Accounts payable.................... 1,650 19,560 (12,854) (12,325) 5,014
Accrued expenses and other
liabilities...................... 1,450 3,262 1,089 948 4,839
------- ------- ------- -------- --------
Net cash from operating
activities..................... 25,492 29,370 25,271 9,754 35,929
------- ------- ------- -------- --------
INVESTING ACTIVITIES:
Equity investment........................ -- -- (8,834) (8,834) --
Capital expenditures..................... (9,046) (14,767) (14,083) (10,159) (6,373)
Proceeds from sale of property, plant and
equipment............................. 2,600 -- 4,850 458 2,504
Assets purchased through acquisition..... -- (18,800) -- -- --
------- ------- ------- -------- --------
Net cash from investing
activities..................... (6,446) (33,567) (18,067) (18,535) (3,869)
------- ------- ------- -------- --------
FINANCING ACTIVITIES:
Cash distributions paid.................. (13,610) (15,546) (13,201) (6,355) (12,575)
Proceeds from long-term debt............. 25,368 -- 3,512 -- --
Repayments of long-term debt............. (20,984) (247) (410) (184) (2,369)
Net borrowings (repayments) under
revolving credit facility............. (9,000) 19,200 2,745 15,038 (17,466)
Stock options exercised, net............. -- -- 225 -- --
------- ------- ------- -------- --------
Net cash from financing
activities..................... (18,226) 3,407 (7,129) 8,499 (32,410)
------- ------- ------- -------- --------
NET CHANGE IN CASH......................... 820 (790) 75 (282) (350)
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD................................... 252 1,072 282 282 357
------- ------- ------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF
PERIOD................................... $ 1,072 $ 282 $ 357 $ -- $ 7
======= ======= ======= ======== ========
</TABLE>
The accompanying notes to consolidated financial statements
are an integral part of these consolidated statements.
F-6
<PAGE> 66
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED. )
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
1. ORGANIZATION AND NATURE OF BUSINESS:
Effective January 1, 1994, Alphabet, Inc. (Alphabet) and Alphastac, Inc.
(Alphastac) were merged into Stoneridge, Inc. (Stoneridge). Stoneridge (an Ohio
corporation) was the surviving entity of the above merger transaction. Since
Alphabet, Alphastac and Stoneridge shared common ownership, the merger of these
entities was accounted for in a manner similar to a pooling of interest.
The Company is an independent designer and manufacturer of highly
engineered electrical and electronic components, modules and systems for the
automotive, medium and heavy duty truck, and agricultural vehicle markets and
operates in one business segment. The Company and its consolidated subsidiaries
sell products principally to customers located in North America.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
BASIS OF PRESENTATION
The accompanying consolidated financial statements include the accounts of
Stoneridge and its majority-owned subsidiaries (collectively, the Company). All
significant intercompany balances have been eliminated in consolidation.
The accompanying consolidated balance sheet as of June 30, 1997, and the
consolidated statements of operations, shareholders' equity and cash flows for
the six month periods ended June 30, 1996 and 1997 are unaudited. In the opinion
of management , such consolidated financial statements include all adjustments,
consisting solely of normal recurring adjustments, necessary for a fair
presentation of results for these interim periods. The results of the six-month
period ended June 30, 1997 are not necessarily indicative of results to be
expected for the entire year.
Unaudited pro forma balances reflect the termination of S Corporation
status as discussed in Note 12.
CASH AND CASH EQUIVALENTS
The Company considers all short-term investments with original maturities
of three months or less to be cash equivalents. Cash equivalents are stated at
cost which approximates fair value.
ACCOUNTS RECEIVABLE
Revenues are principally generated from the automotive, medium and heavy
duty truck, and agricultural vehicle markets. Due to the nature of these
industries, a significant portion of sales and related accounts receivable are
concentrated in a relatively low number of customers. In 1995, three customers
accounted for approximately 36%, 13% and 11% of net sales, while the top 5
customers accounted for 72% of net sales. The same three customers accounted for
approximately 39%, 18% and 10% of the Company's 1996 net sales, and its top five
customers accounted for approximately 76% of its 1996 net sales. Accounts
receivable from the Company's five largest customers aggregated approximately
$39,713 and $38,383 at December 31, 1995 and 1996, respectively.
A division of General Motors has notified the Company that it is
discontinuing all outsourcing of its wire harness requirements under contract
manufacturing arrangements. The Company believes that by 1999, the General
Motors division will produce in-house substantially all of its wire harnesses
requirements previously supplied by the Company, although no assurance can be
given that such sales by the Company will not end at an earlier date. In 1996,
the Company's sales under this arrangement totaled approximately $105.6 million
and
F-7
<PAGE> 67
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
contributed approximately $7.2 million in operating income. There can be no
assurance that the Company will be able to offset reductions in its sales and
operating profits resulting from the reduction in sales to the General Motors
division.
INVENTORIES
Inventories are valued at the lower of cost or market, determined by using
the last-in, first-out (LIFO) method of inventory accounting. Inventory cost
includes material, labor and overhead and consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Raw materials................ $17,738 $17,983 $ 19,529
Work in progress............. 4,107 6,063 4,670
Finished goods............... 6,684 8,224 9,196
Less-LIFO reserve............ (2,101) (2,112) (2,260)
------- ------- -------
Total...................... $26,428 $30,158 $ 31,135
======= ======= =======
</TABLE>
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost and consist of the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------- JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Land and land improvements........................... $ 4,876 $ 3,724 $ 3,724
Buildings and improvements........................... 32,058 27,718 28,545
Machinery and equipment.............................. 29,987 32,947 37,115
Office furniture and fixtures........................ 6,717 8,270 7,853
Tooling.............................................. 11,123 13,630 14,577
Vehicles............................................. 3,109 3,911 3,950
Leasehold improvements............................... 743 1,416 1,015
------- ------- -------
88,613 91,616 96,779
Less-Accumulated depreciation and amortization....... 33,846 36,416 41,058
------- ------- -------
$54,767 $55,200 $ 55,721
======= ======= =======
</TABLE>
Depreciation is provided by both the straight-line and accelerated methods
over the estimated useful lives of the assets. Depreciation expense for the
years ended December 31, 1994, 1995 and 1996 was $6,338, $7,284 and $8,686, and
for the six months ended June 30, 1996 and 1997, $4,624 and $5,477,
respectively. Depreciable lives within each property classification are as
follows:
<TABLE>
<S> <C>
Buildings and improvements........... 10-40 years
Machinery and equipment.............. 5-10 years
Office furniture and fixtures........ 3-10 years
Tooling.............................. 2-5 years
Vehicles............................. 3-5 years
Leasehold improvements............... 8 years
</TABLE>
F-8
<PAGE> 68
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Maintenance and repair expenditures which are not considered betterments
and do not extend the useful life of property are charged to expense as
incurred. Expenditures for improvements and major renewals are capitalized. When
assets are retired or otherwise disposed of, the related cost and accumulated
depreciation are removed from the accounts, and any gain or loss on the
disposition is credited or charged to income.
GOODWILL
The primary component of goodwill and other intangible assets, net of
accumulated amortization in the accompanying consolidated balance sheets
represents the excess of the purchase price paid over the fair market value of
acquired assets and assumed liabilities. Goodwill is being amortized over 40
years on a straight-line basis. Amortization expense totaled approximately $532,
$695 and $1,180 in 1994, 1995 and 1996, and $470 and $572 for the six-month
periods ended June 30, 1996 and 1997, respectively. Accumulated amortization as
of December 31, 1995 and 1996 was $4,294 and $5,474, respectively, and $6,046 as
of June 30, 1997. The Company regularly evaluates its accounting for goodwill.
Impairment of goodwill would be recognized when events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. Measurement of the amount of impairment may be based on estimated
discounted future cash flows.
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- --------
<S> <C> <C> <C>
Compensation related obligations............. $ 8,339 $ 9,402 $ 9,012
Insurance related obligations................ 1,785 2,329 3,275
Other........................................ 5,925 5,501 11,239
------- ------- -------
$16,049 $17,232 $ 23,526
======= ======= =======
</TABLE>
INCOME TAXES
The Company is an S Corporation for income tax purposes. Accordingly, the
Company's profits are taxed directly to its shareholders for federal income tax
and certain state income tax purposes. Certain state taxes, as well as local
income taxes, are paid directly by the Company. State and local income taxes
paid for the years ended December 31, 1994, 1995 and 1996 were approximately
$164, $922 and $383, respectively, and $418 and $399 for the six-month periods
ended June 30, 1996 and 1997, respectively.
Alphastac, which was merged into the Company on January 1, 1994, was
previously taxed as a C Corporation. As a result of the merger, Alphastac's
premerger deferred federal income tax liabilities of $1,455 were reversed to
income as a tax benefit from the elimination of deferred federal income taxes
and included in the Company's December 31, 1994 consolidated statement of
income.
As a result of the public offering discussed in Note 11, the Company will
terminate its S Corporation status. Accordingly, the Company will be subject to
federal and state income taxes as a C Corporation. On a pro forma basis as of
June 30, 1997, upon conversion to a C Corporation, deferred income tax assets
and deferred income tax liabilities of approximately $4,357 and $6,468,
respectively, will be recorded with an
F-9
<PAGE> 69
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
offsetting charge to net income. Such amounts have been determined in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
FOREIGN CURRENCY TRANSLATION ADJUSTMENTS
Translation adjustments of the Company's foreign subsidiaries whose
functional currency is U.S. dollars and transaction gains and losses are
included in the accompanying consolidated statements of income for all periods
presented. All translation and transaction activity was insignificant in 1994,
1995, 1996 and through June 30, 1997.
REVENUE RECOGNITION
The Company recognizes revenues from the sale of products at the point of
passage of title, which is generally at the time of shipment.
PRODUCT DEVELOPMENT EXPENSES
Expenses associated with the development of new products and changes to
existing products are charged to expense as incurred. The costs amounted to
$5,997, $6,664 and $9,263 in 1994, 1995, and 1996 and $5,499 and $6,011 for the
six-month periods ended June 30, 1996 and 1997, respectively.
INCOME PER SHARE
Except for pro forma disclosures, income per share for all periods
presented has been omitted as the presentation of such information is not
meaningful.
RECLASSIFICATIONS
Certain amounts in the prior periods' consolidated financial statements
have been reclassified to conform to the current period's presentation.
FINANCIAL INSTRUMENTS AND DERIVATIVE FINANCIAL INSTRUMENTS
Financial instruments held by the Company include cash and cash
equivalents, accounts receivable, accounts payable, revolving credit facility,
long-term debt, and interest rate swap agreements. The book value of cash and
cash equivalents, accounts receivable and payables are considered to be
representative of fair value because of the short maturity of these instruments.
The fair values of borrowings under the revolving credit facility and long-term
debt are based on rates available to the Company for debt with comparable terms
and maturities.
The interest rate swap agreements convert floating rate debt under the
Company's revolving credit facility to fixed rate debt. The difference between
the floating interest rate and the fixed interest rate which is to be paid or
received is recognized in interest expense as the floating interest rate changes
over the life of the agreement.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and
F-10
<PAGE> 70
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
liabilities, including certain self-insured risks and liabilities, and
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during
the reporting period. Since actual results could differ from those estimates,
the Company revises its estimates and assumptions as new information becomes
available.
ACCOUNTING STANDARDS
The Company adopted Statement of Financial Accounting Standard No. 121
(SFAS 121) "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of" in 1996. SFAS 121 requires long-lived
assets and certain identifiable intangible assets to be reviewed for impairment
whenever circumstances indicate that the carrying amount of an asset may not be
recoverable. The adoption of this standard did not effect the Company's
financial statements. Management periodically reviews the realizability of
long-lived assets of the Company in accordance with SFAS 121.
3. ASSETS PURCHASED THROUGH ACQUISITION:
On November 1, 1995, the Company acquired the ongoing actuator business,
and the related machinery and equipment, intellectual property rights and
purchase contracts from Kelsey-Hayes. The Company also entered into a certain
transition services agreement with the seller in conjunction with this
acquisition. In connection with the transition services agreement, the seller
provided certain services during the period November 1995 through October 1996
for cash consideration of $5,200. The Company recorded $946 and $4,254 of
expense in 1995 and 1996, respectively, relative to the transition services
agreement. The acquisition was accounted for as a purchase and the excess of the
cost over the fair value of the assets acquired, totaling approximately $14,000,
was reflected as goodwill in the accompanying consolidated balance sheet. Total
consideration paid by the Company with respect to this acquisition including
payments under the transition services agreement was approximately $24,000.
4. INVESTMENT:
In 1996, the Company purchased 45% of the outstanding common stock of
Berifors AB (Berifors), a Sweden-based manufacturer of electronic display panels
and instrumentation for the European truck and commercial vehicle markets, for
approximately $8,834. The investment was accounted for under the equity method
of accounting. The excess of the amount paid over the book value of the assets
acquired, totaling $7,200, is being amortized over 40 years on a straight-line
basis. Amortization expense was $100 in 1996 and $24 and $89 for the six months
ended June 30, 1996 and 1997, respectively.
5. LONG-TERM DEBT:
The Company had an $80,000 credit facility with a bank group. The credit
facility was to expire on June 30, 2001 and required a commitment fee of 1/4%
on the unused balance. Interest was payable quarterly at the Company's option of
either (i) the prime rate or (ii) LIBOR plus a margin of 1% to 1.5%, depending
upon the Company's fixed charge coverage ratio, as defined. Credit facility
borrowings were supported by individual notes with maturities of three months or
less.
On September 15, 1997, the Company entered into a new credit agreement. The
new credit facility has a $125,000 borrowing limit. The credit facility expires
on June 30, 2002 and requires a commitment fee of 1/10% to 1/4% on the unused
balance. Interest is payable quarterly at the Company's option at either (i) the
prime
F-11
<PAGE> 71
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
rate or (ii) LIBOR plus a margin of 0.75% to 2.0%, depending upon the Company's
fixed charge coverage ratio, as defined.
The Company has entered into a $25,000 interest rate swap agreement with a
member of the bank group whereby its contractual interest rate was swapped
through February 1999 for a fixed rate of 5.795% plus a margin of 1% to 1.5%,
depending upon the Company's fixed charge coverage ratio, as defined. The
notional amount under the swap agreement remains at $25,000 through maturity.
Additionally, the Company has entered into a separate $20,000 interest rate swap
agreement with a member of the bank group whereby its contractual interest rate
was swapped through August 1999 for a fixed rate of 6.28% plus a margin of 1% to
1.5%, depending upon the Company's fixed charge coverage ratio, as defined,
provided the LIBOR rate is less than 7.50%. This swap agreement is ineffective
when the LIBOR rate is equal to or greater that 7.50%. The notional amount under
the swap agreement remains at $20,000 through maturity. The Company is exposed
to credit loss under the swap agreements in the event of nonperformance by the
bank. As of December 31, 1996, the Company would have paid approximately $257 to
the bank had it elected to terminate these interest rate swap agreements.
The weighted average interest rate in effect for the years ended December
31, 1994, 1995 and 1996 was approximately 7.2%, 7.0% and 7.4%, respectively,
including the effects of the interest rate swap agreements.
The credit facility is secured by the Company's accounts receivable,
inventories, equipment and real estate.
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE
------------------- 30,
1995 1996 1997
------- ------- -------
<S> <C> <C> <C>
Borrowings under credit facility..................... $45,200 $47,945 $30,181
Note payable to financing company, repaid in full in
February 1997...................................... 2,781 2,580 --
Note payable to financing company, collateralized by
specific property, plant and equipment, due in
monthly installments of $37, including variable
rate interest based annually on the yield of
two-year Treasury securities, constant maturity of
United States Government plus 2.15% with a balloon
payment of $1,087, maturing in April 2006.......... -- 3,415 3,314
Other................................................ 329 217 814
------- ------- -------
48,310 54,157 34,309
Less-Current maturities.............................. 311 3,001 200
------- ------- -------
$47,999 $51,156 $34,109
======= ======= =======
</TABLE>
The credit facility contains various covenants which require, among other
things, the maintenance of several financial ratios and minimum net worth levels
while restricting capital expenditures and shareholder distributions. The
Company was in compliance with these covenants at December 31, 1996 and June 30,
1997.
F-12
<PAGE> 72
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
Future maturities of long-term debt as of December 31, 1996 are as follows:
<TABLE>
<S> <C>
1997.............................................. $ 3,001
1998.............................................. 287
1999.............................................. 208
2000.............................................. 225
2001.............................................. 121
Thereafter........................................ 50,315
-------
$ 54,157
=======
</TABLE>
Interest paid for the years ended December 31, 1994, 1995 and 1996 was
approximately $2,072, $1,892 and $3,844, respectively, and $1,865 and $1,808 for
the periods ending June 30, 1996 and 1997, respectively.
6. OPERATING LEASE COMMITMENTS:
The Company leases equipment, vehicles and a building from third parties
under operating lease agreements.
The Company also leases some of its facilities from certain related
parties. The leases are accounted for as operating leases and are for various
terms ranging from three to 20 years with additional renewal options. The
Company is generally responsible for repairs and maintenance, taxes and
insurance.
For the years ended December 31, 1994, 1995 and 1996, lease expense totaled
$1,562, $1,683 and $2,255, respectively, and $1,128 and $1,179 for the six
months ended June 30, 1996 and 1997, respectively, under these agreements.
Future minimum operating lease commitments at December 31, 1996, are as
follows:
<TABLE>
<CAPTION>
THIRD PARTY RELATED PARTY
----------- -------------
<S> <C> <C>
1997........................... $ 1,098 $ 571
1998........................... 562 577
1999........................... 164 584
2000........................... 90 590
2001........................... 6 486
Thereafter..................... -- 883
</TABLE>
7. STOCK OPTION PLANS AND STOCK RESTRICTIONS:
In March 1995, the Company granted 651 options to key executives to
purchase Class B nonvoting common shares at $671 per share. The options were
vested upon grant and all 651 options were exercised.
In June 1996, the Company granted an additional 1,000 options to directors
and 2,150 options to key executives to purchase Class B nonvoting common shares
at $798 per share. The options granted to directors were vested upon grant. The
options granted to key executives vest ratably over two years. The Company
recorded compensation expense of $450 for the year ended December 31, 1996, and
$175 for the six months
F-13
<PAGE> 73
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
ended June 30, 1997, in the accompanying consolidated financial statements
relative to these options. As of June 30, 1997, all 3,150 stock options were
outstanding. After considering the effect of the recapitalization discussed in
Note 11, the exercise of the stock options resulted in the option holders
acquiring 438,119 Common Shares.
Transfers of all options or shares issued under this agreement are
restricted and subject to rights of first refusal by the Company.
8. EMPLOYEE BENEFIT PLANS:
The Company has a defined contribution profit sharing plan covering
substantially all of the employees. Company contributions are discretionary;
however, a portion of these contributions are based upon a percentage of
employee compensation, as defined in the plan. The Company's policy is to fund
all profit sharing costs accrued. There are no unfunded prior service costs. For
the years ended December 31, 1994, 1995 and 1996 contributions amounted to
$1,512, $1,538 and $1,356, respectively. For the six months ended June 30, 1996
and 1997, contributions amounted to $678 and $486, respectively.
Additionally, the Company has a defined contribution profit sharing
retirement plan, which covers certain other employees. The plan includes the
provisions of a Section 401(k) plan and allows employees to contribute up to 14%
of their eligible compensation. Company contributions are determined by the
Board of Directors; however the Company must match 50% of the participating
employees' contributions up to a maximum of 3% of their eligible compensation.
For the years ended December 31, 1994, 1995 and 1996 the Company's contributions
amounted to $800, $950 and $1,125, respectively, and for the six-month periods
ended June 30, 1996 and 1997, amounted to $563 and $928, respectively.
The Company does not provide any material retirement, postretirement or
postemployment benefits to its employees.
9. RELATED PARTY TRANSACTIONS:
In 1996, the Company sold a building to an affiliated entity for $2,200.
The excess of the sales price over the carrying value of the building was $562
and was recorded as a capital contribution. During 1996, prior to the sale of
this building, the Company received approximately $235 in lease payments and
recognized related depreciation and interest expense totaling approximately
$108. In 1994 and 1995, the Company recognized lease revenue of $278 and
depreciation and interest expense of $207 and $194, respectively. Prior to
September 15, 1997, the Company was the guarantor of a $2,200 loan to this
affiliated entity which was used to fund the building purchase.
Prior to September 15, 1997, the Company was the guarantor on a $500
standby letter of credit for a related party loan; however, there were no
balances outstanding on this loan as of December 31, 1996 and June 30, 1997.
The Company provides management services to a related company in the amount
of $300 annually and also pays the salary of a certain key employee, amounting
to $178, $182 and $180 in 1994, 1995 and 1996, respectively. Beginning on
September 1, 1997, the salary payments were paid by the related company and the
management fee was reduced to $60 annually.
F-14
<PAGE> 74
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
In connection with a split dollar arrangement, the Company has an interest
in and pays the policy premiums on an insurance policy for D.M. Draime. As of
December 31, 1996, the Company had paid premiums in the amount of $663. In the
event of the death of Mr. Draime, his estate will receive the full amount of the
life insurance policy less the aggregate amount of premiums paid which will be
reimbursed to the Company. Upon or prior to the completion of the Offering, the
Company will be reimbursed for the premiums paid on this policy by or on behalf
of Mr. Draime.
10. FAIR VALUE OF FINANCIAL INSTRUMENTS:
A financial instrument is cash or a contract that imposes an obligation to
deliver, or conveys a right to receive cash or another financial instrument. The
carrying values of cash and cash equivalents, accounts receivable and payables
are considered to be representative of fair value because of the short maturity
of these instruments. In management's opinion, the estimated fair value of the
Company's long-term debt approximates book value as under the terms of the
borrowings arrangements, a significant portion of the obligations are subject to
fluctuating market rates of interest.
Off-balance sheet derivative financial instruments as of December 31, 1995
and 1996, held for purposes other than trading, include two swap agreements
which mature during 1999. The notional amounts and fair values of the swap
agreements are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ JUNE 30,
1995 1996 1997
------- ------- ---------
<S> <C> <C> <C>
Notional Amount.................... $25,000 $45,000 $45,000
Fair Value......................... (26) (257) 98
</TABLE>
11. PUBLIC OFFERING OF COMMON SHARES:
The Company intends to file a Registration Statement relating to the
initial public offering of its common shares (the Offering). The net proceeds
from the issuance and sale of common shares will be used to fund the payment to
the pre-offering shareholders of approximately $83,000 as an S Corporation
distribution (S Corporation Distribution) and for the partial repayment of debt.
Certain officers and employees will reinvest at least $6,500 of their
distribution (Management Reinvestment). As a result of the Offering, the S
Corporation status will terminate and the Company will be responsible for the
corporate income taxes on its earnings from that date forward.
In connection with the Company's proposed Offering, the Company intends to
amend its Articles of Incorporation to change the authorized share capital of
the Company from 37,724 shares of Class A Common, voting, without par value, and
87,276 shares of Class B Common, non-voting, without par value, to 60,000,000
Common Shares, without par value (the Common Shares), and 5,000,000 shares of
voting preferred shares, without par value. In addition, the amended Articles of
Incorporation will provide that each Class A Common Share and Class B Common
Share will automatically become 139.0856 Common Shares. All applicable share and
per share data have been adjusted accordingly.
Acquisition: The Company expects to acquire, through a share exchange, the
remaining 55% of the outstanding stock of Berifors which it does not own for an
aggregate of 757,063 Common Shares. The Company expects to issue 704,563 Common
Shares in exchange for 51% of the outstanding stock of Berifors
F-15
<PAGE> 75
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
concurrent with the completion of the Offering. The Company will have an option
to acquire the remaining 4% of the outstanding stock of Berifors through the
issuance of 52,500 Common Shares.
Tax Indemnification: The Company and its shareholders expect to enter into
a tax indemnification agreement relating to their respective tax liabilities.
The agreement is expected to provide, among other things, for (i) the
indemnification by the Company of the shareholders against all losses,
liabilities, interest, penalties, and attorneys' and accountants' fees resulting
from any additional federal or state income taxes imposed upon shareholders as a
result of the change in S Corporation income of the Company for any period in
which the Company was treated for federal and certain state income tax purposes
as an S Corporation (the S Corporation Periods); and (ii) indemnification of the
Company by the shareholders against certain liabilities and losses with respect
to federal and state income taxes, including interest, penalties and attorneys'
and accountants' fees resulting from any decrease in such shareholders' S
Corporation income from the Company during the S Corporation Periods.
Long-Term Incentive Plan: Grants of incentive or nonqualified share
options, restricted shares, deferred shares, share purchase rights, share
appreciation rights in tandem with options, other share-based awards, or any
combination thereof, may be made under the plan to officers and key employees
who are responsible for or contribute to the management, growth or profitability
of the business of the Company and its affiliates. The Stock Option Committee of
the Board of Directors will administer the plan and determine the type, amount
and timing of grants and awards. The Company has reserved 1,000,000 Common
Shares for issuance under the plan. No participant in the plan may be granted
stock options or other share awards in any calendar year for more than 300,000
shares. The share limitations, shares reserved and the terms of outstanding
awards will be adjusted, as the Stock Option Committee deems appropriate, in the
event of a share dividend, split or other change in the corporate structure of
the Company affecting the shares.
The plan provides for vesting, exercise or forfeiture of rights granted
under the plan on death, disability, termination of employment or a change of
control. The Board of Directors may modify, suspend or terminate the plan as
long as it does not impair the rights thereunder of any participant.
In connection with the Offering, the Company expects to grant options to
purchase 500,000 Common Shares with an exercise price equal to the initial
public offering price to officers and other management employees. The options
will vest two years after date of grant.
12. UNAUDITED PRO FORMA INFORMATION:
The unaudited pro forma balance sheet data presented assumes on June 30,
1997, (i) an $83,000 S Corporation Distribution, (ii) a $6,500 Management
Reinvestment, (iii) repayment of $2,514 of the credit facility with the proceeds
from the exercise of 438,119 stock options, and (iv) termination of the
Company's S Corporation status, and in connection therewith, reinstatement of
$6,468 of deferred income tax liabilities, and $4,357 of deferred income tax
assets.
The unaudited pro forma net income for the year ended December 31, 1996 and
for the six months ended June 30, 1997 assumes that the Company is subject to
income taxes as a C Corporation.
Unaudited pro forma net income per share has been calculated by dividing
pro forma net income by the weighted average number of Common Shares outstanding
(13,964,448), the number of Common Shares to be issued in connection with the
Offering (5,850,000), the number of Common Shares issued in connection with the
exercise of stock options (438,119), the number of Common Shares to be issued in
connection with
F-16
<PAGE> 76
STONERIDGE, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
(AMOUNTS AND DISCLOSURES AS OF JUNE 30, 1996 AND 1997 AND FOR THE PERIODS
THEN ENDED ARE UNAUDITED.)
(IN THOUSANDS, EXCEPT FOR SHARE AND PER SHARE DATA)
the Management Reinvestment (435,657), and the number of Common Shares that the
Company would have had to issue 4,781,250 to pay the S Corporation Distribution.
13. COMMITMENTS AND CONTINGENCIES:
In the ordinary course of business, the Company is involved in various
legal proceedings, workers' compensation and product liability disputes. The
Company is of the opinion that the ultimate resolution of these matters will not
have a material adverse effect on the results of operations or the financial
position of the Company.
14. SUBSEQUENT EVENTS:
On July 25, 1997, the Company entered into a letter of intent to acquire
50% of the stock of a Brazilian electronic components business which specializes
in vehicle security devices. The aggregate purchase price in the letter of
intent is approximately $17,000. The acquisition is subject to certain
contingencies, including the Company's satisfactory completion of business,
legal, accounting and environmental due diligence reviews, negotiation of a
definitive agreement and approval of the transaction by the Company's Board of
Directors. The acquisition will be financed through borrowings under the credit
facility discussed in Note 5.
On August 25, 1997, the Company entered into two joint venture agreements
and a cooperation agreement with a Swedish manufacturer of power distribution
systems. Pursuant to the terms of the agreements, during the fourth quarter of
1997, the Company expects to pay approximately $2,400 for a 60% interest in a
Brazilian joint venture and $1,100 for a 40% interest in a European joint
venture. The joint ventures will establish production facilities in Brazil and
Europe for the purpose of manufacturing and selling power distribution systems
in South America and Europe, respectively. In addition, the joint ventures will
pursue sales and marketing efforts for other products and services of the joint
venture partners to the extent practicable. The Company will finance its
investments in the joint ventures through borrowings under the credit facility
discussed in Note 5.
F-17
<PAGE> 77
STONERIDGE, INC. AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO CHARGED TO BALANCE AT
BEGINNING COSTS AND OTHER END OF
OF PERIOD EXPENSES ACCOUNTS WRITE-OFFS PERIOD
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful accounts:
Year ended December 31, 1994 173 7 -- 7 173
Year ended December 31, 1995 173 325 -- 45 453
Year ended December 31, 1996 453 43 -- 231 265
</TABLE>
F-18
<PAGE> 78
The inside back cover page of the Company's Prospectus contains a picture
in the center of the page of a globe (broken in two parts in order to illustrate
the entire planet). Above the picture is the Company's logo and the word
"Stoneridge." The map is marked with dots to indicate the approximate location
of the Company's facilities. Beneath the picture of the globe are the words
"Stoneridge Locations, Corporate Headquarters -- Warren, Ohio." Further beneath
is the listing of the Company's locations as follows -- North American
Locations -- Arlington Heights, IL, Portland, IN, Canton, MA, Boston, MA,
Southfield, MI, Mebane, NC, Cortland, OH, Kent, OH, Orwell, OH, Warren, OH, El
Paso, TX, Chihuahua, Mexico, Juarez, Mexico -- South American Locations -- Sao
Paulo, Brazil -- European Locations -- Eschborn, Germany and BERIFORS AB Bromma,
Sweden, Munich, Germany, Oreboro, Sweden and Stuttgart, Germany.
<PAGE> 79
[Stoneridge Logo]
<PAGE> 80
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
[COMPANY OFFERING PROSPECTUS COVER PAGE]
PROSPECTUS (Subject to Completion)
Issued September 17, 1997
435,657 Shares
STONERIDGE, INC.
COMMON SHARES
------------------
OFFERING TO CERTAIN DIRECTORS, EXECUTIVE OFFICERS AND
MANAGEMENT EMPLOYEES OF THE COMPANY
The Shares are being offered directly by the Company. Common Shares sold
pursuant to this offering will be issued by the Company and will not be
underwritten or subject to the arrangements described herein under
"Underwriters." Accordingly, the information in the Prospectus relating to
the Company's initial public offering on the Cover Page is not
applicable. The price paid per share in this offering will be the
initial public offering price paid per share, less underwriting
discounts and commissions. This offering is conditioned upon the
completion of the Company's initial public offering and is expected
to be consummated concurrently with such initial public offering.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
, 1997
<PAGE> 81
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any jurisdiction in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities laws of any such jurisdiction.
[INTERNATIONAL PROSPECTUS COVER PAGE]
PROSPECTUS (Subject to Completion)
Issued September 17, 1997
5,850,000 Shares
STONERIDGE, INC.
COMMON SHARES
------------------
All of the 5,850,000 Common Shares offered hereby are being offered by the
Company. Of the 5,850,000 Common Shares being offered, 1,170,000 shares are
being offered initially outside the United States and Canada by the
International Underwriters and 4,680,000 shares are being offered initially in
the United States and Canada by the U.S. Underwriters. Prior to the Offering
there has been no public market for the Common Shares of the Company. Between
approximately $81,000,000 and $85,000,000 of the net proceeds of the Offering
will be used to make a distribution of previously taxed but undistributed
earnings to the Company's pre-Offering shareholders. See "S Corporation
Distribution and Management Reinvestment." It is currently anticipated that the
initial public offering price per Common Share will be between $15 and $17. See
"Underwriters" for a discussion of the factors to be considered in determining
the initial public offering price.
In addition to the 5,850,000 Common Shares being offered hereby, 435,657 Common
Shares are being offered directly by the Company concurrently herewith to
certain directors, executive officers and other management employees of the
Company. See "S Corporation Distribution and Management Reinvestment."
Upon completion of the Offering, the Company's executive officers,
directors and their families will collectively own approximately 68%
of the outstanding Common Shares of the Company. Consequently, these
persons will be able to determine the outcome of any matter
subject to a vote of the Company's shareholders, including the
election of directors.
------------------------
THE COMMON SHARES HAVE BEEN APPROVED FOR LISTING ON THE NEW YORK STOCK EXCHANGE,
SUBJECT TO OFFICIAL NOTICE OF ISSUANCE, UNDER THE SYMBOL "SRI."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 8 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------------
PRICE $ A SHARE
------------------------
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
------------------ ------------------ ------------------
<S> <C> <C> <C>
Per Share.......................... $ $ $
Total(3)........................... $ $ $
</TABLE>
- ---------------
(1) The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended. See "Underwriters."
(2) Before deducting expenses payable by the Company, estimated at
$1,200,000.
(3) The Company has granted the U.S. Underwriters an option exercisable
within 30 days of the date hereof, to purchase up to an aggregate of
877,500 additional Common Shares at the price to public, less
underwriting discounts and commissions for the purpose of covering
overallotments, if any. If the U.S. Underwriters exercise such option in
full, the total price to public, underwriting discounts and commissions
and proceeds to Company will be $ , $ , and $ ,
respectively. See "Underwriters."
------------------
The Shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Katten Muchin & Zavis, counsel for the Underwriters. It is expected that
delivery of the Common Shares will be made on or about October , 1997 at the
offices of Morgan Stanley & Co. Incorporated, New York, N.Y., against payment
therefor in immediately available funds.
------------------
MORGAN STANLEY DEAN WITTER DONALDSON, LUFKIN & JENRETTE
Securities Corporation
, 1997
<PAGE> 82
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the fees and expenses in connection with the
issuance and distribution of the securities being registered hereunder. Except
for the SEC registration fee, NASD filing fee and NYSE filing fee, all amounts
are estimates.
<TABLE>
<S> <C>
SEC registration fee................................................. $ 37,576
NASD filing fee...................................................... 12,900
NYSE filing fee...................................................... 151,000
Accounting fees and expenses......................................... 150,000
Legal fees and expenses.............................................. 400,000
Blue Sky fees and expenses (including counsel fees).................. 10,000
Printing and engraving expenses...................................... 350,000
Transfer agent's and registrar's fees and expenses................... 25,000
Miscellaneous expenses............................................... 63,524
-------
TOTAL...................................................... $1,200,000
=======
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Ohio Revised Code (the "Code") authorizes Ohio corporations to
indemnify officers and directors from liability if the officer or director acted
in good faith and in a manner reasonably believed by the officer or director to
be in or not opposed to the best interests of the corporation, and, with respect
to any criminal actions, if the officer or director had no reason to believe his
action was unlawful. In the case of an action by or on behalf of a corporation,
indemnification may not be made (i) if the person seeking indemnification is
adjudged liable for negligence or misconduct, unless the court in which such
action was brought determines such person is fairly and reasonably entitled to
indemnification or (ii) if liability asserted against such person concerns
certain unlawful distributions. The indemnification provisions of the Ohio Code
require indemnification if a director or officer has been successful on the
merits or otherwise in defense of any action, suit or proceeding that he was a
party to by reason of the fact that he is or was a director or officer of the
corporation. The indemnification authorized under Ohio law is not exclusive and
is in addition to any other rights granted to officers and directors under the
articles of incorporation or code of regulations of the corporation or any
agreement between officers and directors and the corporation. A corporation may
purchase and maintain insurance or furnish similar protection on behalf of any
officer or director against any liability asserted against him and incurred by
him in his capacity, or arising out of the status, as an officer or director,
whether or not the corporation would have the power to indemnify him against
such liability under the Ohio Code.
The Registrant's Code of Regulations provides for the indemnification of
directors and officers of the Registrant to the maximum extent permitted by Ohio
law as authorized by the Board of Directors of the Registrant, for the
advancement of expenses incurred in connection with the defense of any action,
suit or proceeding that he was a party to by reason of the fact that he is or
was a director of the Registrant upon the receipt of an undertaking to repay
such amount unless it is ultimately determined that the director is entitled to
indemnification. The Code of Regulations authorizes the Registrant to purchase
and maintain insurance on behalf of any director, officer, employee or agent of
the Registrant against any liability asserted against them in such capacity or
arising out of their status as such, whether or not the Registrant would have
power to indemnify such officer, employee or agent against such liability under
the provisions of the Code of Regulations of the Registrant.
The Registrant maintains a directors' and officers' insurance policy which
insures the officers and directors of the Registrant from any claim arising out
of an alleged wrongful act by such persons in their respective capacities as
officers and directors of the Registrant.
Reference is made to Section 8 of the Underwriting Agreement, a copy of
which is filed herewith as Exhibit 1.1, for information concerning
indemnification arrangements among the Registrant and the Underwriters.
II-1
<PAGE> 83
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Within the past three years, in connection with the exercise of options
granted to its senior officers and directors, the Registrant, relying on the
exemption from registration contained in Section 4(2) of the Securities Act of
1933, has issued Class B Common Shares (after giving effect to the
recapitalization described in "Description of Capital Shares") to the following
individuals on or about the following dates and for the following aggregate cash
exercise prices in connection with previously granted options:
<TABLE>
<CAPTION>
AGGREGATE
INDIVIDUAL DATE SHARES EXERCISE PRICE
--------------------------------------------- --------------- ------ --------------
<S> <C> <C> <C>
Kevin P. Bagby............................... August 7, 1997 34,771 $199,500
Michael Bagby................................ August 7, 1997 13,908 79,800
Thomas Beaver................................ August 7, 1997 34,771 199,500
Richard Cheney............................... August 7, 1997 34,771 199,500
Avery Cohen.................................. August 7, 1997 34,771 199,500
Chia Day..................................... August 7, 1997 34,771 199,500
Richard Emerine.............................. August 7, 1997 13,908 79,800
Sheldon Epstein.............................. August 7, 1997 34,771 199,500
David Gargas................................. August 7, 1997 13,908 79,800
Howard Goldberg.............................. August 7, 1997 34,771 199,500
William Haushalter........................... August 7, 1997 34,771 199,500
William Hull................................. August 7, 1997 13,908 79,800
Earl Linehan................................. August 7, 1997 34,771 199,500
Mark Oakes................................... August 7, 1997 34,771 199,500
Edward F. Mosel.............................. June 30, 1996 21,001 101,321
David Thomas................................. June 30, 1996 69,542 335,500
</TABLE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) EXHIBITS -- The following is a list of exhibits in this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------ ------------------------------------------------------------------------------------
<S> <C>
1.1 Proposed Form of Underwriting Agreement.
3.1 Proposed Form of Second Amended and Restated Articles of Incorporation of the
Company.
3.2* Proposed Form of Amended and Restated Code of Regulations of the Company.
4.1** Specimen Share Certificate.
5.1 Opinion of Baker & Hostetler LLP regarding the legality of the Common Shares being
registered.
10.1 Long-Term Incentive Plan.
10.2* Lease dated October 1, 1993 between D.M. Draime and Alphabet, Inc. (the Company's
predecessor) with respect to the Company's Greenwood, North Carolina facility.
10.3* Lease Agreement between Industrial Development Associates and the Alphabet Division,
with respect to the Company's Mebane, North Carolina facility.
10.4* Lease Agreement between Hunters Square, Inc. and Alphabet, Inc., with respect to the
Company's division headquarters for the Alphabet Division.
10.5* Contract Manufacturing Agreement dated January 3, 1993 with a division of General
Motors.
10.6** Share Exchange Agreement relating to the Berifors Acquisition.
10.7 Joint Venture and Shareholders' Agreements and Cooperation Agreement with Connecto
AB.
10.8 Credit Agreement, among Stoneridge, Inc. and PNC Bank, National Association, Star
Bank, National Association and National City Bank, and National City Bank, Agent,
dated September 15, 1997.
10.9 Agreement with DAV (Labinal) dated June 9, 1994.
23.1 Consent of Baker & Hostetler LLP (contained in Exhibit 5.1).
23.2 Consent of Arthur Andersen LLP.
24.1* Powers of Attorney (contained in the signature pages).
27.1 Financial Data Schedule for six-months ended June 30, 1997.
27.2 Financial Data Schedule for six-months ended June 30, 1996.
27.3* Financial Data Schedule for the year ended December 31, 1996.
27.4* Financial Data Schedule for the year ended December 31, 1995.
27.5* Financial Data Schedule for the year ended December 31, 1994.
</TABLE>
- ---------------
* Previously filed
** To be filed by Amendment
II-2
<PAGE> 84
(b) FINANCIAL STATEMENT SCHEDULE
Schedule II -- Valuation of Qualifying Accounts is located at page F-17.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered hereunder, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 85
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Cleveland, State of Ohio,
on the 16th day of September, 1997.
STONERIDGE, INC.
By: /s/ KEVIN P. BAGBY
------------------------------------
Kevin P. Bagby,
Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to the Registration Statement has been signed below by the following
persons in the capacities indicated on the 16th day of September, 1997.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- --------------------------------------------- --------------------------------------
<S> <C>
CLOYD J. ABRUZZO* President, Chief Executive Officer,
- --------------------------------------------- Assistant Secretary and Director
Cloyd J. Abruzzo (principal executive officer)
/s/ KEVIN P. BAGBY Chief Financial Officer and Treasurer
- --------------------------------------------- (principal financial officer and
Kevin P. Bagby principal accounting officer)
D.M. DRAIME* Director
- ---------------------------------------------
D.M. Draime
RICHARD E. CHENEY* Director
- ---------------------------------------------
Richard E. Cheney
AVERY S. COHEN* Director
- ---------------------------------------------
Avery S. Cohen
SHELDON J. EPSTEIN* Director
- ---------------------------------------------
Sheldon J. Epstein
EARL L. LINEHAN* Director
- ---------------------------------------------
Earl L. Linehan
</TABLE>
* By: /s/ KEVIN P. BAGBY
----------------------------------------------
Kevin P. Bagby, Attorney-in-fact
II-4
<PAGE> 1
Exhibit 1.1
5,850,000 Shares
STONERIDGE, INC.
COMMON SHARES (WITHOUT PAR VALUE)
UNDERWRITING AGREEMENT
October , 1997
<PAGE> 2
October , 1997
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette Securities Corporation
c/o Morgan Stanley & Co. Incorporated
1585 Broadway
New York, New York 10036
Morgan Stanley & Co. International Limited
Donaldson, Lufkin & Jenrette Securities Corporation
c/o Morgan Stanley & Co. International Limited
25 Cabot Square
Canary Wharf
London E14 4QA
England
Dear Sirs and Mesdames:
Stoneridge, Inc., an Ohio corporation (the "Company"), proposes to
issue and sell to the several Underwriters (as defined below) 5,850,000 Common
Shares, without par value (the "Firm Shares").
It is understood that, subject to the conditions hereinafter stated,
4,680,000 Firm Shares (the "U.S. Firm Shares") will be sold to the several U.S.
Underwriters named in Schedule I hereto (the "U.S. Underwriters") in connection
with the offering and sale of such U.S. Firm Shares in the United States and
Canada to United States and Canadian Persons (as such terms are defined in the
Agreement Between U.S. and International Underwriters of even date herewith)
and 1,170,000 Firm Shares (the "International Shares") will be sold to the
several International Underwriters named in Schedule II hereto (the
"International Underwriters") in connection with the offering and sale of such
International Shares outside the United States and Canada to persons other than
United States and Canadian Persons. Morgan Stanley & Co. Incorporated and
Donaldson, Lufkin & Jenrette Securities Corporation shall act as
representatives (the "U.S. Representatives") of the several U.S. Underwriters,
and Morgan Stanley & Co. International Limited and Donaldson, Lufkin & Jenrette
Securities Corporation shall act as representatives (the "International
Representatives") of the several International Underwriters. The U.S.
Underwriters and the International Underwriters are hereinafter collectively
referred to as the Underwriters.
The Company also proposes to issue and sell to the several U.S.
Underwriters not more than an additional 877,500 Common Shares, without par
value (the "Additional Shares"), if and to the extent that the U.S.
Representatives shall have determined to exercise, on behalf of the U.S.
Underwriters, the right to purchase such common shares granted to the U.S.
Underwriters in Section 3 hereof. The Firm Shares and the Additional Shares are
hereinafter collectively referred to as the "Shares." The Common Shares,
without par value, of the Company to be outstanding after giving effect to the
sales contemplated hereby are hereinafter referred to as the "Common Shares."
<PAGE> 3
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement relating to the Shares. The registration
statement contains three prospectuses to be used in connection with the offering
and sale of the Shares: the U.S. prospectus, to be used in connection with the
offering and sale of Shares in the United States and Canada to United States and
Canadian Persons, the international prospectus, to be used in connection with
the offering and sale of Shares outside the United States and Canada to persons
other than United States and Canadian Persons, and the company prospectus, to be
used directly by the Company in connection with the offering and sale of the
Company's common shares to certain directors, executive officers and other
management employees of the Company. The international prospectus is identical
to the U.S. prospectus except for the outside front cover page and sections
under the caption "Underwriters" will differ in certain respects. The company
prospectus is identical in all respects to the U.S. prospectus except for (i)
the front cover page of the company prospectus and (ii) the fact that the
information under the caption "Underwriters" is not applicable to purchases
pursuant to the company prospectus. The registration statement as amended at the
time it becomes effective, including the information (if any) deemed to be part
of the registration statement at the time of effectiveness pursuant to Rule 430A
under the Securities Act of 1933, as amended (the "Securities Act"), is
hereinafter referred to as the "Registration Statement"; the U.S. prospectus,
the international prospectus and the company prospectus in the respective forms
first used to confirm sales of Shares are hereinafter collectively referred to
as the "Prospectus." If the Company has filed an abbreviated registration
statement to register additional shares of Common Shares pursuant to Rule 462(b)
under the Securities Act (the "Rule 462 Registration Statement"), then any
reference herein to the term "Registration Statement" shall be deemed to include
such Rule 462 Registration Statement.
As part of the offering contemplated by this Agreement, Morgan Stanley
& Co. Incorporated ("Morgan Stanley") has agreed to reserve out of the Shares
set forth opposite its name on Schedule II to this Agreement, up to 300,000
shares, for sale to the Company's employees, officers, and directors and other
parties associated with the Company (collectively, "Participants"), as set
forth in the Prospectus under the heading "Underwriting" (the "Directed Share
Program"). The Shares to be sold by Morgan Stanley pursuant to the Directed
Share Program (the "Directed Shares") will be sold by Morgan Stanley pursuant
to this Agreement at the public offering price. Any Directed Shares not orally
confirmed for purchase by any Participants by the end of the first business day
after the date on which this Agreement is executed will be offered to the
public by Morgan Stanley as set forth in the Prospectus.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop
order suspending the effectiveness of the Registration Statement is in
effect, and no proceedings for such purpose are pending before or
threatened by the Commission.
(b) (i) The Registration Statement, when it became effective,
did not contain and, as amended or supplemented, if applicable, will
not contain any untrue statement of
-2-
<PAGE> 4
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading,
(ii) the Registration Statement and the Prospectus comply and, as
amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder and (iii) the Prospectus does
not contain and, as amended or supplemented, if applicable, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading,
except that the representations and warranties set forth in this
paragraph 1(b) do not apply to statements or omissions in the
Registration Statement or the Prospectus based upon information
relating to any Underwriter furnished to the Company in writing by
such Underwriter through you expressly for use therein.
(c) The Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to transact business and is in
good standing in each jurisdiction in which the conduct of its business
or its ownership or leasing of property requires such qualification,
except to the extent that the failure to be so qualified or be in good
standing would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole; all of the issued shares of capital
stock of each subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and are owned
directly by the Company, free and clear of all liens, encumbrances,
equities or claims.
(e) This Agreement has been duly authorized, executed and
delivered by the Company.
(f) The authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus.
(g) The Common Shares outstanding prior to the issuance of the
Shares have been duly authorized and are validly issued, fully paid and
non-assessable.
(h) The Shares have been duly authorized and, when issued and
delivered in accordance with the terms of this Agreement, will be
validly issued, fully paid and non-
-3-
<PAGE> 5
assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights.
(i) The execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene any provision of applicable law or the Second
Amended and Restated Articles or Amended and Restated Code of
Regulations of the Company or any agreement or other instrument binding
upon the Company or any of its subsidiaries that is material to the
Company and its subsidiaries, taken as a whole, or any judgment, order
or decree of any governmental body, agency or court having jurisdiction
over the Company or any subsidiary, and no consent, approval,
authorization or order of, or qualification with, any governmental body
or agency is required for the performance by the Company of its
obligations under this Agreement, except such as may be required by the
securities or Blue Sky laws of the various states in connection with
the offer and sale of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from
that set forth in the Prospectus (exclusive of any amendments or
supplements thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or
threatened to which the Company or any of its subsidiaries is a party
or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or
any statutes, regulations, contracts or other documents that are
required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement
that are not described or filed as required.
(l) Each preliminary prospectus filed as part of the
registration statement as originally filed or as part of any amendment
thereto, or filed pursuant to Rule 424 under the Securities Act,
complied when so filed in all material respects with the Securities Act
and the applicable rules and regulations of the Commission thereunder.
(m) The Company is not and, after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" as such term is defined in the Investment Company Act of 1940,
as amended.
(n) The Company and its subsidiaries (i) are in compliance
with any and all applicable foreign, federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("Environmental Laws"), (ii) have received all permits,
licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are
in compliance with all terms and conditions of any such
-4-
<PAGE> 6
permit, license or approval, except where such noncompliance with
Environmental Laws, failure to receive required permits, licenses or
other approvals or failure to comply with the terms and conditions of
such permits, licenses or approvals would not, singly or in the
aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(o) There are no costs or liabilities associated with
Environmental Laws (including, without limitation, any capital or
operating expenditures required for clean-up, closure of properties or
compliance with Environmental Laws or any permit, license or approval,
any related constraints on operating activities and any potential
liabilities to third parties) which would, singly or in the aggregate,
have a material adverse effect on the Company and its subsidiaries,
taken as a whole.
(p) There are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the
Securities Act with respect to any securities of the Company or to
require the Company to include such securities with the Shares
registered pursuant to the Registration Statement.
(q) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the
Government of Cuba or with any person or affiliate located in Cuba.
(r) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (1) the
Company and its subsidiaries have not incurred any material liability
or obligation, direct or contingent, nor entered into any material
transaction not in the ordinary course of business; (2) the Company has
not purchased any of its outstanding capital stock, nor declared, paid
or otherwise made any dividend or distribution of any kind on its
capital stock other than ordinary and customary dividends; and (3)
there has not been any material change in the capital stock, short-term
debt or long-term debt of the Company and its consolidated
subsidiaries, except in each case as described in or contemplated by
the Prospectus.
(s) The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the
business of the Company and its subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and
proposed to be made of such property by the Company and its
subsidiaries; and any real property and buildings held under lease by
the Company and its subsidiaries are held by them under valid,
subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made
of such property and buildings by the Company and its subsidiaries, in
each case except as described in or contemplated by the Prospectus.
-5-
<PAGE> 7
(t) The Company and its subsidiaries own or possess, or can
acquire on reasonable terms, all material patents, patent rights,
licenses, inventions, copyrights, know-how (including trade secrets and
other unpatented and/or unpatentable proprietary or confidential
information, systems or procedures), trademarks, service marks and
trade names currently employed by them in connection with the business
now operated by them, and neither the Company nor any of its
subsidiaries has received any notice of infringement of or conflict
with asserted rights of others with respect to any of the foregoing
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, would result in any material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole.
(u) No material labor dispute with the employees of the
Company or any of its subsidiaries exists, except as described in or
contemplated by the Prospectus, or, to the knowledge of the Company, is
imminent; and the Company is not aware of any existing, threatened or
imminent labor disturbance by the employees of any of its principal
suppliers, manufacturers or contractors that could result in any
material adverse change in the condition, financial or otherwise, or in
the earnings, business or operations of the Company and its
subsidiaries, taken as a whole.
(v) The Company and each of its subsidiaries are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the
businesses in which they are engaged; neither the Company nor any such
subsidiary has been refused any insurance coverage sought or applied
for; and neither the Company nor any such subsidiary has any reason to
believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the
condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
except as described in or contemplated by the Prospectus.
(w) The Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or
foreign regulatory authorities necessary to conduct their respective
businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or
modification of any such certificate, authorization or permit which,
singly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would result in a material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole,
except as described in or contemplated by the Prospectus.
(x) Neither the Company nor any of its subsidiaries is in
violation of any federal or state law or regulation relating to
occupational safety and health or to the storage, handling or
transportation of hazardous or toxic materials and the Company and its
subsidiaries have received all permits, licenses or other approvals
required of them under
-6-
<PAGE> 8
applicable federal and state occupational safety and health and
environmental laws and regulations to conduct their respective
businesses, and the Company and each such subsidiary is in compliance
with all terms and conditions of any such permit, license or approval,
except any such violation of law or regulation, failure to receive
required permits, licenses or other approvals or failure to comply with
the terms and conditions of such permits, licenses or approvals which
would not, singly or in the aggregate, result in a material adverse
change in the condition, financial or otherwise, or in the earnings,
business or operations of the Company and its subsidiaries, taken as a
whole, except as described in or contemplated by the Prospectus.
(y) The Company and each of its subsidiaries maintain a system
of internal accounting controls sufficient to provide reasonable
assurance that (1) transactions are executed in accordance with
management's general or specific authorizations; (2) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to
maintain asset accountability; (3) access to assets is permitted only
in accordance with management's general or specific authorization; and
(4) the recorded accountability for assets is compared with the
existing assets at reasonable intervals and appropriate action is taken
with respect to any differences.
(z) The Company has not offered, or caused the Underwriters to
offer, Shares to any person pursuant to the Directed Share Program with
the specific intent to unlawfully influence (i) a customer or supplier
of the Company to alter the customer's or supplier's level or type of
business with the Company, or (ii) a trade journalist or publication to
write or publish favorable information about the Company or its
products.
Furthermore, the Company represents and warrants to Morgan
Stanley that (i) the Registration Statement, the prospectus and any
preliminary prospectus comply, and any further amendments or
supplements thereto will comply, with any applicable laws or
regulations of foreign jurisdictions in which the Prospectus or any
preliminary prospectus, as amended or supplemented, if applicable, are
distributed in connection with the Directed Share Program, and that
(ii) no authorization, approval, consent, license, order, registration
or qualification of or with any government, governmental
instrumentality or course, other than such as have been obtained, is
necessary under the securities laws and regulations of foreign
jurisdictions in which the Directed Shares are offered outside the
United States.
2. REPRESENTATIONS AND WARRANTIES OF D.M. DRAIME ("Draime"). Draime
represents and warrants to and agrees with each of the Underwriters that:
(a) This Agreement has been duly authorized, executed and
delivered by or on behalf of Draime.
-7-
<PAGE> 9
(b) The execution and delivery by Draime of, and the
performance of Draime of his obligations under, this Agreement will not
contravene any provision of applicable law or any other agreement or
instrument binding upon Draime or any judgment, order or decree of any
governmental body, agency or court having jurisdiction over Draime, and
no consent, approval, authorization or order of, or qualification with,
any governmental body or agency is required for the performance by
Draime of his obligations under this Agreement, except such as may be
required by the federal securities laws of the United States or the
Blue Sky laws of the various states in connection with the offer and
sale of the Common Shares.
(c) Such parts of the Registration Statement as specifically
refer to Draime do not contain and, as amended or supplemented, if
applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
3. AGREEMENTS TO SELL AND PURCHASE. The Company, subject to the
conditions herein stated, hereby agrees to sell to the several Underwriters, and
each Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, hereby agrees,
severally and not jointly, to purchase from the Company the respective numbers
of Firm Shares set forth in Schedules I and II hereto opposite its names at U.S.
$____ a share ("Purchase Price").
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, the Company agrees to sell
to the U.S. Underwriters the Additional Shares, and the U.S. Underwriters shall
have a one-time right to purchase, severally and not jointly, up to 877,500
Additional Shares at the Purchase Price. If the U.S. Representatives, on behalf
of the U.S. Underwriters, elect to exercise such option, the U.S.
Representatives shall so notify the Company in writing not later than 30 days
after the date of this Agreement, which notice shall specify the number of
Additional Shares to be purchased by the U.S. Underwriters and the date on
which such shares are to be purchased. Such date may be the same as the Closing
Date (as defined below) but not earlier than the Closing Date nor later than
ten business days after the date of such notice. Additional Shares may be
purchased as provided in Section 5 hereof solely for the purpose of covering
overallotments made in connection with the offering of the Firm Shares. If any
Additional Shares are to be purchased, each U.S. Underwriter agrees, severally
and not jointly, to purchase the number of Additional Shares (subject to such
adjustments to eliminate fractional shares as the U.S. Representatives may
determine) that bears the same proportion to the total number of Additional
Shares to be purchased as the number of U.S. Firm Shares set forth in Schedule
I hereto opposite the name of such U.S. Underwriter bears to the total number
of U.S. Firm Shares.
The Company hereby agrees that, without the prior written consent of
Morgan Stanley & Co. Incorporated on behalf of the Underwriters, it will not,
during the period ending 180 days after the date of the Prospectus, (i) offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase or otherwise transfer or dispose of, directly or indirectly, any Common
Shares or any securities
-8-
<PAGE> 10
convertible into or exercisable or exchangeable for Common Shares or (ii) enter
into any swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Shares,
whether any such transaction described in clause (i) or (ii) above is to be
settled by delivery of Common Shares or such other securities, in cash or
otherwise. The foregoing sentence shall not apply to (A) the Shares to be sold
hereunder, (B) the issuance by the Company of Common Shares upon the exercise of
an option or warrant or the conversion of a security outstanding on the date
hereof, and (C) any Common Shares or rights to purchase Common Shares issued,
awarded or granted under the Company's Long-Term Incentive Plan, of which the
Underwriters have been advised in writing.
4. TERMS OF PUBLIC OFFERING. The Company is advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and have this Agreement
become effective as in your judgment is advisable. The Company is further
advised by you that the Shares are to be offered to the public initially at U.S.
$_______ a share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of U.S. $____ a
share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of U.S. $_______ a share,
to any Underwriter or to certain other dealers.
5. PAYMENT AND DELIVERY. Payment for the Firm Shares shall be made to
the Company in Federal or other funds immediately available in New York City
against delivery of such Firm Shares for the respective accounts of the several
Underwriters at 10:00 A.M., New York City time, on October , 1997, or at
such other time on the same or such other date, not later than __________,
1997, as shall be designated in writing by you. The time and date of such
payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares shall be made to the Company in
Federal or other funds immediately available in New York City against delivery
of such Additional Shares for the respective accounts of the several
Underwriters at 10:00 A.M., New York City time, on the date specified in the
notice described in Section 3 or at such other time on the same or on such other
date, in any event not later than _________, 199_, as shall be designated in
writing by the U.S. Representatives. The time and date of such payment are
hereinafter referred to as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than one full business day prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. CONDITIONS TO THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Company to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date are
subject to the condition that the Registration
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<PAGE> 11
Statement shall have become effective not later than _______ __.m. (New York
City time) on the date hereof.
The several obligations of the Underwriters are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement
and prior to the Closing Date:
(i) there shall not have occurred any downgrading,
nor shall any notice have been given of any intended or
potential downgrading or of any review for a possible change
that does not indicate the direction of the possible change,
in the rating accorded any of the Company's securities by any
"nationally recognized statistical rating organization," as
such term is defined for purposes of Rule 436(g)(2) under the
Securities Act; and
(ii) there shall not have occurred any change, or any
development involving a prospective change, in the condition,
financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a
whole, from that set forth in the Prospectus (exclusive of any
amendments or supplements thereto subsequent to the date of
this Agreement) that, in your judgment, is material and
adverse and that makes it, in your judgment, impracticable to
market the Shares on the terms and in the manner contemplated
in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a
certificate, dated the Closing Date and signed by an executive officer
of the Company, to the effect set forth in clause (a)(i) above and to
the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date
and that the Company has complied with all of the agreements and
satisfied all of the conditions on its part to be performed or
satisfied hereunder on or before the Closing Date.
The officer signing and delivering such certificate may rely
upon the best of his or her knowledge as to proceedings threatened.
(c) The Underwriters shall have received on the Closing Date
an opinion of Baker & Hostetler LLP, outside counsel for the Company,
dated the Closing Date, to the effect that:
(i) the Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority to own its property
and to conduct its business as described in the Prospectus and
is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such
qualification, except to the extent
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<PAGE> 12
that the failure to be so qualified or be in good standing
would not have a material adverse effect on the Company and
its subsidiaries, taken as a whole;
(ii) each significant subsidiary, as defined pursuant
to Rule 1-02 of Regulation S-X of the Commission ("Significant
Subsidiary") of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has all
requisite corporate power and authority to own its property
and to conduct its business as described in the Prospectus and
is duly qualified to transact business and is in good standing
in each jurisdiction in which the conduct of its business or
its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material
adverse effect on the Company and its subsidiaries, taken as a
whole;
(iii) the authorized capital stock of the Company
conforms as to legal matters to the description thereof
contained in the Prospectus;
(iv) the Common Shares outstanding prior to the
issuance of the Shares have been duly authorized and are
validly issued, fully paid and non-assessable;
(v) all of the issued shares of capital stock of each
subsidiary of the Company have been duly and validly
authorized and issued, are fully paid and non-assessable and
are owned directly by the Company, free and clear of all
liens, encumbrances, equities or claims;
(vi) the Shares have been duly authorized and, when
issued and delivered to the Underwriters against payment
therefor in accordance with the terms of this Agreement, will
be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive
or similar rights;
(vii) this Agreement has been duly authorized,
executed and delivered by the Company;
(viii) the execution and delivery by the Company of,
and the performance by the Company of its obligations under,
this Agreement will not contravene any provision of applicable
law or the Second Amended and Restated Articles or Amended and
Restated Code of Regulations of the Company or, to the best of
such counsel's knowledge, any agreement or other instrument
binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a
whole, or, to the best of such counsel's knowledge, any
judgment, order or decree of any governmental body, agency or
court having jurisdiction over the Company or any subsidiary,
and no consent, approval, authorization or order of, or
qualification with, any governmental body or agency is
required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the
securities or Blue Sky laws of
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<PAGE> 13
the various states in connection with the offer and sale of
the Shares by the U.S. Underwriters;
(ix) the statements (A) in the Prospectus under the
captions "Business--Environmental Matters," and "Description
of Capital Shares" and (B) in the Registration Statement in
Items 14 and 15, in each case insofar as such statements
constitute summaries of the legal matters, documents or
proceedings referred to therein, fairly present the
information called for by the Act with respect to such legal
matters, documents and proceedings and fairly summarize the
matters referred to therein;
(x) to the best of such counsel's knowledge and other
than as set forth in the Prospectus, there are no (A) legal or
governmental proceedings pending or threatened to which the
Company or any of its subsidiaries is a party or of which any
of the properties of the Company or any of its subsidiaries is
the subject which, if determined adversely to the Company or
any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the consolidated
financial position, shareholders' equity or results of
operation of the Company and its subsidiaries; and to the best
of such counsel's knowledge, no such proceedings are
threatened or contemplated by governmental authorities or
threatened by others that are required to be described in the
Registration Statement or the Prospectus and are not so
described or (B) any statutes, regulations, contracts or other
documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described
or filed as required;
(xi) the Company is not and, after giving effect to
the offering and sale of the Shares and the application of the
proceeds thereof as described in the Prospectus, will not be
an "investment company" as such term is defined in the
Investment Company Act of 1940, as amended; and
(xii) the Registration Statement and Prospectus and
any further amendments and supplements thereto made by the
Company prior to the Closing Date or the Option Closing Date,
as the case may be, (except for financial statements and
schedules and other financial and statistical data included
therein as to which such counsel need not express any opinion)
comply as to form in all material respects with the Securities
Act and the applicable rules and regulations of the Commission
thereunder.
Such counsel shall also state that it has no reason to believe
that (except for financial statements and schedules and other
financial and statistical data as to which such counsel need
not express any belief) the Registration Statement and the
prospectus included therein at the time the Registration
Statement became effective contained any untrue statement of a
material fact or omitted to state a material fact required to
be stated therein or necessary to make the statements therein
not
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<PAGE> 14
misleading and (C) has no reason to believe that (except for
financial statements and schedules and other financial and
statistical data as to which such counsel need not express any
belief) the Prospectus contains any untrue statement of a
material fact or omits to state a material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(d) The Underwriters shall have received on the Closing Date
an opinion of Katten Muchin & Zavis, counsel for the Underwriters,
dated the Closing Date, covering the matters referred to in
subparagraphs (vi), (vii), (ix) (but only as to the statements in the
Prospectus under "Description of Capital Shares" and "Underwriters")
and (xiii) of paragraph (c) above.
In rendering such opinion, such counsel may state that (except
as to item (i)) they express no opinion as the laws of any jurisdiction
other than the laws of the United States and Ohio.
With respect to subparagraph (xiii) of paragraph (c) above,
Baker & Hostetler LLP and Katten Muchin & Zavis may state that their
opinion and belief are based upon their participation in the
preparation of the Registration Statement and Prospectus and any
amendments or supplements thereto and review and discussion of the
contents thereof, but are without independent check or verification,
except as specified.
The opinion of Baker & Hostetler LLP described in paragraph
(c) above shall be rendered to the Underwriters pursuant to this
Agreement and shall so state therein.
(e) The Underwriters shall have received, on each of the date
hereof and the Closing Date, a letter dated the date hereof or the
Closing Date, as the case may be, in form and substance satisfactory to
the Underwriters, from Arthur Andersen LLP, independent public
accountants, containing statements and information of the type
ordinarily included in accountants' "comfort letters" to underwriters
with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus;
PROVIDED that the letter delivered on the Closing Date shall use a
"cut-off date" not earlier than the date hereof.
(f) The "lock-up" agreements, each substantially in the form
of Exhibit A hereto, between you and certain shareholders, officers and
directors of the Company relating to sales and certain other
dispositions of Common Shares or certain other securities, delivered to
you on or before the date hereof, shall be in full force and effect on
the Closing Date.
(g) The several obligations of the U.S. Underwriters to
purchase Additional Shares hereunder are subject to the delivery to the
U.S. Representatives on the Option Closing Date of such documents as
they may reasonably request with respect to the good
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<PAGE> 15
standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the
Additional Shares.
7. COVENANTS OF THE COMPANY. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, four signed copies of
the Registration Statement (including exhibits thereto) and for
delivery to each other Underwriter a conformed copy of the Registration
Statement (without exhibits thereto) and to furnish to you in New York
City, without charge, prior to 10:00 A.M. New York City time on the
business day next succeeding the date of this Agreement, and during the
period mentioned in paragraph (c) below, as many copies of the
Prospectus and any supplements and amendments thereto or to the
Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration
Statement or the Prospectus, to furnish to you a copy of each such
proposed amendment or supplement and not to file any such proposed
amendment or supplement to which you reasonably object, and to file
with the Commission within the applicable period specified in Rule
424(b) under the Securities Act any prospectus required to be filed
pursuant to such Rule.
(c) If, during such period after the first date of the public
offering of the Shares as in the opinion of counsel for the
Underwriters the Prospectus is required by law to be delivered in
connection with sales by an Underwriter or dealer any event shall occur
or condition exist as a result of which it is necessary to amend or
supplement the Prospectus in order to make the statements therein, in
the light of the circumstances when the Prospectus is delivered to a
purchaser, not misleading, or if, in the opinion of counsel for the
Underwriters, it is necessary to amend or supplement the Prospectus to
comply with applicable law, forthwith to prepare, file with the
Commission and furnish, at its own expense, to the Underwriters and to
the dealers (whose names and addresses you will furnish to the Company)
to which Shares may have been sold by you on behalf of the Underwriters
and to any other dealers upon request, either amendments or supplements
to the Prospectus so that the statements in the Prospectus as so
amended or supplemented will not, in the light of the circumstances
when the Prospectus is delivered to a purchaser, be misleading or so
that the Prospectus, as amended or supplemented, will comply with law.
(d) To endeavor to qualify the Shares for offer and sale under
the securities or Blue Sky laws of such jurisdictions as you shall
reasonably request.
(e) To make generally available to the Company's security
holders and to you as soon as practicable an earning statement covering
the twelve-month period ending __________________, 1998 that satisfies
the provisions of Section 11(a) of the Securities Act and the rules and
regulations of the Commission thereunder.
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<PAGE> 16
(f) Whether or not the transactions contemplated in this
Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its
obligations under this Agreement, including: (i) the fees,
disbursements and expenses of the Company's counsel and the Company's
accountants in connection with the registration and delivery of the
Shares under the Securities Act and all other fees or expenses in
connection with the preparation and filing of the Registration
Statement, any preliminary prospectus, the Prospectus and amendments
and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof
to the Underwriters and dealers, in the quantities hereinabove
specified, (ii) all costs and expenses related to the transfer and
delivery of the Shares to the Underwriters, including any transfer or
other taxes payable thereon, (iii) the cost of printing or producing
any Blue Sky or Legal Investment memorandum in connection with the
offer and sale of the Shares under state securities laws and all
expenses in connection with the qualification of the Shares for offer
and sale under state securities laws as provided in Section 7(d)
hereof, including filing fees and the reasonable fees and disbursements
of counsel for the Underwriters in connection with such qualification
and in connect ion with the Blue Sky or Legal Investment memorandum,
(iv) all filing fees and disbursements of counsel to the Underwriters
incurred in connection with the review and qualification of the
offering of the Shares by the National Association of Securities
Dealers, Inc., (v) all fees and expenses in connection with the
preparation and filing of the registration statement on Form 8-A
relating to the Common Shares and all costs and expenses incident to
listing the Shares on the NYSE and any other national securities
exchanges or foreign stock exchanges, (vi) the cost of printing
certificates representing the Shares, (vii) the costs and charges of
any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any "road
show" undertaken in connection with the marketing of the offering of
the Shares (the "Road Show"), including, without limitation, expenses
associated with the production of Road Show slides and graphics, fees
and expenses of any consultants engaged in connection with the Road
Show presentations with the prior approval of the Company, travel and
lodging expenses of the representatives and officers of the Company and
any such consultants, and the cost of any aircraft chartered in
connection with the Road Show, and (ix) all other costs and expenses
incident to the performance of the obligations of the Company hereunder
for which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section, Section 8
entitled "Indemnity and Contribution", and the last paragraph of
Section 10 below, the Underwriters will pay all of their costs and
expenses, including fees and disbursements of their counsel, stock
transfer taxes payable on resale of any of the Shares by them and any
advertising expenses connected with any offers they may make and the
costs and expenses of the Underwriters relating to the Road Show, but
excluding the cost of any aircraft chartered in connection with the
Road Show.
(g) That in connection with the Directed Share Program, the
Company will ensure that the Directed Shares will be restricted to the
extent required by the National Association of Securities Dealers, Inc.
(the "NASD") or the NASD rules from sale, transfer, assignment, pledge
or hypothecation for a period of three months following the date of the
effectiveness of the Registration Statement. Morgan Stanley will notify
the
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<PAGE> 17
Company as to which Participants will need to be so restricted. The
Company will direct the transfer agent to place stop transfer
restrictions upon such securities for such period of time.
(h) To pay all fees and disbursements of counsel incurred by
the Underwriters in connection with the Directed Share Program and
stamp duties, similar taxes or duties or other taxes, if any, incurred
by the Underwriters in connection with the Directed Share Program.
Furthermore, the Company covenants with Morgan Stanley that
the Company will comply with all applicable securities and other
applicable laws, rules and regulations in each foreign jurisdiction in
which the Directed Shares are offered in connection with the Directed
Share Program.
8. INDEMNITY AND CONTRIBUTION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of either Section 15 of the Securities Act or
Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as such losses, claims, damages
or liabilities are caused by any such untrue statement or omission or
alleged untrue statement or omission (i) based upon information
relating to any Underwriter furnished to the Company in writing by such
Underwriter through you expressly for use therein or (ii) made in any
preliminary prospectus if a copy of the Prospectus (as amended or
supplemented, if the Company shall timely furnish such amendment or
supplement thereto) was not sent or given by or on behalf of the
Underwriters to the person asserting any such loss, claim, damages or
liability, if required by law so to have been sent or given, at or
prior to the written confirmation of the sale of the Shares as required
by the Act, and the Prospectus (as so amended or supplemented, if
applicable) would have corrected in all material respects such untrue
statement or omission.
(b) The Company agrees to indemnify and hold harmless Morgan
Stanley and each person, if any, who controls Morgan Stanley within the
meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act ("Morgan Stanley Entities"), from and against any and all
losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) (i) caused by any
untrue statement or alleged
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<PAGE> 18
untrue statement of a material fact contained in the prospectus wrapper
material prepared by or with the consent of the Company for
distribution in foreign jurisdictions in connection with the Directed
Share Program attached to the Prospectus or any preliminary prospectus,
or caused by any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statement therein, when considered in conjunction with the Prospectus
or any applicable preliminary prospectus, not misleading; (ii) caused
by the failure of any Participant to pay for and accept delivery of the
shares which, immediately following the effectiveness of the
Registration Statement, were subject to a properly confirmed agreement
to purchase; or (iii) related to, arising out of, or in connection with
the Directed Share Program, provided that, the Company shall not be
responsible under this subparagraph for any losses, claims (iii),
damages or liabilities (or expenses relating thereto) that are finally
judicially determined to have resulted from the bad faith or gross
negligence of Morgan Stanley Entities.
(c) Draime agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other
expenses reasonably incurred in connection with defending or
investigating any such action or claim) caused by any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary
prospectus or the Prospectus (as amended or supplemented if the Company
shall have furnished any amendments or supplements thereto), or caused
by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading; but only with reference to information relating
to Draime; PROVIDED, HOWEVER, that, with respect to any untrue
statement or alleged untrue statement or omission or alleged omission
made in any preliminary prospectus, the foregoing indemnity agreement
shall not inure to the benefit of any Underwriter from whom the person
asserting any such losses, claims, damages or liabilities purchased the
Shares concerned, or any person controlling such Underwriter, to the
extent that any such loss, claim, damage or liability of such
Underwriter results from the fact that a copy of the Prospectus (or
Prospectus as amended or supplemented) was not sent or given to such
person, if required by the Securities Act so to have been delivered, at
or prior to the written confirmation of the sale of such Shares to such
person and the untrue statement or alleged untrue statement or omission
or alleged omission was corrected in such Prospectus (or Prospectus as
amended or supplemented), if the Company had previously made available
copies of such Prospectus (or Prospectus as amended or supplemented) to
such Underwriter.
(d) Each Underwriter agrees, severally and not jointly, to
indemnify and hold harmless the Company, its directors, its officers
who sign the Registration Statement and each person, if any, who
controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act to the same extent as
the foregoing indemnity from the Company to such underwriter, but only
with reference to information relating to such Underwriter furnished to
the Company in writing by such Underwriter
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<PAGE> 19
through you expressly for use in the Registration Statement, any
preliminary prospectus, the Prospectus or any amendments or supplements
thereto.
(e) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of
which indemnity may be sought pursuant to paragraph (a), (b), (c) or
(d) of this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought
(the "indemnifying party") in writing (but the failure to notify the
indemnifying party shall not relieve it from any liability which it may
have to any indemnified party otherwise under this Section 8) and the
indemnifying party, upon request of the indemnified party, shall retain
counsel reasonably satisfactory to the indemnified party to represent
the indemnified party and any others the indemnifying party may
designate in such proceeding and shall pay the fees and disbursements
of such counsel related to such proceeding. In any such proceeding, any
indemnified party shall have the right to retain its own counsel, but
the fees and expenses of such counsel shall be at the expense of such
indemnified party unless (i) the indemnifying party and the indemnified
party shall have mutually agreed in writing to the retention of such
counsel or (ii) the named parties to any such proceeding (including any
impleaded parties) include both the indemnifying party and the
indemnified party and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the indemnifying party
shall not, in respect of the legal expenses of any indemnified party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one
separate firm (in addition to any local counsel) for all such
indemnified parties and that all such fees and expenses shall be
reimbursed as they are incurred. Such firm shall be designated in
writing by Morgan Stanley & Co. Incorporated, in the case of parties
indemnified pursuant to paragraph (a), (b) or (c) of this Section 8,
and by the Company, in the case of parties indemnified pursuant to
paragraph (d) of this Section 8. The indemnifying party shall not be
liable for any settlement of any proceeding effected without its
written consent, but if settled with such consent or if there be a
final judgment for the plaintiff, the indemnifying party agrees to
indemnify the indemnified party from and against any loss or liability
by reason of such settlement or judgment. Notwithstanding the foregoing
sentence, if at any time an indemnified party shall have requested an
indemnifying party to reimburse the indemnified party for fees and
expenses of counsel as contemplated by the second and third sentences
of this paragraph, the indemnifying party agrees that it shall be
liable for any settlement of any proceeding effected without its
written consent if (i) such settlement is entered into more than 30
days after receipt by such indemnifying party of the aforesaid request
and (ii) such indemnifying party shall not have reimbursed the
indemnified party in accordance with such request prior to the date of
such settlement. No indemnifying party shall, without the prior written
consent of the indemnified party, effect any settlement of any pending
or threatened proceeding in respect of which any indemnified party is
or could have been a party and indemnity could have been sought
hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on
claims that are the subject matter of such proceeding. Notwithstanding
anything contained herein to the contrary, if indemnity may be sought
pursuant to paragraph (b) of this Section
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<PAGE> 20
8 in respect of such action or proceeding, then in addition to such
separate firm for the indemnified parties, the indemnifying party shall
be liable for the reasonable fees and expenses of not more than one
separate firm (in addition to any local counsel) for Morgan Stanley for
the defense of any losses, claims, damages and liabilities arising out
of the Directed Share Program, and all persons, if any, who control
Morgan Stanley within the meaning of either Section 15 of the Act or
Section 20 of the Exchange Act.
(f) To the extent the indemnification provided for in
paragraph (a), (b), (c) or (d) of this Section 8 is unavailable to an
indemnified party or insufficient in respect of any losses, claims,
damages or liabilities referred to therein, then each indemnifying
party under such paragraph, in lieu of indemnifying such indemnified
party thereunder, shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company on the one hand and the
Underwriters on the other hand from the offering of the Shares or (ii)
if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the
relative fault of the Company on the one hand and of the Underwriters
on the other hand in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative benefits received
by the Company on the one hand and the Underwriters on the other hand
in connection with the offering of the Shares shall be deemed to be in
the same respective proportions as the net proceeds from the offering
of the Shares (before deducting expenses) received by the Company and
the total underwriting discounts and commissions received by the
Underwriters, in each case as set forth in the table on the cover of
the Prospectus, bear to the aggregate Public Offering Price of the
Shares. The relative fault of the Company on the one hand and the
Underwriters on the other hand shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material
fact relates to information supplied by the Company or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute
pursuant to this Section 8 are several in proportion to the respective
number of Shares they have purchased hereunder, and not joint.
(g) The Company, Draime and the Underwriters agree that it
would not be just or equitable if contribution pursuant to this Section
8 were determined by PRO RATA allocation (even if the Underwriters were
treated as one entity for such purpose) or by any other method of
allocation that does not take account of the equitable considerations
referred to in paragraph (f) of this Section 8. The amount paid or
payable by an indemnified party as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding
paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any
such action or claim. Notwithstanding the provisions of this Section 8,
no Underwriter shall be required to contribute any amount in
-19-
<PAGE> 21
excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The remedies
provided for in this Section 8 are not exclusive and shall not limit
any rights or remedies which may otherwise be available to any
indemnified party at law or in equity.
(h) The indemnity and contribution provisions contained in
this Section 8 and the representations, warranties and other statements
of the Company and Draime contained in this Agreement shall remain
operative and in full force and effect regardless of (i) any
termination of this Agreement, (ii) any investigation made by or on
behalf of any Underwriter or any person controlling any Underwriter or
by or on behalf of the Company, its officers or directors or any person
controlling the Company and (iii) acceptance of and payment for any of
the Shares.
9. TERMINATION. This Agreement shall be subject to termination by
notice given by you to the Company, if (a) after the execution and delivery of
this Agreement and prior to the Closing Date (i) trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the National Association
of Securities Dealers, Inc., (ii) trading of any securities of the Company shall
have been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is material
and adverse and (b) in the case of any of the events specified in clauses (a)(i)
through (iv), such event, singly or together with any other such event, makes
it, in your judgment, impracticable to market the Shares on the terms and in the
manner contemplated in the Prospectus.
10. EFFECTIVENESS; DEFAULTING UNDERWRITERS. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
If, on the Closing Date or the Option Closing Date, as the case may be,
any one or more of the Underwriters shall fail or refuse to purchase Shares that
it has or they have agreed to purchase hereunder on such date, and the aggregate
number of Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase is not more than one-tenth of the aggregate number
of the Shares to be purchased on such date, the other Underwriters shall be
obligated severally in the proportions that the number of Firm Shares set forth
opposite their respective names in Schedule I or Schedule II bears to the
aggregate number of Firm Shares set forth opposite the names of all such
non-defaulting Underwriters, or in such other proportions as you may specify, to
purchase the Shares which such defaulting Underwriter or Underwriters agreed but
failed or refused to purchase on such date; PROVIDED that in no event shall the
number of Shares that any Underwriter has agreed to purchase pursuant to this
Agreement be increased
-20-
<PAGE> 22
pursuant to this Section 10 by an amount in excess of one-ninth of such number
of Shares without the written consent of such Underwriter. If, on the Closing
Date, any Underwriter or Underwriters shall fail or refuse to purchase Firm
Shares and the aggregate number of Firm Shares with respect to which such
default occurs is more than one-tenth of the aggregate number of Firm Shares to
be purchased, and arrangements satisfactory to you and the Company for the
purchase of such Firm Shares are not made within 36 hours after such default,
this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter or the Company. In any such case either you or the
Company shall have the right to postpone the Closing Date, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter or
Underwriters shall fail or refuse to purchase Additional Shares and the
aggregate number of Additional Shares with respect to which such default occurs
is more than one-tenth of the aggregate number of Additional Shares to be
purchased, the non-defaulting Underwriters shall have the option to (i)
terminate their obligation hereunder to purchase Additional Shares or (ii)
purchase not less than the number of Additional Shares that such non-defaulting
Underwriters would have been obligated to purchase in the absence of such
default. Any action taken under this paragraph shall not relieve any defaulting
Underwriter from liability in respect of any default of such Underwriter under
this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of
them, because of any failure or refusal on the part of the Company to comply
with the terms or to fulfill any of the conditions of this Agreement, or if for
any reason the Company shall be unable to perform its obligations under this
Agreement, the Company will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
11. COUNTERPARTS. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
12. APPLICABLE LAW. This Agreement shall be governed by and construed
in accordance with the internal laws of the State of New York.
13. HEADINGS. The headings of the sections of this Agreement have been
inserted for convenience of reference only and shall not be deemed a part of
this Agreement.
-21-
<PAGE> 23
Very truly yours,
STONERIDGE, INC.
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
-----------------------------------
D.M. Draime
Accepted as of the date hereof:
MORGAN STANLEY & CO. INCORPORATED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Acting severally on behalf of themselves
and the several U.S. Underwriters
named in Schedule I hereto.
By: Morgan Stanley & Co. Incorporated
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
MORGAN STANLEY & CO. INTERNATIONAL LIMITED
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
Acting severally on behalf of themselves
and the several International Underwriters
named in Schedule II hereto.
By: Morgan Stanley Co. International Limited
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
-22-
<PAGE> 24
SCHEDULE I
U.S. UNDERWRITERS
-----------------
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Total U.S. Firm Shares ................................... ----------------
4,680,000
================
</TABLE>
<PAGE> 25
SCHEDULE II
INTERNATIONAL UNDERWRITERS
--------------------------
<TABLE>
<CAPTION>
Number of
Firm Shares
Underwriter To Be Purchased
----------- ---------------
<S> <C>
Morgan Stanley & Co. Incorporated
Donaldson, Lufkin & Jenrette
Securities Corporation
Total International Firm Shares .......................... ----------------
1,170,000
================
</TABLE>
<PAGE> 1
Exhibit 3.1
SECOND AMENDED AND RESTATED
---------------------------
ARTICLES OF INCORPORATION
-------------------------
OF
--
STONERIDGE, INC.
----------------
FIRST: The name of the Corporation shall be "Stoneridge, Inc."
SECOND: The place in the State of Ohio where the principal office of
the Corporation is to be located is in Howland Township, Trumbull County.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be formed under Sections 1701.01 to 1701.98,
inclusive, of the Ohio Revised Code and any amendments heretofore or hereafter
made thereto.
FOURTH: The authorized number of shares of the Corporation is
65,000,000, consisting of 60,000,000 Common Shares, without par value
(hereinafter referred to as "Common Shares"), and 5,000,000 Serial Preferred
Shares, without par value (hereinafter referred to as "Serial Preferred
Shares").
DIVISION A
The Serial Preferred Shares shall have the following express terms:
SECTION 1. SERIES. The Serial Preferred Shares may be issued
from time to time in one or more series. All Serial Preferred Shares
shall be of equal rank and shall be identical, except in respect of the
matters that may be fixed by the Board of Directors as hereinafter
provided, and each share of a series shall be identical with all other
shares of such series, except as to the dates from which dividends
shall accrue and be cumulative. Subject to the provisions of Sections 2
through 6, both inclusive, of this Division, which provisions shall
apply to all Serial Preferred Shares, the Board of Directors hereby is
authorized to cause such shares to be issued in one or more series and
with respect to each such series to determine and fix prior to the
issuance thereof (and thereafter, to the extent provided in clause (b)
of this Section) the following:
(a) The designation of the series, which may be by
distinguishing number, letter or title;
(b) The authorized number of shares of the series,
which number the Board of Directors may (except when otherwise
provided in the creation of
<PAGE> 2
the series) increase or decrease from time to time before or
after the issuance thereof (but not below the number of shares
thereof then outstanding);
(c) The dividend rate or rates of the series,
including the means by which any such rate may be established;
(d) The date or dates from which dividends shall
accrue and be cumulative and the dates on which and the period
or periods for which dividends, if declared, shall be payable,
including the means by which any such date or period may be
established;
(e) The redemption rights and redemption price or
prices, if any, for shares of the series;
(f) The terms and amount of the sinking fund, if any,
for the purchase or redemption of shares of the series;
(g) The amounts payable on shares of the series in
the event of any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the Corporation;
(h) Whether the shares of the series shall be
convertible into Common Shares or shares of any other class
and, if so, the conversion rate or rates or price or prices,
any adjustments thereof and all other terms and conditions
upon which such conversion may be made; and
(i) Restrictions (in addition to those set forth in
Subsection 5(b) of this Division) on the issuance of shares of
the same series or of any other class or series.
The Board of Directors is authorized to adopt from time to time
amendments to the Second Amended and Restated Articles of Incorporation fixing,
with respect to each such series, the matters described in clauses (a) through
(i), both inclusive, of this Section and is authorized to take such actions with
respect thereto as may be required by law in order to effect such amendments.
SECTION 2. DIVIDENDS.
(a) The holders of Serial Preferred Shares of each
series, in preference to the holders of Common Shares and of
any other class of shares ranking junior to the Serial
Preferred Shares, shall be entitled to receive out of any
funds legally available for the payment of dividends on Serial
Preferred Shares, when and as declared by the Board of
Directors, dividends in cash at the rate or rates for such
series fixed in accordance with the provisions of Section 1 of
this Division A and no more, payable on the dates fixed for
such series. Such dividends shall accrue and be cumulative, in
the case of shares of each particular series, from and after
the date or dates fixed with respect to
-2-
<PAGE> 3
such series. No dividends shall be paid upon or declared or
set apart for any series of Serial Preferred Shares for any
dividend period unless at the same time a like proportionate
dividend payable for the dividend periods terminating on the
same or any earlier date, ratably in proportion to the
respective annual dividend rates fixed therefor, shall have
been paid upon or declared or set apart for all Serial
Preferred Shares of all series then issued and outstanding and
entitled to receive such dividend.
(b) So long as any Serial Preferred Shares shall be
outstanding no dividend, except a dividend payable in Common
Shares or other shares ranking junior to Serial Preferred
Shares, shall be paid or declared or any distribution be made,
except as aforesaid, in respect of the Common Shares or any
other shares ranking junior to Serial Preferred Shares, nor
shall any Common Shares or any other shares ranking junior to
Serial Preferred Shares be purchased, retired or otherwise
acquired by the Corporation, except out of the proceeds of the
sale of Common Shares or other shares of the Corporation
ranking junior to Serial Preferred Shares received by the
Corporation subsequent to the date of first issuance of Serial
Preferred Shares of any series, unless:
(1) All accrued and unpaid dividends on
Serial Preferred Shares, including the full dividends
for all current dividend periods, shall have been
declared and paid or a sum sufficient for payment
thereof set apart; and
(2) There shall be no arrearage with respect
to the redemption of Serial Preferred Shares of any
series from any sinking fund provided for shares of
such series in accordance with Section 1 of this
Division A.
SECTION 3. REDEMPTION.
(a) Subject to the express terms of each series and
the provisions of Subsection 5(c)(3) of this Division A, the
Corporation:
(1) May, from time to time at the option of
the Board of Directors, redeem all or any part of any
redeemable series of Serial Preferred Shares at the
time outstanding at the applicable redemption price
for such series fixed in accordance with Section 1 of
this Division A; and
(2) Shall, from time to time, make such
redemptions of each series of Serial Preferred Shares
as may be required to fulfill the requirements of any
sinking fund provided for shares of such series at
the applicable sinking fund redemption prices fixed
in accordance with Section 1 of this Division A;
-3-
<PAGE> 4
and shall in the case of any such redemption pay all accrued
and unpaid dividends to the redemption date.
(b) (1) Notice of every such redemption shall be
mailed, postage prepaid, to the holders of record of
Serial Preferred Shares to be redeemed at their
respective addresses then appearing on the books of
the Corporation, not less than 30 days nor more than
60 days prior to the date fixed for such redemption,
or such other time prior thereto as the Board of
Directors shall fix for any series pursuant to
Section 1 of this Division A prior to the issuance
thereof. At any time after notice as provided above
has been deposited in the mail, the Corporation may
deposit the aggregate redemption price of Serial
Preferred Shares to be redeemed, together with
accrued and unpaid dividends thereon to the
redemption date, with any bank or trust company in
Cleveland, Ohio, or New York, New York, having
capital and surplus of not less than $50,000,000,
named in such notice and direct that there be paid to
the respective holders of Serial Preferred Shares so
to be redeemed amounts equal to the redemption price
of Serial Preferred Shares so to be redeemed,
together with such accrued and unpaid dividends
thereon, on surrender of the share certificate or
certificates held by such holders; and upon the
deposit of such notice in the mail and the making of
such deposit of money with such bank or trust
company, such holders shall cease to be shareholders
with respect to such shares; and from and after the
time such notice shall have been so deposited and
such deposit of money shall have been so made, such
holders shall have no rights or claim against the
Corporation with respect to such shares, except only
the right to receive such money from such bank or
trust company without interest or to exercise before
the redemption date any unexpired privileges of
conversion. If less than all of the outstanding
Serial Preferred Shares are to be redeemed, the
Corporation shall select by lot the shares so to be
redeemed in such manner as shall be prescribed by the
Board of Directors.
(2) If the holders of Serial Preferred
Shares which have been called for redemption shall
not within five years after such deposit claim the
amount deposited for the redemption thereof, any such
bank or trust company shall, upon demand, pay over to
the Corporation such unclaimed amounts and thereupon
such bank or trust company and the Corporation shall
be relieved of all responsibility in respect thereof
and to such holders.
(c) Any Serial Preferred Shares which are (1)
redeemed by the Corporation pursuant to the provisions of this
Section, (2) purchased and delivered in satisfaction of any
sinking fund requirements provided for shares of such series,
(3) converted in accordance with the express terms thereof, or
(4) otherwise acquired by the Corporation, shall resume the
status of authorized but unissued Serial Preferred Shares
without serial designation.
-4-
<PAGE> 5
SECTION 4. LIQUIDATION.
(a) (1) In any voluntary or involuntary liquidation,
dissolution or winding up of the affairs of the
Corporation, the holders of Serial Preferred Shares
of any series shall be entitled to receive in full
out of the assets of the Corporation, including its
capital, before any amount shall be paid or
distributed among the holders of Common Shares or any
other shares ranking junior to Serial Preferred
Shares, the amounts fixed with respect to shares of
such series in accordance with Section 1 of this
Division, plus an amount equal to all dividends
accrued and unpaid thereon to the date of payment of
the amount due pursuant to such liquidation,
dissolution or winding up of the affairs of the
Corporation. If the net assets of the Corporation
legally available therefor are insufficient to permit
the payment upon all outstanding Serial Preferred
Shares of the full preferential amount to which they
are entitled pursuant to this subsection 4(a)(1),
then such net assets shall be distributed ratably
upon all outstanding Serial Preferred Shares in
proportion to the full preferential amount to which
each such share is entitled.
(2) After payment to the holders of Serial
Preferred Shares of the full preferential amounts as
aforesaid, the holders of Serial Preferred Shares, as
such, shall have no right or claim to any of the
remaining assets of the Corporation.
(b) The merger or consolidation of the Corporation
into or with any other corporation or entity, the merger of
any other corporation or entity into the Corporation, or the
sale, lease or conveyance of all or substantially all the
assets of the Corporation, shall not be deemed to be a
dissolution, liquidation or winding up for the purposes of
this Section 4.
SECTION 5. VOTING.
(a) The holders of Serial Preferred Shares shall have
no voting rights, except as provided in this Section or as
required by law.
(b) (1) If, and so often as, the Corporation shall be
in default in the payment of the equivalent of the
full dividends on any series of Serial Preferred
Shares at the time outstanding, whether or not earned
or declared, for a number of dividend payment periods
(whether or not consecutive) which in the aggregate
contain at least 540 days, the holders of Serial
Preferred Shares of all series, voting together as
one separate class, shall be entitled to elect, as
herein provided, two members of the Board of
Directors of the Corporation; provided, however, that
the holders of Serial Preferred Shares shall not have
or exercise such special class voting rights except
at meetings of such shareholders for the election of
directors at which the holders of not
-5-
<PAGE> 6
less than 50% of the outstanding Serial Preferred
Shares of all series then outstanding are present in
person or by proxy; and provided further that the
special class voting rights provided for in this
subsection 5(b)(1) when the same shall have become
vested shall remain so vested until all accrued and
unpaid dividends on Serial Preferred Shares of all
series then outstanding shall have been paid,
whereupon the holders of Serial Preferred Shares
shall be divested of their special class voting
rights in respect of subsequent elections of
directors, subject to the revesting of such special
class voting rights on another default of the type
specified in this subsection 5(b)(1).
(2) In the event of default entitling the
holders of Serial Preferred Shares to elect two
directors as specified in paragraph (1) of this
Subsection, a special meeting of such holders for the
purpose of electing such directors shall be called by
the Secretary of the Corporation upon written request
of, or may be called by, the holders of record of at
least 10% of Serial Preferred Shares of all series at
the time outstanding, and notice thereof shall be
given in the same manner as that required for the
annual meeting of shareholders; provided, however,
that the Corporation shall not be required to call
such special meeting if the annual meeting of
shareholders shall be called to be held within 120
days after the date of receipt of the foregoing
written request from the holders of Serial Preferred
Shares; provided further, however, that if that
annual meeting is not so held within such 120-day
period, a special meeting shall be called as soon as
is practicable after the Corporation becomes aware
that such annual meeting will not be so held. At any
meeting at which the holders of Serial Preferred
Shares shall be entitled to elect directors, the
holders of 50% of Serial Preferred Shares of all
series at the time outstanding, present in person or
by proxy, shall be sufficient to constitute a quorum,
and the vote of the holders of a majority of such
shares so present at any such meeting at which there
shall be such a quorum shall be sufficient to elect
the members of the Board of Directors which the
holders of Serial Preferred Shares are entitled to
elect as herein provided. Notwithstanding any
provision of these Second Amended and Restated
Articles of Incorporation or the Amended and Restated
Code of Regulations of the Corporation or any action
taken by the holders of any class of shares fixing
the number of directors of the Corporation, the two
directors who may be elected by the holders of Serial
Preferred Shares pursuant to this Subsection shall
serve in addition to any other directors then in
office or proposed to be elected otherwise than
pursuant to this Subsection. Nothing in this
Subsection shall prevent any change otherwise
permitted in the total number of or classifications
of directors of the Corporation nor require the
resignation of any director elected otherwise than
pursuant to this Subsection. Notwithstanding any
classification of the other directors of the
Corporation, the two directors elected by the holders
of Serial
-6-
<PAGE> 7
Preferred Shares shall be elected annually for terms
expiring at the next succeeding annual meeting of
shareholders.
(3) The terms of office of all directors
then in office elected by holders of Serial Preferred
Shares as provided in this Subsection shall terminate
immediately upon the expiration of the term of office
during which there occurs any divesting of the
special class voting rights of these holders. If the
office of any director elected by such holders
becomes vacant by reason of death, resignation,
removal from office or otherwise, the holders of a
majority of Serial Preferred Shares of all series at
the time outstanding, present in person or by proxy
at a special meeting of shareholders called and held
in accordance with Subsection (2) above, shall elect
a successor who shall hold office for the unexpired
term in respect of which such vacancy occurred.
(c) The affirmative vote of the holders of at least
two-thirds of Serial Preferred Shares at the time outstanding,
voting together as one separate class, shall be necessary to
effect any one or more of the following (but so far as the
holders of Serial Preferred Shares are concerned, such action
may be effected with such vote):
(1) Any amendment, alteration or repeal,
whether by merger, consolidation or otherwise, of any
of the provisions of the Second Amended and Restated
Articles of Incorporation or of the Code of
Regulations of the Corporation which affects
adversely the preferences or voting or other rights
of the holders of Serial Preferred Shares; provided,
however, neither the amendment of the Second Amended
and Restated Articles of Incorporation so as to
authorize, create or change the authorized or
outstanding number of Serial Preferred Shares or of
any shares ranking on a parity with or junior to
Serial Preferred Shares nor the amendment of the
provisions of the Code of Regulations so as to change
the number or classification of directors of the
Corporation shall be deemed to affect adversely the
preferences or voting or other rights of the holders
of Serial Preferred Shares; and provided further,
that if any amendment, alteration or repeal affects
adversely the preferences or voting or other rights
of one or more but not all series of Serial Preferred
Shares at the time outstanding, only the affirmative
vote of the holders of at least two-thirds of the
number of shares at the time outstanding of the
series so affected shall be required;
(2) The authorization, creation or increase
in the authorized number of shares, or of any
security convertible into shares, in either case
ranking prior to the Serial Preferred Shares; or
(3) The purchase or redemption (for sinking
fund purposes or otherwise) of less than all Serial
Preferred Shares then outstanding
-7-
<PAGE> 8
except in accordance with a share purchase offer made
to all holders of record of Serial Preferred Shares,
unless all dividends on all Serial Preferred Shares
then outstanding for all previous dividend periods
shall have been declared and paid or funds therefor
set apart and all accrued sinking fund obligations
applicable thereto shall have been complied with.
SECTION 6. DEFINITIONS. For the purposes of this Division:
(a) Whenever reference is made to shares "ranking
prior to Serial Preferred Shares," such reference shall mean
all shares of the Corporation in respect of which the rights
of the holders thereof as to the payment of dividends or as to
distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the
Corporation are given preference over the rights of the
holders of Serial Preferred Shares;
(b) Whenever reference is made to shares on a parity
with Serial Preferred Shares, such reference shall mean all
shares of the Corporation in respect of which the rights of
the holders thereof as to the payment of dividends and as to
distributions in the event of a voluntary or involuntary
liquidation, dissolution or winding up of the affairs of a
Corporation rank equally (except as to the amounts fixed
therefor) with the rights of the holders of Serial Preferred
Shares; and
(c) Whenever reference is made to shares "ranking
junior to Serial Preferred Shares," such reference shall mean
all shares of the Corporation other than those defined under
Subsections (a) and (b) of this Section 6 as shares "ranking
prior to" or "on a parity with" Serial Preferred Shares.
DIVISION B
The Common Shares shall have the following express terms:
The Common Shares shall be subject to the express terms of
Serial Preferred Shares and any series thereof. Each Common Share shall
be equal to each other Common Share and the holders thereof shall be
entitled to one vote for each Common Share on all matters presented to
the shareholders of the Corporation.
Each Class A and Class B Common Share issued and outstanding
immediately prior to the filing of these Second Amended and Restated
Articles of Incorporation, and each share held at such time by the
Corporation as a treasury share, is changed, effective upon that
filing, into 139.0856 Common Shares, with any fractional Common Share
to which a holder would otherwise be entitled being rounded down to the
nearest whole share.
-8-
<PAGE> 9
FIFTH: No holder of shares of the Corporation of any class shall be
entitled as such, as a matter of right, to subscribe for or purchase shares of
the Corporation of any class, now or hereafter authorized, or to subscribe for
or purchase securities convertible into or exchangeable for shares of the
Corporation of any class or to which shall be attached or appertain any warrants
or rights entitling the holder thereof to subscribe for or purchase shares of
the Corporation of any class, except such rights of subscription or purchase, if
any, for such consideration and upon such terms and conditions as its Board of
Directors from time to time may determine.
SIXTH: To the extent permitted by law, the Corporation, by action of
its Board of Directors and without action by its shareholders, may purchase or
otherwise acquire shares of any class issued by it at such times, for such
consideration and upon such terms and conditions as its Board of Directors may
determine.
SEVENTH: Except as otherwise provided in these Second Amended and
Restated Articles of Incorporation or the Code of Regulations of the Corporation
as in effect from time to time, notwithstanding any provision of Sections
1701.01 to 1701.98, inclusive, of the Ohio Revised Code and any amendments
heretofore or hereafter made thereto, requiring for any purpose the vote,
consent, waiver, or release of the holders of shares entitling them to exercise
two-thirds or any other proportion of the voting power of the Corporation or of
any class or classes of shares thereof, any action may be taken by the vote of
the holders of shares entitling them to exercise a majority of the voting power
of the Corporation, or of such class or classes, unless the proportion
designated by such statute cannot be altered by these Second Amended and
Restated Articles of Incorporation.
EIGHTH: No shareholder may cumulate such shareholder's voting power in
the election of directors.
NINTH: No person who is serving or has served as a director of the
Corporation shall be personally liable to the Corporation or any of its
shareholders for monetary damages for breach of any fiduciary duty of such
person as a director by reason of any act or omission of such person as a
director; but the foregoing provision shall not eliminate or limit the liability
of any person (a) for any breach of such person's duty of loyalty as a director
to the Corporation or its shareholders, (b) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law, (c)
under Section 1701.95 of the Ohio Revised Code, (d) for any transaction from
which such person derived any improper personal benefit, or (e) to the extent
that such liability may not be limited or eliminated by virtue of Section
1701.13 of the Ohio Revised Code or any successor section or statute. Any repeal
or modification of this NINTH Article by the shareholders of the Corporation
shall be prospective only, and shall not adversely affect any limitation on the
personal liability of a director of the Corporation existing at the time of such
repeal or modification.
TENTH: If any provision (or portion thereof) of these Second Amended
and Restated Articles of Incorporation shall be found to be invalid, prohibited,
or unenforceable for any reason, the remaining provisions (or portions thereof)
of these Second Amended and Restated Articles of Incorporation shall remain in
full force and effect, and shall be construed
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<PAGE> 10
as if such invalid, prohibited, or unenforceable provision had been stricken
herefrom or otherwise rendered inapplicable, it being the intent of the
Corporation and its shareholders that each such remaining provision (or portion
thereof) of these Second Amended and Restated Articles of Incorporation remain,
to the fullest extent permitted by law, applicable and enforceable as to all
shareholders, notwithstanding any such finding.
ELEVENTH: These Second Amended and Restated Articles of Incorporation
supersede and take the place of the heretofore existing Amended and Restated
Articles of Incorporation and all amendments thereto.
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<PAGE> 1
[BAKER & HOSTETLER LLP LETTERHEAD]
Exhibit 5.1
September 16, 1997
Stoneridge, Inc.
9400 East Market Street
Warren, Ohio 44484
Gentlemen:
As counsel for Stoneridge, Inc., an Ohio corporation (the
"Company"), we are familiar with the Company's Registration Statement on Form
S-1, (Registration No. 333-33285) (the "Registration Statement"), filed with
the Securities and Exchange Commission (the "Commission") under the Securities
Act of 1933, as amended (the "Act"), in connection with a proposed public
offering and sale of up to 7,262,500 Common Shares, without par value (the
"Shares"), of the Company, including up to 6,727,500 Shares to be issued and
sold to the Underwriters identified in the Registration Statement (the
"Underwritten Shares") and up to 535,000 Shares to be issued in the "Company
Offering" as such term is defined in the Registration Statement.
In connection with the foregoing, we have examined (a) the
Second Amended and Restated Articles of Incorporation in the form filed as an
Exhibit to the Registration Statement and the Amended and Restated Code of
Regulations of the Company, (b) the proposed form of Underwriting Agreement
filed as an exhibit to the Registration Statement (the "Underwriting Agreement")
with respect to the Common Shares, and (c) such records of the corporate
proceedings of the Company and such other documents as we deemed necessary to
render this opinion.
Based upon such examination, we are of the opinion that upon
the filing of the Company's Second Amended and Restated Articles of
Incorporation in the form filed as an Exhibit to the Registration Statement with
the Secretary of State of the State of Ohio, the Shares will be duly authorized
and, (A) when issued and sold pursuant to the duly executed Underwriting
Agreement (in substantially the form filed as an exhibit to the Registration
Statement) and in the manner contemplated by the Registration Statement, the
Underwritten Shares will be legally issued, fully paid and nonassessable and (B)
when issued and sold in the manner contemplated by the Registration Statement,
the Shares to be issued in the Company Offering will be legally issued, fully
paid and nonassessable.
<PAGE> 2
Stoneridge, Inc.
September 16, 1997
Page 2
We hereby consent to the filing of this opinion as Exhibit 5.1
to the Registration Statement and the reference to us under the caption "Legal
Matters" in the Prospectus that is a part of the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Act or the rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
/s/ Baker & Hostetler LLP
<PAGE> 1
EXHIBIT 10.1
STONERIDGE, INC.
LONG-TERM INCENTIVE PLAN
SECTION 1. PURPOSE; DEFINITIONS.
The purpose of the Stoneridge, Inc. Long-Term Incentive Plan
(the "Plan") is to enable Stoneridge, Inc. (the "Company") to attract, retain
and reward key employees of the Company and of its Affiliates and to strengthen
the mutuality of interests between such key employees and the Company's
shareholders by offering such key employees equity or equity-based incentives.
For purposes of the Plan, the following terms shall be defined
as set forth below:
(a) "Affiliate" means any entity (other than the Company and
its Subsidiaries) that is designated by the Board as a participating
employer under the Plan.
(b) "Award" means any award of Stock Options, Restricted
Shares, Deferred Shares, Share Purchase Rights, Share Appreciation
Rights or Other Share- Based Awards under the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Change in Control" has the meaning set forth in Section
11(b).
(e) "Change in Control Price" has the meaning set-forth in
Section 11(d).
(f) "Code" means the Internal Revenue Code of 1986, as amended
from time to time, and any successor thereto.
(g) "Committee" means the Committee referred to in Section 2
of the Plan.
(h) "Company" means Stoneridge, Inc., an Ohio corporation, or
any successor corporation.
(i) "Deferred Shares" means an award of the right to receive
Shares at the end of a specified period granted pursuant to Section 7.
(j) "Disability" means disability as determined under
procedures established by the Committee for purposes of the Plan.
(k) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
<PAGE> 2
(l) "Fair Market Value" means, as of any date, the mean
between the highest and lowest quoted selling price, regular way, of
the Shares on such date on the New York Stock Exchange or, if no such
sale of the Shares occurs on the New York Stock Exchange on such date,
then such mean price on the next preceding day on which the Shares were
traded. If the Shares are no longer traded on the New York Stock
Exchange, then the Fair Market Value of the Shares shall be determined
by the Committee in good faith.
(m) "Incentive Stock Option" means any Stock Option intended
to be and designated as an "Incentive Stock Option" within the meaning
of Section 422 of the Code or any successor section thereto.
(n) "Non-Employee Director" has the meaning set forth in Rule
16b-3(b)(3)(i) as promulgated by the Securities and Exchange
Commission (the "Commission") under the Exchange Act, or any successor
definition adopted by the Commission.
(o) "Non-Qualified Stock Option", means any Stock Option that
is not an Incentive Stock Option.
(p) "Other Share-Based Award" means an award granted pursuant
to Section 10 that is valued, in whole or in part, by reference to, or
is otherwise based on, Shares.
(q) "Outside Director" has the meaning set forth in Section
162(m) of the Code and the regulations promulgated thereunder.
(r) "Plan" means the Stoneridge, Inc. Long-Term Incentive
Plan, as amended from time to time.
(s) "Potential Change in Control" has the meaning set forth in
Section 11(c).
(t) "Restricted Shares" means an award of shares that is
granted pursuant to Section 6 and is subject to restrictions.
(u) "Section 16 Participant", means a participant under the
Plan who is then subject to Section 16 of the Exchange Act.
(v) "Shares" mean, the common shares, without par value, of
the Company.
(w) "Share Appreciation Right" means an award of a right to
receive an amount from the Company that is granted pursuant to Section
9.
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<PAGE> 3
(x) "Stock Option" or "Option means any option to purchase
Shares (including Restricted Shares and Deferred Shares, if the
Committee so determines) that is granted Pursuant to Section 5.
(y) "Share Purchase Right" means an award of the right to
purchase Shares that is granted pursuant to Section 8.
(z) "Subsidiary" means any corporation (other than the
Company) in an unbroken chain of corporations beginning with the
Company if each of the corporations (other than the last corporation in
the unbroken chain) owns stock possessing 50% or more of the total
combined voting power of all classes of stock in one of the other
corporations in such chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered by the Stock Option Committee
of the Board (the "Committee"). The Committee shall consist of three or four
directors of the Company, as designated by the Board from time to time, all of
whom shall be Non-Employee Director and Outside Directors. Such directors shall
be appointed by the Board and shall serve as the Committee at the pleasure of
the Board. The functions of the Committee specified in the Plan shall be
exercised by the Board if and to the extent that no Committee exists which has
the authority to so administer the Plan.
The Committee shall have full power to interpret and
administer the Plan and full authority to select the individuals to whom Awards
will be granted and to determine the type and amount of Awards to be granted to
each participant, the consideration, if any, to be paid for such Awards, the
timing of such Awards, the terms and conditions of Awards granted under the
Plan, the terms and conditions of the related agreements which will be entered
into with participants and to certify that any performance goals are satisfied.
As to the selection of and grant of Awards to participants who are not Section
16 Participants, the Committee may delegate its responsibilities to members of
the Company's management consistent with applicable law.
The Committee shall have the authority to adopt, alter and
repeal such rules, guidelines and practices governing the Plan as it shall, from
time to time, deem advisable; to interpret the terms and provisions of the Plan
and any Award issued under the Plan (and any agreements relating thereto); to
direct employees of the Company or other advisors to prepare such materials or
perform such analyses as the Committee deems necessary or appropriate; and
otherwise to supervise the administration of the Plan.
Any interpretation and administration of the Plan by the
Committee, and all actions and determinations of the Committee, shall be final,
binding and conclusive on the Company, its shareholders, Subsidiaries,
Affiliates, all participants in the Plan, their respective legal
representatives, successors and assigns, and all persons claiming under or
through any of them. No member of the Board or of the Committee shall incur any
liability for any action taken or omitted, or any determination made, in good
faith in connection with the Plan.
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<PAGE> 4
SECTION 3. SHARES SUBJECT TO THE PLAN.
(a) Aggregate Shares Subject to the Plan. Subject to
adjustment as provided below in Section 3(c), the total number of
Shares reserved and available for Awards under the Plan is
1,000,000. Any Shares issued hereunder may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
(b) Forfeiture or Termination of Awards of Shares. If any
Shares subject to any Award granted hereunder are forfeited or an Award
otherwise terminates or expires without the issuance of Shares, the
Shares subject to such Award shall again be available for distribution
in connection with future Awards under the Plan as set forth in Section
3(a), unless the participant who had been awarded such forfeited Shares
or the expired or terminated Award has theretofore received dividends
or other benefits of ownership with respect to such Shares. For
purposes hereof, a participant shall not be deemed to have received a
benefit of ownership with respect to such Shares by the exercise of
voting rights or the accumulation of dividends which are not realized
because of the forfeiture of such Shares or the expiration or
termination of the related Award without issuance of such Shares.
(c) Adjustment. In the event of any merger, reorganization,
consolidation, recapitalization, share dividend, share split,
combination of shares or other change in corporate structure of the
Company affecting the Shares, such substitution or adjustment shall be
made in the aggregate number of Shares reserved for issuance under the
Plan, in the number and option price of shares subject to outstanding
options granted under the Plan, in the number and purchase price of
shares subject to outstanding Share Purchase Rights granted under the
Plan, and in the number of shares subject to Restricted Share Awards,
Deferred Share Awards and any other outstanding Awards granted under
the Plan as may be approved by the Committee, in its sole discretion;
provided that the number of shares subject to any Award shall always be
a whole number.
(d) Annual Award Limit. No participant may be granted Stock
Options or Awards under the Plan with respect to an aggregate of more
than 300,000 Shares (subject to adjustment as provided in Section 3(c)
hereof) during any calendar year.
SECTION 4. ELIGIBILITY.
Officers and other key employees of the Company and its
Subsidiaries and Affiliates, if any, who, in the discretion of the Committee,
are responsible for or contribute to the management, growth or profitability of
the business of the Company or its Subsidiaries or Affiliates, if any, are
eligible to be granted Awards under the Plan.
SECTION 5. STOCK OPTIONS.
(a) Grant. Stock Options may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside the Plan. The Committee shall determine the individuals to
whom, and the time or times
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<PAGE> 5
at which, grants of Stock Options will be made, the number of Shares
purchasable under each Stock Option and the other terms and conditions
of the Stock Option in addition to those set forth in Sections 5(b) and
5(c). Any Stock Option granted under the Plan shall be in such form as
the Committee may from time to time approve.
Stock Options granted under the Plan may be of two types which
shall be indicated on their face: (i) Incentive Stock Options and (ii)
Non-Qualified Stock Options. Subject to Section 5(c) hereof, the
Committee shall have the authority to grant to any participant
Incentive Stock Options, Non-Qualified Stock Options or both types of
Stock Options.
(b) Terms and Conditions. Options granted under the Plan shall
be evidenced by Option Agreements, shall be subject to the following
terms and conditions and shall contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the
Committee shall deem desirable:
(1) Option Price. The option price per share of
Shares purchasable under a Non-Qualified Stock Option or an
Incentive Stock Option shall be determined by the Committee at
the time of grant and shall be not less than 100% of the Fair
Market Value of the Shares at the date of grant (or, with
respect to an incentive stock option, 110% of the Fair Market
Value of the Shares at the date of grant in the case of a
participant who at the date of grant owns Shares possessing
more than ten percent of the total combined voting power of
all classes of stock of the Company or its parent or
Subsidiary corporations (as determined under Section 424(d),
(e) and (f) of the Code)).
(2) Option Term. The term of each Stock Option shall
be fixed by the Committee and may not exceed ten years from
the date the Option is granted (or, with respect to an
Incentive Stock Options, five years in the case of a
participant who at the date of grant owns Shares possessing
more than ten percent of the total combined voting power of
all classes of stock of the Company or its parent or
subsidiary corporations (as determined under Section 424(d),
(e) and (f) of the Code)).
(3) Exercise. Stock Options shall be exercisable at
such time or times and subject to such terms and conditions as
shall be determined by the Committee at or after grant;
provided, however, that, except as provided in Section 5(b)(6)
and Section 11, unless otherwise determined by the Committee
at or after grant, no Stock Option shall be exercisable prior
to six months and one day following the date of grant. If any
Stock Option is exercisable only in installments or only after
specified exercise dates, the Committee may waive, in whole on
in part, such installment exercise provisions, and may
accelerate any exercise date or dates, at any time at or after
grant based on such factors as the Committee shall determine,
in its sole discretion.
(4) Method of Exercise. Subject to any installment
exercise provisions that apply with respect to such Stock
Option, and the six month and
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<PAGE> 6
one day holding period set forth in Section 5(b)(3), Stock
Options may be exercised in whole or in part, at any time
during the option period, by giving to the Company written
notice of exercise specifying the number of Shares to be
purchased.
Such notice shall be accompanied by payment in full
of the option price of the Shares for which the Option is
exercised in cash or by the delivery of Shares having a Fair
Market Value on the date of exercise equal to the exercise
price. Stock Options may also be exercised in any other matter
approved by the Committee (either with respect to (i) the
exercise of a particular Stock Option or (ii) the exercise of
Stock Options generally), including, but not limited to,
so-called net or cash-less exercises.
No Shares shall be issued pursuant to an exercise of
an Option until full payment has been made. A participant
shall not have rights to dividends or any other rights of a
shareholder with respect to any Shares subject to an Option
unless and until the participant has given written notice of
exercise, has paid in full for such Shares, has given, if
requested, the representation described in Section 14(a) and
such Shares have been issued to him.
(5) Non-Transferability of Options. No Stock Option
shall be transferable by the participant other than by will or
by the laws of descent and distribution, and all Stock Options
shall be exercisable, during the participant's lifetime, only
by the participant or, subject to Sections 5(b)(3) and 5(c),
by the participant's authorized legal representative if the
participant is unable to exercise an option as a result of the
participant's Disability; provided, however, that if so
provided in the instrument evidencing the Option, the
Committee may permit any optionee to transfer the Option
during his lifetime to one or more members of his family, or
to one or more trusts for the benefit of one or more members
of his family, provided that no consideration is paid for the
transfer and that such transfer would not result in the loss
of any exemption under Rule 16b-3 for any Option that the
Committee does not permit to be so transferred. The transferee
of an Option shall be subject to all restrictions, terms, and
conditions applicable to the Option prior to its transfer,
except that the Option shall not be further transferable inter
vivos by the transferee. The Committee may impose on any
transferable Option and on the Common Shares to be issued upon
the exercise of the Option such limitations and conditions as
the Committee deems appropriate.
(6) Termination by Death. Subject to Section 5(c), if
any participant's employment by the Company or any Subsidiary
or Affiliate terminates by reason of death, any Stock Option
held by such participant may thereafter be exercised, to the
extent such Option was exercisable at the time of death or
would have become exercisable within one year from the time of
death had the participant continued to fulfill all conditions
of the Option during such period (or on such accelerated basis
as the Committee may determine at or after grant), by the
estate of the participant (acting through its fiduciary),
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<PAGE> 7
for a period of one year (or such other period as the
Committee may specify at or grant) from the date of such
death. The balance of the Stock Option shall be forfeited.
(7) Termination by Reason of Disability. Subject to
Sections 5(b)(3) and 5(c), if a participant's employment by
the Company or any Subsidiary or Affiliate terminates by
reason of Disability, any Stock Option held by such
participant may thereafter be exercised, to the extent such
Option was exercisable at the time of termination or would
have become exercisable within one year from the time of
termination had the participant continued to fulfill all
conditions of the Option during such period (or on such
accelerated basis as the Committee may determine at or after
grant), by the participant or by the participant's duly
authorized legal representative if the participant is unable
to exercise the Option as a result of the participant's
Disability, for a period of one year (or such other period as
the Committee may specify at or after grant), from the date of
such termination of employment; provided, however, that in no
event may any such Option be exercised prior to six months and
one day from the date of grant; and provided, further, that if
the participant dies within such one-year period (or such
other period as the Committee shall specify at or after
grant), any unexercised Stock Option held by such participant
shall thereafter be exercisable by the estate of the
participant (acting though its fiduciary) to the same extent
to which it was exercisable at the time of death for a period
of one year from the date of such termination of employment.
The balance of the Stock Option shall be forfeited.
(8) Other Termination. Unless otherwise determined by
the Committee at or after the time of granting any Stock
Option, if a participant's employment by the Company or any
Subsidiary or Affiliate is terminated for any reason other
than death or Disability, all Stock Options held by such
participant shall thereupon terminate 90 days after the date
of such termination.
(c) Incentive Stock Options. Notwithstanding Sections 5(b)(6)
and (7), an Incentive Stock Option shall be exercisable by (i) a
participant's authorized legal representative (if the participant is
unable to exercise the Incentive Stock Option as a result of the
participant's Disability) only if, and to the extent, permitted by
Section 422 of the Code and Section 16 of the Exchange Act and the
rules and regulations promulgated thereunder and (ii) by the
participant's estate, in the case of death, or authorized legal
representative, in the case of Disability, no later than 10 years from
the date the Incentive Stock Option was granted (in addition to any
other restrictions or limitations which may apply). Anything in the
Plan to the contrary notwithstanding, no term or provision of the Plan
relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan
be exercised, so as to disqualify the Plan under Section 422 of the
Code, or, without the consent of the participants affected, to
disqualify any Incentive Stock Option under such Section 422 or any
successor section thereto.
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<PAGE> 8
(d) Buyout Provisions. The Committee may at any time buy out
for a payment in cash, Shares, Deferred Shares or Restricted Shares an
option previously granted, based on such terms and conditions as the
Committee shall establish and agree upon with the participant, provided
that no such transaction involving a Section 16 Participant shall be
structured or effected in a manner that would violate, or result in any
liability on the part of the participant under, Section 16 of the
Exchange Act or the rules and regulations promulgated thereunder.
SECTION 6. RESTRICTED SHARES.
(a) Grant. Restricted Shares may be issued alone, in addition
to or in tandem with other Awards under the Plan or cash awards made
outside of the Plan. The Committee shall determine the individuals to
whom, and the time or times at which, grants of Restricted Shares will
be made, the number of Restricted Shares to be awarded to each
participant, the price (if any) to be paid by the participant (subject
to Section 6(b)), the date or dates upon which Restricted Share Awards
will vest and the period or periods within which such Restricted Share
Awards may be subject to forfeiture, and the other terms and conditions
of such Awards in addition to those set forth in Section 6(b).
The Committee may condition the grant of Restricted Shares
upon the attainment of specified performance goals or such other
factors as the Committee may determine in its sole discretion.
(b) Terms and Conditions. Restricted Shares awarded under the
Plan shall be subject to the following terms and conditions and shall
contain such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall deem desirable. A
participant who receives a Restricted Share Award shall not have any
rights with respect to such Award, unless and until such participant
has executed an agreement evidencing the Award in the form approved
from time to time by the Committee and has delivered a fully executed
copy thereof to the Company, and has otherwise complied with the
applicable terms and conditions of such Award.
(1) The purchase price (if any) for Restricted Shares
shall be determined by the Committee at the time of grant.
(2) Awards of Restricted Shares must be accepted by
executing a Restricted Share Award agreement and paying any
price required under Section 6(b)(1).
(3) Each participant receiving a Restricted Share
Award shall be issued a stock certificate in respect of such
Restricted Shares. Such certificate shall be registered in the
name of such participant, and shall bear an appropriate legend
referring to the terms, conditions and restrictions applicable
to such Award.
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<PAGE> 9
(4) The Committee shall require that the stock
certificates evidencing such Restricted Shares be held in
custody by the Company until the restrictions thereon shall
have lapsed, and that, as a condition of any Restricted Shares
Award the participant shall have delivered to the Company a
stock power, endorsed in blank, relating to the Shares covered
by such Award.
(5) Subject to the provisions of this Plan and the
Restricted Share Award agreement, during a period set by the
committee commencing with the date of such Award (the
"Restriction Period"), the participant shall not be permitted
to sell, transfer, pledge, assign or otherwise encumber the
Restricted Shares awarded under the Plan. Subject to these
limitations, the Committee, in its sole discretion, may
provide for the lapse of such restrictions in installments and
may accelerate or waive such restrictions, in whole or in
part, based on service, performance or such other factors and
criteria as the Committee may determine, in its sole
discretion.
(6) Except as provided in this Section 6(b)(6),
Section 6(b)(5) and Section 6(b)(7) the participant shall
have, with respect to the Restricted Shares awarded, all of
the rights of a shareholder of the Company, including the
right to vote the Shares, and the right to receive any
dividends. The Committee, in its sole discretion, as
determined at the time of award, may permit or require the
payment of cash dividends to be deferred and, if the Committee
so determines, reinvested, subject to Section 14(f), in
additional Restricted Shares to the extent Shares are
available under Section 3, or otherwise reinvested. Unless the
Committee or Board determines otherwise, share dividends
issued with respect to Restricted Shares shall be treated as
additional Restricted Shares that are subject to the same
restrictions and other terms and conditions that apply to the
Shares with respect to which such dividends are issued.
(7) No Restricted Shares shall be transferable by a
participant other than by will or by the laws of descent and
distribution.
(8) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of death, any
Restricted Shares held by such participant shall thereupon
vest and all restrictions thereon shall lapse, to the extent
such Restricted Shares would have become vested or no longer
subject to restriction within one year from the time of death
had the participant continued to fulfill all of the conditions
of the Restricted Share Award during such period (or on such
accelerated basis as the Committee may determine at or after
grant). The balance of the Restricted Shares shall be
forfeited.
(9) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of
Disability, any Restricted Shares held by such participant
shall thereupon vest and all restrictions thereon shall lapse,
to the extent such Restricted Shares would have become vested
or no longer subject to restriction within one year from the
time of termination had the participant continued to fulfill
all of the conditions of the Restricted Share
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<PAGE> 10
Award during such period (or on such accelerated basis as the
Committee may determine at or after grant). The balance of the
Restricted Shares shall be forfeited.
(10) Unless otherwise determined by the Committee at
or after the time of granting any Restricted Shares, if a
participant's employment by the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, the Restricted Shares held by such participant
which are unvested or subject to restriction at the time of
termination shall thereupon be forfeited.
(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide in its sole
discretion for a tandem performance-based or other award designed to
guarantee a minimum value, payable in cash or Shares to the recipient
of a Restricted Share Award, subject to such performance, future
service, deferral and other terms and conditions as may be specified by
the Committee.
SECTION 7. DEFERRED SHARES.
(a) Grant. Deferred Shares may be awarded alone, in addition
to or in tandem with other Awards granted under the Plan or cash awards
made outside the Plan. The Committee shall determine the individuals to
whom, and the time or times at which, Deferred Shares shall be awarded,
the number of Deferred Shares to be awarded to any participant, the
duration of the period (the "Deferral Period") during which, and the
conditions under which, receipt of the Shares will be deferred, and the
other terms and conditions of the Award in addition to those set forth
in Section 7(b).
The Committee may condition the grant of Deferred Shares upon
the attainment of specified performance goals or such other factors as
the Committee shall determine, in its sole discretion.
(b) Terms and Conditions. Deferred Share Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee considers desirable:
(1) The purchase price for Deferred Shares shall be
determined at the time of grant by the Committee. Subject to
the provisions of the Plan and the Award agreement referred to
in Section 7(b)(9), Deferred Share Awards may not be sold,
assigned, transferred, pledged or otherwise encumbered during
the Deferral Period. At the expiration of the Deferral Period
(or the Elective Deferral Period referred to in Section
7(b)(8), when applicable), stock certificates shall be
delivered to the participant, or his legal representative, for
the shares covered by the Deferred Share Award. The Deferral
period applicable to any Deferred Share Award shall not be
less than six months and one day ("Minimum Deferral Period").
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(2) Amounts equal to any dividends declared during
the Deferral Period with respect to the number of Shares
covered by a Deferred Share Award will be paid to the
participant currently, or deferred and deemed to be reinvested
in additional Deferred Shares, or otherwise reinvested, all as
determined at or after the time of the Award by the Committee,
in its sole discretion.
(3) No Deferred Shares shall be transferable by a
participant other than by will or by the laws of descent and
distribution.
(4) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of death, any
Deferred Shares awarded to by such participant shall
thereafter vest and all restrictions thereon shall lapse, to
the extent such Deferred Shares would have become vested or no
longer subject to restriction within one year from the time of
death had the participant continued to fulfill all of the
conditions of the Deferred Share Award during such period (or
on such accelerated basis as the Committee may determine at or
after grant). The balance of the Deferred Shares shall be
forfeited.
(5) If a participant's employment by the Company or
any Subsidiary or Affiliate terminates by reason of
Disability, any Deferred Shares awarded to such participant
shall thereafter vest and all restrictions thereon shall
lapse, to the extent such Deferred Shares would have become
vested or no longer subject to restriction within one year
from the time of termination had the participant continued to
fulfill all of the conditions of the Deferred Shares Award
during such period (or on such accelerated basis as the
Committee may determined at or after grant), subject in all
cases to the Minimum Deferral Period requirement. The balance
of the Deferred Shares shall be forfeited.
(6) Unless otherwise determined by the Committee at
or after the time of granting any Deferred Share Award, if a
participant's employment by the Company or any Subsidiary or
Affiliate terminates for any reason other than death or
Disability, all Deferred Shares held by such participant which
are unvested or subject to restriction shall thereupon be
forfeited.
(7) Based on service, performance or such other
factors or criteria as the Committee may determine, the
Committee may, at or after grant, accelerate the vesting of
all or any part of any Deferred Share Award or waive a portion
of the Deferral Period for all or any part of such Award,
subject in all cases to the Minimum Deferral Period
requirement.
(8) A participant may elect to further defer receipt
of a Deferred Share Award (or an installment of an Award) for
a specified period or until a specified event (the "Elective
Deferral Period"), subject in each case to the Committee's
approval and the terms of this Section 7 and such other terms
as are determined by the Committee, all in its sole
discretion. Subject to any exceptions approved by the
Committee, such election must be made at least 12
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<PAGE> 12
months prior to completion of the Deferral Period for such
Deferred Share Award (or such installment).
(9) Each such Award shall be confirmed by, and
subject to the terms of, a Deferred Share Award agreement
evidencing the Award in the form approved from time to time by
the Committee.
(c) Minimum Value Provisions. In order to better ensure that
award payments actually reflect the performance of the Company and
service of the participant, the Committee may provide, in its sole
discretion, for a tandem performance-based or other Award designed to
guarantee a minimum value, payable in cash or Shares to the recipient
of a Deferred Share Award, subject to such performance, future service,
deferral and other terms and conditions as may be specified by the
Committee.
SECTION 8. SHARE PURCHASE RIGHTS.
(a) Grant. Share Purchase Rights may be granted alone, in
addition to or in tandem with other Awards granted under the Plan or
cash awards made outside the Plan. The committee shall determine the
individuals to whom, and the time or times at which, grants of Share
Purchase Rights will be made, the number of Shares which may be
purchased pursuant to Share Purchase Rights, and the other terms and
conditions of the Share Purchase Rights in addition to those set forth
in Section 8(b). The Shares subject to the Share Purchase Rights may be
purchased at the Fair Market Value of such Shares on the date of grant;
Subject to Section 8(b) hereof, the Committee may also impose
such deferral, forfeiture or other terms and conditions as it shall
determine, in its sole discretion, on such Share Purchase Rights or the
exercise thereof.
Each Share Purchase Right Award shall be confirmed by, and be
subject to the terms of, a Share Purchase Rights Agreement which shall
be in form approved by the Committee.
(b) Terms and Conditions. Share Purchase Rights may contain
such additional terms and conditions not inconsistent with the terms of
the Plan as the Committee shall deem desirable, and shall generally be
exercisable for such period as shall be determined by the Committee.
However, Share Purchase Rights granted to Section 16 Participants shall
not become exercisable earlier than six months and one day after the
grant date. Share Purchase Rights shall not be transferable by a
participant other than by will or by the laws of descent and
distribution.
SECTION 9. SHARE APPRECIATION RIGHTS.
(a) Grant. Share Appreciation Rights may be granted in
connection with all or any part of an Option, either concurrently with
the grant of the Option or, if the Option is a Non-Qualified Stock
Option, by an amendment to the Option at any time thereafter during the
term of the Option. Share Appreciation Rights may be exercised
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<PAGE> 13
in whole or in part at such times under such conditions as may be
specified by the Committee in the participant's Option Agreement.
(b) Terms and Conditions. The following terms and conditions
will apply to all Share Appreciation Rights:
(1) Share Appreciation Rights shall entitle the
participant, upon exercise of all or any part of the Share
Appreciation Rights, to surrender to the Company unexercised
that portion of the underlying Option relating to the same
number of Shares as is covered by the Share Appreciation
Rights (or the portion of the Share Appreciation Rights so
exercised) and to receive in exchange from the Company an
amount (paid as provided in Section 9(b)(5)) equal to the
excess of (x) the Fair Market Value, on the date of exercise,
of the Shares covered by the surrendered portion of the
underlying Option over (y) the exercise price of the Shares
covered by the surrendered portion of the underlying Option.
The Committee may limit the amount that the participant will
be entitled to receive upon surrender of a Share Appreciation
Right.
(2) Upon the exercise of the Share Appreciation Right
and surrender of the related portion of the underlying Option,
the Option, to the extent surrendered, will not thereafter be
exercisable. The underlying Option may provide that such Share
Appreciation Rights will be payable solely in cash. The terms
of the underlying Option shall provide a method by which an
alternative fair market value of the Shares on the date of
exercise shall be calculated based on one of the following:
(x) the closing price of the Shares on the national exchange
on which they are then traded on the business day immediately
preceding the day of exercise; (y) the highest closing price
of the Shares on the national exchange on which they have been
traded, during the 90 days immediately preceding the Change in
Control; or (z) the greater of (x) and (y).
(3) In addition to any further conditions upon
exercise that may be imposed by the Committee, the Share
Appreciation Rights shall be exercisable only to the extent
that the related Option is exercisable, except that in no
event will a Share Appreciation Right held by a Section 16
Participant be exercisable within the first six months after
it is awarded even though the related Option is or becomes
exercisable, and each Share Appreciation Right will expire no
later than the date on which the related Option expires. A
Share Appreciation Right may only be exercised at a time when
the Fair Market Value of the Shares covered by the Share
Appreciation Right exceeds the exercise price of the Shares
covered by the underlying Option. No Share Appreciation Right
held by a Section 16 Participant shall be exercisable by its
terms within the first six months after it is granted, and a
Section 16 Participant may only exercise a Share Appreciation
Right during a period beginning on the third business day and
ending on the twelfth business day following the release for
publication of quarterly or annual summary statements of the
Company's sales and earnings.
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<PAGE> 14
(4) Share Appreciation Rights may be exercised by the
participant's giving written notice of the exercise to the
Company, stating the number of Share Appreciation Rights he
has elected to excercise and surrendering the portion of the
underlying Option relating to the same number of Shares as the
number of Share Appreciation Rights elected to be exercised.
5) The manner in which the Company's obligation
arising upon the exercise of the Share Appreciation Right will
be paid will be determined by the Committee and shall be set
forth in the participant's Option Agreement. The Committee may
provide for payment in Shares or cash, or a fixed combination
of Shares or cash, or the Committee may reserve the right to
determine the manner of payment at the time the Share
Appreciation Right is exercised. Shares issued upon the
exercise of a Share Appreciation Right will be valued at their
Fair Market Value on the date of exercise.
SECTION 10. OTHER SHARE-BASED AWARDS.
(a) Grant. Other Awards of Shares and other Awards that are
valued, in whole or in part, by reference to, or are otherwise based
on, Shares, including, without limitation, performance shares,
convertible preferred shares, convertible debentures, exchangeable
securities and Share Awards or options valued by reference to Book
Value or subsidiary performance, may be granted alone, in addition to
or in tandem with other Awards granted under the Plan or cash awards
made outside of the Plan.
At the time the Shares or Other Share-Based Award is granted,
the Committee shall determine the individuals to whom and the time or
times at which such Shares or other Share-Based Awards shall be
awarded, the number of Shares to be used in computing an Award or which
are to be awarded pursuant to such Awards, the consideration, if any,
to be paid for such Shares or other Share-Based Awards, and all other
terms and conditions of the Awards in addition to those set forth in
Section 10(b).
The provisions of other Share-Based Awards need not be the
same with respect to each participant.
(b) Terms and Conditions. Other Share-Based Awards shall be
subject to the following terms and conditions and shall contain such
additional terms and conditions, not inconsistent with the terms of the
Plan, as the Committee shall deem desirable.
(1) Subject to the provisions of this Plan and the
Award agreement referred to in Section 10(b)(5) below, Shares
awarded or subject to Awards made under this Section 10 may
not be sold, assigned, transferred, pledged or otherwise
encumbered prior to the date on which the Shares are issued,
or, if later, the date on which any applicable restriction,
performance, holding or deferral period or requirement is
satisfied or lapses. All Shares or Other
-14-
<PAGE> 15
Share-Based Awards granted under this Section 10 shall be
subject to a minimum holding period (including any applicable
restriction, performance and/or deferral periods ) of six
months and one day ("Minimum Holding Period").
(2) Subject to the provisions of this Plan and the
Award agreement and unless otherwise determined by the
Committee at the time of grant, the recipient of an Other
Share-Based Award shall be entitled to receive, currently or
on a deferred basis, interest or dividends or interest or
dividend equivalents with respect to the number of Shares
covered by the Award, as determined at the time of the Award
by the Committee, in its sole discretion, and the Committee
may provide that such amounts (if any) shall be deemed to have
been reinvested in additional Shares or otherwise reinvested.
(3) Subject to the Minimum Holding Period, any Other
Share-Based Award and any Shares covered by any such Award
shall vest or be forfeited to the extent, at the times and
subject to the conditions, if any, provided in the Award
agreement, as determined by the Committee, in its sole
discretion.
(4) In the event of the participant's Disability or
death, or in cases of special circumstances, the Committee
may, in its sole discretion, waive, in whole or in part, any
or all of the remaining limitations imposed hereunder or under
any related Award agreement with respect to any part of all of
any Award under this Section 10, provided that the Minimum
Holding Period requirement may not be waived, except in case
of a participant's death.
(5) Each Award shall be confirmed by, and subject to
the terms of, an agreement or other instrument evidencing the
Award in the form approved from time to time by the Committee,
the Company and the participant.
(6) Shares (including securities convertible into
Shares) issued on a bonus basis under this Section 10 shall be
issued for no cash consideration. Shares (including securities
convertible into Shares) purchased pursuant to a purchase
right awarded under this Section 10 shall bear a price of at
least 85% of the Fair Market Value of the Shares on the date
of grant. The purchase price of such Shares, and of any Other
Share-Based Award granted hereunder, or the formula by which
such price is to be determined, shall be fixed by the
Committee at the time of grant.
(7) In the event that any "derivative security", as
defined in Rule 16a-1(c) (or any successor thereof)
promulgated by the Securities and Exchange Commission under
Section 16 of the Exchange Act, is awarded pursuant to this
Section 10 to any Section 16 Participant, such derivative
security shall not be transferrable other than by will or by
the laws of descent and distribution.
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<PAGE> 16
SECTION 11. CHANGE IN CONTROL PROVISION.
(a) Impact of Event. At any time during the 365 days
commencing with the date of either (1) a "Change in Control" as defined
in Section 11(b) or (2) a "Potential Change in Control" as defined in
Section 11(c), a majority of the "Continuing Directors" as defined in
Section 11(e) (or one of the two Continuing Directors if only two
Continuing Directors are then serving on the Board of Directors or the
sole Continuing Director if only one Continuing Director is then
serving on the Board of Directors) may cause the following provisions
to take effect as stated and as of the date set forth in a Written
Action (the "Written Action") adopted to that effect (that date, the
"Accelerated Vesting Date") and if there are no Continuing Directors,
the following provisions will automatically take effect:
(1) Any Stock Options awarded under the Plan not
previously exercisable and vested shall become fully
exercisable and vested;
(2) Any Share Appreciation Rights shall become
immediately exercisable;
(3) The restrictions applicable to any Restricted
Shares, Deferred Shares Awards, Share Purchase Rights Awards
and Other Share Based Awards shall lapse and such shares and
awards shall be deemed fully vested; and
(4) The value of all outstanding Awards, in each case
to the extent vested, shall, unless otherwise determined by
the Committee in its sole discretion at or after grant but
prior to any Change in Control or Potential Change in Control,
be paid to the participant in cash in exchange for the
surrender of those Awards on the basis of the "Change in
Control Price" as defined in Section 11(d) as of the
Accelerated Vesting Date;
but the provisions of Sections 11(a)(1) through (3) shall not apply
with respect to Awards granted to any Section 16 Participant which have
been held by such participant for less than six months and one day as
of the Accelerated Vesting Date.
(b) Definition of Change in Control. For purposes of Section
11(a), a "Change in Control" means the occurrence of any of the
following: (i) the Board or shareholders of the Company approve a
consolidation or merger that results in the shareholders of the Company
immediately prior to the transaction giving rise to the consolidation
or merger owning less than 50% of the total combined voting power of
all classes of stock entitled to vote of the surviving entity
immediately after the consummation of the transaction giving rise to
the merger or consolidation; (ii) the Board or shareholders of the
Company approve the sale of substantially all of the assets of the
Company or the liquidation or dissolution of the Company; (iii) any
person or other entity (other than the Company or a Subsidiary or any
Company employee benefit plan (including any trustee of any such plan
acting in its capacity as trustee)) purchases any Shares (or securities
convertible into Shares) pursuant to a tender or exchange offer without
the prior consent of the Board of Directors, or
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<PAGE> 17
becomes the beneficial owner of securities of the Company representing
25% or more of the voting power of the Company's outstanding
securities; or (iv) during any two-year period, individuals who at the
beginning of such period constitute the entire Board of Directors cease
to constitute a majority of the Board of Directors, unless the election
or the nomination for election of each new director is approved by at
least two-thirds of the directors then still in office who were
directors at the beginning of that period.
(c) Definition of Potential Change in Control. For purposes of
Section 11(a), a "Potential Change in Control" means the happening of
any one of the following:
(1) The approval by the shareholders of the Company
of an agreement by the Company, the consummation of which
would result in a Change in Control of the Company as defined
in Section 11(b); or
(2) The acquisition of beneficial ownership, directly
or indirectly, by any entity, person or group (other than the
Company or a Subsidiary or any Company employee benefit plan
(including any trustee of any such plan acting in its capacity
as trustee)) of securities of the Company representing 15% or
more of the combined voting power of the Company's outstanding
securities and the adoption by the Board of a resolution to
the effect that a Potential Change in Control of the Company
has occurred for purposes of this Plan.
(d) Change in Control Price. For purposes of this Section 11,
"Change in Control Price," means the greater of: (a) the highest price
per share paid in any transaction reported on the New York Stock
Exchange Composite Index (or, if the Shares are not then traded on the
New York Stock Exchange, the highest price paid as reported for any
national exchange on which the Shares are then traded) or paid or
offered in any bona fide transaction related to a Change in Control or
Potential Change in Control of the Company, at any time during the
60-day period immediately preceding the occurrence of the Change in
Control (or, when applicable, the occurrence of the Potential Change in
Control event), and (b) the highest price per share paid in any
transaction reported on the New York Stock Exchange Composite Index
(or, if the Shares are not then traded on the New York Stock Exchange,
the highest price paid as reported for any national exchange on which
the Shares are then traded), at any time during the 60-day period
immediately preceding the date on which the Continuing Directors
execute a Written Action relating to that Change in Control or
Potential Change in Control, in each case as determined by the
Committee.
(e) Definition of Continuing Director. For purposes of this
Section 11, a "Continuing Director" means an individual who was a
member of the Board of Directors immediately prior to the date of a
Change in Control or a Potential Change in Control and is a member of
the Board of Directors at the time a Written Action relating to that
Change in Control or Potential Change in Control is taken.
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<PAGE> 18
SECTION 12. AMENDMENTS AND TERMINATION.
The Board may at any time, in its sole discretion, amend,
alter or discontinue the Plan, but no such amendment, alteration or
discontinuation shall be made which would impair the rights of a participant
under an Award theretofore granted, without the participant's consent. The
Company shall submit to the shareholders of the Company for their approval any
amendments to the Plan which are required by Section 16 of the Exchange Act or
the rules and regulations thereunder, or Section 162(m) of the Code, to be
approved by the shareholders.
The Committee may at any time, in its sole discretion, amend
the terms of any Award, but no such amendment shall be made which would impair
the rights of a participant under an Award theretofore granted, without the
participant's consent; nor shall any such amendment be made which would make the
applicable exemptions provided by Rule 16b-3 under the Exchange Act unavailable
to any Section 16 Participant holding the Award without the participant's
consent.
Subject to the above provisions, the Board shall have all
necessary authority to amend the Plan to make into account changes in applicable
securities and tax laws and accounting rules, as well as other developments.
SECTION 13. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for
incentive and deferred compensation. With respect to any payments not yet made
to a participant by the Company, nothing contained herein shall give any such
participant any rights that are greater than those of a general creditor of the
Company.
SECTION 14. GENERAL PROVISIONS.
(a) The Committee may require each participant acquiring
Shares pursuant to an Award under the Plan to represent to and agree
with the Company in writing that the participant is acquiring the
Shares without a view to distribution thereof. The certificates for
such shares may include any legend which the Committee deems
appropriate to reflect any restrictions on transfer.
All Shares or other securities delivered under the Plan shall
be subject to such stop-transfer orders and other restrictions as the
Committee may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission, any stock
exchange upon which the Shares is then listed, and any applicable
federal or state securities laws, and the Committee may cause a legend
or legends to be put on any certificates for such shares to make
appropriate reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board
from adopting other or additional compensation arrangements, subject to
shareholder approval if
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<PAGE> 19
such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases.
(c) Neither the adoption of the Plan, nor its operation, nor
any document describing, implementing or referring to the Plan, or any
part thereof, shall confer upon any participant under the Plan any
right to continue in the employ, or as a director, of the Company or
any Subsidiary or Affiliate, or shall in any way affect the right and
power of the Company or any Subsidiary or Affiliate to terminate the
employment, or service as a director, of any participant under the Plan
at any time with or without assigning a reason therefor, to the same
extent as the Company or any Subsidiary or Affiliate might have done if
the Plan had not been adopted.
(d) For purposes of this Plan, a transfer of a participant
between the Company and its Subsidiaries and Affiliates shall not be
deemed a termination of employment.
(e) No later than the date as of which an amount first becomes
includable in the gross income of the participant for federal income
tax purposes with respect to any award under the Plan, the participant
shall pay to the Company, or make arrangements satisfactory to the
Committee regarding the payment, of, any federal, state or local taxes
or other items of any kind required by law to be withheld with respect
to such amount. Subject to the following sentence, unless otherwise
determined by the Committee, withholding obligations may be settled
with Shares, including unrestricted Shares previously owned by the
participant or Shares that are part of the Award that gives rise to the
withholding requirement. Notwithstanding the foregoing, any election by
a Section 16 Participant to settle such tax withholding obligation with
Shares that is part of such Award shall be subject to approval by the
Committee, in its sole discretion. The obligations of the Company under
the Plan shall be conditional on such payment or arrangements and the
Company and its Subsidiaries and Affiliates shall, to the extent
permitted by law, have the right to deduct any such taxes from any
payment of any kind otherwise due to the participant.
(f) The actual or deemed reinvestment of dividends or dividend
equivalents in additional Restricted Shares (or in Deferred Shares or
other types of Awards) at the time of any dividend payment shall only
be permissible if sufficient Shares are available under Section 3 for
such reinvestment (taking into account then outstanding Stock Options,
Share Purchase Rights and other Plan Awards).
(g) The Plan, all Awards made and actions taken thereunder and
any agreements relating thereto shall be governed by and construed in
accordance with the laws of the State of Ohio.
(h) All agreements entered into with participants pursuant to
the Plan shall be subject to the Plan.
(i) The provisions of Awards need not be the same with respect
to each participant.
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<PAGE> 20
SECTION 15. SHAREHOLDER APPROVAL; EFFECTIVE DATE OF PLAN.
The Plan was adopted by the Board on August 5, 1997 and by
the shareholders on September ___, 1997.
SECTION 16. TERM OF PLAN.
No Award shall be granted pursuant to the Plan on or after
June 30, 2007, but Awards granted prior to such date may extend beyond that
date.
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<PAGE> 1
EXHIBIT 10.7
JOINT VENTURE AND SHAREHOLDERS' AGREEMENT
between
Stoneridge, Inc.
Alphabet Division
and
CONNECTO AB
<PAGE> 2
JOINT VENTURE AND SHAREHOLDERS' AGREEMENT
This Agreement is made and entered into on this 25th day of August 1997 at
Warren, Ohio by and between
Stoneridge, Inc., represented by its Alphabet Division ("Alphabet"), a
corporation organized and existing under the laws of Ohio, U.S.A.
and
Connecto AB ("Connecto"), a corporation organized and existing under the laws of
Sweden.
1. INTRODUCTION
1.1 Connecto and Alphabet are both in the power distribution systems
business. Connecto has a strong position on the Scandinavian market
while Alphabet has a strong position on the North American market. The
parties share the view THAT global presence and economies of scale are
becoming of increasing importance in the power distribution systems
components business as large customers are more and more relying on one
rather than many suppliers in a particular field, and, further, THAT it
is important to have production facilities in
<PAGE> 3
low cost countries, as a way to compensate for decreasing margins in
the business as well as to gain a foothold on the large emerging
markets.
1.2 In light of the above, the parties have formed a strategic alliance,
evidenced by a co-operation agreement dated August 25, 1997 (the
"Co-operation Agreement"). Pursuant to said agreement, APPENDIX, the
parties shall primarily co-operate by establishing joint venture
companies limited by shares, initially in Europe and South America for
the purpose of manufacturing and selling power distribution systems.
Such joint venture companies shall not only be production facilities but
also sales and marketing vehicles for the parties' products and services
to the extent found practicable by the parties.
1.3 The parties are in agreement that the first South American venture (the
"Company") shall be located in Brazil and that Alphabet shall primarily
be responsible for establishing the Company. In the Company, Alphabet
will have a shareholding equal to 60 per cent of the capital and votes
of the Company, whereas Connecto will own the remaining 40 per cent of
the shares, representing a corresponding share of the Company's capital
and votes.
1.4 To establish the Company, the parties hereby enter into this Agreement,
stipulating that the parties shall jointly establish, own and operate
the Company on the terms and conditioned contained herein. Any
deviations from this Agreement made necessary due to any requirements
stipulated by local laws and regulations shall be mutually agreed
between the parties.
2. ESTABLISHING THE COMPANY
2.1 Alphabet shall no later than September 1, 1997 present to Connecto a
detailed business plan as regards the conditions for establishing the
Company, after which the parties shall in writing agree on the suitable
form and location of the
<PAGE> 4
Company. Connecto is required to render any reasonable assistance
requested by Alphabet in preparing the business plan, which plan shall
include, inter alia
- market analysis;
- market potential;
- cost models;
- possible location sites of production facility;
- management issues;
- time schedule;
- financial investments; and
- local political and financial situation.
2.2 The parties shall no later than September 15, 1997, in writing agree on
the size of their initial capital contribution to the Company. The
initial capital contribution is expected to be in the range of US
Dollars 1.5-2.0 million, with a maximum outlay of US Dollars 4.0
million, and shall be contributed to the Company in the form of equity
or as loans or guarantees by the parties in proportion to their
respective shareholdings in the Company. The initial capital shall be
contributed by the parties in cash unless the parties otherwise agree.
In the event the parties should agree on contribution in kind, the value
of such contribution shall be assessed by a reputable accounting firm
jointly chosen by the parties. During the term of the Agreement, the
maximum outlay to the Company may be increased, provided both parties
agree thereto. If, in such event, one party should refrain from
investing more money in the Company, the other party may take on such
additional investment, whereupon the first party's ownership percentage
shall be reduced accordingly.
2.3 Alphabet shall at its own cost commission such local counsel as is
necessary for the drawing up of the articles of association of the
Company, [a share purchase agreement], and any other legal documents
necessary to establish the
<PAGE> 5
Company, all in a form to be agreed by the parties. Such documents shall
accurately reflect the parties' intentions as set forth in this
Agreement. Alphabet shall incorporate, or begin filing for the
incorporation of, the Company no later than September 1, 1997. It is the
intention of the parties to have an operation facility in place in
Brazil before the end of 1997.
3. OPERATION OF THE COMPANIES
3.1 For the development and operation of the Company the parties have
agreed on the following guidelines:
a) the agreement shall be a long-term engagement between the
parties;
b) the business of the Company shall be conducted on sound and
businesslike principles;
c) the business of the Company shall be conducted in a
cost-efficient manner;
d) both parties shall have a clear insight into the Company's
finances and other material matters; and
e) both parties shall be informed of all matters of a strategical
nature to the Company.
3.2 During the term of this Agreement neither Connecto nor Alphabet shall go
into the power distribution systems business in South America on its
own, but only through the Company.
<PAGE> 6
3.3 Both parties undertake to use their best efforts to promote the business
of the Company, and to contribute any human and technical resources the
Company would reasonably desire to procure from the parties. All
dealings between the parties and the Company shall be on an arm's length
basis.
A method for reimbursing Alphabet and Connecto for services rendered to
the Company shall be determined. Reimbursable expenses may include areas
such as
- engineering services
- technical services
- sales services
- out-of-pocket expenses
3.3.1 Alphabet shall undertake to ensure that the Company shall at all times
a) keep accurate, true, complete and separate books of account of
all transactions and dealings carried out by the Company;
b) conduct its business and affairs in compliance with law and all
other relevant rules and regulations;
c) prepare and regularly update quarterly management accounts,
operating statistics and financial information;
d) apply such accounting policies as may from time to time be in
compliance with Brazilian as well as US GAAP;
e) protect all confidential information whether it belongs to the
Company or to the parties;
<PAGE> 7
f) adequately insure and keep so insured, against all risk usually
insured against by companies carrying on the same or similar
business, for full replacement of reinstatement value and with a
reputable insurance company, all the assets or activities of the
Company of an insurable nature;
g) no later than 30 days after the end of each quarter of each
financial year of the Company deliver to the parties: (i) the
profit and loss accounts of the Company for such quarter and for
the period from the beginning of the financial year, and (ii)
the related balance sheet of the Company as at the end of such
quarter, (iii) reports of revenue, expense and cash flow and a
statement of source and application of funds for each quarter
and for the applicable financial year to the date of such
report, (iv) projected expenses and capital expenditures to be
incurred during the quarter immediately succeeding the end of
that quarter, all in reasonable detail and (v) a report
specifically stating all material transactions between the
Company and the parties to this Agreement that have taken place
during the preceding quarter;
h) no later than 60 days after the end of each financial year of
the Company, prepare and deliver to each party: (i) audited
profit and loss accounts of the Company for that financial year,
and (ii) the related audited balance sheet of the Company as at
the end of such year, all in reasonable detail, and (iii) the
directors' report on and notes to such accounts and balance
sheet;
i) no later than five (5) days after the end of each month provide
the parties with adequate information as regards sales, cost for
raw material, cost for
<PAGE> 8
personnel, operating profit, depreciations and financial costs
and profits after depreciations and financial net; and
j) from time to time, with reasonable promptness, provide such
further information regarding the business and affairs of the
Company as either party may reasonably request.
4. BOARD OF DIRECTORS
4.1 (a) The board of directors shall consist of five persons, with a
maximum of five deputy directors. Each party shall have the
right to appoint one director for each full twenty per cent
ownership of the shares. The party holding the majority of the
shares shall always have the right to nominate the chairman.
(b) Each of the parties may appoint one deputy for every director
appointed by such a party. The deputy directors may attend any
meetings of the board of directors. As long as the ordinary
director is present, the deputy director may not exercise any
voting powers.
(c) From time to time during the term of this Agreement, each party,
as applicable, may, and shall, upon the death, disability,
resignation or removal of any director designated by such party,
appoint a successor director, and shall promptly notify the
Company and the other party of such appointment. The parties
shall not exercise their rights or votes so as to remove a
director from office without the prior written consent of the
party appointing that director.
(d) If a party for any reason whatsoever reduces the percentage of
shares held by it to less than 15 per cent of the capital of the
Company, such
<PAGE> 9
party shall not have the right to appoint any directors of the
board. and any director or directors then in office appointed by
such a party shall automatically and immediately cease to hold
office, unless the parties agree otherwise in writing.
4.2 The parties agree to keep the Company indemnified against any
claim for loss of office by any director removed by it or
otherwise ceasing to hold office pursuant to the provisions of
this Agreement.
4.3 (a) Each director present at any meeting shall have one (1)
vote and the chairman of the board shall have a casting
vote.
(b) Except as expressly provided for herein, the quorum for
the board shall be two directors or their deputies,
representing both of the parties.
(c) Each director shall be given not less than twenty-eight
(28) days' notice in writing of a meeting of the board
and not less than seventy-two (72) hours' notice in
writing of an adjourned meeting, or in emergency such
shorter period as may be reasonable, provided that
reasonable efforts shall be used in emergency to give
notice to all directors. Every such notice shall be
accompanied by a written agenda and, so far as
reasonably practicable, such other documents and
information as shall be reasonably required by the
director for the purposes of the meeting. Each director
shall be entitled to pass all such information and any
other information he acquires as a director to such
individual officers or employees of his appointor as
reasonably have an interest in knowing the same for the
purposes of such party's investment in the Company. Any
director may waive his right to receive a notice of
meeting of the board either generally or in
<PAGE> 10
respect of specific meetings.
(d) The board shall meet not less than twice a year on a
site convenient for the parties. Each party shall be
entitled to have present at each meeting of the board,
in addition to its designated directors, such officers
or other employees or professional advisers as it shall
reasonably deem appropriate.
4.4 The following decisions may not be made unless at least four (4)
directors, representing both parties, approve:
(i) the appointment and dismissal of the Company's managing
director;
(ii) any major changes as regards the business of the
Company;
(iii) decisions to enter into share or asset sale/purchase
agreements of a substantial nature to the Company;
(iv) the lending of substantial amounts of money or the
incurrence of any substantial indebtedness, in excess of
what has been provided for in an approved business plan;
(v) major investments in excess of a capital cost of US
Dollars 20,000, or the equivalent in local currencies;
(vi) the passing of are solution for the winding up or
liquidation of the Company;
(vii) issuing or selling any debt or equity security of the
Company or any Production facility or options or other
rights therefor;
<PAGE> 11
(viii) amending the organizational or governing documents of
the Company or any Production facility;
(ix) filing a voluntary petition for bankruptcy;
(x) merging or consolidating the Company or any Production
facility with or into any other entity;
(xi) incurring or permitting the incurrence of any lien,
security interest or other encumbrance or restriction
upon any significant asset of the Company or any
Production facility, except in the ordinary course of
business;
(xii) entering into any material contract outside the ordinary
course of the Company's or any Production facility's
business;
(xiii) form any Production facility or make any investment in
any other entity;
(xiv) adopt or modify any business plan; or
(xv) adopt or modify any significant benefit arrangement for
officers or employees.
5. FINANCING
5.1 The Company shall primarily be financed through its own earnings. To
this end, the parties agree, during the Company's first three financial
years, not to distribute annually more than 25 per cent of the Company's
lawfully distributable earnings as dividend to its owners, and to retain
any additional
<PAGE> 12
earnings in the Company in order to consolidate its financial position.
After the Company's third financial year the distribution of the
Company's lawfully distributable earnings shall be determined by the
board of directors. Such distribution shall always be in an amount
sufficient to permit the parties to pay their respective taxes,
resulting from or related to the ownership of shares in the Company.
5.2 The parties undertake to be the primary source for providing any
external financing to the Company and to contribute capital in
proportion to their respective shareholding in the Company, unless
otherwise agreed in writing.
6. VOTING
6.1 Each of the parties undertake to exercise its right to vote for the
shares owned in the Company at each time at shareholders' meetings
(either by itself or by proxy), at board meetings or otherwise, in
accordance with the provisions of this Agreement.
6.2 A party shall be entitled to exercise his right to vote for the full
number of shares represented by the party at a shareholders' meeting
without any limitation.
7. RESTRICTIONS ON TRANSFER OR ENCUMBRANCE
7.1 Unless otherwise agreed the parties shall remain shareholders in the
Company for at least five (5) years from the date hereof, and under no
circumstances, except as provided in section 8, shall either party
thereafter, directly or indirectly, voluntarily transfer any shares or
any right, title or interest therein without the prior written consent
of the other party to this Agreement.
<PAGE> 13
7.2 In order that the intention of the parties with, respect to the transfer
of shares shall not be frustrated or impaired, no party shall at any
time directly or indirectly encumber any shares without the prior
written consent of the other party to this Agreement except as provided
in section 8.1.
8. VOLUNTARY TRANSFERS
8.1 Notwithstanding section 7 above each party hereto may at any time or
times transfer any right, title or interest in all of its shares to any
person or entity who is a "Permissible Transferee" with respect to the
transferor. "Permissible Transferee" with respect to the transferor
means any affiliate of a party, provided that the transferee gives an
undertaking to the Company and to the other party that if it ceases for
any reason to be affiliated with the ultimate holding company of the
transferor, it will, immediately before so ceasing, transfer the legal
and beneficial interest in all of its shares in the Company to a company
which is affiliated at the time of the transfer by the transferee with
the company which is the ultimate holding company of the transferor as
at the date of the transfer to the transferee and which before such
transfer has given an equivalent undertaking to the Company and to the
other party.
8.2 No party wishing to transfer any shares under this section 8 may do so
without first procuring that the proposed transferee enters in an
agreement of adherence with the continuing party hereto to observe,
perform and be bound by all the terms of this Agreement which are
capable of applying to such person. The Company shall not register any
person or entity as a holder of any share unless and until such a
agreement has been duly executed and an original counterpart thereof has
been delivered to the Company. Upon being so registered that party shall
be deemed to be a party to this Agreement.
<PAGE> 14
8.3 If any party hereto ("the Initial Transferor") transfers shares to a
Permissible Transferee pursuant to section 8.1 such Permissible
Transferee shall not thereafter transfer any such shares pursuant to
section 8. 1, other than to a person who is a Permissible Transferee
with respect to the Initial Transferor. Prompt notice of any transfer
pursuant to section 8.1 shall be given by the transferor and transferee
to the other party.
8.4 A party wishing to voluntarily transfer shares (a "Voluntary
Transferor") to any person or entity other than a Permissible Transferee
may do so only after it has complied with the following:
(i) The Voluntary Transferor shall first obtain a bona fide cash
offer (the "Offer") in writing for the acquisition of its shares
by an independent, willing third party who shall not be a third
party whose acquisition of an interest in the shares concerned
would give rise to any default, or to any right of termination
becoming exercisable, under any licence or similar granted or
proposed to be granted to the Company.
(ii) The Voluntary Transferor shall give not less than thirty (30)
days' written notice to the other party of the Voluntary
Transferor's intention to transfer all or part of its shares.
Each such notice shall contain all the terms and conditions of
the Offer, a copy of the Offer and the name of the person or
entity making the Offer and (if an entity) the person or persons
believed to control it.
(iii) The other party shall have the irrevocable and exclusive right,
but not the obligation, to purchase all of the shares that are
the subject of the Offer on the terms and conditions set forth
in the Offer. Any election by the other party to exercise a
right provided pursuant to this paragraph shall be made by
written notice to the Voluntary Transferor
<PAGE> 15
within thirty (30) days of notice of the Offer being given to
the other party and shall state the number of shares the said
party is willing to purchase. If the other party does not elect
to purchase all of the offered shares, then the voluntary
transfer shall have the right, but not the obligation, to sell
all but not less than all of the offered shares, within 60 days,
to the third party specified in the offer notice, for a price
not less than the price specified in the offer notice.
8.5 When the five year period stated in section 7.1 above have lapsed, a
party to this Agreement (the "Offeror") shall be at liberty to make a
bid for all of the other party's (the "Offeree") shares in the Company.
Such bid has to be accepted or rejected in writing within (60) days from
receipt of it. If the Offeree rejects the bid, it is obligated, within
sixty (60) days from the date of the rejection, to acquire all of the
Offeror's shares in the Company for a price per share equal to the
Offeror's bid.
9. CONFIDENTIALITY
9.1 This Agreement shall in its entirety be dealt with confidentially by the
parties unless otherwise agreed in writing. All information of a
confidential nature which a party learns from the other party or from
the Company shall be dealt with confidentially by the receiving party
and may not be disclosed to any third party. A party which voluntarily
or involuntarily ceases to be a party to this Agreement undertakes
hereby to treat the Agreement in its entirety as confidential.
9.2 However, information shall not be considered confidential pursuant to
this Agreement if the receiving party can show
<PAGE> 16
(i) that such information was known to it without an obligation of
confidentiality when the information in question was received
from the other party or from the Company;
(ii) that it received such information legally or obtained it from a
third party without being instructed to keep the information
confidential; or
(iii) that such information is or will become known to the public
other than as a result of the receiving party's failure to
observe the confidentiality obligation.
10. CORPORATE NAME
If a party desires to sell or transfer all its shares in the Company to the
other party or to an unaffiliated third party, or in any other way intends to
divest all its shares in the Company, the parties jointly undertake, at the
written request of the disposing party, to take any steps necessary to change
the name of the Company so that it does not contain any reference to the whole
or part of the corporate name of the party who does not intend to remain a
shareholder of the Company.
11. TERM OF AGREEMENT
11.1 This Agreement shall terminate five (5) years from the date of
agreement, by either party giving one (1) year's written notice. Unless
terminated, the Agreement will be automatically prolonged for two (2)
years at a time. During periods of prolongation, the same notice period
shall apply as during the initial term of the Agreement.
11.2 This Agreement shall be immediately terminated upon
<PAGE> 17
(i) the consummation of any merger or consolidation to which the
Company is a party (except any merger or consolidation
immediately following which a majority of the shares of the
surviving or resulting company shall be held by the parties and
any Permissible Transferee);
(ii) any admission to listing of, or quotation of, or commencement of
dealing in, the shares of the Company pursuant to a public
offering;
(iii) the unanimous written consent of both parties to the termination
hereof, or
(iv) any order being made or a resolution being passed for the
winding up or liquidation of the Company.
Termination will not affect the accrued liability of any party for any
default, but accrued but unperformed obligations shall cease to apply
save for obligations which expressly or by implication are to survive
termination.
11.3 In the event the Co-operation Agreement, or any other agreement between
the parties, should be terminated, such termination shall have no effect
on the validity of this Joint Venture and Shareholders' Agreement.
12. MISCELLANEOUS
12.1 This Agreement shall apply to all of the parties' shares or other
securities in THE Company, at present as well as in the future. The term
"share" or "shares" in this Agreement shall also encompass any other
securities from time to time issued by the Company and outstanding.
<PAGE> 18
12.2 Copies of this Agreement shall be filed with the Secretary of the
Company at the office of the Company. Each certificate representing
shares of the Company shall bear the following endorsement:
The securities represented by this certificate are issued, accepted and
held in accordance with the terms of an Agreement dated August 25, 1997.
A copy of such Agreement has been filed at the office of the Company and
will be made available for inspection by the person named in this
Certificate or anyone designated by him in writing on application to the
Company subject to the execution of a confidentiality undertaking in
such terms as the Company may request. This certificate and the
securities represented hereby may not be made subject to direct or
indirect sale, assignment, transfer, mortgage, pledge, hypothecation or
other encumbrance or disposition, except as provided in such Agreement,
to all of which and to which Agreement the holder hereof, by the
acceptance hereof, agrees.
12.3 Each of the parties acknowledges that damages may not be an adequate
remedy if it or its transferee or its legal representative is in breach
of any of the restrictions or obligations imposed hereby. Therefore,
each party consents to the issuance of an injunction or the enforcement
of other equitable remedies against it at the suit of an aggrieved
party.
12.4 All notices and other communications provided for herein (including,
without limitation, any modifications of, or waivers or consents under,
this Agreement) shall be given or made by telefax or in writing and
telefaxed, mailed or delivered to the intended recipient at the "Address
for Notices" specified below its name on the signature pages hereof or
at such other address as shall be designated by either of the parties in
a written notice to the other party. Except
<PAGE> 19
as otherwise provided in this Agreement, all such communications shall
be deemed to have been duly given when transmitted by telefax or
personally delivered or, in the case of a mailed notice, upon receipt,
in each case given or addressed as aforesaid.
12.5 If any provision hereof, or the application of any such provision,
should be held invalid by a court or tribunal of competent jurisdiction,
the remainder of this Agreement, or the application of such provision,
shall not be affected thereby.
13. GOVERNING LAW
The Agreement shall be governed by and construed in accordance with the laws of
Brazil.
14. JURISDICTION
Any dispute, controversy or claim arising out of or in connection with this
Agreement, or the breach, termination or invalidity thereof, shall be subject to
the non-exclusive jurisdiction of the courts of Brazil. However, to the extent
this provision conflicts with the arbitration clause contained in the
Co-operation Agreement entered into by the parties, such arbitration clause
shall be deemed to govern, i.e., any disputes the subject of which is governed
by this Agreement as well as the aforementioned Co-operation Agreement, shall
exclusively be settled by arbitration rather than by the courts of Brazil or any
other courts.
-------------
<PAGE> 20
This Agreement has been executed in two (2) original i copies of which the
parties have taken one copy each.
STONERIDGE, INC. CONNECTO AB
ALPHABET DIVISION
By: /s/ David L. Thomas By: /s/ Lars Eje Larson
---------------------------- -------------------------------
Title: President Title: President
------------------------- ----------------------------
Address Address
for Notices: for Notices:
8700 East Market St. Marknadsgatan 3
- ------------------------------- ---------------------------------
Warren, Ohio 44484 82430 Hudiksvall
- ------------------------------- ---------------------------------
SWEDEN
- ------------------------------- ---------------------------------
- ------------------------------- ---------------------------------
<PAGE> 21
JOINT VENTURE AND SHAREHOLDERS' AGREEMENT
between
CONNECTO AB
and
Stoneridge, Inc.
Alphabet Division
<PAGE> 22
JOINT VENTURE AND SHAREHOLDERS' AGREEMENT
This Agreement is made and entered into on this 25th day of August 1997 at
Warren, Ohio
by and between
Connecto AB ("Connecto"), a corporation organized and existing under the laws of
Sweden,
and
Stoneridge, Inc., represented by its Alphabet Division ("Alphabet"), a
corporation organized and existing under the laws of Ohio, U.S.A.
1. INTRODUCTION
1.1 Connecto and Alphabet are both in the power distribution systems
business. Connecto has a strong position on the Scandinavian market
while Alphabet has a strong position on the North American market. The
parties share the view THAT global presence and economies of scale are
becoming of increasing importance in the power distribution systems
business as large customers are more and more relying on one rather than
many suppliers in a particular field. and, further, THAT it
<PAGE> 23
2
is important to have production facilities in low cost countries, as a
way to compensate for decreasing margins in the business as well as to
gain a foothold on the large emerging markets.
1.2 In light of the above, the parties have formed a strategic alliance,
evidenced by a co-operation agreement dated August 25, 1997 (the
"Co-operation Agreement"). Pursuant to said agreement, APPENDIX, the
parties shall primarily co-operate by establishing joint venture
companies limited by shares, initially in Europe and South America for
the purpose of manufacturing and selling power distribution systems.
Such joint venture companies shall not only be production facilities but
also sales and marketing vehicles for the parties' products and services
to the extent found practicable by the parties.
1.3 The parties are in agreement that the European venture (the "Company")
shall be located in Europe with, initially, a Polish Production facility
(the "Production facility") and that Connecto shall primarily be
responsible for establishing the Company and the Production facility. In
the Company, Connecto will have a shareholding equal to 60 per cent of
the capital and votes of the Company, whereas Alphabet will own the
remaining 40 per cent of the shares, representing a corresponding share
of the Company's capital and votes.
1.4 To establish the Company and the Production facility, the parties hereby
enter into this Agreement, stipulating that the parties shall jointly
establish, own and operate the Company and the Production facility on
the terms and conditioned contained herein. Any deviations from this
Agreement made necessary due to any requirements stipulated by local
laws and regulations shall be mutually agreed between the parties.
<PAGE> 24
3
2. ESTABLISHING THE COMPANY AND THE PRODUCTION FACILITY
2.1 Connecto shall no later than September 1, 1997 present to Alphabet a
detailed business plan as regards the conditions for establishing the
Company and the Production facility. The parties are in agreement that
the Company shall be a European company incorporated by shares. The
exact location of the Production facility shall be decided by the
parties jointly within eight weeks after the presentation of the
business plan. Alphabet is required to render any reasonable assistance
requested by Connecto in preparing the business plan, which plan shall
include, inter alia
- market analysis;
- market potential;
- cost models;
- possible location sites of production facility;
- management issues;
- time schedule;
- financial investments; and
- local political and financial situation.
2.2 The parties shall no later than September 15, 1997, in writing agree on
the size of their initial capital contribution to the Company. The
initial capital contribution is expected to be in the range of SEK 12-16
million, including the capital necessary to establish the Production
facility, with a maximum outlay of SEK 24 million, and shall be
contributed to the Company in the form of equity or as loans or
guarantees by the parties in proportion to their respective
shareholdings in the Company. The initial capital shall be contributed
by the parties in cash unless the parties otherwise agree. In the event
the parties should agree on contribution in
<PAGE> 25
4
kind, the value of such contribution shall be assessed by a reputable
accounting firm jointly chosen by the parties. During the term of the
Agreement, the maximum outlay to the Company may be increased, provided
both parties agree thereto. If, in such event, one party should refrain
from investing more money in the Company, the other party may take on
such additional investment, whereupon the first party's ownership
percentage shall be reduced accordingly.
2.3 Connecto shall at its own cost commission such local counsel as is
necessary for the drawing up of the articles of association of the
Company and the Production facility, a share purchase agreement for the
Company and/or the Production facility and any other legal documents
necessary to establish the Company and the Production facility, all in a
form to be agreed by the parties. Such documents shall accurately
reflect the parties' intentions as set forth in this Agreement. The
Company shall be incorporated no later than October 31, 1997, at which
date documentation for the filing for registration of the Production
facility shall also have been made with the relevant Polish authorities.
It is the intention of the parties to have an operation facility in
place in Poland before the end of 1997.
3. OPERATION OF THE COMPANY
3.1 For the development and operation of the Company and the Production
facility the parties have agreed on the following guidelines:
a) the agreement shall be a long-term engagement between the
parties;
b) the business of the Company shall be conducted on sound and
businesslike principles;
c) the business of the Company shall be conducted in a
cost-efficient manner,
<PAGE> 26
5
d) both parties shall have a clear insight into the Company's
finances and other material matters; and
e) both parties shall be informed of all matters of a strategical
nature to the Company.
3.2 The Company shall be the joint sales and marketing vehicle for Connecto
and Alphabet in Europe for power distribution systems, with the purpose
of serving all Connecto's and Alphabet's customers in Europe, with the
exception of Connecto's customers in Scandinavia and Finland.
Notwithstanding the above the Company shall have the right to serve
Connecto's present customers, Scania, Volvo and VCE, with power
distribution systems and components not presently supplied by Connecto.
Alphabet shall also have the right to make regular sales calls to Volvo
in Sweden in order to promote Alphabet's supply of harnesses in North
America.
In order to promote the business of the Company, Connecto and Alphabet
shall endeavour to bring in new customers to the Company, as well as new
business opportunities for existing customers. The company shall utilize
certain resources of Alphabet's existing branch office in Frankfurt.
Manufacture of products, sold by the Company and/or Connecto or Alphabet
shall, to the extent practicable, be made at the Production facility.
3.3 Both parties undertake to use their best efforts to promote the business
of the Company and the Production facility, and to contribute any human
and technical resources the Company and/or the Production facility may
reasonably request from
<PAGE> 27
6
the parties. All dealings between the parties on the one side and the
Company and the Production facility on the other side shall be on an
arm's length basis.
A method for reimbursing Alphabet and Connecto for services rendered to
the Company shall be determined. Reimbursable expenses may include areas
such as
- engineering services
- technical services
- sales services
- services provided by the German branch office
- out-of-pocket expenses
3.4 Connecto shall undertake to ensure that the Company and the Production
facility shall at all times
a) keep accurate, true, complete and separate books of account of
all transactions and dealings carried out by the Company and the
Production facility;
b) conduct its respective business and affairs in compliance with
law and all other relevant rules and regulations;
c) prepare and regularly update quarterly management accounts,
operating statistics and financial information;
d) apply accounting policies that from time to time will be in
compliance with Swedish and, as regards the Production facility,
with Polish as well as Swedish GAAP;
<PAGE> 28
7
e) protect all confidential information whether it belongs to the
Company and the Production facility or to the parties;
f) adequately insure and keep so insured, against all risk usually
insured against by companies carrying on the same or similar
business, for full replacement of reinstatement value and with a
reputable insurance company, all the assets or activities of the
Company and the Production facility of an insurable nature;
g) no later than 30 days after the end of each quarter of each
financial year of the Company deliver to the parties: (i) the
profit and loss accounts of the Company and the Production
facility for such quarter and for the period from the beginning
of the financial year, and (ii) the related balance sheet of the
Company and the Production facility as at the end of such
quarter, (iii) reports of revenue, expense and cash flow and a
statement of source and application of funds for each quarter
and for the applicable financial year to the date of such
report, (iv) projected expenses and capital expenditures to be
incurred during the quarter immediately succeeding the end of
that quarter, all in reasonable detail and (v) a report
specifically stating all material transactions between the
Company and the Production facility on the one side and the
parties to this Agreement on the other side that have taken
place during the preceding quarter;
h) no later than 60 days after the end of each financial year of
the Company, prepare and deliver to each party: (i) audited
profit and loss accounts of the Company and the Production
facility for that financial year, and (ii) the related audited
balance sheet of the Company and the Production facility as
<PAGE> 29
8
at the end of such year, all in reasonable detail, and (iii) the
directors' report on and notes to such accounts and balance
sheet;
i) no later than five (5) business days after the end of each month
provide the parties with adequate information as regards sales,
cost for raw material, cost for personnel, operating profit,
deprecations and financial net; and
j) from time to time, with reasonable promptness, provide such
further information regarding the business and affairs of the
Company and the Production facility as either party may
reasonably request.
4. BOARD OF DIRECTORS
4.1 a) The board of directors shall consist of five persons, with a
maximum of five deputy directors. Each party shall have the
right to appoint one director for each full twenty per cent
ownership of the shares. The party holding the majority of the
shares shall always have the right to nominate the chairman.
b) Each of the parties may appoint one deputy for every director
appointed by such party. The deputy directors may attend any
meetings of the board of directors. As long as the ordinary
director is present, the deputy director may not exercise any
voting powers.
C) From time to time during the term of this Agreement, each party,
as applicable, may, and shall, upon the death, disability,
resignation or removal of any director designated by such party,
appoint a successor
<PAGE> 30
9
director, and shall promptly notify the Company and the other
party of such appointment. The parties shall not exercise their
rights or votes so as to remove a director from office without
the prior written consent of the party appointing that director.
d) If a party for any reason whatsoever reduces the percentage of
shares held by it to less than 15 per cent of the capital of the
Company, such party shall not have the right to appoint any
directors of the board, and any director or directors then in
office appointed by such a party shall automatically and
immediately cease to hold office, unless the parties agree
otherwise in writing.
4.2 The parties agree to keep the Company indemnified against any claim for
loss of office by any director removed by it or otherwise ceasing to
hold office pursuant to the provisions of this Agreement.
4.3 a) Each director present at any meeting shall have one (1) vote
and the chairman of the board shall have a casting vote.
b) Except as expressly provided for herein, the quorum for the
board shall be two directors or their deputies, representing
both of the parties.
c) Each director shall be given not less than twenty-eight (28)
days' notice in writing of a meeting of the board and not less
than seventy-two (72) hours' notice in writing of an adjourned
meeting, or in emergency such shorter period as may be
reasonable, provided that reasonable efforts shall be used in
emergency to give notice to all directors. Every such notice
shall be accompanied by a written agenda and, so far as
reasonably
<PAGE> 31
10
practicable, such other documents and information as shall be
reasonably required by the director for the purposes of the
meeting. Each director shall be entitled to pass all such
information and any other information he acquires as a director
to such individual officers or employees of his appointor as
reasonably have an interest in knowing the same for the purposes
of such party's investment in the Company. Any director may
waive his right to receive a notice of meeting of the board
either generally or in respect of specific meetings.
d) The board shall meet not less than twice a year on a site
convenient for the parties. Each party shall be entitled to have
present at each meeting of the board, in addition to its
designated directors, such officers or other employees or
professional advisers as it shall reasonably deem appropriate.
4.4 The following decisions may not be made unless at least four (4)
directors, representing both parties, approve:
(i) the appointment and dismissal of the Company's managing
director;
(ii) the nomination of directors of the board of the Production
facility;
(iii) any major changes as regards the business of the Company or the
Production facility;
(iv) decisions to enter into share or asset sale/purchase agreements
of a substantial nature to the Company or the Production
facility;
<PAGE> 32
11
(v) the lending of substantial amounts of money or the incurrence of
any substantial indebtedness, in excess of what has been
provided for in an approved business plan;
(vi) major investments in excess of a capital cost of SEK 150,000, or
the equivalent in local currencies;
(vii) the passing of a resolution for the winding up or liquidation of
the Company or the Production facility;
(viii) issuing or selling any debt or equity security of the Company or
any Production facility or options or other rights therefor;
(ix) amending the organizational or governing documents of the
Company or any Production facility;
(x) filing a voluntary petition for bankruptcy;
(xi) merging or consolidating the Company or any Production facility
with or into any other entity;
(xii) incurring or permitting the incurrence of any lien, security
interest or other encumbrance, or restriction upon any
significant asset of the Company or any Production facility,
except in the ordinary course of business;
(xiii) entering into any material contract outside the ordinary course
of the Company's or any Production facility's business;
<PAGE> 33
12
(xiv) form any Production facility or make any investment in any other
entity;
(xv) adopt or modify any business plan; or
(xvi) adopt or modify any significant benefit arrangement for officers
or employees.
5. FINANCING
5.1 The Company shall primarily be financed through its own earnings. To
this end, the parties agree, during the Company's first three financial
years, not to distribute annually more than 25 per cent of the
Company's lawfully distributable earnings as dividend to its owners,
and to retain any additional earnings in the Company in order to
consolidate its financial position. After the Company's third financial
year the distribution of the Company's lawfully distributable earnings
shall be determined by the board of directors. Such distribution shall
always be in an amount sufficient to permit the parties to pay their
respective taxes, resulting from or related to the ownership of shares
in the Company.
5.2 The parties undertake to be the primary source for providing any
external financing to the Company and to contribute capital in
proportion to their respective shareholding in the Company, unless
otherwise agreed in writing.
6. VOTING
6.1 Each of the parties undertake to exercise its right to vote for the
shares owned in the Company at each time, at shareholders' meetings
(either by itself or by proxy),
<PAGE> 34
13
at board meetings or otherwise, in accordance with the provisions of
this Agreement.
6.2 A party shall be entitled to exercise his right to vote for the full
number of shares represented by the party at a shareholders' meeting
without any limitation.
7. RESTRICTIONS ON TRANSFER OR ENCUMBRANCE
7.1 Unless otherwise agreed the parties shall remain shareholders in the
Company for at least five (5) years from the date hereof, and under no
circumstances, except as provided in section 8, shall either party
thereafter, directly or indirectly, voluntarily transfer any shares or
any right, title or interest therein without the prior written consent
of the other party to this Agreement.
7.2 In order that the intention of the parties with respect to the transfer
of shares shall not be frustrated or impaired, no party shall at any
time directly or indirectly encumber any shares without the prior
written consent of the other party to this Agreement except as provided
in section 8.1.
8. VOLUNTARY TRANSFERS
8.1 Notwithstanding section 7 above each party hereto may at any time or
times transfer any right, title or interest in all of its shares to any
person or entity who is a "Permissible Transferee" with respect to the
transferor. "Permissible Transferee" with respect to the transferor
means any affiliate of a party, provided that the transferee gives an
undertaking to the Company and to the other party that if it ceases for
any reason to be affiliated with the ultimate holding company of the
transferor, it will, immediately before so ceasing, transfer the legal
and beneficial
<PAGE> 35
14
interest in all of its shares in the Company to a company which is
affiliated at the time of the transfer by the transferee with the
company which is the ultimate holding company of the transferor as at
the date of the transfer to the transferee and which before such
transfer has given an equivalent undertaking to the Company and to the
other party.
8.2 No party wishing to transfer any shares under this section 8 may do so
without first procuring that the proposed transferee enters in an
agreement of adherence with the continuing party hereto to observe,
perform and be bound by all the terms of this Agreement which are
capable of applying to such person. The Company shall not register any
person or entity as a holder of any share unless and until such an
agreement has been duly executed and an original counterpart thereof has
been delivered to the Company. Upon being so registered that party shall
be deemed to be a party to this Agreement.
8.3 If any party hereto ("the Initial Transferor") transfers shares to a
Permissible Transferee pursuant to section 8.1, such Permissible
Transferee shall not thereafter transfer any such shares pursuant to
section 8.1, other than to a person who is a Permissible Transferee
with respect to the Initial Transferor. Prompt notice of any transfer
pursuant to section 8.1 shall be given by the transferor and transferee
to the other party.
8.4 A party wishing to voluntarily transfer shares (a "Voluntary
Transferor") to any person or entity other than a Permissible Transferee
may do so only after it has complied with the following:
(i) The Voluntary Transferor shall first obtain a bona fide cash
offer (the "Offer") in writing for the acquisition of its shares
by an independent.
<PAGE> 36
15
willing third party who shall not be a third party whose acquisition of
an interest in the shares concerned would give rise to any default, or
to any right of termination becoming exercisable, under any licence or
similar granted or proposed to be granted to the Company.
(ii) The Voluntary Transferor shall give not less than thirty (30)
days' written notice to the other party of the Voluntary Transferor's
intention to transfer all or part of its shares. Each such notice shall
contain all the terms and conditions of the Offer, a copy of the Offer
and the name of the person or entity making the Offer and (if an entity)
the person or persons believed to control it.
(iii) The other party shall have the irrevocable and exclusive right, but not
the obligation, to purchase all of the shares that are the subject of
the Offer on the terms and conditions set forth in the Offer. Any
election by the other party to exercise a right provided pursuant to
this paragraph shall be made by written notice to the Voluntary
Transferor within thirty (30) days of notice of the Offer being given to
the other party and shall state the number of shares the said party is
willing to purchase. If the other party does not elect to purchase all
of the offered shares, then the voluntary transfer shall have the right,
but not the obligation, to sell all but not less than all of the offered
shares, within 60 days, to the third party specified in the offer
notice, for a price not less than the price specified in the offer
notice.
8.5 When the five year period stated in section 7.1 above have lapsed, a
party to this Agreement (the "Offeror") shall be at liberty to make a
bid for all of the other party's (the "Offeree") shares in the Company.
Such bid has to be accepted or
<PAGE> 37
16
rejected in writing within (60) days from receipt of it. if the Offeree
rejects the bid, it is obligated, within sixty (60) days from the date
of the rejection, to acquire all of the offeror's shares in the company
for a price per share equal to the Offeror's bid.
9. CONFIDENTIALITY
9.1 This agreement shall in its entirety be dealt with confidentially by the
parties unless otherwise agreed in writing. All information of a
confidential nature which a party learns from the other party or from
the Company or the Production facility shall be dealt with
confidentially by the receiving party and may not be disclosed to any
third party. A party which voluntarily or involuntarily ceases to be a
party to this Agreement undertakes hereby to treat the Agreement in its
entirety as confidential.
9.2 However, information shall not be considered confidential pursuant to
this agreement if the receiving party can show
(i) that such information was known to it without an obligation of
confidentiality when the information in question was received
from the other party or from the Company or the Production
facility;
(ii) that it received such information legally or obtained it from a
third party without being instructed to keep the information
confidential; or
(iii) that such information is or will become known to the public
other than as a result of the receiving party's failure to
observe the confidentiality obligation.
<PAGE> 38
17
10. CORPORATE NAME
If a party desires to sell or transfer all its shares in the Company to the
other party or to an unaffiliated third party, or in any other way intends to
divest all its shares in the Company, the parties jointly undertake, at the
written request of the disposing party, to take any steps necessary to change
the name of the Company so that it does not contain any reference to the whole
or part of the corporate name of the party who does not intend to remain a
shareholder of the Company.
11. TERM OF AGREEMENT
11.1 This Agreement shall terminate five (5) years from the date of
agreement, by either party giving one (1) year's written notice.
Unless terminated, the Agreement will be automatically prolonged for
two (2) years at a time. During periods of prolongation, the same
notice period shall apply as during the initial term of the Agreement.
11.2 This Agreement shall be immediately terminated upon
(i) the consummation of any merger or consolidation to which the
Company is a party (except any merger or consolidation
immediately following which a majority of the shares of the
surviving or resulting company shall be held by the parties and
any Permissible Transferee);
(ii) any admission to listing of or quotation of, or commencement of
dealing in, the shares of the Company pursuant to a public
offering;
<PAGE> 39
18
(iii) the unanimous written consent of both parties to the termination
hereof, or
(iv) any order being made or a resolution being passed for the
winding up or liquidation of the Company.
Termination will not affect the accrued liability of any party for any
default, but accrued but unperformed obligations shall cease to apply
save for obligations which expressly or by implication are to survive
termination.
11.3 In the event the Co-operation Agreement, or any other agreement between
the parties, should be terminated, such termination shall have no effect
on the validity of this Joint Venture and Shareholders' Agreement.
12. MISCELLANEOUS
12.1 This Agreement shall apply to all of the parties' shares or other
securities in the Company, at present as well as in the future. The term
"share" or "shares" in this Agreement shall also encompass any other
securities from time to time issued by the Company and outstanding.
12.2 Copies of this Agreement shall be filed with the Secretary of the
Company at the office of the Company. Each certificate representing
shares of the Company shall bear the following endorsement:
The securities represented by this certificate are issued, accepted
and held in accordance with the terms of an Agreement dated August 25,
1997. A copy of such Agreement has been filed at the office of the
Company and
<PAGE> 40
19
will be made available for inspection by the person named in this
Certificate or anyone designated by him in writing on application to
the Company subject to the execution of a confidentiality undertaking
in such terms as the Company may request. This certificate and the
securities represented hereby may not be made subject to direct or
indirect sale, assignment, transfer, mortgage, pledge, hypothecation or
other encumbrance or disposition, except as provided in such Agreement,
to all of which and to which Agreement the holder hereof, by the
acceptance hereof, agrees.
12.3 Each of the parties acknowledges that damages may not be an adequate
remedy if it or its transferee or its legal representative is in breach
of any of the restrictions or obligations imposed hereby. Therefore,
each party consents to the issuance of an injunction or the enforcement
of other equitable remedies against it at the suit of an aggrieved
party.
12.4 All notices and other communications provided for herein (including,
without limitation, any modifications of, or waivers or consents under,
this Agreement) shall be given or made by telefax or in writing and
telefaxed, mailed or delivered to the intended recipient at the "Address
for Notices" specified below its name on the signature pages hereof or
at such other address as shall be designated by either of the parties
in a written notice to the other party. Except as otherwise provided in
this Agreement, all such communications shall be deemed to have been
duly given when transmitted by telefax or personally delivered or, in
the case of a mailed notice, upon receipt, in each case given or
addressed as aforesaid.
<PAGE> 41
20
12.5 If any provision hereof, or the application of any such provision,
should be held invalid by a court or tribunal of competent jurisdiction,
the remainder of this Agreement, or the application of such provision,
shall not be affected thereby.
13. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
Sweden.
14. JURISDICTION
Any dispute, controversy or claim arising out of or in connection with this
Agreement, or the breach, termination or invalidity thereof, shall be settled by
arbitration in accordance with the rules of the Arbitration Institute of the
Stockholm Chamber of Commerce.
----------------
<PAGE> 42
21
This Agreement has been executed in two (2) original copies of which the parties
have taken one copy each.
CONNECTO AB STONERIDGE, INC.
ALPHABET DIVISION
By: /s/ Lars Eje Larson By: /s/ David L. Thomas
------------------------------- ----------------------------
Title: President Title: President
---------------------------- -------------------------
Address Address
for Notices: for Notices:
Marknadsgatan 3 8700 East Market St.
- --------------------------------- -------------------------------
82430 Hudiksvall Warren, Ohio 44484
- --------------------------------- -------------------------------
SWEDEN
- --------------------------------- -------------------------------
- --------------------------------- -------------------------------
<PAGE> 43
CO-OPERATION AGREEMENT
between
Connecto AB
and
Stoneridge, INC.
Alphabet Division
<PAGE> 44
CO-OPERATION AGREEMENT
This Agreement is made and entered into on this 25th day of August 1997 at
Warren, Ohio
by and between
Connecto AB ("Connecto"), a corporation organized and existing under the laws of
Sweden,
and
Stoneridge, Inc., represented by its Alphabet Division ("Alphabet"), a
corporation organized and existing under the laws of Ohio, U.S.A.
1. INTRODUCTION
Connecto and Alphabet are both in the power distribution systems business.
Connecto has a strong position on the Scandinavian market while Alphabet has a
strong position on the North American market. The parties share the view that
global presence and economies of scale are becoming of increasing importance in
the harness business as large customers are more and more relying on one rather
than many suppliers in a particular field, and, further, that it is important to
have production facilities in low cost countries, as a way to compensate for
<PAGE> 45
2
decreasing margins in the business as well as to gain a foothold on the large
emerging markets. Therefore, the parties have decided to form a strategic
alliance, with the goal of jointly becoming a market leader in the power
distribution systems business, by way of increased cooperation in the field of
technical development and through the establishment of joint venture companies
as set forth below.
2. JOINT VENTURES
2.1 The parties are in agreement that the co-operation between the parties
initially and primarily shall be in the form of joint ventures which are
to be established in Europe and South America at locations later to be
decided by the parties. Such joint ventures shall be for the purpose of
manufacturing and selling power distribution systems and not only be
production facilities but also sales and marketing vehicles for the
parties' products and services to the extent found practicable.
2.2 The parties are further in agreement that Connecto shall primarily be
responsible for establishing the parties' European ventures and that
Alphabet shall primarily be responsible for establishing the parties'
South American ventures (each a "Venture" and together the "Ventures").
In the respective Venture, the primarily responsible party (the "PRP")
will have a shareholding equal to 60 per cent of the capital and votes
of the Venture, whereas the other party will own the remaining 40 per
cent of the shares, representing a corresponding share of the company's
capital and votes.
2.3 The parties shall for each Venture that they eventually decide to
establish, enter into a shareholders' agreement, which agreement shall
in more detail set out the terms and conditions for the parties' duties
and obligations as regards the specific
<PAGE> 46
3
Venture. However, certain basic rules shall apply for any and all
Ventures operated by the parties. Hence, as regards development and
operation of Ventures the parties have agreed on the following
guidelines:
a) all Ventures shall be a long-term engagement between the
parties;
b) the business of the Ventures shall be conducted on sound and
businesslike principles;
c) the business of the Ventures shall be conducted in a cost
efficient manner;
d) both parties shall have a clear insight into the Ventures'
finances and other material matters; and
e) both parties shall be informed of all matters of a strategic
nature to the Ventures.
2.4 The PRP for each Venture is responsible for the Venture developing and
implementing such guidelines and manuals as are necessary for the
expedient and efficient running of operations at all levels. The PRP is
further responsible for quality control of the Venture's production,
thereby assuring that the harnesses and other products and services
produced by the Venture are of a commercially satisfactory quality.
3. OTHER FORMS OF CO-OPERATION
3.1 In addition to establishing joint ventures, the parties intend to find
other ways of co-operation, e.g. by way of sharing information and
technological know-how as regards product development as well as in
other key areas. To this end the parties shall exchange qualified
personnel, particular in the technical field, with the purpose of using
their respective experience and know-how to the mutual benefit of the
parties.
<PAGE> 47
4
3.2 Whenever possible the parties shall also promote each others' products
and services, rather than the products and services of any competitors.
Due to the parties' respective geographical and commercial focus, within
the alliance, Connecto will have a leading position on the European
market, while Alphabet will, correspondingly, have a leading position in
the Americas. Nevertheless, the parties shall strive to integrate (to
the extent found acceptable by the parties) their sales and marketing
organizations, thereby enabling the parties to offer present and future
customers a better market support than what is currently possible.
3.3 To the extent practicable, the parties shall strive to make purchases
from each other rather than from third parties. Moreover, as part of the
co-operation the parties shall have the right to purchase harnesses from
each others' production facilities in low cost countries, currently
Russia and Mexico respectively. Terms and conditions for orders from one
party to the other under this clause shall be negotiated separately from
time to time.
4. SHORT AND LONG TERM GOALS OF THE ALLIANCE
4.1 In the short term, the parties, through their co-operation, have the
ambition to:
i) improve production efficiency;
ii) enhance technical development; and
iii) strengthen competitiveness.
4.2 In the long terms, the parties, through their co-operation, have the
ambition to:
i) establish an organization with global reach; and
ii) integrate the businesses of Connecto and Alphabet.
<PAGE> 48
5
5. CONFIDENTIALITY
5.1 This Agreement shall in its entirety be dealt with confidentially by the
parties unless otherwise agreed in writing. All information of a
confidential nature which a party learns from the other party shall be
dealt with confidentially by the receiving party and may not be
disclosed to any third party. A party which voluntarily or involuntarily
ceases to be a party to this Agreement undertakes hereby to treat the
Agreement in its entirety as confidential.
5.2 However, the statements made in section 5.1 above shall not be valid if
the receiving party can show
(i) that such information was known to it without an obligation of
confidentiality when the information in question was received
from the other party;
(ii) that it received such information legally or obtained it from a
third party without being instructed to keep the information
confidential; or
(iii) that such information is or will become known to the public
other than as a result of the receiving party's failure to
observe the confidentiality obligation.
5.3 The provision of section 5.1 will survive the expiration or termination
of this agreement.
<PAGE> 49
6
6. TERM OF AGREEMENT
6.1 This Agreement shall terminate five (5) years from the date of
Agreement, by either party giving one (1) year's written notice. Unless
terminated, the Agreement will be automatically prolonged for two (2)
years at a time. During periods of prolongation, the same notice period
shall apply as during the initial terms of agreement.
6.2 In a case where the basis for the co-operation of the parties pursuant
to this Agreement is fundamentally altered, the parties hereto shall
carry out good faith negotiations with the purpose of resolving the
matter. If the parties within eight (8) weeks after the commencement of
such negotiation have not been able to agree upon what action to take,
each party shall be entitled to terminate this Agreement.
6.3 Each joint venture agreement exclusively governs the parties'
relationship with respect to the applicable territory and supersedes in
its entirety to this agreement.
7. MISCELLANEOUS
7.1 Each of the Parties acknowledges that damages may not be an adequate
remedy if it or its transferee or its legal representative is in
breach of any of the restrictions or obligations imposed hereby.
Therefore, each Party consents to the issuance of an injunction or the
enforcement of other equitable remedies against it at the suit of
an aggrieved party.
7.2 All notices and other communications provided for herein (including,
without limitation, any modifications of, or waivers or consents under,
this Agreement)
<PAGE> 50
7
shall be given or made in writing and telecopied, mailed or delivered to
the intended recipient at the "Address for Notices" specified below its
name on the signature pages hereof or at such other address as shall be
designated by either of the Parties in a written notice to the other
Party. Except as otherwise provided in this Agreement, all such
communications shall be deemed to have been duly given when transmitted
by telecopier or personally delivered or, in the case of a mailed
notice, upon receipt, in each case given or addressed as aforesaid.
7.3 If any provision hereof, or the application of any such provision should
be held invalid by a court or tribunal of competent jurisdiction, the
remainder of this Agreement, or the application of such provision, shall
not be affected thereby.
8. GOVERNING LAW
This Agreement shall be governed by and construed in accordance with the laws of
Sweden.
9. ARBITRATION
9.1 Any dispute, controversy or claim arising out of or in connection with
this agreement, or the breach, termination or invalidity thereof, shall
be settled by arbitration in accordance with the Rules of the
Arbitration Institute of the Stockholm Chamber of Commerce.
9.2 The arbitration proceeding shall take place in Stockholm and be
conducted in the English language.
-----------
<PAGE> 51
8
This agreement has been executed in two (2) original copies of which the
parties have taken one copy each.
CONNECTO AB STONERIDGE, INC.
ALPHABET DIVISION
By: /s/ Lars Eje Larson By: /s/ David L. Thomas
----------------------------- --------------------------
Title: President Title: President
-------------------------- -----------------------
Address Address
for Notice: for Notice:
8700 East Market St.
- -------------------------------- -----------------------------
Markmadsgatan3 Warren, Ohio 44484
- -------------------------------- -----------------------------
82430 Hudiksvall
- -------------------------------- -----------------------------
Sweden
- -------------------------------- -----------------------------
<PAGE> 1
Exhibit 10.8
CREDIT AGREEMENT
among
Stoneridge, Inc.
and
PNC Bank, National Association,
Star Bank, National Association
and
National City Bank
and
National City Bank, Agent
September 15, 1997
---
$125,000,000 revolving commitment
<PAGE> 2
TABLE OF CONTENTS
PAGE
----
1A. CROSS-REFERENCE..................................................1
1B. SUMMARY..........................................................1
2A. REVOLVING COMMITMENT.............................................1
2A.01 AMOUNT.........................................................1
2A.02 TERM...........................................................1
2A.03 OPTIONAL REDUCTIONS............................................1
2A.04 COMMITMENT FEE.................................................2
2A.05 EXTENSION OF REVOLVING COMMITMENTS.............................2
2B. REVOLVING LOANS..................................................2
2B.01 REVOLVING NOTE.................................................2
2B.02 CREDIT REQUESTS................................................3
2B.03 CONDITION: NO DEFAULT.........................................3
2B.04 CONDITION: PURPOSE............................................4
2B.05 INTEREST.......................................................4
2B.06 DISBURSEMENT...................................................4
2B.07 PREPAYMENT.....................................................4
2C. INTEREST AND OTHER LOAN PROVISIONS...............................4
2C.01 LOAN MIX.......................................................4
2C.02 AMOUNT.........................................................4
2C.03 CONTRACT PERIODS...............................................5
2C.04 MATURITIES.....................................................5
2C.05 ROLLOVER.......................................................5
2C.06 INTEREST: RR LOANS............................................5
2C.07 INTEREST: LIBOR LOANS.........................................6
2C.08 PREPAYMENTS....................................................6
2C.09 LIBOR LOANS UNAVAILABILITY.....................................7
2C.10 LIBOR LOANS ILLEGALITY.........................................7
2D. LETTERS OF CREDIT................................................7
2D.01 MAXIMUM........................................................7
2D.03 TERM...........................................................8
2D.04 FORMS..........................................................8
2D.05 FEES AND COMMISSIONS...........................................8
2D.06 REIMBURSEMENT..................................................8
3A. INFORMATION......................................................9
3A.01 FINANCIAL STATEMENTS...........................................9
3A.02 NOTICE........................................................10
3B. GENERAL FINANCIAL STANDARDS.....................................10
3B.01 NET WORTH.....................................................10
3B.02 DEBT TO CAPITALIZATION........................................11
<PAGE> 3
3B.03 FIXED CHARGE COVERAGE RATIO...................................11
3B.04 FUNDED DEBT/EBITDA............................................11
3C. AFFIRMATIVE COVENANTS...........................................11
3C.01 TAXES.........................................................11
3C.02 FINANCIAL RECORDS.............................................12
3C.03 VISITATION....................................................12
3C.04 INSURANCE.....................................................12
3C.05 CORPORATE EXISTENCE...........................................12
3C.06 COMPLIANCE WITH LAW...........................................12
3C.07 PROPERTIES....................................................13
3D. NEGATIVE COVENANTS..............................................13
3D.01 EQUITY TRANSACTIONS...........................................13
3D.02 CREDIT EXTENSIONS.............................................14
3D.03 BORROWINGS....................................................15
3D.04 LIENS, LEASES.................................................15
3D.05 FIXED ASSETS..................................................16
4A. CLOSING.........................................................16
4A.01 SUBJECT NOTES.................................................16
4A.02 RESOLUTIONS/INCUMBENCY........................................16
4A.03 LEGAL OPINION.................................................17
4A.04 FINANCIAL STATEMENTS..........................................17
4A.05 UPFRONT FEE...................................................17
4A.06 DOCUMENTATION FEE.............................................17
4B. WARRANTIES......................................................17
4B.01 EXISTENCE.....................................................17
4B.02 GOVERNMENTAL RESTRICTIONS.....................................17
4B.03 CORPORATE AUTHORITY...........................................17
4B.04 LITIGATION....................................................18
4B.05 TAXES.........................................................18
4B.06 TITLE.........................................................18
4B.07 LAWFUL OPERATIONS.............................................18
4B.08 INSURANCE.....................................................18
4B.09 FINANCIAL STATEMENTS..........................................19
4B.10 DEFAULTS.......................................................19
5A. EVENTS OF DEFAULT...............................................19
5A.01 PAYMENTS......................................................19
5A.02 WARRANTIES....................................................19
5A.03 COVENANTS WITHOUT GRACE.......................................19
5A.04 COVENANTS WITH GRACE..........................................19
5A.05 CROSS-DEFAULT.................................................20
5A.06 BORROWER'S SOLVENCY...........................................20
5B. EFFECTS OF DEFAULT..............................................20
5B.01 OPTIONAL DEFAULTS.............................................20
5B.02 AUTOMATIC DEFAULTS............................................20
5B.03 OFFSETS.......................................................21
<PAGE> 4
5B.04 EQUALIZATION..................................................21
6A. INDEMNITY: STAMP TAXES.........................................21
6B. INDEMNITY TAKEOVERS.............................................21
6C. INDEMNITY: CAPITAL REQUIREMENTS................................21
6D. INDEMNITY: COLLECTION COSTS....................................22
6E. INDEMNITY: FUNDING COSTS........................................22
6F. CERTIFICATE FOR INDEMNIFICATION.................................22
7A. BANKS' PURPOSE..................................................22
7B. AGENT...........................................................23
7B.01 NATURE OF APPOINTMENT.........................................23
7B.02 NATIONAL CITY AS A BANK; OTHER TRANSACTIONS...................23
7B.03 INSTRUCTION FROM BANKS........................................23
7B.04 BANKS' DILIGENCE..............................................23
7B.05 NO IMPLIED REPRESENTATIONS....................................24
7B.06 SUB-AGENTS....................................................24
7B.07 NATIONAL CITY AGENT'S DILIGENCE...............................24
7B.08 NOTICE OF DEFAULT.............................................24
7B.09 AGENT'S LIABILITY.............................................24
7B.10 COMPENSATION..................................................24
7B.11 DISBURSEMENTS..................................................25
7B.12 AGENT'S INDEMNITY.............................................25
7B.13 RESIGNATION...................................................25
8. INTERPRETATION...................................................25
8.01 WAIVERS........................................................25
8.02 CUMULATIVE PROVISIONS..........................................26
8.03 BINDING EFFECT.................................................26
8.04 SURVIVAL OF PROVISIONS.........................................26
8.05 IMMEDIATE U.S. FUNDS...........................................26
8.06 CAPTIONS.......................................................26
8.07 SUBSECTIONS....................................................26
8.08 ILLEGALITY.....................................................26
8.09 OHIO LAW.......................................................27
8.10 INTEREST/FEE COMPUTATIONS......................................27
8.11 NOTICE..........................................................27
8.12 ACCOUNTING TERMS...............................................27
8.13 ENTIRE AGREEMENT...............................................27
8.14 WAIVER OF JURY TRIAL...........................................27
8.15 ASSIGNMENT.....................................................27
9. AMENDMENTS AND WAIVERS...........................................28
10. DEFINITIONS.....................................................28
<PAGE> 5
ACCOUNT OFFICER......................................................29
ACCUMULATED FUNDING DEFICIENCY.......................................29
ADVANTAGE............................................................29
AFFILIATE............................................................29
AGREEMENT............................................................29
BANK.................................................................29
BANKING DAY..........................................................29
BORROWER.............................................................29
CONTRACT PERIOD......................................................29
CREDIT EXPOSURE......................................................29
CREDIT REQUEST.......................................................29
DEBT.................................................................29
DEFAULT UNDER ERISA..................................................30
DEFAULT UNDER THIS AGREEMENT.........................................30
DISTRIBUTION.........................................................30
ENVIRONMENTAL LAW....................................................30
ERISA................................................................30
ERISA REGULATOR......................................................30
EVENT OF DEFAULT.....................................................30
EXPIRATION DATE......................................................31
FEDERAL FUNDS RATE...................................................31
FUNDED INDEBTEDNESS..................................................31
GAAP.................................................................31
GUARANTOR............................................................31
INSOLVENCY ACTION....................................................31
LIBOR PRE-MARGIN RATE................................................32
LIBOR LOAN...........................................................32
MAJORITY OF THE BANKS................................................32
MATERIAL.............................................................32
MOST RECENT 4A.04 FINANCIAL STATEMENTS...............................32
NATIONAL CITY........................................................32
NET INCOME...........................................................32
NET WORTH............................................................32
PENSION PLAN.........................................................32
PRIME RATE...........................................................32
REFERENCE RATE.......................................................33
RELATED WRITING......................................................33
REPORTABLE EVENT.....................................................33
REVOLVING COMMITMENT.................................................33
REVOLVING LOAN.......................................................33
REVOLVING NOTE.......................................................33
RR LOAN..............................................................33
SUBJECT INDEBTEDNESS.................................................33
SUBJECT LC...........................................................33
SUBJECT LOAN.........................................................33
SUBJECT NOTE.........................................................33
SUBSIDIARY...........................................................33
SUPPLEMENTAL SCHEDULE................................................34
TOTAL LIABILITIES....................................................34
TRANSPORTATION BUSINESS..............................................34
<PAGE> 6
EXHIBIT A: Supplemental Schedule (4B.)
EXHIBIT B: Revolving Note (2B.01; 4A.01)
EXHIBIT C: Extension Agreement (2B.05)
EXHIBIT D List Of Mortgage Properties (4A.06)
<PAGE> 7
CREDIT AGREEMENT
Agreement (this AGREEMENT) made as of September 15, 1997 by and among
STONERIDGE, INC. ("BORROWER"), NATIONAL CITY BANK, PNC BANK, NATIONAL
ASSOCIATION and STAR BANK, NATIONAL ASSOCIATION (the "BANKS") and NATIONAL CITY
BANK as agent for the Banks ("AGENT"):
1A. CROSS-REFERENCE -- Certain terms are defined in section 10.
1B. SUMMARY -- This Agreement
(a) sets forth the terms and conditions upon which Borrower may, so
long as the revolving commitment remains in effect, obtain the
revolving loans described in sections 2A and 2B and subject LCs
described in section 2D, PROVIDED that the aggregate unpaid principal
balance of the revolving loans plus the face amount of subject LCs at
any one time outstanding shall never exceed the amount of the revolving
commitments then in effect and
(b) sets forth the covenants and warranties made by the parties to
induce each other to enter into this Agreement and other material
provisions.
2A. REVOLVING COMMITMENT -- The basic terms of the revolving commitments and the
compensation therefor are as follows:
2A.01 AMOUNT -- The aggregate amount of the revolving commitments shall
be One Hundred Twenty-Five Million and No/100ths Dollars
($125,000,000.00), but that amount may be reduced from time to time
pursuant to subsection 2A.03 and the revolving commitment may be
terminated pursuant to section 5B. The amount of each bank's revolving
commitment (subject to such reduction or termination), and the
proportion (expressed as a percentage) that it bears to all of the
revolving commitments is set forth opposite the bank's name below
to-wit:
$ 65,000,000 52% National City Bank
$ 45,000,000 36% PNC Bank, National Association
$ 15,000,000 12% Star Bank, National Association
------------- ---
$125,000,000 100%
2A.02 TERM -- The revolving commitments shall become effective as of
the date of this Agreement and shall remain in effect on a revolving
basis until June 30, 2002 (the "expiration date") EXCEPT that a later
expiration date may be established from time to time pursuant to
subsection 2A.05 and EXCEPT that the revolving commitments shall end in
any event upon any earlier reduction thereof to zero pursuant to
subsection 2A.03 or any earlier termination pursuant to section 5B.
2A.03 OPTIONAL REDUCTIONS -- Borrower shall have the right, at all
times and without the payment of any premium, to permanently reduce the
amount of the revolving
<PAGE> 8
commitments by giving Agent one banking day's prior written notice of
the amount of each such reduction and the effective date thereof.
Concurrently with each reduction Borrower shall prepay such part
(together with the interest accrued thereon), if any, of the principal
of the revolving loans then outstanding as may be in excess of the
amount of the revolving commitments as so reduced.
2A.04 COMMITMENT FEE -- Each Bank shall, so long as its revolving
commitment remains in effect, earn a commitment fee
(a) based on the average daily difference between the amount
of that bank's revolving commitment from time to time in
effect and the aggregate unpaid principal balance of that
Bank's revolving loans then outstanding,
(b) computed at the rate shown in the following schedule
so long as the revolving commitment remains in effect
<TABLE>
<CAPTION>
------------------------------------------------------------ ------------------------
Total Senior Commitment
Debt/EBITDA (quarterly test)* Fee (basis points)
------------------------------------------------------------ ------------------------
<S> <C> <C>
Level One greater than 3x 25
---------------- ------------------------------------------ ------------------------
Level Two greater than 2x less than or equal to 3x 20
---------------- ------------------------------------------ ------------------------
Level Three greater than 1.5x less than or equal to 2x 15
---------------- ------------------------------------------ ------------------------
Level Four greater than 1x less than or equal to 1.5x 12.5
---------------- ------------------------------------------ ------------------------
Level Five less than or equal to 1x 10
---------------- ------------------------------------------ ------------------------
<FN>
*Calculated on a rolling four quarter basis
</TABLE>
(c) and payable in arrears on September 30, 1997 and
quarter-annually thereafter and at the end of the revolving
commitments.
2A.05 EXTENSION OF REVOLVING COMMITMENTS -- Whenever Borrower furnishes
its audited financial statements to the Banks pursuant to clause (b) of
subsection 3A.01, commencing with the year ending December 31, 1997,
Borrower may request that the revolving commitments be extended one
year to the June 30 next following the expiration date then in effect.
The Banks agree to give consideration to each such request; but in no
event shall the Banks be committed to extend the revolving commitments,
nor shall any Bank's subject commitment be so extended, unless and
until both Borrower and the Banks shall have executed and delivered an
extension agreement substantially the form of Exhibit C with the blanks
appropriately filled.
2B. REVOLVING LOANS -- The Banks agree that so long as the revolving commitments
remain in effect each Bank will, subject to the conditions of this Agreement,
grant Borrower such revolving loans as Borrower may from time to time request.
2B.01 REVOLVING NOTE -- Each Bank's revolving loans shall be evidenced
at all times by a revolving note executed and delivered by Borrower,
payable to the order of that Bank in a principal amount equal to the
dollar amount of that Bank's revolving
-2-
<PAGE> 9
commitment as in effect at the execution and delivery of the revolving
note and being in the form and substance of Exhibit B with the blanks
appropriately filled.
(a) Whenever Borrower obtains a series of revolving loans,
each Bank shall endorse an appropriate entry on the revolving
note or make an appropriate entry in a loan account in that
Bank's books and records. Each entry shall be prima facie
evidence of the data entered; but such entries shall not be a
condition to Borrower's obligation to pay.
(b) No holder of any revolving note shall transfer a revolving
note, or seek a judgment or file a proof of claim based on a
revolving note, without in each case first endorsing the
revolving note to reflect the true amount owing thereon.
2B.02 CREDIT REQUESTS -- Whenever Borrower desires to obtain a series
of subject loans, Borrower shall give Agent an appropriate notice (a
"credit request") either in writing in the form of Exhibit D (or in
other form and detail satisfactory to Agent) with the blanks
appropriately filled or by telephone. The credit request shall be
irrevocable, shall be given to Agent not later than 1:00 p.m. Cleveland
time
(a) on the banking day next preceding the date on which RR
loans (other than any obtained at the execution and delivery
of this Agreement) are to be obtained, and
(b) three (3) banking days prior to the date any LIBOR loans
are to be obtained,
and shall either be made in writing or immediately confirmed in
writing. In the case of any oral credit request, Agent shall be
entitled to rely thereon and Borrower shall assume the risk of
misunderstanding. Agent shall give each bank prompt notice of each
credit request. A credit request received after 12:00 noon Cleveland
time may be deemed by Agent to have been received on the next banking
day.
2B.03 CONDITION: NO DEFAULT -- Borrower shall not be entitled to obtain
any revolving loan (other than any of the proceeds of which are applied
solely to reimburse the Banks for any draft or other item drawn and
paid in respect of a subject LC or to have any subject LC issued) if
(a) any default under this Agreement shall then exist or would
thereupon begin to exist or
(b) the aggregate credit exposure of the Banks would exceed
the aggregate of the subject commitments as then in effect or
(c) any representation or warranty made in subsections 4B.01
through 4B.08 (both inclusive) shall have ceased to be true
and complete in any material respect except for such changes,
if any, as shall have been fully disclosed in the applicable
credit request and as may be waived by the Banks in the
reasonable exercise of their discretion, or
-3-
<PAGE> 10
(d) there shall have occurred any material adverse change in
Borrower's financial condition, properties or business since
the date of Borrower's most recent 4A.04 financial statements.
Each credit request, both when made and when honored, shall of itself
constitute a continuing representation and warranty by Borrower that
Borrower is entitled to obtain, and the Banks are obligated to make,
the requested revolving loan.
2B.04 CONDITION: PURPOSE -- Borrower shall not use the proceeds of any
revolving loan for the purpose of financing the acquisition of any
corporation or other business entity if the acquisition is publicly
opposed by the latter's board of directors and any Bank deems that its
participation in the financing would involve it in a conflict of
interest and communicates such opinion to Borrower within thirty (30)
days after Borrower has advised the Banks of such opposition.
2B.05 INTEREST -- The unpaid principal balances of and overdue interest
on the revolving loans shall bear interest payable in arrears on the
first day of each month and at maturity and computed in accordance with
subsection 8.10 and as provided in section 2C.
2B.06 DISBURSEMENT -- Each Bank shall disburse the proceeds of each
subject loan made by it as follows: (A) in immediately available funds
(B) from any office selected by that Bank (C) to Borrower's general
checking account with Agent in the absence of written instructions from
Borrower to the contrary (D) not later than 1:30 P.M. Cleveland time on
the banking day specified in the credit request.
2B.07 PREPAYMENT -- Borrower shall have the right at all times to
prepay the revolving loans in whole or in part and without penalty or
premium, but subject to the provisions of subsection 2C.08(b).
Concurrently with any prepayment of the entire unpaid principal balance
of the revolving loans, Borrower shall prepay the unpaid interest
accrued thereon.
2C. INTEREST AND OTHER LOAN PROVISIONS --
2C.01 LOAN MIX -- The subject loans at any one time outstanding may
consist of RR loans or LIBOR loans or any combination thereof as
Borrower may from time to time duly elect.
2C.02 AMOUNT -- No subject loan shall be made if, after giving effect
thereto, the aggregate unpaid principal balance of the revolving loans
and outstanding subject LCs would exceed the amount of the revolving
commitments then in effect. Each LIBOR loan shall be in the principal
sum of five hundred thousand dollars ($500,000) or any greater amount
(subject to the aforesaid limitations) that is a multiple of five
hundred thousand dollars ($500,000).
-4-
<PAGE> 11
2C.03 CONTRACT PERIODS -- Each LIBOR loan shall have applicable thereto
a contract period to be duly elected by Borrower in the credit request
therefor. Each contract period shall begin on the date the loan
proceeds are to be disbursed and shall end on such date, not later than
the expiration date, as Borrower may select subject, however, to the
following:
(a) The contract period for each LIBOR loan shall end one
month or two or three or six months after the date of
borrowing; PROVIDED, that
(1) if any such contract period otherwise would end
on a day that is not a banking day, it shall end
instead on the next following banking day if both
days are in the same calendar month or, if not in the
same month, shall end instead on the next preceding
banking day, and
(2) if the contract period commences on a day for
which there is no numerical equivalent in the
calendar month in which the contract period is to
end, it shall end on the last banking day of that
calendar month.
(b) Borrower shall never elect a contract period for any LIBOR
loan the term of which extends beyond the expiration date.
2C.04 MATURITIES -- The stated maturity of each RR loan shall be the
expiration date. The stated maturity of each LIBOR loan shall be the
last day of the contract period applicable thereto. In no event,
however, shall the stated maturity of any subject loan be later than
the expiration date. Prior to the expiration date, Borrower may pay the
principal of and interest on matured LIBOR loans with the proceeds of
new LIBOR loans or with the proceeds of RR loans. The principal of and
interest on LIBOR loans maturing by reason of subsection 2C.10 may be
paid with the proceeds of a RR loan.
2C.05 ROLLOVER -- If at any time prior to the expiration date any LIBOR
loan shall not be paid in full at the stated maturity thereof, and if
Borrower shall have failed to duly give Agent a timely credit request
in respect thereof, Borrower shall be deemed to have duly given Agent a
timely credit request to obtain (and at that maturity the Banks shall
make) a series of RR loans in an aggregate principal amount equal to
the unpaid principal of the LIBOR loan then due, the proceeds of which
RR loans shall be applied to the payment in full of the LIBOR loan then
due; PROVIDED, that no such RR loans shall of themselves constitute a
waiver of any then-existing default under this Agreement.
2C.06 INTEREST: RR LOANS -- The principal of and overdue interest on
the RR loans shall bear interest payable in arrears on the first day of
each January, April, July and October and at maturity and computed (in
accordance with subsection 8.10) at a fluctuating rate equal to the
reference rate from time to time in effect plus the applicable RR
MARGIN (if any) with each change in the reference rate automatically
and immediately changing the rate thereafter applicable to the RR
loans; PROVIDED, that in no event shall the rate applicable to the RR
loans after the maturity thereof be less than the rate
-5-
<PAGE> 12
applicable thereto immediately after maturity. RR MARGIN as
used in this subsection means a rate equal to
Zero percent (0%) per annum prior to the expiration date and
after maturity (whether occurring by lapse of time or by
acceleration) the RR margin shall be two percent (2%) per
annum.
2C.07 INTEREST: LIBOR LOANS -- The principal of and overdue interest on
each LIBOR loan shall bear interest computed (in accordance with
subsection 8.10) and payable as follows:
(a) Prior to maturity each LIBOR loan which is a revolving
loan shall bear interest at a rate equal to
the LIBOR pre-margin rate in effect at the start of the
applicable contract period plus
the applicable LIBOR MARGIN, namely, the appropriate
margin from the following table:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------
Total Senior LIBOR
Debt/EBITDA (quarterly test)* Margin
---------------------------------------------------------------------------------------
<S> <C> <C>
Level One greater than 3x 200 basis points
---------------------- ------------------------------------------ ---------------------
Level Two greater than 2x less than or equal to 3x 150 basis points
---------------------- ------------------------------------------ ---------------------
Level Three greater than 1.5x less than or equal to 2x 125 basis points
---------------------- ------------------------------------------ ---------------------
Level Four greater than 1x less than or equal to 1.5x 100 basis points
---------------------- ------------------------------------------ ---------------------
Level Five less than or equal to 1x 75 basis points
---------------------- ------------------------------------------ ---------------------
<FN>
*Calculated on a rolling four quarter basis
</TABLE>
(b) After maturity (whether occurring by lapse of time or by
acceleration), each LIBOR loan shall bear interest computed
and payable in the same manner as in the case of RR loans
EXCEPT that in no event shall any LIBOR loan bear interest
after maturity at a lesser rate than that applicable thereto
at maturity.
(c) Interest on each LIBOR loan shall be payable in arrears on
the last day of the contract period applicable thereto and at
maturity and, in the case of any contract period having a
longer term than three (3) months, every three (3) months
after the first day of the contract period.
2C.08 PREPAYMENTS -- Borrower may from time to time prepay the
principal of the RR loans in whole or in part and may from time to time
prepay the principal of any given LIBOR loan in whole or in part,
subject to the following:
(a) Each prepayment of a given LIBOR loan shall be in an
amount equal to five hundred thousand dollars ($500,000) or
any multiple thereof or an amount equal to the then aggregate
unpaid principal balance thereof.
-6-
<PAGE> 13
(b) Each prepayment of the RR loans may be made without
penalty or premium. Any prepayment of any LIBOR loans
(regardless of the reason for the prepayment) shall be subject
to the payment of any indemnity required by section 6E.
(c) No prepayment shall of itself reduce the revolving
commitment.
(d) Concurrently with each prepayment, Borrower shall prepay
the interest accrued on the prepaid principal.
2C.09 LIBOR LOANS: UNAVAILABILITY -- If at any time
(a) a Bank shall determine that dollar deposits of the
relevant amount for the relevant contract period are not
available in the London interbank eurodollar market for the
purpose of funding the LIBOR loan in question, or
(b) a Bank shall determine that circumstances affecting that
market make it impracticable for such Bank to ascertain the
rate or rates applicable to such LIBOR loans,
then and in each such case Agent shall, by written notice to Borrower,
suspend Borrower's right thereafter to obtain LIBOR loans of the kind
in question, which suspension shall remain in effect until such time,
if any, as Agent may give written notice to Borrower that the condition
giving rise to the suspension no longer prevails.
2C.10 LIBOR LOANS: ILLEGALITY -- If any Bank shall give Agent written
notice that it is, or governmental authority has asserted that it is
unlawful for that Bank to fund, make or maintain any LIBOR loans,
(a) Agent shall give Borrower and each of the other Banks
prompt written notice thereof and
(b) Borrower shall promptly pay in full the principal of and
interest on the LIBOR loan in question and make the
indemnification, if any, required by section 6E.
2D. LETTERS OF CREDIT -- NATIONAL CITY agrees that so long as the subject
commitments remain in effect NATIONAL CITY will issue such letters of credit
(each, a subject LC) for Borrower's account as Borrower may from time to time
request subject, however, to the conditions of this Agreement.
2D.01 MAXIMUM -- NATIONAL CITY shall not issue any subject LC if, after
giving effect thereto,
(a) the aggregate undrawn balance of all then outstanding
subject LCs would exceed five million dollars ($5,000,000) or
(b) the aggregate credit exposure of the Banks would exceed
the aggregate of the subject commitments as then in effect.
-7-
<PAGE> 14
2D.03 TERM -- No subject LC which is a commercial letter of credit
shall permit any draft to be drawn thereunder on a date (the "last draw
date") that is more than one hundred eighty (180) days after the date
of its issue, nor shall any subject LC permit the last draw date to be
later than the seventh (7th) banking day next preceding the expiration
date.
2D.04 FORMS -- Each subject LC shall
(a) be issued in such form as NATIONAL CITY may reasonably
require,
(b) be either a commercial letter of credit used solely for
the importation of goods in the ordinary course of Borrower's
business or a standby letter of credit and
(c) be denominated in United States dollars.
2D.05 FEES AND COMMISSIONS -- Borrower shall pay to NATIONAL CITY in
respect of each subject LC the issuance, amendment, negotiation, draw,
acceptance, telex and similar fees as are generally charged under its
standard fee schedule as in effect at the time in question, and
Borrower shall reimburse NATIONAL CITY for its out-of-pocket expenses,
if any, in respect of the foregoing. In addition, Borrower shall pay to
the Banks a commission based on the face amount of the subject LC in
the case of a subject LC that is a "standby" letter of credit and the
amount of a draw in the case of a subject LC that is a "commercial"
letter of credit, payable at the time of issuance in the case of a
subject LC that is a standby LC and upon each payment of any draft in
the case of a subject LC that is a commercial letter of credit, and
computed in arrears at the rate of
(a) the rate shown in the following table in the case
of a subject LC that is a "standby" letter of credit and
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
Total Senior Standby Letter of
Debt/EBITDA (quarterly test)* Credit Commission
----------------------------------------------------------------- -----------------
<S> <C> <C>
Level One greater than 3x 2.0%
---------------------- ------------------------------------------ -----------------
Level Two greater than 2x less than or equal to 3x 1.5%
---------------------- ------------------------------------------ -----------------
Level Three greater than 1.5x less than or equal to 2x 1.25%
---------------------- ----------------------- ------------------ -----------------
Level Four greater than 1x less than or equal to 1.5x 1.0%
---------------------- ------------------------------------------ -----------------
Level Five less than or equal to 1x .75%
---------------------- ------------------------------------------ ------------------
<FN>
*Calculated on a rolling four quarter basis
</TABLE>
(b) one half of one percent (1/2%) per annum in the case of a
subject LC that is a "commercial" letter of credit.
2D.06 REIMBURSEMENT -- Borrower agrees to reimburse NATIONAL CITY for
each draft or other item paid by Bank pursuant to or otherwise in
respect of any subject LC.
-8-
<PAGE> 15
3A. INFORMATION -- Borrower agrees that so long as the revolving commitment
remains in effect and thereafter until the subject indebtedness shall have been
paid in full, Borrower will perform and observe each of the following:
3A.01 FINANCIAL STATEMENTS -- Borrower will furnish to the Banks
(a) within forty-five (45) days after the end of each of the
first three quarter-annual periods of each of Borrower's
fiscal years, Borrower's balance sheet as at the end of the
period and its statements of cash flow, income and surplus
reconciliation for Borrower's current fiscal year to date, all
prepared (but unaudited) on a comparative basis with the prior
year, in accordance with GAAP (EXCEPT as disclosed therein)
and in form and detail satisfactory to the Banks,
(b) as soon as available (and in any event within one hundred
twenty (120) days after the end of each of Borrower's fiscal
years), a complete copy of an annual audit report (including,
without limitation, all financial statements therein and notes
thereto) of Borrower for that year which shall be
(1) prepared on a comparative basis with the prior year, in accordance
with GAAP (EXCEPT as disclosed therein) and in form and detail
satisfactory to the Banks,
(2) certified (without qualification as to GAAP) by independent public
accountants selected by Borrower and satisfactory to the Banks,
(3) accompanied by a copy of any management report, letter or similar
writing furnished to Borrower by the accountants in respect of
Borrower's systems, operations, financial condition or properties, and
(4) either (A) a written statement of the accountants that in making
the examination nec- essary for their report or opinion they obtained
no knowledge of the occurrence of any de- fault under this Agreement or
(B) if they know of any, their written disclosure of its nature and
status, PROVIDED, that the accountants shall not be liable directly or
indir- ectly to anyone for any failure to obtain knowledge of any
default under this Agreement,
(c) concurrently with the delivery of any financial statement
to a Bank pursuant to clause (a) or (b), a certificate by
Borrower's chief financial officer
(1) certifying that to the best of the officer's
knowledge and belief, (A) those financial statements
fairly present in all material respects Borrower's
financial condition and the results of its operations
in accordance with GAAP subject, in the case of
interim financial statements, to routine year-end
audit adjustments and (B) no default under this
Agreement then exists or if any does, a brief
description of the default and Borrower's intentions
in respect thereof, and
(2) setting forth calculations indicating whether or
not Borrower is in compliance with the general
financial standards of section 3B, and
-9-
<PAGE> 16
(d) forthwith upon a Bank's written request, such other
information in writing about Borrower's financial condition,
properties and operations and about its pension plans, if any,
as such Bank may from time to time reasonably request.
3A.02 NOTICE -- Borrower will cause its chief financial officer, or in
his absence another officer designated by Borrower, to give Agent
prompt written notice whenever any officer of Borrower
(a) reasonably believes (or receives notice from any
governmental agency alleging) that any reportable event has
occurred in respect of any pension plan or that Borrower has
become in material non-compliance with any law or governmental
order referred to in subsection 3C.06 if non-compliance
therewith would materially and adversely affect Borrower's
financial condition or its properties,
(b) receives from the Internal Revenue Service or any other
federal, state or local taxing authority any allegation of any
default by Borrower in the payment of any tax that is material
in amount or notice of any assessment in respect thereof,
(c) learns there has been brought against Borrower before any
court, administrative agency or arbitrator any litigation or
proceeding which, if successful, might have a material,
adverse effect on Borrower,
(d) reasonably believes that any representation or warranty
made in subsections 4B.01 through 4B.08 (both inclusive) shall
have ceased in any material respect to be true and complete or
that any default under this Agreement shall have occurred or
(e) reasonably believes that there has occurred or begun to
exist any other event, condition or thing that likely may have
a material, adverse effect on Borrower's financial condition,
operations or properties.
3B. GENERAL FINANCIAL STANDARDS -- Borrower agrees that so long as the subject
commitment remains in effect and thereafter until the subject indebtedness shall
have been paid in full, Borrower will perform and observe each of the following:
3B.01 NET WORTH -- Borrower will not suffer or permit the sum of its
net worth plus its subordinated indebtedness, if any, as at the end of
each fiscal quarter of Borrower to be less than the required minimum
amount in effect at the time in question. The required minimum amount
shall be ninety million dollars ($90,000,000) EXCEPT that that amount
shall be permanently increased
(a) on December 31, 1997 and on each December 31 thereafter by
an amount equal to fifty percent (50%) of Borrower's net
income, after tax, and
(b) upon each issuance or other sale by Borrower of any of its
capital stock an amount equal to the net proceeds (after costs
and expenses) thereof and, in the case of the issuance of
capital stock as payment for all or a portion of the purchase
price the stock or assets of another entity, less the costs
and expenses of the acquisition.
-10-
<PAGE> 17
3B.02 DEBT TO CAPITALIZATION -- Borrower will not suffer or permit as
at the end of each fiscal quarter of Borrower the ratio of its funded
indebtedness to its funded indebtedness plus its net worth to exceed
sixty percent (60%). For purposes of this subsection, revolving loans
shall constitute funded indebtedness.
3B.03 FIXED CHARGE COVERAGE RATIO -- Borrower will not, as at each
fiscal quarter of Borrower, suffer or permit the aggregate of
(a) its net income for the immediately preceding four (4)
fiscal quarters of Borrower plus
(b) its interest expense for the immediately preceding four
(4) fiscal quarters of Borrower plus
(c) its depreciation and amortization expense for the
immediately preceding four (4) fiscal quarters of Borrower
plus
(d) the amount provided for its federal, state and local
income taxes for the immediately preceding four (4) fiscal
quarters of Borrower (OTHERWISE KNOWN AS EBITDA)
to be less than an amount equal to one and one-tenth (1.10) times the
sum of its interest expense, principal payments on indebtedness,
capital expenditures (net of asset sales) and cash distributions to
shareholders (OTHERWISE KNOWN AS FIXED CHARGES) for the four (4) fiscal
quarters in question.
3B.04 FUNDED DEBT/EBITDA -- Borrower will not, as at the end of each
fiscal quarter of Borrower, suffer or permit the ratio of its funded
indebtedness to its EBITDA, for the previous four (4) quarters, to
exceed three hundred twenty-five percent (325%). For purposes of this
subsection, revolving loans shall constitute funded indebtedness.
3C. AFFIRMATIVE COVENANTS -- Borrower agrees that so long as the revolving
commitments remain in effect and thereafter until the subject indebtedness shall
have been paid in full, Borrower will perform and observe each of the following:
3C.01 TAXES -- Borrower will pay in full
(a) prior in each case to the date when penalties for the
nonpayment thereof would attach, all taxes, assessments and
governmental charges and levies for which it may be or become
subject and
(b) prior in each case to the date the claim would become
delinquent for non-payment, all other lawful claims (whatever
their kind or nature) which, if unpaid, might become a lien or
charge upon its property;
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<PAGE> 18
PROVIDED, that no item need be paid so long as and to the extent that
it is contested in good faith and by timely and appropriate proceedings
which are effective to stay enforcement thereof.
3C.02 FINANCIAL RECORDS -- Borrower will at all times keep true and
complete financial records in accordance with GAAP and, without
limiting the generality of the foregoing, make appropriate accruals to
reserves for estimated and contingent losses and liabilities.
3C.03 VISITATION -- Borrower will permit the Banks at all reasonable
times
(a) to visit and inspect Borrower's properties and examine its
records at Banks' expense and to make copies of and extracts
from such records, and
(b) to consult with Borrower's directors, officers,
accountants, actuaries, trustees and plan administrators in
respect of its financial condition, properties and operations
and the financial condition of its pension plans, each of
which parties is hereby authorized to make such information
available to the Banks to the same extent that it would to
Borrower.
3C.04 INSURANCE -- Borrower will
(a) keep itself and all of its insurable properties insured at
all times to such extent, with such deductibles, by such
insurers and against such hazards and liabilities as is
generally and prudently done by like businesses, EXCEPT that
if a more specific standard is provided in any related
writing, the more specific standard shall prevail, and
(b) forthwith upon a Bank's written request, furnish to such
Bank such information about Borrower's insurance as such Bank
may from time to time reasonably request, which information
shall be prepared in form and detail reasonably satisfactory
to such Bank and certified by an officer of Borrower.
3C.05 CORPORATE EXISTENCE -- Borrower will at all times maintain its
corporate existence, rights and franchises.
3C.06 COMPLIANCE WITH LAW -- Borrower will comply with all laws
(whether federal, state or local and whether statutory, administrative
or judicial or other) and with every lawful governmental order (whether
administrative or judicial) and will, without limiting the generality
of the foregoing,
(a) use and operate all of its facilities and properties in
material compliance with all environmental laws and handle all
hazardous materials in material compliance therewith; keep in
full effect each permit, approval, certification, license or
other authorization required by any environmental law for the
conduct of any material portion of its business; and comply in
all other material respects with all environmental laws;
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<PAGE> 19
(b) make a full and timely payment of premiums required by
ERISA and perform and observe all such further and other
requirements of ERISA such that no default under ERISA shall
occur or begin to exist; and
(c) comply with all material requirements of all occupational
health and safety laws;
PROVIDED, that this subsection shall not apply to any of the foregoing
(i) if and to the extent that the same shall be contested in
good faith by timely and appropriate proceedings which are
effective to stay enforcement thereof and against which
appropriate reserves shall have been established or
(ii) in any other case if non-compliance therewith would not
materially and adversely affect Borrower's financial
condition, properties or business.
3C.07 PROPERTIES -- Borrower will maintain all fixed assets necessary
to its continuing operations in good working order and condition,
ordinary wear and tear excepted.
3D. NEGATIVE COVENANTS -- Borrower agrees that so long as the revolving
commitment remains in effect and thereafter until the subject indebtedness shall
have been paid in full, Borrower will perform and observe each of the following:
3D.01 EQUITY TRANSACTIONS -- Borrower will not
(a) be a party to any merger or consolidation,
(b) purchase or otherwise acquire all or substantially all of
the assets and business of any corporation or other business
enterprise,
(c) create, acquire or hold any subsidiary, or be or become a
party to any joint venture or partnership, or make or keep any
investment in any stocks or other equity securities of any
kind other than any investment fully disclosed in Borrower's
most recent 4A.04 financial statements or in the supplemental
schedule or
(d) lease as lessor, sell, sell-leaseback or otherwise
transfer (whether in one transaction or a series of
transactions) all or any substantial part of its fixed assets
EXCEPT chattels that shall have become obsolete or no longer
useful in its present business;
PROVIDED, that this subsection shall not apply to
(i) any transaction referred to in clause (a) or (b) if (1)
after giving effect thereto, the nature of Borrower's
business, viewed on a consolidated basis, shall not be
materially different from that at the date of this Agreement
and (2) there shall have been executed and delivered to Agent
and each Bank an assumption agreement (to be in form and
substance satisfactory to Agent and the Banks) by the
surviving corporation (if not Borrower) in the case of any
merger, by the resulting corporation in the case of any
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<PAGE> 20
consolidation and (iii) no default or event of default under
this Agreement exists or would exist after giving effect to
such transaction,
(ii) any investment including a joint venture or partnership
where such investment is used by Borrower or by a subsidiary
or affiliate of Borrower to invest in transportation
businesses, provided, that the aggregate amount of all such
investments does not at any time exceed fifty million dollars
($50,000,000),
(iii) the sale of other fixed assets not exceeding twenty-five
million dollars ($25,000,000 or
(iv) the creation of subsidiaries to engage in a
transportation business.
3D.02 CREDIT EXTENSIONS -- Borrower will not
(a) make or keep any investment in any notes, bonds or other
obligations of any kind for the payment of money or make or
have outstanding at any time any advance or loan to anyone or
(b) be or become a guarantor of any kind;
PROVIDED, that this subsection shall not apply to
(i) any existing or future advance made to an officer or
employee of Borrower solely for the purpose of paying ordinary
and necessary business expenses of Borrower,
(ii) any existing or future investment in direct obligations
of the United States of America or any agency thereof, or in
certificates of deposit issued by a Bank, or in any other
money-market investment (including commercial paper) if it
carries the highest quality rating of any
nationally-recognized rating agency, PROVIDED, that no such
investment shall mature more than ninety (90) days after the
date when made,
(iii) any existing investment, advance, loan or guaranty fully
disclosed in Borrower's most recent 4A.04 financial statements
or in the supplemental schedule,
(iv) any existing or future guaranty of any direct or
contingent obligation owing to a Bank.
(v) any endorsement of a check or other medium of payment for
deposit or collection, or any similar transaction in the
normal course of business,
(vi) any temporary advance to or guaranty of an obligation of
an employee, provided that the aggregate of all such advances
or guaranties at any one time shall not exceed one million
five hundred thousand dollars ($1,500,000), or
(vii) any guaranty of the debt of a subsidiary, not to exceed
ten million dollars ($10,000,000) of debt in the aggregate to
all subsidiaries.
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<PAGE> 21
3D.03 BORROWINGS -- Borrower will not create, assume or have
outstanding at any time any indebtedness for borrowed money or any
funded indebtedness of any kind; PROVIDED, that this subsection shall
not apply to
(i) the subject indebtedness or any other debt owing to the
Banks,
(ii) any existing or future indebtedness secured by a purchase
money security interest permitted by subsection 3D.04 or
incurred under a lease permitted by subsection 3D.04 or
(iii) any existing indebtedness or proposed subordinated
indebtedness fully disclosed in Borrower's most recent 4A.04
financial statements or in the supplemental schedule or any
renewal or extension thereof in whole or in part.
3D.04 LIENS, LEASES -- Borrower will not
(a) lease any property as lessee or acquire or hold any
property subject to any land contract, inventory consignment
or other title retention contract,
(b) sell or otherwise transfer any receivables, whether with
or without recourse
(c) suffer or permit any property now owned or hereafter
acquired by it to be or become encumbered by any mortgage,
security interest, lien or financing statement or
(d) enter into any agreement or other arrangement which would
prohibit Borrower or any subsidiary to create, incur or permit
to exist any lien upon any of its property or assets.
PROVIDED, that this subsection shall not apply to
(i) any tax lien, or any lien securing workers' compensation
or unemployment in- surance obligations, or any mechanic's
carrier's or landlord's lien, or any lien arising under ERISA,
or any security interest arising under article four (bank
deposits and collections) or five (letters of credit) of the
Uniform Commercial Code, or any similar security interest or
other lien, EXCEPT that this clause (i) shall apply only to
security interests and other liens arising by operation of law
(whether statutory or common law) and in the ordinary course
of business and shall not apply to any security interest or
other lien that secures any indebtedness for borrowed money or
any guaranty thereof or any obligation that is in material
default in any manner (other than any default contested in
good faith by timely and appropriate proceedings effective to
stay enforcement of the security interest or other lien in
question),
(ii) zoning or deed restrictions, public utility easements,
minor title irregularities and similar matters having no
adverse effect as a practical matter on the ownership or use
of any of the property in question,
(iii) any lien securing or given in lieu of surety, stay,
appeal or performance bonds, or securing performance of
contracts or bids (other than contracts for the payment of
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<PAGE> 22
money borrowed), or deposits required by law or governmental
regulations or by any court order, decree, judgment or rule or
as a condition to the transaction of business or the exercise
of any right, privilege or license, EXCEPT that this clause
(iii) shall not apply to any lien or deposit securing an
obligation that is in material default in any manner (other
than any default contested in good faith by timely and
appropriate proceedings effective to stay enforcement of the
security interest or other lien in question),
(iv) any mortgage, security interest or other lien securing
Borrower's debt to the Banks or securing Borrower's debt to
another lender if such debt was assumed by Borrower in
connection with a merger or an acquisition,
(v) any mortgage, capitalized lease, security interest or
other lien (each, a "purchase money security interest") which
is created or assumed in purchasing, constructing or improving
any real property or equipment or to which any such property
is subject when purchased, PROVIDED, that (A) the purchase
money security interest shall be confined to the aforesaid
property, (B) the indebtedness secured thereby does not exceed
the total cost of the purchase, construction or improvement
and (C) any such indebtedness, if repaid in whole or in part,
cannot be reborrowed,
(vi) any lease other than any capitalized lease (it being
agreed that a capitalized lease is a lien rather than a lease
for the purposes of this Agreement) so long as the aggregate
annual rentals of all such leases do not exceed two million
five hundred thousand dollars ($2,500,000),
(vii) any mortgage, security interest or other lien which
(together with the indebtedness secured thereby) is fully
disclosed in Borrower's most recent 4A.04 financial statements
or in the supplemental schedule,
(viii) any financing statement perfecting a security interest
that would be permissible under this subsection or
(ix) any renewal, extension or refinancing of any of the
above.
3D.05 FIXED ASSETS -- Borrower will not invest (net after trade-ins, if
any) in fixed assets and leasehold improvements during any fiscal year
(commencing with the present year) more than thirty million dollars
($30,000,000).
4A. CLOSING -- Prior to or at the execution and delivery of this Agreement
Borrower shall have complied or caused compliance with each of the following:
4A.01 SUBJECT NOTES -- Borrower shall execute and deliver to each Bank
a revolving note in accordance with subsection 2B.01.
4A.02 RESOLUTIONS/INCUMBENCY -- Borrower's secretary or assistant
secretary shall have certified to the Banks (a) a copy of resolutions
duly adopted by Borrower's board of directors in respect of this
Agreement and (b) the names and true signatures of
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<PAGE> 23
officers authorized to execute and deliver this Agreement and related
writings on behalf of Borrower.
4A.03 LEGAL OPINION -- Borrower's counsel shall have rendered to the
Banks their written opinion in respect of the matters referred to in
subsections 4B.01, 4B.02, 4B.03 and 4B.04 and in respect of the
perfection of each mortgage, security interest or other lien referred
to in this section 4A, which opinion shall be in such form and
substance (and may be subject only to such qualifications and
exceptions, if any) as shall be satisfactory to Agent.
4A.04 FINANCIAL STATEMENTS -- Borrower shall have furnished to each
Bank at least one true and complete copy of each of the following:
Borrower's annual audit report (including, without limitation, all
financial statements therein and notes thereto and the accompanying
accountants' certificate and management report) prepared as at December
31, 1996 and annual audit reports for each of Borrower's two next
preceding fiscal years (each having been certified by Arthur Anderson)
and Borrower's unaudited interim financial statements prepared as at
June 30, 1997.
4A.05 UPFRONT FEE -- Borrower shall have paid Agent an upfront fee of
fifty thousand dollars ($50,000) to be shared by the Banks on a prorata
basis.
4A.06 DOCUMENTATION FEE -- Borrower shall have paid Agent a
documentation fee of ten thousand dollars ($10,000).
4B. WARRANTIES -- Subject only to such additions and exceptions, if any, as may
be set forth in the supplemental schedule or in Borrower's most recent 4A.04
financial statements, Borrower represents and warrants as follows:
4B.01 EXISTENCE -- Borrower is a duly organized and validly existing
Ohio corporation in good standing. Borrower is duly qualified to
transact business in each state or other jurisdiction in which it owns
or leases any real property or in which the nature of the business
conducted makes such qualification necessary or, if not so qualified,
such failure to qualify will have no material adverse effect upon
Borrower's financial condition and its ability to transact business.
4B.02 GOVERNMENTAL RESTRICTIONS -- No registration with or approval of
any governmental agency of any kind is required on the part of Borrower
for the due execution and delivery or for the enforceability of this
Agreement or any related writing.
4B.03 CORPORATE AUTHORITY -- Borrower has requisite corporate power and
authority to enter into this Agreement and to obtain and secure the
subject loans in accordance with this Agreement. The officer executing
and delivering this Agreement on behalf of Borrower has been duly
authorized to do so and to execute and deliver subject notes and other
related writings in accordance with section 4A. Neither the execution
and
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<PAGE> 24
delivery of this Agreement or any related writing by Borrower nor its
performance and observance of the respective provisions thereof will
violate any existing provision in its articles of incorporation,
regulations or by-laws or any applicable law or violate or otherwise
constitute a default under any contract or other obligation now
existing and binding upon it. Upon the execution and delivery thereof,
this Agreement and the aforesaid related writings will each become a
valid and binding obligation enforceable against Borrower according to
their respective tenors subject, however, to any applicable insolvency
or bankruptcy law of general applicability and general principles of
equity.
4B.04 LITIGATION -- No litigation or proceeding is pending against
Borrower before any court, administrative agency or arbitrator which
could reasonably be expected to have a material adverse effect on
Borrower.
4B.05 TAXES -- Borrower has filed all federal, state and local tax
returns which are required to be filed by it and paid all taxes due as
shown thereon (EXCEPT to the extent, if any, permitted by subsection
3C.01). The Internal Revenue Service has audited Borrower's tax returns
through the year ended December 31, 1992 and has not alleged any
material default by Borrower in the payment of any tax material in
amount or threatened to make any assessment in respect thereof which
has not been reflected in Borrower's most recent 4A.04 financial
statements.
4B.06 TITLE -- Borrower has good and marketable title to all assets
reflected in its most recent 4A.04 financial statements EXCEPT for
changes resulting from transactions in the ordinary course of business.
All such assets are clear of any mortgage, security interest or other
lien of any kind other than any permitted by subsection 3D.04.
4B.07 LAWFUL OPERATIONS -- Borrower's operations have at all relevant
times been and continue to be in material compliance with all
requirements imposed by law, whether federal, state or local, whether
statutory, regulatory or other, including (without limitation) ERISA,
all environmental laws, and occupational safety and health laws and all
zoning ordinances. Without limiting the generality of the foregoing,
(a) no condition exists at, on or under any facility or other
property now or previously owned by Borrower which would give
rise to any material liability under any environmental law;
and Borrower has not received any notice from any governmental
agency, court or anyone else that it is a potentially
responsible party for the clean-up of any environmental waste
site, is in violation of any environmental permit or law or
has been placed on any registry of solid or hazardous waste
disposal site;
(b) No material accumulated funding deficiency exists in
respect of any of Borrower's pension plans; and no reportable
event has occurred in respect of any such plan which is
continuing and which constitutes grounds either for
termination of the plan or for court appointment of a trustee
for the administration thereof.
4B.08 INSURANCE -- Borrower's insurance coverage complies with the
standards set forth in subsection 3C.04.
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<PAGE> 25
4B.09 FINANCIAL STATEMENTS -- Each of the financial statements referred
to in subsection 4A.04 has been prepared in accordance with generally
accepted accounting principles applied on a basis consistent with those
used by it during its then next preceding full fiscal year EXCEPT to
the extent, if any, specifically noted therein and fairly presents in
all material respects (subject to routine year-end audit adjustments in
the case of the unaudited financial statements) Borrower's financial
condition as of the date thereof (including a full disclosure of
material contingent liabilities, if any) and the results of its
operations, if any, for the fiscal period then ending. There has been
no material adverse change in Borrower's financial condition,
properties or business since the date of Borrower's most recent 4A.04
financial statements nor any change in its accounting procedures since
the end of Borrower's latest full fiscal year covered by those
statements.
4B.10 DEFAULTS -- No default under this Agreement exists, nor will any
exist immediately after the execution and delivery of this Agreement.
5A. EVENTS OF DEFAULT -- Each of the following shall constitute an event of
default hereunder:
5A.01 PAYMENTS -- If any principal included in the subject indebtedness
shall not be paid in full promptly when the same becomes payable; or if
any subject indebtedness (EXCEPT principal) or any of Borrower's other
debt to the Banks (EXCEPT any payable on demand) shall not be paid in
full promptly when the same becomes payable and shall remain unpaid for
ten (10) consecutive days thereafter; or if such of Borrower's debt, if
any, to Bank, as may be payable on demand shall not be paid in full
within ten (10) days after any actual demand for payment.
5A.02 WARRANTIES -- If any representation, warranty or statement made
in this Agreement or in any related writing referred to in section 4A
shall be false or erroneous in any material respect; or if any
representation, warranty or statement hereafter made by or on behalf of
Borrower in any related writing not referred to in section 4A shall be
false or erroneous in any material respect.
5A.03 COVENANTS WITHOUT GRACE -- If Borrower shall fail or omit to
perform or observe any provisions in subsections 3A.02 or 3B.04.
5A.04 COVENANTS WITH GRACE -- If anyone (other than Bank and its
agents) shall fail or omit to perform and observe any agreement (other
than those referred to in subsection 5A.01 or 5A.03) contained in this
Agreement or any related writing that is on its part to be complied
with, and that failure or omission shall not have been fully corrected
within thirty (30) days after the giving of written notice to Borrower
by Agent that it is to be remedied.
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<PAGE> 26
5A.05 CROSS-DEFAULT -- If any of Borrower's indebtedness for borrowed
money (regardless of maturity) or any of its funded indebtedness shall
be or become "IN DEFAULT" (as defined below). In this subsection, IN
DEFAULT means that (a) there shall have occurred (or shall exist) in
respect of the indebtedness in question (either as in effect at the
date of this Agreement or as in effect at the time in question) any
event, condition or other thing which constitutes, or which with the
giving of notice or the lapse of any applicable grace period or both
would constitute, a default which accelerates (or permits any creditor
or creditors or representative of creditors to accelerate) the maturity
of any such indebtedness in an amount in excess of two million dollars
($2,000,000); or (b) any such indebtedness (other than any payable on
demand) shall not have been paid in full at its stated maturity; or (c)
any such indebtedness payable on demand shall not have been paid in
full within ten (10) banking days after any actual demand for payment.
5A.06 BORROWER'S SOLVENCY -- If (a) Borrower shall discontinue
operations, or (b) Borrower shall commence any insolvency action of any
kind or admit (by answer, default or otherwise) the material
allegations of, or consent to any relief requested in, any insolvency
action of any kind commenced against Borrower by its creditors or any
thereof, or (c) any creditor or creditors shall commence against
Borrower any insolvency action of any kind which shall remain in effect
(neither dismissed nor stayed) for sixty (60) consecutive days.
5B. EFFECTS OF DEFAULT -- Notwithstanding any contrary provision or inference in
this Agreement or in any related writing:
5B.01 OPTIONAL DEFAULTS -- If any event of default referred to in
subsection 5A.01 through 5A.05, both inclusive, shall occur and be
continuing, the Banks shall have the right in their discretion, by
giving written notice to Borrower,
(a) to terminate the revolving commitment (if not already
expired or reduced to zero pursuant to section 2A or
terminated pursuant to this section) and the Banks shall have
no obligation thereafter to grant any revolving loan to
Borrower, and
(b) to accelerate the maturity of all of Borrower's debt to
the Banks (other than debt, if any, already due and payable),
and all such debt shall thereupon become and thereafter be
immediately due and payable in full without any presentment or
demand and without any further or other notice of any kind,
all of which are hereby waived by Borrower.
5B.02 AUTOMATIC DEFAULTS -- If any event of default referred to in
subsection 5A.06 shall occur,
(a) the revolving commitments shall automatically and
immediately terminate (if not already expired or reduced to
zero pursuant to section 2A or terminated pursuant to this
section) and the Banks shall have no obligation thereafter to
grant any revolving loan to Borrower, and
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<PAGE> 27
(b) all of Borrower's debt to the Banks (other than debt, if
any, already due and payable) shall automatically and
immediately become due and payable in full, all without any
presentment, demand or notice of any kind, which are hereby
waived by Borrower.
5B.03 OFFSETS -- If there shall occur or exist any default under this
Agreement referred to in subsection 5A.06, then, so long as that
default under this Agreement exists, the Banks shall have the right at
any time to set off against and to appropriate and apply toward the
payment of the subject indebtedness then owing to it, whether or not
the same shall then have matured, any and all deposit balances then
owing by a Bank to or for the credit or account of Borrower, all
without notice to or demand upon Borrower, all such notices and demands
being hereby expressly waived.
5B.04 EQUALIZATION -- Each Bank agrees with the other Banks that if at
any time it shall obtain any advantage over the other Banks or any
thereof in respect of the subject indebtedness it will purchase from
such other Bank or Banks, for cash and at par, such additional
participation in the subject indebtedness owing to the other or others
as shall be necessary to nullify the advantage. If any such advantage
resulting in the purchase of an additional participation as aforesaid
shall be recovered in whole or in part from the Bank receiving the
advantage, each such purchase shall be rescinded, and the purchase
price restored (with interest and other charges if and to the extent
actually incurred by the Bank receiving the advantage) ratably to the
extent of the recovery. During the existence of any default under this
Agreement, any payment (whether made voluntarily or involuntarily, by
offset of any deposit or other indebtedness or otherwise) of any
indebtedness for borrowed money owing by Borrower to any Bank shall be
applied to the subject indebtedness owing to that Bank until the same
shall have been paid in full before any thereof shall be applied to
other indebtedness for borrowed money owing to that Bank.
6A. INDEMNITY: STAMP TAXES -- Borrower will pay all stamp taxes and similar
taxes, if any, including interest and penalties, if any, payable in respect of
the issuance of the subject indebtedness.
6B. INDEMNITY: TAKEOVERS -- Borrower agrees to indemnify the Banks and hold the
Banks harmless from and against any and all liabilities, losses, damages, costs
and expenses of any kind (including, without limitation, the reasonable fees and
disbursements of counsel in connection with any investigative, administrative or
judicial proceeding, whether or not a Bank shall be designated a party thereto)
which may be incurred by a Bank relating to or arising out of any actual or
proposed use of proceeds of the subject loans in connection with the financing
of an acquisition of any corporation or other business entity, PROVIDED that a
Bank shall have no right to be indemnified hereunder for its own gross
negligence or willful misconduct as determined by a court of competent
jurisdiction.
6C. INDEMNITY: CAPITAL REQUIREMENTS -- If
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<PAGE> 28
(a) at any time any governmental authority shall require National City
Corporation or a Bank, whether or not the requirement has the force of
law, to maintain, as support for the revolving commitment, capital in a
specified minimum amount that either is not required or is greater than
that required at the date of this Agreement, whether the requirement is
implemented pursuant to the "risk-based capital guidelines" (published
at 12 CFR 3 in respect of "national banking associations", 12 CFR 208
in respect of "state member banks" and 12 CFR 225 in respect of "bank
holding companies") or otherwise, and
(b) as a result thereof the rate of return on capital of National City
Corporation or a Bank or both (taking into account their then policies
as to capital adequacy and assuming full utilization of their capital)
shall be directly or indirectly reduced by reason of any new or added
capital thereby allocable to the revolving commitment,
then and in each such case Borrower shall, on a Bank's demand, pay such Bank as
an additional fee such amounts as will in that Bank's reasonable opinion
reimburse National City Corporation and such Bank for any such reduced rate of
return.
6D. INDEMNITY: COLLECTION COSTS -- If any event of default shall occur and shall
be continuing, Borrower will pay Agent such further amounts, to the extent
permitted by law, as shall cover Agent's costs and expenses (including, without
limitation, the reasonable fees, interdepartmental charges and disbursements of
its counsel) incurred in collecting the subject indebtedness or in otherwise
enforcing its rights and remedies in respect thereof.
6E. INDEMNITY: FUNDING COSTS -- Borrower agrees to indemnify each Bank against
any loss relating in any way to its funding of any LIBOR loan paid before its
stated maturity (whether a prepayment or a payment following any acceleration of
maturity) and to pay that Bank, as liquidated damages for any such loss, an
amount (discounted to the present value in accordance with standard financial
practice at a rate equal to the treasury yield) equal to interest computed on
the principal payment from the payment date to the respective stated maturities
thereof at a rate equal to the difference of the contract rate less the treasury
yield, all as determined by that Bank in its reasonable discretion. TREASURY
YIELD means the annual yield on direct obligations of the United States having a
principal amount and maturity similar to that of the principal being paid.
6F. CERTIFICATE FOR INDEMNIFICATION -- Each demand by Agent or a Bank for
payment pursuant to section 6A, 6B, 6C 6D or 6E shall be accompanied by a
certificate setting forth the reason for the payment, the amount to be paid, and
the computations and assumptions in determining the amount, which certificate
shall be presumed to be correct in the absence of manifest error. In determining
the amount of any such payment, Agent or a Bank may use reasonable averaging and
attribution methods.
7A. BANKS' PURPOSE -- The Banks represents and warrants to Borrower that the
Banks are familiar with the Securities Act of 1933 as amended and the rules and
regulations thereunder and is not entering into this Agreement with any
intention of violating that Act or any rule or
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<PAGE> 29
regulation thereunder, it being understood, however, that the Banks shall at all
times retain full control of the disposition of their assets.
7B. AGENT -- Each Bank irrevocably appoints National City to be its agent (in
that capacity, AGENT) with full authority to take such actions, and to exercise
such powers, on behalf of the Banks in respect of this Agreement and the related
writings as are therein respectively delegated to Agent or as are reasonably
incidental to those delegated powers.
7B.01 NATURE OF APPOINTMENT -- Agent shall have no fiduciary
relationship with any Bank by reason of this Agreement (except with
respect to payments) and the related writings, nor shall Agent have any
duty or responsibility whatever to any Bank except those expressly set
forth in this Agreement and the related writings. Without limiting the
generality of the foregoing, each Bank acknowledges that Agent is
acting as such solely as a convenience to the Banks and not as a
manager of the subject commitments or subject indebtedness. This
section 7B does not confer any rights upon Borrower or anyone else
(except the Banks), whether as a third party beneficiary or otherwise.
7B.02 NATIONAL CITY AS A BANK; OTHER TRANSACTIONS -- National City's
rights under this Agreement and the related writings shall not be
affected by its serving as Agent. National City and its affiliates may
generally transact any banking, financial, trust, advisory or other
business with the companies (including, without limitation, the
acceptance of deposits, the extension of credit and the acceptance of
fiduciary appointments) without notice to the Banks, without accounting
to the Banks, and without prejudice to National City's rights as a Bank
under this Agreement and the related writings
7B.03 INSTRUCTION FROM BANKS -- Agent shall not be required to exercise
any discretion or take any action as to matters not expressly provided
for by this Agreement and the related writings (including, without
limitation, collection and enforcement actions in respect of the
subject indebtedness and any collateral therefor) EXCEPT that Agent
shall take such action (or omit to take such action) as may be
reasonably requested of it in writing by the Banks, which instructions
and which actions and omissions shall be binding upon all the Banks;
PROVIDED, that Agent shall not be required to act (or omit any act) if,
in its judgment, any such action or omission might expose Agent to
personal liability or might be contrary to this Agreement, any related
writing or any applicable law.
7B.04 BANKS' DILIGENCE -- Each Bank
(a) represents and warrants that it has made its decision to
enter into this Agreement and the related writings and
(b) agrees that it will make its own decision as to taking or
not taking future actions in respect of this Agreement and the
related writings
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in each case without reliance on Agent or any other Bank and on the
basis of its independent credit analysis and its independent
examination of and inquiry into such documents and other matters as it
deems relevant and material.
7B.05 NO IMPLIED REPRESENTATIONS -- Agent shall not be liable for any
representation, warranty, agreement or obligation of any kind of any
other party to this Agreement or anyone else, whether made or implied
by any company in this Agreement or any related writing or by a Bank in
any notice or other communication or by anyone else or otherwise.
7B.06 SUB-AGENTS -- Agent may employ agents and shall not be liable
(except as to money or property received by it or its agents) for any
negligence or misconduct of any such agent selected by it with
reasonable care. Agent may consult with legal counsel, certified public
accountants and other experts of its choosing (including, without
limitation, NATIONAL CITY's salaried employees, any employed by
Borrower or any otherwise not independent) and shall not be liable for
any action or inaction taken or suffered in good faith by it in
accordance with the advice of any such counsel, accountants or other
experts.
7B.07 AGENT'S DILIGENCE -- Agent shall not be required (a) to keep
itself informed as to anyone's compliance with any provision of this
Agreement or any related writing, (b) to make any inquiry into the
properties, financial condition or operations of any company or any
other matter relating to this Agreement or any related writing, (c) to
report to any Bank any information (other than which this Agreement or
any related writing expressly requires to be so reported) that Agent or
any of its affiliates may have or acquire in respect of any company's
properties, business or financial condition or any other matter
relating to this Agreement or any related writing or (d) to inquire
into the validity, effectiveness or genuineness of this Agreement or
any related writing.
7B.08 NOTICE OF DEFAULT -- Agent shall not be deemed to have knowledge
of any default under this Agreement unless and until it shall have
received a written notice describing it and citing the relevant
provision of this Agreement or any related writing.
7B.09 AGENT'S LIABILITY -- Neither Agent nor any of its directors,
officers, employees, attorneys and other agents shall be liable for any
action or omission on their respective parts except for gross
negligence or willful misconduct.
7B.10 COMPENSATION -- Borrower agrees to pay Agent annually, in
advance, an agency fee described in a separate letter agreement between
Borrower and Agent. Agent shall receive no other compensation for its
services as agent of the Banks in respect of this Agreement and the
related writings, but Borrower shall reimburse Agent periodically on
its demand for out-of-pocket expenses, if any, reasonably incurred by
it as such, and agreed to by Borrower.
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7B.11 DISBURSEMENTS -- Whenever Agent shall receive any funds in
respect of the subject indebtedness or otherwise in respect of this
Agreement or any related writing, whether from Borrower for the account
of the Banks or from the Banks for the account of Borrower, Agent shall
disburse the funds on the day the funds shall be deemed to have been
received. Agent shall be entitled (but not obligated) to make a timely
disbursement of loan proceeds to Borrower before actually receiving
funds from the Banks (except if and to the extent Agent shall have
received written instructions to the contrary from any Bank or Banks)
and to make a timely disbursement of payments to the Banks before
actually receiving funds from Borrower. If the funds to be disbursed
are not received by Agent on a timely basis, (a) Agent at its option
may (a) rescind the disbursement and require the disbursee to return
the funds in question with interest or (b) require the party who failed
to furnish the funds for disbursement on a timely basis to pay Agent
interest thereon the interest in each case to be computed at the
federal funds rate and to be paid on demand.
7B.12 AGENT'S INDEMNITY -- The Banks shall indemnify Agent (to the
extent Agent is not reimbursed by Borrower) from and against any loss
or liability (other than any caused by Agent's gross negligence or
willful misconduct) incurred by Agent as such in respect of this
Agreement or any related writing and from and against any out-of-pocket
expenses incurred in defending itself or otherwise related to this
Agreement or any related writing including, without limitation,
reasonable fees and disbursements of legal counsel of its own selection
(including, without limitation, the reasonable interdepartmental
charges of its salaried attorneys) in the defense of any claim against
it or in the prosecution of its rights and remedies as Agent; PROVIDED,
that each Bank shall be liable for only its ratable share of the whole
loss or liability.
7B.13 RESIGNATION -- Agent (or any successor) may resign as such at any
time upon sixty days' prior written notice to Borrower and to each
Bank, in which event a majority of the Banks may appoint a successor
agent by giving written notice thereof to Borrower, the resigning agent
and each Bank not participating in the appointment. In the absence of a
timely appointment, Agent shall have the right (but not the duty) to
make a temporary appointment of any Bank (but only with that Bank's
consent) to act as its successor pending an appointment pursuant to the
next preceding sentence. In either case, the successor agent shall
deliver its written acceptance of appointment to Borrower, to each Bank
and to the former agent, whereupon the successor agent shall
automatically acquire and assume all the rights and duties as those
prescribed for Agent by this section 7B. Any resigning agent shall
execute and deliver such assignments and other writings as the
successor agent may reasonably require to facilitate its becoming the
successor agent.
8. INTERPRETATION -- This Agreement and the related writings shall be governed
by the following provisions:
8.01 WAIVERS -- The Banks may from time to time in their discretion
grant Borrower waivers and consents in respect of this Agreement or any
related writing or assent to
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amendments thereof, but no such waiver or consent shall be binding upon
the Banks unless specifically granted by the Banks in writing, which
writing shall be strictly construed. Without limiting the generality of
the foregoing, Borrower agrees that no course of dealing in respect of,
nor any omission or delay in the exercise of, any right, power or
privilege by the Banks shall operate as a waiver thereof, nor shall any
single or partial exercise thereof preclude any further or other
exercise thereof or of any other, as each such right, power or
privilege may be exercised either independently or concurrently with
others and as often and in such order as the Banks may deem expedient.
8.02 CUMULATIVE PROVISIONS -- Each right, power or privilege specified
or referred to in this Agreement or any related writing is in addition
to and not in limitation of any other rights, powers and privileges
that the Banks may otherwise have or acquire by operation of law, by
other contract or otherwise.
8.03 BINDING EFFECT -- The provisions of this Agreement and the related
writings shall bind and benefit Borrower and the Banks and their
respective successors and assigns, including each subsequent holder, if
any, of the subject notes or any thereof; PROVIDED, that no person or
entity other than Borrower may obtain subject loans or subject LCs; and
PROVIDED, further, that neither any holder of any subject note or
assignee of any subject loan, whether in whole or in part, shall
thereby become obligated thereafter to grant to Borrower any subject
loan or have a subject LC issued on Borrower's behalf.
8.04 SURVIVAL OF PROVISIONS -- All representations and warranties made
in or pursuant to this Agreement or any related writing shall survive
the execution and delivery of this Agreement and the subject notes. The
provisions of section 6 shall survive the payment of the subject
indebtedness.
8.05 IMMEDIATE U.S. FUNDS -- Any reference to money is a reference to
lawful money of the United States of America which, if in the form of
credits, shall be in immediately available funds.
8.06 CAPTIONS -- The several captions to different sections and
subsections of this Agreement are inserted for convenience only and
shall be ignored in interpreting the provisions thereof.
8.07 SUBSECTIONS -- Each reference to a section includes a reference to
all subsections thereof (i.e., those having the same character or
characters to the left of the decimal point) EXCEPT where the context
clearly does not so permit.
8.08 ILLEGALITY -- If any provision in this Agreement or any related
writing shall for any reason be or become illegal, void or
unenforceable, that illegality, voidness or unenforceability shall not
affect any other provision.
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8.09 OHIO LAW -- This Agreement and the related writings and the
respective rights and obligations of the parties hereto shall be
construed in accordance with and governed by internal Ohio law.
8.10 INTEREST/FEE COMPUTATIONS -- All interest and all fees for any
given period shall accrue on the first day thereof but not on the last
day thereof and in each case shall be computed on the basis of a
360-day year and the actual number of days elapsed. In no event shall
interest accrue at a higher rate than the maximum rate, if any,
permitted by law.
8.11 NOTICE -- A notice to or request of Borrower shall be deemed to
have been given or made under this Agreement or any related writing
either upon the delivery of a writing to that effect (either in person
or by transmission of a telecopy) to an officer of Borrower or five (5)
days after a writing to that effect shall have been deposited in the
United States mail and sent, with postage prepaid, by registered or
certified mail, properly addressed to Borrower (Attention: chief
financial officer). No other method of actually giving actual notice to
or making a request of Borrower is hereby precluded. Every notice
required to be given to Bank pursuant to this Agreement or any related
writing shall be delivered (either in person or by transmission of a
telecopy) to an account officer of Bank. A notice or request by mail is
properly addressed to a party when addressed to it at the address set
forth opposite its signature below or at such other address as that
party may furnish to each of the others in writing for that purpose. A
telecopy is transmitted to a party when transmitted to the telecopy
number set forth opposite that party's signature below (or at such
other telecopy number as that party may furnish to the other in writing
for that purpose).
8.12 ACCOUNTING TERMS -- Any accounting term used in this Agreement
shall have the meaning ascribed thereto by GAAP subject, however, to
such modification, if any, as may be provided by section 9 or elsewhere
in this Agreement.
8.13 ENTIRE AGREEMENT -- This Agreement and the related writings
referred to in or otherwise contemplated by this Agreement set forth
the entire agreement of the parties as to the transactions contemplated
by this Agreement.
8.14 WAIVER OF JURY TRIAL -- The parties acknowledge and agree that any
controversy that may arise under this Agreement and the related
writings would involve difficult and complex issues and therefore agree
that any law suit growing out of or incidental to any such controversy
will be tried in a court of competent jurisdiction by a judge sitting
without a jury.
8.15 ASSIGNMENT -- Each Bank may, with the consent of Borrower, which
consent shall not be unreasonably withheld, assign its rights under
this Agreement or sell participations in all or any part of its subject
loans or subject LCs.
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<PAGE> 34
9. AMENDMENTS AND WAIVERS -- (a) Neither this Agreement nor any other related
writing, nor any terms hereof or thereof, may be amended, supplemented or
modified except in accordance with the provisions of this section. A majority of
the Banks, may, or, with the written consent of the majority of the Banks, Agent
may, from time to time, (a) enter into with the Borrower written amendments,
supplements or modifications hereto and to the other related writings for the
purpose of adding any provisions to this Agreement or the other related writings
or changing in any manner the rights or obligations of the Banks or of the
Borrower hereunder or thereunder or (b) waive at the Borrower's request, on such
terms and conditions as a majority of the Banks or Agent, as the case may be,
may specify in such instrument, and of the requirements of this Agreement or the
other related writings or any default under this Agreement or event of default
and its consequences; PROVIDED, HOWEVER, that no such waiver and no such
amendment, supplement or modification shall, unless one hundred percent (100%)
of the Banks agree thereto:
(i) reduce the amount or extend the scheduled date of maturity of any
subject loan or any reimbursement obligation or of any scheduled
installment thereof, or reduce the stat- ed rate of any interest or fee
payable hereunder or extend the scheduled date of any pay- ment thereof
or increase the amount or extend the expiration date of any Bank's
revolving commitment, in each case without the consent of each Bank
directly affected thereby,
(ii) amend, modify or waive any provision of this section 9 or reduce
the percentage specified in the definition of a majority of the Banks
without the written consent of all of the Banks,
(iii) release any guarantee or, in the aggregate, a material portion of
the collateral, except as expressly permitted hereby or by any
guarantee or security document (as such documents are in effect on the
date hereof or, if later, the date of execution and delivery thereof in
accordance with the terms hereof),
(iv) amend, modify or waive any provision of section 7B without the
written consent of Agent,
(v) amend, modify or waive the provisions of subsection 3D.01 relating
to equity transactions.
(b) Any waiver and any amendment, supplement or modification pursuant
to this section 9 shall apply to each of the Banks and shall be binding upon the
Borrower, the Banks, Agent and all future holders of the subject loans. In the
case of any waiver, the Borrower, the Banks and Agent shall be restored to their
former position and rights hereunder and under the related writings, and any
default under this Agreement or event of default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other default under this Agreement or event of default, or impair any right
consequent thereon.
10. DEFINITIONS -- As used in this Agreement and in the related writings, EXCEPT
where the context clearly requires otherwise,
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ACCOUNT OFFICER means that officer who at the time in question is
designated by a Bank as the officer having primary responsibility for
giving consideration to Borrower's requests for credit or, in that
officer's absence, that officer's immediate superior or any other
officer who reports directly to that superior officer;
ACCUMULATED FUNDING DEFICIENCY shall have the meaning ascribed thereto
in section 302(a)(2) of ERISA;
ADVANTAGE means any payment (whether made voluntarily or involuntarily,
by offset of any deposit or other indebtedness or otherwise) received
by a bank in respect of the subject indebtedness if the payment results
in that bank's having less than its ratable share of the subject
indebtedness in question;
AFFILIATE when used with reference to any corporation (or other
business entity) (the "subject") means, a corporation (or other
business entity) or person that is in control of or under the control
of or under common control (by another) with the subject, the term
CONTROL meaning the direct or indirect power to direct the management
or policies of the subject or the affiliate or both (as the case may
be), whether through the direct or indirect ownership of voting
securities, by contract or otherwise;
AGREEMENT means this Agreement and includes each amendment, if any, to
this Agreement;
BANK means National City Bank, PNC Bank, National Association or Star
Bank, National Association
BANKING DAY means any day other than a Saturday or a Sunday or a public
holiday or other day on which banking institutions in Cleveland, Ohio,
are generally closed and do not conduct a general banking business;
BORROWER means Stoneridge, Inc., an Ohio corporation;
CONTRACT PERIOD is defined in subsection 2C.03;
CREDIT EXPOSURE means the aggregate at the time in question of (a) the
unpaid principal of the revolving loans then owing plus (b) the undrawn
balance of the subject LCs then outstanding;
CREDIT REQUEST means a request made pursuant to subsection 2B.02;
DEBT means, collectively, all liabilities of the party or parties in
question to a Bank, whether owing by one such party alone or with one
or more others in a joint, several, or joint and several capacity,
whether now owing or hereafter arising, whether owing
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absolutely or contingently, whether created by loan, overdraft,
guaranty of payment or other contract or by quasi-contract or tort,
statute or other operation of law or otherwise, whether incurred
directly to a Bank or acquired by purchase, pledge or otherwise, and
whether participated to or from a Bank in whole or in part; and in the
case of Borrower includes, without limitation, the subject
indebtedness;
DEFAULT UNDER ERISA means (a) the occurrence or existence of a material
accumulated funding deficiency in respect of any of Borrower's pension
plans, (b) any failure by Borrower to make a full and timely payment of
premiums required by ERISA for insurance against any employer's
liability in respect of any such plan, (c) any material breach of a
fiduciary duty by Borrower or any trustee in respect of any such plan
or (d) the existence of any action for the forceable termination of any
such plan;
DEFAULT UNDER THIS AGREEMENT means an event, condition or thing which
constitutes (or which with the lapse of any applicable grace period or
the giving of notice or both would constitute) an event of default
referred to in section 5A and which has not been appropriately waived
in writing in accordance with this Agreement or corrected to Bank's
full satisfaction;
DISTRIBUTION means a payment made, liability incurred or other
consideration (other than any stock dividend or stock split payable
solely in capital stock of Borrower) given by Borrower for the
purchase, acquisition, redemption or retirement of any capital stock of
Borrower or as a dividend, return of capital or other distribution in
respect of Borrower's capital stock and DISTRIBUTE means to make a
distribution;
ENVIRONMENTAL LAW means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 USC 9601 et seq.), the Hazardous
Material Transportation Act (49 USC 1801 et seq.), the Resource
Conservation and Recovery Act (42 USC 6901 et seq.), the Federal Water
Pollution Control Act (33 USC 1251 et seq.), the Toxic Substances
Control Act (15 USC 2601 et seq.) and the Occupational Safety and
Health Act (29 USC 651 et seq.), as such laws have been or hereafter
may be amended, and any and all analogous future federal, or present or
future state or local, statutes and the regulations promulgated
pursuant thereto;
ERISA means the Employee Retirement Income Security Act of 1974 (P.L.
93-406) as amended from time to time and in the event of any amendment
affecting any section thereof referred to in this Agreement, that
reference shall be a reference to that section as amended,
supplemented, replaced or otherwise modified;
ERISA REGULATOR means any governmental agency (such as the Department
of Labor, the Internal Revenue Service and the Pension Benefit Guaranty
Corporation) having any regulatory authority over any of Borrower's
pension plans;
EVENT OF DEFAULT is defined in section 5A;
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EXPIRATION DATE means the date referred to as such in subsection 2A.02,
EXCEPT that in the event of any extension pursuant to subsection 2A.05,
"expiration date" shall mean the latest date to which the revolving
commitment shall have been so extended;
FEDERAL FUNDS RATE means a fluctuating interest rate per annum, as in
effect at the time in question, that is the rate determined by NATIONAL
CITY to be the opening federal funds rate per annum paid or payable by
it on the day in question in its regional federal funds market for
overnight borrowings from other banking institutions;
FUNDED INDEBTEDNESS means indebtedness of the person or entity in
question which matures or which (including each renewal or extension,
if any, in whole or in part) remains unpaid for more than twelve months
after the date originally incurred and includes, without limitation (a)
any indebtedness (regardless of its maturity) if it is renewable or
refundable in whole or in part solely at the option of that person or
entity (in the absence of default) to a date more than one year after
the date of determination, (b) any capitalized lease, (c) any guaranty
of funded indebtedness owing by another person or entity and (d) any
funded indebtedness secured by a security interest, mortgage or other
lien encumbering any property owned or being acquired by the person or
entity in question even if the full faith and credit of that person or
entity is not pledged to the payment thereof; PROVIDED, that in the
case of any indebtedness payable in installments or evidenced by serial
notes or calling for sinking fund payments, those payments maturing
within twelve months after the date of determination shall be
considered current indebtedness rather than funded indebtedness for the
purposes of section 3B but shall be considered funded indebtedness for
all other purposes;
GAAP means generally accepted accounting principles applied in a manner
consistent with those used in Borrower's latest fiscal year-end
financial statements referred to in subsection 4A.04;
GUARANTOR means one who pledges his credit or property in any manner
for the payment or other performance of the indebtedness, contract or
other obligation of another and includes (without limitation) any
guarantor (whether of collection or payment), any obligor in respect of
a standby letter of credit or surety bond issued for the obligor's
account, any surety, any co-maker, any endorser, and anyone who agrees
conditionally or otherwise to make any loan, purchase or investment in
order thereby to enable another to prevent or correct a default of any
kind; and GUARANTY means the obligation of a guarantor;
INSOLVENCY ACTION means either (a) a pleading of any kind filed by the
person, corporation or entity (an "insolvent") in question to seek
relief from the insolvent's creditors, or filed by the insolvent's
creditors or any thereof to seek relief of any kind against that
insolvent, in any court or other tribunal pursuant to any law (whether
federal, state or other) relating generally to the rights of creditors
or the relief of debtors or both, or (b) any other action of any kind
commenced by an insolvent or the insolvent's creditors or any thereof
for the
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purpose of marshalling the insolvent's assets and liabilities for the
benefit of the insolvent's creditors; and "insolvency action" includes
(without limitation) a petition commencing a case pursuant to any
chapter of the federal bankruptcy code, any application for the
appointment of a receiver, trustee, liquidator or custodian for the
insolvent or any substantial part of the insolvent's assets, and any
assignment by an insolvent for the general benefit of the insolvent's
creditors;
LIBOR PRE-MARGIN RATE means the rate per annum (rounded upwards, if
necessary, to the next higher 1/16 of 1%), as determined by Agent which
equals the average rate per annum at which deposits in United States
dollars are offered for deposits of the maturity and amount in
question, at 11:00 A.M. London time (or as soon thereafter as
practicable) two banking days prior to the first day of the contract
period in question, to Agent by prime banking institutions in the
London interbank eurodollar market;
LIBOR LOAN means a subject loan having a contract period described in
clause (b) of subsection 2C.03 and bearing interest in accordance with
clause (b) of subsection 2C.07;
MAJORITY OF THE BANKS means Banks which have committed seventy-five
percent (75%) (by amount) of the subject commitments as set forth is
subsection 2A.01;
MATERIAL means material as determined by the Banks in the reasonable
exercise of their discretion;
MOST RECENT 4A.04 FINANCIAL STATEMENTS means Borrower's most recent
financial statements that are referred to in subsection 4A.04;
NATIONAL CITY means National City Bank;
NET INCOME means net income as determined in accordance with GAAP,
after taxes and after extraordinary items, but without giving effect to
any gain resulting from any reappraisal or write-up of any asset;
NET WORTH means the excess (as determined in accordance with GAAP) of
the net book value (after deducting all applicable valuation reserves
and without any consideration to any re-appraisal or write-up of
assets) of Borrower's assets over Borrower's total liabilities;
PENSION PLAN means a defined benefit plan (as defined in section 3(35)
of ERISA) of Borrower and includes, without limitation, any such plan
that is a multi-employer plan (as defined in section 3(37) of ERISA)
applicable to any of Borrower's employees;
PRIME RATE means the fluctuating rate, as in effect at the time in
question, that is publicly announced by National City from time to time
in Cleveland, Ohio, as being its prime rate thereafter in effect;
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REFERENCE RATE means, on any given date, either the prime rate in
effect for that day or a rate equal to one percent (1%) per annum plus
the federal funds rate in effect for that day, whichever rate shall be
the higher for that day;
RELATED WRITING means any note, mortgage, security agreement, other
lien instrument, financial statement, audit report, notice, legal
opinion, credit request, officer's certificate or other writing of any
kind which is delivered to Bank and which is relevant in any manner to
this Agreement or any related writing and includes, without limitation,
the subject notes and the other writings referred to in sections 3A and
4A;
REPORTABLE EVENT has the meaning ascribed thereto by ERISA;
REVOLVING COMMITMENT means a Bank's commitment to extend credit to
Borrower pursuant to sections 2A and 2D of this Agreement and upon the
terms, subject to the conditions of this Agreement and in accordance
with the other provisions of this Agreement;
REVOLVING LOAN means a loan obtained by Borrower pursuant to
subsections 2A and 2B of this Agreement and evidenced by a revolving
note;
REVOLVING NOTE means a note executed and delivered by Borrower and
being in the form and substance of Exhibit B with the blanks
appropriately filled;
RR LOAN means a subject loan maturing in the manner described in the
first sentence of subsection 2C.04 and bearing interest in accordance
with subsection 2C.06;
SUBJECT INDEBTEDNESS means, collectively, the principal of and interest
on the subject loans and all fees and other liabilities, if any,
incurred by Borrower to the Banks pursuant to this Agreement or any
related writing;
SUBJECT LC means a letter of credit issued by National City in
accordance with section 2D;
SUBJECT LOAN means a loan obtained by Borrower pursuant to this
Agreement;
SUBJECT NOTE means a note executed and delivered by Borrower and being
in the form and substance of Exhibit B with the blanks appropriately
filled;
SUBSIDIARY means a corporation or other business entity if shares
constituting a majority of its outstanding capital stock (or other form
of ownership) or constituting a majority of the voting power in any
election of directors (or shares constituting both majorities) are (or
upon the exercise of any outstanding warrants, options or other rights
would be) owned
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directly or indirectly at the time in question by the corporation in
question or another "subsidiary" of that corporation or any combination
of the foregoing;
SUPPLEMENTAL SCHEDULE means the schedule incorporated into this
Agreement as Exhibit A;
TOTAL LIABILITIES means the aggregate (without duplication) of all
liabilities of the corporation or corporations in question and
includes, without limitation, (a) any indebtedness which is secured by
any mortgage, security interest or other lien on any of their property
even if the full faith and credit of none of them is pledged to the
payment thereof, (b) any indebtedness for borrowed money or funded
indebtedness of any kind if any such corporation or corporations is a
guarantor thereof and (c) any subordinated indebtedness; PROVIDED, that
there shall be excluded any liability under a reimbursement agreement
relating to a letter of credit issued to finance the importation or
exportation of goods;
TRANSPORTATION BUSINESS means a business primarily engaged in by
Borrower or a subsidiary of Borrower involving the design and
manufacture of electrical power and distribution components, modules
and systems, integrated electronic and electromechanical switch
products, electronic instrument clusters, driver message centers, power
conversion products, multiplexed modules and electrical systems and
electronic switch modules and electromechanical actuator products or
products which relate or connect thereto.
the foregoing definitions shall be applicable to the respective plurals
of the foregoing defined terms.
Address: STONERIDGE, INC.
9400 East Market Street
Warren, Ohio 44484
Telecopy: By: /s/ Kevin Bagby
-------------- ------------------------------
Address: NATIONAL CITY BANK, AGENT
1900 East Ninth Street
Attn: Metro/Ohio Division
Cleveland, Ohio 44114-3484 By: /s/ Michael McCuen
Telecopy: 216/575-9396 -----------------------------
Address: NATIONAL CITY BANK
1900 East Ninth Street
Attn: Metro/Ohio Division
Cleveland, Ohio 44114-3484 By: /s/ Michael McCuen
Telecopy: 216/575-9396 -----------------------------
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Address: PNC BANK, NATIONAL ASSOCIATION
1375 East Ninth Street
Suit 1250
Cleveland, Ohio 44114 By: /s/ Joseph Moran
Telecopy: 216 348-8595 --------------------------
Address: STAR BANK, NATIONAL ASSOCIATION
1350 Euclid Avenue
Cleveland, Ohio 44115
Attn: John D. Barrett By: /s/ John Barrett
Telecopy: 216 623-9208 --------------------------
-35-
<PAGE> 42
SUPPLEMENTAL SCHEDULE
There is no item which Borrower must disclose in this supplemental schedule in
order to be in full compliance with subsections 3D.01, 3D.02, 3D.03 and 3D.04,
nor is there any addition or exception to the representations and warranties in
section 4B.
EXHIBIT A
<PAGE> 43
REVOLVING NOTE
--------------
$65,000,000 Cleveland, Ohio September 15, 1997
FOR VALUE RECEIVED, the undersigned, Stoneridge, Inc., an Ohio corporation,
promises to pay to the order of National City Bank, at the main office of
National City Bank the principal sum of
SIXTY-FIVE MILLION DOLLARS
(or, if less, the aggregate unpaid principal balance from time to time shown on
the reverse side of this note or any allonge thereto), together with interest
computed thereon in accordance with the credit agreement referred to below,
which principal and interest is payable in accordance with the provisions in the
credit agreement.
This note is issued pursuant to a certain Credit Agreement (the "credit
agreement") made as of September 15, 1997 by and among Borrower, three banks and
National City Bank (as agent of the banks for the purposes of the credit
agreement pursuant to which Borrower may obtain revolving loans (one by each
bank) aggregating One Hundred Twenty-Five Million and No/100ths Dollars
($125,000,000.00). The credit agreement contains definitions applicable to this
note, provisions governing the making of loans, the acceleration of the maturity
thereof, rights of prepayment and other provisions applicable to this note. Each
endorsement, if any, on the reverse side of this note (or any allonge thereto)
shall be prima facie evidence of the data so endorsed.
Address: STONERIDGE, INC.
9400 East Market Street
Warren, Ohio 44484
Telecopy: ______________ By: ________________________
Title: _____________________
EXHIBIT B
<PAGE> 44
REVOLVING NOTE
--------------
$45,000,000 Cleveland, Ohio September 15, 1997
FOR VALUE RECEIVED, the undersigned, Stoneridge, Inc., an Ohio corporation,
("Borrower") promises to pay to the order of PNC Bank, National Association, at
the main office of National City Bank in Cleveland, Ohio, the principal sum of
FORTY-FIVE MILLION DOLLARS
(or, if less, the aggregate unpaid principal balance from time to time shown on
the reverse side of this note or any allonge thereto), together with interest
computed thereon in accordance with the credit agreement referred to below,
which principal and interest is payable in accordance with the provisions in the
credit agreement.
This note is issued pursuant to a certain Credit Agreement (the "credit
agreement") made as of September 15, 1997 by and among Borrower, three banks and
National City Bank (as agent of the banks for the purposes of the credit
agreement pursuant to which Borrower may obtain revolving loans (one by each
bank) aggregating One Hundred Twenty-Five Million and No/100ths Dollars
($125,000,000.00).
The credit agreement contains definitions applicable to this note, provisions
governing the making of loans, the acceleration of the maturity thereof, rights
of prepayment and other provisions applicable to this note. Each endorsement, if
any, on the reverse side of this note (or any allonge thereto) shall be prima
facie evidence of the data so endorsed.
Address: STONERIDGE, INC.
9400 East Market Street
Warren, Ohio 44484
Telecopy: ______________ By: ________________________
Title: _____________________
EXHIBIT B
<PAGE> 45
REVOLVING NOTE
--------------
$15,000,000 Cleveland, Ohio September 15, 1997
FOR VALUE RECEIVED, the undersigned, Stoneridge, Inc., an Ohio corporation,
("Borrower") promises to pay to the order of Star Bank, National Association, at
the main office of National City Bank in Cleveland, Ohio, the principal sum of
FIFTEEN MILLION DOLLARS
(or, if less, the aggregate unpaid principal balance from time to time shown on
the reverse side of this note or any allonge thereto), together with interest
computed thereon in accordance with the credit agreement referred to below,
which principal and interest is payable in accordance with the provisions in the
credit agreement.
This note is issued pursuant to a certain Credit Agreement (the "credit
agreement") made as of September 15, 1997 by and among Borrower, three banks and
National City Bank (as agent of the banks for the purposes of the credit
agreement pursuant to which Borrower may obtain revolving loans (one by each
bank) aggregating One Hundred Twenty-Five Million and No/100ths Dollars
($125,000,000.00).
The credit agreement contains definitions applicable to this note, provisions
governing the making of loans, the acceleration of the maturity thereof, rights
of prepayment and other provisions applicable to this note. Each endorsement, if
any, on the reverse side of this note (or any allonge thereto) shall be prima
facie evidence of the data so endorsed.
Address: STONERIDGE, INC.
9400 East Market Street
Warren, Ohio 44484
Telecopy: ______________ By: ________________________
Title: _____________________
EXHIBIT B
<PAGE> 46
EXTENSION AGREEMENT
This extension agreement made as of September 15, 1997 by and between
____________________________ (BORROWER), National City Bank, PNC Bank National
Association and Star Bank, National Association (the BANKS) and National City
Bank as agent for the Banks:
Whereas, the parties have executed and delivered a certain credit agreement
dated September 15, 1997 which provides for, among other things, a revolving
commitment aggregating $ and available to Borrower, upon certain terms and
conditions until , 19 (the EXPIRATION DATE now in effect) subject to any earlier
reduction or termination pursuant to the credit agreement.
In consideration of the premises above and agreements below and for other
valuable consideration, the parties agree that subsection 2A.02 of the credit
agreement (captioned "TERM") is hereby amended by deleting the date ___________,
19__and by substituting therefor the date "__, 19__", which latter date shall be
the expiration date hereafter in effect.
In all other respects the credit agreement shall remain in full effect.
Address: Stoneridge, Inc.
9400 East Market Street
Warren, Ohio 44484 By: ___________________
Telecopy: ___________
Title: __________________
Address: National City Bank, Agent
1900 East Ninth Street
Attn: Metro/Ohio Division By: ___________________
Cleveland, Ohio 44114-3484
Telecopy: ____________ Title: __________________
Address: National City Bank
1900 East Ninth Street
Attn: Metro/Ohio Division By: ___________________
Cleveland, Ohio 44114-3484
Telecopy: ____________ Title: __________________
Address: PNC Bank, National Association
One PNC Plaza
Fifth & Wood Street By: ___________________
Attn: Regional Corporate Banking
Pittsburgh, Pennsylvania 15265 Title: __________________
Telecopy: 412/762-7353
Address: Star Bank, National Association
1350 Euclid Avenue
Cleveland, Ohio 44115 By: ___________________
Attn: John Barrett
Cleveland, Ohio Title: __________________
Telecopy: 216 623-9289
EXHIBIT C
<PAGE> 47
REVOLVING NOTE
--------------
$65,000,000 Cleveland, Ohio September 15, 1997
FOR VALUE RECEIVED, the undersigned, Stoneridge, Inc., an Ohio corporation,
promises to pay to the order of National City Bank, at the main office of
National City Bank the principal sum of
SIXTY-FIVE MILLION DOLLARS
(or, if less, the aggregate unpaid principal balance from time to time shown on
the reverse side of this note or any allonge thereto), together with interest
computed thereon in accordance with the credit agreement referred to below,
which principal and interest is payable in accordance with the provisions in the
credit agreement.
This note is issued pursuant to a certain Credit Agreement (the "credit
agreement") made as of July 12, 1996 by and among Borrower, three banks and
National City Bank (as agent of the banks for the purposes of the credit
agreement pursuant to which Borrower may obtain revolving loans (one by each
bank) aggregating One Hundred Twenty-Five Million and No/100ths Dollars
($125,000,000.00). The credit agreement contains definitions applicable to this
note, provisions governing the making of loans, the acceleration of the maturity
thereof, rights of prepayment and other provisions applicable to this note. Each
endorsement, if any, on the reverse side of this note (or any allonge thereto)
shall be prima facie evidence of the data so endorsed.
Address: STONERIDGE, INC.
9400 East Market Street
Warren, Ohio 44484
Telecopy: ______________ By: ________________________
Title: _____________________
<PAGE> 48
REVOLVING NOTE
--------------
$45,000,000 Cleveland, Ohio September 15, 1997
FOR VALUE RECEIVED, the undersigned, Stoneridge, Inc., an Ohio corporation,
("Borrower") promises to pay to the order of PNC Bank, National Association, at
the main office of National City Bank in Cleveland, Ohio, the principal sum of
FORTY-FIVE MILLION DOLLARS
(or, if less, the aggregate unpaid principal balance from time to time shown on
the reverse side of this note or any allonge thereto), together with interest
computed thereon in accordance with the credit agreement referred to below,
which principal and interest is payable in accordance with the provisions in the
credit agreement.
This note is issued pursuant to a certain Credit Agreement (the "credit
agreement") made as of July 12, 1996 by and among Borrower, three banks and
National City Bank (as agent of the banks for the purposes of the credit
agreement pursuant to which Borrower may obtain revolving loans (one by each
bank) aggregating One Hundred Twenty-Five Million and No/100ths Dollars
($125,000,000.00).
The credit agreement contains definitions applicable to this note, provisions
governing the making of loans, the acceleration of the maturity thereof, rights
of prepayment and other provisions applicable to this note. Each endorsement, if
any, on the reverse side of this note (or any allonge thereto) shall be prima
facie evidence of the data so endorsed.
Address: STONERIDGE, INC.
9400 East Market Street
Warren, Ohio 44484
Telecopy: ______________ By: ________________________
Title: _____________________
<PAGE> 49
REVOLVING NOTE
--------------
$15,000,000 Cleveland, Ohio September 15, 1997
FOR VALUE RECEIVED, the undersigned, Stoneridge, Inc., an Ohio corporation,
("Borrower") promises to pay to the order of Star Bank, National Association, at
the main office of National City Bank in Cleveland, Ohio, the principal sum of
FIFTEEN MILLION DOLLARS
(or, if less, the aggregate unpaid principal balance from time to time shown on
the reverse side of this note or any allonge thereto), together with interest
computed thereon in accordance with the credit agreement referred to below,
which principal and interest is payable in accordance with the provisions in the
credit agreement.
This note is issued pursuant to a certain Credit Agreement (the "credit
agreement") made as of July 12, 1996 by and among Borrower, three banks and
National City Bank (as agent of the banks for the purposes of the credit
agreement pursuant to which Borrower may obtain revolving loans (one by each
bank) aggregating One Hundred Twenty-Five Million and No/100ths Dollars
($125,000,000.00).
The credit agreement contains definitions applicable to this note, provisions
governing the making of loans, the acceleration of the maturity thereof, rights
of prepayment and other provisions applicable to this note. Each endorsement, if
any, on the reverse side of this note (or any allonge thereto) shall be prima
facie evidence of the data so endorsed.
Address: STONERIDGE, INC.
9400 East Market Street
Warren, Ohio 44484
Telecopy: ______________ By: ________________________
Title: _____________________
<PAGE> 50
EXHIBIT A: Supplemental Schedule (4B.)
EXHIBIT B: Revolving Note (2B.01; 4A.01)
EXHIBIT C: Extension Agreement (2B.05)
EXHIBIT D List Of Mortgage Properties (4A.06)
<PAGE> 1
EXHIBIT 10.9
PREFERRED PARTNER AGREEMENT
---------------------------
This Agreement entered into this 9th day of June 1994
by and between
DAV, a French company
and
JOSEPH POLLAK, a division of STONERIDGE, INC. a corporation organized under the
laws of the State of Ohio ("JP")
WITNESSETH
----------
WHEREAS the parties are each seeking automotive and transport business form
multinational organizations, which require presence in both Europe and North
America including USA, Canada and Mexico,
and
WHEREAS the parties have determined that it is in their mutual best interest to
treat the other as a "Preferred Partner",
and
WHEREAS each party only has significant presence on one continent and needs the
expertise of the other to obtain business, which requires delivery and support
of products in Europe and North America, as applicable,
and
WHEREAS DAV's territory for this Agreement is Europe (both Western and Eastern)
and JP's territory for this Agreement is North America (Canada, USA, Mexico),
<PAGE> 2
2
NOW THEREFORE, the parties agree as follows:
Section 1 - Purpose of this Agreement
- -------------------------------------
Each party appoints the other as a "Preferred Partner" in the territory
designated in the whereas paragraphs above for electrical switches.
Accordingly each party agrees that during the term of this Agreement whenever
it requires a business relationship in the other's territory, it shall proceed
as follows:
If a distributor, subcontract manufacturer, licensee, joint venture partner,
technology support and/or customer support is needed, it shall first approach
the other party to seek a mutually acceptable agreement with respect to such
business, it shall offer terms equal to or better than it would offer to any
other potential partner in the other's territory and the offeree shall respond
expeditiously.
Section 2 - Framework for Preferred Partner Agreement
- -----------------------------------------------------
Since the parties wish to cooperate, including possibly licensing between one
and the other, in the design, development, manufacture and marketing of
electrical switches and related products for the automotive and transport
industries, particularly where capabilities may be required in both Europe and
North America, including the USA, Canada and Mexico, it is hereby agreed:
1. Each party will advise the other in writing of such business
opportunities that it wishes to develop in cooperation with the other,
providing outlined technical and financial parameters of the
opportunity.
2. Within a target period of 7 days and within a maximum of 30 days, or
otherwise mutually agreed, the other will refuse the opportunity or
confirm in writing his interest in developing the project jointly with
the offering party. On the declaration of such interest the opportunity
will be designated a "Potential Joint Project".
<PAGE> 3
3
3. Once an opportunity has been designated a "Potential Joint Project",
the two parties, within the terms of this Agreement, will negotiate on
an arm's length basis detailed terms including all elements set out in
the schedule set out in Appendix A and any other elements relevant to
the Potential Joint Project. During the period of the negotiation
process or for a period of 6 months from the project being designated a
Potential Joint Project, whichever is the shorter, each party will work
exclusively with the other on the Potential Joint Project and will
neither pursue the project independently nor with any third party. Each
party shall use its best efforts to bring the negotiation process to a
successful conclusion.
4. Once all detailed terms on a Potential Joint Project have been mutually
agreed between the parties, the project shall be designated a "Joint
Project" subject to the detailed terms agreed.
5. Each party will respect and treat as confidential all confidential
matters it learns of the business of the other party and the other
party's clients.
6. Each party warrants to safeguard the good name and reputation of the
other, including the respecting of appropriate minimum quality
standards.
7. Senior representatives of the parties will meet at least twice per
year, alternately in the USA and in Europe to discuss and coordinate
joint activities on Joint Projects and Potential Joint Projects.
8. This Agreement can be terminated without any indemnity between the
parties subject to the following conditions:
a. By either party for convenience, subject to a 90-day written notice
to the other party.
b. At one party's option, if the ownership of the other party should
change, subject to a 30-day written notice to the other party.
c. If either party is declared bankrupt or enters a reconstruction
with its creditors, by immediate written notice from the other
party.
<PAGE> 4
4
9. At termination, other than as paragraph 12(c) above, (i) any Joint
Project shall continue until completed subject to the terms of the
Joint Project and (ii) the parties shall have no further obligation to
continue the negotiation process with respect to any Potential Joint
Project existing at that time.
At termination resulting from paragraph 12(c), the financially sound
party shall have the right to continue with the development and/or
exploitation of any Joint Project at his own cost and without further
liability to the financially troubled partner, or its creditors.
However, the obligation as to the confidentiality shall survive the
termination of this Agreement for five (5) years thereafter.
10. This Agreement shall be subject to the laws of Switzerland (Canton of
Geneva).
JOSEPH POLLAK DAV
By: /s/ Gerald V. Pisani By: /s/ Marc Vuarchex
--------------------------- -------------------------
Printed Name: Gerald V. Pisani Printed Name: Marc Vuarchex
Title: President Title: Directeur General
<PAGE> 5
Appendix A
Joint Project
Schedule of Specific Agreement Terms
For each Joint Project, the parties will agree on specific terms including, but
not limited to, the following:
1. Joint Project Reference No.
2. Description of part, sub-assembly, assembly or product
3. Customer(s) - and exclusivity
4. Design responsibility of each party
5. Development responsibility of each party - including prototyping, etc.
6. Manufacturing responsibility of each party - including quality and
testing
7. Marketing responsibility of each party
8. Investment responsibility of each party
9. License or royalty fee payable by each party
10. Ownership of drawings and design rights
11. Ownership of tools
12. Ownership of patents; payment of fees
13. Ownership of trademark; payment of fees
14. Improvements/cost cutting responsibilities and share of benefits
15. Product liability responsibility
16. Transfer price and currency; payment terms
17. Executives responsible for Joint Project
18. Territorial limitations
19. Time limitations
20. Termination
<PAGE> 1
Exhibit 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the use of our report
(and to all references to our Firm) included in or made a part of this
registration statement (Registration Statement File No. 333-33285).
ARTHUR ANDERSEN LLP
Cleveland, Ohio
September 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTIANS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STONERIDGE,
INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1997 AND
FOR THE SIX MONTHS THEN ENDED 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> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 7
<SECURITIES> 0
<RECEIVABLES> 52,040
<ALLOWANCES> (287)
<INVENTORY> 31,135
<CURRENT-ASSETS> 88,436
<PP&E> 96,779
<DEPRECIATION> (41,058)
<TOTAL-ASSETS> 183,829
<CURRENT-LIABILITIES> 49,977
<BONDS> 34,109
<COMMON> 0
0
0
<OTHER-SE> 99,743
<TOTAL-LIABILITY-AND-EQUITY> 183,829
<SALES> 218,787
<TOTAL-REVENUES> 218,787
<CGS> 165,610
<TOTAL-COSTS> 165,610
<OTHER-EXPENSES> 23,457
<LOSS-PROVISION> 22
<INTEREST-EXPENSE> 1,863
<INCOME-PRETAX> 27,835
<INCOME-TAX> 325
<INCOME-CONTINUING> 27,510
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 27,510
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM STONERIDGE,
INC. AND SUBSIDIARIES CONSOLIDATED FINANCIAL STATEMENTS AS OF JUNE 30, 1996 AND
FOR THE SIX MONTHS THEN ENDED 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> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 43,209
<ALLOWANCES> (265)
<INVENTORY> 29,847
<CURRENT-ASSETS> 81,235
<PP&E> 91,860
<DEPRECIATION> (31,772)
<TOTAL-ASSETS> 181,583
<CURRENT-LIABILITIES> 39,973
<BONDS> 63,052
<COMMON> 0
0
0
<OTHER-SE> 78,558
<TOTAL-LIABILITY-AND-EQUITY> 181,583
<SALES> 178,965
<TOTAL-REVENUES> 178,965
<CGS> 141,339
<TOTAL-COSTS> 141,339
<OTHER-EXPENSES> 24,309
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,861
<INCOME-PRETAX> 11,456
<INCOME-TAX> 263
<INCOME-CONTINUING> 11,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 11,193
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
